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GUARDIAN
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ANNUAL REPORT TO CONTRACTOWNERS
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
1-800-221-3253
Distributed by:
GUARDIAN INVESTOR SERVICES CORPORATION(R)
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DEAR CONTRACTOWNER:
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[PHOTO OMITTED]
Joseph D. Sargent, CLU
President and CEO
As President and Chief Executive Officer of The Guardian Insurance &
Annuity Company, Inc., and its parent, The Guardian Life Insurance Company of
America, I am pleased to send you this Annual Report on the performance of your
contract's separate account and its underlying variable investment options
during the past year.
HELPING YOU REACH YOUR GOALS
As an owner of a variable annuity, you are among a rapidly growing group of
people who are planning for their future with a retirement product that is
linked to the investment markets. A variable annuity, such as The Guardian
Variable Account I and The Guardian Variable Account II, may be one of the best
ways to prepare for your retirement and because of the benefits it offers, may
help you reach your goals faster.
This Report tells you how each investment option available in your contract
has performed. Also included is a letter from Frank J. Jones, Ph.D., our chief
investment officer, and interviews with the portfolio managers of the funds that
comprise our investment options. These materials discuss the current economic
environment as well as specific issues that may impact your investment strategy.
I am confident that this information will be invaluable to you as you
assess your financial situation and investment strategies.
Thank you for selecting Guardian to assist you in investing for your
future.
Sincerely,
/s/ JOSEPH D. SARGENT
--------------------------------------
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 20
FOR VALUE GUARD CONTRACTOWNERS
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THE GUARDIAN VARIABLE ACCOUNT 1 28
FOR VARIABLE ACCOUNT 1 CONTRACTOWNERS
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THE GUARDIAN VARIABLE ACCOUNT 2 29
FOR VARIABLE ACCOUNT 2 CONTRACTOWNERS
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COMBINED NOTES TO FINANCIAL STATEMENTS FOR 30
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 OMITTED] [PHOTO OMITTED]
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 DECEMBER 31, 1999: $3,842,485,476
Q. HOW DID THE FUND PERFORM IN 1999?
A. For an unprecedented fifth consecutive year, The Guardian Park Avenue Fund
had a return of more than 20%. The Fund earned a total return of 30.25%1 for the
year compared to 21.04% for the S&P 500 Index,2 a margin of 9.21%. Once again,
this was a year of high volatility in the stock market. As the year began, there
was continuing concern about the global financial crisis as Brazil's economy
became only the latest to get crushed. By spring, however, it became apparent
that a global recovery was under way, particularly in some of the hardest hit
areas of Asia, such as Korea. By year-end the concern had shifted 180 degrees:
financial markets had come to believe the real threat was too high a rate of
growth, which could potentially re-ignite inflation. All year the market
continued to compress major moves--which had once taken years--into a matter of
months.
Once again, the market also retained its narrow focus. In fact, according
to Merrill Lynch,3 half of the S&P 500 stocks actually were down on the year.
The S&P 500's equally weighted index was up only 11.6%, a little over half of
the S&P 500 Index, which is weighted by the market capitalization of the
companies included in the Index. While real estate and other value stocks got
decimated, technology stocks soared. The rapid spread of the Internet and
improvements in networking and mobile communications as well as preparations for
Y2K spurred huge demand for technology. The NASDAQ Composite Index,4 viewed now
as a proxy for large technology stocks, was up 86%, with much of that coming
late in the year.
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"The main factors contributing to our good performance in 1999 were our
assessments that technology and growth stocks would do well. We were
overweighted in technology stocks all year and continued that posture heading
into 2000."
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Q. WHAT FACTORS AFFECTED PERFORMANCE IN 1999?
A. The main factors contributing to our good performance in 1999 were our
assessments that technology and growth stocks would do well. We were
overweighted in technology stocks all year and continued that posture heading
into 2000. Technology stocks began to rally in the fall of 1998 and by late
winter many market strategists believed that their run was over.
In less than two weeks in mid-April, cyclical and deep value
stocks--stocks which are normally poor performers but can make large increase in
value when the economy expands--had their biggest rally in a quarter-century,
and the technology rally looked like history. After an intensive review of our
portfolio in early summer, we decided to remain with our basic position. The
biggest change we made was adding a heavier weighting of mid-and small cap
stocks to the mix and we continued that through year-end. The addition of Yahoo!
to the S&P 500 in December brought the S&P 500's pure Internet weighting (along
with America Online) to almost 2.5%, reflecting the market's assessment of the
powerful transformation of the U.S. economy.
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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 do not take into account the current maximum sales charge
of 4.5% 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.
(2) 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.
(3) From Merrill Lynch "Style Performance Monitor," January 7, 2000
(4) The NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ National Market Stocks. The NASDAQ Composite 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 Index do not reflect any sales charges that an investor
may have to pay when purchasing or redeeming shares of the Fund.
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4
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Q. WHAT STRATEGIES DO YOU USE TO MANAGE THE FUND?
A. We have for many years employed a combination of quantitative techniques and
fundamental judgements. We believe that this is the best way to achieve
consistently outstanding returns. As always, we continue to refine ourgrowing
cluster of quantitative techniques. With a fast-changing economy and volatile
market, managers need to constantly explore new strategies and be alert to
declining effectiveness of older techniques. The rapid changes in the economy
are affecting nearly all industries and our analysts attempt to keep up with the
most important developments in such far-flung areas as telecommunications,
genomics (the study of genetics and DNA) and the Internet, as well as the
ramifications for older industries.
Q. WHAT DO YOU ENVISION FOR THE STOCK MARKET IN 2000?
A. Now that all the millennium hoopla has died down and Y2K's passage proved
uneventful, we look forward to another interesting year. The first few weeks of
the year had more volatility and excitement compressed into them than many prior
years. Once again, the financial markets focus intensely on the Federal Reserve
Board, with most people expecting from one to three more rate increases.
Overall, the economy remains robust, with growth accelerating and inflation
subdued even as this expansion becomes the longest in U.S. history. The
valuation in the stock market is high for the narrow group of leaders but their
growth and profitability are also exceptionally high.
While the last five years have been the best in modern stock market history
and volatility remains near a historic high, we continue to be optimistic. Most
importantly, the economy remains in the best shape it's been in since the 1960s.
Innovation is flourishing at the most rapid pace in perhaps a century and the
prospects for peace around the world are the brightest in a long time. Under
these circumstances, we find it hard to be pessimistic about the stock market.
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The Guardian Park Avenue Fund
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TOP TEN HOLDINGS AS OF DECEMBER 31, 1999
COMPANY PERCENT OF TOTAL NET ASSETS
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1. Microsoft Corp. 5.56%
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2. Intel Corp. 2.45%
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3. Int'l. Business Machines 2.08%
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4. Wal-Mart Stores, Inc. 1.84%
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5. General Electric Co. 1.81%
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6. America Online, Inc. 1.76%
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7. Citigroup, Inc. 1.63%
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8. EMC Corp. 1.50%
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9. Motorola, Inc. 1.46%
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10. Oracle Corp. 1.45%
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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 DECEMBER 31, 1999
[GRAPHIC OMITTED]
[The following table was depicted as a pie chart in the printed materials.]
CREDIT CYCLICALS 0.15%
TRANSPORTATION 0.69%
UTILITIES 0.84%
BASIC MATERIALS 1.58%
CAPITAL GOODS 1.84%
CASH 3.34%
ENERGY 5.21%
FINANCIALS 7.37%
CONSUMER CYCLICALS 7.68%
CONSUMER SERVICES 7.75%
CONSUMER STAPLES 7.97%
TELECOMMUNICATIONS 18.18%
TECHNOLOGY 37.40%
<TABLE>
<CAPTION>
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AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED DECEMBER 31, 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 24.39% 28.14% 19.33% 17.18%
At Net Asset Value (without sales charge) 30.25% 29.33% 19.88% 17.38%
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Class B Shares (with sales charge) 5/1/96 26.13% N/A N/A 27.15%
At Net Asset Value (without sales charge) 29.13% N/A N/A 27.44%
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S&P 500 Index 21.04% 28.51% 18.17% 13.96%
(since 6/1/72)
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</TABLE>
(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.
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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
[GRAPHIC OMITTED]
[The folowing table was depicted as a mountain chart in the printed materials.]
1999
The Guardian Park Avenue Fund (Class A) $814,470
S&P 500 Index $375,338
Cost of Living $ 40,566
PERFORMANCE FOR CLASS B SHARES, WHICH WERE FIRST OFFERED ON MAY 1, 1996, WILL
VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO SUCH SHARE
CLASS.
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 $814,470 on December 31, 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 Index, a similar hypothetical investment
would now be worth $375,338. 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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December 31, 1999
o THE GUARDIAN PARK AVENUE FUND
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Common Stocks -- 96.8%
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Shares Value
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APPLIANCE AND FURNITURE -- 0.2%
141,500 Whirlpool Corp.* $ 9,206,344
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AUTOMOTIVE -- 0.4%
282,400 Ford Motor Co. 15,090,750
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BIOTECHNOLOGY -- 2.3%
55,300 Affymetrix, Inc.* 9,383,719
446,000 Amgen, Inc.* 26,787,875
156,000 Biogen, Inc.* 13,182,000
265,300 Enzon, Inc.* 11,507,388
79,400 MedImmune, Inc.* 13,170,475
63,000 Millenium Pharmaceuticals* 7,686,000
60,500 Sepracor, Inc.* 6,000,844
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87,718,301
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BROADCASTING -- 4.9%
196,100 Adelphia Comm. Corp.* 12,869,063
151,000 AMFM, Inc.* 11,815,750
579,100 CBS Corp.* 37,026,206
393,200 Charter Comm., Inc.* 8,601,250
175,000 Clear Channel Comm., Inc.* 15,618,750
310,000 Comcast Corp.* 15,674,375
220,700 Cox Comm., Inc.* 11,366,050
81,500 Cumulus Media, Inc.* 4,136,125
676,900 Infinity Broadcasting Corp.* 24,495,319
250,500 Insight Comm., Inc.* 7,421,063
436,700 MediaOne Group, Inc.* 33,544,019
29,700 RealNetworks, Inc.* 3,573,281
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186,141,251
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BUILDING MATERIALS AND HOMEBUILDERS -- 0.1%
136,000 Crossman Communities, Inc.* 2,108,000
260,000 Johns Manville Corp. 3,640,000
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5,748,000
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CAPITAL GOODS-MISCELLANEOUS TECHNOLOGY -- 3.0%
73,100 CMGI, Inc.* 20,239,563
56,600 CNET, Inc.* 3,212,050
215,600 Critical Path, Inc.* 20,347,250
77,000 Doubleclick, Inc.* 19,485,812
149,400 E Bay, Inc.* 18,703,013
120,200 Internet Capital Group, Inc.* 20,434,000
76,800 VerticalNet, Inc.* 12,595,200
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115,016,888
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COMPUTER SOFTWARE -- 12.8%
211,200 Adobe Systems, Inc. 14,203,200
52,800 Advent Software, Inc.* 3,402,300
34,600 Agile Software Corp.* 7,516,309
57,800 Ariba, Inc.* 10,252,275
160,600 Bea Systems, Inc.* 11,231,962
98,600 Broadvision, Inc.* 16,768,162
73,800 Citrix Systems, Inc.* 9,077,400
64,300 Commerce One, Inc.* 12,634,950
58,300 Cybersource Corp.* 3,017,025
125,200 Inktomi Corp.* 11,111,500
48,000 Legato Systems, Inc.* 3,303,000
93,000 Mercury Interactive Corp.* 10,038,187
51,000 Micromuse, Inc.* 8,670,000
1,831,300 Microsoft Corp.* 213,804,275
497,500 Oracle Corp.* 55,751,094
426,200 Saga Systems, Inc.* 8,497,363
214,800 Siebel Systems, Inc.* 18,043,200
557,200 Sybase, Inc.* 9,472,400
143,000 Symantec Corp.* 8,383,375
119,500 TSI Int'l. Software Ltd.* 6,766,688
79,800 VeriSign, Inc.* 15,236,812
43,350 Veritas Software Corp.* 6,204,469
256,100 Visio Corp.* 12,164,750
76,000 Vitria Technology, Inc.* 17,784,000
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493,334,696
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COMPUTER SYSTEMS -- 6.6%
152,100 Apple Computer, Inc.* 15,637,781
195,200 Cabletron Systems, Inc.* 5,075,200
364,100 Dell Computer Corp.* 18,569,100
526,800 EMC Corp.* 57,552,900
134,500 Hewlett Packard Co. 15,324,594
739,000 Int'l. Business Machines 79,812,000
190,000 Solectron Corp.* 18,073,750
564,800 Sun Microsystems, Inc.* 43,736,700
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253,782,025
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DRUGS AND HOSPITALS -- 4.2%
132,900 Andrx Corp.* 5,623,331
682,200 Bristol-Myers Squibb Corp. 43,788,713
141,200 Idec Pharmaceuticals Corp.* 13,872,900
156,000 Johnson & Johnson 14,527,500
341,400 Merck & Co., Inc. 22,895,137
623,900 Pfizer, Inc. 20,237,756
494,800 Schering-Plough Corp. 20,874,375
243,000 Warner-Lambert Co. 19,910,812
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161,730,524
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ELECTRICAL EQUIPMENT -- 2.0%
68,000 DII Group, Inc.* 4,825,875
86,000 Flextronics Int'l. Ltd.* 3,956,000
449,200 General Electric Co. 69,513,700
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78,295,575
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ELECTRONICS AND INSTRUMENTS -- 0.3%
49,900 Jabil Circuit, Inc.* 3,642,700
96,900 Power Integrations, Inc.* 4,645,144
31,700 Sanmina Corp.* 3,166,037
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11,453,881
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ELECTRONICS-SEMICONDUCTORS -- 4.8%
177,000 Analog Devices, Inc.* 16,461,000
331,400 Atmel Corp.* 9,797,013
116,000 AVX Corp.* 5,792,750
66,500 Epcos AG* 4,966,719
222,700 Integrated Device Technology, Inc.* 6,458,300
1,142,800 Intel Corp. 94,066,725
240,000 Int'l. Rectifier Corp.* 6,240,000
127,100 Lattice Semiconductor Corp.* 5,989,587
423,300 LSI Logic Corp.* 28,572,750
97,000 Microchip Technology, Inc.* 6,638,437
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184,983,281
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ENTERTAINMENT AND LEISURE -- 1.1%
516,100 Blockbuster, Inc. 6,902,837
217,200 Time Warner, Inc. 15,733,425
294,000 Viacom, Inc.* 17,768,625
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40,404,887
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FINANCIAL-BANKS -- 2.8%
145,300 Chase Manhattan Corp. 11,287,994
1,126,200 Citigroup, Inc. 62,574,488
128,000 Fifth Third Bancorp 9,392,000
363,000 Firstar Corp. 7,668,375
191,300 FleetBoston Financial Corp. 6,659,631
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* Non-income producing security. See notes to financial statements.
8
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THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
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Shares Value
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4,031 M & T Bank Corp. $ 1,669,842
142,600 North Fork Bancorp 2,495,500
254,654 Premier National Bancorp, Inc. 4,695,183
15,000 U.S. Trust Corp. 1,202,812
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107,645,825
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FINANCIAL-OTHER -- 4.4%
302,400 American Express Co. 50,274,000
38,100 Dain Rauscher Corp. 1,771,650
26,900 Goldman Sachs Group, Inc. 2,533,644
137,800 Jefferies Group, Inc. 3,031,600
218,666 Legg Mason, Inc. 7,926,643
394,700 Lehman Brothers Hldgs., Inc. 33,426,156
115,000 Merrill Lynch & Co., Inc. 9,602,500
104,600 J. P. Morgan & Co., Inc. 13,244,975
245,700 Morgan Stanley Dean Witter & Co. 35,073,675
259,500 Charles Schwab Corp. 9,958,313
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166,843,156
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FINANCIAL-THRIFT -- 0.4%
768,161 Charter One Financial, Inc. 14,691,079
123,100 Commercial Federal Corp. 2,192,719
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16,883,798
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FOOD, BEVERAGE AND TOBACCO -- 0.2%
101,400 Anheuser-Busch Cos., Inc. 7,186,725
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HOUSEHOLD PRODUCTS -- 0.7%
237,600 Church & Dwight, Inc. 6,340,950
303,000 Kimberly-Clark Corp. 19,770,750
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26,111,700
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INSURANCE -- 0.0%
47,800 State Auto Financial Corp. 436,175
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MERCHANDISING-DEPARTMENT STORES -- 2.1%
129,000 Dayton Hudson Corp. 9,473,437
1,020,800 Wal-Mart Stores, Inc. 70,562,800
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80,036,237
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MERCHANDISING-SPECIAL -- 3.0%
58,500 Amazon.com, Inc.* 4,453,312
223,000 Best Buy, Inc.* 11,191,812
318,400 BJ's Wholesale Club, Inc.* 11,621,600
130,000 Costco Wholesale Corp.* 11,862,500
585,000 Home Depot, Inc. 40,109,062
300,000 Starbucks Corp.* 7,275,000
500,000 Tandy Corp. 24,593,750
112,200 Zale Corp.* 5,427,675
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116,534,711
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MISCELLANEOUS-CONSUMER GROWTH CYCLICAL -- 0.6%
93,800 Go2Net, Inc.* 8,160,600
70,000 Sapient Corp.* 9,865,625
53,000 Viant Corp.* 5,247,000
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23,273,225
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MISCELLANEOUS-CONSUMER GROWTH STAPLES -- 1.5%
149,900 Interpublic Group Cos., Inc.* 8,647,356
177,200 Intuit, Inc.* 10,620,925
158,300 Lamar Advertising Co.* 9,587,044
475,000 Valassis Comm., Inc.* 20,068,750
141,800 Young & Rubicam, Inc. 10,032,350
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58,956,425
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OIL AND GAS PRODUCING -- 1.2%
192,100 Anadarko Petroleum Corp. 6,555,413
216,000 Apache Corp. 7,978,500
132,100 Devon Energy Corp. 4,342,788
257,000 Newfield Exploration Co.* 6,874,750
431,700 Talisman Energy, Inc* 11,116,275
152,100 Vastar Resources, Inc. 8,973,900
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45,841,626
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OIL AND GAS SERVICES -- 1.3%
194,900 B.J. Svcs. Co.* 8,149,256
172,300 Cooper Cameron Corp.* 8,431,931
289,800 Halliburton Co. 11,664,450
281,200 Noble Drilling Corp.* 9,209,300
189,100 Schlumberger Ltd. 10,636,875
36,610 Transocean Sedco Forex, Inc. 1,233,291
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49,325,103
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OIL-INTEGRATED-DOMESTIC -- 0.3%
387,100 Conoco, Inc. 9,629,113
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OIL-INTEGRATED-INTERNATIONAL -- 2.3%
213,000 Chevron Corp. 18,451,125
203,700 Exxon Mobil Corp. 16,410,581
425,700 Royal Dutch Petroleum Co.* 25,728,244
498,600 Texaco, Inc. 27,080,212
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87,670,162
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PAPER AND FOREST PRODUCTS -- 1.5%
391,400 Abitibi-Consolidated, Inc. 4,647,875
87,100 Bowater, Inc. 4,730,619
125,700 Champion Int'l. Corp. 7,785,544
169,400 Georgia-Pacific Group 8,597,050
313,700 Int'l. Paper Co. 17,704,444
180,600 Mead Corp. 7,844,813
315,400 Smurfit-Stone Container Corp.* 7,727,300
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59,037,645
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PHOTOGRAPHY -- 0.4%
224,600 Eastman Kodak Co.* 14,879,750
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SEMICONDUCTORS -- 2.9%
232,700 Adaptec, Inc.* 11,605,913
623,000 Advanced Micro Devices, Inc.* 18,028,062
141,100 Kemet Corp.* 6,358,319
577,600 Micron Technology, Inc.* 44,908,400
335,200 National Semiconductor Corp.* 14,350,750
168,600 Sawtek, Inc.* 11,222,437
179,200 Vishay Intertechnology, Inc.* 5,667,200
--------------
112,141,081
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SEMICONDUCTORS-COMMUNICATIONS -- 4.8%
181,300 Altera Corp.* 8,985,681
140,000 Applied Micro Circuits Corp.* 17,815,000
85,900 Conexant Systems, Inc.* 5,701,612
333,100 Cypress Semiconductor Corp.* 10,784,113
80,900 DSP Group, Inc.* 7,523,700
74,200 Linear Technology Corp.* 5,309,937
49,900 Micrel, Inc.* 2,841,181
84,200 PMC Sierra, Inc.* 13,498,312
207,600 RF Micro Devices, Inc.* 14,207,625
217,800 Semtech Corp.* 11,352,825
246,000 Texas Instruments, Inc. 23,831,250
106,300 Transwitch Corp.* 7,713,394
76,100 Triquint Semiconductor, Inc.* 8,466,125
226,800 Vitesse Semiconductor Corp.* 11,892,825
770,000 Xilinx, Inc.* 35,010,938
--------------
184,934,518
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See notes to financial statements. * Non-income producing security.
9
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
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Shares Value
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SEMICONDUCTORS-EQUIPMENT -- 2.6%
76,400 Agilent Technologies, Inc.* 5,906,675
216,900 Applied Materials, Inc.* 27,478,519
265,600 Cadence Design Systems, Inc.* 6,374,400
101,300 Credence Systems Corp.* 8,762,450
115,000 Cymer Corp.* 5,290,000
92,500 DuPont Photomasks, Inc.* 4,463,125
110,900 KLA-Tencor Corp.* 12,351,488
96,600 Lam Resh Corp.* 10,776,937
277,500 Teradyne, Inc.* 18,315,000
--------------
99,718,594
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TELECOMMUNICATIONS -- 6.6%
571,465 AT & T Corp. 29,001,849
310,000 Bell Atlantic Corp. 19,084,375
440,000 GTE Corp. 31,047,500
764,880 MCI WorldCom, Inc.* 40,586,445
459,200 Nortel Networks Corp. 46,379,200
1,021,801 SBC Comm., Inc. 49,812,799
382,000 Sprint Corp. 25,713,375
168,000 US West, Inc. 12,096,000
--------------
253,721,543
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS-EQUIPMENT -- 7.9%
234,500 American Tower Corp.* 7,166,906
32,700 AudioCodes Ltd.* 3,008,400
110,400 Ciena Corp.* 6,348,000
516,000 Cisco Systems, Inc.* 55,276,500
142,700 CommScope, Inc.* 5,752,594
358,400 Crown Castle, Int'l.* 11,513,600
96,700 ETek Dynamics, Inc.* 13,018,237
29,000 Juniper Networks, Inc.* 9,860,000
622,300 Lucent Technologies, Inc. 46,555,819
380,000 Motorola, Inc. 55,955,000
94,700 Nokia Corp.* 17,993,000
32,400 Optical Coating Lab., Inc. 9,590,400
95,000 Pinnacle Hldgs.* 4,025,625
96,400 Proxim, Inc.* 10,604,000
178,000 QUALCOMM, Inc.* 31,350,250
167,100 Scientific Atlanta, Inc. 9,294,938
70,500 Tellabs, Inc.* 4,525,219
--------------
301,838,488
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS-SPECIALTY -- 5.7%
125,500 Advanced Fibre Comm., Inc.* 5,608,281
898,800 America Online, Inc.* 67,803,225
365,200 Exodus Comm., Inc.* 32,434,325
683,060 Global Crossing Ltd.* 34,153,000
277,400 GST Telecomm., Inc.* 2,513,937
130,600 Intermedia Comm., Inc.* 5,068,913
73,100 Level 3 Comm., Inc.* 5,985,063
95,500 Sprint PCS (FON Group)* 9,788,750
146,000 Time Warner Telecom, Inc.* 7,290,875
42,000 Williams Comm. Group* 1,215,375
78,400 Winstar Comm., Inc.* 5,899,600
96,300 Yahoo, Inc.* 41,667,806
--------------
219,429,150
- --------------------------------------------------------------------------------
TRANSPORTATION-MISCELLANEOUS -- 0.1%
38,000 United Parcel Svcs. 2,622,000
- --------------------------------------------------------------------------------
UTILITIES-ELECTRIC -- 0.6%
27,600 Calpine Corp.* 1,766,400
171,200 Energy East Corp. 3,563,100
440,400 Montana Power Co. 15,881,925
131,200 Potomac Electric Power Co. 3,009,400
--------------
24,220,825
- --------------------------------------------------------------------------------
UTILITIES-GAS & PIPELINE -- 0.2%
262,600 Keyspan Corp. 6,089,037
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $2,333,619,108) 3,717,913,015
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreement -- 3.8%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$146,725,000 State Street Bank & Trust Co.
repurchase agreement, dated
12/31/99, maturity value
$146,764,738 at 3.25%,
due 1/3/00 (1) $ 146,725,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $146,725,000) 146,725,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.6%
(COST $2,480,344,108) 3,864,638,015
LIABILITIES IN EXCESS OF CASH, RECEIVABLES
AND OTHER ASSETS -- (0.6%) (22,152,539)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $3,842,485,476
- --------------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
o THE GUARDIAN PARK AVENUE FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments, at market (cost $2,480,344,108) $ 3,864,638,015
Cash 14,963
Receivable for fund shares sold 2,938,300
Dividends receivable 1,503,518
Interest receivable 13,271
- --------------------------------------------------------------------------------
TOTAL ASSETS 3,869,108,067
- --------------------------------------------------------------------------------
LIABILITIES
Payable for securities purchased 19,395,991
Payable for fund shares redeemed 4,349,879
Accrued expenses 2,876,721
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 26,622,591
- --------------------------------------------------------------------------------
NET ASSETS $ 3,842,485,476
================================================================================
COMPONENTS OF NET ASSETS
Shares of beneficial interest, at par $ 647,917
Additional paid-in capital 2,321,034,282
Undistributed net investment income 269,418
Accumulated net realized gain on
investments 136,239,457
Net unrealized appreciation of investments 1,384,294,402
- --------------------------------------------------------------------------------
NET ASSETS $ 3,842,485,476
================================================================================
NET ASSETS:
Class A $ 3,334,721,901
Class B $ 507,763,575
- --------------------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST OUTSTANDING - $0.01 PAR VALUE
Class A 56,122,154
Class B 8,669,583
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Class A $59.42
Class B $58.57
- --------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
Class A (Net Asset Value x 104.71%)* $62.22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 26,394,370
Interest 8,016,529
Less: Foreign tax withheld (20,287)
- --------------------------------------------------------------------------------
Total Income 34,390,612
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees - Note 2 17,021,192
Administrative fees - Class A - Note 2 5,292,187
Administrative fees - Class B - Note 2 1,053,059
12b-1 fees - Note 3 3,159,177
Transfer agent fees - Class A 2,114,513
Transfer agent fees - Class B 605,332
Custodian fees 408,102
Printing expense 289,999
Registration fees 100,000
Legal fees 52,000
Audit fees 22,234
Trustees' fees - Note 2 19,000
Insurance expense 8,650
Other 700
- --------------------------------------------------------------------------------
Total Expenses 30,146,145
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 4,244,467
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS - NOTE 5
Net realized gain on
investments - Note 1 507,876,945
Net change in unrealized appreciation
of investments - Note 5 419,284,130
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 927,161,075
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 931,405,542
================================================================================
* Based on sale of less than $100,000. On sale of $100,000 or more,
the offering price is reduced.
- --------------------------------------------------------------------------------
See notes to financial statements.
11
<PAGE>
THE GUARDIAN PARK AVENUE FUND
(Continued)
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended December 31,
1999 1998
- --------------------------------------------------------------------------------
INCREASE/(DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 4,244,467 $ 18,594,966
Net realized gain on
investments 507,876,945 240,110,403
Net change in unrealized
appreciation of investments 419,284,130 321,166,359
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 931,405,542 579,871,728
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (4,338,070) (18,598,388)
Net realized gain on
investments
Class A (389,011,284) (199,305,595)
Class B (59,152,111) (25,414,666)
- --------------------------------------------------------------------------------
TOTAL DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS (452,501,465) (243,318,649)
- --------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net increase/(decrease) in net
assets from capital share
transactions-- Note 6 (16,675,323) 529,325,454
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 462,228,754 865,878,533
NET ASSETS:
Beginning of year 3,380,256,722 2,514,378,189
- --------------------------------------------------------------------------------
End of year* $ 3,842,485,476 $ 3,380,256,722
================================================================================
* Includes undistributed net
investment income of $ 269,418 $ 363,075
- --------------------------------------------------------------------------------
See notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
December 31, 1999
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
judgment 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
year ended December 31, 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 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
13
<PAGE>
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 other assets and
liabilities denominated in foreign currency as of December 31, 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 or 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 gain distributions
substantially all realized earnings by the Fund, if any.
All dividends and distributions to 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.
Taxes
The Fund qualifies and intends to remain qualified to be taxed as a
"regulated investment company" under the provisions of the Internal Revenue Code
(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.
During the year ended December 31, 1999, the Fund reclassified amounts to
paid-in capital from undistributed net investment income and accumulated net
realized gain on investments. Increases/(decreases) to the various capital
accounts were as follows:
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED GAIN/LOSS
INCOME ON INVESTMENTS
-------------- ----------------------
$(54) $54
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 is also paid to each such Trustee. 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 year ended December 31, 1999,
GPAF Class A shares paid an annualized
14
<PAGE>
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
$1,659,928 for the year ended December 31, 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 year ended December 31, 1999, GISC received CDSL charges
of $1,098,122.
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 $2,384,001,232 and $2,791,470,629, respectively, during
the year ended December 31, 1999.
The cost of investments owned at December 31, 1999 for federal income tax
purposes was substantially the same as the cost for financial reporting
purposes.
Gross unrealized appreciation and depreciation of investments excluding
foreign currency at December 31, 1999 aggregated $1,420,819,483 and $36,525,576,
respectively, resulting in net unrealized appreciation of $1,384,293,907.
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 December 31, 1999, no Institutional
Class shares of the Fund were sold. Transactions in shares of beneficial
interest were as follows:
o THE GUARDIAN PARK AVENUE FUND
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------
Shares Amount
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 27,359,054 18,152,958 $ 1,374,220,548 $ 885,038,761
Shares issued in reinvestment of
dividends and distributions 6,674,168 4,072,601 378,300,756 209,800,362
Shares repurchased (35,553,998) (14,727,389) (1,831,479,707) (721,647,093)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) (1,520,776) 7,498,170 $ (78,958,403) $ 373,192,030
===========================================================================================================
CLASS B
Shares sold 1,278,710 3,603,391 $ 68,200,561 $ 176,030,617
Shares issued in reinvestment of
distributions 1,003,393 474,635 56,213,737 24,340,017
Shares repurchased (1,161,774) (912,470) (62,131,218) (44,237,210)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE 1,120,329 3,165,556 $ 62,283,080 $ 156,133,424
===========================================================================================================
</TABLE>
NOTE 10. LINE OF CREDIT
A $100,000,000 line of credit available to The Guardian Park Avenue Fund
and the other related Guardian Fundshas been established with State Street Bank
and Trust Company and Bank of Montreal. The rate of interest charged on any
borrowing is based upon the prevailing Federal Funds rate at the time of the
loan plus .50% calculated on a 360 day basis per annum. For the year ended
December 31, 1999, none of the Funds borrowed against this line of credit.
15
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
o THE GUARDIAN PARK AVENUE FUND
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Class A
----------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $51.88 $46.12 $37.91 $33.97 $26.89
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.13 0.35 0.40 0.42 0.33
Net realized and unrealized
gain on investments 15.04 9.38 12.61 8.41 8.87
- --------------------------------------------------------------------------------------------------------------------------
Net increase from investment
operations 15.17 9.73 13.01 8.83 9.20
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income (0.08) (0.34) (0.39) (0.42) (0.33)
Distributions in excess of net
investment income -- -- -- (0.01) --
Net realized gain on investments (7.55) (3.63) (4.41) (4.46) (1.79)
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (7.63) (3.97) (4.80) (4.89) (2.12)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $59.42 $51.88 $46.12 $37.91 $33.97
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 30.25% 21.30% 34.85% 26.49% 34.28%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000's omitted) $3,334,722 $2,990,767 $2,312,632 $1,392,186 $972,275
Ratio of expenses to average
net assets 0.77% 0.78% 0.79% 0.79% 0.81%
Ratio of net investment income to
average net assets 0.24% 0.72% 0.95% 1.19% 1.07%
Portfolio turnover rate 74% 55% 50% 81% 78%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Excludes effect of sales load.
16
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
o THE GUARDIAN PARK AVENUE FUND
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
Class B
-------------------------------------------------------------
Year Ended December 31, May 1, 1996+
---------------------------------------- to December 31,
1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<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) (0.31) (0.08) 0.00 0.05
Net realized and unrealized gain
on investments 14.84 9.28 12.54 6.10
- -----------------------------------------------------------------------------------------------------------
Net increase from
investment operations 14.53 9.20 12.54 6.15
- -----------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income -- -- (0.01) (0.05)
Net realized gain on
investments (7.55) (3.63) (4.41) (4.46)
- -----------------------------------------------------------------------------------------------------------
Total dividends and distributions (7.55) (3.63) (4.42) (4.51)
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $58.57 $51.59 $46.02 $37.90
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN* 29.13 % 20.16 % 33.53 % 17.35 %
===========================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $507,764 $389,489 $201,746 $36,006
Ratio of expenses to average net assets 1.67 % 1.70 % 1.73% 1.77%(a)
Ratio of net investment income/(loss)
to average net assets (0.66)% (0.21)% 0.00% 0.04%(a)
Portfolio turnover rate 74 % 55 % 50% 81%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
* Excludes effect of sales load.
(a) Annualized.
17
<PAGE>
- --------------------------------------------------------------------------------
Report of Ernst & Young LLP Independent Auditors
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND SHAREHOLDERS
THE GUARDIAN PARK AVENUE FUND
(ONE OF THE FUNDS CONSTITUTING THE
PARK AVENUE PORTFOLIO)
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of The Guardian Park Avenue Fund (one of
the funds constituting the Park Avenue Portfolio), as of December 31, 1999, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Guardian Park Avenue Fund at December 31, 1999, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
February 11, 2000
18
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
19
<PAGE>
- --------------------------------------------------------------------------------
The Guardian/Value Line Separate Account
- ----------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS
Shares owned in underlying fund--Note 1 ....................................
Net asset value per share (NAV) ............................................
Total Assets (Shares x NAV) ..............................................
LIABILITIES
Risk charges and other liabilities .........................................
NET ASSETS--NOTE 3 .............................................................
FIFO cost ......................................................................
- --------------------------------------------------------------------------------
The Guardian/Value Line Separate Account
- ----------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME
Income:
Reinvested dividends .....................................................
Expenses--Note 4:
Mortality and expense risk charges .......................................
Net investment income/(expense) ..........................................
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 ................
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>
4,257,022 425,380 845,501 38,339 137,778 862,228 21,154,380
59.42 26.25 10.10 27.09 57.98 10.63 1.00
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
252,952,249 11,166,216 8,539,561 1,038,607 7,988,379 9,165,482 21,154,380
228,970 11,964 7,949 6,737 11,114 10,793 3,101,840
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 252,723,279 $ 11,154,252 $ 8,531,612 $ 1,031,870 $ 7,977,265 $ 9,154,689 $ 18,052,540
============= ============= ============= ============= ============= ============= =============
$ 163,373,907 $ 7,875,660 $ 6,910,644 $ 722,048 $ 4,393,747 $ 9,578,565 $ 21,154,380
- ------------------------------------------------------------------------------------------------------------------
$ 327,347 $ -- $ 81,045 $ -- $ -- $ 516,398 $ 955,618
2,276,710 103,185 78,557 11,056 75,360 93,879 309,581
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(1,949,363) (103,185) 2,488 (11,056) (75,360) 422,519 646,037
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
26,053,463 467,906 290,346 13,080 557,770 (49,624) --
29,374,403 911,384 1,196,431 51,149 667,087 -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
55,427,866 1,379,290 1,486,777 64,229 1,224,857 (49,624) --
5,332,981 1,054,499 209,585 314,595 769,651 (587,849) --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
60,760,847 2,433,789 1,696,362 378,824 1,994,508 (637,473) --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 58,811,484 $ 2,330,604 $ 1,698,850 $ 367,768 $ 1,919,148 $ (214,954) $ 646,037
============= ============= ============= ============= ============= ============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
The Guardian/Value Line Separate Account
- ----------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1998 AND 1999
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 DECEMBER 31, 1999--NOTE 3 ......................................
See notes to financial statements.
- --------------------------------------------------------------------------------
22
<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 1,405,570 329,956 --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
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
============= ============= ============= ============= ============= ============= =============
$ (1,949,363) $ (103,185) $ 2,488 $ (11,056) $ (75,360) $ 422,519 $ 646,037
26,053,463 467,906 290,346 13,080 557,770 (49,624) --
29,374,403 911,384 1,196,431 51,149 667,087 -- --
5,332,981 1,054,499 209,585 314,595 769,651 (587,849) --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
58,811,484 2,330,604 1,698,850 367,768 1,919,148 (214,954) 646,037
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,740,907 154,190 139,713 6,015 45,045 248,390 273,779
(4,977,698) (66,701) 408,644 192,943 43,024 544,964 3,854,824
(128,670) (7,161) (5,113) (832) (4,099) (6,570) (14,907)
(34,060,477) (953,742) (739,794) (44,608) (797,478) (1,602,978) (4,592,068)
10,753 765 311 29 (948) 111 (46)
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(37,415,185) (872,649) (196,239) 153,547 (714,456) (816,083) (478,418)
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- -- -- -- -- -- 92,804
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
21,396,299 1,457,955 1,502,611 521,315 1,204,692 (1,031,037 260,423
231,326,980 9,696,297 7,029,001 510,555 6,772,573 10,185,726 17,792,117
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 252,723,279 $ 11,154,252 $ 8,531,612 $ 1,031,870 $ 7,977,265 $ 9,154,689 $ 18,052,540
============= ============= ============= ============= ============= ============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN/VALUE LINE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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.
- --------------------------------------------------------------------------------
24
<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, DECEMBER 31, 1999
<TABLE>
<CAPTION>
UNITS ACCUMULATION TOTAL
OUTSTANDING UNIT VALUE UNIT VALUE
----------- ---------- ----------
<S> <C> <C> <C>
TAX-QUALIFIED ACCOUNTS
The Guardian Park Avenue Fund .................. 1,135,705.680 $221.273308 $251,301,353
Value Line Fund, Inc. .......................... 114,506.123 97.272359 11,138,281
Value Line Income and Growth Fund, Inc. ........ 87,375.567 96.917599 8,468,230
The Value Line Special Situations Fund, Inc. ... 15,217.131 67.809755 1,031,870
Value Line Leveraged Growth Investors Fund, Inc. 52,564.216 149.480887 7,857,346
Value Line U.S. Government Securities Fund, Inc. 190,189.634 46.162339 8,779,598
The Value Line Cash Fund, Inc. ................. 605,481.384 29.183200 17,669,884
NON-TAX-QUALIFIED ACCOUNTS
The Guardian Park Avenue Fund .................. 206.007 201.943931 41,602
Value Line Fund, Inc. .......................... -- 83.764438 --
Value Line Income and Growth Fund, Inc. ........ -- 91.281093 --
The Value Line Special Situations Fund, Inc. ... -- 67.481488 --
Value Line Leveraged Growth Investors Fund, Inc. 65.728 149.270845 9,811
Value Line U.S. Government Securities Fund, Inc. -- 46.163837 --
The Value Line Cash Fund, Inc. ................. 1,455.953 29.182947 42,489
------------
306,340,464
Contracts receiving annuity payments ........... 2,285,043
------------
Total Net Assets ............................... $308,625,507
============
</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 year ending December 31, 1999 was $167,352.
(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 year ending December 31, 1999
was $2,948,329.
(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
year ending December 31, 1999 amounted to $111,318; 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.
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN/VALUE LINE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- ACCUMULATION UNIT VALUES FOR THE CURRENT YEAR END AND THE FOUR PRIOR
YEAR ENDS
<TABLE>
<CAPTION>
DECEMBER 31, 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 .............. $221.273308 $171.570338 $142.844239 $106.975783 $85.415119
Value Line Fund, Inc. ...................... 97.272359 77.512813 65.095659 54.067255 44.564679
Value Line Income and Growth Fund, Inc. .... 96.917599 78.095792 61.696713 52.560176 45.222228
The The Value Line Special Situations
Fund, Inc. ................................ 67.809755 42.360815 32.938107 25.181424 23.713301
Value Line Leveraged Growth Investors,
Fund Inc. ................................. 149.480887 115.251491 83.359180 68.003247 56.152490
Value Line U.S. Government Securities
Fund, Inc. ................................ 46.162339 47.162071 44.232575 40.899347 39.743747
The Value Line Cash Fund, Inc. ............. 29.183200 28.118022 27.033761 25.974172 24.991807
NON-TAX-QUALIFIED ACCOUNTS
The Guardian Park Avenue Fund .............. 201.943931 156.582788 130.366067 97.630911 77.953689
Value Line Fund, Inc. ...................... 83.764438 66.748835 56.056010 46.559081 38.376101
Value Line Income and Growth Fund, Inc. .... 91.281093 73.553931 58.108568 49.503397 42.592212
The Value Line Special Situations Fund, Inc. 67.481488 42.155748 32.778671 25.059541 23.598522
Value Line Leveraged Growth Investors, Inc. 149.270845 115.095887 83.242057 67.907692 56.073569
Value Line U.S. Government Securities
Fund, Inc. ................................ 46.163837 47.163601 44.234002 40.900662 39.745016
The Value Line Cash Fund, Inc. ............. 29.182947 28.118022 27.033761 25.974172 24.991807
</TABLE>
NOTE 6 -- PURCHASES AND SALES
During the years ended December 31, 1999 and December 31, 1998, purchases
and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
PURCHASES PURCHASES SALES SALES
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
The Guardian Park Avenue Fund ................... $33,099,126 $26,002,121 $42,942,560 $45,532,365
Value Line Fund, Inc. ........................... 1,144,309 352,262 1,205,574 2,982,340
Value Line Income and Growth Fund, Inc. ......... 1,960,323 661,382 959,085 2,358,534
The Value Line Special Situations Fund, Inc. .... 249,997 902,468 55,301 996,627
Value Line Leveraged Growth Investors Fund, Inc. 804,132 233,089 921,501 949,895
Value Line U.S. Government Securities Fund, Inc. 1,712,234 2,500,922 2,091,920 3,571,505
The Value Line Cash Fund, Inc. .................. 10,274,443 16,376,539 9,587,243 14,315,408
----------- ----------- ----------- -----------
Total ......................................... $49,244,564 $47,028,783 $57,763,184 $70,706,674
=========== =========== =========== ===========
</TABLE>
NOTE: In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
and the Contract Owners of The Guardian/Value Line Separate Account
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Guardian Park Avenue, Value
Line, Value Line Income, Value Line Special Situations, Value Line Leveraged
Growth Investors, Value Line U.S. Government Securities and Value Line Cash
investment divisions (constituting The Guardian/Value Line Separate Account) at
December 31, 1999, and the results of each of their operations for the year then
ended and the changes in each of their net assets for each of the two years then
ended, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the management of
The Guardian Insurance & Annuity Company, Inc.; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of shares owned at December 31, 1999 by
correspondence with the transfer agents of the underlying funds, provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 16, 2000
27
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN VARIABLE ACCOUNT 1
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Investment in The Guardian Park Avenue Fund (1,201,315 shares at net asset
value of $59.42 per share; FIFO Cost, $40,062,684) ...................... $ 71,382,122
LIABILITIES
Due to The Guardian Insurance & Annuity Company, Inc. .................... 78,268
------------
NET ASSETS-- NOTE 3 ....................................................... $ 71,303,854
============
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<S> <C>
INVESTMENT INCOME
Income:
Reinvested dividends .................................................... $ 90,941
Expense:
Mortality and expense risk charges-- Note 4 ............................. 714,761
------------
Net investment income/(expense) .......................................... (623,820)
------------
REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS
Net realized gain/(loss) from sale of investments ........................ 7,470,384
Reinvested realized gain distributions ................................... 8,278,898
Net change in unrealized appreciation/(depreciation) of investments ....... 1,358,291
------------
Net realized and unrealized gain/(loss) from investments ................. 17,107,573
------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ........... $ 16,483,753
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
INCREASE/(DECREASE) FROM OPERATIONS
Net investment income/(expense) ................................... $ (623,820) $ (217,234)
Net realized gain/(loss) from sale of investments ................. 7,470,384 5,713,603
Reinvested realized gain distributions ............................ 8,278,898 4,174,062
Net change in unrealized appreciation/(depreciation) of investments 1,358,291 1,039,262
------------ ------------
Net increase/(decrease) resulting from operations ................. 16,483,753 10,709,693
------------ ------------
CONTRACT TRANSACTIONS
Net contract purchase payments .................................... 120,711 258,460
Redemptions and annuity benefits .................................. (8,242,103) (4,777,478)
------------ ------------
Net increase/(decrease) from contract transactions ................ (8,121,392) (4,519,018)
------------ ------------
ACTUARIAL INCREASE IN RESERVES FOR CONTRACTS IN PAYMENT PERIOD ..... 484,831 247,985
------------ ------------
TOTAL INCREASE/(DECREASE) IN NET ASSETS ............................ 8,847,192 6,438,660
NET ASSETS AT DECEMBER 31, 1998 .................................... 62,456,662 56,018,002
------------ ------------
NET ASSETS AT DECEMBER 31, 1999 -- NOTE 3 .......................... $ 71,303,854 $ 62,456,662
============ ============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN VARIABLE ACCOUNT 2
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Investment in The Guardian Park Avenue Fund (365,421 shares at net asset
value of $59.42 per share; FIFO Cost, $11,704,277) .................... $ 21,713,345
LIABILITIES
Due to The Guardian Insurance & Annuity Company, Inc. .................. 88,131
------------
NET ASSETS-- NOTE 3 ..................................................... $ 21,625,214
============
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME
Income:
Reinvested dividends .................................................. $ 27,220
Expense:
Mortality and expense risk charges-- Note 4 ........................... 230,939
------------
Net investment income/(expense) ........................................ (203,719)
------------
REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS
Net realized gain/(loss) from sale of investments ...................... 2,366,869
Reinvested realized gain distributions ................................. 2,504,122
Net change in unrealized appreciation/(depreciation) of investment ...... 317,536
------------
Net realized and unrealized gain/(loss) from investments ............... 5,188,527
------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 4,984,808
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
INCREASE/(DECREASE) FROM OPERATIONS
Net investment income/(expense) ................................... $ (203,719) $ (82,227)
Net realized gain/(loss) from sale of investments ................. 2,366,869 1,010,169
Reinvested realized gain distributions ............................ 2,504,122 1,295,274
Net change in unrealized appreciation/(depreciation) of investments 317,536 1,054,626
------------ ------------
Net increase/(decrease) resulting from operations ................. 4,984,808 3,277,842
------------ ------------
CONTRACT TRANSACTIONS
Net contract purchase payments .................................... 12,311 146,627
Redemptions and annuity benefits .................................. (2,768,069) (1,116,355)
------------ ------------
Net increase/(decrease) from contract transactions ................ (2,755,758) (969,728)
------------ ------------
ACTUARIAL INCREASE IN RESERVES FOR CONTRACTS IN PAYMENT PERIOD ..... 132,382 40,423
------------ ------------
TOTAL INCREASE/(DECREASE) IN NET ASSETS ............................ 2,361,432 2,348,537
NET ASSETS AT DECEMBER 31, 1998 .................................... 19,263,782 16,915,245
------------ ------------
NET ASSETS AT DECEMBER 31, 1999-- NOTE 3 ........................... $ 21,625,214 $ 19,263,782
============ ============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
29
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN VARIABLE ACCOUNT 1
THE GUARDIAN VARIABLE ACCOUNT 2
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 changed 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 years ended December 31, 1999 and December 31, 1998, VA-1
purchases of shares of the Fund aggregated $9,853,899 and $6,548,522,
respectively, and VA-2 purchases aggregated $2,668,395 and $1,592,765,
respectively. Aggregate sales of shares of the fund amounted to $9,765,451 and
$7,212,046 for VA-1 and $3,012,812 and $1,336,007 for VA-2 for the years ended
December 31, 1999 and December 31, 1998, respectively.
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 taxes 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.
- --------------------------------------------------------------------------------
30
<PAGE>
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NOTE 3 -- NET ASSETS, DECEMBER 31, 1999
At December 31, 1999, net assets for the VA-1 and VA-2 Separate Accounts
are comprised as follows:
UNITS ACCUMULATION TOTAL UNIT
OUTSTANDING UNIT VALUE VALUE
---------- ----------- -----------
VA-1 Separate Account:
VA-1 Division ........................ 97,610.018 $692.492916 $67,594,246
Contracts receiving annuity benefits . 3,709,608
-----------
$71,303,854
===========
VA-2 Separate Account:
VA-2 Division ........................ 27,723.132 $626.533647 $17,369,475
VA-19 Division ....................... 4,480.618 609.827483 2,732,404
-----------
20,101,879
Contracts receiving annuity benefits . 1,523,335
-----------
$21,625,214
===========
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 twelve months ending December 31, 1999 was $714,762 for
VA-1 and $230,939 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 YEAR AND THE FOUR PRIOR YEAR
ENDS
<TABLE>
<CAPTION>
DECEMBER 31, 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 ....... $692.492916 $536.943448 $447.042768 $334.789490 $267.313646
VA-2 Separate Account:
VA-2 Division ....... $626.533647 $458.800106 $404.462389 $302.901130 $241.852311
VA-19 Division ...... $609.827483 $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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31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
and the Contract Owners of The Guardian Variable Account 1&2
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Guardian Park Avenue
investment divisions (constituting The Guardian Variable Account 1&2) at
December 31, 1999, and the results of each of their operations for the year then
ended and the changes in each of their net assets for each of the two years then
ended, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the management of
The Guardian Insurance & Annuity Company, Inc.; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of shares owned at December 31, 1999 by
correspondence with the transfer agents of the underlying funds, provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 16, 2000
32
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<PAGE>
[LOGO] BULK RATE 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
