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TABLE OF CONTENTS
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The Guardian Park Avenue Fund
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Interview with Charles E. Albers 2
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Fund Profile 4
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The Guardian Variable Account 1 6
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The Guardian Variable Account 2 7
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Combined Notes to Financial Statements 8
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The Guardian Park Avenue Fund
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Schedule of Investments 10
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Financial Statements 14
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Notes to Financial Statements 16
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Financial Highlights 19
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THE GUARDIAN ARK AVENUE FUND
Objective: Long-term growth of capital
- ---------------------------------------------------
Portfolio: At least 80% common stocks and
securities convertible into
common stocks
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Inception: June 1, 1972
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Net Assets at June 30, 1996: $1,163,029,802
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"Investors should be most interested in long-term performance, rather than
all the short-term zigzags within the market. Here, The Guardian Park Avenue
Fund can be proud of its solid record."
--Charles E. Albers
Portfolio Manager
<PAGE>
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THE GUARDIAN PARK AVENUE FUND
[Photo]
Charles E. Albers, C.F.A.
Portfolio Manager
Q. Can you explain some of the ups and downs in the U.S. stock market
during the first six months of 1996? And how has the Fund performed in this
environment?
A. In the first half of 1996, equity investors generally had to contend
with a very challenging market environment. Fortunately, we were again able to
achieve respectable returns for our investors. Based on total returns for the
first six months of 1996,(1) The Guardian Park Avenue Fund performed better than
its peer group, the Lipper U.S. Growth Funds Average,(2) and the venerable S&P
500 Index,(3) albeit by a small margin in each case. Compared to other U.S.
growth mutual funds, as compiled by Lipper Analytical Services, Inc. for the
periods ended June 30, 1996, the Fund ranked 15 out of a field of 103 growth
funds over a twenty-year period, 39 out of 162 for the ten-year period, 21 out
of 248 for the five-year period and 255 out of 619 for the one-year period.
----------------------------------------------
Total Return for the six months
ended June 30, 1996(1)
----------------------------------------------
Guardian Park Avenue Fund +10.7%
----------------------------------------------
Lipper Average U.S. Growth Fund +10.12%
----------------------------------------------
S&P 500 Composite Index +10.05%
----------------------------------------------
While the overall stock market rose strongly in the first half of the year,
there were dramatic internal divergencies. For example, there was no "January
Effect" in 1996 (according to this historical pattern, smaller-cap stocks should
excel in January); then, many growth-type small-caps did very well from March
through May, powered by speculative investor enthusiasm; finally, in June, many
of those earlier winners experienced a sharp correction. For the entire
six-month period ended June 30. 1996, small-cap and large-cap indexes produced
very similar returns. Regarding economic sectors, the strongest categories were
Consumer Cyclicals and Capital Goods, where stock performance was aided by
perceptions of stronger economic growth; the weakest sector was Utilities,
reflecting the relatively weak performance of the bond market.
Of course, investors should be most interested in long-term performance,
rather than all the short-term zigzags within the market. Here, The Guardian
Park Avenue Fund can be proud of its solid record, especially when compared with
other U.S. growth funds as measured by the Lipper U.S. Growth Funds Average.(2)
In fact, The Guardian Park Avenue Fund results for the last five years place it
among the top 10% of all U.S. growth funds for the period.
------------------------------------
Average Annual Total Returns for the
periods ended June 30, 1996(1),(2)
Graphical Representation of Bar Graph below
1 year 5 years 10 years
------ ------- --------
Guardian Park Avenue Fund 23.35% 19.58% 13.58%
Lipper 22.20% 14.85% 12.21%
------------------------------------
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(1) Total return figures shown are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures do not take into account the current maximum sales charges
except where noted. Returns represent past performance and are not a
guarantee of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more
or less than the original cost. Prior to August 25, 1988 shares of the
Fund were offered at a higher sales charge, so actual returns would have
been somewhat lower.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service and its database of performance information is based on
historical total returns, which assume the reinvesiment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted. Lipper rankings were reported in
Lipper's Mutual Funds Performance Analysis Special Report 2nd Quarter 1996.
(3) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market activity.
The S&P 500 Index is not available for direct investment and its returns do
not reflect the fees and expenses that have been deducted from the Fund.
Likewise, return figures for the S&P 500 Index do not reflect any sales
charges that an investor may have to pay when purchasing or redeeming
shares of the Fund.
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2
<PAGE>
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Q. To what do you attribute the Fund's performance during the past six months?
A. Throughout the life of the Fund, one of the keys to our solid long-term
results has been our proprietary stock-scoring system. Developed in the late
1970s, this multi-factor quantitative model has helped us rank stocks
successfully over the years. Over the five-year period from 1991 through 1995,
the stock-scoring system has given us valuable predictions in 4 out of 5 years.
While you should remember that past performance is no guarantee of future
results, these results are compelling. During the first half of 1996, the data
shows that our stock-scoring system had only a mild degree of predictive power,
although still positive overall. We are cautiously optimistic that our
soundly-based stock-scoring system will regain more predictive strength over the
balance of 1996 and beyond.
Also important, in the last five years we have been actively researching
several different "style predictor" models to help us predict which
characteristics are most likely to be successful over the next 6 to 12 months.
We have developed several soundly-based "style predictor" models to help us
address this critical portfolio management issue. As we reported in the 1995
Annual Report to shareholders, these models had suggested that a tilt towards
higher-quality and large-cap stocks was more likely to be successful, and we
positioned the portfolio accordingly. The behavior of the stock market in the
first half of 1996 regarding these major style issues was, however, essentially
neutral.
Q. What is your outlook for the future? And what are the messages from the
stock-scoring system?
A. Looking forward, the messages that we are getting from our "style predictor"
models are very much as they were six months ago. The quantitative models now
prefer the high-quality and growth-oriented themes for portfolio emphasis. From
an intuitive viewpoint, we believe these signals are reasonable, and they are
supported by the mature position of the U.S. business cycle and the weakening
prospects for U.S. corporate profit growth. As a practical matter, we believe
that The Guardian Park Avenue Fund portfolio is already well-positioned to
benefit from the style trends which we anticipate--accordingly, we plan only
moderate "fine-tuning" of the portfolio in the months ahead.
The messages from our stock-scoring system and from our "style predictor"
models have led us to favor certain economic sectors at this time. We believe
that the best investment prospects are currently in the Consumer Staples,
Financial and Energy sectors, each of which is overweighted in the Fund's
portfolio.
We also believe that there are selective opportunities in the Technology
sector, and our weighting there is roughly equal to the benchmark. (For complete
sector weightings and changes since year-end, please see the accompanying pie
charts.)
Q. Do you have any final words for shareholders?
A. Summing up, we plan to persevere with our successful, established investment
strategies. The portfolio will remain well-diversified, and we will continue to
heed the messages from our various quantitative models. We intend to remain
fully invested in the stock market, as that is our defined mission. In other
words, in managing the Fund, we try to add value by searching out the more
attractive sectors and individual stocks within the market. We do not try to
time the moves of the overall market because we believe that task is practically
impossible and the effort often leads to lost opportunities. We continue to
think of ourselves as a long-term value-building enterprise. We intend to work
hard to continue producing solid results for our shareholders.
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3
<PAGE>
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THE GUARDIAN PARK AVENUE FUND PROFILE
AS OF JUNE 30, 1996
Comparison of Common Stocks Held by the Fund on
December 31, 1995 and June 30, 1996
(Graphical Representation of two Pie Charts below)
December 31, 1995 June 30, 1996
--------------------------- ---------------------------
Technology 23.3% Technology 16.8%
Utilities 9.3% Utilities 7.3%
Other 4.9% Other 3.1%
Consumer Cyclical 3.3% Consumer Cyclical 2.1%
Consumer Staples 17.9% Consumer Staples 25.9%
Financial 18.2% Financial 21.0%
Capital Goods 3.3% Capital Goods 5.2%
Basic Industry 7.4% Basic Industry 4.0%
Energy 12.4% Energy 14.6%
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The Guardian Park Avenue Fund(1)
Average Annual Returns for the Periods Ended June 30, 1996
Since Inception
1 Year 5 Years 10 Years (6/1/72)
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At Net Asset Value(2) 23.35 19.58 13.59 15.91
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Class A Shares(3) 17.80 18.49 13.07 15.68
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S&P 500 Index(4) 25.85 15.65 13.69 12.01
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Performance for Class B shares, which became effective on May 1, 1996, will vary
due to differences in expenses charged to each share class.
(1) Total return figures shown are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures do not take into account the current maximum sales charges
except where noted. Returns represent past performance and are not a
guarantee of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost. Prior to August 25, 1988 shares of the Fund
were offered at a higher sales charge, so actual returns would have been
somewhat lower.
(2) Net Asset Value (NAV) assumes the reinvestment of all dividends and
distributions and does not reflect the payment of any sales charge.
(3) Class A share performance assumes the current maximum front-end sales
charge of 4.5%. Prior to Auguist 25, 1988 shares of the Fund were offered
at a higher sales charge, so actual returns would have been somewhat lower.
(4) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market activity.
The S&P 500 Index is not available for direct investment and its returns do
not reflect the fees and expenses that have been deducted from the Fund.
Likewise, return figures for the S&P 500 Index do not reflect any sales
charges that an investor may have to pay when purchasing or redeeming
shares of the Fund.
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4
<PAGE>
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Growth of a Hypothetical $10,000 Investment
(Graphical Representation of Data Table below)
The Guardian Park S&P 500 Lipper U.S. Cost of
Avenue Fund Index Equity Growth Fund Living
----------- ----------- ----------- ----------
6/1/72 1 9550 1 10000 1 10000 1 10000
1972 2 9352 2 9791 2 9746 2 10072
3 9495 3 10173 3 9548 3 10169
4 9919 4 10936 4 10002 4 10266
5 8954 5 10404 5 8773 5 10483
1973 6 7758 6 9802 6 7699 6 10676
7 9104 7 10271 7 8788 7 10918
8 8355 8 9320 8 7686 8 11184
9 8898 9 9061 9 7492 9 11546
1974 10 8095 10 8376 10 6661 10 11836
11 6816 11 6276 11 5224 11 12222
12 7016 12 6861 12 5701 12 12536
13 9052 13 8434 13 7001 13 12754
1975 14 10222 14 9724 14 8176 14 12923
15 9524 15 8662 15 7174 15 13188
16 10311 16 9410 16 7588 16 13430
17 12315 17 10819 17 8924 17 13527
1976 18 12926 18 11077 18 9084 18 13696
19 13570 19 11281 19 9043 19 13913
20 14714 20 11627 20 9483 20 14106
21 14576 21 10762 21 8951 21 14396
1977 22 15549 22 11107 22 9480 22 14614
23 15171 23 10794 23 9340 23 14807
24 15894 24 10765 24 9674 24 15048
25 16187 25 10235 25 9527 25 15314
1978 26 17953 26 11100 26 10724 26 15700
27 19593 27 12062 27 11821 27 16063
28 18195 28 11455 28 11002 28 16401
29 19967 29 12263 29 11945 29 16884
1979 30 20459 30 12583 30 12544 30 17440
31 22476 31 13535 31 13793 31 17971
32 23490 32 13539 32 14501 32 18575
33 22448 33 12987 33 13536 33 19348
1980 34 24637 34 14722 34 15484 34 19928
35 27184 35 16363 35 18053 35 20266
36 28544 36 17908 36 19852 36 20870
37 30553 37 18146 37 20432 37 21401
1981 38 30553 38 17726 38 20347 38 21860
39 28042 39 15910 39 17993 39 22488
40 30197 40 17010 40 19380 40 22729
41 28244 41 15773 41 18074 41 22874
1982 42 28221 42 15682 42 18100 42 23430
43 32079 43 17473 43 20123 43 23599
44 37864 44 20656 44 24326 44 23599
45 42172 45 22720 45 27061 45 23696
1983 46 49604 46 25228 46 30611 46 24010
47 48521 47 25185 47 29869 47 24251
48 48699 48 25281 48 29333 48 24493
49 46645 49 24675 49 27414 49 24855
1984 50 47823 50 24028 50 26721 50 25048
51 53053 51 26344 51 28574 51 25290
52 54864 52 26823 52 28930 52 25483
53 61531 53 29283 53 31492 53 25797
1985 54 65013 54 31410 54 33601 54 25966
55 60468 55 30132 55 32193 55 26111
56 72961 56 35290 56 37156 56 26449
57 87232 57 40238 57 42720 57 26353
1986 58 93553 58 42592 58 44999 58 26425
59 82543 59 39627 59 41062 59 26570
60 86372 60 41842 60 42571 60 26763
61 106899 61 50759 61 51317 61 27126
1987 62 104622 62 53272 62 52563 62 27440
63 111995 63 56777 63 55749 63 27729
64 88928 64 43977 64 44085 64 27947
65 100336 65 46480 65 47392 65 28164
1988 66 107312 66 49515 66 50056 66 28502
67 105853 67 49653 67 49730 67 28913
68 107405 68 51158 68 50482 68 29179
69 117426 69 54775 69 54123 69 29565
1989 70 124277 70 59546 70 58562 70 29976
71 135523 71 65881 71 64497 71 30169
72 133004 72 67206 72 63984 72 30531
73 131155 73 65183 73 62581 73 31087
1990 74 131990 74 69211 74 67101 74 31401
75 111334 75 59736 75 56465 75 32029
76 116611 76 65046 76 61087 76 32415
77 138452 77 74504 77 71872 77 32633
1991 78 136860 78 74303 78 71176 78 32874
79 149260 79 78263 79 76341 79 33116
80 157618 80 84775 80 83235 80 33382
81 162079 81 82672 81 82319 81 33647
1992 82 159469 82 84210 82 80113 82 33889
83 167044 83 86846 83 82496 83 34106
84 189879 84 91214 84 89848 84 34396
85 208279 85 95200 85 92144 85 34686
1993 86 215652 86 95619 86 92749 86 34879
87 234327 87 98067 87 97203 87 35048
88 228375 88 100342 88 99458 88 35338
89 221844 89 96569 89 96044 89 35556
1994 90 219204 90 96936 90 93504 90 35773
91 227687 91 101657 91 98580 91 36087
92 225091 92 101617 92 97271 92 36280
93 245507 93 111514 93 104431 93 36546
1995 94 271285 94 122063 94 114202 94 36836
95 298576 95 131706 95 123909 95 37005
96 302249 96 139569 96 126735 96 37126
97 317905 97 147050 97 133553 97 37585
6/30/96 98 334627 98 153579 98 139376 98 37850
A hypothetical $10,000 investment in Class A shares made at the inception of The
Guardian Park Avenue Fund on June 1, 1972 has a starting point of $9,550, which
reflects the current maximum sales charge for Class A shares of 4.5%. This
investment would have grown to $334,627 on June 30, 1996. We compare our
performance to that of the S&P 500 Index, which is an unmanaged index that is
generally considered the performance benchmark of the U.S. stock market. While
you may not invest directly in the S&P 500 Index, a similar hypothetical
investment would now be worth $153,579. The Fund also fared well relative to
other U.S. growth funds. The average return of U.S. equity growth funds reported
by Lipper Analytical Services, Inc. measures the performance of other funds with
investment objectives and policies similar to those of The Guardian Park Avenue
Fund. The average of U.S. growth funds on the same $10,000 investment over the
same time period would have been $139,376. The cost of living index, as measured
by the consumer price index, which is generally representative of the level of
U.S. inflation, is also provided to lend a more complete understanding of the
investment's real worth.
Portfolio Composition
The Guardian Park Avenue Fund portfolio holds 221 securities in a variety
of economic sectors. The portfolio manager's goal is to position the portfolio
for consistent performance in both "bull" and "bear" markets.
(Graphical Representation of Pie Chart below)
Cash & Cash Equivalents 6.4%
Common Stocks 93.6%
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5
<PAGE>
<TABLE>
THE GUARDIAN VARIABLE ACCOUNT 1
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<S> <C> <C>
Assets
Investment in The Guardian Park Avenue Fund (1,267,951 shares at net asset
value of $36.21 per share; FIFO Cost, $19,464,384) ......................... $45,912,499
-----------
Liabilities
Due to The Guardian Insurance & Annuity Company, Inc. ........................ 624,012
-----------
Total Liabilities ............................................................ 624,012
-----------
Net Assets -- Note 3 ........................................................... $45,288,487
===========
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
Investment Income
Income:
Reinvested dividends ....................................................... $ 189,928
Expense:
Mortality and expense risk charges -- Note 4 ............................... 274,974
-----------
Net investment income/(expense) .............................................. (85,046)
-----------
Realized and Unrealized Gain/(Loss) from Investments
Net realized gain/(loss) from sale of investments ............................ 941,995
Reinvested realized gain distributions ....................................... 1,510,266
Unrealized appreciation/(depreciation) of investments:
End of period .............................................................. $26,448,115
Beginning of period ........................................................ 24,578,308
-----------
Change in unrealized appreciation/(depreciation) ........................... 1,869,807
-----------
Net realized and unrealized gain/(loss) from investments ..................... 4,322,068
-----------
Net Increase/(Decrease) in Net Assets Resulting from Operations ................ $ 4,237,022
===========
STATEMENT OF CHANGES IN NET ASSETS
Six Months Year Ended
Ended December 31,
June 30, 1996 1995
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
Increase/(Decrease) from Operations
Net investment income/(expense) .............................................. $ (85,046) $ (77,234)
Net realized gain/(loss) from sale of investments ............................ 941,995 2,782,652
Reinvested realized gain distributions ....................................... 1,510,266 2,132,345
Change in unrealized appreciation/(depreciation) of investments .............. 1,869,807 5,975,150
----------- -----------
Net increase/(decrease) resulting from operations ............................ 4,237,022 10,812,913
----------- -----------
Contract Transactions
Net contract purchase payments ............................................... 78,499 222,679
Redemptions and annuity benefits ............................................. (1,169,083) (3,674,328)
----------- -----------
Net increase/(decrease) from contract transactions ........................... (1,090,584) (3,451,649)
----------- -----------
Actuarial Increase in Reserves for Contracts in Payment Period ................. 109,093 132,877
----------- -----------
Total Increase/(Decrease) in Net Assets ........................................ 3,255,531 7,494,141
Net Assets at December 31, 1995 ................................................ 42,032,956 34,538,815
----------- -----------
Net Assets at June 30, 1996 -- Note 3 .......................................... $45,288,487 $42,032,956
=========== ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
<TABLE>
THE GUARDIAN VARIABLE ACCOUNT 2
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<S> <C> <C>
Assets
Investment in The Guardian Park Avenue Fund (373,197 shares at net asset
value of $36.21 per share; FIFO Cost, $6,193,260) .......................... $13,513,475
-----------
Liabilities
Annuitant Mortality Fluctuation Fund ......................................... 53,096
Due to The Guardian Insurance & Annuity Company, Inc. ........................ 193,231
-----------
Total Liabilities ............................................................ 246,327
-----------
Net Assets -- Note 3 ........................................................... $13,267,148
===========
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
Investment Income
Income:
Reinvested dividends ....................................................... $ 55,912
Expense:
Mortality and expense risk charges -- Note 4 ............................... 84,801
-----------
Net investment income/(expense) .............................................. (28,889)
-----------
Realized and Unrealized Gain/(Loss) from Investments
Net realized gain/(loss) from sale of investments ............................ 206,166
Reinvested realized gain distributions ....................................... 444,600
Unrealized appreciation/(depreciation) of investments:
End of period .............................................................. $ 7,320,215
Beginning of period ........................................................ 6,710,192
-----------
Change in unrealized appreciation/(depreciation) ........................... 610,023
-----------
Net realized and unrealized gain/(loss) from investments ..................... 1,260,789
-----------
Net Increase/(Decrease) in Net Assets Resulting from Operations ................ $ 1,231,900
===========
STATEMENT OF CHANGES IN NET ASSETS
Six Months Year Ended
Ended December 31,
June 30, 1996 1995
(Unaudited) (Audited)
------------- -----------
<S> <C> <C>
Increase/(Decrease) from Operations
Net investment income/(expense) .............................................. $ (28,889) $ (33,161)
Net realized gain/(loss) from sale of investments ............................ 206,166 530,039
Reinvested realized gain distributions ....................................... 444,600 615,555
Change in unrealized appreciation/(depreciation) of investments .............. 610,023 2,012,009
----------- -----------
Net increase/(decrease) resulting from operations ............................ 1,231,900 3,124,442
----------- -----------
Contract Transactions
Net contract purchase payments ............................................... 24,469 13,780
Redemptions and annuity benefits ............................................. (168,931) (753,331)
----------- -----------
Net increase/(decrease) from contract transactions ........................... (144,462) (739,551)
----------- -----------
Actuarial Increase in Reserves for Contracts in Payment Period ................. 13,698 19,914
----------- -----------
Total Increase/(Decrease) in Net Assets ........................................ 1,101,136 2,404,805
Net Assets at December 31, 1995 ................................................ 12,166,012 9,761,207
----------- -----------
Net Assets at June 30, 1996 -- Note 3 .......................................... $13,267,148 $12,166,012
=========== ===========
</TABLE>
See notes to financial statements.
7
<PAGE>
THE GUARDIAN VARIABLE ACCOUNT 1
THE GUARDIAN VARIABLE ACCOUNT 2
Notes to Financial Statements
June 30, 1996 (Unaudited)
Note 1 -- Organization
The Guardian Variable Account 1 (VA-1) and The Guardian Variable Account 2
(VA-2) are registered unit investment trusts under the Investment Company Act of
1940, as amended, established by The Guardian Insurance & Annuity Company, Inc.
(GIAC). GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company
of America (Guardian Life). The mutual fund available under the contracts
supported by VA-1 and VA-2 is The Guardian Park Avenue Fund (the Fund). The Fund
has an investment advisory agreement with Guardian Investor Services
Corporation, a wholly owned subsidiary of GIAC. The VA-2 Separate Account has
two divisions, the VA-2 Division and the VA-19 Division. All VA-2 Separate
Account contract payments received subsequent to January 1, 1981 have been
allocated to the VA-19 Division.
Under applicable insurance law, the assets and liabilities of VA-1 and VA-2
are clearly identified and distinguished from the other assets and liabilities
of GIAC. The assets of VA-1 and VA-2 will not be charged with any liabilities
arising out of any other business conducted by GIAC, but the obligations of VA-1
and VA-2, including the promise to make annuity payments, are obligations of
GIAC.
Note 2 -- Significant Accounting Policies
The following is a summary of the significant accounting policies of both
VA-1 and VA-2.
Investments
(a) Net proceeds from the sale of variable annuity contracts are invested
in shares of the Fund at the net asset value of the Fund's shares. All
distributions made by the Fund are reinvested in shares of the Fund. (b) The
market value of investments in the Fund is based on the net asset value at the
close of the period. (c) Investment transactions are accounted for on the trade
date and income is recorded on the ex-dividend date. (d) The cost of Fund shares
sold is determined on a first in, first out (FIFO) basis.
During the six months ended June 30, 1996 and the year ended December 31,
1995, VA-1 purchases of shares of the Fund aggregated $1,919,829 and $3,218,781,
respectively, and VA-2 purchases aggregated $653,811 and $822,741, respectively.
Aggregate sales of shares of the Fund amounted to $1,310,218 and $4,143,790 for
VA-1 and $303,760 and $856,665 for VA-2 for the six months ended June 30, 1996
and the year ended December 31, 1995, respectively.
The Annuitant Mortality Fluctuation Fund
The Annuitant Mortality Fluctuation Fund is funded by GIAC and has been
established in response to various regulatory requirements and provides for any
possible adverse experience.
8
<PAGE>
Federal Income Taxes
The operations of VA-1 and VA-2 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 the tax law, no federal income taxes are payable by GIAC with respect
to the operations of VA-1 and VA-2.
Annuity Reserves
Annuity reserves are computed for currently payable contracts according to
the 1971 Individual Annuity Mortality Table and the 1983 Individual Annuity
Table. The assumed interest rate is 4.0%. Charges to annuity reserves for
mortality and expense risk experience are reimbursed to GIAC if the reserves
required are less than originally estimated. If additional reserves are
required, GIAC reimburses the Account.
Note 3 -- Net Assets, June 30, 1996 (Unaudited)
At June 30, 1996, net assets for the VA-1 and VA-2 Separate Accounts are
comprised as follows:
Units Accumulation Total Unit
Owned Unit Value Value
----------- ----------- -----------
VA-1 Separate Account:
VA-1 Division ................. 146,039.462 $294.515235 $43,010,846
Contracts receiving
annuity benefits ............ 2,277,641
-----------
$45,288,487
===========
VA-2 Separate Account:
VA-2 Division. ................ 40,995.619 $266.462970 $10,923,814
VA-19 Division ................ 6,163.476 259.357812 1,598,546
-----------
12,522,360
Contracts receiving
annuity benefits ............ 744,788
-----------
$13,267,148
===========
In some instances the calculation of total assets may not agree due to
rounding.
Note 4 -- Mortality and Expense Risk Charges
Charges for mortality and expense risk paid to GIAC are computed daily and
are equal to an annual rate of 1% of the average daily net assets.
Currently, GIAC makes no charge against VA-1 and VA-2 for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
VA-1 and VA-2 in the future.
Note 5 -- Accumulation Unit Values for the Current Period and
the Four Prior Year Ends
<TABLE>
<CAPTION>
June 30, December 31, December 31, December 31, December 31,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
VA-1 Separate Account:
VA-1 Division ................. $294.515235 $267.313646 $201.042264 $205.991442 $172.958667
VA-2 Separate Account:
VA-2 Division ................. $266.462970 $241.852311 $181.893203 $186.370977 $156.484543
VA-19 Division ................ $259.357812 $235.403384 $177.043070 $181.401443 $152.311918
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1996 (Unaudited)
O The Guardian Park Avenue Fund
Common Stocks--93.6%
Shares Value
- --------------------------------------------------------------------------------
Aerospace and Defense--4.7%
144,500 Boeing Co. $12,589,563
187,600 Logicon, Inc. 5,604,550
18,000 Loral Corporation 245,250
462,000 McDonnell Douglas Corp. 22,407,000
93,950 Precision Castparts Corp. 4,039,850
110,000 Rockwell Int'l. Corp. 6,297,500
36,000 Sundstrand Corp. 1,318,500
25,000 United Technologies Corp. 2,875,000
-----------
55,377,213
- --------------------------------------------------------------------------------
Air Transportation--0.3%
35,000 AMR Corp. Del 3,185,000
- --------------------------------------------------------------------------------
Automotive--0.4%
77,700 Chrysler Corp. 4,817,400
- --------------------------------------------------------------------------------
Biotechnology--0.3%
56,100 Amgen, Inc. 3,029,400
- --------------------------------------------------------------------------------
Building Materials and Homebuilders--0.3%
32,700 Coachmen Industries, Inc. 1,144,500
10,100 NCI Building Systems, Inc. 340,875
30,000 McGrath Rent Corp. 675,000
39,600 Webb (Del) Corp. 792,000
-----------
2,952,375
- --------------------------------------------------------------------------------
Capital Goods-Miscellaneous Technology--1.0%
20,200 Adtran, Inc, 1,431,675
138,800 Komag, Inc. 3,660,850
12,600 Pairgain Technologies, Inc. 781,200
102,975 Paychex, Inc. 4,955,672
37,300 Rexel, Inc. 526,863
-----------
11,356,260
- --------------------------------------------------------------------------------
Chemicals--2.0%
77,800 Cambrex Corp. 3,977,525
115,500 E.I.Dupont De Nemours, Inc. 9,138,937
240,500 Monsanto Co. 7,816,250
12,900 OM Group, Inc. 506,325
126,400 Sterling Chemicals, Inc. 1,469,400
-----------
22,908,437
- --------------------------------------------------------------------------------
Computer Software--3.4%
11,000 BMC Software, Inc. 657,250
18,900 Cadence Design Systems, Inc. 637,875
107,000 Computer Associates Int'l.,
Inc. 7,623,750
186,400 Electronic Data Systems
Corp. 10,019,000
38,000 Fair Isaac & Co., Inc. 1,681,500
120,000 Microsoft Corp. 14,415,000
56,000 Parametric Technology Corp. 2,429,000
50,000 SunGard Data Systems, Inc. 2,006,250
-----------
39,469,625
- --------------------------------------------------------------------------------
Coal--0.0%
17,000 Eastern Enterprises $ 565,250
- --------------------------------------------------------------------------------
Conglomerates--1.3%
90,000 Loews Corp. 7,098,750
95,000 Textron, Inc. 7,588,125
-----------
14,686,875
- --------------------------------------------------------------------------------
Containers--0.0%
14,250 Alltrista Corp. 338,437
- --------------------------------------------------------------------------------
Cosmetics and Toiletries--1.1%
197,500 Gillette Co. 12,319,062
8,100 Helen of Troy Ltd. 230,850
-----------
12,549,912
- --------------------------------------------------------------------------------
Drugs and Hospitals--15.2%
79,000 Abbott Laboratories 3,436,500
280,700 American Home Products Corp. 16,877,088
29,100 Baxter International, Inc. 1,374,975
13,700 Becton Dickinson & Co. 1,099,425
205,500 Bristol-Myers Squibb Corp. 18,495,000
35,200 Boston Scientific Corp. 1,584,000
193,396 Eli Lilly & Co.,Inc. 12,570,740
97,377 Guidant Corp. 4,795,817
582,400 Johnson & Johnson 28,828,800
81,300 Kinetic Concepts, Inc. 1,260,150
90,000 Medtronic, Inc. 5,040,000
525,900 Merck & Co., Inc. 33,986,288
309,900 Pfizer, Inc. 22,119,112
191,000 Schering Corp. 11,985,250
230,000 Universal Health Services,
Inc. 6,008,750
127,200 Warner Lambert Co. 6,996,000
-----------
176,457,895
- --------------------------------------------------------------------------------
Electrical Equipment--2.7%
359,400 General Electric Co. 31,088,100
- --------------------------------------------------------------------------------
Electronics and Instruments--0.9%
150,000 Analogic Corp. 4,012,500
30,200 Cascade Communications Corp. 2,053,600
34,000 Sanmina Corp. 918,000
7,700 Security Dynamics
Technologies 633,325
25,400 Shiva Corp. 2,032,000
13,000 Strattec Security Corp. 230,750
-----------
9,880,175
- --------------------------------------------------------------------------------
Energy-Miscellaneous--0.6%
129,500 Giant Industries, Inc. 1,877,750
167,104 Holly Corp. 4,177,600
86,500 Howell Corp. 1,167,750
-----------
7,223,100
- --------------------------------------------------------------------------------
See notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Park Avenue Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Financial-Banks--7.0%
90,000 Bankamerica Corp. $ 6,817,500
43,800 Barnett Banks, Inc. 2,671,800
188,060 Chase Manhattan Corp. 13,281,738
23,000 Central & Southern Hldgs.
Co. 196,937
266,764 Citicorp 22,041,375
17,885 Crestar Financial Corp. 954,612
89,200 First Bank Systems Corp. 5,173,600
12,400 First Empire State Corp. 2,988,400
59,700 First Union Corp. 3,634,237
49,005 Hubco, Inc. 1,035,231
30,000 Mellon Bank Corp. 1,710,000
38,000 J.P. Morgan & Co., Inc. 3,215,750
59,400 Nationsbank Corp. 4,907,925
122,248 Norwest Corp. 4,263,399
22,500 Star Banc Corp. 1,515,937
28,666 Wells Fargo & Co. 6,847,591
-----------
81,256,032
- --------------------------------------------------------------------------------
Financial-Others--8.2%
105,000 American Express Co. 4,685,625
25,000 Associates First Capital
Corp. 940,625
95,000 Dean Witter Discover & Co. 5,438,750
10,000 Duff & Phelps Cr. Rating Co. 212,500
63,200 A.G. Edwards, Inc. 1,714,300
38,700 Federal Home Loan Mortgage
Corp. 3,308,850
404,500 Federal National Mortgage
Assn. 13,550,750
163,000 First USA, Inc. 8,965,000
596,000 Green Tree Financial Corp. 18,625,000
100,000 Jefferies Group, Inc. 3,100,000
109,500 MBNA Corp. 3,120,750
57,400 McDonald & Co. Investments,
Inc. 1,133,650
151,200 Merrill Lynch & Co., Inc. 9,846,900
167,850 Morgan Keegan, Inc. 2,224,013
34,000 Morgan Stanley Group., Inc. 1,670,250
67,300 Raymond James Financial,
Inc. 1,522,662
120,000 Charles Schwab Corp. 2,940,000
255,000 Travelers Group, Inc. 11,634,375
-----------
94,634,000
- --------------------------------------------------------------------------------
Financial-Thrift--2.5%
39,200 Astoria Financial Corp. 1,063,300
160,000 California Federal Bancorp,
Inc. 2,920,000
88,750 Charter One Financial, Inc. 3,095,156
47,000 Coastal Bancorp, Inc. 846,000
152,199 Collective Bancorp, Inc. 3,595,701
76,000 Long Island Bancorp, Inc. 2,322,750
27,060 MAF Bancorp, Inc. 662,970
20,960 Pacific Crest Capital, Inc. 188,640
84,800 Progressive Bank, Inc. 2,459,200
365,243 Sovereign Bancorp, Inc. 3,652,430
78,000 Standard Federal
Bancorporation 3,003,000
187,964 TCF Financial Corp. 6,249,803
-----------
30,058,950
- --------------------------------------------------------------------------------
Food, Beverage and Tobacco--7.1%
103,200 Anheuser Busch Cos., Inc. $ 7,740,000
413,600 Coca Cola Co. 20,214,700
55,500 ConAgra, Inc. 2,518,313
4,128 Earthgrains Co. 135,192
17,000 Hershey Foods Corp. 1,247,375
677,200 PepsiCo, Inc. 23,955,950
255,400 Philip Morris Cos., Inc. 26,561,600
-----------
82,373,130
- --------------------------------------------------------------------------------
Footwear--0.4%
44,100 Nike, Inc. 4,531,275
- --------------------------------------------------------------------------------
Household Products--1.0%
114,140 Kimberly Clark Corp. 8,817,315
34,700 Procter & Gamble Co. 3,144,688
-----------
11,962,003
- --------------------------------------------------------------------------------
Information Processing--3.0%
15,000 Astro-Med, Inc. 135,000
15,000 Cabletron Systems, Inc 1,029,375
198,000 Cisco Systems, Inc. 11,211,750
146,400 Hewlett Packard Co. 14,585,100
30,500 In Focus Systems, Inc. 739,625
132,000 Sun Microsystems, Inc. 7,771,500
-----------
35,472,350
- --------------------------------------------------------------------------------
Insurance--2.0%
74,000 Amer. Bankers Ins. Group,
Inc. 3,228,250
40,000 Amer. Int'l. Group, Inc. 3,945,000
20,000 CMAC Investment Corp. 1,150,000
40,500 Executive Risk, Inc. 1,549,125
57,000 ITT Hartford Group, Inc. 3,035,250
35,000 Jefferson Pilot Corp. 1,806,875
42,080 Liberty Financial Cos., Inc. 1,425,460
67,000 MGIC Investment Corp. 3,760,375
31,500 Sun America, Inc. 1,779,750
61,500 State Auto Financial Corp. 1,491,375
8,500 Travelers Aetna Ppty. Cas.
Corp. 241,187
-----------
23,412,647
- --------------------------------------------------------------------------------
Lodging--0.2%
175,000 Prime Hospitality Corp. 2,887,500
- --------------------------------------------------------------------------------
Machinery and Equipment--2.1%
32,000 AGCO Corp. 888,000
30,000 Case Corp. 1,440,000
118,000 Dover Corp. 5,442,750
129,900 Global Industrial
Technologies, Inc. 2,078,400
51,200 Illinois Tool Works, Inc. 3,462,400
90,000 Millipore Corp. 3,768,750
15,400 Robbins & Myers, Inc. 685,300
58,900 Tecumseh Products Co. 3,165,875
39,751 Varlen Corp. 834,765
60,000 York International Corp. 3,105,000
-----------
24,871,240
- --------------------------------------------------------------------------------
See notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Park Avenue Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Merchandising-Department Stores--0.2%
65,000 Carson Pirie Scott & Co. $ 1,738,750
- --------------------------------------------------------------------------------
Merchandising-Drugs--0.2%
- --------------------------------------------------------------------------------
75,000 Walgreen Co. 2,512,500
- --------------------------------------------------------------------------------
Merchandising-Food--0.6%
138,300 Casey's General Stores, Inc. 2,748,712
57,000 Kroger Co. 2,251,500
52,500 Safeway, Inc. 1,732,500
-----------
6,732,712
- --------------------------------------------------------------------------------
Merchandising-Special--0.3%
70,000 CompUSA, Inc. 2,388,750
83,560 Host Marriott Services Corp. 605,810
35,000 Pier 1 Imports, Inc. 520,625
-----------
3,515,185
- --------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Staples--0.1%
35,000 Omnicom Group 1,627,500
- --------------------------------------------------------------------------------
Natural Gas-Diversified--0.9%
158,300 Mitchell Energy & Dev. Corp. 3,007,700
60,000 PanEnergy Corp. 1,972,500
260,000 Enserch Corp. 5,655,000
-----------
10,635,200
- --------------------------------------------------------------------------------
Oil and Gas Producing--4.8%
58,100 Alexander Energy Corp. 290,500
194,400 Apache Corp. 6,390,900
121,900 Basin Exploration, Inc. 792,350
267,900 Tom Brown, Inc. 4,587,788
90,000 Cairn Energy USA, Inc. 1,293,750
185,000 Chieftain International, Inc. 3,723,125
153,000 Devon Energy Corp. 3,748,500
50,200 Diamond Offshore Drilling,
Inc. 2,873,950
290,000 Enserch Exploration, Inc. 3,117,500
301,400 Enron Oil and Gas Co. 8,401,525
38,100 Forcenergy Gas Exploration,
Inc. 719,138
347,200 Global Natural Res., Inc. 5,685,400
8,500 H S Resources, Inc. 98,812
367,300 Petromet Resources Ltd. 711,644
79,700 Pogo Producing Co. 3,038,562
500,000 Ranger Oil Ltd. 3,687,500
86,200 St. Mary Land & Exploration
Co. 1,443,850
125,278 United Meridian Corp. 4,510,008
13,400 Vintage Petroleum, Inc. 341,700
170,000 Wainoco Oil Ltd. 531,250
-----------
55,987,752
- --------------------------------------------------------------------------------
Oil-Integrated-Domestic--1.5%
74,800 Amoco Corp. 5,413,650
60,000 Murphy Oil Corp. 2,722,500
328,000 Tesoro Petroleum, Inc. 3,772,000
270,000 USX Marathon Group 5,433,750
-----------
17,341,900
- --------------------------------------------------------------------------------
Oil-Integrated-International-4.5%
93,800 Chevron Corp. $ 5,534,200
271,700 Exxon Corp. 23,603,938
125,900 Mobil Corp. 14,116,537
27,000 Royal Dutch Petroleum Co. 4,151,250
53,600 Texaco, Inc. 4,495,700
-----------
51,901,625
- --------------------------------------------------------------------------------
Oil Services--1.5%
20,800 Cliffs Drilling Co. 707,200
24,100 Halliburton Co. 1,337,550
209,400 Nabors Industries, Inc. 3,402,750
86,300 Offshore Logistics, Inc. 1,197,413
60,000 Pride Petroleum Services,
Inc. 855,000
49,000 Schlumberger Ltd. 4,128,250
130,000 Smith International, Inc. 3,916,250
72,400 Varco International, Inc. 1,312,250
24,000 Weatherford Enterra, Inc. 720,000
-----------
17,576,663
- --------------------------------------------------------------------------------
Paper and Forest Products--1.1%
331,500 Rayonier, Inc. 12,597,000
- --------------------------------------------------------------------------------
Railroads--0.7%
40,301 Burlington Northern Santa Fe 3,259,343
64,900 Union Pacific Corp. 4,534,888
-----------
7,794,231
- --------------------------------------------------------------------------------
Semiconductor--0.9%
61,400 Atmel Corp. 1,849,675
89,600 Intel Corp. 6,580,000
146,000 International Rectifier
Corp. 2,354,250
-----------
10,783,925
- --------------------------------------------------------------------------------
Transportation-Miscellaneous--0.1%
114,200 Maritrans, Inc. 699,475
- --------------------------------------------------------------------------------
Truckers --0.1%
59,000 FRP Pptys., Inc. 1,209,500
- --------------------------------------------------------------------------------
Utilities-Communications--8.2%
76,600 Ameritech Corp. 4,548,125
182,025 Andrew Corp. 9,783,844
655,000 AT&T Corp. 40,610,000
47,600 Bell Atlantic Corp. 3,034,500
106,100 Bellsouth Corp. 4,495,987
175,000 GTE Corp. 7,831,250
43,300 Harris Corp. 2,641,300
141,800 Northern Telecom Ltd. 7,710,375
44,700 NYNEX Corp. 2,123,250
144,000 Sprint Corp. 6,048,000
121,300 SBC Communications, Inc. 5,974,025
24,000 360 Communications Co. 576,000
-----------
95,376,656
- --------------------------------------------------------------------------------
See notes to financial statements.
12
<PAGE>
The Guardian Park Avenue Fund
Schedule of Investments (Continued
- -------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------
Utilities-Electric -- 0.1%
55,000 Illinova Corp. $ 1,581,250
- -------------------------------------------------------------------------------
Utilities-Gas and Pipeline--0.1%
49,400 Entergy Corp. 1,401,725
- -------------------------------------------------------------------------------
Total Common Stocks
(Cost $840,302,735) 1,088,358,130
- -------------------------------------------------------------------------------
Repurchase Agreement -- 6.5%
Principal Maturity
Amount Date Value
- -------------------------------------------------------------------------------
$76,070,000 State Street Bank & Trust
repurchase agreement,
dated 6/28/96, maturity
value $76,102,964,
5.20%, due 7/1/96
(collateralized by
$77,545,000 U.S. Treasury
Notes, 5.125% due
2/28/98) 7/1/96 $76,070,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $76,070,000) 76,070,000
- -------------------------------------------------------------------------------
Total Investments -- 100.1%
(Cost $916,372,735) 1,164,428,130
Payables in Excess of Cash, Receivables
and Other Assets -- (0.1%) (1,398,328)
- -------------------------------------------------------------------------------
Net Assets -- 100.0% $1,163,029,802
- -------------------------------------------------------------------------------
See notes to financial statements.
13
<PAGE>
FINANCIAL STATEMENTS
o The Guardian Park Avenue Fund
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Assets
Investments, at identified cost* $ 916,372,735
================================================================================
Investments, at market 1,088,358,130
Repurchase agreement 76,070,000
- --------------------------------------------------------------------------------
Total Investments 1,164,428,130
- --------------------------------------------------------------------------------
Cash 454
Receivable for securities sold 2,249,026
Receivable for fund shares sold 2,568,793
Dividends receivable 1,470,988
Interest receivable 32,964
Other Assets 4,539
- --------------------------------------------------------------------------------
Total Assets 1,170,754,894
- --------------------------------------------------------------------------------
Liabilities
Payable for securities purchased 3,042,940
Distributions payable 1,790,650
Payable for fund shares redeemed 448,722
Accrued expenses 374,554
Due to affiliates -- Note 2 2,068,226
- --------------------------------------------------------------------------------
Total Liabilities 7,725,092
- --------------------------------------------------------------------------------
Net Assets $1,163,029,802
================================================================================
Components of Net Assets
Capital Stock
Class A $ 319,981
Class B 1,208
Paid-in capital 840,992,960
Undistributed net investment income 952,146
Accumulated net realized gain on investments 72,708,112
Net unrealized appreciation of investments 248,055,395
- --------------------------------------------------------------------------------
Net Assets $1,163,029,802
================================================================================
Net Assets:
Class A $1,158,658,331
Class B $4,372,471
Shares of beneficial interest outstanding -- $0.01 par value
Class A 31,997,970
Class B 120,765
Net Asset Value Per Share
Class A $36.21
Class B $36.21
Maximum Offering Price Per Share
Class A Only (Net Asset Value x 104.71) $37.92
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income
Income:
Dividends $ 8,340,273
Interest 1,904,899
Other income 44,874
- --------------------------------------------------------------------------------
10,290,046
Less: Foreign tax withheld 17,440
- --------------------------------------------------------------------------------
Total Income 10,272,606
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fees -- Note 2 2,652,775
12b-1 fees -- Note 3 516,171
Administrative fees -- Note 2 227,686
Transfer agent fees 671,595
Custodian fees 128,329
Printing expense 69,788
Registration fees 38,977
Audit fees 10,250
Trustees fees -- Note 2 6,900
Insurance expense 4,488
Legal fees 2,126
Other 352
- --------------------------------------------------------------------------------
Total Expenses 4,329,437
- --------------------------------------------------------------------------------
Net Investment Income 5,943,169
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS -- NOTE 4
Net realized gain on investments -- Note 4 73,047,108
Net change in unrealized appreciation
of investments -- Note 4 29,126,959
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain
on Investments 102,174,067
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 108,117,236
================================================================================
* Based on sale of less than $100,000. On sales of $100,000 or more,
the offering price is reduced.
** No-load fund.
See notes to financial statements.
14
<PAGE>
The Guardian Park Avenue Fund
(Continued)
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended Year Ended
June 30, December 31,
1996 1995
(Unaudited) (Audited)
- --------------------------------------------------------------------------------
Increase/(Decrease) in Net Assets:
From Operations:
Net investment income $ 5,943,169 $ 8,735,936
Net realized gain on investments 73,047,108 84,973,348
Net change in unrealized
appreciation of investments 29,126,959 138,277,500
- --------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 108,117,236 231,986,784
- --------------------------------------------------------------------------------
Distributions to Shareholders:
Net investment income:
Class A (4,797,232) (8,718,311)
Class B -- --
Net realized gain on investments
Class A (38,145,342) (48,212,589)
Class B (114,469) --
- --------------------------------------------------------------------------------
Total Distributions to
Shareholders (43,057,043) (56,930,900)
- --------------------------------------------------------------------------------
From Capital Share Transactions:
Net increase in net assets from
capital share transactions -- Note 7
Class A 121,247,320 156,301,684
Class B 4,447,694 --
- --------------------------------------------------------------------------------
Net Increase from Capital Share
Transactions 125,695,014 156,301,684
- --------------------------------------------------------------------------------
Net Increase in Net Assets 190,755,207 331,357,568
- --------------------------------------------------------------------------------
Net Assets:
Beginning of period 972,274,595 640,917,027
- --------------------------------------------------------------------------------
End of period* $1,163,029,802 $972,274,595
================================================================================
* Includes undistributed net
investment income $ 952,146 $ --
See notes to financial statements.
15
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
o The Guardian Park Avenue Fund
Note 1. Accounting Policies
The Guardian Park Avenue Fund (the Fund) is a diversified open-end management
investment company registered under the Investment Company Act of 1940, as
amended (1940 Act). GPAF, originally organized as a Delaware corporation in
1970, was reorganized into a Massachusetts business trust on April 28, 1989. On
December 30, 1992, a majority of the outstanding shares of GPAF voted in favor
of reorganizing the Fund as a series of the Park Avenue Portfolio, also a
Massachusetts business trust. The reorganization is expected to be effected in
February, 1993. Significant accounting policies of the Fund are as follows:
GPAF, GAAF, GBGIF and GCMF (the Funds) offer two classes of shares. All
shares existing prior to May 1, 1996, were classified as Class A shares. Class A
shares are sold with an initial sales charge of up to 4.50% and a continuing
administrative fee of up to .25% on an annual basis. Class B shares are sold
without an initial sales charge but are subject to a distribution fee of .75%
and an administrative fee of up to .25% on an annual basis, and a contingent
deferred sales load (CDSL) of 4% imposed on certain redemptions. The two classes
of shares for each fund represent interests in the same portfolio of
investments, have the same rights and are generally identical in all respects
except that each class bears its separate distribution and certain class
expenses, and has exclusive voting rights with respect to any matter to which a
separate vote of any class is required.
Investments
Equity and debt securities listed on domestic exchanges are valued at the
closing sales prices on such exchanges, or, lacking any sales, at the mean
between closing bid and asked prices. Securities traded in the over-the-counter
market are valued using the last sales price, when available. Otherwise,
over-the-counter securities are valued at the mean between the bid and asked
prices or yield equivalents as obtained from one or more dealers that make a
market in the securities.
Certain debt securities may be valued each business day by an independent
pricing service ("Service") approved by the Board of Trustees. Debt securities
for which quoted bid prices, in the judgment of the Service, are readily
available and representative of the bid side of the market, are valued at the
mean between the quoted bid prices (as obtained by the Service from dealers in
such securities) and asked prices (as calculated by the Service based upon its
evaluation of the market for such securities). Other debt securities that are
valued by the Service are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of municipal
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions.
Other securities, including securities for which market quotations are not
readily available, such as mortgage-backed securities and restricted securities,
are valued at fair value as determined in good faith by or under the direction
of the Fund's Board of Trustees. Repurchase agreements are carried at cost which
approximates market value (see Note 4). Investment transactions are recorded on
the date of purchase or sale.
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. Dividends are recorded on the ex-dividend
date.
Distributions to Shareholders
GPAF distributes each year as dividends or capital gains distributions
substantially all realized earnings by the Fund, if any.
All dividends or distributions to the shareholders are recorded on the
ex-dividend date. Such distributions are determined in conformity with income
tax regulations, which may differ from generally accepted accounting principles
(GAAP). Differences between the recognition of income on an income tax basis and
a GAAP basis may cause temporary over distributions of net realized gains and
net investment income.
Federal Income Taxes
The Fund qualifies and intends to remain qualified to be taxed as a
"regulated investment company" under the provisions of the Internal Revenue Code
of 1986, as amended (Code) and as such will not be subject to federal income tax
on taxable income (including any realized capital gains) which is distributed in
accordance with the provisions of the Code. Therefore, no federal income tax
provision is required.
Reclassification of Capital Accounts
The treatment for financial statement purposes of distributions made during
the year from net investment income and net realized gains may differ from their
ultimate treatment for federal income tax purposes. These differences primarily
are caused by differences in the timing of the recognition of certain components
of income or capital gain; and the recharacterization of foreign exchange gains
or losses to either ordinary income or realized capital gains for federal income
tax purposes. Where such differences are permanent in nature, they are
reclassified in the components of net assets based on their ultimate
characterization for federal income tax purposes. Any such reclassifications
will have no effect on net assets, results of operations, or net asset value per
share of the Fund.
16
<PAGE>
Note 2. Investment Advisory Agreements
and Payments to Related Parties
The Fund has an investment advisory agreement with Guardian Investor Services
Corporation (GISC), a wholly-owned subsidiary of The Guardian Life Insurance
Company of America. The investment advisory agreement provides, among other
things, for the quarterly payment by the Fund of a fee calculated at an annual
rate of one-half of 1% of the average daily net assets of the Fund.
In addition, pursuant to the investment advisory agreement, if total
expenses of the Fund, as defined, exceed 1% per annum of the average daily net
asset value of the Fund, GISC has agreed to assume any such excess. Total
expenses of the Fund did not exceed this limitation for the six months ended
June 30, 1996.
The aggregate remuneration paid by the Fund to its unaffiliated trustees
($500 per meeting plus and annual stipend of $1,000) amounted to $6,900 for the
six months ended June 30, 1996.
Certain officers and trustees of the Fund are affiliated with GISC.
Administrative Services Agreement
Pursuant to the Administrative Services Agreement adopted by the Portfolio
Funds on behalf of both classes of shares, each of the Portfolio Funds pays GISC
an administrative services fee up to an annual rate of .25% of the average daily
net assets. GPAF currently pays GISC up to .15% on an annual basis, of its
average daily net assets. For the six months ended June 30, 1996, such fees
incurred under the Agreement based on the average daily net assets of Class A
and Class B shares were as follows:
Class A Class B
-------- -------
Park Avenue Fund ............ $226,878 $807
Note 3. Underwriting Agreement and Distribution Plan
The Fund has entered into an Underwriting Agreement with GISC pursuant to which
GISC serves as the principal underwriter for shares of the Fund. As compensation
for its services, GISC received aggregate sales commissions of $2,323,619 for
the six months ended June 30, 1996.
Under a Distribution Plan adopted by the Fund pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plan"), each Multiple Class Fund is authorized to pay a
monthly 12b-1 fee at an annual rate of up to .75% of average daily net assets of
the Fund's Class B shares as compensation for distribution-related services
provided to the Class B shares of the Fund.
For the six months ended June 30, 1996, such charges were as follows:
Class A Class B
-------- --------
Park Avenue Fund ............ $513,750 $2,421
The Fund has also entered into a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act with GISC on behalf of the Class A shares. Effective May 1,
1996, the Plan has been made dormant and no 12b-1 fees are authorized to be paid
in connection with sales of Class A shares.
GISC is entitled to retain any CDSL imposed on certain redemptions. For the
six months ended June 30, 1996, there were no such charges imposed.
Note 4. Repurchase Agreements
Collateral under repurchase agreements take the form of either cash or fully
negotiable U.S. Government securities. Repurchase agreements are fully
collateralized (including the interest earned thereon) and marked to market
daily while the agreements remain in force. If the value of the underlying
securities falls below the value of the repurchase price plus accrued interest,
the Fund 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 Fund maintains the right to sell the collateral and may claim any
resulting loss against the seller. The Board of Trustees evaluates the
creditworthiness of broker-dealers and banks engaged in repurchase agreements
with the Fund. The Fund will not enter into repurchase agreements for more than
one week's duration (or invest in any other securities which are not readily
marketable) if more than 10% of its net assets would be so invested. On December
30, 1992, the shareholders of GPAF voted to amend the Fund's fundamental
investment policies to permit up to 15% of the Fund's net assets to be invested
in securities which are not readily marketable, including repurchase agreements
which mature in more than seven days.
Note 5. Investment Transactions
Purchases and proceeds from sales of securities (excluding short-term
securities) amounted to $437,899,922 and $344,725,480, respectively, during the
six months ended June 30, 1996.
Gross unrealized appreciation and depreciation of investments aggregated
$253,635,941 and $(5,580,546), respectively, resulting in net unrealized
appreciation of $248,055,395 at June 30, 1996.
The cost of investments owned at June 30, 1996 for Federal income tax
purposes was the same for financial reporting purposes.
17
<PAGE>
Note 6. Fund Shares
Transactions in Fund Shares were as follows
o The Guardian Six Months Ended
Park Avenue Fund June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
Shares Amount
- --------------------------------------------------------------------------------
Shares Sold:
Class A 60,083,921 $149,002,050
Class B 117,696 4,337,194
Shares issued to shareholders in
reinvestment of dividends from
net investment income and net
realized gains:
Class A 1,142,905 41,144,232
Class B 3,097 111,530
- --------------------------------------------------------------------------------
61,347,619 194,595,006
Less shares repurchased:
Class A (57,846,812) (68,898,962)
Class B (28) (1,030)
- --------------------------------------------------------------------------------
Net Increase 3,500,779 $125,695,014
================================================================================
o The Guardian Year Ended
Park Avenue Fund December 31, 1995
(Audited)
- --------------------------------------------------------------------------------
Shares Amount
- --------------------------------------------------------------------------------
Shares Sold:
Class A 7,677,062 $248,191,463
Class B -- --
Shares issued to shareholders in
reinvestment of dividends from
net investment income and net
realized gains:
Class A 1,609,384 54,438,335
Class B -- --
- --------------------------------------------------------------------------------
9,286,446 302,629,798
Less shares repurchased:
Class A (4,502,822) (146,328,114)
Class B -- --
- --------------------------------------------------------------------------------
Net Increase 4,783,624 $156,301,684
================================================================================
Note 7. Line of Credit
A $20,000,000 line of credit available to The Guardian Park Avenue Fund and the
other related Guardian Funds has been established with Morgan Guaranty Trust
Company. The rate of interest charged on any borrowings is based upon the
prevailing Federal Funds rate at the time of the loan plus .25% calculated on a
360 day basis per annum. For the six months ended June 30, 1996, the Fund had
not borrowed against this line of credit.
18
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
o The Guardian Park Avenue Fund
Selected data for a share of beneficial interest outstanding throughout the periods indicated:
<CAPTION>
====================================================================================================================================
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1996 ------------------------------------------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $33.97 $26.89 $28.63 $25.17 $22.23 $18.26 $21.56 $20.46 $18.63 $20.74 $21.20
- ------------------------------------------------------------------------------------------------------------------------------------
Income from
investment
operations
Net investment
income 0.18 0.33 0.31 0.50 0.45 0.65 0.68 0.92 0.60 0.47 0.35
Net realized and
unrealized gain/
(loss) on
investments 3.14 8.87 (0.72) 4.56 4.05 5.71 (3.28) 3.88 3.23 0.20 3.33
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/
(decrease) from
investment
operations 3.32 9.20 (0.41) 5.06 4.50 6.36 (2.60) 4.80 3.83 0.67 3.68
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders
Dividends from net
investment income (0.16) (0.33) (0.31) (0.50) (0.44) (0.66) (0.70) (0.98) (0.55) (0.60) (0.33)
Distributions from
net realized gain
on investments (1.24) (1.79) (1.02) (1.10) (1.12) (1.73) -- (2.72) (1.45) (2.18) (3.81)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.40) (2.12) (1.33) (1.60) (1.56) (2.39) (0.70) (3.70) (2.00) (2.78) (4.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $36.21 $33.97 $26.89 $28.63 $25.17 $22.23 $18.26 $21.56 $20.46 $18.63 $20.74
- ------------------------------------------------------------------------------------------------------------------------------------
Total return* 10.72% 34.28% (1.44%) 20.28% 20.48% 35.16% (12.21%) 23.66 %20.78% 2.95% 18.38%
====================================================================================================================================
Ratios/supplemental
data:
Net assets, end of
period (000's
omitted) $1,158,657 $972,275 $640,917 $560,193 $335,660 $270,095 $216,457 $228,190 $176,000 $157,045 $136,243
Ratio of expenses
to average net
assets 0.81%+ 0.81% 0.84% 0.81% 0.68% 0.67% 0.69% 0.70% 0.69% 0.68% 0.71%
Ratio of net
investment income
to average net
assets 1.12%+ 1.07% 1.15% 1.89% 1.94% 2.96% 3.51% 4.01% 2.82% 2.08% 1.79%
Portfolio turnover
ratio 34% 78% 54% 46% 64% 57% 47% 47% 58% 50% 48%
====================================================================================================================================
</TABLE>
* Excludes effect of sales load.
+ Annualized.
19
<PAGE>
(LOGO) THE GUARDIAN (R)
THE GUARDIAN
INSURANCE & ANNUITY
COMPANY, INC.
A WHOLLY OWNED SUBSIDIARY OF
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA
Semiannual Report
to Contractowners
THE GUARDIAN
VARIABLE ACCOUNT 1
THE GUARDIAN
VARIABLE ACCOUNT 2
Executive Offices
201 Park Avenue South
New York, NY 10003
Customer Service Office
P.O. Box 26210
Lehigh Valley, PA 18002-6210
1-800-221-3253
JUNE 30, 1996
(LOGO) THE GUARDIAN(R)
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
201 PARK AVENUE SOUTH
NEW YORK, NY 10003
FIRST CLASS MAIL
U.S. POSTAGE PAID
PERMIT NO. 45
NEWARK, NJ
EB-010247 6/96
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000044417
<NAME> THE GUARDIAN VARIABLE ACCOUNT II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 6,193,260
<INVESTMENTS-AT-VALUE> 13,513,475
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,513,475
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 246,327
<TOTAL-LIABILITIES> 246,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (28,889)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 650,766
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,320,215
<NET-ASSETS> 13,267,148
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 84,801
<NET-INVESTMENT-INCOME> (28,889)
<REALIZED-GAINS-CURRENT> 650,766
<APPREC-INCREASE-CURRENT> 610,023
<NET-CHANGE-FROM-OPS> 1,231,900
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 84,801
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 84,801
<AVERAGE-NET-ASSETS> 12,716,580
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1,260,789
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
