Annual Report (Form 10-K), fiscal year 1994

Item 1. Business
A. General
The Guardian Insurance & Annuity Company, Inc. ("GIAC"), a wholly owned subsidiary of The Guardian Life Insurance Company of America ("Guardian Life"), established The Guardian Real Estate Account (the "Registrant" or the "Account") in December 1987 as a separate investment account pursuant to Delaware insurance law. The Account provides a real estate investment option under certain variable life insurance policies and variable annuity contracts issued by GIAC (collectively, the "Contracts," and individually, a "Contract").
Unlike the other separate accounts funding the Contracts, the Account is not registered as an investment company with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940. The participating interests offered by the Account are registered with the SEC under the Securities Act of 1933. The registration statement registering participating interests in the Account was initially declared effective on November 1, 1988, at which time interests in the Account began to be offered to Contractowners. Contractowners have no voting rights with respect to the Account.
The Account is controlled by GIAC. GIAC's Board of Directors and officers are responsible for the management of the Account. The Investment Committee of GIAC's Board of Directors monitors the Account's investments and reviews each real estate-related acquisition or disposition recommended by the investment manager responsible for such recommendations.
GIAC has contracted with the following two investment managers to provide assistance in the selection, administration, management and disposition of the Account's investments: (i) O'Connor Realty Advisors Incorporated ("O'Connor Realty"), which is not affiliated with Guardian Life or GIAC; and (ii) Guardian Investor Services Corporation ("GISC"), a wholly owned subsidiary of GIAC. O'Connor Realty generally arranges and supervises day-to-day administration and management of the real estate-related investments of the Account, though from time-to-time GIAC may provide such services with respect to selected real estate-related assets. GISC is responsible for the day-to-day administration and management of the portfolio of cash, cash equivalents, and short-term and intermediate-term debt instruments maintained by the Account for liquidity purposes.
As of December 31, 1994, the Account's net assets totalled $15,065,948. Of this amount, $9,870,097 was attributable to Contractowner interests and $5,195,851 was attributable to GIAC.
Although the primary source of the Account's funds is intended to be Contractowner contributions, from time to time GIAC has made contributions to provide additional funds for acquisitions or liquidity. During 1994, GIAC contributed $950,000 to the Account to enable the acquisition of additional assets. There can be no assurance that GIAC will make additional contributions to the Account, and it may withdraw some or all of its contributions when it is satisfied that such a withdrawal will not adversely affect the interests of Contractowners and all legal requirements are met. GIAC withdrew most of its earlier contributions to the Account in transactions which occurred in October 1990 and December 1991.
The Account owns two office buildings in Glastonbury, Connecticut. The Account has also acquired a warehouse/office facility located in Kennesaw, Georgia. These real property acquisitions were made in June 1989 and October 1991. During 1993, the Account purchased fixed-income securities with available cash and continued to seek suitable real estate-related investments.
Independent appraisals of the Account's real estate-related investments are ordinarily obtained annually after acquisition. As of December 31, 1993 and 1994, the buildings in Glastonbury, Connecticut were valued as follows: 45 Glastonbury Boulevard -- $3,000,000 and $3,550,000, respectively; and 115 Glastonbury Boulevard -- $4,200,000 and $3,700,000 respectively. Both buildings are fully leased, although the rental rates now in place are lower than the rates which were in place when the buildings were acquired. The market for office space in the area has been hampered by the prolonged economic slowdown in the Northeast generally, and in Connecticut specifically, where layoffs and company closings have had a detrimental effect on the local economy. The appraised value of the Account's Kennesaw, Georgia property was $5,100,000 as of December 31, 1994; which was also the appraised value as of December 31, 1993. Despite this plateau, the appraised value of the property remains slightly lower than its acquisition cost of $5,131,350.
Potential real estate-related investments for the Account continue to be evaluated.
B. Investment Objectives
The Account's investment objectives are to (i) preserve and protect the Account's capital; (ii) provide for the compounding of income by reinvesting cash flow from investments; and (iii) provide for increases over time in the amount of such income through appreciation in the value of the Account's assets. There can be no assurance that these investment objectives will be met.
The Account seeks to invest at least 65% of its assets in (i) income-producing real property such as office buildings, shopping centers or industrial properties; (ii) participating mortgage loans (which include
participations in the appreciation and/or the revenues of the real properties that secure the mortgage loans); and (iii) real property purchase-leaseback transactions (which may include a participation feature). Another portion of the Account's assets, typically ranging between 20% and 25%, may be invested in other types of real estate-related investments, including conventional, non-participating mortgage loans. The remainder of the Account's assets (normally 10%-15%) will consist of cash and investments in short-term or intermediate-term debt instruments for liquidity purposes. The actual allocations among these different investments may vary from the percentages set forth above because there is no assurance that sufficient, suitable real estate-related investments will be found for the Account. In addition, GIAC has reserved the right to increase the portion of its assets held in fixed-income instruments to 30% of the total. As of December 31, 1994, the Account's investments in fixed-income securities and cash totalled $3,034,806.
It is intended that the Account will be managed so as to meet the diversification requirements set forth in Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations thereunder, concerning the investments of variable life insurance and variable annuity separate accounts.
C. Competition
As of December 31, 1994, GIAC was aware that several other real estate investment separate accounts have been registered with the SEC and are being offered for sale by competitors to fund benefits under variable contracts. These products contain features which differ to some degree from the Account, but their structure and investment objectives are similar. The Account also competes against other real estate investment funds, registered investment companies, limited partnerships, unit investment trusts and pension and profit sharing trusts, all of which may be offered for sale by commercial and investment banks, insurance companies, realty corporations, savings and loan associations, diversified financial service companies, and other financial services intermediaries. The Account also competes against the other allocation options offered under GIAC's Contracts, even though their investment programs are not related to real estate.
The Account competes for real property investments, mortgage loans and real property purchase-leasebacks with numerous other entities, including certain affiliates of O'Connor Realty and GIAC.
D. Employees
The Account does not directly employ any person. The Board of Directors of GIAC, through its Investment Committee, oversees the services provided in connection with the acquisition, management and disposition of the Account's real estate-related assets.
Item 2.



Item 2. Properties
Office Buildings in Glastonbury, Connecticut
The Account owns two office buildings in Glastonbury, Connecticut. The first, 45 Glastonbury Boulevard, contains nearly 41,000 square feet of net rentable space, as does the second which is located at 115 Glastonbury Boulevard. The buildings are part of Somerset Square, an 80-acre complex containing office and retail space. The buildings are located at the intersection of two state highways, which link the buildings to two major interstate highways, and are approximately five miles southeast of downtown Hartford.
The 45 Glastonbury Boulevard building is fully leased by four tenants, three of whom began their tenancies in 1994. All leases have five year terms. The building at 115 Glastonbury Boulevard is approximately 98% leased by four tenants, three of whom renewed their initial five year leases for additional five year terms in 1993 and 1994. Annual gross rentals in both buildings now range from $17.00 to $19.00 per square foot, which compares favorably with average local asking rates of $17.00 to $19.00 per square foot. Actual rents in the locality may be 5% to 10% less than asking rents. The rental rates now in place for both Glastonbury buildings are lower than the rates which were in force when the buildings were acquired in 1989. Unfortunately, the market for office space in Glastonbury and its environs has been hampered by the prolonged economic slowdown in the Northeast generally, and Connecticut specifically, where layoffs and company closings have been having detrimental effects on the local economy.
Warehouse/Office Facility in Kennesaw, Georgia
The Account also owns a warehouse/office building containing 97, 518 square feet located at 955 Cobb Place Boulevard, Kennesaw, Georgia. The property is located in a 1,000 acre mixed-use business park on Interstate 75, approximately 15 miles northwest of Atlanta.
The entire building has been leased to Curtin Matheson Scientific, Inc. ("CMS") under a ten-year lease which expires in September 2001. CMS manufactures and distributes clinical laboratory equipment. CMS is a wholly owned subsidiary of Fisons PLC, a British manufacturer and supplier of pharmaceuticals, scientific equipment and horticultural products.
The annual net rental rate under the lease with CMS is $5.40 per square foot ($527,000 annually) through September 1996. Thereafter, the annual net rental rate will be $6.43 per square foot ($627,000 annually) until the current lease expires. The lease agreement provides for two five-year renewal options at fair market value, and grants CMS the option to have the building expanded by 25,000 square feet. The Account is obligated to fund construction of the expanded space if CMS exercises its option. However, it is expected that the Account would recover any amounts expended for construction during the lease-term through additional rent, and that providing for expansion may encourage long-term term tenancy by CMS.
Within the property's environs, asking rental rates for office/warehouse space typically range from $3.50 to $9.00 per square foot, depending on the degree and percentage of space that has been finished for office use. The Account's building is 20% office space. The property's rental rate reflects, in part, the tenant's option to have the building expanded and certain improvements relating to the tenant's use of the building. However, there is no assurance that the potential expansion will occur.
Item 3.

Item 3. Legal Proceedings
None.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
Contractowners participating in the Account have no voting rights with respect to the Account.
[THIS SPACE INTENTIONALLY LEFT BLANK]
PART II
Item 5.

Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters
As of December 31, 1994, interests in the Account were available in connection with four Contracts issued by GIAC. At least one of these Contracts is available for sale in every state.
Owners of Contracts that provide the opportunity to invest in the Account may allocate all or part of the net consideration for their Contracts, or transfer a portion of the total amount invested under their Contracts, to the Account. Thereafter, values and benefits under their Contracts which are attributable to their interests in the Account reflect the Account's investment experience.
Equity, on a fair value basis, as of December 31, 1994 totalled $15,065,948 which represents (i) GIAC's equity of $5,195,851 (568,614 units) and (ii) Contractowners' equity of $9,870,097 (1,356,133 units). The high and low unit values during the periods indicated are detailed in the chart below. Unit values are used to determine the value of a participating interest in the Account.
Variable Annuity Unit Values Unit Value ValueGuard ---------------------------- During the Quarter Ended: High Low ------------------------- ---- --- December 31, 1994 $ 8.705184 $ 8.500098 September 30, 1994 $ 8.566393 $ 8.490478 June 30, 1994 $ 8.733579 $ 8.506989 March 31, 1994 $ 8.988593 $ 8.661648 December 31, 1993 $ 9.448880 $ 8.659812 September 30, 1993 $ 9.329429 $ 9.189190 June 30, 1993 $ 9.227943 $ 9.033124 March 31, 1993 $10.129764 $ 9.030906 December 31, 1992 $11.670823 $ 9.903619 September 30, 1992 $12.352665 $11.374473 June 30, 1992 $12.284548 $12.066002 March 31, 1992 $12.063650 $11.858621 December 31, 1991 $12.257247 $11.839737 September 30, 1991 $12.153958 $11.996576 June 30, 1991 $11.995525 $11.838827 March 31, 1991 $11.832058 $11.672532
Guardian Investor Individual and Group Variable Unit Value Annuity Contracts ---------------------------- During the Quarter Ended: High Low ------------------------- ---- --- December 31, 1994 $ 7.870057 $ 7.684609 September 30, 1994 $ 7.747891 $ 7.689309 June 30, 1994 $ 7.902694 $ 7.697407 March 31, 1994 $ 8.139659 $ 7.843922
Guardian Investor Individual and Group Variable Unit Value Annuity Contracts --------------------------- During the Quarter Ended (Continued): High Low ------------------------- ---- --- December 31, 1993 $ 8.557641 $ 7.842370 September 30, 1993 $ 8.452430 $ 8.328888 June 30, 1993 $ 8.364091 $ 8.190929 March 31, 1993 $ 9.185416 $ 8.188956 December 31, 1992 $10.587345 $ 8.984153 September 30, 1992 $11.326370 $11.213878 June 30, 1992 $11.153611 $10.959809 March 31, 1992 $10.957724 $10.776036 December 31, 1991 $11.138195 $10.759331 September 30, 1991 $11.049233 $10.910811 June 30, 1991 $10.909663 $10.771939 March 31, 1991 $10.766273 $10.624867
Variable Life Unit Values Unit Value ValuePlus --------------------------- During the Quarter Ended: High Low ------------------------- ---- --- December 31, 1994 $ 8.969504 $ 8.758310 September 30, 1994 $ 8.815853 $ 8.736790 June 30, 1994 $ 8.976336 $ 8.744263 March 31, 1994 $ 9.218466 $ 8.882101 December 31, 1993 $ 9.686788 $ 8.879865 September 30, 1993 $ 9.554818 $ 9.399967 June 30, 1993 $ 9.439357 $ 9.226781 March 31, 1993 $10.349319 $ 9.226781 December 31, 1992 $11.909368 $10.106202 September 30, 1992 $12.579740 $11.584040 June 30, 1992 $12.505393 $12.268261 March 31, 1992 $12.265707 $12.042856 December 31, 1991 $12.445517 $12.022243 September 30, 1991 $12.327563 $12.153251 June 30, 1991 $12.151702 $12.022081 March 31, 1991 $11.966248 $11.789597
The Guardian Insurance & Annuity Unit Value Company, Inc. Unit Values --------------------------- During the Quarter Ended: High Low ------------------------- ---- --- December 31, 1994 $ 9.3532 $ 9.1331 September 30, 1994 $ 9.1815 $ 9.0893 June 30, 1994 $ 9.3362 $ 9.0957 March 31, 1994 $ 9.5666 $ 9.2164 December 31, 1993 $10.0486 $ 9.2137 September 30, 1993 $ 9.9015 $ 9.7290 June 30, 1993 $ 9.7695 $ 9.5403 March 31, 1993 $10.6979 $ 9.5377 December 31, 1992 $12.2951 $10.4337 September 30, 1992 $12.9601 $10.9348 June 30, 1992 $12.8782 $12.6184 March 31, 1992 $12.6156 $12.3762 December 31, 1991 $12.7828 $12.3484 September 30, 1991 $12.6474 $12.453 June 30, 1991 $12.4509 $12.2591 March 31, 1991 $12.2511 $12.0548
Unit value as of a given date is determined by GIAC based upon the latest appraisal values of the Account's real estate-related assets, estimates of the Account's accrued net operating income from real estate-related assets, the value of the Account's liquid assets, and the Account's liabilities. A public trading market does not exist for participating interests in the Account, per se, since they are only offered in connection with Contracts issued by GIAC.
As of February 28, 1995, there were 1,609 Contractowners of record invested in the Account.
Item 6.

Item 6. Selected Financial Data
The following selected financial data should be considered in connection with the financial statements and notes thereto for the Account commencing on page.
Selected Financial Data for The Guardian Real Estate Account*
----------
* The figures presented in this table for the years ended prior to December 31, 1992 were adjusted by management in 1992 to reflect the change in the basis of presentation of the Account's financial statements from the historical cost basis to the fair value basis. See the financial statements and related notes for additional information.
** Net (decrease)/increase in net assets per unit reflects the effects of GlAC's partial subsidization of the Account's expenses since inception and GISC's partial waiver of its management fee from inception through December 31, 1992. Net (decrease)/increase in net assets per unit also reflects the deduction of certain Contract related fees and expenses from the Account. Such fees and expenses differ among Contracts. GIAC's investment in the Account is not subject to any such fees and expenses.
# The Guardian Investor Individual Deferred Variable Annuity Contract was introduced in January 1990. The Guardian Investor Group Unallocated Deferred Variable Annuity was introduced in September 1990.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
As of December 31, 1994, the Account's net assets totalled $15,065,948. Of this amount, $9,870,097 was attributable to Contractowner interests and $5,195,851 was attributable to GIAC. At December 31, 1993, the Account's net assets totalled $15,559,150. The Account's current source of funds is primarily Contractowner contributions, although in December 1993, July 1994 and October 1994 GIAC contributed $1.8 million, $400,000, and $550,000 respectively, to the Account to diversify its portfolio of investments.
As of December 31, 1994, almost 80% of the Account's assets were invested in real estate-related assets and the remainder was invested in permitted fixed-income instruments. This ratio (i.e., approximately 80/20) of real estate to liquid assets remained fairly steady throughout the year ended December 31, 1994, and the Account remained able to meet its obligations under GlAC's variable Contracts to pay benefits and effect transfers. GIAC believes that the Account will continue to be sufficiently liquid to meet Contract obligations. Furthermore, GIAC has indicated its willingness to contribute to the Account in the future to permit the acquisition of additional assets or to meet liquidity needs. However, there can be no assurance that GIAC will make additional contributions to the Account.
Based on the conclusions of an independent external appraisal, the building at 45 Glastonbury Boulevard has been valued at $3,550,000 and the building at 115 Glastonbury Boulevard has been valued at $3,700,000 as of December 31, 1994. The 1994 year-end valuation for the building at 45 Glastonbury Boulevard reflects an increase of $550,000 over its 1993 year-end valuation. Capital improvements costing approximately $500,000 were made to this building during 1994 to attract new tenants, and the building is now fully leased. The 1994 year-end valuation for the building at 115 Glastonbury Boulevard reflects a decrease of $500,000 from its 1993 year-end valuation and a decrease of $50,000 from its June 30, 1994 valuation. Increases in property expenses are the primary reason for the decline in value. Both Glastonbury buildings have declined in value from their respective acquisition costs. The persistent economic downturn in the Northeast generally and Connecticut specifically have adversely affected these buildings. Most of the leases for space within the buildings have been renegotiated or renewed at lower rates than those which were in force when the buildings were acquired. This has contributed to the decline in value for both of the Glastonbury buildings.
The Account's real estate-related investment located in Kennesaw, Georgia was also appraised by an independent appraiser as of December 31, 1994. The appraised value remained unchanged from its year-end 1993 value of $5,100,000. Thus, the current appraised value is slightly lower than its acquisition cost of $5,131,350. This valuation does not reflect the potential renewal of the current lease, nor any potential expansion of the facility. Both are uncertain at this time, but could add to the property's value if they were to occur.
Cash and liquid securities held by the Account decreased during the year ended December 31, 1994, largely as a result of expenditures for capital improvements made to the 45 Glastonbury Boulevard building and price declines for the long-term bonds held by the Account.
Results of Operations
The Account's net assets decreased as a result of operations for the year ended December 31, 1994 by $237,910. This represents a significant improvement over year-end 1993 and 1992 results when net operational losses were $2,101,375 and $3,107,692, respectively. Net investment income has declined from $1,377,072 and $1,468,606 for the years ended December 31, 1993 and 1992, respectively, to $1,021,472 for the year ended December 31, 1994. However, unrealized losses on the Account's assets have declined from $4,576,298 and $3,478,447 for the years ended December 31, 1992 and 1993 to $1,259,382 for the year ended December 31, 1994. We believe that this improvement, while not as satisfying as gains, indicates that the values of the Account's real estate-related assets are stabilizing.
The Account's expenses for the year ended December 31, 1994 totalled $1,140,124 as compared to $1,163,805 for the year ended December 31, 1993 and $1,175,947 for the year ended December 31, 1992. The foregoing expense amounts include the effects of subsidization. Since the Account's inception, GIAC has subsidized all or a portion of the Account's operating expenses, and until January 1, 1993, GISC waived portions of its management fee. The termination of GISC's fee waiver did not result in a net increase in the Account's expenses, however, since O'Connor Realty's management fee has declined in coordination with the declines in the aggregate values of the Account's real estate-related investments. If GIAC ceases to subsidize the Account's expenses, the ultimate return realized by Contractowners who have interests in the Account will decrease.
Finally, the Account has experienced net withdrawals of Contractowner contributions. While Contractowner withdrawals were significantly offset by GIAC contributions for the years ended December 31, 1993 and 1994, the Account's inability to attract and retain Contractowner contributions has hindered its efforts to expand its investment portfolio. The Account is offered as one of several investment options under the Contracts. When comparing the relative attractiveness of the investment options and considering the recent economic and market climate, Contractowners have generally elected to allocate their Contract values among other investment options offered under the Contracts. Accordingly, the Account has not flourished concomitantly with increases in premiums received by GIAC for the Contracts which offer the Account as an investment option.
Item 8.


Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data listed in the accompanying Index to Financial Statements and Supplementary Data are incorporated herein by reference and filed as a part of this report.
Item 9.

Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10.



Item 10. Directors and Executive Officers of the Registrant
The Account has no directors or officers. The directors and officers of GIAC, the Account's sponsor, are listed below. Information about the principal occupation of each such director or officer during the last five years appears on the pages which follow.
MANAGEMENT OF GIAC AND GISC
The directors and executive officers of GIAC and GISC are named below. Information about their principal occupations during the last five years appears on the pages which follow.
---------- * Member of Investment Committee of GIAC Board of Directors. ** Alternate member of Investment Committee of GIAC Board of Directors.
ARTHUR V. FERRARA -- Chairman of the Board and Chief Executive Officer of The Guardian Life Insurance Company of America since January 1993; President and Chief Executive Officer prior thereto; Director since January 1981.
JOHN C. ANGLE -- Retired Chairman of the Board and Chief Executive Officer of The Guardian Life Insurance Company of America; Director since January 1978.
LEO R. FUTIA -- Retired Chairman of the Board and Chief Executive Officer of The Guardian Life Insurance Company of America; Director since May 1970.
GEORGE T. CONKLIN, JR. -- Retired Chairman of the Board and Chief Executive Officer of The Guardian Life Insurance Company of America; Director since January 1957.
WILLIAM C. WARREN -- Retired. Dean Emeritus, Columbia Law School. Former Chairman of the Board, Sandoz, Inc. Director of The Guardian Life Insurance Company of America since January 1957.
PHILIP H. DUTTER -- Self-employed as a management consultant since retirement from McKinsey & Co. in June 1986. Director of The Guardian Life Insurance Company of America since March 1988.
EDWARD K. KANE -- Senior Vice President and General Counsel of The Guardian Life Insurance Company of America since January 1983; Director since November 1988.
JOHN M. SMITH -- Executive Vice President of The Guardian Life Insurance Company of America since January 1995. Senior Vice President, Equity Products prior thereto.
JOSEPH D. SARGENT -- President of The Guardian Life Insurance Company of America since January 1993; Executive Vice President prior thereto.
PETER L. HUTCHINGS -- Executive Vice President and Chief Financial Officer of The Guardian Life Insurance Company of America since May 1987.
FRANK J. JONES -- Executive Vice President and Chief Investment Officer of The Guardian Life Insurance Company of America since January 1994, Senior Vice President and Chief Investment Officer from August 1991 to December 1993. First Vice President and Director of Global Fixed Income Research and Economics, Merrill Lynch & Co. prior thereto.
CHARLES E. ALBERS -- Senior Vice President, Equity Securities of The Guardian Life Insurance Company of America since January 1991; Vice President, Equity Securities prior thereto.
JOHN M. FAGAN -- Vice President, Life Policy Operations of The Guardian Life Insurance Company of America since March 1992; Vice President, Equity Administration prior thereto.
CHARLES G. FISHER -- Second Vice President and Actuary of The Guardian Life Insurance Company of America since December 1986.
WILLIAM C. FRENTZ -- Vice President, Real Estate of The Guardian Life Insurance Company of America since January 1985.
NIKOLAOS D. MONOYIOS -- Vice President, Equity Securities of The Guardian Life Insurance Company of America since March 1991; Second Vice President, Equity Securities prior thereto.
FRANK L. PEPE -- Second Vice President, Equity Products of The Guardian Life Insurance Company of America since December 1986.
JOHN M. EMANUELE -- Treasurer of The Guardian Life Insurance Company of America since January 1981.
JOSEPH A. CARUSO -- Second Vice President & Corporate Secretary of The Guardian Life Insurance Company of America since January 1995; Corporate Secretary from October 1992 to December 1994; Assistant Secretary from January 1991 to October 1992; Manager, Board Relations prior thereto.
JOHN J. GRANDSIRE -- Second Vice President, Equity Administrative Support of The Guardian Life Insurance Company of America since November 1992; Second Vice President, Equity Administration prior thereto.
THOMAS R. HICKEY, JR. -- Vice President, Equity Operations of The Guardian Life Insurance Company of America since March 1992; Second Vice President and Equity Counsel prior thereto.
RICHARD T. POTTER, JR. -- Second Vice President and Equity Counsel of The Guardian Life Insurance Company of America since January 1993; Counsel from January 1992 to December 1992. Vice President - Counsel, Home Life Insurance Company prior thereto.
MICHELE S. BABAKIAN -- Vice President, Fixed Income Securities of The Guardian Life Insurance Company of America since January 1995; Second Vice President. Fixed Income Securities prior thereto.
DONALD P. SULLIVAN, JR. -- Second Vice President, Equity Administration of The Guardian Life Insurance Company of America since January 1995; Assistant Vice President from June 1991 to December 1994; Manager, GISC Agency Division prior thereto.
RYAN W. JOHNSON -- Second Vice President, Equity Sales of The Guardian Life Insurance Company of America from November 1994 to present; Regional Vice President of Guardian Investor Services Corporation prior thereto.
Item 11.

Item 11. Executive Compensation
The Account does not pay any fees, compensation or reimbursement to any director or officer of GIAC.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1994, GIAC held 568,614 units, representing 35% of the Account's total net assets. All of the units owned by GIAC may be redeemed at any time at the accumulation unit value at the time of redemption. The Account's accumulation unit value fluctuates.
Item 13.

Item 13. Certain Relationships and Related Transactions
Pursuant to an investment advisory agreement, GIAC has retained GISC to manage the Account's non-real estate-related assets, which are maintained in cash and short-term and intermediate-term marketable debt instruments. GISC is a wholly owned subsidiary of GIAC. GISC charges the Account a daily investment management fee at an annual rate of .50% of the average daily assets of the Account which it manages. Prior to January 1, 1993, GISC waived all or a portion of this fee, and thereby provided a subsidy to the Account. Certain expenses incurred by GISC on behalf of the Account are chargeable to the Account, such as: brokerage commissions; custodian and legal fees and related expenses; and any other costs which may arise in connection with the purchase and sale of non-real estate-related investments. GISC does not charge the Account or GIAC for any overhead expenses or for the time and services of its personnel which are attributable to services performed on behalf of the Account.
Since the Account commenced its operations, GIAC has assumed all or a portion of the Account's non-real estate-related operating expenses. For the year ending December 31, 1994, GIAC assumed 25% of such expenses. Expenses directly relating to the operations of real estate-related investments and O'Connor Realty's investment management fee have never been assumed or waived. GIAC has agreed to continue its subsidization of certain of the Account's operating expenses through December 31, 1995.
As subsidies of the Account are withdrawn, it is expected that the Account's expenses will increase and returns to Contractowners will correspondingly decrease.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements.
See the Index to Financial Statements and Supplemental Data on page 20.
2. Financial Statement Schedules.
See the Index to Financial Statements and Supplemental Data on page 20.
3. Documents Incorporated by Reference.
See the list of exhibits in (c), below.
4. Exhibits
See the list of exhibits in (c), below.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the year ending December 31, 1994.
(c) The following is a list of Exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994:
3.1 Certificate of Incorporation of The Guardian Insurance & Annuity Company, Inc., Exhibit 3(a) to Form S-1 Registration Statement No. 33-22548, filed June 15, 1988, and incorporated herein by reference.
3.2 By-Laws of The Guardian Insurance & Annuity Company, Inc., Exhibit 3(b) to Form S-1 Registration Statement No. 33-22548, filed June 15, 1988, and incorporated herein by reference.
3.3 Certified copy of resolution of the Board of Directors of The Guardian Insurance & Annuity Company, Inc. establishing The Guardian Real Estate Account, Exhibit 3(c) to Form S-1 Registration Statement No. 33-22548, filed June 15, 1988, and incorporated herein by reference.
4.1 Specimen of Single Premium Variable Life Insurance Policy including Rider pertaining to The Guardian Real Estate Account, Exhibit 4(a) to Pre-Effective Amendment No. 1 to Form S-1 Registration Statement No. 33-22548, filed October 3, 1988, and incorporated herein by reference.
4.2 Specimen of Variable Annuity Contract including Rider pertaining to The Guardian Real Estate Account, Exhibit 4(b) to Pre-Effective Amendment No. 1 to Form S-1 Registration Statement No. 33-22548 filed October 3, 1988, and incorporated herein by reference.
4.3 Specimen of Variable Annuity Contract which provides for allocations to The Guardian Real Estate Account, Exhibit 4(c) to Form S-1 Registration Statement No. 33-33686, filed March 7, 1990, and incorporated herein by reference.
4.4 Specimen of Group Unallocated Deferred Variable Annuity Contract which provides for allocations to The Guardian Real Estate Account, Exhibit 4(d) to Post-Effective Amendment No. 1 to the Form S-1 Registration Statement No. 33-33686 filed March 6, 1991, and incorporated herein by reference.
9. None.
10.1 Form of Investment Management Agreement between The Guardian Insurance & Annuity Company, Inc. and O'Connor Realty Advisors Incorporated with respect to The Guardian Real Estate Account, Exhibit 10(a) to Form S-1 Registration Statement No. 33-22548, filed June 15, 1988, and incorporated by reference herein.
10.2 Form of Investment Management Agreement between The Guardian Insurance & Annuity Company, Inc. and Guardian Investor Services Corporation with respect to The Guardian Real Estate Account, Exhibit 10(b) to Form S-1 Registration Statement No. 33-22548, filed June 15, 1988, and incorporated by reference herein.
11. None.
12. None.
13. Inapplicable.
18. None.
19. Inapplicable.
22. None.
23. Inapplicable.
24. None.
25.1 Certified copy of a resolution by the Board of Directors of The Guardian Insurance & Annuity Company, Inc. authorizing the use of powers of attorney in connection with the signing of registration statements and amendments thereto, Exhibit 25(a) to Post-Effective Amendment No. 1 to Form S-1 Registration Statement No. 33-33686 filed March 6, 1991, and incorporated herein by reference.
25.2 Powers of Attorney executed by directors and officers of The Guardian Insurance & Annuity Company, Inc., Exhibit 25(b) to Post-Effective Amendment No. 1 to Form S-1 Registration Statement No. 33-33686 filed March 6, 1991, and incorporated herein by reference.
28. None.
29. None.
Item 8. INDEX TO FINANCIAL STATEMENTS & SUPPLEMENTAL DATA THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE & ANNUITY COMPANY. INC. FOR THE YEAR ENDED DECEMBER 31,1994
INDEX
Page Numbers
Report of Price Waterhouse Independent Accountants
Financial Statements:
Statements of Assets and Liabilities - December 31, 1994 and December 31, 1993
Statements of Operations - Years ended December 31, 1994, 1993 and 1992
Statements of Changes in Net Assets - Years ended December 31, 1994, 1993 and 1992
Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
All schedules are omitted because they are not applicable or because the required information is included in the financial statements or notes thereto.
Annual Report to Account Owners
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
Dated: March 29, 1995 By: s/FRANK J. JONES --------------------------------------------- Frank J. Jones Executive Vice President, Chief Investment Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
s/ARTHUR V. FERRARA* Chairman and Chief March 29, 1995 ------------------------- Executive Officer Arthur V. Ferrara
s/FRANK J. JONES Executive Vice President, March 29, 1995 ------------------------- Chief Investment Officer Frank J. Jones and Director
s/FRANK L. PEPE* Vice President and March 29, 1995 ------------------------- Controller Frank L. Pepe
s/JOSEPH D. SARGENT* President and Director March 29, 1995 ------------------------- Joseph D. Sargent
s/JOHN C. ANGLE* Director March 29, 1995 ------------------------- John C. Angle
s/LEO R. FUTIA* Director March 29, 1995 ------------------------- Leo R. Futia
s/WILLIAM C. WARREN* Director March 29, 1995 ------------------------- William C. Warren
s/GEORGE T. CONKLIN JR.* Director March 29, 1995 ------------------------- George T. Conklin, Jr.
s/PHILIP H. DUTTER* Director March 29, 1995 ------------------------- Philip H. Dutter
s/EDWARD K. KANE* Senior Vice President, March 29, 1995 ------------------------- General Counsel and Director Edward K. Kane
s/JOHN M. SMITH* Executive Vice President March 29, 1995 ------------------------- and Director John M. Smith
s/JOHN M. EMANUELE* Treasurer March 29, 1995 ------------------------- John M. Emanuele
Director March 29, 1995 ------------------------- Peter L. Hutchings
s/THOMAS R. HICKEY JR. March 29, 1995 ------------------------- Thomas R. Hickey, Jr. Vice President, Operations Pursuant to Power of Attorney
THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC. REPORT OF INDEPENDENT ACCOUNTANTS REPORT OF INDEPENDENT AUDITOR -AND- FINANCIAL STATEMENTS
THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC. STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1994 1993 ---- ---- ASSETS: Investment Properties at fair value (Cost basis: $22,405,832 and $21,436,044, respectively) ............. $ 12,350,000 $ 12,300,000 Long-term Investments at fair value (Cost basis: $2,473,870 and $2,479,757, respectively) .............. 2,128,404 2,473,884 Cash ..................................... 1,402 5,770 Short-term Investments ................... 905,000 1,200,000 Receivables .............................. 86,760 41,513 ------------ ------------ TOTAL ASSETS ........................... 15,471,566 16,021,167 ============ ============
LIABILITIES: Accrued Management Advisory Fees ......... 34,804 35,606 Accrued Expenses ......................... 111,489 75,177 Unearned Rent ............................ 149,457 238,929 Annuitant Mortality Fluctuation Fund ..... 72,500 65,798 Other Liabilities ........................ 37,368 46,507 ------------ ------------ TOTAL LIABILITIES ...................... 405,618 462,017 ------------ ------------
NET ASSETS REPRESENTING CONTRACTOWNERS' EQUITY: Value Guard II ........................... 4,623,454 5,821,550 Guardian Investor ........................ 4,812,744 4,713,854 ValuePlus ................................ 433,899 738,520 The Guardian Insurance & Annuity Co., Inc. 5,195,851 4,285,226 ------------ ------------ TOTAL NET ASSETS ....................... 15,065,948 15,559,150 ------------ ------------ TOTAL LIABILITIES AND NET ASSETS ....... $ 15,471,566 $ 16,021,167 ============ ============
Number of Units Outstanding: Variable Annuity Contractowners Value Guard II ......................... 542,296 672,070 Guardian Investor ...................... 624,615 600,918 ValuePlus Contractowners ................. 49,518 83,145 The Guardian Insurance & Annuity Co., Inc. 568,614 464,959
Unit Value: Variable Annuity Contractowners Value Guard II ......................... $8.5039 $8.6621 Guardian Investor ...................... $7.6880 $7.8444 ValuePlus Contractowners ................. $8.7625 $8.8823 The Guardian Insurance & Annuity Co., Inc. $9.1377 $9.2164
See Notes to the Financial Statements
THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1994, 1993 and 1992
See Notes to the Financial Statements
THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1994, 1993 and 1992
See Notes to the Financial Statements
THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1993 and 1992
See Notes to the Financial Statements
THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS December 31, 1994
Note 1 - Organization
Organization
The Guardian Real Estate Account (the "Account") of The Guardian Insurance & Annuity Company, Inc. (GIAC) was established in 1987 under Delaware Insurance Law as an insurance company separate account. Participating interests in the Account are registered under the Securities Act of 1933 and are offered by GIAC as an investment option under certain variable life insurance policies and variable deferred annuity contracts (the "Contracts"). GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America ("The Guardian").
The obligations to Contractowners and beneficiaries arising under the Contracts are general corporate obligations of GIAC. GIAC is the legal owner of the assets in the Account. GIAC will at all times, however, maintain assets in the Account with a total market value at least equal to the amounts credited under each Contract which participates in the Account. These assets may not be charged with liabilities which arise from any other business conducted by GIAC.
The Board of Directors of GIAC has authorized a total investment of up to $25 million to enable the Account to acquire a portfolio of real estate-related investments to meet its investment objectives and policies. Pursuant to this authority, GIAC has contributed capital to the Account from time to time since its inception to provide funds for acquisitions and to preserve liquidity. GIAC has also withdrawn contributed funds when it has appeared that such withdrawals would not adversely affect the interests of Contractowners and all legal requirements have been met. GIAC's most recent contributions to the Account were made on December 27, 1993, July 27,1994 and October 28, 1994, when $1,800,000, $400,000 and $550,000 respectively were invested. At December 31, 1994, GIAC maintained 35% ownership of the Account.
The Account is authorized to invest in income-producing real property, participating mortgage loans, conventional mortgage loans, real property purchase-leaseback transactions and in short-term or intermediate-term debt instruments for liquidity purposes.
The Account owns three properties. Two of the three properties are office buildings located in Glastonbury, Connecticut which were acquired for $7,921,854 and $7,644,386, respectively. The third property is an office/distribution facility located in Kennesaw, Georgia which was acquired on October 1, 1991 for $5,134,068, including acquisition fees.
Note 2 - Summary of Significant Accounting Policies
Real Estate Investment Properties
Investments in real estate are stated at estimated fair value; accordingly the Account does not record depreciation. Real estate assets owned by the Account are initially valued at their respective purchase prices. Thereafter, the values will ordinarily be based upon appraisal reports on the real estate- related assets prepared by independent real estate appraisers. Independent appraisals are typically performed on at least an annual basis. The Account reserves the right, however, to prepare the annual appraisals internally. The property valuations are also reviewed internally at least every three months and adjusted if it is determined that there has been a change in the value of one or more of the properties since the last valuation.
The purpose of an appraisal is to estimate the fair value of a property as of a specific date. Fair value is defined as the most probable price for which the appraised property will sell in a competitive market under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self interest, and assuming that neither is under undue duress. This estimation of fair value through the appraisal process inherently requires the exercise of subjective judgements. Capital improvements are recognized only to the extent that the valuation process acknowledges a corresponding increase in fair value.
Short-term Investments
The short-term investments held by the Account will consist of the types and quality of investments authorized for purchase by the Account. These instruments include: U.S. Government securities; securities issued or fully guaranteed by U.S. Government agencies; repurchase agreements; certificates of deposit; banker's acceptances; and commercial paper. Short-term investments are valued at amortized cost which approximates market.
At December 31, 1994, the Account's short-term investments consisted of a repurchase agreement with State Street Bank and Trust Co. which matures on January 3, 1995. The collateral under the repurchase agreement consists of a U.S. Treasury Note, held in safekeeping in the name of the Account at State Street Bank and Trust Co., the Account's custodian (Note 9). Repurchase agreements held by the Account are fully collateralized (including the interest earned thereon) and marked to market daily during the entire term of such agreements. If the value of the underlying collateral falls below the value of the repurchase price plus accrued interest, the Account will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Account maintains the right to sell the collateral and may claim any resulting loss against the seller.
Long-term Investments
Long-term investments are carried at market value. Securities listed on national securities exchanges are valued based upon closing prices on these exchanges. Securities traded in the over-the-counter market and listed securities for which there have been no trades for the day are valued at the mean of the bid and asked prices.
Net realized gain or loss on sales of investments is determined on the basis of identified cost. Interest income, including amortization of premium and discount, is recorded when earned.
Revenue Recognition
Income from properties and other investments, as well as expenses, are recorded on the accrual basis.
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as such, are included in the combined tax return of GIAC. GIAC is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended.
Under tax law, no federal income taxes are payable by GIAC with respect to the operations of the Account. However, GIAC reserves the right to charge taxes attributable to the Account in the future.
Note 3 - Investment Advisory Agreements And Related Parties Transactions
The investment managers of the Account are O'Connor Realty Advisors Incorporated ("O'Connor Realty") and Guardian Investor Services Corporation ("GISC"). O'Connor Realty, a wholly owned subsidiary of J.W. O'Connor & Co., Inc., provides various management services with respect to the real estate-related investments of the Account. GISC, a wholly owned subsidiary of GIAC, provides services with respect to the assets maintained in cash and short-term and intermediate-term marketable debt instruments.
The Account is charged a daily fee to compensate O'Connor Realty for its investment management services. This fee amounts to 1.0% per year of the average daily assets of the Account managed by O'Connor Realty. The Account is also charged a daily fee to compensate GISC for its investment management services. This fee amounts to 0.50% per year of the average daily net assets of the Account managed by GISC.
GIAC has been assuming certain operating expenses of the Account since the Account's inception. The amount of this subsidy has declined from 100% of such expenses to the present level of 25%. GIAC has agreed to continue its 25% assumption of certain operating expenses of the Account during 1995. For the year ended December 31, 1994, GIAC assumed expenses of $32,362 related to the Account. Total expenses assumed by GIAC were $31,440 and $18,159 for the years ended December 31, 1993 and 1992, respectively.
For the year ended December 31, 1994, investment management fees earned by GISC totalled $16,446 and investment management fees earned by O'Connor Realty totalled $122,898. For the year ended December 31, 1993, investment management fees earned by GISC totalled $7,817 and investment management fees earned by O'Connor Realty totalled $136,972. For the year ended December 31, 1992, investment management fees earned by GISC totalled $3,213 and investment management fees earned by O'Connor Realty totalled $188,287. No portion of the expenses directly related to the operations of the real estate-related investments or O'Connor Realty's investment management fee are subsidized.
Note 4 - Real Estate-Related Expenses
In addition to investment management fees and expenses, certain other expenses and charges attributable to the real estate-related operations of the Account are also charged against the Account. All costs of acquisition, administration and disposition of the real estate-related investments are
charged to the account. These costs include brokerage fees, appraisal fees, attorneys' fees, architects' fees, engineers' fees and accountants' fees incurred in connection with the investment process. In addition, the Account will incur recurring costs such as mortgage servicing fees, annual audit charges, accounting and legal fees and various administrative expenses. Other expenses, such as insurance costs, taxes, and property management fees, will ordinarily be deducted from rental income, thereby reducing the gross income of the Account.
Note 5 - Leases
The buildings in the Account are leased to corporate tenants under various lease arrangements. The leases expire at various times through 2000 in the Glastonbury, Connecticut buildings. Leases renewed during 1993 and 1994 provide for rental payments which are generally lower than previous rental rates, reflecting market declines. The lease for the Kennesaw, Georgia facility expires in the third quarter of 2001. Aggregate minimum rentals for the three buildings are as follows:
Fiscal Year Ending December 31, ------------------ 1995 $ 2,071,916 1996 2,071,916 1997 2,073,720 1998 2,118,637 1999 1,409,993 2000 699,897 2001 470,250 ----------- Total $10,916,329 ===========
Certain leases provide for additional rents based upon operating costs in excess of given base amounts. For the year ended December 31, 1994, rental income included approximately $86,757 of such additional rental income. For the years ended December 31, 1993 and 1992, rental income included approximately $243,000 and $256,000, respectively, of such additional rental income.
Note 6 - Annuitant Mortality Fluctuation Fund
The Annuitant Mortality Fluctuation Fund is a special fund established in response to various regulatory requirements and provides for any possible adverse experience inherent in the transaction of annuity business.
Note 7 - Other Charges
Included in the Account's total expenses are mortality and expense risk charges which are calculated on a daily basis and applied to the Contracts and thus to each Contractowner's interest by GIAC.
NOTE 8
THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
REAL ESTATE
December 31, 1994
NOTE 9 THE GUARDIAN REAL ESTATE ACCOUNT OF THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
MARKETABLE SECURITIES
For Year Ended December 31, 1994
See Notes to the Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors of The Guardian Insurance & Annuity Company, Inc.
In our opinion, the accompanying statement of assets and liabilities and the related statements of operations and changes in net assets and of cash flows present fairly, in all material respects, the financial position of The Guardian Real Estate Account of The Guardian Insurance & Annuity Company, Inc. at December 31, 1994 and 1993 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. 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 audit. 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 provide a reasonable basis for the opinion expressed above.
As explained in Note 2, the financial statements include real estate investments the values of which have been determined by The Guardian Insurance & Annuity Company, Inc. in accordance with procedures described in the Note, which included receipt of independent appraisers' reports. We have tested the procedures used by The Guardian Insurance & Annuity Company, Inc. in arriving at its determination of fair value and have tested underlying documentation. In the circumstances, we believe the procedures are reasonable and the documentation appropriate. Because of the subjectivity inherent in any determination of fair value of real estate, and because the real estate investments are held for long-term operation and appreciation and thus are not presently for sale, amounts ultimately realized from the real estate investments may vary significantly from the fair values presented.
PRICE WATERHOUSE LLP New York, New York February 20, 1995