Registration Nos. 333-32101
811-8736
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
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THE GUARDIAN SEPARATE ACCOUNT K
(Exact Name of Trust)
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THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
(Name of Depositor)
7 Hanover Square, New York, New York 10004
(Complete Address of Principal Executive Offices)
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RICHARD T. POTTER, JR., ESQ.
The Guardian Insurance & Annuity Company, Inc.
201 Park Avenue South
New York, New York 10003
(Name and address of agent for service)
Copy to:
KIMBERLY SMITH, ESQ.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
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It is proposed that this filing will become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b), or
|X| on May 1, 1999 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i), or
|_| on May 1, 1999 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.
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The Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The notice required by such rule for the Registrant's most recent
fiscal year was filed on March 26, 1999.
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<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
N-8B-2 Item Heading in Prospectus
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1,2,3,51(a)..................... Cover Page; Summary
4............................... Distribution of the policy and other
contractual arrangements
5............................... Summary
6(a)............................ The variable investment options
6(b)............................ The variable investment options
7............................... Not Applicable
8............................... Financial Statements of the Guardian
Separate Account K
9............................... Legal proceedings
10(a),(b)....................... Partial withdrawals; Your right to cancel
your policy; Surrendering your policy
10(d)........................... Fixed-benefit insurance during the first 24
months; Transfers between the investment
options; Dollar cost averaging transfer
option; Decreasing the face amount
10(e)........................... Premiums (Default; Grace period; Reinstating
your policy)
10(f)........................... Voting rights
10(g),(h)....................... Rights reserved by GIAC
10(i),44(a),51(g)............... Premiums; Benefits and policy values; Policy
proceeds
11.............................. The variable investment options
12.............................. The variable investment options
13(a),(b),(c),51(g)............. Premiums, deductions and charges
13(d),(g)....................... Not Applicable
13(e),(f)....................... Deductions and charges; Distribution of the
policy and other contractual arrangements
14.............................. Issuing the policy
15.............................. Premiums (How your premiums are allocated;
Crediting payments)
16.............................. Premiums (How your premiums are allocated;
Transfers between the investment options;)
Dollar cost averaging transfer option;
Policy loans
17.............................. Surrendering your policy; Partial
withdrawals; Your right to cancel your
policy; Policy proceeds
18.............................. The variable investment options
19.............................. Communications from GIAC
20.............................. Not Applicable
21(a),(b)....................... Policy Loans; Premiums (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 variable investment options (The funds'
investment advisers)
41(b),(c),42,43................. Not Applicable
44(a)........................... Premiums; Benefits and Policy Values
44(b)........................... Exhibits
44(c)........................... Premiums
45.............................. Not Applicable
46(a),47........................ Benefits and policy values (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; Deductions and
charges (Cost of Insurance Charge;)
(Deductions from the Separate Account)
51(e),(f)....................... The Policyowner; The 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 of the Guardian
Separate Account K
<PAGE>
May 1, 1999
PARK AVENUE LIFE PROSPECTUS
Park Avenue Life is a variable whole life insurance policy with modified
scheduled premiums. It provides lifetime insurance protection with a guaranteed
minimum death benefit 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.
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The minimum death benefit may grow under certain circumstances. Premiums are
guaranteed for 10 years, or until the policy anniversary nearest the insured's
70th birthday if this is later. It offers you flexibility in deciding how your
premiums are invested, but you bear the risk of investment losses for any
premiums or cash values allocated to the variable investment options. 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. Your policy has the potential to generate
an increased cash value, while deferring your taxes on this growth. However, no
cash value is guaranteed, and you must make premium payments to keep the policy
in force. Variable life insurance is not a short-term investment. 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)
through its Separate Account K (Separate Account). Our offices are located at 7
Hanover Square, Mail Station 215-B, New York, New York 10004.
This prospectus sets forth information that you should know about the policy
before investing, and you should retain it for future reference. It must be
accompanied by the current prospectuses for:
The Guardian Stock Fund, Inc.
The Guardian Bond Fund, Inc.
The Guardian Cash Fund, Inc.
GIAC Funds, Inc.
The Guardian Small Cap Stock Fund
Baillie Gifford International Fund
Baillie Gifford Emerging Markets Fund
Value Line Centurion Fund
Value Line Strategic Asset Management Trust
Gabelli Capital Series Fund, Inc.
Gabelli Capital Asset Fund
MFS(R) Variable Insurance Trust(SM)
MFS Emerging Growth Series
MFS Total Return Series
MFS Growth With Income Series
MFS Bond Series
American Century Variable Portfolios, Inc.
American Century VP Value Fund
American Century VP International Fund
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund
AIM V.I. Value Fund
Fidelity Variable Insurance Products Fund
(Fidelity VIP)
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Fidelity Variable Insurance Products Fund II
Fidelity VIP II Index 500 Portfolio
Fidelity Variable Insurance Products Fund III
Fidelity VIP III Growth Opportunities Portfolio
These funds correspond to the policy's variable investment options. You can also
allocate premiums to a fixed-rate option. Special limits apply to transfers out
of the fixed-rate option.
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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.
The policy is not a deposit or obligation of or guaranteed or endorsed by, any
bank or depository institution, is not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency, and
involves investment risk, including possible loss of principal amount invested.
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<PAGE>
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CONTENTS
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Summary ......................................................... 1
About the Park Avenue Life Policy ............................... 13
- Issuing the policy ........................................... 13
- The Policyowner .............................................. 14
- The Beneficiary .............................................. 14
Benefits and policy values ...................................... 15
- Death benefit options ........................................ 15
- Minimum death benefit ........................................ 16
- The variable insurance amount ................................ 16
- Changing your death benefit option ........................... 16
- Paying the death benefit ..................................... 17
- Policy values ................................................ 17
Premiums, deductions and charges ................................ 20
- Premiums ..................................................... 20
- Deductions and charges ....................................... 29
Your allocation options ......................................... 38
- The variable investment options .............................. 38
- The fixed-rate option ........................................ 45
Special features of your policy ................................. 47
- Policy loans ................................................. 47
- Decreasing the face amount ................................... 49
- Surrendering your policy ..................................... 52
- Transfers between the investment options ..................... 53
- Transfers from the fixed-rate option ......................... 53
- Dollar cost averaging transfer option ........................ 54
- Policy proceeds .............................................. 55
- Policy value options ......................................... 57
- Fixed-benefit insurance during the first 24 months .......... 59
- Payment options ............................................. 60
Tax considerations ............................................. 62
- Tax status of the policy .................................... 62
- Treatment of policy proceeds ................................ 63
- Exchanges ................................................... 64
- Policy changes .............................................. 64
- Estate and generation skipping transfer taxes ............... 65
- Other tax consequences ...................................... 65
- Possible tax law changes .................................... 66
- GIAC's taxes ................................................ 66
- Income tax withholding ...................................... 66
<PAGE>
Rights and responsibilities .................................... 67
- Assigning the rights to your policy ......................... 67
- Voting rights ............................................... 67
- Limits to GIAC's right to challenge a policy ................ 68
- Rights reserved by GIAC ..................................... 69
- Your right to cancel your policy ............................ 70
Other information .............................................. 71
- Distribution of the policy and other contractual arrangements 71
- Communications we'll send you ............................... 72
- Special provisions for group or sponsored arrangements ...... 72
- Legal considerations for employers .......................... 73
- Advertising practices ....................................... 74
- Legal proceedings ........................................... 75
- Legal matters ............................................... 75
- Year 2000 Compliance ........................................ 75
- Registration statement ...................................... 75
- Financial and actuarial experts ............................. 75
- GIAC's management ........................................... 76
Special terms used in this prospectus .......................... 78
Financial Statements of The Guardian Separate Account K ........ 81
Statutory Basis Financial Statements of
The Guardian Insurance & Annuity Company, Inc. ................. 100
Appendices A to D .............................................. 116
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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 supplement thereto
or in any supplemental sales material authorized by GIAC
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SUMMARY
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This summary outlines the principal features of your Park Avenue Life variable
life insurance policy. It is qualified by the detailed explanation which follows
and the terms of your Park Avenue Life policy. We deliver this prospectus with a
copy of the prospectuses for each of the mutual funds corresponding to the
variable investment options in which you may invest your Park Avenue Life
premiums.
Please read this prospectus and the fund prospectuses carefully before
investing.
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Terms we've used
In this document, we, us, and our refer to The Guardian Insurance &
Annuity Company, Inc., and you and your refer to the policyowner. You can
find definitions of special terms used in this prospectus at the end of
this document. We've used italic script to highlight these terms the first
time they appear in the text.
WHAT IS VARIABLE LIFE INSURANCE AND HOW DOES IT WORK?
Variable life insurance is intended to provide two important benefits:
o a death benefit that is not taxable to your beneficiary
o a cash value that can grow, with taxes on the growth being deferred.
You allocate your net premium payments (the amount that remains after we deduct
premium charges from your basic scheduled premium) and cash value among the
variable investment options and the fixed-rate option. Most of these options
provide variable returns. That's why it's called variable life insurance.
If the investment options that you choose perform well, the cash value of your
policy will increase, and the death benefit may also increase. As a variable
life insurance policy owner, however, you bear the risk of investment losses to
the extent that your cash values are invested in the variable options. Your
policy has no guaranteed cash value.
WHO CAN BUY A PARK AVENUE LIFE POLICY?
You can buy a Park Avenue Life policy if:
o you live in a state or jurisdiction where we offer the policy, and
o the person being insured is under age 70 and meets our insurance
requirements.
If you already own a fixed-benefit insurance policy from us or our parent
company, Guardian Life, you may be able to buy a Park Avenue Life policy without
meeting our insurance requirements by exchanging your present policy. You may
also convert it to a Park Avenue Life policy if your fixed-benefit policy
includes the appropriate riders. In this case you may have to meet minimal
insurance requirements.
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S U M M A R Y P R O S P E C T U S 1
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<PAGE>
Consult your legal or tax adviser about the consequences of exchanging your
existing policy for a Park Avenue Life policy. See the sections in this
prospectus called Deductions and charges, Tax considerations, and Special
provisions for group or sponsored arrangements.
WHAT ARE THE BENEFITS UNDER YOUR POLICY?
There are two types of insurance benefits available through this policy: death
benefits and rider benefits. We pay death benefits to the beneficiary named in
the policy when we receive proof that the insured has died while the policy was
in force. Rider benefits offer special optional coverage in addition to the
death benefit. The rider benefits you choose will determine the additional
amount, if any, that's paid to the beneficiary.
Benefits
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There are two types of insurance benefits available through this policy:
death benefits and rider benefits. We pay death benefits to the
beneficiary named in the policy when we receive proof that the insured has
died while the policy was in force. Rider benefits offer special optional
coverage in addition to the death benefit.
Death benefits
You have a choice of two death benefit options with this policy:
o under Option 1, the death benefit will at least equal your policy's face
amount when the insured dies,
o under Option 2, the death benefit is a variable amount that may grow
beyond the face amount if your policy account value increases and exceeds
your policy's benchmark value shown in your policy. The benchmark value is
a measure we use to assess the adequacy of the funding in your policy over
time. For an explanation see Special terms used in this prospectus. Under
this option the death benefit will also at least equal your policy's face
amount.
You may choose either of these options until the policy anniversary (the
anniversary each year of the date your policy was issued) closest to the
insured's 100th birthday. On or after this date, the death benefit will be the
policy account value.
You can change your policy's death benefit option once in a policy year, after
your policy has been in force for one year, and as long as the insured is still
living. If you are changing from Option 1 to Option 2, you will need to prove
that the insured meets our insurance requirements. For more information see
Death benefit options.
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2 P R O S P E C T U S S U M M A R Y
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<PAGE>
Rider benefits
Riders are a way to add to the coverage offered by your policy. The following
riders are offered under this policy. They are subject to GIAC's insurance and
policy issuing requirements, and all may not be available in all states:
o waiver of premium
o accidental death benefit
o guaranteed purchase option
o simplified insurability option
o adjustable renewable term insurance.
Premiums for any rider benefits you buy will be included in your policy
premiums, but are not allocated to the variable investment or fixed-rate
options. Riders have no cash value.
HOW MUCH DO WE PAY OUT IF THE INSURED DIES?
The amount we pay when the insured dies is:
o the proceeds of the death benefit option in place at the time of the
insured's death, minus
o any outstanding policy loans, plus accrued interest, and any policy
premiums that are due, plus
o the extra insurance provided by any riders included in your policy, plus
o any premiums or other charges that you have paid to provide coverage after
the policy month in which the insured dies.
We pay these benefits in a lump sum, or under one of the options described in
Payment options.
HOW MUCH DO YOU HAVE TO PAY IN PREMIUMS?
Premiums are the payments you make to buy and keep your insurance in force.
There are several types of premiums associated with your Park Avenue Life
policy, which together form your policy premium. They are:
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S U M M A R Y P R O S P E C T U S 3
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<PAGE>
o the basic scheduled premium that you must pay each year in exchange for
life insurance coverage. This basic scheduled premium is based on your
policy's face amount, the insured's age and premium class. It's also based
on the insured's sex except in states where gender-neutral rates are
required by law.
Your basic scheduled premium will not increase during the guaranteed
premium period. It may decrease however, if you reduce the face amount.
After the guaranteed premium period, we will review your policy each year
to determine if your basic scheduled premium should change. If we do
change your basic scheduled premium, it will never be higher than the
maximum basic scheduled premium shown in your policy. Nor will it be lower
than the basic scheduled premium during your policy's guaranteed premium
period, unless you reduce the face amount. See Basic scheduled premiums.
o rating charges, which are added to your basic scheduled premium if the
insured doesn't meet our insurance requirements for standard insurance
when we issue your policy,
o rider premiums for any additional coverage you have added to your policy
through a rider.
Paying premiums
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After you pay the first policy premium, you must pay further policy
premiums once a year. You can, however, ask to pay them semi-annually,
quarterly or monthly through an automatic payment plan, or at any other
interval that we agree to. Within limits, you may also make unscheduled
payments to your policy at any time.
Rating charges and rider premiums are policy premium assessments. They are not
invested in the variable or fixed-rate allocation options, and do not add to the
cash value of your policy.
After you pay the first policy premium, you must pay further policy premiums
once a year. You can, however, ask to pay them semi-annually, quarterly or
monthly through an automatic payment plan, or at any other interval that we
agree to. Within limits, you may also make unscheduled payments to your policy
at any time.
If you choose the Premium Skip Option you may, after the first policy year and
under certain circumstances, `skip' paying one or more annual premiums without
causing the policy to lapse or reducing the face amount. You may also pay your
premiums by taking out a loan through our Automatic Premium Loan feature.
If you choose the Premium Skip Option, skipping policy premiums, or paying them
through a loan, can adversely affect the overall value of your policy, but won't
reduce your guaranteed death benefit or cause your policy to lapse. See Could my
policy lapse?
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4 P R O S P E C T U S S U M M A R Y
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<PAGE>
Allocation options
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You choose where your net premiums are invested. There are a number of
variable investment options and a fixed-rate option. Your premiums may be
allocated to a maximum of seven allocation options at one time.
WHAT ARE YOUR ALLOCATION OPTIONS?
You choose where your net premiums are invested. There are a number of variable
investment options and a fixed-rate option. Your premiums may be allocated to a
maximum of seven allocation options at one time.
Each variable investment option invests in a series of a mutual fund. The value
of these options, and your policy account value in them, will vary depending on
the performance of the mutual funds corresponding to the options you choose.
There is no minimum guaranteed policy account value for the amounts allocated to
the variable investment options.
The mutual funds that are currently available through the variable investment
options are:
The Guardian Stock
Fund, Inc.
The Guardian Bond
Fund, Inc.
The Guardian Cash
Fund, Inc.
GIAC Funds, Inc.
The Guardian Small Cap
Stock Fund
Baillie Gifford
International Fund
Baillie Gifford Emerging
Markets Fund
Value Line Centurion
Fund, Inc.
Value Line Strategic Asset
Management Trust
Gabelli Capital Series
Fund, Inc.
Gabelli Capital Asset Fund
MFS(R) Variable Insurance Trust(SM)
MFS Emerging Growth Series
MFS Total Return Series
MFS Growth With
Income Series
MFS Bond Series
American Century Variable
Portfolios, Inc.
American Century VP
Value Fund
American Century VP
International Fund
AIM Variable Insurance
Funds, Inc.
AIM V.I. Capital
Appreciation Fund
AIM V.I. Value Fund
Fidelity Variable Insurance
Products Fund
(Fidelity VIP)
Fidelity VIP Equity-Income
Portfolio
Fidelity VIP High Income
Portfolio
Fidelity Variable Insurance
Products Fund II
Fidelity VIP II Index 500
Portfolio
Fidelity Variable Insurance
Products Fund III
Fidelity VIP III Growth
Opportunities Portfolio
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S U M M A R Y P R O S P E C T U S 5
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<PAGE>
You will find the investment objectives, policies, risks, fees and expenses for
each of these funds listed in the accompanying prospectus for that fund. You
should read the corresponding fund prospectus carefully before investing in any
variable investment option. For a summary of this information see The variable
investment options.
The fixed-rate option earns a set rate of interest. The interest rate is
guaranteed from the time you allocate net premiums or transfer policy values to
the fixed-rate option until your next policy anniversary, when the rate is set
for the next year. You earn interest on the total that you have invested in the
fixed-rate option, including interest you have earned in previous years.
Interest accrues daily at a minimum annual interest rate of 4%. GIAC sets the
rate of interest for the fixed-rate option and guarantees your principal and
interest under this option.
CAN YOU TRANSFER THE MONEY IN YOUR POLICY AMONG DIFFERENT ALLOCATION OPTIONS?
Provided the money in your policy is not being held as collateral against a
loan, you can transfer it among the variable investment options, and into the
fixed-rate option, at any time. You may choose up to seven allocation options at
any time. We limit transfers out of the fixed-rate option. See The fixed-rate
option.
Withdrawing money
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After your policy has been in force for one year, you may, within limits,
make partial withdrawals of your policy's net cash surrender value. You
may also borrow up to 90% of your policy's cash surrender value. You may
at any time surrender your policy for the net cash surrender value.
DO YOU HAVE ACCESS TO THE MONEY YOU'VE INVESTED IN YOUR POLICY?
After your policy has been in force for one year, you may, within limits, make
partial withdrawals of your policy's net cash surrender value. The net cash
surrender value is your policy account value minus any surrender charges and
policy debt, plus any amounts paid as policy premium assessments beyond the next
monthly date. Policy debt is made up of all unpaid policy loans, plus the
accumulated and unpaid interest on those loans.
You may also borrow up to 90% of your policy's cash surrender value. The cash
surrender value is the policy account value minus any surrender charges. We will
charge you an annual interest rate of 8%, calculated daily, on all outstanding
loans that you have taken against your policy. This rate will decrease to 5%
after your policy's 20th anniversary, or after the insured reaches attained age
65.
You may at any time surrender your policy for the net cash surrender value.
After you surrender your policy, you no longer have insurance coverage and your
policy cannot be reinstated.
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6 P R O S P E C T U S S U M M A R Y
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<PAGE>
Tax on increases
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Increases in the value of your policy will not be taxed unless you make a
withdrawal (or, in some cases, take a loan) or surrender your policy
before the insured dies.
HOW IS YOUR POLICY AFFECTED BY TAXES?
Increases in the value of your policy and the death benefit
We believe that your Park Avenue Life policy will receive the tax benefits
generally associated with life insurance contracts under existing federal tax
laws. This means that increases in the value of your policy will not be taxed
unless you make a withdrawal (or, in some cases, take a loan) or surrender your
policy before the insured dies. Partial withdrawals, surrenders and policy loans
all result in money being taken out of your policy before the insured dies. We
believe that the money the beneficiary receives when the insured dies is not
subject to federal income tax, but may be subject to federal estate taxes or
generation skipping transfer taxes. See Tax Considerations.
WHAT DEDUCTIONS AND CHARGES DO YOU HAVE TO PAY?
There are various deductions and charges associated with maintaining your Park
Avenue Life policy. Each of these charges is outlined below and in detail in
Deductions and charges. Some of these charges can vary, depending on certain
circumstances, and there may be a guaranteed or maximum charge, and a current
charge. The guaranteed or maximum charge is the most that we can charge you for
a particular item. The current charge is what we are now charging for that item.
We have the right to increase the current charge up to the maximum charge. Where
the law requires, we will tell you if we increase these charges.
Charges deducted from your policy premiums and unscheduled payments
Policy premium assessments: These are ratings charges and rider premiums which
have been added to your basic scheduled premium to form your policy premium. We
deduct this amount from each policy premium payment.
Premium charge: This charge covers premium taxes assessed against us by the
jurisdictions where the policy is issued, plus a portion of our federal income
taxes and a premium sales charge. The charge is 7.5% of each basic scheduled
premium and any unscheduled payments, until you have paid basic scheduled
premiums and unscheduled payments in an amount equal to 12 basic scheduled
payments for the current face amount during the guaranteed premium period. Once
this amount has been reached, the premium charge is 4.5% per payment.
Handling fees: We can charge you a maximum handling fee of $2 for each
unscheduled payment you make. We deduct this fee from your payment before the
premium charge is calculated. We do not currently charge this fee.
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S U M M A R Y P R O S P E C T U S 7
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<PAGE>
Monthly deductions
We deduct these charges from your policy account value on the same date each
month. The monthly deductions are as follows:
Policy charge: For the first three policy years, we charge you $10 per month.
After three years, the charge is currently $4 per month, and is guaranteed never
to exceed $8 per month.
Administration charge: For the first 12 years of your policy, we base the
monthly administration charge on the insured's age when the policy started. It
is a set rate of no more than $0.04 for every $1,000 of your policy's face
amount. After the 12th year, the administration charge is $0.015 per $1,000 of
your policy's face amount.
Guaranteed insurance amount charge: A monthly charge of $0.01 per $1,000 of your
policy's face amount.
Cost of insurance charge: We base this charge on our current cost of insurance
rates for the insured, depending on his or her attained age (which is the
insured's age on the policy date plus the number of policy years completed since
the policy date), sex and premium class. The maximum that we can charge for each
$1,000 of the net amount at risk (the difference between your policy account
value and your policy's death benefit) is set out in your policy.
After the anniversary closest to the insured's 100th birthday we no longer
collect these monthly deductions.
Transaction deductions
We deduct these charges from the policy account value when you ask us to do
certain transactions. The charges are as follows:
Surrender charge: During the first 12 policy years, this charge applies if you
surrender your policy, let it lapse, or reduce the face amount either because
you ask us to, or as the result of a partial withdrawal. This charge is a flat
rate for every $1,000 that your policy would pay at death or maturity, and is
outlined in your policy. It declines proportionally each year until it is zero
after 12 years, and varies depending on the insured's age when the policy was
issued, sex and premium class.
Partial withdrawal charge: If you make a partial withdrawal, we will charge you
$25 or 2% of the amount of your withdrawal, whichever is lower, in addition to
any surrender charges that may apply.
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8 P R O S P E C T U S S U M M A R Y
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<PAGE>
Premium Skip Option deduction: If you skip a premium under our Premium Skip
Option, we will deduct an amount equal to 92.5% of any policy premium
assessments from the policy account value.
Transfer charge: After you make twelve transfers of policy account value among
the allocation options within a policy year, we may charge you $25 for each
additional transfer. We don't currently impose this charge.
Deductions associated with the Separate Account
We deduct a daily charge, based on an annual rate of 0.60%, from the variable
investment options to cover the mortality and expense risks that we assume for
Park Avenue Life policies. This charge will never be more than 0.90%.
We also have the right to charge the Separate Account to cover any taxes that
are applicable to the Separate Account or the policies. We don't currently
impose this charge.
Deductions associated with the mutual funds
Daily deductions are made from the value of the mutual funds in which you invest
through the Separate Account, to cover advisory fees and other expenses. As a
result, you pay these fees and expenses indirectly. The fees and expenses vary
for each mutual fund and are described in more detail in the fund prospectuses.
Policy changes
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With certain restrictions, you may:
o request a decrease in the face amount of your policy
o exchange your Park Avenue Life Policy for a fixed benefit life
insurance policy
o cancel your policy after it has been issued.
See accompanying text for details.
WHAT CHANGES CAN YOU MAKE TO YOUR POLICY?
Decreasing the face amount of the policy
After your policy has been in force for one year, you may request a decrease in
the face amount. The decrease must be at least $10,000, and the insured must be
alive when we receive your request. If you ask us to reduce the face amount in
the first 12 years of your policy, you will pay a surrender charge. The new face
amount cannot be lower than GIAC's current minimum face amount.
Exchanging your Park Avenue Life policy for a fixed-benefit life insurance
policy
You may exchange your Park Avenue Life policy for a fixed-benefit whole life
insurance policy issued by GIAC or one of our affiliates within two years of the
issue date of your policy. If you do this, you don't have to prove that the
person being insured meets our insurance requirements for issuing a policy.
Depending on the amount applied to the new policy, there may be a credit or a
cost to be paid.
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S U M M A R Y P R O S P E C T U S 9
----------------------
<PAGE>
Canceling your policy after it has been issued
You may cancel your policy by returning it with a written cancellation notice to
either our executive office or the agent from whom you bought the policy. You
must do this within:
o 10 days after you receive your policy, or
o 45 days after you sign Part 1 of the completed application for your
policy.
Longer periods may apply in some states. Once we receive your notice, we will
refund all of the premiums you paid, and your policy will be considered void
from the beginning. See Your right to cancel your policy.
Could your policy lapse?
- --------------------------------------------------------------------------------
Your policy may lapse if you don't pay a policy premium within 31 days of
the due date or if you have excess policy debt.
COULD YOUR POLICY LAPSE?
Your policy may lapse if you don't pay a policy premium within 31 days of the
due date or if you have excess policy debt. You must pay policy premiums in cash
by the due date, unless you qualify and have signed up for your policy's Premium
Skip Option or Automatic Premium Loan feature. We will tell you that you must
make a loan repayment if the amount that you owe us becomes greater than your
cash surrender value.
We will tell you if your policy is in danger of lapsing, and will keep your
policy in force if we receive the required payment when requested. If your
policy does lapse, we can continue your coverage for a limited time, or for a
reduced amount, under one of the Policy Value Options.
If your policy has lapsed and it has not been surrendered for its cash value,
you may have up to five years to reinstate it. See Premiums (Premium Skip
Option, Automatic Premium Loan, Grace Period and Reinstating your policy) and
Policy value options.
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10 P R O S P E C T U S S U M M A R Y
- -----------------------
<PAGE>
HOW CAN YOU COMMUNICATE WITH US?
We cannot act on any request (except for proper telephone transfer requests)
unless it is received in writing at our executive office, in a form acceptable
to us. Your request must include:
o your policy number
o the full name of all policyowners
o the full name of the insured, and
o your current address.
Our address for regular mail is:
The Guardian Insurance & Annuity Company, Inc.
7 Hanover Square
Mail Station 215-B
New York, New York 10004
Our address for registered, certified or express mail is:
The Guardian Insurance & Annuity Company, Inc.
215 Park Avenue South
18th floor
New York, New York 10003
If you need information on the value of your policy, you may call us at
1-800-935-4128 between 9 a.m. and 4 p.m. New York time.
WHO ISSUES YOUR PARK AVENUE LIFE POLICY?
Your Park Avenue Life policy is issued, through its Separate Account K, by The
Guardian Insurance & Annuity Company, Inc. (GIAC), a Delaware stock insurance
company formed in 1970. GIAC is licensed to sell life insurance in all 50 states
of the United States of America and the District of Columbia. As of December 31,
1998, our total assets (statutory basis) exceeded $9 billion.
We are wholly owned by The Guardian Life Insurance Company of America (Guardian
Life). The offices of both Guardian Life and GIAC are located at 7 Hanover
Square, New York, New York 10004.
Both Guardian Life and GIAC 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 meet its insurance-related obligations and the guaranteed return on
the fixed-rate option. These ratings do not apply to the variable investment
options, which are subject to the risks of investing in any securities. Guardian
Life does not issue the Park Avenue Life policies, and does not guarantee the
benefits provided by the policy.
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S U M M A R Y P R O S P E C T U S 11
-----------------------
<PAGE>
The Park Avenue Life diagram(1)
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Less
POLICY PREMIUMS ------------> Policy premium
assessments:
o Rider premiums
o Rating charges
UNSECHEDULED PAYMENTS ------------> Premium charge
POLICY ACCOUNT VALUE
THE SEPARATE ACCOUNT
THE MUTUAL FUNDS Less
(including any investment -------------> Advisory fees and
return): operational expenses
Guardian Investor Services Corporation
The Guardian Stock Fund
The Guardian Small Cap Stock Fund
The Guardian Bond Fund
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 Less
------------> Monthly deductions:
Massachusetts Financial Services Company o Policy charge
MFS Emerging Growth Series o Administration charge
MFS Total Return Series o Guaranteed insurance
MFS Growth With Income Series amount charge
MFS Bond Series o Charge for the cost
of insurance
American Century Investment Management, Inc.
American Century VP Value Fund
American Century VP International Fund
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
CASH SURRENDER VALUE o Premium skip option
================================== deduction
Less
-------------------------> Policy debt
==================================
NET CASH SURRENDER VALUE
==================================
(1) 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.
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12 P R O S P E C T U S
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<PAGE>
- --------------------------------------------------------------------------------
ABOUT THE PARK AVENUE LIFE POLICY
- --------------------------------------------------------------------------------
This section provides detailed information about your policy. It explains your
rights and responsibilities under the policy, and those of GIAC. Because the
laws and regulations that govern the policy vary among the jurisdictions where
the policy is sold, some of the policy's terms will vary depending on where you
live. These will be outlined in the policy we send you.
- --------------------------------------------------------------------------------
Issuing the policy
- --------------------------------------------------------------------------------
A Park Avenue Life insurance policy must have a face amount of at least
$100,000.
ISSUING THE POLICY
A Park Avenue Life insurance policy must have a face amount of at least
$100,000. To issue a policy:
o the insured must be age 80 or under and meet our insurance requirements,
and
o you must live in a state or jurisdiction in which we offer the policy.
If you already own certain fixed-benefit life insurance policies issued by us or
by Guardian Life, you may be able to buy a Park Avenue Life policy without
having to meet our insurance requirements again. You can do this by exchanging
your current policy for a Park Avenue Life policy or if your fixed-benefit
policy contains a rider to permit you to purchase a Park Avenue Life policy. You
may also be able to convert to a Park Avenue Life policy if your existing policy
contains appropriate riders. In this case you may have to meet minimal insurance
requirements.
If you have a convertible term policy, or a whole life policy with a convertible
term rider, you may receive a credit of up to one basic scheduled premium if you
convert it to a Park Avenue Life policy.
If you are interested in exchanging an existing policy for a Park Avenue Life
policy, we recommend that you speak with your lawyer or tax adviser first.
Replacing your existing policy may not be advantageous.
Backdating your policy
Under certain circumstances we will backdate your policy if you ask us to,
giving you a policy date up to six months before the application was actually
signed. Backdating your policy may be beneficial if, for example, it would allow
you to qualify for a lower premium because the insured was younger on the policy
date. To backdate a policy you must pay all policy premiums that would have been
due from the backdated policy date. We deduct the monthly deductions due from
the backdated policy date to the issue date on the date the policy is actually
issued.
-----------------------
A B O U T T H E P O L I C Y P R O S P E C T U S 13
-----------------------
<PAGE>
The Policyowner
- --------------------------------------------------------------------------------
The policyowner is the person named on the application as the owner of the
policy. You may own a policy jointly with more than one person. A
policyowner does not have to be the insured.
THE POLICYOWNER
The policyowner is the person named on the application as the owner of the
policy. You may own a policy jointly with more than one person. A policyowner
does not have to be the insured. While the insured is living, only the
policyowner named in our records has the right to exercise rights granted by the
policy unless ownership of the policy has been assigned to someone else. Except
for transfers, all of the policy's joint owners must approve policy transactions
or changes in writing, including assigning ownership of the policy to someone
else. When a joint policyowner dies, we will divide his or her share of the
policy equally among the other policyowners, unless the deceased policyowner has
indicated otherwise.
If you want to change the policyowner, you must request it in writing in a form
acceptable to us. Your request must be signed and dated by all of the
policyowners. The change will be made effective on the date your request was
signed, but will not apply to any payments or actions taken before we receive
your request.
If you are not the insured and die before the insured, your estate (or if there
had been joint owners, the estate of the last surviving joint owner) becomes the
policyowner, unless you have named someone to take over ownership of the policy
(a successor owner). If you are both the policyowner and the insured, a
successor owner may not be named, because the policy ends when you die.
The Beneficiary
- --------------------------------------------------------------------------------
The beneficiary is the person you name to receive the proceeds when the
insured dies.
THE BENEFICIARY
The beneficiary is the person you name to receive the proceeds when the insured
dies. You can change the beneficiary until the insured dies. Also, you may name
a 'contingent' beneficiary, who will receive the proceeds if the first
beneficiary dies before the insured, or a second or 'concurrent' beneficiary,
who will receive a portion of the proceeds when the insured dies. The
beneficiary must live longer than the insured to qualify as a beneficiary, and
has no rights under the policy until the insured dies. If the insured outlives
all of the beneficiaries named in the policy, then the policyowner or the
policyowner's estate becomes the beneficiary.
If you want to change the beneficiary, you must give us your instructions in
writing in a form acceptable to us. Your request must be signed and dated by all
of the policyowners listed in our records. The change is made effective on the
date your request was signed, but will not apply to any payments or actions
taken before we receive your request.
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14 P R O S P E C T U S A B O U T T H E P O L I C Y
- -----------------------
<PAGE>
- --------------------------------------------------------------------------------
BENEFITS AND POLICY VALUES
- --------------------------------------------------------------------------------
Death benefit options
- --------------------------------------------------------------------------------
You have a choice of two death benefit options with this policy. If a
fixed amount of insurance coverage and potentially lower monthly
deductions best fits your needs you should choose Option 1. If you want
the potential to increase the amount of your insurance coverage beyond
your policy's guaranteed face amount you should choose Option 2. See
accompanying text for details.
DEATH BENEFIT OPTIONS
You have a choice of two death benefit options with this policy. You should
choose the death benefit option that best meets your insurance needs and
investment objectives. If a fixed amount of insurance coverage and potentially
lower monthly deductions best fits your needs you should choose Option 1. If you
want the potential to increase the amount of your insurance coverage beyond your
policy's guaranteed face amount you should choose Option 2.
Option 1
Under Option 1, your death benefit is the greater of:
o the face amount on the date of the insured person's death
o the minimum death benefit required under Section 7702 of the Internal
Revenue Code on the monthly date before the insured's death, or
o after the first policy year, the variable insurance amount. This is
explained below.
Under this option, if your investments perform well or you make unscheduled
payments and the policy account value increases by a sufficient amount, then the
net amount at risk will be lower. When this happens, the amount that we deduct
for the cost of insurance charges each month may also go down.
Option 2
Under Option 2, your death benefit is the greater of:
o the face amount on the date of the insured person's death, plus the amount
by which the policy account value exceeds the benchmark value as of the
monthly date before the insured's death.
o the minimum death benefit required under Section 7702 of the Internal
Revenue Code on the monthly date before the insured's death, or
o after the first policy year, the variable insurance amount. This is
explained below.
Under this option, if your investments perform well or you make unscheduled
payments, your policy account value may increase enough to increase your death
benefit. If your investments perform poorly, your death benefit could be lower,
but it will never be lower than the face amount. Investment performance and
unscheduled payments do not affect your net amount at risk under this option.
Regardless of which option you choose, after the policy anniversary closest to
the insured's 100th birthday the death benefit is the policy account value. The
tax consequences of continuing the policy beyond the insured's 100th birthday
are unclear. You should consult a tax adviser for more information.
-----------------------
B E N E F I T S A N D P O L I C Y V A L U E S P R O S P E C T U S 15
-----------------------
<PAGE>
If you make a partial withdrawal from your policy between the most recent
monthly date and the death of the insured, the death benefit under both options
will be reduced by the amount of your withdrawal plus any applicable charges.
Minimum death benefit
- --------------------------------------------------------------------------------
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, then divided by the net single premium per $1,000 for the
insured's attained age, sex, and premium class. The net single premium on
any monthly date is determined by interpolation between the net single
premiums for the policy anniversaries immediately before and after that
monthly date. The net single premium is adjusted to the monthly date
immediately before the insured's death. You will find a table of net
single premiums in your policy.
THE VARIABLE INSURANCE AMOUNT
The variable insurance amount provides a guarantee that your policy's death
benefit will be greater than its face amount if the policy account value exceeds
the net single premium on any policy review date. We calculate the variable
insurance amount for each year of your policy after the first policy anniversary
by multiplying $1,000 by the policy account value on the policy review date and
then dividing that number by the net single premium per $1,000 that applies for
that policy review date. If you reduce the face amount of your policy, or you
make a partial withdrawal from your policy, the variable insurance amount will
be reduced. The net single premium for a policy review date is based on the net
single premiums for the policy anniversaries immediately before and after the
policy review date, and is then adjusted for the number of days that the policy
review date falls between these anniversaries.
CHANGING YOUR DEATH BENEFIT OPTION
After the first anniversary of your policy you may change the death benefit
option once each policy year, as long as the insured is alive. Changes to your
death benefit option will take effect on the monthly date after we approve the
change, and will not affect the face amount of your policy. Changing the death
benefit option may have adverse tax consequences. You should consult a tax
adviser before doing so.
If you are changing your death benefit from Option 1 to Option 2, the insured
will have to meet our insurance requirements for issuing a policy at the time of
the change. This is because the change will increase your death benefit by any
positive amount by which the policy account value exceeds your policy's
benchmark value on the date the change takes effect. Your death benefit will
decrease by this amount if you change from Option 2 to Option 1.
We will not approve a change from Option 1 to Option 2 if you are not paying
your policy premiums under a waiver of premium rider.
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16 P R O S P E C T U S B E N E F I T S A N D P O L I C Y V A L U E S
- -----------------------
<PAGE>
PAYING THE DEATH BENEFIT
We will pay a death benefit to the beneficiaries named in your policy when we
receive proof that the insured has died while the policy was in effect. If there
is reason to dispute the policy, then we may delay the payment of death
benefits. See Limits to GIAC's right to challenge a policy.
POLICY VALUES
The following is a detailed breakdown of how we calculate the different values
associated with your policy.
Amounts in the Separate Account
Any net premiums that you allocate or transfer to a variable investment option
are used to buy shares in the mutual fund corresponding to the variable
investment option, according to your instructions. We will sell these shares
when you make a withdrawal, transfer or take a policy loan, or when we withdraw
your monthly deductions, or make dollar cost averaging transfers. Based on the
value of each share on the transaction date, we will sell the number of shares
needed to cover the cost of that transaction.
To calculate the value of your investment in a particular variable investment
option, multiply the unit value of the option by the number of units you own.
Unit values change based on the investment performance of mutual fund shares and
the daily deductions that are made to cover our mortality and expense risks. We
calculate the unit value for each variable investment option at the end of each
day. Note that you bear all risks associated with the investments in the
Separate Account.
Policy account value
This is the total value of the investments held in your policy. This includes
the value of your allocations to the fixed-rate and variable investment options,
and any policy values that may be in the Loan Collateral Account as collateral
for a policy loan. It is calculated as:
o net premiums that you contribute to your policy; plus or minus
o any profit or loss generated by your policy account value in the variable
investment options; plus
o any interest you earn on allocations to the fixed-rate option or interest
we credit on the Loan Collateral Account; minus
o your total monthly deductions; minus
o any partial withdrawals you've made, minus
o any surrender, partial withdrawal or transfer charges; minus
o any Premium Skip Option deductions.
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B E N E F I T S A N D P O L I C Y V A L U E S P R O S P E C T U S 17
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<PAGE>
Cash surrender value and net cash surrender value
- --------------------------------------------------------------------------------
Cash surrender value is the policy account value minus any surrender
charges. There are no surrender charges after your policy has been in
effect for 12 years. Net cash surrender value is the amount you would
actually receive if you surrendered your life insurance policy.
Cash surrender value and net cash surrender value
Cash surrender value is the policy account value minus any surrender charges.
There are no surrender charges after your policy has been in effect for 12
years. Net cash surrender value is the amount you would actually receive if you
surrendered your life insurance policy. It is your policy account value minus
any surrender charges and policy debt, plus any policy premium assessments
you've paid covering the period beyond the next monthly date.
Benchmark value
A hypothetical account value that we use as a guide, comparing it against the
policy account value or cash surrender value when we determine:
o whether your death benefit has increased above the face amount, and if so
by how much, if you've chosen Option 2
o if you can skip a premium under the Premium Skip Option
o if you can make a partial withdrawal, and
o any change in your basic scheduled premium after the guaranteed premium
period has ended.
Your policy's benchmark value for each policy year is set out in your policy. To
calculate your policy's benchmark value on a given day, we will take the
benchmark values for your last policy anniversary and your upcoming policy
anniversary, and adjust for the number of days that your given day is between
these anniversaries. GIAC does not guarantee that the policy account value will
equal or exceed the benchmark values set forth in the policy.
Tabular account value
The value of a hypothetical account that we compare to your policy account value
when we set your basic scheduled premium each year after the guaranteed premium
period. It is also used to calculate your policy's benchmark values. For a full
explanation, see Special terms used in this prospectus. GIAC does not guarantee
that the policy account value will equal or exceed the tabular account values
set forth in the policy.
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18 P R O S P E C T U S B E N E F I T S A N D P O L I C Y V A L U E S
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<PAGE>
Net investment factor
We calculate the unit value of each variable investment option by multiplying
the option's immediately preceding unit value by the net investment factor for
that day. We calculate the net investment factor as follows on each business
day:
o the net asset value of one share of the mutual fund corresponding to the
variable investment option at the close of the current business day, plus
o the amount per share of any dividends or capital gains distributed by the
fund on the current business day, divided by
o the net asset value of one share of the same mutual fund at the close of
the previous business day, minus
o the total daily charges we deduct from the variable investment option to
cover mortality and expense risks, which will not exceed .00002477% per
day or 0.90% annually, and any federal, state or local taxes.
On a day that is not a business day, the net investment factor is calculated by
subtracting the total daily charges deducted from the variable investment option
to cover mortality and expense risks, as well as any taxes, from 1.0.
Currently we do not make daily deductions from the Separate Account to cover
income taxes. The accompanying prospectuses for each fund describe how they
calculate the net asset values of their mutual fund shares.
-----------------------
B E N E F I T S A N D P O L I C Y V A L U E S P R O S P E C T U S 19
-----------------------
<PAGE>
- --------------------------------------------------------------------------------
PREMIUMS, DEDUCTIONS AND CHARGES
- --------------------------------------------------------------------------------
PREMIUMS
There are several types of premiums associated with your Park Avenue Life
policy, which together form your policy premium.
After you pay your first policy premium and your policy takes effect, you will
normally pay policy premiums once a year until the death of the insured, or
until the policy anniversary nearest the insured's 100th birthday. You can,
however, ask to pay policy premiums semi-annually, quarterly, monthly through an
automatic payment plan, or at any other interval that we agree to. These
periodic premium payments must be at least $100 unless you are paying through an
automatic payment plan. The total of your periodic policy premium payments for a
policy year will be higher than if you make one annual premium payment. We
calculate the amount of each periodic policy premium by taking your annual
policy premium and multiplying it by a factor, as shown in the table below.
Paying your premiums
Difference in cost
from paying your
Payment frequency Factor premiums annually
- --------------------------------------------------------------------------------
Semi-annual .515 3.00% more
- --------------------------------------------------------------------------------
Quarterly .26265 5.06% more
- --------------------------------------------------------------------------------
Monthly .085833 3.00% more
- --------------------------------------------------------------------------------
The value of the investments in your policy can be affected either positively or
negatively by choosing to pay your policy premiums periodically. To change the
frequency of your payments you must make your request in writing to our
executive office. If we receive your request too close to your payment date and
are unable to make the change in time, we will make the change effective for the
next scheduled payment.
Basic scheduled premiums
The basic scheduled premium, together with any policy premium assessments, is
the policy premium you must pay each year. The basic scheduled premium depends
on your policy's face amount, and the age when the policy started, sex (unless
gender-neutral rates are required by law), and premium class of the insured. It
is shown in your policy.
- ----------------------- P R E M I U M S, D E D U C T I O N S
20 P R O S P E C T U S A N D C H A R G E S
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<PAGE>
Guaranteed premium period
- --------------------------------------------------------------------------------
Your basic scheduled premium will not increase during the guaranteed
premium period.
Your basic scheduled premium will not increase during the guaranteed premium
period. The guaranteed premium period starts on the policy date and ends either
on the policy anniversary closest to the insured's 70th birthday, or on the
tenth policy anniversary, whichever is later. We will decrease your basic
scheduled premium if you reduce your policy's face amount. If this happens we
will send you new policy pages indicating your new basic scheduled premium.
On the last policy review date before the end of the guaranteed premium period,
we will review your policy to determine if your basic scheduled premium will
change for the policy year that begins when the guaranteed premium period ends.
We compare your policy account value on that policy review date with the
benchmark value and the tabular account value on the same date, and make any
necessary adjustments as described below. After the guaranteed premium period,
we will review your policy each year to determine if your basic scheduled
premium will change.
After the guaranteed premium period, if your policy account value is less than
or equal to the tabular account value, we will charge you the maximum basic
scheduled premium shown in your policy. If it is greater than or equal to the
benchmark value, we will charge you the basic scheduled premium that you were
paying during the guaranteed premium period for your policy's current face
amount. If your policy account value falls somewhere between the tabular account
value and the benchmark value, we will calculate a premium based on a linear
interpolation between the basic scheduled premium charged during the guaranteed
premium period and the maximum basic scheduled premium.
If your policy account value equals or exceeds the benchmark value we will not
increase your basic scheduled premium for the next policy year. However, if your
policy account value is below the benchmark value after the guaranteed premium
period, your basic scheduled premium will increase for the next policy year.
If you pay your policy premiums when they are due (or skip them under the
Premium Skip Option), make no partial withdrawals, and repay any loans that you
take against your policy, your policy will not lapse and will have a death
benefit of at least the face amount listed in your policy until the policy
anniversary closest to the insured's 100th birthday.
We will tell you of any change in your basic scheduled premium in the billing
notices you receive. All policy premiums must be sent directly to our executive
office.
P R E M I U M S, D E D U C T I O N S -----------------------
A N D C H A R G E S P R O S P E C T U S 21
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<PAGE>
Unscheduled payments
- --------------------------------------------------------------------------------
Making unscheduled payments towards your policy may cause it to be
considered a modified endowment contract under the Internal Revenue Code,
which has tax implications. There are certain restrictions on the total
amount of unscheduled payments we permit, depending on how long your
policy has been in force. We will return the portion of any unscheduled
payment that exceeds the maximum you are allowed.
Unscheduled payments
Under certain circumstances, you may make extra payments towards your policy, in
addition to your regular policy premiums. By making these unscheduled payments
you can add to your policy account value and possibly increase your death
benefit under Death Benefit Option 2. Unscheduled payments must be at least
$100, unless they are made at the same time as a regular policy premium payment.
We have the right to deduct a handling fee of up to $2 from each unscheduled
payment before deducting any other charges and crediting the balance to your
policy. We do not currently charge a handling fee.
You may not make an unscheduled payment:
o if you are not paying your policy premiums under a waiver of premium rider
o while a policy value option is in effect (see Policy value options), or
o on or after the policy anniversary closest to the insured's 100th
birthday.
In the first policy year the maximum that you may contribute in unscheduled
payments is the lesser of $1,000,000, or your basic scheduled premium for that
year multiplied by the factor below, based on the insured's age as of the policy
date:
From the second to the tenth policy year, the maximum that you may contribute in
unscheduled payments each policy year is the lesser of $500,000 or three times
the initial basic scheduled premium for the current face amount of your policy.
After the tenth year of your policy, the total amount that you may contribute in
unscheduled payments each policy year is determined by the following:
o if you have made an unscheduled payment in any of the previous three
policy years, you may contribute an amount that is 1.25 times the largest
total of unscheduled payments in any of the three previous policy years,
to a maximum of the lower of i) three times your basic scheduled premium
during your policy's guaranteed premium period for your current face
amount, or ii) $500,000. If you provide us with evidence that the insured
meets our insurance requirements, you may be allowed to make additional
unscheduled payments during a policy year, to a maximum amount of one
basic scheduled premium for your policy's current face amount.
Unscheduled payments during the first policy year
Insured's age Factor
- --------------------------------------------------------------------------------
0 to 35 17
- --------------------------------------------------------------------------------
36 to 40 16
- --------------------------------------------------------------------------------
41 to 45 15
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46 to 50 14
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51 to 55 13
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56 to 60 12
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61 to 65 11
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66 to 70 10
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71 9
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72 8
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73 7
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74 6
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75 to 80 5
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- ----------------------- P R E M I U M S, D E D U C T I O N S
22 P R O S P E C T U S A N D C H A R G E S
- -----------------------
<PAGE>
o if you have not made any unscheduled payments in the previous three policy
years you may contribute an amount up to the value of one basic scheduled
premium during your policy's guaranteed premium period for your current
face amount. You must also provide evidence that the insured meets our
insurance requirements.
We reserve the right to refuse an unscheduled payment before the 11th year of
your policy if, after the first year of your policy, you have not made an
unscheduled payment for three consecutive policy years.
Regardless of how long your policy has been in force, if the Premium Skip Option
is in effect the maximum that you may contribute in unscheduled payments will
not be less than the policy premium for that year. There are further
restrictions on making unscheduled payments to your policy within 45 days of the
date Part 1 of your completed application form was signed, or 15 days after the
issue date, whichever is later. See Allocation of Premiums.
Premium Skip Option
- --------------------------------------------------------------------------------
After the first policy year, you may "skip" paying your annual policy
premium, provided your policy meets certain requirements. (see
accompanying text) You do not have to make-up any policy premiums that you
skip under the Premium Skip Option, and you may re-exercise the option
throughout the life of your policy.
Premium Skip Option
After the first policy year, you may "skip" paying your annual policy premium.
You must tell us in writing that you want to put the Premium Skip Option into
force by the end of the grace period for the first annual policy premium that
you intend to skip. Your policy must meet all of the following requirements on
the date that each premium is skipped:
o your policy account value must exceed your policy's benchmark value on
that date by at least the amount of the annual policy premium
o your net cash surrender value must equal or exceed your policy premium
assessments for that policy year
o you cannot be waiving policy premiums under a waiver of premium rider.
You may inquire about your policy account value and your net cash surrender
value by calling us at 1-800-935-4128 during normal business hours. We also
provide these values, along with your policy's benchmark value as of the most
recent policy anniversary, in your annual policy statement. You can find the
benchmark value for each policy anniversary in your policy.
P R E M I U M S, D E D U C T I O N S -----------------------
A N D C H A R G E S P R O S P E C T U S 23
-----------------------
<PAGE>
If the values in your policy fail to meet the criteria above, and your policy
would lapse if a premium were skipped under the Premium Skip Option, we will
notify you that you must pay the annual policy premium within your policy's
grace period. When you receive this notice you have three choices. You may:
o choose to pay the annual premium due
o choose to make more frequent, but lower, periodic policy premium payments.
You must send your request for this change in writing, along with your
payment, to our executive office, or,
o if eligible, pay your policy premium through the policy's Automatic
Premium Loan feature.
If we receive your first request to skip a premium during the grace period for
that premium, and you meet our requirements, your request will be effective on
the date we receive it. Otherwise, any premium you skip will be effective on
your policy anniversary when your annual policy premium would be due.
If you elect the Premium Skip Option, you will be placed on the annual payment
mode. If you were paying your policy premiums on a periodic basis
(semi-annually, quarterly or monthly), you will still be responsible for all
periodic payments up until the time the premium skip becomes effective.
While the Premium Skip Option is in effect, we will continue to send you annual
policy premium billing notices. You may disregard these notices as long as your
policy continues to meet the criteria for the Premium Skip Option. However, if
you do send us a policy premium, we will consider it a cancellation of the
Premium Skip Option.
When you skip a premium under this option, we will deduct on a policy
anniversary from your policy account value an amount equal to 92.5% of any
policy premium assessments. This amount will first be deducted proportionately
from the portion of your policy account value invested in the variable
investment options. If this is not enough to cover the deduction, we will take
the remaining amount from the portion of your policy account value in the
fixed-rate option. These deductions will reduce the amount invested in your Park
Avenue Life policy, as well as the amount available for you to borrow from your
policy.
- ----------------------- P R E M I U M S, D E D U C T I O N S
24 P R O S P E C T U S A N D C H A R G E S
- -----------------------
<PAGE>
We will continue to charge the monthly deductions described in Deductions and
charges while the Premium Skip Option is in effect. The difference between the
policy account value and the death benefit, the net amount at risk, will often
increase at first when an annual policy premium is skipped. This increases the
monthly cost of insurance charge.
The Premium Skip Option will remain in effect until:
o we receive your written instructions to cancel the option, or
o we receive a payment from you that is credited to your account as a policy
premium, or
o we receive your written request to pay premiums periodically instead of
annually, or
o you no longer meet the requirements for exercising the premium skip option
because your policy's net cash surrender value or policy account value is
no longer sufficient, or
o you no longer meet the requirements for exercising the premium skip option
because you are not paying premiums under a waiver of premium rider.
You do not have to make-up any policy premiums that you skip under the Premium
Skip Option, and you may re-exercise the option throughout the life of your
policy after it has been canceled, as long as you continue to meet the
requirements. Please note: If you use the Premium Skip Option, you will not be
able to make policy premium payments until the next policy anniversary. You can
still make unscheduled payments.
Borrowing to pay premiums
- --------------------------------------------------------------------------------
If you are eligible, you can borrow against your policy's loan value to
pay your policy premiums.
Automatic premium loan
If you are eligible, you can borrow against your policy's loan value to pay your
policy premiums. You may request this feature when you first complete your
policy application, or at any time during the life of the policy. We must
receive your request in writing at our executive office by the end of the grace
period for the premium that you wish to pay through the Automatic Premium Loan.
You will not actually receive any money when you take out an Automatic Premium
Loan. Instead, we will transfer the amount required to pay a policy premium from
your unloaned policy account value into the Loan Collateral Account. The money
will then be used to pay the required premium. The end of the grace period is
considered to be the date the loan was made, and interest will be calculated
from this date. If your policy's loan value is not enough to cover an overdue
policy premium, we will not be able to make an Automatic Premium Loan and your
policy may lapse.
P R E M I U M S, D E D U C T I O N S -----------------------
A N D C H A R G E S P R O S P E C T U S 25
-----------------------
<PAGE>
If you have chosen both the Premium Skip Option and the Automatic Premium Loan
feature, we will treat an overdue policy premium as a skipped premium before we
initiate an Automatic Premium Loan. We will cancel your policy's Automatic
Premium Loan feature if we receive a written request from you to do so.
Please note: If you use the Automatic Premium Loan feature you will not be able
to make policy premium payments. You can still make unscheduled payments.
See Policy Loans and Tax Considerations for additional information on the
treatment of policy loans.
Crediting payments
If we receive a payment within 31 days before a policy premium due date that
equals or exceeds the amount that is due, and you have not provided specific
instructions, we will:
o first pay the policy premium
o then, repay any outstanding policy loans and accrued interest
o and finally, treat any remaining excess as an unscheduled payment.
We will use any other unidentified payments that we receive from you to:
o pay any outstanding policy loans and accrued interest, and then
o credit your policy with an unscheduled payment.
We normally credit your payments and allocate the net premium as of the business
day we receive it, so long as we receive it at our executive office by the close
of the business day, which is 4:00 p.m. New York time. There are three
exceptions:
o any payments that we receive before your policy has been issued will be
held and credited on the policy issue date
o any payment that we receive within 31 days before a premium due date will
have the portion of that payment covering your policy premium credited on
the premium due date, and
o any payments that we receive after your policy has been issued that
require additional underwriting will be held and credited as of the date
the underwriting process is complete.
See How your premiums are allocated and Policy loans for specific information on
how your payments are distributed among the fixed rate and variable investment
options.
- ----------------------- P R E M I U M S, D E D U C T I O N S
26 P R O S P E C T U S A N D C H A R G E S
- -----------------------
<PAGE>
Investing net premiums
- --------------------------------------------------------------------------------
When you pay your basic scheduled premium or an unscheduled payment, the
amount that remains after we deduct premium charges is the net premium. We
invest your net premiums according to your instructions. When net premiums
have been invested, they become part of your policy account value.
How your premiums are allocated
When you pay your basic scheduled premium or an unscheduled payment, the amount
that remains after we deduct premium charges (see Deductions and charges) is the
net premium. We invest your net premiums in the fixed-rate and/or variable
investment options according to your instructions. When net premiums have been
invested they become part of your policy account value.
As part of your initial application, you tell us how you would like your net
premiums distributed among the various allocation options. The percentage you
choose for each allocation option must be in whole numbers, and the total must
equal 100%. You may change how your net premiums are invested at any time by
telling us in writing. The change will be effective on and after the date we
receive your instructions at our executive office, but will not affect any
existing policy values. To change the allocation of these amounts, you must
effect a transfer. See Transfers between the investment options.
Currently you may invest your net premiums and policy account value in up to 7
different allocation options, although we reserve the right to change this
number from time to time.
If you pay policy premiums or unscheduled payments i) within 45 days of signing
Part 1 of your application or ii) within 15 days of the date your policy was
issued, whichever is later, only $100,000 may be invested in the variable
investment options. Anything over this amount will be treated as an "excess net
premium" and invested in The Guardian Cash Fund. This amount and any earnings
from this money will be reallocated based on your investment instructions at the
end of the later of (i) or (ii). Any amounts you have 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 those options as of the business day we
receive them.
Default
Unless you have chosen and qualify for the Premium Skip Option or the Automatic
Premium Loan feature, your policy premiums must be paid when they are due. If
you do not pay a policy premium by its due date, or if you have excessive policy
debt, your policy will be in default.
You must pay annual policy premiums on the anniversary of your policy. You must
pay periodic premiums on the monthly dates that we indicate for the frequency
you choose. You must make a payment toward any loans you have taken from your
policy if the amount of outstanding loans plus accrued interest is more than the
cash surrender value of your policy. We will tell you if a loan repayment is
required, how much you must repay and when it is due.
P R E M I U M S, D E D U C T I O N S -----------------------
A N D C H A R G E S P R O S P E C T U S 27
-----------------------
<PAGE>
Grace period
With the exception of your first policy premium, which puts your policy into
force, you have a 31-day grace period for the payment of policy premiums and
loan repayments. Your insurance coverage will continue in full, but if the
insured dies during the grace period we will deduct the amount of any
outstanding policy premiums through the policy month of death, or unpaid policy
debt, from the death benefit paid to the beneficiary.
If we do not receive your payment before the end of the grace period and you
have not qualified for and chosen either the Premium Skip Option or the
Automatic Premium Loan feature, your policy will lapse. When your policy lapses
your insurance coverage ends, unless you elect a policy value option. If you are
unable to continue paying the premiums on your policy you may surrender it for
its net cash surrender value at any time during the grace period. In this event,
we will pay you your policy's net cash surrender value, and all insurance
coverage will end. See Policy Value Options and Surrender.
Reinstating your policy
- --------------------------------------------------------------------------------
If your policy has lapsed, you may reinstate it up to five years after you
defaulted, subject to certain conditions described in the text.
Reinstating your policy
If your policy has lapsed (and you have not surrendered it for its net cash
surrender value) you may reinstate it up to five years after you defaulted. To
reinstate your policy:
o we must receive your request for reinstatement in writing at our executive
office
o the insured must be alive
o you must show that the insured meets our insurance requirements
o you must repay any outstanding policy debt with interest. Interest will be
compounded annually, at the rate that is in effect when you make your
request
o you must pay us the greater of: all overdue policy premiums with 6%
interest compounded annually; or, 110% of any increase in cash surrender
value of your policy due to your policy's reinstatement, plus any overdue
premiums for extra coverage you purchased through riders or for rating
charges, with 6% interest compounded annually.
Your reinstated policy will have the same policy date, face amount and death
benefit option as the policy that lapsed. You will have to re-apply for the
Premium Skip Option and the Automatic Premium Loan feature if you want these
features available for your reinstated policy.
- ----------------------- P R E M I U M S, D E D U C T I O N S
28 P R O S P E C T U S A N D C H A R G E S
- -----------------------
<PAGE>
DEDUCTIONS AND CHARGES
There are various deductions and charges required to maintain your Park Avenue
Life Policy. The amount of a charge does not necessarily correspond to our costs
in providing the service or benefits associated with a particular policy. For
example, the sales portion of the premium charge and the surrender charge may
not cover all of our actual sales expenses for the policies, and proceeds from
other charges, including the mortality and expense risk charge and cost of
insurance charges, may be used in part to cover sales expenses. Once deductions
and charges are taken from your policy they do not contribute to the value of
your policy.
All of the deductions and charges are summarized and explained below.
Deductions from policy premiums and unscheduled payments Policy premium
assessments
Policy premium assessments are charges we add to your basic scheduled premium,
which together make up your policy premium. They cover the cost of any
additional coverage you have added to your policy through riders, or any rating
charges. Policy premium assessments may change if you change the riders attached
to your policy, or if the circumstances that gave rise to rating charges change.
We deduct this amount from each policy premium, but not from unscheduled
payments.
Premium charge
A premium charge of 7.5% is deducted from each basic scheduled premium and any
unscheduled payments (after the deduction of any handling fees from the
unscheduled payments), until you have paid basic scheduled premiums and
unscheduled payments in an amount equal to 12 basic scheduled premiums for the
current face amount during the guaranteed premium period. Once this amount has
been reached, the charge will fall to 4.5% for each payment. Amounts paid as
policy premium assessments are not counted towards the amount that triggers the
reduced premium charge. This charge covers premium taxes assessed against us by
the jurisdictions where the policy is sold, plus a portion of our federal income
taxes and a premium sales charge. Premium taxes vary from jurisdiction to
jurisdiction and currently range from zero to 4%. We have the right to raise the
premium charge if the taxes we pay increase.
This portion of your premium charge is not tax deductible by you because the
premium taxes and federal income taxes are incurred by GIAC.
P R E M I U M S, D E D U C T I O N S -----------------------
A N D C H A R G E S P R O S P E C T U S 29
-----------------------
<PAGE>
Handling fee
We have the right to charge you a maximum handling fee of $2 for each
unscheduled payment you make toward your policy. We deduct this fee from your
payment before the premium charge is calculated, and use it to cover the costs
of processing your payment. We do not currently charge this fee.
Monthly deductions
- --------------------------------------------------------------------------------
We deduct from the policy account value, on the same date each month, an
amount to cover administration costs and the cost of insuring the insured.
These deductions are made proportionately from your investments in the
fixed rate and variable investment options.
Monthly deductions from the policy account value
We deduct from the policy account value, on the same date each month, an amount
to cover administration costs and the cost of insuring the insured. These
deductions are made proportionately from your policy account value in the fixed
rate and variable investment options. We do not make these monthly deductions
after the policy anniversary closest to the insured's 100th birthday.
A combination of partial withdrawals, unfavorable investment performance and
ongoing monthly deductions can cause your policy account value to drop below
zero. Even if this happens, your policy will not lapse as long as you pay all
policy premiums when they are due, and there is no policy debt. However, we will
continue to accrue monthly deductions, which will increase the negative balance
of your policy account value. While your policy has a negative balance we will
calculate the cost of insurance charges based on a policy account value of zero
and all net premiums, including net premiums resulting from unscheduled
payments, will be used to reduce your policy's negative balance until your
policy account value exceeds zero.
Policy and administration charges
For the first three policy years, you pay a policy charge of $10 per month.
After three years the charge is currently $4 per month and is guaranteed never
to exceed $8 per month.
For the first 12 years of your policy the monthly administration charge is based
on the insured's age when the policy started, and is a set rate of no more than
$0.04 for every $1,000 of your policy's face amount. This rate applies to
policies issued to insureds between the ages of 35 to 80 years. Charges are
lower if the insured person is younger than 35 when the policy takes effect.
After the 12th year, the administration charge is $0.015 per $1,000 of your
policy's face amount. You will find the actual dollar amount of this charge in
your policy.
These charges compensate us for underwriting, issuing and maintaining your
policy.
- ----------------------- P R E M I U M S, D E D U C T I O N S
30 P R O S P E C T U S A N D C H A R G E S
- -----------------------
<PAGE>
Guaranteed Insurance Amount charge
This is a monthly charge of $0.01 per $1,000 of your policy's face amount. It is
charged at the same rate for all policies and compensates us for guaranteeing a
minimum death benefit even if the investments in your policy perform poorly. You
will find the actual dollar amount of this charge in your policy. This charge
supports the guarantee that no matter how unfavorable investment performance
might be, the death benefit will never be less than the face amount if all
policy premiums are paid when due, no partial withdrawals are taken and there is
no policy debt.
Cost of insurance charge
- --------------------------------------------------------------------------------
This charge allows us to pay death benefits, especially in the early
policy years when the policy account value is far below the death benefit
we pay if the insured dies.
Cost of Insurance charge
This charge is based on our cost of insurance rates for insured people of the
same age, sex and premium class. The maximum that we can charge for each $1,000
of net amount at risk is set out in your policy and is based on the 1980
Commissioners' Standard Ordinary Mortality Tables published by the National
Association of Insurance Commissioners. This charge allows us to pay death
benefits, especially in the early policy years when the policy account value is
far below the death benefit we pay if the insured dies. The cost of insurance
rate generally increases as the insured ages. Rates are lower for policies with
a face amount at least equal to $500,000. Our current cost of insurance rates
are lower than the guaranteed maximum.
We calculate the cost of insurance charge by multiplying your policy's net
amount at risk each month by the current cost of insurance rate that applies to
the insured, and dividing the result by $1,000. Your net amount at risk is
determined after all other monthly deductions have been withdrawn from your
policy account.
We may change the cost of insurance rates prospectively, at our discretion, up
to the guaranteed maximum rate listed in your policy. Changes in the health of
the insured will not cause your cost of insurance charge to increase. Increases
in the cost of insurance rates are not made to an individual policy, but are
made equally to all policies where the insured people are of the same attained
age, sex and premium class. We will increase this charge when we expect:
o a higher number of deaths among people in a certain group
o higher expenses or federal income taxes
o a higher number of policies that are allowed to lapse by their
policyowners
o lower earnings in our general account.
P R E M I U M S, D E D U C T I O N S -----------------------
A N D C H A R G E S P R O S P E C T U S 31
-----------------------
<PAGE>
Generally, as your net amount at risk increases or decreases each month (for
example, due to payments you make or policy transactions you request), so will
your cost of insurance charges. If you choose death benefit option 1, paying
policy premiums and making unscheduled payments may reduce your policy's net
amount at risk by increasing the policy account value, assuming that your
investments do not fall in value. If you choose death benefit option 2, paying
policy premiums and making unscheduled payments may have the result of
increasing your death benefit over the face amount, and therefore will not
affect your policy's net amount at risk.
Transaction deductions from the policy account value
When you ask us to make certain transactions, we will take a transaction
deduction from your policy account value. Except as described differently below,
we will make these deductions from your policy account value invested in the
variable investment options, until these are exhausted, and then from your
fixed-rate option.
Surrender charge
During the first 12 years of your policy, you pay a surrender charge if you:
o surrender your policy
o reduce the face amount either by asking us to reduce it or through a
partial withdrawal
o let your policy go into default, causing a policy value option to take
effect (see Policy value options), or
o let your policy lapse.
This charge is a flat rate for every $1,000 of your policy's face amount. The
rate declines proportionally each year until it is zero after 12 years, and
varies from $5.37 to $58.87 per $1,000, depending on the insured's age when the
policy started, sex and premium class. The surrender charge compensates us for
administrative and sales-related expenses. Surrender charges for specific ages,
sex and premium classes are set out in Appendix D of this prospectus.
We prorate the surrender charges in connection with a face amount decrease by
multiplying the surrender charges by the following fraction to reduce the
charges payable:
amount of decrease
--------------------------------
face amount just before decrease
We deduct the adjusted surrender charge from the unloaned policy account value,
which is your policy account value minus any policy debt. After we deduct any
applicable surrender charge, a policy's net cash surrender value may be zero,
particularly in the early policy years.
- ----------------------- P R E M I U M S, D E D U C T I O N S
32 P R O S P E C T U S A N D C H A R G E S
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<PAGE>
Surrender Charges
- --------------------------------------------------------------------------------
EXAMPLE
The example on the right 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
- --------------------------------------------------------------------------------
Face Amount: $250,000
- --------------------------------------------------------------------------------
Surrender Charge per $1000 of Face Amount in policy
year one (from Appendix D): $21.39
- --------------------------------------------------------------------------------
Surrender charge in policy year one is:
The surrender charge per $1000 multiplied by 250,
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 table following are rounded to the nearest $ .01.
Surrender
charge per Actual
$1000 of face surrender
Policy amount charge
year ($) ($)
- --------------------------------------------------------------------------------
1 21.39 5,347.50
- --------------------------------------------------------------------------------
2 19.61 4,902.50
- --------------------------------------------------------------------------------
3 17.83 4,457.50
- --------------------------------------------------------------------------------
4 16.04 4,010.00
- --------------------------------------------------------------------------------
5 14.26 3,565.00
- --------------------------------------------------------------------------------
6 12.48 3,120.00
- --------------------------------------------------------------------------------
7 10.70 2,675.00
- --------------------------------------------------------------------------------
8 8.91 2,227.50
- --------------------------------------------------------------------------------
9 7.13 1,782.50
- --------------------------------------------------------------------------------
10 5.35 1,337.50
- --------------------------------------------------------------------------------
11 3.57 892.50
- --------------------------------------------------------------------------------
12 1.78 445.00
- --------------------------------------------------------------------------------
13 0.00 0.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Partial withdrawal charge
If you make a partial withdrawal we will charge you $25 or 2% of the amount of
your withdrawal, whichever is lower, in addition to any surrender charges that
may apply because the partial withdrawal reduces the face amount. We will deduct
this charge, as well as the amount of your withdrawal, proportionately from your
unloaned policy account value. This charge is to recover our processing costs.
Premium skip option deduction
If you skip a premium under the Premium Skip Option, we will deduct 92.5% of the
amount needed to cover any policy premium assessments from your policy account
value that is not being held as collateral for a loan.
Transfer charge
You may transfer your policy account value among the allocation options. If you
make more than 12 transfers within a policy year, we reserve the right to charge
you $25 for each additional transfer. We will deduct the transfer charge from
the allocation options from which you are making the transfer, and will use this
amount to cover our processing costs.
P R E M I U M S, D E D U C T I O N S -----------------------
A N D C H A R G E S P R O S P E C T U S 33
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<PAGE>
We will not deduct a transfer charge when:
o we transfer any excess net premiums and related earnings out of The
Guardian Cash Fund (see How your premiums are allocated)
o you make multiple transfers under your policy's dollar cost averaging
feature
o you transfer amounts as part of taking or repaying a policy loan, or
o you transfer amounts out of a variable investment option because the
investment policies of the corresponding mutual fund have materially
changed.
We do not currently deduct transfer charges.
Deductions from the Separate Account
Mortality and Expense Risk charge
We will deduct a daily charge, based on an annual rate of 0.60% of the average
daily net assets of the variable investment options, to cover the mortality and
expense risks that we assume for Park Avenue Life policies. This charge will
never be more than 0.90%.It covers the risk that the insureds under Park Avenue
Life policies may not live as long as we estimated when we issued the policy,
and that our administrative expenses may also be higher than we estimated.
Income Tax charge
We have the right to charge the Separate Account, the account through which we
invest your premiums in the variable investment option, for any federal, state
or local income taxes relating to the Separate Account. We also have the right
to impose additional charges if there is a change in our tax status, if the
income tax treatment of variable life insurance changes for insurance companies,
or for any other tax-related charges associated with the Separate Account or the
policies. We don't currently charge for taxes attributable to the Separate
Account.
Deductions from Mutual Funds
Daily deductions are made from the assets of the mutual funds to cover advisory
fees and other expenses. As a result, you pay these fees and expenses
indirectly. These expenses vary from year to year. Except as noted below, the
following table shows the actual fees and expenses for each fund for the year
ended December 31, 1998 as a percentage of the fund's average daily net assets.
- ----------------------- P R E M I U M S, D E D U C T I O N S
34 P R O S P E C T U S A N D C H A R G E S
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<PAGE>
Fees and expenses for mutual funds
<TABLE>
<CAPTION>
Other Total
expenses expenses
(after any applicable (after any applicable
waivers and waivers and
Advisory expense expense
Fund name fee reimbursements) reimbursements)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Guardian Stock Fund 0.50% 0.02% 0.52%
- -------------------------------------------------------------------------------------------------
Guardian Small Cap Stock Fund 0.75% 0.14% 0.89%
- -------------------------------------------------------------------------------------------------
Guardian Bond Fund 0.50% 0.05% 0.55%
- -------------------------------------------------------------------------------------------------
Guardian Cash Fund 0.50% 0.03% 0.53%
- -------------------------------------------------------------------------------------------------
Baillie Gifford International Fund 0.80% 0.18% 0.98%
- -------------------------------------------------------------------------------------------------
Baillie Gifford Emerging
Markets Fund 1.00% 0.49% 1.49%
- -------------------------------------------------------------------------------------------------
Value Line Centurion Fund(1) 0.50% 0.09% 0.59%
- -------------------------------------------------------------------------------------------------
Value Line Strategic Asset
Management Trust(1) 0.50% 0.08% 0.58%
- -------------------------------------------------------------------------------------------------
Gabelli Capital Asset Fund 1.00% 0.12% 1.12%
- -------------------------------------------------------------------------------------------------
MFS Emerging Growth Series 0.75% 0.10% 0.85%
- -------------------------------------------------------------------------------------------------
MFS Total Return Series(1) 0.75% 0.25% 1.00%
- -------------------------------------------------------------------------------------------------
MFS Growth With Income Series(1) 0.75% 0.20% 0.95%
- -------------------------------------------------------------------------------------------------
MFS Bond Series(1) 0.60% 0.40% 1.02%
- -------------------------------------------------------------------------------------------------
American Century VP Value Fund(1) 1.00% -- 1.00%
- -------------------------------------------------------------------------------------------------
American Century VP
International Fund(1) 1.47% -- 1.47%
- -------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67%
- -------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 0.61% 0.05% 0.66%
- -------------------------------------------------------------------------------------------------
Fidelity VIP III Growth
Opportunities Portfolio(1) 0.59% 0.11% 0.70%
- -------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income
Portfolio(1) 0.49% 0.08% 0.57%
- -------------------------------------------------------------------------------------------------
Fidelity VIP High Income
Portfolio(1) 0.58% 0.12% 0.70%
- -------------------------------------------------------------------------------------------------
Fidelity VIP II Index
500 Portfolio(1) 0.24% 0.04% 0.28%
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) See Notes to fees and expense table
P R E M I U M S, D E D U C T I O N S -----------------------
A N D C H A R G E S P R O S P E C T U S 35
-----------------------
<PAGE>
Notes to fees and expense table
The expenses for MFS Growth With Income Series, MFS Total Return Series, and MFS
Bond Series reflect an agreement with the adviser to these series that the
adviser will bear the expenses of the series, exclusive of the advisory fee and
subject to reimbursement, so that operational expenses will 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, 1998. These agreements are also in effect for the
current fiscal year. Without these agreements, total expenses for the year ended
December 31, 1998 would be i) 0.88% for the MFS Growth With Income Series, and
0.91% for the MFS Total Return Series, because of reimbursement to the advisor
of previous years' expense payments, and ii) 1.23%, 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.
Although the MFS Bond Series has an expense offset arrangement which reduces its
custodian fee based upon the amount of cash maintained by the Series with its
custodian, the Series' expenses are calculated without reduction for this
expense offset arrangement pursuant to SEC requirements. Thus the total expenses
for the Bond Series are shown as 1.02%
The percentages for the Fidelity VIP II Index 500 Portfolio reflect the
voluntary agreement by the portfolio's adviser to bear expenses for the
portfolio, subject to reimbursement, so that the portfolio's total expenses will
not exceed 0.28%. Without this agreement, the total expenses for the portfolio
would have been 0.35%. The Fidelity VIP III Growth Opportunities, Fidelity VIP
Equity-Income and Fidelity VIP High Income Portfolios have entered into varying
arrangements with third parties who either paid or reduced a portion of the
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 adds these components and multiplies 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.
- ----------------------- P R E M I U M S, D E D U C T I O N S
36 P R O S P E C T U S A N D C H A R G E S
- -----------------------
<PAGE>
The operational expenses for Value Line Strategic Asset Management Trust and
Value Line Centurion Fund reflect expense reimbursements paid by those funds to
us for certain administrative and shareholder servicing expenses that we incur
on their behalf. For the year ended December 31, 1998, we were reimbursed
$713,798 by Value Line Strategic Asset Management Trust, and $502,625 by Value
Line Centurion Fund.
We have also entered into agreements with certain fund advisers under which we
will be reimbursed for certain administrative, distribution and other expenses
that we incur as a result of offering certain funds, including the MFS and
American Century funds, to our policyowners. The amount of compensation may be
based on assets of the fund attributable to policies we issue and may vary from
adviser to adviser.
P R E M I U M S, D E D U C T I O N S -----------------------
A N D C H A R G E S P R O S P E C T U S 37
-----------------------
<PAGE>
- --------------------------------------------------------------------------------
YOUR ALLOCATION OPTIOSN
- --------------------------------------------------------------------------------
AS PART OF YOUR POLICY you are able to direct where a portion of your premiums
are allocated. There are several variable investment options and a fixed-rate
option. You may choose up to seven allocation options at any time.
- --------------------------------------------------------------------------------
THE VARIABLE INVESTMENT OPTIONS
The variable investment options give you the opportunity to invest a portion of
your net premiums, indirectly, in a series of mutual funds offering variable
rates of return. The value of your investments will vary depending on the
performance of the mutual funds. There is no minimum guaranteed policy account
value for the portion of your policy that is held in the variable investment
options.
The Separate Account
The Separate Account is the account through which we invest your net premiums in
the variable investment options. We are the record owner of the assets in the
Separate Account, and use them exclusively to support the variable life
insurance policies issued through the Separate Account. The Separate Account
consists of 21 investment divisions, each corresponding to a mutual fund in
which the Separate Account invests. The Separate Account was established by
GIAC's Board of Directors on November 18, 1993 under the insurance law of the
state of Delaware, and meets the definition of a separate account under the
federal securities laws.
Our Separate Account is registered with the SEC as a unit investment trust - a
type of investment company under the Investment Company Act of 1940 (the 1940
Act). 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.
However, both GIAC and the Separate Account are subject to regulation under
Delaware law. GIAC is also subject to the insurance laws and regulations of all
states and jurisdictions where the company is authorized to do 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 these 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.
- -----------------------
38 P R O S P E C T U S A L L O C A T I O N O P T I O N S
- -----------------------
<PAGE>
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.
Each mutual fund is briefly described below. Complete information can be found
in the accompanying fund prospectuses.
The Funds
Each of the funds corresponding to a variable investment option is either an
open-end diversified management company or a series of an open-end diversified
management company registered with the Securities and Exchange Commission. The
funds don't charge us for buying or selling their shares, allowing us to buy and
sell them at their net asset value in response to your instructions and other
policy-related transactions.
Currently, other investment products that we and other insurers offer are also
able to invest in certain of the mutual funds through the Separate Account.
While the Board of Directors of each fund monitors activities in an effort to
avoid or correct any material irreconcilable conflicts arising out of this
arrangement, we may also take actions to protect the interests of our
policyowners. For more information see Rights reserved by GIAC, and the
prospectuses for the individual mutual funds.
Investment objectives and policies of the Funds
Each fund has a different investment objective that it tries to achieve by
following certain investment policies. These objectives affect the potential
risks and returns for each fund, and there is no guarantee that a fund will be
able to meet its investment objectives fully. Some funds have similar investment
objectives and policies to other funds managed by the same adviser. The
investment results of the funds, however, may be higher or lower than the
adviser's other funds. There is no assurance, and we make no representation,
that the performance of any fund will be comparable to the performance results
of any other fund.
The table below summarizes each fund's investment objective, along with the
typical investments that make up that fund.
-----------------------
A L L O C A T I O N O P T I O N S P R O S P E C T U S 39
-----------------------
<PAGE>
Summary of fund objectives and policies
<TABLE>
<CAPTION>
Fund Investment objective Typical investments
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Guardian Stock Fund Long-term growth of capital U.S. common stocks
- ------------------------------------------------------------------------------------------------------------------------------------
Guardian Small Cap Stock Fund Long-term growth of capital U.S. common stocks of companies
with small market capitalization
- ------------------------------------------------------------------------------------------------------------------------------------
Guardian Bond Fund Maximum income without Investment grade debt obligations
undue risk of principal
- ------------------------------------------------------------------------------------------------------------------------------------
Guardian Cash Fund High level of current income; Money market instruments
preservation of capital
- ------------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford International Fund Long-term capital appreciation Common stocks and convertible
securities issued by foreign companies
- ------------------------------------------------------------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund Long-term capital appreciation Common stocks and convertible
securities of emerging market companies
- ------------------------------------------------------------------------------------------------------------------------------------
Value Line Centurion Fund Long-term growth of capital U.S. common stocks (with selections based
on rankings by the Value Line ranking system)
- ------------------------------------------------------------------------------------------------------------------------------------
Value Line Strategic Asset High total investment return U.S. common stocks (with selections
Management Trust consistent with reasonable risk on rankings by the Value Line ranking system),
bonds and money market instruments
- ------------------------------------------------------------------------------------------------------------------------------------
Gabelli Capital Asset Fund Growth of capital; current income as U.S. common stocks and
a secondary objective convertible securities
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Series Long-term growth of capital U.S. common stocks of emerging
growth companies
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series Above-average income Equity securities and non-convertible
(compared to a portfolio invested fixed income securities
entirely in equity securities)
consistent with prudent employment
of capital, and secondarily to provide
a reasonable opportunity for
growth of capital and income
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Growth With Income Series Reasonable current income Equity securities issued by
and long-term growth of capital U.S. and foreign companies
and income
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
40 P R O S P E C T U S A L L O C A T I O N O P T I O N S
- -----------------------
<PAGE>
<TABLE>
<CAPTION>
Fund Investment objective Typical investments
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Bond Series As high a level of current income Convertible and non-convertible
as is believed consistent with debt securities and preferred stocks;
prudent investment risk and U.S. government securities;
secondarily to protect commercial paper;
shareholders' capital repurchase agreements,
cash or cash equivalents
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Value Fund Long-term capital growth Equity securities of
with income as a well-established intermediate-to-large
secondary objective companies whose securities are
believed to be undervalued
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP International Capital growth International common stocks
Fund with potential for appreciation
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Growth of capital through investments Common stocks of medium and small-sized
Appreciation Fund in common stocks with emphasis on growth companies
medium and small-sized emerging
growth companies
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund Long-term growth of capital Equity securities judged by the fund's adviser
by investing primarily in undervalued to be undervalued
equity securities with income
as a secondary objective
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth Capital growth Common stocks
Opportunities Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Reasonable income with capital Income-producing equity securities
Portfolio appreciation as a secondary objective
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio High level of current income High-yielding debt securities with an
emphasis on lower-quality securities
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio Total return that corresponds Equity securities of companies
to that of the Standard & Poor's that compose the Standard & Poor's
500 Index 500 and in other instruments that
are based on the value of the Index
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------------------
A L L O C A T I O N O P T I O N S P R O S P E C T U S 41
-----------------------
<PAGE>
Total returns do not reflect deductions
- --------------------------------------------------------------------------------
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
Special terms used in this prospectus and Deductions and charges for
additional information.
Investment performance of the Funds
The table below shows the average annual total returns for the mutual funds for
years ended December 31, 1998. The performance figures reflect the deduction of
fund investment advisory fees and operating expenses, and assume that any
dividends and capital gains are reinvested in the fund. These figures do not
reflect how the funds' investment performance will affect the value of your
policy, because they do not take into account the insurance and other charges we
deduct from your policy. If these charges were taken into account, total returns
for each fund would be lower Also, past returns should not be used to predict
future performance. Total returns for The Guardian Cash Fund are not presented
here.
Years ended December 31, 1998
------------------------------------------
Fund name Since
and inception date 1 Year 5 Years 10 Years inception
- --------------------------------------------------------------------------------
Guardian Stock Fund(1)
(4/13/83) 19.86% 22.35% 19.32% 17.99%
- --------------------------------------------------------------------------------
Guardian Small Cap
Stock Fund1
(7/16/97) -5.75% N/A N/A 7.20%
- --------------------------------------------------------------------------------
Guardian Bond Fund(1)
(5/1/83) 8.10% 6.59% 8.77% 9.29%
- --------------------------------------------------------------------------------
Baillie Gifford
International Fund
(2/8/91) 21.17% 11.90% N/A 13.36%
- --------------------------------------------------------------------------------
Baillie Gifford Emerging
Markets Fund
(10/17/94) -26.77% N/A N/A -4.78%
- --------------------------------------------------------------------------------
Value Line Centurion Fund
(11/15/83) 27.47% 19.99% 19.78% 14.96%
- --------------------------------------------------------------------------------
Value Line Strategic Asset
Management Trust
(10/1/87) 27.45% 15.87% 17.05% 15.48%
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund(2)
(5/1/95) 11.67% N/A N/A 19.40%
- --------------------------------------------------------------------------------
MFS Emerging Growth Series(3)
(7/24/95) 34.16% N/A N/A 26.55%
- --------------------------------------------------------------------------------
MFS Total Return Series(3)
(1/2/95) 12.33% N/A N/A 18.73%
- --------------------------------------------------------------------------------
MFS Growth With
Income Series(3)
(10/9/95) 22.32% N/A N/A 25.98%
- --------------------------------------------------------------------------------
MFS Bond Series(3)
(10/24/95) 6.79% N/A N/A 6.90%
- --------------------------------------------------------------------------------
- -----------------------
42 P R O S P E C T U S A L L O C A T I O N O P T I O N S
- -----------------------
<PAGE>
Years ended December 31, 1998
------------------------------------------
Fund name Since
and inception date 1 Year 5 Years 10 Years inception
- --------------------------------------------------------------------------------
American Century VP
Value Fund
(5/1/96) 4.81% N/A N/A 15.94%
- --------------------------------------------------------------------------------
American Century VP
International Fund
(5/1/94) 18.76% N/A N/A 12.30%
- --------------------------------------------------------------------------------
AIM V.I. Value Fund(4)
(5/5/93) 32.41% 21.70% N/A 21.90%
- --------------------------------------------------------------------------------
AIM V.I. Capital
Appreciation Fund(4)
(5/5/93) 19.30% 17.23% N/A 18.77%
- --------------------------------------------------------------------------------
Fidelity VIP III Growth
Opportunities Portfolio(5)
(1/3/95) 24.61% N/A N/A 26.26%
- --------------------------------------------------------------------------------
Fidelity VIP Equity-
Income Portfolio(5)
(10/9/96) 11.63% 18.77% 15.62% 14.41%
- --------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio(5)
(9/19/85) -4.33% 8.80% 11.08% 11.09%
- --------------------------------------------------------------------------------
Fidelity VIP II Index
500 Portfolio(5)
(8/27/92) 28.31% 23.72% N/A 21.16%
- --------------------------------------------------------------------------------
(1) 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.
(2) 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.
(3) 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. In the absence of this
agreement, except where a series is reimbursing its adviser for previous
years' expense payments on its behalf, total returns would be lower.
(4) Total returns for AIMV.I. Value Fund and AIM V.I. Capital Appreciation
Fund reflect the effects of fee waivers and/or expense offset
arrangements. In the absence of such arrangements total returns would have
been lower.
(5) Total returns for the Fidelity VIP III Growth Opportunities, Fidelity VIP
Equity-Income, Fidelity VIP High Income and Fidelity VIP II 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.
-----------------------
A L L O C A T I O N O P T I O N S P R O S P E C T U S 43
-----------------------
<PAGE>
The funds' investment advisers
All of the funds' investment advisers are registered as investment advisers
under the Investment Advisers Act of 1940 (Advisers Act).
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), 7 Hanover Square, New York, New York,
10004. GISC is wholly owned by GIAC.
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 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. BG Overseas
is wholly owned by Baillie Gifford & Co., which is currently one of the largest
investment management partnerships in the United Kingdom.
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 a member of IMRO. 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., 220 East 42nd Street, New York, New York 10017.
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. No separate or additional
fee is paid by the Fund to GFI.
- -----------------------
44 P R O S P E C T U S A L L O C A T I O N O P T I O N S
- -----------------------
<PAGE>
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 a subsidiary of Sun Life of
Canada (U.S.) Financial Services Holdings, Inc. which is itself an indirect
wholly owned subsidiary of Sun Life Assurance Company of Canada.
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., American
Century Tower, 4500 Main Street, Kansas City, Missouri 64111.
A I M Advisors, Inc.
AIM V.I. Value Fund and AIM V.I. Capital Appreciation Fund are advised by A I M
Advisors, Inc. (AIM), 11 Greenway Plaza, Suite 100, Houston, Texas 77046.
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.
On behalf of the Fidelity VIP High Income and Fidelity VIP III Growth
Opportunities Portfolios, FMR has sub-advisory agreements with two affiliates,
FMR U.K. and FMR Far East. No separate or additional fee is paid by the
portfolios to the sub-adviser.
Bankers Trust Company (BT) has been appointed sub-adviser to the Fidelity VIP II
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. No separate or additional fee is paid by the
Portfolio to BT.
-----------------------
A L L O C A T I O N O P T I O N S P R O S P E C T U S 45
-----------------------
<PAGE>
Fixed-rate option
- --------------------------------------------------------------------------------
The net premiums you allocate to the fixed-rate option earn a set rate of
interest. Your policy account value in the fixed-rate option is backed by
GIAC's general account.
THE FIXED-RATE OPTION
The net premiums you allocate to the fixed-rate option earn a set rate of
interest. You may allocate some or all of your net premiums to the fixed-rate
option, and may transfer some or all of your investments in the variable
investment options into the fixed-rate option. There are restrictions on making
transfers out of the fixed rate option. See Transfers between the investment
options. Your policy account value in the fixed-rate option is backed by GIAC's
general account.
We have not registered the fixed-rate option or our general account as
investment companies, and interests in the fixed-rate option are not registered
under the Securities Act of 1933. The SEC staff does not review the prospectus
disclosure about the fixed-rate option or the general account, but the
information we present may be subject to certain generally applicable provisions
of the federal securities laws regarding the accuracy and completeness of
information appearing in a prospectus.
Amounts in the fixed-rate option
The total amount that you have invested in the fixed-rate option consists of:
o the portion of your net premiums and any loan repayments that you have
allocated to this option, plus
o any amounts that you have transferred to this option from the variable
investment options, plus
o the interest paid on your policy account value in this option, minus
o any deductions or withdrawals from the fixed-rate option, including
applicable charges
You earn interest at a guaranteed rate, from the date of transfer or allocation
until your next policy anniversary, at which time the interest rate for the
total amount you have invested in the fixed-rate option is set for the coming
year. Because different interest rates may be in effect as you make transfers
and contributions throughout the year, your effective interest rate for that
year may be a weighted average of the different rates which apply to the
portions of your policy account value in the fixed-rate option. Interest accrues
daily on the total that you have invested in the fixed-rate option, including
interest you have earned in previous years. The minimum annual interest rate for
the fixed-rate option is 4%. We will tell you of any changes in the current
interest rate for the fixed-rate option as they occur. We are not obliged to pay
more than 4% in interest, although we may choose to do so.
- -----------------------
46 P R O S P E C T U S A L L O C A T I O N O P T I O N S
- -----------------------
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL FEATURES OF YOUR POLICY
- --------------------------------------------------------------------------------
Policy Loans
- --------------------------------------------------------------------------------
While the insured is alive, you may borrow all or a portion of the loan
value of your policy, by assigning your policy to us as collateral for
your loan.
POLICY LOANS
While the insured is alive, you may borrow all or a portion of the loan value of
your policy, by assigning your policy to us as collateral for your loan. Your
policy's loan value is:
o 90% of the cash surrender value of your policy on the date we receive your
written request, minus
o the amount of any outstanding policy debt
You may not take a policy loan if your policy has lapsed and is being continued
under the fixed-benefit extended term insurance policy value option.
The minimum loan amount is $500, unless it is an Automatic Premium Loan.
Generally, we will pay loan proceeds to you within seven days of receiving your
request (see Policy proceeds for exceptions to this general rule). If you are
taking an Automatic Premium Loan, you will not actually receive any money.
Instead, the proceeds will be used to pay the policy premium that is due.
We will transfer the amount of your loan first proportionately from your policy
account value in the variable investment options, and if this is insufficient,
from your policy account value in the fixed-rate option, into our Loan
Collateral Account.
When taking out a policy loan, you should consider:
o amounts transferred out of the variable and fixed-rate options and into
our Loan Collateral Account are no longer affected by the investment
experience, positive or negative, of those allocation options
o as a result, taking a policy loan will have a permanent effect on your
policy account value, even once the loan is repaid in full
o the amount of your policy that is available for withdrawal or surrender,
and your policy's death benefit proceeds, will also be reduced
dollar-for-dollar by the amount of any policy debt
o if your policy is considered to be a modified endowment contract under the
Internal Revenue Code, there may be tax consequences associated with
taking a policy loan or using your policy's Automatic Premium Loan
feature. See Tax Considerations for a discussion of modified endowment
contracts and the effects on policy loans.
-----------------------
S P E C I A L F E A T U R E S P R O S P E C T U S 47
-----------------------
<PAGE>
Interest on your policy loan
- --------------------------------------------------------------------------------
We charge interest at an annual rate of 8% on all outstanding policy debt,
payable in arrears, until either the 20th anniversary of your policy or
the insured's attained age 65, whichever is later. After this point the
annual rate falls to 5% for all existing and new policy loans.
Interest on your policy loan
We charge interest at an annual rate of 8% on all outstanding policy debt,
payable in arrears, until either the 20th anniversary of your policy or the
insured's attained age 65, whichever is later. After this point the annual rate
falls to 5% for all existing and new policy loans. Interest accrues daily and is
due on each policy anniversary. If you do not pay the interest on your loan when
it is due, we will transfer the interest that you owe first proportionately from
your policy account value in the variable investment options, and if this is
insufficient, from the fixed-rate option, into our Loan Collateral Account, and
add that interest to your policy debt.
The investments in the Loan Collateral Account will earn interest at a minimum
annual rate of 2% below the current loan interest rate. Although this means that
you are effectively paying a maximum of 2% interest on your policy loans, you
are expected to pay the loan interest charged, when it is due.
Repaying your policy loan
You may repay all or part of any outstanding policy debt at any time while the
insured is alive and the policy is in force, or has been continued after lapse
under the reduced paid-up or variable reduced paid-up insurance policy value
options. See Policy value options. Unless your loan repayment is made along with
your policy premium, the minimum loan repayment amount is $100 or the
outstanding balance of your policy debt, whichever is lower.
If the insured has died and the death benefit proceeds have not been paid,
either in cash or under a payment option, you have 60 days after his or her
death to repay any policy debt. We will then increase the amount payable to the
beneficiary by the amount of your repayment.
When you make a loan repayment, we transfer out of the Loan Collateral Account
the amount of your repayment, minus a proportional amount of any accrued
interest owing, plus a proportional amount of any accrued interest we owe you on
the amount that was being held in the Loan Collateral Account. Your repayment
will be credited first to the fixed-rate option, up to the amount that was
deducted for your loan, then into the variable investment options according to
your current allocation instructions. The amount credited to the fixed-rate
option will earn the interest rate in effect at that time.
Transfers under your policy that are made in connection with policy loans are
not subject to transfer charges. Also, loan repayments are not subject to
premium charges, so it may be to your advantage, if you have outstanding loans
or interest, to make loan repayments rather than unscheduled payments.
- -----------------------
48 P R O S P E C T U S S P E C I A L F E A T U R E S
- -----------------------
<PAGE>
If, on any monthly date, you owe more in loans and interest than your cash
surrender value, we will notify you that a loan repayment is required for your
policy to remain in force. Your policy will lapse 31 days after the default date
set out in our notice if we do not receive:
o the amount by which your policy debt exceeds the cash surrender value on
the monthly date in question, plus
o 10% of the cash surrender value on that monthly date.
If the insured dies after we have sent this notice, but before the 31 days are
up, we will pay the beneficiary the death benefit proceeds, minus any policy
debt and unpaid interest.
Decreasing the face amount
- --------------------------------------------------------------------------------
After the first year of your policy, you may request a reduction in its
face amount, which is the guaranteed minimum amount your policy will pay
at death or maturity.
DECREASING THE FACE AMOUNT
After the first year of your policy, you may request a reduction in its face
amount, which is the guaranteed minimum amount your policy will pay at death or
maturity. To do this we require that:
o you make your request in writing and we receive it at our executive office
o the insured is alive when we receive your request
o the reduction is at least $10,000 unless it is caused by a partial
withdrawal, in which case the partial withdrawal rules apply, and
o the new face amount is not lower than our minimum face amount, currently
$100,000, unless the reduction is caused by a partial withdrawal.
We reduce your face amount on the monthly date coinciding with or next following
the date we approve your request. If you reduce the face amount in the first 12
years of your policy, we will deduct a surrender charge from your policy account
value, as described in Transaction deductions.
A partial withdrawal may also result in a reduction in your policy's face
amount. If, as a result of a partial withdrawal, we must reduce your face
amount, we will reduce it by the amount of the partial withdrawal which exceeds
the difference, if positive, between (i) the policy account value, and (ii) the
face amount multiplied by the net single premium on the date of the partial
withdrawal. The face amount will also be reduced by the withdrawal charge and
any applicable surrender charges.
-----------------------
S P E C I A L F E A T U R E S P R O S P E C T U S 49
-----------------------
<PAGE>
Your death benefit option will determine how your policy is affected by a
reduction in the face amount due to a partial withdrawal:
o under Option 1, a partial withdrawal will typically cause an immediate
reduction in your policy's face amount
o under Option 2, a partial withdrawal will not reduce your policy's face
amount, as long as your policy account value is higher than the current
benchmark value. However, the amount of your death benefit will decline
with each partial withdrawal.
When you reduce your policy's face amount, we reduce the premiums, benefits and
certain charges that are calculated using the face amount. These include:
o your basic scheduled premium
o your policy's benchmark values
o surrender charges
o policy account value
o your monthly deductions
o the variable insurance amount, and
o any additional rider coverage.
We will send you new policy pages reflecting the changes resulting from your
reduction in the face amount.
Reducing the face amount of your policy may cause it to be considered a modified
endowment contract under the Internal Revenue Code. See Tax considerations.
You cannot increase the face amount of your Park Avenue Life policy.
Partial withdrawals
- --------------------------------------------------------------------------------
After the first year of your policy, you may withdraw part of your
policy's net cash surrender value. You must make your request for
withdrawal in writing, and the insured must be alive when you make the
withdrawal. The minimum net partial withdrawal is $500.
PARTIAL WITHDRAWALS
After the first year of your policy, you may withdraw part of your policy's net
cash surrender value. You must make your request for withdrawal in writing, and
the insured must be alive when you make the withdrawal. The minimum net partial
withdrawal is $500.
If we approve your request, it will be effective as of the business day we
receive it at our executive office. The proceeds will normally be paid within
seven days of the time we receive your request. We will not approve or process a
partial withdrawal if, after all related charges:
o your cash surrender value would be less than the benchmark value as of the
date of your withdrawal, or
o your policy would have no net cash surrender value.
We will tell you if these conditions apply.
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50 P R O S P E C T U S S P E C I A L F E A T U R E S
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<PAGE>
For the purpose of making partial withdrawals, your policy's benchmark value
will be calculated as follows:
o if you make a partial withdrawal on your policy anniversary, the benchmark
value on that date will include the amount of your basic scheduled premium
payable during the guaranteed premium period for the current face amount
of your policy
o if your partial withdrawal is not made on your policy anniversary, the
benchmark value will be a figure, determined by linear interpolation,
between the amount calculated at your last policy anniversary plus the
basic scheduled premium payable during the guaranteed premium period for
the current face amount of your policy, and the benchmark value on your
next policy anniversary
For each partial withdrawal we will charge you $25 or 2% of the amount of your
withdrawal, whichever is lower, in addition to any surrender charges that may
apply. This covers our administrative costs.
We will deduct the amount of your withdrawal and any charges as follows:
o first, from the variable investment options that you specify
o if this amount is insufficient to meet your withdrawal request plus
applicable charges, or you have not specified a particular variable
investment option, then proportionately from the other variable investment
options in which your policy is invested
o if these amounts are still insufficient to meet your withdrawal request,
the remainder of the withdrawal will be deducted from your policy account
value in the fixed-rate option.
In addition to reducing your net cash surrender value, partial withdrawals
reduce the amount of your policy's death benefit on a dollar-for-dollar basis,
as follows:
o under Option 1, each partial withdrawal will typically cause an immediate
equal reduction in the face amount
o under Option 2, the reduction in your death benefit will generally be the
same as the reduction in your policy's net cash surrender value.
The tax consequences of making partial withdrawals are discussed under Tax
considerations.
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S P E C I A L F E A T U R E S P R O S P E C T U S 51
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<PAGE>
Surrendering your policy
- --------------------------------------------------------------------------------
You may surrender your policy for its net cash surrender value while the
insured is alive. your policy's net cash surrender value will normally be
paid within seven days of the time we receive your request.
SURRENDERING YOUR POLICY
You may surrender your policy for its net cash surrender value while the insured
is alive. We will calculate your policy's net cash surrender value on the
business day we receive your written request, which must include your policy, or
an acceptable affidavit confirming that you've lost your policy, at our
executive office. Your policy's net cash surrender value will normally be paid
within seven days of the time we receive your request. Your policy's net cash
surrender value will be calculated as follows:
o your policy account value, including any amount held in the Loan
Collateral Account, minus
o any surrender charge, minus
o any outstanding policy debt, plus
o any policy premium assessments that you have paid beyond the next monthly
date
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EXAMPLE
Surrender in policy year 5
- --------------------------------------------------------------------------------
Male insured, Age 35
- --------------------------------------------------------------------------------
Preferred Plus Premium Class
- --------------------------------------------------------------------------------
Face Amount: $250,000
- --------------------------------------------------------------------------------
Annual Policy Premium: $2,030
- --------------------------------------------------------------------------------
Assuming, 6% hypothetical gross return: (4.56% net return)
(See Appendix A)
- --------------------------------------------------------------------------------
Policy Account Value $ 7,797
- ----------------------------------------- ----------------------------------
Surrender Charge (2,265)
- ----------------------------------------- ----------------------------------
Policy Debt 0
- ----------------------------------------- ----------------------------------
Pre-paid Policy Premium Assessments 0
- ----------------------------------------- ----------------------------------
Net Cash Surrender Value $ 5,532
- --------------------------------------------------------------------------------
All insurance coverage will end on the day we calculate your policy's net cash
surrender value. For a discussion of the tax consequences of surrendering your
policy, see Tax considerations.
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52 P R O S P E C T U S S P E C I A L F E A T U R E S
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<PAGE>
Transfers between the investment options
- --------------------------------------------------------------------------------
You may ask us to transfer your policy account value in and out of the
variable investment options, or into the fixed-rate option, at any time.
Each transfer must be for a minimum of $500, or the total amount you have
invested in the option you are transferring funds out of, whichever is
lower.
TRANSFERS BETWEEN THE INVESTMENT OPTIONS
You may ask us to transfer your policy account value in and out of the variable
investment options, or into the fixed-rate option, at any time. We will make
transfers based on the unit values at the end of the business day on which we
receive your instructions, either in writing or by telephone. You can request a
transfer by writing to our executive office or by calling 1-800-935-4128.
Written requests that are received after 4:00 p.m. New York time will be
effective on the next business day. Before you can request transfers over the
telephone, you must first send us a written authorization form.
Your policy account value may not be invested in more than seven of our
allocation options at any one time. Each transfer must be for a minimum of $500,
or the total amount you have invested in the option you are transferring funds
out of, whichever is lower. If you make more than twelve transfers within a
policy year, we reserve the right to charge you $25 for each additional
transfer. We also reserve the right to limit you to one transfer every 30 days.
We do not currently charge for additional transfers. There are also restrictions
on making transfers out of the fixed-rate option, which are outlined below.
We will accept transfer instructions by telephone between 9:00 a.m. and 3:30
p.m. New York time on each business day. We will ask callers to provide
identification and a personal security code for the policy, and will accept the
instructions of anyone who can provide this information. We may also record
telephone transfer requests without notifying the caller. If we reasonably
believe that telephone instructions are genuine, we are not liable for any
losses, damages or costs resulting from a transaction. As a result, you bear the
risk of any losses caused by unauthorized or fraudulent telephone transactions.
The rules for telephone transfers are subject to change, and we reserve the
right to suspend or withdraw this service without notice. During periods of
financial market or economic volatility, it may be difficult to contact us in
order to make a transfer by telephone. If this happens, you should send your
request to us in writing.
TRANSFERS FROM THE FIXED-RATE OPTION
You may only transfer your policy account value out of the fixed-rate option
once each policy year. We must receive your request within 30 days of your
policy anniversary. If we receive your request in the 30 days before your policy
anniversary, we will make the transfer on your policy anniversary. If we receive
your request in the 30 day period after your policy anniversary, we will make
the transfer on the business day we receive your request. We will not honor
requests to transfer investments out of the fixed-rate option that we receive at
any other time of the year.
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S P E C I A L F E A T U R E S P R O S P E C T U S 53
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<PAGE>
When you request a transfer from the fixed-rate option, the amounts that you
have held in the fixed-rate option longest will be withdrawn first.
The maximum that you may transfer out of the fixed-rate option each policy year
is either 33 1/3% of your allocation in the fixed-rate option on the policy
anniversary on or immediately preceding the date of transfer, or $2,500,
whichever is higher. If you have less than $2,500 in the fixed-rate option, you
may transfer the entire amount.
Dollar cost averaging
- --------------------------------------------------------------------------------
Under this option, you transfer the same dollar amount from The Guardian
Cash Fund to a particular variable investment option or options each
month, over a period of time. Dollar cost averaging may reduce the impact
of price fluctuations on unit values of the variable investment options
over the period that automatic transfers are made, but cannot guarantee an
increase in the overall value of your investments or offer protection
against losses in a declining market.
DOLLAR COST AVERAGING TRANSFER OPTION
Under this option, you transfer the same dollar amount from The Guardian Cash
Fund to a particular variable investment option or options each month, over a
period of time. Using dollar cost averaging, you purchase more units in the
variable investment options when their share prices are low, and fewer units
when prices are higher. In this way, dollar cost averaging may reduce the impact
of price fluctuations on unit values of the variable investment options over the
period that automatic transfers are made. However, this strategy cannot
guarantee an increase in the overall value of your investments or offer
protection against losses in a declining market.
The amount of your monthly transfer under this option must be at least $100 for
each variable investment option you wish to invest in, and it must remain in
effect for at least 12 months. Amounts will be transferred automatically on each
monthly date from The Guardian Cash Fund into the variable investment option or
options you have chosen.
Before the program can begin, you must submit an authorization form. Your policy
account value in The Guardian Cash Fund also must equal your monthly transfer
amount multiplied by the number of months you have chosen (for example, $100 per
month x 12 months = $1,200). We will tell you if you have not met this
requirement, and will not begin the program until you have. You can extend the
dollar cost averaging program beyond the initial number of months chosen by
adding to your policy account value in The Guardian Cash Fund.
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54 P R O S P E C T U S S P E C I A L F E A T U R E S
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<PAGE>
We will stop your dollar cost averaging program when:
o the period of time listed on your dollar cost averaging authorization form
ends
o your policy account value in The Guardian Cash Fund is insufficient to
cover your monthly investment in the variable investment options you have
chosen. If this happens we will divide what you do have in the variable
investment option investing in The Guardian Cash Fund among the variable
investment options you have chosen, leaving a balance of zero in The
Guardian Cash Fund
o you tell us in writing to end the program, and we receive this notice at
least three days before the next monthly date
o your policy lapses or you surrender it, or
o a policy value option takes effect.
You may change your transfer instructions or reinstate the dollar cost averaging
program, subject to the rules above, if we receive a new authorization form at
least three days before your policy's next monthly date.
POLICY PROCEEDS
The amount that your beneficiaries will receive upon the death of the insured is
determined as explained under Death benefit options, and is payable when we
receive proof that the insured has died while the policy was in effect. It will
include:
o the death proceeds based on the death benefit option you have chosen, plus
o any policy premium assessments paid for coverage beyond the monthly date
after the insured's death, plus
o the proceeds of any coverage you have added to your policy through riders,
minus
o any outstanding policy debt.
If your policy premium is overdue and the insured dies during the grace period,
we will calculate the death benefit as though the premium had been paid when due
and then deduct the amount that covered the period up to the policy month of the
insured's death.
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S P E C I A L F E A T U R E S P R O S P E C T U S 55
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<PAGE>
If the person 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.
The death proceeds paid to the beneficiaries may also be adjusted if:
o the age or sex listed on the policy application is incorrect
o the insured commits suicide within two years of either the policy's issue
date, or the date a change in the death benefit from Option 1 to Option 2
(but only for any increase in the death benefit over your policy's face
amount that was a result of the change) takes effect
o there are limits imposed by riders to the policy.
The amount of all other transactions will be calculated at the end of the
business day on which we receive the necessary instructions, information or
documentation at our executive office.
If the proceeds are being taken from your policy account value in the variable
investment options, we will normally pay proceeds within seven days of receiving
the necessary information. However, we may delay any transfers, loans or other
payments made from the variable investment options when:
o the New York Stock Exchange is closed, except for weekends or holidays, or
when trading has been restricted
o the Securities and Exchange Commission determines that a state of
emergency exists, making policy transactions impracticable, or
o when one or more of the mutual funds corresponding to the variable
investment options legally suspends payment or redemption of their shares.
If the proceeds are from your policy account value in the fixed-rate option,
they will normally be paid promptly once we have received the necessary
information. However, we may delay any transfers, loans or other payments made
from the fixed-rate option for up to six months from the date of your request.
If we do this, we will pay interest of at least 3% per year on payments that we
delay for 30 days or more. Please note that requests for transfers from the
fixed-rate option may only be made during certain periods. See Transfers from
the fixed-rate option.
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56 P R O S P E C T U S S P E C I A L F E A T U R E S
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<PAGE>
Policy value options
- --------------------------------------------------------------------------------
Policy value options allow you to continue insurance coverage with a
reduced amount of insurance if your policy has lapsed but has a cash
surrender value. If you choose to continue coverage under a policy value
option, you have three choices, as described in the accompanying text.
POLICY VALUE OPTIONS
Policy value options allow you to continue insurance coverage with a reduced
amount of insurance if your policy has lapsed but has a cash surrender value.
Your other options in this situation are to:
o request payment of your net cash surrender value, in which case your
insurance coverage will end, or
o reinstate your policy, by following the required conditions (see
Reinstatement).
If you choose to continue coverage under a policy value option, you have three
choices, as described below. Each option has certain restrictions and offers a
different level of coverage. Contact your agent or us for details.
Policy Value Option A (non-participating fixed benefit extended term insurance)
is the automatic option if you do not request payment of your net cash surrender
value, reinstate your policy, or choose another option. It provides coverage for
a limited term. It is not available if your policy was issued in premium class 3
or higher, or if we have imposed temporary rating charges. No further premiums
will be due, no unscheduled payments or partial withdrawals will be permitted
and no further monthly deductions will be taken when Option A is in force.
Policy Value Option B (non-participating fixed reduced paid up insurance) will
be used if you do not qualify for Option A, or if Option B would provide the
same or greater insurance coverage than Option A. It provides lifetime coverage.
No further premiums will be due and no unscheduled payments are permitted under
Policy Value Option B. We will deduct the monthly cost of insurance charge and
any partial withdrawal charges from the fixed-rate option when Option B is in
force.
Policy Value Option C (non-participating variable reduced paid-up insurance)
continues coverage for the lifetime of the insured. Because this option allows
you to invest in both the variable and fixed-rate investment options, your death
benefit may reflect the performance of the variable investment options.
The initial death benefit is the coverage that you could have bought for the
policy's cash surrender value on the default date, for the attained age, sex and
premium class of the insured.
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S P E C I A L F E A T U R E S P R O S P E C T U S 57
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<PAGE>
To qualify for this option, the insured under your policy must have been in a
standard or better premium class for at least one year from the date your policy
was issued, and your cash surrender value must be at least $10,000 on the
default date. If you apply for Option C and do not qualify, you will be provided
coverage under Policy Value Option B.
Under Option C, you may continue to make transfers among the variable investment
options and the fixed-rate option, as with your original Park Avenue Life
policy. Unlike your original policy, this option does not have a guaranteed
minimum death benefit. If your variable investment options perform poorly, or if
you take partial withdrawals or loans from Option C, the death benefit may be
reduced or eliminated. If the cash value of your policy declines to zero, there
will be no death benefit and this option will lapse.
You do not make premium payments and you cannot make unscheduled payments under
Option C. We will deduct the monthly cost of insurance charge, and any partial
withdrawal or transfer charges, from the value of your Option C policy. If your
policy had outstanding loans or interest when it lapsed, you may ask us to
deduct these from the value of the investments held in your policy before we
transfer your investments to the fixed rate option. If you choose not to repay
any outstanding loans or interest when this option takes effect, or if you take
out new loans, these will be governed by your Park Avenue Life policy's rules
regarding policy loans.
Surrendering a policy value option
- --------------------------------------------------------------------------------
You may surrender a policy value option for its current net cash surrender
value if the insured is still alive. The amount that you will receive is
based on your option's cash value minus any outstanding policy debt.
Surrendering a policy value option
You may surrender a policy value option for its current net cash surrender value
if the insured is still alive. The amount that you will receive is based on your
option's cash value minus any outstanding policy debt. The cash values for the
different policy value options are calculated as follows:
o for Option A the cash value is the then present value of insurance
currently provided
o for Option B the cash value is the total value of the fixed-rate option
and the Loan Collateral Account
o for Option C the cash value is the total value of the fixed-rate and
variable investment options, and the Loan Collateral Account
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58 P R O S P E C T U S S P E C I A L F E A T U R E S
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<PAGE>
Exchanging a Policy
- --------------------------------------------------------------------------------
During the first 24 policy months, you may exchange your Park Avenue Life
policy for a fixed-benefit whole life policy issued by us or one of our
affiliates, without having to prove that the insured meets our insurance
requirements.
FIXED-BENEFIT INSURANCE DURING THE FIRST 24 MONTHS
During the first 24 policy months, you may exchange your Park Avenue Life policy
for a fixed-benefit whole life policy issued by us or one of our affiliates,
without having to prove that the insured meets our insurance requirements. Under
the new policy, your policy value will be held in the issuer's general account.
Your face amount will be the same as under your Park Avenue Life policy on the
date you make the exchange. The insured's age when the Park Avenue Life policy
took effect will also be carried over. Before you can make any exchange,
however, you must repay any outstanding policy debt on your Park Avenue Life
policy.
Depending on the amount being applied to the new policy, there may be a cost or
a credit to be paid. The amount being applied to the new policy is calculated as
the greater of:
o the cumulative premiums for your new policy with interest at 6% minus the
cumulative policy premiums for your Park Avenue Life policy with interest
at 6%, or
o the guaranteed cash value of the new policy, minus the cash surrender
value of your Park Avenue Life policy on the exchange date. The cash value
of your new policy will depend on its face amount, premium class, and the
insured's sex and his or her age on the original policy date.
If the greater of these two amounts is less than zero, the issuer of the new
policy will pay you an exchange credit. If it is greater than zero, you will
have to pay the issuer of your new policy the exchange cost.
The new policy will be issued and effective either on the business day that we
receive your written exchange request at our executive office along with your
policy, or on the date that any exchange cost owing is received by the issuer of
your new policy, whichever is later.
If you have waiver of premium or accidental death benefit riders attached to
your Park Avenue Life policy, these can also be transferred to your new policy.
Other rider benefits are available only with the consent of the issuer of your
new policy.
You should consult with legal and tax advisers before exchanging your policy.
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S P E C I A L F E A T U R E S P R O S P E C T U S 59
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<PAGE>
Payment options
- --------------------------------------------------------------------------------
You have several payment options for the death or surrender proceeds from
your policy. These proceeds can either be paid in a single lump sum, or
under one or more of the payment options specified in the accompanying
text.
PAYMENT OPTIONS
You have several payment options for the death or surrender proceeds from your
policy. These proceeds can either be paid in a single lump sum, or under one or
more of the payment options listed below. You may select a payment option while
the insured is living. If the insured has died and you have not chosen a payment
option, the beneficiaries may choose the payment options, up to one year after
the insured's death. If you are surrendering your policy, you have 60 days after
the proceeds of your policy become payable within which to choose a payment
option. You, or the beneficiaries, may choose to distribute the proceeds under
more than one payment option at a time, but you must distribute at least $5,000
through each option selected. Monthly payments under each option must be at
least $50.
The proceeds of your policy must be paid to a 'natural person'. Payments will
not be made to his or her estate if they die before the proceeds have been fully
paid. You may name a second person to receive any remaining payments if this
happens.
The proceeds that we hold in order to make payments under one of the payment
options do not share in the income, gains or losses of the variable investment
options, nor do they earn interest in the same way or amount as funds in the
fixed-rate option.
Under Option 1, we will hold the proceeds and make monthly interest payments at
a guaranteed annual rate of 3%.
Under Option 2, we 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, we will make monthly payments for a specified number of years.
The amount of the payments will include interest at 3% per year.
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60 P R O S P E C T U S S P E C I A L F E A T U R E S
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<PAGE>
Under Option 4, we 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, we 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, we 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).
Your policy lists the monthly payment for every $1,000 of proceeds that the
payee applies under Options 3 to 6, as well as the amount we pay if the payee
cancels a payment option.
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S P E C I A L F E A T U R E S P R O S P E C T U S 61
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<PAGE>
- --------------------------------------------------------------------------------
TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
THIS DISCUSSION of tax considerations for your Park Avenue Life policy is
general in nature, does not purport to be complete or to cover all tax
situations, and should not be considered as tax advice. It is based on our
understanding of federal income tax laws as they are currently being
interpreted. We cannot guarantee that these laws will not change while this
prospectus is in use, or while your policy is in force. You should consult a
lawyer or tax adviser regarding your individual situation.
- --------------------------------------------------------------------------------
Tax status
- --------------------------------------------------------------------------------
To qualify as a life insurance contract and to receive the tax treatment
normally accorded life insurance contracts under Federal tax law, a life
insurance policy must satisfy certain requirements which are set forth in
the Internal Revenue Code. For example, the underlying investments must be
"adequately diversified" in order for the policy to be treated as a life
insurance contract for Federal income tax purposes. It is intended that
the investment divisions of the Separate Account, through the mutual
funds, will satisfy these diversification requirements.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal income tax purposes
and to receive the tax treatment normally accorded life insurance contracts
under Federal tax law, a life insurance policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe it is
reasonable to conclude that your policy should satisfy the applicable
requirements. If it is subsequently determined that a policy does not satisfy
the applicable requirements, we may take appropriate steps to bring the policy
into compliance with such requirements and we reserve the right to modify the
policy as necessary in order to do so.
In certain circumstances, owners of variable life insurance policies have been
considered for Federal income tax purposes to be the owners of the assets of the
separate account supporting their contracts due to their ability to exercise
investment control over those assets. Where this is the case, the policyowners
have been currently taxed on income and gains attributable to separate account
assets. There is little guidance in this area, and some features of the Park
Avenue Life policy, such as your flexibility to allocate premiums and the policy
account value, have not been explicitly addressed in published rulings. While we
believe that the policy does not give policyowners investment control over the
Separate Account's assets, we reserve the right to modify the policy as
necessary to prevent the policyowner from being treated as the owner of the
Separate Account assets supporting the policy.
In addition, the Code requires that the investments of the investment divisions
of our Separate Account be "adequately diversified" in order for the policy to
be treated as a life insurance contract for Federal income tax purposes. It is
intended that the investment divisions of the Separate Account, through the
mutual funds, will satisfy these diversification requirements.
The following discussion assumes that the policy will qualify as a life
insurance contract for Federal income tax purposes.
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62 P R O S P E C T U S T A X C O N S I D E R A T I O N S
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<PAGE>
Treatment of policy proceeds
- --------------------------------------------------------------------------------
We believe that the death benefits under your policy should be excludable
from the gross income of the beneficiary. Generally, under the existing
federal tax laws, increases in the value of your policy will not be taxed
federally unless you make a withdrawal before the insured dies.
TREATMENT OF POLICY PROCEEDS
We believe that the death benefits under your policy should be excludable from
the gross income of the beneficiary. Generally, under the existing federal tax
laws, increases in the value of your policy will not be taxed federally unless
you make a withdrawal before the insured dies. The money that you receive when
the insured dies is not subject to federal income tax, but may be subject to
federal estate taxes or generation skipping taxes.
Partial withdrawals, surrenders and policy loans all result in money being taken
out of your policy before the insured dies. How this money is taxed depends on
whether your policy is classified as a modified endowment contract.
Under the Internal Revenue Code, certain life insurance contracts are classified
as "modified endowment contracts," with less favorable tax treatment than other
life insurance contracts. Due to the flexibility of the policy as to premiums
and benefits, the individual circumstances of each policy will determine whether
it is classified as a modified endowment contract. The rules are too complex to
be summarized here, but generally depend on the amount of premium payments made
during the first seven policy years. Certain changes in a policy after it is
issued could also cause it to be classified as a modified endowment contract.
You should consult with a competent tax adviser to determine whether a policy
transaction will cause your policy to be classified as a modified endowment
contract.
If your policy is not considered a modified endowment contract:
o money that you withdraw from your policy will generally be taxed only if
the total that you withdraw exceeds your "basis" in the policy - the total
amount that you have paid in premiums. The difference between what you
have put in and what you take out will be taxed as ordinary income. When
you withdraw money from your policy, your basis is reduced by any amount
withdrawn that is not taxed
o if you surrender your policy, you will generally be taxed only on the
amount by which the value of your policy, including any policy debt, is
greater than your basis in the policy. The tax consequences of
surrendering your policy may vary if you receive the proceeds under one of
the payment plans. Losses are generally not tax deductible
o policy loans are generally not taxable because they must be paid back to
your policy. The interest you pay on these loans is generally not tax
deductible. However, if your policy lapses while you have an outstanding
policy loan, you may have to pay tax on the amount that you still owe to
your policy. The tax consequences of a policy loan are unclear if the
difference between the rate we charge on the loan and the interest rate
earned on the loan is very small. You should consult a tax adviser
regarding these consequences.
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T A X C O N S I D E R A T I O N S P R O S P E C T U S 63
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<PAGE>
If your policy is considered a modified endowment contract:
o all distributions including partial withdrawals, surrenders, assignments
and policy loans will be taxed as ordinary income
o all modified endowment contracts issued by GIAC or its affiliates during
any calendar year will be treated as one modified endowment contract to
determine the taxable portion of any distribution
o a 10% penalty tax will also apply to any taxable distribution unless it is
made to a taxpayer who is 59 1/2 years of age or older; is attributable to
a disability; or is received as substantially equal periodic payments made
over the life of the taxpayer, or the life of the taxpayer and a
beneficiary.
EXCHANGES
Generally, there are no tax consequences when you exchange one life insurance
policy for another, as long as the same person is being insured. Paying
additional premiums under the new policy may cause it to be treated as a
modified endowment contract. Your policy may also lose any "grandfathering"
privilege, where you would be exempt from certain legislative or regulatory
changes made after your original policy was issued, if you exchange your policy.
You should consult with a tax adviser if you are considering exchanging any life
insurance policy.
POLICY CHANGES
We will make changes to policies and their riders where necessary to ensure that
they continue to qualify as life insurance under the Internal Revenue Code, and
policyowners are not considered the direct owners of the mutual funds held in
the Separate Account. Any changes will be made uniformly to all policies
affected. We will provide advance notice in writing of these changes when
required by state insurance regulators.
Federal, state and local governments may, from time to time, introduce new
legislation concerning the taxation of life insurance policies. They can also
change or adopt new interpretations of existing laws and regulations without
notice. If you have questions about the tax consequences of your Park Avenue
Life policy, please consult a legal or tax adviser.
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64 P R O S P E C T U S T A X C O N S I D E R A T I O N S
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<PAGE>
Transfer taxes
- --------------------------------------------------------------------------------
If you are both the policyowner and the insured, the death benefit under
your Park Avenue Life policy will generally be included in the value of
your gross estate for federal estate tax purposes. If the beneficiary of
the policy is someone who is two or more generations younger than the
policyowner, the generation-skipping transfer (GST) tax may be imposed.
ESTATE AND GENERATION SKIPPING TRANSFER TAXES
If you are both the policyowner and the insured, the death benefit under your
Park Avenue Life policy will generally be included in the value of your gross
estate for federal estate tax purposes. If you are not the insured, the policy
will be included in your gross estate.
Also, if the beneficiary of the policy is someone who is two or more generations
younger than the policyowner, the generation-skipping transfer (GST) tax may be
imposed.
The individual situation of a policyowner or beneficiary will determine how the
ownership of a policy or the receipt of policy proceeds will affect their tax
situation. Because the rules are complex, a legal or tax adviser should be
consulted for specific information.
OTHER TAX CONSEQUENCES
Park Avenue Life policies can be used in various ways, including:
o as non-qualified deferred compensation or salary continuance plans
o in split-dollar insurance plans
o as part of executive bonus plans, retiree medical benefits plans, or other
similar plans.
The tax consequences of these plans will vary depending on individual
arrangements and circumstances. We recommend that anyone considering buying a
Park Avenue Life policy with the expectation of favorable tax consequences
should consult with a qualified tax adviser before investing.
In addition, new rules have recently been passed by Congress relating to life
insurance owned by businesses. Any business should consult with a qualified tax
adviser before buying a policy, and before making any changes or transactions
under the policy.
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T A X C O N S I D E R A T I O N S P R O S P E C T U S 65
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<PAGE>
Possible tax law changes
- --------------------------------------------------------------------------------
Although the likelihood of legislative change is uncertain, there is
always the possibility that the tax treatment of the policy could change
by legislation or otherwise. You should consult a tax adviser with respect
to legislative developments and their effect on the policy.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the policy could change by legislation or
otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the policy.
GIAC'S TAXES
Based on current life insurance tax regulations, GIAC does not pay tax on
investment income or capital gains from the assets held in the Separate Account.
The operations of the Separate Account are reported on our federal income tax
return, which is then consolidated with that of our parent company, Guardian
Life.
We may pay taxes at the state and local level, as well as premium taxes, but at
present these are not substantial. If they increase, we reserve the right to
recover these costs by charging the Separate Account or the policy.
INCOME TAX WITHHOLDING
We are generally required to withhold money for income taxes when you make a
transaction on which you will have to pay tax. You can request in writing that
we not withhold any amount for income tax purposes. If we do not, or if we fail
to withhold enough to cover the taxes that are due, you could be penalized. You
would also be responsible for any unpaid taxes when you file your regular income
tax return. We may similarly withhold generation skipping transfer taxes unless
you tell us in writing that these taxes are not required.
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66 P R O S P E C T U S T A X C O N S I D E R A T I O N S
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<PAGE>
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RIGHTS AND RESPONSIBILITIES
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Assigning policy rights
- --------------------------------------------------------------------------------
You may assign the rights under your Park Avenue Life policy to another
person or business, subject to certain restrictions discussed in the
accompanying text.
ASSIGNING THE RIGHTS TO YOUR POLICY
You may assign the rights under your Park Avenue Life policy to another person
or business. This is often done, for example, to secure a loan. We will only be
bound by such an agreement when we have received a copy of the assignment
papers, signed by you, the entity or person to whom you are assigning your
rights, and your policy's beneficiaries, if applicable. Assignments are subject
to all payments made or actions we have taken on or before the date we receive
the assignment papers. We are not responsible for determining whether the
assignment of your policy's rights is legally valid.
The entity or person to whom you assign your rights may exercise all rights
granted under the policy except the right to:
o change the policyowner or beneficiary
o change a payment option, and
o direct where your net premiums will be invested or make transfers among
the fixed-rate and variable investment options.
VOTING RIGHTS
As explained in The variable investment options, we are the owner of the fund
shares held in the Separate Account. As a result, we have the right to vote at
any meeting of the funds' shareholders.
Where we are required to by law, we will vote fund shares based on the
instructions we receive from Park Avenue Life policyowners. If we do not receive
instructions from some policyowners, we will vote fund shares attributable to
their policies, and any shares we own in our own right, in the same proportion
as the shares attributable to the policyowners from whom we do receive
instructions. This proportion could include policyowners and contract owners
from other separate accounts.
If changes in the law or its interpretation allow us to make voting decisions in
our own right, or to restrict the voting of policyowners, we reserve the right
to do so. We will ask you for your voting instructions if, on the record date
set by the fund's directors, part of your policy account value is invested in
the variable investment option of the Separate Account that corresponds to the
mutual fund holding a shareholders' meeting.
The number of votes that you have will be based on the number of shares that you
hold. We will calculate the number of shares, or fraction of a share, that you
hold on the record date by dividing the dollar value of your investment in the
division of the Separate Account corresponding to the mutual fund, by the net
asset value of the variable investment option's shares on that date.
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<PAGE>
If, after careful examination, we reasonably disapprove of a proposed change to
a mutual fund's investment adviser, its advisory contract, or its investment
objectives or policies, we may disregard policyowners' voting instructions, if
the law allows us to do so. If the change affects the investment adviser or
investment policy, we will only exercise this right if we determine in good
faith that the proposed change is contrary to state law or is inappropriate in
view of the fund's investment objective and purpose. If we exercise this right,
we will provide a detailed explanation of our actions in the next semi-annual
report to policyowners.
Certain activities related to the operation of the Separate Account may require
the approval of policyowners. See Rights reserved by GIAC. If a vote is
required, you will be given one vote for every $100 of your policy that is held
in the variable investment options. For any investments that we hold on our own
behalf, we will vote in the same proportion as our policyowners.
You do not have the right to vote on the operations of the fixed-rate option.
Incontestability
- --------------------------------------------------------------------------------
Generally, we cannot challenge your policy once it is in force, or has
been reinstated, for two years, provided you have paid your premiums when
they are due.
LIMITS TO GIAC'S RIGHT TO CHALLENGE A POLICY
Incontestability
Generally, we cannot challenge your policy once it is in force, or has been
reinstated, for two years, provided you have paid your premiums when they are
due. If you change your policy's death benefit from Option 1 to Option 2, we
have two years to challenge any increase in the death benefit that results from
this change. If we are successful in our challenge, your death benefit will
revert to what it would have been under Option 1.
Misstatement of age or sex
If we find that the information in the application regarding the age or sex of
the insured is wrong, we will adjust the death benefit to that which would have
been purchased by the most recent deduction for cost of insurance under the
policy and any rider premium payment, using the correct age or sex. Some
jurisdictions do not allow insurance companies to provide different benefits
based on the sex of the insured. For these jurisdictions we offer a version of
the Park Avenue Life policy with the same benefits for men and women.
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68 P R O S P E C T U S R I G H T S A N D R E S P O N S I B I L I T I E S
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<PAGE>
Suicide exclusion
If the insured commits suicide within two years of the policy's issue date,
regardless of whether he or she is considered sane at the time, the amount that
we must pay in death benefits will be limited to the greater of i) the net cash
surrender value as of the date of death, or ii):
o the policy premiums paid, plus
o any unscheduled payments made, minus
o any policy debt, minus
o any partial withdrawals and any related charges
If the insured commits suicide within two years of an increase in your policy's
death benefit due to a change from Option 1 to Option 2, the death benefit will
be limited to the original death benefit under Option 1, plus the additional
cost of insurance charges paid for the increased death benefit.
RIGHTS RESERVED BY GIAC
We reserve the right to make changes or take actions that we feel are in the
best interests of Park Avenue Life policyowners and their beneficiaries, or are
appropriate for the policy. We will follow applicable laws and regulations in
exercising our rights, and will seek the approval of policyowners or regulators
when necessary. Some of the changes or actions we may take include:
o operating the Separate Account in any form permitted by law
o taking any action that will allow the Separate Account either to comply
with or be exempt from sections of the 1940 Act
o de-registering the Separate Account under the 1940 Act
o transferring the assets from one division of the Separate Account into
other divisions, or to one or more Separate Accounts, or to our general
account, and adding, combining, or removing investment divisions in the
Separate Account
o substituting the shares of one mutual fund held through the Separate
Account for shares of a different class in the same mutual fund, shares of
a different mutual fund, or any other investment allowed by law
o adding to, suspending or eliminating your ability to direct how your net
premiums are invested, or to transfer your investments among the variable
investment options or the fixed-rate option
o changing the way we make deductions or collect charges, consistent with
the limits outlined in the policy
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R I G H T S A N D R E S P O N S I B I L I T I E S P R O S P E C T U S 69
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<PAGE>
o changing the policy as required to ensure that it continues to qualify as
life insurance under the Internal Revenue Code, or to preserve favorable
tax treatment for your benefits under the policy
o making any changes necessary to the policy so that it conforms with any
action we are permitted to take.
We will inform you if we make a change that affects the basic nature of the
investments in any of the variable investment options. If this occurs, you will
have 60 days from the postmark on our notice to transfer your investments out of
this option and into one of the other investment options, without charge. See
Transfers.
YOUR RIGHT TO CANCEL YOUR POLICY
You may cancel your policy by returning it with a written cancellation notice to
either our executive office or the agent from whom you bought the policy. You
must do this within the later of:
o 10 days of receiving your policy, or
o 45 days of signing Part 1 of your completed policy application
Longer periods may apply in some states. If a cancellation notice is sent by
mail, it will be effective on the date of the postmark. Once we receive your
notice, we will refund all of the premiums and unscheduled payments you have
made towards your policy, and it will be considered void from the beginning. We
may delay refunding any payments you made by check until your check has cleared.
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70 P R O S P E C T U S R I G H T S A N D R E S P O N S I B I L I T I E S
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<PAGE>
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OTHER INFORMATION
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE POLICY AND OTHER CONTRACTUAL ARRANGEMENTS
We have an agreement with Guardian Investor Services Corporation (GISC) for GISC
to act as the principal underwriter of Park Avenue Life policies, as well as the
other variable life insurance policies and variable annuity contracts that we
offer. GISC is a broker-dealer registered under the Securities and Exchange Act
of 1934, and a member of the National Association of Securities Dealers. Under
this agreement GISC was paid or accrued a total of $1,851,468 in 1996, and
$1,979,926 in 1997, and $1,946,477 in 1998. GISC is a New York corporation.
Agents and commissions
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 agreements with GIAC and GISC to
sell Park Avenue Life policies. Our agents receive a maximum sales commission
of:
o 50% of the policy premium paid for the first policy year, then
o 5% of the policy premiums paid for policy years two through ten, and
o 2% of the policy premiums paid for policy years thereafter
In addition, GIAC pays a commission of no more than:
o 3.5% of each unscheduled payment in the first ten policy years, and
o 2% of any unscheduled payments thereafter
We may also compensate our agents in the form of commission overrides, expense
allowances, bonuses, wholesaler fees and training allowances. In addition,
agents may qualify for non-cash compensation such as expense-paid trips or
educational seminars.
If you return your policy under the right to cancel provisions, the agent may
have to return some or all of any commissions we have paid.
Administrative services
Through an agreement with our parent company, Guardian Life, to carry out the
administration of Park Avenue Life policies, we are billed quarterly for the
time that their staff spends on GIAC business, and for the use of their
centralized services and sales force.
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O T H E R I N F O R M A T I O N P R O S P E C T U S 71
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<PAGE>
Other agreements
We have entered into several other agreements, including:
o an agreement with Value Line, Inc. under which we are compensated for
marketing the Value Line Centurion Fund and the Value Line Strategic Asset
Management Trust to our policyowners
o an agreement with MFS and American Century under which we are compensated
for certain administrative costs and expenses connected to the offering
and sale of their funds to our policyholders. The amount we receive is
based on a percentage of assets under management.
- --------------------------------------------------------------------------------
Communications we'll send you
Shortly after your policy anniversary each year, we will send you an updated
statement showing the following information:
o the amount of your current death benefit
o the instructions we have on file regarding where to invest your net
premiums, and how much you have invested in each of the investment options
o your policy account value, cash surrender value, net cash surrender value,
and benchmark value
o the amount you have paid in policy premiums and unscheduled payments, and
the charges that we have deducted, since the last anniversary of your
policy
o a summary of any transfers or partial withdrawals, loans or loan
repayments that you have made since your last annual statement
o the total of any outstanding policy debt that you owe us, and
o the interest rate for investments held in the fixed-rate option.
Twice a year we will also send you reports containing the financial statements
of the mutual funds and the Separate Account through which you invest in these
funds. Of these reports, the annual reports will contain audited financial
statements.
We will confirm in writing receipt of your policy premiums and any unscheduled
payments, transfers or other transactions. We will also write you to request a
premium or loan repayment to keep your policy from lapsing.
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SPECIAL PROVISIONS FOR GROUP OR SPONSORED ARRANGEMENTS
Where state insurance laws allow us to, we may sell Park Avenue Life policies
under a group or sponsored arrangement.
A group arrangement is one in which a group of individuals is covered under a
single policy. This might be arranged, for example, by an employer, a trade
union, or a professional association.
A sponsored arrangement is one in which we are allowed to offer members of a
group, such as employees of a company or members of an association, insurance
policies on an individual basis.
We may reduce or eliminate certain deductions and charges outlined in this
prospectus for policies bought under group or sponsored arrangements. We may,
for instance, sell 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 their immediate family members. We may
reduce or waive policy charges and deductions in accordance with the rules in
effect as of the date an application for a policy is approved.
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72 P R O S P E C T U S O T H E R I N F O R M A T I O N
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<PAGE>
In addition, GIAC may permit groups and persons purchasing under a sponsored
arrangement to apply for simplified issue and multi-life underwriting. To
qualify for a reduction in the policy's charges or deductions certain criteria
must be met. These may include:
o the size of the group
o the expected number of participants
o the expected amount of premium payments.
The amount of any reduction in charges or deductions and the criteria to qualify
for a reduction will reflect our reduced cost of selling and/or maintaining the
policies in group or sponsored arrangements.
From time to time we may change the amount of any reduction in charges or
deductions, or the criteria that a group must meet to qualify for these
reductions. Any change will be made on a non-discriminatory basis.
LEGAL CONSIDERATIONS FOR EMPLOYERS
The Park Avenue Life policy estimates different risks for men and women in
establishing a policy's premiums, benefits and deductions, except in states
where gender-neutral standards must be used. In 1983, the United States Supreme
Court held that optional annuity benefits offered 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. Anyone interested in buying Park
Avenue Life policies in connection with insurance or benefits programs should
consult with their legal advisers to determine if the policy is appropriate for
this purpose.
ADVERTISING PRACTICES
In our advertisements and sales materials for Park Avenue Life policies we may
include:
o articles or reports on variable life insurance in general, or Park Avenue
Life specifically, and any other information published in business or
general information publications.
o relevant indices or rankings of investment securities or similar groups of
funds
o comparisons of the variable investment options with the mutual funds
offered through the separate accounts of other insurance companies, or
those with similar investment objectives and policies, and
o comparisons with other investments, including those guaranteed by various
governments.
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O T H E R I N F O R M A T I O N P R O S P E C T U S 73
-----------------------
<PAGE>
We may use the past performance of the variable investment divisions and funds
to promote the policies. These data are not indicative of the future performance
of the funds or the policies, or the investment experience of individual
policyowners.
We may feature individual funds and their managers, and describe the asset
levels and sales volumes of GIAC, GISC and others in the investment industry. We
may also refer to past, current, or prospective economic trends and investment
performance, and any other information that may be of interest.
LEGAL PROCEEDINGS
We are not currently involved in any legal proceedings that would threaten our
financial position or that of the Separate Account.
LEGAL MATTERS
The legal validity of the Park Avenue Life policy, as described in this
prospectus, has been confirmed by Richard T. Potter, Jr., Vice President and
Counsel of GIAC.
REGISTRATION STATEMENT
We have omitted some information from this prospectus, which is contained in our
registration with the Securities and Exchange Commission (SEC), relating to the
Separate Account and the Park Avenue Life policy. You can obtain this
information by contacting the SEC's main office in Washington, DC, and paying
the required fee.
FINANCIAL AND ACTUARIAL EXPERTS
The following items are included in this prospectus:
o financial statements of the Separate Account for the three years ended
December 31, 1998
o statutory basis balance sheets of GIAC as of December 31, 1998 and
December 31, 1997
o related statutory basis statements of operations, changes in common stock,
surplus, and cash flow of GIAC for the three years ended December 31, 1998
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74 P R O S P E C T U S O T H E R I N F O R M A T I O N
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<PAGE>
These items have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants of the Separate Account and
GIAC whose reports thereon appear herein, given on their authority as experts in
accounting and auditing. PricewaterhouseCoopers LLP is located at 1177 Avenue of
the Americas, New York, New York 10036.
The GIAC statutory basis financial statements contained in this prospectus
should only be used to determine our ability to meet our obligations under the
Park Avenue Life policies, and not as an indication of the investment experience
of the Separate Account.
The actuarial matters contained 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
Securities and Exchange Commission.
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Year 2000 compliance
Many computer systems are unable to distinguish between the years 1900 and 2000
when they are making date-related calculations, because of the way that date
information is stored in these machines. Like businesses around the world that
rely on computerized systems for their day-to-day functioning, we may be
adversely affected if our computer systems, or the computer systems of companies
that we do business with, cannot address this problem by January 1, 2000. We are
working to address this issue, and expect that our computer systems will be able
to correctly interpret the year 2000 when that date arrives, but we cannot
guarantee that our preparations will be successful.
In conjunction with our parent company, Guardian Life, we are directing
significant portions of our internal information technology efforts and
contracting, as needed, with outside consultants to help update our systems to
accommodate the year 2000. We have also initiated discussions with other
critical parties whose systems impact our own to determine the progress they are
making toward addressing year 2000 issues.
Everyone involved is making substantial efforts to address their systems and the
systems with which they interface, but it is not possible to provide assurance
that operational problems will not occur. We believe that, with the modification
of existing computer systems, updates by vendors and conversion to new software
and hardware, we are well positioned to mitigate the year 2000 issue and that
policyowners will not experience negative effects with respect to their policies
as a result of the year 2000 issue. However, the year 2000 issue, by its very
nature contains inherent uncertainties, including the uncertainty of year 2000
readiness of third parties. As a result, we are unable to determine at this time
whether the consequences of year 2000 failures will have a material adverse
effect on our results of operations, liquidity or financial position.
We are also incorporating potential issues surrounding year 2000 into our
contingency planning process, in the event that, despite our substantial efforts
and those of other critical parties, there may still remain unresolved year 2000
problems.
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O T H E R I N F O R M A T I O N P R O S P E C T U S 75
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<PAGE>
GIAC'S MANAGEMENT
The directors and officers of GIAC are named in the following table together
with information about their principal occupations and affiliations during the
past five years. The business address of each director and officer is 7 Hanover
Square, New York, New York 10004. The "Guardian Fund Complex" referred to in the
biographical information is comprised of (1) The Guardian Stock Fund (2) The
Guardian Bond Fund (3) The Guardian Cash Fund (4) The Park Avenue Portfolio (a
series trust that issues its shares in ten series) and (5) GIAC Funds, Inc. (a
series fund that issues its shares in three series).
<TABLE>
<CAPTION>
Name Title Business History
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Joseph A. Caruso Vice President Vice President and Corporate Secretary, The Guardian Life
and Secretary Insurance Company of America 3/96 - present; Second Vice President and
Corporate Secretary 1/95 - 2/96; Corporate Secretary 10/92 - 12/94; Vice
President and Secretary, Guardian Investor Services Corporation, Secretary,
Guardian Asset Management Corporation, Guardian Baillie Gifford Limited and
various mutual funds within the Guardian Fund Complex.
- ------------------------------------------------------------------------------------------------------------------------------------
Philip H. Dutter Director Management Consultant (self-employed). Director of The Guardian Life Insurance
Company of America 3/88 - present. Director of Guardian Investor Services
Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
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, The Guardian Life Insurance Company of
and Actuary America.
- ------------------------------------------------------------------------------------------------------------------------------------
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..
- ------------------------------------------------------------------------------------------------------------------------------------
Peter L. Hutchings Director Executive Vice President and Chief Financial Officer, The Guardian Life
Insurance Company of America 5/87 - present. Director of Guardian Investor
Services Corporation and Guardian Asset Management Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
Ryan W. Johnson Vice President, Vice President, Equity Marketing and Sales, 3/98 - present; Second Vice
Equity Sales 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.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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76 P R O S P E C T U S O T H E R I N F O R M A T I O N
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<PAGE>
<TABLE>
<CAPTION>
Name Title Business History
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank J. Jones Executive , Executive Vice President and Chief Investment Officer, The Guardian Life
Chief Investment Insurance Company of America, Director, Guardian Investor Services
Officer, and Corporation, Guardian Baillie Gifford Limited, Director and President Guardian
Director Asset Management Corporation. Executive Vice President, GIAC Funds, Inc..
Officer of various mutual funds within the Guardian Fund Complex.
- ------------------------------------------------------------------------------------------------------------------------------------
Edward K. Kane Executive Executive Vice President, The Guardian Life Insurance Company of America
Vice President 1/97 -present; Senior Vice President and General Counsel prior thereto; 11/88
and Director -present. Director, Guardian Asset Management Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
Frank L. Pepe Vice President Vice President and Controller, Equity Products, The Guardian Life Insurance
and Controller 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 Vice President and Equity Counsel, The Guardian Life Insurance Company
and Counsel of America 1/96 - present; Second Vice President and Equity Counsel prior
thereto. Vice President and Counsel of Guardian Investor Services Corporation.
Counsel of Guardian Asset Management Corporation and various mutual funds
within the Guardian Fund Complex.
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph D. Sargent President, President, Chief Executive Officer and Director The Guardian Life Insurance
Chief Executive Company of America 1/96 - present; President prior thereto; Director 1/93 -
Officer and present. Chairman of the Board of Guardian Investor Services Corporation and
Director Guardian Asset Management Corporation and various mutual funds within the
Guardian Fund Complex. Director of Guardian Baillie Gifford Limited.
- ------------------------------------------------------------------------------------------------------------------------------------
John M. Smith Executive Executive Vice President, The Guardian Life Insurance Company of
Vice President America 1/95 - present; Senior Vice President, Equity Products prior thereto.
and Director President and Director, Guardian Investor Services Corporation. President,
GIAC Funds, Inc.. Director, Guardian Baillie Gifford Limited. Director,
Guardian Asset Management Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
William C. Warren Director Retired. Dean Emeritus, Columbia Law School. Former Chairman of the Board,
Sandoz, Inc.; Director of The Guardian Life Insurance Company of America since
1/57 and Director of Guardian Investor Services Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
No officer or director of GIAC receives any compensation from the Separate
Account. No separately allocable compensation has been paid by GIAC, or any of
its affiliates, to any person listed above for services rendered to the Separate
Account.
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O T H E R I N F O R M A T I O N P R O S P E C T U S 77
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<PAGE>
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SPECIAL TERMS USED IN THIS PROSPECTUS
- --------------------------------------------------------------------------------
Age
The insured's age on his or her birthday closest to the date the policy takes
effect.
Attained age
The insured's current age plus the number of policy years completed since the
policy date.
Basic scheduled premium
A regularly scheduled payment that you must make in order to keep your policy in
force. It is set out in your policy and does not include charges for any
additional coverage provided by riders that you may add to your policy, or
rating charges if the insured does not meet our insurance requirements for
standard insurance when we issue your policy.
Benchmark value
Benchmark value is a hypothetical measure we use to assess the adequacy of the
funding level in your policy account over time. It is based on assumptions about
the basic scheduled premium and insurance charges you would pay, as well as the
net rate of return your account would be expected to earn. Benchmark values for
each policy anniversary date are set out in the policy.
During the guaranteed premium period, the benchmark value is the greater of 1)
your tabular account value and 2) the amount that would cause your policy
account value to at least equal the benchmark value at the end of the guaranteed
premium period, assuming that:
o the policyowner paid basic scheduled premiums, when due, throughout the
guaranteed premium period
o the policy had a face amount of $250,000 and premiums were paid annually
o we charged the current cost of insurance charges, and
o the policy account value earned an annual gross return of 6.59% throughout
the guaranteed premium period
After the guaranteed premium period, the benchmark value is the greater of 1)
your 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 that
- -----------------------
78 P R O S P E C T U S S P E C I A L T E R M S
- -----------------------
<PAGE>
would cause your policy account value to at least equal your policy's face
amount on the policy anniversary nearest the insured's 100th birthday, assuming
that:
o the policyowner paid basic scheduled premiums for the current face amount
until the policy anniversary nearest the insured's 100th birthday
o the policy had a face amount of $100,000 and premiums were paid monthly
o the policyowner paid the all basic scheduled premiums, made no unscheduled
payments and took no loans or withdrawals
o we charged the current cost of insurance charges and the maximum rate of
any other charges and deductions, and
o the policy account value earned an annual net return of 4% throughout the
life of the policy
To calculate the benchmark value on a given day, we will take the benchmark
values for your last policy anniversary and your upcoming policy anniversary,
and adjust for the number of days that the date is between these anniversaries.
Business day
A day 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 p.m. New York time.
Face amount or Guaranteed insurance amount
The minimum amount that you will receive on the death of the insured, until the
policy anniversary closest to the insured's 100th birthday, as long as:
o you pay all policy premiums when they are due, except those skipped under
the Premium Skip Option
o you don't make any partial withdrawals, and
o you don't have any policy debt outstanding.
The Guaranteed Insurance amount is set out in your policy. The minimum for a
policy is currently $100,000.
Guaranteed premium period
The period during which your basic scheduled premiums will remain the same. This
period begins on the policy date and ends on the later of the policy anniversary
closest to the insured's 70th birthday or the 10th policy anniversary.
-----------------------
S P E C I A L T E R M S P R O S P E C T U S 79
-----------------------
<PAGE>
Internal revenue code
The Internal Revenue Code of 1986, as amended, and its related rules and
regulations.
Issue date
The date your policy is issued at GIAC's Executive Office.
Monthly date
The same date in each month as the policy date, or the last day of a month if
that is earlier.
Net amount at risk
The difference between the policy account value and the amount that you would be
paid under the policy's death benefit.
Policy anniversary
The same date each year as the policy date.
Policy date
The date your policy comes into effect. This date is used to measure policy
months, policy years, policy anniversaries, and monthly dates.
Policy debt
All unpaid policy loans, plus the accumulated and unpaid interest on those
loans.
Policy review date
The monthly date before your policy anniversary.
Tabular account value
The value of a hypothetical account that we compare to your policy account value
when we set your basic scheduled premium each year after the guaranteed premium
period. It is also used to calculate your policy's benchmark values. The tabular
account value is equal to the policy account value that would result assuming
that:
o the policy had a face amount of $100,000
o premiums were paid monthly
o the policyowner paid the basic scheduled premium during the guaranteed
premium period and the maximum basic scheduled premium thereafter
o we charged the guaranteed charges beginning on the policy date, and
o the policy account value earned an annual net return of 4% throughout the
life of the policy
To calculate your tabular account value on a given day, we will take the tabular
account values for your last policy anniversary and your upcoming policy
anniversary, and adjust for the number of days that your date is between these
anniversaries.
- -----------------------
80 P R O S P E C T U S S P E C I A L T E R M S
- -----------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS/APPENDICES A TO D
- --------------------------------------------------------------------------------
-----------------------
P A R K A V E N U E L I F E P R O S P E C T U S 81
-----------------------
<PAGE>
The Guardian Separate Account K
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
Gabelli
Guardian Guardian Guardian Capital
Stock Bond Cash Asset
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FIFO cost .................................... $ 57,565,506 $ 831,952 $ 2,272,141 $ 279,450
-------------- ----------- ----------- -----------
Assets:
Shares owned in underlying fund -- Note 1. 1,231,611 67,109 227,214 17,648
Net asset value per share (NAV) .......... 49.08 12.23 10.00 16.20
-------------- ----------- ----------- -----------
Total Assets (Shares x NAV) ............ $ 60,447,462 $ 820,743 $ 2,272,141 $ 285,900
Liabilities:
Due to The Guardian Insurance &
Annuity Company, Inc. .................... 234,016 3,830 10,299 603
-------------- ----------- ----------- -----------
Net Assets -- Note 4 ................... $ 60,213,446 $ 816,913 $ 2,261,842 $ 285,297
-------------- ----------- ----------- -----------
Number of units outstanding .............. 2,928,907.588 65,705.991 196,016.561 26,231.514
Unit value ............................... 20.56 12.43 11.54 10.88
============== =========== =========== ===========
</TABLE>
STATEMENT OF OPERATIONS
December 31, 1998
<TABLE>
<CAPTION>
Gabelli
Guardian Guardian Guardian Capital
Stock Bond Cash Asset
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................... $ 463,608 $ 37,432 $ 91,700 $ 448
Expenses -- Note 3:
Mortality and expense risk charges ... 276,768 3,387 11,273 603
----------- ----------- ----------- -----------
Net investment income/(expense) ........ 186,840 34,045 80,427 (155)
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from
Investments Realized gain/(loss) from
investments:
Net realized gain/(loss) from sale of
investments ........................ 536,650 4,699 -- (5,571)
Reinvested realized gain distributions 5,820,263 9,949 -- 13,612
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments 6,356,913 14,648 -- 8,041
Net change in unrealized
appreciation/(depreciation) of
investments .......................... 1,589,925 (9,988) -- 6,450
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss)
from investments ......................... 7,946,838 4,660 -- 14,491
----------- ----------- ----------- -----------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ................ $ 8,133,678 $ 38,705 $ 80,427 $ 14,336
=========== =========== =========== ===========
</TABLE>
See notes to statutory basis financial statements.
- -----------------------
82 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
- -----------------------
<PAGE>
<TABLE>
<CAPTION>
Baillie Value Line
Baillie Gifford Guardian Strategic MFS
Gifford Emerging Small Cap Value Line Asset MFS Growth Emerging
International Markets Stock Centurion Management with Income Growth
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 4,040,396 $ 17,835 $ 1,869,607 $ 5,205,797 $ 4,477,952 $ 718,458 $ 158,888
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
205,671 2,550 141,146 196,809 198,688 39,319 8,756
20.92 7.39 12.74 30.44 25.22 20.11 21.47
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
$ 4,302,634 $ 18,842 $ 1,798,204 $ 5,990,875 $ 5,010,908 $ 790,710 $ 187,998
17,561 32 5,868 25,888 20,380 2,277 448
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
$ 4,285,073 $ 18,810 $ 1,792,336 $ 5,964,987 $ 4,990,528 $ 788,433 $ 187,550
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
264,492.257 2,458.048 186,793.642 334,794.051 286,811.760 60,809.556 15,187.367
16.20 7.65 9.60 17.82 17.40 12.97 12.35
============= =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Baillie Value Line
Baillie Gifford Guardian Strategic MFS
Gifford Emerging Small Cap Value Line Asset MFS Growth Emerging
International Markets Stock Centurion Management with Income Growth
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 21,144 $ 26 $ 1,665 $ 14,693 $ 101,317 $ -- $ --
20,529 32 5,725 30,210 24,079 2,240 448
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
615 (6) (4,060) (15,517) 77,238 (2,240) (448)
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
88,794 581 (14,581) 44,526 34,594 18,898 (6,069)
206,536 -- 7,863 285,700 292,034 -- 285
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
295,330 581 (6,718) 330,226 326,628 18,898 (5,784)
267,513 1,007 (69,553) 818,004 516,114 72,163 29,110
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
562,843 1,588 (76,271) 1,148,230 842,742 91,061 23,326
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
$ 563,458 $ 1,582 $ (80,331) $ 1,132,713 $ 919,980 $ 88,821 $ 22,878
============= =========== =========== =========== =========== =========== ===========
</TABLE>
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 83
-----------------------
<PAGE>
The Guardian Separate Account K
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
AIM V.I.
MFS MFS Capital
Total Return Bond Appreciation
------------ ------------ ------------
<S> <C> <C> <C>
FIFO cost .................................. $ 43,346 $ 22,084 $ 126,760
------------ ------------ ------------
Assets:
Shares owned in underlying fund -- Note 1 2,473 1,978 5,529
Net asset value per share (NAV) ........ 18.12 11.38 25.20
------------ ------------ ------------
Total Assets (Shares x NAV) .......... $ 44,817 $ 22,506 $ 139,341
Liabilities:
Due to The Guardian Insurance & Annuity
Company, Inc. ........................ 49 44 297
------------ ------------ ------------
Net Assets -- Note 4 .................... $ 44,768 $ 22,462 $ 139,044
------------ ------------ ------------
Number of units outstanding .............. 4,079.111 2,128.115 11,987.530
Unit value ............................... 10.97 10.55 11.60
============ ============ ============
</TABLE>
STATEMENT OF OPERATIONS
December 31, 1998
<TABLE>
<CAPTION>
AIM V.I.
MFS MFS Capital
Total Return Bond Appreciation
------------ ------------ ------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................. $ -- $ -- $ 191
Expenses -- Note 3:
Mortality and expense risk charges ... 49 44 297
------------ ------------ ------------
Net investment income/(expense) .......... (49) (44) (106)
------------ ------------ ------------
Realized and Unrealized Gain/(Loss) from
Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of
investments ........................ 104 14 (506)
Reinvested realized gain distributions -- -- 3,390
------------ ------------ ------------
Net realized gain/(loss) on investments 104 14 2,884
Net change in unrealized appreciation/
(depreciation) of investments ........ 1,471 422 12,582
------------ ------------ ------------
Net realized and unrealized gain/(loss) from
investments .......................... 1,575 436 15,466
------------ ------------ ------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ............ $ 1,526 $ 392 $ 15,360
============ ============ ============
</TABLE>
See notes to statutory basis financial statements.
- -----------------------
84 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
- -----------------------
<PAGE>
<TABLE>
<CAPTION>
Fidelity
American American VIP III Fidelity Fidelity Fidelity
AIM V.I. Century VP Century VP Growth VIP Equity- VIP High VIP II
Value Value International Opportunities Income Income Index 500
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 118,027 $ 77,661 $ 52,851 $ 292,473 $ 107,635 $ 115,679 $ 315,772
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
4,955 11,340 7,368 13,843 4,511 9,503 2,498
26.25 6.73 7.62 22.88 25.42 11.53 141.25
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 130,076 $ 76,318 $ 56,145 $ 316,716 $ 114,674 $ 109,574 $ 352,791
265 240 76 430 199 305 628
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 129,811 $ 76,078 $ 56,069 $ 316,286 $ 114,475 $ 109,269 $ 352,163
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,188.471 7,978.661 5,341.349 26,379.607 10,599.483 11,796.048 28,817.061
12.74 9.54 10.50 11.99 10.80 9.26 12.22
============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Fidelity
American American VIP III Fidelity Fidelity Fidelity
AIM V.I. Century VP Century VP Growth VIP Equity- VIP High VIP II
Value Value International Opportunities Income Income Index 500
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 573 $ -- $ -- $ -- $ -- $ -- $ --
265 240 76 430 199 305 628
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
308 (240) (76) (430) (199) (305) (628)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
688 (299) (79) 502 (857) 1,314
5,068 -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
5,756 (299) (79) 502 (214) (857) 1,314
12,049 (1,343) 3,294 24,244 7,040 (6,105) 37,019
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
17,805 (1,642) 3,215 24,746 6,826 (6,962) 38,333
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 18,113 $ (1,882) $ 3,139 $ 24,316 $ 6,627 $ (7,267) $ 37,705
============ ============ ============ ============ ============ ============ ============
</TABLE>
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 85
-----------------------
<PAGE>
The Guardian Separate Account K
STATEMENT OF OPERATIONS
December 31, 1997
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Combined Stock Bond Cash
------------ ------------ ------------ ------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends .................... $ 379,555 $ 233,164 $ 15,037 $ 55,100
Expenses -- Note 3:
Mortality and expense risk charges .... 145,648 106,601 1,151 6,805
------------ ------------ ------------ ------------
Net investment income/(expense) ......... 233,907 126,563 13,886 48,295
------------ ------------ ------------ ------------
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 --
Reinvested realized gain distributions 3,407,206 2,780,841 -- --
------------ ------------ ------------ ------------
Net realized gain/(loss) on investments . 3,616,776 2,969,834 1,246 --
------------ ------------ ------------ ------------
Unrealized appreciation/(depreciation) of
investments:
End of Year ............................. 1,267,692 1,292,030 (1,221) --
Beginning of Year ....................... 72,274 43,886 (1,258) --
------------ ------------ ------------ ------------
Change in unrealized appreciation/
(depreciation) ............................ 1,195,418 1,248,144 37 --
------------ ------------ ------------ ------------
Net realized and unrealized gain/(loss)
from investments .......................... 4,812,194 4,217,978 1,283 --
------------ ------------ ------------ ------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ................. $ 5,046,101 $ 4,344,541 $ 15,169 $ 48,295
============ ============ ============ ============
</TABLE>
STATEMENT OF OPERATIONS
December 31, 1996
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Combined Stock Bond Cash
------------ ------------ ------------ ------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends .................... $ 97,550 $ 61,416 $ 5,177 $ 17,671
Expenses -- Note 3:
Mortality and expense risk charges .... 24,205 16,602 292 2,220
------------ ------------ ------------ ------------
Net investment income/(expense) ......... 73,345 44,814 4,885 15,451
------------ ------------ ------------ ------------
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) --
Reinvested realized gain distributions 647,845 587,072 -- --
------------ ------------ ------------ ------------
Net realized gain/(loss) on investments . 677,445 611,645 (468) --
------------ ------------ ------------ ------------
Unrealized appreciation/(depreciation) of
investments:
End of Year ............................. 72,274 43,886 (1,258) --
Beginning of Year ....................... (3,804) (3,365) (116) --
------------ ------------ ------------ ------------
Change in unrealized appreciation/
(depreciation ............................. 76,078 47,251 (1,142) --
------------ ------------ ------------ ------------
Net realized and unrealized gain/(loss)
from investments .......................... 753,523 658,896 (1,610) --
------------ ------------ ------------ ------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ................. $ 826,868 $ 703,710 $ 3,275 $ 15,451
============ ============ ============ ============
</TABLE>
See notes to statutory basis financial statements.
- -----------------------
86 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
- -----------------------
<PAGE>
<TABLE>
<CAPTION>
Baillie Value Line MFS
Gabelli Baillie Gifford Guardian Strategic Growth
Capital Gifford Emerging Small Cap Value Line Asset with Income
Asset International Markets Stock Centurion Management Series
- ------------ ------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ 29,937 $ -- $ 392 $ 7,144 $ 38,600 $ 181
-- 7,635 -- 143 13,468 9,808 37
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 22,302 -- 249 (6,324) 28,792 144
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 16,896 -- (180) 1,747 820 48
-- 80,240 -- 2,505 365,912 176,860 848
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 97,136 -- 2,325 367,659 177,860 896
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- (5,274) -- (1,850) (32,926) 16,844 89
-- 16,141 -- -- 5,035 8,470 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- (21,415) -- (1,850) (37,961) 8,374 89
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 75,721 -- 475 329,698 186,054 985
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ -- $ 98,023 $ -- $ 724 $ 323,374 $ 214,846 $ 1,129
============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Baillie Value Line
Gabelli Baillie Gifford Guardian Strategic
Capital Gifford Emerging Small Cap Value Line Asset MFS Growth
Asset International Markets Stock Centurion Management with Income
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ 7,056 $ -- $ -- $ 1,632 $ 4,598 $ --
-- 1,392 -- -- 2,207 1,492 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 5,664 -- -- (575) 3,106 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 2,887 -- -- 785 1,823 --
-- 5,202 -- -- 42,026 13,545 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 8,089 -- -- 42,811 15,368 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 16,141 -- -- 5,035 8,470 --
-- (511) -- -- 120 68 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 16,652 -- -- 4,915 8,402 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 24,741 -- -- 47,726 47,726 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ -- $ 30,405 $ -- $ -- $ 47,151 $ 26,876 $ --
============ ============ ============ ============ ============ ============ ============
</TABLE>
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 87
-----------------------
<PAGE>
The Guardian Separate Account K
STATEMENT OF OPERATIONS
December 31, 1997
<TABLE>
<CAPTION>
MFS AIM V.I.
Emerging MFS MFS Capital
Growth Total Return Bond Appreciation
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ...................... $ -- $ -- $ -- $ --
Expenses -- Note 3:
Mortality and expense risk charges ...... -- -- -- --
------------ ------------ ------------ ------------
Net investment income/(expense) ........... -- -- -- --
------------ ------------ ------------ ------------
Realized and Unrealized Gain/(Loss) from
Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale on
investments ........................... -- -- -- --
Reinvested realized gain distributions... -- -- -- --
------------ ------------ ------------ ------------
Net realized gain/(loss) on investments ... -- -- -- --
------------ ------------ ------------ ------------
Unrealized appreciation/(depreciation) of
investments:
End of Year ............................... -- -- -- --
Beginning of Year ......................... -- -- -- --
------------ ------------ ------------ ------------
Change in unrealized appreciation/
(depreciation ............................. -- -- -- --
------------ ------------ ------------ ------------
Net realized and unrealized gain/(loss)
from investments .......................... -- -- -- --
------------ ------------ ------------ ------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ................. $ -- $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
STATEMENT OF OPERATIONS
December 31, 1996
<TABLE>
<CAPTION>
MFS AIM V.I.
Emerging MFS MFS Capital
Growth Total Return Bond Appreciation
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends .................... $ -- $ -- $ -- $ --
Expenses -- Note 3:
Mortality and expense risk charges .... -- -- -- --
------------ ------------ ------------ ------------
Net investment income/(expense) ......... -- -- -- --
------------ ------------ ------------ ------------
Realized and Unrealized Gain/(Loss) from
Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale
on investments ...................... -- -- -- --
Reinvested realized gain distributions -- -- -- --
------------ ------------ ------------ ------------
Net realized gain/(loss) on investments . -- -- -- --
------------ ------------ ------------ ------------
Unrealized appreciation/(depreciation) of
investments:
End of Year ............................. -- -- -- --
Beginning of Year ....................... -- -- -- --
------------ ------------ ------------ ------------
Change in unrealized appreciation/
(depreciation ............................. -- -- -- --
------------ ------------ ------------ ------------
Net realized and unrealized gain/(loss)
from investments .......................... -- -- -- --
------------ ------------ ------------ ------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ................. $ -- $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
See notes to statutory basis financial statements.
- -----------------------
88 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
- -----------------------
<PAGE>
<TABLE>
<CAPTION>
Fidelity
American American VIP III Fidelity Fidelity Fidelity
AIM V.I. Century VP Century VP Growth VIP Equity- VIP High VIP II
Value Value International Opportunities Income Income Index 500
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ -- $ -- $ -- $ -- $ -- $ -- $ --
============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Fidelity
American American VIP III Fidelity Fidelity Fidelity
AIM V.I. Century VP Century VP Growth VIP Equity- VIP High VIP II
Value Value International Opportunities Income Income Index 500
- ------------ ------------ ------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ -- $ -- $ -- $ -- $ -- $ -- $ --
============ ============ ============ ============ ============ ============ ============
</TABLE>
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 89
-----------------------
<PAGE>
The Guardian Separate Account K
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Gabelli
Guardian Guardian Guardian Capital
Stock Bond Cash Asset
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ......... $ 186,840 $ 34,045 $ 80,427 $ (155
Net realized gain/(loss) from sale of
investments ........................... 536,650 4,699 -- (5,571
Reinvested realized gain distributions .. 5,820,263 9,949 -- 13,612
Change in unrealized appreciation/
(depreciation) of investments ......... 1,589,925 (9,988) -- 6,450
------------- ------------- ------------- -------------
Net increase/(decrease) resulting from
operations ............................ 8,133,678 38,705 80,427 14,336
------------- ------------- ------------- -------------
1998 Policy Transactions
Net policy purchase payments ............ 34,613,795 538,047 2,776,530 258,656
Transfer on account of other terminations (1,312,799) (10,800) (32,049) (229
Transfer of policy loans ................ (855,181) (19,668) (183,277) (54,075
Transfer of cost of insurance and
policy fees -- Note 3 ................. (7,973,104) (102,944) (222,295) (36,899
Transfer between investment divisions ... (105,592) 82,476 (1,223,730) 100,671
Transfers -- other ...................... 43,938 (172) 537 2,837
------------- ------------- ------------- -------------
Net increase/(decrease) from policy
transactions .......................... 24,411,057 486,939 1,115,716 270,961
------------- ------------- ------------- -------------
Total Increase/(Decrease) in Net Assets ..... 32,544,735 525,644 1,196,143 285,297
Net Assets at December 31, 1997 ......... 27,668,711 291,269 1,065,699 --
------------- ------------- ------------- -------------
Net Assets at December 31, 1998--Note 4 . $ 60,213,446 $ 816,913 $ 2,261,842 $ 285,297
============= ============= ============= =============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Gabelli
Guardian Guardian Guardian Capital
Stock Bond Cash Asset
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1997 Increase/(Decrease) from Operations
Net investment income/(expense) ......... $ 126,563 $ 13,886 $ 48,295 $ --
Net realized gain/(loss) from sale of
investments ........................... 188,993 1,246 -- --
Reinvested realized gain distributions .. 2,780,841 -- -- --
Change in unrealized appreciation/
(depreciation) of investments ......... 1,248,144 37 -- --
------------- ------------- ------------- -------------
Net increase/(decrease) resulting from
operations ............................ 4,344,541 15,169 48,295 --
------------- ------------- ------------- -------------
1997 Policy Transactions
Net policy purchase payments ............ 20,435,949 250,538 1,321,513 --
Transfer on account of other terminations (360,442) (4,764) (913) --
Transfer of policy loans ................ (314,110) (1,088) (2,972) --
Transfer of cost of insurance and
policy fees -- Note 3 ................. (3,969,160) (45,653) (146,214) --
Transfer between investment divisions ... 548,761 (39,492) (1,161,841) --
Transfers -- other ...................... 47,663 313 (774) --
------------- ------------- ------------- -------------
Net increase/(decrease) from policy
transactions .......................... 16,388,661 159,854 8,799 --
------------- ------------- ------------- -------------
Total Increase/(Decrease) in Net Assets ..... 20,733,202 175,023 57,094 --
Net Assets at December 31, 1996 ......... 6,935,509 116,246 1,008,605 --
------------- ------------- ------------- -------------
Net Assets at December 31, 1997 ......... $ 27,668,711 $ 291,269 $ 1,065,699 $ --
============= ============= ============= =============
</TABLE>
See notes to statutory basis financial statements.
- -----------------------
90 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
- -----------------------
<PAGE>
<TABLE>
<CAPTION>
Baillie Value Line
Baillie Gifford Guardian Strategic MFS
Gifford Emerging Small Cap Value Line Asset MFS Growth Emerging
International Markets Stock Centurion Management with Income Growth
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 615 $ (6) $ (4,060) $ (15,517) $ 77,238 $ (2,240) $ (448)
88,794 581 (14,581) 44,526 34,594 18,898 (6,069)
206,536 -- 7,863 285,700 292,034 -- 285
267,513 1,007 (69,553) 818,004 516,114 72,163 29,110
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
563,458 1,582 (80,331) 1,132,713 919,980 88,821 22,878
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,143,109 27,595 1,490,969 2,588,770 2,416,789 612,543 73,952
(124,051) -- (4,832) (159,004) (128,388) (354) (3,396)
(49,072) (15,106) (4,262) (166,387) (75,052) (2,197) (81)
(495,103) (1,203) (253,132) (625,378) (541,143) (97,445) (13,871)
105,839 6,275 407,408 14,975 (147,784) 135,765 108,559
8,014 (333) 12,028 13,570 4,187 5,742 (491)
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,588,736 17,228 1,648,179 1,666,546 1,528,609 654,054 164,672
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,152,194 18,810 1,567,848 2,799,259 2,448,589 742,875 187,550
2,132,879 -- 224,488 3,165,728 2,541,939 45,558 --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 4,285,073 $ 18,810 $ 1,792,336 $ 5,964,987 $ 4,990,528 $ 788,433 $ 187,550
============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Baillie Value Line
Baillie Gifford Guardian Strategic MFS
Gifford Emerging Small Cap Value Line Asset MFS Growth Emerging
International Markets Stock Centurion Management with Income Growth
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 22,302 $ -- $ 249 $ (6,324) $ 28,792 $ 144 $ --
16,896 -- (180) 1,747 820 48 --
80,240 -- 2,505 365,912 176,860 848 --
(21,415) -- (1,850) (37,961) 8,374 89 --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
98,023 -- 724 323,374 214,846 1,129 --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,709,516 -- 181,827 2,260,587 1,919,213 41,361 --
(50,999) -- -- (77,153) (30,842) -- --
(33,074) -- (1,749) (21,380) (7,994) -- --
(323,577) -- (7,725) (465,919) (352,898) (884) --
150,600 -- 52,378 232,172 209,541 4,013 --
7,546 -- (967) 20,373 8,586 (61) --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,460,012 -- 223,764 1,948,680 1,745,606 44,429 --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,558,035 -- 224,488 2,272,054 1,960,452 45,558 --
574,844 -- -- 893,674 581,487 -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 2,132,879 $ -- $ 224,488 $ 3,165,728 $ 2,541,939 $ 45,558 $ --
============= ============= ============= ============= ============= ============= =============
</TABLE>
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 91
-----------------------
<PAGE>
The Guardian Separate Account K
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
AIM V.I.
MFS MFS Capital
Total Return Bond Appreciation
------------- ------------- -------------
<S> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ......... $ (49) $ (44) $ (106)
Net realized gain/(loss) from sale of
investments ........................... 104 14 (506)
Reinvested realized gain distributions .. -- -- 3,390
Change in unrealized appreciation/
(depreciation) of investments ......... 1,471 422 12,582
------------- ------------- -------------
Net increase/(decrease) resulting from
operations ............................ 1,526 392 15,360
------------- ------------- -------------
1998 Policy Transactions
Net policy purchase payments ............ 26,474 17,904 118,325
Transfer on account of other terminations -- -- (6)
Transfer of policy loans ................ -- -- --
Transfer of cost of insurance and policy
fees -- Note 3 ........................ (3,575) (2,913) (5,794)
Transfer between investment divisions ... 20,407 6,895 11,414
Transfers -- other ...................... (64) 184 (255)
------------- ------------- -------------
Net increase/(decrease) from policy
transactions .......................... 43,242 22,070 123,684
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets ..... 44,768 22,462 139,044
Net Assets at December 31, 1997 ......... -- -- --
------------- ------------- -------------
Net Assets at December 31, 1998 ......... $ 44,768 $ 22,462 $ 139,044
============= ============= =============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31, 1997
<TABLE>
<CAPTION>
AIM V.I.
MFS MFS Capital
Total Return Bond Appreciation
------------- ------------- -------------
<S> <C> <C> <C>
1997 Increase/(Decrease) from Operations
Net investment income/(expense) ......... $ -- $ -- $ --
Net realized gain/(loss) from sale of
investments ........................... -- -- --
Reinvested realized gain distributions .. -- -- --
Change in unrealized appreciation/
(depreciation) of investments ......... -- -- --
------------- ------------- -------------
Net increase/(decrease) resulting from
operations ............................ -- -- --
------------- ------------- -------------
1997 Policy Transactions
Net policy purchase payments ............ -- -- --
Transfer on account of other terminations -- -- --
Transfer of policy loans ................ -- -- --
Transfer of cost of insurance and policy
fees -- Note 3 ........................ -- -- --
Transfer between investment divisions ... -- -- --
Transfers -- other ...................... -- -- --
------------- ------------- -------------
Net increase/(decrease) from policy
transactions .......................... -- -- --
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets ..... -- -- --
Net Assets at December 31, 1996 ......... -- -- --
------------- ------------- -------------
Net Assets at December 31, 1997 ......... $ -- $ -- $ --
============= ============= =============
</TABLE>
See notes to statutory basis financial statements.
- -----------------------
92 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
- -----------------------
<PAGE>
<TABLE>
<CAPTION>
Fidelity
American American VIP III Fidelity Fidelity Fidelity
AIM V.I. Century VP Century VP Growth VIP Equity- VIP High VIP II
Value Value International Opportunities Income Income Index 500
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 308 $ (240) $ (76) $ (430) $ (199) $ (305) $ (628)
688 (299) (79) 502 (214) (857) 1,314
5,068 -- -- -- -- -- --
12,049 (1,343) 3,294 24,244 7,040 (6,105) 37,019
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
18,113 (1,882) 3,139 24,316 6,627 (7,267) 37,705
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
115,212 19,991 64,812 165,731 109,160 75,300 194,140
(214) -- (5) -- -- -- (747)
(80) -- (21,697) -- (310) -- (16,813)
(16,662) (3,222) (4,600) (23,212) (9,674) (8,144) (33,332)
14,597 61,095 13,788 148,154 9,125 49,168 166,538
(1,155) 96 632 1,297 (453) 212 4,672
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
111,698 77,960 52,930 291,970 107,848 116,536 314,458
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
129,811 76,078 56,069 316,286 114,475 109,269 352,163
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 129,811 $ 76,078 $ 56,069 $ 316,286 $ 114,475 $ 109,269 $ 352,163
============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Fidelity
American American VIP III Fidelity Fidelity Fidelity
AIM V.I. Century VP Century VP Growth VIP Equity- VIP High VIP II
Value Value International Opportunities Income Income Index 500
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ -- $ -- $ -- $ -- $ -- $ -- $ --
============= ============= ============= ============= ============= ============= =============
</TABLE>
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 93
-----------------------
<PAGE>
The Guardian Separate Account K
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Combined Stock Bond Cash
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1996 Increase/(Decrease) from Operations
Net investment income/(expense) ......... $ 73,345 $ 44,814 $ 4,885 $ 15,451
Net realized gain/(loss) from sale of
investments ........................... 29,600 24,573 (468) --
Reinvested realized gain distributions .. 647,845 587,072 -- --
Change in unrealized appreciation/
(depreciation) of investments ......... 76,078 47,251 (1,142) --
------------- ------------- ------------- -------------
Net increase/(decrease) resulting from
operations ............................ 826,868 703,710 3,275 15,451
------------- ------------- ------------- -------------
1996 Policy Transactions
Transfer of net premium ................. 10,590,800 7,073,350 125,075 1,186,092
Transfer on account of other terminations (15,361) (12,165) (219) (112)
Transfer of cost of insurance -- Note 3 . (1,532,174) (1,083,025) (18,048) (56,279)
Transfer between/within separate accounts (557) 64,322 42 (138,841)
Transfers -- other ...................... 1,692 (244) 275 423
------------- ------------- ------------- -------------
Net increase/(decrease) from policy
transactions .......................... 9,044,400 6,042,238 107,125 991,283
------------- ------------- ------------- -------------
Total Increase/(Decrease) in Net Assets ..... 9,871,268 6,745,948 110,400 1,006,734
Net Assets at December 31, 1995 ......... 239,097 189,561 5,846 1,871
------------- ------------- ------------- -------------
Net Assets at December 31, 1996 ......... $ 10,110,365 $ 6,935,509 $ 116,246 $ 1,008,605
============= ============= ============= =============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31, 1996
<TABLE>
<CAPTION>
MFS AIM V.I.
Emerging MFS MFS Capital
Growth Total Return Bond Appreciation
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1996 Increase/(Decrease) from Operations
Net investment income/(expense) ......... $ -- $ -- $ -- $ --
Net realized gain/(loss) from sale of
investments ........................... -- -- -- --
Reinvested realized gain distributions .. -- -- -- --
Change in unrealized appreciation/
(depreciation) of investments ......... -- -- -- --
------------- ------------- ------------- -------------
Net increase/(decrease) resulting from
operations ............................ -- -- -- --
------------- ------------- ------------- -------------
1996 Policy Transactions
Transfer of net premium ................. -- -- -- --
Transfer on account of other terminations -- -- -- --
Transfer of cost of insurance -- Note 3 . -- -- -- --
Transfer between/within separate accounts -- -- -- --
Transfers -- other ...................... -- -- -- --
------------- ------------- ------------- -------------
Net increase/(decrease) from policy
transactions .......................... -- -- -- --
------------- ------------- ------------- -------------
Total Increase/(Decrease) in Net Assets ..... -- -- -- --
Net Assets at December 31, 1995 ......... -- -- -- --
------------- ------------- ------------- -------------
Net Assets at December 31, 1996 ......... $ -- $ -- $ -- $ --
============= ============= ============= =============
</TABLE>
See notes to statutory basis financial statements.
- -----------------------
94 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
- -----------------------
<PAGE>
<TABLE>
<CAPTION>
Baillie Value Line MFS
Gabelli Baillie Gifford Guardian Strategic Growth
Capital Gifford Emerging Small Cap Value Line Asset with Income
Asset International Markets Stock Centurion Management Series
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ 5,664 $ -- $ -- $ (575) $ 3,106 $ --
-- 2,887 -- -- 785 1,823 --
-- 5,202 -- -- 42,026 13,545 --
-- 16,652 -- -- 4,915 8,402 --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- 30,405 -- -- 47,151 26,876 --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- 626,366 -- -- 942,911 637,006 --
-- (542) -- -- (1,483) (840) --
-- (102,199) -- -- (161,278) (111,345) --
-- 8,335 -- -- 47,081 18,504 --
-- 474 -- -- 704 60 --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- 532,434 -- -- 827,935 543,385 --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- 562,839 -- -- 875,086 570,261 --
-- 12,005 -- -- 18,588 11,226 --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ -- $ 574,844 $ -- $ -- $ 893,674 $ 581,487 $ --
============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
American American VIP III Fidelity Fidelity Fidelity
AIM V.I. Century VP Century VP Growth VIP Equity- VIP High VIP II
Value Value International Opportunities Income Income Index 500
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ -- $ -- $ -- $ -- $ -- $ -- $ --
============= ============= ============= ============= ============= ============= =============
</TABLE>
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 95
-----------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
OF THE GUARDIAN SEPARATE ACCOUNT K
- --------------------------------------------------------------------------------
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). 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, 1998 GIAC created thirteen additional investment
divisions within the Account: the Gabelli Capital Asset Fund, Baillie Gifford
Emerging Markets Fund, MFS Emerging Growth Series, MFS Total Return 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. The
policyowner also has the ability to transfer his or her policy value among the
investment divisions within the Account.
The Account currently comprises twenty-one 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),
Gabelli Capital Asset Fund, Baillie Gifford International Fund (BGIF), Baillie
Gifford Emerging Markets Fund (BGEMF), The Guardian Small Cap Stock Fund (GSCF),
Value Line Centurion Fund, Inc., Value Line Strategic Asset Management Trust,
MFS Growth with Income Series, MFS Emerging Growth Series, MFS Total Return
Series, MFS Bond Series, AIM V.I. Capital Appreciation Fund, AIM V.I. Value
Fund, American Century VP Value Fund, American Century VP International Fund,
Fidelity VIP III Growth Opportunities Portfolio, Fidelity VIP Equity-Income
Portfolio, Fidelity VIP High Income Portfolio, and Fidelity VIP II Index 500
Portfolio (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
and BGEMF are 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 GMAC'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.
- -----------------------
96 P R O S P E C T U S P A R K A V E N U E L I F E
- -----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
NOTE 3 -- ADMINISTRATIVE AND MORTALITY AND EXPENSE RISK CHARGES
GIAC assumes mortality and expense risk related to the operations of the
Account. To cover these risks, GIAC deducts a daily charge from the net assets
of the Account which, on an annual basis, is equal to a rate of .60% of the
policy account value. For the year ended December 31, 1998 this amount was
$377,827.
Under the terms of the policy, GIAC also deducts certain charges from the
policy account value. These other contractual charges are deducted by redeeming
units of the investment divisions and consist of:
a) 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. For the years ended December 31, 1998
and 1997, deductions for cost of life insurance amounted to $6,920,312 and
$3,493,794, respectively.
b) policy and administrative fees which vary with the face amount, age of
the insured or the duration of the contract. For the years ended December 31,
1998 and 1997 these fees amounted to $3,553,333 and $1,829,117, respectively.
c) an annual state premium tax charge as a percentage of the basic
premium. This rate varies by state of jurisdiction. The annual state premium tax
charge for the year ended December 31, 1998 was $1,459,330.
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, 1998
At December 31, 1998, net assets of the Account were as follows:
Accumulation of
Variable Life Insurance
Policyowners' Accounts $55,843,649
-----------
Owned by GIAC 27,121,989
-----------
$82,965,638
The amount retained by GIAC in the Account is comprised of amounts
accruing to GIAC from the operations of the Account and retained therein.
Amounts retained by GIAC in the Account may be transferred by GIAC to its
general account.
In some instances the calculation of total assets may not agree due to
rounding.
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 97
-----------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 5 -- PURCHASES AND SALES
During the years ended December 31, 1998 and December 31, 1997, purchases
and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
Purchases Purchases Sales Sales
December 31, December 31, December 31 December 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. ........ $32,802,820 $20,297,230 $ 2,176,893 $ 991,563
The Guardian Bond Fund, Inc. ......... 665,277 276,923 130,957 103,032
The Guardian Cash Fund, Inc. ........ 3,391,687 1,411,205 2,187,271 1,354,306
Gabelli Capital Asset Fund ........... 380,959 -- 95,937 --
Baillie Gifford International Fund ... 2,354,699 1,726,612 543,283 163,423
Baillie Gifford Emerging Markets Fund 41,680 -- 24,426 --
The Guardian Small Cap Stock Fund .... 1,954,094 231,203 296,386 4,543
Value Line Centurion Fund, Inc. ...... 2,479,523 2,610,334 520,585 300,598
Value Line Strategic Asset
Management Trust ................... 2,338,163 2,133,657 423,202 180,590
MFS Growth with Income Series ........ 857,518 47,870 203,463 2,412
MFS Emerging Growth Series ........... 220,378 -- 55,421 --
MFS Total Return Series .............. 50,152 -- 6,910 --
MFS Bond Series ...................... 22,992 -- 922 --
AIM V.I. Capital Appreciation Fund ... 142,957 -- 15,691 --
AIM V.I. Value Fund .................. 131,546 -- 14,207 --
American Century VP Value Fund ....... 80,227 -- 2,267 --
American Century VP International Fund 88,448 -- 35,518 --
Fidelity VIP III Growth Opportunities
Portfolio .......................... 308,523 -- 16,553 --
Fidelity VIP Equity-Income Portfolio . 119,735 -- 11,887 --
Fidelity VIP High Income Portfolio ... 123,681 -- 7,146 --
Fidelity VIP II Index 500 Portfolio .. 366,042 -- 51,584 --
----------- ----------- ----------- -----------
Total ............................. $48,921,101 $28,735,034 $ 6,820,509 $ 3,100,467
----------- ----------- ----------- -----------
</TABLE>
- -----------------------
98 P R O S P E C T U S P A R K A V E N U E L I F E
- -----------------------
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
OF THE GUARDIAN SEPARATE ACCOUNT K
- --------------------------------------------------------------------------------
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 Guardian Stock, Guardian
Bond, Guardian Cash, Gabelli Capital Asset, Baillie Gifford International,
Baillie Gifford Emerging Markets, Guardian Small Cap Stock, Value Line
Centurion, Value Line Strategic Asset Management, MFS Growth With Income, MFS
Emerging Growth, MFS Total Return, MFS Bond, AIM V.I. Capital Appreciation, AIM
V.I. Value, American Century VP Value, American Century VP International,
Fidelity VIP III Growth Opportunities, Fidelity VIP Equity-Income, Fidelity VIP
High Income, and Fidelity VIP II Index 500 investment divisions (constituting
The Guardian Separate Account K, "Park Avenue Life") at December 31, 1998, and
the results of each of their operations and changes in each of their net assets
for each of the periods presented, 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 shares owned at December 31, 1998 by
correspondence with the transfer agents of the underlying funds, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 25, 1999
-----------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 99
-----------------------
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INSURANCE
& ANNUITY COMPANY, INC.
- --------------------------------------------------------------------------------
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Admitted Assets
Investments:
Fixed maturities, principally at amortized cost
(market: 1998 - $547,051,594; 1997 - $492,052,307) ... $ 536,554,920 $ 484,747,832
Affiliated mutual funds, at market ....................... 29,096,730 30,551,186
Investment in subsidiary ................................. 16,915,998 12,073,143
Policy loans - variable life insurance ................... 72,861,940 72,737,781
Cash and short-term investments .......................... 9,006,075 23,602,410
Investment in joint venture .............................. 347,338 345,492
Other Invested Assets .................................... 96,910 95,710
Accrued investment income receivable ......................... 17,378,196 13,303,271
Due from parent and affiliates ............................... 15,296,679 7,573,304
Other assets ................................................. 10,565,481 12,461,722
Receivable from separate accounts ............................ 34,565,822 30,203,923
Variable annuity and EISP/CIP separate account assets ........ 8,338,242,774 6,810,882,719
Variable life separate account assets ........................ 502,222,315 414,699,239
-------------- --------------
Total admitted assets ................................ $9,583,151,178 $7,913,277,732
============== ==============
Liabilities
Policy liabilities and accruals:
Fixed deferred reserves .................................. $ 344,614,116 $ 339,797,646
Fixed immediate reserves ................................. 10,576,555 7,397,461
Life reserves ............................................ 74,101,150 67,799,492
Minimum death benefit guarantees ......................... 1,447,553 1,117,645
Policy loan collateral fund reserve ...................... 71,009,047 70,734,812
Accrued expenses, taxes, & commissions ................... 1,507,045 1,592,997
Due to parent and affiliates ............................. 25,040,196 20,408,087
Federal income taxes payable ............................. 16,932,639 10,939,640
Other liabilities ........................................ 16,127,345 20,540,325
Asset valuation reserve .................................. 29,566,970 26,305,528
Variable annuity and EISP/CIP separate account liabilities 8,263,551,697 6,750,575,077
Variable life separate account liabilities ............... 501,289,827 413,364,790
-------------- --------------
Total liabilities .................................... 9,355,764,140 7,730,573,500
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 .......................... 87,988,746 43,305,940
-------------- --------------
Total Common Stock and Surplus ....................... 227,387,038 182,704,232
-------------- --------------
Total liabilities, common stock and surplus .......... $9,583,151,178 $7,913,277,732
============== ==============
</TABLE>
See notes to statutory basis financial statements.
- ------------------------
100 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Premiums and annuity considerations:
Variable annuity considerations ............... $ 1,266,800,186 $ 995,209,301 $ 731,792,764
Life insurance premiums and fixed
annuity considerations ...................... 69,728,716 68,222,360 44,874,269
Net investment income ......................... 54,235,472 47,993,754 42,366,902
Amortization of IMR ........................... 266,599 111,783 333,219
Net gain from operations of separate accounts . 2,619,113 5,780,327 8,860,462
Service fees .................................. 94,170,552 76,350,291 58,774,486
Variable life -- cost of insurance ............ 16,844,679 11,205,120 4,844,028
Reserve adjustments on reinsurance ceded ...... 34,449,189 7,885,341 30,636,445
Commission and expense allowances ............. 29,942,869 16,268,128 14,508,840
Other income .................................. 9,570,705 5,178,266 2,535,356
--------------- --------------- ---------------
1,578,628,080 1,234,204,671 939,526,771
--------------- --------------- ---------------
Benefits and expenses:
Benefits:
Death benefits ..................................... 6,461,543 5,340,675 6,785,456
Annuity benefits .............................. 1,041,372,277 687,719,014 426,072,773
Surrender benefits ............................ 25,260,734 17,620,583 17,459,706
Increase in reserves .......................... 14,594,471 18,291,585 82,891,516
Net transfers to (from) separate accounts:
Variable annuity and EISP/CIP ................. 291,988,248 359,468,681 323,093,897
Variable Life ................................. 7,484,413 (630,102) (10,417,095)
Commissions ........................................ 50,875,519 43,352,989 39,233,431
General insurance expenses ......................... 79,386,352 59,476,685 42,523,892
Taxes, licenses and fees ........................... 6,289,814 3,743,414 3,723,858
Reinsurance terminations ........................... 40,482 182,535 (15,470,015)
--------------- --------------- ---------------
1,523,753,853 1,194,566,059 915,897,419
--------------- --------------- ---------------
Income before income taxes and realized
gains from investments ........................ 54,874,227 39,638,612 23,629,352
Federal income taxes ............................... 14,505,552 12,073,500 3,941,460
--------------- --------------- ---------------
Income from operations, net of federal income taxes,
and before net realized gains ................. 40,368,675 27,565,112 19,687,892
Realized gains from investments, net of federal
income taxes, net of transfer to IMR .......... 92,355 472,127 7,540
--------------- --------------- ---------------
Net income ......................................... $ 40,461,030 $ 28,037,239 $ 19,695,432
=============== =============== ===============
</TABLE>
See notes to statutory basis financial statements.
------------------------
P A R K A V E N U E L I F E P R O S P E C T U S 101
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS STATEMENTS OF CHANGES IN COMMON STOCK AND SURPLUS
<TABLE>
<CAPTION>
Assigned and Total
Additional unassigned common
Common paid-in surplus stock and
stock surplus (Deficit) surplus
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
============= ============= ============= =============
Net income from operations ..................... 40,461,030 40,461,030
Increase in unrealized appreciation of Company's
investment in joint venture ............... 1,846 1,846
Increase in unrealized appreciation of Company's
investment in subsidiary .................. 4,542,855 4,542,855
Decrease in unrealized appreciation of Company's
investment in an affiliated mutual fund ... (1,831,189) (1,831,189)
Increase in unrealized appreciation of Company's
seed investment in separate accounts ...... 3,690,295 3,690,295
Decrease in non-admitted assets ................ 57,886 57,886
Disallowed interest maintenance reserve ........ 1,090,623 1,090,623
Surplus changes resulting from reinsurance ..... (69,098) (69,098)
Net increase in asset valuation reserve ........ (3,261,442) (3,261,442)
------------- ------------- ------------- -------------
Balances at December 31, 1998 .................. $ 2,000,000 $ 137,398,292 $ 87,988,746 $ 227,387,038
============= ============= ============= =============
</TABLE>
See notes to statutory basis financial statements.
- ------------------------
102 P R O S P E C T U S F I N A N C I A L S T A T E M E N T S
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
STATUTORY BASIS STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from insurance activities:
Premiums, annuity considerations and
deposit funds ...................... $ 1,341,389,534 $ 1,065,244,583 $ 780,710,735
Investment income .................... 51,241,553 46,412,248 42,413,736
Commissions and expense allowances on
reinsurance ceded .................. 57,916,363 22,679,622 37,315,301
Other income ......................... 102,437,913 67,084,996 47,357,962
Death benefits ....................... (7,112,859) (5,492,854) (6,900,438)
Surrender benefits ................... (25,806,851) (17,780,564) (2,774,865)
Annuity benefits ..................... (1,040,119,415) (689,207,046) (424,511,908)
Commissions, other expenses
and taxes (excluding FIT) .......... (133,189,119) (101,213,566) (78,968,214)
Net transfers to separate accounts ... (298,118,417) (356,017,200) (307,856,562)
Federal income taxes (excluding tax on
capital gains) ..................... (8,930,569) (5,094,779) 682,025
Increase in policy loans ............. (124,158) (4,594,714) (4,300,868)
Other operating expenses and sources . (2,618,322) (140,580) 2,077,342
--------------- --------------- ---------------
Net cash provided by insurance activities . 36,965,653 21,880,146 85,244,246
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from dispositions of
investment securities .............. 280,921,058 315,404,430 224,692,954
Purchases of investment securities ... (332,368,788) (331,151,548) (309,590,319)
Federal income tax on capital gains .. (114,258) (355,657) (505,496)
--------------- --------------- ---------------
Net cash used in investing activities ..... (51,561,988) (16,102,775) (85,402,861)
--------------- --------------- ---------------
Net increase (decrease) in cash ...... (14,596,335) 5,777,371 (158,615)
Cash and short-term investments,
beginning of year .................. 23,602,410 17,825,039 17,983,654
--------------- --------------- ---------------
Cash and short-term investments,
end of year ........................ $ 9,006,075 $ 23,602,410 $ 17,825,039
=============== =============== ===============
</TABLE>
See notes to statutory basis financial statements.
------------------------
P A R K A V E N U E L I F E P R O S P E C T U S 103
------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO STATUTORY BASIS
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 based on anticipated Company experience for lapses, mortality and investment
yield; (3) life insurance enterprises are required to establish a formula-based
asset valuation reserve (AVR) by a direct charge to surplus to offset potential
investment losses; under GAAP, provisions for investments are established as
needed through a charge to income; (4) realized gains and losses resulting from
changes in interest rates on fixed income investments are deferred in the
interest maintenance reserve (IMR) and amortized into investment income over the
remaining life of the investment sold; for GAAP, such gains and losses are
recognized in income at the time of sale; (5) bonds are carried principally at
amortized cost for statutory reporting and at market value for GAAP; (6) annuity
and certain insurance premiums are recognized as premium income, whereas for
GAAP they are recognized as deposits; (7) deferred federal income taxes are not
provided for temporary differences between tax and book assets and liabilities
as they are under GAAP; (8) certain reinsurance transactions are accounted for
as reinsurance for statutory purposes and as financing transactions under GAAP,
and assets and liabilities are reported net of reinsurance for statutory
purposes and gross of reinsurance for GAAP.
- ------------------------
104 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
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 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 $14,000,000
in 1998, $10,000,000 in 1997 and $9,500,000 in 1996.
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 1998 was 5.75%. The interest rate credited on the fixed
rate option that is offered to certain variable annuity contractowners ranged
from 5.25% to 5.50% during 1998. For the fixed rate option currently issued, the
issue and renewal interest rates credited vary from month to month and ranged
from 5.00% to 5.40% in 1998. For single premium deferred annuities the rates
ranged from 5.00% to 6.00% in 1998. Fixed immediate reserves are a liability
within the general account for those annuitants that have elected a fixed
annuity payout option. The immediate contract reserve is computed using the 1971
IAM Table and the 1983 IAM Table and a 4% discount rate.
------------------------
P A R K A V E N U E L I F E P R O S P E C T U S 105
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
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 and group universal 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,
1998 and 1997 non-admitted assets consisted of agents' balances and
miscellaneous receivables in the amounts of $24,493 and $82,380, 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
$239,935,035 and $162,522,811 at December 31, 1998 and 1997, 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.
Other: Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods to the 1998 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 1998, 1997 and 1996 to the federal income
tax expense reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income tax at prevailing corporate income tax rates
applied to pretax statutory income .............. $ 19,205,980 $ 13,873,514 $ 8,270,274
Add (deduct) tax effect of:
Adjustment for annuity and other reserves ....... (669,996) (291,470) (1,478,476)
DAC Tax ......................................... 1,179,820 1,712,811 867,731
Dividend from subsidiary ........................ (4,900,000) (3,500,000) (3,325,000)
Other -- net .................................... (310,282) 278,645 (393,069)
------------ ------------ ------------
Federal income taxes .............................. $ 14,505,522 $ 12,073,500 $ 3,941,460
============ ============ ============
</TABLE>
The provision for federal income taxes includes deferred taxes in 1998,
1997 and 1996 of $140,153, $181,145 and $353,051, respectively, applicable to
the difference between the tax basis and the financial statement basis of
recording investment income relating to accrued market discount.
- ------------------------
106 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
NOTE 4 -- INVESTMENTS
The major categories of net investment income are summarized as follows:
For the years ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Fixed maturities .................. $33,923,167 $31,806,228 $28,234,145
Affiliated money market funds ..... 376,734 524,277 121,733
Subsidiary ........................ 14,000,000 10,000,000 9,500,000
Policy loans ...................... 3,489,135 3,386,194 3,089,114
Short-term investments ............ 2,320,305 2,280,599 1,204,805
Joint venture dividend ............ 1,254,010 1,047,525 623,160
Other ............................. 58,069 59,779 55,301
----------- ----------- -----------
55,421,420 49,104,602 42,828,258
Less: Investment expenses ......... 1,185,948 1,110,848 461,356
----------- ----------- -----------
Net investment income ............. $54,235,472 $47,993,754 $42,366,902
=========== =========== ===========
Gross realized gains and losses, less applicable federal income taxes and
transfer to IMR, are summarized as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Realized gains from dispositions:
U.S. Government bonds .................... $ 1,195,870 $ 722,440 $ 1,014,811
Corporate debt securities ................ 997,008 413,022 1,014,562
Common stocks ............................ -- 174 --
Seed investment redeemed ................. -- -- --
Foreign exchange ......................... 13,301 2,791 11,599
Realized losses from dispositions:
U.S. Government bonds .................... 65,414 744,168 181,025
Corporate debt securities ................ 39,431 399,618 617,325
Foreign exchange ......................... 10,413 5,773 --
Short term investments ................... -- 1,218 191
----------- ----------- -----------
Net realized capital gains (losses) ..... 2,090,921 (12,350) 1,242,431
----------- ----------- -----------
Federal income tax expense (benefit):
Current .................................. 889,995 (269,216) 829,609
Deferred ................................. (248,651) (209,059) (394,759)
----------- ----------- -----------
Total federal income tax expense (benefit) 641,344 (478,275) 434,850
----------- ----------- -----------
Transfer to IMR ............................ 1,357,222 (6,202) 800,041
----------- ----------- -----------
Net realized gains (losses) ................ $ 92,355 $ 472,127 $ 7,540
=========== =========== ===========
</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.
------------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 107
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
The cost and estimated market values of investments by major investment
category at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------
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 ........................ $ 28,358,300 $ 1,523,421 $ 16,958 $ 29,864,763
Obligations of states and political
subdivisions ........................ 60,246,691 1,424,844 3,176 61,668,359
Debt securities issued by foreign
governments ......................... 7,997,622 91,952 27,557 8,062,017
Corporate debt securities ............. 439,952,307 10,035,537 2,531,389 447,456,455
Common stock of subsidiary ............ 9,698,292 7,217,706 -- 16,915,998
Affiliated mutual funds ............... 23,656,682 5,440,048 -- 29,096,730
------------ ------------ ------------ ------------
$569,909,894 $ 25,733,508 $ 2,579,080 $593,064,322
============ ============ ============ ============
</TABLE>
<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>
- ------------------------
108 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
The amortized cost and estimated market value of debt securities at
December 31, 1998 and 1997, 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, 1998
---------------------------
Estimated
Amortized Market
Cost Value
------------ ------------
Due in one year or less ......................... $ 45,493,721 $ 45,752,348
Due after one year through five years ........... 249,871,238 253,196,904
Due after five years through ten years .......... 102,513,130 107,752,117
Due after ten years ............................. 67,626,976 68,332,574
------------ ------------
465,505,065 475,033,943
Sinking fund bonds
(including collateralized mortgage obligations) 71,049,855 72,017,651
------------ ------------
$536,554,920 $547,051,594
============ ============
As of December 31, 1998
---------------------------
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
============ ============
-------------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 109
-------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
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
$125,849,752 and $76,669,184 at December 31, 1998 and 1997, respectively,
applicable to policies reinsured under modified coinsurance agreements. The
reinsurance contracts do not relieve the Company of its primary obligation for
policyowner benefits. Failure of reinsurers to honor their obligations could
result in losses to the Company.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Premiums and deposits .................. $(65,505,954) $(43,873,731) $(83,250,212)
Net investment income .................. -- -- (61,779)
Commission and expense allowances ...... 34,449,189 7,885,341 14,508,839
Reserve adjustments .................... 29,942,869 16,268,128 30,636,445
Other income ........................... 2,447,454 1,875,163 (25,000)
------------ ------------ ------------
Revenues ............................. 1,333,558 (17,845,099) (38,191,707)
Policyholder benefits .................. (7,606,157) (10,975,075) (26,873,945)
Increase in aggregate reserves ......... (35,020) 22,859,719 (5,658,260)
Reinsurance terminations ............... -- (27,421,066) (15,470,015)
General expenses and other taxes ....... (337,215) (40,452) (81,667)
------------ ------------ ------------
Deductions ........................... (7,978,392) (15,576,874) (48,083,887)
Net income (loss) from reinsurance ceded $ 9,311,950 $ (2,268,225) $ 9,892,180
============ ============ ============
</TABLE>
- ------------------------
110 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
NOTE 6 -- REINSURANCE ASSUMED
The Company has entered into various coinsurance agreements with
non-affiliated and affiliated companies. The Company assumes certain life and
disability income policies.
The effect of these agreements on the components of the Company's gain
from operations in the accompanying statements of operations are as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Premiums and deposits ................... $ 1,336,343 $ (389,221) $ 41,133,358
Net investment income ................... 45,349 45,288 94,657
Other income ............................ -- (62,752) 375,404
------------ ------------ ------------
Revenues .............................. 1,381,692 (406,685) 41,603,419
Policyholder benefits ................... 3,022,842 3,967,619 8,076,053
Increase in aggregate reserves .......... (1,387,716) (31,677,857) 31,556,908
Reinsurance expenses .................... -- 27,603,602 (452,476)
Other expenses .......................... 382,249 1,885,300 551,319
------------ ------------ ------------
Deductions ............................ 2,017,375 1,778,664 39,731,804
------------ ------------ ------------
Net (loss) incomefrom reinsurance assumed $ (635,683) $ (2,185,349) $ 1,871,615
============ ============ ============
</TABLE>
NOTE 7 -- RELATED PARTY TRANSACTIONS
Registered representatives of the Guardian Investor Services Corporation
produce a major portion of the Company's business. During 1998, 1997 and 1996,
premium and annuity considerations produced by GISC amounted to $554,895,420,
$564,519,265 and $528,353,595, respectively. The related commissions paid to
GISC amounted to $1,946,477, $1,979,926 and $1,851,468 for 1998, 1997 and 1996,
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
$83,611,701 in 1998, $60,009,449 in 1997 and $41,129,644 in 1996, 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. Each of these funds has an investment advisory
agreement with GISC, except for The Baillie Gifford International Fund, The
Baillie Gifford Emerging Markets Fund, The Guardian Baillie Gifford
International Fund and The Guardian Baillie Gifford Emerging Markets Fund. The
investments as of December 31, 1998 and 1997 are as follows:
------------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 111
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
The Guardian Park Avenue Fund ................ $ 511,588,454 $ 371,662,107
The Guardian Stock Fund ...................... 3,664,861,157 3,222,051,866
The Guardian Small Cap Stock Fund ............ 109,166,077 60,104,422
The Guardian Park Avenue
Small Cap Fund ............................. 13,183,737 --
The Guardian Bond Fund ....................... 381,492,004 355,417,535
The Baillie Gifford International Fund ....... 526,434,528 442,651,457
The Baillie Gifford Emerging Markets Fund .... 34,599,571 65,038,546
TheGuardian Baillie Gifford International Fund 9,066,433 3,378,730
The Guardian Baillie Gifford
Emerging Markets Fund ...................... 817,757 --
The Guardian Asset Allocation Fund ........... 39,803,636 14,910,420
The Guardian Investment Quality Bond Fund .... 9,350,331 1,546,854
The Guardian Cash Management Fund ............ 57,953,144 22,250,501
The Guardian Cash Fund ....................... 419,482,654 368,122,449
-------------- --------------
$5,777,799,483 $4,927,134,887
============== ==============
</TABLE>
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 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, 1998 and 1997 this
amounted to $3,025,669 and $2,888,149, respectively. The Company also maintains
an investment in an affiliated small cap stock mutual fund, The Guardian Small
Cap Stock Fund. At December 31, 1998 and 1997 this amounted to $26,071,061 and
$27,663,037, respectively.
NOTE 8 -- SEPARATE ACCOUNTS
The following represents a reconciliation of net transfers from GIAC to
the separate accounts. Transfers are reported in the Summary of Operations of
the Separate Account Annual Statement:
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Transfers to separate accounts .................. $ 1,358,239,902 $ 1,054,380,697 $ 767,741,428
Transfers from separate accounts ................ (1,168,640,854) (782,891,638) (518,683,141)
--------------- --------------- ---------------
Net transfers to separate accounts ............ 189,599,048 271,489,059 249,058,287
--------------- --------------- ---------------
Reconciling Adjustments:
Mortality & expense guarantees -- variable annuity 85,937,882 70,027,514 53,219,656
Mortality & expense guarantees -- variable life . 2,387,487 2,021,656 1,687,711
Administrative fees -- variable annuity ......... 4,703,565 4,095,230 3,867,120
Cost of insurance -- variable life .............. 16,844,679 11,205,120 4,844,028
--------------- --------------- ---------------
Total adjustments ............................. 109,873,613 87,349,520 63,618,515
--------------- --------------- ---------------
Transfers as reported in the Statement of
Operations of GIAC ............................ $ 299,472,661 $ 358,838,579 $ 312,676,802
=============== =============== ===============
</TABLE>
- ------------------------
112 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
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 1998 For the Year Ending 1997
------------------------ ------------------------
Amount % Amount %
------------ ------ ------------ ------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment .... $ 52,174,391 10.91% $ 46,276,766 10.19%
------------ ------ ------------ ------
total with adjustment or at
market value .................. 52,174,391 10.91 46,276,766 10.19
at book value without adjustment
(minimal or no charge or
adjustment) ................... 312,963,860 65.44 313,725,462 69.05
Not subject to discretionary
withdrawal ...................... 113,088,817 23.65 94,338,339 20.76
------------ ------ ------------ ------
Total (gross) ..................... 478,227,068 100.00 454,340,567 100.00
Reinsurance ceded ................. -- -- -- --
------------ ------ ------------ ------
Total ............................. $478,227,068 100.00% $454,340,567 100.00%
============ ====== ============ ======
</TABLE>
This does not include $8,132,854,608 and $6,647,606,347 of non-guaranteed
annuity reserves held in separate accounts, and $2,618,241 and $3,572,284 at
December 31, 1998 and 1997, 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 years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Statutory net income ........................ $ 40,461,030 $ 28,037,239 $ 19,695,432
Adjustments to restate to the basis of GAAP:
Net income of subsidiaries ................ 4,542,855 4,326,500 142,201
Change in deferred policy acquisition costs 43,181,782 41,883,919 42,525,493
Deferred premiums ......................... (1,497,411) (5,542,795) 3,238,115
Re-estimation of future policy benefits ... (9,649,126) (3,353,249) 26,953,558
Reinsurance ............................... 4,088,420 12,372,471 (36,353,822)
Deferred federal income tax expense ....... (11,950,565) (16,212,244) (13,074,280)
Elimination of interest maintenance reserve (266,599) (111,783) (333,219)
Other, net ................................ 427,287 201,840 (2,444,872)
------------ ------------ ------------
Consolidated GAAPnet income ................. $ 69,337,673 $ 61,601,898 $ 40,348,606
============ ============ ============
</TABLE>
------------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 113
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
December 31, 1998
The following reconciles the statutory capital and surplus of the Company
as reported to the regulatory authorities to consolidated GAAP stockholder's
equity:
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Statutory capital and surplus ................ $ 227,387,038 $ 182,704,232 $ 153,780,908
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs .......... 313,617,745 267,369,685 221,475,216
Elimination of asset valuation reserve ..... 29,566,970 26,305,528 15,121,269
Re-estimation of future policy benefits .... 46,905,628 41,283,947 31,167,840
Establishment of deferred federal income tax (98,820,880) (84,703,745) (65,164,526)
Unrealized gains on investments ............ 11,711,227 7,852,564 2,313,203
Other liabilities .......................... (48,126,550) (33,486,652) (32,389,767)
Deferred premiums .......................... (7,848,934) (7,024,891) (1,482,096)
Other, net ................................. (5,026,655) (3,468,519) (2,215,098)
------------- ------------- -------------
Consolidated GAAPstockholder's equity .... $ 469,365,589 $ 396,832,149 $ 322,606,949
============= ============= =============
</TABLE>
- ------------------------
114 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
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, 1998 and 1997, 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,
1998. 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 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 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, 1998 and 1997, or the results of its operations or its cash flows for the
three years ended in the period ended December 31, 1998, 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.
PricewaterhouseCoopers LLP
February 25, 1999
------------------------
F I N A N C I A L S T A T E M E N T S P R O S P E C T U S 115
------------------------
<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 0.81% of the average daily
net assets of such funds.
The average is based upon actual expenses incurred during 1998 for all
funds, without regard for reimbursements made by the funds for previous years'
expense payments. The operating expenses for the MFS Bond Series were capped at
0.40% of the average daily net assets of the series pursuant to agreement with
the adviser.
The operating expense figures used for the Fidelity VIP III Growth
Opportunities, Fidelity VIP Equity-Income and Fidelity VIP High Income
Portfolios reflect the effects of expense reduction arrangements with third
parties which occurred during the year ended December 31, 1998. The operating
expense figures used for the Fidelity VIP II Index 500 Portfolio reflect the
effects of expense reimbursement of certain fund expenses which occurred during
the year ended December 31, 1998.
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. For an explanation of the
expenses see the accompanying fund prospectuses.
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 -1.41%,
4.56% and 10.52%, respectively, based on GIAC's current charge for mortality and
expense risks, and -1.70%, 4.24% and 10.19%, respectively, based on GIAC's
guaranteed maximum charge for mortality and expense risks. See "Net investment
factor."
- ------------------------
116 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
The hypothetical rates of return shown in the tables do not reflect any
tax charges attributable to the Separate Account since no charges are currently
made. If any such charges are imposed in the future, the gross annual rate of
return would have to exceed the rates shown by an amount sufficient to cover the
tax charges, in order to produce the death benefits, net cash surrender values
and policy account values illustrated. See "GIAC's Taxes."
The fourth column of each table shows the amount which would accumulate if
an amount equal to the annual policy premium was invested to earn interest,
after taxes, of 5% per year, compounded annually. There can be no assurance that
a prospective policyowner would be able to earn this return. During the
guaranteed premium period, the annual policy premium is $2,532.50 for the
preferred plus policy illustrated and $3,045 for the preferred policy
illustrated.
GIAC will furnish upon request an illustration reflecting the proposed
insured's Age, sex, premium class and the Face Amount or Basic Scheduled Premium
requested, but a premium-based illustration must reflect GIAC's current minimum
Face Amount requirement for Park Avenue Life -- which is $100,000.
These illustrations will refer to "net outlay" as the cash flow into or
out of the policy. It is equal to the sum of all Policy Premiums and accrued
loan interest paid in cash and reduced by the proceeds of any policy loan or
partial withdrawal received in cash.
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 The variable investment
options - "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 P P E N D I C E S P R O S P E C T U S 117
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
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 Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
Premiums --------------------------- --------------------------- ----------------------------
End Age Accumulated Net Net Net
of Beginning at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy of Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 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 1,801 0 250,000 1,921 0 250,000
2 41 2,533 5,451 3,324 0 250,000 3,668 0 250,000 4,028 141 250,000
3 42 2,533 8,383 4,929 1,395 250,000 5,606 2,073 250,000 6,342 2,809 250,000
4 43 2,533 11,461 6,561 3,381 250,000 7,685 4,505 250,000 8,955 5,775 250,000
5 44 2,533 14,693 8,145 5,319 250,000 9,834 7,007 250,000 11,818 8,991 250,000
6 45 2,533 18,087 9,684 7,211 250,000 12,058 9,584 250,000 14,961 12,488 250,000
7 46 2,533 21,651 11,153 9,033 250,000 14,335 12,215 250,000 18,388 16,268 250,000
8 47 2,533 25,392 12,548 10,781 250,000 16,664 14,898 250,000 22,127 20,360 250,000
9 48 2,533 29,321 13,887 12,474 250,000 19,066 17,652 250,000 26,228 24,815 250,000
10 49 2,533 33,446 15,177 14,117 250,000 21,549 20,489 250,000 30,740 29,680 250,000
15 54 2,533 57,380 20,472 20,472 250,000 34,913 34,913 250,000 60,805 60,805 250,000
20 59 2,533 87,927 23,529 23,529 250,000 49,906 49,906 250,000 109,558 109,558 250,000
25 64 2,533 126,912 23,877 23,877 250,000 66,679 66,679 250,000 189,650 189,650 322,781
30 69 2,533 176,669 19,808 19,808 250,000 84,677 84,677 250,000 316,796 316,796 479,478
</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 PA 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) ID AT
ATTAINED AGE 70 WOULD BE $16,644, ASSUMING THE 0% RETURN; $6,696, ASSUMING THE
6% RETURN; AND $2,533, ASSUMING THE 12% RETURN.
- ------------------------
118 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
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
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
Premiums --------------------------- --------------------------- ----------------------------
End Age Accumulated Net Net Net
of Beginning at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy of Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 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 1,795 0 250,000 1,914 0 250,000
2 41 2,533 5,451 3,079 0 250,000 3,414 0 250,000 3,764 0 250,000
3 42 2,533 8,383 4,417 884 250,000 5,061 1,528 250,000 5,762 2,229 250,000
4 43 2,533 11,461 5,711 2,531 250,000 6,757 3,577 250,000 7,942 4,762 250,000
5 44 2,533 14,693 6,935 4,108 250,000 8,476 5,649 250,000 10,297 7,470 250,000
6 45 2,533 18,087 8,081 5,608 250,000 10,212 7,738 250,000 12,837 10,363 250,000
7 46 2,533 21,651 9,149 7,029 250,000 11,963 9,843 250,000 15,579 13,459 250,000
8 47 2,533 25,392 10,134 8,367 250,000 13,725 11,959 250,000 18,541 16,774 250,000
9 48 2,533 29,321 11,032 9,618 250,000 15,495 14,081 250,000 21,741 20,328 250,000
10 49 2,533 33,446 11,836 10,776 250,000 17,264 16,204 250,000 25,200 24,140 250,000
15 54 2,533 57,380 14,551 14,551 250,000 26,228 26,228 250,000 47,675 47,675 250,000
20 59 2,533 87,927 13,242 13,242 250,000 33,502 33,502 250,000 81,399 81,399 250,000
25 64 2,533 126,912 4,836 4,836 250,000 35,571 35,571 250,000 133,208 133,208 250,000
30 69 2,533 176,669 -16,525 0 250,000 25,267 25,267 250,000 214,167 214,167 324,146
</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; $15,820, ASSUMING THE 6% RETURN; AND $2,533 ASSUMING THE
12% RETURN.
------------------------
A P P E N D I C E S P R O S P E C T U S 119
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
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 Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
Premiums --------------------------- --------------------------- ----------------------------
End Age Accumulated Net Net Net
of Beginning at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy of Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 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 1,801 0 250,000 1,921 0 250,000
2 41 2,533 5,451 3,324 0 250,000 3,668 0 250,000 4,028 141 250,000
3 42 2,533 8,383 4,929 1,395 250,000 5,606 2,073 250,000 6,342 2,809 250,000
4 43 2,533 11,461 6,561 3,381 250,000 7,685 4,505 250,000 8,955 5,775 250,000
5 44 2,533 14,693 8,145 5,319 250,000 9,834 7,007 250,000 11,818 8,991 250,000
6 45 2,533 18,087 9,684 7,211 250,000 12,058 9,584 250,000 14,960 12,487 250,000
7 46 2,533 21,651 11,153 9,033 250,000 14,335 12,215 250,000 18,386 16,266 250,018
8 47 2,533 25,392 12,548 10,781 250,000 16,664 14,898 250,000 22,119 20,353 251,099
9 48 2,533 29,321 13,887 12,474 250,000 19,066 17,652 250,000 26,212 24,799 252,435
10 49 2,533 33,446 15,177 14,117 250,000 21,549 20,489 250,000 30,709 29,649 254,054
15 54 2,533 57,380 20,472 20,472 250,000 34,913 34,913 250,000 60,469 60,469 267,839
20 59 2,533 87,927 23,529 23,529 250,000 49,906 49,906 250,000 107,777 107,777 296,119
25 64 2,533 126,912 23,877 23,877 250,000 66,679 66,679 250,000 183,915 183,915 349,375
30 69 2,533 176,669 19,808 19,808 250,000 84,677 84,677 250,000 306,760 306,760 464,289
</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 PA 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) ID AT
ATTAINED AGE 70 WOULD BE $16,644, ASSUMING THE 0% RETURN; $6,696, ASSUMING THE
6% RETURN; AND $2,533, ASSUMING THE 12% RETURN.
- ------------------------
120 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
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
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
Premiums --------------------------- --------------------------- ----------------------------
End Age Accumulated Net Net Net
of Beginning at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy of Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 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 1,795 0 250,000 1,914 0 250,000
2 41 2,533 5,451 3,079 0 250,000 3,414 0 250,000 3,764 0 250,000
3 42 2,533 8,383 4,417 884 250,000 5,061 1,528 250,000 5,762 2,229 250,000
4 43 2,533 11,461 5,711 2,531 250,000 6,757 3,577 250,000 7,942 4,762 250,000
5 44 2,533 14,693 6,935 4,108 250,000 8,476 5,649 250,000 10,297 7,470 250,000
6 45 2,533 18,087 8,081 5,608 250,000 10,202 7,738 250,000 12,837 10,363 250,000
7 46 2,533 21,651 9,149 7,029 250,000 11,963 9,843 250,000 15,579 13,459 250,000
8 47 2,533 25,392 10,134 8,367 250,000 13,725 11,959 250,000 18,541 16,774 250,000
9 48 2,533 29,321 11,032 9,618 250,000 15,495 14,081 250,000 21,741 20,328 250,000
10 49 2,533 33,446 11,836 10,776 250,000 17,264 16,204 250,000 25,200 24,140 250,000
15 54 2,533 57,380 14,551 14,551 250,000 26,228 26,228 250,000 47,581 47,581 254,951
20 59 2,533 87,927 13,242 13,242 250,000 33,502 33,502 250,000 80,475 80,475 268,817
25 64 2,533 126,912 4,836 4,836 250,000 35,571 35,571 250,000 128,367 128,367 293,827
30 69 2,533 176,669 -16,525 0 250,000 25,267 25,267 250,000 198,521 198,521 336,659
</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; $15,820, ASSUMING THE
6% RETURN; AND $2,533, ASSUMING THE 12% RETURN.
------------------------
A P P E N D I C E S P R O S P E C T U S 121
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
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 Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
Premiums --------------------------- --------------------------- ----------------------------
End Age Accumulated Net Net Net
of Beginning at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy of Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 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 2,185 0 250,000 2,329 0 250,000
2 41 3,045 6,554 4,018 0 250,000 4,434 0 250,000 4,868 374 250,000
3 42 3,045 10,079 5,934 1,848 250,000 6,752 2,666 250,000 7,640 3,555 250,000
4 43 3,045 13,781 7,861 4,184 250,000 9,216 5,539 250,000 10,747 7,070 250,000
5 44 3,045 17,667 9,672 6,403 250,000 11,702 8,434 250,000 14,091 10,822 250,000
6 45 3,045 21,747 11,388 8,528 250,000 14,223 11,374 250,000 17,719 14,859 250,000
7 46 3,045 26,032 13,029 10,577 250,000 16,831 14,380 250,000 21,684 19,232 250,000
8 47 3,045 30,531 14,596 12,553 250,000 19,499 17,456 250,000 26,023 23,980 250,000
9 48 3,045 35,255 16,091 14,457 250,000 22,242 20,608 250,000 30,780 29,146 250,000
10 49 3,045 40,215 17,521 16,295 250,000 25,072 23,847 250,000 36,009 34,783 250,000
15 54 3,045 68,992 23,316 23,316 250,000 40,309 40,309 250,000 71,000 71,000 250,000
20 59 3,045 105,720 25,576 25,576 250,000 56,566 56,566 250,000 127,558 127,558 250,000
25 64 3,045 152,595 23,345 23,345 250,000 73,562 73,562 250,000 218,094 218,094 371,192
30 69 3,045 212,422 15,100 15,100 250,000 91,153 91,153 250,000 359,044 359,044 543,421
</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 PA 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) ID AT
ATTAINED AGE 70 WOULD BE $13,675, ASSUMING THE 0% RETURN; $7,264, ASSUMING THE
6% RETURN; AND $3,045, ASSUMING THE 12% RETURN.
- ------------------------
122 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
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
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
Premiums --------------------------- --------------------------- ----------------------------
End Age Accumulated Net Net Net
of Beginning at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy of Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 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 2,177 0 250,000 2,321 0 250,000
2 41 3,045 6,554 3,898 0 250,000 4,309 0 250,000 4,738 244 250,000
3 42 3,045 10,079 5,692 1,607 250,000 6,492 2,407 250,000 7,361 3,276 250,000
4 43 3,045 13,781 7,436 3,759 250,000 8,748 5,071 250,000 10,234 6,557 250,000
5 44 3,045 17,667 9,103 5,834 250,000 11,054 7,786 250,000 13,354 10,085 250,000
6 45 3,045 21,747 10,687 7,827 250,000 13,404 10,544 250,000 16,740 13,880 250,000
7 46 3,045 26,032 12,187 9,735 250,000 15,799 13,347 250,000 20,419 17,968 250,000
8 47 3,045 30,531 13,599 11,556 250,000 18,236 16,193 250,000 24,420 22,377 250,000
9 48 3,045 35,255 14,920 13,286 250,000 20,712 19,078 250,000 28,771 27,137 250,000
10 49 3,045 40,215 16,144 14,918 250,000 23,224 21,999 250,000 33,507 32,281 250,000
15 54 3,045 68,992 20,963 20,963 250,000 36,578 36,578 250,000 64,897 64,897 250,000
20 59 3,045 105,720 21,812 21,812 250,000 49,734 49,734 250,000 114,159 114,159 250,000
25 64 3,045 152,595 15,783 15,783 250,000 60,099 60,099 250,000 191,496 191,496 325,924
30 69 3,045 212,422 -2,797 0 250,000 62,694 62,694 250,000 305,298 305,298 462,075
</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 PA 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) ID AT
ATTAINED AGE 70 WOULD BE $13,675, ASSUMING THE 0% RETURN; $11,519, ASSUMING THE
6% RETURN; AND $3,045, ASSUMING THE 12% RETURN.
------------------------
A P P E N D I C E S P R O S P E C T U S 123
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
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 Guaranteed Assuming Guaranteed Assuming Guaranteed
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
Premiums --------------------------- --------------------------- ----------------------------
End Age Accumulated Net Net Net
of Beginning at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy of Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 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 4,018 0 250,000 4,434 0 250,000 4,868 374 250,000
3 42 3,045 10,079 5,933 1,848 250,000 6,751 2,666 250,000 7,639 3,554 250,000
4 43 3,045 13,781 7,861 4,184 250,000 9,215 5,539 250,000 10,745 7,068 250,000
5 44 3,045 17,667 9,671 6,403 250,000 11,701 8,433 250,000 14,086 10,818 250,000
6 45 3,045 21,747 11,387 8,528 250,000 14,233 11,373 250,000 17,710 14,850 250,317
7 46 3,045 26,032 13,028 10,577 250,000 16,830 14,379 250,000 21,665 19,214 251,395
8 47 3,045 30,531 14,596 12,553 250,000 19,498 17,455 250,000 25,989 23,946 252,737
9 48 3,045 35,255 16,091 14,456 250,000 22,241 20,607 250,000 30,722 29,088 254,380
10 49 3,045 40,215 17,521 16,295 250,000 25,071 23,845 250,000 35,916 34,690 256,356
15 54 3,045 68,992 23,316 23,316 250,000 40,307 40,307 250,000 70,312 70,312 272,887
20 59 3,045 105,720 25,575 25,575 250,000 56,564 56,564 250,000 124,143 124,143 306,253
25 64 3,045 152,595 23,345 23,345 250,000 73,559 73,559 250,000 209,676 209,676 368,209
30 69 3,045 212,422 15,099 15,099 250,000 91,150 91,150 250,000 345,777 345,777 523,342
</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 PA 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) ID AT
ATTAINED AGE 70 WOULD BE $13,675, ASSUMING THE 0% RETURN; $7,264, ASSUMING THE
6% RETURN; AND $3,045, ASSUMING THE 12% RETURN.
- ------------------------
124 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX A
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
Charges and 0% Gross Return Charges and 6% Gross Return Charges and 12% Gross Return
Premiums --------------------------- --------------------------- ----------------------------
End Age Accumulated Net Net Net
of Beginning at 5% Policy Cash Net Policy Cash Net Policy Cash Net
Policy of Net Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year 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 2,177 0 250,000 2,321 0 250,000
2 41 3,045 6,554 3,898 0 250,000 4,309 0 250,000 4,737 243 250,000
3 42 3,045 10,079 5,692 1,607 250,000 6,492 2,406 250,000 7,360 3,275 250,000
4 43 3,045 13,781 7,435 3,758 250,000 8,748 5,071 250,000 10,232 6,555 250,000
5 44 3,045 17,667 9,102 5,834 250,000 11,053 7,785 250,000 13,350 10,082 250,000
6 45 3,045 21,747 10,686 7,827 250,000 13,403 10,544 250,000 16,734 13,874 250,000
7 46 3,045 26,032 12,186 9,735 250,000 15,798 13,347 250,000 20,409 17,957 250,139
8 47 3,045 30,531 13,599 11,556 250,000 18,235 16,192 250,000 24,399 22,356 251,146
9 48 3,045 35,255 14,920 13,286 250,000 20,712 19,077 250,000 28,734 27,100 252,392
10 49 3,045 40,215 16,144 14,918 250,000 23,224 21,998 250,000 33,444 32,218 253,884
15 54 3,045 68,992 20,963 20,963 250,000 36,577 36,577 250,000 64,373 64,373 266,948
20 59 3,045 105,720 21,812 21,812 250,000 49,732 49,732 250,000 111,397 111,397 293,507
25 64 3,045 152,595 15,783 15,783 250,000 60,097 60,097 250,000 182,557 182,557 341,090
30 69 3,045 212,422 -2,797 0 250,000 62,691 62,691 250,000 290,444 290,444 439,594
</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 PA 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) ID AT
ATTAINED AGE 70 WOULD BE $13,675, ASSUMING THE 0% RETURN; $11,520, ASSUMING THE
6% RETURN; AND $3,045, ASSUMING THE 12% RETURN.
------------------------
A P P E N D I C E S P R O S P E C T U S 125
------------------------
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
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)
- ------------------------
126 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX B
USES OF LIFE INSURANCE
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 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.
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.
------------------------
A P P E N D I C E S P R O S P E C T U S 127
------------------------
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX C
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 "Decreasing 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.
- ------------------------
128 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX D
- --------------------------------------------------------------------------------
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
49 26.54 30.67 43.27 23.02 25.80 34.65 26.10 30.09 42.15
</TABLE>
------------------------
A P P E N D I C E S P R O S P E C T U S 129
------------------------
<PAGE>
The Guardian Insurance & Annuity Company, Inc.
APPENDIX D
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>
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>
- ------------------------
130 P R O S P E C T U S P A R K A V E N U E L I F E
- ------------------------
<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
PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP
8. Powers of Attorney executed by a majority of the Board of Directors
and certain principal officers of The Guardian Insurance & Annuity
Company, Inc.*
- ----------
* Incorporated by reference to the 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).
**** Incorporated by reference to Post-Effective Amendment No. 1 on Form S-6
filed by the Registrant on April 29, 1998. (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, certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and 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 28th day of April, 1999.
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 28, 1999
---------------------------------
John M. Smith
Executive Vice President
Pursuant to Power of Attorney
II-4
<PAGE>
The Guardian Separate Account K
Exhibit Index
Exhibit Number Description
- -------------- -----------
3.(b) Consent of Richard T. Potter, Jr., Esq.
6. Opinion and Consent of Charles G. Fisher, F.S.A.
7. Consent of PricewaterhouseCoopers LLP
EX-3.(b)
CONSENT OF COUNSEL
I hereby consent both to the reference to my name under the heading
"Legal Opinion" in this Post-Effective Amendment No.3 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.
Counsel
New York, New York
April 28, 1998
EXHIBIT 6
April 28, 1999
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. 3 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 3 to the Separate Account K registration
statement on Form S-6 (the "Registration Statement") of our report dated
February 25, 1999, relating to the financial statements of The Guardian Separate
Account K and our report dated February 25, 1999, 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 "Financial and actuarial experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
-------------------------------
PRICEWATERHOUSECOOPERS LLP
New York, New York
April 26, 1999
