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[GUARDIAN LOGO]
GUARDIAN(SM)
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Semiannual Report to Contractowners June 30, 1999
THE GUARDIAN
VARIABLE ACCOUNT 1
THE GUARDIAN
VARIABLE ACCOUNT 2
THE GUARDIAN INSURANCE &
ANNUITY COMPANY, INC.
A wholly owned subsidiary of
The Guardian Life Insurance Company of America
EXECUTIVE OFFICE
7 Hanover Square
New York, New York 10004
CUSTOMER SERVICE OFFICE
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002-6210
Distributed by:
GUARDIAN INVESTOR SERVICES CORPORATION(R)
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DEAR CONTRACTOWNER:
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- -----------------------
| | As President and Chief Executive Officer of The
| | Guardian Insurance & Annuity Company, Inc. (GIAC),
| | and its parent, The Guardian Life Insurance
| [PHOTO] | Company of America, I am proud to present this
| | Semiannual Report on the performance of your
| | contract's separate account and its underlying
| | investment options during the first half of 1999.
- ----------------------- I hope you will enjoy learning more about your
Joseph D. Sargent, CLU investments as well as the economic outlook for
President and CEO the rest of the year.
GIAC continues to enjoy exemplary ratings from four of the nation's leading
insurance company evaluators: Moody's, Standard & Poor's, A.M. Best, and Duff &
Phelps. GIAC's solid ratings reflect its ability to meet its guarantee of your
contract's Fixed-Rate Option and pre-retirement death benefit. However, these
ratings do not apply to the investment options available under The Guardian
Variable Account 1 and The Guardian Variable Account 2, which are subject to the
risks of investing in securities. We are very proud of our ratings because they
reflect the strength of GIAC, which stands behind the contract's guarantees.
NEW FORMAT OF SEMIANNUAL REPORT
You may have noticed that this report looks a little different from the
1998 Annual Report. In addition to the new larger format, we have consolidated
the information for other GIAC variable annuity products in this report, in an
effort to reduce expenses. To avoid confusion, the information pertaining to
contracts other than The Guardian Variable Account 1 and The Guardian Variable
Account 2 is clearly labeled.
NEW EXECUTIVE OFFICES
GIAC headquarters relocated to 7 Hanover Square, New York, New York,
10004-2616, on July 1, 1999. Our new home supports our efforts to improve
technology, streamline service and add new capabilities to serve you better.
This relocation will in no way interfere with your ability to communicate with
us. Our customer service address in Bethlehem, PA, and our toll-free customer
service number, (800) 221-3253, remain the same.
Our every action, whether the relocation of our headquarters or the
revision of our semiannual reports, has only one motivation -- to deliver
greater value and service to you. As always, we appreciate your business and we
thank you for continuing to invest for your future through GIAC.
Sincerely,
/s/ JOSEPH D. SARGENT, CLU
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Joseph D. Sargent, CLU
President and Chief Executive Officer
The Guardian Insurance & Annuity Company, Inc.
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TABLE OF CONTENTS
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THE GUARDIAN PARK AVENUE FUND
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PORTFOLIO MANAGERS INTERVIEW 4
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FUND PROFILE 5
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SCHEDULE OF INVESTMENTS 8
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FINANCIALS
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THE GUARDIAN PARK AVENUE FUND 11
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THE GUARDIAN/VALUE LINE SEPARATE ACCOUNT 18
FOR VALUE GUARD CONTRACTOWNERS
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THE GUARDIAN VARIABLE ACCOUNT 1 25
FOR VARIABLE ACCOUNT 1 CONTRACTOWNERS
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THE GUARDIAN VARIABLE ACCOUNT 2 26
FOR VARIABLE ACCOUNT 2 CONTRACTOWNERS
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COMBINED NOTES TO FINANCIAL STATEMENTS FOR 27
VARIABLE ACCOUNT 1 & 2
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Investments offered through The Guardian Insurance & Annuity Company, Inc. are
not deposits or obligations of, or guaranteed or endorsed by, any bank or
depository institution, nor are they federally insured by the Federal Deposit
Insurance Corporation, The Federal Reserve Board, or any other agency. They
involve investment risk, including possible loss of principal amount invested.
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THE GUARDIAN PARK AVENUE FUND
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| | | |
| | | |
| | | |
| [PHOTO] | | [PHOTO] |
| | | |
| | | |
| | | |
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Larry Luxenberg, C.F.A. John B. Murphy, C.F.A.
Co-Portfolio Manager Co-Portfolio Manager
OBJECTIVE: Long-term growth of capital
PORTFOLIO: At least 80% common stocks and securities convertible into
common stocks
INCEPTION: June 1, 1972
NET ASSETS AT JUNE 30, 1999: $3,446,789,140
Q. HOW HAS THE FUND PERFORMED DURING THE FIRST SIX MONTHS OF 1999?
A. During most of the last two years, a narrow group of stocks has powered the
advance of the Standard & Poor's 500 Index(1) (S&P 500), and in the first half
of 1999, the Index had a total return of 12.38%. Starting in April, this advance
has broadened as the worldwide financial crises environment has dissipated. In
the face of continuing great volatility, The Guardian Park Avenue Fund returned
8.12%.(2) Should this pace continue, the Fund would have a double-digit positive
return for the fifth year in a row, something that has occurred only once
previously in the Fund's quarter-century of existence.
Q. WHAT WAS YOUR INVESTMENT STRATEGY DURING THIS TIME?
A. For most of the last five years, we have been favoring large cap, high
quality growth stocks. These stocks have done particularly well since the
financial crisis began in Thailand in July 1997. More recently, the series of
central bank interest rate easings has strengthened economies around the world.
As a consequence, the stock market returns have broadened. We have, therefore,
adopted a more neutral stance, gradually adding to mid-cap and small-cap
positions and to some economically sensitive names. We believe that many
large-cap growth stocks will continue to prosper but in addition many previously
overlooked companies will join the advance. As has been our historical practice,
we are making a gradual shift and continue to closely monitor economic
developments both domestically and abroad.
At mid-year, the U.S. economy continues to be buoyant. While the economy is
growing rapidly, inflation remains subdued. The Federal Reserve raised interest
rates once, but signs of bottlenecks or dislocations in the economy are
difficult to detect. Moreover, foreign economies have begun to bounce back from
a scary two-year period of rolling financial crises that showed how closely
linked the global economy has become.
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We believe that this is a dramatic period of technological advances powered by
the rapid maturation of the Internet. The portfolio is positioned to benefit
from the companies that provide the structure making these advances in
communications and other areas possible.
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Q. WHICH SECTORS ARE YOU EMPHASIZING?
A. Our biggest commitment this year has been to technology stocks. We had 32% of
the Fund in technology stocks--broadly defined--at mid-year. By our reckoning
the S&P weighting in technology was 24%. We believe that this is a dramatic
period of technological advances powered by the rapid maturation of the
Internet. The portfolio is positioned to benefit from the companies that provide
the structure making these advances in communications and other areas possible.
Prominent among our holdings are Microsoft, IBM, Intel, Sun Microsystems, MCI
WorldCom, Lucent, Cisco and Oracle. The growth in the areas these companies
serve will continue to be tremendous for years.
We also continue to overweight consumer cyclical stocks. U.S. consumers
have been the big beneficiaries of this period of prosperity.
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(1) 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.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return represents total return for Class A shares--returns for Class B
shares would be lower to reflect higher operating expenses associated with
the B share class. Total return figures do not take into account the
current maximum sales charge 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 that
actual returns would have been somewhat lower.
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4
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Q. WHAT DO YOU FORESEE FOR THE MARKET OVER THE REMAINDER OF THE YEAR?
A. If the last few years have taught us anything, it is to be cautious in
forecasting. As the millenium approaches, concern about the Year 2000 bug has
declined, and economies around the world have begun to improve. In the U.S. the
major debate is now what to do with a projected extra $1 trillion budget surplus
over the next 15 years. A mere seven years ago, Washington had no memory of a
time of surplus and in fact despaired of ever bringing the budget into balance.
Corporations are better managed than they have been in at least a generation.
Creativity is spurring incredible advances in such areas as the life sciences
and communications. While stock market valuations as measured by the S&P 500 are
high, the broad market is not expensive by historical measures.
More volatility in the market will not surprise us, especially as we move
into the normally treacherous fall period. But given the current benign economic
backdrop, it is hard to be too negative on the long-term outlook for equities.
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THE GUARDIAN PARK AVENUE FUND
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TOP TEN HOLDINGS AS OF JUNE 30, 1999
COMPANY PERCENT OF NET ASSETS
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1. Microsoft Corp. 5.14%
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2. Int'l. Business Machines 4.51%
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3. Pfizer, Inc. 2.34%
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4. MCI WorldCom, Inc. 2.26%
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5. Intel Corp. 1.97%
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6. General Electric Co. 1.94%
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7. Lucent Technologies, Inc. 1.93%
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8. Wal-Mart Stores, Inc. 1.79%
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9. Ford Motor Co. 1.56%
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10. Sun Microsystems, Inc. 1.48%
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5
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THE GUARDIAN PARK AVENUE FUND
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SECTOR WEIGHTINGS OF
COMMON STOCKS HELD
BY THE FUND ON JUNE 30, 1999
[GRAPHICAL REPRESENTATION OF PIE CHART]
Transportation 1.62%
Utilities 8.71%
Conglomerates 1.15%
Financial 15.67%
Basic Industries 1.52%
Energy 5.25%
Credit Cyclicals 0.55%
Consumer Services 6.06%
Consumer Cyclical 10.69%
Consumer Staples 12.69%
Capital Goods 2.48%
Capital Goods/Technology 33.61%
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<CAPTION>
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AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED JUNE 30, 1999
Inception Since
Date 1 Year 5 Years 10 Years Inception
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<S> <C> <C> <C> <C> <C>
Class A Shares (with sales charge) 6/1/72 10.06% 24.11% 17.92% 16.72%
At Net Asset Value (without sales charge) 15.25% 25.26% 18.46% 16.92%
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Class B Shares (with sales charge) 5/1/96 11.21% N/A N/A 24.63%
At Net Asset Value (without sales charge) 14.21% N/A N/A 25.02%
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S&P 500 Index 22.76% 27.86% 18.76% 17.56%
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(1) Total return figures are historical and assume the reinvestment of dividends and
distributions and the deduction of all Fund expenses. Total return figures for Class A
shares do not take into account the current maximum sales charge of 4.5%, except where
indicated. Prior to August 25, 1988, Class A shares of the Fund were offered at a higher
sales charge, so actual returns would have been somewhat lower. Total return figures for
Class B shares do not take into account the contingent deferred sales charge applicable
to such shares (maximum of 3%), 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.
</TABLE>
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6
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THE GUARDIAN PARK AVENUE FUND
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GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHART]
The Guardian Lipper U.S.
Park Avenue Fund S&P 500 Equity Growth Cost of
(Class A) Index Fund Average Living
----------- ----------- ----------- -----------
6/1/72 1 9550 1 10000 1 10000 1 10000
2 9352 2 9791 2 9746 2 10072
3 9495 3 10173 3 9548 3 10169
1972 4 9919 4 10936 4 10002 4 10266
5 8954 5 10404 5 8773 5 10483
6 7758 6 9802 6 7699 6 10676
7 9104 7 10271 7 8788 7 10918
1973 8 8355 8 9320 8 7686 8 11184
9 8898 9 9061 9 7492 9 11546
10 8095 10 8376 10 6661 10 11836
11 6816 11 6276 11 5224 11 12222
1974 12 7016 12 6861 12 5701 12 12536
13 9052 13 8434 13 7001 13 12754
14 10222 14 9724 14 8176 14 12923
15 9524 15 8662 15 7174 15 13188
1975 16 10311 16 9410 16 7588 16 13430
17 12315 17 10819 17 8924 17 13527
18 12926 18 11077 18 9084 18 13696
19 13570 19 11281 19 9043 19 13913
1976 20 14713 20 11627 20 9483 20 14106
21 14576 21 10762 21 8951 21 14396
22 15548 22 11107 22 9480 22 14614
23 15170 23 10794 23 9340 23 14807
1977 24 15894 24 10765 24 9674 24 15048
25 16186 25 10235 25 9527 25 15314
26 17952 26 11100 26 10724 26 15700
27 19593 27 12062 27 11821 27 16063
1978 28 18195 28 11455 28 11002 28 16401
29 19967 29 12263 29 11945 29 16884
30 20459 30 12583 30 12544 30 17440
31 22475 31 13535 31 13793 31 17971
1979 32 23489 32 13539 32 14501 32 18575
33 22448 33 12987 33 13536 33 19348
34 24637 34 14722 34 15484 34 19928
35 27183 35 16363 35 18053 35 20266
1980 36 28544 36 17908 36 19852 36 20870
37 30553 37 18146 37 20432 37 21401
38 30553 38 17726 38 20347 38 21860
39 28041 39 15910 39 17993 39 22488
1981 40 30196 40 17010 40 19380 40 22729
41 28244 41 15773 41 18074 41 22874
42 28221 42 15682 42 18100 42 23430
43 32078 43 17473 43 20123 43 23599
1982 44 37863 44 20656 44 24326 44 23599
45 42172 45 22720 45 27061 45 23696
46 49604 46 25228 46 30611 46 24010
47 48521 47 25185 47 29869 47 24251
1983 48 48698 48 25281 48 29333 48 24493
49 46645 49 24675 49 27414 49 24855
50 47823 50 24028 50 26721 50 25048
51 53052 51 26344 51 28574 51 25290
1984 52 54864 52 26823 52 28930 52 25483
53 61530 53 29283 53 31492 53 25797
54 65012 54 31410 54 33601 54 25966
55 60468 55 30132 55 32193 55 26111
1985 56 72960 56 35290 56 37156 56 26449
57 87231 57 40238 57 42720 57 26353
58 93553 58 42592 58 44999 58 26425
59 82542 59 39627 59 41062 59 26570
1986 60 86371 60 41842 60 42571 60 26763
61 106898 61 50759 61 51317 61 27126
62 104621 62 53272 62 52563 62 27400
63 111995 63 56777 63 55749 63 27729
1987 64 88927 64 43977 64 44085 64 27947
65 100335 65 46480 65 47392 65 28164
66 107311 66 49515 66 50056 66 28502
67 105853 67 49563 67 49730 67 28913
1988 68 107404 68 51158 68 50482 68 19179
69 117426 69 54775 69 54123 69 29656
70 124277 70 59546 70 58562 70 29976
71 135522 71 65881 71 64497 71 30169
1989 72 133003 72 67206 72 63984 72 30531
73 131154 73 65183 73 62581 73 31087
74 131990 74 69211 74 67101 74 31401
75 111333 75 59736 75 56465 75 32029
1990 76 116611 76 65046 76 61087 76 32415
77 138452 77 74504 77 71872 77 32633
78 136860 78 74303 78 71176 78 32874
79 149259 79 78263 79 76341 79 33116
1991 80 157618 80 84775 80 83235 80 33382
81 162078 81 82672 81 82319 81 33647
82 159469 82 84210 82 80113 82 33889
83 167044 83 86846 83 82496 83 34106
1992 84 189879 84 91214 84 89848 84 34396
85 208278 85 95200 85 92144 85 34686
86 215651 86 95619 86 92749 86 34879
87 234327 87 98067 87 97203 87 35048
1993 88 228375 88 100342 88 99458 88 35338
89 221843 89 96569 89 96044 89 35556
90 219203 90 96936 90 93504 90 35773
91 227686 91 101657 91 98580 91 36087
1994 92 225091 92 101617 92 97271 92 36280
93 245506 93 111514 93 104431 93 36546
94 271285 94 122063 94 114202 94 36836
95 298576 95 131706 95 123909 95 37005
1995 96 302248 96 139569 96 126735 96 37126
97 317905 97 147050 97 133553 97 37585
98 334627 98 153579 98 139376 98 37850
99 348213 99 158217 99 143418 99 38019
1996 100 382268 100 171365 100 150775 100 38331
101 386091 101 176009 101 148815 101 38712
102 452576 102 206652 102 172283 102 39010
103 502902 103 222048 103 190631 103 39400
1997 104 515475 104 228376 104 188286 104 39873
105 570785 105 260189 105 212500 105 40271
106 586539 106 268697 106 216367 106 40497
1998 107 511638 107 241962 107 187201 107 40720
108 625222 108 293403 108 229378 108 40964
109 639414 109 308014 109 239057 109 41046
6/30/99 110 675925 109 329667 110 255911 110 41128
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 $675,925 on June 30, 1999. 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 cannot invest directly in the S&P 500 Index, a similar hypothetical
investment would now be worth $329,667. 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 $255,911. The Cost of Living, 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.
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7
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SCHEDULE OF INVESTMENTS
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June 30, 1999 (Unaudited)
[_] THE GUARDIAN PARK AVENUE FUND
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COMMON STOCKS -- 95.5%
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Shares Value
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AEROSPACE AND DEFENSE -- 0.7%
58,500 Alliant Techsystems, Inc.* $ 5,060,250
284,300 United Technologies Corp. 20,380,756
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25,441,006
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AIR TRANSPORTATION -- 0.3%
100,000 Continental Airlines, Inc.* 3,762,500
130,000 Delta Airlines, Inc. 7,491,250
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11,253,750
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APPLIANCE AND FURNITURE -- 0.3%
264,000 Ethan Allen Interiors, Inc. 9,966,000
49,800 Furniture Brands Int'l., Inc.* 1,388,175
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11,354,175
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AUTOMOTIVE -- 2.0%
955,000 Ford Motor Co. 53,897,813
215,000 General Motors Corp. 14,190,000
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68,087,813
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AUTOMOTIVE PARTS -- 0.1%
150,269 Delphi Automotive Systems Corp. 2,789,368
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BIOTECHNOLOGY -- 1.3%
223,000 Amgen, Inc.* 13,575,125
156,000 Biogen, Inc.* 10,032,750
58,000 MedImmune, Inc.* 3,929,500
194,400 Sepracor, Inc.* 15,795,000
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43,332,375
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BROADCASTING -- 3.3%
196,100 Adelphia Communications Corp.* 12,476,862
579,100 CBS Corp. 25,154,656
73,500 Chancellor Media Corp.* 4,051,688
175,000 Clear Channel Communications, Inc.* 12,064,062
310,000 Comcast Corp. 11,915,625
676,900 Infinity Broadcasting Corp.* 20,137,775
349,600 MediaOne Group, Inc.* 26,001,500
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111,802,168
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BUILDING MATERIALS AND HOMEBUILDERS -- 0.8%
16,500 Crossman Communities, Inc.* 479,531
150,000 D.R. Horton, Inc. 2,493,750
163,000 Lennar Corp. 3,912,000
143,400 Lone Star Industries, Inc. 5,386,462
50,555 Martin Marietta Materials, Inc. 2,982,745
94,740 Southdown, Inc. 6,087,045
115,800 Vulcan Materials Co. 5,587,350
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26,928,883
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CAPITAL GOODS-MISCELLANEOUS TECHNOLOGY -- 1.1%
40,000 AFC Cable Systems, Inc.* 1,412,500
101,688 At Home Corp.* 5,484,796
35,600 Critical Path, Inc. 1,969,125
55,000 Doubleclick, Inc.* 5,046,250
54,800 E Bay, Inc.* 8,295,350
127,200 MindSpring Enterprises, Inc.* 5,636,550
58,100 Yahoo, Inc.* 10,007,725
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37,852,296
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CHEMICALS -- 0.1%
93,500 Cambrex Corp. 2,454,375
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COMPUTER SOFTWARE -- 8.7%
348,700 America Online, Inc.* 38,531,350
185,000 BMC Software, Inc.* 9,990,000
200,000 Computer Associates Int'l., Inc. 11,000,000
27,000 DST Systems, Inc.* 1,697,625
1,964,000 Microsoft Corp.* 177,128,250
932,600 Novell, Inc.* 24,713,900
682,500 Oracle Corp.* 25,337,813
321,400 SunGuard Data Systems, Inc.* 11,088,300
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299,487,238
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COMPUTER SYSTEMS -- 11.0%
227,700 Apple Computer, Inc.* 10,545,356
741,800 EMC Corp.* 40,799,000
495,000 Hewlett Packard Co. 49,747,500
1,204,200 Int'l. Business Machines 155,642,850
603,200 Lexmark Int'l. Group, Inc.* 39,848,900
150,000 Pitney Bowes, Inc. 9,637,500
176,700 Seagate Technology* 4,527,937
190,000 Solectron Corp.* 12,670,625
740,400 Sun Microsystems, Inc.* 50,995,050
95,000 Xerox Corp. 5,610,938
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380,025,656
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CONGLOMERATES -- 1.1%
190,000 Textron, Inc. 15,639,375
244,700 Tyco Int'l. Ltd. 23,185,325
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38,824,700
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DRUGS AND HOSPITALS -- 7.8%
682,200 Bristol-Myers Squibb Corp. 48,052,462
156,000 Johnson & Johnson 15,288,000
331,262 Medtronic, Inc. 25,797,028
674,400 Merck & Co., Inc. 49,905,600
171,700 Monsanto Corp. 6,771,419
27,000 Patterson Dental Co.* 938,250
734,900 Pfizer, Inc. 80,655,275
494,800 Schering-Plough Corp. 26,224,400
243,000 Warner-Lambert Co.* 16,858,125
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270,490,559
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ELECTRICAL EQUIPMENT -- 1.9%
593,000 General Electric Co. 67,009,000
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ENTERTAINMENT AND LEISURE -- 0.9%
400,000 Carnival Corp. 19,400,000
294,000 Viacom, Inc.* 12,936,000
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32,336,000
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FINANCIAL-BANKS -- 6.5%
288,000 Bank of America Corp. 21,114,000
515,000 Banc One Corp. 30,674,688
260,000 Bank of New York, Inc. 9,538,750
450,700 Chase Manhattan Corp.* 39,041,888
652,500 Citigroup, Inc. 30,993,750
128,000 Fifth Third Bancorp 8,520,000
202,500 Firstar Corp. 5,670,000
40,000 FirstMerit Corp. 1,122,500
318,000 Fleet Financial Group, Inc. 14,111,250
53,548 Hudson United Bancorp 1,639,908
14,631 M & T Bank Corp. 8,047,050
375,200 Mellon Bank Corp. 13,647,900
391,000 North Fork Bancorp 8,333,188
34,500 Premier Bancshares, Inc., GA 631,781
254,654 Premier National Bancorp, Inc. 4,997,585
160,000 SunTrust Banks, Inc. 11,110,000
114,000 Union BanCal Corp. 4,118,250
15,000 U.S. Trust Corp. 1,387,500
52,000 Webster Financial Corp. 1,410,500
134,600 Zions Bancorp 8,547,100
--------------
224,657,588
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FINANCIAL-OTHER -- 5.2%
302,400 American Express Co. 39,349,800
193,600 Charles Schwab Corp. 21,271,800
154,800 Federal Home Loan Mortgage Corp. 8,978,400
166,500 Federal National Mortgage Assn. 11,384,438
26,900 Goldman Sachs Group, Inc.* 1,943,525
125,000 Hambrecht & Quist Group, Inc.* 4,640,625
200,000 Investment Technology Group, Inc. 6,475,000
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* Non-income producing security. See notes to financial statements.
8
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
- ---------------------------------------------------------------------
Shares Value
- ---------------------------------------------------------------------
200,000 Jefferies Group, Inc. $ 6,000,000
218,666 Legg Mason, Inc. 8,418,641
146,300 Lehman Brothers Hldgs., Inc.* 9,107,175
115,000 Merrill Lynch & Co., Inc. 9,192,812
137,200 J. P. Morgan & Co., Inc. 19,276,600
251,775 Morgan Keegan, Inc. 4,767,989
184,000 Morgan Stanley Dean Witter & Co. 18,860,000
187,600 Paine Webber Group, Inc. 8,770,300
31,000 Ragen MacKenzie Group, Inc.* 368,125
-------------
178,805,230
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FINANCIAL-THRIFT -- 0.9%
126,600 Astoria Financial Corp. 5,562,488
98,100 BankAtlantic Bancorp, Inc. 797,062
196,993 BankAtlantic Bancorp, Inc. Class A 1,428,199
16,000 California Federal Bancorp, Inc.* 19,000
227,106 Charter One Financial, Inc. 6,316,386
199,700 Coastal Bancorp, Inc. 7,988,000
20,000 Coast Federal Litigation Trust* 21,250
220,000 Dime Bancorp, Inc. 4,427,500
46,400 Golden State Bancorp, Inc.* 60,900
330,601 Sovereign Bancorp, Inc. 4,008,537
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30,629,322
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FOOD, BEVERAGE AND TOBACCO -- 0.6%
256,600 Anheuser-Busch Cos., Inc. 18,202,562
65,612 Earthgrains Co. 1,693,610
41,070 Tootsie Roll Industries, Inc. 1,586,329
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21,482,501
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HOUSEHOLD PRODUCTS -- 0.4%
336,700 Dial Corp. 12,521,031
- ---------------------------------------------------------------------
INSURANCE -- 2.2%
123,000 American Gen. Hospitality Corp. 9,271,125
200,000 American Int'l. Group, Inc. 23,412,500
7,770 Berkshire Hathaway, Inc.* 17,404,800
75,700 Chicago Title Corp. 2,701,544
54,000 Jefferson-Pilot Corp. 3,574,125
63,120 Liberty Financial Cos., Inc. 1,838,370
87,000 Reinsurance Group of America 2,914,500
184,500 State Auto Financial Corp. 2,490,750
150,000 Transamerica Corp. 11,250,000
-------------
74,857,714
- ---------------------------------------------------------------------
MERCHANDISING-DEPARTMENT STORES -- 2.8%
252,000 Dayton Hudson Corp. 16,380,000
143,750 Saks, Inc.* 4,150,781
376,800 TJX Cos., Inc. 12,552,150
1,275,800 Wal-Mart Stores, Inc. 61,557,350
-------------
94,640,281
- ---------------------------------------------------------------------
MERCHANDISING-DRUGS -- 0.5%
261,956 CVS Corp. 13,294,267
150,000 Walgreen Co. 4,406,250
-------------
17,700,517
- ---------------------------------------------------------------------
MERCHANDISING-FOOD -- 1.4%
120,000 Albertson's, Inc. 6,187,500
710,000 Kroger Co.* 19,835,625
428,050 Safeway, Inc.* 21,188,475
-------------
47,211,600
- ---------------------------------------------------------------------
MERCHANDISING-SPECIAL -- 4.1%
150,000 Abercrombie & Fitch Co.* 7,200,000
223,000 Best Buy, Inc.* 15,052,500
318,400 BJ's Wholesale Club, Inc.* 9,571,900
130,000 Costco Cos., Inc.* 10,408,125
442,500 GAP, Inc. 22,290,937
525,000 Home Depot, Inc. 33,829,688
175,600 Lowes Cos., Inc. 9,954,325
159,000 Ross Stores, Inc. 8,009,625
500,000 Tandy Corp. 24,437,500
--------------
140,754,600
- ---------------------------------------------------------------------
MISCELLANEOUS-CONSUMER GROWTH CYCLICAL -- 0.1%
29,100 Avis Rent A Car, Inc.* 847,537
58,066 Nielsen Media Research, Inc.* 1,698,431
--------------
2,545,968
- ---------------------------------------------------------------------
MISCELLANEOUS-CONSUMER GROWTH STAPLES -- 0.4%
90,000 A.C. Nielsen Corp.* 2,722,500
285,000 Valassis Communications, Inc.* 10,438,125
--------------
13,160,625
- ---------------------------------------------------------------------
OIL AND GAS PRODUCING -- 1.3%
232,500 Anadarko Petroleum Corp. 8,558,906
216,000 Apache Corp. 8,424,000
238,900 Basin Exploration, Inc.* 4,792,931
216,500 Burlington Resources, Inc. 9,363,625
8,100 Callon Petroleum Co.* 83,531
132,100 Devon Energy Corp. 4,722,575
67,000 Newfield Exploration Co.* 1,905,312
152,100 Vastar Resources, Inc. 7,975,744
--------------
45,826,624
- ---------------------------------------------------------------------
OIL AND GAS SERVICES -- 1.1%
362,000 Halliburton Co. 16,380,500
235,000 Schlumberger Ltd. 14,966,562
292,000 Transocean Offshore, Inc. 7,665,000
--------------
39,012,062
- ---------------------------------------------------------------------
OIL-INTEGRATED-DOMESTIC -- 0.2%
217,700 Conoco, Inc. 6,068,388
- ---------------------------------------------------------------------
OIL-INTEGRATED-INTERNATIONAL -- 2.3%
213,000 Chevron Corp. 20,274,937
443,700 Exxon Corp. 34,220,363
371,000 Texaco, Inc. 23,187,500
--------------
77,682,800
- ---------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 0.7%
169,400 Georgia Pacific Corp.* 8,025,325
313,700 International Paper Co. 15,841,850
--------------
23,867,175
- ---------------------------------------------------------------------
PUBLISHING AND PRINT -- 1.6%
347,000 Dun & Bradstreet Corp. 12,296,812
584,000 Time Warner, Inc. 42,924,000
--------------
55,220,812
- ---------------------------------------------------------------------
RAILROADS -- 0.8%
292,400 Kansas City Southern Inds., Inc. 18,658,775
174,000 Union Pacific Corp. 10,146,375
--------------
28,805,150
- ---------------------------------------------------------------------
RESTAURANTS -- 0.3%
131,000 Outback Steakhouse, Inc.* 5,149,937
215,500 Wendy's Int'l., Inc.* 6,101,344
--------------
11,251,281
- ---------------------------------------------------------------------
SEMICONDUCTORS -- 5.8%
232,700 Adaptec, Inc.* 8,217,219
623,000 Advanced Micro Devices, Inc.* 11,252,937
168,000 Applied Materials, Inc.* 12,411,000
1,142,800 Intel Corp. 67,996,600
507,000 Micron Technology, Inc.* 20,438,438
380,000 Motorola, Inc. 36,005,000
123,000 Texas Instruments 17,835,000
430,000 Xilinx, Inc.* 24,617,500
--------------
198,773,694
- ---------------------------------------------------------------------
TEXTILE-APPAREL AND PRODUCTION -- 0.2%
196,000 Jones Apparel Group, Inc.* 6,725,250
- ---------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
9
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
- ---------------------------------------------------------------------
Shares Value
- ---------------------------------------------------------------------
TRANSPORTATION-MISCELLANEOUS -- 0.4%
168,800 FDX Corp.* $ 9,157,400
213,100 Maritrans, Inc. 1,198,688
120,000 Sea Containers Ltd. 4,027,500
--------------
14,383,588
- ---------------------------------------------------------------------
TRUCKERS -- 0.2%
155,500 Navistar Int'l. Corp., Inc.* 7,775,000
- ---------------------------------------------------------------------
UTILITIES-ELECTRIC -- 1.7%
174,000 Consolidated Edison, Inc. 7,873,500
148,000 DQE 5,938,500
204,464 Duke Energy Co. 11,117,730
171,200 Energy East Corp. 4,451,200
304,200 IPALCO Enterprises 6,445,238
170,900 Montana Power Co. 12,048,450
60,200 New Century Energies, Inc. 2,336,513
58,000 Nisource, Inc. 1,497,125
160,000 Texas Utilities Co. 6,600,000
--------------
58,308,256
- ---------------------------------------------------------------------
UTILITIES-TELECOMMUNICATIONS -- 12.4%
680,700 Ameritech Corp. 50,031,450
830,365 AT & T Corp. 46,344,747
310,000 Bell Atlantic Corp. 20,266,250
622,000 Cisco Systems, Inc.* 40,080,125
440,000 GTE Corp. 33,330,000
984,300 Lucent Technologies, Inc. 66,378,731
905,120 MCI WorldCom, Inc.* 77,896,890
319,000 Nortel Networks Corp. 27,693,187
78,500 QUALCOMM, Inc.* 11,264,750
126,000 SBC Communications, Inc. 7,308,000
382,000 Sprint Corp. 20,174,375
95,500 Sprint PCS* 5,455,438
103,000 Vodafone Airtouch PLC 20,291,000
--------------
426,514,943
- ---------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $2,281,480,622) 3,288,651,362
- ---------------------------------------------------------------------
=====================================================================
SHORT-TERM INVESTMENTS -- 2.1%
=====================================================================
Principal
Amount Value
- ---------------------------------------------------------------------
$ 25,000,000 BTR Dunlop Finance, Inc.
5.75%, due 7/1/99 $ 25,000,000
24,000,000 Rio Tinto America, Inc.
5.75%, due 7/1/99 24,000,000
25,000,000 Sonoco Products Co.
5.80%, due 7/1/99 25,000,000
- ---------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(COST $74,000,000) 74,000,000
- ---------------------------------------------------------------------
=====================================================================
REPURCHASE AGREEMENT -- 3.9%
=====================================================================
$135,391,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/99, maturity value
$135,409,315 at 4.87%,
due 7/1/99 (collateralized by
$65,175,000 Federal Home
Loan Bank Notes, 5.125%,
due 10/15/03, by $46,930,000
Federal Farm Credit Bank
Notes, 4.62%, due 8/2/99,
by $24,490,000 Federal Home
Loan Mortgage Corp. Notes,
4.87%, due 7/12/99, and by
$1,545,000 Federal National
Mortgage Assn. Notes, 6.59%,
due 5/21/02) $ 135,391,000
- ---------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $135,391,000) 135,391,000
- ---------------------------------------------------------------------
TOTAL INVESTMENTS -- 101.5%
(COST $2,490,871,622) 3,498,042,362
LIABILITIES IN EXCESS OF CASH, RECEIVABLES
AND OTHER ASSETS-- (1.5%) (51,253,222)
- ---------------------------------------------------------------------
NET ASSETS-- 100.0% $3,446,789,140
- ---------------------------------------------------------------------
- -------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
================================================================================
[_] THE GUARDIAN PARK AVENUE FUND
=====================================================================
STATEMENT OF ASSETS AND LIABILITIES
=====================================================================
June 30, 1999 (Unaudited)
- ---------------------------------------------------------------------
ASSETS
Investments, at market (cost $2,490,871,622) $3,498,042,362
Cash 696
Receivable for securities sold 22,196,010
Receivable for fund shares sold 3,808,000
Dividends receivable 2,139,684
Interest receivable 18,341
- ---------------------------------------------------------------------
TOTAL ASSETS 3,526,205,093
- ---------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed 61,936,172
Payable for securities purchased 9,554,507
Accrued expenses 531,771
Due to affiliates 7,393,503
- ---------------------------------------------------------------------
TOTAL LIABILITIES 79,415,953
- ---------------------------------------------------------------------
NET ASSETS $3,446,789,140
=====================================================================
COMPONENTS OF NET ASSETS
Shares of beneficial interest, at par $ 630,270
Additional paid-in capital 2,219,615,443
Undistributed net investment income 362,781
Accumulated net realized gain on
investments 219,009,906
Net unrealized appreciation of investments 1,007,170,740
- ---------------------------------------------------------------------
NET ASSETS $3,446,789,140
=====================================================================
NET ASSETS:
Class A $3,014,293,568
Class B $ 432,495,572
- ---------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST OUTSTANDING -- $0.01 PAR VALUE
Class A 55,056,860
Class B 7,970,174
- ---------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Class A $54.75
Class B $54.26
- ---------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
Class A Only (Net Asset Value x 104.71%)** $57.33
- ---------------------------------------------------------------------
** Based on sale of less than $100,000. On sale of $100,000 or
more, the offering price is reduced.
=====================================================================
STATEMENT OF OPERATIONS
=====================================================================
Six Months Ended June 30, 1999 (Unaudited)
- ---------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 14,925,877
Interest 3,570,753
Less: Foreign tax withheld (7,178)
- ---------------------------------------------------------------------
Total Income 18,489,452
- ---------------------------------------------------------------------
EXPENSES:
Investment advisory fees-- Note 2 8,376,545
Administrative fees-- Class A-- Note 2 2,495,121
Administrative fees-- Class B-- Note 2 501,380
12b-1 fees-- Note 3 1,504,139
Transfer agent fees-- Class A 1,165,804
Transfer agent fees-- Class B 316,718
Custodian fees 210,286
Printing expense 147,164
Registration fees 50,000
Audit fees 10,250
Trustees' fees-- Note 2 9,500
Legal fees 6,250
Other 350
- ---------------------------------------------------------------------
Total Expenses 14,793,507
- ---------------------------------------------------------------------
NET INVESTMENT INCOME 3,695,945
- ---------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS -- NOTE 5
Net realized gain on investments-- Note 1 219,062,828
Net change in unrealized appreciation
of investments-- Note 5 42,160,468
- ---------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 261,223,296
- ---------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $264,919,241
- ---------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements.
11
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
=====================================================================
STATEMENT OF CHANGES IN NET ASSETS
=====================================================================
Six Months
Ended Year Ended
June 30, December 31,
1999 1998
(Unaudited) (Audited)
- ---------------------------------------------------------------------
INCREASE/(DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 3,695,945 $ 18,594,966
Net realized gain on
investments 219,062,828 240,110,403
Net change in unrealized
appreciation of investments 42,160,468 321,166,359
- ---------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 264,919,241 579,871,728
- ---------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (3,696,239) (18,598,388)
Net realized gain on
investments
Class A (66,993,369) (199,305,595)
Class B (9,585,406) (25,414,666)
- ---------------------------------------------------------------------
TOTAL DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS (80,275,014) (243,318,649)
- ---------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net increase in net assets
from capital share
transactions-- Note 6 (118,111,809) 529,325,454
- ---------------------------------------------------------------------
NET INCREASE IN NET ASSETS 66,532,418 865,878,533
NET ASSETS:
Beginning of period 3,380,256,722 2,514,378,189
- ---------------------------------------------------------------------
End of period* $3,446,789,140 $3,380,256,722
=====================================================================
* Includes undistributed net
investment income of $ 362,781 $ 363,075
- --------------------------------------------------------------------------------
See notes to financial statements.
12
<PAGE>
================================================================================
NOTES TO
FINANCIAL STATEMENTS
================================================================================
June 30, 1999 (Unaudited)
THE GUARDIAN PARK AVENUE FUND
NOTE 1. ACCOUNTING POLICIES
The Guardian Park Avenue Fund (the Fund or GPAF) is a series of The Park
Avenue Portfolio, which is a diversified open-end management investment company
registered under the Investment Company Act of 1940, as amended (the 1940 Act).
Significant accounting policies of the Fund are as follows:
The Fund offers three classes of shares. Class A shares are sold with an
initial sales load of up to 4.50% and an administrative fee of up to .25% on an
annual basis of the Fund's average daily net assets. Class B shares are sold
without an initial sales load but are subject to a 12b-1 fee of .75% and an
administrative fee of up to .25% on an annual basis of the Fund's average daily
net assets, and a contingent deferred sales load (CDSL) of up to 3% imposed on
certain redemptions. Institutional Class shares are offered at net asset value,
without an initial or contingent deferred sales load. All three classes of
shares 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
Equity and debt securities listed on domestic or foreign securities
exchanges are valued at the last sales price of such exchanges, or, if no sale
occurred, at the mean of the 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.
Pursuant to valuation procedures approved by the Board of Trustees, certain
debt securities may be valued each business day by an independent pricing
service (Service). Debt securities for which quoted bid prices are readily
available and representative of the bid side of the market, in the judgement of
the Service, are valued at the bid price. 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.
Security gains or losses are determined on the identified cost basis.
Interest income, including amortization of premium and discount, is accrued
daily. Dividend income is recorded on the ex-dividend date.
All income, expenses (other than class-specific expenses) and realized and
unrealized gains or losses are allocated daily to each class of shares based
upon the relative value of shares of each class. Class specific expenses, which
include distribution and service fees and any other items that are specifically
attributed to a particular class, are charged directly to such class. For the
six months ended June 30, 1999, distribution, administrative and transfer agent
fees were the only class-specific expenses.
Foreign Currency Translation
GPAF is permitted to buy international securities that are not U.S.
dollar-denominated. GPAF's books and records are maintained in U.S. dollars as
follows:
(1) The foreign currency market value of investment securities and
other assets and liabilities stated in foreign currencies are translated
into U.S. dollars at the current rate of exchange.
(2) Purchases, sales, income and expenses are translated at the rate
of exchange prevailing on the respective dates of such transactions.
The resulting gains and losses are included in the Statement of Operations.
Realized foreign exchange gains and losses, which result from changes in
foreign exchange rates between the date on
13
<PAGE>
which a Fund earns dividends and interest or pays foreign withholding taxes or
other expenses and the date on which U.S. dollar equivalent amounts are actually
received or paid, are included in net realized gain or loss on foreign
currencies. Realized foreign exchange gains and losses which result from changes
in foreign exchange rates between the trade and settlement dates on security and
currency transactions are also included in net realized gain on foreign
currencies. Net currency gains and losses from valuing investments and other
assets and liabilities denominated in foreign currency as of June 30, 1999 are
reflected in net change in unrealized appreciation or depreciation from
translation of assets and liabilities in foreign currencies based on the
applicable exchange rate in effect at the end of period.
Forward Foreign Currency Contracts
GPAF may enter into forward foreign currency contracts in connection with
planned purchases of sales of securities, or to hedge against changes in
currency exchange rates affecting the values of its investments that are
denominated in a particular currency. A forward foreign currency contract is a
commitment to purchase or sell a foreign currency at a future date at a
negotiated forward exchange rate. Risks may arise from the potential inability
of a counterparty to meet the terms of a contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
Fluctuations in the value of forward foreign currency contracts are recorded for
book purposes as unrealized gains or losses from translation of other assets and
liabilities denominated in foreign currencies by GPAF. When a forward contract
is closed, GPAF will record a realized gain or loss equal to the difference
between the value of the forward contract at the time it was opened and the
value at the time it was closed. Such amount is recorded in net realized gain or
loss on foreign currencies. GPAF will not enter into a forward foreign currency
contract if such contract would obligate it to deliver an amount of foreign
currency in excess of the value of its portfolio securities or other assets
denominated in that currency.
Dividends and 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 accordance 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 overdistributions of net realized gains and net
investment income.
Federal Income Taxes
The Fund qualified and intends to remain qualified to be taxed as a
"regulated investment company" under the provisions of the Internal Revenue Code
(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.
NOTE 2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES
The Fund has an investment advisory agreement with Guardian Investor
Services Corporation (GISC), an indirect 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 .50% of the average daily net assets of the Fund.
Trustees who are not deemed to be "interested persons" (as defined in the
1940 Act) are paid $500 for each meeting of the Board of Trustees. An annual fee
of $1,000 was also paid to each such Trustee during such period. GISC pays
compensation to the Trustees who are interested persons. Certain officers and
Trustees of the Fund are affiliated with GISC.
Administrative Services Agreement
Pursuant to the Administrative Services Agreement adopted by the Fund on
behalf of the Class A and Class B shares, the Fund pays GISC an administrative
service fee at an annual rate of .25% of the average daily net assets for which
a "dealer of record" has been designated. For the six months ended June 30,
1999, GPAF Class A shares paid an
14
<PAGE>
annualized rate of .17% of its average daily net assets under the Administrative
Services Agreement.
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
$1,586,659 for the six months ended June 30, 1999.
Under a Distribution Plan adopted by the Fund pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plan"), the 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.
GISC is entitled to retain any CDSL imposed on certain redemptions on Class
B shares. For the six months ended June 30, 1999, such charges were $581,609.
NOTE 4. REPURCHASE AGREEMENTS
Collateral under repurchase agreements takes 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 collateral 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 has established standards to evaluate
the creditworthiness of broker-dealers and banks which engage in repurchase
agreements with the Fund.
NOTE 5. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities (excluding short-term
securities) amounted to $1,070,295,630 and $1,241,259,748, respectively, during
the six months ended June 30, 1999.
The cost of investments owned at June 30, 1999 for federal income tax
purposes was the same as the cost for financial reporting purposes.
Gross unrealized appreciation and depreciation of investments aggregated
$1,048,777,922 and $41,607,182, respectively, resulting in net unrealized
appreciation of $1,007,170,740.
NOTE 6. SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $0.01 par value shares of beneficial
interest authorized, divided into three classes, designated as Class A, Class B
and Institutional Class shares. Through June 30, 1999, no Institutional Class
shares of the Fund were sold. Transactions in shares of beneficial interest were
as follows:
<TABLE>
<CAPTION>
Six Months Year Ended Six Months
Ended December 31, Ended Year Ended
June 30, 1999 1998 June 30, 1999 December 31, 1998
(Unaudited) (Audited) (Unaudited) (Audited)
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 14,626,995 18,152,958 $ 667,143,492 $ 885,038,761
Shares issued in reinvestment of
dividends and distributions 1,289,945 4,072,601 68,237,220 209,800,362
Shares repurchased (18,503,010) (14,727,389) (875,675,105) (721,647,093)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) (2,586,070) 7,498,170 $ (140,294,393) $ 373,192,030
===================================================================================================================================
CLASS B
Shares sold 865,865 3,603,391 $ 645,435,055 $ 176,030,617
Shares issued in reinvestment of
distributions 174,633 474,635 9,157,135 24,340,017
Shares repurchased (619,578) (912,470) (32,409,606) (44,237,210)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 420,920 3,165,556 $ 22,182,584 $ 156,133,424
===================================================================================================================================
</TABLE>
15
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
|_| THE GUARDIAN PARK AVENUE FUND
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIODS INDICATED:
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1999 --------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 51.88 $ 46.12 $ 37.91 $ 33.97 $ 26.89 $ 28.63
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.09 0.35 0.40 0.42 0.33 0.31
Net realized and unrealized
gain/(loss) on investments 4.08 9.38 12.61 8.41 8.87 (0.72)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from
investment operations 4.17 9.73 13.01 8.83 9.20 (0.41)
- ------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income (0.07) (0.34) (0.39) (0.42) (0.33) (0.31)
Distributions in excess of net
investment income -- -- -- (0.01) -- --
Net realized gain on investments (1.23) (3.63) (4.41) (4.46) (1.79) (1.02)
- ------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1.30) (3.97) (4.80) (4.89) (2.12) (1.33)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 54.75 $ 51.88 $ 46.12 $ 37.91 $ 33.97 $ 26.89
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 8.12% 21.30% 34.85% 26.49% 34.28% (1.44)%
==============================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $3,014,294 $2,990,767 $2,312,632 $1,392,186 $972,275 $640,917
Ratio of expenses to average
net assets 0.77%(a) 0.78% 0.79% 0.79% 0.81% 0.84%
Ratio of net investment income to
average net assets 0.33%(a) 0.72% 0.95% 1.19% 1.07% 1.15%
Portfolio turnover rate 33% 55% 50% 81% 78% 54%
==============================================================================================================================
</TABLE>
* Excludes effect of sales load.
(a) Annualized.
16
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
================================================================================
|_| THE GUARDIAN PARK AVENUE FUND
<TABLE>
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIODS INDICATED:
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===================================================================
CLASS B
===================================================================
Six Months Year Ended Year Ended May 1, 1996+
Ended December 31, December 31, to December 31,
June 30, 1999 1998 1997 1996
(Unaudited) (Audited) (Audited) (Audited)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 51.59 $ 46.02 $ 37.90 $ 36.26
- ----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income/(loss) (0.14) (0.08) 0.00 0.05
Net realized and unrealized gain
on investments 4.04 9.28 12.54 6.10
- ----------------------------------------------------------------------------------------------------------------
Net increase from
investment operations 3.90 9.20 12.54 6.15
- ----------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income -- -- (0.01) (0.05)
Net realized gain on
investments (1.23) (3.63) (4.41) (4.46)
- ----------------------------------------------------------------------------------------------------------------
Total dividends and distributions (1.23) (3.63) (4.42) (4.51)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 54.26 $ 51.59 $ 46.02 $ 37.90
- ----------------------------------------------------------------------------------------------------------------
Total return* 7.66% 20.16% 33.53% 17.35%
================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $432,496 $389,489 $201,746 $36,006
Ratio of expenses to average
net assets 1.68%(a) 1.70% 1.73% 1.77%(a)
Ratio of net investment income to
average net assets (0.58)%(a) (0.21)% 0.00% 0.04%(a)
Portfolio turnover rate 33% 55% 50% 81%
================================================================================================================
</TABLE>
+ Commencement of operations.
* Excludes effect of sales load.
(a) Annualized.
17
<PAGE>
<TABLE>
================================================================================----------------------------------------------------
THE GUARDIAN/VALUE LINE SEPARATE ACCOUNT
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<CAPTION>
INVESTMENT DIVISIONS
----------------------------------------------
GUARDIAN VALUE LINE
PARK AVENUE VALUE LINE INCOME
----------------------------------------------
<S> <C> <C> <C>
ASSETS
Shares owned in underlying fund--Note 1 ............................... $ 4,213,907 $ 406,929 $ 760,872
Net asset value per share (NAV) ....................................... 54.75 25.57 10.36
------------ ----------- ----------
Total Assets (Shares x NAV) ......................................... 230,711,386 10,405,175 7,882,632
LIABILITIES
Risk charges and other liabilities .................................... 83,400 9,848 7,393
------------ ----------- ----------
NET ASSETS--NOTE 3 ...................................................... $230,627,986 $10,395,327 $7,875,239
============ =========== ==========
FIFO cost ............................................................... $146,249,641 $ 7,185,104 $5,960,538
================================================================================---------------------------------------------
THE GUARDIAN/VALUE LINE SEPARATE ACCOUNT
================================================================================
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
INVESTMENT INCOME
Income:
Reinvested dividends ................................................ $ 280,436 $ -- $ 33,670
Expenses--Note 4:
Mortality and expense risk charges .................................. 1,121,140 51,069 38,000
------------ ----------- ----------
Net investment income/(expense) ..................................... (840,704) (51,069) (4,330)
------------ ----------- ----------
REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS
Realized gain/(loss) from sale of investments:
Net realized gain/(loss) from sale of investments ................... 12,176,859 244,506 125,422
Reinvested realized gain distributions .............................. 5,064,751 -- --
------------ ----------- ----------
Net realized gain/(loss) on investments ............................. 17,241,610 244,506 125,422
Net change in unrealized appreciation/(depreciation) of investments ... 216,384 984,012 502,761
------------ ----------- ----------
Net realized and unrealized gain/(loss) from investments ............ 17,457,994 1,228,518 628,183
------------ ----------- ----------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 16,617,290 $ 1,177,449 $ 623,853
============ =========== ==========
<CAPTION>
INVESTMENT DIVISIONS
-----------------------------------------------
VALUE LINE
VALUE LINE LEVERAGED VALUE LINE
SPECIAL GROWTH U.S. GOVERNMENT
SITUATIONS INVESTORS SECURITIES
-----------------------------------------------
<S> <C> <C> <C>
ASSETS
Shares owned in underlying fund--Note 1 ............................... $ 29,917 $ 139,254 $ 897,642
Net asset value per share (NAV) ....................................... 20.59 54.70 10.87
-------- ---------- ----------
Total Assets (Shares x NAV) ......................................... 615,985 7,617,185 9,757,366
LIABILITIES
Risk charges and other liabilities .................................... 9,541 12,593 14,932
-------- ---------- ----------
NET ASSETS--NOTE 3 ...................................................... $606,444 $7,604,592 $9,742,434
======== ========== ==========
FIFO cost ............................................................... $528,129 $4,017,271 $9,980,610
===============================================================================-----------------------------------------------
THE GUARDIAN/VALUE LINE SEPARATE ACCOUNT
===============================================================================
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
INVESTMENT INCOME
Income:
Reinvested dividends ................................................ $ -- $ -- $ 262,963
Expenses--Note 4:
Mortality and expense risk charges .................................. 3,861 36,839 48,018
-------- ---------- ----------
Net investment income/(expense) ..................................... (3,861) (36,839) 214,945
-------- ---------- ----------
REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS
Realized gain/(loss) from sale of investments:
Net realized gain/(loss) from sale of investments ................... 20 98,636 (33,758)
Reinvested realized gain distributions .............................. -- -- --
-------- ---------- ----------
Net realized gain/(loss) on investments ............................. 20 98,636 (33,758)
Net change in unrealized appreciation/(depreciation) of investments ... 85,892 774,934 (398,010)
-------- ---------- ----------
Net realized and unrealized gain/(loss) from investments ............ 85,912 873,570 (431,768)
-------- ---------- ----------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 82,051 $ 836,731 $ (216,823)
======== ========== ==========
<CAPTION>
INVESTMENT DIVISIONS
--------------------
VALUE LINE
CASH
------------
<S> <C>
ASSETS
Shares owned in underlying fund--Note 1 ............................... $19,537,211
Net asset value per share (NAV) ....................................... 1.00
-----------
Total Assets (Shares x NAV) ......................................... 19,537,211
LIABILITIES
Risk charges and other liabilities .................................... 2,998,049
-----------
NET ASSETS--NOTE 3 ...................................................... $16,539,162
===========
FIFO cost ............................................................... $19,537,211
===============================================================================----------------------------------------------------
THE GUARDIAN/VALUE LINE SEPARATE ACCOUNT
===============================================================================
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
INVESTMENT INCOME
Income:
Reinvested dividends ................................................ $ 452,304
Expenses--Note 4:
Mortality and expense risk charges .................................. 148,746
-----------
Net investment income/(expense) ..................................... 303,558
-----------
REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS
Realized gain/(loss) from sale of investments:
Net realized gain/(loss) from sale of investments ................... --
Reinvested realized gain distributions .............................. --
-----------
Net realized gain/(loss) on investments ............................. --
Net change in unrealized appreciation/(depreciation) of investments ... --
-----------
Net realized and unrealized gain/(loss) from investments ............ --
-----------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 303,558
===========
</TABLE>
See notes to financial statements.
18 19
<PAGE>
================================================================================
THE GUARDIAN/VALUE LINES SEPARATE ACCOUNT
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
1998 INCREASE/(DECREASE) FROM OPERATIONS
Net investment income/(expense)...............................................
Net realized gain/(loss) from sale of investments.............................
Reinvested realized gain distributions........................................
Net change in unrealized appreciation/(depreciation) of investments...........
Net increase/(decrease) resulting from operations.............................
CONTRACT TRANSACTIONS
Net contract purchase payments................................................
Transfers between investment divisions........................................
Administrative charges--Note 4................................................
Redemptions and annuity benefits..............................................
Transfers--other..............................................................
Net increase/(decrease) from contract transactions............................
ACTUARIAL INCREASE IN RESERVES FOR CONTRACTS IN PAYMENT PERIOD..................
TOTAL INCREASE/(DECREASE) IN NET ASSETS.........................................
NET ASSETS AT DECEMBER 31, 1997...............................................
NET ASSETS AT DECEMBER 31, 1998...............................................
1999 INCREASE/(DECREASE) FROM OPERATIONS
Net investment income/(expense)...............................................
Net realized gain/(loss) from sale of investments.............................
Reinvested realized gain distributions........................................
Net change in unrealized appreciation/(depreciation) of investments...........
Net increase/(decrease) resulting from operations.............................
CONTRACT TRANSACTIONS
Net contract purchase payments................................................
Transfers between investment divisions........................................
Administrative charges--Note 4................................................
Redemptions and annuity benefits..............................................
Transfers--other..............................................................
Net increase/(decrease) from contract transactions............................
ACTUARIAL INCREASE IN RESERVES FOR CONTRACTS IN PAYMENT PERIOD..................
TOTAL INCREASE/(DECREASE) IN NET ASSETS.........................................
NET ASSETS AT DECEMBER 31, 1998...............................................
NET ASSETS AT JUNE 30, 1999--NOTE 3...........................................
See notes to financial statements.
- --------------------------------------------------------------------------------
20
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT DIVISIONS
- ----------------------------------------------------------------------------------------------------------------
VALUE LINE
VALUE LINE LEVERAGED VALUE LINE
GUARDIAN VALUE LINE SPECIAL GROWTH U.S. GOVERNMENT VALUE LINE
PARK AVENUE VALUE LINE INCOME SITUATIONS INVESTORS SECURITIES CASH
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ (780,797) $ (79,624) $ 11,132 $ (7,336) $ (65,138) $ (489,518) $ 695,042
24,601,080 908,362 430,009 76,016 471,003 (156,001) --
15,644,927 198,110 370,233 29,864 165,063 -- --
1,069,647 688,223 826,576 16,782 1,405,570 329,439 --
- ------------ ----------- ----------- --------- ---------- ----------- -----------
40,534,857 1,715,071 1,637,950 115,326 1,976,498 662,956 695,042
- ------------ ----------- ----------- --------- ---------- ----------- -----------
2,852,025 70,932 63,932 5,261 50,468 163,340 575,150
(5,345,420) (246,868) (195,028) 2,168 (112,061) 627,388 5,269,821
(139,786) (8,155) (5,134) (882) (4,349) (7,435) (16,738)
(31,500,878) (2,550,400) (1,937,049) (120,539) (745,692) (2,338,743) (4,667,300)
11,164 751 (412) (32) (234) 100 (4)
- ------------ ----------- ----------- --------- ---------- ----------- -----------
(34,122,895) (2,733,740) (2,073,691) (114,024) (811,868) (1,555,350) 1,160,929
- ------------ ----------- ----------- --------- ---------- ----------- -----------
16,945 (50) 1,229 -- 2,004 12,912 12,753
- ------------ ----------- ----------- --------- ---------- ----------- -----------
6,428,907 (1,018,719) (434,512) 1,302 1,166,634 (879,482) 1,868,724
224,898,073 10,715,016 7,463,513 509,253 5,605,939 11,065,208 15,923,393
- ------------ ----------- ----------- --------- ---------- ----------- -----------
$231,326,980 $ 9,696,297 $ 7,029,001 $ 510,555 $6,772,573 $10,185,726 $17,792,117
============ =========== =========== ========= ========== =========== ===========
$ (840,704) $ (51,069) $ (4,330) $ (3,861) $ (36,839) $ 214,945 $ 303,558
12,176,859 244,506 125,422 20 98,636 (33,758) --
5,064,751 -- -- -- -- -- --
216,384 984,012 502,761 85,892 774,934 (398,010) --
- ------------ ----------- ----------- --------- ---------- ----------- -----------
16,617,290 1,177,449 623,853 82,051 836,731 (216,823) 303,558
- ------------ ----------- ----------- --------- ---------- ----------- -----------
1,189,133 59,364 72,342 1,699 40,057 205,975 73,044
(955,663) (61,696) 537,185 12,671 43,024 215,242 209,237
(93,999) (4,949) (3,758) (525) (2,937) (4,474) (9,121)
(17,459,755) (471,369) (383,257) (20) (83,908) (643,323) (1,865,450)
4,000 231 (127) 13 (948) 111 17
- ------------ ----------- ----------- --------- ---------- ----------- -----------
(17,316,284) (478,419) 222,385 13,838 (4,712) (226,469) (1,592,273)
- ------------ ----------- ----------- --------- ---------- ----------- -----------
-- -- -- -- -- -- 35,760
- ------------ ----------- ----------- --------- ---------- ----------- -----------
(698,994) 699,030 846,238 95,889 832,019 (443,292) (1,252,955)
231,326,980 9,696,297 7,029,001 510,555 6,772,573 10,185,726 17,792,117
- ------------ ----------- ----------- --------- ---------- ----------- -----------
$230,627,986 $10,395,327 $ 7,875,239 $ 606,444 $7,604,592 $ 9,742,434 $16,539,162
============ =========== =========== ========= ========== =========== ===========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
21
<PAGE>
THE GUARDIAN/VALUE LINE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
NOTE 1 -- ORGANIZATION
The Guardian/Value Line Separate Account (the Account), a unit investment
trust registered under the Investment Company Act of 1940, as amended, was
established by The Guardian Insurance & Annuity Company, Inc. (GIAC) on October
6, 1980. GIAC is a wholly owned subsidiary of The Guardian Life Insurance
Company of America (Guardian). GIAC issues the deferred variable annuity
contracts offered through the Account. GIAC provides for accumulations and
benefits under the contracts by crediting the net contract purchase payments to
one or more investment divisions within the Account or to the Fixed Rate Option
(FRO). Amounts allocated to the FRO are maintained by GIAC in its general
account. The Guardian Park Avenue Fund, one of the investment options available
under the contracts, has an investment advisory agreement with Guardian Investor
Services Corporation, a wholly owned subsidiary of GIAC. A tax-qualified
investment division and a non-tax-qualified investment division have been
established within each investment option available in the Account.
Under applicable insurance law, the assets and liabilities of the Account
are clearly identified and distinguished from the other assets and liabilities
of GIAC. The assets of the Account will not be charged with any liabilities
arising out of any other business conducted by GIAC, but the obligations of the
Account, including the promise to make annuity payments, are obligations of
GIAC.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies of the
Account.
Investments
(a) Net proceeds of payments made by contractowners to the Account are
invested by the Account's investment divisions in shares of the corresponding
Funds at net asset value. All distributions made by a Fund are reinvested in
shares of the same Fund.
(b) The market value of investments is based on the net asset value of the
respective Funds as of their close of business on the valuation date.
(c) Investment transactions are accounted for on the trade date and income
is recorded on the ex-dividend date.
(d) The cost of investments sold is determined on a first in, first out
(FIFO) basis.
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under the tax law, no federal income taxes are payable by GIAC with respect
to the operations of the Account.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN/VALUE LINE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Owners of non-tax-qualified contracts are taxed directly on the investment
income and realized capital gains distributed by the underlying mutual funds to
the Account's non-tax-qualified divisions.
NOTE 3 -- NET ASSETS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
UNITS ACCUMULATION TOTAL
OUTSTANDING UNIT VALUE UNIT VALUE
------------- --------------- ------------
<S> <C> <C> <C>
TAX-QUALIFIED ACCOUNTS
The Guardian Park Avenue Fund............................................ 1,242,656.798 $ 184.593798 $229,386,739
Value Line Fund, Inc..................................................... 119,297.393 87.079287 10,388,332
Value Line Income Fund, Inc.............................................. 92,110.088 84.863636 7,816,797
Value Line Special Situations Fund, Inc.................................. 12,366.993 49.037061 606,441
Value Line Leveraged Growth Investors, Inc............................... 57,844.139 129.565071 7,494,580
Value Line U.S. Government Securities Fund, Inc.......................... 202,512.134 46.142923 9,344,502
Value Line Cash Fund, Inc................................................ 566,184.077 28.615110 16,201,420
NON-TAX-QUALIFIED ACCOUNTS
The Guardian Park Avenue Fund............................................ 499.961 168.469140 84,228
Value Line Fund, Inc..................................................... -- 74.986844 --
Value Line Income Fund, Inc.............................................. -- 79.928175 --
Value Line Special Situations Fund, Inc.................................. -- 48.799922 --
Value Line Leveraged Growth Investors, Inc............................... 65.806 129.380299 8,514
Value Line U.S. Government Securities Fund, Inc.......................... -- 46.144421 --
Value Line Cash Fund, Inc................................................ 1,456.413 28.673872 41,761
------------
281,373,314
Contracts receiving annuity payments..................................... 1,982,107
------------
Total Net Assets......................................................... $283,355,421
============
</TABLE>
NOTE 4 -- ADMINISTRATIVE AND MORTALITY AND EXPENSE RISK CHARGES
Contractual charges paid to GIAC include:
(1) an annual fee to cover GIAC's administrative expenses to be deducted on
each contract anniversary before annuitization and upon surrender prior to
annuitization. Such charge is $30 for a Single Purchase Payment Contract and $35
for a Flexible Purchase Payment Contract. The total amount of these charges for
the period ending June 30, 1999 was $119,763.
(2) a charge for mortality and expense risk is computed daily and is equal
to an annual rate of 1% of the average daily net assets applicable to
contractowners; the total annual charge for the period ending June 30, 1999 was
$1,447,673.
(3) contingent deferred sales charges on certain partial or total
surrenders. These charges are assessed against redemptions and paid to GIAC
during the first six contract years for a Single Purchase Payment Contract. For
a Flexible Purchase Payment Contract, each payment is subject to a contingent
deferred sales charge for six years; contingent deferred sales charges for the
period ending June 30, 1999 amounted to $79,542; and,
(4) a charge for premium taxes deducted from either the contract payment or
upon annuitization, as determined in accordance with applicable state law.
Currently, GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN/VALUE LINE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
NOTE 5 -- ACCUMULATION UNIT VALUES FOR THE CURRENT PERIOD AND THE FOUR PRIOR YEAR ENDS
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
TAX-QUALIFIED ACCOUNTS
The Guardian Park Avenue Fund........................ $184.593798 $171.570338 $142.844239 $106.975783 $85.415119
Value Line Fund, Inc................................. 87.079287 77.512813 65.095659 54.067255 44.564679
Value Line Income Fund, Inc.......................... 84.863636 78.095792 61.696713 52.560176 45.222228
Value Line Special Situations Fund, Inc.............. 49.037061 42.360815 32.938107 25.181424 23.713301
Value Line Leveraged Growth Investors, Inc........... 129.565071 115.251491 83.359180 68.003247 56.152490
Value Line U.S. Government Securities
Fund, Inc........................................... 46.142923 47.162071 44.232575 40.899347 39.743747
Value Line Cash Fund, Inc............................ 28.615110 28.118022 27.033761 25.974172 24.991807
NON-TAX-QUALIFIED ACCOUNTS
The Guardian Park Avenue Fund........................ 168.469140 156.582788 130.366067 97.630911 77.953689
Value Line Fund, Inc................................. 74.986844 66.748835 56.056010 46.559081 38.376101
Value Line Income Fund, Inc.......................... 79.928175 73.553931 58.108568 49.503397 42.592212
Value Line Special Situations Fund, Inc.............. 48.799922 42.155748 32.778671 25.059541 23.598522
Value Line Leveraged Growth Investors, Inc........... 129.380299 115.095887 83.242057 67.907692 56.073569
Value Line U.S. Government Securities
Fund, Inc........................................... 46.144421 47.163601 44.234002 40.900662 39.745016
Value Line Cash Fund, Inc............................ 28.673872 28.118022 27.033761 25.974172 24.991807
</TABLE>
NOTE 6 -- PURCHASES AND SALES
During the six months ended June 30, 1999 and the year ended December 31,
1998, purchases and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
PURCHASES PURCHASES SALES SALES
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
The Guardian Park Avenue Fund................................. $ 7,197,849 $26,002,121 $20,288,947 $45,532,365
Value Line Fund, Inc.......................................... 92,082 352,262 620,502 2,982,340
Value Line Income Fund, Inc................................... 591,069 661,382 375,014 2,358,534
Value Line Special Situations Fund, Inc....................... 14,243 902,468 405 996,627
Value Line Leveraged Growth Investors Fund, Inc.............. 132,555 233,089 167,267 949,895
Value Line U.S. Government Securities Fund, Inc............... 834,767 2,500,922 828,273 3,571,505
Value Line Cash Fund, Inc..................................... 3,533,928 16,376,539 4,463,898 14,315,408
----------- ----------- ----------- -----------
Total....................................................... $12,396,493 $47,028,783 $26,744,306 $70,706,674
=========== =========== =========== ===========
</TABLE>
NOTE: In some instances the calculation of total assets may not agree due
to rounding.
- --------------------------------------------------------------------------------
24
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
THE GUARDIAN VARIABLE ACCOUNT 1
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<S> <C>
ASSETS
Investment in The Guardian Park Avenue Fund (1,164,269 shares at net asset
value of $54.75 per share; FIFO Cost, $33,741,262)............................ $63,743,734
LIABILITIES
Due to The Guardian Insurance & Annuity Company, Inc........................... 49,768
-----------
NET ASSETS-- NOTE 3............................................................. $63,693,966
===========
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
INVESTMENT INCOME
Income:
Reinvested dividends.......................................................... $ 77,672
Expense:
Mortality and expense risk charges-- Note 4................................... 315,338
-----------
Net investment income/(expense)................................................ (237,666)
-----------
REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS
Net realized gain/(loss) from sale of investments.............................. 3,368,140
Reinvested realized gain distributions......................................... 1,402,780
Net change in unrealized appreciation/(depreciation) of investments............. 41,325
-----------
Net realized and unrealized gain/(loss) from investments....................... 4,812,245
-----------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. $ 4,574,579
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1999 1998
(UNAUDITED) (AUDITED)
------------- --------------
<S> <C> <C>
INCREASE/(DECREASE) FROM OPERATIONS
Net investment income/(expense)................................................ $ (237,666) $ (217,234)
Net realized gain/(loss) from sale of investments.............................. 3,368,140 5,713,603
Reinvested realized gain distributions......................................... 1,402,780 4,174,062
Net change in unrealized appreciation/(depreciation) of investments............ 41,325 1,039,262
----------- -----------
Net increase/(decrease) resulting from operations.............................. 4,574,579 10,709,693
----------- -----------
CONTRACT TRANSACTIONS
Net contract purchase payments................................................. 83,553 258,460
Redemptions and annuity benefits............................................... (3,534,736) (4,777,478)
----------- -----------
Net increase/(decrease) from contract transactions............................. (3,451,183) (4,519,018)
----------- -----------
ACTUARIAL INCREASE IN RESERVES FOR CONTRACTS IN PAYMENT PERIOD.................. 113,908 247,985
----------- -----------
TOTAL INCREASE/(DECREASE) IN NET ASSETS......................................... 1,237,304 6,438,660
NET ASSETS AT DECEMBER 31, 1998................................................. 62,456,662 56,018,002
----------- -----------
NET ASSETS AT JUNE 30, 1999-- NOTE 3............................................ $63,693,966 $62,456,662
=========== ===========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
25
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE GUARDIAN VARIABLE ACCOUNT 2
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<S> <C>
ASSETS
Investment in The Guardian Park Avenue Fund (348,193 shares at net asset
value of $54.75 per share; FIFO Cost, $9,789,997)......................... $19,063,547
LIABILITIES
Annuitant Mortality Fluctuation Fund....................................... 18,657
Due to The Guardian Insurance & Annuity Company, Inc....................... 71,741
-----------
Total Liabilities.......................................................... 90,398
-----------
NET ASSETS-- NOTE 3......................................................... $18,973,149
===========
<CAPTION>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<S> <C>
INVESTMENT INCOME
Income:
Reinvested dividends...................................................... $ 23,196
Expense:
Mortality and expense risk charges-- Note 4............................... 100,484
-----------
Net investment income/(expense)............................................ (77,288)
-----------
REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS
Net realized gain/(loss) from sale of investments.......................... 1,442,328
Reinvested realized gain distributions..................................... 418,934
Net change in unrealized appreciation/(depreciation) of investments......... (417,982)
-----------
Net realized and unrealized gain/(loss) from investments................... 1,443,280
-----------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. $ 1,365,992
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1999 1998
(UNAUDITED) (AUDITED)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) FROM OPERATIONS
Net investment income/(expense)............................................ $ (77,288) $ (82,227)
Net realized gain/(loss) from sale of investments.......................... 1,442,328 1,010,169
Reinvested realized gain distributions..................................... 418,934 1,295,274
Net change in unrealized appreciation/(depreciation) of investments........ (417,982) 1,054,626
---------- ----------
Net increase/(decrease) resulting from operations.......................... 1,365,992 3,277,842
---------- ----------
CONTRACT TRANSACTIONS
Net contract purchase payments............................................. 10,556 146,627
Redemptions and annuity benefits........................................... (1,676,842) (1,116,355)
---------- ----------
Net increase/(decrease) from contract transactions......................... (1,666,286) (969,728)
---------- ----------
ACTUARIAL INCREASE IN RESERVES FOR CONTRACTS IN PAYMENT PERIOD.............. 9,661 40,423
---------- ----------
TOTAL INCREASE/(DECREASE) IN NET ASSETS..................................... (290,633) 2,348,537
NET ASSETS AT DECEMBER 31, 1998............................................. 19,263,782 16,915,245
---------- ----------
NET ASSETS AT JUNE 30, 1999-- NOTE 3........................................ $18,973,149 $19,263,782
=========== ===========
</TABLE>
See notes to financial statements.
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26
<PAGE>
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THE GUARDIAN VARIABLE ACCOUNT 1
THE GUARDIAN VARIABLE ACCOUNT 2
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (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). 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, 1999 and the year ended December 31,
1998, VA-1 purchases of shares of the Fund aggregated $2,234,427 and $6,548,522,
respectively, and VA-2 purchases aggregated $520,233 and $1,592,765,
respectively. Aggregate sales of shares of the Fund amounted to $4,365,158 and
$7,212,046 for VA-1 and $1,854,388 and $1,336,007 for VA-2 for the six months
ended June 30, 1999 and the year ended December 31, 1998, 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. The amount of this fund at June 30, 1999 was
$18,657 for VA-2.
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.
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27
<PAGE>
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NOTE 3 -- NET ASSETS, JUNE 30, 1999 (UNAUDITED)
At June 30, 1999, net assets for the VA-1 and VA-2 Separate Accounts are
comprised as follows:
<TABLE>
<CAPTION>
UNITS ACCUMULATION TOTAL UNIT
OUTSTANDING UNIT VALUE VALUE
----------- ------------- -----------
<S> <C> <C> <C>
VA-1 Separate Account:
VA-1 Division........................................... 105,054.740 $577.701415 $60,690,272
Contracts receiving annuity benefits.................... 3,003,694
-----------
$63,693,966
===========
A-2 Separate Account:
VA-2 Division........................................... 29,260.563 $522.675930 $15,293,792
VA-19 Division.......................................... 4,791.888 508.738935 2,437,820
-----------
17,731,612
Contracts receiving annuity benefits.................... 1,241,537
-----------
$18,973,149
===========
</TABLE>
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. The total
annual charge for the six months ending June 30, 1999 was $315,338 for VA-1 and
$100,484 for VA-2.
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,
1999 1998 1997 1996 1995
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
VA-1 Separate Account:
VA-1 Division....................... $577.701415 $536.943448 $447.042768 $334.789490 $267.313646
VA-2 Separate Account:
VA-2 Division....................... 522.675930 $458.800106 $404.462389 $302.901130 $241.852311
VA-19 Division...................... 508.738935 $472.846449 $393.677554 $294.824378 $235.403384
</TABLE>
NOTE: In some instances the calculation of total assets may not agree due to
rounding.
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<PAGE>
[LOGO] FIRST CLASS MAIL
GUARDIAN U.S. POSTAGE PAID
PERMIT NO. 1104
THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC. CLIFTON, NJ
7 Hanover Square
New York, New York 10004
EB-010247
