As filed with the Securities and Exchange Commission on December 8, 1997
Registration Nos. 333-32101
811-8736
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
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THE GUARDIAN SEPARATE ACCOUNT K
(Exact Name of Trust)
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THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
201 Park Avenue South, New York, New York 10003
(Complete Address of Principal Executive Offices)
------------
RICHARD T. POTTER, JR., ESQ.
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
(Name and address of agent for service)
Copy to:
STEPHEN E. ROTH, ESQ.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
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Variable Whole Life Insurance Policies With Modified Scheduled Premiums --
Registration of Indefinite Amount of Securities Pursuant to Rule 24F-2 Under the
Investment Company Act of 1940 (Title, of securities being registered)
Approximate date of proposed public offering: Upon the effective date of this
Registration Statement
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
N-8B-2 Item Heading in Prospectus
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1,2,3,51(a)..................... Cover Page; Summary
4............................... Distribution of the Policy and Other
Contractual Arrangements
5............................... Summary
6(a)............................ The Separate Account
6(b)............................ The Separate Account
7............................... Not Applicable
8............................... Financial Statements
9............................... Legal Proceedings
10(a),(b)....................... Partial Withdrawals; Right to Cancel;
Surrender
10(d)........................... Fixed Benefit Life Insurance During the
First 24 Months; Transfers; Transfers from
the Fixed-Rate Option; Dollar Cost Averaging
Transfer Option; Reducing the Face Amount
10(e)........................... Default; Grace Period; Reinstatement
10(f)........................... Voting Rights
10(g),(h)....................... Rights Reserved by GIAC
10(i),44(a),51(g)............... Premiums; Policy Values and Benefits; Policy
Proceeds
11.............................. The Variable Investment Options
12.............................. The Variable Investment Options
13(a),(b),(c),51(g)............. Deductions from Policy Premiums and
Unscheduled Payments; Deductions from the
Mutual Funds
13(d),(g)....................... Not Applicable
13(e),(f)....................... Monthly Deductions from the Policy Account
Value; Transaction Deductions from Policy
Account Value; Deductions from the Separate
Account; Distribution of the Policy and
Other Contractual Arrangements
14.............................. Insureds
15.............................. Allocation of Net Premiums; Crediting
Payments
16.............................. Allocation of Net Premiums; Transfers;
Dollar Cost Averaging Transfer Option;
Policy Loans
17.............................. Surrender; Partial Withdrawals; Right to
Cancel; Policy Proceeds
18.............................. The Variable Investment Options
19.............................. Communications from GIAC
20.............................. Not Applicable
21(a),(b)....................... Policy Loans; Automatic Premium Loan; Policy
Proceeds
21(c),22,23..................... Not Applicable
24.............................. Policy Value Options; Payment Options;
Limits to GIAC's Right to Challenge a
Policy; Other Information
25,27,29,48..................... Summary
26.............................. Not Applicable
28.............................. GIAC's Management
30,31,32,33,34,35,36,37......... Not Applicable
38,39,41(a)..................... Distribution of the Policy and Other
Contractual Arrangements
40.............................. The Funds' Investment Advisers
41(b),(c),42,43................. Not Applicable
44(a)........................... Premiums; Policy Values and Benefits
44(b)........................... Exhibits
44(c)........................... Premiums
45.............................. Not Applicable
46(a),47........................ Amounts in the Separate Account; Net
Investment Factor; Policy Proceeds
46(b)........................... Not Applicable
49,50........................... Not Applicable
51(b)........................... Cover Page
51(c),(d)....................... Death Benefit Options; Charge for the Cost
of Insurance; Mortality and Expense Risk
Charge
51(e),(f)....................... Policyowner and Beneficiary
51(h),(i),(j)................... Not Applicable
52(a),(c)....................... Rights Reserved by GIAC
52(b),(d)....................... Not Applicable
53(a)........................... GIAC's Taxes
53(b),54,55,56,57,58............ Not Applicable
59.............................. Financial Statements
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PARK AVENUE LIFE
Variable Whole Life Insurance Policy
With Modified Scheduled Premiums
Prospectus Dated ______, 1997
Park Avenue Life is a variable whole life insurance policy with modified
scheduled premiums. The policy is issued by The Guardian Insurance & Annuity
Company, Inc. ("GIAC"), a wholly owned subsidiary of The Guardian Life Insurance
Company of America ("Guardian Life"). The policy provides guaranteed insurance
coverage until the Policy Anniversary nearest the insured's 100th birthday, that
at least equals the Face Amount if Policy Premiums are paid when due or skipped
under the Premium Skip Option, no partial withdrawals are made and there is no
Policy Debt. Park Avenue Life also provides the opportunity to increase the
amount of insurance coverage and other policy benefits if investment results are
sufficiently favorable.
The policy provides for the payment of Policy Premiums during the insured's
lifetime, or until the Policy Anniversary nearest the insured's 100th birthday.
Under certain circumstances, Policy Premium payments may be skipped. When Policy
Premium payments are skipped, Net Premiums are not added to the Policy Account
Value, and charges continue to be deducted under the policy.
A policyowner may allocate Net Premiums and transfer all or portions of the
Unloaned Policy Account Value among the Variable Investment Options and a
Fixed-Rate Option. Special limits apply to transfers out of the Fixed-Rate
Option. The Variable Investment Options provide variable market returns and are
offered through the investment divisions of The Guardian Separate Account K (the
"Separate Account"). The Fixed-Rate Option provides a guaranteed return of at
least 4% annually. The Policy Account Value increases or decreases with, among
other things, the investment experience and/or credited interest provided by the
Variable Investment Options and the Fixed-Rate Option, as selected by the
policyowner. A policyowner bears the investment risk for amounts held in the
Variable Investment Options.
Within limits, a policyowner may draw upon the Policy Account Value through
policy loans or partial withdrawals. A policyowner may also surrender the policy
for its Net Cash Surrender Value, but then all insurance coverage will end.
Surrender charges will be assessed during the first 12 policy years if the
policy lapses or is surrendered, or if the Face Amount is reduced. The Face
Amount can be reduced by request or as a result of a partial withdrawal. GIAC
also assesses a separate administrative processing charge in connection with
each partial withdrawal.
Regardless of a policy's investment experience, until the Policy Anniversary
nearest the insured's 100th birthday, it will not lapse and the death proceeds
will at least equal the Face Amount set forth in the policy if Policy Premiums
are paid when due or skipped under the Premium Skip Option, no partial
withdrawals are made and there is no Policy Debt. Upon policy lapse, a
policyowner may continue life insurance coverage for a limited period or in a
reduced amount by electing a policy value option. Also, a policyowner may be
able to reinstate a policy that has not been surrendered for cash for up to five
years after lapse.
Upon the insured's death, GIAC will pay the policy's death proceeds to the
beneficiary(ies). Two death benefit options are offered. Option 1 provides a
death benefit that at least equals the Face Amount of the policy when the
insured dies. Option 2 provides a variable death benefit that will be greater
than the Face Amount when the Policy Account Value exceeds the policy's
Benchmark Value, but that will never be less than the Face Amount when the
insured dies. Under either option, a higher death benefit may apply to satisfy
federal income tax law requirements or if the policy's "variable insurance
amount" exceeds certain levels. Also, under either option, after the Policy
Anniversary nearest the insured's 100th birthday, the death benefit is equal to
the Policy Account Value.
Variable life insurance is not a short term investment. A prospective purchaser
should evaluate the need for life insurance and the policy's long term
investment potential before buying a policy. In addition, it may not be
advantageous to replace existing life insurance coverage by purchasing a Park
Avenue Life policy, particularly if the decision to replace existing coverage is
based solely on a comparison of policy illustrations. For federal income tax
purposes, this policy may be treated as a modified endowment contract under
circumstances described in this prospectus. The policy may be examined and
returned for a full refund for a limited period after the initial Policy Premium
payment has been paid.
This prospectus sets forth information that a prospective purchaser should know
about Park Avenue Life before investing, and should be retained for future
reference. This prospectus is not valid unless it is accompanied by the current
prospectuses for The Guardian Stock Fund, The Guardian Small Cap Stock Fund, The
Guardian Bond Fund, The Guardian Cash Fund, Baillie Gifford International Fund,
Value Line Strategic Asset Management Trust, Value Line Centurion Fund and MFS
Growth With Income Series.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
DEFINITIONS............................................................... 4
SUMMARY................................................................... 6
PARK AVENUE LIFE POLICY DIAGRAM........................................... 11
THE PARK AVENUE LIFE POLICY............................................... 12
Insureds............................................................ 12
Premiums............................................................ 12
Policy Premiums............................................... 12
Basic Scheduled Premiums...................................... 12
Unscheduled Payments.......................................... 13
Premium Skip Option........................................... 13
Automatic Premium Loan........................................ 14
Allocation of Net Premiums.................................... 15
Crediting Payments............................................ 15
Backdating.................................................... 15
Default....................................................... 15
Grace Period.................................................. 16
Reinstatement................................................. 16
Deductions and Charges.............................................. 16
Deductions From Policy Premiums and Unscheduled Payments...... 16
Monthly Deductions From the Policy Account Value............. 17
Transaction Deductions From the Policy Account Value......... 18
Deductions From the Separate Account.......................... 19
Deductions From the Mutual Funds.............................. 19
Policy Values and Benefits.......................................... 20
Death Benefit Options......................................... 20
Policy Values................................................. 20
Amounts In the Separate Account............................... 21
Net Investment Factor......................................... 21
Other Policy Features............................................... 22
Policy Loans.................................................. 22
Reducing the Face Amount...................................... 23
Partial Withdrawals........................................... 23
Surrender..................................................... 24
Transfers..................................................... 24
Transfers From the Fixed-Rate Option.......................... 25
Dollar Cost Averaging Transfer Option......................... 25
Policy Proceeds............................................... 25
Policy Value Options.......................................... 26
Fixed-benefit Insurance During the First 24 Months............ 27
Payment Options............................................... 28
Tax Effects......................................................... 28
Treatment of Policy Proceeds.................................. 28
Exchanges..................................................... 30
Diversification............................................... 30
Policy Changes................................................ 30
Tax Changes................................................... 30
Estate and Generation Skipping Transfer Taxes................. 30
Legal Considerations for Employers............................ 30
Other Tax Consequences........................................ 31
GIAC's Taxes.................................................. 31
Income Tax Withholding........................................ 31
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THE VARIABLE INVESTMENT OPTIONS........................................... 32
The Separate Account................................................ 32
The Funds........................................................... 32
Investment Objectives and Policies of the Funds............... 32
Investment Performance of the Funds........................... 32
The Funds' Investment Advisers...................................... 33
Guardian Investor Services Corporation........................ 33
Guardian Baillie Gifford Limited.............................. 33
Baillie Gifford Overseas Limited.............................. 33
Value Line, Inc............................................... 33
Massachusetts Financial Services Company...................... 33
THE FIXED-RATE OPTION..................................................... 34
General Information................................................. 34
Amounts In the Fixed-Rate Option.................................... 34
VOTING RIGHTS............................................................. 35
DISTRIBUTION OF THE POLICY AND OTHER CONTRACTUAL ARRANGEMENTS............. 36
LIMITS TO GIAC'S RIGHT TO CHALLENGE A POLICY.............................. 37
Incontestability.................................................... 37
Misstatement of Age or Sex.......................................... 37
Suicide Exclusion................................................... 37
GIAC'S MANAGEMENT......................................................... 38
OTHER INFORMATION......................................................... 41
Rights Reserved by GIAC............................................. 41
Right to Cancel..................................................... 41
Policyowner and Beneficiary......................................... 41
Assignment.......................................................... 42
Communications From GIAC............................................ 42
Communications With GIAC............................................ 42
Special Provisions For Group or Sponsored Arrangements.............. 42
Advertising Practices............................................... 42
Legal Proceedings................................................... 43
Legal Matters....................................................... 43
Registration Statement.............................................. 43
Financial and Actuarial Experts..................................... 43
FINANCIAL STATEMENTS OF THE GUARDIAN SEPARATE ACCOUNT K................... 44
STATUTORY BASIS FINANCIAL STATEMENTS OF THE GUARDIAN INSURANCE & ANNUITY
COMPANY, INC............................................................ 54
APPENDIX A: POLICY ILLUSTRATIONS.......................................... A-1
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................. B-1
APPENDIX C: LONG TERM MARKET TRENDS....................................... C-1
APPENDIX D: USES OF LIFE INSURANCE........................................ D-1
APPENDIX E: ADDITIONAL BENEFITS BY RIDER.................................. E-1
APPENDIX F: VARIABLE WHOLE LIFE INSURANCE WITH MODIFIED SCHEDULED
PREMIUMS - FIRST YEAR SURRENDER CHARGE RATES PER $1000........ F-1
THE PARK AVENUE LIFE POLICY MAY NOT BE AVAILABLE IN ALL STATES OR JURISDICTIONS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE OR JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. GIAC DOES NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED SUPPLEMENT
THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY GIAC.
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DEFINITIONS
Important terms used in this prospectus are defined below. Defined terms appear
in this prospectus with initial upper case letters.
Age: The insured's age on his or her birthday nearest the Policy Date.
Attained Age: The insured's Age plus the number of policy years completed since
the Policy Date.
Basic Scheduled Premium: The premium amount set forth in a policy which must be
paid to obtain the benefits provided by the policy exclusive of additional
benefit riders. Rating charges may be added to the Basic Scheduled Premium when
the insured does not satisfy GIAC's underwriting requirements for standard
insurance.
Benchmark Value: A hypothetical account value that GIAC compares to the actual
Policy Account Value or Cash Surrender Value to determine whether and to what
extent certain policy privileges can be exercised, and to redetermine the Basic
Scheduled Premium in policy years after the Guaranteed Premium Period. A
Benchmark Value for each Policy Anniversary is set forth in the policy.
After the Guaranteed Premium Period, the Benchmark Value is equal to the greater
of (1) the Tabular Account Value plus the product of 0.955 and the difference
between the maximum Basic Scheduled Premium and the Basic Scheduled Premium
payable during the Guaranteed Premium Period for the current Face Amount and (2)
the amount which, along with the payment, when due, of Basic Scheduled Premiums
for the current Face Amount through the Policy Anniversary nearest the insured's
100th birthday, would cause the Policy Account Value to at least equal the Face
Amount on the Policy Anniversary nearest the insured's 100th birthday if,
assuming a $100,000 Face Amount and premiums paid monthly, (i) the policyowner
paid all such Basic Scheduled Premiums, (ii) no Unscheduled Payments were made
and no loans or withdrawals were taken, (iii) the policy's current cost of
insurance charges and maximum other charges and deductions were assessed and
(iv) the Policy Account Value earned a 4% annual net return throughout the life
of the policy.
During the Guaranteed Premium Period, the Benchmark Value is the greater of (1)
the Tabular Account Value and (2) the amount which, along with payment, when
due, of Basic Scheduled Premiums through the Guaranteed Premium Period, would
cause the Policy Account Value to at least equal the Benchmark Value at the end
of the Guaranteed Premium Period if, assuming a $250,000 Face Amount and
premiums paid annually,: (i) the policy's current cost of insurance charges are
assessed and (ii) the Policy Account Value earned a 6.59% annual gross return
throughout the Guaranteed Premium Period. The Benchmark Value on any day during
a policy year is based on the Benchmark Values for the immediately preceding and
immediately succeeding Policy Anniversaries, adjusted for the number of days to
such Anniversaries from the given day. GIAC does not guarantee that the Policy
Account Value will equal or exceed the Benchmark Values set forth in a policy.
Business Day: Each date on which the New York Stock Exchange or its successor is
open for trading and GIAC is open for business. GIAC's close of business is 4:00
p.m. New York City time.
Cash Surrender Value: The Policy Account Value minus any surrender charges.
Executive Office: GIAC's office at 201 Park Avenue South, Mail Station 215-B,
New York, New York 10003.
Face Amount or Guaranteed Insurance Amount: The guaranteed minimum amount of
death proceeds provided by a Park Avenue Life policy until the Policy
Anniversary nearest the insured's 100th birthday if Policy Premiums are paid
when due, or skipped under the Premium Skip Option, no partial withdrawals are
made and there is no Policy Debt. The Guaranteed Insurance amount is set forth
in the policy. The minimum initial Face Amount for a policy is currently
$100,000.
Fixed-Rate Option: The allocation option which provides a guaranteed rate of
return.
Guaranteed Premium Period: The period during which the Basic Scheduled Premium
specified in a policy is payable and guaranteed to remain level. The Guaranteed
Premium Period begins on the Policy Date and ends on the later of the Policy
Anniversary nearest the insured's 70th birthday or the 10th Policy Anniversary.
If the Face Amount is reduced during the Guaranteed Premium Period, the amount
of the level Basic Scheduled Premium to be paid through the remainder of the
Guaranteed Premium Period will be reduced.
Internal Revenue Code: The Internal Revenue Code of 1986, as amended, and its
related rules and regulations.
Issue Date: The date the policy is issued at the Executive Office.
Loan Collateral Account: An account within GIAC's general account to which
values from the Variable Investment Options and the Fixed-Rate Option are
transferred when the policyowner takes a policy loan.
Monthly Date: The same date of each calendar month as the Policy Date, or the
last date of a calendar month, if earlier.
Monthly Deductions: Deductions from the Policy Account Value attributable to the
Variable Investment Options and the Fixed-Rate Option which are processed on
each Monthly Date to pay the policy charge,
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administration charge, cost of insurance charge and guaranteed insurance amount
charge.
Net Amount at Risk: The amount of death benefit provided under the death benefit
option then in force minus the Policy Account Value.
Net Cash Surrender Value: The amount payable upon the surrender of a policy. The
Net Cash Surrender Value on any date is the Cash Surrender Value as reduced by
any Policy Debt and increased by any amounts already paid as Policy Premium
Assessments for periods beyond the next Monthly Date.
Net Premium: The portion of a Basic Scheduled Premium or an Unscheduled Payment
which is allocated among the Variable Investment Options and the Fixed-Rate
Option according to instructions provided by the policyowner.
Policy Account Value: The sum of the values attributable to a policy which are
allocated to the Variable Investment Options, the Fixed-Rate Option and the Loan
Collateral Account.
Policy Anniversary: The annual anniversary measured from the Policy Date.
Policy Date: The date set forth in the policy that is used to measure policy
months and policy years. Policy Anniversaries and Monthly Dates are measured
from the Policy Date.
Policy Debt: All outstanding and unpaid policy loans plus accrued and unpaid
loan interest.
Policy Premium: The amount payable for coverage provided under the entire
contract, including any additional benefit riders elected by the policyowner. A
Policy Premium equals the Basic Scheduled Premium plus any applicable Policy
Premium Assessments.
Policy Premium Assessments: (1) Rating charges which are added to the Basic
Scheduled Premium when the insured does not satisfy GIAC's underwriting
requirements for standard insurance; and/or (2) premiums payable for any
additional benefits provided by riders to a policy.
Policy Review Date: The Monthly Date prior to the beginning of a given policy
year.
Premium Charge: A charge deducted from Basic Scheduled Premiums and Unscheduled
Payments at a rate of 7.5% per payment until an amount equal to 12 Basic
Scheduled Premiums payable during the Guaranteed Premium Period for the current
Face Amount has been paid, and thereafter at a rate of 4.5% per payment.
Tabular Account Value: A hypothetical account value that GIAC compares to the
actual Policy Account Value to redetermine the Basic Scheduled Premium in policy
years after the Guaranteed Premium Period, and uses to calculate Benchmark
Values. The Tabular Account Value is equal to the hypothetical account value
that would result if, assuming a policy with a Face Amount of $100,000 and
premiums paid monthly, (i) a policyowner paid the Basic Scheduled Premium during
the Guaranteed Premium Period and the maximum Basic Scheduled Premium
thereafter, (ii) GIAC assessed guaranteed charges beginning on the Policy Date
and (iii) the Policy Account Value earned a 4% annual net return throughout the
life of the policy. The Tabular Account Value on any day during a policy year is
based on the Tabular Account Values for the immediately preceding and
immediately succeeding Policy Anniversaries, adjusted for the number of days to
such anniversaries from the given day. GIAC does not guarantee that the Policy
Account Value will equal or exceed the Tabular Account Values set forth in a
policy.
Unloaned Policy Account Value: The Policy Account Value minus any Policy Debt.
Unscheduled Payments: Payments made in addition to the Policy Premium payable
for each policy year.
Variable Investment Options: The investment divisions of the Separate Account
which correspond to the mutual funds in which the Separate Account invests.
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SUMMARY
The following summary is qualified in its entirety by: (1) the terms of the Park
Avenue Life policy issued to the policyowner, exclusive of any riders; (2) the
more detailed information appearing elsewhere in this prospectus; and (3) the
accompanying prospectuses for the mutual funds in which the Separate Account
invests.
How does variable life insurance differ from conventional, fixed-benefit whole
life insurance?
Like conventional, fixed-benefit whole life insurance, variable life insurance
provides two important benefits: (1) an income tax-free death benefit and (2) a
cash value that can grow tax-deferred. What sets variable life insurance apart
from conventional whole life insurance is that the owner of a variable life
insurance policy can direct premiums and cash values to investment options that
provide variable, rather than fixed, returns. If investment results are
sufficiently favorable, the policyowner can experience an increase in a variable
life insurance policy's cash value and, in certain cases, the amount of the
death benefit. However, the variable life insurance policyowner also bears the
risk of investment losses and no cash value is guaranteed. In contrast, a
conventional whole life insurance policy generally provides cash values that are
fixed and guaranteed by the issuing insurance company when the policy is issued.
How does Park Avenue Life differ from universal life insurance policies?
A universal life insurance policy typically allows the policyowner to select and
change the death benefit option that applies to his or her policy, increase or
decrease the face amount of insurance provided by the policy, and choose the
amount and frequency of premium payments with reference to "target premiums."
This flexibility permits a policyowner to provide for changing insurance needs
within a single policy. However, there are risks that a universal life insurance
policy will lapse without cash value, because even the recommended target
premiums may be insufficient to support the policy's face amount and other
benefits when investment experience is unfavorable. This risk increases if the
policyowner chooses not to pay the target premiums according to the recommended
schedule.
Park Avenue Life offers many of the features available under universal life
insurance policies. Policyowners may select and, within limits, change the death
benefit option, reduce the Face Amount, make Unscheduled Payments or skip annual
Policy Premiums. However, unlike universal life insurance policies, Park Avenue
Life is guaranteed by GIAC to remain in force, regardless of investment
performance, until the Policy Anniversary nearest the insured's 100th birthday,
if required Policy Premiums are paid when due, or skipped under the Premium Skip
Option, and Policy Debt does not exceed the Cash Surrender Value. See "Premiums"
and "Policy Loans."
Who issues Park Avenue Life?
The policy is issued through the Separate Account by The Guardian Insurance &
Annuity Company, Inc. ("GIAC"). GIAC is wholly owned by The Guardian Life
Insurance Company of America ("Guardian Life"). GIAC is a Delaware stock
insurance company. It was organized in 1970 and is licensed to sell life
insurance and annuities in all 50 states of the United States and the District
of Columbia. As of December 31, 1996, GIAC had total assets (statutory basis) in
excess of $6.0 billion. Guardian Life is a New York mutual insurance company.
Guardian Life and the Executive Offices of GIAC are located at 201 Park Avenue
South, New York, New York 10003. Written communications about Park Avenue Life
should be directed to Mail Station 215-B at that address.
As of the date of this prospectus, GIAC and its parent, Guardian Life, have
consistently received exemplary ratings from Moody's Investors Service, Inc.,
Standard & Poor's Corporation, Duff & Phelps and A.M. Best. These ratings may
change at any time, and only reflect GIAC's ability to satisfy its
insurance-related obligations and meet its guarantee of the policy's Fixed-Rate
Option. These ratings do not apply to Park Avenue Life's Variable Investment
Options, which are subject to the risks of investing in securities. Guardian
Life is not the issuer of Park Avenue Life policies and does not guarantee the
benefits provided therein.
Who can buy a Park Avenue Life Policy?
GIAC will issue a policy to a purchaser who resides in a state or jurisdiction
where the policy may be offered to insure the life of anyone Age 80 or under
(Age 70 and under on and after May 1, 1998) who meets GIAC's underwriting
requirements. Owners of certain fixed-benefit life insurance policies issued by
GIAC or its parent, Guardian Life, may be able to purchase Park Avenue Life (i)
without evidence of insurability, by exchanging their present policies, or (ii)
without evidence of insurability, or with simplified underwriting, by exercising
applicable riders to their fixed-benefit life insurance policies. Policyowners
of convertible term policies and whole life policies with convertible term
riders who elect to convert to a Park Avenue Life Policy may receive a credit
upon conversion in an amount up to one Basic Scheduled Premium. Interested
policyowners should consult their legal and tax advisers about the consequences
of exchanging their existing policies for a Park Avenue Life policy. See
"Deductions and Charges," "Tax Effects," and "Special Provisions For Group Or
Sponsored Arrangements."
How are premiums set and when are they due?
The policy specifies a Basic Scheduled Premium that is
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payable each policy year for life insurance coverage. The amount of a Basic
Scheduled Premium depends on: (1) the Face Amount of insurance; and (2) the
insured's Age, sex (unless unisex rates are required by law) and premium class.
The Basic Scheduled Premium remains level during the Guaranteed Premium Period,
though it will be reduced to a lower level amount if the policy's Face Amount is
reduced. After the Guaranteed Premium Period, GIAC will annually review the
Basic Scheduled Premium to determine if the amount payable for a policy year
should be changed. If changed, the Basic Scheduled Premium will never be greater
than the maximum Basic Scheduled Premium set forth in the policy. Nor will it be
lower than the Basic Scheduled Premium set forth in the policy for the
Guaranteed Premium Period, unless the Face Amount is reduced.
If the insured does not satisfy GIAC's underwriting requirements for standard
insurance, rating charges are added to the Basic Scheduled Premium. If the
policyowner acquires additional insurance benefits by purchasing one or more of
the available riders to the policy, rider premiums are also added to the Basic
Scheduled Premium to set the "Policy Premium" amount. Rating charges and rider
premiums are collectively called "Policy Premium Assessments." Policy Premium
Assessment amounts are not allocated to the Variable Investment Options or the
Fixed-Rate Option under the policy.
After the first Policy Premium has been paid, all Policy Premiums are payable
annually, though they may, at the policyowner's request, be paid semi-annually,
quarterly, monthly pursuant to a pre-authorized payment plan, or at another
frequency that is agreeable to GIAC. Unscheduled Payments are permitted within
limits. See "Premiums."
After the first policy year and under the circumstances described under "Premium
Skip Option," a policyowner who has elected this privilege may "skip" paying one
or more annual Policy Premiums without causing the policy to lapse or reducing
its Face Amount. Policyowners may also elect to pay Policy Premiums by using
Park Avenue Life's Automatic Premium Loan feature. Although exercise of the
Premium Skip Option will not cause a policy lapse or loss of the Guaranteed
Death Benefit, skipping Policy Premiums or paying them through Automatic Premium
Loans can have a permanent and possibly adverse effect on the Policy Account
Value.
What charges are assessed in connection with the policy?
All of the charges, fees and deductions that a policyowner may pay directly or
indirectly under a Park Avenue Life policy are summarized below and described
more fully under "Deductions and Charges."
Deductions From Policy Premiums and Unscheduled Payments
Policy Premium Assessments
These are the rating charges and rider premiums described under "Premiums."
Policy Premium Assessments are added to the Basic Scheduled Premium to set the
Policy Premium to be paid for insurance coverage under the policy and any
additional benefit rider(s).
Premium Charge
A charge of 7.5% is deducted from each Basic Scheduled Premium and Unscheduled
Payment paid under a policy (the "Premium Charge"). This charge covers premium
taxes, a portion of GIAC's federal income tax burden, and a premium sales
charge. The Premium Charge will be reduced to 4.5% after an amount equal to 12
Basic Scheduled Premiums payable during the Guaranteed Premium Period for the
current Face Amount has been paid under a policy through either Basic Scheduled
Premiums or Unscheduled Payments.
Handling Fee
GIAC reserves the right to charge a maximum handling fee of $2.00 for each
Unscheduled Payment it receives. If charged, this fee would be deducted from
each Unscheduled Payment before the Premium Charge is calculated. GIAC does not
impose this fee now.
Deductions From the Policy Account Value
Charges which are deducted from the Policy Account Value as of the Policy Date
and on each Monthly Date are called "Monthly Deductions." Amounts that are
deducted from the Policy Account Value if certain events occur are called
"Transaction Deductions." Monthly Deductions end on the Policy Anniversary
nearest the insured's 100th birthday.
Monthly Deductions:
Policy Charge
For the first three policy years, this charge is $10 per month. Thereafter, this
charge is currently $4 per month, and is guaranteed never to exceed $8 per
month.
Administration Charge
For the first 12 policy years, this level charge per $1,000 of Face Amount is
based on the insured's Age. The highest possible administration charge during
this period is $0.04 per $1,000 of Face Amount. After the 12th policy year, the
monthly administration charge is $0.015 per $1,000 of Face Amount.
Guaranteed Insurance Amount Charge
This level charge is $0.01 per $1,000 of Face Amount for all policies.
Charge For The Cost Of Insurance
This charge is based upon GIAC's current cost of insurance rates for the
insured's Attained Age, sex and premium class. The maximum cost of insurance
rates that GIAC may charge per $1,000 of Net Amount at Risk are set
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forth in the policy.
Transaction Deductions:
Surrender Charge
During the first 12 policy years, GIAC assesses a surrender charge when the
policy lapses or is surrendered, or if the Face Amount is reduced by request or
as the result of a partial withdrawal. The amount of the surrender charge
depends upon the policy year in which the event occurs and declines each policy
year. The surrender charge is a flat charge per $1000 of Face Amount beginning
in policy year 1 and declining proportionally on an annual basis to $0 in policy
year 13. The charge per $1000 varies by issue age, sex and underwriting class.
The applicable surrender charge is set forth in the policy. See "Surrender" and
"Deductions and Charges."
Partial Withdrawal Charge
GIAC charges an administrative fee equal to the lesser of $25 or 2% of the
requested partial withdrawal amount in connection with each partial withdrawal.
The partial withdrawal charge is payable in addition to any surrender charges
that may apply. See above.
Premium Skip Option Deduction
GIAC deducts amounts needed to pay any Policy Premium Assessments if a
policyowner exercises Park Avenue Life's Premium Skip Option.
Transfer Charge
GIAC reserves the right to charge $25 for each transfer after the twelfth
transfer in a policy year. GIAC does not impose this charge now.
Deductions From the Separate Account
Mortality And Expense Risk Charge
GIAC currently assesses a daily charge at an annual rate of 0.60% of the
Separate Account's assets for the mortality and expense risks it assumes for
Park Avenue Life policies. This charge is guaranteed never to exceed an annual
rate of 0.90% of the Separate Account's assets.
Income Tax Charge
GIAC has reserved the right to charge the Separate Account to cover its federal,
state or local income taxes that are attributable to the Separate Account or the
policies. GIAC does not impose this charge now.
Deductions From the Mutual Funds
Advisory Fees And Operational Expenses
Charges for investment advisory fees and operational expenses are deducted daily
from the assets of the mutual funds in which the Separate Account invests. As a
result, policyowners bear these fees and expenses indirectly. These fees and
expenses are described in more detail in the prospectuses for the mutual funds
that accompany this prospectus.
What is the difference between "guaranteed or maximum charges" and "current
charges"?
Certain charges made under a policy (for example, the cost of insurance charge)
can increase under certain circumstances. A guaranteed or maximum charge is the
highest amount that GIAC is entitled to charge for a particular item. A current
charge is the lower amount that GIAC is now charging for the same item.
Generally, GIAC intends to assess current charges for the indefinite future.
However, GIAC reserves the right to increase each current charge up to the
guaranteed charge when permissible under the policy. GIAC will provide notice of
any such increases if required by law. See "Deductions and Charges."
What Variable Investment Options are offered under Park Avenue Life?
Park Avenue Life offers Variable Investment Options that provide variable
returns. The Variable Investment Options are provided through the Separate
Account, which is a separate investment account of GIAC. Each Separate Account
investment division invests solely in the shares of a corresponding mutual fund
or series of a mutual fund. The Variable Investment Options currently available
are: The Guardian Stock Fund, The Guardian Small Cap Stock Fund, The Guardian
Bond Fund, The Guardian Cash Fund, Baillie Gifford International Fund, Value
Line Strategic Asset Management Trust, Value Line Centurion Fund, and MFS Growth
With Income Series. There is no minimum guaranteed Policy Account Value for
amounts held in the Variable Investment Options.
Prospectuses for the mutual funds, which describe their respective investment
objectives, risks, and all of their fees and expenses, accompany this
prospectus. Those prospectuses should be read carefully before Policy Account
Values are allocated or transferred to or from the Variable Investment Options.
Summary information about the investment objectives of these mutual funds and
the risks and potential rewards of investing in securities appears in "The
Variable Investment Options" and Appendix C. The Separate Account and the mutual
funds are registered with the Securities and Exchange Commission ("SEC") as
investment companies under the Investment Company Act of 1940 (the "1940 Act").
What is the Fixed-Rate Option?
The Fixed-Rate Option is another allocation choice offered under Park Avenue
Life. Amounts allocated or transferred to the Fixed-Rate Option are credited
with a fixed rate of interest that is guaranteed from the date of allocation or
transfer until the next succeeding Policy Anniversary. On each Policy
Anniversary, the entire Policy Account Value that is then attributable to the
Fixed-Rate Option (including earned interest) is aggregated to be credited with
the interest rate in effect on that Policy Anniversary. Such rate will remain in
effect for these monies until the next Policy Anniversary. The minimum
guaranteed annual interest rate provided by the Fixed-Rate Option is 4%.
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Amounts attributable to the Fixed-Rate Option are held in GIAC's general
account. See "The Fixed-Rate Option."
Is it possible to change how the Policy Account Value is invested under a Park
Avenue Life policy?
Yes. Presently, a policyowner may transfer all or part of the Unloaned Policy
Account Value among the Variable Investment Options and into the Fixed-Rate
Option at any time without charge. Currently, the maximum number of options in
which the Policy Account Value may be invested is 7. In addition, special limits
apply to transfers out of the Fixed-Rate Option. See "Transfers From The
Fixed-Rate Option."
What insurance benefits are available under a Park Avenue Life policy?
A prospective policyowner can obtain death benefits and optional rider benefits
through a Park Avenue Life policy.
Death Benefits
GIAC will pay a policy's death proceeds to the beneficiary upon its receipt of
due proof that the insured died while the policy was in force. The policy
provides two death benefit options both of which provide insurance coverage
until the Policy Anniversary nearest the insured's 100th birthday:
Option 1 provides a death benefit that at least equals the policy's Face
Amount when the insured dies; and
Option 2 provides a variable death benefit that is greater than the Face
Amount when the Policy Account Value exceeds the policy's Benchmark Value,
but which will never be less than the Face Amount when the insured dies.
After the Policy Anniversary nearest the insured's 100th birthday, the death
benefit is equal to the Policy Account Value.
A higher death benefit may apply under either option to satisfy federal income
tax law requirements or if the policy's variable insurance amount exceeds
certain levels. The policy's variable insurance amount is described under "Death
Benefit Options."
After the first Policy Anniversary, the policyowner can change death benefit
options once each policy year if the insured is then living. Evidence of
insurability is required when the requested change is from Option 1 to Option 2.
See "Death Benefit Options."
Rider Benefits
Additional benefits can be provided by riders to the policy, subject to GIAC's
underwriting and issuance standards. The following additional benefit riders are
currently available, though perhaps not in every state: Waiver of Premium;
Accidental Death Benefit; Guaranteed Purchase Option; Simplified Insurability
Option; and Adjustable Renewable Term Insurance. Premiums for additional rider
benefits are included in the Policy Premiums charged to a Park Avenue Life
policyowner, but rider premiums are not allocated to the Variable Investment
Options or the Fixed-Rate Option and riders have no cash value. The riders are
briefly described in Appendix E.
What is the amount of death proceeds payable under a Park Avenue Life policy?
The amount of the death proceeds will be based on the benefit provided by the
death benefit option in effect when the insured dies and any insurance proceeds
provided by additional benefit riders. To determine the payable proceeds, GIAC
will deduct any outstanding Policy Debt and, if applicable, any due but unpaid
Policy Premium from the death benefit. If, on the other hand, the policyowner
has paid a Policy Premium to provide coverage after the policy month during
which the insured died, a pro-rata portion of any Policy Premium Assessments
that were included in such premium will be added to the death benefit proceeds.
Death proceeds may be received in a lump sum or under one of the payment options
described in the policy. See "Policy Proceeds" and "Payment Options."
Does a policyowner have access to the monies invested in a Park Avenue Life
policy?
The policyowner may, within limits, (1) make partial withdrawals of Net Cash
Surrender Value; and/or (2) borrow up to 90% of the policy's Cash Surrender
Value less the amount of any Policy Debt. Interest at an annual rate of 8%
accrues daily against outstanding policy loans. The annual rate of interest on
policy loans decreases to 5% after the later of the twentieth Policy Anniversary
or the insured's Attained Age 65. See "Partial Withdrawals" and "Policy Loans."
Also, a policy may be surrendered at any time for its then Net Cash Surrender
Value. Upon surrender, insurance coverage ends.
See "Deductions and Charges" and "Tax Effects" for information about the
possible impact of these policy transactions on (1) policy benefits and (2) the
amounts invested in a policy.
Are increases in Policy Account Value or the death proceeds taxed under the
income tax provisions of the Internal Revenue Code?
Under current federal tax law, increases in Policy Account Value are not
generally subject to federal income tax unless they are distributed before the
insured dies. Death proceeds are not subject to federal income tax, but may be
subject to federal estate and/or generation skipping transfer taxes. See "Tax
Effects."
What is the federal income tax treatment of partial withdrawals, surrenders and
policy loans?
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Each of these transactions results in a pre-death distribution from the policy.
The federal income tax treatment of the proceeds of a pre-death distribution
depends on whether a policy is treated as a "modified endowment contract" under
the Internal Revenue Code.
If a Park Avenue Life policy is not treated as a modified endowment contract:
(1) Distributions through partial withdrawals or upon surrender will
generally be taxed only if the sum of all such distributions exceeds the
policyowner's "basis" in the policy (i.e., the sum of the Policy Premiums
and Unscheduled Payments paid minus any amounts previously withdrawn
through tax-free distributions). Amounts received in excess of the
policyowner's basis in the policy will be recognized and taxable as
ordinary income.
(2) Policy loans should be treated as indebtedness, not as taxable
distributions, so long as the policy remains in force. Generally, policy
loan interest payments are not tax deductible by the policyowner. There
may be adverse tax consequences if a policy lapses with Policy Debt
outstanding.
If a Park Avenue Life policy is treated as a modified endowment contract:
All pre-death distributions, including policy loans, will be taxed first as
ordinary income, to the extent of gain in the policy, and then treated as a
return of the basis in the policy. With few exceptions, a 10% penalty tax will
also apply to the taxable portion of a distribution from a modified endowment
contract.
Under the circumstances which are summarized under "Tax Effects," a policy could
be treated as a modified endowment contract. A legal or tax adviser should be
consulted before taking actions that could cause a policy to be treated as a
modified endowment contract. Neither GIAC nor its agents are authorized to
provide this type of advice to policyowners.
When would a policy lapse?
A policy can lapse if a required Policy Premium or loan repayment remains unpaid
31 days after its due date. A Policy Premium must be paid in cash when due,
unless the policyowner has elected and is eligible for the policy's Premium Skip
Option or Automatic Premium Loan feature. See "Premium Skip Option" and
"Automatic Premium Loan." GIAC will notify the policyowner that a loan repayment
is required when the Policy Debt exceeds the policy's Cash Surrender Value.
GIAC will provide the policyowner with notice of an impending policy lapse, and
will maintain the policy in force if the amount specified in the notice is
received on a timely basis at the Executive Office. See "Grace Period." Upon
lapse, insurance coverage can be continued for a limited period or in a reduced
amount under a policy value option. See "Policy Value Options." A lapsed policy
that has not been surrendered for cash may be eligible for reinstatement for up
to five years. See "Reinstatement."
Can a policy be exchanged for a fixed-benefit life insurance policy?
A policyowner has the right to exchange a Park Avenue Life policy for a
fixed-benefit whole life insurance policy on the life of the insured that is
issued by GIAC or one of its affiliates, without evidence of insurability,
within 24 months of the Issue Date. See "Fixed-Benefit Insurance During the
First 24 Months."
Can the policy be cancelled after the Issue Date?
A policyowner may cancel a policy by returning the policy and a written
cancellation notice to GIAC's Executive Office or the agent from whom such
policy was purchased by the later of: 10 days after receiving the policy; or 45
days from the date Part 1 of the completed application for the policy was
signed. GIAC will promptly refund all Policy Premiums and Unscheduled Payments
submitted before cancellation. Longer periods may apply in certain states. A
policy that is returned for cancellation will be void from the beginning. See
"Right to Cancel."
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Park Avenue Life Policy Diagram*
[GRAPHIC OMITTED]
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THE PARK AVENUE LIFE POLICY
This section of the prospectus provides an overview of the policy's provisions
exclusive of any riders. Since GIAC is subject to the insurance laws and
regulations of every jurisdiction in which Park Avenue Life is sold, some of the
policy's terms may vary from jurisdiction to jurisdiction. Specific variations
to a policy will be set forth in the policy issued to the policyowner.
INSUREDS
GIAC will issue a policy with an initial Face Amount of at least $100,000 to
anyone who resides in a state or jurisdiction where the policy may be offered.
The policy can be issued to insure the life of anyone Age 80 or under (Age 70
and under on and after May 1, 1998). The insured and the policyowner may be the
same person or different individuals. GIAC requires satisfactory evidence of
insurability before it will issue or reinstate a policy. Owners of certain
fixed-benefit life insurance policies issued by GIAC or its parent, Guardian
Life, may be able to purchase Park Avenue Life (i) without evidence of
insurability, by exchanging their present policies or (ii) without evidence of
insurability, or with simplified underwriting, by exercising applicable riders
to their fixed-benefit life insurance policies. Policyowners of convertible term
policies and whole life policies with convertible term riders who elect to
convert to a Park Avenue Life policy may receive a credit upon conversion in an
amount up to one Basic Scheduled Premium. Interested policyowners should consult
their legal and tax advisers about the consequences of exchanging their existing
policies for Park Avenue Life. See "Deductions and Charges," "Tax Effects," and
"Special Provisions For Group Or Sponsored Arrangements."
PREMIUMS
Policy Premiums
Policy Premiums are payable during the insured's lifetime or until the Policy
Anniversary nearest the insured's 100th birthday. If such premiums are paid when
due or skipped under the Premium Skip Option, the policy will not lapse and the
death proceeds will be at least equal to the Face Amount set forth in the policy
until the Policy Anniversary nearest the insured's 100th birthday, so long as no
partial withdrawals are made and there is no Policy Debt outstanding. Policy
Premiums must be received at GIAC's Executive Office.
The annual Policy Premium amount includes rating charges if the insured does not
satisfy GIAC's underwriting requirements for standard insurance, as well as
premiums for insurance benefits that the policyowner can add by riders to the
policy. Any rating charges are set forth in the policy. Rider premiums are also
stated in the policy. Rating charges and rider premiums are called "Policy
Premium Assessments" in this prospectus.
Policy Premiums may be paid annually or periodically (i.e., semi-annually,
quarterly, monthly pursuant to a pre-authorized payment plan, or at any other
frequency that is acceptable to GIAC). Each "periodic" premium payment must be
at least $100. GIAC determines the amount of each periodic Policy Premium by
multiplying the annual Policy Premium by a specific percentage factor. The sum
of the periodic Policy Premiums paid for a policy year will be higher than one
annual Policy Premium. For semi-annual periodic Policy Premiums, where the
factor is .515, the sum of the periodic Policy Premiums is 3% higher than one
annual Policy Premium. For quarterly periodic Policy Premiums, where the factor
is .26265, the sum of the periodic Policy Premiums is 5.06% higher than one
annual Policy Premium. For monthly periodic Policy Premiums, where the factor is
.085833, the sum of the periodic Policy Premiums is 3% higher than one annual
Policy Premium. The Policy Account Value can be influenced favorably or
unfavorably by paying Policy Premiums on a periodic basis. GIAC will change the
payment frequency mode for a policyowner if it receives a proper written request
at its Executive Office. Unless the request is received sufficiently before the
next premium due date, GIAC will be unable to change the frequency mode until
the premium cycle that follows such premium due date.
Basic Scheduled Premiums
The Basic Scheduled Premium is the Policy Premium minus any Policy Premium
Assessments. The policy sets forth the level Basic Scheduled Premium that is
payable for each policy year during the Guaranteed Premium Period, as well as
the maximum Basic Scheduled Premium that may be charged for any policy year
after the Guaranteed Premium Period ends.
The Guaranteed Premium Period starts on the Policy Date and ends on the later of
the Policy Anniversary nearest the insured's 70th birthday or the 10th Policy
Anniversary. GIAC cannot increase the Basic Scheduled Premium during the
Guaranteed Premium Period. However, GIAC will reduce such premium if the
policy's Face Amount is reduced during the Guaranteed Premium Period. New policy
pages that set forth the lowered level Basic Scheduled Premium will be sent to
the policyowner when the Face Amount is reduced. See "Reducing the Face Amount."
On the Policy Review Date immediately preceding the end of the Guaranteed
Premium Period and on each Policy Review Date thereafter, GIAC redetermines the
amount of Basic Scheduled Premium payable for the next policy year by comparing
the Policy Account Value on such date to the Benchmark Value and the Tabular
Account Value as adjusted to that date. If the Policy Account Value is less than
or equal to the Tabular Account Value, the policyowner will be assessed the
maximum Basic Scheduled Premium set forth in the policy. If the Policy Account
Value is greater than or
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equal to the Benchmark Value, the policyowner will be assessed the Basic
Scheduled Premium payable during the Guaranteed Premium Period for the current
Face Amount. If the Policy Account Value is greater than the Tabular Account
Value and less than the Benchmark Value, the policyowner will be assessed a
Basic Scheduled Premium, determined by linear interpolation between these two
values, which will be an amount greater than the Basic Scheduled Premium payable
during the Guaranteed Premium Period for the current Face Amount but less than
the maximum Basic Scheduled Premium for the current Face Amount. GIAC will
notify the policyowner of any change in the Basic Scheduled Premium in premium
billing notices.
Unscheduled Payments
A policyowner may choose to make Unscheduled Payments in addition to the Policy
Premium payable for each policy year. Unscheduled Payments can help build Policy
Account Value and perhaps increase an Option 2 death benefit.
There is a $100 minimum for each Unscheduled Payment unless an Unscheduled
Payment accompanies a Policy Premium payment. No Unscheduled Payments are
permitted while Policy Premiums are waived under a waiver of premium rider, or
while a policy value option is in effect, or from and after the Policy
Anniversary nearest the insured's 100th birthday. GIAC reserves the right to
refuse to accept an Unscheduled Payment before the eleventh policy year from a
policyowner who, after the first policy year, has not made an Unscheduled
Payment for three consecutive policy years. GIAC also reserves the right to
deduct a maximum handling fee of $2.00 from each Unscheduled Payment before
deducting certain other charges and crediting the resulting Net Premium under
the policy. See "Policy Value Options," "Deductions and Charges" and "Crediting
Payments."
GIAC restricts the amount of total Unscheduled Payments that may be submitted in
policy year 1 to the lesser of $1,000,000, or the Basic Scheduled Premium for
that year multiplied by the number set forth below for the insured's Age on the
Policy Date:
AGE MULTIPLIER
--- ----------
0-35 17
36-40 16
41-45 15
46-50 14
51-55 13
56-60 12
61-65 11
66-70 10
71 9
72 8
73 7
74 6
75-80 5
See "Allocation of Net Premiums" for further allocation restrictions applicable
to certain amounts received before the later of (a) 45 days from the date Part 1
of the completed application is signed and (b) 15 days after the Issue Date.
In policy years 2-10, GIAC restricts the amount of total Unscheduled Payments
that may be submitted to the lesser of (a) $500,000 or (b) three times the
initial Basic Scheduled Premium for the current Face Amount.
After the tenth Policy Anniversary, the aggregate amount of Unscheduled Payments
that may be submitted in any one policy year is restricted as follows: (i) if
any Unscheduled Payment has been made during the previous three policy years,
the policyowner may make Unscheduled Payments that in the aggregate do not
exceed the lesser of (a) 1.25 times the largest amount of total Unscheduled
Payments made during any one of the previous three policy years, up to a maximum
of 3 times the Basic Scheduled Premium payable during the Guaranteed Premium
Period for the current Face Amount, and (b) $500,000; or (ii) if no Unscheduled
Payment has been made during the previous three policy years, the policyowner
may make Unscheduled Payments that in the aggregate do not exceed 1 Basic
Scheduled Premium payable during the Guaranteed Premium Period for the current
Face Amount provided evidence of insurability satisfactory to GIAC accompanies
said payment.
Upon receipt of satisfactory evidence of insurability, GIAC may permit the
policyowner to make an Unscheduled Payment which exceeds the Unscheduled Payment
which would be allowed under (i) above in an amount not to exceed 1 initial
Basic Scheduled Premium for the current Face Amount.
Notwithstanding the foregoing, for any year in which the Premium Skip Option is
in effect, the maximum amount of Unscheduled Payments that may be made shall not
be less than the Policy Premium.
GIAC will return to the policyowner that portion of any Unscheduled Payment
which exceeds the then applicable maximum.
Unscheduled Payments may cause a policy to be treated as a modified endowment
contract under the Internal Revenue Code. Because a wide variety of
policyowner-directed policy transactions could also cause a policy to be treated
as a modified endowment contract, GIAC cannot assure that a policy will never be
treated as a modified endowment contract. See "Tax Effects." Premium Skip Option
After the first policy year, the policyowner may "skip" paying the annual Policy
Premium due on a Policy Anniversary if:
o GIAC receives the owner's written election of the Premium Skip
Option by the end of the grace period for the annual Policy Premium
that is to be skipped initially; and
o on the date that each premium skip is effected,
- the Policy Account Value exceeds the Benchmark Value, as
adjusted to such date, by at least the amount of the annual
Policy Premium; and
- the policy's Net Cash Surrender Value then equals or exceeds
that portion of the Policy Premium which pays any Policy
Premium Assessments; and
- Policy Premiums are not then being waived under a waiver of
premium rider.
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If the policyowner's written election of this option is received during the
grace period for the annual Policy Premium that is to be skipped initially, the
first premium skip will be effected as of the date that GIAC received such
election. Otherwise, each premium skip will be effected as of the Policy
Anniversary on which an annual Policy Premium would be due. A policyowner who
had been paying periodic Policy Premiums will be placed on the annual mode when
this option is effected, but remains responsible for paying any periodic Policy
Premiums that are due before the option is effected.
While the Premium Skip Option is in effect, GIAC will continue to send the
policyowner annual Policy Premium billing notices. If the criteria for skipping
Policy Premiums continue to be satisfied, the policyowner will not be required
to pay Policy Premiums in response to such notices to keep the policy in force.
In fact, GIAC will treat the receipt of a Policy Premium as a revocation of the
Premium Skip Option (see below).
A policyowner can call 1-800-935-4128 to learn the Policy Account Value and Net
Cash Surrender Value of his or her policy on any day that GIAC is open for
business. GIAC also provides these values and the policy's Benchmark Value as of
the most recent Policy Anniversary on the policyowner's annual policy statement.
See "Communications From GIAC." In addition, Benchmark Values for each Policy
Anniversary are set forth in the policy.
If the values under a policy for which the Premium Skip Option has been elected
fail to satisfy the foregoing minimums as of the date that a premium skip would
be effected, GIAC will notify the policyowner that the policy will lapse if he
or she fails, before the end of the grace period, to pay the annual Policy
Premium. Upon receipt of this notice, the policyowner may elect a more frequent
periodic Policy Premium payment mode and pay the lower periodic Policy Premium
amount. The policyowner's periodic Policy Premium election and payment must be
received at GIAC's Executive Office. Alternatively, a policyowner who has
elected and is eligible for the policy's Automatic Premium Loan feature may pay
the Policy Premium through such a loan. See "Automatic Premium Loan" and "Policy
Loans."
When a premium skip is effected, GIAC deducts from the Policy Account Value an
amount equal to 92.5% of any Policy Premium Assessments that would be due on the
Policy Anniversary to pay such assessments for the coming policy year. This
amount will be deducted proportionately from the Policy Account Value
attributable to the Variable Investment Options. If some or all of the required
deduction exceeds the Policy Account Value held in the Variable Investment
Options, GIAC will deduct the remainder from the Policy Account Value held in
the Fixed-Rate Option. These deductions reduce the amount invested under a Park
Avenue Life policy and the policy's loan value. GIAC will continue to process
Monthly Deductions as described under "Deductions and Charges." Frequently, the
Net Amount at Risk increases initially when an annual Policy Premium is skipped,
which means that the dollar amount of the monthly cost of insurance charge will
also increase.
A policyowner's election of the Premium Skip Option remains in effect until:
o GIAC receives the policyowner's written revocation notice at the
Executive Office; or
o GIAC receives a payment that is credited as a then due Policy
Premium (see "Crediting Payments"); or
o GIAC receives the policyowner's written request to pay Policy
Premiums periodically rather than annually; or
o A Policy Premium must be paid because the Policy Account Value or
Net Cash Surrender Value on a Policy Anniversary is no longer
sufficient to keep the Premium Skip Option in effect; or
o Premiums are waived under a waiver of premium rider.
A policyowner is not required to "make-up" any Policy Premiums that were skipped
while the Premium Skip Option was effective. A policyowner may re-elect and
re-exercise the Premium Skip Option after cancellation, subject to all of the
conditions described above.
Important Note: a policyowner who uses the Premium Skip Option foregoes the
opportunity to invest an additional amount under the policy through the actual
payment of a Policy Premium until the following Policy Anniversary.
Automatic Premium Loan
The policy's "loan value" (as defined under "Policy Loans") can be used to pay a
Policy Premium if the policyowner has elected and is eligible for Park Avenue
Life's Automatic Premium Loan feature. The policyowner can elect this feature in
the application to purchase a policy or at a later time by written request. GIAC
must receive any such written request at the Executive Office by the end of the
grace period for a then due Policy Premium or it will be unable to effect an
Automatic Premium Loan to pay such Policy Premium. A policyowner never actually
receives the proceeds of a loan effected under Park Avenue Life's Automatic
Premium Loan feature. Rather, GIAC transfers the required amount from the
Unloaned Policy Account Value to the Loan Collateral Account, as explained under
"Policy Loans," and uses the loan proceeds to pay the Policy Premium due.
Loan interest accrues on Automatic Premium Loans from the end of the grace
period, which will be the effective date of the loan. If the policy's loan value
is insufficient to pay an overdue Policy Premium, GIAC will be unable to effect
an Automatic Premium Loan and the policy could lapse. If a policyowner has
elected both the Premium Skip Option and the Automatic Premium Loan feature,
GIAC will, if possible, treat an overdue Policy Premium as a skipped premium
before it effects an Automatic Premium Loan.
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GIAC will cancel a policyowner's election of the Automatic Premium Loan feature
upon receipt of the owner's written cancellation request. See "Policy Loans" and
"Tax Effects" for additional information about the treatment of policy loans.
Important Note: a policyowner who uses the Automatic Premium Loan feature
foregoes the opportunity to invest an additional amount under the policy through
the actual payment of a Policy Premium.
Allocation of Net Premiums
A Net Premium is the portion of a Basic Scheduled Premium or Unscheduled Payment
that is available for allocation among the Variable Investment Options and the
Fixed-Rate Option after the deduction of certain charges described under
"Deductions and Charges." See "Crediting Payments" for information about when
Net Premiums and other payments are credited and allocated under a policy. Upon
allocation, each Net Premium becomes part of the Policy Account Value.
EXAMPLE -- Policy Year 1
Male insured, Age 45
Preferred Plus Premium Class - Nonsmoker
Face Amount $250,000
Basic Scheduled Premium ("BSP").................... $3,195.00
Premium Charge (7.5% of BSP)....................... 239.63
---------
Net Premium Allocated.............................. $2,955.37
The policyowner provides his or her initial allocation instructions for Net
Premiums in the policy application. All percentage allocations must be in whole
numbers. The total of all percentage allocations must be 100%. The policyowner
may change the allocation instructions at any time. The new allocation
instructions will be effective for Net Premiums that are allocated after GIAC
receives the changed instructions at its Executive Office. Allocation
instructions can only be changed in writing.
The allocation of amounts already held under a policy will not be affected by
changing the allocation instructions for Net Premiums. Policyowners may transfer
such amounts among the Variable Investment Options and the Fixed-Rate Option as
described under "Transfers," "Transfers From the Fixed-Rate Option" and "Dollar
Cost Averaging". Currently, the maximum number of options in which the Policy
Account Value may be invested or held at any one time is 7. GIAC reserves the
right to change this number from time to time.
If Policy Premiums and/or Unscheduled Payments in excess of $100,000 are
received from the policyowner prior to the later of (i) 45 days from the date
Part 1 of the completed application is signed or (ii)15 days after the Issue
Date, GIAC will allocate any Net Premium in excess of $100,000 ("Excess Net
Premium") to The Guardian Cash Fund. On the later of (i) or (ii), any Excess Net
Premium allocated to The Guardian Cash Fund pursuant to this provision, and any
earnings attributable thereto, will be re-allocated in accordance with the
policyowner's then current allocation instructions. See "Transfers." Any amounts
which the policyowner has allocated to the Fixed-Rate Option or The Guardian
Cash Fund will not be counted towards the $100,000 limit and will be allocated
to the Fixed-Rate Option and/or The Guardian Cash Fund as of the Business Day of
receipt.
Crediting Payments
The policyowner may provide specific crediting instructions for each payment he
or she submits. If a payment that equals or exceeds a Policy Premium is received
on or during the 31 days preceding a premium due date without specific crediting
instructions, GIAC will use the payment:
o to pay the Policy Premium;
o then, to pay any outstanding Policy Debt; and
o last, to credit an Unscheduled Payment.
GIAC will use all other unidentified payments:
o to pay any outstanding Policy Debt; and
o then, to credit Unscheduled Payments.
GIAC normally credits and allocates each payment as of the Business Day of
receipt, if it receives the payment before the close of business at its
Executive Office. There are two exceptions to this practice:
o (1) GIAC credits and allocates any payment received prior to the
Issue Date on the Issue Date; and
o (2) GIAC credits and allocates that portion of any payment that is
used to pay a Policy Premium on the premium due date if such payment
is received on or during the 31 days preceding such premium due
date.
GIAC's close of business is 4:00 p.m. New York City time. See "Allocation of Net
Premiums" and "Policy Loans" for information about how payments are allocated
among the Variable Investment Options and the Fixed-Rate Option.
Backdating
Under certain circumstances, GIAC will permit a policy to be backdated, upon
request, but only to a Policy Date not earlier than six months prior to the date
the application is signed. Backdating may be desirable, for example, so that a
policyowner can purchase a Face Amount for a lower premium based on younger Age
at policy issuance. To backdate a policy, GIAC will require the payment of all
Policy Premiums that would have been due had the application date coincided with
the backdated Policy Date. Also, on the Issue Date, all monthly deductions for
the period from the backdated Policy Date to the Issue Date will be deducted.
Default
If a Policy Premium or loan repayment that GIAC requires to be paid remains
unpaid on its due date, the policy will
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15
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be in default. Unless the policyowner has elected and is eligible for Park
Avenue Life's Premium Skip Option or Automatic Premium Loan feature, all Policy
Premiums are required when due. The due date for Policy Premiums paid annually
is each Policy Anniversary. Periodic Policy Premiums are due on the Monthly
Dates specified by GIAC for the selected frequency mode. A loan repayment is
required if the Policy Debt exceeds the Cash Surrender Value of a policy on a
Monthly Date. GIAC will notify the policyowner when a loan repayment is
required, and will specify its amount and due date. See "Premium Skip Option,"
"Automatic Premium Loan" and "Policy Loans."
Grace Period
The policy provides a 31-day grace period for each Policy Premium (after the
first Policy Premium payment) and for each required loan repayment. Insurance
continues in full force and effect during the grace period, but if the insured
should die during the grace period, the death proceeds payable to the
beneficiary will be reduced by any outstanding Policy Debt and any due and
unpaid Policy Premium for the period through the policy month of death.
If GIAC does not receive payment before the grace period ends and, for Policy
Premiums, neither the Premium Skip Option nor the Automatic Premium Loan feature
are available, the policy will lapse. Upon policy lapse, all insurance coverage
ends as of the end of the grace period, unless a policy value option becomes
effective. See "Policy Value Options" for a description of the types of
insurance coverage available under such options. The policyowner can surrender
the policy for its then Net Cash Surrender Value at any time during the grace
period. In that event, GIAC will pay the Net Cash Surrender Value to the
policyowner in cash and all insurance coverage will cease. See "Surrender."
Reinstatement
A lapsed policy that has not been surrendered for cash may be eligible for
reinstatement for up to five years after the date of default. The insured must
be living when GIAC effects the reinstatement. A written application for
reinstatement, which includes satisfactory evidence of insurability, must be
received at GIAC's Executive Office for approval. In addition, GIAC requires:
o repayment of any outstanding Policy Debt with interest compounded
yearly at the loan interest rate then in effect; and
o payment of the greater of:
- all overdue Policy Premiums with 6% interest compounded
yearly; or
- 110% of the increase in the Cash Surrender Value that results
from reinstatement, plus any overdue Policy Premium
Assessments, with 6% interest compounded yearly.
A reinstated policy has the same Policy Date, Face Amount and death benefit
option as the policy that lapsed. The policyowner must re-elect the Premium Skip
Option and/or Automatic Premium Loan feature if he or she wants to have these
privileges under the reinstated policy.
DEDUCTIONS AND CHARGES
GIAC deducts the amounts detailed below from: Policy Premiums and Unscheduled
Payments; the Policy Account Value; and the Separate Account. In addition, the
mutual funds that are offered through the Separate Account's investment
divisions incur advisory fees and other expenses that are reflected in the
prices of their shares each day. Once amounts are deducted under a policy, they
are unavailable for investment in the Variable Investment Options and the
Fixed-Rate Option.
Deductions From Policy Premiums and Unscheduled Payments
Policy Premium Assessments
These are the rating charges and rider premiums that are added to the Basic
Scheduled Premium to set the Policy Premium. GIAC deducts these amounts from
each Policy Premium payment and uses the amounts collected to cover its risks
and meet its costs associated with: (1) providing insurance coverage to higher
risk insureds (rating charges); or (2) providing additional insurance benefits
through policy riders (rider premiums). Policy Premium Assessments can change if
the circumstances that gave rise to rating charges change or if the policyowner
drops the additional benefit riders to his or her policy. Amounts paid through
Policy Premium Assessments are not subject to the Premium Charge, described
below. Policy Premium Assessments are not added to or deducted from Unscheduled
Payments.
Premium Charge
This charge is initially equal to 7.5% of each Basic Scheduled Premium and
Unscheduled Payment (after deduction of any handling fees from each Unscheduled
Payment; see below). It will decrease to 4.5% after an amount equal to 12 Basic
Scheduled Premiums payable during the Guaranteed Premium Period for the current
Face Amount has been paid under a policy either through Basic Scheduled Premiums
or Unscheduled Payments. Because a policyowner may make Unscheduled Payments
under the policy, he or she may pay an amount equal to 12 Basic Scheduled
Premiums payable during the Guaranteed Premium Period for the current Face
Amount before 12 policy years have elapsed. Amounts paid as Policy Premium
Assessments are not counted towards the amount that triggers the reduced Premium
Charge and, thus, do not affect when the Premium Charge is reduced.
A portion of this charge is used by GIAC to pay premium taxes that are assessed
against GIAC by the states and jurisdictions where the policy is sold. Premium
taxes vary from jurisdiction to jurisdiction and currently range from 0% to 4%.
GIAC reserves the right to increase the Premium
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<PAGE>
Charge if changes in the law result in an increase in the premium taxes that
GIAC pays.
A portion of the Premium Charge is also used to pay certain federal income taxes
imposed on GIAC. GIAC reserves the right to increase the Premium Charge, if
necessary, to reflect any changes in the tax burden on GIAC imposed by Section
848 of the Internal Revenue Code or interpretations thereof. See "GIAC's Taxes."
Since these premium taxes and federal income taxes are incurred by GIAC, no
portion of the Premium Charge that is used to pay these taxes is deductible by
policyowners for federal income tax purposes.
A portion of the Premium Charge also compensates GIAC for sales and promotional
expenses that it incurs in connection with selling the policies. Such expenses
may include commissions, advertising, and the cost of preparing and printing
sales literature and prospectuses. See "Deductions From The Separate Account"
and "Transaction Deductions From the Policy Account Value."
Handling Fee
GIAC reserves the right to charge a maximum handling fee of $2.00 for each
Unscheduled Payment it receives. If charged, this fee would be deducted from
each Unscheduled Payment before the Premium Charge is calculated. GIAC would
then use the proceeds to cover the costs of crediting and allocating Unscheduled
Payments under the policy. GIAC does not impose this fee now.
Monthly Deductions From the Policy Account Value
As of the Policy Date and on each Monthly Date thereafter, GIAC deducts the
following charges proportionately from the Policy Account Value attributable to
the Variable Investment Options and the Fixed-Rate Option. Monthly Deductions
end on the Policy Anniversary nearest the insured's 100th birthday.
Policy Charge and Administration Charge
For the first three policy years, the policy charge is $10 per month.
Thereafter, this charge is currently $4 per month. GIAC reserves the right to
increase this charge in the fourth and subsequent policy years, but guarantees
that the charge will never exceed $8 per month.
For the first 12 policy years, the administration charge per $1,000 of Face
Amount is based on the insured's Age. The highest monthly administration charge
during this period is $0.04 per $1,000 of Face Amount, which applies to policies
issued for insureds at Ages 35-80 years. The administration charge rates are
lower for younger insureds during the first 12 policy years. After the 12th
policy year, the monthly administration charge is $0.015 per $1,000 of Face
Amount for all policies. The specific monthly dollar amount of this charge is
set forth in each policy.
Initially, these charges compensate GIAC for the cost of underwriting and
issuing a policy. In later policy years, GIAC uses amounts collected through
these charges to defray the ongoing costs of maintaining a policy, such as:
preparing and sending premium billing notices, reports and statements to
policyowners; communications with insurance agents; and other policy-related
overhead costs.
Guaranteed Insurance Amount Charge
This monthly charge is $0.01 per $1,000 of the Face Amount on the Monthly Date
that it is deducted. GIAC assesses this charge at the same rate for all
policies. Proceeds from the Guaranteed Insurance Amount charge compensate GIAC
for the risk GIAC assumes by guaranteeing that, no matter how unfavorable
investment experience may be, the death proceeds will never be less than the
Face Amount if all required Policy Premiums are paid when due, no partial
withdrawals are taken and there is no Policy Debt. See "Policy Proceeds." The
specific monthly dollar amount of this charge is set forth in each policy.
Charge For The Cost Of Insurance
This monthly charge is based upon GIAC's current monthly cost of insurance rates
for the insured's Attained Age, sex (unless unisex rates are required by law)
and premium class. The maximum cost of insurance rate that GIAC may charge per
$1,000 of Net Amount at Risk per policy year is set forth in the policy. The
maximum rates are based upon the 1980 Commissioners' Standard Ordinary Mortality
Tables published by the National Association of Insurance Commissioners. Cost of
insurance rates for policies with Face Amounts equal to or greater than $500,000
are currently lower than such rates for policies with lower Face Amounts in the
same class.
Cost of insurance charges enable GIAC to pay death benefits, particularly in
early policy years when the death benefit will be significantly larger than the
Policy Account Value. GIAC calculates the cost of insurance charge by
multiplying the Net Amount at Risk on a Monthly Date by the applicable monthly
cost of insurance rate, and dividing the result by $1,000. GIAC determines the
Net Amount at Risk on a Monthly Date after it has processed the other Monthly
Deductions, excluding cost of insurance, for such date.
GIAC's current monthly cost of insurance rates are lower than the guaranteed
maximum rates set forth in the policy. Generally, cost of insurance rates
increase with advancing age.
GIAC may use its discretion to change its current cost of insurance rates,
subject to the guaranteed maximum rates. GIAC will not change its current cost
of insurance rates if the insured's health deteriorates. Rather, GIAC will only
change its rates for all insureds of the same premium class, Attained Age or sex
because it expects: increased mortality among such insureds; higher expenses or
federal income taxes; declining persistency for Park Avenue Life policies; or
lower earnings in its general account. Any changes in
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<PAGE>
the cost of insurance rates that GIAC chooses to implement will only be
effective prospectively and will apply to all affected Park Avenue Life policies
in the same manner.
The dollar amount of the cost of insurance charge deducted from a policy varies
from month to month with changes in the Net Amount at Risk. Generally, reducing
the Net Amount at Risk results in lower cost of insurance charges. Under an
Option 1 policy where the death benefit is the Face Amount, paying Policy
Premiums and making Unscheduled Payments can reduce the Net Amount at Risk by
increasing the Policy Account Value, assuming favorable or neutral investment
performance. Under an Option 2 policy, at any time when the Policy Account Value
exceeds the Benchmark Value and, as a result, the death benefit can increase
over the Face Amount, paying Policy Premiums or making Unscheduled Payments will
not affect the Net Amount at Risk.
The Net Amount at Risk increases, for example, when the death benefit for any
policy increases to satisfy Internal Revenue Code requirements or if the
policy's variable insurance amount exceeds certain levels, as discussed under
"Death Benefit Options." Increasing the Net Amount at Risk results in higher
cost of insurance charge deductions.
Transaction Deductions from the Policy Account Value
GIAC makes transaction deductions only when certain events occur at the
policyowner's direction. Except as explained below, GIAC makes transaction
deductions proportionately from the Policy Account Value attributable to the
Variable Investment Options until exhausted, and then from the Fixed-Rate
Option.
Surrender Charge
During the first 12 policy years, GIAC assesses a surrender charge when the
policy lapses or is surrendered, if the Face Amount is reduced by request or
through a partial withdrawal, or the policy is in default and a policy value
option takes effect. See "Reducing the Face Amount" and "Partial Withdrawals."
The amount of the surrender charge depends upon the policy year in which the
event occurs.
The surrender charge is expressed as a flat charge per $1000 of Face Amount for
the first year and that charge will vary from $5.37 to $58.87 based upon the
issue age, sex and underwriting class of the insured. The applicable charge will
be set forth in the policy. The surrender charge will decrease proportionally on
an annual basis over the first 12 years so that the surrender charge beginning
in year 13 is $0. The charge per $1000 for a particular issue age, sex
(including unisex) and underwriting class are set forth in Appendix F of this
prospectus.
After imposition of the surrender charge, a policy's Net Cash Surrender Value
may be zero, particularly in the early policy years.
The surrender charge is intended to compensate GIAC for certain administrative
and sales related expenses.
EXAMPLE
The example below shows how the surrender charge declines over a twelve year
period so that in year 13 it equals $0.
Male Insured, Age 45
Preferred Plus Premium Class - Nonsmoker
Face Amount $250,000
Surrender Charge per $1000 of Face Amount in policy year one (from Appendix F):
$21.39
Surrender charge in policy year one is the surrender charge per $1000 x 250,
divided by 1000 or ($21.39 x $250,000) divided by 1000 = $5347.50
Proportional reduction in surrender charge over 12 year period: $21.39 divided
by 12 or $1.78 per year
All figures in the example below are rounded to the nearest $ .01.
Surrender Charge
per $1000 of Actual Surrender
Policy Year Face Amount Charge
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1 $21.39 $5347.50
2 19.61 4902.50
3 17.83 4457.50
4 16.04 4010.00
5 14.26 3565.00
6 12.48 3120.00
7 10.70 2675.00
8 8.91 2227.50
9 7.13 1782.50
10 5.35 1337.50
11 3.57 892.50
12 1.78 445.00
13 0 0
GIAC pro-rates the surrender charges in connection with a Face Amount reduction
by multiplying the surrender charges determined as described above by the
following fraction to reduce the payable charges:
the amount of the reduction
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the Face Amount just before the reduction
The adjusted surrender charge is paid by deduction from the Unloaned Policy
Account Value.
Partial Withdrawal Charge
To recover its processing costs, GIAC charges the lesser of $25 or 2% of the
requested withdrawal amount in connection with each partial withdrawal. This
charge is in addition to the surrender charges that are assessed when partial
withdrawals during the first 12 policy years result in Face Amount reductions.
See "Partial Withdrawals." The requested withdrawal amount is not reduced to pay
surrender and partial withdrawal charges.
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18
<PAGE>
Instead, such charges are separately (and additionally) deducted from the
Unloaned Policy Account Value.
Premium Skip Option Deduction
If a policyowner exercises Park Avenue Life's Premium Skip Option, GIAC deducts
92.5% of the amount needed to pay any Policy Premium Assessments, which are set
forth in the policy and any rider(s). The Premium Skip Option is described under
"Premium Skip Option."
Transfer Charge
Presently, GIAC does not impose a charge on transfers among the Variable
Investment Options and the Fixed-Rate Option. However, GIAC reserves the right
to charge $25 for each transfer after the twelfth transfer in a policy year.
GIAC will deduct the transfer charge from the option(s) from which amounts are
transferred and use the proceeds to pay its processing costs.
GIAC will not assess the transfer charge against the transfer from The Guardian
Cash Fund of Excess Net Premium and related earnings. GIAC will also not assess
the transfer charge against multiple transfers effected under the policy's
Dollar Cost Averaging feature, or in connection with taking or repaying policy
loans. In addition, no transfer charge will apply to transfers effected when a
policyowner transfers out of a Variable Investment Option because fundamental
investment policies of its corresponding mutual fund have been materially
changed. See "Transfers," "Dollar Cost Averaging Transfer Option," "Policy
Loans," "Automatic Premium Loan" "Rights Reserved by GIAC," and "Allocation of
Net Premiums."
Deductions From the Separate Account
Mortality And Expense Risk Charge
GIAC charges the Separate Account for the mortality and expense risks it assumes
under the policies. The charge is made daily at a current annual rate of 0.60%
of the Separate Account's average daily net assets. This charge is guaranteed
never to exceed an annual rate of 0.90% of the Separate Account's average daily
net assets. The mortality and expense risk charge is not assessed against Policy
Account Values deposited in the Fixed-Rate Option.
The mortality risk that GIAC assumes is that insureds may live for shorter
periods of time than GIAC estimated when setting its cost of insurance rates for
Park Avenue Life. The expense risk that GIAC assumes is that GIAC's expenses for
issuing and administering policies may be higher than GIAC estimated when
setting the administrative charges for Park Avenue Life.
Income Tax Charge
GIAC currently makes no specific charge for federal, state or local income taxes
attributable to the Separate Account. However, GIAC reserves the right to impose
additional charges if the income tax treatment of variable life insurance
changes for insurance companies, or if there is a change in GIAC's tax status,
or if GIAC becomes subject to any other tax-related economic burdens that are
attributable to the Separate Account or the policies. See "Tax Effects."
Deductions From the Mutual Funds
Advisory Fees And Operational Expenses
Charges for investment advisory fees and operational expenses are deducted daily
from the assets of the mutual funds offered through the Separate Account. As a
result, policyowners bear these fees and expenses indirectly. Investment
advisory fees compensate the investment advisers of the mutual funds for the
services and facilities they provide to the funds. Except as noted below, the
following chart shows each fund's expenses for the year ended December 31, 1996,
expressed as a percentage of average daily net assets.
OPERATIONAL TOTAL
EXPENSES EXPENSES
ADVISORY (after applicable waivers and
FUND NAME FEE expense reimbursements)
- --------------------------------------------------------------------------------
Guardian Stock Fund 0.50% 0.03% 0.53%
Guardian Small Cap
Stock Fund 0.75% 0.55%* 1.30%
Guardian Bond Fund 0.50% 0.04% 0.54%
Guardian Cash Fund 0.50% 0.04% 0.54%
Baillie Gifford
International Fund 0.80% 0.18% 0.98%
Value Line Strategic
Asset Mgt. Trust 0.50% 0.08% 0.58%
Value Line Centurion
Fund 0.50% 0.10% 0.60%
MFS Growth With
Income Series 0.75% 0.25%* 1.00%
*See explanation below.
Expenses that relate to the investment operations of the funds vary from year to
year. These percentages reflect the actual fees and expenses incurred by each
fund during the year ended December 31, 1996, except that the percentages for
The Guardian Small Cap Stock Fund are estimated, since the fund did not commence
operations until 1997. The percentages for MFS Growth With Income Series reflect
the agreement by the series' Adviser to bear expenses for the series, subject to
reimbursement by the series, such that the series' operational expenses shall
not exceed 0.25% of the average daily net assets of the series for the fiscal
year ended December 31, 1996. The agreement is also in effect for the current
fiscal year. (In the absence of this agreement, operational expenses and total
expenses for the series for the year ended December 31, 1996 would be 1.32% and
2.07%, respectively.) The operational expenses for Value Line Strategic Asset
Management Trust and Value Line Centurion Fund reflect the effects of expense
reimbursements paid by those funds to GIAC for certain administrative and
shareholder servicing expenses incurred by GIAC on their behalf. For the year
ended December 31, 1996, GIAC was reimbursed $601,135 by Value Line Strategic
Asset Management Trust, and $406,412 by Value Line Centurion Fund. GIAC has also
entered into an agreement pursuant to which it will be reimbursed for certain
administrative costs and expenses it incurs as a result of offering the MFS
Growth With Income Series to its policyowners.
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<PAGE>
POLICY VALUES AND BENEFITS
Death Benefit Options
Park Avenue Life provides two death benefit options. A policyowner must choose
an option on the policy application. Regardless which death benefit option is
chosen by the policyowner, after the Policy Anniversary nearest to the insured's
100th birthday, the death benefit is equal to the Policy Account Value.
The death benefit provided under Option 1 is the greater of:
o the Face Amount on the date of the insured's death; or
o the minimum death benefit then required under Section 7702 of the
Internal Revenue Code on the Monthly Date preceding the insured's
death; or
o after the first policy year, the policy's "variable insurance
amount," which is defined below.
The death benefit provided under Option 2 is the greater of:
o the Face Amount on the date of the insured's death plus any amount
by which the Policy Account Value then exceeds the Benchmark Value
as adjusted to the Monthly Date preceding the date of death; or
o the minimum death benefit then required under Section 7702 of the
Internal Revenue Code on the Monthly Date preceding the insured's
death; or
o after the first policy year, the policy's variable insurance amount.
Any partial withdrawal taken after the Monthly Date preceding the date of death
will reduce the death benefit under Option 1 or Option 2 by the amount of the
partial withdrawal and any applicable charge if the insured dies after said
Monthly Date but prior to the next succeeding Monthly Date.
The minimum death benefit required under Section 7702 of the Internal Revenue
Code on any Monthly Date is $1,000 multiplied by the Policy Account Value,
divided by the net single premium per $1,000 for the insured's Attained Age, sex
and premium class. The net single premium is adjusted to the Monthly Date
preceding the date of death. A table of net single premiums is set forth in the
policy.
The variable insurance amount provides a guarantee that the death benefit will
be greater than the then effective Face Amount if Policy Account Value is
greater than the net single premium on any Policy Review Date. GIAC determines
the variable insurance amount for each policy year after the first by
multiplying $1,000 by the Policy Account Value on each Policy Review Date and
dividing the result by the net single premium per $1,000 that applies for such
Policy Review Date. The variable insurance amount will be reduced during a
policy year if the Face Amount is reduced or if a partial withdrawal is
effected. The net single premium for a Policy Review Date is based on the net
single premiums for the immediately preceding and immediately succeeding Policy
Anniversaries, as adjusted for the number of days between such Anniversaries.
Under an Option 1 policy, when favorable investment performance and Unscheduled
Payments increase the Policy Account Value, the Net Amount at Risk under the
policy will decrease. When the Net Amount at Risk is reduced, the dollar amount
of the cost of insurance charges deducted on each Monthly Date may also decline.
See "Monthly Deductions From The Policy Account Value."
Under an Option 2 policy, favorable investment performance and the addition of
Unscheduled Payments can possibly increase the Policy Account Value sufficiently
to increase the death benefit. At such time, however, the Net Amount at Risk
will not change as a result of the favorable investment performance or
Unscheduled Payments. Unfavorable investment performance can reduce an Option 2
policy's death benefit, but the benefit will never be lower than the Face
Amount.
Prospective policyowners should select the death benefit option that best meets
their needs and objectives. Those who prefer to have the opportunity to increase
their insurance coverage over the guaranteed Face Amount should choose Option 2.
Those who prefer to have insurance coverage that generally does not vary with
investment experience and potentially lower monthly cost of insurance charges
should choose Option 1. If a policyowner's personal circumstances change, on or
after the first Policy Anniversary he or she may change the then effective death
benefit option if the insured is alive. However, only one death benefit option
change is permitted in any single policy year.
A change in the death benefit option will be effective on the Monthly Date that
next follows the date that GIAC approves the change. GIAC will not approve a
request to change from Option 1 to Option 2 if Policy Premiums are then being
waived under a waiver of premium rider. Evidence of insurability that is
satisfactory to GIAC must be submitted with any request to change from Option 1
to Option 2, because the death benefit will increase by any positive amount by
which the Policy Account Value exceeds the Benchmark Value on the date the
change takes effect. The death benefit will decrease by this amount if the
change is from Option 2 to Option 1. Changing the death benefit option does not
change the Face Amount of a policy.
Death proceeds are payable to the beneficiary(ies) upon GIAC's receipt of due
proof that the insured died while the policy was in force. GIAC may delay
payment of the death proceeds if it contests a policy. See "Policy Proceeds" and
"Incontestability."
Policy Values
The Policy Account Value is the sum of the values attributable to the Variable
Investment Options, the Fixed-
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<PAGE>
Rate Option and the Loan Collateral Account. While a policy is in force, such
values are comprised of:
o the Net Premiums credited under a policy; plus or minus
o the cumulative effects of the net investment experience of amounts
held in the Variable Investment Options; plus
o any interest paid on amounts in the Fixed-Rate Option or on amounts
transferred to and held in the Loan Collateral Account; minus
o cumulative Monthly Deductions; minus
o any previously effected partial withdrawals; minus
o the surrender charges and/or partial withdrawal charges assessed
upon previously effected partial withdrawals; minus
o the surrender charges assessed upon any Face Amount reductions;
minus
o any Premium Skip Option deductions; minus
o any transfer charges that may have been assessed.
A Park Avenue Life policy's Cash Surrender Value is the Policy Account Value
minus the policy's surrender charges. After policy year 12, there are no
surrender charges under a Park Avenue Life policy.
The Net Cash Surrender Value is the amount that may be obtained upon surrender
of a policy. The Net Cash Surrender Value is calculated by subtracting any
Policy Debt from the Cash Surrender Value and then adding to the result the
portion of any previously paid Policy Premium Assessments which relate to
periods beyond the next Monthly Date.
The Benchmark Value is a hypothetical account value that GIAC uses to determine:
o whether the death benefit under an Option 2 policy has increased
and, if so, the amount of such increase;
o if a premium skip can be effected;
o whether a partial withdrawal can be taken; and
o after the Guaranteed Premium Period ends, whether the Basic
Scheduled Premium will change for a policy year.
A Benchmark Value for each Policy Anniversary is set forth in the policy. See
"Benchmark Value" under "Definitions" for a description of how the Benchmark
Value for each Policy Anniversary is determined. The Benchmark Value on any day
during a policy year is based on the Benchmark Values for the immediately
preceding and immediately succeeding Policy Anniversaries, as adjusted for the
number of days to such Anniversaries from the given day. GIAC does not guarantee
that the Policy Account Value will equal or exceed the Benchmark Values set
forth in a policy.
Values held in the Variable Investment Options may increase or decrease daily
depending on the net investment experience of such options. The combination of
partial withdrawals, unfavorable investment performance and ongoing Monthly
Deductions can cause a policy's Policy Account Value to drop below zero (i.e.,
become negative). Even if this occurs, the policy will not lapse if all Policy
Premiums are paid when due and there is no Policy Debt. However, GIAC will
continue to accrue Monthly Deductions under the policy, which will increase the
amount of the negative balance. While a policy has a negative balance, GIAC will
calculate cost of insurance charges based on a Policy Account Value of zero, and
all Net Premiums, including Net Premiums derived from Unscheduled Payments, will
be applied to reduce the negative balance. Once the Policy Account Value equals
or exceeds zero, Net Premiums will be allocated and credited as explained under
"Allocation of Net Premiums" and "Crediting Payments."
Amounts In the Separate Account
Amounts allocated, transferred or added to a Variable Investment Option are used
to purchase units of the applicable Separate Account investment division. Units
are redeemed and cancelled when amounts are withdrawn or transferred as a result
of policyowner transactions, or when GIAC effects Monthly Deductions, Dollar
Cost Averaging transfers or policy loans. The number of units purchased or
redeemed in an investment division is calculated by dividing the dollar amount
of the transaction by the division's unit value for the day of the transaction.
On any given day, a policyowner's value in an investment division is the
division's current unit value multiplied by the number of units credited to the
policy for that division.
Unit values change daily, reflecting investment results and daily deductions of
the charge for mortality and expense risks. GIAC determines unit values for the
investment divisions of the Separate Account at the end of each day.
Policyowners bear the entire investment risk with respect to amounts held in the
Separate Account.
Net Investment Factor
GIAC calculates the unit value for each investment division by multiplying the
division's immediately preceding unit value by the applicable net investment
factor for the subject day.
On any Business Day, the net investment factor for a Variable Investment Option
is determined by dividing the sum of (a) and (b) by (c), and subtracting (d)
from the result, where:
(a) is the net asset value per share of the Variable Investment Option's
corresponding mutual fund at the close of the current Business Day;
(b) is the per share amount of any dividends or capital gains distributed by the
mutual fund on the current Business Day;
(c) is the net asset value per share of such mutual fund at the close of the
Business Day immediately preceding the current Business Day;
(d) is the sum of the daily charges GIAC deducts from the Variable Investment
Options for:
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o the mortality and expense risks assumed by GIAC. The daily deduction
for mortality and expense risks will not exceed .00002477 or the
equivalent of a charge not exceeding .90% annually; and
o any federal, state or local taxes.
On any day that is not a Business Day, the net investment factor for a Variable
Investment Option is determined by subtracting the sum of the daily charges in
(d) from 1.0.
The accompanying prospectuses for the funds describe the procedures used by the
funds to calculate their respective net asset values per share. Currently, there
is no daily deduction from the Separate Account for income taxes. See
"Deductions From the Separate Account."
OTHER POLICY FEATURES
Policy Loans
While the insured is alive, a policyowner may borrow all or part of a policy's
"loan value," by assigning the policy to GIAC as security for the loan. A
policy's loan value is 90% of the Cash Surrender Value on the date that GIAC
receives a proper written loan request (which includes an assignment of the
policy) at its Executive Office, minus any then outstanding Policy Debt. The sum
of any outstanding loan amounts plus accrued loan interest is the Policy Debt. A
policy has no loan value when it is continued under the fixed-benefit Extended
Term Insurance policy value option after lapse. See "Policy Value Options."
Policy loan proceeds will ordinarily be paid to the policyowner within seven
days of the date that GIAC received the loan request. For exceptions to this
general rule, see "Policy Proceeds." The minimum loan amount is $500, unless the
loan is an Automatic Premium Loan. A policyowner never actually receives the
proceeds of a loan effected under Park Avenue Life's Automatic Premium Loan
feature, as GIAC uses such proceeds to pay the Policy Premium due. See
"Automatic Premium Loan."
When a policyowner takes a loan, GIAC transfers the amount of the loan from the
Variable Investment Options and the Fixed-Rate Option into a Loan Collateral
Account within GIAC's general account. GIAC will first transfer amounts held in
the Variable Investment Options in proportion to the Policy Account Value held
in such options as of the date it received the loan request. If the requested
loan exceeds the Policy Account Value held in the Variable Investment Options,
GIAC will transfer the excess amount from any Policy Account Value then held in
the Fixed-Rate Option.
GIAC charges the policyowner interest on all outstanding loans at an annual rate
of 8%, payable in arrears, until the later of the twentieth Policy Anniversary
or the insured's Attained Age 65, at which time the annual rate decreases to 5%,
payable in arrears, for all existing and new loans. Interest accrues daily and
is due on Policy Anniversaries. If loan interest is not paid when due, GIAC
automatically increases the outstanding loan by transferring amounts from the
Variable Investment Options and the Fixed-Rate Option to the Loan Collateral
Account, in the manner and order described above, so that the Loan Collateral
Account will be equal to the Policy Debt as of the Policy Anniversary that loan
interest was not paid. Amounts in the Loan Collateral Account earn interest at a
minimum annual rate which is 2% less than the loan interest rate then in effect.
Even though this means that the policyowner effectively pays GIAC loan interest
at an annual rate of no more than 2% when he or she borrows under a policy, the
policyowner is expected to pay all accrued loan interest when due.
Amounts transferred to the Loan Collateral Account in connection with policy
loans no longer share the investment experience or returns of the options from
which they were transferred. Accordingly, a policy loan will have a permanent
effect on Policy Account Value and the benefits provided under a policy, even if
the loan is repaid. The effect could be favorable or unfavorable, depending on
the investment experience of the Variable Investment Options or the rate of
interest credited under the Fixed-Rate Option while the loan is outstanding. In
addition, the amount available for withdrawal or surrender and the death
proceeds payable under the policy are reduced dollar-for-dollar by the amount of
any outstanding Policy Debt.
The policyowner may repay all or part of the Policy Debt at any time while the
insured is alive and while the policy is in force or continued after lapse as
Reduced Paid-Up Insurance or Variable Reduced Paid-Up Insurance. See "Policy
Value Options." The minimum loan repayment amount is the lesser of $100, unless
the repayment accompanies a then due Policy Premium, or the then outstanding
Policy Debt. See "Crediting Payments." If the death proceeds have not already
been paid in cash or applied under a payment option, outstanding Policy Debt may
also be repaid within 60 days after the insured's death. The proceeds payable to
the beneficiary will then be increased by the amount of the repayment.
When GIAC credits and allocates a loan repayment, it transfers from the Loan
Collateral Account the amount of the repayment, minus a proportional amount of
accrued loan interest, plus a proportional amount of accrued Loan Collateral
Account interest, as follows:
o first, into the Fixed-Rate Option to repay all loans provided by
Policy Account Value that had been attributable to the Fixed-Rate
Option; and
o then, into the Variable Investment Options in accordance with the
Net Premium allocation instructions then in effect.
No transfer in or out of the Loan Collateral Account in connection with policy
loans will be subject to transfer charges. Loan repayment amounts that are
allocated to the Fixed-Rate Option will be credited with the Fixed-Rate Option
interest rate then in effect until the next Policy Anniversary.
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If Policy Debt is outstanding, it may be more advantageous to repay the debt
than to make Unscheduled Payments. Unlike Unscheduled Payments, loan repayments
are not subject to the Premium Charge. See "Deductions From Policy Premiums and
Unscheduled Payments" and "Crediting Payments."
If the Policy Debt exceeds a policy's Cash Surrender Value on a Monthly Date,
GIAC will notify the policyowner that a loan repayment is required to continue
the policy in force. The policy will lapse 31 days after the default date set
forth in the notice if GIAC does not receive a loan repayment that at least
equals the amount specified in the notice, which will be the sum of
o the amount by which the Policy Debt exceeded the Cash Surrender
Value as of the Monthly Date that GIAC identified the shortfall,
plus
o 10% of the Cash Surrender Value on that Monthly Date.
If the insured dies after a loan repayment notice is mailed but before the 31
days have expired, GIAC will pay the beneficiary the death proceeds minus the
unpaid Policy Debt. See "Grace Period" and "Policy Proceeds."
If a policy is treated as a modified endowment contract under the Internal
Revenue Code, there may be tax consequences associated with taking a policy
loan. See "Tax Effects" for a discussion of the circumstances under which a
policy may be treated as a modified endowment contract and the corollary effects
on policy loans. These tax consequences also apply to loans effected under the
Automatic Premium Loan feature.
Reducing The Face Amount
After the first policy year, a policyowner may ask GIAC to reduce the Face
Amount of his or her policy. GIAC will process a Face Amount reduction upon
receipt of a proper written request at its Executive Office. GIAC additionally
requires:
o that the insured be living on the date that GIAC receives the
request;
o that the reduction be for at least $10,000, unless it is caused by a
partial withdrawal (in which case, the partial withdrawal rules
apply); and
o that the reduced Face Amount will not be lower than GIAC's then
current minimum Face Amount, unless the reduction is caused by a
partial withdrawal.
The reduction will take effect on the Monthly Date next following the date that
GIAC approves the change. GIAC will deduct a surrender charge from the Policy
Account Value in the manner described under "Transaction Deductions From the
Policy Account Value" if the Face Amount is reduced during the first 12 policy
years. GIAC will also deduct a withdrawal charge from the Policy Account Value
if a Face Amount reduction is caused by a partial withdrawal. A partial
withdrawal from an Option 1 policy will typically result in an immediate Face
Amount reduction. A partial withdrawal from an Option 2 policy will not reduce
the Face Amount so long as the Policy Account Value exceeds the applicable
Benchmark Value. However, the Option 2 death benefit will decline with each
partial withdrawal. See "Death Benefit Options" and "Partial Withdrawals."
Reducing the Face Amount could cause a policy to be treated as a modified
endowment contract under the Internal Revenue Code. See "Tax Effects."
The Basic Scheduled Premium, Benchmark Values, surrender charge, Policy Account
Value, Monthly Deductions, variable insurance amount and any benefits provided
under additional benefit riders that relate to the policy's Face Amount will
generally decrease when a Face Amount reduction takes effect. GIAC will send the
owner revised policy pages reflecting any changes caused by a Face Amount
reduction.
The Face Amount of a Park Avenue Life policy cannot be increased.
Partial Withdrawals
After the first policy year and while the insured is living, the policyowner may
withdraw portions of the policy's Net Cash Surrender Value. Any such withdrawal
must be requested in writing, and is subject to GIAC's approval. GIAC will
process an approved partial withdrawal as of the Business Day on which it
receives a proper written request at its Executive Office. The minimum net
partial withdrawal amount is $500.
GIAC will not approve or process a partial withdrawal if, after withdrawing the
requested amount and imposing all applicable charges,
o the remaining Cash Surrender Value would be less than the Benchmark
Value, as adjusted to the date of withdrawal (see below); or
o the policy would have no positive Net Cash Surrender Value.
For the purpose of processing partial withdrawals, the adjusted Benchmark Value
shall be calculated as follows:
o If the partial withdrawal occurs on a Policy Anniversary, the
Benchmark Value is equal to the Benchmark Value on that date plus
the Basic Scheduled Premium payable during the Guaranteed Premium
Period for the current Face Amount.
o If the partial withdrawal occurs on other than a Policy Anniversary,
the Benchmark Value is based on linear interpolation between (a) and
(b) where (a) equals the Benchmark Value on the preceding
anniversary plus the Basic Scheduled Premium payable during the
Guaranteed Premium Period for the current Face Amount and (b) equals
the Benchmark Value on the next Policy Anniversary.
GIAC will notify the policyowner if a requested partial withdrawal cannot be
effected.
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GIAC assesses the following charges in connection with partial withdrawals: (1)
a partial withdrawal charge that equals the lesser of $25 or 2% of the requested
withdrawal amount; and (2) the applicable surrender charge if the partial
withdrawal causes a Face Amount reduction during the first 12 policy years. See
"Transaction Deductions From the Policy Account Value" and "Reducing the Face
Amount."
To effect a partial withdrawal, GIAC will deduct the requested partial
withdrawal amount and any applicable charges from the Policy Account Value held
in the Variable Investment Options specified in the policyowner's request as of
the Business Day it received the partial withdrawal request. If the sum of the
requested withdrawal amount and all applicable charges exceeds the amounts held
in the specified Variable Investment Options, GIAC will deduct the excess amount
proportionately from the Policy Account Value held in the other Variable
Investment Options. If this is still insufficient to provide the requested
partial withdrawal amount, GIAC will withdraw the remaining excess amount from
any Policy Account Value that is then held in the Fixed-Rate Option.
If no options have been specified by the policyowner, GIAC will deduct the
requested partial withdrawal amount and any applicable charges proportionately
from the Policy Account Value held in the Variable Investment Options as of the
Business Day it received the request. If the sum of the requested withdrawal
amount and all applicable charges exceeds the Policy Account Value held in the
Variable Investment Options, GIAC will withdraw the excess amount from any
Policy Account Value that is then held in the Fixed-Rate Option.
The proceeds of a partial withdrawal will ordinarily be paid within seven days
of the date that GIAC receives the withdrawal request. For exceptions to this
general rule, see "Policy Proceeds."
In addition to reducing the Net Cash Surrender Value of a policy, a partial
withdrawal reduces the death benefit on a dollar-for-dollar basis. Under an
Option 1 policy, the Face Amount will generally be reduced with each partial
withdrawal. Under an Option 2 policy, the death benefit reduction will generally
mirror the Net Cash Surrender Value reduction. The tax consequences of partial
withdrawals are discussed under "Tax Effects."
Surrender
A Park Avenue Life policy may be surrendered for its Net Cash Surrender Value at
any time while the insured is living. GIAC will compute the Net Cash Surrender
Value as of the Business Day on which it receives a written surrender request in
proper and complete form at its Executive Office. A surrender request is
incomplete if it is not accompanied by the policy or an acceptable affidavit
confirming the policy's loss. The Net Cash Surrender Value equals:
o the Policy Account Value, minus
o any surrender charge, minus
o any Policy Debt, plus
o the portion of any Policy Premium Assessments paid for periods
beyond the next Monthly Date.
EXAMPLE - Surrender in Policy Year 5
Male insured, Age 35
Preferred Plus Premium Class - Nonsmoker
Face Amount $250,000
Annual Policy Premium $2,030
Assuming, 6% hypothetical gross return; 4.61% net return
See "Appendix A"
Policy Account Value $7,808.79
Surrender Charge (2,265.00)
Policy Debt -0-
Pre-paid Policy Premium Assessments -0-
---------
Net Cash Surrender Value $5,543.79
The Net Cash Surrender Value will ordinarily be paid within seven days of the
date that GIAC receives a proper and complete surrender request. For exceptions
to this general rule, see "Policy Proceeds." All insurance coverage ends as of
the Business Day that GIAC computes the Net Cash Surrender Value in response to
a proper and complete surrender request. See "Tax Effects" for a discussion of
the tax consequences of surrendering a policy.
Transfers
The policyowner may request transfers in and out of the Variable Investment
Options or into the Fixed-Rate Option at any time. However, the number of
allocation options in which the Policy Account Value may be invested or held at
any one time cannot currently exceed 7. Restrictions on transfers out of the
Fixed-Rate Option are discussed under "Transfers From The Fixed-Rate Option."
Transfer requests may be submitted to GIAC's Executive Office in writing or by
telephoning 1-800-935-4128. Presently, transfers may be effected without charge
or tax consequences.
The minimum transfer amount is the lesser of $500 or the entire amount held in
the option from which GIAC effects a transfer. Transfers are effective as of the
end of the Business Day on which the request is received. Written transfer
requests received after 4:00 p.m. New York City time will be treated as received
on the next succeeding Business Day. GIAC reserves the right to limit the
frequency of transfers to not more than once every 30 days. GIAC also reserves
the right to charge $25 for each transfer after the twelfth in a policy year.
GIAC does not impose this charge currently. See "Deductions and Charges."
GIAC accepts telephone transfer instructions between 9:00 a.m. and 3:30 p.m. New
York City time on each day that it is open for business. GIAC effects telephone
transfer instructions at the unit values calculated at the close of business on
the Business Day such instructions are received. GIAC will not honor telephone
transfer instructions unless it has received a written authorization form from
the policyowner. Callers are asked to provide
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<PAGE>
precise identification and the personal security code for the policy. GIAC will
accept telephone transfer instructions from any person who can provide the
requested information, and is not responsible for any loss, damage, cost or
expense resulting from following the foregoing procedures to implement telephone
transfer instructions that it reasonably believes to be genuine. This means that
the policyowner bears the risk of loss when unauthorized or fraudulent transfers
are requested by telephone and GIAC has followed its procedures. Telephone
transfer requests may be recorded without prior disclosure to the caller.
During periods of extreme market activity or drastic economic change, it may be
very difficult to contact GIAC to request a telephone transfer. If this occurs,
written transfer requests should be sent to the Executive Office. The rules for
telephone transfers are subject to change, and GIAC reserves the right to
suspend or withdraw this privilege without notice.
Transfers From the Fixed-Rate Option
Transfers from the Fixed-Rate Option are permitted once per policy year during
the period starting on a Policy Anniversary and ending 30 days thereafter.
Requests received on or within the 30 days before a Policy Anniversary will be
effected on the Policy Anniversary. Requests received within the 30 days
following a Policy Anniversary will be effected on the Business Day of receipt.
GIAC will not honor requests for transfers out of the Fixed-Rate Option that are
received at other times during a policy year.
GIAC transfers amounts from the Fixed-Rate Option in the same order as the
amounts were allocated to such option. This means that amounts on deposit in the
Fixed-Rate Option for the longest period of time will be the first amounts
transferred out. The maximum amount that may be transferred out of the
Fixed-Rate Option each policy year is the greater of 33 1/3% of the Policy
Account Value in the Fixed-Rate Option on the Policy Anniversary on or
immediately preceding the date of transfer or $2,500.
Dollar Cost Averaging Transfer Option
The policyowner may elect to have designated dollar amounts automatically
transferred on each Monthly Date from The Guardian Cash Fund investment division
of the Separate Account to one or more of the other options offered under the
policy. GIAC will not implement automatic transfers unless it has received a
properly completed authorization form.
The period selected for the Dollar Cost Averaging option to be in effect shall
be at least 12 months, and the minimum amount that may be transferred into each
other option on each Monthly Date is $100 per transfer. Before the policyowner's
Dollar Cost Averaging transfer program goes into effect, the Policy Account
Value attributable to The Guardian Cash Fund investment division must be at
least equal to the product of the number of months in the selected duration
multiplied by the aggregate amount designated for transfer each month (e.g., 12
x $100 = $1200). GIAC will notify the policyowner if this minimum is not
satisfied. No Dollar Cost Averaging transfers will be effected until the minimum
is satisfied. The policyowner may add to the Policy Account Value attributable
to the Cash Fund investment division to extend the period that the Dollar Cost
Averaging transfer program remains in effect.
Automatic transfers under a Dollar Cost Averaging program will end when:
o the period set forth in the Dollar Cost Averaging authorization form
ends; or
o the Policy Account Value attributable to The Guardian Cash Fund
investment division is less than the amount designated for transfer
on a Monthly Date (though GIAC will transfer the remaining amount on
a pro-rata basis to the options that were last designated by the
policyowner for automatic transfers, leaving a zero balance in the
Cash Fund investment division); or
o a written request to terminate the program is received at GIAC's
Executive Office at least three Business Days prior to the next
scheduled transfer; or
o the policy is surrendered or lapses; or
o a policy value option takes effect.
Automatic transfers can be reinstated or changed, subject to the rules described
above, if GIAC receives a new authorization form within three Business Days
before the Monthly Date on which the reinstatement or change is to be effective.
Periodic investing of the same dollar amount permits a policyowner to acquire
more units in a receiving Variable Investment Option when the price per share of
its corresponding mutual fund is low, and fewer when such price is high.
Accordingly, this strategy may reduce the impact of fluctuations in the
receiving Option's unit value over the period that automatic transfers are
effected. However, there can be no assurance of profit or protection against
loss in a declining market.
Policy Proceeds
Death proceeds are determined as set forth in "Death Benefit Options" and become
payable upon GIAC's receipt at the Executive Office of due proof that the
insured died while the policy was in force. The amount(s) involved in all other
policy transactions will be determined as of the end of the Business Day on
which GIAC receives satisfactory information, instructions or documentation at
its Executive Office. See "Communications With GIAC." GIAC will ordinarily pay
any Net Cash Surrender Value, policy loan, partial withdrawal, death proceeds or
other policy transaction proceeds from the Variable Investment Options within
seven days after it has received the information it needs to determine the
payable amount. However, GIAC may delay transfers, loans or other payments from
some or all of the Variable Investment Options when: (1) the NYSE is closed for
other than weekends or holidays,
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<PAGE>
or trading is restricted; (2) the SEC determines that a state of emergency
exists that may make policy transactions impracticable; or (3) at any other time
when one or more of the Variable Investment Options' corresponding mutual funds
lawfully suspends payment or redemption of their shares.
Requests for transfers, loans or any other payment out of the Fixed-Rate Option
will normally be effected promptly after GIAC receives the required information
or documentation. However, GIAC has the right to delay such transfers, loans or
payments for up to six months from the date of a request. GIAC will pay interest
at a rate not less than 3% per year on payments out of the Fixed-Rate Option
deferred 30 days or more. Requests for transfers out of the Fixed-Rate Option
may only be made during certain periods. See "Transfers From the Fixed-Rate
Option."
The death proceeds actually paid to the beneficiary(ies) of a Park Avenue Life
policy will include that portion of previously paid Policy Premium Assessments
that relate to a period beyond the policy month of death. GIAC will also include
any proceeds provided by additional benefit riders in the death proceeds paid.
Any outstanding Policy Debt will be deducted from the death proceeds paid. If
the insured dies during the grace period for an unpaid Policy Premium, GIAC will
calculate the death benefit as though the Policy Premium had been paid when due
and then deduct the portion of such premium that relates to periods through the
policy month of death from the death proceeds to be paid. If the insured is
Attained Age 100 or older at death, the death proceeds will be the Policy
Account Value minus any Policy Debt as of the date of death.
Death proceeds may also be adjusted as a result of: (1) a misstatement of the
insured's Age or sex on the application for a policy; (2) the insured's suicide
within two years from the Issue Date or the effective date of a change in the
death benefit from Option 1 to Option 2 (but only to the extent of any increase
in the death benefit over the Face Amount that resulted from the change in
options); or (3) any limits imposed by a rider to the policy.
Policy Value Options
If a policy has no Cash Surrender Value when it lapses, GIAC will terminate the
policy and all insurance coverage will end. If a lapsed policy has Cash
Surrender Value, insurance coverage can be continued after lapse under one of
the policy value options described below. Alternatively, the policyowner can:
(1) request payment of the Net Cash Surrender Value, in which case all insurance
coverage will end; or (2) take steps to fulfill the conditions to reinstate the
policy. See "Reinstatement."
Generally, policy value Option A is the automatic option if the policyowner
neither elects another option, nor requests payment of the Net Cash Surrender
Value or reinstatement of the policy by the end of the grace period. However,
policy value Option B will be implemented if the lapsed policy does not qualify
for Option A, or if the insurance coverage provided under policy value Option B
equals or exceeds that which would be provided under Option A. A Park Avenue
Life policy issued in premium class 3 or higher, or with a temporary rating
charge, does not qualify for policy value Option A.
Of the policy value options available, only Option C provides for continuing
investment through the Variable Investment Options. Partial withdrawals and
loans are permitted under Option B and Option C, but not Option A. See "Tax
Effects" for information about the effects of cancelling Policy Debt when a
policy value option becomes effective.
While the insured is living, the policyowner may surrender the insurance
provided by a policy value option for the option's then net cash surrender
value. An option's net cash surrender value is its cash value minus any
outstanding policy debt. The cash value under policy value Option A is the then
present value of the insurance provided by the option. The cash value under
policy value Option B is the sum of the values attributable to the Fixed-Rate
Option and the Loan Collateral Account (see below). The cash value under policy
value Option C is the sum of the values attributable to the Variable Investment
Options, the Fixed-Rate Option and the Loan Collateral Account (see below).
Option A is Non-Participating fixed-benefit Extended Term Insurance. This
limited term insurance provides a death benefit that is equal to the death
benefit under the lapsed policy, less any outstanding Policy Debt. The length of
time that coverage will continue under policy value Option A depends on the Net
Cash Surrender Value of the lapsed Park Avenue Life policy, as such value will
be used as a net single premium for the term coverage that can be provided for
the insured's Attained Age, sex and premium class. To implement policy value
Option A, GIAC irrevocably transfers the lapsed policy's Net Cash Surrender
Value to its general account. No further Policy Premiums will be due; no
Unscheduled Payments or partial withdrawals will be permitted and no further
Monthly Deductions will be taken while Option A is in force. Extended term
insurance has a cash surrender value that declines to zero at the end of the
term, but no loan value.
Option B is Non-Participating Reduced Paid-Up Insurance. Policy value Option B
provides lifetime insurance coverage on the insured. The initial amount of the
death benefit under this option will be the benefit that can be purchased by
using the policy's Cash Surrender Value on the default date as a net single
premium for the insured's Attained Age, sex and premium class. If Policy Debt is
to be cancelled when Option B takes effect, the Net Cash Surrender Value will be
used as the net single premium. See "Tax Effects." Any Policy Debt continued or
incurred under policy value Option B is subject to the policy's provisions
regarding policy loans. The death benefit under policy value Option B is likely
to be smaller than the death benefit under the lapsed policy.
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To implement policy value Option B, GIAC irrevocably transfers the lapsed
policy's Unloaned Policy Account Value to the Fixed-Rate Option and deducts all
applicable surrender charges. GIAC also deducts the Policy Debt if the
policyowner has asked to have such debt cancelled when this option takes effect.
The remaining amount will be credited with a guaranteed rate of interest of at
least 4%. If the amounts retained under Option B earn interest at higher rates,
the Option's death benefit may increase. The death benefit under policy value
Option B will never be lower than the death benefit that would be required by
Section 7702 of the Internal Revenue Code for the Option. See "The Fixed-Rate
Option" and "Death Benefit Options."
No further Policy Premiums will be due, and no Unscheduled Payments are
permitted under policy value Option B. GIAC will deduct the monthly cost of
insurance charge and any partial withdrawal charges from the Fixed-Rate Option
while policy value Option B is in force. See "Deductions and Charges."
Non-participating reduced paid-up insurance has a net cash surrender value and
loan value.
Option C is Non-Participating Variable Reduced Paid-Up Insurance. If a lapsed
Park Avenue Life policy had provided coverage for an insured in a standard or
better premium class for at least one year from its Issue Date, and its Cash
Surrender Value was at least $10,000 as of the default date, the policyowner can
use policy value Option C to continue lifetime insurance coverage for the
insured. GIAC will implement policy value Option B if a policyowner who elected
Option C is ineligible for it when an option is to be implemented.
Under this option, values can be retained in the Variable Investment Options
and/or the Fixed-Rate Option, and the policyowner can continue to make transfers
in the same manner as permitted under the Park Avenue Life policy.
The initial amount of the death benefit under this option will be the benefit
that can be purchased by using the policy's Cash Surrender Value on the default
date as a net single premium for the insured's Attained Age, sex and premium
class. If Policy Debt is to be cancelled when Option C takes effect, the Net
Cash Surrender Value will be used as the net single premium. See "Tax Effects."
Any Policy Debt continued or incurred under policy value Option C is subject to
the policy's provisions regarding policy loans. The death benefit under policy
value Option C is initially likely to be smaller than the death benefit under
the lapsed policy. Once policy value Option C is in force, the death benefit
will vary with the net investment experience of the policyowner's Variable
Investment Option selections.
Unlike the Park Avenue Life policy, this option does not provide a guaranteed
minimum face amount of insurance. Accordingly, unfavorable investment
performance, partial withdrawals and/or loans can reduce or eliminate this
option's death benefit. If this option's cash value declines to zero, there can
be no death benefit and the option will lapse. Variable reduced paid-up
insurance can (but may not) have net cash surrender value and loan value.
No further Policy Premiums will be due, and no Unscheduled Payments will be
permitted while policy value Option C is in force. GIAC will deduct the monthly
cost of insurance charge and any partial withdrawal charges or transfer charges
in the same manner as under the policy while this option is in force. Deductions
from the Separate Account and the mutual funds will continue to have an impact
under policy value Option C. See "Deductions and Charges."
Fixed-Benefit Insurance During the First 24 Months
During the first 24 policy months, the policyowner has the right to exchange his
or her Park Avenue Life policy and replace it with a fixed-benefit whole life
insurance policy issued by GIAC or an affiliate of GIAC (the "new policy"). No
evidence of insurability will be required. Policy values under the new policy
will be held in the issuer's general account. The new policy's face amount will
be the same as the Park Avenue Life policy's Face Amount as of the exchange
date. The insured's Age under the original policy will be retained under the new
policy. The policyowner must repay all outstanding Policy Debt before the
exchange is effected.
There may be a cost or credit to be paid upon this type of exchange, depending
on the amount applied to the new policy. The amount applied to the new policy is
the greater of (1) or (2) where:
o (1) is the cumulative premiums for the new policy with interest at
6% minus the cumulative Policy Premiums for the exchanged Park
Avenue Life policy with interest at 6%; and
o (2) is the guaranteed cash value of the new policy minus the Cash
Surrender Value of the exchanged Park Avenue Life policy on the
exchange date. The cash value will depend on the new policy's face
amount, premium class, and the insured's age and sex on the policy
date.
If the greater amount is less than zero, the issuer of the new policy will pay
an exchange credit to the policyowner. If the greater amount is more than zero,
the policyowner must pay the exchange cost to the issuer of the new policy.
The exchange date is the date that the new policy is issued. The new policy will
be issued upon the later of:
o the Business Day GIAC receives the policyowner's written exchange
request and his or her Park Avenue Life policy at its Executive
Office; or
o the Business Day any exchange cost payable by the policyowner is
received by the issuer of the new policy.
Waiver of premium and accidental death benefit riders from the Park Avenue Life
policy can be attached to the
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new policy. Other additional benefit riders are only available upon the consent
of the issuer of the new policy. Competent legal and tax advice should be sought
in connection with exchanging a policy.
Payment Options
The death proceeds or Net Cash Surrender Value of a Park Avenue Life policy can
be paid in a lump sum, or under one or more of the payment options described
below. The policyowner may select the payment option(s) while the insured is
living. If no election has been made when policy proceeds become payable, the
payee may select the payment option(s). A payment option election for death
proceeds must be made within one year of the insured's death. The payment
election for other proceeds must be made within 60 days after the proceeds
become payable. A payee under any payment option must be a natural person. The
policyowner may appoint a secondary payee to receive any payments remaining
after the death of the initial payee. Amounts applied to a payment option will
not share in the income, gains or losses of the Variable Investment Options, nor
be credited interest in the amount or manner provided by the Fixed-Rate Option.
At least $5,000 must be applied under each option selected. See "Death Benefit
Options," "Partial Withdrawals," "Surrender" and "Policy Proceeds" for
information about when the proceeds of a Park Avenue Life policy are payable.
Under Option 1, GIAC will hold the proceeds and make monthly interest payments
at a guaranteed annual rate of 3%.
Under Option 2, GIAC will make monthly payments of a specified amount until the
proceeds and interest are fully paid. At least 10% of the original proceeds must
be paid each year. Guaranteed interest of 3% will be added to the proceeds each
year.
Under Option 3, GIAC will make monthly payments for a specified number of years.
The amount of the payments will include interest at 3% per year.
Under Option 4, GIAC will make monthly payments for the longer of the life of
the payee or 10 years. The minimum amount of each payment will include interest
at 3% per year.
Under Option 5, GIAC will make monthly payments until the amount paid equals the
proceeds settled, and for the remaining life of the payee. The minimum amount of
each payment will include interest at 3% per year.
Under Option 6, GIAC will make monthly payments for 10 years and for the
remaining life of the last surviving of two payees. The minimum amount of each
payment will include interest at 3% per year.
Payment option tables for Options 4, 5, and 6 are based on the Annuity 2000
Mortality Tables (male and female) projected 20 years to the year 2020 by 100%
of the male scale G Factors (for males) and 50% of the female scale G Factors
(for females).
Monthly payments under a payment option must be at least $50. The policy sets
forth the amount payable each month per $1,000 of proceeds applied under Options
3, 4, 5 and 6, as well as the amount payable upon the termination of a payment
option.
TAX EFFECTS
This discussion is based on GIAC's understanding of the effects of current
federal income tax laws, as currently interpreted, on Park Avenue Life policies.
This discussion is general in nature, and should not be considered to be tax
advice. Anyone interested in purchasing a policy or effecting policy
transactions should consult a legal or tax adviser regarding such person's
particular circumstances. There can be no guarantee that the federal income tax
laws, including related rules and regulations, or interpretations of them, will
not change while this prospectus is in use or while a policy is in force.
Treatment of Policy Proceeds
GIAC believes that a Park Avenue Life policy will be treated as "life insurance"
as defined in the Internal Revenue Code. Accordingly, under federal income tax
law:
o the death proceeds received by a beneficiary will not be subject to
federal income tax; and
o increases in the Policy Account Value resulting from interest or
investment experience will not be subject to federal income tax
unless they are distributed from the policy before the insured's
death.
Income recognized when a pre-death distribution is taken will be characterized
and taxed as "ordinary income."
The definition of "life insurance" under the Code can be met if a life insurance
policy satisfies either one of two tests that are set forth in the Code. The
manner in which these tests should be applied to certain features of the Policy
is not clearly addressed by the Code, regulations or pertinent authorities
thereunder. The presence of these policy features, and the absence of any
pertinent interpretations of the tests, thus creates some uncertainty about the
application of the tests to the policy.
The federal income tax consequences of taking distributions from a policy will
depend on whether the policy is determined to be a "modified endowment
contract."
A modified endowment contract is an insurance policy that fails to meet a
"seven-pay" test. In general, a policy will fail the seven-pay test if the
cumulative amount of premiums paid under the policy at any time during the first
seven policy years exceeds a calculated premium level. The calculated seven-pay
premium level is based on a hypothetical policy issued on the same insured and
for the same initial death benefit that, under specified conditions (including
the absence of expense, administrative and surrender charges), would be fully
paid for after seven level annual payments.
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A Park Avenue Life policy could be treated as a modified endowment contract if
the cumulative premiums paid (whether through scheduled Policy Premiums or
Unscheduled Payments) at any time during the first seven policy years exceeds
the cumulative seven-pay premiums that can be paid under the hypothetical
policy.
Whenever there is a "material change" under a policy, the policy will generally
be treated as a new contract and become subject to a new seven-pay period and
new seven-pay limit. A materially changed policy would become a modified
endowment contract if it failed to satisfy the new seven-pay limit. Increasing a
policy's future benefits might result in a material change. Future benefits can
increase, for example, if the death benefit is changed from Option 1 to Option
2, benefits are added by rider, or a lapsed policy is reinstated. An exchange is
treated as a material change.
If the benefits under a policy are reduced during the first seven policy years
(or within seven years after a material change), the applicable seven-pay limit
must be redetermined based on the reduced level of benefits and applied
retroactively for purposes of the seven-pay test. If the premiums previously
paid are greater than the recalculated seven-pay limit, the policy will become a
modified endowment contract. Policy benefits are reduced, for example, when the
Face Amount is reduced, when certain partial withdrawals are taken, when the
death benefit is changed from Option 2 to Option 1, or when a policy value
option takes effect.
A life insurance policy received in exchange for a modified endowment contract,
or a modified endowment contract that lapses and is reinstated, will be treated
as a modified endowment contract.
Once a policy becomes a modified endowment contract, it will remain a modified
endowment contract unless the violating transaction is reversed within thirty
days of its occurrence. The policyowner will be notified if a transaction has
caused or will cause the policy to be classified as a modified endowment
contract. If a transaction has caused the policy to be classified as a modified
endowment contract, the policyowner will be given the option of reversing the
transaction not later than 30 days from the date of notification.
The rules relating to whether a policy will be treated as a modified endowment
contract are extremely complex and cannot be adequately described in the limited
confines of this summary. Therefore, a current or prospective policyowner should
consult with a competent adviser to determine whether a transaction will cause
the policy to be treated as a modified endowment contract.
Pre-death distributions from a Park Avenue Life policy that is NOT a modified
endowment contract will generally receive the following federal income tax
treatment:
(1) Partial withdrawals should generally be treated as first recovering
the policyowner's "basis" in the policy and then as distributing
taxable income. However, during the first 15 policy years,
distributions may first be treated wholly or partially as taxable
income if the ratio of the Policy Account Value to the death benefit
exceeds the applicable ratio under Section 7702 of the Internal
Revenue Code. The basis in a policy generally equals the premiums
paid minus any amounts previously recovered through tax-free policy
distributions.
(2) If a policy is surrendered, the excess, if any, of the Cash
Surrender Value (which includes the amount of any Policy Debt) over
the basis will be subject to federal income tax. Any loss incurred
upon surrender is generally not deductible. The tax consequences of
surrender may differ if the proceeds are received under a payment
option.
(3) Loans will ordinarily be treated as indebtedness, and no part of a
loan will be subject to current federal income tax, as long as the
policy remains in force. Upon lapse, however, cancellation of a loan
will be treated as a distribution and may be taxed. Generally,
policy loan interest is not tax deductible by the policyowner.
Pre-death distributions from a Park Avenue Life policy that IS a modified
endowment contract will generally receive the following federal income tax
treatment:
(1) Any distribution will be taxed on an "income-first" basis to the
extent that the Policy Account Value exceeds the basis in the
policy. For this purpose, distributions include partial withdrawals,
surrenders, assignments and policy loans (including any automatic
premium loans or automatic increases in policy loans to pay loan
interest). Loans that are treated as taxable income are added to the
basis of modified endowment contracts.
(2) For purposes of determining the taxable portion of any distribution,
all modified endowment contracts issued by GIAC or its affiliates to
a policyowner during any calendar year shall be treated as one
modified endowment contract.
(3) A 10% penalty tax will also apply to any taxable distribution,
unless the distribution is: (a) made to a taxpayer who is 59 1/2
years of age or older; (b) attributable to disability (as defined in
the Internal Revenue Code); or (c) received as part of a series of
substantially equal periodic payments for the taxpayer's life (or
life expectancy) or the joint lives (or joint life expectancies) of
the taxpayer and a beneficiary.
The Secretary of the Treasury is authorized to prescribe additional rules to
prevent avoidance of income-first taxation on distributions from modified
endowment contracts.
If a policy becomes a modified endowment contract,
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distributions that occurred during the policy year in which such policy became a
modified endowment contract, and distributions in any subsequent policy year
will be taxed as described above. In addition, distributions that occurred
within the preceding two years will be subject to such tax treatment. This means
that a distribution made from a policy that is not a modified endowment contract
could later become taxable as a distribution from a modified endowment contract.
The Secretary of the Treasury is authorized to prescribe rules that would
similarly treat other distributions made in anticipation of a policy becoming a
modified endowment contract.
Exchanges
Typically, there are no federal income tax consequences when one life insurance
policy is exchanged for another to cover the same insured. However, the new
policy will be subject to the seven-pay test from the date of the exchange, and
can be treated as a modified endowment contract if it fails to satisfy such
test. Additionally, a policy may lose any privileges to be excused by
"grandfathering" from statutory or regulatory changes made after its issuance if
it is exchanged for another policy. For these reasons, anyone who is (1)
considering exchanging another life insurance policy to obtain a Park Avenue
Life policy, or (2) considering exchanging a Park Avenue Life policy to obtain a
different life insurance policy should consult a competent tax adviser.
Diversification
If a policy does not qualify as "life insurance" under the Internal Revenue
Code, the policyowner can become immediately subject to federal income tax on
the income under his or her policy. For variable life insurance policies to
qualify as life insurance, section 817(h) of the Internal Revenue Code requires
their underlying investments to be adequately diversified. Treasury Department
regulations specify the diversification requirements. GIAC believes that the
investment divisions of the Separate Account, through their corresponding mutual
funds, comply fully with such requirements.
To date, no regulations or rulings have been issued to provide guidance
regarding the circumstances under which a policyowner's ability to control his
or her investments under a policy by exercising premium allocation and transfer
privileges would cause him or her to be treated as the owner of a pro-rata
portion of the assets in an insurance company's separate account. If a Park
Avenue Life policyowner was considered the owner of assets in the Separate
Account, the income and gains attributable to his or her Policy Account Value in
the Variable Investment Options would be included in his or her gross income.
GIAC currently believes that it, and not its policyowners, is considered to own
the Separate Account's assets. However, GIAC cannot predict when the Treasury
Department or the Internal Revenue Service ("IRS") will issue guidance regarding
these matters, nor the nature of any such guidance.
Policy Changes
GIAC may, to the extent it deems necessary, make changes to the policy or its
riders (1) to assure that Park Avenue Life initially qualifies and continues to
qualify as life insurance under the Internal Revenue Code; or (2) to attempt to
prevent a policyowner from being considered the owner of a pro-rata portion of
the Separate Account's assets (see above). Any such change will apply uniformly
to all policies that are affected. If required by state insurance regulatory
authorities, advance written notice of such changes will be provided.
Tax Changes
From time to time the United States Congress considers legislation that, if
enacted, could change the tax treatment of life insurance policies prospectively
or even retroactively. In addition, the Treasury Department and IRS may amend
existing regulations, issue new regulations, or adopt new interpretations of
existing laws or regulations. Also, state or local tax laws that relate to
owning or benefiting from a policy can be changed from time to time without
notice. It is impossible to predict whether, when or how any such change would
be adopted. Anyone with questions about such matters should consult a legal or
tax adviser.
Estate and Generation Skipping Transfer Taxes
If the policyowner is also the insured, the death benefit under a Park Avenue
Life policy will generally be included in the policyowner's estate for purposes
of federal estate tax. If the policyowner is not the insured, under certain
circumstances only the Cash Surrender Value would be so included. In general,
estates of U.S. citizens or residents that are valued at less than $600,000 will
not incur federal estate tax liability, and an unlimited marital deduction may
be available for federal estate and gift tax purposes. Federal estate tax is
integrated with federal gift tax under a unified rate schedule.
As a general rule, designating a beneficiary or paying proceeds to a person who
is two or more generations younger than the policyowner, may cause a generation
skipping transfer ("GST") tax to be payable. The GST tax is imposed at a rate
that equals the maximum estate tax rate. Individuals are generally allowed an
aggregate GST tax exemption of $1 million. Because these rules are complex, a
legal or tax adviser should be consulted for specific information.
The particular situation of each policyowner or beneficiary will determine how
ownership or receipt of policy proceeds will be treated for purposes of federal
estate and GST taxes, as well as state and local estate, inheritance and other
taxes.
Legal Considerations for Employers
In 1983, the United States Supreme Court held that optional annuity benefits
provided under an employer's deferred compensation plan could not, under Title
VII of the Civil Rights Act of 1964, vary between men and women on the basis of
sex. The Court applied its decision to benefits
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derived from contributions made on or after August 1, 1983. Lower federal courts
have since held that the Title VII prohibition of sex-distinct benefits may
apply at an earlier date. In addition, some states prohibit using sex-distinct
mortality tables.
The Policy uses sex-distinct actuarial tables, unless state law requires the use
of sex-neutral actuarial tables. As a result, the Policy generally provides
different benefits to men and women of the same age. Employers and employee
organizations which may consider buying Policies in connection with any
employment-related insurance or benefits program should consult their legal
advisers to determine whether the Policy is appropriate for this purpose.
Other Tax Consequences
The policy may be used in various arrangements, including non-qualified deferred
compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if a policyowner is
contemplating the use of a policy in any arrangement the value of which depends
in part on its tax consequences, the policyowner should consult a qualified tax
advisor regarding the tax attributes of the particular arrangement.
GIAC's Taxes
Under the current life insurance company tax provisions of the Internal Revenue
Code, an insurer's variable life insurance business is treated in a manner
consistent with a fixed-benefit life insurance business. Accordingly, GIAC pays
no income tax on investment income and capital gains reflected in its variable
life insurance policy reserves, and no charge is currently being made to any
investment division of the Separate Account for taxes. GIAC reserves the right
to assess a charge against the Separate Account in the future for taxes or other
tax-related economic burdens which it incurs that are attributable to the
Separate Account or allocable to the policy. The operations of the Separate
Account are reported on GIAC's federal income tax return, which is then
consolidated with that of GIAC's parent, Guardian Life.
GIAC may have to pay state, local and other taxes in addition to premium taxes.
At present, these taxes are not substantial. If they increase, charges may be
made for such taxes that are attributable to the Separate Account or allocable
to the policy.
Income Tax Withholding
GIAC is generally required to withhold for income taxes applicable to taxable
distributions. A policyowner can elect in writing to not have income taxes
withheld. If income tax is not withheld for a taxable distribution, or if an
insufficient amount is withheld, tax payments may be required from the
policyowner later. Under the applicable tax rules, penalties may be assessed
against the policyowner if withholding or estimated tax payments are
insufficient. GIAC may also be required to withhold GST taxes if it does not
receive satisfactory written notification that no such taxes are due.
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THE VARIABLE INVESTMENT OPTIONS
THE SEPARATE ACCOUNT
The Separate Account was established by resolution of GIAC's Board of Directors
on November 18, 1993 under the insurance law of the state of Delaware, and meets
the definition of "separate account" under the federal securities laws. The
Separate Account is registered with the SEC as a unit investment trust, which is
a type of investment company under the Investment Company Act of 1940 (the "1940
Act"). A unit investment trust invests its assets in specified securities, such
as the shares of one or more registered mutual funds, rather than a portfolio of
unspecified securities. Registration under the 1940 Act does not involve any
supervision by the SEC of the investment management or programs of the Separate
Account or GIAC. Under Delaware law, however, both GIAC and the Separate Account
are subject to regulation by the Delaware Insurance Commissioner. GIAC is also
subject to the insurance laws and regulations of all states and jurisdictions
where it is authorized to conduct business.
GIAC owns the assets held in the Separate Account. The assets equal to the
reserves and other liabilities of the Separate Account are used only to support
the variable life insurance policies issued through the Separate Account.
Delaware insurance law provides that such assets may not be used to satisfy
liabilities arising from any other business that GIAC may conduct. This means
that the assets supporting Policy Account Values maintained in the Variable
Investment Options are not available to meet the claims of GIAC's general
creditors. GIAC may also retain in the Separate Account assets that exceed the
reserves and other liabilities of the Separate Account. Such assets can include
GIAC's direct contributions to the Account, accumulated charges for mortality
and expense risks, or the investment results attributable to GIAC's retained
assets. Because such retained assets do not support Policy Account Values, GIAC
may transfer them from the Separate Account to its general account.
The Separate Account has several investment divisions, each of which invests in
shares of a corresponding mutual fund. The funds are briefly described below.
More complete information about the mutual funds, including all fees and
expenses, appear in the prospectuses which accompany this prospectus.
THE FUNDS
Each of the funds is an open-end diversified management investment company, 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 policyowner-requested and other policy transactions.
Presently, policy and contract values attributable to both variable life
insurance policies and variable annuities may be invested in the funds through
GIAC's separate accounts. 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 policyowners. See "Rights Reserved by GIAC" and the
accompanying prospectuses for the mutual funds.
Investment Objectives and Policies of the Funds
Each fund has a different investment objective that 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 each
fund's objective and lists typical portfolio investments.
FUND INVESTMENT OBJECTIVE TYPICAL INVESTMENTS
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Guardian Long-term growth of U.S. common stocks
Stock Fund capital and convertible securities
Guardian Small Long-term growth of U.S. common stocks
Cap Stock capital and convertible securities
Fund
Guardian Bond Maximum income with- investment grade
Fund out undue risk of debt obligations and
principal U.S. government securities
Guardian Cash High level of current money market
Fund income; preservation instruments
of capital
Baillie Gifford Long-term capital common stocks and
International appreciation convertible securities
Fund issued by foreign
companies
Value Line Long-term growth of U.S. common stocks
Centurion capital ranked 1 or 2 by the
Fund Value Line Ranking
System*
Value Line High total investment U.S. common stocks,
Strategic Asset return consistent ranked 1 or 2 by the
Management with reasonable risk Value Line Ranking
Trust System,* bonds and
money market
instruments
MFS Growth Reasonable current common stocks and
With Income income and long-term convertible securities
Series growth of capital issued by U.S. and foreign
and income companies
* 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).
Investment Performance of the Funds
The average annual total returns shown below are based on the actual investment
performance of the mutual funds for years ended December 31, 1996. They reflect
the deduction of investment advisory fees and operating expenses, and assume the
reinvestment of all dividends and capital gains distributed by the funds. These
returns are not illustrative of how actual investment performance will affect
the benefits provided by a Park Avenue Life policy because they do not reflect
the effects of the deductions and charges that GIAC makes under the policy's
terms. Moreover, these returns are not an estimate or prediction of future
performance. They may be useful,
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though, in assessing the past performance of
the investment advisers of the funds. Total returns for The Guardian Small Cap
Stock Fund (which commenced operation in 1997) and The Guardian Cash Fund are
not presented.
FUND NAME YEARS ENDING DECEMBER 31, 1996
AND Since
INCEPTION DATE 1 Year 5 Years 10 Years Inception
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Guardian Stock 26.90% 19.43% 16.00% 16.72%
(4/13/83)
Guardian Bond 2.88% 6.68% 8.03% 9.40%
(5/1/83)
Baillie Gifford 15.41% NA NA 12.34%
International
(2/8/91)
Value Line 15.87% 12.76% NA 14.23%
Strategic Asset
Management
(10/1/87)
Value Line 17.34% 13.21% 15.17% 13.59%
Centurion
(11/15/83)
MFS Growth 24.46% N/A N/A 25.88%
With Income*
(10/9/95)
* Total returns for the Growth With Income Series reflect the agreement by the
series' Adviser to bear expenses for the series, subject to reimbursement by the
series, such that the series' operational expenses shall not exceed 0.25% of the
average daily net assets of the series for each fiscal year since inception.
Total returns would be lower in the absence of this agreement.
For more information about past performance, see Appendix B.
THESE TOTAL RETURNS ARE FOR THE FUNDS ONLY AND DO NOT REFLECT THE EFFECTS OF
DEDUCTIONS FROM POLICY PREMIUMS AND UNSCHEDULED PAYMENTS, MONTHLY DEDUCTIONS,
TRANSACTION DEDUCTIONS OR DEDUCTIONS FROM THE SEPARATE ACCOUNT. FOR INFORMATION
ABOUT THE POSSIBLE EFFECTS OF THESE DEDUCTIONS, SEE APPENDIX B. INCLUDING THE
EFFECTS OF THESE DEDUCTIONS REDUCES RETURNS. SEE ALSO "DEFINITIONS" AND
"DEDUCTIONS AND CHARGES" FOR ADDITIONAL INFORMATION.
THE FUNDS' INVESTMENT ADVISERS
Guardian Investor Services Corporation
The Guardian Stock Fund, The Guardian Small Cap Stock Fund, The Guardian Bond
Fund and The Guardian Cash Fund (the "Guardian funds") are advised by Guardian
Investor Services Corporation ("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
the Guardian funds, except the Small Cap Stock Fund, 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. The Small Cap Stock
Fund pays GISC 0.75% of the Fund's average daily net assets. GISC also serves as
the investment adviser to six of the eight series comprising The Park Avenue
Portfolio, a family of mutual funds, serves as manager of Gabelli Capital Asset
Fund and The Guardian Small Cap Stock Fund series of GIAC Funds, Inc. and is
co-adviser of another GIAC separate account.
Guardian Baillie Gifford Limited
The Baillie Gifford International Fund series of GIAC Funds, Inc. is 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 by GIAC and Baillie Gifford
Overseas Limited ("BG Overseas") in November 1990. GBG is also the investment
adviser of two of the eight series comprising The Park Avenue Portfolio and
Baillie Gifford Emerging Markets Fund. Baillie Gifford International Fund pays
GBG an investment advisory fee at an annual rate of 0.80% of the fund's average
daily net assets for the services and facilities GBG provides to the fund.
Baillie Gifford Overseas Limited
GBG has appointed BG Overseas to serve as sub-investment adviser to Baillie
Gifford International 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 two
series of The Park Avenue Portfolio that are advised by GBG and Baillie Gifford
Emerging Markets Fund. One half of the investment advisory fee paid by Baillie
Gifford International Fund to GBG is payable by GBG to BG Overseas for its
services as the fund's sub-investment adviser. No separate or additional fee is
paid by the fund to BG Overseas.
Value Line, Inc.
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 the fund. 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.
Massachusetts Financial Services Company
MFS Growth With Income Series is advised by Massachusetts Financial Services
Company ("MFS"), 500 Boylston Street, Boston, MA. MFS is registered as an
investment adviser under the Advisers Act and is a subsidiary of Sun Life of
Canada (U.S.) which is itself an indirect wholly owned subsidiary of Sun Life
Assurance company of Canada. MFS provides advisory services to other open- and
closed-end registered investment companies, as well as private and institutional
investors. As compensation for its services to the Series, MFS receives a fee,
payable monthly, at an annual rate of .75% of the Series' average daily net
assets.
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FIXED-RATE OPTION
GENERAL INFORMATION
The policyowner may allocate some or all of the Net Premiums paid under a policy
or transfer some or all of the Policy Account Value that is attributable to the
Variable Investment Options to Park Avenue Life's Fixed-Rate Option. As
described elsewhere in this prospectus, certain restrictions apply to transfers
out of the Fixed-Rate Option, and GIAC will use amounts in the Fixed-Rate Option
as the last source of funds for certain policy transactions. The Fixed-Rate
Option is backed by GIAC's general account.
Because of exemptive and exclusionary provisions, interests in the Fixed-Rate
Option are not registered under the Securities Act of 1933, and neither the
Fixed-Rate Option nor GIAC's general account are registered as investment
companies under the 1940 Act. GIAC has been advised that the staff of the SEC
does not review prospectus disclosures relating to unregistered allocation and
transfer options, but such disclosures may be subject to certain generally
applicable provisions of the federal securities laws regarding the accuracy and
completeness of statements made in prospectuses.
The Fixed-Rate Option is only available under the policy in states where it has
been approved by the state insurance department.
AMOUNTS IN THE FIXED-RATE OPTION
The sources of the Policy Account Value attributable to the Fixed-Rate Option
are:
o Net Premiums and loan repayments that have been allocated and remain
credited to the option, plus
o amounts transferred to the option from the Variable Investment
Options which remain credited to the Fixed-Rate Option, plus
o interest paid on amounts held in the option.
GIAC guarantees that amounts invested in the Fixed-Rate Option will accrue
interest daily at an effective annual rate of at least 4%. GIAC is not obligated
to credit interest at a rate higher than 4%, although it may do so at its sole
discretion. GIAC declares the current interest rate for the Fixed-Rate Option
periodically.
The Policy Account Value attributable to the Fixed-Rate Option on the Policy
Date or any Policy Anniversary will earn interest at the annual rate in effect
on that day for the next 12 months, when it will be accumulated together with
the following amounts to earn the interest rate then in effect for the next 12
months:
o amounts allocated or transferred to the Fixed-Rate Option during
such 12 months; and
o interest credited on all amounts attributable to the Fixed-Rate
Option during such 12 months
Amounts allocated or transferred to the Fixed-Rate Option on a date other than
the Policy Date or a Policy Anniversary will earn interest at the rate in effect
on the date of the applicable transaction until the next Policy Anniversary.
Accordingly, the effective interest rate credited at any time to a policy with
amounts in the Fixed-Rate Option will be a weighted average of all the
Fixed-Rate Option interest rates which then apply to the Policy Account Value in
the Fixed-Rate Option.
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34
<PAGE>
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VOTING RIGHTS
As explained under "The Variable Investment Options," GIAC invests the assets of
the Separate Account's investment divisions in shares of certain corresponding
mutual funds. GIAC is the record owner of such shares and will attend and has
the right to vote at any meeting of a fund's shareholders.
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 Park
Avenue Life policyowners. 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 mutual fund shares that it is entitled to vote
directly due to amounts it has contributed or accumulated in the applicable
investment division in the same proportion as all of its policyowners and
contractowners vote, including those who participate in other GIAC separate
accounts. 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
policyowner voting, GIAC reserves the right to do so.
GIAC will seek voting instructions from Park Avenue Life policyowners for the
number of shares attributable to their policies. Policyowners are entitled to
provide instructions if, on the applicable record date, they have allocated
Policy Account Values to the investment division that corresponds to the mutual
fund for which a shareholder meeting is called. The record date shall be at
least 10 and no more than 90 days before the meeting. GIAC determines the number
of shares attributable to a policy by dividing the Policy Account Value in the
applicable investment division by the net asset value per fund share as of the
record date. Fractional shares are counted.
If permitted by state insurance regulatory authorities, GIAC may disregard
voting instructions relating to changes in a mutual fund's investment adviser,
investment advisory contract, investment objective or investment policies. GIAC
will only take such action if it reasonably disapproves the proposed changes,
and, in the case of a change in investment adviser or an investment policy, if
it makes a good faith determination that the proposed change is contrary to
state law or otherwise inappropriate in view of the fund's investment objective
and purpose. GIAC will explain its actions in the next semi-annual report to
policyowners.
Certain actions which GIAC may take relating to the operations of the Separate
Account may require policyowner approval. See "Rights Reserved by GIAC." If a
vote is required, each policyowner will be entitled to one vote for every $100
of value held in the Separate Account's investment divisions. GIAC will cast
votes attributable to its direct investments in the investment divisions in the
same proportion as votes cast by policyowners.
There are no voting rights with respect to the Fixed-Rate Option.
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35
<PAGE>
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DISTRIBUTION OF THE POLICY AND OTHER CONTRACTUAL ARRANGEMENTS
In its capacity as a broker-dealer registered under the Securities and Exchange
Act of 1934 (the "1934 Act") and as a member of the National Association of
Securities Dealers, Inc., GISC has entered into a distribution agreement with
GIAC to serve as the principal underwriter of the policies and the other
variable annuity contracts and variable life insurance policies issued by GIAC
through its separate accounts. The amounts paid or accrued to GISC by GIAC under
the distribution agreement totalled $1,709,799, $1,409,708 and $1,851,468 during
the years ended December 31, 1994, 1995, and 1996, respectively.
GISC is a New York corporation.
GIAC agents who are licensed by state insurance authorities to sell variable
life insurance policies must also be registered representatives of GISC or of
broker-dealer firms which have entered into sales agreements with GISC and GIAC
to sell Park Avenue Life. GIAC's agents receive sales commissions that are paid
from GIAC's resources, including amounts collected as Premium Charges and
surrender charges. If a policy is returned pursuant to the Right to Cancel
provision of the policy, some or all of the sales commission paid may be
recovered by GIAC from the agent.
The maximum commission that GIAC will pay to an agent for selling a policy is
50% of the Policy Premium paid for the first policy year; 5% of the Policy
Premiums paid for policy years two through ten; and 2% of the Policy Premiums
paid for policy years thereafter. GIAC also pays a commission not to exceed 3.5%
of each Unscheduled Payment made during policy years one through ten.
Commissions for Unscheduled Payments are reduced to a maximum of 2% in policy
years thereafter. GIAC may also pay commission overrides, expense allowances,
bonuses, wholesaler fees and training allowances in connection with the
marketing and sale of Park Avenue Life policies. In addition, agents who meet
specified production levels may qualify for non-cash compensation such as
merchandise and expense-paid trips or educational seminars.
GIAC has entered into an administrative services agreement with its parent,
Guardian Life. Under this agreement, GIAC is billed quarterly by Guardian Life
for the time spent by Guardian Life's employees on GIAC's business, and for
GIAC's use of Guardian Life's centralized services and sales force.
GIAC has also entered into an agreement with Value Line, Inc. pursuant to which
Value Line compensates GIAC for marketing the Value Line Centurion Fund and the
Value Line Strategic Asset Management Trust to GIAC's policyowners. For the year
ended December 31, 1996, GIAC received $153,151 from Value Line on behalf of the
Centurion Fund and $259,361 from Value Line on behalf of the Strategic Asset
Management Trust.
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36
<PAGE>
- --------------------------------------------------------------------------------
LIMITS TO GIAC'S RIGHT TO CHALLENGE A POLICY
Incontestability
Generally, GIAC may not challenge the validity of a policy that has been in
force during the insured's lifetime for two years from the Issue Date or date of
reinstatement if the Policy Premiums have been paid. If the death benefit is
changed from Option 1 to Option 2, GIAC may challenge any increase in the death
benefit that has been effective during the insured's lifetime for less than two
years from the effective date of the change. If GIAC successfully contests a
change from Death Benefit Option 1 to 2, the death benefit will be what would
have been payable had such change not taken effect.
Misstatement of Age or Sex
If the insured's age or sex was misstated in the application for a Park Avenue
Life policy, the death benefit under the policy will be that which would be
purchased by the most recent deduction for the cost of insurance under the
policy and any rider premium payment, using the correct age or sex.
GIAC may be restricted from varying a policy's benefits based on sex in certain
jurisdictions. GIAC offers a version of the policy that does not vary benefits
for men and women for use in such jurisdictions.
Suicide Exclusion
If the insured commits suicide, while sane or insane, within two years from the
Issue Date, GIAC's liability will be limited to the greater of the policy's Net
Cash Surrender Value on the date of death, or an amount equal to:
o the Policy Premiums paid, plus
o any Unscheduled Payments made, minus
o any Policy Debt; and minus
o any partial withdrawals made and the related charges deducted in
connection with such withdrawals.
If the insured commits suicide, while sane or insane, within 2 years from the
effective date of any increase in death benefit due to a change from Option 1 to
2, GIAC's liability will be limited to the death benefit that would have been
payable had such change not taken effect, plus the cost of insurance for the
increase in death benefit.
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37
<PAGE>
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GIAC'S MANAGEMENT
The directors and officers of GIAC are named below together with information
about their principal occupations and affiliations during the past five years.
The business address of each director and officer is 201 Park Avenue South, New
York, New York 10003. The "Guardian Fund Complex" referred to in the
biographical information is comprised of (1) The Guardian Stock Fund, (2) The
Guardian Bond Fund, (3) The Guardian Cash Fund, (4) The Park Avenue Portfolio (a
series trust that issues its shares in eight series) and (5) GIAC Funds, Inc. (a
series fund that issues its shares in three series).
Name Title Business History
CHARLES E. ALBERS Vice President, Senior Vice President,
Equity Securities The Guardian Life
Insurance Company of
America 1/91 - present.
Executive Vice President
of Guardian Investor
Services Corporation and
Guardian Asset Management
Corporation. Senior Vice
President, GIAC Funds,
Inc. Officer of various
mutual funds within the
Guardian Fund Complex;
Director, Guardian
Baillie Gifford Limited.
JOSEPH A. CARUSO Secretary Vice President and
Corporate Secretary, The
Guardian Life Insurance
Company of America 3/96 -
present; Second Vice
President and Corporate
Secretary 1/95 - 2/96;
Corporate Secretary 10/92
- 12/94; Assistant
Secretary prior thereto.
Secretary, Guardian
Investor Services
Corporation, Guardian
Asset Management
Corporation, Guardian
Baillie Gifford Limited
and various mutual funds
within the Guardian Fund
Complex.
PHILIP H. DUTTER Director Management Consultant
(self-employed). Director
of The Guardian Life
Insurance Company of
America 3/88 - present.
Director of Guardian
Investor Services
Corporation.
EARL C. HARRY Treasurer Treasurer, The Guardian
Life Insurance Company of
America 11/96 - present.
Assistant Treasurer prior
thereto. Treasurer of
Guardian Investor
Services Corporation.
ARTHUR V. FERRARA Director Retired. Chairman of the
Board and Chief Executive
Officer, The Guardian
Life Insurance Company of
America 1/93 - 12/95;
President and Chief
Executive Officer prior
thereto. Director 1/81 -
present. Director
(Trustee) of Guardian
Investor Services
Corporation, Guardian
Asset Management
Corporation, Gabelli
Capital Asset Fund and
various mutual funds
within the Guardian Fund
Complex.
CHARLES G. FISHER Vice President Second Vice President and
and Actuary Actuary, The Guardian
Life Insurance Company of
America 12/86 - present
LEO R. FUTIA Director Retired. Former Chairman
of the Board and Chief
Executive Officer, The
Guardian Life Insurance
Company of America;
Director 5/70 - present.
Director (Trustee) of
Guardian Investor
Services Corporation and
various mutual funds
within the Guardian Fund
Complex. Director
(Trustee) of various
mutual funds sponsored by
Value Line, Inc.
THOMAS R. HICKEY, JR. Vice President, Vice President, Equity
Operations Operations, The Guardian
Life Insurance Company of
America 3/92 - present.
Vice President, Guardian
Investor Services
Corporation. Vice
President of various
mutual funds within the
Guardian Fund Complex.
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38
<PAGE>
Name Title Business History
PETER L. HUTCHINGS Director Executive Vice President
and Chief Financial
Officer, The Guardian
Life Insurance Company of
America 5/87 - present.
Director of Guardian
Investor Services
Corporation and Guardian
Asset Management
Corporation.
RYAN W. JOHNSON Vice President and Second Vice President,
National Sales Director Equity Sales, The
Guardian Life Insurance
Company of America 3/95 -
present; Regional Sales
Director for Equity
Products, Western
Division, prior thereto.
FRANK J. JONES Executive Vice Executive Vice President
President, and Chief Investment
Chief Investment Officer Officer, The Guardian
and Director Life Insurance Company of
America 1/94 - present;
Senior Vice President and
Chief Investment Officer
prior thereto. Director,
Guardian Investor
Services Corporation,
Guardian Baillie Gifford
Limited, Director and
President, Guardian Asset
Management Corporation.
Executive Vice President,
GIAC Funds, Inc. Officer
of various mutual funds
within the Guardian Fund
Complex.
EDWARD K. KANE Senior Vice President, Executive Vice President,
General Counsel and The Guardian Life
Director Insurance Company of
America 1/97 - present;
Senior Vice President and
General Counsel prior
thereto; Director 11/88 -
present. Director,
Guardian Asset Management
Corporation.
GARY B. LENDERINK Vice President, Group Vice President, Group
Pensions Pensions, The Guardian
Life Insurance Company of
America 1/95 - present;
Second Vice Present prior
thereto.
FRANK L. PEPE Vice President Vice President and
and Controller Controller, Equity
Products, The Guardian
Life Insurance Company of
America 1/96 - present;
Second Vice President and
Controller, Equity
Products prior thereto.
Vice President and
Controller of Guardian
Investor Services
Corporation. Controller,
Guardian Asset Management
Corporation. Officer of
various mutual funds
within the Guardian Fund
Complex.
RICHARD T. POTTER, JR. Vice President and Vice President and Equity
Counsel Counsel, The Guardian
Life Insurance Company of
America 1/96 - present;
Second Vice President and
Equity Counsel 1/93 -
12/95; Counsel prior
thereto. Vice President
and Counsel of Guardian
Investor Services
Corporation. Counsel of
Guardian Asset Management
Corporation and various
mutual funds within the
Guardian Fund Complex.
JOSEPH D. SARGENT President, Chief President, Chief
Executive Officer and Executive Officer and
Director Director, The Guardian
Life Insurance Company of
America 1/96 - present;
President 1/93 - 12/95;
Executive Vice President
prior thereto; Director
1/93-present. Chairman of
the Board of Guardian
Investor Services
Corporation and Guardian
Asset Management
Corporation and various
mutual funds within the
Guardian Fund Complex.
Director of Guardian
Baillie Gifford Limited.
- --------------------------------------------------------------------------------
39
<PAGE>
Name Title Business History
JOHN M. SMITH Executive Executive Vice President,
Vice President The Guardian Life
and Director Insurance Company of
America 1/95 - present;
Senior Vice President,
Equity Products prior
thereto. President and
Director, Guardian
Investor Services
Corporation and Guardian
Asset Management
Corporation. President,
GIAC Funds, Inc.
Director, Guardian
Baillie Gifford Limited.
DONALD P. SULLIVAN, JR. Vice President Second Vice President,
The Guardian Life
Insurance Company of
America 1/95-present;
Assistant Vice President
prior thereto. Vice
President of Guardian
Investor Services
Corporation.
WILLIAM C. WARREN Director Retired. Dean Emeritus,
Columbia Law School.
Former Chairman of the
Board, Sandoz, Inc.;
Director of The Guardian
Life Insurance Company of
America since 1/57 and
Director of Guardian
Investor Services
Corporation.
No officer or director of GIAC receives any compensation from the Account. No
separately allocable compensation has been paid by GIAC, or any of its
affiliates, to any person listed above for services rendered to the Separate
Account.
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40
<PAGE>
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OTHER INFORMATION
Rights Reserved by GIAC
GIAC reserves the right to make certain changes or take actions that it deems to
serve the best interests of its Park Avenue Life policyowners and their
beneficiaries, or which it deems appropriate to carry out the purposes of the
policy. GIAC will only exercise its reserved rights to the extent and in the
manner permitted by applicable laws. Also, when required by law, GIAC will
obtain approval of its changes or actions from appropriate regulatory
authorities and/or policyowners. Examples of the changes or actions that GIAC
may implement include:
o Operating the Separate Account in any form permitted under the 1940
Act, or in any other form permitted by law.
o Taking any action necessary to comply with or obtain and continue
any exemptions from the 1940 Act.
o Deregistering the Separate Account under the 1940 Act.
o Transferring assets in a Separate Account investment division to
another investment division, or to one or more separate accounts, or
to GIAC's general account.
o Adding, combining or removing investment divisions in the Separate
Account.
o Substituting, for the mutual fund shares held in any investment
division, the shares of another class issued by such mutual fund or
the shares of another investment company or any other investment
permitted by law.
o Adding to, eliminating or suspending the policyowner's ability to
allocate Net Premiums or transfer amounts to any Variable Investment
Option or the Fixed-Rate Option.
o Changing the way GIAC deducts or collects charges under a policy,
but without increasing the charges unless and to the extent
permitted by other provisions of the policy.
o Modifying the policy as necessary to ensure that it continues to
qualify as life insurance under the Internal Revenue Code or to
preserve favorable tax treatment of the benefits provided by the
policy.
o Making any other technical changes in the policy required to conform
it with any action permitted to be taken by GIAC.
GIAC will notify policyowners who have allocated Policy Account Values to a
Variable Investment Option if any action taken by GIAC results in a material
change in that Investment Option's investments. An affected policyowner who
objects to the change may request a transfer from such Variable Investment
Option to any of the other options offered under the policy, including the
Fixed-Rate Option, within 60 days of the postmark on the notice. GIAC will
effect the transfer as described under "Transfers," without charge.
Right to Cancel
A policyowner may cancel a policy by returning it and a written cancellation
notice to GIAC's Executive Office or the agent from whom it was purchased
within: 10 days after receiving it; or 45 days from the date Part 1 of the
completed application for the policy was signed, whichever is later. Any mailed
notice given by the policyowner or GIAC shall be effective when it is
postmarked. GIAC will promptly refund all Policy Premiums and Unscheduled
Payments submitted before cancellation, but may delay refunding amounts paid by
check until the check has cleared. Longer periods in which the policy may be
cancelled may apply in certain states for some or all Park Avenue Life policies
issued there. Policies issued in such states will state the applicable period. A
policy that is returned for cancellation under this provision will be void from
the beginning.
Policyowner and Beneficiary
The policyowner is named in the application for a Park Avenue Life policy, but
can be changed from time to time. While the insured is living and subject to any
assignment shown on GIAC's records, only the policyowner named on GIAC's records
has the right to receive benefits or exercise the rights granted by the policy,
including the right to change the policyowner. See "Assignment." When the
policyowner dies, his or her estate becomes the policyowner, unless a successor
owner is named. Since the policyowner's rights terminate when the insured dies,
no successor owner is permitted when the insured and the policyowner are the
same person.
Joint policyowners are permitted. With the exception of transfer requests, all
requests for policy transactions and policy changes must be signed by all of the
joint owners named on GIAC's records. When a joint policyowner dies, the
surviving joint owner(s) succeed equally to the deceased owner's interest,
unless otherwise provided. The estate of the last surviving joint owner becomes
the policyowner on such owner's death, unless otherwise provided. The
beneficiary is named in the application for a Park Avenue Life policy, but can
be changed from time to time before the insured's death. Contingent and
concurrent beneficiaries are permitted. A beneficiary has no rights under a
policy until the insured dies. An individual must survive the insured to qualify
as a beneficiary, as specified in the policy. If no beneficiary survives the
insured, the policyowner (or his or her estate) is the beneficiary.
Any request to change the policyowner or beneficiary must be made in written
form satisfactory to GIAC, and must be signed and dated by the policyowner(s)
then named on GIAC's records. The change will be effective as of the date the
change request was signed. However, the change will not apply to any payments
made or actions taken by GIAC under the policy on or before the date the change
request is received at GIAC's Executive Office.
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41
<PAGE>
Assignment
A Park Avenue Life policy may be assigned. However, GIAC will not be bound by an
assignment unless and until the original or a copy of the assignment (which has
been signed and dated by the assignor and the assignee and, as applicable, the
beneficiary(ies)) is received at its Executive Office. Assignments are subject
to all payments made or actions taken by GIAC on or before the date it receives
the assignment. GIAC is not responsible for determining the validity of any
assignment.
Unless otherwise provided, the assignee may exercise all rights granted by the
policy except:
o the right to change the owner or beneficiary;
o the right to elect a payment option; or
o the right to allocate or transfer amounts among the Variable
Investment Options and the Fixed-Rate Option.
Communications From GIAC
Shortly after each Policy Anniversary, GIAC will send the policyowner a
statement that shows the following information as of the most recent Policy
Anniversary: (1) the amount of death benefit provided by the then effective
death benefit option; (2) the allocation instructions for Net Premium payments;
(3) the Policy Account Value, Cash Surrender Value, Net Cash Surrender Value and
Benchmark Value; (4) the amount of the Policy Account Value attributable to each
of the options offered under the policy; (5) the amount of Policy Premiums and
Unscheduled Payments received, and charges deducted, since the last annual
statement; (6) transfers and partial withdrawals effected since the last annual
statement; (7) loans made and loan repayments received since the last annual
statement; (8) the outstanding Policy Debt; and (9) the interest rate in effect
for the Fixed-Rate Option. Also, twice each year, policyowners will receive
reports containing financial statements for the Separate Account and the mutual
funds. Of these, the annual report will contain audited financial statements.
GIAC will send notices to confirm the receipt of Policy Premiums and Unscheduled
Payments, transfers and certain other policy transactions, or to request a
premium or loan repayment to prevent policy lapse.
Communications With GIAC
GIAC cannot act upon requests for policy transactions or changes, or credit
Policy Premiums and Unscheduled Payments, unless such items are received at the
Executive Office in a form that is acceptable to GIAC. All written
communications to GIAC must include the policy number, full name(s) of the
policyowner(s) and insured, and the policyowner's current address.
Also, policyowners can call 1-800-935-4128 during normal business hours, New
York City time, for information about policy values.
Special Provisions For Group or Sponsored Arrangements
Where permitted by state insurance laws, GIAC may permit policies to be
purchased under group or sponsored arrangements, as well as on an individual
basis. A "group arrangement" includes a program under which a trustee, employer
or similar entity purchases policies covering a group of individuals on a group
basis. Where required by law, all participants of group arrangements will be
individually underwritten. A "sponsored arrangement" includes a program under
which an employer permits group solicitation of its employees or an association
permits group solicitation of its members for the purchase of policies on an
individual basis.
The charges and deductions described elsewhere in this prospectus may be reduced
for policies issued in connection with group or sponsored arrangements. Such
arrangements may include the sale of policies without surrender charges and/or
with reduced or eliminated fees and charges to employees, officers, directors
and agents of Guardian Life and its subsidiaries and immediate family members of
the foregoing. GIAC will reduce the above charges and deductions in accordance
with its rules in effect as of the date an application for a policy is approved.
To qualify for such a reduction, a group or sponsored arrangement must satisfy
certain criteria as to, for example, size of the group, expected number of
participants and anticipated premium payments from the group. Generally, the
sales contacts and efforts, administrative costs and mortality cost per policy
vary based on such factors as the size of the group or sponsored arrangements,
the purposes for which policies are purchased and certain characteristics of its
members. The amount of reduction and the criteria for qualification will reflect
the reduced sales effort and administrative costs resulting from, and the
different mortality experience expected as a result of, sales to qualifying
groups and sponsored arrangements.
GIAC may modify from time to time, on a uniform basis, both the amounts of
reductions and the criteria for qualification. Reductions in these charges will
not be unfairly discriminatory against any person, including the affected
policyowners and all other policyowners funded by the Separate Account.
In addition, GIAC may permit groups and persons purchasing under a sponsored
arrangement to apply for simplified issue and multi-life underwriting.
Advertising Practices
Advertisements or sales materials for Park Avenue Life may refer to or reprint
all or portions of articles, or reports about variable life insurance generally
and Park Avenue Life specifically. In addition, information that appears in
financial, business or general interest publications may be referred to or
reprinted in Park Avenue Life's promotional materials. None of the contents of
these materials will be
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42
<PAGE>
indicative of the future performance or results that may be obtained by
purchasers of the policy.
Advertisements and sales materials for Park Avenue Life may compare the
performance or independent ranking of one or more of the Variable Investment
Options or their corresponding mutual funds to: (1) other insurance company
separate accounts and the mutual funds offered through them; (2) other mutual
funds having similar investment objectives and policies; (3) relevant indices of
investment securities or of peer groups of funds; or (4) other investment
vehicles, including accounts or certificates that, unlike the policy, are
guaranteed by governmental entities. Such comparable information may be provided
by Lipper Analytical Services, Inc., Morningstar, Inc. and others.
Advertisements and sales materials about variable life insurance, Park Avenue
Life, the Separate Account or the funds may feature an individual fund or
describe asset levels and sales volumes achieved by GIAC, GISC or others within
the financial services industry. References to personnel of the investment
advisers who have portfolio management responsibilities for the mutual funds
offered through the Separate Account and their investment styles may be
included.
The advertising and sales literature for the policy and the Separate Account may
refer to historical, current and prospective economic trends within the United
States and overseas. In addition, topics of general investor interest, including
college or retirement planning, reasons for investing and historical examples of
the performance of various types of securities or markets may be included.
Legal Proceedings
GIAC is not involved in any legal proceedings which would materially affect its
financial position or the Separate Account.
Legal Matters
The legal validity of the policy described in this prospectus has been passed
upon by Richard T. Potter, Jr., Vice President and Counsel of GIAC.
Registration Statement
This prospectus omits certain information contained in the registration
statement filed with the SEC on behalf of the Separate Account and relating to
the variable life insurance policy described in this prospectus. Copies of such
additional information may be obtained from the SEC's main office in Washington,
DC upon payment of the prescribed fee.
Financial and Actuarial Experts
The financial statements of the Separate Account as of December 31, 1996, and
the statutory balance sheets of GIAC as of December 31, 1996 and December 31,
1995 and the related statutory basis statements of operations, of changes in
common stock and of cash flows for the three years in the period ended December
31, 1996 that are included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing. Price Waterhouse
LLP is located at 1177 Avenue of the Americas, New York, New York 10036.
GIAC's statutory basis financial statements contained in this prospectus should
be considered only as bearing upon GIAC's ability to meet its obligations under
the Park Avenue Life policies. They should not be considered as bearing upon the
investment experience of the Separate Account's investment divisions.
Actuarial matters in this prospectus have been examined by Charles G. Fisher,
FSA, Vice President and Actuary of GIAC. His opinion on actuarial matters is
filed as an exhibit to the registration statement filed with the SEC.
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43
<PAGE>
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THE GUARDIAN SEPARATE ACCOUNT K
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value Line MFS
Guardian Baillie Strategic Growth
Guardian Guardian Guardian Small Gifford Value Line Asset With
Stock Bond Cash Cap International Centurion Management Income
Combined Fund Fund Fund Fund Fund Fund Trust Series
----------- ----------- -------- ---------- ------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIFO Cost .............. -- $18,286,861 $198,970 $1,120,535 $22,521 $1,553,754 $2,774,360 $2,138,709 $12,266
========================================================================================================
Assets
Shares outstanding ... -- 435,393 16,499 112,053 1,587 86,183 107,946 97,150 755
Net asset value per
share (NAV) ........ -- 50.07 12.25 10.00 14.23 20.66 26.76 21.83 16.24
Total Assets
(Shares x
NAV) .............. $29,947,602 $21,800,134 $202,116 $1,120,535 $22,576 $1,780,549 $2,888,636 2,120,790 $12,266
----------- ----------- -------- ---------- ------- ---------- ---------- ---------- -------
Liabilities
Due to The
Guardian
Insurance
& Annuity
Company, Inc. ...... 124,577 89,289 1,063 7,303 -- 7,139 11,926 7,857 --
Net Assets ............. $29,823,025 $21,710,845 $201,053 $1,113,232 $22,576 $1,773,410 $2,876,710 $2,112,933 $12,266
=========== =========== ======== ========== ======= ========== ========== ========== =======
</TABLE>
See notes to financial statements.
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44
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT K
COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Value Line MFS
Guardian Baillie Strategic Growth
Guardian Guardian Guardian Small Gifford Value Line Asset With
Stock Bond Cash Cap International Centurion Management Income
Combined Fund Fund Fund Fund Fund Fund Trust Series
----------- ----------- -------- ---------- ------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Income:
Reinvested
dividends .......... $ 24,967 $ 11,210 $ 885 $ 6,282 $ -- $ 360 $ 1,632 $ 4,598 $ --
Expenses:
Mortality and
expense risk
charges ............ 11,418 7,940 145 788 -- 688 1,100 758 --
Net investment
income/(expense) ... 13,549 3,270 740 5,494 -- (328) 532 3,840 --
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Realized and
Unrealized Gain/
(Loss) from
Investments
Realized gain/(loss)
from investments:
Net realized gain/
(loss) from sale
on Investments .. 23,936 19,689 (612) -- -- 2,050 1,230 1,579 --
Reinvested
realized gain
distributions ... 131,296 74,501 -- -- -- 1,224 42,026 13,546 --
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Net realized gain/
(loss) on
investments ..... 155,232 94,190 (612) -- -- 3,274 43,256 15,124 --
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Unrealized
appreciation/
(depreciation) of
investments:
End of period ..... 176,234 173,729 800 -- -- 8,731 (8,030) 1,004 --
Beginning of year . (3,804) (3,365) (116) -- -- (511) 120 68
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Change in
unrealized
appreciation/
(depreciation) .. 180,038 177,094 916 -- -- 9,242 (8,150) 936 --
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Net realized and
unrealized gain/
(loss) from
investment ....... 335,270 271,284 304 -- -- 12,516 35,106 16,061 --
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Net Increase/
(Decrease) in
Net Assets
Resulting from
Operations .......... $ 348,819 $ 274,554 $ 1,044 $ 5,494 $ -- $ 12,188 $ 35,638 $ 19,901 $ --
========== =========== ======== ======= ======= ========= ========= ========= =========
</TABLE>
See notes to financial statements.
45
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT K
COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value Line MFS
Guardian Baillie Strategic Growth
Guardian Guardian Guardian Small Gifford Value Line Asset With
Stock Bond Cash Cap International Centurion Management Income
Combined Fund Fund Fund Fund Fund Fund Trust Series
----------- ----------- -------- ---------- ------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Income:
Reinvested
dividends .......... $ 167,448 $ 70,750 $ 5,687 $40,879 $ -- $ 4,388 $ 7,144 $ 38,600 $ --
Expenses:
Mortality and
expense risk
charges ............ 100,317 72,642 771 5,083 -- 5,742 9,716 6,363 --
Net investment
income/(expense) ... 67,131 (1,892) 4,916 35,796 -- (1,354) (2,572) 32,237 --
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Realized and
Unrealized Gain/
(Loss) from
Investments
Realized gain/(loss)
from investments:
Net realized gain/
(loss) from sale
on Investments .. 93,137 78,847 1,154 -- -- 9,462 2,228 1,446 --
Reinvested
realized gain
distributions ... 797,149 252,092 -- -- -- 2,284 365,913 176,860 --
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Net realized gain/
(loss) on
investments ..... 890,286 330,939 1,154 -- -- 11,746 368,141 178,306 --
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Unrealized
appreciation/
(depreciation) of
investments:
End of period ..... 3,839,626 3,513,273 3,146 -- 55 226,795 114,276 (17,919) --
Beginning of year . 72,274 43,886 (1,258) -- 16,141 5,035 8,470 --
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Change in
unrealized
appreciation/
(depreciation) .. 3,767,352 3,469,367 4,404 -- 55 210,654 109,241 (26,389) --
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Net realized and
unrealized gain/
(loss) from
investment ....... 4,657,638 3,800,326 5,558 -- 55 222,400 477,382 151,917 --
---------- ----------- -------- ------- ------- --------- --------- --------- ---------
Net Increase/
(Decrease) in
Net Assets
Resulting from
Operations .......... $4,724,769 $ 3,798,434 $ 10,474 $35,796 $ 55 $ 221,046 $ 474,810 $ 184,154 $ --
========== =========== ======== ======= ======= ========= ========= ========= =========
</TABLE>
See notes to financial statements.
46
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT K
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
Period Ended September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Value Line MFS
Guardian Baillie Strategic Growth
Guardian Guardian Guardian Small Gifford Value Line Asset With
Stock Bond Cash Cap International Centurion Management Income
Combined Fund Fund Fund Fund Fund Fund Trust Series
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 Increase/
(Decrease) from
Operations
Net investment
income/(expense) ... $ 13,548 $ 3,269 $ 740 $ 5,495 $ -- $ (328) $ 532 $ 3,840 --
Net realized gain/
(loss) from sale of
investments ........ 23,936 19,689 (612) -- -- 2,050 1,231 1,579 --
Reinvested realized
gain distribution .. 131,296 74,501 -- -- -- 1,224 42,026 13,546 --
Change in unrealized
appreciation/
(depreciation) of
investments ........ 180,038 177,094 916 -- -- 9,242 (8,150) 937 --
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
Net increase/
(decrease) resulting
from operations .... 348,818 274,553 1,044 5,495 -- 12,188 35,639 19,902 --
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
1996 Policy
Transactions
Transfer of net
premium ............ 6,354,881 4,033,855 73,592 899,275 -- 370,136 559,789 418,234 --
Transfers on account
of death ........... -- -- -- -- -- -- -- -- --
Transfers on account
of other
termination ........ (7,395) (6,007) (219) -- -- (319) (702) (147) --
Transfers of policy
loans .............. -- -- -- -- -- -- -- -- --
Transfers of cost of
insurance .......... (841,212) (591,887) (11,051) (30,798) -- (56,295) (89,397) (61,783) --
Transfers between/
within separate
accounts ........... -- 17,576 8 (38,257) -- 2,642 10,392 7,639 --
Transfers -- other ... (6,273) (6,708) 28 285 -- (31) 55 94 --
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
Net increase/
(decrease) from
contract
transactions ........ 5,500,001 3,446,829 62,358 830,505 -- 316,133 480,137 364,037 --
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
Total Increase/
(Decrease) in
Net Assets ........... 5,848,819 3,721,382 63,402 836,000 -- 328,321 515,776 383,939 --
Net Assets at
December 31,
1995 ............... 239,097 189,561 5,846 1,871 -- 12,005 18,588 11,226 --
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
Net Assets at
September 30,
1996 -- ............ $ 6,087,916 $ 3,910,943 $ 69,248 $ 837,871 $ -- $ 340,326 $ 534,364 $ 395,165 $ --
=========== =========== ======== ========== ======== =========== =========== =========== ========
</TABLE>
See notes to financial statements.
47
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT K
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
Period Ended September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value Line MFS
Guardian Baillie Strategic Growth
Guardian Guardian Guardian Small Gifford Value Line Asset With
Stock Bond Cash Cap International Centurion Management Income
Combined Fund Fund Fund Fund Fund Fund Trust Series
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 Increase/
(Decrease) from
Operations
Net investment
income/(expense) ... $ 67,131 $ (1,892) $ 4,916 $ 35,796 $ -- $ (1,354) $ (2,572) $ 32,237 --
Net realized gain/
(loss) from sale of
investments ........ 93,137 78,847 1,154 -- -- 9,462 2,228 1,446 --
Reinvested realized
gain distribution .. 797,149 252,092 -- -- -- 2,284 365,913 176,860 --
Change in unrealized
appreciation/
(depreciation) of
investments ........ 3,767,352 3,469,387 4,404 -- 55 210,654 109,241 (26,389) --
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
Net increase/
(decrease) resulting
from operations .... 4,724,769 3,798,434 10,474 35,796 55 221,046 474,812 184,154 --
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
1997 Policy
Transactions
Transfer of net
premium ............ 18,932,481 13,669,523 137,787 952,440 18,442 1,092,374 1,649,715 1,399,905 12,295
Transfers on account
of death ........... (4,170) (2,714) -- -- -- (946) (510) -- --
Transfers on account
of other
termination ........ (318,146) (232,243) (2,904) (293) -- (21,105) (42,366) (19,235) --
Transfers of policy
loans .............. (123,682) (84,058) (980) (35) -- (19,836) (15,023) (3,750) --
Transfers of cost of
insurance .......... (3,576,500) (2,630,810) (31,102) (111,838) (109) (223,636) (332,112) (246,820) (73)
Transfers between/
within separate
accounts ........... (3,824) 209,979 (28,394) (770,820) 3,939 142,728 229,825 208,875 44
Transfers -- other ... 81,732 47,225 (74) (623) 249 7,941 18,697 8,317 --
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
Net increase/
(decrease) from
contract
transactions ........ 14,987,891 10,976,902 74,333 68,831 22,521 977,520 1,508,226 1,347,292 12,266
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
Total Increase/
(Decrease) in
Net Assets ........... 19,712,660 14,775,336 84,807 104,627 22,576 1,198,566 1,983,036 1,531,446 12,266
Net Assets at
December 31,
1996 ............... 10,110,365 6,935,509 116,246 1,008,605 -- 574,844 893,674 581,487 --
----------- ----------- -------- ---------- -------- ----------- ----------- ----------- --------
Net Assets at
September 30,
1997 -- ............ $29,823,025 $21,710,845 $201,053 $1,113,232 $ 22,576 $ 1,773,410 $ 2,876,710 $ 2,112,933 $ 12,266
=========== =========== ======== ========== ======== =========== =========== =========== ========
</TABLE>
See notes to financial statements.
48
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT K
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Guardian Guardian Guardian Gifford Value Line Asset
Stock Bond Cash International Centurion Management
Combined Fund Fund Fund Fund Fund Trust
----------- ---------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FIFO Cost ..................... -- $6,908,270 $117,797 $1,010,826 $560,099 $890,849 $574,510
=========================================================================================
Assets
Shares outstanding .......... -- 180,154 9,851 101,083 33,386 36,081 26,620
Net asset value per share (NAV) -- 38.59 11.83 10.00 17.26 24,83 21.90
Total Assets (Shares x NAV) $10,134,625 6,952,156 116,539 1,010,826 576,240 895,884 582,980
----------- ---------- -------- ---------- -------- -------- --------
Liabilities
Due to The Guardian Insurance
& Annuity Company, Inc. .... 24,260 16,647 293 2,221 1,396 2,210 1,493
Net Assets-- Note 4 ........... $10,110,365 $6,935,509 $116,246 $1,008,605 $574,844 $893,674 $581,487
=========== ========== ======== ========== ======== ======== ========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
49
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT K
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Guardian Guardian Guardian Gifford Value Line Asset
Stock Bond Cash International Centurion Management
Combined Fund Fund Fund Fund Fund Trust
--------- --------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends .................. $ 97,550 $ 61,416 $ 5,177 $17,671 $ 7,056 $ 1,632 $ 4,598
Expenses -- Note 3:
Mortality and expense
risk charges ........................ 24,205 16,602 292 2,220 1,392 2,207 1,492
--------- --------- ------- ------- -------- -------- -------
Net investment income/(expense) ......... 73,345 44,814 4,885 15,451 5,664 (575) 3,106
--------- --------- ------- ------- -------- -------- -------
Realized and Unrealized Gain/(Loss)
from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale
of investments ...................... 29,600 24,573 (468) -- 2,887 785 1,823
Reinvested realized gain distribution . 647,845 587,072 -- -- 5,202 42,026 13,545
--------- --------- ------- ------- -------- -------- -------
Net realized gain/(loss) on investments 677,445 611,645 (468) -- 8,089 42,811 15,368
--------- --------- ------- ------- -------- -------- -------
Unrealized appreciation/ (depreciation)
of investments:
End of year .......................... 72,274 43,886 (1,258) -- 16,141 5,035 8,470
Beginning of year .................... (3,804) (3,365) (116) -- (511) 120 68
--------- --------- ------- ------- -------- -------- -------
Change in unrealized
appreciation/(depreciation) ........ 76,078 47,251 (1,142) -- 16,652 4,915 8,402
--------- --------- ------- ------- -------- -------- -------
Net realized and unrealized gain/(loss)
from investments ..................... 753,523 658,896 (1,610) -- 24,741 47,726 23,770
--------- --------- ------- ------- -------- -------- -------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ............... $ 826,868 $ 703,710 $ 3,275 $15,451 $ 30,405 $ 47,151 $26,876
========= ========= ======= ======= ======== ======== =======
</TABLE>
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Guardian Guardian Guardian Gifford Value Line Asset
Stock Bond Cash International Centurion Management
Combined Fund Fund Fund Fund Fund Trust
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................... $ 1,040 $ 723 $ 131 $ 9 $ 177 $ -- $ --
Expenses-- Note 3:
Mortality and expense
risk charges .......................... 55 45 -- 1 4 4 1
Net investment income/
(expense) ............................. 985 678 131 8 173 (4) (1)
-------- -------- -------- -------- -------- -------- --------
Realized and Unrealized Gain/(Loss)
from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from
sale of investments .................. 187 63 -- -- 145 (22) 1
Reinvested realized gain distributions 4,295 3,835 -- -- 460 -- --
-------- -------- -------- -------- -------- -------- --------
Net realized gain/(loss) on investments 4,482 3,898 -- -- 605 (22) 1
-------- -------- -------- -------- -------- -------- --------
Unrealized appreciation/(depreciation)
of investments:
End of year ........................... (3,804) (3,365) (116) -- (511) 120 68
Beginning of year ..................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Change in unrealized
appreciation/(depreciation) .......... (3,804) (3,365) (116) -- (511) 120 68
-------- -------- -------- -------- -------- -------- --------
Net realized and unrealized gain/(loss)
from investment ...................... 678 533 (116) -- 94 98 69
-------- -------- -------- -------- -------- -------- --------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ............... $ 1,663 $ 1,211 $ 15 $ 8 $ 267 $ 94 $ 68
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
50
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT K
COMBINED STATEMENTS OF CHANGES INNETASSETS
Years Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
Value Line
Baillie Strategic
Guardian Guardian Guardian Gifford Value Line Asset
Stock Bond Cash International Centurion Management
Combined Fund Fund Fund Fund Fund Trust
----------- ----------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 Increase/(Decrease) from Operations
Net investment income/(expense) ...... $ 985 $ 678 $ 131 $ 8 $ 173 $ (4) $ (1)
Net realized gain/(loss) from sale of
investments ........................ 187 63 -- -- 145 (22) 1
Reinvested realized gain distribution 4,295 3,835 -- -- 460 --
Change in unrealized appreciation/
(depreciation) of investments ...... (3,804) (3,365) (116) -- (511) 120 68
----------- ----------- --------- ----------- --------- --------- ---------
Net increase/(decrease) resulting from
operations ......................... 1,663 1,211 15 8 267 94 68
----------- ----------- --------- ----------- --------- --------- ---------
1995 Policy Transactions
Transfer of net premium .............. 246,245 195,239 5,907 1,969 12,268 19,256 11,606
Transfers of cost of insurance ....... (8,860) (6,896) (84) (106) (503) (806) (465)
Transfers -- other ................... 49 7 8 -- (27) 44 17
----------- ----------- --------- ----------- --------- --------- ---------
Net increase/(decrease) from contract
transactions ....................... 237,434 188,350 5,831 1,863 11,738 18,494 11,158
----------- ----------- --------- ----------- --------- --------- ---------
Total Increase/(Decrease) in
Net Assets ........................... 239,097 189,561 5,846 1,871 12,005 18,588 11,226
Net Assets at December 31, 1994 ...... -- -- -- -- -- -- --
----------- ----------- --------- ----------- --------- --------- ---------
Net Assets at December 31, 1995 --
Note 4 ............................. $ 239,097 $ 189,561 $ 5,846 $ 1,871 $ 12,005 $ 18,588 $ 11,226
=========== =========== ========= =========== ========= ========= =========
1996 Increase/(Decrease) from Operations
Net investment income/(expense) ...... $ 73,345 $ 44,814 $ 4,885 $ 15,451 $ 5,664 $ (575) $ 3,106
Net realized gain/(loss) from sale of
investments ........................ 29,600 24,573 (468) -- 2,887 785 1,823
Reinvested realized gain distribution 647,845 587,072 -- -- 5,202 42,026 13,545
Change in unrealized appreciation/
(depreciation) of investments ...... 76,078 47,251 (1,142) -- 16,652 4,915 8,402
----------- ----------- --------- ----------- --------- --------- ---------
Net increase/(decrease) resulting from
operations ......................... 826,868 703,710 3,275 15,451 30,405 47,151 26,876
----------- ----------- --------- ----------- --------- --------- ---------
1996 Policy Transactions
Transfer of net premium .............. 10,590,800 7,073,350 125,075 1,186,092 626,366 942,911 637,006
Transfer on account of other
terminations ....................... (15,361) (12,165) (219) (112) (542) (1,483) (840)
Transfer of cost of insurance ........ (1,532,174) (1,083,025) (18,048) (56,279) (102,199) (161,278) (111,345)
Transfer between/with
separate accounts .................. (557) 64,322 42 (138,841) 8,335 47,081 18,504
Transfers-- other .................... 1,692 (244) 275 423 474 704 60
----------- ----------- --------- ----------- --------- --------- ---------
Net increase/(decrease) from contract
transactions ....................... 9,044,400 6,042,238 107,125 991,283 532,434 827,935 543,385
----------- ----------- --------- ----------- --------- --------- ---------
Total Increase/(Decrease)
in Net Assets ........................ 9,871,268 6,745,948 110,400 1,006,734 562,839 875,086 570,261
Net Assets at December 31, 1995 ...... 239,097 189,561 5,846 1,871 12,005 18,588 11,226
----------- ----------- --------- ----------- --------- --------- ---------
Net Assets at December 31, 1996 --
Note 4 ............................. $10,110,365 $ 6,935,509 $ 116,246 $ 1,008,605 $ 574,844 $ 893,674 $ 581,487
=========== =========== ========= =========== ========= ========= =========
</TABLE>
See notes to financial statements.
51
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN SEPARATE ACCOUNT K
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Note 1 -- Organization
The Guardian Separate Account K (the Account), a unit investment trust
registered under the Investment Company Act of 1940, as amended, was established
by The Guardian Insurance & Annuity Company, Inc. (GIAC) on September 1, 1995
and commenced operations on October 1, 1995. GIAC is a wholly owned subsidiary
of The Guardian Life Insurance Company of America (Guardian Life). GIAC issues
the annual premium variable life insurance policies offered through the Account.
GIAC provides for variable accumulations and benefits under the policies by
crediting the net premium payments to one or more investment divisions
established within the Account as selected by the policyowner. The policyowner
also has the ability to transfer his or her policy value among the investment
divisions within the Account. The Account currently comprises six investment
divisions which invest in shares of the following mutual funds: The Guardian
Stock Fund, Inc. (GSF), The Guardian Bond Fund, Inc. (GBF), The Guardian Cash
Fund, Inc. (GCF), Baillie Gifford International Fund (BGIF), Value Line
Centurion Fund, Inc. and Value Line Strategic Asset Management Trust
(collectively, the Funds and individually, a Fund).
GSF, GBF and GCF each has an investment advisory agreement with Guardian
Investor Services Corporation, a wholly owned subsidiary of GIAC. BGIF is
managed by Guardian Baillie Gifford Ltd., a joint venture company formed by GIAC
and Baillie Gifford Overseas Ltd.
Under applicable insurance law, the assets and liabilities of the Account
are clearly identified and distinguished from the other assets and liabilities
of GIAC. The assets of the Account will not be charged with any liabilities
arising out of any other business conducted by GIAC, but the obligations of the
Account, including the promise to make benefit payments, are obligations of
GIAC.
The changes in net assets maintained in the Account provide the basis for
the periodic determination of benefits under the policies. The net assets may
not be less than the amount required under state insurance laws to provide for
death benefits (without regard to the minimum death benefit guarantee) and other
policy benefits. Additional assets are held in GIAC's general account to cover
the contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
Note 2 -- Significant Accounting Policies
The following is a summary of significant accounting policies of the
Account.
Investments
(a) Net proceeds from the sale of annual premium variable life insurance
policies are invested by the Account's investment divisions in shares of the
corresponding Funds at the net asset value of each Fund's shares. All
distributions made by a Fund are reinvested in shares of the same Fund.
(b) The market value of the investments in the Funds is based on the net
asset value of the respective Funds as of their close of business on the
valuation date.
(c) Investment transactions are accounted for on the trade date and income
is recorded on the ex-dividend date.
(d) The cost of investments sold is determined on a first in, first out
(FIFO) basis.
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
- --------------------------------------------------------------------------------
52
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN SEPARATE ACCOUNT K
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
During the years ended December 31, 1996 and December 31, 1995, purchases
and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
The Guardian Separate Account K Purchases Purchases Sales Sales
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Guardian Stock Fund ................ $ 7,453,097 $ 197,088 $ 762,371 $ 4,181
Guardian Bond Fund ................. 142,104 5,962 29,801 0
Guardian Cash Fund ................. 1,797,215 1,915 788,260 43
Baillie Gifford International Fund . 602,423 16,716 57,730 4,341
Value Line Centurion Fund .......... 971,334 22,263 99,743 3,768
Value Line SAM Trust ............... 660,006 11,199 98,478 40
----------- ----------- ----------- -----------
Total ........................... $11,626,179 $ 255,143 $ 1,836,383 $ 12,373
=========== =========== =========== ===========
</TABLE>
Note 3 -- Administrative and Mortality and Expense Risk Charges
GIAC assumes mortality and expense risk related to the operations of the
Account. To cover these risks, GIAC deducts a daily charge from the net assets
of the Account which, on an annual basis, is equal to a rate of .60% of the
policy account value.
In addition, GIAC makes a monthly charge for the cost of life insurance,
based on the face value of the policyowner's insurance in-force, as compensation
for the anticipated cost of paying death benefits.
Under the terms of the policy, GIAC deducts charges from the gross
premiums before transferring the net premiums (gross premiums less other
contractual charges) to the Account. These other contractual charges consist of:
a) policy and administrative fees which vary with the face amount, age of
the insured or the duration of the contract;
b) an annual state premium tax charge of 2.5% of the basic premium.
Currently, GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
Under current laws, GIAC may incur state and local taxes in several
states. At present, these taxes are not significant. In the event of a material
change in applicable state or local tax laws, GIAC reserves the right to charge
the Account for such taxes, if any, which are attributable to the Account.
Note 4 -- Net Assets, December 31, 1996
At December 31, 1996, net assets of the Account were as follows:
Accumulation of Annual Premium
Variable Life Insurance Policyowners' Accounts $ 5,456,142
Owned by GIAC 4,654,223
-----------
$10,110,365
-----------
The amount retained by GIAC in the Account is comprised of GIAC's initial
contribution to the Account together with amounts accruing to GIAC from the
operations of the Account and retained therein. Amounts retained by GIAC in the
Account may be transferred by GIAC to its general account.
In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
53
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN SEPARATE ACCOUNT K
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
and the Policyowners of The Guardian Separate Account K, "Park Avenue Life"
In our opinion, the accompanying statement of assets and liabilities and
the related combined statements of operations and of changes in net assets
present fairly, in all material respects, the financial position of the
investment divisions relating to Guardian Stock Fund, Guardian Bond Fund,
Guardian Cash Fund, Baillie Gifford International Fund, Value Line Centurion
Fund and Value Line Strategic Asset Management Trust (constituting The Guardian
Separate Account K, "Park Avenue Life", hereafter referred to as the "Separate
Account") at December 31, 1996, and the results of each of their operations and
changes in each of their net assets for each of the two years then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the management of The Guardian Insurance &
Annuity Company, Inc.; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
transfer agents of the underlying funds, provides a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 11, 1997
- --------------------------------------------------------------------------------
54
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited) (Audited)
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds ......................................................... $ 472,411,606 $ 490,445,948
Affiliated mutual funds ....................................... 31,313,509 2,755,672
Investment in Subsidiary ...................................... 13,907,406 7,746,643
Policy loans-- variable life insurance ........................ 71,035,866 68,143,068
Investment in joint venture ................................... 647,881 285,874
Cash and short-term investments ............................... 32,949,108 17,825,039
Accrued investment income receivable ............................. 9,570,737 10,553,405
Due from parent and affiliates ................................... 14,611,582 6,507,913
Other assets ..................................................... 10,360,133 12,173,268
Receivable from separate accounts ................................ 9,851,137 11,606,587
Variable annuity and EISP/CIP separate account assets ............ 6,724,420,850 5,248,159,777
Variable life separate account assets ............................ 415,627,184 342,921,803
-------------- --------------
TOTAL ADMITTED ASSETS ....................................... $7,806,706,999 $6,219,124,997
============== ==============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves ....................................... $ 338,372,953 $ 329,681,355
Fixed immediate reserves ...................................... 6,728,127 5,874,894
Life reserves ................................................. 65,388,252 65,462,693
Minimum death benefit guarantees .............................. 1,035,945 1,257,777
Policy loan collateral fund reserve ........................... 69,030,420 65,762,820
Accrued expenses, taxes & commissions ............................ 1,207,443 2,712,360
Due to parent and affiliates ..................................... 16,799,684 15,304,638
Federal income taxes payable ..................................... 9,477,350 4,743,446
Other liabilities ................................................ 26,488,252 30,079,434
Asset valuation reserve .......................................... 27,103,873 15,121,269
Variable annuity and EISP/CIP separate account liabilities ....... 6,657,680,137 5,193,574,218
Variable life separate account liabilities ....................... 403,116,491 335,769,185
-------------- --------------
TOTAL LIABILITIES ........................................... $7,622,428,927 6,065,344,089
-------------- --------------
COMMON STOCK AND SURPLUS
Common Stock, $100 par value, 20,000 shares authorized, issued and
outstanding ................................................... $ 2,000,000 $ 2,000,000
Additional paid-in surplus ....................................... 137,398,292 137,398,292
Assigned and unassigned surplus .................................. 44,879,780 14,382,616
-------------- --------------
184,278,072 153,780,908
-------------- --------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS ................. $7,806,706,999 $6,219,124,997
============== ==============
</TABLE>
See notes to unaudited financial statements.
- --------------------------------------------------------------------------------
55
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Period Ended September 30,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
REVENUES:
Premiums and annuity considerations:
Variable annuity considerations .................... $ 708,260,171 $ 537,329,653
Life insurance premiums and fixed
annuity considerations ........................... 66,340,734 56,878,670
Net investment income ................................ 33,941,935 32,014,920
Amortization of IMR .................................. 73,631 793,150
Net gain from operations from separate accounts ...... 13,571,600 --
Service fees ......................................... 54,774,233 39,807,929
Variable life-- cost of insurance .................... 4,009,431 3,598,152
Reserve adjustments on reinsurance ceded ............. 2,728,667 (2,145,265)
Commissions and expense allowances ................... 11,191,618 10,544,001
Other income ......................................... 425,486 3,970,842
------------- -------------
$ 895,317,506 $ 682,792,052
------------- -------------
BENEFITS AND EXPENSES:
Benefits:
Death benefits ..................................... $ 2,656,091 $ 4,571,951
Annuity benefits ................................... 476,289,937 305,955,220
Surrender benefits ................................. 12,525,763 13,167,446
Increase in reserves ............................... 12,190,284 44,415,700
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ...................... 278,649,172 265,294,047
Variable life ...................................... 2,014,437 (9,104,053)
Commissions .......................................... 30,322,444 29,496,838
General insurance expenses ........................... 41,136,148 29,428,699
Taxes, licenses and fees ............................. 2,282,618 2,846,845
Reinsurance terminations ............................. 182,535 (15,470,015)
------------- -------------
$ 858,249,429 $ 670,602,678
------------- -------------
INCOME BEFORE INCOME
TAXES AND REALIZED GAINS
FROM INVESTMENTS .............................. $ 37,068,077 $ 12,189,374
Federal income taxes ................................. 9,657,622 2,885,006
------------- -------------
INCOME BEFORE REALIZED
GAINS FROM INVESTMENTS ........................ 27,410,455 9,304,368
Realized gains from investments, net of federal income
taxes, net of transfer to IMR ...................... (416,041) (5,343)
------------- -------------
NET INCOME ...................................... $ 26,994,414 $ 9,299,025
============= =============
</TABLE>
See notes to unaudited financial statements.
- --------------------------------------------------------------------------------
56
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
For The Years Ended December 31, 1995 and 1996 (Audited) And The Nine Months
Ended September 30, 1997 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Assigned and
Additional Unassigned Total
Common Paid-in Surplus Common Stock
Stock Surplus (Deficit) and Surplus
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 ............... 2,000,000 137,398,292 (1,817,759) 137,580,533
------------ ------------- ------------ ------------
Net income from operations .................. 4,956,175 4,956,175
Increase in unrealized appreciation of
Company's investment in separate accounts,
net of applicable taxes .................. 3,024,930 3,024,930
Decrease in unrealized appreciation of
Company's investment in joint venture .... (6,803) (6,803)
Increase in unrealized appreciation of
Company's investment in subsidiary ....... 298,534 298,534
Increase in non-admitted assets ............. (7,078) (7,078)
Disallowed interest maintenance reserve ..... 143,080 143,080
Net increase in asset valuation reserve ..... (4,111,444) (4,111,444)
------------ ------------- ------------ ------------
Balances at December 31, 1995 ............... 2,000,000 137,398,292 2,479,635 141,877,927
------------ ------------- ------------ ------------
Net income from operations .................. 19,695,433 19,695,433
Tax on prior years separate account
seed investment unrealized gains ......... (104,732) (104,732)
Increase in unrealized appreciation of
Company's investment in joint venture .... 241,456 241,456
Increase in unrealized appreciation of
Company's investment in subsidiary ....... 142,201 142,201
Decrease in unrealized appreciation of
Company's investment in other assets ..... (9,384) (9,384)
Increase in non-admitted assets ............. (80,815) (80,815)
Disallowed interest maintenance reserve ..... (128,107) (128,107)
Surplus changes resulting from reinsurance .. (2,073,155) (2,073,155)
Net increase in asset valuation reserve ..... (5,779,916) (5,779,916)
------------ ------------- ------------ ------------
Balances at December 31, 1996 ............... $ 2,000,000 $ 137,398,292 $ 14,382,616 $153,780,908
------------ ------------- ------------ ------------
Net income from operations .................. 26,994,413 26,994,413
Increase in unrealized appreciation of
Company's investment in joint venture .... 362,007 362,007
Increase in unrealized appreciation of
Company's investment in subsidiary ....... 14,620,763 14,620,763
Decrease in unrealized appreciation of
Company's investment in other assets ..... 9,383 9,383
Increase in non-admitted assets ............. 165,391 165,391
Disallowed interest maintenance reserve ..... (326,023) (326,023)
Surplus changes resulting from reinsurance .. 653,833 653,833
Net increase in asset valuation reserve ..... (11,982,604) (11,982,604)
------------ ------------- ------------ ------------
Balances at September 30, 1997 .............. $ 2,000,000 $ 137,398,292 $ 44,879,779 $184,278,071
============ ============= ============ ============
</TABLE>
See notes to unaudited financial statements.
57
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOW (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Period Ended September 30,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and deposit funds .... $ 777,273,589 $ 596,999,353
Investment income ..................................... 35,256,938 31,350,992
Commissions and expense allowances on reinsurance ceded 12,906,388 7,563,282
Other income .......................................... 54,886,131 34,177,664
Life claims ........................................... (4,158,907) (5,114,656)
Surrender benefits .................................... (12,621,409) (13,385,038)
Annuity benefits ...................................... (477,782,637) (305,348,470)
Commissions, other expenses and taxes (excluding FIT) . (70,999,702) (57,645,439)
Net transfers to separate accounts .................... (280,694,531) (256,194,179)
Federal income taxes (excluding tax on capital gains) . (5,094,779) 0
Increase in policy loans .............................. (2,892,798) (3,744,656)
Other operating expenses and sources .................. (14,350,034) 15,459,121
------------- -------------
NET CASH PROVIDED BY INSURANCE
ACTIVITIES ..................................... 11,728,249 44,117,974
------------- -------------
Cash flows from investing activities:
Proceeds from dispositions of investment securities ... 256,383,313 145,142,356
Purchases of investment securities .................... (259,384,494) (206,271,111)
Net proceeds from short-term investments .............. 0 0
Federal income tax on capital gains ................... (355,657) 0
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES ............ (3,356,838) (61,128,755)
------------- -------------
NET INCREASE (DECREASE) IN CASH ..................... 15,085,087 (17,010,781)
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF YEAR ................................. 17,825,037 17,983,650
------------- -------------
CASH AND SHORT-TERM INVESTMENTS,
END OF YEAR ....................................... $ 32,910,124 $ 972,869
============= =============
</TABLE>
See notes to unaudited financial statements.
- --------------------------------------------------------------------------------
58
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
Note 1 -- Basis of Presentation
The information set forth in the balance sheet as of September 30, 1997
and the statements of operations and surplus and of cash flow for the nine
months ended September 30, 1997 and 1996 is unaudited. The information reflects
all adjustments, consisting only of normal recurring adjustments that, in the
opinion of management, are necessary to present fairly the statutory financial
position and results of operations of The Guardian Insurance & Annuity Company,
Inc. (GIAC) for the periods indicated. Results of operations for the interim
periods are not necessarily indicative of the results of operations for the full
year.
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
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 a GAAP basis they are based 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.
For further information, refer to the financial statements and footnotes
thereto included in GIAC's audited financial statements for the years ended
December 31, 1996 and December 31, 1995.
- --------------------------------------------------------------------------------
59
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
BALANCE SHEETS (Audited)
================================================================================
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Fixed maturities, principally at amortized cost
(market: 1996 -- $491,271,164; 1995 -- $415,119,363) ......... $ 490,445,948 $ 405,213,799
Affiliated money market fund, at market, which approximates cost 2,755,672 2,633,939
Investment in subsidiary ....................................... 7,746,643 7,604,442
Policy loans-- variable life insurance ......................... 68,143,068 63,842,200
Cash and short-term investments ................................ 17,825,039 17,983,654
Investment in joint venture .................................... 285,874 44,418
Accrued investment income receivable ........................... 10,553,405 9,771,251
Due from parent and affiliates ................................. 6,507,913 2,982,854
Other assets ................................................... 12,173,268 9,932,726
Receivable from separate accounts .............................. 11,606,587 3,543,010
Variable annuity and EISP/CIP separate account assets .......... 5,248,159,777 4,174,493,377
Variable life separate account assets .......................... 342,921,803 311,173,536
-------------- --------------
TOTAL ADMITTED ASSETS ........................................ $6,219,124,997 $5,009,219,206
============== ==============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves ...................................... $ 329,681,355 $ 300,059,252
Fixed immediate reserves ..................................... 5,874,894 4,966,569
Life reserves ................................................ 65,462,693 22,502,664
Minimum death benefit guarantees ............................. 1,257,777 1,171,951
Policy loan collateral fund reserve .......................... 65,762,820 61,798,105
Accrued expenses, taxes & commissions ............................. 2,712,360 1,250,797
Due to parent and affiliates ...................................... 15,304,638 16,072,198
Federal income taxes payable ...................................... 4,743,447 636,681
Other liabilities ................................................. 30,079,434 13,295,087
Asset valuation reserve ........................................... 15,121,269 9,341,353
Variable annuity and EISP/CIP separate account liabilities ........ 5,193,574,218 4,129,376,222
Variable life separate account liabilities ........................ 335,769,184 306,870,400
-------------- --------------
TOTAL LIABILITIES ............................................ 6,065,344,089 4,867,341,279
COMMON STOCK AND SURPLUS
Common Stock, $100 par value, 20,000 shares authorized, issued and
outstanding .................................................... 2,000,000 2,000,000
Additional paid-in surplus ........................................ 137,398,292 137,398,292
Assigned and unassigned surplus ................................... 14,382,616 2,479,635
-------------- --------------
153,780,908 141,877,927
-------------- --------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS .................. $6,219,124,997 $5,009,219,206
============== ==============
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
60
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS (Audited)
================================================================================
<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.
- --------------------------------------------------------------------------------
61
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS (Audited)
================================================================================
<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.
- --------------------------------------------------------------------------------
62
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOW (Audited)
================================================================================
<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 PERIOD ................................... $ 17,825,039 $ 17,983,654 $ 4,442,493
============= ============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
63
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 (Audited)
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
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
- --------------------------------------------------------------------------------
64
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
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:
For the Year Ended
1996 1995
------------ ------------
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
============ ============
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
- --------------------------------------------------------------------------------
65
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
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.
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.
- --------------------------------------------------------------------------------
66
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
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.
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.
- --------------------------------------------------------------------------------
67
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
Note 4 -- Investments
The major categories of net investment income are summarized as follows:
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
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
=========== =========== ===========
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.
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>
- --------------------------------------------------------------------------------
68
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
<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.
Estimated
Amortized Market
Cost Value
------------ ------------
Due in one year or less .......................... $ 64,861,358 $ 65,045,326
Due after one year through five years ............ 286,602,923 287,118,976
Due after five years through ten years ........... 74,354,923 74,503,267
Due after ten years .............................. 25,247,736 25,461,329
------------ ------------
451,066,940 452,128,898
Sinking fund bonds
(including Collateralized Mortgage Obligations) 39,379,008 39,142,266
------------ ------------
$490,445,948 $491,271,164
============ ============
During 1996, proceeds from sales of investments in debt securities were
$224,681,546 and gross gains of $2,029,373 and losses of $798,350 were realized
on these sales.
Note 5 -- Reinsurance Ceded
The Company enters into coinsurance, modified coinsurance and yearly
renewable term agreements with The Guardian and outside parties to provide for
reinsurance of selected variable annuity contracts and group life and individual
life policies. Under the terms of the modified coinsurance agreements, reserves
related to the reinsurance business and corresponding assets are held by the
Company. Accordingly, policy reserves include $767,937,702 and $355,264,470 at
December 31, 1996 and 1995, respectively, applicable to policies reinsured under
modified coinsurance agreements. The reinsurance contracts do not relieve the
Company of its primary obligation for policyowner benefits. Failure of
reinsurers to honor their obligations could result in losses to the Company.
- --------------------------------------------------------------------------------
69
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
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>
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.
- --------------------------------------------------------------------------------
70
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
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.
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:
1996 1995
-------------- --------------
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
============== ==============
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.
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>
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71
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996 (Audited)
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.
- --------------------------------------------------------------------------------
72
<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
authorities.
Price Waterhouse LLP
New York, New York
- --------------------------------------------------------------------------------
73
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, POLICY ACCOUNT VALUES,
NET CASH SURRENDER VALUES AND ACCUMULATED POLICY PREMIUMS
The following tables illustrate how the Policies operate. Specifically, they
show how the death benefit, Net Cash Surrender Value and Policy Account Value
can vary over an extended period of time assuming hypothetical gross rates of
return (i.e., investment income and capital gains and losses, realized or
unrealized) for the Separate Account that are equal to constant after tax annual
rates of 0%, 6% and 12%. The tables are based on policies with Face Amounts of
$250,000 for a male insured at Age 40 and shown in the preferred plus
classification and also in the preferred classification. Values are first given
based on current charges and then based on the policy's higher guaranteed
charges. In addition, each illustration is given first for a policy with an
Option 1 death benefit and then for a policy with an Option 2 death benefit.
These illustrations may assist in the comparison of death benefits, Net Cash
Surrender Values and Policy Account Values for Park Avenue Life policies with
those under other variable life insurance policies that may be issued by GIAC or
other companies. Prospective policyowners are advised, however, that it may not
be advantageous to replace existing life insurance coverage by purchasing a Park
Avenue Life policy, particularly if the decision to replace existing coverage is
based solely on a comparison of policy illustrations.
Death benefits, Net Cash Surrender Values and Policy Account Values will be
different from the amounts shown if: (1) the actual gross rates of return
average 0%, 6% or 12%, but vary above and below the average over the period; and
(2) Policy Premiums are paid at other than annual intervals, or if Unscheduled
Payments are made. Benefits and values will also be affected by the
policyowner's allocation of the Unloaned Policy Account Value among the Variable
Investment Options and the Fixed-Rate Option. If the actual gross rate of return
for all options averages 0%, 6% or 12%, but varies above or below that average
for individual options, allocation and transfer decisions can have a significant
impact on a policy's performance. Policy loans and other policy transactions,
such as skipping Policy Premiums and partial withdrawals, will also affect
results, as will the insured's sex, smoker status and premium class.
Death benefits, Net Cash Surrender Values and Policy Account Values shown in the
tables reflect the fact that: (1) deductions have been made from annual Policy
Premiums for Policy Premium Assessments and Premium Charges; and (2) Monthly
Deductions are deducted from the Policy Account Value on each Monthly Date. The
Net Cash Surrender Values shown in the tables reflect the fact that a surrender
charge is deducted upon surrender, Face Amount reduction or lapse during the
first 12 policy years. The death benefits, Net Cash Surrender Values and Policy
Account Values also reflect a daily charge assessed against the Separate Account
for mortality and expense risks equivalent to an annual charge of .60% (on a
current basis) and .90% (on a guaranteed basis) of the average daily value of
the assets in the Separate Account attributable to the policies. See "Deductions
and Charges." The amounts shown in the illustrations also reflect an average of
the investment advisory fees and operating expenses incurred by the mutual
funds, at an annual rate of 0.76% of the average daily net assets of such funds.
The average is based upon actual expenses incurred during 1996 for all funds
except that (i) The Guardian Small Cap Stock Fund's expenses have been estimated
since the fund was not available before 1997 and (ii) the MFS Growth with Income
Series' operating expenses for 1996 were capped at 0.25% of average daily net
assets of the series pursuant to the agreement with the adviser. In the absence
of this agreement, operating expenses of the series, and the average investment
advisory fees and expenses used in the following illustrations would have been
higher.
Taking account of the charges for mortality and expense risks in the Separate
Account and the average investment advisory fee and operating expenses of the
mutual funds, the gross annual rates of return of 0%, 6% and 12% correspond to
net investment experience at constant annual rates of -1.36%, 4.61% and 10.56%,
respectively, based on GIAC's current charge for mortality and expense risks,
and -1.65%, 4.29% and 10.24%, respectively, based on GIAC's guaranteed maximum
charge for mortality and expense risks. See "Net Investment Factor."
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Separate Account since no charges are currently
made. If any such charges are imposed in the future, the gross annual rate of
return would have to exceed the rates shown by an amount sufficient to cover the
tax charges, in order to produce the death benefits, Net Cash Surrender Values
and Policy Account Values illustrated. See "GIAC's Taxes."
The fourth column of each table shows the amount which would accumulate if an
amount equal to the annual Policy Premium was invested to earn interest, after
taxes, of 5% per year, compounded annually. There can be no assurance that a
prospective policyowner would be able to earn this return. During the Guaranteed
Premium Period, the annual Policy Premium is $2,532.50 for the preferred plus
policy illustrated and $3,045 for the preferred policy illustrated.
GIAC will furnish upon request an illustration reflecting the proposed insured's
Age, sex, premium class and the Face Amount or Basic Scheduled Premium
requested, but a premium-based illustration must reflect GIAC's current minimum
Face Amount requirement for Park Avenue Life -- which is $100,000.
These illustrations will refer to "net outlay" as the cash flow into or out of
the policy. It is equal to the sum of all Policy Premiums and accrued loan
interest paid in cash and reduced by the proceeds of any policy loan or partial
withdrawal received in cash.
- --------------------------------------------------------------------------------
A-1
<PAGE>
Male Issue Age 40, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
These values reflect CURRENT cost of insurance and other charges
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Premiums Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
--------------------------- --------------------------- ----------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ------ ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,533 2,659 1,682 0 250,000 1,802 0 250,000 1,922 0 250,000
2 41 2,533 5,451 3,327 0 250,000 3,671 0 250,000 4,031 144 250,000
3 42 2,533 8,383 4,934 1,401 250,000 5,612 2,079 250,000 6,348 2,815 250,000
4 43 2,533 11,461 6,570 3,390 250,000 7,695 4,515 250,000 8,966 5,786 250,000
5 44 2,533 14,693 8,158 5,332 250,000 9,849 7,022 250,000 11,836 9,009 250,000
6 45 2,533 18,087 9,702 7,229 250,000 12,079 9,606 250,000 14,988 12,514 250,000
7 46 2,533 21,651 11,176 9,056 250,000 14,365 12,245 250,000 18,426 16,306 250,000
8 47 2,533 25,392 12,578 10,811 250,000 16,704 14,937 250,000 22,179 20,412 250,000
9 48 2,533 29,321 13,924 12,510 250,000 19,116 17,703 250,000 26,298 24,885 250,000
10 49 2,533 33,446 15,222 14,162 250,000 21,613 20,553 250,000 30,831 29,771 250,000
15 55 2,533 57,380 20,561 20,561 250,000 35,072 35,072 250,000 61,091 61,091 250,000
20 59 2,533 87,927 23,673 23,673 250,000 50,228 50,228 250,000 110,289 110,289 250,000
25 64 2,533 126,912 24,079 24,079 250,000 67,259 67,259 250,000 191,266 191,266 325,531
30 69 2,533 176,669 20,068 20,068 250,000 85,661 85,661 250,000 320,071 320,071 484,436
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS CHOSEN
BY A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
THE RECALCULATED BASIC SCHEDULED PREMIUM AT ATTAINED AGE 70 WOULD BE
$16,604.46 ASSUMING THE 0% RETURN; $6,545.55 ASSUMING THE 6% RETURN; AND
$2,532.50, ASSUMING THE 12% RETURN.
- --------------------------------------------------------------------------------
A-2
<PAGE>
Male Issue Age 40, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
These values reflect GUARANTEED cost of insurance and other charges
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Premiums Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
--------------------------- --------------------------- ----------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ------ ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,533 2,659 1,676 0 250,000 1,796 0 250,000 1,915 0 250,000
2 41 2,533 5,451 3,081 0 250,000 3,417 0 250,000 3,967 0 250,000
3 42 2,533 8,383 4,423 889 250,000 5,067 1,533 250,000 5,768 2,235 250,000
4 43 2,533 11,461 5,720 2,540 250,000 6,766 3,586 250,000 7,953 4,773 250,000
5 44 2,533 14,693 6,947 4,120 250,000 8,490 5,663 250,000 10,314 7,487 250,000
6 45 2,533 18,087 8,097 5,624 250,000 10,231 7,758 250,000 12,861 10,387 250,000
7 46 2,533 21,651 9,169 7,049 250,000 11,989 9,869 250,000 15,613 13,493 250,000
8 47 2,533 25,392 10,159 8,393 250,000 13,760 11,993 250,000 18,587 16,820 250,000
9 48 2,533 29,321 11,063 9,650 250,000 15,539 14,125 250,000 21,803 20,389 250,000
10 49 2,533 33,446 11,873 10,813 250,000 17,319 16,259 250,000 25,280 24,220 250,000
15 55 2,533 57,380 14,621 14,621 250,000 26,358 26,358 250,000 47,914 47,914 250,000
20 59 2,533 87,927 13,349 13,349 250,000 33,756 33,756 250,000 81,996 81,996 250,000
25 64 2,533 126,912 4,969 4,969 250,000 36,009 36,009 250,000 134,574 134,574 250,000
30 69 2,533 176,669 -16,387 0 250,000 25,977 25,977 250,000 216,779 216,779 328,100
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS CHOSEN
BY A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
THE RECALCULATED BASIC SCHEDULED PREMIUM AT ATTAINED AGE 70 WOULD BE $17,887.50
ASSUMING THE 0% RETURN; $15,711.11 ASSUMING THE 6% RETURN; AND $2,532.50
ASSUMING THE 12% RETURN.
A-3
<PAGE>
Male Issue Age 40, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
These values reflect CURRENT cost of insurance and other charges
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Premiums Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
--------------------------- --------------------------- ----------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ------ ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,533 2,659 1,682 0 250,000 1,802 0 250,000 1,922 0 250,000
2 41 2,533 5,451 3,327 0 250,000 3,671 0 250,000 4,031 144 250,000
3 42 2,533 8,383 4,934 1,401 250,000 5,612 2,079 250,000 6,348 2,815 250,000
4 43 2,533 11,461 6,570 3,390 250,000 7,695 4,515 250,000 8,966 5,786 250,000
5 44 2,533 14,693 8,158 5,332 250,000 9,849 7,022 250,000 11,836 9,009 250,000
6 45 2,533 18,087 9,702 7,229 250,000 12,079 9,606 250,000 14,987 12,514 250,000
7 46 2,533 21,651 11,176 9,056 250,000 14,365 12,245 250,000 18,424 16,304 250,056
8 47 2,533 25,392 12,578 10,811 250,000 16,704 14,937 250,000 22,172 20,405 251,152
9 48 2,533 29,321 13,924 12,510 250,000 19,116 17,703 250,000 26,282 24,868 252,504
10 49 2,533 33,446 15,222 14,162 250,000 21,613 20,553 250,000 30,800 29,740 254,145
15 55 2,533 57,380 20,561 20,561 250,000 35,072 35,072 250,000 60,749 60,749 268,119
20 59 2,533 87,927 23,673 23,673 250,000 50,228 50,228 250,000 108,477 108,477 296,820
25 64 2,533 126,912 24,079 24,079 250,000 67,259 67,259 250,000 185,485 185,485 350,945
30 69 2,533 176,669 20,068 20,068 250,000 85,661 85,661 250,000 310,002 310,002 469,196
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS CHOSEN
BY A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
THE RECALCULATED BASIC SCHEDULED PREMIUM AT ATTAINED AGE 70 WOULD BE $16,604.46
ASSUMING THE 0% RETURN; $6,545.55 ASSUMING THE 6% RETURN; AND $2,532.50,
ASSUMING THE 12% RETURN.
- --------------------------------------------------------------------------------
A-4
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
These values reflect GUARANTEED cost of insurance and other charges
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Premiums Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
--------------------------- --------------------------- ----------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ------ ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 2,533 2,659 1,676 0 250,000 1,796 0 250,000 1,915 0 250,000
2 41 2,533 5,451 3,081 0 250,000 3,417 0 250,000 3,767 0 250,000
3 42 2,533 8,383 4,423 889 250,000 5,067 1,533 250,000 5,768 2,235 250,000
4 43 2,533 11,461 5,720 2,540 250,000 6,766 3,586 250,000 7,953 4,773 250,000
5 44 2,533 14,693 6,947 4,120 250,000 8,490 5,663 250,000 10,314 7,487 250,000
6 45 2,533 18,087 8,097 5,624 250,000 10,231 7,758 250,000 12,861 10,387 250,000
7 46 2,533 21,651 9,169 7,049 250,000 11,989 9,869 250,000 15,613 13,493 250,000
8 47 2,533 25,392 10,159 8,393 250,000 13,760 11,993 250,000 18,587 16,820 250,000
9 48 2,533 29,321 11,063 9,650 250,000 15,539 14,125 250,000 21,803 20,389 250,000
10 49 2,533 33,446 11,873 10,813 250,000 17,319 16,259 250,000 25,280 24,220 250,000
15 55 2,533 57,380 14,621 14,621 250,000 26,358 26,358 250,000 47,815 47,815 255,185
20 59 2,533 87,927 13,349 13,349 250,000 33,756 33,756 250,000 81,038 81,038 269,380
25 64 2,533 126,912 4,969 4,969 250,000 36,009 36,009 250,000 129,579 129,579 295,039
30 69 2,533 176,669 -16,387 0 250,000 25,977 25,977 250,000 200,957 200,957 339,094
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS CHOSEN
BY A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
THE RECALCULATED BASIC SCHEDULED PREMIUM AT ATTAINED AGE 70 WOULD BE $17,887.50
ASSUMING THE 0% RETURN; $15,711.11 ASSUMING THE 6% RETURN; AND $2,532.50,
ASSUMING THE 12% RETURN.
- --------------------------------------------------------------------------------
A-5
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
These values reflect CURRENT cost of insurance and other charges
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Premiums Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
--------------------------- --------------------------- ----------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ------ ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,045 3,197 2,042 0 250,000 2,186 0 250,000 2,331 0 250,000
2 41 3,045 6,554 4,021 0 250,000 4,437 0 250,000 4,872 378 250,000
3 42 3,045 10,079 5,940 1,855 250,000 6,759 2,673 250,000 7,648 3,562 250,000
4 43 3,045 13,781 7,872 4,195 250,000 9,228 5,551 250,000 10,761 7,084 250,000
5 44 3,045 17,667 9,687 6,419 250,000 11,720 8,452 250,000 14,112 10,844 250,000
6 45 3,045 21,747 11,409 8,549 250,000 14,260 11,400 250,000 17,751 14,891 250,000
7 46 3,045 26,032 13,057 10,605 250,000 16,866 14,415 250,000 21,729 19,278 250,000
8 47 3,045 30,531 14,631 12,588 250,000 19,546 17,503 250,000 26,086 24,043 250,000
9 48 3,045 35,255 16,134 14,500 250,000 22,303 20,668 250,000 30,864 29,230 250,000
10 49 3,045 40,215 17,573 16,347 250,000 25,147 23,922 250,000 36,118 34,892 250,000
15 55 3,045 68,992 23,420 23,420 250,000 40,496 40,496 250,000 71,339 71,339 250,000
20 59 3,045 105,720 25,743 25,743 250,000 56,946 56,946 250,000 128,432 128,432 250,000
25 64 3,045 152,595 23,578 23,578 250,000 74,251 74,251 250,000 219,941 219,941 374,336
30 69 3,045 212,422 15,391 15,391 250,000 92,331 92,331 250,000 362,728 362,728 548,998
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS CHOSEN
BY A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
THE RECALCULATED BASIC SCHEDULED PREMIUM AT ATTAINED AGE 70 WOULD BE $13,675,
ASSUMING THE 0% RETURN; $7,088.39 ASSUMING THE 6% RETURN; AND $3,045, ASSUMING
THE 12% RETURN.
- --------------------------------------------------------------------------------
A-6
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
These values reflect GUARANTEED cost of insurance and other charges
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Premiums Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
--------------------------- --------------------------- ----------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ------ ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,045 3,197 2,034 0 250,000 2,178 0 250,000 2,322 0 250,000
2 41 3,045 6,554 3,902 0 250,000 4,313 0 250,000 4,742 248 250,000
3 42 3,045 10,079 5,699 1,613 250,000 6,499 2,414 250,000 7,369 3,284 250,000
4 43 3,045 13,781 7,446 3,769 250,000 8,760 5,083 250,000 10,247 6,570 250,000
5 44 3,045 17,667 9,118 5,849 250,000 11,072 7,803 250,000 13,374 10,106 250,000
6 45 3,045 21,747 10,707 7,847 250,000 13,429 10,569 250,000 16,771 13,911 250,000
7 46 3,045 26,032 12,213 9,762 250,000 15,833 13,382 250,000 20,463 18,012 250,000
8 47 3,045 30,531 13,632 11,590 250,000 18,280 16,238 250,000 24,479 22,436 250,000
9 48 3,045 35,255 14,961 13,327 250,000 20,769 19,135 250,000 28,850 27,216 250,000
10 49 3,045 40,215 16,193 14,967 250,000 23,295 22,070 250,000 33,609 32,384 250,000
15 55 3,045 68,992 21,058 21,058 250,000 36,762 36,752 250,000 65,211 65,211 250,000
20 59 3,045 105,720 21,961 21,961 250,000 50,078 50,078 250,000 114,954 114,954 250,000
25 64 3,045 152,595 15,985 15,985 250,000 60,715 60,715 250,000 193,169 193,169 328,770
30 69 3,045 212,422 -2,563 0 250,000 63,740 63,740 250,000 308,490 308,490 466,906
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS CHOSEN
BY A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
THE RECALCULATED BASIC SCHEDULED PREMIUM AT ATTAINED AGE 70 WOULD BE $13,675,
ASSUMING THE 0% RETURN; $11,363.22 ASSUMING THE 6% RETURN; AND $3,045, ASSUMING
THE 12% RETURN.
- --------------------------------------------------------------------------------
A-7
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
These values reflect CURRENT cost of insurance and other charges
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Premiums Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
--------------------------- --------------------------- ----------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ------ ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,045 3,197 2,041 0 250,000 2,186 0 250,000 2,330 0 250,000
2 41 3,045 6,554 4,021 0 250,000 4,437 0 250,000 4,871 377 250,000
3 42 3,045 10,079 5,940 1,855 250,000 6,758 2,673 250,000 7,647 3,561 250,000
4 43 3,045 13,781 7,871 4,195 250,000 9,227 5,551 250,000 10,758 7,082 250,000
5 44 3,045 17,667 9,687 6,419 250,000 11,720 8,451 250,000 14,107 10,839 250,000
6 45 3,045 21,747 11,409 8,549 250,000 14,259 11,399 250,000 17,741 14,882 250,349
7 46 3,045 26,032 13,056 10,605 250,000 16,866 14,414 250,000 21,710 19,259 251,440
8 47 3,045 30,531 14,631 12,588 250,000 19,545 17,502 250,000 26,051 24,008 252,798
9 48 3,045 35,255 16,134 14,500 250,000 22,302 20,667 250,000 30,805 29,171 254,462
10 49 3,045 40,215 17,573 16,347 250,000 25,147 23,921 250,000 36,023 34,798 256,463
15 55 3,045 68,992 23,420 23,420 250,000 40,495 40,495 250,000 70,641 70,641 273,216
20 59 3,045 105,720 25,743 25,743 250,000 56,945 56,945 250,000 124,963 124,963 307,073
25 64 3,045 152,595 23,577 23,577 250,000 74,249 74,249 250,000 211,503 211,503 370,035
30 69 3,045 212,422 15,391 15,391 250,000 92,328 92,328 250,000 349,430 349,430 528,870
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS CHOSEN
BY A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
THE RECALCULATED BASIC SCHEDULED PREMIUM AT ATTAINED AGE 70 WOULD BE $13,675,
ASSUMING THE 0% RETURN; $7,088.81 ASSUMING THE 6% RETURN; AND $3,045, ASSUMING
THE 12% RETURN.
- --------------------------------------------------------------------------------
A-8
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
These values reflect GUARANTEED cost of insurance and other charges
<TABLE>
<CAPTION>
Assuming Current Assuming Current Assuming Current
Premiums Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
--------------------------- --------------------------- ----------------------------
Accumulated Net Net Net
End of Age at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy Beginning Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year of Year Outlay Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- ---- ------ ------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40 3,045 3,197 2,034 0 250,000 2,178 0 250,000 2,322 0 250,000
2 41 3,045 6,554 3,901 0 250,000 4,312 0 250,000 4,741 247 250,000
3 42 3,045 10,079 5,699 1,613 250,000 6,499 2,413 250,000 7,368 3,282 250,000
4 43 3,045 13,781 7,446 3,769 250,000 8,759 5,082 250,000 10,245 6,568 250,000
5 44 3,045 17,667 9,117 5,849 250,000 11,071 7,803 250,000 13,371 10,103 250,000
6 45 3,045 21,747 10,707 7,847 250,000 13,428 10,569 250,000 16,765 13,905 250,000
7 46 3,045 26,032 12,213 9,762 250,000 15,832 13,381 250,000 20,452 18,000 250,182
8 47 3,045 30,531 13,632 11,589 250,000 18,279 16,237 250,000 24,458 22,415 251,205
9 48 3,045 35,255 14,961 13,327 250,000 20,768 19,134 250,000 28,812 27,178 252,470
10 49 3,045 40,215 16,192 14,967 250,000 23,294 22,069 250,000 33,545 32,319 253,985
15 55 3,045 68,992 21,058 21,058 250,000 36,750 36,750 250,000 64,677 64,677 267,252
20 59 3,045 105,720 21,961 21,961 250,000 50,077 50,077 250,000 112,140 112,140 294,250
25 64 3,045 152,595 15,984 15,984 250,000 60,714 60,714 250,000 184,182 184,182 342,715
30 69 3,045 212,422 -2,563 0 250,000 63,738 63,738 250,000 293,653 293,653 444,451
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL RESULTS MAY BE HIGHER OR
LOWER THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
ALLOCATIONS MADE BY A POLICYOWNER, THE FREQUENCY OF THE PREMIUM PAYMENTS CHOSEN
BY A POLICYOWNER, THE INVESTMENT EXPERIENCE OF THE POLICY'S VARIABLE INVESTMENT
OPTIONS, AND THE RATE OF INTEREST PAID ON AMOUNTS HELD IN THE FIXED-RATE OPTION.
THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE AND
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR OTHER POLICY TRANSACTIONS WERE EFFECTED DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY GIAC OR THE MUTUAL FUNDS THAT THE ILLUSTRATED
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
THE RECALCULATED BASIC SCHEDULED PREMIUM AT ATTAINED AGE 70 WOULD BE $13,675,
ASSUMING THE 0% RETURN; $11,363.63 ASSUMING THE 6% RETURN; AND $3,045, ASSUMING
THE 12% RETURN.
A-9
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
INVESTMENT EXPERIENCE INFORMATION
This Appendix provides hypothetical illustrations of the Separate Account's and
the policy's investment experience based on the historical investment experience
of the mutual funds. It does not represent what may happen in the future. GIAC
began to offer the policies and the Separate Account commenced its operations on
September 1, 1995. The mutual funds commenced their operations on the dates
noted below:
Date
Operations
Fund Name Commenced
------------------------- ----------
Guardian Stock Fund 4/13/83
Guardian Bond Fund 5/1/83
Guardian Cash Fund 11/10/81
Baillie Gifford
International Fund 2/8/91
Value Line Strategic Asset
Management Trust 10/1/87
Value Line Centurion Fund 11/15/83
MFSGrowth with
Income Series 10/9/95
Even though the policies were not available when certain of the mutual funds
commenced their operations, the illustrations are based on the actual investment
experience of the mutual funds since their respective inception dates. The
illustrations reflect deductions for each fund's expenses, as well as the
Separate Account's charge for mortality and expense risks, which is currently
deducted each day at an annual rate of .60% of the Separate Account's assets.
The illustrations assume that annual Policy Premiums were paid at the beginning
of each policy year and that no loans, partial withdrawals, transfers or other
policyowner transactions were made during the periods shown. The results for The
Guardian Stock Fund and The Guardian Bond Fund reflect the effects of expense
reimbursements which occurred during the years ended December 31, 1984 and 1985.
The results for MFSGrowth with Income Series reflect the effects of expense
reimbursements during the years ended December 31, 1995 and 1996. Without these
expense reimbursements, the results for these funds would be lower. The Guardian
Small Cap Stock Fund has not been included since it began operations in 1997.
Separate Account Investment Experiences
The policies are supported by the Separate Account which invests in the mutual
funds. The investment experience of the corresponding Variable Investment
Options chosen by a policyowner will affect the values and benefits of his or
her policy.
Many factors in addition to investment experience will affect the actual values
and benefits of a Policy. For instance, a policyowner's actual investment
experience will reflect the charges deducted from Policy Premiums, and the
Monthly or any Transaction Deductions from the Policy Account Value associated
with his or her policy. To the extent applicable to the situations covered by
the following illustrations, the results shown in the illustrations reflect that
GIAC reduces the Policy Premiums and Policy Account Value to pay charges and
deductions. See "Deductions and Charges."
Net Rates of Return
The "Annual Net Rate of Return" is the effective earnings rate at which the
Variable Investment Options would have increased or decreased over each one year
period, based on the investment experience of their corresponding mutual funds.
The rate is calculated by taking the difference between the ending unit values
and beginning unit values and dividing the result by the beginning unit values.
See "Amounts in the Separate Account" and "Net Investment Factor."
Policy Performance
Option 1 Death Benefit
The first series of examples provided assumes that a policy with an Option 1
death benefit was issued for a male nonsmoker preferred plus risk at Age 40 with
a $250,000 Face Amount and annual Policy Premium of $2,532.50. Each example in
this series also assumes that 100% of the Policy Account Value is allocated to a
single Variable Investment Option. For this reason, it is further assumed that
the Policy Date for each example was the inception date for the applicable
option's corresponding mutual fund (see above). Thus, the due date for each
annually paid Policy Premiums is that same date each year. The second series of
examples assumes an Option 1 policy was issued for a male nonsmoker preferred
risk at Age 40 with a $250,000 Face Amount and annual Policy Premiums of $3,045
under the same additional circumstances as the first series of examples. These
illustrations of policy performance reflect all charges applicable to the
policy, including cost of insurance charges based on GIAC's current rates for
the subject insureds.
Option 2 Death Benefit
The first series of examples provided assumes that a policy with an Option 2
death benefit was issued for a male nonsmoker preferred plus risk at Age 40 with
a $250,000 Face Amount and annual Policy Premium of $2,532.50. Each example in
this series also assumes that 100% of the Policy Account Value is allocated to a
single Variable Investment Option. For this reason, it is further assumed that
the Policy Date for each example was the inception date for the applicable
option's corresponding mutual fund (see above). Thus, the due date for each
annually paid Policy Premiums is that same date each year. The second series of
examples assumes an Option 2 policy was issued for a male nonsmoker preferred
risk at Age 40 with a $250,000 Face Amount and annual Policy Premiums of $3,045
under the same additional circumstances as the first series of examples. These
illustrations of policy performance reflect all charges applicable to the
policy, including cost of insurance charges based on GIAC's current rates for
the subject insured.
- --------------------------------------------------------------------------------
B-1
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
THE GUARDIAN STOCK FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
04/13/83 12/31/83 2,533 9.80% 0 2,072 250,000
01/01/84 12/31/84 5,065 10.13% 230 4,117 250,000
01/01/85 12/31/85 7,598 31.22% 3,962 7,495 250,000
01/01/86 12/31/86 10,130 16.40% 7,487 10,667 250,000
01/01/87 12/31/87 12,663 1.26% 9,710 12,537 250,000
01/01/88 12/31/88 15,195 19.65% 14,489 16,962 250,000
01/01/89 12/31/89 17,728 22.81% 20,679 22,799 250,000
01/01/90 12/31/90 20,260 -12.38% 19,655 21,422 250,000
01/01/91 12/31/91 22,793 35.14% 29,571 30,984 250,000
01/01/92 12/31/92 25,325 19.35% 37,747 38,807 250,000
01/01/93 12/31/93 27,858 19.24% 47,358 48,065 250,000
01/01/94 12/31/94 30,390 -1.86% 48,251 48,604 250,000
01/01/95 12/31/95 32,923 33.84% 67,037 67,037 250,000
01/01/96 12/31/96 35,455 26.14% 86,481 86,481 250,000
</TABLE>
THE GUARDIAN BOND FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/83 12/31/83 2,533 -1.15% 0 1,897 250,000
01/01/84 12/31/84 5,065 12.36% 92 3,978 250,000
01/01/85 12/31/85 7,598 21.63% 3,246 6,779 250,000
01/01/86 12/31/86 10,130 14.15% 6,445 9,625 250,000
01/01/87 12/31/87 12,663 -0.28% 8,486 11,313 250,000
01/01/88 12/31/88 15,195 9.04% 11,668 14,141 250,000
01/01/89 12/31/89 17,728 13.20% 15,705 17,825 250,000
01/01/90 12/31/90 20,260 6.92% 18,988 20,754 250,000
01/01/91 12/31/91 22,793 15.49% 24,315 25,728 250,000
01/01/92 12/31/92 25,325 7.05% 28,121 29,181 250,000
01/01/93 12/31/93 27,858 9.19% 32,770 33,476 250,000
01/01/94 12/31/94 30,390 -4.03% 33,145 33,499 250,000
01/01/95 12/31/95 32,923 16.88% 40,803 40,803 250,000
01/01/96 12/31/96 35,455 2.26% 43,172 43,172 250,000
</TABLE>
VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/01/87 12/31/87 2,533 -5.28% 0 2,066 250,000
01/01/88 12/31/88 5,065 9.19% 97 3,984 250,000
01/01/89 12/31/89 7,598 24.80% 3,181 6,714 250,000
01/01/90 12/31/90 10,130 -0.75% 5,176 8,356 250,000
01/01/91 12/31/91 12,663 42.48% 10,900 13,726 250,000
01/01/92 12/31/92 15,195 14.36% 14,969 17,442 250,000
01/01/93 12/31/93 17,728 11.19% 18,987 21,107 250,000
01/01/94 12/31/94 20,260 -5.45% 19,814 21,581 250,000
01/01/95 12/31/95 22,793 27.77% 27,809 29,223 250,000
01/01/96 12/31/96 25,325 15.18% 34,206 35,266 250,000
</TABLE>
- --------------------------------------------------------------------------------
B-2
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
VALUE LINE CENTURION FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
o 11/15/83 12/31/83 2,533 -8.37% 0 2,045 250,000
01/01/84 12/31/84 5,065 -8.73% 0 3,574 250,000
01/01/85 12/31/85 7,598 31.14% 2,834 6,367 250,000
01/01/86 12/31/86 10,130 16.13% 5,899 9,079 250,000
01/01/87 12/31/87 12,663 -3.43% 7,670 10,496 250,000
01/01/88 12/31/88 15,195 6.93% 10,455 12,928 250,000
01/01/89 12/31/89 17,728 30.70% 16,452 18,572 250,000
01/01/90 12/31/90 20,260 4.93% 19,359 21,126 250,000
01/01/91 12/31/91 22,793 51.27% 32,120 33,533 250,000
01/01/92 12/31/92 25,325 5.29% 35,835 36,895 250,000
01/01/93 12/31/93 27,858 8.55% 40,905 41,611 250,000
01/01/94 12/31/94 30,390 -2.80% 41,590 41,944 250,000
01/01/95 12/31/95 32,923 39.24% 59,878 59,878 250,000
01/01/96 12/31/96 35,455 16.64% 71,385 71,385 250,000
</TABLE>
BAILLIE GIFFORD INTERNATIONAL FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
02/08/91 12/31/91 2,533 7.98% 0 1,925 250,000
01/01/92 12/31/92 5,065 -9.45% 0 3,271 250,000
01/01/93 12/31/93 7,598 33.24% 3,088 6,622 250,000
01/01/94 12/31/94 10,130 0.26% 5,193 8,373 250,000
01/01/95 12/31/95 12,663 10.56% 8,330 11,156 250,000
01/01/96 12/31/96 15,195 14.72% 12,277 14,750 250,000
</TABLE>
MFS GROWTH WITH INCOME SERIES
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/09/95 12/31/95 2,533 6.49% 0 2,330 250,000
01/01/96 12/31/96 5,065 23.71% 744 4,631 250,000
</TABLE>
- --------------------------------------------------------------------------------
B-3
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
THE GUARDIAN STOCK FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
04/13/83 12/31/83 2,533 9.80% 0 2,072 250,000
01/01/84 12/31/84 5,065 10.13% 230 4,117 250,000
01/01/85 12/31/85 7,598 31.22% 3,962 7,495 250,000
01/01/86 12/31/86 10,130 16.40% 7,486 10,666 250,379
01/01/87 12/31/87 12,663 1.26% 9,708 12,534 250,000
01/01/88 12/31/88 15,195 19.65% 14,482 16,956 251,853
01/01/89 12/31/89 17,728 22.81% 20,662 22,782 255,133
01/01/90 12/31/90 20,260 -12.38% 19,632 21,399 251,120
01/01/91 12/31/91 22,793 35.14% 29,526 30,939 257,932
01/01/92 12/31/92 25,325 19.35% 37,662 38,722 262,871
01/01/93 12/31/93 27,858 19.24% 47,203 47,910 269,124
01/01/94 12/31/94 30,390 -1.86% 48,035 48,388 266,609
01/01/95 12/31/95 32,923 33.84% 66,639 66,639 281,685
01/01/96 12/31/96 35,455 26.14% 85,787 85,787 297,524
</TABLE>
THE GUARDIAN BOND FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/83 12/31/83 2,533 -1.15% 0 1,897 250,000
01/01/84 12/31/84 5,065 12.36% 92 3,978 250,000
01/01/85 12/31/85 7,598 21.63% 3,246 6,779 250,000
01/01/86 12/31/86 10,130 14.15% 6,445 9,625 250,000
01/01/87 12/31/87 12,663 -0.28% 8,486 11,312 250,000
01/01/88 12/31/88 15,195 9.04% 11,667 14,140 250,000
01/01/89 12/31/89 17,728 13.20% 15,703 17,823 250,300
01/01/90 12/31/90 20,260 6.92% 18,984 20,750 250,602
01/01/91 12/31/91 22,793 15.49% 24,304 25,718 252,847
01/01/92 12/31/92 25,325 7.05% 28,099 29,159 253,450
01/01/93 12/31/93 27,858 9.19% 32,732 33,439 254,799
01/01/94 12/31/94 30,390 -4.03% 33,097 33,450 251,819
01/01/95 12/31/95 32,923 16.88% 40,728 40,728 255,933
01/01/96 12/31/96 35,455 2.26% 43,070 43,070 254,971
</TABLE>
VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/01/87 12/31/87 2,533 -5.28% 0 2,066 250,000
01/01/88 12/31/88 5,065 9.19% 97 3,984 250,000
01/01/89 12/31/89 7,598 24.80% 3,181 6,714 250,000
01/01/90 12/31/90 10,130 -0.75% 5,176 8,356 250,000
01/01/91 12/31/91 12,663 42.48% 10,899 13,725 252,197
01/01/92 12/31/92 15,195 14.36% 14,963 17,437 253,498
01/01/93 12/31/93 17,728 11.19% 18,973 21,093 254,468
01/01/94 12/31/94 20,260 -5.45% 19,795 21,561 252,525
01/01/95 12/31/95 22,793 27.77% 27,773 29,186 257,471
01/01/96 12/31/96 25,325 15.18% 34,140 35,200 260,698
</TABLE>
- --------------------------------------------------------------------------------
B-4
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Plus Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
VALUE LINE CENTURION FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
11/15/83 12/31/83 2,533 -8.37% 0 2,045 250,000
01/01/84 12/31/84 5,065 -8.73% 0 3,574 250,000
01/01/85 12/31/85 7,598 31.14% 2,834 6,367 250,000
01/01/86 12/31/86 10,130 16.13% 5,899 9,079 250,000
01/01/87 12/31/87 12,663 -3.43% 7,670 10,496 250,000
01/01/88 12/31/88 15,195 6.93% 10,455 12,928 250,000
01/01/89 12/31/89 17,728 30.70% 16,451 18,571 252,443
01/01/90 12/31/90 20,260 4.93% 19,354 21,121 252,412
01/01/91 12/31/91 22,793 51.27% 32,095 33,508 262,133
01/01/92 12/31/92 25,325 5.29% 35,778 36,838 262,690
01/01/93 12/31/93 27,858 8.55% 40,806 41,512 264,477
01/01/94 12/31/94 30,390 -2.80% 41,456 41,809 261,809
01/01/95 12/31/95 32,923 39.24% 59,614 59,614 276,577
01/01/96 12/31/96 35,455 16.64% 70,947 70,947 284,657
</TABLE>
BAILLIE GIFFORD INTERNATIONAL FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
02/08/91 12/31/91 2,533 7.98% 0 1,925 250,000
01/01/92 12/31/92 5,065 -9.45% 0 3,271 250,000
01/01/93 12/31/93 7,598 33.24% 3,088 6,622 250,000
01/01/94 12/31/94 10,130 0.26% 5,193 8,373 250,000
01/01/95 12/31/95 12,663 10.56% 8,330 11,156 250,000
01/01/96 12/31/96 15,195 14.72% 12,277 14,750 250,000
</TABLE>
MFS GROWTH WITH INCOME SERIES
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/09/95 12/31/95 2,533 6.49% 0 2,330 250,000
01/01/96 12/31/96 5,065 23.71% 744 4,631 250,000
</TABLE>
- --------------------------------------------------------------------------------
B-5
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
THE GUARDIAN STOCK FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
04/13/83 12/31/83 3,045 9.80% 0 2,507 250,000
01/01/84 12/31/84 6,090 10.13% 480 4,974 250,000
01/01/85 12/31/85 9,135 31.22% 4,949 9,034 250,000
01/01/86 12/31/86 12,180 16.40% 9,146 12,823 250,000
01/01/87 12/31/87 15,225 1.26% 11,726 14,994 250,000
01/01/88 12/31/88 18,270 19.65% 17,310 20,169 250,000
01/01/89 12/31/89 21,315 22.81% 24,552 27,003 250,000
01/01/90 12/31/90 24,360 -12.38% 23,257 25,300 250,000
01/01/91 12/31/91 27,405 35.14% 34,882 36,516 250,000
01/01/92 12/31/92 30,450 19.35% 44,444 45,670 250,000
01/01/93 12/31/93 33,495 19.24% 55,686 56,504 250,000
01/01/94 12/31/94 36,540 -1.86% 56,700 57,108 250,000
01/01/95 12/31/95 39,585 33.84% 78,764 78,764 250,000
01/01/96 12/31/96 42,630 26.14% 101,637 101,637 250,000
</TABLE>
THE GUARDIAN BOND FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/83 12/31/83 3,045 -1.15% 0 2,293 250,000
01/01/84 12/31/84 6,090 12.36% 313 4,807 250,000
01/01/85 12/31/85 9,135 21.63% 4,086 8,171 250,000
01/01/86 12/31/86 12,180 14.15% 7,891 11,568 250,000
01/01/87 12/31/87 15,225 -0.28% 10,256 13,525 250,000
01/01/88 12/31/88 18,270 9.04% 13,935 16,795 250,000
01/01/89 12/31/89 21,315 13.20% 18,611 21,063 250,000
01/01/90 12/31/90 24,360 6.92% 22,402 24,444 250,000
01/01/91 12/31/91 27,405 15.49% 28,595 30,230 250,000
01/01/92 12/31/92 30,450 7.05% 32,992 34,217 250,000
01/01/93 12/31/93 33,495 9.19% 38,363 39,180 250,000
01/01/94 12/31/94 36,540 -4.03% 38,748 39,157 250,000
01/01/95 12/31/95 39,585 16.88% 47,660 47,660 250,000
01/01/96 12/31/96 42,630 2.26% 50,394 50,394 250,000
</TABLE>
VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/01/87 12/31/87 3,045 -5.28% 0 2,489 250,000
01/01/88 12/31/88 6,090 9.19% 316 4,810 250,000
01/01/89 12/31/89 9,135 24.80% 4,013 8,098 250,000
01/01/90 12/31/90 12,180 -0.75% 6,377 10,054 250,000
01/01/91 12/31/91 15,225 42.48% 13,189 16,458 250,000
01/01/92 12/31/92 18,270 14.36% 17,954 20,814 250,000
01/01/93 12/31/93 21,315 11.19% 22,620 25,071 250,000
01/01/94 12/31/94 24,360 -5.45% 23,505 25,548 250,000
01/01/95 12/31/95 27,405 27.77% 32,873 34,507 250,000
01/01/96 12/31/96 30,450 15.18% 40,344 41,570 250,000
</TABLE>
- --------------------------------------------------------------------------------
B-6
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
THE VALUE LINE CENTURION FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
11/15/83 12/31/83 3,045 -8.37% 0 2,462 250,000
01/01/84 12/31/84 6,090 -8.73% 0 4,315 250,000
01/01/85 12/31/85 9,135 31.14% 3,595 7,680 250,000
01/01/86 12/31/86 12,180 16.13% 7,251 10,928 250,000
01/01/87 12/31/87 15,225 -3.43% 9,319 12,588 250,000
01/01/88 12/31/88 18,270 6.93% 12,547 15,407 250,000
01/01/89 12/31/89 21,315 30.70% 19,550 22,002 250,000
01/01/90 12/31/90 24,360 4.93% 22,892 24,935 250,000
01/01/91 12/31/91 27,405 51.27% 37,855 39,490 250,000
01/01/92 12/31/92 30,450 5.29% 42,165 43,390 250,000
01/01/93 12/31/93 33,495 8.55% 48,058 48,875 250,000
01/01/94 12/31/94 36,540 -2.80% 48,799 49,208 250,000
01/01/95 12/31/95 39,585 39.24% 70,217 70,217 250,000
01/01/96 12/31/96 42,630 16.64% 83,714 83,714 250,000
</TABLE>
BAILLIE GIFFORD INTERNATIONAL FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
02/08/91 12/31/91 3,045 7.98% 0 2,333 250,000
01/01/92 12/31/92 6,090 -9.45% 0 3,953 250,000
01/01/93 12/31/93 9,135 33.24% 3,890 7,976 250,000
01/01/94 12/31/94 12,180 0.26% 6,372 10,048 250,000
01/01/95 12/31/95 15,225 10.56% 10,033 13,301 250,000
01/01/96 12/31/96 18,270 14.72% 14,608 17,468 250,000
</TABLE>
MFS GROWTH WITH INCOME SERIES
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/09/95 12/31/95 3,045 6.64% 0 2,806 250,000
01/01/96 12/31/96 6,090 23.71% 1,098 5,592 250,000
</TABLE>
- --------------------------------------------------------------------------------
B-7
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
THE GUARDIAN STOCK FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
04/13/83 12/31/83 3,045 9.80% 0 2,507 250,000
01/01/84 12/31/84 6,090 10.13% 479 4,973 250,000
01/01/85 12/31/85 9,135 31.22% 4,946 9,032 250,482
01/01/86 12/31/86 12,180 16.40% 9,139 12,815 251,654
01/01/87 12/31/87 15,225 1.26% 11,713 14,981 251,127
01/01/88 12/31/88 18,270 19.65% 17,284 20,143 253,529
01/01/89 12/31/89 21,315 22.81% 24,498 26,949 257,483
01/01/90 12/31/90 24,360 -12.38% 23,190 25,233 252,814
01/01/91 12/31/91 27,405 35.14% 34,760 36,394 260,915
01/01/92 12/31/92 30,450 19.35% 44,236 45,461 266,800
01/01/93 12/31/93 33,495 19.24% 55,336 56,153 274,220
01/01/94 12/31/94 36,540 -1.86% 56,240 56,649 271,366
01/01/95 12/31/95 39,585 33.84% 77,960 77,960 289,112
01/01/96 12/31/96 42,630 26.14% 100,297 100,297 307,741
</TABLE>
THE GUARDIAN BOND FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/83 12/31/83 3,045 -1.15% 0 2,293 250,000
01/01/84 12/31/84 6,090 12.36% 312 4,806 250,000
01/01/85 12/31/85 9,135 21.63% 4,085 8,170 250,000
01/01/86 12/31/86 12,180 14.15% 7,888 11,565 250,534
01/01/87 12/31/87 15,225 -0.28% 10,251 13,519 250,000
01/01/88 12/31/88 18,270 9.04% 13,926 16,786 250,308
01/01/89 12/31/89 21,315 13.20% 18,596 21,047 251,723
01/01/90 12/31/90 24,360 6.92% 22,376 24,419 252,147
01/01/91 12/31/91 27,405 15.49% 28,550 30,184 254,858
01/01/92 12/31/92 30,450 7.05% 32,919 34,145 255,643
01/01/93 12/31/93 33,495 9.19% 38,252 39,069 257,299
01/01/94 12/31/94 36,540 -4.03% 38,611 39,019 253,903
01/01/95 12/31/95 39,585 16.88% 47,460 47,460 258,792
01/01/96 12/31/96 42,630 2.26% 50,136 50,136 257,764
</TABLE>
VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/01/87 12/31/87 3,045 -5.28% 0 2,489 250,000
01/01/88 12/31/88 6,090 9.19% 316 4,810 250,000
01/01/89 12/31/89 9,135 24.80% 4,012 8,097 250,713
01/01/90 12/31/90 12,180 -0.75% 6,376 10,053 250,137
01/01/91 12/31/91 15,225 42.48% 13,184 16,452 253,865
01/01/92 12/31/92 18,270 14.36% 17,936 20,795 255,484
01/01/93 12/31/93 21,315 11.19% 22,581 25,032 256,914
01/01/94 12/31/94 24,360 -5.45% 23,451 25,493 254,472
01/01/95 12/31/95 27,405 27.77% 32,777 34,411 260,380
01/01/96 12/31/96 30,450 15.18% 40,185 41,411 264,257
</TABLE>
- --------------------------------------------------------------------------------
B-8
<PAGE>
Male Issue Age 40, Non-Smoker, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
VALUE LINE CENTURION FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
11/15/83 12/31/83 3,045 -8.37% 0 2,462 250,114
01/01/84 12/31/84 6,090 -8.73% 0 4,315 250,000
01/01/85 12/31/85 9,135 31.14% 3,594 7,680 250,602
01/01/86 12/31/86 12,180 16.13% 7,250 10,927 251,339
01/01/87 12/31/87 15,225 -3.43% 9,317 12,585 250,332
01/01/88 12/31/88 18,270 6.93% 12,544 15,404 250,436
01/01/89 12/31/89 21,315 30.70% 19,542 21,994 254,230
01/01/90 12/31/90 24,360 4.93% 22,872 24,915 254,261
01/01/91 12/31/91 27,405 51.27% 37,788 39,422 265,771
01/01/92 12/31/92 30,450 5.29% 42,033 43,259 266,502
01/01/93 12/31/93 33,495 8.55% 47,842 48,660 268,676
01/01/94 12/31/94 36,540 -2.80% 48,516 48,924 265,637
01/01/95 12/31/95 39,585 39.24% 69,686 69,686 282,992
01/01/96 12/31/96 42,630 16.64% 82,872 82,872 292,526
</TABLE>
BAILLIE GIFFORD INTERNATIONAL FUND
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
02/08/91 12/31/91 3,045 7.98% 0 2,333 250,000
01/01/92 12/31/92 6,090 -9.45% 0 3,953 250,000
01/01/93 12/31/93 9,135 33.24% 3,890 7,975 250,000
01/01/94 12/31/94 12,180 0.26% 6,370 10,047 250,000
01/01/95 12/31/95 15,225 10.56% 10,030 13,299 250,000
01/01/96 12/31/96 18,270 14.72% 14,603 17,462 250,360
</TABLE>
MFS GROWTH WITH INCOME SERIES
<TABLE>
<CAPTION>
Total Annual Net Cash Policy
Beginning Ending Premiums Net Rate Surrender Account Death
Date Date Paid of Return Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/09/95 12/31/95 3,045 6.49% 0 2,806 250,224
01/01/96 12/31/96 6,090 23.71% 1,097 5,591 250,677
</TABLE>
- --------------------------------------------------------------------------------
B-9
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX C
LONG TERM MARKET TRENDS
This Appendix provides information about the historical returns on different
types of securities. This information is intended to help to provide a
perspective on the potential risks and rewards of investing in selected types of
securities over different periods of time. Together with an assessment of a
policyowner's financial goals, risk tolerance, time horizon and personal
expectations about investment performance, this information may be used to guide
allocation and transfer decisions. However, none of the historical returns
provided here are directly related to the performance of the Variable Investment
Options under a policy, and none of the mutual funds offered through the
Separate Account are managed to match the performance of unmanaged indices or
groups of securities. Most importantly, past performance does not assure future
results.
The source for the historical returns presented here is Stocks, Bonds, Bills and
Inflation (SBBI) 1997 Yearbook(TM), Ibbotson Associates, Chicago (Annually
updates work by Roger G. Ibbotson and Rex A. Sinquefield.) Used with permission.
All rights reserved. Ibbotson classifies securities as Large Company Stocks,
Small Company Stocks, Long-term Corporate Bonds, Long-term Government Bonds,
Intermediate-term Government Bonds and U.S. Treasury Bills. Inflation, as
measured by the Consumer Price Index for All Urban Consumers (CPI-U), is shown
for comparative purposes.
The returns reported by SBBI assume that dividends, capital gains and interest
are reinvested over time. The SBBI data do not reflect the effects of charges
associated with a Park Avenue Life policy. That information is discussed under
the prospectus heading "Deductions and Charges." It is imporant to remember that
although the policy's charges will reduce a policyowner's returns, they permit
GIAC to provide the benefits to policyowners and beneficiaries.
AVERAGE ANNUAL HISTORICAL RETURNS FOR CERTAIN TYPES OF SECURITIES
The following data indicate that, historically, the long-term investment
performance of common stocks has been positive and generally superior to that of
other types of securities.
Annual Returns By Ibbotson Asset Class*
1926 to 1996
[GRAPHIC OMITTED]
Average
Annual Returns
Ibbotson Asset Classes* 1926-1996
---------------------- ---------
A Large Company Stocks 10.7%
B Small Company Stocks 12.6%
C Long-Term Corporate Bonds 5.6%
D Long-Term Government Bonds 5.1%
E Intermediate-Term Government Bonds 5.2%
F US Treasury Bills 3.7%
G Inflation 3.1%
However, common stocks have also been subject to more dramatic changes in value
from year to year than other types of securities. The following bar chart shows
the ranges from highest to lowest of specific annual returns for each Ibbotson
Asset Class during the years 1926 through 1996. The accompanying table
identifies the returns for the best and worst years for each Ibbotson Asset
Class over the same span of time.
Range of Returns
By Ibbotson Asset Class
One Year Holding Periods
1926-1996
[GRAPHIC OMITTED]
One Year Returns
Ibbotson Asset Classes* Maximum Value Minimum Value
---------------------- -------------- --------------
A Large Company Stocks 53.99% (1933) -43.34% (1931)
B Small Company Stocks 142.87% (1933) -58.01% (1937)
C Long-Term Corporate Bonds 42.56% (1982) -8.09% (1969)
D Long-Term Government
Bonds 40.36% (1982) -9.18% (1967)
E Intermediate-Term
Government Bonds 29.10% (1982) -5.14% (1994)
F US Treasury Bills 14.71% (1981) -0.02% (1938)
G Inflation 18.16% (1946) -10.30% (1932)
- --------------------------------------------------------------------------------
C-1
<PAGE>
In 45 of the 71 one year holding periods charted by Ibbotson Associates for the
period 1926 through 1996, common stocks provided the highest returns of all
Asset Classes. Conversely, common stocks also experienced the highest number of
one year periods when losses occurred; 21 out of 71 periods for Small Company
Stocks and 20 out of 71 periods for Large Company Stocks.
A) Large Company Stock returns -- Represented by the Standard and Poor's 500
Stock Composite Index (S&P500).
B) Small Company Stock returns -- Represented by the fifth capitalization
quintile of stocks on the New York Stock Exchange for 1926-1981 and the
performance of the Dimensional Fund Advisors (DFA) Small Company Fund
thereafter.
C) Long-term Corporate Bond returns --Represented by the Salomon Brothers
long-term, high grade corporate bond total return index.
D) Long-term Government Bond returns -- Measured using a one-bond portfolio with
maturity near 20 years.
E) Intermediate-term Government Bond returns -- Measured using a one-bond
portfolio with a maturity near 5 years.
F) U.S. Treasury Bill returns -- Measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.
LENGTHENING THE HOLDING PERIOD TO REDUCE THE IMPACT OF SHORT-TERM VOLATILITY
The following bar chart shows the ranges from highest to lowest of the average
annual returns for each Ibbotson Asset Class during the 62 overlapping 10-year
periods within the years 1926 through 1996 (i.e., 1926-1935, 1927-1936 and so on
through 1987-1996). The accompanying table identifies the returns for the best
and worst 10-year periods for each Ibbotson Asset Class within the years 1926
through 1996.
Range of Returns
By Ibbotson Asset Class
62 Overlapping Ten Year Holding Periods
1926-1996
[GRAPHIC OMITTED]
Ten Year Average Annual Returns
Ibbotson Asset Classes Maximum Value Minimum Value
---------------------- --------------- ---------------
A Large Company Stocks 20.06% (1949-58) -0.89% (1929-38)
B Small Company Stocks 30.38% (1975-84) -5.70% (1929-38)
C Long-Term Corporate Bonds 16.32% (1982-91) 0.98% (1947-56)
D Long-Term Government
Bonds 15.56% (1982-91) -0.07% (1950-59)
E Intermediate-Term
Government Bonds 13.13% (1982-91) 1.25% (1947-56)
F US Treasury Bills 9.17% (1978-87) 0.15% (1933-42)*
G Inflation 8.67% (1973-82) -2.57% (1926-35)
* Also (1934-43)
In 52 of the 62 10-year holding periods charted by Ibbotson Associates, common
stocks provided the highest returns of all Asset Classes, but also experienced
the highest number of 10-year periods when losses occurred; 2 out of 62 periods
for each of Small Company Stocks and Large Company Stocks. However, compared to
the results for one-year periods, volatility was reduced as the holding period
lengthened.
When the holding period is lengthened to twenty years (see next page), common
stocks provided the highest returns of all Asset Classes in all 52 of the
overlapping 20 year periods within the years 1926 through 1996, and volatility
was reduced even further. Moreover, none of the Ibbotson Asset Classes realized
negative returns during the 52 periods.
- --------------------------------------------------------------------------------
C-2
<PAGE>
Range of Returns
By Ibbotson Asset Class
52 Overlapping Twenty Year Holding Periods
1926-1996
[GRAPHIC OMITTED]
Twenty Year Average Annual Returns
Ibbotson Asset Classes Maximum Value Minimum Value
--------------------- ---------------- ---------------
A Large Company Stocks 16.86% (1942-61) 3.11% (1929-48)
B Small Company Stocks 21.13% (1942-61) 5.74% (1929-48)
C Long-Term Corporate Bonds 10.58% (1976-95) 1.34% (1950-69)
D Long-Term Government
Bonds 10.45% (1976-95) 0.69% (1950-69)
E Intermediate-Term
Government Bonds 9.85% (1974-93) 1.58% (1940-59)
F US Treasury Bills 7.72% (1972-91) 0.42% (1931-50)
G Inflation 6.36% (1966-85) 0.07% (1926-45)
Overall, the SBBI data show that, historically, the longer that a portfolio of
common stocks was held, the more likely it became that results would be positive
and superior to those for the other Asset Classes. The data also show that when
the holding period was shorter, the chance of loss was more likely for all Asset
Classes, but particularly for common stocks. These trends indicate that it may
be advantageous for a policyowner who hopes to achieve long-term positive
returns within a Park Avenue Life policy to keep the policy in force, and select
Variable Investment Options which are consistent with future goals.
STOCKS AND BONDS VERSUS INFLATION
The SBBI data also show that common stock returns have outpaced inflation in
each of the 52 overlapping 20-year periods within the years 1926 through 1996.
While the returns on the three Asset Classes of bonds demonstrated less
volatility over time, they have not always kept pace with inflation. The
following graphs depict these comparisons.
Comparison: Stocks and Bonds Versus Inflation
For Ibbotson Asset Classes
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
C-3
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX D
USES OF LIFE INSURANCE
The following are examples of ways in which the policy can be used to address
certain financial objectives, bearing in mind that variable life insurance is
not a short-term investment and that its primary purpose is to provide benefits
upon the death of the insured.
Family Income Protection
Life insurance may be purchased on the lives of a family's income earners to
provide a death benefit to cover final expenses, and continue the current income
to the family. The amount of insurance purchase should be an amount which will
provide a death benefit that when invested outside the policy at a reasonable
interest rate, will generate enough money to replace the insured's income.
Estate Protection
Life insurance may be purchased by a trust on the life of a person whose estate
will incur federal estate taxes upon his or her death. The amount of insurance
purchased should equal the amount of the estimated estate tax liability. Upon
the insured's death, the trustee could make the death proceeds available to the
estate for the payment of estate taxes.
Education Funding
Life insurance may be purchased on the life of the parent(s) or primary person
funding an education. The amount of insurance purchased should equal the total
education cost projected at a reasonable inflation rate.
In the event of the insured's death, the guaranteed death benefit is available
to help pay the education costs. If the insured lives through the education
years, the cash value accumulations may be accessed to help offset the remaining
education costs. Any policy loans or partial withdrawals will reduce the
policy's death benefit and may have tax consequences.
Mortgage Protection
Life insurance may be purchased on the life of the person(s) responsible for
making mortgage payments. The amount of insurance purchased should equal the
mortgage amount. In the event of the insured's death, the guaranteed death
benefit can be used to offset the remaining mortgage balance.
During the insured's lifetime, the cash value accumulations may be accessed late
in the mortgage term to help make the remaining mortgage payments. Any policy
loans or partial withdrawals will reduce the policy's death benefit and may have
tax consequences.
Key Person Protection
Life insurance may be purchased by a business on the life of a key person in an
amount equal to a key person's value, considering salary, benefits, and
contribution to business profits. Upon the key person's death, the business can
use the death benefit to ease the interruption of business operations and/or to
provide a replacement fund for hiring a new executive.
Business Continuation Protection
Life insurance may be purchased on the life of each business owner in an amount
equal to the value of each owner's business interest. In the event of death, the
guaranteed death benefit may provide the funds needed to carry out the purchase
of the deceased's business interest by the business, or surviving owners, from
the deceased owner's heirs.
Retirement Income
Life insurance may be purchased on the life of a family income earner during his
or her working life. If the insured lives to retirement, the cash value
accumulations may be accessed to provide retirement payments. In the event of
the insured's death, the proceeds may be used to provide retirement income to
his or her spouse. Any policy loans or partial withdrawals will reduce the
policy's death benefit and may have tax consequences.
Deferred Compensation Plans
Life insurance may be purchased to fund a Deferred Compensation Plan, or
Selective Incentive Plan, for key employees. A Deferred Compensation Plan, or
Selective Incentive Plan, is a written agreement between an employer and an
executive. The employer makes an unsecured promise to make future benefit
payments to a key executive if the executive meets certain stated requirements.
Under this type of plan, a company purchases a cash value life insurance policy
insuring an executive's life to (1) informally fund the promised benefits and
(2) recover its plan costs at the death of the executive. The policy cash values
may be used to help pay the promised benefits to the executive. In the event
that the executive dies prior to retirement, the policy death benefits can be
used to fund survivor benefits.
Split Dollar Plans
Life insurance may be purchased by an employer on the life of an employee under
a Split Dollar Plan. In a Split Dollar Plan, the employer advances the executive
the premium on a life insurance policy. Both the employer
- --------------------------------------------------------------------------------
D-1
<PAGE>
and the executive share the cash value and death benefit under the policy.
Generally, the employer has rights to the cash value and death benefit equal to
its advances. The balance of the cash value and death benefit belong to the
executive.
The executive receives an economic benefit for which he or she must contribute
into the plan or pay income tax. The economic benefit is equal to the term value
of the death benefit assuming taxation under IRS Revenue Rulings and IRC Section
72. Different results are possible if these or other code sections are applied
or amended.
Executive Bonus Plans
Life Insurance may be purchased by an employee with funds provided by his or her
employer for that purpose. An Executive Bonus plan involves an employer
providing an executive with additional compensation to enable the executive to
pay premiums on a life insurance policy. The bonus is tax deductible by the
employer and received as taxable income by the executive.
* * * *
Because the policy provides a death benefit and cash surrender value, the policy
can be used for various individual and business planning purposes. Purchasing
the policy in part for such purposes entails certain risks, particularly if the
policy's cash surrender value, as opposed to its death benefit, will be the
principal policy feature used for such planning purposes. If Policy Premiums are
not paid, the investment performance of the Variable Investment Options to which
Policy Account Value is allocated is poorer than anticipated, or insufficient
cash surrender value is maintained, then the policy may lapse or may not
accumulate sufficient values to fund the purpose for which the policy was
purchased. Because the policy is designed to provide benefits on a long-term
basis, before purchasing a policy for a specialized purpose, a purchaser should
consider whether the long-term nature of the policy is consistent with the
purpose for which it is being considered. (See "Tax Effects.")
Policyowners are urged to consult competent tax advisors about the possible tax
consequences of pre-death distributions from any life insurance policy,
including Park Avenue Life.
- --------------------------------------------------------------------------------
D-2
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX E
ADDITIONAL BENEFITS BY RIDER
Additional benefits are available by riders to the policy. Riders are issued
subject to GIAC's standards for classifying risks. GIAC charges premiums for
additional benefit riders. These premium amounts are included in the Policy
Premium charged to a Park Avenue Life policyowner, but rider premiums are not
allocated to the Variable Investment Options or Fixed-Rate Option under the
policy. The benefits provided by the riders are fully described in the riders
and summarized here.
Waiver of Premium -- this rider provides for the waiver of Policy Premiums
while the insured is totally disabled.
Accidental Death Benefit -- this rider provides additional insurance
coverage if the insured's death results from accidental bodily injury.
Guaranteed Purchase Option -- this rider provides the policyowner the
right to purchase additional insurance policies on the insured's life
without evidence of insurability on the Policy Anniversaries nearest
certain birthdays of the insured (the "Option Dates") or within specified
time periods of qualifying life events ("Alternate Option Dates") provided
(i) all Policy Premiums are paid to the applicable Option Date or
Alternate Option Date, (ii) written application and evidence of
insurability satisfactory to the issuer and the first premium for the new
policy are received as set forth in the rider, (iii) if applicable,
satisfactory evidence of the qualifying life event accompanies the
application.
Simplified Insurability Option -- this rider allows the policyowner to
purchase additional policies on certain Policy Anniversaries ("Option
Dates") provided: (i) all Policy Premiums are paid to the applicable
Option Date, (ii) written application and evidence of insurability
satisfactory to the issuer are received as set forth in the rider, and
(iii) Policy Premiums are not being waived under a waiver of premium
rider.
Adjustable Renewable Term (ART) Insurance -- this rider provides term
insurance for one year periods.
By adding an ART rider to a Park Avenue Life policy, a policyowner can increase
the insurance coverage provided by the entire contract. Generally, term
insurance is intended to fill a temporary insurance need, and permanent (whole
life) insurance is intended to fill long-term insurance needs. Term insurance is
generally more economical for short periods, while permanent insurance is
generally more economical over longer periods. If a policyowner has a short-term
need for more insurance protection, it may be in his or her interest to
supplement a Park Avenue Life policy with an ART rider. When the need abates,
the rider can be terminated without triggering surrender charges, which are
imposed when the policy's coverage is reduced during the first 12 policy years.
See "Reducing the Face Amount" and "Deductions and Charges."
GIAC may from time to time discontinue the availability of one or more of these
riders, or make other riders available. GIAC agents can provide information
about the current availablity of particular riders.
- --------------------------------------------------------------------------------
E-1
<PAGE>
APPENDIX F
VARIABLE WHOLE LIFE INSURANCE WITH MODIFIED SCHEDULED PREMIUMS
FIRST YEAR SURRENDER CHARGE RATES PER $1,000
<TABLE>
<CAPTION>
Male Female Unisex
--------------------------------- --------------------------------- ---------------------------------
Preferred Preferred Preferred
Age Plus Preferred Standard Plus Preferred Standard Plus Preferred Standard
--- ---- --------- -------- ---- -------- -------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 6.46 5.48 6.27
1 6.30 5.37 6.13
2 6.39 5.44 6.20
3 6.49 5.51 6.30
4 6.60 5.58 6.39
5 6.70 5.67 6.49
6 6.83 5.76 6.62
7 6.95 5.85 6.74
8 7.11 5.95 6.88
9 7.25 6.06 7.02
10 7.42 6.16 7.16
11 7.58 6.28 7.33
12 7.75 6.39 7.49
13 7.95 6.53 7.67
14 8.12 6.65 7.82
15 8.30 6.77 8.00
16 8.45 6.91 8.16
17 8.63 7.05 8.31
18 8.79 7.19 8.47
19 8.96 7.35 8.65
20 8.09 7.94 10.17 7.25 7.15 8.12 7.92 7.77 9.71
21 8.26 8.10 10.43 7.40 7.29 8.42 8.07 7.93 9.95
22 8.43 8.28 10.69 7.57 7.45 8.73 8.25 8.10 10.21
23 8.62 8.50 10.99 7.74 7.63 9.05 8.42 8.38 10.50
24 8.80 8.82 11.31 7.91 7.81 9.40 8.62 8.71 10.80
25 9.02 9.17 11.64 8.10 8.11 9.77 8.83 9.05 11.12
26 9.33 9.63 12.20 8.38 8.52 10.33 9.12 9.51 11.77
27 9.65 10.13 12.80 8.67 8.94 10.93 9.44 10.00 12.46
28 10.05 10.69 13.48 9.03 9.43 11.61 9.82 10.56 13.24
29 10.42 11.25 14.27 9.36 9.92 12.29 10.18 11.11 14.02
30 10.86 11.90 15.17 9.75 10.48 13.08 10.62 11.75 14.92
31 11.27 12.53 16.09 10.11 11.02 13.86 11.02 12.36 15.83
32 11.77 13.25 17.12 10.62 11.64 14.75 11.55 13.07 16.84
33 12.25 13.97 18.16 11.17 12.25 15.64 12.14 13.78 17.86
34 12.88 14.73 19.29 11.73 12.90 16.59 12.76 14.51 18.97
35 13.59 15.58 20.55 12.40 13.62 17.66 13.47 15.37 20.21
36 14.20 16.31 21.51 12.94 14.22 18.48 14.07 16.09 21.15
37 14.85 17.07 22.56 13.49 14.84 19.33 14.70 16.82 22.18
38 15.52 17.87 23.67 14.09 15.51 20.23 15.36 17.60 23.26
39 16.22 18.71 24.85 14.70 16.19 21.18 16.06 18.44 24.41
40 16.96 19.61 26.11 15.37 16.93 22.17 16.79 19.30 25.64
41 17.74 20.54 27.47 16.05 17.71 23.22 17.57 20.23 26.96
42 18.58 21.54 28.89 16.78 18.52 24.31 18.39 21.21 28.33
43 19.45 22.60 30.40 17.54 19.38 25.43 19.26 22.24 29.80
44 20.39 23.72 32.03 18.34 20.28 26.62 20.17 23.34 31.35
45 21.39 24.89 33.73 19.19 21.19 27.88 21.16 24.46 33.01
46 22.57 26.20 35.91 20.07 22.25 29.43 22.30 25.75 35.11
47 23.81 27.59 38.22 21.01 23.36 31.07 23.51 27.11 37.32
48 25.14 29.08 40.68 21.98 24.54 32.80 24.76 28.56 39.68
</TABLE>
- --------------------------------------------------------------------------------
F-1
<PAGE>
APPENDIX F (continued)
VARIABLE WHOLE LIFE INSURANCE WITH MODIFIED SCHEDULED PREMIUMS
FIRST YEAR SURRENDER CHARGE RATES PER $1,000
<TABLE>
<CAPTION>
Male Female Unisex
--------------------------------- --------------------------------- ---------------------------------
Preferred Preferred Preferred
Age Plus Preferred Standard Plus Preferred Standard Plus Preferred Standard
--- ---- --------- -------- ---- -------- -------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
49 26.54 30.67 43.27 23.02 25.80 34.65 26.10 30.09 42.15
50 28.02 32.36 45.98 24.10 27.14 36.57 27.56 31.73 44.76
51 29.60 34.14 48.85 25.25 28.54 38.61 29.07 33.48 47.13
52 31.25 36.03 51.65 26.46 30.05 40.10 30.66 35.33 49.02
53 33.00 38.02 53.87 27.74 31.63 41.55 32.33 37.27 51.03
54 34.84 40.14 56.20 29.07 33.31 43.06 34.09 39.31 53.15
55 36.79 42.35 58.66 30.48 35.04 44.66 35.97 41.49 55.40
56 38.24 44.62 58.69 31.63 36.36 46.36 37.34 43.60 57.77
57 39.74 47.01 58.65 32.83 37.74 48.17 38.83 45.81 58.68
58 41.33 49.53 58.62 34.07 39.18 50.11 40.36 48.17 58.65
59 42.99 52.19 58.60 35.40 40.69 52.18 42.01 50.65 58.60
60 44.79 55.01 58.53 36.78 42.25 54.39 43.72 53.29 58.56
61 46.67 58.02 58.51 38.22 43.92 56.78 45.55 56.05 58.57
62 48.66 58.76 58.44 39.77 45.66 58.75 47.48 58.81 58.52
63 50.78 58.73 58.43 41.38 47.51 58.74 49.51 58.79 58.48
64 53.02 58.69 58.39 43.13 49.46 58.72 51.72 58.76 58.44
65 56.58 58.68 58.33 44.94 51.57 58.67 54.05 58.71 58.39
66 58.77 58.62 58.29 47.48 54.42 58.67 57.78 58.66 58.37
67 58.70 58.60 56.94 50.21 57.52 58.62 58.75 58.63 58.32
68 58.63 58.59 56.17 53.13 58.85 58.61 58.69 58.59 58.29
69 58.57 58.50 56.13 56.24 58.81 58.56 58.64 58.59 58.24
70 58.46 58.42 56.02 58.87 58.78 58.56 58.58 58.54 56.95
71 58.41 58.36 55.94 58.80 58.76 58.53 58.51 58.44 56.09
72 58.29 58.26 55.84 58.75 58.72 58.47 58.45 58.38 56.01
73 58.26 58.19 55.73 58.68 58.64 58.45 58.37 58.31 55.99
74 58.14 58.11 55.65 58.62 58.59 56.44 58.30 58.20 55.96
75 58.10 58.08 55.63 58.56 58.48 56.36 58.19 58.15 55.86
76 58.07 57.97 55.56 58.47 58.46 56.30 58.11 58.06 55.77
77 57.91 57.95 55.49 58.39 58.39 56.18 58.05 58.01 55.77
78 57.88 57.87 55.47 58.30 58.27 56.12 58.07 57.97 55.67
79 57.86 57.80 55.46 58.33 58.29 56.18 57.93 57.89 55.67
80 57.90 57.81 55.49 58.31 58.16 56.05 57.93 57.97 55.69
</TABLE>
- --------------------------------------------------------------------------------
F-2
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING PURSUANT TO RULE 484
Under Article VIII of GIAC's By-Laws, as supplemented by Section 3.2 of
GIAC's Certificate of Incorporation, any past or present director or officer of
GIAC (including persons who serve at GIAC's request or for its benefit as
directors or officers of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise [hereinafter referred to
as a "Covered Person"]) is indemnified to the fullest extent permitted by law
against liability and all expenses reasonably incurred by such Covered Person in
connection with any action, suit or proceeding to which such Covered Person may
be a party or otherwise involved by reason of being or having been a Covered
Person. However, this provision does not protect a Covered Person against any
liability to either GIAC or its stockholder to which such Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
Covered Person's office. This provision does protect a director of GIAC against
any liability to GIAC or its stockholder for monetary damages or for breach of
fiduciary duty as a director of GIAC, except for liability (i) for any breach of
the director's duty of loyalty to GIAC or its stockholder, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26
GIAC hereby presents 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.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
The representation pursuant to Section 26 of The Investment Company Act of
1940.
The signatures.
Written consents of the following persons:
Richard T. Potter, Jr., Esq.
Charles G. Fisher
Price Waterhouse LLP
- ----------
II-1
<PAGE>
The following exhibits:
1.A (1) Resolution of the Board of Directors of The Guardian
Insurance & Annuity Company, Inc. establishing The
Guardian Separate Account K.*
(2) Not Applicable.
(3)(a), (b)
and (c) Distribution Agreements.**
(4) Not Applicable.
(5) Specimen of the Variable Whole Life Insurance Policy with
Modified Scheduled Premiums.**
(6)(a) Certificate of Incorporation of The Guardian Insurance &
Annuity Company, Inc.*
(6)(b) By-laws of The Guardian Insurance & Annuity Company, Inc.
(7) Not Applicable.*
(8) Amended and Restated Agreement for Services and
Reimbursement Therefor between The Guardian Life Insurance
Company of America and The Guardian Insurance & Annuity
Company, Inc.*
(9) Not Applicable.
(10) Form of Application for the Variable Whole Life Policy with
Modified Scheduled Premiums.*
(11)(a) Memorandum on the Policy's Issuance, Transfer and
Redemption Procedures and on the Method of Computing Cash
Adjustments upon Exchange of the Policy.*
2. See Exhibit 1.A(5).
3. (a)Opinion of Richard T. Potter, Jr., Esq.
3. (b)Consent of Richard T. Potter, Jr., Esq.
4. None.
5. Not Applicable.
6. Opinion and Consent of Charles G. Fisher, F.S.A.
7. Consent of Price Waterhouse LLP
8. Powers of Attorney executed by a majority of the Board of Directors
and certain principal officers of The Guardian Insurance & Annuity
Company, Inc.*
27. Financial Data Schedules
- ----------
* Incorporated by reference to the Registration Statement on Form S-6 filed
by the Registrant on July 25, 1997 (Registration No. 333-32101).
** Incorporated by reference to the Pre-Effective Amendment No. 1 on Form S-6
filed by the Registrant on December 5, 1997 (Registration No. 333-32101)
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, The
Guardian Separate Account K, has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York and State of New York, on the 5th day of December, 1997.
THE GUARDIAN SEPARATE ACCOUNT K
(Name of Registrant)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
By: s/ Thomas R. Hickey, Jr.
-------------------------------------
THOMAS R. HICKEY, JR.
VICE PRESIDENT, OPERATIONS
Attest: /s/ Sheri L. Kocen
---------------------------------
SHERI L. KOCEN
ASSISTANT COUNSEL
II-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following directors and
principal officers of The Guardian Insurance & Annuity Company, Inc. in the
capacities and on the date indicated.
s/ Joseph D. Sargent* 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/ Edward K. Kane* Senior Vice President, General Counsel
- ----------------------------------- and Director
Edward K. Kane
s/ Frank L. Pepe Vice President and Controller
- -----------------------------------
Frank L. Pepe
(Principal Accounting Officer)
s/ John M. Smith Executive Vice President and Director
- -----------------------------------
John M. Smith
s/ Philip H. Dutter* Director
- -----------------------------------
Philip H. Dutter
s/ Arthur V. Ferrara* Director
- -----------------------------------
Arthur V. Ferrara
s/ Leo R. Futia* Director
- -----------------------------------
Leo R. Futia
s/ Peter L. Hutchings* Director
- -----------------------------------
Peter L. Hutchings
s/ William C. Warren* Director
- -----------------------------------
William C. Warren
*By: s/ Thomas R. Hickey, Jr. Date: December 5, 1997
---------------------------------
Thomas R. Hickey, Jr.
Vice President, Operations
Pursuant to Power of Attorney
II-4
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT K
EXHIBIT INDEX
Exhibit
Number Description Page*
3. (a) Opinion of Richard T. Potter, Jr., Esq.
3. (b) Consent of Richard T. Potter, Jr., Esq.
6. Opinion and Consent of Charles G. Fisher, F.S.A.
7. Consent of Price Waterhouse LLP
27. Financial Data Schedule
Ex - 3.(a)
December 5, 1997
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
Re: The Guardian Separate Account K
Form S-6 Registration Statement
Dear Sirs:
This opinion is furnished in connection with the proposed offering of the
modified scheduled premium variable life insurance policies ("Policy" or
"Policies") by The Guardian Insurance & Annuity Company, Inc. ("GIAC") pursuant
to a registration statement on Form S-6 filed by GIAC on behalf of The Guardian
Separate Account K ("Account") (File No. 333-32101) with the Securities and
Exchange Commission.
I have made such investigation of law and examined such records and documents
(including those of GIAC and the Account) as in my judgment are necessary or
appropriate to render the opinion expressed below. In my opinion:
(1) GIAC is a corporation duly organized and validly existing under the
laws of the State of Delaware.
(2) The Account is a separate account, duly established by GIAC under the
provisions of Section 2932 of the Delaware Insurance Code and regulations
promulgated thereunder, and the income, gains and losses allocable to the
Account will be credited to or charged against the Account without regard
to other income, gains or losses of GIAC.
(3) The offer and sale of the Policies by GIAC have been duly authorized
and each Policy, when delivered and when the payment thereunder is made in
accordance with the prospectus as contained in the registration statement
and with the applicable local law, will be a legal, valid and binding
obligation of GIAC in accordance with its terms. Owners of the Policies,
as such, will not be subject to any deductions and charges by GIAC other
than those described or referred to in the prospectus.
I hereby consent to the filing of this opinion as an exhibit to
Pre-Effective Amendment No. 2 of registration statement on Form S-6 and to
the use of my name under the heading "Legal Matters" in the prospectus and
the registration statement.
Very truly yours,
Richard T. Potter, Jr.
Vice President and Equity Counsel
EX-3.(b)
CONSENT OF COUNSEL
I hereby consent to the reference to my name under the heading "Legal
Opinion" in the Pre-Effective Amendment No. 2 to the Registration Statement on
Form S-6 for The Guardian Separate Account K and to the filing of this consent
as an exhibit thereto.
By /s/ Richard T. Potter, Jr.
----------------------------------
Richard T. Potter, Jr.
Vice President and Equity Counsel
New York, New York
December 5, 1997
EXHIBIT 6
December 5, 1997
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
Gentlemen:
In my capacity as Vice President and Actuary of The Guardian Insurance & Annuity
Company, Inc. ("GIAC"), I have participated in the development of the Park
Avenue Life variable whole life insurance policy with modified scheduled
premiums (the "Policy") and the preparation of the Policy form. The Policy has
been registered under the Securities Act of 1933. It is described in
Registration Statement No. 333-32101 on Form S-6. I am familiar with the
Registration Statement and its Exhibits.
In my opinion, the illustrations of death benefits, Policy Account Values, Net
Cash Surrender Values and Accumulated Policy Premiums included in Appendix A of
the prospectus, based on the assumptions stated in the illustrations, are
consistent with the provisions of the form of the Policy. Further, the rate
structure of the Policy has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear more
favorable to a prospective purchaser of a Policy at age 40 than to prospective
purchasers of the Policy at other Ages.
I hereby consent to the use of this opinion as an exhibit to Pre-Effective
Amendment No. 2 to the Registration Statement.
Very truly yours,
Charles G. Fisher, FSA
Vice President and Actuary
CONSULTING ACTUARY: _______________________
Alan M. Emmer, FSA
EXHIBIT 7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Pre-Effective Number 2 to the Separate Account K registration statement on Form
S-6 (the "Registration Statement") of our report dated February 11, 1997,
relating to the financial statements of The Guardian Separate Account K and our
report dated February 11, 1997, relating to the statutory basis financial
statements of The Guardian Insurance & Annuity Company, Inc., which appear in
such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
s/Price Waterhouse LLP
------------------------
PRICE WATERHOUSE LLP
New York, New York
December 8, 1997
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SEPARATE ACCOUNT K - PARK AVENUE LIFE
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