As filed with the Securities and Exchange Commission on April 29, 1998
Registration Nos. 333-32101
811-8736
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
------------
THE GUARDIAN SEPARATE ACCOUNT K
(Exact Name of Trust)
------------
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
------------
It is proposed that this filing will become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b), or
|X| on May 1, 1998 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i), or
|_| on (date) pursuant to paragraph (a)(i) of Rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously-filed post-effective amendment.
------------
The Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The notice required by such rule for the Registrant's most recent
fiscal year was filed on March 26, 1998.
================================================================================
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
N-8B-2 Item Heading in Prospectus
- ----------- ---------------------
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
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PARK AVENUE LIFE
Variable Whole Life Insurance Policy
With Modified Scheduled Premiums
Prospectus Dated May 1, 1998
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, Inc., The Guardian Small Cap Stock
Fund, The Guardian Bond Fund, Inc., The Guardian Cash Fund, Inc., Baillie
Gifford International Fund, Baillie Gifford Emerging Markets Fund, Value Line
Centurion Fund, Inc., Value Line Strategic Asset Management Trust, Gabelli
Capital Asset Fund, MFS Emerging Growth Series, MFS Total Return Series, MFS
Growth With Income Series, MFS Bond Series, American Century VP Value Fund,
American Century VP International Fund, AIM V.I. Value Fund, AIM V.I. Capital
Appreciation Fund, Fidelity VIP III* Growth Opportunities Portfolio, Fidelity
VIP* Equity-Income Portfolio, Fidelity VIP* High Income Portfolio, and Fidelity
VIP II* Index 500 Portfolio.
*VIP, VIP II, and VIP III, as used throughout this prospectus, refer to Variable
Insurance Products Fund, Variable Insurance Products Fund II, and Variable
Insurance Products Fund III, respectively.
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.
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
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 .................................................. 21
Amounts In the Separate Account ................................ 22
Net Investment Factor .......................................... 22
Other Policy Features ................................................ 22
Policy Loans ................................................... 22
Reducing the Face Amount ....................................... 23
Partial Withdrawals ............................................ 24
Surrender ...................................................... 24
Transfers ...................................................... 25
Transfers From the Fixed-Rate Option ........................... 25
Dollar Cost Averaging Transfer Option .......................... 25
Policy Proceeds ................................................ 26
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 .................. 31
Legal Considerations for Employers ............................. 31
Other Tax Consequences ......................................... 31
GIAC's Taxes ................................................... 31
Income Tax Withholding ......................................... 31
2
<PAGE>
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 ............................ 33
The Funds' Investment Advisers ....................................... 34
Guardian Investor Services Corporation ......................... 34
Guardian Baillie Gifford Limited ............................... 34
Baillie Gifford Overseas Limited ............................... 34
Value Line, Inc. ............................................... 34
Gabelli Funds, Inc. ............................................ 34
Massachusetts Financial Services Company ....................... 34
American Century Investment Management, Inc. ................... 34
A I M Advisors, Inc. .......................................... 34
Fidelity Management & Research Company ......................... 35
THE FIXED-RATE OPTION ...................................................... 36
General Information .................................................. 36
Amounts In the Fixed-Rate Option ..................................... 36
VOTING RIGHTS .............................................................. 37
DISTRIBUTION OF THE POLICY AND OTHER CONTRACTUAL ARRANGEMENTS .............. 38
LIMITS TO GIAC'S RIGHT TO CHALLENGE A POLICY ............................... 39
Incontestability ..................................................... 39
Misstatement of Age or Sex ........................................... 39
Suicide Exclusion .................................................... 39
GIAC'S MANAGEMENT .......................................................... 40
OTHER INFORMATION .......................................................... 43
Rights Reserved by GIAC .............................................. 43
Right to Cancel ...................................................... 43
Policyowner and Beneficiary .......................................... 43
Assignment ........................................................... 44
Communications From GIAC ............................................. 44
Communications With GIAC ............................................. 44
Special Provisions For Group or Sponsored Arrangements ............... 44
Advertising Practices ................................................ 44
Legal Proceedings .................................................... 45
Legal Matters ........................................................ 45
Year 2000 ............................................................ 45
Registration Statement ............................................... 45
Financial and Actuarial Experts ...................................... 45
FINANCIAL STATEMENTS OF THE GUARDIAN SEPARATE ACCOUNT K .................... 46
STATUTORY BASIS FINANCIAL STATEMENTS OF THE GUARDIAN INSURANCE &
ANNUITY COMPANY, INC. .................................................... 55
APPENDIX A: POLICY ILLUSTRATIONS ........................................... A-1
APPENDIX B: LONG TERM MARKET TRENDS ........................................ B-1
APPENDIX C: USES OF LIFE INSURANCE ......................................... C-1
APPENDIX D: ADDITIONAL BENEFITS BY RIDER ................................... D-1
APPENDIX E: VARIABLE WHOLE LIFE INSURANCE WITH MODIFIED
SCHEDULED PREMIUMS - FIRST YEAR SURRENDER CHARGE RATES PER $1000 ..... E-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.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
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,
- --------------------------------------------------------------------------------
4
<PAGE>
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.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
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, 1997, GIAC had total assets (statutory basis) in
excess of $7.0 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
- --------------------------------------------------------------------------------
6
<PAGE>
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 forth in the
policy.
- --------------------------------------------------------------------------------
7
<PAGE>
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, Baillie
Gifford Emerging Markets Fund, Value Line Centurion Fund, Value Line Strategic
Asset Management Trust, Gabelli Capital Asset Fund, MFS Emerging Growth Series,
MFS Total Return Series, MFS Growth With Income Series, MFS Bond Series,
American Century VP Value Fund, American Century VP International Fund, AIM V.I.
Value Fund, AIM V.I. Capital Appreciation Fund, Fidelity VIP III* Growth
Opportunities Portfolio, Fidelity VIP* Equity-Income Portfolio, Fidelity VIP*
High Income Portfolio, and Fidelity VIP II* Index 500 Portfolio. 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 B. 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
- --------------------------------------------------------------------------------
8
<PAGE>
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%. 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 D.
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
- --------------------------------------------------------------------------------
9
<PAGE>
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?
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."
- --------------------------------------------------------------------------------
10
<PAGE>
Park Avenue Life Policy Diagram*
Less
Policy Premiums ------------> Policy Premium
Assessments:
o Rider Premiums
o Rating Charges
Unsecheduled Payments ------------> Premium Tax Charge
o DCA Tax Charge
o Premium Sales Charge
Policy Account Value
The Separate Account
The Mutual Funds (including any Investment
Return):
Guardian Investor Services Corporation
The Guardian Stock Fund Less
The Guardian Small Cap Stock Fund -------------> Advisory Fees And
The Guardian Bond Fund Operational Expenses
The Guardian Cash Fund
Guardian Baillie Gifford Limited Less
Baillie Gifford International Fund -------------> Mortality And Expense
Baillie Gifford Emerging Markets Fund Risk Charge
Value Line, Inc.
Value Line Centurion Fund
Value Line Strategic Asset Management
Trust
Gabelli Funds, Inc.
Gabelli Capital Asset Fund
Massachusetts Financial Services Company Less
MFS Emerging Growth Series ------------> Monthly Deductions:
MFS Total Return Series o Policy Charge
MFS Growth With Income Series o Administration Charge
MFS Bond Series o Guaranteed Insurance
American Century Investment Management, Inc. Amount Charge
American Century VP Value Fund o Charge For The Cost
American Century VP International Fund Of Insurance
A I M Advisors, Inc.
AIM V.I. Capital Appreciation Fund
AIM V.I. Value Fund
Fidelity Management & Research Company
Fidelity VIP III Growth Opportunities
Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP II Index 500 Portfolio
Fixed-Rate Option Loan Collateral Account
(plus Interest Credited) (plus Interest Credited)
Less
---------------------------> Transaction Deductions:
o Surrender Charge
o Partial Withdrawal
Charge
o Premium Skip Option
Deduction
Cash Surrender Value
Less
---------------------------> Policy Debt
Net Cash Surrender Value
*This diagram excludes the Unscheduled Payment Handling Fee and Transfer Charge
which are not being imposed currently. Interest on Policy Debt and repayments of
Policy Debt are also not reflected in the diagram.
POLICY FORM 97-MPVL
<PAGE>
- --------------------------------------------------------------------------------
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. 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
- --------------------------------------------------------------------------------
12
<PAGE>
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.
- --------------------------------------------------------------------------------
13
<PAGE>
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.
- --------------------------------------------------------------------------------
14
<PAGE>
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
<PAGE>
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
- --------------------------------------------------------------------------------
16
<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
- --------------------------------------------------------------------------------
17
<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
- ------------------------------------------------------------
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
-----------------------------------------
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.
- --------------------------------------------------------------------------------
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, 1997,
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% 0.02% 0.52%
Guardian Small Cap Stock Fund* 0.75% 0.21% 0.96%
Guardian Bond Fund 0.50% 0.05% 0.55%
Guardian Cash Fund 0.50% 0.04% 0.54%
Baillie Gifford International Fund 0.80% 0.17% 0.97%
Baillie Gifford Emerging
Markets Fund 1.00% 0.40% 1.40%
Value Line Centurion Fund* 0.50% 0.10% 0.60%
Value Line Strategic
Asset Mgt. Trust* 0.50% 0.09% 0.59%
Gabelli Capital Asset Fund 1.00% 0.17% 1.17%
MFS Emerging Growth Series* 0.75% 0.12% 0.87%
MFS Total Return Series*0.75% 0.25% 1.00%
MFS Growth With Income Series* 0.75% 0.25% 1.00%
MFS Bond Series* 0.60% 0.40% 1.00%
American Century VP
Value Fund 1.00% 1.00%
American Century VP
International Fund 1.50% 1.50%
AIM V.I. Value Fund* 0.62% 0.08% 0.70%
AIM V.I. Capital
Appreciation Fund* 0.63% 0.05% 0.68%
Fidelity VIP III Growth
Opportunities Portfolio* 0.61% 0.13% 0.74%
Fidelity VIP Equity-Income
Portfolio* 0.51% 0.07% 0.58%
Fidelity VIP High Income
Portfolio* 0.59% 0.12% 0.71%
Fidelity VIP II Index 500
Portfolio* 0.24% 0.04% 0.28%
* 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, 1997. The expenses for the Guardian
Small Cap Stock Fund are annualized.
The percentages for MFS Growth With Income Series, MFS Total Return Series, and
MFS Bond 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 Growth With Income Series and Total Return Series and 0.40% of the average
daily net assets of the Bond Series for the fiscal year ended December 31, 1997.
These agreements are also in effect for the current fiscal year. (In the absence
of such agreements, operational expenses and total expenses for each of the
series for the year ended December 31, 1997 would be (i) 0.35% and 1.10%,
respectively, for the MFS Growth With Income Series, (ii) 0.27% and 1.02%,
respectively, for
- --------------------------------------------------------------------------------
19
<PAGE>
the MFS Total Return Series, and (iii) 2.98% and 3.58%, respectively, for the
MFS Bond Series. An agreement to limit the Emerging Growth Series' operational
expenses to 0.25% of the average daily net assets of the Fund is also in effect
but its use was not triggered for the year ended December 31, 1997.
The percentages for Fidelity VIP II Index 500 Portfolio reflect the agreement by
the portfolio's Adviser to bear expenses for the portfolio, subject to
reimbursement, such that the Index 500 Portfolio's total expenses shall not
exceed 0.28%. In the absence of such agreement, total expenses for the Index 500
Portfolio would have been 0.40%. Agreements are also in place between the Growth
Opportunities and Equity-Income Portfolios and their Adviser to limit total
expenses to 1.00%, also subject to reimbursement. In addition, the Equity-Income
Portfolio and Growth Opportunities Portfolio have entered into arrangements with
their custodian and transfer agent whereby interest earned on uninvested cash
balances is used to reduce custodian and transfer agent expenses. The Fidelity
management fees for the Growth Opportunities, Equity-Income and High Income
Portfolios consist of a group fee rate and an individual fee rate. The fee shown
here is the result of adding these components together and multiplying the
result by the portfolio's average net assets. Please see the Fidelity
prospectuses for a complete explanation of the applicable portfolio management
fees and expenses.
AIM Advisors, Inc. ("AIM") may from time to time voluntarily waive or reduce its
respective fees. Effective May 1, 1998, the Funds reimburse AIM in an amount up
to 0.25% of the average net asset value of each Fund, for expenses incurred in
providing, or assuring that participating insurance companies provide, certain
administrative services. Currently, the fee only applies to the average net
asset value of each Fund in excess of the net asset value of each Fund as
calculated on April 30, 1998.
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, 1997,
GIAC was reimbursed $696,767 by Value Line Strategic Asset Management Trust, and
$483,127 by Value Line Centurion Fund.
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."
- --------------------------------------------------------------------------------
20
<PAGE>
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-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."
- --------------------------------------------------------------------------------
21
<PAGE>
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:
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
- --------------------------------------------------------------------------------
22
<PAGE>
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.
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
- --------------------------------------------------------------------------------
23
<PAGE>
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.
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
- --------------------------------------------------------------------------------
24
<PAGE>
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 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
- --------------------------------------------------------------------------------
25
<PAGE>
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, 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
- --------------------------------------------------------------------------------
26
<PAGE>
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.
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
- --------------------------------------------------------------------------------
27
<PAGE>
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 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:
- --------------------------------------------------------------------------------
28
<PAGE>
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.
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.
- --------------------------------------------------------------------------------
29
<PAGE>
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, 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 this connection, the President's 1999 Budget Proposal
has recommended legislation that, if enacted, would adversely modify the federal
taxation of certain insurance and annuity contracts. For example, one proposal
would tax transfers among investment options and tax exchanges involving
variable contacts. A second proposal would reduce the "investment in the
contract" under cash value life insurance and certain annuity contracts, thereby
increasing the amount of income for purposes of computing gain. In addition, the
Treasury Department and IRS may amend existing regulations, issue new
regulations, or adopt new
- --------------------------------------------------------------------------------
30
<PAGE>
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 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. In recent
years, Congress has adopted new rules relating to life insurance owned by
businesses. Any business should consult a tax advisor regarding possible tax
consequences associated with the Policy prior to acquisition and also before
entering into any subsequent changes to or transactions under the Policy.
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.
- --------------------------------------------------------------------------------
31
<PAGE>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Guardian Stock Long-term growth of U.S. common stocks and
Fund capital convertible securities
Guardian Small Long-term growth of U.S. common stocks and
Cap Stock Fund capital convertible securities
Guardian Bond Maximum income with- investment grade debt
Fund out undue risk of obligations and U.S.
principal government securities
Guardian Cash High level of current money market instruments
Fund income; preservation
of capital
Baillie Gifford Long-term capital common stocks and
International appreciation convertible securities
Fund issued by foreign companies
Baillie Gifford Long-term capital common stocks and
Emerging appreciation convertible securities
Markets Fund issued by companies that
are organized in, generally
operate in, or which
principally sell their
securities in emerging
market countries
Value Line Long-term growth of U.S. common stocks, ranked
Centurion capital 1 or 2 by the Value Line
Fund Ranking System*
Value Line High total investment U.S. common stocks, ranked
Strategic Asset return consistent with 1 or 2 by the Value Line
Management reasonable risk Ranking System,* bonds and
Trust money market instruments
Gabelli Capital Growth of capital; U.S. common stocks and
Asset Fund current income as a convertible securities
secondary objective
MFS Emerging Long-term growth of U.S. common stocks of
Growth Series capital emerging growth companies
MFS Total Above-average income equity securities and non-
Return Series (compared to a portfolio convertible fixed income
invested entirely in securities
equity securities)
consistent with prudent
employment of capital,
and secondarily to
provide a reasonable
opportunity for growth
of capital and income
MFS Growth Reasonable current common stocks and
With Income income and long-term convertible securities
Series growth of capital and issued by U.S. and foreign
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).
- --------------------------------------------------------------------------------
32
<PAGE>
FUND INVESTMENT OBJECTIVE TYPICAL INVESTMENTS
- --------------------------------------------------------------------------------
MFS Bond To provide as high a convertible and non-
Series level of current income convertible debt securities
as is believed consistent and preferred stocks; U.S.
with prudent investment government securities;
risk and secondarily to commercial paper;
protect shareholders' repurchase agreements and
capital cash or cash equivalents
American Long-term capital growth equity securities of well-
Century VP with income as a established intermediate-
Value Fund secondary objective to-large companies whose
securities are believed to
be undervalued
American Capital growth international common stocks
Century VP with potential for
International appreciation
Fund
AIM V.I. Value Seeks long-term growth common stocks, convertible
Fund of capital by investing bonds and convertible
primarily in undervalued preferred stock, preferred
stocks with income as a stock and debt instruments
secondary objective believed to be undervalued
relative to the overall
market
AIM V.I. Seeks capital apprecia- common stocks of medium-
Capital tion by investing in sized and smaller emerging
Appreciation stocks with emphasis growth companies
Fund on medium-sized and
smaller emerging
growth companies
Fidelity VIP III Capital growth common stocks and
Growth convertibles
Opportunities
Portfolio
Fidelity VIP Reasonable income with income-producing
Equity-Income capital appreciation as a equity securities
Portfolio secondary objective
Fidelity VIP High level of current high-yielding debt
High Income income securities with an emphasis
Portfolio on lower-quality securities
Fidelity VIP II Total return that equity securities of
Index 500 corresponds to that of companies that compose the
Portfolio the Standard & Poor's Standard & Poor's 500 and in
500 Index other instruments that are
based on the value of the
Index
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, 1997. 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, though, in assessing the past performance of
the investment advisers of the funds. Total returns for The Guardian Cash Fund
are not presented.
FUND NAME YEARS ENDING DECEMBER 31, 1997
AND Since
INCEPTION DATE 1 Year 5 Years 10 Years Inception
- --------------------------------------------------------------------------------
Guardian Stock Fund* 35.58% 22.37% 19.37% 17.87%
(4/13/83)
Guardian Small Cap N/A N/A N/A 14.69%
Stock Fund*
(7/16/97)
Guardian Bond Fund* 8.99% 6.94% 8.93% 9.36%
(5/1/83)
Baillie Gifford 11.93% 14.24% N/A 12.28%
International Fund
(2/8/91)
Baillie Gifford Emerging 1.97% N/A N/A 3.36%
Markets Fund
(10/17/94)
Value Line 21.39% 16.33% 17.76% 14.13%
Centurion Fund
(11/15/83)
Value Line Strategic 15.66% 12.88% 15.38% 14.37%
Asset Management Trust
(10/1/87)
Gabelli Capital** 42.59% N/A N/A 22.36%
Asset Fund
(5/1/95)
MFS Emerging 21.90% N/A N/A 23.53%
Growth Series***
(7/24/95)
MFS Total Return 21.30% N/A N/A 20.93%
Series***
(1/3/95)
MFS Growth With 29.78% N/A N/A 27.61%
Income Series***
(10/9/95)
MFS Bond Series*** 10.14% N/A N/A 6.94%
(10/24/95)
American Century VP 26.10% N/A N/A 23.20%
Value Fund
(5/1/96)
American Century VP 18.60% N/A N/A 10.60%
International Fund
(5/1/94)
AIM V.I. Value Fund 23.69% N/A N/A 19.74%
(5/5/93)
AIM V.I. Capital 13.51% N/A N/A 18.64%
Appreciation Fund
(5/5/93)
Fidelity VIP III Growth 29.95% N/A N/A 26.81%
Opportunities
Portfolio***
(1/3/95)
Fidelity VIP Equity- 28.11% 20.16% 16.72% 14.66%
Income Portfolio****
(10/9/86)
Fidelity VIP High 17.67% 13.91% 12.81% 12.45%
Income Portfolio****
(9/19/85)
Fidelity VIP II Index 32.82% 19.91% N/A 19.87%
500 Portfolio****
(8/27/92)
* Results for The Guardian Bond Fund and The Guardian Stock Fund reflect
effects of expense reimbursements that occurred during the years ended
December 31, 1984 and 1985. Without these expense reimbursements, results
for these funds would be lower. The inception date for the Guardian Small
Cap Stock Fund is the date of commencement of the Public offering of the
fund.
** For the period from May 1, 1995 through December 31, 1995, the Manager and
the Adviser of Gabelli Capital Asset Fund absorbed a portion of the fund's
operating expenses. Total returns for this period would have been lower if
these expenses had not been absorbed.
*** Total returns for the MFS Growth With Income Series, Emerging Growth
Series, Bond Series and Total Return Series reflect the agreement by the
series' Adviser to bear expenses for the series, subject to reimbursement
by the series, such that the operational expenses shall not exceed, for
the Growth With Income, Emerging Growth, and Total Return Series, 0.25%,
and for the Bond Series, 0.40% 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.
**** Total returns for the Fidelity Growth Opportunities, Fidelity
Equity-Income, Fidelity High Income, and Fidelity Index 500 Portfolios
reflect the reimbursement of certain fund expenses by the Adviser during
certain periods and/or the effects of varying arrangements with third
parties who either paid or reimbursed a portion of the fund's expenses. In
the absence of these arrangements total returns would have been lower.
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. INCLUDING THE
EFFECTS OF THESE DEDUCTIONS REDUCES RETURNS. SEE "DEFINITIONS" AND "DEDUCTIONS
AND CHARGES" FOR ADDITIONAL INFORMATION.
- --------------------------------------------------------------------------------
33
<PAGE>
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 eight of the ten series comprising The Park Avenue
Portfolio, a family of mutual funds, and serves as manager of Gabelli Capital
Asset Fund.
Guardian Baillie Gifford Limited
Baillie Gifford International Fund and Baillie Gifford Emerging Markets Fund are
advised by Guardian Baillie Gifford Limited ("GBG"), 1 Rutland Court, Edinburgh,
EH3 8EY, Scotland. GBG is registered as an investment adviser under the Advisers
Act and is a member of Great Britain's Investment Management Regulatory
Organization Limited ("IMRO"). GBG was incorporated in Scotland by GIAC and
Baillie Gifford Overseas Limited ("BG Overseas") in November 1990. GBG is also
the investment adviser of two of the ten series comprising The Park Avenue
Portfolio. Baillie Gifford International Fund and Baillie Gifford Emerging
Markets Fund pay GBG an investment advisory fee at an annual rate of 0.80% and
1.00%, respectively, of the fund's average daily net assets for the services and
facilities GBG provides to the funds.
Baillie Gifford Overseas Limited
GBG has appointed BG Overseas to serve as sub-investment adviser to Baillie
Gifford International Fund and Baillie Gifford Emerging Markets Fund. Like GBG,
BG Overseas is located at 1 Rutland Court, Edinburgh, EH3 8EY, Scotland. BG
Overseas is also registered under the Advisers Act and is a member of IMRO. BG
Overseas is wholly owned by Baillie Gifford & Co., which is currently one of the
largest investment management partnerships in the United Kingdom. BG Overseas
advises several institutional clients situated outside of the United Kingdom,
and is also the sub-investment adviser to the two series of The Park Avenue
Portfolio that are advised by GBG. One half of the investment advisory fee paid
by Baillie Gifford International Fund and Baillie Gifford Emerging Markets 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.
Gabelli Funds, Inc.
Gabelli Capital Asset Fund is managed by GISC, which has appointed Gabelli
Funds, Inc. ("GFI") as the investment adviser to the Fund. GFI has its principal
offices at One Corporate Center, Rye, New York 10580, and is registered as an
investment adviser under the Advisers Act. The Fund pays GISC a management fee
at an annual rate of 1.00% of its average daily net assets for services and
facilities which GISC provides to the Fund. For its services as investment
adviser, GISC pays GFI 0.75% of the management fee which GISC receives from the
Fund. No separate or additional fee is paid by the Fund to GFI. GFI also serves
as investment adviser to other open-end mutual funds and closed-end mutual
funds.
Massachusetts Financial Services Company
MFS Growth With Income Series, MFS Emerging Growth Series, MFS Bond Series and
MFS Total Return Series are 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 0.75%, 0.75%, 0.60%, and 0.75% of the average
daily net assets of the Growth With Income Series, Emerging Growth Series, Bond
Series and Total Return Series, respectively.
American Century Investment Management, Inc.
The American Century VP Value Fund and the American Century VP International
Fund are advised by American Century Investment Management, Inc. ("ACIM"),
American Century Tower, 4500 Main Street, Kansas City, Missouri 64111. ACIM, a
registered investment adviser under the Advisers Act, has been providing
investment advisory services to investment companies and institutional investors
since it was founded in 1958. Each of the American Century funds pays ACIM an
investment advisory fee at an annual rate of 1.00% and 1.50% of the average
daily net assets of the VP Value Fund and the VP International Fund,
respectively.
A I M Advisors, Inc.
AIM V.I. Value Fund and AIM V.I. Capital Assets Fund are advised by A I M
Advisors, Inc. ("AIM"), 11 Greenway Plaza, Suite 100, Houston, Texas 77046. AIM,
a registered investment adviser under the Advisers Act, was organized in 1976
and, together with its subsidiaries, manages or
- --------------------------------------------------------------------------------
34
<PAGE>
advises over 50 investment company portfolios. AIM is a whollyowned subsidiary
of A I M Management Group Inc., a holding company engaged in the financial
services business and is an indirect whollyowned subsidiary of AMVESCAP PLC.
AMVESCAP PLC and its subsidiaries are an independent investment management group
engaged in institutional investment management and retail mutual fund businesses
in the United States, Europe and the Pacific Region. The AIM V.I. Value Fund and
V.I. Capital Appreciation Fund each pay AIM an investment advisory fee at an
annual rate of 0.64% of the fund's average daily net assets. Each Fund pays an
advisory fee to AIM at an annual rate of 0.65% of the first $250 million of
the Fund's average daily net assets, plus 0.60% of the Fund's average daily net
assets in excess of $250 million.
Fidelity Management & Research Company
The Fidelity VIP III Growth Opportunities Portfolio, Fidelity VIP Equity-Income
Portfolio, Fidelity VIP High Income Portfolio, and Fidelity VIP II Index 500
Portfolio are advised by Fidelity Management & Research Company ("FMR"), 82
Devonshire Street, Boston, Massachusetts 02109. FMR, a registered investment
adviser under the Advisers Act, is the management arm of Fidelity Investments,
which was established in 1946. Each of the Fidelity portfolios pays FMR an
investment advisory fee at annual rates of 0.61%, 0.51%, 0.59%, and 0.24% for
the Growth Opportunities, Equity-Income, High Income, and Index 500 Portfolios,
respectively.
On behalf of the High Income and Growth Opportunities Portfolios, FMR has
sub-investment advisory agreements with two affiliates, FMR U.K. and FMR Far
East. FMR U.K. and FMR Far East are compensated for providing FMR with
investment research and advice with fees equal to 110% and 105%, respectively,
of the costs of providing these services. On behalf of the High Income
Portfolio, the sub-investment advisers may also provide investment management
services in return for which they receive a fee equal to 50% of FMR's management
fee rate. No separate or additional fee is paid by the portfolios to the
sub-adviser.
Bankers Trust Company ("BT") has been appointed sub-investment adviser to the
Index 500 Portfolio. BT, a New York Banking Corporation with principal offices
at 130 Liberty Street, New York, New York 10006, is a wholly owned subsidiary of
Bankers Trust New York Corporation. For investment management, securities
lending and custodial services to the Index 500 Portfolio, FMR pays BT fees at
an annual rate of 0.006% of the average net assets of the Portfolio. No separate
or additional fee is paid by the Portfolio to BT.
- --------------------------------------------------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
THE 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.
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
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 $1,409,708, $1,851,468 and $1,979,926 during
the years ended December 31, 1995, 1996, and 1997, 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. GIAC has
also entered into agreements with MFS and American Century pursuant to which it
will be reimbursed for certain administrative costs and expenses incurred in
connection with the offer and sale of MFS and American Century funds to GIAC's
policyowners, such reimbursement to be determined on the basis of a percentage
of assets under managment.
- --------------------------------------------------------------------------------
38
<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.
- --------------------------------------------------------------------------------
39
<PAGE>
- --------------------------------------------------------------------------------
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 ten series) and (5) GIAC Funds, Inc. (a
series fund that issues its
Name Title Business History
Joseph A. Caruso Vice President and Vice President and Corporate
Secretary Secretary, The Guardian Life
Insurance Company of America 3/96
- present; Second Vice President
and Corporate Secretary 1/95 -
2/96; Corporate Secretary 10/92 -
12/94; Assistant Secretary prior
thereto. Vice President and
Secretary, Guardian Investor
Services Corporation, Secretary,
Guardian Asset Management
Corporation, Guardian Baillie
Gifford Limited and various mutual
funds within the 40 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 and Guardian Asset
Management Corporation.
Arthur V. Ferrara Director Retired. Former Chairman of the
Board and Chief Executive Officer,
The Guardian Life Insurance
Company of America 1/93 - 12/95;
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 Actuary,
and 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.
Senior Vice President, Guardian
Investor Services Corporation.
Vice President of various mutual
funds within the Guardian Fund
Complex.
Peter L. Hutchings Director Executive Vice President and Chief
Financial Officer, The Guardian
Life Insurance Company of America
5/87 - present. Director of
Guardian Investor Services
Corporation and Guardian Asset
Management Corporation.
- --------------------------------------------------------------------------------
40
<PAGE>
Name Title Business History
Ryan W. Johnson Vice President, Vice President, Equity Marketing
Equity Sales and Sales, 3/98 - present; Second
Vice President, Equity Sales, The
Guardian Life Insurance Company of
America 3/95 - 3/98; Regional
Sales Director for Equity
Products, Western Division, prior
thereto; Senior Vice President of
Guardian Investor Services
Corporation.
Frank J. Jones Executive Vice Executive Vice President and Chief
President, Investment Officer, The Guardian
Chief Investment Life Insurance Company of America
Officer and 1/94 - present; Senior Vice
Director 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 Executive Vice Executive Vice President, The
President and Guardian Life Insurance Company of
Director America 1/97 - present; Senior
Vice President and General Counsel
prior thereto; Director 11/88 -
present. Director, Guardian Asset
Management Corporation.
Eileen C. McDonnell Vice President, Vice President, Group Pensions,
Group Pensions The Guardian Life Insurance
Company of America 9/97 - present;
Vice Present, Group Marketing,
9/95 - 9/97; Vice President,
Strategic Marketing, The Equitable
Life Assurance Society of the
United States, 1/94 - 9/95; Vice
President, Northern Operations
prior thereto.
Frank L. Pepe Vice President Vice President and Controller,
and Controller Equity Products, The Guardian Life
Insurance Company of America 1/96
- present; Second Vice President
and Controller, Equity Products
prior thereto. Vice President and
Controller of Guardian Investor
Services Corporation. Vice
President and Treasurer, GIAC
Funds, Inc. 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. 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
Executive Officer and Director, The Guardian Life
and Director Insurance Company of America 1/96
- present; President 1/93 - 12/95;
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.
- --------------------------------------------------------------------------------
41
<PAGE>
John M. Smith Executive Executive Vice President, The
Vice President Guardian Life Insurance Company of
and Director America 1/95 - present; Senior
Vice President, Equity Products
prior thereto. President and
Director, Guardian Investor
Services Corporation. President,
GIAC Funds, Inc. Director,
Guardian Baillie Gifford Limited.
Director, Guardian Asset
Management Corporation.
Thomas G. Sorell Vice President Vice President, The Guardian Life
Insurance Company of America, 7/94
- present; 12/93 - 7/94, Director
of Fixed Income, White River
Corporation; 4/93 - 12/93,
Director of Fixed Income, Fund
American Enterprises. Vice
President, Guardian Asset
Management Corporation. Officer of
various mutual funds within the
Guardian Fund Complex.
Donald P. Sullivan, Jr. Vice President Second Vice President, The
Guardian Life Insurance Company of
America 1/95-present; Assistant
Vice President prior thereto. Vice
President of Guardian Investor
Services Corporation. Officer of
various mutual funds within the
Guardian Fund Complex.
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.
- --------------------------------------------------------------------------------
42
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
43
<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
- --------------------------------------------------------------------------------
44
<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.
Year 2000
Like other financial and business organizations around the world, GIAC could be
adversely affected if the computer systems it uses internally, the systems of
its service providers, and related computer systems do not properly process and
calculate date-related information and data beginning on January 1, 2000. Many
computer systems today cannot distinguish the year 2000 from the year 1900
because of the way dates were encoded and calculated in these systems. GIAC has
been actively working to deal with this problem, and expects that its systems
and others upon which it is reliant will be adapted before January 1, 2000.
However, there can be no assurance that these preparations will be successful.
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, 1997, and
the statutory basis balance sheets of GIAC as of December 31, 1997 and December
31, 1996 and the related statutory basis statements of operations, of changes in
common stock and surplus and of cash flow for the three years in the period
ended December 31, 1997 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.
- --------------------------------------------------------------------------------
45
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN SEPARATE ACCOUNT K
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<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 ........... -- $26,402,929 $292,933 $1,067,725 $226,480 $2,140,185 $3,202,333 $ 2,528,396 $45,506
==============================================================================================================
Assets
Shares owned
in underlying
fund --
Note 1 .......... -- 601,411 24,089 106,773 16,481 116,853 124,193 115,013 2,773
Net asset value per
share (NAV) ..... -- 46.05 12.11 10.00 13.63 18.27 25.52 22.13 16.44
Total Assets
(Shares x
NAV) .......... $37,174,179 $27,694,959 $291,712 $1,067,725 $224,630 $2,134,911 $3,169,407 $ 2,545,240 $45,595
----------- ----------- -------- ---------- -------- ---------- ---------- ----------- -------
Liabilities
Due to The
Guardian
Insurance
& Annuity
Company, Inc. ... 37,908 26,248 443 2,026 142 2,032 3,679 3,301 37
Net Assets --
Note 4 .............. $37,136,271 $27,668,711 $291,269 $1,065,699 $224,488 $2,132,879 $3,165,728 $ 2,541,939 $45,558
=========== =========== ======== ========== ======== ========== ========== =========== =======
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
46
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT K
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<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 Stock Fund Fund Fund Trust Series
---------- --------- --------- --------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Income:
Reinvested
dividends ......... $ 379,555 $ 233,164 $15,037 $55,100 $ 392 $29,937 $ 7,144 $ 38,600 $ 181
Expenses--Note 3:
Mortality and
expense risk
charges ........... 145,648 106,601 1,151 6,805 143 7,635 13,468 9,808 37
---------- ---------- -------- -------- ------- -------- -------- -------- -------
Net investment
income/(expense) ... 233,907 126,563 13,886 48,295 249 22,302 (6,324) 28,792 144
---------- ---------- -------- -------- ------- -------- -------- -------- -------
Realized and
Unrealized Gain/
(Loss) from
Investments
Realized gain/(loss)
from investments:
Net realized gain/
(loss) from sale
on Investments .. 209,570 188,993 1,246 -- (180) 16,896 1,747 820 48
Reinvested
realized gain
distributions ... 3,407,206 2,780,841 -- -- 2,505 80,240 365,912 176,860 848
---------- ---------- -------- -------- ------- -------- -------- -------- -------
Net realized
gain/(loss) on
investments ...... 3,616,776 2,969,834 1,246 -- 2,325 97,136 367,659 177,680 896
---------- ---------- -------- -------- ------- -------- -------- -------- -------
Unrealized
appreciation/
(depreciation) of
investments:
End of year ....... 1,267,692 1,292,030 (1,221) -- (1,850) (5,274) (32,926) 16,844 89
Beginning of year . 72,274 43,886 (1,258) -- -- 16,141 5,035 8,470 --
---------- ---------- -------- -------- ------- -------- -------- -------- -------
Change in
unrealized
appreciation/
(depreciation) .... 1,195,418 1,248,144 37 -- (1,850) (21,415) (37,961) 8,374 89
---------- ---------- -------- -------- ------- -------- -------- -------- -------
Net realized and
unrealized gain/
(loss) from
investments ....... 4,812,194 4,217,978 1,283 -- 475 75,721 329,698 186,054 985
---------- ---------- -------- -------- ------- -------- -------- -------- -------
Net Increase/
(Decrease) in
Net Assets
Resulting from
Operations ......... $5,046,101 $4,344,541 $15,169 $48,295 $ 724 $98,023 $323,374 $214,846 $1,129
========== ========== ======= ======= ====== ======= ======== ======== ======
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
47
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN SEPARATE ACCOUNT K
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 distributions ............. 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 investments 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.
- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN SEPARATE ACCOUNT K
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1997
<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) .. $ 233,907 $ 126,563 $ 13,886 $ 48,295 $ 249 $ 22,302 $ (6,324) $ 28,792 $ 144
Net realized gain/
(loss) from sale of
investments ........ 209,570 188,993 1,246 -- (180) 16,896 1,747 820 48
Reinvested
realized gain
distributions ..... 3,407,206 2,780,841 -- -- 2,505 80,240 365,912 176,860 848
Change in unrealized
appreciation/
(depreciation)
of investments .... 1,195,418 1,248,144 37 -- (1,850) (21,415) (37,961) 8,374 89
----------- ----------- -------- ----------- -------- ---------- ---------- ---------- -------
Net increase/
(decrease)
resulting from
operations ........ 5,046,101 4,344,541 15,169 48,295 724 98,023 323,374 214,846 1,129
----------- ----------- -------- ----------- -------- ---------- ---------- ---------- -------
1997 Policy
Transactions
Transfer of net
premium ........... 28,120,504 20,435,949 250,538 1,321,513 181,827 1,709,516 2,260,587 1,919,213 41,361
Transfer on account
of other
terminations ...... (525,113) (360,442) (4,764) (913) -- (50,999) (77,153) (30,842) --
Transfer of policy
loans ............. (382,367) (314,110) (1,088) (2,972) (1,749) (33,074) (21,380) (7,994) --
Transfer of cost
of insurance--
Note 3 ............ (5,312,030) (3,969,160) (45,653) (146,214) (7,725) (323,577) (465,919) (352,898) (884)
Transfer between/
within separate
accounts .......... (3,868) 548,761 (39,492) (1,161,841) 52,378 150,600 232,172 209,541 4,013
Transfers--
other ............ 82,679 47,663 313 (774) (967) 7,546 20,373 8,586 (61)
----------- ----------- -------- ----------- -------- ---------- ---------- ---------- -------
Net increase/
(decrease) from
contract
transactions ...... 21,979,805 16,388,661 159,854 8,799 223,764 1,460,012 1,948,680 1,745,606 44,429
----------- ----------- -------- ----------- -------- ---------- ---------- ---------- -------
Total Increase/
(Decrease) in
Net Assets ......... 27,025,906 20,733,202 175,023 57,094 224,488 1,558,035 2,272,054 1,960,452 45,558
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
December 31,
1997--
Note 4 ............ $37,136,271 $27,668,711 $291,269 $ 1,065,699 $224,488 $2,132,879 $3,165,728 $2,541,939 $45,558
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
49
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN SEPARATE ACCOUNT K
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1996
<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 Stock Fund Fund Fund Trust Series
---------- --------- --------- --------- ----------- --------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
distributions ..... 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 --
Note 3 ............ (1,532,174) 1,083,025) (18,048) (56,279) -- (102,199) (161,278) (111,345) --
Transfer between/
within 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 $10,110,365 $6,935,509 $116,246 $1,008,605 -- $ 574,844 $ 893,674 $ 581,487 --
==== =========== ========== ======== ========== ===== ========= ========= ========= =====
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
50
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN SEPARATE ACCOUNT K
STATEMENTS OF CHANGES IN NET ASSETS
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>
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 ..... $ 239,097 $ 189,561 $ 5,846 $ 1,871 $ 12,005 $ 18,588 $ 11,226
========= ========= ========= ========= ========= ========= =========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN SEPARATE ACCOUNT K
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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, or to the Fixed Rate Option (FRO), as selected
by the policyowner. Amounts allocated to the FRO are maintained by GIAC in its
general account. On May 1 and June 1, 1997, GIAC created two new investment
divisions within the Account, the MFS Growth With Income Series and The Guardian
Small Cap Stock Fund. The policyowner also has the ability to transfer his or
her policy value among the investment divisions within the Account. The Account
currently comprises eight 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), The Guardian Small Cap
Stock Fund (GSCF), Baillie Gifford International Fund (BGIF), Value Line
Centurion Fund, Inc., Value Line Strategic Asset Management Trust and MFS Growth
With Income Series (collectively, the Funds and individually, a Fund). However,
a policyowner may only invest in up to seven investment divisions, including the
FRO.
GSF, GBF, GCF and GSCF 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, 1997
Purchases and Sales
During the years ended December 31, 1997 and December 31, 1996, purchases
and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
The Guardian Separate Account K Purchases Purchases Sales Sales
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. .......... $20,297,230 $ 7,453,097 $ 991,563 $ 762,371
The Guardian Bond Fund, Inc. ........... 276,923 142,104 103,032 29,801
The Guardian Cash Fund, Inc. ........... 1,411,205 1,797,215 1,354,306 788,260
The Guardian Small Cap Stock Fund ...... 231,203 -- 4,543 --
Baillie Gifford International Fund, Inc. 1,726,612 602,423 163,423 57,730
Value Line Centurion Fund, Inc. ........ 2,610,334 971,334 300,598 99,743
Value Line Strategic Asset
Management Trust ..................... 2,133,657 660,006 180,590 98,478
MFS Growth With Income Series .......... 47,870 -- 2,412 --
----------- ----------- ----------- -----------
Total ............................... $28,735,034 $11,626,179 $ 3,100,467 $ 1,836,383
=========== =========== =========== ===========
</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 inforce, 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 as a percentage of the basic
premium. This rate varies by state of jurisdiction.
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, 1997
At December 31, 1997, net assets of the Account were as follows:
Accumulation of Annual Premium
Variable Life Insurance $32,482,048
Policyowners' Accounts 4,654,223
-----------
Owned by GIAC $37,136,271
===========
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 statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the investment
divisions relating to The Guardian Stock Fund, Inc., The Guardian Bond Fund,
Inc., The Guardian Cash Fund, Inc., The Guardian Small Cap Stock Fund, Baillie
Gifford International Fund, Value Line Centurion Fund, Inc., Value Line
Strategic Asset Management Trust and MFS Growth With Income Series (constituting
The Guardian Separate Account K, "Park Avenue Life") at December 31, 1997, and
the results of each of their operations and changes in each of their net assets
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the management
of The Guardian Insurance & Annuity Company, Inc.; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the transfer agents of the underlying funds, provides a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
February 13, 1998
- --------------------------------------------------------------------------------
54
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Fixed maturities, principally at amortized cost
(market: 1997 - $492,052,307; 1996 - $491,271,164) ................ $ 484,747,832 $ 490,445,948
Affiliated mutual funds, at market .................................. 30,551,186 2,755,672
Investment in subsidiary ............................................ 12,073,143 7,746,643
Policy loans - variable life insurance .............................. 72,737,781 68,143,068
Cash and short-term investments ..................................... 23,602,410 17,825,039
Investment in joint venture ......................................... 345,492 285,874
Accrued investment income receivable ................................... 13,303,271 10,553,405
Due from parent and affiliates ......................................... 7,573,304 6,507,913
Other assets ........................................................... 12,557,432 12,173,268
Receivable from separate accounts ...................................... 30,203,923 11,606,587
Variable annuity and EISP/CIP separate account assets .................. 6,810,882,719 5,248,159,777
Variable life separate account assets .................................. 414,699,239 342,921,803
-------------- --------------
TOTAL ADMITTED ASSETS ............................................. $7,913,277,732 $6,219,124,997
============== ==============
LIABILITIES
Policy liabilities and accruals:
Fixed deferred reserves ............................................. $ 339,797,646 $ 329,681,355
Fixed immediate reserves ............................................ 7,397,461 5,874,894
Life reserves ....................................................... 67,799,492 65,462,693
Minimum death benefit guarantees .................................... 1,117,645 1,257,777
Policy loan collateral fund reserve ................................. 70,734,812 65,762,820
Accrued expenses, taxes, & commissions .............................. 1,592,997 2,712,360
Due to parent and affiliates ........................................ 20,408,087 15,304,638
Federal income taxes payable ........................................ 10,939,640 4,743,447
Other liabilities ................................................... 20,540,325 30,079,434
Asset valuation reserve ............................................. 26,305,528 15,121,269
Variable annuity and EISP/CIP separate account liabilities .......... 6,750,575,077 5,193,574,218
Variable life separate account liabilities .......................... 413,364,790 335,769,184
-------------- --------------
TOTAL LIABILITIES ................................................. $7,730,573,500 $6,065,344,089
COMMON STOCK AND SURPLUS
Common Stock, $100 par value, 20,000 shares authorized,
issued and outstanding ............................................ 2,000,000 2,000,000
Additional paid-in surplus .......................................... 137,398,292 137,398,292
Assigned and unassigned surplus ..................................... 43,305,940 14,382,616
-------------- --------------
Total Common Stock and Surplus .................................... 182,704,232 153,780,908
-------------- --------------
TOTAL LIABILITIES, COMMON STOCK AND SURPLUS ....................... $7,913,277,732 $6,219,124,997
============== ==============
</TABLE>
See notes to statutory basis financial statements.
- --------------------------------------------------------------------------------
55
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
Statutory Basis STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------
1997 1996 1995
------------- ------------ -------------
<S> <C> <C> <C>
Revenues:
Premiums and annuity considerations:
Variable annuity considerations ..................... $ 995,209,301 $731,792,764 $537,841,762
Life insurance premiums and fixed
annuity considerations ................................. 68,222,360 44,874,269 73,938,212
Net investment income ................................. 47,993,754 42,366,902 36,293,598
Amortization of IMR ................................... 111,783 333,219 257,380
Net gain from operations of separate accounts ......... 5,780,327 8,860,462 --
Service fees .......................................... 76,350,291 58,774,486 46,560,286
Variable life-- cost of insurance ..................... 11,205,120 4,844,028 4,232,564
Reserve adjustments on reinsurance ceded .............. 7,885,341 30,636,445 (32,192,749)
Commission and expense allowances ..................... 16,268,128 14,508,840 10,057,974
Other income .......................................... 5,178,266 2,535,356 1,127,526
-------------- ------------ ------------
......................................................... 1,234,204,671 939,526,771 678,116,553
-------------- ------------ ------------
Benefits and expenses:
Benefits:
Death benefits ...................................... 5,340,675 6,785,456 4,774,584
Annuity benefits .................................... 687,719,014 426,072,773 276,568,762
Surrender benefits .................................. 17,620,583 17,459,706 17,660,413
Increase in reserves ................................ 18,291,585 82,891,516 65,349,399
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ....................... 359,468,681 323,093,897 252,772,988
Variable Life ....................................... (630,102) (10,417,095) (17,796,371)
Commissions ........................................... 43,352,989 39,233,431 34,364,742
General insurance expenses ............................ 59,476,685 42,523,892 25,888,456
Taxes, licenses and fees .............................. 3,743,414 3,723,858 2,477,492
Reinsurance terminations .............................. 182,535 (15,470,015) 11,002,701
-------------- ------------ ------------
......................................................... 1,194,566,059 915,897,419 673,063,166
-------------- ------------ ------------
Income before income taxes and realized
gains from investments .............................. 39,638,612 23,629,352 5,053,387
Federal income taxes .................................. 12,073,500 3,941,460 439,667
-------------- ------------ ------------
Income from operations, net of federal
income taxes, and before net realized
gains ............................................... 27,565,112 19,687,892 4,613,720
Realized gains from investments, net of federal
income taxes, net of transfer to IMR ................ 472,127 7,540 342,455
-------------- ------------ ------------
Net income ............................................ $ 28,037,239 $ 19,695,432 $ 4,956,175
============== ============ ============
</TABLE>
See notes to statutory basis financial statements.
- --------------------------------------------------------------------------------
56
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
<TABLE>
<CAPTION>
Assigned and
Additional Unassigned Total
Common Paid-in Surplus Common Stock
Stock Surplus (Deficit) and Surplus
------ -------- -------- ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 ................... $2,000,000 $137,398,292 $(1,817,759) $137,580,533
---------- ------------ ----------- ------------
Net income from operations ...................... 4,956,175 4,956,175
Increase in unrealized appreciation of Company's
investment in separate accounts, net of
applicable taxes ............................. 3,024,930 3,024,930
Decrease in unrealized appreciation of Company's
investment in joint venture .................. (6,803) (6,803)
Increase in unrealized appreciation of Company's
investment in subsidiary ..................... 298,534 298,534
Increase in non-admitted assets ................. (7,078) (7,078)
Disallowed interest maintenance reserve ......... 143,080 143,080
Net increase in asset valuation reserve ......... (4,111,444) (4,111,444)
---------- ------------ ----------- ------------
Balances at December 31, 1995 ................... 2,000,000 137,398,292 2,479,635 141,877,927
---------- ------------ ----------- ------------
Net income from operations ...................... 19,695,433 19,695,433
Tax on prior years separate account seed
investment unrealized gains .................. (104,732) (104,732)
Increase in unrealized appreciation of Company's
investment in joint venture .................. 241,456 241,456
Increase in unrealized appreciation of Company's
investment in subsidiary ..................... 142,201 142,201
Decrease in unrealized appreciation of Company's
investment in other assets ................... (9,384) (9,384)
Increase in non-admitted assets ................. (80,815) (80,815)
Disallowed interest maintenance reserve ......... (128,107) (128,107)
Surplus changes resulting from reinsurance ...... (2,073,155) (2,073,155)
Net increase in asset valuation reserve ......... (5,779,916) (5,779,916)
---------- ------------ ----------- ------------
Balances at December 31, 1996 ................... 2,000,000 137,398,292 14,382,616 153,780,908
========== ============ =========== ============
Net income from operations ...................... 28,037,239 28,037,239
Increase in unrealized appreciation of Company's
investment in joint venture .................. 42,908 42,908
Increase in unrealized appreciation of Company's
investment in subsidiary ..................... 4,326,500 4,326,500
Increase in unrealized appreciation of Company's
investment in other assets ................... 9,384 9,384
Increase in unrealized appreciation of Company's
investment in an affiliated mutual fund ...... 7,271,233 7,271,233
Decrease in non-admitted assets ................. 83,011 83,011
Disallowed interest maintenance reserve ......... (197,600) (197,600)
Surplus changes resulting from reinsurance ...... 534,908 534,908
Net increase in asset valuation reserve ......... (11,184,259) (11,184,259)
---------- ------------ ----------- ------------
Balances at December 31, 1997 ................... $2,000,000 $137,398,292 $43,305,940 $182,704,232
========== ============ =========== ============
</TABLE>
See notes to statutory basis financial statements.
- --------------------------------------------------------------------------------
57
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATUTORY BASIS STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------
1997 1996 1995
-------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and
deposit funds $1,065,244,583 $780,710,735 $611,169,979
Investment income 46,412,248 42,413,736 36,912,131
Commissions and expense allowances on
reinsurance ceded 22,679,622 37,315,301 (22,118,484)
Other income 67,084,996 47,357,962 44,220,753
Death benefits (5,492,854) (6,900,438) (4,420,866)
Surrender benefits (17,780,564) (2,774,865) (17,660,413)
Annuity benefits (689,207,046) (424,511,908) (276,163,436)
Commissions, other expenses
and taxes (excluding FIT) (101,213,566) (78,968,214) (57,714,112)
Net transfers to separate accounts (356,017,200) (307,856,562) (231,230,812)
Federal income taxes (excluding tax on
capital gains) (5,094,779) 682,025 (1,557,444)
Increase in policy loans (4,594,714) (4,300,868) (4,522,280)
Other operating expenses and sources (140,580) 2,077,342 (8,945,084)
-------------- ------------ ------------
Net cash provided by insurance activities 21,880,146 85,244,246 67,969,932
-------------- ------------ ------------
Cash flows from investing activities:
Proceeds from dispositions of investment
securities 315,404,430 224,692,954 63,122,215
Purchases of investment securities (331,151,548) (309,590,319) (118,543,796)
Federal income tax on capital gains (355,657) (505,496) 992,810
-------------- ------------ ------------
Net cash used in investing activities (16,102,775) (85,402,861) (54,428,771)
-------------- ------------ ------------
Net increase (decrease) in cash 5,777,371 (158,615) 13,541,161
Cash and short-term investments,
beginning of year 17,825,039 17,983,654 4,442,493
-------------- ------------ ------------
Cash and short-term investments,
end of year $ 23,602,410 $ 17,825,039 $ 17,983,654
============== ============ ============
</TABLE>
See notes to statutory basis financial statements.
- --------------------------------------------------------------------------------
58
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Note 1 -- Organization
The Guardian Insurance & Annuity Company, Inc. (GIAC or the Company) is a
wholly-owned subsidiary of The Guardian Life Insurance Company of America (The
Guardian). The Company, domiciled in the state of Delaware, is licensed to
conduct life and health insurance business in all fifty states and the District
of Columbia. The Company's primary business is the sale of variable deferred
annuity contracts and variable and term life insurance policies. For variable
products other than 401(k) products, contracts are sold by insurance agents who
are licensed by GIAC and are either Registered Representatives of Guardian
Investor Services Corporation (GISC) or of other broker dealer firms that have
entered into sales agreements with GIAC and GISC. The Company's general agency
distribution system is used for the sale of other products and policies.
GISC, a wholly owned subsidiary of the Company, is a registered broker
dealer under the Securities Exchange Act of 1934 and is a registered investment
advisor under the Investment Adviser's Act of 1940. GISC is the distributor and
underwriter for GIAC's variable products, and the investment advisor to certain
mutual funds sponsored by GIAC, which are investment options for the variable
products.
Insurance Separate Accounts: The Company has established fourteen
insurance separate accounts primarily to support the variable annuity and life
insurance products it offers. The majority of the separate accounts are unit
investment trusts registered under the Investment Company Act of 1940. Proceeds
from the sale of variable products are invested through these separate accounts
in certain mutual funds specified by the contractholders. Of these separate
accounts the Company maintains two separate accounts whose sole purpose is to
fund certain employee benefit plans of The Guardian.
The assets and liabilities of the separate accounts are clearly identified
and distinct from the other assets and liabilities of the Company. The assets of
the separate accounts will not be charged with any liabilities arising out of
any other business of the Company. However, the obligations of the separate
accounts, including the promise to make annuity and death benefit payments,
remain obligations of the Company. Assets and liabilities of the separate
accounts are stated primarily at the market value of the underlying investments
and corresponding contractholders obligations. The amounts provided by the
Company to establish separate account investment portfolios (seed money) are not
included in separate account liabilities.
Note 2 -- Summary of Significant Accounting Policies
Basis of presentation of financial statements: The financial statements
have been prepared on a statutory basis of accounting that is prescribed or
permitted by the Insurance Department of the State of Delaware which is a
comprehensive basis of accounting other than generally accepted accounting
principles (GAAP).
Financial statements prepared on a statutory basis vary from financial
statements prepared on a GAAP basis because: (1) the costs relating to acquiring
business, principally commissions and certain policy issue expenses, are charged
to income in the year incurred, whereas on a GAAP basis they would be recorded
as assets and amortized over the future periods to be benefited; (2) life
insurance and annuity reserves are based on statutory mortality and interest
requirements, without consideration of withdrawals, whereas on GAAP basis they
are on anticipated Company experience for lapses, mortality and investment
yield; (3) life insurance enterprises are required to establish a formula-based
asset valuation reserve (AVR) by a direct charge to surplus to offset 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.
- --------------------------------------------------------------------------------
59
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Use of Estimates: The preparation of financial statements of insurance
enterprises requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements. As a provider of life insurance and annuity products, GIAC's
operating results in any given period depend on estimates of policy reserves
required to provide for future policyholder benefits. The development of policy
reserves for insurance and investment contracts requires management to make
estimates and assumptions regarding mortality, lapse, expense and investment
experience. Such estimates are primarily based on historical experience and, in
many cases, state insurance laws that require specific mortality, morbidity, and
investment assumptions to be used by the Company. Actual results could differ
from those estimates. Management monitors actual experience, and where
circumstances warrant, revises its assumptions and the related reserve
estimates.
Valuation of investments: Investments in securities are recorded in
accordance with valuation procedures established by the National Association of
Insurance Commissioners (NAIC). Unrealized gains and losses on investments
carried at market are recorded directly to unassigned surplus. Realized gains
and losses on disposition of investments are determined by the specific
identification method. The Company has recorded in accordance with NAIC
requirements, the net gain from the operations of the separate accounts in the
operations of the general account in 1997 and 1996 instead of in surplus.
Bonds: Bonds are valued principally at amortized cost. Mortgage backed
bonds are carried at amortized cost using the interest method considering
anticipated prepayments at the date of purchase. Significant changes in future
anticipated cash flows from the original purchase assumptions are accounted for
using the retrospective adjustment method with PSA standard prepayment rates.
Investment in subsidiary: GIAC's investment in GISC is carried at equity
in GIAC's underlying net assets. Undistributed earnings or losses are reflected
as unrealized capital gains and losses directly in unassigned surplus. Dividends
received from GISC are recorded as investment income and amounted to $10,000,000
in 1997, $9,500,000 in 1996 and 6,700,000 in 1995.
Short-Term Investments: Short-term investments are stated at amortized
cost and consist primarily of investments having maturities at the date of
purchase of six months or less. Market values for such investments approximate
carrying value.
Loans on Policies: Loans on policies are stated at unpaid principal
balance. The carrying amount approximates fair value since loans on policies
have no defined maturity date and reduce the amount payable at death or at
surrender of the contract.
Investment Reserves: In compliance with regulatory requirements, the
Company maintains the Asset Valuation Reserve (AVR) and the Interest Maintenance
Reserve (IMR). The AVR is intended to stabilize surplus against market
fluctuations in the value of equities and credit related declines in the value
of bonds. Changes in the AVR are recorded directly to unassigned surplus. The
IMR captures net after-tax realized capital gains which result from changes in
the overall level of interest rates for fixed income investments and amortizes
these net capital gains into income over the remaining stated life of the
investments sold. The Company uses the group method of calculating the IMR,
consistent with prior years. Any net negative IMR amounts are treated as a
non-admitted asset.
Contract and Policy Reserves: Fixed deferred reserves represent the fund
balance left to accumulate at interest under fixed annuity contracts that were
offered directly by the Company, a fixed rate option that is offered to variable
annuity contractowners and a single premium deferred annuity that is offered by
the Company. The Company no longer offers the fixed annuity contracts.
The estimated fair value of contractholder account balances within the
fixed deferred reserves has been determined to be equivalent to carrying value
as the current offering and renewal rates are set in response to current market
conditions and are only guaranteed for one year.
The interest rate credited on fixed annuity contracts included in fixed
deferred reserves for 1997 and 1996 was 5.75%. The interest rate credited on the
fixed rate option that is offered to certain variable annuity contractowners was
5.50% during 1997. For the fixed rate option currently issued, the issue and
renewal interest rates credited varies from month to month and ranged from 5.25%
to 5.40% in 1997. For single premium deferred annuities the rates ranged from
5.00% to 6.00% in 1997. Fixed immediate reserves are a liability
- --------------------------------------------------------------------------------
60
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
within the general account for those annuitants that have elected a fixed
annuity payout option. The immediate contract reserve is computed using the 1971
IAM Table and the 1983 IAM Table and a 4% discount rate.
The loan collateral fund reserve is the cash value of loaned variable life
policyowner account values. The reserve is credited with interest at 4% per
annum for single premium variable life policyowners, 6.5% for annual pay
variable life policyowners and 7% for other variable life policyowners.
Non-admitted Assets: Certain assets designated as "non-admitted assets" in
accordance with rules and regulations of the Department of Insurance of the
State of Delaware are charged directly to unassigned surplus. At December 31,
1997 and 1996 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $82,380 and $123,785, respectively.
Acquisition Costs: Commissions and other costs incurred in acquiring new
business are charged to operations as incurred.
Premiums and Other Revenues: Premiums and annuity considerations are
recognized for funds received on variable life insurance and annuity products.
Corresponding transfers to/from separate accounts are included in the expenses.
Revenue also includes service fees from the separate accounts consisting
of mortality and expense charges, annual administration fees, charges for the
cost of term insurance related to variable life policies and penalties for early
withdrawals. Services fees were not charged on separate account assets of
$162,522,811 and $142,722,353 at December 31, 1997 and 1996, respectively, which
represent investments in The Guardian's employee benefit plans.
Federal Income Taxes: The provision for federal income taxes is based on
income from operations currently taxable, as well as accrued market discount on
bonds. Realized gains and losses are reported after adjustment for the
applicable federal income taxes. The taxable portion of unrealized appreciation
of the Company's separate account investments is included in operations for 1997
and 1996, and in surplus in 1995.
Other: Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods with the 1997 presentation.
Note 3 -- Federal Income Taxes
The Company's federal income tax return is consolidated with its parent,
The Guardian. The consolidated income tax liability is allocated among the
members of the group according to a tax sharing agreement. In accordance with
the tax sharing agreement between and among the parent and participating
subsidiaries, each member of the group computes its tax provision and liability
on a separate return basis, but may, where applicable, recognize benefits of net
operating losses and capital losses utilized in the consolidated group.
Estimated payments are made between the members of the group during the year.
A reconciliation of federal income tax expense, based on the prevailing
corporate income tax rate of 35% for 1997, 1996 and 1995 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Income tax at prevailing corporate
income tax rates applied to pretax
statutory income ..................................... $13,873,514 $ 8,270,274 $ 1,768,688
Add (deduct) tax effect of:
Adjustment for annuity and other reserves ............ (291,470) (1,478,476) 337,668
DAC Tax .............................................. 1,712,811 867,731 666,260
Dividend from subsidiary ............................. (3,500,000) (3,325,000) (2,345,000)
Other-- net .......................................... 278,645 (393,069) 12,051
----------- ----------- -----------
Federal income taxes .................................... $12,073,500 $ 3,941,460 $ 439,667
=========== =========== ===========
</TABLE>
The provision for federal income taxes includes deferred taxes in 1997,
1996 and 1995 of $181,145, $353,051 and $304,923, respectively, applicable to
the difference between the tax basis and the financial statement basis of
recording investment income relating to accrued market discount.
- --------------------------------------------------------------------------------
61
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Note 4 -- Investments
The major categories of net investment income are summarized as follows:
For the Year Ended December 31,
--------------------------------------------
1997 1996 1995
----------- ----------- ------------
Fixed maturities ................ $31,806,228 $28,234,145 $25,795,915
Affiliated money market funds ... 524,277 121,733 130,729
Subsidiary ...................... 10,000,000 9,500,000 6,700,000
Policy loans .................... 3,386,194 3,089,114 2,847,532
Short-term investments .......... 2,280,599 1,204,805 1,166,264
Joint venture dividend .......... 1,047,525 623,160 684,306
Other ........................... 59,779 55,301 14,951
----------- ----------- -----------
49,104,602 42,828,258 37,339,697
Less: Investment expenses ....... 1,110,848 461,356 1,046,099
----------- ----------- -----------
Net investment income ........... $47,993,754 $42,366,902 $36,293,598
=========== =========== ===========
Gross realized gains and losses, less applicable federal income taxes and
transfer to IMR, are summarized as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Realized gains from dispositions:
U.S. Government bonds ....................... $ 722,440 $ 1,014,811 $ 438,127
Corporate debt securities ................... 413,022 1,014,562 555,817
Common stocks ............................... 174 -- --
Seed investment redeemed .................... -- -- 717,499
Foreign exchange ............................ 2,791 11,599 --
Realized losses from dispositions:
U.S. Government bonds ....................... 744,168 181,025 7,498
Corporate debt securities ................... 399,618 617,325 370,353
Foreign exchange ............................ 5,773 -- 10,145
Short term investments ...................... 1,218 191 --
----------- ----------- -----------
Net realized capital gains (losses) ......... (12,350) 1,242,431 1,323,447
----------- ----------- -----------
Federal income tax expense (benefit):
Current ..................................... (269,216) 829,609 622,821
Deferred .................................... (209,059) (394,759) (42,290)
----------- ----------- -----------
Total federal income tax expense (benefit) .. (478,275) 434,850 580,531
----------- ----------- -----------
Transfer to IMR ................................ (6,202) 800,041 400,461
----------- ----------- -----------
Net realized gains (losses) .................... $ 472,127 $ 7,540 $ 342,455
=========== =========== ===========
</TABLE>
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.
- --------------------------------------------------------------------------------
62
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
The cost and estimated market values of investments by major investment
category at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & obligations
of U.S. government corporations
and agencies ........................... $ 65,358,213 $ 1,550,649 $ 16,198 $ 66,892,664
Obligations of states and political
subdivisions ........................... 71,909,687 795,387 41,850 72,663,224
Debt securities issued by foreign
governments ............................ 7,062,711 -- 115,745 6,946,966
Corporate debt securities ................. 340,417,221 6,143,061 1,010,829 345,549,453
Common stock of subsidiary ................ 9,398,292 2,674,851 -- 12,073,143
Affiliated mutual funds ................... 23,279,949 7,271,237 -- 30,551,186
------------- ------------- ------------- ------------
.......................................... $517,426,073 $ 18,435,185 $ 1,184,622 $534,676,636
============= ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
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>
The amortized cost and estimated market value of debt securities at
December 31, 1997 and 1996, by contractual maturity, is shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations.
As of December 31, 1997
--------------------------------
Estimated
Amortized Market
Cost Value
------------- -------------
Due in one year or less .................... $ 59,694,316 $ 59,737,770
Due after one year through five years ...... 234,805,896 236,867,373
Due after five years through ten years ..... 103,002,869 106,604,446
Due after ten years ........................ 21,552,124 22,383,887
------------- -------------
419,055,205 425,593,476
Sinking fund bonds
(including collateralized mortgage
obligations) ........................... 65,692,627 66,458,831
------------- -------------
$484,747,832 $492,052,307
============= =============
- --------------------------------------------------------------------------------
63
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
As of December 31, 1996
---------------------------------
Estimated
Amortized Market
Cost Value
------------- -------------
Due in one year or less ................... $ 64,861,358 $ 65,045,326
Due after one year through five years ..... 286,602,923 287,118,976
Due after five years through ten years .... 74,354,923 74,503,267
Due after ten years ....................... 25,247,736 25,461,329
------------- -------------
451,066,940 452,128,898
Sinking fund bonds
(including collateralized mortgage
obligations) ........................... 39,379,008 39,142,266
------------- -------------
$490,445,948 $491,271,164
============= =============
Note 5 -- Reinsurance Ceded
The Company enters into coinsurance, modified coinsurance and yearly
renewable term agreements with affiliated companies and outside parties to
provide for reinsurance of selected variable annuity contracts and group life
and individual life policies. Under the terms of the modified coinsurance
agreements, reserves related to the reinsurance business and corresponding
assets are held by the Company. Accordingly, policy reserves include $76,669,184
and $447,494,766 at December 31, 1997 and 1996, respectively, applicable to
policies reinsured under modified coinsurance agreements. The reinsurance
contracts do not relieve the Company of its primary obligation for policyowner
benefits. Failure of reinsurers to honor their obligations could result in
losses to the Company.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
For the Year Ended December 31,
-------------------------------------------
1997 1996 1995
---- ---- ----
Premiums and deposits $(43,873,731) $(83,250,212) $(41,212,253)
Net investment income -- (61,779) --
Commission and expense allowances 7,885,341 14,508,839 10,057,974
Reserve adjustments 16,268,128 30,636,445 (32,192,749)
Other income 1,875,163 (25,000) --
------------ ------------ ------------
Revenues (17,845,099) (38,191,707) (63,347,028)
Policyholder benefits (10,975,075) (26,873,945) (57,577,405)
Increase in aggregate reserves 22,859,719 (5,658,260) (11,909,990)
Reinsurance terminations (27,421,066) (15,470,015) 11,002,701
General expenses (40,452) (81,667) (48,640)
------------ ------------ ------------
Deductions (15,576,874) (48,083,887) (58,533,334)
------------ ------------ ------------
Net income (loss) from
reinsurance ceded $ (2,268,225) $ 9,892,180 $ (4,813,694)
============ ============ ============
- --------------------------------------------------------------------------------
64
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
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:
For the Year Ended December 31,
------------------------------------------
1997 1996 1995
----------- ----------- ------------
Premiums and deposits ............. $ (389,221) $41,133,358 $ 7,153,623
Net investment income ............. 45,288 94,657 62,847
Other income ...................... (62,752) 375,404 32,528
----------- ----------- -----------
Revenues ........................ (406,685) 41,603,419 7,248,998
Policyholder benefits ............. 3,967,619 8,076,053 5,086,702
Increase in aggregate reserves .... (31,677,857) 31,556,908 (357,463)
Reinsurance expenses .............. 27,603,602 (452,476) 1,451,058
Other expenses .................... 1,885,300 551,319 54,043
----------- ----------- -----------
Deductions ...................... 1,778,664 39,731,804 6,234,340
----------- ----------- -----------
Net income (loss) from
reinsurance assumed .............. $(2,185,349) $ 1,871,615 $ 1,014,658
=========== =========== ===========
The Company terminated, during 1997, an assumption agreement with an
unaffiliated company. Under this agreement, included in the consolidated
statements of income are $(2.3) million, $20.2 million and $7.2 million of
premiums at December 31, 1997, 1996 and 1995, respectively.
Note 7 -- Related Party Transactions
Registered representatives of the Guardian Investor Services Corporation
produce a major portion of the Company's business. During 1997, 1996 and 1995,
premium and annuity considerations produced by GISC amounted to $564,519,265,
$528,353,595 and $400,148,692, respectively. The related commissions paid to
GISC amounted to $1,979,926, $1,851,468 and $1,409,708 for 1997, 1996 and 1995,
respectively.
The Company is billed by The Guardian for all compensation and related
employee benefits for those employees of The Guardian who are engaged in the
Company's business and for the Company's use of The Guardian's centralized
services and agency force. The amounts charged for these services amounted to
$60,009,449 in 1997, $41,129,644 in 1996 and $24,989,111 in 1995, and, in the
opinion of management, were considered appropriate for the services rendered.
The company had an investment in the Guardian Real Estate Account (GREA),
which was established in 1987 under Delaware insurance law as an insurance
company separate account. GIAC had contributed capital to GREA since it was
established to provide for funds and to preserve liquidity. Effective December
19, 1997, GREA was liquidated and, as a result, $6,746,290 was returned to GIAC
in the form of capital and there was a realized gain recorded of $969,045
included in the net gain from operations of separate accounts.
A significant portion of the Company's separate account assets is invested
in affiliated mutual funds. These funds consist of The Guardian Park Avenue
Fund, The Guardian Stock Fund, The Guardian Small Cap Stock Fund, The Guardian
Bond Fund, The Baillie Gifford International Fund, The Baillie Gifford Emerging
Markets Fund, The Guardian Baillie Gifford International Fund, The Guardian
Asset Allocation Fund, The Guardian Investment Quality Bond Fund, The Guardian
Cash Management Fund and The Guardian Cash Fund. Each of these funds has an
investment advisory agreement with GISC, except for The Baillie Gifford
International Fund, The Baillie Gifford Emerging Markets Fund and The Guardian
Baillie Gifford International Fund. The investments as of December 31, 1997 and
1996 are as follows:
- --------------------------------------------------------------------------------
65
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
1997 1996
-------------- --------------
The Guardian Park Avenue Fund ................. $ 371,662,107 $ 251,812,050
The Guardian Stock Fund ....................... 3,222,051,866 2,226,887,181
The Guardian Small Cap Stock Fund ............. 60,104,422 --
The Guardian Bond Fund ........................ 355,417,535 354,316,320
The Baillie Gifford International Fund ........ 442,651,457 400,894,824
The Baillie Gifford Emerging Markets Fund ..... 65,038,546 45,571,916
The Guardian Baillie Gifford International Fund 3,378,730 19,720
The Guardian Asset Allocation Fund ............ 14,910,420 46,623
The Guardian Investment Quality Bond Fund ..... 1,546,854 9,385
The Guardian Cash Management Fund ............. 22,250,501 3,113,523
The Guardian Cash Fund ........................ 368,122,449 378,321,710
-------------- --------------
$4,927,134,887 $3,660,993,252
============== ==============
The Company, in agreement with Baillie Gifford Overseas Ltd., has a joint
venture company - Guardian Baillie Gifford Ltd. (GBG) - that is organized as a
corporation in Scotland. GBG is registered in both the United Kingdom and the
United States to act as an investment advisor for the Baillie Gifford
International Fund (BGIF), the Baillie Gifford Emerging Markets Fund (BGEMF),
The Guardian Baillie Gifford International Fund (GBGIF) and The Guardian Baillie
Gifford Emerging Markets Fund (GBGEMF). The Funds, except for The Guardian
Baillie Gifford Emerging Markets Fund, are offered in the U.S. as investment
options under certain variable annuity contracts and variable life policies.
The Company maintains an investment in an affiliated money market mutual
fund, The Guardian Cash Management Fund. At December 31, 1997 and 1996 this
amounted to $2,888,149 and $2,755,672, respectively. The Company also made an
investment in an affiliated small cap stock mutual fund during 1997, The
Guardian Small Cap Stock Fund. At December 31, 1997 this investment amounted to
$27,663,037.
Note 8 -- Separate Accounts
The following represents a reconciliation of net transfers from GIAC to
the separate accounts. Transfers are reported in the Summary of Operations of
the Separate Account Annual Statement:
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Transfers to separate accounts $1,054,380,697 $767,741,428 $582,715,569
Transfers from separate accounts (782,891,638) (518,683,141) (398,531,802)
------------- ------------ ------------
Net transfers to separate accounts 271,489,059 249,058,287 184,183,767
------------- ------------ ------------
Reconciling Adjustments:
Mortality & expense guarantees-- variable annuity 70,027,514 53,219,656 41,474,872
Mortality & expense guarantees-- variable life 2,021,656 1,687,711 1,571,955
Administrative fees-- variable annuity 4,095,230 3,867,120 3,513,459
Cost of insurance-- variable life 11,205,120 4,844,028 4,232,564
------------- ------------ ------------
Total adjustments 87,349,520 63,618,515 50,792,850
------------- ------------ ------------
Transfers as reported in the Statement of
Operations of GIAC $ 358,838,579 $312,676,802 $234,976,617
============= ============ ============
</TABLE>
- --------------------------------------------------------------------------------
66
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
Note 9 -- Annuity Actuarial Reserves and Deposit Liabilities
The following describes withdrawal characteristics of annuity actuarial
reserves and deposit liabilities:
<TABLE>
<CAPTION>
For the Year Ending 1997 For the Year Ending 1996
-------------------------- -------------------------
Amount % Amount %
------------ ------ ------------ ------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment ... $ 46,276,766 10.19% $ 44,480,214 10.22%
------------ ------ ------------ ------
Total with adjustment or at
market value ................. 46,276,766 10.19 44,480,214 10.22
at book value without adjustment
(minimal or no charge or
adjustment) .................. 313,725,462 69.05 302,433,090 69.45
Not subject to discretionary
withdrawal ..................... 94,338,339 20.76 88,546,538 20.33
------------ ------ ------------ ------
Total (gross) ..................... 454,340,567 100.00 435,459,842 100.00
Reinsurance ceded ................. -- -- 4,879 --
------------ ------ ------------ ------
Total ............................. $454,340,567 100.00% $435,454,963 100.00%
============ ====== ============ ======
</TABLE>
This does not include $6,647,606,347 and $5,098,658,097 of non-guaranteed
annuity reserves held in separate accounts, and $3,572,284 and $2,927,130 at
December 31, 1997 and 1996, respectively, in annuity reserves being held as a
loan collateral fund for loans on certain annuity contracts.
Note 10 - Statutory Financial Information
The following reconciles the statutory net income of the Company as
reported to the regulatory authorities to consolidated GAAP net income:
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Statutory net income ..................................... $28,037,239 $19,695,432 $ 4,956,175
Adjustments to restate to the basis of GAAP:
Net income of subsidiaries ............................ 4,326,500 142,201 298,534
Change in deferred policy acquisition costs ........... 41,883,919 42,525,493 31,247,939
Deferred premiums ..................................... (5,542,795) 3,238,115 (1,643,253)
Re-estimation of future policy benefits ............... (3,353,249) 26,953,558 297,442
Reinsurance ........................................... 12,372,471 (36,353,822) 15,465,956
Deferred federal income tax expense ................... (16,212,244) (13,074,280) (15,681,250)
Elimination of interest maintenance reserve ........... (111,783) (333,219) (257,381)
Other, net ............................................ 201,840 (2,444,872) 2,598,780
----------- ----------- -----------
Consolidated GAAP net income ............................. $61,601,898 $40,348,606 $37,282,942
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
67
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1997
The following reconciles the statutory capital and surplus of the Company
as reported to the regulatory authorities to consolidated GAAP stockholder's
equity:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Statutory capital and surplus ........................... $182,704,232 $153,780,908 $141,877,927
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs .................... 267,369,685 221,475,216 178,010,226
Elimination of asset valuation reserve ............... 26,305,528 15,121,269 9,341,353
Re-estimation of future policy benefits .............. 41,283,947 31,167,840 4,214,282
Establishment of deferred federal income tax ......... (84,703,745) (65,164,526) (53,962,281)
Unrealized gains on investments ...................... 7,852,564 2,313,203 10,655,552
Other liabilities .................................... (33,486,652) (32,389,767) 1,811,239
Deferred premiums .................................... (7,024,891) (1,482,096) (4,720,211)
Other, net ........................................... (3,468,519) (2,215,098) (1,276,761)
------------ ------------ ------------
Consolidated GAAP stockholder's equity ............. $396,832,149 $322,606,949 $285,951,326
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
February 10, 1998
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
We have audited the accompanying statutory basis balance sheets of The
Guardian Insurance & Annuity Company, Inc. as of December 31, 1997 and 1996, and
the related statutory basis statements of operations, of changes in common stock
and surplus and of cash flows for the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2, these financial statements were prepared in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities (statutory basis of accounting), which is a comprehensive
basis of accounting other than generally accepted accounting principles.
Accordingly, the financial statements are not intended to represent a
presentation in accordance with generally accepted accounting principles. The
effects on the financial statements of the variances between such practices and
generally accepted accounting principles are material and are described in Note
2.
In our report dated February 9, 1996, we expressed an opinion that the
1995 financial statements, prepared using accounting practices prescribed or
permitted by insurance regulatory authorities, were presented fairly, in all
material respects, in conformity with generally accepted accounting principles.
As described in Note 2 to these financial statements, pursuant to pronouncements
of the Financial Accounting Standards Board, financial statements of mutual life
insurance companies and their wholly owned stock insurance company subsidiaries
are no longer considered presentations in conformity with generally accepted
accounting principles. Accordingly, our present opinion on the presentation of
the 1995 financial statements, as presented herein, is different from that
expressed in our report dated February 9, 1996.
In our opinion, the financial statements referred to above (1) do not
present fairly, in conformity with generally accepted accounting principles, the
financial position of The Guardian Insurance & Annuity Company, Inc. at December
31, 1997 and 1996, or the results of its operations or its cash flows for the
three years in the period ended December 31, 1997, because of the effects of the
variances between the statutory basis of accounting and generally accepted
accounting principles, and (2) present fairly, in all material respects, its
financial position and the results of its operations and its cash flows, in
conformity with accounting practices prescribed or permitted by insurance
regulatory authorities.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
- --------------------------------------------------------------------------------
69
<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 0.83% of the average daily net assets of such funds.
The average is based upon actual expenses incurred during 1997 for all funds.
Operatng expenses for the MFS Growth With Income Series, Emerging Growth Series,
and Total Return Series for 1997 were capped at 0.25% of the average daily net
assets of the series and operating expenses for the MFS Bond Series were capped
at 0.40% of the average daily net assets of the series pursuant to the agreement
with the adviser. Operating expenses for the Fidelity VIP III Growth
Opportunities Portfolio reflect the effects of expense reduction arrangements
with third parties which occurred during the year ended December 31, 1997.
Operating expenses for the Fidelity VIP Equity-Income Portfolio reflect the
effects of expense reduction arrangements with third parties which occurred
during the year ended December 31, 1997. The results for the Fidelity Index 500
Portfolio reflect the effects of expense reimbursement of certain fund expenses
which occurred during the year ended December 31, 1997. In the absence of these
arrangements, operating expenses of the various funds, and the average
investment adviser 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 -1.43%, 4.54% and 10.50%,
respectively, based on GIAC's current charge for mortality and expense risks,
and -1.72%, 4.22% and 10.17%, 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
- --------------------------------------------------------------------------------
A-1
<PAGE>
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.
From time to time, advertisements or sales literature for Park Avenue Life may
quote historical performance data of one or more of the underlying funds, and
may include cash surrender values and death benefit figures computed using the
same methodology as that used in the following illustrations, but with average
annual total return of the underlying funds for which performance data is shown
in the advertisement or sales literature replacing the hypothetical rates of
return shown in the following tables. This information may be shown in the form
of graphs, charts, tables, and examples. Any such information is intended to
show the policy's investment experience based on the historical experience of
the underlying funds and is not intended to represent what may happen in the
future.
GIAC began to offer Park Avenue Life on December 10, 1997. As such the policies
may not have been available when the funds commenced their operations. However,
illustrations may be based on the actual investment experience of the funds
since their respective inception dates (See "Investment Performance of the
Funds"). The result for any period prior to the policies' being offered would be
calculated as if the policies had been offered during that period of time, with
all charges assumed to be those applicable to the policies. Thus the
illustrations will reflect deductions for each fund's expenses, as well as the
Separate Account's charge for mortality and expense risks, and the charges
deducted from premiums, Monthly Deductions, and any transaction deductions
associated with the policy in question.
- --------------------------------------------------------------------------------
A-2
<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 1,681 0 250,000 1,800 0 250,000 1,920 0 250,000
2 41 2,533 5,451 3,323 0 250,000 3,667 0 250,000 4,027 140 250,000
3 42 2,533 8,383 4,926 1,393 250,000 5,604 2,070 250,000 6,339 2,806 250,000
4 43 2,533 11,461 6,558 3,378 250,000 7,681 4,501 250,000 8,951 5,771 250,000
5 44 2,533 14,693 8,140 5,313 250,000 9,828 7,001 250,000 11,811 8,984 250,000
6 45 2,533 18,087 9,677 7,204 250,000 12,049 9,575 250,000 14,950 12,477 250,000
7 46 2,533 21,651 11,144 9,024 250,000 14,323 12,203 250,000 18,373 16,253 250,000
8 47 2,533 25,392 12,536 10,769 250,000 16,649 14,882 250,000 22,106 20,339 250,000
9 48 2,533 29,321 13,873 12,459 250,000 19,045 17,632 250,000 26,200 24,787 250,000
10 49 2,533 33,446 15,160 14,100 250,000 21,524 20,464 250,000 30,703 29,643 250,000
15 54 2,533 57,380 20,437 20,437 250,000 34,850 34,850 250,000 60,691 60,691 250,000
20 59 2,533 87,927 23,472 23,472 250,000 49,778 49,778 250,000 109,268 109,268 250,000
25 64 2,533 126,912 23,797 23,797 250,000 66,448 66,448 250,000 189,008 189,008 321,689
30 69 2,533 176,669 19,705 19,705 250,000 84,287 84,287 250,000 315,497 315,497 477,513
</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 (ROUNDED TO THE NEAREST DOLLAR) AT
ATTAINED AGE 70 WOULD BE $16,660, ASSUMING THE 0% RETURN; $6,756, ASSUMING THE
6% RETURN; AND $2,533, ASSUMING THE 12% RETURN.
- --------------------------------------------------------------------------------
A-3
<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 Guaranteed Assuming Guaranteed Assuming Guaranteed
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 1,675 0 250,000 1,794 0 250,000 1,914 0 250,000
2 41 2,533 5,451 3,077 0 250,000 3,413 0 250,000 3,763 0 250,000
3 42 2,533 8,383 4,415 882 250,000 5,059 1,526 250,000 5,760 2,226 250,000
4 43 2,533 11,461 5,708 2,528 250,000 6,753 3,573 250,000 7,938 4,758 250,000
5 44 2,533 14,693 6,930 4,104 250,000 8,470 5,644 250,000 10,291 7,464 250,000
6 45 2,533 18,087 8,075 5,602 250,000 10,204 7,730 250,000 12,827 10,354 250,000
7 46 2,533 21,651 9,141 7,021 250,000 11,952 9,832 250,000 15,565 13,445 250,000
8 47 2,533 25,392 10,123 8,357 250,000 13,712 11,945 250,000 18,522 16,756 250,000
9 48 2,533 29,321 11,019 9,606 250,000 15,477 14,064 250,000 21,717 20,304 250,000
10 49 2,533 33,446 11,821 10,761 250,000 17,243 16,183 250,000 25,169 24,109 250,000
15 54 2,533 57,380 14,522 14,522 250,000 26,176 26,176 250,000 47,580 47,580 250,000
20 59 2,533 87,927 13,200 13,200 250,000 33,402 33,402 250,000 81,163 81,163 250,000
25 64 2,533 126,912 4,783 4,783 250,000 35,397 35,397 250,000 132,668 132,668 250,000
30 69 2,533 176,669 -16,580 0 250,000 24,986 24,986 250,000 213,129 213,129 322,575
</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 $17,888,
ASSUMING THE 0% RETURN; $15,863, ASSUMING THE 6% RETURN; AND $2,533 ASSUMING THE
12% RETURN.
- --------------------------------------------------------------------------------
A-4
<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 1,681 0 250,000 1,800 0 250,000 1,920 0 250,000
2 41 2,533 5,451 3,323 0 250,000 3,667 0 250,000 4,027 140 250,000
3 42 2,533 8,383 4,926 1,393 250,000 5,604 2,070 250,000 6,339 2,806 250,000
4 43 2,533 11,461 6,558 3,378 250,000 7,681 4,501 250,000 8,951 5,771 250,000
5 44 2,533 14,693 8,140 5,313 250,000 9,828 7,001 250,000 11,811 8,984 250,000
6 45 2,533 18,087 9,677 7,204 250,000 12,049 9,575 250,000 14,950 12,476 250,000
7 46 2,533 21,651 11,144 9,024 250,000 14,323 12,203 250,000 18,371 16,251 250,000
8 47 2,533 25,392 12,536 10,769 250,000 16,649 14,882 250,000 22,099 20,332 251,079
9 48 2,533 29,321 13,873 12,459 250,000 19,045 17,632 250,000 26,185 24,771 252,407
10 49 2,533 33,446 15,160 14,100 250,000 21,524 20,464 250,000 30,673 29,613 254,018
15 54 2,533 57,380 20,437 20,437 250,000 34,850 34,850 250,000 60,358 60,358 267,728
20 59 2,533 87,927 23,472 23,472 250,000 49,778 49,778 250,000 107,498 107,498 295,841
25 64 2,533 126,912 23,797 23,797 250,000 66,448 66,448 250,000 183,292 183,292 348,752
30 69 2,533 176,669 19,705 19,705 250,000 84,287 84,287 250,000 305,474 305,474 462,341
</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 (ROUNDED TO THE NEAREST DOLLAR) AT
ATTAINED AGE 70 WOULD BE $16,660, ASSUMING THE 0% RETURN; $6,756, ASSUMING THE
6% RETURN; AND $2,533, ASSUMING THE 12% RETURN.
- --------------------------------------------------------------------------------
A-5
<PAGE>
Male Issue Age 40, 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 Guaranteed Assuming Guaranteed Assuming Guaranteed
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 1,675 0 250,000 1,794 0 250,000 1,914 0 250,000
2 41 2,533 5,451 3,077 0 250,000 3,413 0 250,000 3,763 0 250,000
3 42 2,533 8,383 4,415 882 250,000 5,059 1,526 250,000 5,760 2,226 250,000
4 43 2,533 11,461 5,708 2,528 250,000 6,753 3,573 250,000 7,938 4,758 250,000
5 44 2,533 14,693 6,930 4,104 250,000 8,470 5,644 250,000 10,291 7,464 250,000
6 45 2,533 18,087 8,075 5,602 250,000 10,204 7,730 250,000 12,827 10,354 250,000
7 46 2,533 21,651 9,141 7,021 250,000 11,952 9,832 250,000 15,565 13,445 250,000
8 47 2,533 25,392 10,123 8,357 250,000 13,712 11,945 250,000 18,522 16,756 250,000
9 48 2,533 29,321 11,019 9,606 250,000 15,477 14,064 250,000 21,717 20,304 250,000
10 49 2,533 33,446 11,821 10,761 250,000 17,243 16,183 250,000 25,169 24,109 250,000
15 54 2,533 57,380 14,522 14,522 250,000 26,176 26,176 250,000 47,488 47,488 254,858
20 59 2,533 87,927 13,200 13,200 250,000 33,402 33,402 250,000 80,252 80,252 268,594
25 64 2,533 126,912 4,783 4,783 250,000 35,397 35,397 250,000 127,887 127,887 293,347
30 69 2,533 176,669 -16,580 0 250,000 24,986 24,986 250,000 197,558 197,558 335,695
</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 (ROUNDED TO THE NEAREST DOLLAR) AT
ATTAINED AGE 70 WOULD BE $17,888, ASSUMING THE 0% RETURN; $15,863, ASSUMING THE
6% RETURN; AND $2,533, ASSUMING THE 12% RETURN.
- --------------------------------------------------------------------------------
A-6
<PAGE>
Male Issue Age 40, 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 2,040 0 250,000 2,184 0 250,000 2,329 0 250,000
2 41 3,045 6,554 4,016 0 250,000 4,433 0 250,000 4,867 373 250,000
3 42 3,045 10,079 5,931 1,846 250,000 6,749 2,664 250,000 7,637 3,552 250,000
4 43 3,045 13,781 7,857 4,180 250,000 9,211 5,534 250,000 10,742 7,065 250,000
5 44 3,045 17,667 9,665 6,397 250,000 11,695 8,427 250,000 14,082 10,814 250,000
6 45 3,045 21,747 11,379 8,519 250,000 14,223 11,363 250,000 17,706 14,847 250,000
7 46 3,045 26,032 13,017 10,566 250,000 16,816 14,365 250,000 21,666 19,214 250,000
8 47 3,045 30,531 14,582 12,539 250,000 19,480 17,437 250,000 25,998 23,956 250,000
9 48 3,045 35,255 16,074 14,439 250,000 22,218 20,584 250,000 30,747 29,113 250,000
10 49 3,045 40,215 17,500 16,274 250,000 25,042 23,816 250,000 35,966 34,740 250,000
15 54 3,045 68,992 23,274 23,274 250,000 40,234 40,234 250,000 70,865 70,865 250,000
20 59 3,045 105,720 25,509 25,509 250,000 56,414 56,414 250,000 127,211 127,211 250,000
25 64 3,045 152,595 23,253 23,253 250,000 73,287 73,287 250,000 217,361 217,361 369,944
30 69 3,045 212,422 14,984 14,984 250,000 90,684 90,684 250,000 357,583 357,583 541,210
</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 (ROUNDED TO THE NEAREST DOLLAR) AT
ATTAINED AGE 70 WOULD BE $13,675, ASSUMING THE 0% RETURN; $7,334, ASSUMING THE
6% RETURN; AND $3,045, ASSUMING THE 12% RETURN.
- --------------------------------------------------------------------------------
A-7
<PAGE>
Male Issue Age 40, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 1
These values reflect GUARANTEED cost of insurance and other charges
<TABLE>
<CAPTION>
Assuming Guaranteed Assuming Guaranteed Assuming Guaranteed
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 2,033 0 250,000 2,176 0 250,000 2,321 0 250,000
2 41 3,045 6,554 3,897 0 250,000 4,308 0 250,000 4,736 243 250,000
3 42 3,045 10,079 5,690 1,604 250,000 6,489 2,404 250,000 7,358 3,273 250,000
4 43 3,045 13,781 7,432 3,755 250,000 8,744 5,067 250,000 10,228 6,552 250,000
5 44 3,045 17,667 9,097 5,828 250,000 11,047 7,779 250,000 13,345 10,077 250,000
6 45 3,045 21,747 10,678 7,819 250,000 13,394 10,534 250,000 16,727 13,868 250,000
7 46 3,045 26,032 12,176 9,725 250,000 15,785 13,334 250,000 20,402 17,951 250,000
8 47 3,045 30,531 13,586 11,543 250,000 18,218 16,175 250,000 24,396 22,353 250,000
9 48 3,045 35,255 14,904 13,270 250,000 20,690 19,055 250,000 28,740 27,106 250,000
10 49 3,045 40,215 16,125 14,899 250,000 23,196 21,970 250,000 33,466 32,240 250,000
15 54 3,045 68,992 20,925 20,925 250,000 36,509 36,509 250,000 64,772 64,772 250,000
20 59 3,045 105,720 21,752 21,752 250,000 49,596 49,596 250,000 113,843 113,843 250,000
25 64 3,045 152,595 15,703 15,703 250,000 59,854 59,854 250,000 190,831 190,831 324,791
30 69 3,045 212,422 -2,889 0 250,000 62,279 62,279 250,000 304,030 304,030 460,157
</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 (ROUNDED TO THE NEAREST DOLLAR) AT
ATTAINED AGE 70 WOULD BE $13,675, ASSUMING THE 0% RETURN; $11,581, ASSUMING THE
6% RETURN; AND $3,045, ASSUMING THE 12% RETURN.
- --------------------------------------------------------------------------------
A-8
<PAGE>
Male Issue Age 40, 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 2,040 0 250,000 2,184 0 250,000 2,329 0 250,000
2 41 3,045 6,554 4,016 0 250,000 4,432 0 250,000 4,866 372 250,000
3 42 3,045 10,079 5,931 1,845 250,000 6,748 2,663 250,000 7,636 3,550 250,000
4 43 3,045 13,781 7,857 4,180 250,000 9,211 5,534 250,000 10,740 7,063 250,000
5 44 3,045 17,667 9,665 6,397 250,000 11,694 8,426 250,000 14,077 10,809 250,000
6 45 3,045 21,747 11,379 8,519 250,000 14,222 11,362 250,000 17,697 14,837 250,304
7 46 3,045 26,032 13,017 10,566 250,000 16,816 14,364 250,000 21,647 19,196 251,377
8 47 3,045 30,531 14,581 12,539 250,000 19,479 17,436 250,000 25,964 23,922 252,712
9 48 3,045 35,255 16,073 14,439 250,000 22,217 20,583 250,000 30,690 29,055 254,347
10 49 3,045 40,215 17,500 16,274 250,000 25,041 23,815 250,000 35,873 34,647 256,313
15 54 3,045 68,992 23,274 23,274 250,000 40,233 40,233 250,000 70,181 70,181 272,756
20 59 3,045 105,720 25,509 25,509 250,000 56,413 56,413 250,000 123,817 123,817 305,927
25 64 3,045 152,595 23,253 23,253 250,000 73,285 73,285 250,000 208,950 208,950 367,483
30 69 3,045 212,422 14,984 14,984 250,000 90,681 90,681 250,000 344,328 344,328 521,148
</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 (ROUNDED TO THE NEAREST DOLLAR) AT
ATTAINED AGE 70 WOULD BE $13,675, ASSUMING THE 0% RETURN; $7,334, ASSUMING THE
6% RETURN; AND $3,045, ASSUMING THE 12% RETURN.
- --------------------------------------------------------------------------------
A-9
<PAGE>
Male Issue Age 40, Preferred Underwriting Risk
$250,000 Face Amount
Death Benefit Option 2
These values reflect GUARANTEED cost of insurance and other charges
<TABLE>
<CAPTION>
Assuming Guaranteed Assuming Guaranteed Assuming Guaranteed
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 2,032 0 250,000 2,176 0 250,000 2,320 0 250,000
2 41 3,045 6,554 3,896 0 250,000 4,307 0 250,000 4,736 242 250,000
3 42 3,045 10,079 5,690 1,604 250,000 6,489 2,403 250,000 7,357 3,272 250,000
4 43 3,045 13,781 7,431 3,754 250,000 8,743 5,066 250,000 10,227 6,550 250,000
5 44 3,045 17,667 9,096 5,828 250,000 11,046 7,778 250,000 13,342 10,074 250,000
6 45 3,045 21,747 10,678 7,818 250,000 13,393 10,534 250,000 16,722 13,862 250,000
7 46 3,045 26,032 12,176 9,725 250,000 15,784 13,333 250,000 20,391 17,940 250,121
8 47 3,045 30,531 13,586 11,543 250,000 18,217 16,174 250,000 24,376 22,333 251,123
9 48 3,045 35,255 14,904 13,270 250,000 20,689 19,055 250,000 28,703 27,069 252,361
10 49 3,045 40,215 16,124 14,899 250,000 23,195 21,970 250,000 33,403 32,178 253,843
15 54 3,045 68,992 20,924 20,924 250,000 36,508 36,508 250,000 64,252 64,252 266,827
20 59 3,045 105,720 21,752 21,752 250,000 49,595 49,595 250,000 111,101 111,101 293,211
25 64 3,045 152,595 15,703 15,703 250,000 59,853 59,853 250,000 181,912 181,912 340,445
30 69 3,045 212,422 -2,890 0 250,000 62,276 62,276 250,000 289,172 289,172 437,669
</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 (ROUNDED TO THE NEAREST DOLLAR) AT
ATTAINED AGE 70 WOULD BE $13,675, ASSUMING THE 0% RETURN; $11,581, ASSUMING THE
6% RETURN; AND $3,045, ASSUMING THE 12% RETURN.
A-10
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
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) 1998 YearbookTM, 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 Series Life Insurance 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 1997
[THE FOLLOWING WAS PRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
Average
Annual Returns
Ibbotson Asset Classes* 1926-1997
-------------------- -------------
A Large Company Stocks 11.0%
B Small Company Stocks 12.7%
C Long-Term Corporate Bonds 5.7%
D Long-Term Government Bonds 5.2%
E Intermediate-Term Government Bonds 5.3%
F US Treasury Bills 3.8%
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 1997. 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 1926-1997
[THE FOLLOWING WAS PRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
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)
- --------------------------------------------------------------------------------
B-1
<PAGE>
In 46 of the 72 one year holding periods charted by Ibbotson Associates for the
period 1926 through 1997, 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 72 periods for Small Company
Stocks and 20 out of 72 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 63 overlapping 10-year
periods within the years 1926 through 1997 (i.e., 1926-1935, 1927-1936 and so on
through 1987-1997). The accompanying table identifies the returns for the best
and worst 10-year periods for each Ibbotson Asset Class within the years 1926
through 1997.
Range of Returns
By Ibbotson Asset Class
63 Overlapping Ten Year Holding Periods
1926-1997
[THE FOLLOWING WAS PRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
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 53 of the 63 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 53 of the
overlapping 20 year periods within the years 1926 through 1997, and volatility
was reduced even further. Moreover, none of the Ibbotson Asset Classes realized
negative returns during the 53 periods.
- --------------------------------------------------------------------------------
B-2
<PAGE>
Range of Returns
By Ibbotson Asset Class
53 Overlapping Twenty Year Holding Periods
1926-1997
[THE FOLLOWING WAS PRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
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 53 overlapping 20-year periods within the years 1926 through 1997.
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
[BAR GRAPH OMITTED]
- --------------------------------------------------------------------------------
B-3
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX C
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
- --------------------------------------------------------------------------------
C-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.
- --------------------------------------------------------------------------------
C-2
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX D
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.
- --------------------------------------------------------------------------------
D-1
<PAGE>
APPENDIX E
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>
- --------------------------------------------------------------------------------
E-1
<PAGE>
APPENDIX E (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>
- --------------------------------------------------------------------------------
E-2
<PAGE>
[LOGO] The Guardian(R)
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, NY 10003
Executive Offices:
201 Park Avenue South
New York, NY 10003
Customer Service Office:
201 Park Avenue South
Specialty Life - 215B
New York, NY 10003
1-800-935-4128
Distributed by:
Guardian Investor Services Corporation(R)
Pub. 2867 (5/98)
BULK RATE
U.S. POSTAGE PAID
PERMIT NO. 657
SUMMIT, NJ
[LOGO] PARK AVENUE SERIES
INSURANCE o INVESTMENTS o CHOICES
<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 November 26, 1997 (Registration No. 333-32101).
*** Incorporated by reference to Pre-Effective Amendment No. 2 on Form S-6
filed by the Registrant on December 6, 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 24th day of April, 1998.
THE GUARDIAN SEPARATE ACCOUNT K
(Name of Registrant)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
By: s/ John M. Smith
-------------------------------------
JOHN M. SMITH
EXECUTIVE VICE PRESIDENT
Attest: /s/ Sheri L. Kocen
---------------------------------
SHERI L. KOCEN
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* Executive Vice President,
- ----------------------------------- 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/ John M. Smith Date: April 24, 1997
---------------------------------
John M. Smith
Executive Vice President
Pursuant to Power of Attorney
II-4
<PAGE>
THE GUARDIAN SEPARATE ACCOUNT K
EXHIBIT INDEX
Exhibit
Number Description Page*
1.A(3)(a), (b), (c) Distribution Agreements.
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
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
AGREEMENT OF AGENCY
Agreement made this _________ day of ________ by and between ___________________
("Principal") and __________________ ("Agent ").
1. The undersigned is presently an Agent in accordance with an
Agreement of Agency ("Guardian Life Agency Agreement") with the
Principal named above, endorsed by The Guardian Life Insurance
Company of America ("Guardian Life") and bearing an effective date
of _________________.
2. The Principal hereby appoints the Agent with the endorsement of The
Guardian Insurance & Annuity Company, Inc. ("GIAC"), a Delaware
Corporation and a wholly-owned subsidiary of Guardian Life, for the
limited purpose of soliciting applications for GIAC's Variable Whole
Life Insurance Policies with Modified Scheduled Premiums marketed
under the name Park Avenue Life ("PAL") and GIAC's Flexible Premium
Variable Universal Life Policies marketed under the name Park Avenue
VUL ("VUL"). There may be one or more policies marketed under the
PAL name. Where necessary or appropriate, this Agreement will
distinguish between them by appending the year of introduction.
Currently, there are two policies marketed under this name - "PAL
`95 and PAL `97."
3. The Agent shall at all times be associated with Guardian Investor
Services corporation ("GISC"), a Broker-Dealer registered with the
Securities and Exchange Commission ("SEC") and a member of the
National Association of Securities Dealers, Inc. ("NASD") as an NASD
Registered Representative or NASD Registered Principal and, if the
particular jurisdiction requires, shall be licensed or registered as
a securities agent of GISC. The Agent must at all times be validly
licensed, registered or appointed by GIAC as a variable contracts
agent in accordance with the requirements of the jurisdiction where
solicitations for PAL and VUL contracts occur. The Agent may solicit
for and sell PAL and VUL contracts in any jurisdiction where such
contracts are filed and approved for sale by the governmental
authorities having jurisdiction, provided the Agent is validly
licensed, registered or otherwise qualified as required for the
solicitation and sale of the PAL and VUL contracts in such
jurisdictions.
1
<PAGE>
4. To the extent applicable, the Agent shall comply strictly with: (a)
the laws, rules and regulations of all jurisdictions (state and
local) in which the Agent solicits applications for and sells PAL
and VUL contracts; (b) federal laws and the rules, regulations of
the SEC; (c) the rules of the NASD; (d) the rules and procedures of
GISC, and (e) the rules and procedures of GIAC. The Agent
understands that failure to comply with such laws, rules,
regulations and procedures may result in disciplinary action against
the Agent by the SEC, a state or other local regulatory agency that
has jurisdiction, the NASD, GISC and GIAC. Before any solicitations
or sales of PAL and VUL are made, the Agent shall become familiar
with and abide by the laws, rules, regulations and procedures of all
of the above mentioned agencies or parties as are currently in
effect and as they may be changed from time to time.
5. The Agent shall have all applications for PAL and VUL accurately
completed or reviewed and signed by the applicant and shall submit
the applications to GIAC through GISC together with all payments
received from applicants without any reductions. The Agent shall
cause all checks or orders for PAL and VUL to be made payable to
GIAC. GIAC shall reject any application that is submitted by or on
behalf of an Agent not appropriately licensed as required by
paragraph 3 of this Agreement.
6. The Agent shall not make any statements concerning PAL and VUL
except those that are contained in the current prospectuses for PAL
and VUL and the prospectuses for their underlying variable
investment options and shall not solicit for applications or make
sales through the use of mailings, advertisements or sales
literature or any other method of contact unless the material or a
complete description of the method has been filed with the NASD and
received written Approval of GISC from a Registered Principal whose
office is located in a GISC Office of Supervisory Jurisdiction as
that term is defined by NASD rules.
7. In connection with the Agent's appointment for the purpose set forth
in paragraph 2 above, the entire Guardian Life Agency Agreement
referred to above and attached hereto as the Exhibit, including all
compensation adjustment and service fee provisions, is incorporated
herein by reference. All references to "Company"
2
<PAGE>
within the Guardian Life Agency Agreement shall apply with full
force and effect to GIAC. Additionally, the Registered
Representative's Agreement between the Agent and GISC and the
Agent's Agreement between the Agent and GIAC are incorporated herein
by reference and attached hereto as Exhibits.
8. The Agent shall be paid commissions on PAL as outlined in Appendix A
of this Agreement.
9. The Agent shall be paid commissions on VUL as outlined in Appendix B
of this Agreement.
10. Allocation of VUL premiums and the effect thereof on compensation is
described in Appendix C of this Agreement.
11. It shall be understood that this Agreement is automatically
terminated if the Guardian Life Agency Agreement, GISC Registered
Representative Agreement or GIAC Agent's Agreement is terminated.
IT SHALL BE EXPRESSLY UNDERSTOOD BY THE AGENT THAT THIS AGREEMENT SHALL NOT BE
EFFECTIVE UNLESS THE AGENT IS VALIDLY LICENSED IN ACCORDANCE WITH THE
REQUIREMENTS OF THE JURISDICTIONS WHERE SOLICITATIONS FOR PAL AND VUL POLICIES
OCCUR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
- ----------------------- --------------------------
WITNESS PRINCIPAL
- ----------------------- --------------------------
WITNESS AGENT
3
<PAGE>
APPENDIX A
A. Commission Schedule (Percentages of Premium)
- ---------------------------------------------------------
Policy Years Policy Premiums Unscheduled Payments
- ---------------------------------------------------------
1 50% 3%
- ---------------------------------------------------------
2 through 10 5% 3%
- ---------------------------------------------------------
The first policy year commission rate of 50% on policy premiums shall be reduced
where policies are issued at ages over 70 with actual rates payable determined
by deducting from the figure 120 ages of applicable insureds as of policy issue
dates.
No compensation shall be payable on PAL policy premiums skipped under the
Premium Skip Option of PAL policies. If unscheduled payments are received when
policies should be on the Premium Skip Option, renewal commissions on such
payments shall be based on renewal rates of PAL policy premiums applied up to
amounts of premium that correspond to renewal PAL policy premiums that would
otherwise have been paid if not for the Premium Skip Option being in effect with
standard renewal rates on unscheduled payments applied to any premiums received
above such PAL policy premium levels.
B. First Policy Year Commission Chargebacks on PAL `95 Policies
First policy year commissions on policy premiums shall be charged back to the
Agent on PAL `95 policies that are surrendered or lapsed prior to the policies
having been in force for at least eighteen months in accordance with the
following:
- ------------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
- ------------------------------------------------------------------------
1-3 75%
- ------------------------------------------------------------------------
4-6 70%
- ------------------------------------------------------------------------
7-10 65%
- ------------------------------------------------------------------------
11-13 55%
- ------------------------------------------------------------------------
14 50%
- ------------------------------------------------------------------------
15 40%
- ------------------------------------------------------------------------
16 30%
- ------------------------------------------------------------------------
17 20%
- ------------------------------------------------------------------------
18 10%
- ------------------------------------------------------------------------
4
<PAGE>
APPENDIX A (CONTINUED)
PAL chargebacks not immediately repaid on demand by the Agent to the Principal
(or to the Company if the Company should be the Principal) shall constitute an
indebtedness under the terms of the Guardian Life Agency Agreement.
5
<PAGE>
APPENDIX B
A. Commission Schedule (Percentages of Premium)
- -----------------------------------------------------
Policy Years Target Premiums Excess Premiums
- -----------------------------------------------------
1 45% 3%
- -----------------------------------------------------
2 through 10 3% 3%
- -----------------------------------------------------
6
<PAGE>
APPENDIX C
ALLOCATION OF PREMIUMS AND THEIR EFFECT ON COMPENSATION
A. General
In a first policy year, premiums will first be applied to policy target
premium. These will be compensated at first year rates. Any premiums
received in the first year of a policy exceeding policy target premium
will be considered excess premium to be compensated at excess rates.
In policy years 2 through 10, any premium received up to nine times policy
target premium will be applied as policy target premium and receive
compensation at target premium renewal rates. Any premium exceeding nine
times policy target premium in policy years two through ten will be
considered excess premium to be compensated at excess rates.
In policy years 11 and greater, the compensation on premium received will
be at service fee rates.
B. Increases In Coverage
Coverage increases will be reflected in self-contained segments of
policies that have their own policy effective dates, policy year durations
and policy premiums. Premiums for policies with increases in coverage will
be applied to each coverage and associated target premiums in the order
the coverages were issued (earliest first). When the sum of the premiums
during a given policy year exceeds the sum of all applicable target
premiums, any additional amount will be allocated prorata based on target
premiums for each coverage. The amount thus allocated will be processed as
outlined in the above general description (i.e. it will be processed with
reference to policy years of the coverages and amounts of applicable
target premiums paid).
C. Decreases In Coverage
A coverage decrease will be applied to a last previous coverage increase,
if any, or to the initial coverage should no coverage increase have taken
place. Such decrease will serve to reduce target premium for the full
period so that any regular
7
<PAGE>
APPENDIX C (CONTINUED)
compensation on subsequent premium received will be based on lower target
premium (i.e. The total of renewal compensation payable will be based on
nine times the lower target premium). Any premium amount applied over such
lower target premium will be compensated at excess rates for policy years
2 through 10 and at service fee rates for policy years 11 and greater.
First year compensation will be paid on coverage increases only to the
extent such increases should exceed previous coverage decreases.
8
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
FIELD REPRESENTATIVE AGREEMENT
Agreement made this _________ day of ________ by and between The Guardian
Insurance & Annuity Company, Inc. ("GIAC"), a Delaware corporation and a
wholly-owned subsidiary of The Guardian Life Insurance Company of America
("Guardian Life"), having its principal office located at 201 Park Avenue South,
New York, New York, 10003 and ___________________ ("Field Representative"). .
1. The undersigned is presently a Field Representative of Guardian Life
in accordance with a Field Representative Agreement bearing an
effective date of ___________________ ("Guardian Life FR
Agreement").
2. GIAC hereby appoints the Field Representative for the limited
purpose of soliciting applications for GIAC's Variable Whole Life
Insurance Policies with Modified Scheduled Premiums marketed under
the name Park Avenue Life ("PAL") and GIAC's Flexible Premium
Variable Universal Life Policies marketed under the name Park Avenue
VUL ("VUL"). There may be one or more policies marketed under the
PAL name. Where necessary or appropriate, this Agreement will
distinguish between them by appending the year of introduction.
Currently, there are two policies marketed under this name -- "PAL
`95 and PAL `97."
3. The Field Representative shall at all times be associated with
Guardian Investor Services corporation ("GISC"), a Broker-Dealer
registered with the Securities and Exchange Commission ("SEC") and a
member of the National Association of Securities Dealers, Inc.
("NASD") as an NASD Registered Representative or NASD Registered
Principal and, if the particular jurisdiction requires, shall be
licensed or registered as a securities agent of GISC. The Field
Representative must at all times be validly licensed, registered or
appointed by GIAC as a variable contracts agent in accordance with
the requirements of the jurisdiction where solicitations for PAL and
VUL contracts occur. The Field Representative may solicit for and
sell PAL and VUL contracts in any jurisdiction where such contracts
are filed and approved for sale by the governmental authorities
having jurisdiction, provided the Field Representative is validly
licensed, registered or otherwise qualified as required for the
solicitation and sale of the PAL and VUL contracts in such
jurisdictions.
1
<PAGE>
4. To the extent applicable, the Field Representative shall comply
strictly with: (a) the laws, rules and regulations of all
jurisdictions (state and local) in which the Field Representative
solicits applications for and sells PAL and VUL contracts; (b)
federal laws and the rules, regulations of the SEC; (c) the rules of
the NASD; (d) the rules and procedures of GISC, and (e) the rules
and procedures of GIAC. The Field Representative understands that
failure to comply with such laws, rules, regulations and procedures
may result in disciplinary action against the Field Representative
by the SEC, a state or other local regulatory agency that has
jurisdiction, the NASD, GISC and GIAC. Before any solicitations or
sales of PAL and VUL are made, the Field Representative shall become
familiar with and abide by the laws, rules, regulations and
procedures of all of the above mentioned agencies or parties as are
currently in effect and as they may be changed from time to time.
5. The Field Representative shall have all applications for PAL and VUL
accurately completed or reviewed and signed by the applicant and
shall submit the applications to GIAC through GISC together with all
payments received from applicants without any reductions. The Field
Representative shall cause all checks or orders for PAL and VUL to
be made payable to GIAC. GIAC shall reject any application that is
submitted by or on behalf of a Field Representative not
appropriately licensed as required by paragraph 3 of this Agreement.
6. The Field Representative shall not make any statements concerning
PAL and VUL except those that are contained in the current
prospectuses for PAL and VUL and the prospectuses for their
underlying variable investment options and shall not solicit for
applications or make sales through the use of mailings,
advertisements or sales literature or any other method of contact
unless the material or a complete description of the method has been
filed with the NASD and received written Approval of GISC from a
Registered Principal whose office is located in a GISC Office of
Supervisory Jurisdiction as that term is defined by NASD rules.
7. In connection with the appointment of the undersigned as a GIAC
Field Representative for the purpose set forth in paragraph 2 above,
the entire Guardian Life FR Agreement referred to above and attached
2
<PAGE>
hereto as the Exhibit, including all compensation adjustment and
service fee provisions, is incorporated herein by reference.
Guardian Life FR Agreement compensation provisions that do not apply
to PAL and VUL are as noted below. All references to "Company"
within the Guardian Life Agency Agreement shall apply with full
force and effect to GIAC. Additionally, the Registered
Representative's Agreement between the Field Representative and GISC
and the Agent's Agreement between the Field Representative and GIAC
are incorporated herein by reference and attached hereto as
Exhibits.
8. Field Representative compensation on PAL is described in Appendix A
of the Agreement.
9. Field Representative compensation on VUL is described in Appendix B
of this Agreement.
10. Allocation of VUL premiums and the effect thereof on compensation is
described in Appendix C of this Agreement.
11. This Agreement may be terminated as outlined in Paragraph 14 of the
Guardian Life FR Agreement. In addition, it shall be automatically
terminated if the Guardian Life FR Agreement, GISC Registered
Representative Agreement or GIAC Agent's Agreement is terminated.
IT SHALL BE EXPRESSLY UNDERSTOOD BY THE FIELD REPRESENTATIVE THAT THIS AGREEMENT
SHALL NOT BE EFFECTIVE UNLESS THE FIELD REPRESENTATIVE IS VALIDLY LICENSED IN
ACCORDANCE WITH THE REQUIREMENTS OF THE JURISDICTIONS WHERE SOLICITATIONS FOR
PAL AND VUL POLICIES OCCUR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
- ----------------------- --------------------------
WITNESS PRINCIPAL
- ----------------------- --------------------------
WITNESS FIELD REPRESENTATIVE
3
<PAGE>
APPENDIX A
A. FR Compensation Schedule
- --------------------------------------------------------------------------------
LPC Factor on Unscheduled Payments Unscheduled Payments
Policy Years Policy Premiums 1985 Version FRs 1956/1967 Version FRs
- --------------------------------------------------------------------------------
1 36 3.5% 3%
- --------------------------------------------------------------------------------
2 through 10 * 3.5% 3%
- --------------------------------------------------------------------------------
* Renewal compensation for preceding employment years on PAL policy premiums
shall be the same as set forth in the Field Representatives Plan manuals for
existing Plan versions (except that the rates applicable under Part A shall be
50% of standard rates, and in the case of the PAL `95 product only, Part C shall
be entirely replaced by Part D as outlined below for those Field Representatives
belonging to the 1985 FR Plan version). FR Plan compensation factors shall
operate in accordance with the effective date of the Guardian Life FR Agreement.
The first policy year LPC factor of 36 on policy premiums shall be reduced where
policies are issued at ages over 70 with actual rates payable determined by
deducting from the figure 106 ages of applicable insureds as of policy issue
dates.
No compensation shall be payable on PAL policy premiums skipped under the
Premium Skip Option of PAL policies. If unscheduled payments are received when
policies should be on the Premium Skip Option, renewal compensation on such
payments shall be calculated at 5% and applied up to amounts of premium that
correspond to renewal PAL policy premiums that would otherwise have been paid if
not for the Premium Skip Option being in effect with standard renewal rates on
unscheduled payments applied to any premiums received above such PAL policy
premium levels.
B. First Policy Year Compensation Chargebacks on PAL `95 Policies
Basic first policy year compensation on policy premiums at $13.75 per thousand
of life production credits shall be charged back to Field Representatives on PAL
`95 policies that are surrendered or lapsed prior to the policies having been in
force for at least eighteen months in accordance with the following:
4
<PAGE>
APPENDIX A (CONTINUED)
- --------------------------------------------------------------------------------
Policy Months of PAL '95 Chargeback Percentages Chargeback Percentages
Surrenders or Lapses 1956/1967 Version FRs 1985 Version FRs
- --------------------------------------------------------------------------------
1-3 75% 82%
- --------------------------------------------------------------------------------
4-6 70% 77%
- --------------------------------------------------------------------------------
7-10 65% 71%
- --------------------------------------------------------------------------------
11-13 55% 60%
- --------------------------------------------------------------------------------
14 50% 55%
- --------------------------------------------------------------------------------
15 40% 44%
- --------------------------------------------------------------------------------
16 30% 33%
- --------------------------------------------------------------------------------
17 20% 22%
- --------------------------------------------------------------------------------
18 10% 11%
- --------------------------------------------------------------------------------
5
<PAGE>
APPENDIX B
A. FR Compensation Schedule
- -----------------------------------------------------
LPC Factor on
Policy Years Target Premiums Excess Premiums
- -----------------------------------------------------
1 33 3.5%
- -----------------------------------------------------
2 through 10 * 3.5%
- -----------------------------------------------------
*3.5% policy years two through ten and 2.0% policy years eleven and over
credited as Commission Equivalent Compensation (PGF)
VUL compensation shall cease at termination except in the event of retirement in
accordance with Section II, Subsection K, Paragraph 1 of the Field
Representatives' Plan or possibly in the event of death in accordance with
Section II, Subsection L, Paragraph 1 of the Field Representatives' Plan.
6
<PAGE>
APPENDIX C
ALLOCATION OF PREMIUMS AND THEIR EFFECT ON COMPENSATION
A. General
In a first policy year, premiums will first be applied to policy target
premium. These will be compensated at first year rates. Any premiums
received in the first year of a policy exceeding policy target premium
will be considered excess premium to be compensated at excess rates.
In policy years 2 through 10, any premium received up to nine times policy
target premium will be applied as policy target premium and receive
compensation at target premium renewal rates. Any premium exceeding nine
times policy target premium in policy years two through ten will be
considered excess premium to be compensated at excess rates.
In policy years 11 and greater, the compensation on premium received will
be at service fee rates.
B. Increases In Coverage
Coverage increases will be reflected in self-contained segments of
policies that have their own policy effective dates, policy year durations
and policy premiums. Premiums for policies with increases in coverage will
be applied to each coverage and associated target premiums in the order
the coverages were issued (earliest first). When the sum of the premiums
during a given policy year exceeds the sum of all applicable target
premiums, any additional amount will be allocated prorata based on target
premiums for each coverage. The amount thus allocated will be processed as
outlined in the above general description (i.e. it will be processed with
reference to policy years of the coverages and amounts of applicable
target premiums paid).
C. Decreases In Coverage
A coverage decrease will be applied to a last previous coverage increase,
if any, or to the initial coverage should no coverage increase have taken
place. Such decrease will serve to reduce target premium for the full
period so that any regular compensation on subsequent premium received
will be based on lower target premium (i.e. The total of renewal
compensation payable will be based on nine
7
<PAGE>
APPENDIX C (CONTINUED)
times the lower target premium). Any premium amount applied over such
lower target premium will be compensated at excess rates for policy years
2 through 10 and at service fee rates for policy years 11 and greater.
First year compensation will be paid on coverage increases only to the
extent such increases should exceed previous coverage decreases.
8
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
BROKERAGE AGREEMENT
Agreement made this _________ day of ________ by and between ___________________
("Principal") and __________________ ("Broker").
1. The undersigned is presently a Broker in accordance with a Brokerage
Agreement ("Guardian Life Broker Agreement") with the Principal
named above, endorsed by The Guardian Life Insurance Company of
America ("Guardian Life") and bearing an effective date of
_________________.
2. The Principal hereby appoints the Broker with the endorsement of The
Guardian Insurance & Annuity Company, Inc. (GIAC), a Delaware
Corporation and a wholly-owned subsidiary of Guardian Life, for the
limited purpose of soliciting applications for GIAC's Variable Whole
Life Insurance Policies with Modified Scheduled Premiums marketed
under the name Park Avenue Life ("PAL") and GIAC's Flexible Premium
Variable Universal Life Policies marketed under the name Park Avenue
VUL ("VUL"). There may be one or more policies marketed under the
PAL name. Where necessary or appropriate, this Agreement will
distinguish between them by appending the year of introduction.
Currently, there are two policies marketed under this name - "PAL
`95 and PAL `97."
3. The Broker shall at all times be associated with Guardian Investor
Services Corporation ("GISC"), a Broker-Dealer registered with the
Securities and Exchange Commission ("SEC") and a member of the
National Association of Securities Dealers, Inc. ("NASD") as an NASD
Registered Representative or NASD Registered Principal and, if the
particular jurisdiction requires, shall be licensed or registered as
a securities agent of GISC. The Broker must at all times be validly
licensed, registered or appointed by GIAC as a variable contracts
agent in accordance with the requirements of the jurisdiction where
solicitations for PAL and VUL contracts occur. The Broker may
solicit for and sell PAL and VUL contracts in any jurisdiction where
such contracts are filed and approved for sale by the governmental
authorities having jurisdiction, provided the Broker is validly
licensed, registered or otherwise qualified as required for the
solicitation and sale of the PAL and VUL contracts in such
jurisdictions.
1
<PAGE>
4. To the extent applicable, the Broker shall comply strictly with :
(a) the laws, rules and regulations of all jurisdictions (state and
local) in which the Broker solicits applications for and sells PAL
and VUL contracts; (b) federal laws and the rules, regulations of
the SEC; (c) the rules of the NASD; (d) the rules and procedures of
GISC, and (e) the rules and procedures of GIAC. The Broker
understands that failure to comply with such laws, rules,
regulations and procedures may result in disciplinary action against
the Broker by the SEC, a state or other local regulatory agency that
has jurisdiction, the NASD, GISC and GIAC. Before any solicitations
or sales of PAL and VUL are made, the Broker shall become familiar
with and abide by the laws, rules, regulations and procedures of all
of the above mentioned agencies or parties as are currently in
effect and as they may be changed from time to time.
5. The Broker shall have all applications for PAL and VUL accurately
completed or reviewed and signed by the applicant and shall submit
the applications to GIAC through GISC together with all payments
received from applicants without any reductions. The Broker shall
cause all checks or orders for PAL and VUL to be made payable to
GIAC. GIAC shall reject any application that is submitted by or on
behalf of a Broker not appropriately licensed as required by
paragraph 3 of this Agreement.
6. The Broker shall not make any statements concerning PAL and VUL
except those that are contained in the current prospectuses for PAL
and VUL and the prospectuses for their underlying variable
investment options and shall not solicit for applications or make
sales through the use of mailings, advertisements or sales
literature or any other method of contact unless the material or a
complete description of the method has been filed with the NASD and
received written Approval of GISC from a Registered Principal whose
office is located in a GISC Office of Supervisory Jurisdiction as
that term is defined by NASD rules.
7. In connection with the Broker's appointment for the purpose set
forth in paragraph 2 above, the entire Guardian Life Broker
Agreement referred to above and attached hereto as the Exhibit,
including all compensation adjustment and service fee provisions, is
incorporated herein by reference. All references to "Company"
2
<PAGE>
within the Guardian Life Broker Agreement shall apply with full
force and effect to GIAC. Additionally, the Registered
Representative's Agreement between the Broker and GISC and the
Agent's Agreement between the Broker and GIAC are incorporated
herein by reference and attached hereto as Exhibits.
8. The Broker shall be paid commissions on PAL as outlined in Appendix
A of this Agreement.
9. The Broker shall be paid commissions on VUL as outlined in Appendix
B of this Agreement.
10. Allocation of VUL premiums and the effect thereof on compensation is
described in Appendix C of this Agreement.
11. It shall be understood that this Agreement is automatically
terminated if the Guardian Life Broker Agreement, GISC Registered
Representative Agreement or GIAC Agent's Agreement is terminated.
IT SHALL BE EXPRESSLY UNDERSTOOD BY THE BROKER THAT THIS AGREEMENT SHALL NOT BE
EFFECTIVE UNLESS THE BROKER IS VALIDLY LICENSED IN ACCORDANCE WITH THE
REQUIREMENTS OF THE JURISDICTIONS WHERE SOLICITATIONS FOR PAL AND VUL POLICIES
OCCUR.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
- ----------------------- --------------------------
WITNESS PRINCIPAL
- ----------------------- --------------------------
WITNESS BROKER
3
<PAGE>
APPENDIX A
A. Commission Schedule (Percentages of Premium)
- ---------------------------------------------------------
Policy Years Policy Premiums Unscheduled Payments
- ---------------------------------------------------------
1 50% 3%
- ---------------------------------------------------------
2 through 10 5% 3%
- ---------------------------------------------------------
The first policy year commission rate of 50% on policy premiums shall be reduced
where policies are issued at ages over 70 with actual rates payable determined
by deducting from the figure 120 ages of applicable insureds as of policy issue
dates.
No compensation shall be payable on PAL policy premiums skipped under the
Premium Skip Option of PAL policies. If unscheduled payments are received when
policies should be on the Premium Skip Option, renewal commissions on such
payments shall be based on renewal rates of PAL policy premiums applied up to
amounts of premium that correspond to renewal PAL policy premiums that would
otherwise have been paid if not for the Premium Skip Option being in effect with
standard renewal rates on unscheduled payments applied to any premiums received
above such PAL policy premium levels.
B. First Policy Year Commission Chargebacks on PAL `95 Policies
First policy year commissions on policy premiums shall be charged back to the
Broker on PAL `95 policies that are surrendered or lapsed prior to the policies
having been in force for at least eighteen months in accordance with the
following:
- ------------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
- ------------------------------------------------------------------------
1-3 75%
- ------------------------------------------------------------------------
4-6 70%
- ------------------------------------------------------------------------
7-10 65%
- ------------------------------------------------------------------------
11-13 55%
- ------------------------------------------------------------------------
14 50%
- ------------------------------------------------------------------------
15 40%
- ------------------------------------------------------------------------
16 30%
- ------------------------------------------------------------------------
17 20%
- ------------------------------------------------------------------------
18 10%
- ------------------------------------------------------------------------
4
<PAGE>
APPENDIX A (CONTINUED)
PAL chargebacks not immediately repaid on demand by the Broker to the Principal
(or to the Company if the Company should be the Principal) shall constitute an
indebtedness under the terms of the Guardian Life Broker Agreement.
5
<PAGE>
APPENDIX B
A. Commission Schedule (Percentages of Premium)
- -----------------------------------------------------
Policy Years Target Premiums Excess Premiums
- -----------------------------------------------------
1 45% 3%
- -----------------------------------------------------
2 through 10 3% 3%
- -----------------------------------------------------
6
<PAGE>
APPENDIX C
ALLOCATION OF PREMIUMS AND THEIR EFFECT ON COMPENSATION
A. General
In a first policy year, premiums will first be applied to policy target
premium. These will be compensated at first year rates. Any premiums
received in the first year of a policy exceeding policy target premium
will be considered excess premium to be compensated at excess rates.
In policy years 2 through 10, any premium received up to nine times policy
target premium will be applied as policy target premium and receive
compensation at target premium renewal rates. Any premium exceeding nine
times policy target premium in policy years two through ten will be
considered excess premium to be compensated at excess rates.
In policy years 11 and greater, the compensation on premium received will
be at service fee rates.
B. Increases In Coverage
Coverage increases will be reflected in self-contained segments of
policies that have their own policy effective dates, policy year durations
and policy premiums. Premiums for policies with increases in coverage will
be applied to each coverage and associated target premiums in the order
the coverages were issued (earliest first). When the sum of the premiums
during a given policy year exceeds the sum of all applicable target
premiums, any additional amount will be allocated prorata based on target
premiums for each coverage. The amount thus allocated will be processed as
outlined in the above general description (i.e. it will be processed with
reference to policy years of the coverages and amounts of applicable
target premiums paid).
C. Decreases In Coverage
A coverage decrease will be applied to a last previous coverage increase,
if any, or to the initial coverage should no coverage increase have taken
place. Such
7
<PAGE>
APPENDIX C (CONTINUED)
decrease will serve to reduce target premium for the full period so that
any regular compensation on subsequent premium received will be based on
lower target premium (i.e. The total of renewal compensation payable will
be based on nine times the lower target premium). Any premium amount
applied over such lower target premium will be compensated at excess rates
for policy years 2 through 10 and at service fee rates for policy years 11
and greater.
First year compensation will be paid on coverage increases only to the
extent such increases should exceed previous coverage decreases.
8
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
MEMORANDUM OF AGREEMENT
Agreement made this _________ day of ____________, 19___ by and between The
Guardian Insurance & Annuity Company, Inc. ("GIAC"), a Delaware corporation and
a wholly-owned subsidiary of The Guardian Life Insurance Company of America
("Guardian Life"), having its Principal office located at 201 Park Avenue South,
New York, New York, 10003 and ________________ ("AGENT").
1. The undersigned Agent is presently a Career Development Manager
("CDM") of Guardian Life in accordance with a Memorandum of
Agreement bearing an effective date of _______________ ("Guardian
Life CDM Agreement").
2. GIAC hereby appoints the Agent CDM of GIAC for the limited purpose
of conducting and overseeing the business relating to GIAC's
Variable Whole Life Insurance Policies with Modified Scheduled
Premiums marketed under the name Park Avenue Life ("PAL") and GIAC's
Flexible Premium Variable Universal Life policy marketed under the
name Park Avenue VUL ("VUL"). There may be one or more policies
marketed under the PAL name and, where necessary or appropriate,
this Agreement will distinguish between them by appending the year
of introduction. Currently, there are two policies marketed under
this name -- "PAL `95 and PAL `97."
3. The CDM shall at all times be associated with Guardian Investor
Services Corporation ("GISC"), a Broker-Dealer registered with the
Securities and Exchange Commission ("SEC") and a member of the
National Association of Securities Dealers, Inc. ("NASD") as an NASD
Registered Representative or NASD Registered Principal and, if the
particular jurisdiction requires, shall be licensed or registered as
a securities agent of GISC. The CDM must at all times be validly
licensed, registered or appointed by GIAC as a variable contracts
agent in accordance with the requirements of the jurisdiction where
solicitations for PAL and VUL contracts occur. The CDM, his agents,
brokers and Field Representatives may solicit for and sell PAL and
VUL contracts in any jurisdiction where such contracts are filed and
approved for sale by the governmental authorities having
jurisdiction, provided the CDM, his agents, brokers and Field
Representatives are all validly licensed, registered or otherwise
qualified as required for the solicitation and sale of the PAL and
VUL contracts in such jurisdictions.
1
<PAGE>
4. To the extent applicable, the CDM shall comply strictly with: (a)
the laws, rules and regulations of all jurisdictions (state and
local) in which the CDM, his agents, brokers and Field
Representatives solicit applications for and sell PAL and VUL
contracts; (b) federal laws and the rules and regulations of the
SEC; (c) the rules of the NASD; (d) the rules and procedures of
GISC, and (e) the rules and procedures of GIAC. The CDM understands
that failure to comply with such laws, rules, regulations and
procedures may result in disciplinary action against the CDM by the
SEC, a state or other local regulatory agency that has jurisdiction,
the NASD, GISC or GIAC. Before any solicitations or sales of PAL and
VUL are made, the CDM shall become familiar with and abide by the
laws, rules, regulations and procedures of all the above mentioned
agencies or parties as are currently in effect and as they may be
changed from time to time.
5. The CDM shall have all applications for PAL and VUL accurately
completed or reviewed and signed by the applicant and shall submit
the applications to GIAC through GISC together with all payments
received from applicants without any reductions. The CDM, his
agents, brokers and Field Representatives shall cause all checks or
orders for PAL and VUL to be made payable to GIAC. GIAC shall reject
any application that is submitted by or on behalf of a CDM, his
agents, brokers and Field Representatives not appropriately licensed
as required by paragraph 3 of this Agreement.
6. The CDM, his agents, brokers and Field Representatives shall not
make any statements concerning PAL and VUL except those that are
contained in the current prospectuses for PAL and VUL and the
prospectuses for their underlying variable investment options and
they shall not solicit for applications or make sales through the
use of mailings, advertisements or sales literature or any other
method of contact unless the material or a complete description of
the method has been filed wit the NASD and received written approval
of GISC from a Registered Principal whose office is located in a
GISC Office of Supervisory Jurisdiction as that term is defined by
NASD rules.
7. In connection with the agent's appointment as a GIAC CDM for the
purpose set forth in paragraph 2 above, the entire Guardian Life CDM
Agreement referred to above and attached hereto as the Exhibit,
including all compensation adjustment provisions, is incorporated
herein by reference. Guardian Life CDM Agreement compensation
provisions that do not apply to PAL and VUL are as noted below. All
references to "Company" within the Guardian Life CDM Agreement shall
apply with full force and effect to GIAC. Additionally, the
Registered Representative's Agreement between the CDM and GISC and
the
2
<PAGE>
Agent's Agreement between the CDM and GIAC are incorporated herein
by reference and attached hereto as Exhibits.
8. The CDM shall be paid additional compensation as outlined in
Appendix A of this Agreement and shall be paid commissions on
personally produced PAL and VUL business as outlined in Appendix B
of this Agreement. Allocation of VUL premiums and the effect thereof
on compensation is described in Appendix C of this Agreement.
9. The CDM shall be responsible to the Company for any indebtedness
that may have resulted from PAL chargebacks applied to PAL business
personally produced the CDM.
10. This Agreement may be terminated as outlined in Section IV of the
Guardian Life CDM Agreement. In addition, it shall be automatically
terminated if the Guardian Life CDM Agreement, GISC Registered
Representative Agreement or GIAC Agent's Agreement is terminated.
IT SHALL BE EXPRESSLY UNDERSTOOD BY THE AGENT THAT THIS AGREEMENT SHALL NOT BE
EFFECTIVE UNLESS THE AGENT IS VALIDLY LICENSED IN ACCORDANCE WITH THE
REQUIREMENTS OF THE JURISDICTIONS WHERE SOLICITATIONS BY THE CDM AND THE AGENTS,
BROKERS AND FIELD REPRESENTATIVES OF THE CDM FOR PAL AND VUL POLICIES OCCUR.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
as of the day and year first written above.
- ------------------- -------------------------
WITNESS John M. Fagan
- ------------------- -------------------------
WITNESS Career Development Manager
3
<PAGE>
APPENDIX A
A. CDM Additional Compensation (Percentages of First Year Premium)
- -----------------------------------------------------------
Type Rate
- -----------------------------------------------------------
PAL Policy Premiums 20%
- -----------------------------------------------------------
VUL Target Premiums 19%
- -----------------------------------------------------------
PAL Unscheduled Payments & VUL Excess Premiums 1%
- -----------------------------------------------------------
Section IIIB, Paragraph (K) Additional
Compensation 30%
- -----------------------------------------------------------
B. CDM Additional Compensation Chargebacks on PAL `95 Policies
Additional compensation on policy premiums shall be charged back to the CDM on
PAL `95 policies that are surrendered or lapsed prior to the policies having
been in force for at least 18 months in accordance with the following:
- ------------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
- ------------------------------------------------------------------------
1-3 75%
- ------------------------------------------------------------------------
4-6 70%
- ------------------------------------------------------------------------
7-10 65%
- ------------------------------------------------------------------------
11-13 55%
- ------------------------------------------------------------------------
14 50%
- ------------------------------------------------------------------------
15 40%
- ------------------------------------------------------------------------
16 30%
- ------------------------------------------------------------------------
17 20%
- ------------------------------------------------------------------------
18 10%
- ------------------------------------------------------------------------
4
<PAGE>
APPENDIX B
A. Commission Schedule (Percentages of Premium)
- --------------------------------------------------------------------------
PAL Unscheduled
PAL Policy VUL Target Payments & VUL
Policy Years Premiums Premiums Excess Premiums
- --------------------------------------------------------------------------
1 50% 45% 3%
- --------------------------------------------------------------------------
2 through 10 5% 3% 3%
- --------------------------------------------------------------------------
The first policy year commission rates of 50% on PAL and 45% on VUL shall be
reduced where policies are issued at ages over 70 with actual rates payable
determined by deducting from the figure 120 ages of applicable insureds as of
policy issue dates on PAL polices and by deducting from the figure 115 ages of
applicable insureds as of policy issue dates on VUL policies.
No compensation shall be payable on PAL policy premiums skipped under the
Premium Skip Option of PAL policies. If unscheduled payments are received when
policies should be on the Premium Skip Option, renewal commissions on such
payments shall be based on renewal rates of PAL policy premiums applied up to
amounts of premium that correspond to renewal PAL policy premiums that would
otherwise have been paid if not for the Premium Skip Option being in effect with
standard renewal rates on unscheduled payments applied to any premiums received
above such PAL policy premium levels.
B. First Policy Year Commission Chargebacks on PAL `95 Policies
First policy year commissions on policy premiums shall be charged back to the
Agent on PAL `95 policies that are surrendered or lapsed prior to the policies
having been in force for at least 18 months in accordance with the following:
- ------------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
- ------------------------------------------------------------------------
1-3 75%
- ------------------------------------------------------------------------
4-6 70%
- ------------------------------------------------------------------------
7-10 65%
- ------------------------------------------------------------------------
11-13 55%
- ------------------------------------------------------------------------
14 50%
- ------------------------------------------------------------------------
15 40%
- ------------------------------------------------------------------------
16 30%
- ------------------------------------------------------------------------
17 20%
- ------------------------------------------------------------------------
18 10%
- ------------------------------------------------------------------------
5
<PAGE>
APPENDIX C
ALLOCATION OF PREMIUMS AND THEIR EFFECT ON COMPENSATION
A. General
In a first policy year, premiums will first be applied to policy target
premium. These will be compensated at first year rates. Any premiums
received in the first year of a policy exceeding policy target premium
will be considered excess premium to be compensated at excess rates.
In policy years 2 through 10, any premium received up to nine times policy
target premium will be applied as policy target premium and receive
compensation at target premium renewal rates. Any premium exceeding nine
times policy target premium in policy years two through ten will be
considered excess premium to be compensated at excess rates.
In policy years 11 and greater, the compensation on premium received will
be at service fee rates.
B. Increases In Coverage
Coverage increases will be reflected in self-contained segments of
policies that have their own policy effective dates, policy year durations
and policy premiums. Premiums for policies with increases in coverage will
be applied to each coverage and associated target premiums in the order
the coverages were issued (earliest first). When the sum of the premiums
during a given policy year exceeds the sum of all applicable target
premiums, any additional amount will be allocated prorata based on target
premiums for each coverage. The amount thus allocated will be processed as
outlined in the above general description (i.e. it will be processed with
reference to policy years of the coverages and amounts of applicable
target premiums paid).
C. Decreases In Coverage
A coverage decrease will be applied to a last previous coverage increase,
if any, or to the initial coverage should no coverage increase have taken
place. Such decrease will serve to reduce target premium for the full
period so that any regular compensation on subsequent premium received
will be based on
6
<PAGE>
APPENDIX C (CONTINUED)
lower target premium (i.e. The total of renewal compensation payable will
be based on nine times the lower target premium). Any premium amount
applied over such lower target premium will be compensated at excess rates
for policy years 2 through 10 and at service fee rates for policy years 11
and greater.
First year compensation will be paid on coverage increases only to the
extent such increases should exceed previous coverage decreases.
7
<PAGE>
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
AGREEMENT OF GENERAL AGENCY
Agreement made this _________ day of ____________, 19___ by and between The
Guardian Insurance & Annuity Company, Inc. ("GIAC"), a Delaware corporation and
a wholly-owned subsidiary of The Guardian Life Insurance Company of America
("Guardian Life"), having its Principal office located at 201 Park Avenue South,
New York, New York, 10003 and ________________ ("Principal").
1. The undersigned Principal is presently a General Agent of Guardian Life in
accordance with an Agreement of General Agency bearing an effective date
of _______________ ("Guardian Life GA Agreement").
2. GIAC hereby appoints the Principal a General Agent of GIAC for the limited
purpose of conducting and overseeing the business relating to GIAC's
Variable Whole Life Insurance Policies with Modified Scheduled Premiums
marketed under the name Park Avenue Life ("PAL") and GIAC's Flexible
Premium Variable Universal Life policy marketed under the name Park Avenue
VUL ("VUL"). There may be one or more policies marketed under the PAL name
and, where necessary or appropriate, this Agreement will distinguish
between them by appending the year of introduction. Currently, there are
two policies marketed under this name - "PAL `95 and PAL `97."
3. The Principal shall at all times be associated with Guardian Investor
Services Corporation ("GISC"), a Broker-Dealer registered with the
Securities and Exchange Commission ("SEC") and a member of the National
Association of Securities Dealers, Inc. ("NASD") as an NASD Registered
Representative or NASD Registered Principal and, if the particular
jurisdiction requires, shall be licensed or registered as a securities
agent of GISC. The Principal must at all times be validly licensed,
registered or appointed by GIAC as a variable contracts agent in
accordance with the requirements of the jurisdiction where solicitations
for PAL and VUL contracts occur. The Principal, his agents, brokers and
Field Representatives may solicit for and sell PAL and VUL contracts in
any jurisdiction where such contracts are filed and approved for sale by
the governmental authorities having jurisdiction, provided the Principal,
his agents, brokers and Field Representatives are all validly licensed,
registered or otherwise qualified as required for the solicitation and
sale of the PAL and VUL contracts in such jurisdictions.
4. To the extent applicable, the Principal shall comply strictly with: (a)
the laws, rules and regulations of all jurisdictions (state and local) in
which
1
<PAGE>
the Principal, his agents, brokers and Field Representatives solicit
applications for and sell PAL and VUL contracts; (b) federal laws and the
rules and regulations of the SEC; (c) the rules of the NASD; (d) the rules
and procedures of GISC, and (e) the rules and procedures of GIAC. The
Principal understands that failure to comply with such laws, rules,
regulations and procedures may result in disciplinary action against the
Principal by the SEC, a state or other local regulatory agency that has
jurisdiction, the NASD, GISC or GIAC. Before any solicitations or sales of
PAL and VUL are made, the Principal shall become familiar with and abide
by the laws, rules, regulations and procedures of all the above mentioned
agencies or parties as are currently in effect and as they may be changed
from time to time.
5. The Principal shall have all applications for PAL and VUL accurately
completed or reviewed and signed by the applicant and shall submit the
applications to GIAC through GISC together with all payments received from
applicants without any reductions. The Principal, his agents, brokers and
Field Representatives shall cause all checks or orders for PAL and VUL to
be made payable to GIAC. GIAC shall reject any application that is
submitted by or on behalf of a Principal, his agents, brokers and Field
Representatives not appropriately licensed as required by paragraph 3 of
this Agreement.
6. The Principal, his agents, brokers and Field Representatives shall not
make any statements concerning PAL and VUL except those that are contained
in the current prospectuses for PAL and VUL and the prospectuses for their
underlying variable investment options and they shall not solicit for
applications or make sales through the use of mailings, advertisements or
sales literature or any other method of contact unless the material or a
complete description of the method has been filed with the NASD and
received written approval of GISC from a Registered Principal whose office
is located in a GISC Office of Supervisory Jurisdiction as that term is
defined by NASD rules.
7. In connection with the Principal's appointment as a GIAC General Agent for
the purpose set forth in paragraph 2 above, the entire Guardian Life GA
Agreement referred to above and attached hereto as the Exhibit, including
all compensation adjustment provisions, is incorporated herein by
reference. Guardian Life GA Agreement compensation provisions that do not
apply to PAL and VUL are as noted below. All references to "Company"
within the Guardian Life GA Agreement shall apply with full force and
effect to GIAC. Additionally, the Registered Representative's Agreement
between the Principal and GISC and the Agent's Agreement between the
Principal and GIAC are incorporated herein by reference and attached
hereto as Exhibits.
2
<PAGE>
8. The Principal shall be paid overriding commissions for sales of PAL and
VUL policies as outlined in Appendix A of this Agreement.
9. Expense Allowance Payment ("EAP") provisions contained in Section 4 and
Appendix G of the Guardian Life GA Agreement shall not apply to PAL and
VUL (except for the use of PAL and VUL first year commissions on policy
premiums in determining the rate that will apply to non-PAL business in
accordance with the provisions contained in Appendix G, Schedule G-II, (B)
2). The Principal shall instead receive EAP on PAL and VUL as outlined in
Appendix B of this Agreement.
10. The Principal shall be paid commissions on personally produced PAL and VUL
business as outlined in Appendix C of this Agreement .
11. Allocation of VUL premiums and the effect thereof on compensation is
described in Appendix D of this Agreement.
12. The Principal shall be responsible to the Company for any indebtedness
resulting from PAL chargebacks applied to PAL business personally produced
by the Principal and to PAL business produced by the agents, brokers and
Field Representatives of the Principal.
13. This Agreement may be terminated as outlined in Section 5 of the Guardian
Life GA Agreement. In addition, it shall be automatically terminated if
the Guardian Life GA Agreement, GISC Registered Representative Agreement
or GIAC Agent's Agreement is terminated.
IT SHALL BE EXPRESSLY UNDERSTOOD BY THE PRINCIPAL THAT THIS AGREEMENT SHALL NOT
BE EFFECTIVE UNLESS THE PRINCIPAL IS VALIDLY LICENSED IN ACCORDANCE WITH THE
REQUIREMENTS OF THE JURISDICTIONS WHERE SOLICITATIONS BY THE PRINCIPAL AND THE
AGENTS, BROKERS AND FIELD REPRESENTATIVES OF THE PRINCIPAL FOR PAL AND VUL
POLICIES OCCUR.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
as of the day and year first written above.
- ------------------- -------------------------
WITNESS John M. Fagan
- ------------------- -------------------------
WITNESS General Agent
3
<PAGE>
APPENDIX A
A. Overriding Commission Schedule (Percentages of Premium)
- --------------------------------------------------------------------------
PAL Unscheduled
PAL Policy VUL Target Payments & VUL
Policy Years Premiums Premiums Excess Premiums
- --------------------------------------------------------------------------
1 5% 5% 0.5%
- --------------------------------------------------------------------------
2 through 5 4% 3% 0.5%
- --------------------------------------------------------------------------
6 through 10 2% 3% 0.5%
- --------------------------------------------------------------------------
No overrides on PAL policies shall be payable on PAL policy premiums skipped
under the Premium Skip Option of the PAL policy. If unscheduled payments are
received when policies should be on the Premium Skip Option, renewal overrides
on such payments shall be based on renewal rates of PAL policy premiums applied
up to amounts of premium that correspond to renewal PAL policy premiums that
would otherwise have been paid if not for the Premium Skip Option being in
effect with standard renewal rates on unscheduled payments applied to any
premiums received above such PAL policy premium levels.
B. First Policy Year Overriding Commission Chargebacks on PAL `95 Policies
First policy year overriding commissions on policy premiums shall be charged
back to the Principal on PAL `95 policies that are surrendered or lapsed prior
to the policies having been in force for at least 18 months in accordance with
the following:
- ------------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
- ------------------------------------------------------------------------
1-3 75%
- ------------------------------------------------------------------------
4-6 70%
- ------------------------------------------------------------------------
7-10 65%
- ------------------------------------------------------------------------
11-13 55%
- ------------------------------------------------------------------------
14 50%
- ------------------------------------------------------------------------
15 40%
- ------------------------------------------------------------------------
16 30%
- ------------------------------------------------------------------------
17 20%
- ------------------------------------------------------------------------
18 10%
- ------------------------------------------------------------------------
4
<PAGE>
APPENDIX B
A. Expense Allowance Payments (Percentages of First Year Commissions)
- ------------------
Product Rate
- ------------------
PAL 62%
- ------------------
VUL 69%
- ------------------
The term "first year commissions" shall be understood to include first policy
year Field Representative compensation at $13.75 per 1,000 of life production
credits.
B. First Policy Year EAP Chargebacks on PAL `95 Policies
EAP on policy premiums shall be charged back to the Principal on PAL `95
policies that are surrendered or lapsed prior to the policies having been in
force for at least 18 months in accordance with the following:
- ------------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
- ------------------------------------------------------------------------
1-3 75%
- ------------------------------------------------------------------------
4-6 70%
- ------------------------------------------------------------------------
7-10 65%
- ------------------------------------------------------------------------
11-13 55%
- ------------------------------------------------------------------------
14 50%
- ------------------------------------------------------------------------
15 40%
- ------------------------------------------------------------------------
16 30%
- ------------------------------------------------------------------------
17 20%
- ------------------------------------------------------------------------
18 10%
- ------------------------------------------------------------------------
5
<PAGE>
APPENDIX C
A. Commission Schedule (Percentages of Premium)
- --------------------------------------------------------------------------
PAL Unscheduled
PAL Policy VUL Target Payments & VUL
Policy Years Premiums Premiums Excess Premiums
- --------------------------------------------------------------------------
1 50% 45% 3%
- --------------------------------------------------------------------------
2 through 10 5% 3% 3%
- --------------------------------------------------------------------------
The first policy year commission rates of 50% on PAL and 45% on VUL shall be
reduced where policies are issued at ages over 70 with actual rates payable
determined by deducting from the figure 120 ages of applicable insureds as of
policy issue dates on PAL polices and by deducting from the figure 115 ages of
applicable insureds as of policy issue dates on VUL policies.
No compensation shall be payable on PAL policy premiums skipped under the
Premium Skip Option of PAL policies. If unscheduled payments are received when
policies should be on the Premium Skip Option, renewal commissions on such
payments shall be based on renewal rates of PAL policy premiums applied up to
amounts of premium that correspond to renewal PAL policy premiums that would
otherwise have been paid if not for the Premium Skip Option being in effect with
standard renewal rates on unscheduled payments applied to any premiums received
above such PAL policy premium levels.
B. First Policy Year Commission Chargebacks on PAL `95 Policies
First policy year commissions on policy premiums shall be charged back to the
Agent on PAL `95 policies that are surrendered or lapsed prior to the policies
having been in force for at least 18 months in accordance with the following:
- ------------------------------------------------------------------------
Policy Months of PAL `95 Surrenders or Lapses Chargeback Percentages
- ------------------------------------------------------------------------
1-3 75%
- ------------------------------------------------------------------------
4-6 70%
- ------------------------------------------------------------------------
7-10 65%
- ------------------------------------------------------------------------
11-13 55%
- ------------------------------------------------------------------------
14 50%
- ------------------------------------------------------------------------
15 40%
- ------------------------------------------------------------------------
16 30%
- ------------------------------------------------------------------------
17 20%
- ------------------------------------------------------------------------
18 10%
- ------------------------------------------------------------------------
6
<PAGE>
APPENDIX D
ALLOCATION OF PREMIUMS AND THEIR EFFECT ON COMPENSATION
A. General
In a first policy year, premiums will first be applied to policy target
premium. These will be compensated at first year rates. Any premiums
received in the first year of a policy exceeding policy target premium
will be considered excess premium to be compensated at excess rates.
In policy years 2 through 10, any premium received up to nine times policy
target premium will be applied as policy target premium and receive
compensation at target premium renewal rates. Any premium exceeding nine
times policy target premium in policy years two through ten will be
considered excess premium to be compensated at excess rates.
In policy years 11 and greater, the compensation on premium received will
be at service fee rates.
B. Increases In Coverage
Coverage increases will be reflected in self-contained segments of
policies that have their own policy effective dates, policy year durations
and policy premiums. Premiums for policies with increases in coverage will
be applied to each coverage and associated target premiums in the order
the coverages were issued (earliest first). When the sum of the premiums
during a given policy year exceeds the sum of all applicable target
premiums, any additional amount will be allocated prorata based on target
premiums for each coverage. The amount thus allocated will be processed as
outlined in the above general description (i.e. it will be processed with
reference to policy years of the coverages and amounts of applicable
target premiums paid).
C. Decreases In Coverage
A coverage decrease will be applied to a last previous coverage increase,
if any, or to the initial coverage should no coverage increase have taken
place. Such decrease will serve to reduce target premium for the full
period so that any regular compensation on subsequent premium received
will be based on lower target premium (i.e. The total of renewal
compensation payable will be
7
<PAGE>
APPENDIX D (CONTINUED)
based on nine times the lower target premium). Any premium amount applied
over such lower target premium will be compensated at excess rates for
policy years 2 through 10 and at service fee rates for policy years 11 and
greater.
First year compensation will be paid on coverage increases only to the
extent such increases should exceed previous coverage decreases.
8
EX-3.(b)
CONSENT OF COUNSEL
I hereby consent to the reference to my name under the heading "Legal
Opinion" in the Post-Effective Amendment No. 1 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
April 24, 1998
EXHIBIT 6
April 24, 1998
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 Post-Effective
Amendment No. 1 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
Post-Effective Amendment Number 1 to the Separate Account K registration
statement on Form S-6 (the "Registration Statement") of our report dated
February 13, 1998, relating to the financial statements of The Guardian Separate
Account K and our report dated February 10, 1998, relating to the statutory
basis financial statements of The Guardian Insurance & Annuity Company, Inc.,
which appear in such Registration Statement. We also consent to the reference to
us under the heading "Experts" in such Registration Statement.
s/Price Waterhouse LLP
------------------------
PRICE WATERHOUSE LLP
New York, New York
April 24, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the "Annual
Report to Shareholders" dated December 31, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000929240
<NAME> Separate Account K - Park Avenue Life
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 35,906,487
<INVESTMENTS-AT-VALUE> 37,174,179
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 37,174,179
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,908
<TOTAL-LIABILITIES> 37,908
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 233,907
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,616,776
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,267,692
<NET-ASSETS> 37,136,271
<DIVIDEND-INCOME> 379,555
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 145,648
<NET-INVESTMENT-INCOME> 233,907
<REALIZED-GAINS-CURRENT> 3,616,776
<APPREC-INCREASE-CURRENT> 1,195,418
<NET-CHANGE-FROM-OPS> 5,046,101
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 145,648
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 145,648
<AVERAGE-NET-ASSETS> 23,623,318
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 4,812,194
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .004
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
