Post-Effective Amendment No. 7
As filed with the Securities and Exchange Commission on April 29, 1997
Registration Nos. 33-35696
811-5880
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
POST-EFFECTIVE AMENDMENT NO. 7
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT No. 11
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THE GUARDIAN SEPARATE ACCOUNT D
(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)
Depositor's Telephone Number: (212) 598-8259
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RICHARD T. POTTER, JR., ESQ.
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
(Name and address of agent for service)
Copy to:
STEPHEN E. ROTH, ESQ.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
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It is proposed that this filing will become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on May 1, 1997 pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(1) of Rule 485
|_| on (date) pursuant to paragraph (a)(1) of Rule 485
|_| 75 days after filing pursuant to paragraph (a)(2) of Rule 485
|_| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
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The Registrant has registered an indefinite number of its securities 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 fiscal
year was filed on February 26, 1997.
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<PAGE>
THE GUARDIAN SEPARATE ACCOUNT D
Registration Statement on Form N-4
Location in Registration
Form N-4 Item No. Statement
Part A
Item 1. Cover Page............................ Cover
Item 2. Definitions........................... Glossary of Special Terms
Used in This Prospectus
Item 3. Synopsis.............................. Summary of the Contracts;
Expense Table
Item 4. Condensed Financial Information....... Condensed Financial
Information
Item 5. General Description of Registrant,
Depositor and Portfolio Companies .... Descriptions of GIAC and the
Separate Account;
Descriptions of the Variable
Investment Options;
Description of the
Fixed-Rate Option; Voting
Rights
Item 6. Deductions............................ Charges and Deductions;
Distribution of the
Contracts
Item 7. General Description of Variable
Annuity Contracts..................... Descriptions of the Contracts
Item 8. Annuity Period........................ Annuity Period
Item 9. Death Benefit......................... Pre-Retirement Death
Benefit; Accumulation
Period; Annuity Period
Item 10. Purchases and Contract Value.......... Descriptions of the Contracts
Item 11. Redemptions........................... Surrenders and Partial
Withdrawals; Right to Cancel
the Contract
Item 12. Taxes................................. Federal Tax Matters
Item 13. Legal Proceedings..................... Legal Proceedings
Item 14. Table of Contents of the Statement
of Additional Information............. Additional Information
Part B
Item 15. Cover Page............................ Cover Page
Item 16. Table of Contents..................... Table of Contents
Item 17. General Information and History....... Not Applicable
Item 18. Services.............................. Services to Separate Account
Item 19. Purchase of Securities Being Offered.. Valuation of Assets of the
Separate Account;
Transferability Restrictions
Item 20. Underwriters.......................... Services to Separate Account
Item 21. Calculation of Performance Data....... Performance Data
Item 22. Annuity Payments...................... Annuity Payments
Item 23. Financial Statements.................. 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.
<PAGE>
PROSPECTUS
May 1, 1997
GROUP UNALLOCATED DEFERRED VARIABLE ANNUITY CONTRACT
Offered by
The Guardian Insurance & Annuity Company, Inc.
The Group Unallocated Deferred Variable Annuity Contract ("Contract")
described in this Prospectus is issued by The Guardian Insurance & Annuity
Company, Inc. ("GIAC"), and is designed to provide annuity benefits under group
pension and profit sharing plans entitled to favorable federal income tax
treatment under the Internal Revenue Code of 1986 ("Code"), as amended
("qualified retirement plans"), and certain other retirement plans which are not
entitled to such federal income tax benefits ("non-qualified retirement plans")
(collectively referred to as the "Plans"). Generally, for federal income tax
purposes, earnings credited to Contracts issued in connection with non-qualified
retirement plans will be taxed on an annual basis.
The Contract described in this Prospectus is a Flexible Premium Payment
Contract. A minimum initial premium payment of $5,000 is required and the
minimum for subsequent premium payments is $500. The premium payment less any
state or local premium taxes constitute the Net Premium Payment. Net Premium
Payments for the Contract may be allocated in up to six of the allocation
options underlying the Contract. Contract values will accumulate on either a
variable or fixed basis, depending on the options selected. These options
currently consist of the following: (1) shares of The Guardian Stock Fund, The
Guardian Bond Fund, The Guardian Cash Fund, Baillie Gifford International Fund,
Baillie Gifford Emerging Markets Fund, Value Line Strategic Asset Management
Trust, Value Line Centurion Fund and Gabelli Capital Asset Fund (collectively
referred to as the "Funds"); and (2) allocations to the Fixed-Rate Option. Net
Premium Payments and Contract values allocated to any of the Funds will vary in
accordance with the investment performance of such Funds. Net Premium Payments
and Contract values allocated to the Fixed-Rate Option will accumulate on a
fixed basis. The Contractowner bears the investment risk of growth or loss under
the Contract, except to the extent that amounts are allocated to the Fixed-Rate
Option.
This Prospectus sets forth the information that a prospective
Contractowner should know before investing. A Statement of Additional
Information concerning the Contracts and The Guardian Separate Account D (The
"Separate Account") is available for free by writing to GIAC at its Customer
Service Office, P.O. Box 26210, Lehigh Valley, Pennsylvania 18002 or by calling
1-800-221-3253. The Statement of Additional Information, which is also dated May
1, 1997, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The table of contents for the Statement of
Additional Information appears at the end of this Prospectus.
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.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS FOR
EACH OF THE FOLLOWING VARIABLE INVESTMENT OPTIONS: THE GUARDIAN STOCK FUND, THE
GUARDIAN BOND FUND, THE GUARDIAN CASH FUND, BAILLIE GIFFORD INTERNATIONAL FUND,
BAILLIE GIFFORD EMERGING MARKETS FUND, VALUE LINE STRATEGIC ASSET MANAGEMENT
TRUST, VALUE LINE CENTURION FUND, AND GABELLI CAPITAL ASSET FUND.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS OF PROSPECTUS
Page
----
Glossary of Special Terms Used in this Prospectus............... 3
Summary of the Contract......................................... 4
Expense Table................................................... 6
Condensed Financial Information................................. 8
Descriptions of GIAC and the Separate Account................... 9
Descriptions of the Variable Investment Options................. 10
Description of the Fixed-Rate Option............................ 12
Description of the Contract..................................... 13
General Information....................................... 13
Purchasing a Contract..................................... 13
Charges and Deductions.................................... 14
Accumulation Period....................................... 15
Annuity Period............................................ 16
Transfers of Contract Values.............................. 18
Surrenders and Partial Withdrawals........................ 19
Other Important Contract Information...................... 20
Performance Results............................................. 21
Federal Tax Matters............................................. 22
Voting Rights................................................... 28
Distribution of the Contract.................................... 28
Right to Cancel the Contract.................................... 28
Legal Proceedings............................................... 29
Additional Information.......................................... 29
The Contract may not be available in all states.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUSES
FOR THE VARIABLE INVESTMENT OPTIONS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
2
<PAGE>
GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS
Accumulation Period: The period between the issue date of the Contract and the
Annuity Commencement Date of the last annuitizing Participant.
Accumulation Unit: A unit of measure used to determine the value of a
Contractowner's interest under the Contract. The Contract has two types of
Accumulation Units: Variable Accumulation Units and Fixed Accumulation Units.
Accumulation Value: The value of the Contractowner's interest under the Contract
during the Accumulation Period. As each Participant reaches his or her Annuity
Commencement Date, the Accumulation Value is reduced by the value of the
Accumulation Units used by the Contractowner to purchase an Annuity for such
Participant.
Annuitant: The person upon whose life annuity payments are based (normally the
recipient of annuity payments). The Annuitant may also be referred to as the
"Plan Participant" or, simply, the "Participant."
Annuity: A series of periodic payments made during the lifetime of the
Annuitant, with or without payments certain for a fixed period, or for the joint
lifetimes of the Annuitant and another person and thereafter during the lifetime
of the survivor.
Annuity Commencement Date: The date on which Annuity Payments to a Participant
begin pursuant to the terms of the Plan.
Annuity Payments: Periodic payments, either variable or fixed in nature, made by
GIAC to Annuitants at regular intervals following each Annuitant's Annuity
Commencement Date.
Annuity Period: The period during which an Annuitant receives Annuity Payments.
Annuity Unit: A unit of measure used to determine the amount of any variable
Annuity Payments.
Beneficiary: The person to whom benefits may be paid upon the Annuitant's death.
In the event a Beneficiary is not designated, the estate of the Annuitant is the
Beneficiary.
Certificate: A document issued to each Participant upon his or her Annuity
Commencement Date which sets forth the terms of the Annuity Payments and any
other benefits to which the Participant is entitled under the Contract.
Contract Anniversary Date: The annual anniversary measured from the issue date
of the Contract.
Contractowner: The entity designated as the owner in the Contract.
Fixed-Rate Option: A deposit option to which the Contractowner may allocate Net
Premium Payments and Accumulation Values for investment in the general account
of GIAC. GIAC guarantees that the amount deposited will not decline in value and
that interest will be added at a guaranteed rate declared periodically in
advance.
Funds: The eight diversified open-end management investment companies or series
thereof underlying the Contract. Contractowners may allocate Net Premium
Payments and Accumulation Values to the Funds through the corresponding
Investment Divisions of the Separate Account. The Funds are: The Guardian Stock
Fund, The Guardian Bond Fund, The Guardian Cash Fund, Baillie Gifford
International Fund, Baillie Gifford Emerging Markets Fund, Value Line Strategic
Asset Management Trust, Value Line Centurion Fund and Gabelli Capital Asset
Fund.
Investment Division: A division of the Separate Account, the assets of which
consist solely of shares of the corresponding Fund.
Net Premium Payment: A purchase payment or premium paid by the Contractowner to
GIAC in accordance with the Contract, less any applicable premium taxes. The Net
Premium Payment is credited to the Investment Divisions of the Separate Account
and/or the Fixed-Rate Option.
Participant: An eligible employee pursuant to the terms of the Plan under which
the Contract is issued. A Participant may also be referred to as a "Plan
Participant" or "Annuitant."
Plan: The group pension, profit sharing or other group employer sponsored
retirement plan under which the Contract is issued. The Plan may or may not
qualify for Federal tax benefits under the Internal Revenue Code. Any reference
to a Plan includes any Trust established by a Contractowner as a group employer
sponsored retirement plan.
Surrender Value: The amount payable to the Contractowner upon termination of the
Contract.
Valuation Period: The period of time from one determination of Accumulation Unit
and Annuity Unit values to the next subsequent determination of these values.
Variable Annuity: An annuity providing for payments that vary in amount to
reflect the investment experience of the Variable Investment Options.
Variable Investment Options: The Funds constitute the Variable Investment
Options (as distinguished from the Fixed-Rate Option) available under the
Contract for allocations of Net Premium Payments, Accumulation Values and
Annuity Unit values.
3
<PAGE>
SUMMARY OF THE CONTRACT
The Contract described in this Prospectus is designed to provide annuity
benefits for the lives of the Participants (Annuitants) pursuant to the Annuity
Payout Option selected and the Plan under which the Contract has been issued.
The Contract provides several underlying allocation options among which the
Contractowner may select to pursue its investment objectives. If an Annuity
Payout Option is selected that provides for monthly payments during the lifetime
of the Annuitant, GIAC promises to make Annuity Payments continuously for the
life of each Annuitant under the Contract even if such Annuitant outlives the
life expectancy used in computing his or her Annuity. While GIAC is obligated to
make Annuity Payments regardless of the longevity of the Annuitants under the
Plan, the amount of variable Annuity Payments is not guaranteed. With respect to
amounts attributable to the Variable Investment Options, no assurance can be
given that the value of the Contract, or the aggregate value of the Accumulation
Units used to purchase Annuities on behalf of Plan Participants under the
Contract, will equal or exceed the payments allocated to such Variable
Investment Options.
GIAC provides for variable and fixed accumulations and benefits under the
Contract by crediting the Net Premium Payments to as many as six of the Variable
Investment Options or five Variable Investment Options and the Fixed-Rate
Option, as selected by the Contractowner. (See "Descriptions of the Variable
Investment Options," page 10, and "Description of the Fixed-Rate Option," page
12.) To the extent the Contractowner has allocated values to one or more of the
Variable Investment Options, the Contract value and the amount accumulated to
purchase Annuities on behalf of Plan Participants will depend upon the
investment performance of the Variable Investment Options. Amounts allocated to
the Fixed-Rate Option will accrue interest at a rate not less than the
guaranteed minimum interest rate specified in the Contract. (See "Accumulation
Period," page 15, and "Annuity Period," page 16.) The investment risk under the
Contract is borne by the Contractowner during the Accumulation Period except to
the extent that Accumulation Values are allocated to the Fixed-Rate Option where
the investment risk is borne by GIAC. The investment risk of gain or loss under
the Contract is borne by the Annuitant during the Annuity Period if values are
then allocated to the Variable Investment Options.
Contract values may be transferred among the Investment Divisions of the
Separate Account by the Contractowner with respect to the Accumulation Value
under the Contract and by each Annuitant with respect to amounts held under a
Certificate, subject to certain terms and conditions and in accordance with the
Plan. Certain restrictions apply to transfers to or from the Fixed-Rate Option.
(See "Transfers of Contract Values," page 18.)
If permitted by the Plan, a Participant may elect to have Annuity Payments
made under any one of the variable and/or fixed Annuity Payout Options specified
in the Contract. If the Plan does not permit the Participant to select an
Annuity Payout Option, Annuity Payments will be made pursuant to the option
known as "Life Annuity with 10-year Guaranteed Period." (See "Annuity Payout
Options," page 16.)
The Contract contains the following additional features which are
described in more detail in this Prospectus:
(1) No sales charges are deducted from Contract payments. However,
if part or all of the Accumulation Value is withdrawn during certain
periods of time following the payment of premiums, GIAC will deduct from
such Accumulation Value a contingent deferred sales charge of 6.0%. A
penalty tax may be imposed on all or a portion of such withdrawals. (See
"Charges and Deductions," page 14, "Surrenders and Partial Withdrawals,"
page 19, and "Federal Tax Matters," page 22.)
(2) Charges for the assumption by GIAC of the mortality and expense
risks under the Contract, the administrative expenses incurred by GIAC and
state premium taxes, if any, are deducted from the Accumulation Value.
(See "Charges and Deductions," page 14.) In addition, the Funds impose
certain charges against their respective assets. (See the applicable Fund
prospectus for information about these charges.)
4
<PAGE>
(3) In certain states, the Contractowner may cancel a Contract no
later than ten (10) days after receiving it by returning the Contract
along with written notice of cancellation to GIAC. Longer periods may
apply in some states. (See "Right to Cancel the Contract," page 28.)
Certain federal income tax advantages are currently available for a
Contract issued in connection with a retirement Plan which qualifies under
Section 401 of the Code. The Contract is also available in connection with
deferred compensation plans of state and municipal governments and of tax-exempt
employers under Section 457 of the Code. The Contract is offered in connection
with other deferred compensation arrangements under which the Contract may not
qualify as an annuity for Federal income tax purposes. (See "Federal Tax
Matters," page 22.)
5
<PAGE>
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EXPENSE TABLE
- --------------------------------------------------------------------------------
CONTRACTOWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases:.......................... None
Exchange Fee:............................................... None
Contingent Deferred Sales Charge:
This charge will be the lesser of:*
(a) 6% of the total payments made during the 84 months
immediately preceding the date of withdrawal, or
(b) 6% of the amount being withdrawn.
Annual Contract Administration Fee.......................... $35.00
Separate Account Level Annual Expenses
(as a percentage of daily net asset value):
Mortality and Expense Risk Charge........................ 1.15%
Account Fees and Expenses................................ 0%
Total Separate Account Annual Expenses............... 1.15%
Investment Division Level Annual Expenses**
(as a percentage of average net assets)
Total Fund
Management Other Operating
Fees Expenses Expenses
---------- -------- -----------
The Guardian Cash Fund....................... .50% .04% .54%
The Guardian Bond Fund....................... .50% .04% .54%
The Guardian Stock Fund...................... .50% .03% .53%
Baillie Gifford International Fund........... .80% .18% .98%
Baillie Gifford Emerging Markets Fund........ 1.00% .53% 1.53%
Value Line Centurion Fund.................... .50% .10% .60%
Value Line Strategic Asset Management Trust.. .50% .08% .58%
Gabelli Capital Asset Fund................... 1.00% .31% 1.31%
- --------------------------------------------------------------------------------
* After the first Contract year, 10% of the Accumulation Value as of the
first withdrawal in a Contract year or 10% of the total premium paid under
the Contract in the last 84 months immediately preceding the date of
withdrawal, whichever is greater, can be withdrawn annually without
charge. The maximum amount of this charge during the 84 months immediately
preceding the date of withdrawal will not exceed 6% of the total of
payments made during such period.
** These percentages reflect the actual fees and expenses incurred by each
Fund during the year ended December 31, 1996. The percentages for Value
Line Centurion Fund and Value Line Strategic Asset Management Trust
reflect (as part of "Other Expenses" and "Total Fund Operating Expenses")
the effects of expense reimbursement arrangements pursuant to which each
of these Funds reimburses GIAC for certain administrative and shareholder
servicing expenses incurred by GIAC on their behalf.
- --------------------------------------------------------------------------------
6
<PAGE>
The following table is designed to assist the Contractowner in
understanding the various costs and expenses of the Separate Account and its
underlying Funds. (See "Charges and Deductions," and see the accompanying Fund
prospectuses for a more complete description of the various costs and expenses.)
Comparison of Contract Expenses Among Underlying Funds
<TABLE>
<CAPTION>
Hypotheticals
- ----------------------------------------------------------------------------------------------------------
If the Contractowner surrenders the
Contract at the end of If the Contractowner does not
the applicable time period: surrender the contract:
The following expenses would The following expenses would
be imposed on a $1,000 be imposed on a $1,000
investment, assuming a 5% investment, assuming a 5%
annual return on assets: annual return on assets:
----------------------------------------------------------------------------
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE GUARDIAN CASH FUND $78 $116 $156 $207 $18 $56 $96 $207
- ----------------------------------------------------------------------------------------------------------
THE GUARDIAN BOND FUND $78 $116 $156 $207 $18 $56 $96 $207
- ----------------------------------------------------------------------------------------------------------
THE GUARDIAN STOCK FUND $78 $115 $155 $206 $18 $55 $95 $206
- ----------------------------------------------------------------------------------------------------------
BAILLIE GIFFORD
INTERNATIONAL FUND $83 $130 $179 $255 $23 $70 $119 $255
- ----------------------------------------------------------------------------------------------------------
BAILLIE GIFFORD EMERGING
MARKETS FUND $88 $147 $208 $312 $28 $87 $148 $312
- ----------------------------------------------------------------------------------------------------------
VALUE LINE CENTURION FUND $79 $117 $154 $214 $19 $57 $99 $214
- ----------------------------------------------------------------------------------------------------------
VALUE LINE STRATEGIC ASSET
MANAGEMENT TRUST $78 $117 $158 $212 $18 $57 $98 $212
- ----------------------------------------------------------------------------------------------------------
GABELLI CAPITAL ASSET FUND $86 $140 $196 $290 $26 $80 $136 $290
- ----------------------------------------------------------------------------------------------------------
</TABLE>
This expense comparison assumes that the expenses reported in the expense
table on the foregoing page will be the expenses incurred during the periods
shown above. This comparison is not a representation of past or future expenses.
Actual expenses may be higher or lower than those shown. The effect of the
annual contract fee was calculated by: (1) dividing the total amount of such
fees for the year ended December 31, 1996 by the total average net assets for
such year; (2) adding this percentage to annual expenses; and (3) calculating
the dollar amounts. Premium taxes ranging from approximately 0.50% to 3.5% are
currently imposed by certain states, counties and municipalities on premium
payments made under the Contracts. When applicable, such taxes reduce the amount
of each premium payment available for allocation under the Contracts. See
"Charges and Deductions -- Premium Taxes."
7
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the
financial statements of the Separate Account, which were audited by Price
Waterhouse LLP, independent accountants, for the years ended December 31, 1992
through 1996, and by other independent auditors for the prior periods. The data
should be read in conjunction with the financial statements, related notes and
other financial information from the Separate Account's 1996 Annual Report to
Contractowners which are incorporated by reference into the Statement of
Additional Information. A copy of the 1996 Annual Report to Contractowners and
the Statement of Additional Information may be obtained by calling or writing
GIAC's Customer Service Office. The address and phone number appear on the cover
of this Prospectus.
Selected data for accumulation units of the Separate Account outstanding
at the end of each period:
TAX QUALIFIED AND NON-TAX QUALIFIED
<TABLE>
<CAPTION>
Period from
January 16, 1990*
Variable Accumulation Unit Year Ended December 31, to December 31,
Value at Beginning of Period: 1996 1995 1994 1993 1992 1991 1990
- ----------------------------------- ---------- ---------- ---------- ---------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Guardian Cash Fund....................... $12.31906 $11.808794 $11.506661 $11.340994 $11.115363 $10.648908 $10.00
The Guardian Stock Fund...................... 21.77479 16.358812 16.762756 14.136306 11.910247 8.862117 10.00
The Guardian Bond Fund....................... 15.69493 13.502913 14.148558 13.029142 12.238317 10.655367 10.00
Gabelli Capital Asset Fund................... 10.75070 10.00++ N/A N/A N/A N/A N/A
Baillie Gifford International Fund........... 14.03563 12.765807 12.802570 9.662405 10.739267 10.00** N/A
Baillie Gifford Emerging Markets Fund........ 8.62881 8.782325 10.00+ N/A N/A N/A N/A
Value Line Centurion Fund.................... 24.22416 17.494618 18.098849 16.765815 16.012030 10.643745 10.00
Value Line Strategic Asset Management Trust . 21.70030 17.078883 18.163921 16.427405 14.444559 10.194445 10.00
Variable Accumulation Unit
Value at End of Period:
- ---------------------------
The Guardian Cash Fund....................... $12.785111 $12.319068 $11.808794 $11.506661 $11.340994 $11.115363 $10.648908
The Guardian Stock Fund...................... 27.313449 21.774794 16.358812 16.762756 14.136306 11.910247 8.862117
The Guardian Bond Fund....................... 15.960396 15.694939 13.502913 14.148558 13.029142 12.238317 10.655367
Gabelli Capital Asset Fund................... 11.797549 10.750707 N/A N/A N/A N/A N/A
Baillie Gifford International Fund........... 16.012486 14.035634 12.765807 12.802570 9.662405 10.739267 N/A
Baillie Gifford Emerging Markets Fund........ 10.626424 8.628815 8.782325 N/A N/A N/A N/A
Value Line Centurion Fund.................... 28.096610 24.224164 17.494618 18.098849 16.765815 16.012030 10.643745
Value Line Strategic Asset Management Trust . 24.854247 21.700306 17.078883 18.163921 16.427405 14.444559 10.194445
TAX QUALIFIED
Period from
January 16, 1990*
Number of Variable Accumulation Year Ended December 31, to December 31,
Units Outstanding at End of Period: 1996 1995 1994 1993 1992 1991 1990
- ----------------------------------- ---------- ---------- ---------- ---------- --------- --------- ---------------
The Guardian Cash Fund....................... 7,321,876 6,926,901 6,899,486 4,605,152 4,598,975 3,653,165 1,700,209
The Guardian Stock Fund...................... 27,746,820 23,534,061 18,824,239 12,501,820 6,559,579 3,290,347 1,187,543
The Guardian Bond Fund....................... 6,810,309 7,014,567 6,312,515 6,016,214 4,175,926 2,017,037 577,640
Gabelli Capital Asset Fund................... 1,933,134 991,190 N/A N/A N/A N/A N/A
Baillie Gifford International Fund........... 8,047,579 7,289,479 7,632,246 3,944,746 1,571,181 732,319 N/A
Baillie Gifford Emerging Markets Fund........ 1,522,784 749,143 248,098 N/A N/A N/A N/A
Value Line Centurion Fund.................... 5,667,373 4,771,855 4,045,695 3,406,565 2,515,056 1,302,089 222,225
Value Line Strategic Asset Management Trust . 18,177,711 16,584,130 15,618,595 12,594,766 7,568,013 3,081,311 800,545
NON-TAX QUALIFIED
Period from
January 16, 1990*
Number of Variable Accumulation Year Ended December 31, to December 31,
Units Outstanding at End of Period: 1996 1995 1994 1993 1992 1991 1990
- ----------------------------------- ---------- ---------- ---------- ---------- --------- --------- ---------------
The Guardian Cash Fund....................... 7,380,883 7,241,159 8,107,403 5,394,541 3,895,295 3,061,803 1,672,889
The Guardian Stock Fund...................... 22,529,110 19,937,985 16,594,903 12,589,044 6,112,466 3,294,032 1,399,202
The Guardian Bond Fund....................... 5,852,776 6,096,789 5,358,555 5,776,313 4,257,072 2,194,420 711,186
Gabelli Capital Asset Fund................... 1,814,916 1,157,178 N/A N/A N/A N/A N/A
Baillie Gifford International Fund........... 7,047,241 6,575,473 7,442,570 4,620,707 1,499,668 582,292 N/A
Baillie Gifford Emerging Markets Fund........ 1,848,596 691,090 358,340 N/A N/A N/A N/A
Value Line Centurion Fund.................... 5,376,867 4,892,644 4,263,710 4,010,263 3,147,495 1,948,573 284,113
Value Line Strategic Asset Management Trust . 13,034,700 12,026,703 11,773,225 10,438,598 5,611,106 2,135,711 413,038
</TABLE>
- ----------
* Commencment of operations.
** Commencing February 8, 1991.
+ Commencing October 17, 1994.
++ Commencing May 1, 1995.
8
<PAGE>
DESCRIPTIONS OF GIAC AND THE SEPARATE ACCOUNT
GIAC
The Guardian Insurance & Annuity Company, Inc. ("GIAC") is a stock life
insurance company incorporated in the State of Delaware in 1970. GIAC is the
issuer of the Contract offered under this Prospectus. GIAC is licensed to
conduct an insurance business in all 50 states and the District of Columbia and
had total assets (statutory basis) of over $6.0 billion as of December 31, 1996.
GIAC's Executive Office is located at 201 Park Avenue South, New York, New York
10003. The address of GIAC's Customer Service Office for these Contracts is P.O.
Box 26210, Lehigh Valley, Pennsylvania 18002.
GIAC is wholly owned by The Guardian Life Insurance Company of America
("Guardian Life"), a mutual life insurance company organized in the State of New
York in 1860. As of December 31, 1996, Guardian Life had total assets (statutory
basis) in excess of $12.1 billion. Guardian Life is not the issuer of the
Contracts offered under this Prospectus and does not guarantee the benefits
provided therein.
GIAC's statutory basis financial statements appear in the Statement of
Additional Information.
The Separate Account
GIAC established the Separate Account in August 1989. The Separate Account
is registered as a unit investment trust under the Investment Company Act of
1940, as amended (the "1940 Act"), and meets the definition of "separate
account" under the Federal securities laws. The Separate Account receives and
invests payments from Contractowners and owners of certain individual deferred
variable annuity contracts issued by GIAC. In addition, the Separate Account may
receive and invest payments for other variable annuity contracts offered by
GIAC.
There are eight Investment Divisions (which correspond to the eight Funds)
available for allocations of Net Premium Payments and Accumulation Values under
the Contracts. Each Investment Division invests in a specific underlying Fund
and thus reflects that Fund's investment performance. Each such Investment
Division is available for allocations under tax qualified or non-tax qualified
Plans. GIAC is the record owner of all of the Fund shares held by each
Investment Division but passes through the voting rights in such shares. (See
"Voting Rights.")
Each Investment Division is administered and accounted for as part of the
general business of GIAC. Under Delaware law, the income and capital gains or
capital losses of each Investment Division are credited to or charged against
the assets held in that Division in accordance with the terms of each Contract,
without regard to other income, capital gains or capital losses of the other
Investment Divisions. The obligations arising under the Contracts are
obligations of GIAC. Delaware insurance law provides that the assets of the
Separate Account are not chargeable with liabilities arising out of any other
business GIAC may conduct. (See "Federal Tax Matters.")
Assets of the Separate Account attributable to a Contract are invested in
shares of up to six of the Funds as selected by the Contractowner or Annuitant.
Selecting the Fixed-Rate Option reduces the number of Funds which may be
selected for allocation of Net Premium Payments and Accumulation Values. No
sales charges are assessed against premium payments invested in the Funds under
the Contract. Transfers among the Investment Divisions may currently be effected
without fee, penalty or other charge by notifying GIAC's Customer Service Office
in writing or by telephone. (See "Transfers of Contract Values.")
All dividends and capital gains distributions received from a Fund are
reinvested in such Fund's shares at net asset value and retained as assets of
the Separate Account through allocation to the applicable Investment Division.
Fund shares will be redeemed by GIAC at their net asset value to the extent
necessary to purchase Annuities or to make other payments under the Contract.
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GIAC retains the right, subject to applicable law, to (1) deregister the
Separate Account under the 1940 Act; (2) operate the Separate Account as a
management investment company or any other form permitted by law; (3) combine
any two or more separate accounts or Investment Divisions; (4) transfer the
assets of the Separate Account to another separate account; and (5) modify the
Contracts as necessary to preserve the favorable tax treatment accorded to them
under the Code, including modifications designed to prevent the Contractowner
from being considered the owner of the assets of the Separate Account or the
Fixed-Rate Option and, consequently, to be subject to taxation.
DESCRIPTIONS OF THE VARIABLE INVESTMENT OPTIONS
The Funds
Each Fund has a different investment objective which it tries to achieve
by following specified investment policies. The objective and policies of each
Fund will affect its potential returns and its risks. There is no guarantee that
a Fund will achieve its investment objective. The following chart states the
investment objective and lists typical portfolio investments of each Fund
currently available through the Separate Account.
Each of the Funds is an open-end diversified management investment company
or series thereof, and is registered with the SEC under the 1940 Act. Such
registration does not involve any supervision by the SEC of the investment
management or policies of the Funds. The Funds do not impose a sales charge or
"load" for buying and selling their shares, so GIAC buys and sells shares at net
asset value in response to Contractowner-requested and other Contract
transactions.
All of the Funds are also available under other variable annuity contracts
funded by the Separate Account. Certain of the Funds are available under other
separate accounts supporting certain GIAC variable annuity contracts and
variable life insurance policies. Although GIAC does not anticipate any inherent
difficulties in offering these Funds to more than one separate account, 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. While each Fund's Board of Directors intends to monitor
events in order to identify and, if deemed necessary, act upon any material
irreconcilable conflicts that may possibly arise, GIAC may also take action to
protect Contractowners. See the accompanying prospectuses for the Funds for more
information regarding such possible conflicts of interest.
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE(S) TYPICAL INVESTMENTS
===================================================================================================================================
<S> <C> <C>
The Guardian Stock Fund Long-term growth of capital U.S. common stocks and convertible securities
- -----------------------------------------------------------------------------------------------------------------------------------
The Guardian Bond Fund Maximum income without undue risk of principal; Investment grade debt obligations and U.S. gov-
capital appreciation as a secondary objective ernment securities, including mortgage-backed
securities
- -----------------------------------------------------------------------------------------------------------------------------------
The Guardian Cash Fund High level of current income consistent with Money market instruments
liquidity and preservation of capital
- -----------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford International Long-term capital appreciation Common stocks and convertible securities
Fund issued by foreign companies
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Baillie Gifford Emerging Long-term capital appreciation Common stocks and convertible securities issued
Markets Fund by companies that are organized in, generally
operate in or which principally sell their
securities in emerging market countries
- -----------------------------------------------------------------------------------------------------------------------------------
Value Line Centurion Fund Long-term growth of capital U.S. common stocks ranked 1 or 2 by the Value
Line Ranking System*
- -----------------------------------------------------------------------------------------------------------------------------------
Value Line Strategic Asset High total investment return (current income and U.S. common stocks ranked 1 or 2 by the Value
Management Trust capital appreciation) consistent with reasonable Line Ranking System,* bonds and money market
risk instruments
- -----------------------------------------------------------------------------------------------------------------------------------
Gabelli Capital Asset Fund Growth of capital; current income as a secondary U.S. common stocks and convertible securities
objective
===================================================================================================================================
</TABLE>
Certain of the Funds may not be available in all States.
- ----------
* The Value Line Ranking System has been used substantially in its present form
since 1965. The System ranks stocks on a scale of 1 (highest) to 5 (lowest)
for year-ahead relative performance (timeliness).
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GIAC retains the right, subject to any applicable law, to make additions
to, deletions from, or substitutions for, the Fund shares held by any Investment
Division. GIAC reserves the right to eliminate the shares of any of the Funds
and to substitute shares of another Fund, or of another registered open-end
management investment company or series thereof or other appropriate investment
vehicle, if: (1) the shares of the Fund are no longer available for investment;
(2) in GIAC's view it has become inappropriate to continue investing in the
Fund's shares. To the extent required by the 1940 Act, substitutions of shares
attributable to a Contractowner's interest in an Investment Division will not be
made until the Contractowner has been notified of the change.
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.
The Funds' Investment Advisers
The Guardian Stock Fund, The Guardian Bond Fund and The Guardian Cash Fund
are advised by Guardian Investor Services ("GISC"), 201 Park Avenue South, New
York, New York 10003. GISC is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act"). GISC is wholly owned by
GIAC. Each of these Funds pays GISC an investment advisory fee at an annual rate
of 0.50% of the Fund's average daily net assets for the services and facilities
GISC provides to the Fund. GISC also serves as the manager of Gabelli Capital
Asset Fund, as the investment adviser of six of the eight series comprising The
Park Avenue Portfolio, a family of mutual funds and The Guardian Small Cap Stock
Fund series of GIAC Funds, Inc.
The Baillie Gifford International Fund (the "International Fund") and
Baillie Gifford Emerging Markets Fund (the "Emerging Markets Fund") are advised
by Guardian Baillie Gifford Limited ("GBG"), 1 Rutland Court, Edinburgh, EH3
8EY, Scotland. GBG is registered as an investment adviser under the Advisers Act
and is a member of Great Britain's Investment Management Regulatory Organization
Limited ("IMRO"). GBG was incorporated in Scotland in November 1990 and is
wholly owned by GIAC (51%) and Baillie Gifford Overseas Limited ("BG Overseas")
(49%). GBG also serves as the investment adviser of two of the eight series
comprising The Park Avenue Portfolio. GBG receives an investment advisory fee at
an annual rate of 0.80% of the average daily net assets of the International
Fund and 1.00% of the average daily net assets of the Emerging Markets Fund for
the services and facilities GBG provides to the Funds.
GBG has appointed BG Overseas to serve as sub-investment adviser to the
International Fund and the Emerging Markets Fund. Like GBG, BG Overseas is
located at 1 Rutland Court, Edinburgh, EH3 8EY, Scotland. BG Overseas is also
registered under the Advisers Act and is a member of IMRO. BG Overseas is wholly
owned by Baillie Gifford & Co., which is currently one of the largest investment
management partnerships in the United Kingdom. BG Overseas advises several
institutional clients situated outside of the United Kingdom, and is also the
sub-investment adviser to the series of The Park Avenue Portfolio that are
advised by GBG. One half of the investment advisory fee paid by the Funds to GBG
is payable by GBG to BG Overseas for its services as these Funds' sub-investment
adviser. No separate or additional fee is paid by these Funds to BG Overseas.
Value Line Strategic Asset Management Trust and Value Line Centurion Fund
are advised by Value Line, Inc. ("Value Line"), 220 East 42nd Street, New York,
New York 10017. Value Line is registered as an investment adviser under the
Advisers Act. Each of the Value Line Funds pays Value Line an investment
advisory fee at an annual rate of 0.50% of the Fund's average daily net assets
for the services and facilities Value Line provides to these Funds. Each of the
Value Line Funds reimburses GIAC for certain administrative and shareholder
servicing expenses incurred by GIAC on their behalf. Value Line also serves as
the investment adviser to its own family of mutual funds and publishes The Value
Line Investment Survey and The Value Line Mutual Fund Survey.
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Gabelli Capital Asset Fund is managed by GISC, which has appointed Gabelli
Funds, Inc. ("GFI") as the investment adviser to the Fund. GFI is located at One
Corporate Center, Rye, New York 10580, and is registered as an investment
adviser under the Advisers Act. The Fund pays GISC a management fee at an annual
rate of 1.00% of its average daily net assets for services and facilities which
GISC provides to the Fund. For its services as investment adviser, GISC pays GFI
.75% of the management fee which GISC receives from the Fund. No separate or
additional fee is paid by the Fund to GFI. GFI also serves as investment adviser
to various other open-end mutual funds and closed-end mutual funds.
DESCRIPTION OF THE FIXED-RATE OPTION
That portion of each Contract relating to the Fixed-Rate Option is not
registered under the Securities Act of 1933 ("1933 Act") and the Fixed-Rate
Option is not registered as an investment company under the 1940 Act.
Accordingly, neither the Fixed-Rate Option nor any interests therein are subject
to the provisions or restrictions of the 1933 Act or the 1940 Act. However, the
following disclosure about the Fixed-Rate Option may be subject to certain
generally applicable provisions of the federal securities laws regarding the
accuracy and completeness of statements not in prospectuses. The Fixed-Rate
Option may not be available for allocation in all states in which the Contract
is available.
General Information
The Contract permits the Contractowner to allocate all or a portion of any
Net Premium Payment and to transfer all or a portion of the Accumulation Value
under the Contract to the Fixed-Rate Option. An Annuitant may not allocate
amounts held under a Certificate to the Fixed-Rate Option. GIAC guarantees that
amounts invested under the Fixed-Rate Option will accrue interest daily at an
effective annual rate of at least 3.5% (the "guaranteed minimum interest rate").
GIAC may also credit interest at a rate in excess of 3.5% (the "excess interest
rate"), but is under no obligation to do so. Any excess interest rate will be
determined at the sole discretion of GIAC and may be changed by GIAC from time
to time and without notice. The Contractowner assumes the risk that interest
credited on any portion of the Accumulation Value in the Fixed-Rate Option may
not exceed the guaranteed minimum interest rate (3.5%) for any given year.
There is no specific formula for the determination of whether to credit
excess interest or the rate thereof. However, some of the factors that GIAC may
consider are general economic trends, rates of return currently available and
anticipated on GIAC's general account investments, regulatory and tax
requirements and competitive factors. GIAC is aware of no statutory limitations
on the maximum amount of interest it may credit, and the Board of Directors of
GIAC has set no limitations.
The amounts credited to the Fixed-Rate Option become part of the general
assets of GIAC and are segregated from those allocated to any separate account
of GIAC. GIAC invests the assets of the Fixed-Rate Option in those assets chosen
by GIAC and allowed by applicable law. The allocation of any amounts to the
Fixed-Rate Option does not entitle a Contractowner to share in the investment
experience of those assets.
The interest rate initially credited to Contract payments or transfers by
the Contractowner to the Fixed-Rate Option will be the rate in effect on the
date such amounts are so allocated. Each such payment or transfer will continue
to receive the rate of interest initially credited until the next Contract
Anniversary Date.
For a description of certain restrictions which apply to transfers to and
from the Fixed-Rate Option, see "Description of the Contract -- Transfers of
Contract Values."
Renewal Rate and Bailout Provision
On the Contract Anniversary Date, all payments and transfers allocated to
the Fixed-Rate Option during the prior Contract year, together with all interest
earnings and amounts previously allocated by the Contractowner to
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the Fixed-Rate Option, will be credited with the rate of interest in effect on
that date (the "renewal rate"). Such renewal rate will be guaranteed with
respect to these amounts until the next Contract Anniversary Date. If the
renewal rate (a) is more than three (3) percentage points below the interest
rate credited for the immediately preceding Contract year, or (b) falls below
the minimum bailout rate specified in the Contract (where approved by the
applicable state insurance departments), a Contractowner may withdraw all or a
portion of the amount which has been held in the Fixed-Rate Option for one year
or more without imposition of a contingent deferred sales charge. Such
withdrawal request must be in writing and received by GIAC at its Customer
Service Office within 60 days of the Contract Anniversary Date. (See "Surrenders
and Partial Withdrawals.")
DESCRIPTION OF THE CONTRACT
This section of the Prospectus highlights the more significant provisions
of the Contract. The information included in this section generally describes,
among other things, the benefits, charges, rights and privileges under the
Contract. These descriptions are qualified by reference to a specimen of the
Contract which has been filed as an exhibit to the registration statement for
the Separate Account. The provisions of the Contract may vary slightly from
state to state due to variations in state regulatory requirements.
General Information
The Contract is designed to enable a Contractowner to purchase an Annuity
on behalf of Plan Participants who will be entitled to receive payments on a
fixed and/or variable basis, at some later date, pursuant to the terms of the
Plan. The Contract is primarily designed for use with several types of tax
qualified plans, including private retirement plans established by corporate
employers under Section 401 and public employee deferred compensation plans
under Section 457 of the Code as well as other plans which do not receive
favorable tax treatment. The provisions of the Plan should be referred to in
connection with the description of the Contract contained in this Prospectus.
The Contract offered by this Prospectus is a Flexible Premium Payment
Contract under which Annuity Payments to Plan Participants will begin at
selected future dates on a basis which is elected by the Contractowner in
accordance with the Plan. A minimum premium payment of $5,000 is required with
additional payments of at least $500 accepted. The aggregate of premium payments
made in any Contract year may not exceed $100,000 without GIAC's written
consent. Subject to these restrictions, the amount and frequency of the premium
payments made by the Contractowner may vary pursuant to the terms of the
applicable Plan.
The variable annuity payments provided by the Contract are funded through
investments in the Separate Account. Information regarding the Investment
Divisions of the Separate Account is contained in the sections entitled
"Descriptions of GIAC and the Separate Account," and "Descriptions of the
Variable Investment Options."
Purchasing a Contract
Entities wishing to purchase a Contract must complete an application and
send it with an initial premium payment to The Guardian Insurance & Annuity
Company, Inc., Customer Service Office, P.O. Box 26210, Lehigh Valley,
Pennsylvania 18002. Certified, registered or express mail deliveries must be
addressed to: The Guardian Insurance & Annuity Company, Inc., Customer Service
Office, 3900 Burgess Place, Bethlehem, Pennsylvania 18017.
If the application is acceptable to GIAC in the form received, the initial
Net Premium Payment will be credited within two (2) business days after receipt.
Acceptance is subject to GIAC's rules and GIAC reserves the right to reject any
application or initial premium payment. If the initial Net Premium Payment
cannot be credited
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within five (5) business days after receipt by GIAC because the application is
incomplete, GIAC will promptly return the premium payment and application to the
applicant.
After issuance of the Contract, net premium payments received by GIAC at
its Customer Service Office prior to the close of GIAC's business day will
normally be credited to the Contract on that day. Net premium payments received
on a non-business day or following the close of GIAC's business day will be
credited at the next accumulation unit value calculated on the first business
day following receipt.
Charges and Deductions
Charges and deductions under the Contract are made for GIAC's assumption
of mortality and expense risks, administrative expenses, any applicable state
premium taxes, and, where applicable, charges (or credits) to the non-tax
qualified allocations to the Variable Investment Options for any Federal income
taxes. The Separate Account does not incur any operating expenses or account
fees and expenses. Although no sales charges are deducted from premium payments
when made, a contingent deferred sales charge will be assessed upon certain
Contract surrenders or withdrawals. Each charge and deduction under the Contract
is described below:
Contingent Deferred Sales Charge: GIAC does not deduct a separate sales
charge in connection with premium payments. However, a contingent deferred sales
charge ("CDSC") is imposed by GIAC on certain surrenders or partial withdrawals
to cover certain expenses incurred in the sale of the Contracts, including
commissions to registered representatives and various promotional expenses.
The CDSC will be the lesser of: (1) 6% of the total payments made during
the 84 months immediately preceding the date of withdrawal annually; or (2) 6%
of the amount being withdrawn. However, after the first Contract year, 10% of
the Accumulation Value as of the first withdrawal in a Contract year or 10% of
the total premium paid under the Contract in the 84 months immediately preceding
the date of withdrawal, whichever is greater, can be withdrawn by the
Contractowner without application of the CDSC. The maximum amount of the CDSC
during the 84 months immediately preceding the date of withdrawal will not
exceed 6% of the total of payments made during such period. Such withdrawals
may, however, be subject to penalty taxes and/or mandatory federal income tax
withholding. (See "Federal Tax Matters".) The CDSC is not charged against
withdrawals of amounts that have been on deposit for more than 84 months.
To minimize the amount of the CDSC charged in any particular situation,
withdrawals from any Variable Investment Option or the Fixed-Rate Option will be
made in the same order in which amounts were allocated to that Option, subject
to the cancellation ordering rules set forth in "Surrenders and Partial
Withdrawals."
No CDSC is imposed on Accumulation Units redeemed by the Contractowner to
purchase Annuities for Plan Participants.
Administrative Expenses: Prior to the Annuity Commencement Date of the
last annuitizing Participant, GIAC deducts a contract administration fee of $35
from the Accumulation Value on the Anniversary Date of each Contract by
cancelling the number of Accumulation Units equal in value to the fee. This
administrative fee is deducted from the Variable Investment Options and the
Fixed-Rate Option on a pro-rata basis in the same proportion as the percentage
of the Contract's Accumulation Value attributable to each Variable Investment
Option and the Fixed-Rate Option. GIAC will not increase the deduction for
administrative expenses above $35 per year. GIAC will deduct the contract
administration fee upon any surrender of a Contract which occurs before the
Contract Anniversary Date. The deduction for administrative expenses is designed
to reimburse GIAC for its actual expenses incurred in administering the
Contracts and it is not expected to result in a profit.
Premium Taxes: Certain states and municipalities impose premium taxes when
premium payments are made or when annuity payments begin. These taxes ranging
from approximately 0.50% to 3.5% of premium
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payments made for the Contracts. For those Contracts subject to premium tax,
GIAC deducts premium tax either from premium payments when made or upon each
annuitization, as determined in accordance with applicable law. However, in
those jurisdictions where the premium tax is required to be deducted at the time
of premium payment, GIAC reserves the right, if permitted by applicable law and
with the consent of the Contractowner, to pay the premium tax on behalf of the
Contractowner and deduct the amount paid from the Contract Value at the first to
occur of surrender, death or the Retirement Date.
Mortality and Expense Risk Charge: The mortality risk assumed by GIAC
arises from its contractual obligation to continue to make Annuity Payments
(determined in accordance with the annuity tables and other provisions of the
Contract) to each Annuitant regardless of how long he or she lives and
regardless of how long all Annuitants as a group live. This assures each
Annuitant that neither his or her own longevity nor an improvement in general
life expectancy will adversely affect the Annuity Payments he or she will
receive under a Plan, and relieves the Annuitant from the risk that he or she
will outlive the amounts actually accumulated for retirement. The expense risk
assumed by GIAC arises from the possibility that the amounts deducted for sales
and administrative expenses may be insufficient to cover the actual cost of such
items.
GIAC makes a daily charge against the net assets of each Variable
Investment Option in an amount equal to 1.15% on an annual basis (consisting of
approximately .70% for mortality risks and approximately .45% for expense risks)
to compensate it for the assumption of mortality and expense risks. If this
charge is insufficient to cover the actual cost of these risks, the loss will
fall on GIAC. Conversely, if the charge proves more than sufficient, any excess
may be retained by GIAC for profit or used by it to meet any operational
expenses, including those relating to distribution of the Contracts.
Variable Annuity Payments reflect the investment performance of the
Variable Investment Options but are not affected by changes in actual mortality
experience or by expenses incurred by GIAC in excess of the expense deductions
provided for in each Contract.
Other Charges Applicable to the Funds: The net asset value per share of
each of the Funds reflects investment management fees and certain general
operating expenses paid by the Funds. With the exception of the International
Fund, the Emerging Markets Fund and Gabelli Capital Asset Fund, each of the
Funds pays an annual investment management fee to its investment adviser that
equals 0.50% of each such Fund's average daily net assets. The annual investment
management fee paid to the adviser of the International Fund and Emerging
Markets Fund equals 0.80% of the International Fund's average daily net assets
and 1.00% of the Emerging Markets Fund's average daily net assets. Gabelli
Capital Asset Fund pays its manager an annual management fee of 1.00% of that
Fund's average daily net assets. No separate fees are payable to the respective
sub-investment advisers of these Funds. (See "The Funds".) The management fees
and other expenses incurred by the Funds are more fully described in the
accompanying prospectuses for the Funds.
Accumulation Period
Allocation of Net Premium Payment: The initial Net Premium Payment will be
used to purchase Accumulation Units in the Investment Divisions or the
Fixed-Rate Option as selected by the Contractowner at the unit values next
computed following receipt and acceptance of the payment by GIAC. Subsequent Net
Premium Payments will be allocated among the underlying Contract options as
initially selected for allocation or pursuant to new allocation instructions
requested by the Contractowner in writing. New allocation instructions will be
implemented by GIAC following their receipt at its Customer Service Office.
However, the Contractowner may not be invested in more than six allocation
options at any given time.
Crediting Accumulation Units under the Contract: Variable Accumulation
Units represent the interests in the Variable Investment Options and Fixed
Accumulation Units represent the interests in the Fixed-Rate
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Option. The total number of Accumulation Units to be credited to a
Contractowner's account is the sum of the portion of the Net Premium Payment
allocated to each option divided by the Accumulation Unit value of each such
option as next computed following receipt and acceptance of the payment by GIAC.
The number of Accumulation Units will not change because of a subsequent change
in the value of the unit, but the dollar value of Accumulation Units will vary
based upon the investment experience of the Variable Investment Options and
interest credited to the Fixed-Rate Option.
Accumulation Value: The value of the Contractowner's account within any
particular Variable Investment Option or the Fixed-Rate Option is determined by
multiplying the number of Accumulation Units of that particular option credited
to the account by the applicable current Accumulation Unit value.
Value of an Accumulation Unit: With respect to a Variable Investment
Option, the value of a Variable Accumulation Unit is determined by multiplying
the value of such Variable Accumulation Unit as of the end of the immediately
preceding Valuation Period by the net investment factor (described below) for
the current Valuation Period. With respect to the Fixed-Rate Option, the value
of a Fixed Accumulation Unit is determined by adding the interest credited on
such Fixed Accumulation Unit since the end of the immediately preceding
Valuation Period to the value of such unit as of the end of such Valuation
Period.
Net Investment Factor: The net investment factor is a measure of the
investment experience of each Variable Investment Option. For any particular
Valuation Period, the net investment factor is determined by:
(1) Adding the net asset value of a Fund share as determined at the
end of such Valuation Period to the per share amount of any dividend and
other distribution made by the Fund during the period, and
(2) Dividing by the net asset value of the particular Fund share
calculated as of the end of the immediately preceding Valuation Period,
and
(3) Subtracting from the above result any applicable taxes and the
mortality and expense risk charge.
Annuity Period
Annuity Commencement Date: Annuity Payments made to an Annuitant will
begin on his or her Annuity Commencement Date, which is the first day of the
calendar month and year determined under the Plan. This date cannot be later
than the Annuitant's 85th birthday except when otherwise provided for by the
Plan. Following the Annuity Commencement Date, a Participant is referred to as
an Annuitant for purposes of the Contract.
Annuity Payments: Annuity Payments are available on a fixed or variable
basis or a combination of both. Such payments will be determined on the basis
of: (1) the table specified in the Contract which reflects the nearest age of
the Annuitant; (2) the Annuity Payout Option(s) selected; and (3) the investment
experience of any Variable Investment Options selected. The number and amount of
Annuity Payments will not be affected by the longevity of Annuitants generally
or any increase in the expenses of GIAC in excess of the charges specified in
the Contract. The Annuitant receives the value of a fixed number of Variable
and/or Fixed Annuity Units each month. For the Variable Investment Options, the
value of an Annuity Unit will reflect the investment experience of the amounts
allocated to the Variable Investment Options, and the amount of each Annuity
Payment will vary accordingly.
Annuity Payout Options: GIAC will issue a Certificate to the Contractowner
for delivery to each Annuitant upon his or her Annuity Commencement Date. Each
Certificate will set forth in substance the amount and terms of the Annuity
Payments and any other benefits the Annuitant may be entitled to under the
Contract. Annuity Payments will be made in accordance with the Annuity Payout
Option known as "Option V-2 -- Life Annuity with 10-Year Guaranteed Period" (see
below), or, if permitted by the Plan, the Annuitant may elect to have Annuity
Payments made under any one of the other variable and/or fixed Annuity Payout
Options specified in the Contract and described below. Annuity Payments will be
made monthly except that: (1) proceeds of less
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than $2,000 on behalf of any Annuitant will be paid in a single sum to that
Annuitant; and (2) GIAC may change the schedule of monthly installment payments
to avoid payments of less than $20 to an Annuitant. An Annuitant may not change
the Payout Option election following receipt of the first Annuity Payment.
The Annuity Payout Options currently available for both variable and fixed
Annuity Payments under the Contract are as follows (options designated with the
letter "V" are variable options, those designated with the letter "F" are fixed
options):
Option V-1 -- Life Annuity without Guaranteed Period: Under this
option, a Variable Annuity Payment will be made monthly during the
lifetime of the Annuitant ending with the payment preceding the
Annuitant's death. Option V-1 offers the maximum level of variable monthly
payments, since there is no guarantee of a minimum number of variable
payments or provision for a death benefit for Beneficiaries. It would be
possible under Option V-1 for the Annuitant to receive only one Variable
Annuity Payment if he or she died before the date of the second Variable
Annuity Payment, two such payments if he or she died before the date of
the third Variable Annuity Payment, and so on.
Option V-2 -- Life Annuity with 10-Year Guaranteed Period: Under
this option, a Variable Annuity Payment will be made monthly during the
lifetime of the Annuitant with the provision that if, at the Annuitant's
death, such payments have been made for less than 10 years (120 months),
Variable Annuity Payments will be continued during the remainder of such
period to the Beneficiary. The Beneficiary at any time may elect to redeem
in whole or in part the commuted value of the current dollar amount of the
then remaining number of Variable Annuity Payments. If the Beneficiary
dies while receiving Variable Annuity Payments, the commuted value of the
current dollar amount of the remaining number of Variable Annuity Payments
shall be paid in one sum to the estate of the Beneficiary. While the
Annuitant is living, he or she may change the Beneficiary at anytime
provided such change is in writing in a form satisfactory to GIAC.
Option V-3 -- Joint and Survivor Annuity: Under this option, a
Variable Annuity Payment will be made monthly during the joint lifetimes
of the Annuitant and a designated second person (joint annuitant) and will
continue during the lifetime of the survivor in a reduced amount which
reflects two-thirds of the number of Variable Annuity Units in effect
while both persons were living. It would be possible under Option V-3 for
the joint Annuitants to receive only one Variable Annuity Payment if both
died before the date of the second Variable Annuity Payment, two such
payments if both died before the date of the third Variable Annuity
Payment, and so on.
Option F-1 -- Life Annuity without Guaranteed Period: Under this
option, a Fixed Annuity Payment will be made monthly during the lifetime
of the Annuitant ending with the payment preceding the Annuitant's death.
Option F-1 offers the maximum level of fixed monthly payments, since there
is no guarantee of a minimum number of fixed monthly payments or provision
for a death benefit for Beneficiaries. It would be possible under Option
F-1 for the Annuitant to receive only one Fixed Annuity Payment if he or
she died before the date of the second Fixed Annuity Payment, two such
payments if he or she died before the date of the third Fixed Annuity
Payment, and so on.
Option F-2 -- Life Annuity with 10-Year Guaranteed Period: Under
this option, a Fixed Annuity Payment will be made monthly during the
lifetime of the Annuitant with the provision that if, at the Annuitant's
death, such payments have been made for less than 10 years (120 months),
Fixed Annuity Payments will be continued during the remainder of such
period to the Beneficiary. The Beneficiary at any time may elect to redeem
in whole or in part the commuted value of the current dollar amount of the
then remaining number of Fixed Annuity Payments. If the Beneficiary dies
while receiving Fixed Annuity Payments, the commuted value of the current
dollar amount of the remaining number of Fixed Annuity Payments shall be
paid in one sum to the estate of the Beneficiary. While the Annuitant is
living he or she may change the Beneficiary at any time provided such
change is in writing in a form satisfactory to GIAC.
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Option F-3 -- Joint and Survivor Annuity: Under this option, a Fixed
Annuity Payment will be made monthly during the joint lifetimes of the
Annuitant and a designated second person (joint annuitant) and will
continue during the lifetime of the survivor in a reduced amount which
reflects two-thirds of the number of Fixed Annuity Units in effect while
both persons were living. It would be possible under Option F-3 for the
joint Annuitants to receive only one Fixed Annuity Payment if both died
before the date of the second Fixed Annuity Payment, two such payments if
both died before the date of the third Fixed Annuity Payment, and so on.
Transfers of Contract Values
General Information: Subject to the conditions described below and to the
terms of any applicable retirement plan, transfers among the Contract's Variable
Investment Options are permitted during both the Accumulation and Annuity
Periods. During the Accumulation Period, the Contractowner may transfer all or a
portion of the Accumulation Units under the Contract among each of the Variable
Investment Options and the Fixed-Rate Option. During the Annuity Period, an
Annuitant receiving payments pursuant to a Variable Annuity Payout Option may
transfer all or a portion of the amounts held under the Certificate among the
Variable Investment Options. Allocations to the Fixed-Rate Option are not
permitted by an Annuitant during the Annuity Period. Contractowners may be
invested in a maximum of six Variable Investment Options or in the Fixed-Rate
Option and five Variable Investment Options under the Contract at any given
time. Annuitants receiving payments pursuant to a Variable Payout Option may be
invested in a maximum of six Variable Investment Options at any given time.
Contractowners and Annuitants who contemplate requesting a transfer should
carefully consider their own objectives and the investment objectives, risks and
restrictions pertaining to each Variable Investment Option and the Fixed-Rate
Option involved in the proposed transfer before making the request. Frequent
transfers may be inconsistent with the long-term objectives of the Contract.
GIAC will implement transfers pursuant to proper written or telephone
instructions received at its Customer Service Office. Requests received by GIAC
at its Customer Service Office prior to 3:30 p.m. (Eastern time) on a given
business day will normally be implemented as of the end of that day. GIAC
reserves the right to limit the frequency of transfers to not more than once
every 30 days. Currently, no charge is made by GIAC for effecting any transfer.
GIAC reserves the right, however, to impose such a charge in the future.
Telephone Transfers: Contractowners may effect telephone transfers of the
Accumulation Value under a Contract pursuant to certain terms and conditions.
Telephone transfers of amounts held under a Certificate are not available to
Annuitants. GIAC will not honor telephone transfer instructions unless proper
authorization has been properly provided either in the completed application for
the Contract or in GIAC's telephone transfer authorization form.
If the proper authorization is on file at GIAC's Customer Service office,
telephone transfer instructions may be given by calling 1-800-533-0099 between
9:00 a.m. and 3:30 p.m. (Eastern time) on days when GIAC is open for business.
Each telephone transfer instruction must include a precise identification of the
Contract and the Contractowner's Personal Security Code. GIAC may accept
telephone transfer instructions from any person who properly identifies the
correct Contract number and Personal Security Code. GIAC, GISC and the Funds
shall not be liable for any loss, damage, cost or expense resulting from
following telephone transfer instructions which any of them reasonably believed
to be genuine. Thus, Contractowners risk possible loss of interest, capital
appreciation and principal in the event of an unauthorized or fraudulent
telephone transfer. All or part of any telephone conversation relating to
transfer instructions may be recorded by GIAC without prior disclosure to the
caller.
Telephone transfer instructions apply only to allocations of previously
invested monies. Such instructions may not be used to change the allocation
instructions for any future premiums paid under the Contract. (See
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"Allocation of Net Premium Payment" for information about changing allocation
instructions for future premiums.)
During periods of drastic economic or market changes, it may be difficult
to contact GIAC to request a telephone transfer. At such times, transfer
requests may be made by regular or express mail and will be processed at the
next Accumulation Unit value calculated after their receipt pursuant to the
terms and restrictions described in this "Transfers of Contract Values" section.
GIAC reserves the right to modify, suspend or discontinue the telephone transfer
privilege at any time and without prior notice.
Transfers from the Fixed-Rate Option to any Variable Investment Option are
permitted only once per Contract year during the 30-day period beginning on the
Contract Anniversary Date. Amounts will be transferred from the Fixed-Rate
Option to any Variable Investment Option in the same order such amounts were
allocated to the Fixed-Rate Option. This means that amounts on deposit in the
Fixed-Rate Option for the longest period of time will be the first amounts so
transferred. The maximum amount which may currently be transferred out of the
Fixed-Rate Option each year is the greater of: (1) 33 1/3% of the amount in
the Fixed-Rate Option as of the applicable Contract Anniversary Date; or (2)
$2,500.
Each transfer involving the Contract's Variable Investment Options will be
based upon the next Accumulation Unit value calculated after proper transfer
instructions are received by GIAC at its Customer Service Office.
Transfers of Amounts Held Under a Certificate by an Annuitant: During the
Annuity Period, an Annuitant may transfer all or a portion of the amounts
allocated to a Variable Payout Option among the Variable Investment Options.
However, such transfers may be made only once per year. Any such transfer will
be effected at the next Annuity Unit Value calculated after receipt of proper
transfer instructions by GIAC at its Customer Service Office. An Annuitant may
not transfer into or out of the Fixed-Rate Option.
Surrenders and Partial Withdrawals
The Contractowner may redeem the Contract in whole (known as a
"surrender") or in part (known as a "partial withdrawal"). Surrenders and
partial withdrawals must be requested in writing in a form acceptable to GIAC. A
surrender request must be accompanied by the Contract (or an acceptable
affidavit of loss) to be deemed a proper written request. GIAC will not process
a surrender request prior to receipt of the Contract (or an acceptable affidavit
of loss) at its Customer Service Office.
A contingent deferred sales charge may be imposed upon certain surrenders
or partial withdrawals. (See "Charges and Deductions -- Contingent Deferred
Sales Charge.")
A surrender or partial withdrawal is effected by cancelling Accumulation
Units which have an aggregate value equal to the dollar amount of the requested
surrender or partial withdrawal as next calculated following receipt by GIAC at
its Customer Service Office of a proper written request for the surrender or
partial withdrawal. If applicable, any Contract charges and any contingent
deferred sales charge will be deducted from the surrender proceeds or, in the
case of a partial withdrawal, from the remaining Accumulation Value by the
cancellation of additional Accumulation Units. If the Accumulation Value
remaining after a partial withdrawal is less than $1,000, GIAC will redeem the
total Accumulation Value and pay it to the Contractowner in cancellation of the
Contract. Such an involuntary surrender may be subject to any then applicable
Contract administrative charge or contingent deferred sales charge. (See
"Charges and Deductions -- Contingent Deferred Sales Charge.")
Except as noted below, Accumulation Units will be cancelled in the
following order: First, GIAC will cancel all the Variable Accumulation Units
attributable to the Investment Divisions. Cancellation of the Variable
Accumulation Units attributable to the Investment Divisions will be on a pro
rata basis, reflecting the existing
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distribution of the Variable Accumulation Units unless the Contractowner
instructs otherwise. Second, GIAC will cancel all Fixed Accumulation Units
attributable to the Fixed-Rate Option. Thus, GIAC will have cancelled all the
Variable Accumulation Units attributable to the Investment Divisions before
cancelling Accumulation Units attributable to the Fixed-Rate Option.
Accumulation Units used by a Contractowner to purchase Annuities for Plan
Participants will be cancelled in the same order as those in connection with a
surrender or partial withdrawal.
No contingent deferred sales charge will be imposed and the above ordering
rules will not apply if amounts are withdrawn directly from the Fixed-Rate
Option in accordance with the bailout provision described in the section
entitled "Description of the Fixed-Rate Option."
Payment of a surrender or partial withdrawal will ordinarily be made
within seven (7) days after the date GIAC receives the proper written request at
its Customer Service Office. GIAC can delay the payment if the Contract is being
contested and may postpone the calculation or payment of any Contract benefit or
transfer of amounts based on investment performance of the Investment Divisions
if: (1) the New York Stock Exchange is closed for trading or trading has been
suspended; or (2) the Securities and Exchange Commission restricts trading or
determines that a state of emergency exists which may make payment or transfer
impracticable.
An Annuitant may not request a surrender or partial withdrawal following
the receipt of the first Annuity Payment.
Questions regarding GIAC's surrender or withdrawal procedures should be
directed to a customer service representative by calling toll-free
1-800-221-3253.
Other Important Contract Information
Dollar Cost Averaging: Contractowners may elect to systematically, on a
long term basis if desired, transfer specified level dollar amounts from the
Cash Fund Investment Division to other Variable Investment Options and/or the
Fixed-Rate Option at regular intervals. By transferring specific amounts on a
regularly scheduled basis, as opposed to allocating the total amount at one
particular time, the Accumulation Value may be less susceptible to the impact of
market fluctuations. There is no guarantee, however, that such an investment
method will result in profits or prevent losses.
To take advantage of this program, a Contractowner predesignates a dollar
amount to be automatically transferred from the Cash Fund Investment Division to
one or more of the other Variable Investment Options and/or the Fixed-Rate
Option, provided that Accumulation Values may only be allocated among a maximum
of four Contract options, including the Cash Fund Investment Division, at any
given time. A Contractowner may elect this program when the Contract is
purchased or anytime thereafter by properly completing the Contract application
or Dollar Cost Averaging election form and returning it to GIAC at its Customer
Service Office at least three (3) business days prior to the Monthly Anniversary
Date (the monthly anniversary measured from the issue date of the Contract or
the last day of that calendar month, if earlier) on which the first transfer
will be made. Transfers will then be made monthly for the period elected by the
Contractowner.
Dollar Cost Averaging may be selected for 12, 24 or 36 month periods. The
total Accumulation Value at the time it is elected must be at least $10,000 for
transfers over a 12 month period and $20,000 for transfers over a 24 or 36 month
period. Transfers will be made in the amounts designated by the Contractowner
and must be at least $100 per receiving Contract option. When a Contractowner
elects to participate in this program, the Accumulation Value attributable to
the Cash Fund Investment Division must be at least equal to the amount
designated to be transferred on each Monthly Anniversary Date multiplied by the
duration selected.
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Dollar Cost Averaging will terminate when any one of the following events
occurs: (1) the number of designated monthly transfers has been completed; (2)
the Accumulation Value attributable to the Cash Fund Investment Division is
insufficient to complete the next transfer; (3) the Contractowner requests
termination in a writing received by GIAC at its Customer Service Office at
least three (3) business days prior to the next Monthly Anniversary Date; or (4)
the Contract is surrendered.
A Contractowner may reinstate Dollar Cost Averaging or change existing
Dollar Cost Averaging terms by properly completing a new election form. Such
requests received by GIAC at its Customer Service Office at least three (3)
business days prior to the next Monthly Anniversary Date will be effective for
such Monthly Anniversary Date.
When utilizing Dollar Cost Averaging, a Contractowner must be invested in
the Cash Fund Investment Division and may be invested in either (i) a maximum of
five other Variable Investment Options or (ii) in the Fixed-Rate Option and a
maximum of four other Variable Investment Options. The Dollar Cost Averaging
program may not be elected by an Annuitant.
Assignment: Assignment of an interest in the Contract is generally
prohibited when the Contract is used in connection with any retirement plans
contemplated by Section 401 of the Code and any corporate retirement plan. An
assignment of the Contract may be treated as a taxable distribution to the
Contractowner. (See "Federal Tax Matters.")
Reports: GIAC will send to each Contractowner, at least semi-annually, a
report containing such financial information pertaining to the Separate Account
as may be required by applicable laws, rules and regulations. In addition, a
statement will be provided to each Contractowner at least annually which reports
the number of Contract Accumulation Units and the value of such Accumulation
Units under the Contract.
Contractowner Inquiries: A Contractowner may direct inquiries to the
individual from whom the Contract was purchased or may call GIAC at
1-800-221-3253 or write directly to: The Guardian Insurance & Annuity Company,
Inc., Customer Service Office, P.O. Box 26210, Lehigh Valley, Pennsylvania
18002.
PERFORMANCE RESULTS
From time to time, performance information for the Account's Investment
Divisions maybe provided in advertisements, sales literature or materials
furnished to existing or prospective Contractowners. All such information is
based upon historical information and is not necessarily representative of
future performance. More detailed information about the calculation of such
historical performance information appears in the Statement of Additional
Information.
Total Returns: "Average annual total return," "total return" and "change
in Accumulation Unit value" all reflect the change in the value of an investment
in an Investment Division over a specified period, assuming the reinvestment of
all income dividends and capital gains distributions. Average annual total
returns show the average annual percentage change in value over a specified
period. Total returns and changes in Accumulation Unit values, which are not
annualized, show the total percentage change in value over a specified period.
Promotional materials relating to an Investment Division's investment
performance will always at least provide the average annual total returns for
each of a short (one to four years), medium (five to nine years) and long (ten
years or more) period of time for the Division's corresponding Fund. Such
required average annual total returns will reflect the effects of all charges,
both recurring and non-recurring, incurred by the Fund, as well as all charges
deducted under the terms of the Contracts. However, promotional materials may
also show average annual total returns which assume that a Contract continues in
force after the end of the specified period. Such returns will not reflect the
effects of the Contract's contingent deferred sales charge. Total returns and
changes in Accumulation Unit values may not reflect certain specified charges
deducted under the terms of the Contracts.
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Yields: "Yield" figures may be quoted for the Investment Divisions which
invest in shares of the Cash Fund and the Bond Fund. Current yield is a measure
of the net investment income earned on a hypothetical investment over a
specified base period of seven days for the Cash Fund Investment Division and 30
days (or one month) for the Bond Fund Investment Division. Yield is expressed as
a percentage of the value of an Accumulation Unit at the beginning of the base
period. Yields are annualized, which means that they assume that an Investment
Division will generate the same level of net investment income over a one-year
period. However, yields actually fluctuate daily.
The Cash Fund Investment Division may also quote its "effective yield,"
which assumes that the net investment income earned during a base period will be
earned and reinvested for a year. The effective yield will be slightly higher
than the Cash Fund Investment Division's current yield due to the compounding
effect created by assuming reinvestment of the Division's net investment income.
Distribution Rates: On occasion, the Bond Fund Investment Division may
quote historical or annualized distribution rates. A distribution rate is simply
a measure of the level of income dividends and short-term capital gains
distributed for a specified period. A distribution rate is not a complete
measure of performance and may be higher than yield for certain periods.
Comparative and Other Information: Advertisements and sales literature for
the Separate Account's Investment Divisions may compare a Fund's performance to
that of other investment vehicles or other mutual funds having similar
objectives or programs which are offered through the separate accounts of other
insurance companies. Promotional materials may also compare a Fund's performance
to one or more indices of the types of securities which the Fund buys and sells
for its portfolio, and be illustrated by tables, graphs or charts. Promotional
materials may additionally contain references to types and characteristics of
certain securities; features of a Fund's portfolio; financial markets; or
historical, current or perceived economic trends within the United States or
overseas. Topics of general investor interest, such as personal financial
planning, may also be discussed.
In addition, advertisements and sales literature may refer to or reprint
all or portions of articles, reports, or independent rankings or ratings which
relate to the Investment Division specifically, or to other comparable mutual
funds or investment vehicles. None of the contents of such materials will be
used to indicate future performance.
Further information about each Investment Division's performance is
contained in their respective Annual Report, which may be obtained from GISC
free of charge.
Advertisements and sales literature about the Contracts and the Separate
Account may also refer to ratings given to GIAC by insurance company rating
organizations, such as Moody's Investors Service, Inc., Standard & Poor's
Ratings Group, A.M. Best & Co. and Duff & Phelps. Such ratings relate only to
GIAC's ability to meet its obligations under the Contract's Fixed-Rate Option.
FEDERAL TAX MATTERS
General Information
The operations of the Separate Account form a part of, and are taxed with
GIAC's operations under the Code. Investment income and realized net capital
gains on the assets of the Separate Account are reinvested and taken into
account in determining the Accumulation and Annuity Unit values. Thus,
investment income and realized net capital gains are automatically applied to
increase reserves under the Contract. GIAC believes that investment income and
capital gains attributable to the Separate Account are taxed under existing
Federal income tax law but are offset by deductible reserve increases.
Accordingly, GIAC does not anticipate that it will incur any Federal income tax
liability attributable to the Separate Account and, therefore,
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GIAC does not currently make provisions for any such taxes. However, if changes
in the Federal tax laws, or interpretations thereof, result in GIAC incurring a
tax liability on income or gains attributable to the Separate Account or certain
types of variable annuity contracts, then GIAC may impose a charge against the
Separate Account (with respect to some or all Contracts) to pay such taxes.
Non-Qualified Contracts
Diversification: Section 817(h) of the Code provides that variable annuity
contracts will not be treated as annuities unless the underlying investments are
"adequately diversified" in accordance with regulations prescribed by the
Secretary of the Treasury. Such regulations require, among other things, that
the Funds invest no more than 55% of the value of their respective assets in one
investment; 70% in two investments; 80% in three investments; and 90% in four
investments. GIAC intends that the Funds underlying the Contracts will be
managed by the applicable investment managers so as to comply with these
diversification requirements. If the diversification requirements are not met by
each and every Variable Investment Option, the Contract could lose its overall
tax status as an annuity, resulting in current taxation of the excess of
Contract value over the "investment in the Contract." A Contractowner's
"investment in the Contract" generally equals: (1) the aggregate amount of
premium payments or other consideration paid for the Contract minus (2) the
aggregate amount received under the Contract, to the extent such amount was not
excluded from gross income.
In certain circumstances, owners of variable equity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable contractowner's gross income. The IRS has stated that a variable
contractowner will be considered the owner of separate account assets if the
contractowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. To date, no regulations
or rulings have been issued regarding the circumstances under which a
contractowner's ability to control investments through premium allocation and
transfer privileges would cause him or her to be treated as the owner of the
assets in an insurance company's separate account. GIAC does not know what
standards will be set forth, if any, in the regulations or rulings which the
Treasury Department has stated it expects to issue to provide guidance in this
area. Accordingly, GIAC reserves the right to modify the Contract as necessary
to attempt to prevent the Contractowner from being considered the owner of the
assets of the Separate Acount or otherwise to maintain favorable tax treatment
of the Contracts.
Distribution of Benefits: Non-qualified Contracts will not be treated as
annuity contracts for purposes of Section 72 of the Code unless the Contract
provides that: (1) if any Contractowner dies on or after the Annuity
Commencement Date, but prior to the time the entire interest in the Contract has
been distributed, the remaining portion of such interest will be distributed at
least as rapidly as under the method of distribution in effect when the
Contractowner died; and (2) if any Contractowner dies prior to the Annuity
Commencement Date, the entire interest will be distributed within five years of
the Contractowner's death. These requirements will be considered satisfied if
that portion of the Contractowner's interest which is payable to or for the
benefit of a "designated beneficiary," will be distributed over the life or life
expectancy of any new owner and such distributions begin within one year of the
Contractowner's death. The Contract's "new owner" is the person designated by
the Contractowner as Beneficiary and to whom ownership of the Contract passes by
reason of death. For this purpose, the Beneficiary must be a natural person. If
the Beneficiary is the Contractowner's surviving spouse, the Contract may be
continued with the surviving spouse as the new Contractowner. Non-qualified
Contracts contain provisions intended to comply with Section 72(s) of the Code.
However, regulations interpreting these requirements of the Code have not yet
been issued. Accordingly, the provisions contained in such Contracts will be
reviewed and may be modified to assure compliance with the Code's requirements
when clarified by regulations or otherwise.
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Note: The remaining discussion concerning non-qualified Contracts assumes
that the Contracts will be treated as annuities under Section 72 of the Code,
that the underlying investments of the Contracts are "adequately diversified"
under Section 817(h) of the Code, and that the Contract is not issued in
connection with a retirement plan qualifying for favorable tax treatment under
the Code.
A Contractowner who is a natural person is generally not taxed on
increases in the value of a Contract until distribution, either as a lump sum
payment received by surrender or partial withdrawal, or as annuity payments. The
assignment or pledge of any portion of the Contract value may be treated as a
distribution. The taxed portion of a distribution (whether in the form of a lump
sum payment or an annuity) is taxed as ordinary income.
Contractowners who are not natural persons generally must include in
income any increase in the excess of the Contract's Accumulation Value over the
"investment in the Contract" during the taxable year, whether or not such
increase is distributed. There are some exceptions to this rule and a
prospective owner that is not a natural person may wish to discuss these with a
competent tax adviser.
The following discussion applies to Contracts owned by natural persons.
Generally, accounts received by surrender or partial withdrawal are first
treated as taxable income to the extent that the Contract's Accumulation Value
immediately before the surrender/withdrawal exceeds the "investment in the
contract." Any additional amount withdrawn is not taxable.
Although the tax consequences may vary depending on the form of Annuity
Payout Option selected, the recipient of an Annuity Payment generally is taxed
on the portion of such payment that exceeds the "investment in the contract."
For variable annuity payments, the taxable portion is determined by a formula
that establishes a specific dollar amount of each payment that is not taxed. The
dollar amount is determined by dividing the "investment in the contract" by the
total number of expected periodic payments. The entire distribution will be
fully taxable once the recipient has recovered the dollar amount of the
"investment in the contract."
A penalty tax on surrenders or withdrawals equal to 10% of the amount
treated as taxable income may be imposed unless such surrender or withdrawal is:
(1) made on or after age 59 1/2; (2) made as a result of death or disability;
or (3) received in substantially equal installments as a life annuity (subject
to special "recapture" rules if the series of payments is subsequently
modified).
Annuity distributions are generally subject to withholding for the
recipient's income tax liability. The withholding rates vary according to the
type of the distribution and the recipient's tax status. Recipients generally
may elect not to have tax withheld from distributions. Redemption requests that
do not indicate a preference regarding withholding will be delayed in processing
until a preference form has been properly completed and received at GIAC's
Customer Service Office. Withholding on taxable distributions is generally
required if the recipient fails to provide GIAC with his or her correct Social
Security number or if the recipient is a U.S. citizen or expatriate living
abroad.
Amounts may be distributed from a Contract because of the death of a
Contractowner or the Annuitant. Generally, such amounts are includable in the
income of the recipient as follows: (1) if distributed in a lump sum they are
taxed in the same manner as a full surrender of the Contract as described above;
or (2) if distributed under an annuity option, they are taxed in the same manner
as annuity payments as described above. For these purposes, the investment in
the contract is not affected by the Contractowner's or Annuitant's death. That
is, the investment in the contract remains the amount of any purchase payments
paid which were not excluded from gross income.
All non-qualified deferred annuity contracts that are issued by GIAC or
its affiliates to the same Contractowner during any calendar year are to be
aggregated for purposes of determining the amount includable
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in the Contractowner's gross income under Section 72(e) of the Code. Thus, the
proceeds of a partial withdrawal, surrender or assignment of one or more
non-qualified deferred annuity contracts entered into during the same calendar
year will be includable in the Contractowner's income to the extent of the
aggregate excess of the accumulation values over the investment in all such
contracts ("investment in the contract" is defined above). Potential purchasers
of more than one non-qualified annuity contract should seek advice from legal or
tax counsel as to the possible implications of these rules on the contracts they
intend to purchase.
Transferring the ownership of a Contract, or designating an Annuitant,
payee or other Beneficiary who is not also the Contractowner, the selection of
certain Annuity Commencement Dates, or the assignment or exchange of a Contract,
may result in certain income or gift tax consequences to the Contractowner that
are beyond the scope of this discussion. A Contractowner contemplating any
transfer or assignment of a Contract should contact a competent tax adviser
about the potential tax effects of such a transaction.
Possible Tax Changes: In recent years, legislation has been proposed that
would have adversely modified the federal taxation of certain annuities. For
example, one such proposal would have changed the tax treatment of non-qualified
annuities that did not have "substantial life contingencies" by taxing income as
it is credited to the annuity. Although as of the date of this Prospectus
Congress is not considering any legislation regarding the taxation of annuities,
there is always the possibility that the tax treatment of annuities could change
by legislation or other means (such as IRS regulations, revenue rulings, and
judicial decisions). Moreover, it is also possible that any legislative change
could be retroactive (that is, effective prior to the date of such change).
Qualified Contracts
Generally, increases in the value of amounts under a Contract purchased in
connection with a retirement plan qualifying for favorable tax treatment under
the Code are not taxable until benefits are received. However, the rules
governing the tax treatment of contributions and distributions under qualified
plans, as set forth in the Code and applicable rulings and regulations, are
complex and subject to change. These rules also vary according to the type of
plan and the terms and conditions of the plan itself. Therefore, this Prospectus
does not attempt to provide more than general information about the use of the
Contracts with these various types of plans. Contractowners, Annuitants, and
Beneficiaries under qualified plans should be aware that the rights of any
person to any benefits under such plans may be subject to the terms and
conditions of the plans, regardless of the terms and conditions of the Contracts
issued in connection with such plans. Some retirement plans are subject to
distribution and other requirements that are not incorporated into GIAC's
Contract administration procedures. Contractowners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the Contracts comply with applicable law.
Adverse tax consequences may result from contributions in excess of specified
limits; distributions prior to age 59 1/2 (subject to certain exceptions);
distributions that do not conform to specified commencement and minimum
distribution rules; aggregate distributions in excess of a specified annual
amount; and in other specified circumstances. Purchasers of Contracts for use
with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of the Contract.
Following are brief descriptions of the various types of plans with which
the Contracts described in this Prospectus may be used:
Section 403(b) Plans: Section 403(b) of the Code permits public
schools and employers specified in Section 501(c)(3) of the Code to
purchase annuity contracts and mutual fund shares through a Section
403(b)(7) custodial account on behalf of their employees. Subject to
certain limitations, the purchase payments for such contracts or mutual
fund shares are excluded from the employees' gross income for tax
purposes. However, these payments may be subject to FICA (Social Security)
taxes. These annuity contracts are commonly referred to as "tax-sheltered
annuities."
25
<PAGE>
Distributions from tax-sheltered annuities are restricted unless the
employee is age 59 1/2, separates from service, dies, becomes disabled,
or incurs a hardship. The employee may not surrender amounts attributable
to either: (1) salary reduction contributions made in years beginning
after December 31, 1988; (2) income attributable to salary reduction
contributions made in years beginning after December 31, 1988; or (3)
income in years beginning after December 31, 1988 on salary reduction
accumulations held as of December 31, 1988. Hardship withdrawals are
further limited to salary reduction contributions only, and may not
include income earned thereon. Hardship withdrawals are generally subject
to tax penalties and contingent deferred sales charges.
If a Contract is purchased as a tax-sheltered annuity under Section
403(b) of the Code, it is subject to the restrictions on redemption
described above. These restrictions on redemption are imposed by the
Separate Account and GIAC in full compliance with and in reliance upon the
terms and conditions of a no-action letter on this subject issued by the
staff of the Securities and Exchange Commission.
Prospective purchasers of the Contracts as tax-sheltered annuities
should seek advice from legal or tax counsel about their eligibility to
purchase a tax-sheltered annuity, limitations on permissible amounts of
purchase payments, distribution restrictions, and tax consequences of
distribution.
Individual Retirement Accounts: Sections 219 and 408 of the Code
permit individuals to contribute to an Individual Retirement program known
as an "Individual Retirement Account" or "IRA." IRAs are subject to
limitations on the amount which may be contributed and deducted, and the
time when distributions may commence, In addition, distributions from
certain other types of qualified plans may be placed into an IRA on a
tax-deferred basis. Individuals who purchase Contracts for use with an IRA
will receive, in addition to this Prospectus and a copy of the Contract, a
brochure containing information about eligibility, contribution limits,
tax consequences and other particulars concerning IRAs. The Internal
Revenue Service has not reviewed the Contract for qualification as an IRA,
and has not addressed in a ruling of general applicability whether a death
benefit provision such as the provision in the Contract comports with IRA
qualification requirements.
Corporate Pension and Profit-Sharing Plans: Sections 401(a) of the
Code permits corporate employers to establish various types of retirement
plans for employees, and self-employed individuals to establish qualified
plans for themselves and their employees. These retirement plans may
permit the purchase of the Contracts to accumulate retirement savings
under the plans. Adverse tax or other legal consequences to the plan, to
the participant or to both may result if this Contract is assigned or
transferred to any individual as a means to provide benefit payments,
unless the plan complies with all legal requirements applicable to such
benefits prior to transfer of the Contract.
Deferred Compensation Plans: Section 457 of the Code, while not
actually providing for a qualified plan as that term is normally used,
provides for certain deferred compensation plans with respect to service
for state governments, local governments, rural electric cooperatives,
political subdivisions, agencies, instrumentalities, certain affiliates of
such entities which enjoy special treatment, and, effective January 1,
1987, other tax-exempt employers. Amounts contributed by employers through
such plans are taxed to employees when paid or made available for
withdrawal. The Contract can be used with such plans. Under such plans, a
participant may specify the form of investment in which his or her
contributions will be made. In general, all such investments are owned by,
and are subject to the claims of the general creditors of, the sponsoring
employer and, depending on the terms of the particular plan, the employer
may be entitled to draw on deferred amounts for purposes unrelated to its
Section 457 plan obligations. In certain governmental plans, however,
deferred amounts must be held in trust for the exclusive benefit of plan
participants.
The following rules generally apply to distributions from Contracts
purchased in connection with the plans (other than Section 457 plans) discussed
above:
26
<PAGE>
That portion of any contribution under a Contract made by or on behalf of
an individual (typically an employee) which is not excluded from his or her
gross income (generally, the individual's own nondeductible contribution)
constitutes his or her "investment in the contract." If a distribution is made
in the form of annuity payments, the investment in the contract (adjusted for
certain refund provisions) divided by the Annuitant's life expectancy (or other
period for which annuity payments are expected to be made) constitutes a
tax-free return of capital each year. The entire distribution will be fully
taxable once the Annuitant (or other appropriate payee) is deemed to have
recovered the dollar amount of the investment in the Contract. The dollar amount
of annuity payments received in any year in excess of such return is taxable as
ordinary income. For Contracts issued in connection with qualified plans, the
investment in the Contract can be zero.
If a surrender of or partial withdrawal from a Contract held in connection
with a Section 401(a) plan is effected and a distribution is made in a single
payment, the proceeds may qualify for special "lump-sum distribution" treatment.
Otherwise, the amount by which the payment exceeds the "investment in the
contract" (adjusted for any prior partial withdrawal) will generally be taxed as
ordinary income in the year of receipt, unless it is validly "rolled over" into
an IRA or another qualified plan.
A penalty tax of 10% will be imposed on the taxable portion of surrenders
or partial withdrawals from all qualified Contracts, except under circumstances
similar to those relating to non-qualified Contracts (see above). Other adverse
tax consequences may result if distributions do not conform to specified
commencement and minimum distribution rules, or if aggregate distributions
exceed a specified annual amount, and in other circumstances.
The taxation of benefits payable upon an employee's death to his or her
Beneficiary generally follows these same principles, subject to a variety of
special rules. In particular, tax on death benefits to be paid as a lump sum may
be deferred if, within 60 days after the lump sum becomes payable, the
Beneficiary instead elects to receive annuity payments.
Distributions from qualified plans are generally subject to the same
withholding rules as distributions from non-qualified Contracts. Certain
distributions from qualified plans are subject to mandatory federal income tax
withholding.
Restrictions under Qualified Contracts: Other restrictions with respect to
the election, commencement, or distribution of benefits may apply under
Qualified Contracts or under the terms of the plans in respect of which
Qualified Contracts are issued.
Other Considerations
Presently, GIAC makes no charge to the Separate Account for any Federal,
state or local taxes (other than state premium taxes) that it incurs which may
be attributable to the Separate Account or to the Contracts. 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 determines
to be attributable to the Separate Account or to the Contracts. 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.
Because of the complexity of the Federal tax law, and the fact that tax
results will vary according to the factual status of the entity or individual
involved, tax advice may be needed by anyone contemplating the purchase of a
Contract or the exercise of the various elections under the Contract. It should
be understood that this Prospectus' discussion of the Federal income tax
consequences of owning a Contract is not an exhaustive discussion of all tax
questions that might arise under the Contracts and that special rules exist in
the Code with respect to situations not discussed here. No representation is
made regarding the
27
<PAGE>
likelihood of the continuation of current Federal tax laws or interpretations
thereof by the Internal Revenue Service. No attempt has been made to consider
any applicable state, local or other tax laws, except with respect to the
imposition of any premium taxes.
GIAC does not make any guarantee regarding the tax status of any Contract
and the above tax discussion is not intended as tax advice.
VOTING RIGHTS
To the extent required by applicable law, GIAC will vote the Fund shares
that it owns through the Separate Account according to instructions received
from Contractowners having an interest in such Fund's shares. GIAC will vote
shares for which no instructions are received in the same proportion as it votes
shares for which it has received instructions. GIAC will vote any Fund shares
that it is entitled to vote directly due to amounts it has contributed or
accumulated in the applicable Investment Division for proposals presented by
Fund Management. If the applicable law or interpretations thereof change so as
to permit GIAC to vote a Fund's shares in GIAC's own right or to restrict
Contractowner voting, GIAC reserves the right to do so.
GIAC will seek voting instructions from Contractowners for the number of
shares attributable to their Contracts. Contractowners are entitled to provide
instructions if, on the applicable record date, they have allocated values to
the Investment Division which corresponds to the Fund for which a shareholder
meeting is called.
The Contractowner will have the voting interest for the Accumulation Value
under the Contract. The number of shares held in an Investment Division for
which a Contractowner will be entitled to provide voting instructions is
determined by dividing the Contractowner's Accumulation Value in that Investment
Division by the net asset value per share of the applicable Fund.
Each Annuitant will be entitled to the voting interest attributable to the
amounts held under his or her Certificate. The number of shares held in an
Investment Division which are attributable to each Annuitant is determined by
dividing the amounts held under a Certificate on behalf of such Annuitant by the
net asset value per share of the applicable Fund. The voting interest
attributable to each Annuitant will generally decrease with the gradual
reduction of the amounts held under the Certificate during the Annuity Payout
Period.
There are no voting rights with respect to the Fixed-Rate Option.
DISTRIBUTION OF THE CONTRACT
The Contract is sold by insurance agents who are licensed by GIAC and who
are either registered representatives of GISC or of broker-dealer firms which
have entered into sales agreements with GISC and GIAC. GISC and such other
broker-dealers are members of the National Association of Securities Dealers,
Inc. In connection with the sale of the Contract, GIAC will generally pay sales
commissions to these individuals or entities which may vary but, in the
aggregate, are not anticipated to exceed an amount equal to 5.25% of each
Contract premium payment. Where permitted by state law, GIACreserves the right
to pay additional sales or service compensation while a contract is in force
based on the value of the contract. Additional amounts may also be paid in
connection with special promotional incentives. The principal underwriter of the
Contract is GISC, located at 201 Park Avenue South, New York, New York 10003.
RIGHT TO CANCEL THE CONTRACT
Where required by state law or regulation, the Contract will contain a
provision which permits cancellation by returning the Contract to GIAC, or to
the registered representative through whom it was purchased, within 10 days of
delivery of the Contract. Longer periods may apply in some states. The
Contractowner will then receive from GIAC, as and when required by state law or
regulation, either: (1) the total amount paid for the Contract; or (2) an amount
equal to the sum of (i) the difference between the premiums paid (including any
Contract fees or
28
<PAGE>
other charges) and the amounts allocated to any Investment Divisions and the
Fixed-Rate Option under the Contract, and (ii) the Surrender Value of the
Contract.
LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Separate
Account or GIAC is a party.
ADDITIONAL INFORMATION
The Statement of Additional Information contains more details about the
Contract described by this Prospectus and is available in accordance with the
directions on page one of this Prospectus. The contents of that document are
detailed below.
Statement of Additional Information
Table of Contents
Page
----
Services to the Separate Account............................. B-2
Annuity Payments............................................. B-2
Performance Data............................................. B-3
Valuation of Assets of the Separate Account.................. B-5
Transferability Restrictions................................. B-5
Experts...................................................... B-6
Financial Statements......................................... B-6
29
<PAGE>
THE GUARDIAN INVESTOR(R)
GROUP UNALLOCATED DEFERRED VARIABLE ANNUITY CONTRACT
Issued Through
THE GUARDIAN SEPARATE ACCOUNT D
OF
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
--------------
Statement of Additional Information dated May 1, 1997
--------------
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the current Prospectus for The Group Unallocated
Deferred Variable Annuity Contract (marketed under the name "The Guardian
Investor" Group Program) dated May 1, 1997.
A free Prospectus is available upon request by writing or calling:
The Guardian Insurance & Annuity Company, Inc.
Customer Service Office
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002
1-800-221-3253
Read the Prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the Prospectus.
TABLE OF CONTENTS
Page
----
Services to the Separate Account.................................. B-2
Annuity Payments.................................................. B-2
Performance Data...................................................B-3
Valuation of Assets of the Separate Account....................... B-5
Transferability Restrictions...................................... B-5
Experts........................................................... B-6
Financial Statements.............................................. B-6
B-1
<PAGE>
SERVICES TO THE SEPARATE ACCOUNT
The Guardian Insurance & Annuity Company, Inc. ("GIAC") maintains the
books and records of The Guardian Separate Account D (the "Separate Account").
GIAC, a wholly owned subsidiary of The Guardian Life Insurance Company of
America, acts as custodian of the assets of the Separate Account. GIAC bears all
expenses incurred in the operations of the Separate Account, except the
mortality and expense risk charge and the administrative charge (as described in
the Prospectus), which are borne by the Contractowner.
The firm of Price Waterhouse LLP, 1177 Avenue of the Americas, New York,
New York 10036 currently serves as independent accountants for GIAC and the
Separate Account.
Guardian Investor Services Corporation ("GISC"), a wholly owned subsidiary
of GIAC, serves as principal underwriter for the Separate Account pursuant to a
distribution and service agreement between GIAC and GISC. The Contract is
offered continuously and is sold by GIAC insurance agents who are registered
representatives of either GISC or of other broker-dealers which have selling
agreements with GISC and GIAC. In the years 1996, 1995 and 1994, GISC received
underwriting commissions from GIAC with respect to the sales of variable annuity
contracts through the Separate Account in the amount of $1,851,468, $1,409,708
and $1,709,799, respectively.
ANNUITY PAYMENTS
The objective of the Contract is to provide benefit payments which will
increase at a rate sufficient to maintain purchasing power at a constant level.
For this to occur, the actual net investment rate must exceed the assumed
investment rate of 4% by an amount equal to the rate of inflation. Of course, no
assurance can be made that this objective will be met. If the assumed interest
rate were to be increased, benefit payments would start at a higher level but
would increase more slowly or decrease more rapidly. Likewise, a lower assumed
interest rate would provide a lower initial payment with greater increases or
lesser decreases in subsequent Annuity Payments.
Value of an Annuity Unit: The value of an Annuity Unit is determined
independently for each of the Variable Investment Options. For any Valuation
Period, the value of an Annuity Unit is equal to the value for the immediately
preceding Valuation Period multiplied by the annuity change factor for the
current Valuation Period. The Annuity Unit value for a Valuation Period is the
value determined as of the end of such period. The annuity change factor is
equal to the net investment factor for the same Valuation Period adjusted to
neutralize the assumed investment return used in determining the Annuity
Payments. The net investment factor is reduced by the amount of the mortality
and expense risk charge on an annual basis during the life of the Contract. The
dollar amount of any monthly payment due to an Annuitant after the first monthly
payment under a Variable Investment Option will be determined by multiplying the
number of Annuity Units attributable to such Annuitant by the value of an
Annuity Unit for the Valuation Period ending ten (10) days prior to the
Valuation Period in which the monthly payment is due.
Determination of the First Monthly Annuity Payment: At the time Annuity
Payments begin, the amount indicated by the Contractowner to purchase an Annuity
for a Plan Participant is determined by multiplying the appropriate Variable or
Fixed Accumulation Unit Value on the Valuation Period ten (10) days before the
date the first variable or fixed Annuity Payment is due by the number of
Accumulation Units cancelled pursuant to the order specified in the Prospectus
as of the date the first Annuity Payment is due, less any applicable premium
taxes not previously deducted.
The Contract contains tables reflecting the dollar amount of the first
monthly payment which can be purchased with each $1,000 of value accumulated
under the Contract. The amounts depend on the variable or fixed Annuity Payout
Option selected, the mortality table used under the Contract (the 1983
Individual Mortality Table a projected using Scale G) and the nearest age of the
Annuitant. The first Annuity Payment is determined by multiplying the benefit
per $1,000 of value shown in the Contract tables by the number of thousands of
dollars of value accumulated under the Contract for the Annuitant.
Determination of the Second and Subsequent Monthly Variable Annuity
Payments: The amount of the second and subsequent variable Annuity Payments is
determined by multiplying the number of Annuity Units attributable to an
Annuitant by the appropriate Annuity Unit Value as of the valuation period ten
(10) days prior to the day such payment is due. The number of Annuity Units
attributable to a particular Annuitant is determined by dividing the first
monthly variable Annuity Payment to that Annuitant by the value of the
appropriate Annuity Unit on the date of such payment. This number of Annuity
Units remains fixed during the variable Annuity Payment
B-2
<PAGE>
period, provided no transfers among the Variable Investment Options are made. If
a transfer among the Variable Investment Options is made, the number of Annuity
Units will be adjusted accordingly.
The assumed investment return of 4% under the Contract is the measuring
point for subsequent variable Annuity Payments. If the actual net investment
rate (on an annual basis) remains constant at 4%, the variable Annuity Payments
will remain constant. If the actual net investment rate exceeds 4%, the variable
Annuity Payment will increase at a rate equal to the amount of such excess.
Conversely, if the actual rate is less than 4%, variable Annuity Payments will
decrease.
The second and subsequent monthly payments made under a Fixed Annuity
Payout Option will be equal to the amount of the first monthly fixed Annuity
Payment (described above).
PERFORMANCE DATA
The tables below provide performance results for each of the Separate
Account's Investment Divisions through December 31, 1996. The results shown in
this section are not an estimate or guarantee of future investment performance,
and do not represent the actual experience of amounts invested by a particular
Contractowner. Moreover, the performance information for each Investment
Division reflects the investment experience of its underlying Funds for periods
prior to the commencement of operations of the Separate Account (January 16,
1990) if the Funds existed prior to such date. Such results were calculated by
applying all Contract and Separate Account level charges to the historical Fund
performance results for such prior periods. During such prior periods, the Funds
were utilized as the underlying Funds for other separate accounts of GIAC which
were established in connection with the issuance of other variable contracts.
Average Annual Total Return Calculations
The first section of the following table was calculated using the
standardized method prescribed by the Securities and Exchange Commission. It
illustrates each Investment Division's average annual total return over the
periods shown. The average annual total return for an Investment Division for a
specified period is determined by reference to a hypothetical $1,000 investment
that includes capital appreciation and depreciation for the stated period,
according to the following formula:
P(1 + T)^n = ERV
Where: P = A hypothetical purchase of $1,000 from which no sales
load is deducted.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of the hypothetical $1,000
purchase at the end of the period.
Each calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period, that
no transfers or additional purchase payments were made and the surrender of the
Contract at the end of each period. The Investment Division's average annual
total return is the annual rate that would be necessary to achieve the ending
value of an investment kept in the Investment Division for the period specified.
The rate of return reflects all charges assessed against a Contract and at the
Separate Account level except for any premium taxes that may be payable. The
charges reflected include any applicable contingent deferred sales charge; the
mortality and expense risk charge; and a pro-rated portion of the contract
administration fee. See the Prospectus for a detailed description of such
charges.
The second section of the table was calculated in the same manner as the
first except that no contingent deferred sales charge was deducted since it is
assumed that the Contract continues through the end of each period.
B-3
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return for a Average Annual Total Return on
Contract Surrendered on 12/31/96 12/31/96 Assuming Contract Continues
(Hypothetical $1,000 Purchase Payment) (Hypothetical $1,000 Purchase Payment)
-------------------------------------- --------------------------------------
Length of Investment Period Length of Investment Period
-------------------------------------- --------------------------------------
Ten Years (or Ten Years (or
Date of Since Fund Since Fund
Investment Division Fund Inception, Inception,
Corresponding To Inception One Year Five Years If Less) One Year Five Years If Less)
- -------------------- --------- -------- ---------- ------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Guardian Cash
Fund.................. 1/7/82 -2.25% 1.72% 4.40% 3.75% 2.82% 4.40%
The Guardian Bond
Fund.................. 5/1/83 -4.34% 4.44% 6.76% 1.66% 5.43% 6.76%
The Guardian Stock
Fund.................. 4/13/83 19.40% 17.41% 14.64% 25.40% 18.03% 14.64%
Baillie Gifford Interna-
tional Fund........... 2/8/91 8.05% 7.43% 7.61% 14.05% 8.31% 8.31%
Baillie Gifford Emerg-
ing Markets Fund...... 10/17/94 17.12% N/A 0.10% 23.12% N/A 2.78%
Value Line Centurion
Fund ("VLCF")......... 11/15/83 9.95% 11.10% 13.82% 15.95% 11.88% 13.82%
Value Line Strategic
Asset Management
Trust ("VLSAM")....... 10/1/87 8.50% 10.65% 12.90% 14.50% 11.44% 12.90%
Gabelli Capital Asset
Fund.................. 5/1/95 3.71% N/A 7.01% 9.71% N/A 10.42%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Change in Accumulation Unit Value
The following performance information illustrates the cumulative change
and the actual annual change in Accumulation Unit values for the periods
specified for each Investment Division and is computed differently than the
standardized average annual total return information.
An Investment Division's cumulative change in Accumulation Unit values is
the rate at which the value of an Accumulation Unit changes over the time period
illustrated. The actual annual change in Accumulation Unit values is the rate at
which the value of an Accumulation Unit changes over each 12-month period
illustrated. The rates of change in Accumulation Unit values quoted in the table
reflect a deduction for the Contract's mortality and expense risk charge. They
do not reflect deductions for any contingent deferred sales charge, contract
administration fee or premium taxes. The rates of change would be lower if these
charges were included.
<TABLE>
<CAPTION>
Cumulative Change in Accumulation
Unit Value for Period Ended
December 31, 1996
------------------------------------------
Ten Years (or
Since Fund
Investment Division Inception, Date of Fund
Corresponding To One Year Five Years If Less) Inception
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Guardian Cash Fund...................... 3.78% 15.02% 54.09% 1/7/82
The Guardian Bond Fund...................... 1.68% 30.41% 92.76% 5/1/83
The Guardian Stock Fund..................... 25.43% 129.33% 292.90% 4/13/83
Gabelli Capital Asset Fund.................. 9.73% N/A 17.99% 5/1/95
Baillie Gifford International Fund.......... 14.08% 49.22% 60.27% 2/8/91
Baillie Gifford Emerging Markets Fund....... 23.14% N/A 6.26% 10/17/94
Value Line Centurion Fund................... 15.98% 75.47% 265.58% 11/15/83
Value Line Strategic Asset Management Trust. 14.53% 72.07% 207.65% 10/1/87
</TABLE>
<TABLE>
<CAPTION>
Change in Accumulation Unit Value for 12-Month Period ended December 31,
---------------------------------------------------------------------------------------------------------
Investment Division
Corresponding To 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Guardian Cash Fund ... 6.66% 5.17% 5.13% 6.09% 7.79% 6.75% 4.38% 2.03% 1.46% 2.63% 4.32% 3.78%
The Guardian Bond Fund ... 20.96% 13.52% -0.83% 8.44% 12.57% 6.31% 14.86% 6.46% 8.59% -4.56% 16.24% 1.68%
The Guardian Stock Fund .. 30.50% 15.76% 0.69% 18.98% 22.02% -12.80% 34.40% 18.69% 18.58% -2.41% 33.11% 25.43%
Baillie Gifford Interna-
tional Fund............. N/A N/A N/A N/A N/A N/A 7.40%* -9.95% 32.50% -0.28% 9.95% 14.08%
Baillie Gifford Emerging
Markets Fund............ N/A N/A N/A N/A N/A N/A N/A N/A N/A -12.17%* -1.74% 23.14%
Value Line Centurion Fund
("VLCF")................ 30.42% 15.52% -3.97% 6.35% 29.99% 4.33% 50.44% 4.71% 7.95% -3.34% 38.47% 15.98%
Value Line Strategic Asset
Management Trust
("VLSAM")............... N/A N/A -5.41%* 8.92% 24.11% -1.32% 41.69% 13.73% 10.57% -5.97% 27.06% 14.53%
Gabelli Capital Asset Fund N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 7.53%* 9.73%
</TABLE>
* From date of Fund inception through December 31.
B-4
<PAGE>
Calculation of Yield Quotations for the Cash Fund Investment Division
The yield of the Investment Division of the Separate Account investing in
the Cash Fund represents the net change, exclusive of gains and losses realized
by the Investment Division or the Cash Fund and unrealized appreciation and
depreciation with respect to the Cash Fund's portfolio of securities, in the
value of a hypothetical pre-existing Contract that is credited with one
Accumulation Unit at the beginning of the period for which yield is determined
(the "base period"). The base period generally will be a seven-day period. The
current yield for a base period is calculated by dividing (1) the net change in
the value of the Contract for the base period (see "Accumulation Period" in the
Prospectus) by (2) the value of the Contract at the beginning of the base period
and multiplying by 365/7. Deductions from purchase payments (for example, any
applicable premium taxes) and any applicable contingent deferred sales charge
assessed at the time of withdrawal or annuitization are not reflected in the
computation of current yield of the Investment Division. The determination of
net change in Contract value reflects all deductions that are charged to a
Contractowner, in proportion to the length of the base period and the Investment
Division's average Contract size. The current annualized yield of the Cash Fund
Investment Division for the 7-day period ended December 31, 1996 was 4.94%.
Yield also may be calculated on an effective or compound basis, which
assumes continual reinvestment by the Investment Division throughout an entire
year of net income earned by the Investment Division at the same rate as net
income is earned in the base period. The effective or compound yield for a base
period is calculated by (1) dividing (i) the net change in the value of the
Contract for the base period by (ii) the value of the Contract as of the
beginning of the base period, (2) adding 1 to the result, (3) raising the sum to
a power equal to 365 divided by the number of days in the base period, and (4)
subtracting 1 from the result. The effective annualized yield of the Cash Fund
Investment Division for the 7-day period ended December 31, 1996 was 5.06%.
The current and effective yields of the Cash Fund Investment Division will
vary depending on prevailing interest rates, the operating expenses and the
quality, maturity and type of instruments held in the Cash Fund's portfolio.
Consequently, no yield quotation should be considered as representative of what
the yield of the Investment Division may be for any specified period in the
future. The yield is subject to fluctuation and is not guaranteed.
Performance Comparisons
Advertisements and sales literature for the Separate Account's Investment
Divisions and their underlying Funds may compare their performance to other
investment vehicles and the separate accounts of other insurance companies as
reflected in performance data furnished by sources such as Lipper Analytical
Services, Inc., Morningstar, and Variable Annuity Research & Data Service, all
of which are independent services which monitor and rank the performance of
variable annuity issuers in each of the major categories of investment
objectives on an industry-wide basis. The performance analyses prepared by such
services rank issuers on the basis of total return, assuming reinvestment of
distributions, but may not take sales charges, redemption fees, or certain
expense deductions at the separate account level into consideration.
VALUATION OF ASSETS OF THE SEPARATE ACCOUNT
The value of Fund shares held in each Investment Division at the time of
each valuation is the redemption value of such shares at such time. If the right
to redeem shares of a Fund has been suspended, or payment of redemption value
has been postponed for the sole purpose of computing Annuity Payments, the
shares held in the Separate Account (and corresponding Annuity Units) may be
valued at fair value as determined in good faith by GIAC's Board of Directors.
TRANSFERABILITY RESTRICTIONS
Where a Contract is owned in conjunction with a retirement plan qualified
under the Internal Revenue Code of 1986, as amended ("Code") or a tax-sheltered
annuity program, and notwithstanding any other provisions of the Contract, the
Contractowner may not change the ownership of the Contract nor may the Contract
be sold, assigned or pledged as collateral for a loan or as security for the
performance of an obligation or for any other purpose to any person other than
GIAC unless the Contractowner is the trustee of an employee trust qualified
under the Code, the custodian of a custodial account treated as such, or the
employer under a qualified nontrusteed pension plan.
B-5
<PAGE>
EXPERTS
The financial statements of the Separate Account incorporated by reference
in this Statement of Additional Information and in the Registration Statement by
reference to the Annual Report to Contractowners for the year ended December 31,
1996 have been so incorporated in reliance on the report of Price Waterhouse
LLP, independent accountants. The statutory basis balance sheets of GIAC as of
December 31, 1996 and 1995 and the related statutory basis statements of
operations, of changes in common stock and surplus and of cash flows for each of
the three years in the period ended December 31, 1996 appearing in this
Statement of Additional Information have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants. Such statutory basis
financial statements have been included herein or incorporated herein by
reference in reliance upon such reports given upon the authority of such firms
as experts in accounting and auditing.
FINANCIAL STATEMENTS
The statutory basis financial statements of GIAC which are set forth
herein beginning on page B-7 should be considered only as bearing upon the
ability of GIAC to meet its obligations under the Contracts.
The financial statements of the Separate Account are incorporated herein
by reference to the Separate Account's 1996 Annual Report to Contractowners.
Such financial statements, the notes thereto and the reports of the independent
accountants and auditors thereon are incorporated by reference into this
Statement of Additional Information or are included elsewhere in this
Registration Statement. A free copy of the 1996 Annual Report to Contractowners
accompanies this Statement of Additional Information.
B-6
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
===============================================================================================================
December 31,
-----------------------------------
1996 1995
---- ----
ADMITTED ASSETS
Investments:
<S> <C> <C>
Fixed maturities, principally at amortized cost
(market: 1996 - $491,271,164; 1995 - $415,119,363)................ $490,445,948 $ 405,213,799
Affiliated money market fund, at market, which approximates cost.... 2,755,672 2,633,939
Investment in subsidiary............................................ 7,746,643 7,604,442
Policy loans - variable life insurance.............................. 68,143,068 63,842,200
Cash and short-term investments..................................... 17,825,039 17,983,654
Investment in joint venture......................................... 285,874 44,418
Accrued investment income receivable................................ 10,553,405 9,771,251
Due from parent and affiliates...................................... 6,507,913 2,982,854
Other assets........................................................ 12,173,268 9,932,726
Receivable from separate accounts................................... 11,606,587 3,543,010
Variable annuity and EISP/CIP separate account assets............... 5,248,159,777 4,174,493,377
Variable life separate account assets............................... 342,921,803 311,173,536
-------------- --------------
TOTAL ADMITTED ASSETS............................................ $6,219,124,997 $5,009,219,206
============== ==============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves........................................... $ 329,681,355 $ 300,059,252
Fixed immediate reserves.......................................... 5,874,894 4,966,569
Life reserves..................................................... 65,462,693 22,502,664
Minimum death benefit guarantees.................................. 1,257,777 1,171,951
Policy loan collateral fund reserve............................... 65,762,820 61,798,105
Accrued expenses, taxes & commissions.................................. 2,712,360 1,250,797
Due to parent and affiliates........................................... 15,304,638 16,072,198
Federal income taxes payable........................................... 4,743,447 636,681
Other liabilities...................................................... 30,079,434 13,295,087
Asset valuation reserve................................................ 15,121,269 9,341,353
Variable annuity and EISP/CIP separate account liabilities............. 5,193,574,218 4,129,376,222
Variable life separate account liabilities............................. 335,769,184 306,870,400
-------------- --------------
TOTAL LIABILITIES................................................. 6,065,344,089 4,867,341,279
COMMON STOCK AND SURPLUS
Common Stock, $100 par value, 20,000 shares authorized, issued and
outstanding......................................................... 2,000,000 2,000,000
Additional paid-in surplus............................................. 137,398,292 137,398,292
Assigned and unassigned surplus........................................ 14,382,616 2,479,635
-------------- --------------
153,780,908 141,877,927
-------------- --------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS...................... $6,219,124,997 $5,009,219,206
============== ==============
</TABLE>
See notes to financial statements.
B-7
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
========================================================================================================
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Premiums and annuity considerations:
Variable annuity considerations .................... $731,792,764 $537,841,762 $533,763,975
Life insurance premiums and fixed
annuity considerations ........................... 44,874,269 73,938,212 71,289,987
Net investment income ................................ 42,366,902 36,293,598 27,909,606
Amortization of IMR .................................. 333,219 257,380 542,157
Net gain from operations from separate accounts ...... 8,860,462 -- --
Service fees ......................................... 58,774,486 46,560,286 35,858,692
Variable life - cost of insurance .................... 4,844,028 4,232,564 3,828,702
Reserve adjustments on reinsurance ceded ............. 30,636,445 (32,192,749) 84,062,188
Commissions and expense allowances ................... 14,508,840 10,057,974 19,542,388
Other income ......................................... 2,535,356 1,127,526 819,726
-------------- ------------- -------------
939,526,771 678,116,553 777,617,421
-------------- ------------- -------------
BENEFITS AND EXPENSES:
Benefits:
Death benefits ..................................... 6,785,456 4,774,584 3,740,612
Annuity benefits ................................... 426,072,773 276,568,762 173,188,734
Surrender benefits ................................. 17,459,706 17,660,413 9,882,392
Increase in reserves ............................... 82,891,516 65,349,399 80,386,221
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ...................... 323,093,897 252,772,988 448,425,833
Variable life ...................................... (10,417,095) (17,796,371) (8,822,426)
Commissions .......................................... 39,233,431 34,364,742 45,602,891
General insurance expenses ........................... 42,523,892 25,888,456 15,083,859
Taxes, licenses and fees ............................. 3,723,858 2,477,492 2,731,840
Reinsurance terminations ............................. (15,470,015) 11,002,701 3,517,681
-------------- ------------- -------------
915,897,419 673,063,166 773,737,637
-------------- ------------- -------------
INCOME BEFORE INCOME
TAXES AND REALIZED GAINS
FROM INVESTMENTS .............................. 23,629,352 5,053,387 3,879,784
Federal income taxes ................................. 3,941,460 439,667 601,468
-------------- ------------- -------------
INCOME BEFORE REALIZED
GAINS FROM INVESTMENTS ........................ 19,687,892 4,613,720 3,278,316
Realized gains from investments, net of federal income
taxes, net of transfer to IMR ...................... 7,540 342,455 (2,232)
-------------- ------------- -------------
NET INCOME ...................................... $ 19,695,432 $ 4,956,175 $ 3,276,084
============= ============ ============
</TABLE>
See notes to financial statements.
B-8
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
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, 1993 .................... $2,000,000 $137,398,292 ($983,630) $138,414,662
---------- ------------ ----------- ------------
Net income from operations ....................... 3,276,084 3,276,084
Decrease in unrealized appreciation of
Company's investment in separate accounts,
net of applicable taxes ....................... (527,471) (527,471)
Decrease in unrealized appreciation of
Company's investment in joint venture ......... (255,163) (255,163)
Increase in unrealized appreciation of
Company's investment in subsidiary ............ 24,034 24,034
Decrease in non-admitted assets .................. 5,818 5,818
Disallowed interest maintenance reserve .......... (1,124,268) (1,124,268)
Net increase in asset valuation reserve .......... (2,233,163) (2,233,163)
---------- ------------ ----------- ------------
Balances at December 31, 1994 .................... 2,000,000 137,398,292 (1,817,759) 137,580,533
---------- ------------ ----------- ------------
Net income from operations ....................... 4,956,175 4,956,175
Increase in unrealized appreciation of
Company's investment in separate accounts,
net of applicable taxes ....................... 3,024,930 3,024,930
Decrease in unrealized appreciation of
Company's investment in joint venture ......... (6,803) (6,803)
Increase in unrealized appreciation of
Company's investment in subsidiary ............ 298,534 298,534
Increase in non-admitted assets .................. (7,078) (7,078)
Disallowed interest maintenance reserve .......... 143,080 143,080
Net increase in asset valuation reserve .......... (4,111,444) (4,111,444)
---------- ------------ ----------- ------------
Balances at December 31, 1995 .................... 2,000,000 137,398,292 2,479,635 141,877,927
---------- ------------ ----------- ------------
Net income from operations ....................... 19,695,433 19,695,433
Tax on prior years separate account
seed investment unrealized gains .............. (104,732) (104,732)
Increase in unrealized appreciation of
Company's investment in joint venture ......... 241,456 241,456
Increase in unrealized appreciation of
Company's investment in subsidiary ............ 142,201 142,201
Decrease in unrealized appreciation of
Company's investment in other assets .......... (9,384) (9,384)
Increase in non-admitted assets .................. (80,815) (80,815)
Disallowed interest maintenance reserve .......... (128,107) (128,107)
Surplus changes resulting from reinsurance ....... (2,073,155) (2,073,155)
Net increase in asset valuation reserve .......... (5,779,916) (5,779,916)
---------- ------------ ----------- ------------
Balances at December 31, 1996 .................... $2,000,000 $137,398,292 $14,382,616 $153,780,908
========== ============ =========== ============
</TABLE>
See notes to financial statements.
B-9
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
========================================================================================================
Year Ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and deposit funds .. $780,710,735 $611,169,979 $600,336,507
Investment income ................................... 42,413,736 36,912,131 26,762,114
Commissions and expense allowances on
reinsurance ceded ................................. 37,315,301 (22,118,484) 104,767,754
Other income ........................................ 47,357,962 44,220,753 33,914,971
Life claims ......................................... (6,900,438) (4,420,866) (3,397,937)
Surrender benefits .................................. (2,774,865) (17,660,413) (9,882,392)
Annuity benefits .................................... (424,511,908) (276,163,436) (173,227,230)
Commissions, other expenses
and taxes (excluding FIT) ......................... (78,968,214) (57,714,112) (63,448,237)
Net transfers to separate accounts .................. (307,856,562) (231,230,812) (435,548,833)
Federal income taxes (excluding tax on capital gains) 682,025 (1,557,444) (1,522,592)
Increase in policy loans ............................ (4,300,868) (4,522,280) (6,527,387)
Other operating expenses and sources ................ 2,077,342 (8,945,084) 2,428,502
----------- ----------- ----------
NET CASH PROVIDED BY INSURANCE
ACTIVITIES ................................... 85,244,246 67,969,932 74,655,240
----------- ----------- ----------
Cash flows from investing activities:
Proceeds from dispositions of investment securities . 224,692,954 63,122,215 149,529,893
Purchases of investment securities .................. (309,590,319) (118,543,796) (230,182,416)
Net proceeds from short-term investments ............ 0 0 0
Federal income tax on capital gains ................. (505,496) 992,810 (1,233,244)
----------- ----------- ----------
NET CASH USED IN INVESTING ACTIVITIES .......... (85,402,861) (54,428,771) (81,885,767)
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH ................... (158,615) 13,541,161 (7,230,527)
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF YEAR ............................... 17,983,654 4,442,493 11,673,020
----------- ----------- ----------
CASH AND SHORT-TERM INVESTMENTS,
END OF YEAR ..................................... $17,825,039 $17,983,654 $4,442,493
=========== =========== ==========
</TABLE>
See notes to financial statements.
B-10
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Note 1 -- Organization
Organization: The Guardian Insurance & Annuity Company, Inc. (GIAC or the
Company) is a wholly-owned subsidiary of The Guardian Life Insurance Company of
America (The Guardian). The Company is licensed to conduct life and health
insurance business in all fifty states and the District of Columbia. The
Company's primary business is the sale of variable deferred annuity contracts
and variable and term life insurance policies. For variable products other than
401(k) products, contracts are sold by insurance agents who are licensed by GIAC
and are either Registered Representatives of Guardian Investor Services
Corporation (GISC) or of broker-dealer firms which have entered into sales
agreements with GIAC and GISC. The Company's general agency distribution system
is used for the sale of other products and policies.
Guardian Investor Services Corporation is a wholly-owned subsidiary of the
Company. GISC is a registered broker-dealer under the Securities Exchange Act of
1934 and is a registered investment advisor under the Investment Advisor's Act
of 1940. GISC is the distributor and underwriter for GIAC's variable products,
and the investment advisor to certain mutual funds sponsored by GIAC which are
investment options for the variable products.
Insurance Separate Accounts: The Company has established twelve insurance
separate accounts primarily to support the variable annuity and life insurance
products it offers. The majority of the separate accounts are unit investment
trusts registered under the Investment Company Act of 1940. Proceeds from the
sale of variable products are invested through these separate accounts in
certain mutual funds specified by the contractholders. In addition, certain
variable annuity and variable life insurance contractholders may invest in The
Guardian Real Estate Account. Participating interests in the real estate account
are registered under the Securities Act of 1933. Of these separate accounts the
Company maintains two separate accounts whose sole purpose is to fund certain
employee benefit plans of The Guardian.
The assets and liabilities of the separate accounts are clearly identified
and distinct from the other assets and liabilities of the Company. The assets of
the separate accounts will not be charged with any liabilities arising out of
any other business of the Company. However, the obligations of the separate
accounts, including the promise to make annuity and death benefit payments,
remain obligations of the Company. Assets and liabilities of the separate
accounts are stated primarily at the market value of the underlying investments
and corresponding contractholders obligations.
Note 2 -- Summary of Significant Accounting Policies
Basis of presentation of financial statements: The financial statements
have been prepared on a comprehensive basis of accounting other than generally
accepted accounting principles that is prescribed or permitted by the Insurance
Department of the State of Delaware.
Prior to 1996, these policies were considered generally accepted accounting
principles ("GAAP") for mutual life insurance companies. However, in April,
1993, the Financial Accounting Standards Board issued Interpretation No. 40,
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises", which establishes a different definition of
GAAP for mutual life insurance companies. Under this interpretation, financial
statements of mutual life insurance companies for periods beginning after
B-11
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
December 15, 1995 which are prepared on the statutory basis of accounting
are no longer characterized as being in conformity with GAAP. Financial
statements prepared on a statutory basis vary from financial statements prepared
on a GAAP basis because: (1) the costs relating to acquiring business,
principally commissions and certain policy issue expenses, are charged to income
in the year incurred, whereas on a GAAP basis they would be recorded as assets
and amortized over the future periods to be benefited; (2) life insurance and
annuity reserves are based on statutory mortality and interest requirements,
without consideration of withdrawals, whereas on GAAP basis they are on
anticipated Company experience for lapses, mortality and investment yield; (3)
life insurance enterprises are required to establish a formula-based asset
valuation reserve (AVR) by a direct charge to surplus to offset potential
investment losses; under GAAP, provisions for investments are established as
needed through a charge to income; (4) realized gains and losses resulting from
changes in interest rates on fixed income investments are deferred in the
interest maintenance reserve (IMR) and amortized into investment income over the
remaining life of the investment sold; for GAAP, such gains and losses are
recognized in income at the time of sale; (5) bonds are carried principally at
amortized cost for statutory reporting and at market value for GAAP; (6) annuity
and certain insurance premiums are recognized as premium income, whereas for
GAAP they are recognized as deposits; (7) deferred federal income taxes are not
provided for temporary differences between tax and book assets and liabilities
as they are under GAAP; (8) certain reinsurance transactions are accounted for
as reinsurance for statutory purposes and as financing transactions under GAAP,
and assets and liabilities are reported net of reinsurance for statutory
purposes and gross of reinsurance for GAAP.
The following reconciles the statutory net income of the Company as
reported to regulatory authorities to consolidated GAAP net income:
<TABLE>
<CAPTION>
For the Year Ended
1996 1995
----- -----
<S> <C> <C>
Statutory net income ................................ $19,695,432 $4,956,175
Adjustments to restate to the basis of GAAP:
Statutory net income of subsidiaries .............. 142,201 298,534
Capitalization of deferred policy acquisition costs 42,525,493 29,971,479
Deferred premiums ................................. 4,096,976 --
Re-estimation of future policy benefits ........... 30,086,231 659,225
Reinsurance ....................................... (36,696,036) 17,635,115
Deferred federal income tax expense ............... (13,074,280) (15,221,064)
Elimination of interest maintenance reserve ....... (333,219) (257,381)
Other, net ........................................ (6,094,192) (759,141)
------------ ------------
Consolidated GAAP net income ........................ $40,348,606 $37,282,942
============ ============
</TABLE>
B-12
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
The following reconciles the statutory capital and surplus of the Company
as reported to the regulatory authorities to consolidated GAAP stockholder's
equity:
December 31,
----------------------------
1996 1995
----- -----
Statutory capital and surplus .................. $153,780,908 $141,877,927
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs ............ 221,475,216 185,237,251
Elimination of asset valuation reserve ....... 15,121,269 9,341,353
Re-estimation of future policy benefits ...... (35,823,432) 5,870,371
Establishment of deferred federal income tax . (65,126,004) (53,923,759)
Other, net ................................... 33,178,992 (2,451,817)
------------- -------------
Consolidated GAAP stockholder's equity ......... $322,606,949 $285,951,326
============= =============
The preparation of financial statements of insurance enterprises requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements. As a provider of
life insurance and annuity products, GIAC's operating results in any given
period depend on estimates of policy reserves required to provide for future
policyholder benefits. The development of policy reserves for insurance and
investment contracts requires management to make estimates and assumptions
regarding mortality, morbidity, lapse, expense and investment experience. Such
estimates are primarily based on historical experience and, in many cases, state
insurance laws which require specific mortality, morbidity, and investment
assumptions to be used by the Company. Actual results could differ from those
estimates. Management monitors actual experience, and where circumstances
warrant, revises its assumptions and the related reserve estimates.
Valuation of investments: Investments in securities are recorded in
accordance with valuation procedures established by the National Association of
Insurance Commissioners (NAIC). Unrealized gains and losses on investments
carried at market are recorded directly to unassigned surplus. Realized gains
and losses on disposition of investments are determined by the specific
identification method. Effective for 1996 financial statements, the NAIC
requires and the Company has recorded the net gain from the operations of the
separate accounts in the operations of the general account instead of surplus.
Bonds: Bonds are valued principally at amortized cost. Mortgage backed
bonds are carried at amortized cost using the interest method considering
anticipated prepayments at the date of purchase. Significant changes in future
anticipated cash flows from the original purchase assumptions are accounted for
using the retrospective adjustment method with PSA standard prepayment rates.
Investment in subsidiary: GIAC's investment in GISC is carried at equity in
GIAC's underlying net assets. Undistributed earnings or losses are reflected as
unrealized capital gains and losses directly in unassigned surplus. Dividends
received from GISC are recorded as investment income and amounted to $9,500,000
in 1996, $6,700,000 in 1995 and $4,900,000 in 1994.
Short-Term Investments: Short-term investments are stated at amortized cost
and consist primarily of investments having maturities at the date of purchase
of six months or less. Market values for such investments approximate carrying
value.
B-13
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Loans on Policies: Loans on policies are stated at unpaid principal
balance. The carrying amount approximates fair value since loans on policies
have no defined maturity date and reduce the amount payable at death or at
surrender of the contract.
Investment Reserves: In compliance with regulatory requirements, the
Company maintains the Asset Valuation Reserve (AVR) and the Interest Maintenance
Reserve (IMR). The AVR is intended to stabilize policyholders' surplus against
market fluctuations in the value of equities and credit related declines in the
value of bonds. Changes in the AVR are recorded directly to unassigned surplus.
The IMR captures net after-tax realized capital gains which result from changes
in the overall level on interest rates for fixed income investments and
amortizes these net capital gains into income over the remaining stated life of
the investments sold. The Company uses the group method of calculating the IMR,
consistent with the prior year.
Contract and Policy Reserves: Fixed deferred reserves represent the fund
balance left to accumulate at interest under fixed annuity contracts that were
offered directly by the Company, a fixed rate option that is offered to variable
annuity contractowners and a single premium deferred annuity that is offered by
the Company. The fixed annuity contracts are no longer offered by the Company.
The estimated fair value of contractholder account balances within the
fixed deferred reserves has been determined to be equivalent to carrying value
as the current offering and renewal rates are set in response to current market
conditions and are only guaranteed for one year.
The interest rate credited on fixed annuity contracts included in fixed
deferred reserves for 1996 and 1995 was 5.75% and 5.75%, respectively. The
interest rates credited on the fixed rate option offered to certain variable
annuity contractowners ranged from 5.25% to 5.50% during 1996. For the fixed
rate option currently issued, the issue and renewal interest rates credited
varies from month to month and ranged from 5.0% to 5.25% in 1996. For single
premium deferred annuities the rates ranged from 5.0% to 5.75% in 1996. Fixed
immediate reserves are a liability within the general account for those
annuitants who have elected a fixed annuity payout option. The immediate
contract reserve is computed using the 1971 IAM Table and a 4% discount rate.
Minimum death benefit guarantees represent a reserve for term insurance to
support guaranteed insurance amounts on variable life policies in the event of
possible declines in separate account assets, assuming a 4% discount rate and
mortality consistent with the 1958 or 1980 CSO Table applicable in the pricing
of each policy.
The loan collateral fund reserve is the cash value of loaned variable life
policyowner account values. The reserve is credited with interest at 4% per
annum for single premium variable life policyowners and 6.5% for annual pay
variable life policyowners.
Non-admitted Assets: Certain assets designated as "non-admitted assets" in
accordance with rules and regulations of the Department of Insurance of the
State of Delaware are charged directly to unassigned surplus. At December 31,
1996 and 1995 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $123,785 and $84,575, respectively.
Acquisition Costs: Commissions and other costs incurred in acquiring new
business are charged to operations as incurred.
B-14
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Premiums and Other Revenues: Premiums and annuity considerations are
recognized for funds received on variable life insurance and annuity products.
Corresponding transfers to/from separate accounts are included in the expenses.
Revenue also include service fees from the separate accounts consisting of
mortality and expense charges, annual administration fees, charges for the cost
of term insurance related to variable life policies and penalties for early
withdrawals. Services fees were not charged on separate account assets of $142.7
million and $117.7 million at December 31, 1996 and 1995, respectively, which
represent investments in The Guardian's employee benefit plans.
Federal Income Taxes: The provision for federal income taxes is based on
income from operations currently taxable, as well as accrued market discount on
bonds. Realized gains and losses are reported after adjustment for the
applicable federal income taxes. The taxable portion of unrealized appreciation
of the Company's separate account investments is also recorded.
Other: Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods with the 1996 presentation.
Note 3 -- Federal Income Taxes
The Company's federal income tax return is consolidated with its parent,
The Guardian. The consolidated income tax liability is allocated among the
members of the group according to a tax sharing agreement. In accordance with
the tax sharing agreement between and among the parent and participating
subsidiaries, each member of the group computes its tax provision and liability
on a separate return basis, but may, where applicable, recognize benefits of net
operating losses and capital losses utilized in the consolidated group.
Estimated payments are made between the members of the group during the year.
A reconciliation of federal income tax expense, based on the prevailing
corporate income tax rate of 35% for 1996, 1995 and 1994 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax at prevailing corporate income tax rates
applied to pretax statutory income ............. $8,270,274 $1,768,688 $1,357,924
Add (deduct) tax effect of:
Adjustment for annuity and other reserves ...... (1,478,476) 337,668 141,295
DAC Tax ........................................ 867,731 666,260 1,575,953
Dividend from subsidiary ....................... (3,325,000) (2,345,000) (1,715,000)
Other-- net .................................... (393,070) 12,051 (758,704)
----------- ----------- -----------
Federal income taxes .............................. $3,941,459 $439,667 $601,468
=========== =========== ===========
</TABLE>
The provision for federal income taxes includes deferred taxes in 1996,
1995 and 1994 of $353,051, $304,923 and $99,120, respectively, applicable to the
difference between the tax basis and the financial statement basis of recording
investment income relating to accrued market discount.
B-15
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Note 4 -- Investments
The major categories of net investment income are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fixed maturities ............................ $28,234,145 $25,795,915 $19,949,553
Affiliated money market funds ............... 121,733 130,729 84,083
Subsidiary .................................. 9,500,000 6,700,000 4,900,000
Policy loans ................................ 3,089,490 2,847,532 2,547,670
Short-term investments ...................... 1,259,730 1,181,215 622,391
Joint venture dividend ...................... 623,160 684,306 789,867
----------- ----------- -----------
42,828,258 37,339,697 28,893,564
Less: Investment expenses ................... 461,356 1,046,099 983,958
----------- ----------- -----------
Net investment income ....................... $42,366,902 $36,293,598 $27,909,606
=========== =========== ===========
</TABLE>
Net realized gains, less applicable federal income taxes and transfer to
IMR, are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Realized capital gains (losses) .......... $ 1,242,432 $ 1,323,447 $(3,994,715)
----------- ----------- -----------
Federal income tax expense (benefit):
Current .................................. 829,610 622,821 (1,110,135)
Deferred ................................. (394,759) (42,290) (248,068)
----------- ----------- -----------
Total Federal income tax expense (benefit) 434,851 580,531 (1,358,203)
----------- ----------- -----------
Transfer to IMR ............................. 800,041 400,461 (2,634,280)
----------- ----------- -----------
Net realized gains (losses) ................. $ 7,540 $ 342,455 $ (2,232)
=========== =========== ===========
</TABLE>
The increase in unrealized appreciation (depreciation) on fixed maturity
securities for the years ended December 31, 1996, 1995 and 1994 was
$(9,080,348), $26,899,449 and $(23,246,030), respectively.
The market values of bonds are based on quoted prices as available. For
certain private placement debt securities where quoted market prices are not
available, fair value is estimated by management using adjusted market prices
for like securities.
B-16
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
The cost and estimated market values of investments by major investment
category at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ....................... $133,436,167 $ 761,811 $ 435,887 $133,762,091
Obligations of states and political
subdivisions ....................... 40,444,325 148,692 70,771 40,522,246
Debt securities issued by foreign
governments ........................ 3,491,091 -- 65,431 3,425,660
Corporate debt securities ............. 313,074,365 2,279,414 1,792,612 313,561,167
Common stock of subsidiary ............ 9,398,292 -- 1,651,649 7,746,643
Affiliated mutual funds ............... 2,755,672 -- -- 2,755,672
------------ ---------- ------------ ------------
$502,599,912 $3,189,917 $ 4,016,350 $501,773,479
============ ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ....................... $ 86,663,351 $ 2,599,555 $ -- $ 89,262,906
Obligations of states and political
subdivisions ....................... 6,086,127 108,215 1,599 6,192,743
Debt securities issued by foreign
governments ........................ 8,061,711 537,479 -- 8,599,190
Corporate debt securities ............. 304,402,610 7,379,558 717,644 311,064,524
Common stock of subsidiary ............ 9,398,292 -- 1,793,850 7,604,442
Affiliated mutual funds ............... 2,633,939 -- -- 2,633,939
------------ ----------- ------------ ------------
$417,246,030 $10,624,807 $ 2,513,093 $425,357,744
============ =========== ============ ============
</TABLE>
At December 31, 1996, the amortized cost and estimated market value of
debt securities, by contractual maturity, is shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations.
B-17
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
During 1996, proceeds from sales of investments in debt securities were
$224,681,546 and gross gains of $2,029,373 and losses of $798,350 were realized
on these sales.
Note 5 -- Reinsurance Ceded
The Company enters into coinsurance, modified coinsurance and yearly
renewable term agreements with The Guardian and outside parties to provide for
reinsurance of selected variable annuity contracts and group life and individual
life policies. Under the terms of the modified coinsurance agreements, reserves
related to the reinsurance business and corresponding assets are held by the
Company. Accordingly, policy reserves include $767,937,702 and $355,264,470 at
December 31, 1996 and 1995, respectively, applicable to policies reinsured under
modified coinsurance agreements. The reinsurance contracts do not relieve the
Company of its primary obligation for policyowner benefits. Failure of
reinsurers to honor their obligations could result in losses to the Company.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Premiums and deposits .................. ($83,250,212) ($41,212,253) ($157,953,149)
Net investment income .................. (61,779) -- --
Commission and expense allowances ...... 14,508,839 10,057,974 19,542,388
Reserve adjustments .................... 30,636,445 (32,192,749) 84,062,188
Other income ........................... (25,000) -- --
------------ ------------ -------------
Revenues ............................. (38,191,707) (63,347,028) (54,348,573)
Policyholder benefits .................. (26,873,945) (57,577,405) (60,707,011)
Increase in aggregate reserves ......... (5,658,260) (11,909,990) (16,349,743)
Reinsurance terminations ............... (15,470,015) 11,002,701 3,517,681
General expenses ....................... (81,667) (48,640) --
------------ ------------ -------------
Deductions ........................... (48,083,887) (58,533,334) (73,539,073)
------------ ------------ -------------
Net income (loss) from reinsurance ceded $9,892,180 ($4,813,694) $19,190,500
============ ============ =============
</TABLE>
B-18
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Note 6 -- Reinsurance Assumed
The Company has entered into various coinsurance agreements with
non-affiliated and affiliated companies. The Company assumes certain life and
disability income policies.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Premiums and deposits ................... $41,133,358 $7,153,623 $21,245,974
Net investment income ................... 94,657 62,847 --
Other income ............................ 375,404 32,528 13,163
------------ ----------- ------------
Revenues .............................. 41,603,419 7,248,998 21,259,137
Policyholder benefits ................... 8,076,053 5,086,702 13,163
Increase in aggregate reserves .......... 31,556,908 (357,463) 21,192,811
Reinsurance expenses .................... (452,476) 1,451,058 8,503,485
Other expenses .......................... 551,319 54,043 --
------------ ----------- ------------
Deductions ............................ 39,731,804 6,234,340 29,709,459
------------ ----------- ------------
Net income (loss)from reinsurance assumed $1,871,615 $1,014,658 ($8,450,322)
============ =========== ============
</TABLE>
Note 7 -- Related Party Transactions
A major portion of the Company's business is produced by the registered
representatives of the Guardian Investor Services Corporation (GISC), a wholly
owned subsidiary of the Company. During 1996, 1995 and 1994, premium and annuity
considerations produced by GISC amounted to $528,353,595, $400,148,692 and
$482,872,000, respectively. The related commissions paid to GISC amounted to
$1,851,468, $1,409,708 and $1,709,799 for 1996, 1995 and 1994, respectively.
The Company is billed by The Guardian for all compensation and related
employee benefits for those employees of The Guardian who are engaged in the
Company's business and for the Company's use of The Guardian's centralized
services and agency force. The amounts charged for these services amounted to
$41,129,644 in 1996, $24,989,111 in 1995 and $14,055,494 in 1994, and, in the
opinion of management, were considered appropriate for the services rendered.
The Company has an investment in the Guardian Real Estate Account (GREA),
which was established in 1987 under Delaware Insurance law as an insurance
company separate account. GIAC has contributed capital to GREA from time to time
to provide funds for acquisitions and to preserve liquidity. At December 31,
1996 GIAC's investment amounts to $5,803,339 and maintains a 40% ownership of
GREA.
B-19
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
A significant portion of the Company's separate account assets are
invested in affiliated mutual funds. These funds consist of The Guardian Park
Avenue Fund, The Guardian Bond Fund, The Guardian Stock Fund, The Guardian Cash
Fund, The Guardian Baillie Gifford International Fund, The Guardian Asset
Allocation Fund, The Guardian Investment Quality Bond Fund and The Guardian Cash
Management Fund. Each of these funds has an investment advisory agreement with
GISC, except for The Guardian Baillie Gifford International Fund. The
investments as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
The Guardian Park Avenue Fund.................... $ 251,812,050 $ 214,919,292
The Guardian Bond Fund........................... 354,316,320 374,461,581
The Guardian Stock Fund.......................... 2,226,887,181 1,615,270,799
The Guardian Cash Fund........................... 378,321,710 356,820,089
The Guardian Baillie Gifford International Fund.. 19,720 --
The Guardian Asset Allocation Fund............... 46,623 --
The Guardian Investment Quality Bond Fund........ 9,385 --
The Guardian Cash Management Fund................ 3,113,523 --
-------------- --------------
$3,214,526,512 $2,561,471,761
============== ==============
</TABLE>
During November 1990, the Company entered into an agreement with Baillie
Gifford Overseas Ltd. to form a joint venture company - Guardian Baillie Gifford
Ltd. (GBG) - which is organized as a corporation in Scotland. GBG is registered
in both the United Kingdom and the United States to act as an investment advisor
for the Baillie Gifford International Fund (BGIF), the Baillie Gifford Emerging
Markets Fund (BGEMF) and the Guardian Baillie Gifford International Fund
(GBGIF). The Funds are offered in the U.S. as investment options under certain
variable annuity contracts and variable life policies. The amount of the
Company's separate account assets invested in the Funds as of December 31, 1996
and 1995 was $446,466,741 and $334,281,959, respectively.
The Company maintains an investment in an affiliated money market mutual
fund, The Guardian Cash Management Fund. At December 31, 1996 and 1995 this
amounted to $2,755,672 and $2,633,939, respectively.
B-20
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 -- Continued
Note 8 -- Separate Accounts
The following represents a reconciliation of net transfers from GIAC to
the separate accounts. Transfers are reported in the Summary of Operations of
the Separate Account Statement:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Transfers to separate accounts ......... $767,741,428 $582,715,569 $688,657,147
Transfers from separate accounts ....... (518,683,141) (398,531,802) (288,606,548)
------------- ------------- -------------
Net transfers to separate accounts ... 249,058,287 184,183,767 400,050,599
------------- ------------- -------------
Reconciling Adjustments:
Mortality & expense guarantees-- Annuity 54,119,656 41,474,872 31,629,838
Mortality & expense guarantees-- VLI ... 1,687,711 1,571,955 1,341,318
Administrative fees-- VA only .......... 2,967,120 3,513,459 2,752,950
Cost of collection-- VLI ............... 4,844,028 4,232,564 3,828,702
------------- ------------- -------------
Total adjustments .................... 63,618,515 50,792,850 39,552,808
------------- ------------- -------------
Transfers as reported in the Summary of
Operations of GIAC ................... $312,676,802 $234,976,617 $439,603,407
============= ============= =============
</TABLE>
Note 9 -- Annuity Actuarial Reserves and Deposit Liabilities
The following describes withdrawal characteristics of annuity actuarial
reserves and deposit liabilities:
<TABLE>
<CAPTION>
Year Ending 1996 Year Ending 1995
-------------------- -------------------
Amount % Amount %
------------ ------ ----------- -----
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment ......... $ 44,480,214 10.22% $ 39,471,103 10.27%
total with adjustment or at
market value ....................... 44,480,214 10.22 39,471,103 10.27
at book value without adjustment
(minimal or no charge or
adjustment) ........................ 302,433,090 69.45 260,636,570 67.81
Not subject to discretionary withdrawal 88,546,538 20.33 84,263,477 21.92
------------ ------ ------------ ------
Total (gross) .......................... 435,459,842 100.00 384,371,150 100.00
Reinsurance ceded ...................... 4,879 0.00 -- 0.00
------------ ------ ------------ ------
Total .................................. $435,454,963 100.00% $384,371,150 100.00%
============ ====== ============ ======
</TABLE>
This does not include $5,098,658,097 and $4,046,768,087 of non-guaranteed
annuity reserves held in separate accounts, and $2,927,130 and $1,500,869 at
December 31, 1996 and 1995, respectively, in annuity reserves being held as a
loan collateral fund for loans on certain annuity contracts.
B-21
<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
B-22
<PAGE>
The Guardian Separate Account D
(Group)
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The following financial statements have been incorporated by reference
or are included in Part B:
(1) The Guardian Separate Account D (incorporated by reference
into Part B):
Statement of Assets and Liabilities as of December 31, 1996
Combined Statement of Operations for the Year Ended December
31, 1996
Combined Statements of Changes in Net Assets for the Two Years
Ended December 31, 1996 and 1995
Notes to Financial Statements
Report of Price Waterhouse LLP, Independent Accountants
(2) The Guardian Insurance & Annuity Company, Inc. (included in
Part B):
Statutory Basis Balance Sheets as of December 31, 1996 and
1995
Statutory Basis Statements of Operations for the Three Years
Ended December 31, 1996, 1995 and 1994
Statutory Basis Statements of Changes in Common Stock and
Surplus for the Three Years Ended December 31, 1996, 1995 and
1994
Statutory Basis Statements of Cash Flows for the Three Years
Ended December 31, 1996, 1995 and 1994
Notes to Statutory Basis Financial Statements
Report of Price Waterhouse LLP, Independent Accountants
(b) Exhibits
Number Description
------ -----------
1 Resolutions of the Board of Directors of The
Guardian Insurance & Annuity Company, Inc.
establishing Separate Account D(1)
2 Not Applicable
3 Underwriting and Distribution Contracts:
(a) Distribution and Service Agreement between
The Guardian Insurance & Annuity Company,
Inc. and Guardian Investor Services
Corporation, as amended(3)
(b) Form of Broker-Dealer Supervisory and Service
Agreement(2)
4 Specimen of Variable Annuity Contract(4)
5 Form of Application for Variable Annuity Contract(1)
6 (a) Certificate of Incorporation of The Guardian
Insurance & Annuity Company, Inc.(1)
(b) By-laws of The Guardian Insurance & Annuity
Company, Inc.(1)
7 Automatic Indemnity Reinsurance Agreement between
The Guardian Insurance & Annuity Company, Inc. and
The Guardian Life Insurance Company of America, as
amended(2)
<PAGE>
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.(7)
9 Opinion and Consent of Counsel(5)
10 (a) Consent of Price Waterhouse LLP
11 Not Applicable
12 Not Applicable
13 (a) Powers of Attorney executed by a majority of the
Board of Directors and principal officers of The
Guardian Insurance & Annuity Company, Inc.(4)
(b) Power of Attorney executed by Frank J. Jones,
Senior Vice President, Chief Investment Officer
and Director of The Guardian Insurance & Annuity
Company, Inc.(6)
(c) Schedule for Computation of Performance
Quotations(5)
27 Financial Data Schedule
- -----------
1. Incorporated by reference to the Registration Statement on Form N-4 (Reg.
No. 33-31755), as filed on October 24, 1989.
2. Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration statement on Form N-4 (Reg. No. 33-31755), as filed on
December 18, 1989.
3. Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (Reg. No. 33-31755), as filed on April
24, 1990.
4. Incorporated by reference to the Registration Statement on Form N-4 (Reg.
No. 33-31755), as filed on July 5, 1990.
5. Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (Reg. No. 33-31755), as filed on April
18, 1991.
6. Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-4 (Reg. No. 33-31755), as filed on April
30, 1992.
7. Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-4 (Reg. No. 33-31755), as filed on April
28, 1995.
C-2
<PAGE>
Item 25. Directors and Officers of the Depositor
The following is a list of directors and officers of The Guardian Insurance
& Annuity Company, Inc. ("GIAC"), the depositor of the Registrant. The principal
business address of each director and officer is 201 Park Avenue South, New
York, New York 10003.
Name Office/Title
- ---- ------------
Joseph D. Sargent President & Chief Executive Officer
John M. Smith Executive Vice President
Frank J. Jones Executive Vice President & Chief Investment Officer
Edward K. Kane Senior Vice President
Gary B. Lenderink Vice President, Group Pensions
Ryan W. Johnson Vice President, Equity Sales
Thomas R. Hickey, Jr. Vice President, Operations
Charles E. Albers Vice President, Equity Securities
John M. Fagan Vice President
Frank L. Pepe Vice President & Controller
Charles G. Fisher Vice President & Actuary
William C. Frentz Vice President, Real Estate
Michele S. Babakian Vice President
Donald P. Sullivan, Jr. Vice President
Richard T. Potter, Jr. Vice President & Counsel
Raymond J. Henry Second Vice President
Paul Iannelli Second Vice President
Alexander M. Grant, Jr. Second Vice President
Ann T. Kearney Second Vice President
Theresa Kaminski Second Vice President, Group Pensions Admin.
Joseph A. Caruso Secretary
Karen Dickinson Asst. Secretary & Secretary Pro Tem
Earl Harry Treasurer
C-3
<PAGE>
Item 26. Persons Controlled by or under Common Control with Registrant
The following list sets forth the persons directly controlled by The
Guardian Life Insurance Company of America ("Guardian Life") as of April 1,
1997:
State of Percent of
Incorporation Voting Securities
Name of Entity or Organization Owned
------------- ------------- --------------
The Guardian Insurance & Delaware 100%
Annuity Company, Inc.
Guardian Asset Management Delaware 100%
Corporation
First International Life Insurance Company Delaware 100%
Guardian Reinsurance Services, Inc. Connecticut 100%
Physicians Health Services, Inc. Delaware 14%
Private Healthcare Systems, Inc. Delaware 14%
Managed Dental Care, Inc. California 100%
The Guardian Baillie Gifford Massachusetts 30%
International Fund
The Guardian Investment Quality Massachusetts 34%
Bond Fund
Baillie Gifford International Fund Maryland 13%
Baillie Gifford Emerging Markets Fund Maryland 26%
The Guardian Tax-Exempt Fund Massachusetts 84%
The Guardian Asset Allocation Fund Massachusetts 17%
The following list sets forth the persons directly controlled by GIAC or
other affiliates of Guardian Life and, thus, indirectly controlled by Guardian
Life, as of April 1, 1997:
Approximate
Percentage of Voting
Place of Securities Owned
Incorporation by Guardian Life
Name of Entity or Organization Affiliates
------------- ------------- -----------------
Guardian Investor Services Corporation New York 100%
Guardian Baillie Gifford Limited Scotland 51%
The Guardian Cash Fund, Inc. Maryland 100%
The Guardian Bond Fund, Inc. Maryland 100%
The Guardian Stock Fund, Inc. Maryland 100%
GIAC Funds, Inc. Maryland 100%
Item 27. Number of Contractowners
Type of Contract Number as of April 1, 1997
---------------- --------------------------
Individual (Non-Qualified)......... 29,469
Individual (Qualified)............. 52,747
Group (Qualified).................. 822
------
Total.................... 83,038
C-4
<PAGE>
Item 28. Indemnification
Reference is made to Article VIII of GIAC's By-Laws, as supplemented by
Section 3.2 of the Certificate of Incorporation of GIAC, filed as Exhibits 6(b)
and 6(a), respectively, to this Registration Statement and incorporated herein
by reference.
Item 29. Principal Underwriters
(a) Guardian Investor Services Corporation ("GISC") is the principal
underwriter of the Registrant's variable annuity contracts and it is also the
principal underwriter of shares of The Guardian Bond Fund, Inc.; The Guardian
Stock Fund, Inc.; The Guardian Cash Fund, Inc.; The Park Avenue Portfolio, a
series trust consisting of the following series: The Guardian Cash Management
Fund, The Guardian Park Avenue Fund, The Guardian Investment Quality Bond Fund,
The Guardian Tax-Exempt Fund, The Guardian Asset Allocation Fund and The
Guardian Baillie Gifford International Fund, and GBG Funds, Inc. a series fund
consisting of Baillie Gifford International Fund and Baillie Gifford Emerging
Markets Fund. All of the aforementioned funds and the series trust are
registered with the SEC as open-end management investment companies under the
Investment Company Act of 1940, as amended ("1940 Act"). In addition, GISC is
the distributor of variable annuity and variable life insurance contracts
currently offered by GIAC through its separate accounts, The Guardian/Value Line
Separate Account, The Guardian Separate Account A, The Guardian Separate Account
B, The Guardian Separate Account C, The Guardian Separate Account D and The
Guardian Separate Account K, which are all registered as unit investment trusts
under the 1940 Act.
(b) The following is a list of directors and officers of GISC. The
principal business address of each person is 201 Park Avenue South, New York,
New York 10003.
<TABLE>
<CAPTION>
Name Office/Title
---- ------------
<S> <C>
John M. Smith President
Charles E. Albers Executive Vice President
Edward K. Kane Senior Vice President
John M. Fagan Vice President
Ryan W. Johnson Vice President & National Sales Director
Michele S. Babakian Vice President
Nikolaos D. Monoyios Vice President
Frank L. Pepe Vice President & Controller
Thomas R. Hickey, Jr. Vice President, Operations
Donald P. Sullivan, Jr. Vice President
Richard T. Potter, Jr. Vice President & Counsel
Ann T. Kearney Second Vice President
Alexander M. Grant, Jr. Second Vice President
Kevin S. Alter Second Vice President
Joseph A. Caruso Secretary
Karen Dickinson Asst. Secretary & Secretary Pro Tem
</TABLE>
C-5
<PAGE>
Item 30. Location of Accounts and Records
Most of the Registrant's accounts, books and other documents required to
be maintained by Section 31(a) of the 1940 Act and the rules promulgated
thereunder are maintained by GIAC, the depositor, at its Customer Service
Office, 3900 Burgess Place, Bethlehem, Pennsylvania 18017. Documents
constituting the Registrant's corporate records are also maintained by GIAC but
are located at its Executive Office, 201 Park Avenue South, New York, New York
10003.
Item 31. Management Services
None.
Item 32. Undertakings
The Depositor, GIAC, hereby undertakes and represents that the fees and
charges deducted under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred and the
risks assumed by GIAC.
C-6
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant, The Guardian Separate Account D certifies that it meets
all of the requirements for effectiveness of this Post-Effective Amendment to
the Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and the State of New York on the 29th day of
April, 1997.
The Guardian Separate Account D
(Registrant)
By: THE GUARDIAN INSURANCE & ANNUITY
COMPANY, INC.
(Depositor)
By: /s/ Thomas R. Hickey, Jr.
----------------------------
Thomas R. Hickey, Jr.
Vice President, Operations
C-7
<PAGE>
As required by the Securities Act of 1933, this Registration Statement has
been signed 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 * President, Chief Executive
- --------------------------------- Officer and Director
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/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/ARTHUR D. FERRARA* Director
- ---------------------------------
Arthur D. Ferrara
s/WILLIAM C. WARREN* Director
- ---------------------------------
William C. Warren
s/EDWARD K. KANE* Senior Vice President
- --------------------------------- and Director
Edward K. Kane
s/LEO R. FUTIA* Director
- ---------------------------------
Leo R. Futia
s/PHILIP H. DUTTER* Director
- ---------------------------------
Philip H. Dutter
- --------------------------------- Director
Peter L. Hutchings
*By s/ THOMAS R. HICKEY, JR.* Date: April 29, 1997
- ---------------------------------
Thomas R. Hickey, Jr.
Vice President, Operations
Pursuant to a Power of Attorney
C-8
<PAGE>
The Guardian Separate Account D
(Group)
Exhibit Index
-------------
Number Description
- ------ -----------
10(a) Consent of Price Waterhouse LLP
27 Financial Data Schedule
EX-99.10(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 7 to the registration statement on Form N-4 (the "Registration
Statement") of our report dated February 11, 1997, relating to the financial
statements appearing in the December 31, 1996 Annual Report to Contractowners of
The Guardian Separate Account D, which is also incorporated by reference into
the Registration Statement. We also consent to use in the Statement of
Additional Information of our report dated February 11, 1997, relating to the
statutory basis financial statements of The Guardian Insurance &Annuity Company,
Inc. which appears in such Statement of Additional Information, and the
incorporation by reference of our report into the Prospectus. We also consent to
the references to us under the heading "Condensed Financial Information" in the
Prospectus and under the heading "Experts" in the Statement of Additional
Information.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
New York, New York
April 25, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
SEPARATE ACCOUNT D - GUARDIAN INVESTOR
This schedule contains financial information extracted from the "Annual
Report to Contractowners" dated December 31, 1996.
</LEGEND>
<CIK> 0000856943
<NAME> SEPARATE ACCOUNT D - GUARDIAN INVESTOR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,735,014,711
<INVESTMENTS-AT-VALUE> 3,210,125,505
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,210,125,505
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,378,641
<TOTAL-LIABILITIES> 15,378,641
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 21,711,109
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 286,743,474
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 475,110,794
<NET-ASSETS> 3,194,746,864
<DIVIDEND-INCOME> 55,218,369
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 33,507,260
<NET-INVESTMENT-INCOME> 21,711,109
<REALIZED-GAINS-CURRENT> 286,743,474
<APPREC-INCREASE-CURRENT> 135,262,055
<NET-CHANGE-FROM-OPS> 443,716,638
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 33,507,260
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33,507,260
<AVERAGE-NET-ASSETS> 2,813,312,178
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 422,005,529
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .012
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
