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GUARDIAN(SM)
PARK AVENUE VARIABLE
UNIVERSAL LIFE
December 31, 1999
Annual Report to Policyowners
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The Guardian Separate Account M
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The Guardian Stock Fund
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The Guardian Bond Fund, Inc.
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The Guardian Cash Fund, Inc.
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Gabelli Capital Asset Fund
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Baillie Gifford International Fund
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Baillie Gifford Emerging Markets Fund
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The Guardian Small Cap Stock Fund
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Value Line Centurion Fund, Inc.
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Value Line Strategic Asset Management Trust
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MFS Growth with Income Series
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MFS Emerging Growth Series
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MFS Total Return Series
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MFS Bond Series
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American Century VP International Fund
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American Century VP Value Fund
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Fidelity VIP III Growth Opportunities Portfolio
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Fidelity VIP Equity-Income Portfolio
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Fidelity VIP High Income Portfolio
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Fidelity VIP II Index 500 Portfolio
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AIM V.I. Capital Appreciation Fund
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AIM V.I. Value Fund
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Executive Office
7 Hanover Square
New York, New York 10004
Customer Service Office
7 Hanover Square
Specialty Life -- 215 B
New York, New York 10004
1-800-935-4128
Issued by:
The Guardian Insurance &
Annuity Company, Inc.
A wholly owned subsidiary of
The Guardian Life Insurance Company of America
Distributed by:
Guardian Investor Services Corporation
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Fixed-Rate Option
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The annual rate of interest for amounts deposited or renewed (on a
contract anniversary) in the Fixed Rate Option during 1999 were:
January......................5.00%
February.....................5.00%
March........................5.00%
April........................5.00%
May..........................5.00%
June.........................5.00%
July.........................5.00%
August.......................5.00%
September....................5.00%
October......................5.00%
November.....................5.00%
December.....................5.00%
Rates paid by the Fixed-Rate Option are subject to change at any time, and
may be higher or lower for new deposits or renewals, but are guaranteed from the
date of deposit or renewal to the next contract anniversary.
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Dear Policyowner:
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[Photo of Joseph D. Sargent, CLU, President & CEO]
Dear Policyowner:
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
policy's separate account and its underlying variable investment options during
the past year.
Helping You Reach Your Goals
As an owner of a variable universal life product, 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 product such as Park Avenue
Variable Universal Life 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 policy
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, CLU
Joseph D. Sargent, CLU
President and Chief Executive Officer
The Guardian Insurance & Annuity Company, Inc.
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ANNUAL REPORT FOR
Park Avenue Life
Park Avenue Variable Universal Life
Table of Contents Portfolio Schedule
Manager of
Interview Investments
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Economic Report 4
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The Guardian Stock Fund 8 52
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The Guardian Bond Fund 12 60
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The Guardian Cash Fund 26 66
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Gabelli Capital Asset Fund 14 78
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Baillie Gifford International Fund 16 88
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Baillie Gifford Emerging Markets Fund 18 94
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The Guardian Small Cap Stock Fund 20 100
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Value Line Centurion Fund 22 114
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Value Line Strategic Asset Management Trust 24 122
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MFS Growth with Income Series 133
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MFS Emerging Growth Series 157
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MFS Total Return Series 183
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MFS Bond Series 213
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American Century VP International Fund 237
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American Century VP Value Fund 263
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Fidelity VIP III Growth Opportunities Portfolio 287
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Fidelity VIP Equity-Income Portfolio 305
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Fidelity VIP High Income Portfolio 327
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Fidelity VIP II Index 500 Portfolio 351
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AIM V.I. Capital Appreciation Fund 373
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AIM V.I. Value Fund 387
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The Guardian Separate Account K 28
For Park Avenue Life Policyowners
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The Guardian Separate Account M 40
For Park Avenue Variable Universal Life Policyowners
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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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Economic Report
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[Photo of Frank J. Jones, Ph.D., Chief Investment Officer,
Co-Portfolio Manager, The Guardian Stock Fund]
Can Trees Grow to The Sky?
As of February 2000, the U.S. economy had grown for 106 consecutive months
(the current expansion began during April 1991), exceeding the longest
post-World War II expansion of 1961-69, which was supported by the Vietnam War.
And yet, the economy at present shows no significant geriatric strains.
The current stock market rally began during October 1990 (some say the
structural bull market began in 1982) and the S&P 500 Index(1) has returned over
20% for five consecutive years from 1995 through 1999, an unprecedented run.
Are these two streaks related? Can these two streaks continue? If not,
when will they end? This report addresses these key questions.
First, are they related? Obviously. Economists fret that a weakening
economy will weaken corporate profits and, thus, the stock market. On the other
hand, Alan Greenspan frets that a stock market correction will cause an economic
correction through the wealth effect, that is, funding consumption out of
wealth, rather than income. Who is right in terms of causality? Probably both. A
weakening in either the economy or the stock market could affect the other.
Can these two streaks continue? That is, can trees grow to the sky? It
seems clear that the economy and the stock market cannot continue to grow at
their recent pace. Real Gross Domestic Product (GDP) grew by 4% during 1999
(down from 4.6% during 1998), and the unemployment rate is 4.1%, the lowest
since 1969. Greenspan is appropriately concerned about labor shortages and
resulting labor cost increases, which has heretofore been mitigated by
immigration, job insecurity resulting from continuing corporate restructuring,
and other factors.
With respect to the stock market, stock prices have outgrown earnings for
several years. The price-to-earnings ratio for the S&P 500 was 31.49 at the end
of 1999, significantly the highest since World War II. The S&P 500 cannot
continue to return 20% every year - the average return over the period from
1926-1999 was 11.35%.
As the noted economist Herb Stein profoundly said, "If a trend cannot
continue, it will stop." Thus, these two trees cannot grow to the sky. But when
will they stop growing? Most immediately, will they stop growing during 2000?
This is the timely question. To put the answer before the reasoning, we expect
growth in the economy and the stock market to moderate during 2000, but do not
expect significant reversals.
Before we proceed, however, we should comment on the other major financial
market, the bond market, which is related to our expectation for 2000. If the
economy and the stock markets received grades of "A" during 1999, the bond
market received a "D-". 1999 experienced the second worst bond market
performance since 1973, the worst being 1994. This weak showing by bonds during
1999 was no surprise. During 1994, an even weaker year for bonds, the Federal
Reserve (Fed) tightened six times, increasing the Fed funds rate from 3% to
5.5%. During 1999, the Fed tightened three times, increasing the rate from 4.75%
to 5.50%.
The bond market never responds well to Fed tightening. But the three Fed
tightenings during 1999 and the two or perhaps more expected during 2000 should
moderate economic growth during 2000 to a level of about 3%-31/2%, which is
currently thought to be "sustainable," without causing a recession or even a
severe economic softening. That is, the weak bond market during 1999 planted the
seeds for a moderation in the economy during 2000.
The Economy
As indicated, as of February, the U.S. economy will have experienced its
longest post-World War II economic expansion, accompanied by a low unemployment
rate (the lowest in 29 years) and also moderate inflation. This combination of
desirable conditions, previously thought to be too good to be true, has been
referred to as the "New Economy" or "New Paradigm".
Among the reasons for this salutary environment are the following. First,
productivity has been quite high due to, among other factors, technology.
Second, monetary policy (due to Alan Greenspan) and fiscal policy (due primarily
to the strong economy resulting in a federal budget surplus) have been prudent.
Third, several factors have mitigated inflation. They include globalization, the
strong U.S. dollar, the (until recently) economic slowdown in Asia (and its
effect on commodity prices) and improved technology (including e-commerce), all
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(1) The Standard & Poor's (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.
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4
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leading to weaker pricing power. Weaker labor unions, the increased use of
"temps" and the increased use of stock options rather than salary have also
moderated wage inflation. And fourth, the strong stock market has been both a
cause and an effect of the long expansion.
Looking back, why have past economic expansions ended? The first reason
has been the inventory cycles. However, while there will be some inventory
adjustment from the fourth quarter of 1999 through the first quarter of 2000,
due to Y2K, prudent inventory management, including "just in time" inventory,
may have rendered the inventory cycle obsolete. The second is inflation (at
times caused by oil shocks) and a resulting aggressive Fed tightening. This is
the reason we had recessions in 1960, 1970, 1980 and 1990. This threat to
economic expansion is alive and well, as indicated below.
There are three risks to the current economic expansion. The first is
continued above sustainable economic growth, leading to incipient inflation,
perhaps supported by increased oil prices, resulting in an aggressive Fed
tightening of interest rates (a la 1994).
The second is the current high trade deficit (a net import of goods and
services financed by international investment in U.S. financial markets). This
excess of imports over exports has satisfied the strong U.S. demand for consumer
goods and perhaps abated inflationary forces resulting from excess demand for
domestic production. This deficit could lead to a self-reinforcing cycle of:
o Weaker U.S. Dollar;
o Withdrawal of international funds from U.S.; and
o Weaker U.S. stock and bond markets.
Finally, there is the current high consumption (that is, a low, even
negative, savings rate) supported by the "wealth effect", due to a strong stock
market and strong residential housing prices. A decline in the stock market
(which Alan Greenspan has long thought to be overvalued) could cause a
significant decline in consumption, which is approximately two-thirds of GDP,
and cause a consumption-led recession during 2000.
Our expectation for the economy is that fundamental growth will remain
unsustainably strong and the Fed will raise rates two or more times during the
first half of 2000. However, adroit Fed policy will lead to approximately 3%
growth during 2000, which may be sustainable without inflation. The two or three
Fed tightenings expected during 2000 will increase yields during the first half
of 2000, but due to moderated economic growth, yields should be lower than they
are now by the end of 2000, providing moderate returns on bonds during 2000. The
two other risks mentioned will remain, but we do not believe that they will
cause an end to the expansion during 2000.
The Stock Market
The current bull market began during October of 1990, and the S&P 500 has
returned over 500% (including dividends) since then. In addition, as indicated,
the S&P 500 has returned over 20% annually during 1995-1999. Three fundamental
reasons for the long bull market are: the decline in interest rates; high profit
growth (due largely to the long economic expansion); and the decline in the
common stock risk premium. The risk premium has declined, as more individual
investors have become comfortable with the stock market, partly due to its long
sustained growth.
The main theme of the 1999 stock market was technology stocks. Technology
stocks tend to be growth rather than value stocks, but are dispersed across
large, mid and small capitalization stocks. In this regard, the S&P 500 returned
21.04% during 1999, while the S&P 500, exclusive of its technology issues,
returned only 2% and the technology sector (which represents approximately 29.7%
of the S&P 500) returned 74.76%. In addition, for non-technology stocks, the
stock market was unforgiving for stocks with weak earnings and rewarding for
those with strong earnings (for example, during 1999 Pfizer and GE returned
- -21.50% and 53.56%, respectively). At the opposite end of the technology sector
in the return universe was the utility sector, which behaves like bonds, and
returned -5.81% (as measured by the Dow Jones Utilities Average).(2)
Our expectation for the stock market is that while the market will exhibit
considerable volatility during 2000, due both to specific events and consumer
psychology, and while the S&P 500 will not return 20% or more during 2000, the
S&P 500 return will be moderate and more consistent with average historical
returns (11.35% over the period 1926-1999). There will again, however, be
considerable disparity among sectors and stocks. In particular, while there will
again be many technology "winners," there will also be many bankruptcies and
other weaknesses within technology stocks. This would be expected because many
of 1999's technology IPOs are basically yesterday's venture capital companies
going public prematurely, at least by previous standards.
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(2) The Dow Jones Utilities Average is an unmanaged average of utility stocks
listed on the New York Stock Exchange that is generally considered to be
representative of U.S. utility sector performance.
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5
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Overview
Given our expectations for the economy and Fed behavior, bond yields
should increase early during the year, decrease later in the year, and bond
investors should experience a moderate return during 2000. Bonds returns,
however, will be much more competitive with stock returns than they were during
1999.
Stock investors, should keep their seat belts on during 2000. Volatility
due to specific events, such as earnings announcements, and other factors
related to investor psychology will be high. But overall, the stock market,
based on reasonable corporate profits, should provide reasonable returns,
although most likely not the 20% returns on the S&P 500 that we have experienced
for the last five years.
This overview would not be complete without a comment on last year's
winner, technology stocks. Our sense is that, on average, technology stocks
will, despite considerable volatility, perform well during 2000. There will be a
major difference from 1999, however. During 1999, the flow of capital into
technology stocks was bountiful and, perhaps, indiscriminate. Many technology
stocks attracted funds even in the absence of actual profits, expected profits
or even revenues.
During 2000, however, while earnings growth will remain large and capital
will continue to flow into the technology sector, the funds will flow into the
sector in a much more judicious manner. There will be some big winners and
perhaps many big losers. This outcome would not be unexpected because many of
these new corporations were fundamentally venture capital companies which were
able to conduct IPOs only because of the bountiful and indiscriminate capital
flows. The easy money in this sector is gone; it's time for the pros.
Regards,
/s/ Frank J. Jones, Ph.D.
Frank J. Jones, Ph.D.
Chief Investment Officer
The Guardian Insurance & Annuity Company, Inc.
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The Guardian Stock Fund
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[Photo of Larry Luxenberg, C.F.A., Co-Portfolio Manager]
[Photo of John B. Murphy, C.F.A., Co-Portfolio Manager]
Objective: Long-term growth of capital
Portfolio: At least 80% common stocks and securities convertible into common
stocks
Inception: April 13, 1983
Net Assets at December 31, 1999: $4,175,087,062
Q. How did the Fund perform in 1999?
A. For an unprecedented fifth consecutive year, The Guardian Stock Fund
had a return of more than 20%. The Fund earned a total return of 31.17%(1) for
the year compared to 21.04% for the S&P 500 Index,(2) a margin of 10.13%. 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 for 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) commonly
viewed now as a proxy for large technology stocks, was up over 86%, with much of
that coming late in the year.
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 that 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
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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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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.
Q. What strategies do you use to manage the Fund?
A. We have for many years employed a combination of
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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. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(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.
(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 Index is not available for
direct investment and its returns do not reflect the fees and expenses
that have been deducted from the Fund.
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quantitative techniques and fundamental judgements. We believe that this is the
best way to achieve consistently outstanding returns. As always, we continue to
refine our growing 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 interest 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 has 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 Stock Fund Profile
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Top Ten Holdings as of December 31, 1999
Percentage
Company of Net Assets
1. Microsoft Corp. 5.54%
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2. Intel Corp. 2.46%
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3. Int'l. Business Machines 2.06%
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4. Wal-Mart Stores, Inc. 1.89%
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5. General Electric Co. 1.84%
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6. America Online, Inc. 1.75%
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7. Citigroup, Inc. 1.63%
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8. EMC Corp. 1.53%
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9. Motorola, Inc. 1.45%
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10. Oracle Corp. 1.44%
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AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED DECEMBER 31, 1999
Life of Fund
1 Year 5 Years 10 Years (since 4/13/83)
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The Guardian Stock Fund 31.17% 29.48% 20.04% 18.74%
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S&P 500 Index 21.04% 28.51% 18.17% 17.50%
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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. The actual total
returns for owners of the variable annuity contracts or variable life insurance
policies that provide for investment in the Fund will be lower to reflect
separate account and contract/policy charges. Past performance is not a
guarantee of future results. Investment return and principal value will
fluctuate so that the value of your investment, when redeemed, may be worth more
or less than the original cost.
Sector Weightings of Common Stocks
as of December 31, 1999
[The following table was depicted as a pie chart in the printed material.]
Cash 4.68%
Telecommunications 18.03%
Technology 37.25%
Energy 5.18%
Basic Industries 1.58%
Financial 7.10%
Transportation 0.07%
Utilities 0.82%
Credit Cyclicals 0.15%
Consumer Services 7.70%
Capital Goods 1.87%
Consumer Cyclicals 7.65%
Consumer Staples 7.92%
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Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line graph in the printed material.]
[Plot points to come]
The Guardian Stock Fund S&P 500 Index Cost of Living
4/13/83
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
12/31/99 $177,629 $163,104 $17,232
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A hypothetical $10,000 investment made at the inception of The Guardian Stock
Fund on April 13, 1983 would have grown to $177,629 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 500 Index, a similar
hypothetical investment would now be worth $163,104. 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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The Guardian Bond Fund
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[Photo of Thomas G. Sorell, C.F.A., Co-Portfolio Manager]
[Photo of Howard W. Chin, Co-Portfolio Manager]
Q. How did the Fund perform during 1999?
A. The Fund had a total return of -0.84%(1) for the year ended December 31,
1999, while the average fund in our Lipper Intermediate Investment Grade peer
group(2) returned -0.60% for the year. The group consists of 22 variable annuity
subaccounts that invest primarily in investment grade debt with average
maturities of 5-10 years. Another commonly used benchmark, the Lehman Aggregate
Bond Index,(3) returned -0.82% in 1999.
Q. What factors affected the Fund's performance?
A. The year 1999 saw a reversal of fortunes in the fixed income market, as many
of the factors that caused the sharp outperformance of Treasuries in 1998
(relative to the spread sectors, namely corporate bonds, mortgage and
asset-backed securities and agency debt) diminished as the year progressed.
First and foremost, the three interest rate reductions undertaken by the Federal
Reserve (Fed) in 1998 to inject liquidity and restore confidence during that
year's global and domestic financial crises were fully reversed. Amidst concerns
that the domestic economy was growing at an unsustainably strong rate, the Fed
increased the Fed Funds rate by 0.75% in a series of three tightenings over the
course of 1999. Further-more, the prospects for the overseas economies improved
in 1999, so the demand for Treasuries as a safe haven eased as well.
As a result of these combined effects, Treasury yields rose substantially.
The yield on the 2-year Treasury note increased by over 1.70% to finish 1999 at
a 6.24% yield, while the 30-year bond increased by nearly 1.40% to 6.48%.
Putting this into perspective, the Treasury component of the Lehman Aggregate
Bond Index returned -2.56% in 1999, after turning in a 10.03% performance in
1998. This sharp reversal was the primary reason that the overall Lehman
Aggregate Bond Index experienced a -0.82% return in 1999, a negative return for
only the second time in Index history. In fact, during the 1990s, the Lehman
Aggregate Bond Index, which is representative of the overall fixed income
market, earned an average annual return of 7.88%.
Even though Treasuries performed poorly in 1999, the spread sectors
enjoyed a very good year as their performance cushioned much of the weakness
experienced in the Treasury sector. For example, the two major spread sectors in
the Lehman Index, corporate bonds and mortgage-backed securities (MBS), both
outperformed Treasuries handily, returning 1.75% and 1.13%, respectively, over
comparable-duration Treasuries. The corresponding averages for the 1990s were
0.43% and 0.32%, respectively.
Speaking more broadly, the last two years are excellent examples of the
benefit of owning a well-diversified bond fund. In 1998, the Fund posted a good
performance in nominal terms due to the strong performance of Treasuries, but
the performance of the spread sectors was very disappointing. On the other hand,
in 1999, the Fund's performance was negative on a nominal basis due to the
increase in overall yields, but was somewhat offset by the exceptional
performance of the spread sectors. In both cases though, the Fund's performance
benefited from our focus on asset allocation.
Much of the spread sectors' outperformance occurred in the first and
fourth quarters. All spread assets were
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"Speaking more broadly, the last two years are excellent examples of the benefit
of owning a well-diversified bond fund."
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very undervalued coming into 1999 as a result of 1998's financial turmoil, but
as investor concerns eased, spread assets came back into favor, and turned in a
strong performance in the first quarter. Part of this strong performance was
eroded during 1999's middle quarters, as the prospect of higher interest rates
dampened the demand for fixed income assets in general. However, this weakness
proved to be temporary. The rise in yields greatly mitigated many fears of
prepayment risk in MBS and additional supply in corporates, and as concerns over
Y2K diminished, spread sectors outperformed in the fourth quarter, and
experienced a strong year overall.
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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. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment for the Fund
will be lower to reflect separate account and contract policy changes.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
(3) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The Lehman
Aggregate Bond Index is not available for direct investment and the
returns do not reflect the fees and expenses that have been deducted from
the Fund.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Q. What was your investment strategy during the year?
A. The Fund's performance in 1999 was the result of a reasonably successful
asset allocation strategy. We strongly favored spread assets over Treasuries for
much of the year, and at one point, we reduced our Treasury exposure to its
lowest level in several years.
We believed that all spread assets were still undervalued at the end of
1998, and entered 1999 in a significantly overweighted position in both
corporates and MBS. This posture served us well as these sectors outperformed in
the first quarter. Following some continued strong performance by spread assets,
we reduced our exposure to corporate bonds and decreased the duration of our MBS
holdings in the second quarter as these sectors became less attractive on a
risk/return basis, especially in the context of anticipated Fed tightenings.
After some subsequent weakening in these sectors, we resumed our strategy of
overweighting spread sectors after determining that the weakening had left them
fundamentally undervalued once again. Unfortunately, this move proved to be
somewhat early, as the sectors weakened further in the third quarter in the wake
of the market's reduced liquidity and increased volatility. Nonetheless, our
exposure left the Fund well-poised going forward. In fact, both corporates and
MBS outperformed comparable duration Treasuries in each of the last four months
of 1999, as measured by the Lehman Index.
The Fund's performance in 1999 was a result of our overweighted positions
in spread product, but it was further enhanced by our security selection.
Specifically, given our positive outlooks on both the economy and the corporate
profit picture, we increased our exposure to lower-rated investment grade bonds,
which subsequently returned more than their higher-rated counterparts. In
addition, we rebalanced our holdings in the MBS sector in favor of higher coupon
(and higher yielding) mortgage passthroughs, since the higher rate and lower
volatility environments improved their risk/return outlook and reduced the need
for the prepayment protection in discount securities.
- --------------------------------------------------------------------------------
The Guardian Bond Fund Profile
as of December 31, 1999
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIOD ENDED DECEMBER 31, 1999
================================================================================
1 Year ................................................................. -0.84%
5 Years ................................................................ 7.16%
10 Years ............................................................... 7.27%
Since Inception (5/1/83) ............................................... 8.66%
- --------------------------------------------------------------------------------
Q. What is your outlook for 2000?
A. The Fund's overall strategy is to maximize the total return of a diversified
fixed income portfolio of investment-grade corporate, mortgage-backed,
asset-backed, and Treasury securities. We will continue to focus on monitoring
and balancing these risks by actively adjusting our asset allocations as
appropriate, consistent with our views on relative sector valuations. We will
not take interest rate bets, but we do recognize that the market may be facing
the end of the decline in rates that has been in place since the 1980s. In any
event, our goal will remain to identify attractive investment opportunities that
will allow us to maximize returns in the context of a well-diversified
portfolio.
- --------------------------------------------------------------------------------
Recent Asset Allocation Strategy
(% Market Values, Total at Quarter End)
[The following table was depicted as a bar graph in the printed material.]
[Plot points to come]
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line graph in the printed material.]
[Plot points to come]
Lehman Aggregate Bond Index The Guardian Bond Fund
4/29/83
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
12/31/99 $44,075 $42,625
To give you a comparison, the chart above shows the performance of a
$10,000 investment made in The Guardian Bond Fund and in the Lehman Aggregate
Bond Index.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
[Photo of Mario J. Gabelli, C.F.A., Portfolio Manager]
Objective: Growth of capital. Current income is a secondary objective
Portfolio: Primarily common and preferred stocks and other securities
representing the right to acquire common stocks
Inception: May 1, 1995
Net Assets at December 31, 1999: $176,086,158
Q. How did the Fund perform for the year ended December 31, 1999?
A: For the year ended December 31, 1999, the Gabelli Capital Asset Fund's (the
"Fund") total return was 19.81%.(1) The Standard & Poor's ("S&P") 500(2) and
Russell 2000(3) Indices had returns of 21.04% and 21.35%, respectively, over the
same period. For the three-year period ended December 31, 1999, the Fund's total
return averaged 24.02% annually, versus average annual total returns of 27.56%
and 13.08% for the S&P 500 and Russell 2000 Indices, respectively.
Q. What factors affected the Fund's performance in 1999?
A: At year-end 1999, many investors were left pondering how and why their
individual stock and/or mutual fund portfolios performed so poorly in a year in
which all the leading stock market indices posted strong gains. The answer is
simple. A relative handful of increasingly popular technology and
Internet-related stocks propelled the capitalization weighted market indices
higher, while the majority of stocks languished. If you owned these types of
companies, you were a winner. If you owned index funds, you earned respectable
returns. If you owned most anything else, especially value stocks and most value
oriented funds, you had a "dull year."
How did our largely non-tech, value-oriented portfolio perform so well in this
extremely narrow market? First, we pick businesses with good growth prospects
that are reasonably valued compared to their "intrinsic value." Secondly, we
look for a "catalyst" that will illuminate that underlying value.
The seeds for this year's performance harvest were sown four and five years ago
when we were buying telecommunications, cable television, and media stocks at
what we viewed as bargain basement prices. Our intensive research in these
groups and the identification of the catalysts that would show their value
rewarded us in 1997, 1998 and again this year.
Importantly, despite recent years' excellent performance, our holdings in these
industries remain quite reasonably valued in light of still favorable business
prospects. And, of course, we benefited from financial engineering -
particularly deals, as merger and acquisition activity was at an all time high.
Q. In what sectors do you see value?
A: As aforementioned, we believe telecommunications, cable television, and media
stocks still represent good long term value. Each of these industry groups has
strong secular growth prospects and each group is undergoing substantial change
spawned by technological advances and the ongoing elimination of regulatory
barriers. The convergence of the telephone, computer and television is well
underway. Those entities that control data transmis-
================================================================================
"For the year ended December 31, 1999, the Gabelli Capital Asset Fund's total
return was 19.81%."
================================================================================
sion pipelines (wired and wireless telecommunications and cable television
operators) and content and creativity providers (multimedia companies) will be
major beneficiaries. We also expect to see further consolidation in these
industries as companies seek to broaden their domestic and global franchises and
realize economies of scale.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deductions of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal will fluctuate so that the value of your investment, when
redeemed, may be worth more or less then the original cost.
(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 is not available for direct investment and its
returns do not reflect expenses, which have been deducted from the Fund's
return.
(3) The Russell 2000 Index is an unmanaged index of 2,000 small cap U.S.
stocks that is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The Russell 2000
Index is not available for direct investment and its returns do not
reflect the fees and expenses that have been deducted from the Fund.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
One can also make a case for quality industrial cyclicals that were largely
ignored by investors this year. At some point, investors will become wary of
paying extremely rich valuations for 1999's market darlings and recognize that
quality industrial cyclicals are excellent fundamental bargains.
Q. What is your outlook for the year 2000?
A: The long term bull market in U.S. stocks has been fueled by low inflation,
declining interest rates, strong corporate profit growth, and very favorable
supply/ demand dynamics for equities. As we write, two of the four ingredients
that have been propelling the market remain in place. Corporate profits are
expanding at an attractive rate, and demand for equities continues to outpace
supply. However, inflation has trended modestly higher and market interest rates
are at two-year peaks.
Will inflation remain in the current comfort zone? That depends on whether the
Federal Reserve Board (Fed) can effectively restrain the economy and whether
increased productivity can continue to offset rising wages in a tight labor
market. At present, nobody (including us) can answer these questions. However,
we suspect that if the economy continues to expand at a rate in excess of 5.0%
and the job market continues to tighten, there will be more serious inflationary
implications and interest rates will move even higher. If this economic scenario
unfolds, stocks will likely stall or perhaps correct. If the Fed succeeds in
cooling down the economy and inflation and interest rates stabilize around
current levels, stocks could advance in line with corporate earnings growth.
Mario J. Gabelli, C.F.A. Portfolio Manager
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund Profile
- ----------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIOD ENDED DECEMBER 31, 1999
================================================================================
1 Year .............................................................. 19.81%
3 Years ............................................................. 24.02%
Since Inception (5/1/95) ............................................ 19.49%
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line graph in the printed material.]
[Plot points to come]
Gabelli Capital Asset Fund S&P 500 Index
5/95
12/95
12/96
12/97
12/98
12/99 $22,965 $31,114
To give you a comparison, the chart above shows the performance of a $10,000
investment made in the Gabelli Capital Asset Fund and in the S&P 500 Index.
- --------------------------------------------------------------------------------
Top Ten Holdings as of December 31, 1999
- --------------------------------------------------------------------------------
1. Liberty Media Group Cl. A
- --------------------------------------------------------------------------------
2. Telephone & Data Systems Inc.
- --------------------------------------------------------------------------------
3. Cablevision Systems Corp. Cl. A
- --------------------------------------------------------------------------------
4. Viacom Inc. Cl. A
- --------------------------------------------------------------------------------
5. Media General Inc. Cl. A
- --------------------------------------------------------------------------------
6. MediaOne Group Inc.
- --------------------------------------------------------------------------------
7. Chris Craft Industries Inc
- --------------------------------------------------------------------------------
8. El Paso Electric Co.
- --------------------------------------------------------------------------------
9. Citizens Utilities Co. Cl. B
- --------------------------------------------------------------------------------
10. USA Networks Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
[Photo of R. Robin Menzies, Portfolio Manager]
Objective: Long-term capital appreciation
Portfolio: At least 80% in a diversified portfolio of common stocks of companies
domiciled outside of the United States
Inception: February 8, 1991
Net Assets at December 31, 1999: $933,543,942
Q. How did the Fund perform?
A. The Fund performed well in 1999. The total return for the year was 39.11%,(1)
compared with the total return of 27.30% of the MSCI EAFE Index.(2) Most
international markets were strong. The major European markets benefited from an
upturn in economic activity in the region, while the Japanese market was strong
as the country moved to sort out the problems of its financial sector, which
until recently has been weak. In local currency terms (Pound Sterling), the
total return of the MSCI Europe ex-UK Index(3) was 37.04%, while in Yen terms,
the MSCI Japan Index(4) total return was 46.79%. However, currency fluctuations
had a major influence upon returns for the U.S. investor. The Euro, which was
launched at the beginning of the year, was weak against the Dollar, and the MSCI
Europe ex-UK Index had a total return of only 17.84% when expressed in Dollars.
In contrast, the Japanese Yen was surprisingly strong, and in Dollar terms the
MSCI Japan Index had a 61.77% total return.
Q. What factors affected the Fund's performance?
A. The Fund outperformed the MSCI EAFE Index for a number of reasons. Baillie
Gifford specializes in picking good businesses in which to invest. We conduct a
fundamental analysis of the prospects for a company, and usually meet with the
management, before we consider whether or not to purchase its stock. In 1999, we
had a good year at picking businesses, especially in two specific areas. Those
areas were the telecommunications sector, where the Fund had an above Index
exposure to mobile telephone network companies, and in Japan, where the stocks
held by the Fund did significantly better than the MSCI Japan Index.
Q. What is your outlook for the future?
A. We still believe that inflation is likely to remain very low by historical
standards, but we have become increasingly concerned about interest rates. We
think that the cautious rate rises which began last year in Europe and the U.S.
will continue, and that this may prove unsettling for markets in the early part
of this year.
Markets have become very narrow, and their leading stocks are very
vulnerable to a setback, especially if a bout of uncertainty about the path of
interest rates provides an excuse to take profits. Nevertheless, we are
confident that the long term earnings prospects of our
================================================================================
"Baillie Gifford specializes in picking good businesses in which to invest. We
conduct a fundamental analysis of the prospects for a company, and usually meet
with the management, before we consider whether or not to purchase its stock. In
1999, we had a good year at picking businesses."
================================================================================
investments are strong and that the central banks of the world are determined to
pre-empt inflation. This is a good background for investment in the longer term.
In the meantime, it continues to be our responsibility to search for good
investments among the many stocks that were left behind by 1999's amazing rally.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is 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.
(2) The Morgan Stanley Capital International (MSCI) Europe, Australia and Far
East (EAFE) Index is an unmanaged index that is generally considered to be
representative of international stock market activity. The MSCI EAFE Index
is not available for direct investment and the returns do not reflect the
fees and expenses that have been deducted from the Fund's return.
(3) The MSCI Europe Ex-UK Index is an unmanaged index generally considered to
be representative of European stock market activity, excluding the United
Kingdom. The returns for the index do not reflect expenses that are
deducted from the Fund's return.
(4) The MSCI Japan Index is an unmanaged index generally considered to be
representative of Japanese stock market activity. The returns for the
index do not reflect expenses that are deducted from the Fund's return.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED DECEMBER 31, 1999
================================================================================
1 Year ................................................................ 39.11%
3 Years ............................................................... 23.57%
5 Years ............................................................... 19.35%
Since Inception (2/8/91) .............................................. 16.01%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line graph in the printed material.]
[Plot points to come]
Baillie Gifford International Fund The MSCI/EAFE Index
2/8/91
91
92
93
94
95
96
97
98
12/31/99 $37,447 $25,567
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Baillie Gifford International Fund and the MSCI/EAFE Index.
- --------------------------------------------------------------------------------
Portfolio Composition by Geographical
Location as of December 31, 1999
[The following points were depicted as a pie chart in the printed material.]
Pacific ex Japan 7.1%
Cash 1.5%
UK 15.6%
Europe ex UK 46.9%
Japan 28.9%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of December 31, 1999
Percent of
Company Total Net Assets Industry Sector Country
- --------------------------------------------------------------------------------
1. Mannesmann AG 4.12% Conglomerates Germany
- --------------------------------------------------------------------------------
2. Nokia OYJ 3.94% Telecommunications Finland
- --------------------------------------------------------------------------------
3. NTT Mobile Comm. Network, Inc. 3.87% Telecommunications Japan
- --------------------------------------------------------------------------------
4. Fujitsu Ltd. 2.88% Computer Systems Japan
- --------------------------------------------------------------------------------
5 Sonera OYJ 2.27% Telecommunications Finland
- --------------------------------------------------------------------------------
6 LM Ericsson 1.98% Telecommunications Sweden
- --------------------------------------------------------------------------------
7. Hitachi 1.90% Electronics Japan
- --------------------------------------------------------------------------------
8. Rohm Co. 1.89% Electronics Japan
- --------------------------------------------------------------------------------
9. Total Fina S.A. 1.80% Oil and Gas France
- --------------------------------------------------------------------------------
10. Nippon Tele. & Tel. Corp 1.79% Telecommunications Japan
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
[Photo of Edward H. Hocknell, Portfolio Manager]
Objective: Long-term capital appreciation
Portfolio: At least 65% in a portfolio of common stocks issued by emerging
market companies
Inception: October 17, 1994
Net Assets at December 31, 1999: $92,256,424
Q. How did the Fund perform in 1999?
A. 1999 has proved to be an excellent year for the emerging markets. The total
return from the MSCI Emerging Markets Free (EMF) Index(1) was 66.4% over the 12
months; our Fund outperformed, returning 72.30%.(2) Latin America has made up
some lost ground during the last three months, so the disparity in performance
between the main emerging regions, Latin America, Asia and Central Europe, is
not nearly as great as it has been in previous years. There have been some
conspicuous winners (Korea up 92.4% and Malaysia up 114.3%, for example) and
some very disappointing performances (the Czech Republic and Hungary have done
particularly badly), but the most striking divergences in returns have been
between industries rather than between countries.
Q. What factors have affected the Fund's performance?
A. We have found that sectoral themes have played an increasing role in our
analysis. Our investments in India, for example, depend more for their success
on the prospects for software and the Internet than on the ponderous progress of
the Indian economy.
Geographical factors remain very important; however, there is still plenty
of scope for politicians to get things wrong. In Asia, where many of the leading
high tech companies are based, a divide is materializing. The northern
economies, especially Korea, Taiwan, Hong Kong and China, are motoring ahead,
while the southerners, especially Thailand, Malaysia and the Philippines, are
certainly recovering, but their longer term prospects are less exciting.
Our view is that the current technology-led rally has further to go, and
that most of the sectors, companies and countries which have been left behind
still have some attraction, despite their historically significant levels of
underperformance.
In Latin America, Mexico is doing very well; the economy was growing at a
4.6% rate in the third quarter, powered by a 17% surge in exports to its
northern neighbor. Mexico's proximity to the U.S. is likely to make it the best
bet of the Latin markets. The apparent loss of momentum in the reform process in
Brazil is overshadowing the rest of the region at the moment.
Turning to Europe, the central part of the region has underperformed most
other emerging markets this year. Russia's problems, sluggish growth in Germany
and persistent inflation explain part of this, but the main reason
================================================================================
"The emerging markets are beneficiaries of accelerating world growth. With
recovery in Europe and Asia, and little evidence that the U.S. is slowing down,
conditions are very favorable."
================================================================================
is that there has been more excitement elsewhere. The region lacks a
well-developed technology sector. The most exciting market in this part of the
world is Turkey, where the government, with IMF backing, is introducing tough
reforms, and interest rates are falling as a result.
Q. What is your outlook for the future?
A. The emerging markets are beneficiaries of accelerating world growth. With
recovery in Europe and Asia, and little evidence that the U.S. is slowing down,
conditions are very favorable. Until the central banks of the developed world
apply firm pressure on the brakes, the emerging markets in general should
continue to do well. We are focusing the portfolio on those businesses,
especially in Asia, which have sustainable competitive advantages.
- --------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International (MSCI) Emerging Markets Free
(EMF) Index is an unmanaged index that is generally considered to be
representative of the stock market activity of emerging markets. The Index
is a market capitalization weighted index composed of companies
representative of the market structure of 22 emerging market countries in
Europe, Latin America, and the Pacific Basin. The MSCI EMF Index excludes
closed markets and those shares in otherwise free markets that may not be
purchased by foreigners. The MSCI EMF Index is not available for direct
investment, and the returns do not reflect the fees and expenses that have
been deducted from the Fund's return.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is 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.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund Profile
- ---------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(2)
FOR PERIODS ENDED DECEMBER 31, 1999
================================================================================
1 Year ................................................................ 72.30%
3 Years ............................................................... 8.76%
5 Years ............................................................... 9.76%
Since Inception (10/17/94) ............................................ 6.71%
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line graph in the printed material.]
[Plot points to come]
Baillie Gifford Emerging Markets Fund MSCI EMF Index
10/17/94
12/31/94
12/31/95
12/31/96
12/31/97
12/31/98
12/31/95 $13,812 $9,440
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Baillie Gifford Emerging Markets Fund and the Morgan Stanley
Capital International (MSCI) Emerging Markets Free (EMF) Index.
- --------------------------------------------------------------------------------
Portfolio Composition by Geographical
Location as of December 31, 1999
[The following table was depicted as a pie chart in the printed material.]
Pacific ex Japan 51.7%
Europe 11.1%
South Africa 6.8%
Cash 2.2%
Latin America 28.2%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Top Ten Holdings as of December 31, 1999
Percent of
Company Total Net Assets Industry Sector Country
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Infosys Technology Ltd. 5.93% Computer Software India
- ---------------------------------------------------------------------------------------------
2. NIIT Ltd. 3.22% Computer Software India
- ---------------------------------------------------------------------------------------------
3. Samsung Electronics 3.15% Electronic Equipment South Korea
- ---------------------------------------------------------------------------------------------
4. Telefonos de Mexico S.A. ADR 2.66% Telecommunications Mexico
- ---------------------------------------------------------------------------------------------
5. MIH Ltd. Tortola 2.05% Electronic Equipment South Africa
- ---------------------------------------------------------------------------------------------
6. Korea Thrunet Co. Ltd 1.92% Telecommunications South Korea
- ---------------------------------------------------------------------------------------------
7. Pohang Iron & Steel Co. Ltd. ADR 1.75% Metals South Korea
- ---------------------------------------------------------------------------------------------
8. Legend Hldgs. Ltd. 1.71% Computer Systems Hong Kong
- ---------------------------------------------------------------------------------------------
9. Taiwan Semiconductor 1.70% Electronics and Instmts. Taiwan
- ---------------------------------------------------------------------------------------------
10. United Micro Electronic 1.68% Electronics and Instmts. Taiwan
- ---------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
[Photo of Larry Luxenberg, C.F.A., Co-Portfolio Manager]
[Photo of Catherine McRae, Co-Portfolio Manager]
Objective: Long-term growth of capital
Portfolio: At least 85% in a diversified portfolio of common stocks and
convertible securities issued by companies with small market capitalization
Inception: July 16, 1997
Net Assets at December 31, 1999: $258,419,226
Q. How did the Fund perform in 1999?
A. The Guardian Small Cap Stock Fund outperformed the Russell 2000 Index(1) by
13.69% in 1999, providing a total return of 35.04%(2) versus 21.35% for the
index. But it was a year in two parts. The first six months of 1999 were
extraordinarily difficult, marked by rapid sector rotation, a lack of
leadership, and continued investor bias toward large capitalization companies.
At mid-year the Fund significantly lagged the benchmark. However, a completely
different picture began to emerge in August. Technology stocks, which had been
quiescent for months, started an upward march and gained momentum through
year-end. At the same time, small cap stocks, which looked relatively
undervalued and/or offered opportunities to participate in the New Economy,
began to overtake their large cap counterparts. The combination helped vault The
Guardian Small Cap Stock Fund ahead of the benchmark for the year.
Q. What was the investment strategy for the Fund?
A. The strategy of the Fund has always been to provide consistent, long-term
performance through a variety of tools, including fundamental analysis and
quantitative models. We applied this formula throughout the year. From a sector
standpoint, we made several bets that paid off handsomely. By late spring, we
realized that the Internet was transforming the U.S. economy. Accordingly, we
overweighted sectors that we believed would benefit from the exploding demand
for high-speed data, including optical networking, fiber channel, telecom, and
cable. Within the Internet universe, we invested in companies that were enabling
the New Economy in many ways, including: building out the Web and facilitating
the delivery of content; providing services such as Web hosting, applications
hosting, and e-mail to corporations; developing Web-centric software; operating
business-to-business trading communities; and providing Web-based procurement.
And finally, we invested heavily in radio, which has reaped the benefits of
Internet brand-building. At mid-year, technology represented approximately 25%
of the portfolio; at year-end technology topped 35% with telecom at 12.6% and
broadcasting at 9.4%.
================================================================================
"The strategy of the Fund has always been to provide consistent, long-term
performance through a variety of tools, including fundamental analysis and
quantitative models."
================================================================================
Q. What is your outlook for 2000?
A. We see more of the same for 2000. In technology, we are backing the same
themes with a bias toward software providers, which should benefit as corporate
information technology spending is redirected from Y2K to upgrading internal and
Web-based systems. In telecom, we are focusing on the "last mile" (e.g., Digital
Subscriber Line [DSL] providers and cable companies) as well as wireless and
satellite companies. We are also adding to our biotech exposure. Although we are
significantly underweighted in financials, we will add if the interest rate
backdrop becomes more benign. We believe it is an extraordinary time for small
cap investors. The emergence of the New Economy and companies formed to address
its specific requirements has created unprecedented opportunities.
- --------------------------------------------------------------------------------
(1) The Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The returns for the
Russell 2000 do not reflect expenses that are deducted from the Fund's
return.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment for the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund Profile
- -----------------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Returns(2)
for Period Ended December 31, 1999
================================================================================
1 Year ................................................................ 35.04%
Since Inception (7/16/97) ............................................. 16.25%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of December 31, 1999
Percent of
Total
Company Net Assets
- --------------------------------------------------------------------------------
1. VeriSign, Inc. 1.68%
- --------------------------------------------------------------------------------
2. Network Appliance, Inc. 1.61%
- --------------------------------------------------------------------------------
3. Citadel Comm. Corp. 1.58%
- --------------------------------------------------------------------------------
4. Valassis Comm., Inc. 1.47%
- --------------------------------------------------------------------------------
5. BJ's Wholesale Club, Inc. 1.36%
- --------------------------------------------------------------------------------
6. Zale Corp. 1.32%
- --------------------------------------------------------------------------------
7. Adelphia Comm. Corp. 1.30%
- --------------------------------------------------------------------------------
8. Applied Micro Circuits Corp. 1.24%
- --------------------------------------------------------------------------------
9. Exodus Comm., Inc. 1.23%
- --------------------------------------------------------------------------------
10. Xilinx, Inc. 1.20%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sector Weightings of Common Stocks
as of December 31, 1999
[The following table was depicted as a pie chart in the printed material.]
Credit Cyclicals 2.65%
Consumer Cyclicals 8.57%
Consumer Services 13.36%
Technology 31.29%
Financial 9.01%
Cash 8.76%
Consumer Staples 5.68%
Capital Goods 1.09%
Utilities 3.78%
Telecommunications 11.26%
Energy 2.92%
Basic Industries 1.63%
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line graph in the printed material.]
[Plot points to come]
Guardian Small Cap Stock Fund Russell 2000 Index
7/97
9/97
12/97
3/98
6/98
9/98
12/98
3/99
6/99
9/99
12/99 $12,569 $13,938
To give you a comparison, the chart above shows the performance of a $10,000
investment made in The Guardian Small Cap Stock Fund and in the Russell 2000
Index.
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund
- -------------------------
[Photo of Alan N. Hoffman, CFA,(left) and Senior Portfolio Manager, Philip J.
Orlando, CFA, Chief Investment Officer & Centurion Team Leader]
Objective: Long-term growth of capital
Portfolio: At least 90% common stocks
Inception: November 15, 1983
Net Assets at December 31, 1999: $971,372,009
Q. For the year ended December 31, 1999, how did The Value Line Centurion Fund
perform?
A. For the year ended December 31, 1999, the Fund produced an excellent total
return of 28.23%,(1) compared with total returns of 21.04% for the Standard &
Poor's 500 Index (S&P 500)(2) and 21.35% for the Russell 2000.(3)
Centurion enjoyed a powerful second half of 1999. The Fund was more than
98% invested in equities, and the emphasis was on the sectors of technology,
telecommunications, biotechnology, retail, and financial-service. Throughout
1999, Centurion was primarily invested in large-cap securities, and, as a
result, paid huge dividends because of the market's preference for these types
of stocks.
Q. What factors affected the Fund's performance, and what was your investment
strategy during this time period?
A. We had correctly anticipated that there would be a temporary surge in U.S.
Gross Domestic Product (GDP) during the second half of 1999, as many companies
spent aggressively to gain technological Y2K compliance. In addition, many
consumers and businesses shifted from a "Just in Time" to a "Just in Case"
inventory model as part of a precautionary buildup. As a result, GDP for the
third quarter of 1999 was a very strong 5.7% compared with only 1.9%
sequentially, and the fourth quarter produced a similarly robust 5.8%.
While we believed that the U.S. would be largely Y2K compliant by year
end, we anticipated that there would be pockets of the world, largely in the
Pacific Rim and Latin America, which would fail to meet the deadline and would
need to get caught up in a hurry. We also felt the large-cap technology and
telecommunications companies were particularly well positioned to benefit from
U.S. trends for compliance spending in the second half of 1999, as well as any
global remedial work for the first half of 2000, which would result in
well-above average revenue and earnings growth.
Moreover, we forecast that due to the strong economy and a "Millennium
Spirit," the holiday shopping season in 1999 would be the best of the decade. As
a result, we loaded up on many different retail stocks that we thought
================================================================================
"Centurion enjoyed a powerful second half of 1999. The Fund was more than 98%
invested in equities, and the emphasis was on the sectors of technology,
telecommunications, biotechnology, retail, and financial-service."
================================================================================
would best participate.
Q. What is your outlook for the future?
A. Looking forward, we believe that with global Y2K concerns hugely overblown,
inventory stockpiles must be worked down, which could result in significantly
slower economic growth during the first half of 2000, perhaps to a level of
about 3%.
Long bond yields have surged from a record low of 4.70% in October 1998 to
a recent high of 6.72%, the highest such level in two years, as investors have
seemingly discounted an estimated increase in interest rates of
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(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.
(3) The Russell 2000 Index is an unmanaged index that is generally considered
to be representative of small capitalization issues in the U.S. stock
market. The returns for the Russell 2000 Index do not reflect expenses
that are deducted from the Fund's returns.
(4) The Federal Reserve Board announces a bias after their Open Market
Committee (FOMC) meetings. The bias reflects the consensus of the Federal
Reserve and indicates the more likely direction that the Fed may take in
changing interest rates. There can be a tightening, easing, or neutral
bias announced. A tightening bias means that the Fed is more likely to
raise interest rates than lower them in the future. The bias is in place
until the next FOMC meeting, where the Fed may announce a change in bias,
or reaffirm their current bias.
(5) The Dow Jones Industrial Average (DJIA) is an unmanaged average of 30
industrial stocks listed on the New York Stock Exchange that is generally
considered to be representative of U.S. stock market performance.
- --------------------------------------------------------------------------------
22
<PAGE>
25 basis points (0.25%) or more by the Federal Reserve (Fed) at its upcoming
Federal Open Market Committee (FOMC) meeting on February 2nd. This gives the Fed
a free pass to raise and then hope that still higher interest rates will help to
ensure slower future economic growth.
But we do not believe that enough time will have elapsed after the
millennium calendar changeover for the Fed to fully evaluate if the economy has,
in fact, begun to slow. Rather, we would prefer that this gradualist Fed, led by
the newly re-appointed Chairman Alan Greenspan, shift to a tightening bias(4) in
February, raise rates by a quarter point (0.25%) at the March 21st FOMC meeting,
and then evaluate the subsequent pace of economic growth at the May 16th
meeting.
While long rates could retreat to about 7.00% in the near term, an
eventual slowing of the U.S. economy could spark a bond rally back to 6.00%,
which could spur the Dow Jones Industrial Average(5) to an election-year rally
that could approximate 13,000 by year end 2000.
- --------------------------------------------------------------------------------
Value Line Centurion Fund Profile
- ---------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIOD ENDED DECEMBER 31, 1999
================================================================================
1 Year ................................................................ 28.23%
5 Years ............................................................... 26.67%
10 Years .............................................................. 19.48%
Since Inception (11/15/83) ............................................ 15.75%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Allocation as of December 31, 1999
[The following table was represented as a pie chart in the printed material.]
Cash & Equivalents 1.44%
Equity 98.56%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was represented as a line chart in the printed material.]
[Plot points to come]
Value Line Centurion Fund S&P 500 Index
11/15/83
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
12/31/99 $105,731 $141,591
- --------------------------------------------------------------------------------
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Value Line Centurion Fund and in the S&P 500 Index.
- --------------------------------------------------------------------------------
Top Ten Holdings
as of December 31, 1999
Percentage
Company of Portfolio
- --------------------------------------------------------------------------------
1. Qualcomm Inc. 2.5%
- --------------------------------------------------------------------------------
2. Microsoft Corp. 2.4%
- --------------------------------------------------------------------------------
3. America Online Inc. 2.3%
- --------------------------------------------------------------------------------
4. EMC Corp. 2.2%
- --------------------------------------------------------------------------------
5. Cisco Systems Inc. 2.2%
- --------------------------------------------------------------------------------
6. General Electric Co. 2.0%
- --------------------------------------------------------------------------------
7. BMC Software Inc. 2.0%
- --------------------------------------------------------------------------------
8. Dayton Hudson Corp. 1.9%
- --------------------------------------------------------------------------------
9. VISX Inc. 1.9%
- --------------------------------------------------------------------------------
10. Omnicom Group Inc. 1.9%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
[The following points were represented as a pie chart in the printed material.]
Consumer Growth 30.59%
Capital Goods 5.69%
Technology 29.90%
Cash 1.44%
Consumer Goods (Non-Durables) 14.22%
Financial 16.62%
Utilities 1.54%
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
[Photo of Stephen E. Grant, Senior Portfolio Manager & SAM Team Leader and Bruce
H. Alston, CFA, Director of Fixed Income]
Objective: High total return consistent with reasonable risk
Portfolio: Stocks, bonds and money market instruments
Inception: October 1, 1987
Net Assets at December 31, 1999: $1,611,880,799
Q. How did the Value Line Strategic Asset Management Trust perform in 1999?
A. The Trust enjoyed another excellent year, outpacing both its benchmarks and
its peers. Total return for the year was 24.32%,(1) compared with a total return
of 21.04% for the S&P 500 Index(2) and a total return of -1.89% for the Lehman
Government/Corporate Bond Index.(3) More than half of the Trust's gains came in
the second half of the year, during which it outpaced the S&P 500 by more than
four percentage points even though only 40%-50% of assets were invested in
stocks. Since inception over 12 years ago, the Trust has essentially kept pace
with the S&P 500, while its significant holdings of bonds and cash have meant a
much-reduced risk profile for our investors.
Among its peer group, the Trust ranked 11th out of 84 funds in the
flexible variable annuity category (underlying funds) for the 12 months ending
December 31st, according to Lipper Analytical Services.(4) For five years, the
Trust ranked 4th of 57 funds; for ten years, 3rd of 43 funds.
Q. What factors affected performance last year?
A. As in 1998, the Trust benefited from the strong performance of technology
stocks. The portfolio's overweighting in this sector, relative to the S&P 500,
included holdings in computer software, computer hardware, telecommunications,
semiconductors, electronics, and the Internet.
Asset allocation also affected performance. Keep in mind that the Trust's
central tendency, or neutral position, is to be weighted 55% in stocks, 35% in
bonds, and 10% in cash. In the opening months of the year, the Trust's
overweighting in stocks, at 60% to 85% of total assets, was a plus. By May,
however, we moved the allocation back to the neutral position, and during the
summer we moved still more assets out of stocks and into bonds and cash. This
hurt performance in the final quarter of the year, which was a strong period for
stocks and a weak period for bonds. For the full year, our bond holdings had a
slightly negative effect on performance, as interest payments failed to fully
offset the decline in bond prices.
================================================================================
"As in 1998, the Trust benefited from the strong performance of technology
stocks. The portfolio's overweighting in this sector, relative to the S&P 500,
included holdings in computer software, computer hardware, telecommunications,
semiconductors, electronics, and the Internet."
================================================================================
Q. What strategies were used in structuring the portfolio?
A. Asset allocation is guided by our proprietary stock and bond market models,
which use a number of economic and financial variables. Rising stock prices in
1999, com-
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies which provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of an investment,
when redeemed, may be worth more or less than the original cost.
(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.
(3) The Lehman Government/Corporate Bond Index is an unmanaged index that is
generally considered to be representative of U.S. government and corporate
bond market activity. The Lehman Government/Corporate Bond Index is not
available for direct investment and the returns do not reflect the fees
and expenses that have been deducted from the Fund.
(4) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
bined with rising interest rates, caused the models to favor bonds and cash over
stocks as the year wore on.
For stock selection, we rely on the Value Line Timeliness Ranking System.
This proprietary tool favors stocks with strong earnings momentum and strong
stock price momentum. For bond selection, we stay with high-quality holdings,
primarily U.S. Treasuries and U.S. agencies. In 1999, we maintained average
duration and maturities that were somewhat below the benchmark index, which
proved to be a plus in this period of falling bond prices.
Q. What do you see ahead?
A. We see continued volatile markets. In the opening months of 2000, our models
continue to keep us underweighted in stocks relative to bonds and cash. To
become more positive on stocks, we would probably need to see lower interest
rates and/or lower stock prices.
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust Profile
- ---------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED DECEMBER 31, 1999
================================================================================
1 Year ................................................................ 24.32%
5 Years ............................................................... 22.24%
10 Years .............................................................. 16.94%
Since Inception (10/1/87) ............................................. 16.17%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
as of December 31, 1999
[The following table was represented as a pie chart in the printed material.]
Cash & Equivalents 16.39%
Equity 44.13%
Fixed Income 39.48%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Common Stocks as of
December 31, 1999
Percentage of
Company Portfolio
- --------------------------------------------------------------------------------
1. Cisco Systems, Inc. 1.3%
- --------------------------------------------------------------------------------
2. Qualcomm Inc. 1.3%
- --------------------------------------------------------------------------------
3. Mercury Interactive Corp. 1.2%
- --------------------------------------------------------------------------------
4. Medimmune Inc. 1.1%
- --------------------------------------------------------------------------------
5. Omnicom Group Inc. 1.1%
- --------------------------------------------------------------------------------
6. JDS Uniphase Corp. 1.0%
- --------------------------------------------------------------------------------
7. Home Depot Inc. 1.0%
- --------------------------------------------------------------------------------
8. PMC-Sierra Inc. 0.9%
- --------------------------------------------------------------------------------
9. Symbol Technologies Inc. 0.9%
- --------------------------------------------------------------------------------
10. Siebel Systems Inc. 0.9%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was represented as a line chart in the printed material.]
[Plot points to come]
<TABLE>
<CAPTION>
Value Line Strategic Asset Management Trust S&P 500 Index Lehman Brothers Government/Corporate Bond Index
<S> <C> <C> <C>
10/1/87
87
88
89
90
91
92
93
94
95
96
97
98
12/31/99 $62,757 $62,758 $27,198
</TABLE>
To give you a comparison, the chart above shows the performance of a $10,000
investment made in the Value Line Strategic Asset Management Trust, the S&P 500
Index and in the Lehman Brothers Government/Corporate Bond Index.
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund
- ----------------------
[Photo of Alexander M. Grant, Jr., Portfolio Manager]
Objective: As high a level of current income as is consistent with preservation
of capital and liquidity
Portfolio: Short-term money market instruments
Inception: November 1, 1981
Net Assets at December 31, 1999: $484,128,419
Q. How did The Guardian Cash Fund perform during 1999?
A. As of December 31, 1999, the effective 7-day annualized yield for The
Guardian Cash Fund was 5.47%.1 The Fund produced a total annualized return of
4.77%2 for the year ended December 31, 1999. In contrast, the effective 7-day
annualized yield of Tier One money market funds as measured by IBC Financial
Data was 5.15%; total return for the same category was 4.48%. IBC Financial Data
is a research firm that tracks money market funds.
Q. What was your investment strategy during the year?
A. The Guardian Cash Fund is a place for our investors to put their money while
they decide their preferred long term investment vehicle, be it stocks or bonds.
Also, some of our investors prefer the relative stability of the money markets.
To best accommodate all our investors, we will continue to try to provide a
strong 7-day yield, while offering safety and liquidity. Our investment strategy
was to create a diversified portfolio of money market instruments that presents
minimal credit risks according to our criteria. As always, we only purchased
securities from issuers that had received ratings in the two highest credit
quality categories established by nationally recognized statistical ratings
organizations like Moody's Investors Service Inc. and Standard & Poor's Ratings
Group for the Fund's portfolio. Most of the portfolio (95.8%) was invested in
commercial paper; the balance (4.2%) was invested in repurchase agreements.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $10.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE FUND.
- --------------------------------------------------------------------------------
Q. What factors affected the Fund's performance?
A. Money market funds are directly affected by the actions of the Federal
Reserve Board (Fed). The Fed's policy making Open Market Committee (FOMC) raised
the Fed Funds target rate by 0.75% to 5.50% in the second half of 1999 with
increases of 0.25% on June 30, August 24, and again on November 16. The Fed
Funds target is the rate at which banks can borrow from each other overnight.
While the Federal Reserve Board does not set this rate, it can establish a
target rate and, through open market operations, the Fed can move member banks
in the direction of that target rate. The Discount Rate is the rate at which
banks can borrow directly from the
================================================================================
"To best accommodate all our investors, we will continue to try to provide a
strong 7-day yield, while offering safety and liquidity."
================================================================================
Federal Reserve. With the increase in interest rates during the later half of
the year, 30-day Tier one commercial paper increased in yield by approximately
0.55% from 4.98% to 5.53%. Another factor affecting performance was the
portfolio's average maturity -- 21 days as of December 31, 1999. The average
Tier One money market fund as measured by IBC Financial Data had an average
maturity of 51 days. Y2K concerns caused most companies to avoid issuing
commercial paper in December. This, coupled with excess liquidity provided by
the Fed, drove year-end interest rates down to the 1-2% range.
Q. What is your outlook for 2000?
A. Uncertainty with the direction of the stock market contributes to large daily
inflows and outflows of funds in the Fund. As the stock market rallies, our
investors typically transfer cash to equity funds. During those times when the
stock market stalls, we see cash inflows. Due to the relatively short average
days-to-maturity, these daily fluctuations have little effect on the Fund.
- --------------------------------------------------------------------------------
(1) Yields are annualized historical figures. Effective yield assumes
reinvested income. Yields will vary as interest rates change. Past
performance is not a guarantee of future results.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
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.
- --------------------------------------------------------------------------------
26
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------------------
Gabelli
Guardian Guardian Guardian Capital
Stock Bond Cash Asset
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ......................... 1,894,951 99,411 275,660 56,782
Net asset value per share (NAV) ................................... 55.20 11.41 10.00 17.48
------------- ------------- ------------- -------------
Total Assets (Shares x NAV) .................................... $ 104,601,287 $ 1,134,283 $ 2,756,599 $ 992,553
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ............ 439,688 5,827 11,919 4,475
------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ........................................... $ 104,161,599 $ 1,128,456 $ 2,744,680 $ 988,078
- ------------------------------------------------------------------------------------------------------------------------------------
============= ============= ============= =============
Number of units outstanding ......................................... 3,886,140 92,085 228,387 76,285
Unit value .......................................................... 26.80 12.25 12.02 12.95
FIFO Cost ........................................................... $ 93,372,066 $ 1,212,303 $ 2,756,599 $ 985,010
<CAPTION>
-------------------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------------------
Baillie
Baillie Gifford Guardian
Gifford Emerging Small Cap Value Line
International Markets Stock Centurion
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ......................... 271,429 15,895 207,130 256,081
Net asset value per share (NAV) ................................... 26.78 12.73 17.18 36.09
------------- ------------- ------------- -------------
Total Assets (Shares x NAV) .................................... $ 7,268,866 $ 202,343 $ 3,558,487 $ 9,241,951
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ............ 29,910 713 15,398 42,826
------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ........................................... $ 7,238,956 $ 201,630 $ 3,543,089 $ 9,199,125
- ------------------------------------------------------------------------------------------------------------------------------------
============= ============= ============= =============
Number of units outstanding ......................................... 323,132 15,388 275,082 405,089
Unit value .......................................................... 22.40 13.10 12.88 22.71
FIFO Cost ........................................................... $ 5,717,346 $ 147,421 $ 2,593,697 $ 7,318,025
<CAPTION>
------------------------------
INVESTMENT DIVISIONS
------------------------------
Value Line
Strategic
Asset MFS Growth
Management with Income
----------------------------
<S> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ......................... 294,648 93,608
Net asset value per share (NAV) ................................... 29.39 21.31
------------- -------------
Total Assets (Shares x NAV) .................................... $ 8,659,708 $ 1,994,779
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ............ 35,415 8,067
------------- -------------
- ---------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ........................................... $ 8,624,293 $ 1,986,712
- ---------------------------------------------------------------------------------------------------
============= =============
Number of units outstanding ......................................... 401,104 144,482
Unit value .......................................................... 21.50 13.75
FIFO Cost ........................................................... $ 7,147,118 $ 1,852,918
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- -------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------------------
Gabelli
Guardian Guardian Guardian Capital
Stock Bond Cash Asset
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ 369,754 $ 60,839 $ 111,469 $ 1,156
Expenses-- Note 3:
Mortality and expense risk charges .............................. 529,673 5,998 14,620 3,872
------------- ------------- ------------- -------------
Net investment income/(expense) ................................... (159,919) 54,841 96,849 (2,716)
------------- ------------- ------------- -------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 1,325,605 (4,349) -- 9,887
Reinvested realized gain distributions .......................... 13,654,816 2,663 -- 93,608
------------- ------------- ------------- -------------
Net realized gain/(loss) on investments ........................... 14,980,421 (1,686) -- 103,495
Net change in unrealized appreciation/(depreciation) of investments 8,347,267 (66,810) -- 1,093
------------- ------------- ------------- -------------
Net realized and unrealized gain/(loss) from investments ............ 23,327,688 (68,496) -- 104,588
------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..... $ 23,167,769 $ (13,655) $ 96,849 $ 101,872
- ------------------------------------------------------------------------------------------------------------------------------------
============= ============= ============= =============
<CAPTION>
--------------------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------------------
Baillie
Baillie Gifford Guardian
Gifford Emerging Small Cap Value Line
International Markets Stock Centurion
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ 23,818 $ -- $ 4,393 $ 20,623
Expenses-- Note 3:
Mortality and expense risk charges .............................. 35,350 681 16,530 51,938
------------- ------------- ------------- -------------
Net investment income/(expense) ................................... (11,532) (681) (12,137) (31,315)
------------- ------------- ------------- -------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 142,151 5,796 (110,496) 239,620
Reinvested realized gain distributions .......................... 496,655 -- -- 554,526
------------- ------------- ------------- -------------
Net realized gain/(loss) on investments ........................... 638,806 5,796 (110,496) 794,146
Net change in unrealized appreciation/(depreciation) of investments 1,289,281 53,916 1,036,194 1,138,849
------------- ------------- ------------- -------------
Net realized and unrealized gain/(loss) from investments ............ 1,928,087 59,712 925,698 1,932,995
------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..... $ 1,916,555 $ 59,031 $ 913,561 $ 1,901,680
- ------------------------------------------------------------------------------------------------------------------------------------
============= ============= ============= =============
<CAPTION>
-----------------------------
INVESTMENT DIVISIONS
-----------------------------
Value Line
Strategic
Asset MFS Growth
Management with Income
----------------------------
<S> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ 67,093 $ 3,764
Expenses-- Note 3:
Mortality and expense risk charges .............................. 43,035 8,789
------------- -------------
Net investment income/(expense) ................................... 24,058 (5,025)
------------- -------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 93,618 29,918
Reinvested realized gain distributions .......................... 346,059 4,518
------------- -------------
Net realized gain/(loss) on investments ........................... 439,677 34,436
Net change in unrealized appreciation/(depreciation) of investments 979,634 69,607
------------- -------------
Net realized and unrealized gain/(loss) from investments ............ 1,419,311 104,043
------------- -------------
- ---------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..... $ 1,443,369 $ 99,018
- ---------------------------------------------------------------------------------------------------
============= =============
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
28 & 29
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------------
MFS American
Emerging MFS MFS Century VP
Growth Total Return Bond Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................... 41,680 7,831 4,576 10,586
Net asset value per share (NAV) ............................. 37.94 17.75 10.93 5.95
----------- ----------- ----------- -----------
Total Assets (Shares x NAV) .............................. $ 1,581,336 $ 139,002 $ 50,015 $ 62,984
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ...... 5,743 564 290 516
----------- ----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ..................................... $ 1,575,593 $ 138,438 $ 49,725 $ 62,468
- ----------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
Number of units outstanding ................................... 72,636 12,311 4,815 6,647
Unit value .................................................... 21.69 11.25 10.33 9.40
FIFO Cost ..................................................... $ 1,034,742 $ 139,903 $ 51,004 $ 66,821
<CAPTION>
---------------------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------------------
Fidelity
American VIP III Fidelity Fidelity
Century VP Growth VIP Equity- VIP High
International Opportunities Income Income
----------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................... 52,798 72,671 14,093 11,631
Net asset value per share (NAV) ............................. 12.50 23.15 25.71 11.31
----------- ----------- ----------- -----------
Total Assets (Shares x NAV) .............................. $ 659,971 $ 1,682,328 $ 362,329 $ 131,541
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ...... 2,653 6,026 1,508 1,051
----------- ----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ..................................... $ 657,318 $ 1,676,302 $ 360,821 $ 130,490
- ------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
Number of units outstanding ................................... 38,403 134,893 31,610 13,103
Unit value .................................................... 17.12 12.43 11.41 9.96
FIFO Cost ..................................................... $ 445,157 $ 1,634,482 $ 356,478 $ 129,522
<CAPTION>
---------------------------------------
INVESTMENT DIVISIONS
---------------------------------------
Fidelity AIM V.I.
VIP II Capital AIM V.I.
Index 500 Appreciation Value
---------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................... 24,708 13,073 107,741
Net asset value per share (NAV) ............................. 167.41 35.58 33.50
----------- ----------- -----------
Total Assets (Shares x NAV) .............................. $ 4,136,416 $ 465,144 $ 3,609,316
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ...... 13,575 2,291 10,769
----------- ----------- -----------
- --------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ..................................... $ 4,122,841 $ 462,853 $ 3,598,547
- --------------------------------------------------------------------------------------------------------
=========== =========== ===========
Number of units outstanding ................................... 281,639 27,760 218,745
Unit value .................................................... 14.64 16.67 16.45
FIFO Cost ..................................................... $ 3,711,599 $ 355,815 $ 3,160,712
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
------------------------------------------------------
INVESTMENT DIVISIONS
------------------------------------------------------
MFS American
Emerging MFS MFS Century VP
Growth Total Return Bond Value
------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ...................................... $ -- $ 1,578 $ 850 $ 913
Expenses -- Note 3:
Mortality and expense risk charges ........................ 5,295 515 246 276
----------- ----------- ----------- -----------
Net investment income/(expense) ............................. (5,295) 1,063 604 637
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ......... 46,138 1,134 31 (9,014)
Reinvested realized gain distributions .................... -- 2,927 64 8,647
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments ..................... 46,138 4,061 95 (367)
Net change in unrealized appreciation/(depreciation)
of investments ............................................ 517,484 (2,372) (1,411) (2,494)
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ...... 563,622 1,689 (1,316) (2,861)
----------- ----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 558,327 $ 2,752 $ (712) $ (2,224)
- ----------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
-------------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------------
Fidelity
American VIP III Fidelity Fidelity
Century VP Growth VIP Equity- VIP High
International Opportunities Income Income
--------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ...................................... $ -- $ 3,410 $ 1,840 $ 10,494
Expenses -- Note 3:
Mortality and expense risk charges ........................ 2,577 5,596 1,309 746
----------- ----------- ----------- -----------
Net investment income/(expense) ............................. (2,577) (2,186) 531 9,748
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ......... 7,075 12,936 3,518 (11,878)
Reinvested realized gain distributions .................... 0 6,375 4,067 392
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments ..................... 7,075 19,311 7,585 (11,486)
Net change in unrealized appreciation/(depreciation)
of investments ............................................ 211,520 23,602 (1,189) 8,124
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ...... 218,595 42,913 6,396 (3,362)
----------- ----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 216,018 $ 40,727 $ 6,927 $ 6,386
- -----------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
---------------------------------------
INVESTMENT DIVISIONS
---------------------------------------
Fidelity AIM V.I.
VIP II Capital AIM V.I.
Index 500 Appreciation Value
---------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ...................................... $ 4,912 $ 277 $ 9,040
Expenses -- Note 3:
Mortality and expense risk charges ........................ 12,947 1,993 10,504
----------- ----------- -----------
Net investment income/(expense) ............................. (8,035) (1,716) (1,464)
----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ......... 54,936 19,527 31,006
Reinvested realized gain distributions .................... 3,333 8,629 47,273
----------- ----------- -----------
Net realized gain/(loss) on investments ..................... 58,269 28,156 78,279
Net change in unrealized appreciation/(depreciation)
of investments ............................................ 387,799 96,748 436,555
----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ...... 446,068 124,904 514,834
----------- ----------- -----------
- --------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 438,033 $ 123,188 $ 513,370
- --------------------------------------------------------------------------------------------------------
=========== =========== ===========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
30 & 31
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
-----------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------
Guardian Guardian Guardian
Stock Bond Cash
-----------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 186,840 $ 34,045 $ 80,427
Net realized gain/(loss) from sale of investments ................. 536,650 4,699 --
Reinvested realized gain distributions ............................ 5,820,263 9,949 --
Net change in unrealized appreciation/(depreciation) of investments 1,589,925 (9,988) --
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 8,133,678 38,705 80,427
------------- ------------- -------------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 34,613,795 538,047 2,776,530
Transfer on account of other terminations ......................... (1,312,799) (10,800) (32,049)
Transfer of policy loans .......................................... (855,181) (19,668) (183,277)
Transfer of cost of insurance and policy fees -- Note 3 ........... (7,973,104) (102,944) (222,295)
Transfer between investment divisions ............................. (105,592) 82,476 (1,223,730)
Transfers -- other ................................................ 43,938 (172) 537
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. 24,411,057 486,939 1,115,716
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 32,544,735 525,644 1,196,143
Net Assets at December 31, 1997 ................................... 27,668,711 291,269 1,065,699
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 60,213,446 $ 816,913 $ 2,261,842
- -----------------------------------------------------------------------------------------------------------------------
============= ============= =============
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (159,919) $ 54,841 $ 96,849
Net realized gain/(loss) from sale of investments ................. 1,325,605 (4,349) --
Reinvested realized gain distributions ............................ 13,654,816 2,663 --
Change in unrealized appreciation/(depreciation) of investments ... 8,347,267 (66,810) --
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 23,167,769 (13,655) 96,849
------------- ------------- -------------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 40,171,243 564,988 2,218,578
Transfer on account of other terminations ......................... (3,434,504) (36,707) (56,117)
Transfer of policy loans .......................................... (2,780,926) (25,016) (10,943)
Transfer of cost of insurance and policy fees -- Note 3 ........... (10,206,068) (129,534) (324,257)
Transfer between investment divisions ............................. (2,907,439) (49,007) (1,442,011)
Transfers -- other ................................................ (61,922) 474 739
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. 20,780,384 325,198 385,989
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 43,948,153 311,543 482,838
Net Assets at December 31, 1998 ................................... 60,213,446 816,913 2,261,842
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 -- Note 4 ......................... $ 104,161,599 $ 1,128,456 $ 2,744,680
- -----------------------------------------------------------------------------------------------------------------------
============= ============= =============
<CAPTION>
-----------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------
Baillie
Gabelli Baillie Gifford
Capital Gifford Emerging
Asset International Markets
------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (155) $ 615 $ (6)
Net realized gain/(loss) from sale of investments ................. (5,571) 88,794 581
Reinvested realized gain distributions ............................ 13,612 206,536 --
Net change in unrealized appreciation/(depreciation) of investments 6,450 267,513 1,007
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 14,336 563,458 1,582
------------- ------------- -------------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 258,656 2,143,109 27,595
Transfer on account of other terminations ......................... (229) (124,051) --
Transfer of policy loans .......................................... (54,075) (49,072) (15,106)
Transfer of cost of insurance and policy fees -- Note 3 ........... (36,899) (495,103) (1,203)
Transfer between investment divisions ............................. 100,671 105,839 6,275
Transfers -- other ................................................ 2,837 8,014 (333)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. 270,961 1,588,736 17,228
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 285,297 2,152,194 18,810
Net Assets at December 31, 1997 ................................... -- 2,132,879 --
------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 285,297 $ 4,285,073 $ 18,810
- ------------------------------------------------------------------------------------------------------------------------
============= ============= =============
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (2,716) $ (11,532) $ (681)
Net realized gain/(loss) from sale of investments ................. 9,887 142,151 5,796
Reinvested realized gain distributions ............................ 93,608 496,655 --
Change in unrealized appreciation/(depreciation) of investments ... 1,093 1,289,281 53,916
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 101,872 1,916,555 59,031
------------- ------------- -------------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 559,201 2,350,183 62,476
Transfer on account of other terminations ......................... (5,615) (322,891) (178)
Transfer of policy loans .......................................... (17,743) (170,218) (5,752)
Transfer of cost of insurance and policy fees -- Note 3 ........... (123,479) (570,782) (14,180)
Transfer between investment divisions ............................. 188,975 (244,599) 81,037
Transfers -- other ................................................ (430) (4,365) 386
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. 600,909 1,037,328 123,789
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 702,781 2,953,883 182,820
Net Assets at December 31, 1998 ................................... 285,297 4,285,073 18,810
------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 -- Note 4 ......................... $ 988,078 $ 7,238,956 $ 201,630
- ------------------------------------------------------------------------------------------------------------------------
============= ============= =============
<CAPTION>
---------------------------------
INVESTMENT DIVISIONS
---------------------------------
Guardian
Small Cap Value Line
Stock Centurion
---------------------------------
<S> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (4,060) $ (15,517)
Net realized gain/(loss) from sale of investments ................. (14,581) 44,526
Reinvested realized gain distributions ............................ 7,863 285,700
Net change in unrealized appreciation/(depreciation) of investments (69,553) 818,004
------------- -------------
Net increase/(decrease) resulting from operations ................. (80,331) 1,132,713
------------- -------------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 1,490,969 2,588,770
Transfer on account of other terminations ......................... (4,832) (159,004)
Transfer of policy loans .......................................... (4,262) (166,387)
Transfer of cost of insurance and policy fees -- Note 3 ........... (253,132) (625,378)
Transfer between investment divisions ............................. 407,408 14,975
Transfers -- other ................................................ 12,028 13,570
------------- -------------
Net increase/(decrease) from policy transactions .................. 1,648,179 1,666,546
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 1,567,848 2,799,259
Net Assets at December 31, 1997 ................................... 224,488 3,165,728
------------- -------------
- ---------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 1,792,336 $ 5,964,987
- ---------------------------------------------------------------------------------------------------------
============= =============
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (12,137) $ (31,315)
Net realized gain/(loss) from sale of investments ................. (110,496) 239,620
Reinvested realized gain distributions ............................ -- 554,526
Change in unrealized appreciation/(depreciation) of investments ... 1,036,194 1,138,849
------------- -------------
Net increase/(decrease) resulting from operations ................. 913,561 1,901,680
------------- -------------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 1,522,695 2,926,594
Transfer on account of other terminations ......................... (169,392) (682,439)
Transfer of policy loans .......................................... (21,737) (272,806)
Transfer of cost of insurance and policy fees -- Note 3 ........... (363,566) (758,065)
Transfer between investment divisions ............................. (131,585) 106,401
Transfers -- other ................................................ 777 12,773
------------- -------------
Net increase/(decrease) from policy transactions .................. 837,192 1,332,458
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 1,750,753 3,234,138
Net Assets at December 31, 1998 ................................... 1,792,336 5,964,987
------------- -------------
- ---------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 -- Note 4 ......................... $ 3,543,089 $ 9,199,125
- ---------------------------------------------------------------------------------------------------------
============= =============
<CAPTION>
---------------------------------
INVESTMENT DIVISIONS
---------------------------------
Value Line
Strategic
Asset MFS Growth
Management with Income
-------------------------------
<S> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 77,238 $ (2,240)
Net realized gain/(loss) from sale of investments ................. 34,594 18,898
Reinvested realized gain distributions ............................ 292,034 --
Net change in unrealized appreciation/(depreciation) of investments 516,114 72,163
------------- -------------
Net increase/(decrease) resulting from operations ................. 919,980 88,821
------------- -------------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 2,416,789 612,543
Transfer on account of other terminations ......................... (128,388) (354)
Transfer of policy loans .......................................... (75,052) (2,197)
Transfer of cost of insurance and policy fees -- Note 3 ........... (541,143) (97,445)
Transfer between investment divisions ............................. (147,784) 135,765
Transfers -- other ................................................ 4,187 5,742
------------- -------------
Net increase/(decrease) from policy transactions .................. 1,528,609 654,054
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 2,448,589 742,875
Net Assets at December 31, 1997 ................................... 2,541,939 45,558
------------- -------------
- -------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 4,990,528 $ 788,433
- -------------------------------------------------------------------------------------------------------
============= =============
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 24,058 $ (5,025)
Net realized gain/(loss) from sale of investments ................. 93,618 29,918
Reinvested realized gain distributions ............................ 346,059 4,518
Change in unrealized appreciation/(depreciation) of investments ... 979,634 69,607
------------- -------------
Net increase/(decrease) resulting from operations ................. 1,443,369 99,018
------------- -------------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 2,975,722 1,394,529
Transfer on account of other terminations ......................... (176,858) (21,141)
Transfer of policy loans .......................................... (186,814) (16,235)
Transfer of cost of insurance and policy fees -- Note 3 ........... (741,671) (301,635)
Transfer between investment divisions ............................. 324,318 42,884
Transfers -- other ................................................ (4,301) 859
------------- -------------
Net increase/(decrease) from policy transactions .................. 2,190,396 1,099,261
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 3,633,765 1,198,279
Net Assets at December 31, 1998 ................................... 4,990,528 788,433
------------- -------------
- -------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 -- Note 4 ......................... $ 8,624,293 $ 1,986,712
- -------------------------------------------------------------------------------------------------------
============= =============
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
32 & 33
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- -------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
December 31, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------------
MFS American
Emerging MFS MFS Century VP
Growth Total Return Bond Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (448) $ (49) $ (44) $ (240)
Net realized gain/(loss) from sale of investments ................. (6,069) 104 14 (299)
Reinvested realized gain distributions ............................ 285 -- -- --
Net change in unrealized appreciation/(depreciation) of investments 29,110 1,471 422 (1,343)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 22,878 1,526 392 (1,882)
----------- ----------- ----------- -----------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 73,952 26,474 17,904 19,991
Transfer on account of other terminations ......................... (3,396) -- -- --
Transfer of policy loans .......................................... (81) -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (13,871) (3,575) (2,913) (3,222)
Transfer between investment divisions ............................. 108,559 20,407 6,895 61,095
Transfers -- other ................................................ (491) (64) 184 96
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 164,672 43,242 22,070 77,960
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 187,550 44,768 22,462 76,078
Net Assets at December 31, 1997 ................................... -- -- -- --
----------- ----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 187,550 $ 44,768 $ 22,462 $ 76,078
- -------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (5,295) $ 1,063 $ 604 $ 637
Net realized gain/(loss) from sale of investments ................. 46,138 1,134 31 (9,014)
Reinvested realized gain distributions ............................ -- 2,927 64 8,647
Change in unrealized appreciation/(depreciation) of investments ... 517,484 (2,372) (1,411) (2,494)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 558,327 2,752 (712) (2,224)
----------- ----------- ----------- -----------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 614,914 112,985 33,617 57,899
Transfer on account of other terminations ......................... (17,418) (1,083) (962) (10,430)
Transfer of policy loans .......................................... (32,357) (1,127) -- (3,325)
Transfer of cost of insurance and policy fees -- Note 3 ........... (123,113) (19,249) (4,805) (10,005)
Transfer between investment divisions ............................. 386,324 (587) 142 (44,632)
Transfers -- other ................................................ 1,366 (21) (17) (893)
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 829,716 90,918 27,975 (11,386)
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 1,388,043 93,670 27,263 (13,610)
Net Assets at December 31, 1998 ................................... 187,550 44,768 22,462 76,078
----------- ----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999-- Note 4 .......................... $ 1,575,593 $ 138,438 $ 49,725 $ 62,468
- -------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
--------------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------------
Fidelity
American VIP III Fidelity Fidelity
Century VP Growth VIP Equity- VIP High
International Opportunities Income Income
--------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (76) $ (430) $ (199) $ (305)
Net realized gain/(loss) from sale of investments ................. (79) 502 (214) (857)
Reinvested realized gain distributions ............................ -- -- -- --
Net change in unrealized appreciation/(depreciation) of investments 3,294 24,244 7,040 (6,105)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 3,139 24,316 6,627 (7,267)
----------- ----------- ----------- -----------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 64,812 165,731 109,160 75,300
Transfer on account of other terminations ......................... (5) -- -- --
Transfer of policy loans .......................................... (21,697) -- (310) --
Transfer of cost of insurance and policy fees -- Note 3 ........... (4,600) (23,212) (9,674) (8,144)
Transfer between investment divisions ............................. 13,788 148,154 9,125 49,168
Transfers -- other ................................................ 632 1,297 (453) 212
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 52,930 291,970 107,848 116,536
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 56,069 316,286 114,475 109,269
Net Assets at December 31, 1997 ................................... -- -- -- --
----------- ----------- ----------- -----------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 56,069 $ 316,286 $ 114,475 $ 109,269
- --------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (2,577) $ (2,186) $ 531 $ 9,748
Net realized gain/(loss) from sale of investments ................. 7,075 12,936 3,518 (11,878)
Reinvested realized gain distributions ............................ -- 6,375 4,067 392
Change in unrealized appreciation/(depreciation) of investments ... 211,520 23,602 (1,189) 8,124
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 216,018 40,727 6,927 6,386
----------- ----------- ----------- -----------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 187,691 1,338,771 193,907 90,046
Transfer on account of other terminations ......................... (389) (3,633) (2,488) (564)
Transfer of policy loans .......................................... (2,111) (4,189) (1,718) (2,052)
Transfer of cost of insurance and policy fees -- Note 3 ........... (36,461) (215,706) (37,721) (18,326)
Transfer between investment divisions ............................. 235,492 204,866 87,452 (54,633)
Transfers -- other ................................................ 1,009 (820) (13) 364
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 385,231 1,319,289 239,419 14,835
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 601,249 1,360,016 246,346 21,221
Net Assets at December 31, 1998 ................................... 56,069 316,286 114,475 109,269
----------- ----------- ----------- -----------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999-- Note 4 .......................... $ 657,318 $ 1,676,302 $ 360,821 $ 130,490
- --------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
---------------------------------------
INVESTMENT DIVISIONS
---------------------------------------
Fidelity AIM V.I.
VIP II Capital AIM V.I.
Index 500 Appreciation Value
---------------------------------------
<S> <C> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (628) $ (106) $ 308
Net realized gain/(loss) from sale of investments ................. 1,314 (506) 688
Reinvested realized gain distributions ............................ -- 3,390 5,068
Net change in unrealized appreciation/(depreciation) of investments 37,019 12,582 12,049
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 37,705 15,360 18,113
----------- ----------- -----------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 194,140 118,325 115,212
Transfer on account of other terminations ......................... (747) (6) (214)
Transfer of policy loans .......................................... (16,813) -- (80)
Transfer of cost of insurance and policy fees -- Note 3 ........... (33,332) (5,794) (16,662)
Transfer between investment divisions ............................. 166,538 11,414 14,597
Transfers -- other ................................................ 4,672 (255) (1,155)
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 314,458 123,684 111,698
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 352,163 139,044 129,811
Net Assets at December 31, 1997 ................................... -- -- --
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 352,163 $ 139,044 $ 129,811
- ---------------------------------------------------------------------------------------------------------------
=========== =========== ===========
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (8,035) $ (1,716) $ (1,464)
Net realized gain/(loss) from sale of investments ................. 54,936 19,527 31,006
Reinvested realized gain distributions ............................ 3,333 8,629 47,273
Change in unrealized appreciation/(depreciation) of investments ... 387,799 96,748 436,555
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 438,033 123,188 513,370
----------- ----------- -----------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 2,439,592 151,803 1,539,999
Transfer on account of other terminations ......................... (12,948) (743) (18,182)
Transfer of policy loans .......................................... (24,709) -- 1,007
Transfer of cost of insurance and policy fees -- Note 3 ........... (393,386) (27,896) (229,233)
Transfer between investment divisions ............................. 1,326,464 77,662 1,668,384
Transfers -- other ................................................ (2,368) (205) (6,609)
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 3,332,645 200,621 2,955,366
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 3,770,678 323,809 3,468,736
Net Assets at December 31, 1998 ................................... 352,163 139,044 129,811
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999-- Note 4 .......................... $ 4,122,841 $ 462,853 $ 3,598,547
- ---------------------------------------------------------------------------------------------------------------
=========== =========== ===========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
34 & 35
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ----------------------
Note 1 -- Organization
- ----------------------
The Guardian Separate Account K (the Account), a unit investment trust
registered under the Investment Company Act of 1940, as amended, was established
by The Guardian Insurance & Annuity Company, Inc. (GIAC) on September 1, 1995
and commenced operations on October 1, 1995. GIAC is a wholly owned subsidiary
of The Guardian Life Insurance Company of America (Guardian). GIAC issues the
annual premium variable life insurance policies offered through the Account.
GIAC provides for variable accumulations and benefits under the policies by
crediting the net premium payments to one or more investment divisions
established within the Account, or to the Fixed Rate Option (FRO), as selected
by the policyowner. Amounts allocated to the FRO are maintained by GIAC in its
general account. The policyowner also has the ability to transfer his or her
policy value among the investment divisions within the Account.
The Account currently comprises twenty-one investment divisions which
invest in shares of the following mutual funds: The Guardian Stock Fund (GSF),
The Guardian Bond Fund, Inc. (GBF), The Guardian Cash Fund, Inc. (GCF), Gabelli
Capital Asset Fund, Baillie Gifford International Fund (BGIF), Baillie Gifford
Emerging Markets Fund (BGEMF), The Guardian Small Cap Stock Fund (GSCF), Value
Line Centurion Fund, Inc., Value Line Strategic Asset Management Trust, MFS
Growth with Income Series, MFS Emerging Growth Series, MFS Total Return Series,
MFS Bond Series, American Century VP Value Fund, American Century VP
International Fund, Fidelity VIP III Growth Opportunities Portfolio, Fidelity
VIP Equity-Income Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP II
Index 500 Portfolio, AIM V.I. Capital Appreciation Fund, and AIM V.I. Value Fund
(collectively, the Funds and individually, a Fund). However, a policyowner may
only invest in up to seven investment divisions, including the FRO.
GSF, GBF, GCF and GSCF each has an investment advisory agreement with
Guardian Investor Services Corporation, a wholly owned subsidiary of GIAC. BGIF
and BGEMF are managed by Guardian Baillie Gifford Ltd., a joint venture company
formed by GIAC and Baillie Gifford Overseas Ltd.
Under applicable insurance law, the assets and liabilities of the Account
are clearly identified and distinguished from the other assets and liabilities
of GIAC. The assets of the Account will not be charged with any liabilities
arising out of any other business conducted by GIAC, but the obligations of the
Account, including the promise to make benefit payments, are obligations of
GIAC.
The changes in net assets maintained in the Account provide the basis for
the periodic determination of benefits under the policies. The net assets may
not be less than the amount required under state insurance laws to provide for
death benefits (without regard to the minimum death benefit guarantee) and other
policy benefits. Additional assets are held in GIAC's general account to cover
the contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
- -----------------------------------------
Note 2 -- Significant Accounting Policies
- -----------------------------------------
The following is a summary of significant accounting policies of the
Account.
Investments
(a) Net proceeds from the sale of annual premium variable life insurance
policies are invested by the Account's investment divisions in shares of the
corresponding Funds at the net asset value of each Fund's shares. All
distributions made by a Fund are reinvested in shares of the same Fund.
(b) The market value of the investments in the Funds is based on the net
asset value of the respective Funds as of' their close of business on the
valuation date.
(c) Investment transactions are accounted for on the trade date and income
is recorded on the ex-dividend date.
(d) The cost of investments sold is determined on a first in, first out
(FIFO) basis.
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
- --------------------------------------
Note 3 -- Administrative and Mortality
and Expense Risk Charges
- --------------------------------------
GIAC assumes mortality and expense risk related to the operations of the
Account. To cover these risks, GIAC deducts a daily charge from the net assets
of the policyowner's account which, on an annual basis, is equal to a rate of
.60% of the policy account value. For the year ended December 31, 1999 this
amount was $ 752,490.
Under the terms of the policy, GIAC also deducts certain charges from the
policy account value. These other contractual charges are deducted by redeeming
units of the investment divisions and consist of:
a) a monthly charge for the cost of life insurance, based on the face
value of the policyowner's insurance inforce, as compensation for the
anticipated cost of paying death benefits. For the years ended December 31, 1999
and December 31, 1998, deductions for cost of life insurance amounted to
$9,818,037 and $6,920,312, respectively.
b) policy and administrative fees which vary with the face amount, age of
the insured or the duration of the contract. For the years ended December 31,
1999 and December 31, 1998 these fees amounted to $4,831,100 and $3,553,333,
respectively.
c) an annual state premium tax charge as a percentage of the basic
premium. This rate varies by state of jurisdiction. The annual state premium tax
charge for the year ended December 31, 1999 was $ 1,551,577.
Currently, GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
Under current laws, GIAC may incur state and local taxes in several
states. At present, these taxes are not significant. In the event of a material
change in applicable state or local tax laws, GIAC reserves the right to charge
the Account for such taxes, if any, which are attributable to the Account.
- --------------------------------------
Note 4-- Net Assets, December 31, 1999
- --------------------------------------
At December 31, 1999, net assets of the Account were as follows:
Accumulation of
Variable Life Insurance
Policyowners' Accounts $110,316,570
Owned by GIAC 42,335,444
------------
$152,652,014
============
The amount retained by GIAC in the Account is comprised of amounts
accruing to GIAC from the operations of the Account and retained therein.
Amounts retained by GIAC in the Account may be transferred by GIAC to its
general account.
- --------------------------------------------------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
- -----------------------------
Note 5 -- 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 Stock Fund .............. $40,197,732 $32,802,820 $ 5,716,777 $ 2,176,893
The Guardian Bond Fund, Inc. ......... 552,238 665,277 167,539 130,957
The Guardian Cash Fund, Inc. ......... 3,523,728 3,391,687 3,039,269 2,187,271
Gabelli Capital Asset Fund ........... 816,264 380,959 120,592 95,937
Baillie Gifford International Fund ... 2,323,392 2,354,699 788,593 543,283
Baillie Gifford Emerging Markets Fund 143,195 41,680 19,406 24,426
The Guardian Small Cap Stock Fund .... 1,313,504 1,954,094 478,918 296,386
Value Line Centurion Fund, Inc. ...... 3,024,194 2,479,523 1,151,586 520,585
Value Line Strategic Asset
Management Trust ................... 3,123,122 2,338,163 547,573 423,202
MFS Growth with Income Series ........ 1,467,895 857,518 363,353 203,463
MFS Emerging Growth Series ........... 1,021,280 220,378 191,565 55,421
MFS Total Return Series .............. 130,430 50,152 35,006 6,910
MFS Bond Series ...................... 32,771 22,992 3,882 922
American Century VP Value Fund ....... 94,078 80,227 95,904 2,267
American Century VP International Fund 428,929 88,448 43,698 35,518
Fidelity VIP III Growth Opportunities
Portfolio .......................... 1,458,472 308,523 129,398 16,553
Fidelity VIP Equity Income Portfolio . 289,600 119,735 44,276 11,887
Fidelity VIP High Income Portfolio ... 106,545 123,681 80,823 7,146
Fidelity VIP II Index 500 Portfolio .. 3,678,236 366,042 337,346 51,584
AIM V.I. Capital Appreciation Fund ... 341,453 142,957 131,925 15,691
AIM V.I. Value Fund .................. 3,167,787 131,546 156,107 14,207
----------- ----------- ----------- -----------
Total .............................. $67,234,845 $48,921,101 $13,643,536 $ 6,820,509
----------- ----------- ----------- -----------
</TABLE>
In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
38
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
and the Contract Owners of The Guardian Separate Account K
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the Guardian Stock,
Guardian Bond, Guardian Cash, Gabelli Capital Asset, Baillie Gifford
International, Baillie Gifford Emerging Markets, Guardian Small Cap Stock, Value
Line Centurion, Value Line Strategic Asset Management, MFS Growth with Income,
MFS Emerging Growth, MFS Total Return, MFS Bond, American Century VP Value,
American Century VP International, Fidelity VIP III Growth Opportunities,
Fidelity VIP Equity-Income, Fidelity VIP High Income, Fidelity VIP II Index 500,
AIM V.I. Capital Appreciation and AIM V.I. Value investment divisions
(constituting The Guardian Separate Account K) 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/ PricewaterhouseCooper LLP
New York, New York
February 20, 2000
- --------------------------------------------------------------------------------
39
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M
- -------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
----------------------------------------------------------
INVESTMENT DIVISIONS
----------------------------------------------------------
Gabelli
Guardian Guardian Guardian Capital
Stock Bond Cash Asset
----------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ......................... 95,770 8,368 64,105 16,514
Net asset value per share (NAV) ................................... 55.20 11.41 10.00 17.48
----------- ----------- ----------- -----------
Total Assets (Shares x NAV) .................................... $ 5,286,515 $ 95,480 $ 641,051 $ 288,672
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ............ 25,969 708 5,158 1,539
----------- ----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ........................................... $ 5,260,546 $ 94,772 $ 635,893 $ 287,133
- -----------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
Number of units outstanding ......................................... 347,119 9,099 59,044 22,296
Unit value .......................................................... 15.15 10.42 10.77 12.88
FIFO Cost ........................................................... $ 4,914,230 $ 100,978 $ 641,051 $ 293,725
<CAPTION>
-------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------
Baillie
Baillie Gifford Guardian
Gifford Emerging Small Cap
International Markets Stock
-------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ......................... 13,848 1,848 14,842
Net asset value per share (NAV) ................................... 26.78 12.73 17.18
----------- ----------- -----------
Total Assets (Shares x NAV) .................................... $ 370,846 $ 23,529 $ 254,993
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ............ 1,856 157 2,524
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ........................................... $ 368,990 $ 23,372 $ 252,469
- ---------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
Number of units outstanding ......................................... 23,585 1,794 20,891
Unit value .......................................................... 15.65 13.03 12.09
FIFO Cost ........................................................... $ 309,766 $ 17,106 $ 183,570
<CAPTION>
-------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------
Value Line
Strategic
Value Line Asset MFS Growth
Centurion Management with Income
-------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ......................... 13,498 30,902 19,637
Net asset value per share (NAV) ................................... 36.09 29.39 21.31
----------- ----------- -----------
Total Assets (Shares x NAV) .................................... $ 487,133 $ 908,217 $ 418,474
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ............ 1,890 3,679 2,557
----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ........................................... $ 485,243 $ 904,538 $ 415,917
- -------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
Number of units outstanding ......................................... 31,172 60,096 33,583
Unit value .......................................................... 15.57 15.05 12.38
FIFO Cost ........................................................... $ 426,574 $ 832,052 $ 396,565
</TABLE>
- --------------------------------------------------------------------------------
THE GUARDIAN SEPARATE ACCOUNT M
- -------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
----------------------------------------------------------
INVESTMENT DIVISIONS
----------------------------------------------------------
Gabelli
Guardian Guardian Guardian Capital
Stock Bond Cash Asset
----------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ........................................... $ 14,868 $ 5,047 $ 19,982 $ 290
Expenses -- Note 3:
Mortality and expense risk charges ............................. 27,978 668 3,974 1,452
----------- ----------- ----------- -----------
Net investment income/(expense) ................................... (13,110) 4,379 16,008 (1,162)
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments .............. 83,399 (968) -- 8,574
Reinvested realized gain distributions ......................... 643,844 217 -- 23,440
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments ........................... 727,243 (751) -- 32,014
Net change in unrealized appreciation/(depreciation) of investments 343,343 (4,543) -- (5,366)
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ............ 1,070,586 (5,294) -- 26,648
----------- ----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..... $ 1,057,476 $ (915) $ 16,008 $ 25,486
- -----------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
--------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------
Baillie
Baillie Gifford Guardian
Gifford Emerging Small Cap
International Markets Stock
--------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ........................................... $ 983 $ -- $ 329
Expenses -- Note 3:
Mortality and expense risk charges ............................. 1,783 149 2,114
------------ ----------- -----------
Net investment income/(expense) ................................... (800) (149) (1,785)
------------ ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments .............. 3,333 1,551 5,236
Reinvested realized gain distributions ......................... 24,062 -- --
------------ ----------- -----------
Net realized gain/(loss) on investments ........................... 27,395 1,551 5,236
Net change in unrealized appreciation/(depreciation) of investments 60,408 6,392 64,873
------------ ----------- -----------
Net realized and unrealized gain/(loss) from investments ............ 87,803 7,943 70,109
------------ ----------- -----------
- -------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..... $ 87,003 $ 7,794 $ 68,324
- -------------------------------------------------------------------------------------------------------------------------
============ =========== ===========
<CAPTION>
-------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------
Value Line
Strategic
Value Line Asset MFS Growth
Centurion Management with Income
-------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ........................................... $ 402 $ 3,407 $ 690
Expenses -- Note 3:
Mortality and expense risk charges ............................. 1,803 3,540 2,427
----------- ----------- -----------
Net investment income/(expense) ................................... (1,401) (133) (1,737)
----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments .............. 7,366 11,855 6,419
Reinvested realized gain distributions ......................... 10,812 17,574 829
----------- ----------- -----------
Net realized gain/(loss) on investments ........................... 18,178 29,429 7,248
Net change in unrealized appreciation/(depreciation) of investments 53,512 67,484 16,112
----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ............ 71,690 96,913 23,360
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..... $ 70,289 $ 96,780 $ 21,623
- ---------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
40 & 41
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M
- -------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------------------
MFS American
Emerging MFS MFS Century VP
Growth Total Return Bond Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .................. 12,554 4,638 306 5,073
Net asset value per share (NAV) ............................ 37.94 17.75 10.92 5.95
----------- ----------- ----------- -----------
Total Assets (Shares x NAV) .............................. $ 476,316 $ 82,328 $ 3,340 $ 30,185
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ...... 1,952 323 20 204
----------- ----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ..................................... $ 474,364 $ 82,005 $ 3,320 $ 29,981
- ------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
Number of units outstanding ................................... 21,994 7,334 323 3,209
Unit value .................................................... 21.57 11.18 10.28 9.34
FIFO cost ..................................................... $ 338,230 $ 82,421 $ 3,391 $ 32,351
<CAPTION>
-----------------------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------------------
Fidelity
American VIP III Fidelity Fidelity
Century VP Growth VIP Equity- VIP High
International Opportunities Income Income
------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .................. 12,284 16,427 4,714 4,704
Net asset value per share (NAV) ............................ 12.50 23.15 25.71 11.31
----------- ----------- ----------- -----------
Total Assets (Shares x NAV) .............................. $ 153,549 $ 380,288 $ 121,202 $ 53,200
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ...... 770 1,483 508 261
----------- ----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ..................................... $ 152,779 $ 378,805 $ 120,694 $ 52,939
- ----------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
Number of units outstanding ................................... 8,977 30,658 10,634 5,347
Unit value .................................................... 17.02 12.36 11.35 9.90
FIFO cost ..................................................... $ 110,983 $ 372,598 $ 121,087 $ 52,402
<CAPTION>
-------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------
Fidelity AIM V.I.
VIP II Capital AIM V.I.
Index 500 Appreciation Value
-------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .................. 10,275 3,903 23,424
Net asset value per share (NAV) ............................ 167.41 35.58 33.50
----------- ----------- -----------
Total Assets (Shares x NAV) .............................. $ 1,720,059 $ 138,858 $ 784,704
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ...... 8,357 987 2,539
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ..................................... $ 1,711,702 $ 137,871 $ 782,165
- ---------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
Number of units outstanding ................................... 117,602 8,317 47,819
Unit value .................................................... 14.56 16.58 16.36
FIFO cost ..................................................... $ 1,554,022 $ 101,701 $ 702,293
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M
- -------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------------------
MFS American
Emerging MFS MFS Century VP
Growth Total Return Bond Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................... $ -- $ 423 $ 48 $ 158
Expenses -- Note 3:
Mortality and expense risk charges ....................... 1,922 310 20 181
----------- ----------- ----------- -----------
Net investment income/(expense) ............................ (1,922) 113 28 (23)
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........ 5,800 196 (41) (796)
Reinvested realized gain distributions ................... -- 785 3 1,495
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments .................... 5,800 981 (38) 699
Net change in unrealized appreciation/(depreciation)
of investments ........................................... 135,482 (443) (50) (2,249)
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ...... 141,282 538 (88) (1,550)
----------- ----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 139,360 $ 651 $ (60) $ (1,573)
- ------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
------------------------------------------------------------
INVESTMENT DIVISIONS
------------------------------------------------------------
Fidelity
American VIP III Fidelity Fidelity
Century VP Growth VIP Equity- VIP High
International Opportunities Income Income
------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................... $ -- $ 529 $ 386 $ 418
Expenses -- Note 3:
Mortality and expense risk charges ....................... 759 1,430 483 247
----------- ----------- ----------- -----------
Net investment income/(expense) ............................ (759) (901) (97) 171
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........ 1,299 2,491 1,218 (60)
Reinvested realized gain distributions ................... -- 988 853 15
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments .................... 1,299 3,479 2,071 (45)
Net change in unrealized appreciation/(depreciation)
of investments ........................................... 42,012 4,979 (957) 706
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ...... 43,311 8,458 1,114 661
----------- ----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 42,552 $ 7,557 $ 1,017 $ 832
- ----------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
-------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------
Fidelity AIM V.I.
VIP II Capital AIM V.I.
Index 500 Appreciation Value
-------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................... $ 1,721 $ 88 $ 1,769
Expenses -- Note 3:
Mortality and expense risk charges ....................... 8,131 953 2,454
----------- ----------- -----------
Net investment income/(expense) ............................ (6,410) (865) (685)
----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........ 19,823 2,298 12,426
Reinvested realized gain distributions ................... 1,168 2,732 9,250
----------- ----------- -----------
Net realized gain/(loss) on investments .................... 20,991 5,030 21,676
Net change in unrealized appreciation/(depreciation)
of investments ........................................... 153,470 34,478 78,409
----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ...... 174,461 39,508 100,085
----------- ----------- -----------
- --------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 168,051 $ 38,643 $ 99,400
- --------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
42 & 43
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M
- -------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
---------------------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------------------
Gabelli
Guardian Guardian Guardian Capital
Stock Bond Cash Asset
---------------------------------------------------------
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
<S> <C> <C> <C> <C>
Net investment income/(expense) ................................... $ 3,277 $ 772 $ 5,123 $ 34
Net realized gain/(loss) from sale of investments ................. (9,204) 108 -- (289)
Reinvested realized gain distributions ............................ 96,129 346 -- 3,683
Net change in unrealized appreciation/(depreciation) of investments 28,942 (954) -- 313
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 119,144 272 5,123 3,741
----------- ----------- ----------- -----------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 1,436,958 43,732 733,372 78,911
Transfer on account of other terminations ......................... (209) -- -- --
Transfer of policy loans .......................................... (10,000) -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (192,811) (5,140) (66,868) (9,285)
Transfer between investment divisions ............................. (83,905) (11,601) (125,550) 485
Transfers -- other ................................................ (5,786) (60) 204 582
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 1,144,247 26,931 541,158 70,693
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 1,263,391 27,203 546,281 74,434
Net Assets at December 31, 1997 ................................... -- -- -- --
----------- ----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 1,263,391 $ 27,203 $ 546,281 $ 74,434
- ------------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (13,110) $ 4,379 $ 16,008 $ (1,162)
Net realized gain/(loss) from sale of investments ................. 83,399 (968) -- 8,574
Reinvested realized gain distributions ............................ 643,844 217 -- 23,440
Change in unrealized appreciation/(depreciation) of investments ... 343,343 (4,543) -- (5,366)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 1,057,476 (915) 16,008 25,486
----------- ----------- ----------- -----------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 3,508,724 149,934 1,429,632 223,295
Transfer on account of other terminations ......................... (15,032) (218) -- (2,706)
Transfer of policy loans .......................................... (5,097) -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (795,328) (15,974) (109,372) (44,004)
Transfer between investment divisions ............................. 238,234 (64,902) (1,244,315) 9,896
Transfers -- other ................................................ 8,178 (356) (2,341) 732
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 2,939,679 68,484 73,604 187,213
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 3,997,155 67,569 89,612 212,699
Net Assets at December 31, 1998 ................................... 1,263,391 27,203 546,281 74,434
----------- ----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 -- Note 4 ......................... $ 5,260,546 $ 94,772 $ 635,893 $ 287,133
- ------------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
--------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------
Baillie
Baillie Gifford Guardian
Gifford Emerging Small Cap
International Markets Stock
--------------------------------------------
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
<S> <C> <C> <C>
Net investment income/(expense) ................................... $ 27 $ (8) $ (315)
Net realized gain/(loss) from sale of investments ................. 873 (14) (10,314)
Reinvested realized gain distributions ............................ 2,197 -- 310
Net change in unrealized appreciation/(depreciation) of investments 673 31 6,550
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 3,770 9 (3,769)
----------- ----------- -----------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 52,569 1,770 136,122
Transfer on account of other terminations ......................... -- -- (75)
Transfer of policy loans .......................................... -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (7,591) (287) (28,776)
Transfer between investment divisions ............................. 3,203 1,639 13,651
Transfers -- other ................................................ (237) (8) (978)
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 47,944 3,114 119,944
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 51,714 3,123 116,175
Net Assets at December 31, 1997 ................................... -- -- --
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 51,714 $ 3,123 $ 116,175
- ---------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (800) $ (149) $ (1,785)
Net realized gain/(loss) from sale of investments ................. 3,333 1,551 5,236
Reinvested realized gain distributions ............................ 24,062 -- --
Change in unrealized appreciation/(depreciation) of investments ... 60,408 6,392 64,873
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 87,003 7,794 68,324
----------- ----------- -----------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 260,696 16,035 171,897
Transfer on account of other terminations ......................... (445) (60) (1,204)
Transfer of policy loans .......................................... -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (50,164) (3,999) (51,238)
Transfer between investment divisions ............................. 18,717 86 (51,809)
Transfers -- other ................................................ 1,469 393 324
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 230,273 12,455 67,970
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 317,276 20,249 136,294
Net Assets at December 31, 1998 ................................... 51,714 3,123 116,175
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 -- Note 4 ......................... $ 368,990 $ 23,372 $ 252,469
- ---------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
<CAPTION>
-------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------
Value Line
Strategic
Value Line Asset MFS Growth
Centurion Management with Income
-------------------------------------------
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
<S> <C> <C> <C>
Net investment income/(expense) ................................... $ (86) $ (51) $ (129)
Net realized gain/(loss) from sale of investments ................. 1,739 3,383 776
Reinvested realized gain distributions ............................ 24 252 --
Net change in unrealized appreciation/(depreciation) of investments 7,047 8,681 5,797
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 8,724 12,265 6,444
----------- ----------- -----------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 50,783 127,748 82,155
Transfer on account of other terminations ......................... -- -- (160)
Transfer of policy loans .......................................... -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (6,570) (12,956) (11,738)
Transfer between investment divisions ............................. 8,525 12,142 15,099
Transfers -- other ................................................ 636 576 390
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 53,374 127,510 85,746
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 62,098 139,775 92,190
Net Assets at December 31, 1997 ................................... -- -- --
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 62,098 $ 139,775 $ 92,190
- ---------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (1,401) $ (133) $ (1,737)
Net realized gain/(loss) from sale of investments ................. 7,366 11,855 6,419
Reinvested realized gain distributions ............................ 10,812 17,574 829
Change in unrealized appreciation/(depreciation) of investments ... 53,512 67,484 16,112
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 70,289 96,780 21,623
----------- ----------- -----------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 346,483 653,118 337,239
Transfer on account of other terminations ......................... (114) (1,006) (1,117)
Transfer of policy loans .......................................... -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (64,283) (101,528) (85,058)
Transfer between investment divisions ............................. 71,591 119,679 48,057
Transfers -- other ................................................ (821) (2,280) 2,983
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 352,856 667,983 302,104
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 423,145 764,763 323,727
Net Assets at December 31, 1998 ................................... 62,098 139,775 92,190
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 -- Note 4 ......................... $ 485,243 $ 904,538 $ 415,917
- ---------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
44 & 45
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M
- -------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------------------
MFS American
Emerging MFS MFS Century VP
Growth Total Return Bond Value
-----------------------------------------------------------
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
<S> <C> <C> <C> <C>
Net investment income/(expense) ....................... $ (29) $ (12) $ -- $ (24)
Net realized gain/(loss) from sale of investments ..... (28) 38 -- 26
Reinvested realized gain distributions ................ -- -- -- --
Net change in unrealized appreciation/(depreciation)
of investments ...................................... 2,604 350 -- 83
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ..... 2,547 376 -- 85
----------- ----------- ----------- -----------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments .......................... 45,426 9,837 45 10,883
Transfer on account of other terminations ............. -- -- -- --
Transfer of policy loans .............................. -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (2,806) (1,099) (32) (997)
Transfer between investment divisions ................. 1,639 -- -- 4,899
Transfers -- other .................................... 249 7 -- 324
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ...... 44,508 8,745 13 15,109
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................. 47,055 9,121 13 15,194
Net Assets at December 31, 1997 ....................... -- -- -- --
----------- ----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ....................... $ 47,055 $ 9,121 $ 13 $ 15,194
- -------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ....................... $ (1,922) $ 113 $ 28 $ (23)
Net realized gain/(loss) from sale of investments ..... 5,800 196 (41) (796)
Reinvested realized gain distributions ................ -- 785 3 1,495
Change in unrealized appreciation/(depreciation
of investments ...................................... 135,482 (443) (50) (2,249)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ..... 139,360 651 (60) (1,573)
----------- ----------- ----------- -----------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments .......................... 248,229 66,482 3,396 23,819
Transfer on account of other terminations ............. -- -- -- --
Transfer of policy loans .............................. -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (41,283) (7,778) (1,499) (7,567)
Transfer between investment divisions ................. 77,623 13,268 1,471 (119)
Transfers -- other .................................... 3,380 261 (1) 227
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ...... 287,949 72,233 3,367 16,360
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................. 427,309 72,884 3,307 14,787
Net Assets at December 31, 1998 ....................... 47,055 9,121 13 15,194
----------- ----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 -- Note 4 ............. $ 474,364 $ 82,005 $ 3,320 $ 29,981
- -------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
------------------------------------------------------------
INVESTMENT DIVISIONS
------------------------------------------------------------
Fidelity
American VIP III Fidelity Fidelity
Century VP Growth VIP Equity- VIP High
International Opportunities Income Income
------------------------------------------------------------
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
<S> <C> <C> <C> <C>
Net investment income/(expense) ....................... $ (11) $ (54) $ (24) $ (15)
Net realized gain/(loss) from sale of investments ..... 13 71 (41) (34)
Reinvested realized gain distributions ................ -- -- -- --
Net change in unrealized appreciation/(depreciation)
of investments ...................................... 554 2,712 1,073 94
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ..... 556 2,729 1,008 45
----------- ----------- ----------- -----------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments .......................... 40,265 35,356 22,483 4,695
Transfer on account of other terminations ............. -- -- -- --
Transfer of policy loans .............................. -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (1,071) (7,278) (4,679) (396)
Transfer between investment divisions ................. -- -- (37) --
Transfers -- other .................................... 27 168 90 3
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ...... 39,221 28,246 17,857 4,302
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................. 39,777 30,975 18,865 4,347
Net Assets at December 31, 1997 ....................... -- -- -- --
----------- ----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ....................... $ 39,777 $ 30,975 $ 18,865 $ 4,347
- ------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ....................... $ (759) $ (901) $ (97) $ 171
Net realized gain/(loss) from sale of investments ..... 1,299 2,491 1,218 (60)
Reinvested realized gain distributions ................ -- 988 853 15
Change in unrealized appreciation/(depreciation
of investments ...................................... 42,012 4,979 (957) 706
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ..... 42,552 7,557 1,017 832
----------- ----------- ----------- -----------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments .......................... 51,005 388,558 105,932 39,098
Transfer on account of other terminations ............. -- (1,265) -- --
Transfer of policy loans .............................. -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (11,422) (65,770) (18,791) (5,830)
Transfer between investment divisions ................. 29,683 17,609 13,828 14,144
Transfers -- other .................................... 1,184 1,141 (157) 348
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ...... 70,450 340,273 100,812 47,760
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................. 113,002 347,830 101,829 48,592
Net Assets at December 31, 1998 ....................... 39,777 30,975 18,865 4,347
----------- ----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 -- Note 4 ............. $ 152,779 $ 378,805 $ 120,694 $ 52,939
- ------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
-------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------
Fidelity AIM V.I.
VIP II Capital AIM V.I.
Index 500 Appreciation Value
-------------------------------------------
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
<S> <C> <C> <C>
Net investment income/(expense) ....................... $ (225) $ 5 $ 136
Net realized gain/(loss) from sale of investments ..... 863 414 769
Reinvested realized gain distributions ................ -- 697 1,946
Net change in unrealized appreciation/(depreciation)
of investments ...................................... 12,566 2,679 4,002
----------- ----------- -----------
Net increase/(decrease) resulting from operations ..... 13,204 3,795 6,853
----------- ----------- -----------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments .......................... 117,173 43,683 57,521
Transfer on account of other terminations ............. (64) -- --
Transfer of policy loans .............................. -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (14,226) (1,644) (6,161)
Transfer between investment divisions ................. 45,095 8,524 8,524
Transfers -- other .................................... 3,862 (33) (124)
----------- ----------- -----------
Net increase/(decrease) from policy transactions ...... 151,840 50,530 59,760
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................. 165,044 54,325 66,613
Net Assets at December 31, 1997 ....................... -- -- --
----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ....................... $ 165,044 $ 54,325 $ 66,613
- ------------------------------------------------------------------------------------------------------------
=========== =========== ===========
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ....................... $ (6,410) $ (865) $ (685)
Net realized gain/(loss) from sale of investments ..... 19,823 2,298 12,426
Reinvested realized gain distributions ................ 1,168 2,732 9,250
Change in unrealized appreciation/(depreciation
of investments ...................................... 153,470 34,478 78,409
----------- ----------- -----------
Net increase/(decrease) resulting from operations ..... 168,051 38,643 99,400
----------- ----------- -----------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments .......................... 1,100,448 46,237 542,294
Transfer on account of other terminations ............. (2,384) -- --
Transfer of policy loans .............................. -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (249,134) (14,664) (74,573)
Transfer between investment divisions ................. 522,634 13,550 151,091
Transfers -- other .................................... 7,043 (220) (2,660)
----------- ----------- -----------
Net increase/(decrease) from policy transactions ...... 1,378,607 44,903 616,152
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................. 1,546,658 83,546 715,552
Net Assets at December 31, 1998 ....................... 165,044 54,325 66,613
----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 -- Note 4 ............. $ 1,711,702 $ 137,871 $ 782,165
- ------------------------------------------------------------------------------------------------------------
=========== =========== ===========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
46 & 47
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ----------------------
Note 1 -- Organization
- ----------------------
The Guardian Separate Account M (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 January 29, 1998 and
commenced operations on February 6, 1998. GIAC is a wholly owned subsidiary of
The Guardian Life Insurance Company of America (Guardian). GIAC issues the
flexible premium variable universal life insurance policies offered through the
Account. GIAC provides for variable accumulations and benefits under the
policies by crediting the net premium payments to one or more investment
divisions established within the Account, or to the Fixed Rate Option (FRO), as
selected by the policyowner. Amounts allocated to the FRO are maintained by GIAC
in its general account. The policyowner also has the ability to transfer his or
her policy value among the investment divisions within the Account.
The Account currently comprises twenty one investment divisions which
invest in shares of the following mutual funds: The Guardian Stock Fund (GSF),
The Guardian Bond Fund, Inc. (GBF), The Guardian Cash Fund, Inc. (GCF), Gabelli
Capital Asset Fund, Baillie Gifford International Fund (BGIF), Baillie Gifford
Emerging Markets Fund (BGEMF), The Guardian Small Cap Stock Fund (GSCF), Value
Line Centurion Fund, Inc., Value Line Strategic Asset Management Trust, MFS
Growth with Income Series, MFS Emerging Growth Series, MFS Total Return Series,
MFS Bond Series, American Century VP Value Fund, American Century VP
International Fund, Fidelity VIP III Growth Opportunities Portfolio, Fidelity
VIP Equity-Income Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP II
Index 500 Portfolio, AIM V.I. Capital Appreciation Fund, and AIM V.I. Value Fund
(collectively, the Funds and individually, a Fund). However, a policyowner may
only invest in up to seven investment divisions, including the FRO.
GSF, GBF, GCF and GSCF each has an investment advisory agreement with
Guardian Investor Services Corporation, a wholly owned subsidiary of GIAC. BGIF
and BGEMF are managed by Guardian Baillie Gifford Ltd., a joint venture company
formed by GIAC and Baillie Gifford Overseas Ltd.
Under applicable insurance law, the assets and liabilities of the Account
are clearly identified and distinguished from the other assets and liabilities
of GIAC. The assets of the Account will not be charged with any liabilities
arising out of any other business conducted by GIAC, but the obligations of the
Account, including the promise to make benefit payments, are obligations of
GIAC.
The changes in net assets maintained in the Account provide the basis for
the periodic determination of benefits under the policies. The net assets may
not be less than the amount required under state insurance laws to provide for
death benefits (without regard to the minimum death benefit guarantee) and other
policy benefits. Additional assets are held in GIAC's general account to cover
the contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
- -----------------------------------------
Note 2 -- Significant Accounting Policies
- -----------------------------------------
The following is a summary of significant accounting policies of the
Account.
Investments
(a) Net proceeds from the sale of flexible premium variable universal life
insurance policies are invested by the Account's investment divisions in shares
of the corresponding Funds at the net asset value of each Fund's shares. All
distributions made by a Fund are reinvested in shares of the same Fund.
(b) The market value of the investments in the Funds is based on the net
asset value of the respective Funds as of their close of business on the
valuation date.
(c) Investment transactions are accounted for on the trade date and income
is recorded on the ex-dividend date.
(d) The cost of investments sold is determined on a first in, first out
(FIFO) basis.
- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
- ---------------------------------------------------------------
Note 3 -- Administrative and Mortality and Expense Risk Charges
- ---------------------------------------------------------------
GIAC assumes mortality and expense risk related to the operations of the
Account. To cover these risks, GIAC deducts a daily charge from the net assets
of the policyowner's account which, on an annual basis, is equal to a rate of
.90% of the policy account value. This charge is reduced to .60% of the policy
account value after the twentieth policy anniversary. For the year ended
December 31, 1999 mortality and expense risk deductions amounted to $62,784.
Under the terms of the policy, GIAC also deducts certain charges from the
policy account value. These other contractual charges are deducted by redeeming
units of the investment divisions and consist of:
a) a monthly charge for the cost of life insurance, based on the face
value of the policyowner's insurance inforce, as compensation for the
anticipated cost of paying death benefits. For the years ended December 31, 1999
and December 31, 1998, deductions for cost of life insurance amounted to
$968,350 and $214,586, respectively.
b) policy and administrative fees which vary with the face amount, age of
the insured or the duration of the con tract. For the years ended December 31,
1999 and December 31, 1998, these fees amounted to $850,909 and $191,687,
respectively.
c) an annual state premium tax charge as a percentage of the basic
premium. This rate varies by state of jurisdiction. The annual state premium tax
charge for the year ended December 31, 1999 was $892,074.
Currently, GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
Under current laws, GIAC may incur state and local taxes in several
states. At present, these taxes are not significant. In the event of a material
change in applicable state or local tax laws, GIAC reserves the right to charge
the Account for such taxes, if any, which are attributable to the Account.
- ---------------------------------------
Note 4 -- Net Assets, December 31, 1999
- ---------------------------------------
At December 31, 1999, net assets of the Account were as follows:
Accumulation of
Variable Universal Life Insurance
Policyowners' Accounts $ 5,980,658
Owned by GIAC 6,674,839
-----------
$12,655,497
===========
The amount retained by GIAC in the Account is comprised of amounts
accruing to GIAC from the operations of the Account and retained therein.
Amounts retained by GIAC in the Account may be transferred by GIAC to its
general account.
- --------------------------------------------------------------------------------
49
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
- -----------------------------
Note 5 -- 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 Stock Fund ....................... $ 4,416,713 $ 1,545,772 $ 823,321 $ 299,129
The Guardian Bond Fund, Inc. .................. 158,341 65,669 84,592 37,580
The Guardian Cash Fund, Inc. .................. 1,882,963 848,249 1,789,376 300,783
Gabelli Capital Asset Fund .................... 278,403 78,882 67,462 4,384
Baillie Gifford International Fund ............ 302,225 67,965 46,907 17,724
Baillie Gifford Emerging Markets Fund ......... 25,459 3,420 13,003 306
The Guardian Small Cap Stock Fund ............. 171,947 150,394 103,648 30,044
Value Line Centurion Fund, Inc. ............... 404,237 81,511 40,167 28,112
Value Line Strategic Asset Management Trust ... 785,612 193,630 96,648 65,780
MFS Growth with Income Series ................. 375,074 99,728 71,450 13,982
MFS Emerging Growth Series .................... 309,251 48,857 21,302 4,349
MFS Total Return Series ....................... 80,865 9,451 7,423 706
MFS Bond Series ............................... 5,004 23 1,585 11
American Century VP Value Fund ................ 29,132 15,897 11,119 788
American Century VP International Fund ........ 86,234 40,356 15,784 1,135
Fidelity VIP III Growth Opportunities Portfolio 384,338 30,623 42,549 2,376
Fidelity VIP Equity-Income Portfolio .......... 117,810 19,924 15,758 2,067
Fidelity VIP High Income Portfolio ............ 52,383 4,638 4,190 336
Fidelity VIP II Index 500 Portfolio ........... 1,498,930 174,718 117,434 22,878
AIM V.I. Capital Appreciation Fund ............ 63,123 60,558 15,399 9,292
AIM V.I. Value Fund ........................... 699,989 72,356 72,817 10,430
----------- ----------- ----------- -----------
Total ....................................... $12,128,033 $ 3,612,621 $ 3,461,934 $ 852,192
=========== =========== =========== ===========
</TABLE>
In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
50
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
and the Contract Owners of The Guardian Separate Account M,
"Park Avenue Variable Universal Life"
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the Guardian Stock,
Guardian Bond, Guardian Cash, Gabelli Capital Asset, Baillie Gifford
International, Baillie Gifford Emerging Markets, Guardian Small Cap Stock, Value
Line Centurion, Value Line Strategic Asset Management, MFS Growth with Income,
MFS Emerging Growth, MFS Total Return, MFS Bond, American Century VP Value,
American Century VP International, Fidelity VIP III Growth Opportunities,
Fidelity VIP Equity-Income, Fidelity VIP High Income, Fidelity VIP II Index 500,
AIM V.I. Capital Appreciation and AIM V.I. Value investment divisions
(constituting The Guardian Separate Account M, "Park Avenue Variable Universal
Life") 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 20, 2000
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund
- -----------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- ----------------------
COMMON STOCKS -- 96.0%
- ----------------------
Shares Value
- --------------------------------------------------------------------------------
Appliance and Furniture -- 0.2%
152,600 Whirlpool Corp.* $ 9,928,538
------------
Automotive -- 0.4%
304,500 Ford Motor Co. 16,271,719
------------
Biotechnology -- 2.3%
59,600 Affymetrix, Inc.* 10,113,375
482,000 Amgen, Inc.* 28,950,125
170,000 Biogen, Inc.* 14,365,000
285,800 Enzon, Inc.* 12,396,575
86,100 MedImmune, Inc.* 14,281,837
68,300 Millenium Pharmaceuticals* 8,332,600
65,500 Sepracor, Inc.* 6,496,781
------------
94,936,293
------------
Broadcasting -- 4.8%
212,400 Adelphia Comm. Corp.* 13,938,750
164,000 AMFM, Inc.* 12,833,000
625,400 CBS Corp.* 39,986,513
424,400 Charter Comm., Inc.* 9,283,750
190,000 Clear Channel Comm., Inc.* 16,957,500
330,000 Comcast Corp.* 16,685,625
238,700 Cox Comm., Inc.* 12,293,050
88,000 Cumulus Media, Inc.* 4,466,000
739,200 Infinity Broadcasting Corp.* 26,749,800
269,900 Insight Comm., Inc.* 7,995,787
470,400 MediaOne Group, Inc.* 36,132,600
32,200 RealNetworks, Inc.* 3,874,063
------------
201,196,438
------------
Building Materials and Homebuilders -- 0.1%
146,200 Crossman Communities, Inc.* 2,266,100
280,300 Johns Manville Corp. 3,924,200
------------
6,190,300
------------
Capital Goods-Miscellaneous Technology -- 3.0%
79,200 CMGI, Inc.* 21,928,500
61,200 CNET, Inc.* 3,473,100
233,800 Critical Path, Inc.* 22,064,875
83,400 Doubleclick, Inc.* 21,105,413
161,200 E Bay, Inc.* 20,180,225
129,800 Internet Capital Group, Inc.* 22,066,000
82,800 VerticalNet, Inc.* 13,579,200
------------
124,397,313
------------
Computer Software -- 12.8%
227,800 Adobe Systems, Inc. 15,319,550
57,200 Advent Software, Inc.* 3,685,825
37,300 Agile Software Corp.* 8,102,842
62,400 Ariba, Inc.* 11,068,200
173,400 Bea Systems, Inc.* 12,127,162
106,400 Broadvision, Inc.* 18,094,650
79,600 Citrix Systems, Inc.* 9,790,800
69,500 Commerce One, Inc.* 13,656,750
62,900 Cybersource Corp.* 3,255,075
135,200 Inktomi Corp.* 11,999,000
51,800 Legato Systems, Inc.* 3,564,488
100,200 Mercury Interactive Corp.* 10,815,338
55,300 Micromuse, Inc.* 9,401,000
1,982,100 Microsoft Corp.* 231,410,175
537,500 Oracle Corp.* 60,233,594
459,500 Saga Systems, Inc.* 9,161,281
233,000 Siebel Systems, Inc.* 19,572,000
601,000 Sybase, Inc.* 10,217,000
154,300 Symantec Corp.* 9,045,838
129,500 TSI Int'l. Software Ltd.* 7,332,937
86,400 VeriSign, Inc.* 16,497,000
46,800 Veritas Software Corp.* 6,698,250
276,300 Visio Corp.* 13,124,250
82,000 Vitria Technology, Inc.* 19,188,000
------------
533,361,005
------------
Computer Systems -- 6.6%
164,000 Apple Computer, Inc.* 16,861,250
210,500 Cabletron Systems, Inc.* 5,473,000
392,700 Dell Computer Corp.* 20,027,700
583,800 EMC Corp.* 63,780,150
145,200 Hewlett Packard Co. 16,543,725
796,800 Int'l. Business Machines 86,054,400
206,000 Solectron Corp.* 19,595,750
610,200 Sun Microsystems, Inc.* 47,252,363
------------
275,588,338
------------
Drugs and Hospitals -- 4.2%
143,500 Andrx Corp.* 6,071,844
735,600 Bristol-Myers Squibb Corp. 47,216,325
152,400 Idec Pharmaceuticals Corp.* 14,973,300
171,000 Johnson & Johnson 15,924,375
364,800 Merck & Co., Inc. 24,464,400
672,600 Pfizer, Inc. 21,817,462
531,800 Schering-Plough Corp. 22,435,313
263,000 Warner-Lambert Co. 21,549,562
------------
174,452,581
------------
Electrical Equipment -- 2.1%
73,400 DII Group, Inc.* 5,209,106
92,800 Flextronics Int'l. Ltd.* 4,268,800
495,600 General Electric Co. 76,694,100
------------
86,172,006
------------
Electronics and Instruments -- 0.3%
53,800 Jabil Circuit, Inc.* 3,927,400
104,300 Power Integrations, Inc.* 4,999,881
34,200 Sanmina Corp.* 3,415,725
------------
12,343,006
------------
Electronics-Semiconductors -- 4.8%
190,000 Analog Devices, Inc.* 17,670,000
357,600 Atmel Corp.* 10,571,550
125,100 AVX Corp.* 6,247,181
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
52
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
72,200 Epcos AG* $ 5,392,437
240,200 Integrated Device Technology, Inc.* 6,965,800
1,250,300 Intel Corp. 102,915,319
258,900 Int'l. Rectifier Corp.* 6,731,400
137,100 Lattice Semiconductor Corp.* 6,460,838
457,100 LSI Logic Corp.* 30,854,250
104,700 Microchip Technology, Inc.* 7,165,406
-------------
200,974,181
-------------
Entertainment and Leisure -- 1.0%
557,900 Blockbuster, Inc. 7,461,913
234,200 Time Warner, Inc. 16,964,862
316,000 Viacom, Inc.* 19,098,250
-------------
43,525,025
-------------
Financial-Banks -- 2.8%
156,700 Chase Manhattan Corp. 12,173,631
1,221,500 Citigroup, Inc. 67,869,594
140,000 Fifth Third Bancorp 10,272,500
393,100 Firstar Corp. 8,304,237
206,300 FleetBoston Financial Corp. 7,181,819
6,125 M & T Bank Corp. 2,537,281
155,800 North Fork Bancorp 2,726,500
247,332 Premier National Bancorp, Inc. 4,560,184
23,000 U.S. Trust Corp. 1,844,313
-------------
117,470,059
-------------
Financial-Other -- 4.0%
294,400 American Express Co. 48,944,000
41,300 Dain Rauscher Corp. 1,920,450
29,100 Goldman Sachs Group, Inc. 2,740,856
148,700 Jefferies Group, Inc. 3,271,400
87,332 Legg Mason, Inc. 3,165,785
425,500 Lehman Brothers Hldgs., Inc. 36,034,531
124,000 Merrill Lynch & Co., Inc. 10,354,000
112,800 J. P. Morgan & Co., Inc. 14,283,300
264,900 Morgan Stanley Dean Witter & Co. 37,814,475
281,100 Charles Schwab Corp. 10,787,212
-------------
169,316,009
-------------
Financial-Thrift -- 0.4%
833,140 Charter One Financial, Inc. 15,933,803
133,400 Commercial Federal Corp. 2,376,188
-------------
18,309,991
-------------
Food, Beverage and Tobacco -- 0.2%
109,300 Anheuser-Busch Cos., Inc. 7,746,638
-------------
Household Products -- 0.7%
256,300 Church & Dwight, Inc. 6,840,006
326,800 Kimberly-Clark Corp. 21,323,700
-------------
28,163,706
-------------
Insurance -- 0.0%
56,000 State Auto Financial Corp. 511,000
-------------
Merchandising-Department Stores -- 2.1%
139,100 Dayton Hudson Corp. 10,215,156
1,142,000 Wal-Mart Stores, Inc. 78,940,750
-------------
89,155,906
-------------
Merchandising-Special -- 3.0%
63,000 Amazon.com, Inc.* 4,795,875
247,800 Best Buy, Inc.* 12,436,463
344,900 BJ's Wholesale Club, Inc.* 12,588,850
140,000 Costco Wholesale Corp.* 12,775,000
630,000 Home Depot, Inc. 43,194,375
312,000 Starbucks Corp.* 7,566,000
500,000 Tandy Corp. 24,593,750
120,900 Zale Corp.* 5,848,537
-------------
123,798,850
-------------
Miscellaneous-Consumer Growth Cyclical -- 0.6%
101,200 Go2Net, Inc.* 8,804,400
76,000 Sapient Corp.* 10,711,250
56,000 Viant Corp.* 5,544,000
-------------
25,059,650
-------------
Miscellaneous-Consumer Growth Staples -- 1.5%
161,900 Interpublic Group Cos., Inc.* 9,339,606
191,300 Intuit, Inc.* 11,466,044
170,700 Lamar Advertising Co.* 10,338,019
510,000 Valassis Comm., Inc.* 21,547,500
153,000 Young & Rubicam, Inc. 10,824,750
-------------
63,515,919
-------------
Oil and Gas Producing -- 1.2%
207,200 Anadarko Petroleum Corp. 7,070,700
233,600 Apache Corp. 8,628,600
143,300 Devon Energy Corp. 4,710,987
284,200 Newfield Exploration Co.* 7,602,350
465,400 Talisman Energy, Inc* 11,984,050
152,100 Vastar Resources, Inc. 8,973,900
-------------
48,970,587
-------------
Oil and Gas Services -- 1.3%
210,900 B.J. Svcs. Co.* 8,818,256
186,400 Cooper Cameron Corp.* 9,121,950
312,500 Halliburton Co. 12,578,125
304,200 Noble Drilling Corp.* 9,962,550
203,900 Schlumberger Ltd. 11,469,375
39,475 Transocean Sedco Forex, Inc. 1,329,815
-------------
53,280,071
-------------
Oil-Integrated-Domestic -- 0.2%
417,500 Conoco, Inc. 10,385,313
-------------
Oil-Integrated-International -- 2.3%
230,000 Chevron Corp. 19,923,750
222,800 Exxon Mobil Corp. 17,949,325
459,400 Royal Dutch Petroleum Co.* 27,764,987
540,700 Texaco, Inc. 29,366,769
-------------
95,004,831
-------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
53
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund
- -----------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
Shares Value
- --------------------------------------------------------------------------------
Paper and Forest Products -- 1.5%
424,700 Abitibi-Consolidated, Inc. $ 5,043,312
94,200 Bowater, Inc. 5,116,238
136,300 Champion Int'l. Corp. 8,442,081
183,800 Georgia-Pacific Group 9,327,850
341,100 Int'l. Paper Co. 19,250,831
195,900 Mead Corp. 8,509,406
342,200 Smurfit-Stone Container Corp.* 8,383,900
------------
64,073,618
------------
Photography -- 0.4%
242,200 Eastman Kodak Co.* 16,045,750
------------
Semiconductors -- 2.9%
252,200 Adaptec, Inc.* 12,578,475
672,000 Advanced Micro Devices, Inc.* 19,446,000
152,200 Kemet Corp.* 6,858,512
623,300 Micron Technology, Inc.* 48,461,575
361,500 National Semiconductor Corp.* 15,476,719
181,900 Sawtek, Inc.* 12,107,719
193,300 Vishay Intertechnology, Inc.* 6,113,113
------------
121,042,113
------------
Semiconductors-Communications -- 4.8%
195,700 Altera Corp.* 9,699,381
152,000 Applied Micro Circuits Corp.* 19,342,000
92,700 Conexant Systems, Inc.* 6,152,963
359,300 Cypress Semiconductor Corp.* 11,632,337
87,300 DSP Group, Inc.* 8,118,900
80,100 Linear Technology Corp.* 5,732,156
53,900 Micrel, Inc.* 3,068,931
91,400 PMC Sierra, Inc.* 14,652,563
224,000 RF Micro Devices, Inc.* 15,330,000
234,900 Semtech Corp.* 12,244,162
264,000 Texas Instruments, Inc. 25,575,000
114,700 Transwitch Corp.* 8,322,919
82,500 Triquint Semiconductor, Inc.* 9,178,125
246,000 Vitesse Semiconductor Corp.* 12,899,625
831,600 Xilinx, Inc.* 37,811,812
------------
199,760,874
------------
Semiconductors-Equipment -- 2.6%
82,500 Agilent Technologies, Inc.* 6,378,281
233,900 Applied Materials, Inc.* 29,632,206
286,400 Cadence Design Systems, Inc.* 6,873,600
109,300 Credence Systems Corp.* 9,454,450
124,000 Cymer Corp.* 5,704,000
99,700 DuPont Photomasks, Inc.* 4,810,525
119,600 KLA-Tencor Corp.* 13,320,450
104,600 Lam Resh Corp.* 11,669,437
299,500 Teradyne, Inc.* 19,767,000
------------
107,609,949
------------
Telecommunications -- 6.5%
617,053 AT & T Corp. 31,315,440
310,000 Bell Atlantic Corp. 19,084,375
495,000 GTE Corp. 34,928,437
828,762 MCI WorldCom, Inc.* 43,976,184
498,000 Nortel Networks Corp. 50,298,000
1,050,484 SBC Comm., Inc. 51,211,095
422,000 Sprint Corp. 28,405,875
181,800 US West, Inc. 13,089,600
------------
272,309,006
------------
Telecommunications-Equipment -- 7.8%
252,800 American Tower Corp.* 7,726,200
36,000 AudioCodes Ltd.* 3,312,000
119,100 Ciena Corp.* 6,848,250
551,000 Cisco Systems, Inc.* 59,025,875
153,900 CommScope, Inc.* 6,204,094
386,500 Crown Castle, Int'l.* 12,416,313
105,900 E Tek Dynamics, Inc.* 14,256,788
31,000 Juniper Networks, Inc.* 10,540,000
675,200 Lucent Technologies, Inc. 50,513,400
410,000 Motorola, Inc. 60,372,500
102,600 Nokia Corp.* 19,494,000
35,100 Optical Coating Lab., Inc. 10,389,600
102,500 Pinnacle Hldgs.* 4,343,437
104,400 Proxim, Inc.* 11,484,000
192,000 QUALCOMM, Inc.* 33,816,000
181,200 Scientific Atlanta, Inc. 10,079,250
76,100 Tellabs, Inc.* 4,884,669
------------
325,706,376
------------
Telecommunications-Specialty -- 5.7%
135,300 Advanced Fibre Comm., Inc.* 6,046,219
968,400 America Online, Inc.* 73,053,675
393,800 Exodus Comm., Inc.* 34,974,362
741,075 Global Crossing Ltd.* 37,053,750
300,300 GST Telecomm., Inc.* 2,721,469
141,400 Intermedia Comm., Inc.* 5,488,088
78,800 Level 3 Comm., Inc.* 6,451,750
105,500 Sprint PCS (FON Group)* 10,813,750
154,000 Time Warner Telecom, Inc.* 7,690,375
45,400 Williams Comm. Group* 1,313,762
84,800 Winstar Comm., Inc.* 6,381,200
104,000 Yahoo, Inc.* 44,999,500
------------
236,987,900
------------
Transportation-Miscellaneous -- 0.1%
40,900 United Parcel Svcs. 2,822,100
------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
54
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Utilities-Electric -- 0.6%
29,800 Calpine Corp.* $ 1,907,200
159,600 Energy East Corp. 3,321,675
477,400 Montana Power Co. 17,216,238
141,600 Potomac Electric Power Co. 3,247,950
---------------
25,693,063
---------------
Utilities-Gas and Pipeline -- 0.2%
284,800 Keyspan Corp. 6,603,800
---------------
TOTAL COMMON STOCKS
(Cost $2,485,884,967) 4,008,679,822
---------------
- ----------------------------
REPURCHASE AGREEMENT -- 4.5%
- ----------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 188,464,000 State Street Bank & Trust Co.
repurchase agreement, dated
12/31/99, maturity value $188,515,042
at 3.25%, due 1/3/00 (1) $ 188,464,000
---------------
TOTAL REPURCHASE AGREEMENT
(Cost $188,464,000) 188,464,000
---------------
TOTAL INVESTMENTS -- 100.5%
(Cost $2,674,348,967) 4,197,143,822
LIABILITIES IN EXCESS OF CASH,
RECEIVABLES AND OTHER
ASSETS -- (0.5%) (22,056,760)
---------------
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 4,175,087,062
- --------------------------------------------------------------------------------
===============
(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.
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
55
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund
- -----------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments, at market (cost $2,674,348,967) $4,197,143,822
Cash 99,034
Dividends receivable 1,530,256
Receivable for fund shares sold 252,539
Interest receivable 17,014
--------------
TOTAL ASSETS 4,199,042,665
--------------
LIABILITIES
Payable for securities purchased 20,910,288
Accrued expenses 2,033,738
Payable for fund shares redeemed 1,011,577
--------------
TOTAL LIABILITIES 23,955,603
--------------
NET ASSETS $4,175,087,062
==============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 75,636
Additional paid-in capital 2,493,737,808
Undistributed net investment income 241,325
Accumulated net realized gain on investments 158,236,901
Net unrealized appreciation of investments 1,522,795,392
--------------
NET ASSETS $4,175,087,062
==============
Shares Outstanding -- $0.001 par value 75,636,078
--------------
NET ASSET VALUE PER SHARE $ 55.20
==============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1999
Investment Income:
Dividends $ 28,519,376
Interest 6,828,171
Less: Foreign tax withheld (22,075)
---------------
Total Income 35,325,472
---------------
Expenses:
Investment advisory fees -- Note B 18,271,084
Custodian fees 369,188
Printing expense 210,430
Legal fees 61,999
Registration fees 27,850
Audit fees 19,232
Directors' fees -- Note B 12,500
Insurance expense 9,378
Other 700
---------------
Total Expenses 18,982,361
---------------
Net Investment Income 16,343,111
---------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized gain on investments 635,478,868
Net change in unrealized appreciation
of investments 367,759,722
---------------
Net Realized and Unrealized Gain
on Investments 1,003,238,590
---------------
Net Increase in Net Assets
from Operations $ 1,019,581,701
===============
See notes to financial statements.
- --------------------------------------------------------------------------------
56
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 16,343,111 $ 32,273,803
Net realized gain on investments 635,478,868 372,509,200
Net change in unrealized appreciation of investments 367,759,722 212,338,243
--------------- ---------------
Net Increase in Net Assets from Operations 1,019,581,701 617,121,246
--------------- ---------------
Dividends and Distributions to Shareholders from:
Net investment income (16,388,132) (32,287,254)
Net realized gain on investments (563,140,777) (380,510,130)
--------------- ---------------
Total Dividends and Distributions to Shareholders (579,528,909) (412,797,384)
--------------- ---------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note G 69,838,389 238,685,174
--------------- ---------------
Net Increase in Net Assets 509,891,181 443,009,036
Net Assets:
Beginning of year 3,665,195,881 3,222,186,845
--------------- ---------------
End of year* $ 4,175,087,062 $ 3,665,195,881
=============== ===============
* Includes undistributed net investment income of: $ 241,325 $ 286,405
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
57
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund
- -----------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................... $ 49.08 $ 46.05 $ 38.59 $ 34.72 $ 27.33
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income .............................. 0.24 0.47 0.52 0.53 0.44
Net realized and unrealized gain on investments .... 14.49 8.56 12.97 8.62 9.01
---------- ---------- ---------- ---------- ----------
Net increase from investment operations ............ 14.73 9.03 13.49 9.15 9.45
---------- ---------- ---------- ---------- ----------
Dividends and Distributions to Shareholders from:
Net investment income .............................. (0.24) (0.47) (0.52) (0.54) (0.44)
Net realized gain .................................. (8.37) (5.53) (5.51) (4.74) (1.62)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions .................. (8.61) (6.00) (6.03) (5.28) (2.06)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ......................... $ 55.20 $ 49.08 $ 46.05 $ 38.59 $ 34.72
---------- ---------- ---------- ---------- ----------
Total return* ........................................ 31.17% 19.86% 35.58% 26.90% 34.65%
---------- ---------- ---------- ---------- ----------
Ratios/supplemental data:
Net assets, end of year (000's omitted) ............ $4,175,087 $3,665,196 $3,222,187 $2,226,728 $1,615,271
Ratio of expenses to average net assets ............ 0.52% 0.52% 0.52% 0.53% 0.53%
Ratio of net investment income to average net assets 0.45% 0.95% 1.17% 1.50% 1.39%
Portfolio turnover rate ............................ 74% 56% 51% 66% 78%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
58
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
59
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- --------------------
ASSET BACKED -- 8.5%
- --------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 2,700,000 Amresco 1997-1 M1F
7.42% due 3/25/27 $ 2,644,326
4,300,000 Arcadia Automobile Rec. Tr.
1999-A A5
6.12% due 12/15/06 4,171,258
3,600,000 Contimortgage Home Equity Loan Tr.
1999-1 A3
6.17% due 5/25/21 3,457,260
3,200,000 Green Tree Finl. Corp.
1998-4 A5
6.18% due 12/1/17 3,109,088
3,600,000 Green Tree Finl. Corp.
1999-5 A3
6.97% due 4/1/31 3,567,456
4,300,000 Peco Energy Transition Tr.
1999-A A6
6.05% due 3/1/09 4,016,114
2,900,000 Pemex Finance Ltd.
6.125% due 11/15/03+ 2,828,718
3,500,000 PP & L Transition Bond Co.
1999-1 A4
6.72% due 12/26/05 3,458,245
4,798,000 Premier Auto Tr. 1997-2B
6.53% due 12/6/03 4,752,131
-------------
TOTAL ASSET BACKED
(Cost $32,906,690) 32,004,596
-------------
- ----------------------------------
COMMERCIAL MORTGAGE BACKED -- 2.7%
- ----------------------------------
$ 3,700,000 Chase Coml. Mtg. Secs. Corp.
1998-1 A2
6.56% due 5/18/08 $ 3,506,567
3,700,000 First Union Coml. Mtg. Tr.
1999-Cl A2
6.07% due 10/15/35 3,382,230
3,474,993 TIAA Retail Com'l. Mortgage Tr.
1999-A
7.17% due 10/15/07 3,422,521
-------------
TOTAL COMMERCIAL MORTGAGE BACKED
(Cost $11,050,805) 10,311,318
-------------
- ------------------------
CORPORATE BONDS -- 33.4%
- ------------------------
Banks -- 2.9%
$ 3,800,000 Bank of New York, Inc.
7.30% due 12/1/09 $ 3,722,959
3,600,000 Capital One Bank
6.48% due 1/28/02 3,527,172
3,900,000 Chase Manhattan Corp.
7.00% due 11/15/09 3,748,399
-------------
10,998,530
-------------
Chemicals-Major -- 0.9%
3,500,000 ICI Wilmington, Inc.
6.75% due 9/15/02 3,450,023
-------------
Energy -- 1.9%
3,000,000 Occidental Petroleum Corp.
7.65% due 2/15/06 2,986,158
3,900,000 Occidental Petroleum Corp.
8.45% due 2/15/29 4,047,939
-------------
7,034,097
-------------
Entertainment-Cable-Media -- 5.1%
2,500,000 Cox Comm., Inc.
7.875% due 8/15/09 2,531,880
3,600,000 Joseph E. Seagram & Sons, Inc.
6.25% due 12/15/01 3,524,785
3,500,000 Joseph E. Seagram & Sons, Inc.
6.40% due 12/15/03 3,371,253
3,605,000 Joseph E. Seagram & Sons, Inc.
7.60% due 12/15/28 3,396,696
7,300,000 Time Warner, Inc.
6.625% due 5/15/29 6,212,928
-------------
19,037,542
-------------
Financial -- 3.9%
4,500,000 Comdisco, Inc.
6.13% due 8/1/01 4,390,146
3,500,000 Lehman Brothers Hldgs., Inc.
6.00% due 2/26/01 3,456,470
3,600,000 Lehman Brothers Hldgs., Inc.
6.625% due 4/1/04 3,487,511
3,500,000 Paine Webber Group, Inc.
6.45% due 12/1/03 3,356,108
-------------
14,690,235
-------------
Food and Beverage -- 0.9%
3,500,000 Aramark Svcs., Inc.
6.75% due 8/1/04 3,342,482
-------------
Hospital-Supplies -- 0.9%
3,500,000 Mallinckrodt, Inc.+
6.30% due 3/15/11 3,454,944
-------------
Industrial-Pipelines -- 1.0%
3,875,000 Williams Cos., Inc.
7.625% due 7/15/19 3,719,768
-------------
Insurance -- 0.9%
3,500,000 Conseco, Inc.
6.40% due 6/15/01 3,413,046
-------------
See notes to financial statements.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
60
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Merchandising-Department Stores -- 2.8%
$ 3,750,000 Federated Department Stores, Inc.
6.125% due 9/1/01 $ 3,673,200
3,600,000 Saks, Inc.
7.00% due 7/15/04 3,407,022
3,600,000 Saks, Inc.
7.25% due 12/1/04 3,427,013
------------
10,507,235
------------
Merchandising-Discounters -- 0.9%
3,400,000 Wal Mart Stores, Inc.
8.75% due 12/29/06 3,463,682
------------
Merchandising-Drugs -- 1.3%
5,700,000 Rite Aid Corp.
6.70% due 12/15/01 4,788,000
------------
Merchandising-Supermarkets -- 2.8%
3,600,000 Kroger Co.
6.80% due 12/15/18 3,138,682
3,500,000 Fred Meyer, Inc.
7.45% due 3/1/08 3,399,784
3,900,000 Safeway, Inc.
7.00% due 9/15/02 3,875,617
------------
10,414,083
------------
Miscellaneous-Capital Goods -- 1.3%
5,000,000 Ikon Capital, Inc.
6.73% due 6/15/01 4,892,965
------------
Railroads -- 2.6%
3,600,000 CSX Corp.
7.25% due 5/1/04 3,564,774
3,500,000 Union Pacific Corp.
5.78% due 10/15/01 3,423,420
3,500,000 Union Pacific Corp.
6.625% due 2/1/29 2,956,223
------------
9,944,417
------------
Utilities -- 2.4%
2,500,000 Cinergy Corp.
6.125% due 4/15/04 2,348,935
2,829,000 Marlin Water Trust/Cap.+
7.09% due 12/15/01 2,777,102
4,000,000 Southern Union Co.
8.25% due 11/15/29 3,997,928
------------
9,123,965
------------
Waste Services -- 0.9%
3,500,000 USA Waste Svcs., Inc.
6.125% due 7/15/01 3,335,248
------------
TOTAL CORPORATE BONDS
(Cost $131,343,952) 125,610,262
------------
- ------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATION -- 1.4%
- ------------------------------------------
$ 5,698,638 GE Capital Mortgage Svcs., Inc.
1996-3A7 7.00% due 3/25/26
(Cost $5,706,406) $ 5,373,828
------------
- -------------------------------
MORTGAGE PASS-THROUGHS -- 30.5%
- -------------------------------
FHLMC
$ 4,000,000 6.50%, (30 yr. TBA)(a) $ 3,772,500
12,100,000 7.00%, (30 yr. TBA)(a) 11,710,525
6,500,000 7.50%, (30 yr. TBA)(a) 6,437,028
15,189,910 6.50%, 2029 14,330,769
670,152 7.00%, 8/1/08 667,063
FNMA
1,000,000 6.50%, (15 yr. TBA)(a) 970,312
24,900,000 7.00%, (30 yr. TBA)(a) 24,075,187
30,950,000 7.50%, (30 yr. TBA)(a) 30,611,469
12,500,000 8.00%, (30 yr. TBA)(a) 12,597,650
4,283,022 6.50%, 11/1/28 4,045,058
569,122 8.00%, 6/1/08 578,803
4,886 8.25%, 1/1/09 5,054
252,553 8.50%, 8/1/09 259,648
GNMA
700,000 6.50%, (15 yr. TBA)(a) 657,343
4,448,037 6.50%, 2029 4,178,352
689 11.50%, 7/20/00 694
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $117,242,562) 114,897,455
------------
- ------------------------
U.S. GOVERNMENT -- 21.7%
- ------------------------
U.S. Treasury Bonds
$ 12,970,000 5.25%, 2/15/29 $ 10,728,628
4,000,000 6.00%, 2/15/26 3,658,752
6,500,000 6.625%, 2/15/27 6,437,034
4,000,000 9.25%, 2/15/16 4,940,000
U.S. Treasury Notes
17,100,000 5.375%, 6/30/03 16,576,313
2,000,000 5.50%, 1/31/03 1,952,500
2,350,000 5.50%, 5/15/09 2,189,173
6,000,000 5.625%, 5/15/08 5,643,750
9,675,000 6.00%, 8/15/04 9,523,828
6,300,000 6.00%, 8/15/09 6,103,125
4,200,000 6.125%, 8/15/07 4,093,690
9,875,000 6.50%, 10/15/06 9,847,232
------------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $83,189,142) 81,694,025
------------
See notes to financial statements.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
61
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
- -------------------------
COMMERCIAL PAPER -- 23.4%
- -------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Automotive -- 1.4%
$ 5,300,000 General Motors Acceptance Corp.
5.88% due 1/19/00(a) $ 5,284,418
--------------
Banks -- 6.5%
9,652,000 Dresdner US Finance
5.93% due 1/19/00(a) 9,623,382
15,000,000 Nordenbanken North America, Inc.
6.05% due 1/19/00(a) 14,954,625
--------------
24,578,007
--------------
Conglomerates -- 5.7%
6,500,000 General Electric Cap. Corp.
5.81% due 1/19/00(a) 6,481,117
15,000,000 Invensys PLC
6.17% due 1/19/00(a) 14,953,725
--------------
21,434,842
--------------
Financial -- 9.8%
13,000,000 Duke Capital Corp.
6.14% due 1/19/00(a) 12,960,090
10,000,000 Household Finl. Corp.
6.05% due 1/19/00(a) 9,969,750
14,000,000 Morgan Stanley Dean Witter & Co.
6.00% due 1/19/00(a) 13,958,000
--------------
36,887,840
--------------
TOTAL COMMERCIAL PAPER
(Cost $88,185,107) 88,185,107
--------------
- ----------------------------
REPURCHASE AGREEMENT -- 2.1%
- ----------------------------
$ 7,679,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/99, maturity
value $7,681,080 at 3.25%,
due 1/3/00(b) $ 7,679,000
--------------
TOTAL REPURCHASE AGREEMENT
(Cost $7,679,000) 7,679,000
--------------
TOTAL INVESTMENTS -- 123.7%
(Cost $477,303,664) 465,755,591
PAYABLES FOR MORTGAGE PASS-THROUGHS
DELAYED DELIVERY
SECURITIES(a) -- (26.5%) (99,693,995)
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 2.8% 10,369,158
--------------
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 376,430,754
- --------------------------------------------------------------------------------
=============
(a) Commercial paper and repurchase agreement are segregated to cover forward
mortgage purchases.
(b) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
See notes to financial statements.
- --------------------------------------------------------------------------------
62
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments, at market (cost $477,303,664) $ 465,755,591
Cash 170
Receivable for investments sold 7,250,637
Interest receivable 4,704,315
Receivable for fund shares sold 5,056
-------------
TOTAL ASSETS 477,715,769
-------------
LIABILITIES
Payable for forward mortgage securities
purchased 99,693,995
Payable for fund shares redeemed 1,392,611
Accrued expenses 198,409
-------------
TOTAL LIABILITIES 101,285,015
-------------
NET ASSETS $ 376,430,754
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 3,297,887
Additional paid-in capital 393,081,515
Undistributed net investment income 185,244
Accumulated net realized loss on investments (8,585,819)
Net unrealized depreciation of investments (11,548,073)
-------------
NET ASSETS $ 376,430,754
=============
Shares Outstanding -- $0.10 par value 32,978,867
-------------
NET ASSET VALUE PER SHARE $ 11.41
=============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1999
Investment Income:
Interest $ 23,128,029
------------
Expenses:
Investment advisory fees -- Note B 1,822,590
Custodian fees 106,051
Interest expense -- reverse repurchase agreements 84,079
Printing expense 21,132
Audit fees 19,232
Directors' fees -- Note B 12,500
Legal fees 5,200
Registration fees 2,653
Insurance expense 976
Other 700
------------
Total Expenses 2,075,113
------------
Net Investment Income 21,052,916
------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized loss on investments (8,373,543)
Net change in unrealized appreciation/
(depreciation) of investments (15,282,158)
------------
Net Realized and Unrealized Loss on Investments (23,655,701)
------------
Net Decrease in Net Assets from Operations $ (2,602,785)
============
See notes to financial statements.
- --------------------------------------------------------------------------------
63
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 21,052,916 $ 20,326,792
Net realized gain/(loss) on investments (8,373,543) 7,360,219
Net change in unrealized appreciation of investments (15,282,158) 676,254
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations (2,602,785) 28,363,265
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income (21,062,469) (20,238,880)
Net realized gain on investments (965,082) (4,804,462)
------------- -------------
Total Dividends and Distributions to Shareholders (22,027,551) (25,043,342)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note G 19,673,995 22,655,261
------------- -------------
Net Increase/(Decrease) in Net Assets (4,956,341) 25,975,184
Net Assets:
Beginning of year 381,387,095 355,411,911
------------- -------------
End of year* $ 376,430,754 $ 381,387,095
============= =============
* Includes undistributed net investment income of: $ 185,244 $ 183,322
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
64
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................................... $ 12.23 $ 12.11 $ 11.83 $ 12.25 $ 11.08
-------- --------- -------- -------- --------
Income from investment
operations:
Net investment income .............................................. 0.68 0.69 0.75 0.76 0.76
Net realized and unrealized gain/(loss) on investments ............. (0.79) 0.28 0.29 (0.42) 1.17
-------- --------- -------- -------- --------
Net increase/(decrease) from investment operations ................. (0.11) 0.97 1.04 0.34 1.93
-------- --------- -------- -------- --------
Dividends and Distributions
to Shareholders from:
Net investment income .............................................. (0.68) (0.69) (0.76) (0.76) (0.76)
Net realized gain .................................................. (0.03) (0.16) -- -- --
-------- --------- -------- -------- --------
Total dividends and distributions .................................. (0.71) (0.85) (0.76) (0.76) (0.76)
-------- --------- -------- -------- --------
Net asset value, end of year ......................................... $ 11.41 $ 12.23 $ 12.11 $ 11.83 $ 12.25
-------- --------- -------- -------- --------
Total return* ........................................................ (0.84)% 8.10% 8.99% 2.88% 17.59%
-------- --------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of year (000's omitted) ............................ $376,431 $ 381,387 $355,412 $354,433 $374,462
Ratio of expenses to average net assets ............................ 0.57% 0.67% 0.59% 0.54% 0.54%
Ratio of expenses (excluding interest expense) to average net assets 0.55% 0.55% 0.55% N/A N/A
Ratio of net investment income to average net assets ............... 5.78% 5.51% 6.15% 6.12% 6.43%
Portfolio turnover rate ............................................ 257% 287% 340% 188% 298%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
65
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- -------------------------
COMMERCIAL PAPER -- 95.9%
- -------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
FINANCIAL -- 49.8%
Data Processing -- 4.7%
$ 23,000,000 First Data Corp.
6.00% due 1/18/00 $ 22,934,833
-------------
Finance Companies -- 16.7%
22,000,000 Associates First Capital
5.90% due 2/1/00 21,888,228
2,000,000 Associates First Capital
5.90% due 2/3/00 1,989,183
20,000,000 Bear Stearns Cos., Inc.
5.76% due 1/11/00 19,968,000
15,000,000 Goldman Sachs Group LP
6.40% due 1/31/00 14,920,000
22,000,000 Merrill Lynch & Co., Inc.
6.12% due 1/28/00 21,899,020
-------------
80,664,431
-------------
Financial-Other -- 2.1%
10,000,000 Govco, Inc.
6.15% due 1/28/00 9,953,875
-------------
Foods -- 4.1%
20,000,000 Cargill Global Funding PLC
6.95% due 1/14/00 19,949,806
-------------
Insurance -- 4.5%
22,000,000 American General Finl. Corp.
5.96% due 2/2/00 21,883,449
-------------
Other Major Banks -- 14.4%
20,000,000 Bank of America Corp.
5.93% due 1/12/00 19,963,761
10,000,000 Dresdner U.S. Finl.
6.34% due 1/3/00 9,996,478
20,000,000 HVB Finl. (Delaware), Inc.
5.85% due 1/14/00 19,957,750
20,000,000 UBS Finl. (Delaware), Inc.
5.00% due 1/3/00 19,994,444
-------------
69,912,433
-------------
Utilities-Electric -- 3.3%
16,000,000 Nat'l. Rural Utils. Coop. Finl.
Corp. 5.85% due 3/6/00 15,831,000
-------------
Total Financial 241,129,827
-------------
INDUSTRIAL -- 46.1%
Automotive -- 9.0%
21,500,000 BMW U.S. Capital Corp.
4.00% due 1/4/00 21,492,833
22,000,000 General Motors Acceptance Corp.
5.96% due 2/7/00 21,865,238
-------------
43,358,071
-------------
Conglomerates -- 8.2%
20,000,000 General Electric Capital Corp.
6.01% due 1/25/00 19,919,867
10,000,000 Invensys PLC
6.10% due 1/13/00 9,979,667
10,000,000 Invensys PLC
5.80% due 1/19/00 9,971,000
-------------
39,870,534
-------------
Food and Beverages -- 4.1%
20,000,000 Diageo Capital PLC
5.75% due 1/20/00 19,939,306
-------------
Household Products -- 3.1%
15,000,000 Procter & Gamble Co.
5.82% due 1/10/00 14,978,175
-------------
Machinery and Equipment -- 1.2%
6,000,000 John Deere Capital
5.88% due 1/24/00 5,977,460
-------------
Metals -- 4.1%
20,000,000 Rio Tinto America, Inc.
5.97% due 1/7/00 19,980,100
-------------
Oil and Gas Services -- 4.4%
21,500,000 Baker Hughes, Inc.
4.75% due 1/3/00 21,494,326
-------------
Oil-Integrated-International -- 2.5%
12,000,000 Texaco, Inc.
5.73% due 1/18/00 11,967,530
-------------
Telecommunications -- 4.7%
23,000,000 SBC Comm., Inc.
5.85% due 1/27/00 22,902,825
-------------
Utilities-Electric -- 4.8%
23,000,000 Electricite de France
5.82% due 1/11/00 22,962,816
-------------
Total Industrial 223,431,143
-------------
TOTAL COMMERCIAL PAPER
(Cost $464,560,970) 464,560,970
-------------
See notes to financial statements.
- --------------------------------------------------------------------------------
66
<PAGE>
- --------------------------------------------------------------------------------
- ----------------------------
REPURCHASE AGREEMENT -- 4.2%
- ----------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 20,195,000 State Street Bank & Trust Co.
repurchase agreement, dated
12/31/99, maturity value
$20,200,469 at 3.25% due 1/3/00(1) $ 20,195,000
-------------
TOTAL REPURCHASE AGREEMENT
(Cost $20,195,000) 20,195,000
-------------
TOTAL INVESTMENTS -- 100.1%
(Cost $484,755,970) 484,755,970
LIABILITIES IN EXCESS OF CASH,
RECEIVABLES AND OTHER
ASSETS -- (0.1)% (627,551)
-------------
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 484,128,419
- --------------------------------------------------------------------------------
=============
(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.
See notes to financial statements.
- --------------------------------------------------------------------------------
67
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments, at market (cost $484,755,970) $484,755,970
Cash 241
Receivable for fund shares sold 517,560
Interest receivable 1,823
------------
TOTAL ASSETS 485,275,594
------------
LIABILITIES
Payable for fund shares redeemed 892,918
Accrued expenses 254,257
------------
TOTAL LIABILITIES 1,147,175
------------
NET ASSETS $484,128,419
============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 4,841,283
Additional paid-in capital 479,287,136
------------
NET ASSETS $484,128,419
============
Shares Outstanding -- $0.10 par value 48,412,828
------------
NET ASSET VALUE PER SHARE $ 10.00
============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1999
Investment Income:
Interest $23,729,035
-----------
Expenses:
Investment advisory fees -- Note B 2,275,164
Custodian fees 85,806
Printing expense 19,235
Audit fees 18,734
Directors' fees -- Note B 12,500
Legal fees 4,100
Other 3,772
-----------
Total Expenses 2,419,311
-----------
Net Investment Income,
Representing Net Increase in
Net Assets from Operations $21,309,724
===========
See notes to financial statements.
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 21,309,724 $ 20,633,220
------------- -------------
Net Increase in Net Assets from Operations 21,309,724 20,633,220
------------- -------------
Dividends to Shareholders from:
Net investment income (21,309,724) (20,633,220)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note G 64,645,765 51,360,205
------------- -------------
Net Increase in Net Assets 64,645,765 51,360,205
Net Assets:
Beginning of year 419,482,654 368,122,449
------------- -------------
End of year $ 484,128,419 $ 419,482,654
============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
69
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .............................. 0.47 0.50 0.50 0.49 0.54
Dividends to Shareholders from:
Net investment income .............................. (0.47) (0.50) (0.50) (0.49) (0.54)
-------- -------- -------- -------- --------
Net asset value, end of year ......................... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- --------
Total return* ........................................ 4.77% 5.10% 5.14% 4.98% 5.52%
-------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of year (000's omitted) ............ $484,128 $419,483 $368,122 $378,322 $356,820
Ratio of expenses to average net assets ............ 0.53% 0.53% 0.54% 0.54% 0.54%
Ratio of net investment income to average net assets 4.68% 4.99% 5.02% 4.86% 5.39%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
70
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
71
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Variable Contract Funds (The Guardian Stock Fund),
The Guardian Bond Fund, The Guardian Cash Fund
- ---------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ---------------------------------------------
Note A - Organization and Accounting Policies
- ---------------------------------------------
The Guardian Stock Fund (GSF), a series of The Guardian Variable Contract
Funds, Inc., The Guardian Bond Fund, Inc. (GBF) and The Guardian Cash Fund, Inc.
(GCF) (collectively, the Funds and individually, a Fund), are each incorporated
in the state of Maryland and are diversified open-end management investment
companies registered under the Investment Company Act of 1940, as amended (1940
Act). The financial statements for the other remaining funds of Guardian
Variable Contract Funds, Inc. are presented in separate reports.
GSF offers two classes of shares: Class I and Class II. The Class I shares
of GSF, and shares of GBF and GCF, are only sold to certain separate accounts of
The Guardian Insurance & Annuity Company, Inc. (GIAC). GIAC is a wholly-owned
subsidiary of The Guardian Life Insurance Company of America (Guardian Life).
GSF's Class II shares are offered through the ownership of variable annuities
and variable life insurance policies issued by other insurance companies that
offer GSF as an investment option through their separate accounts. The two
classes of shares for GSF represent interests in the same portfolio of
investments, have the same rights and are generally identical in all respects
except that each class bears certain class expenses, and has exclusive voting
rights with respect to any matter to which a separate vote of any class is
required. As of December 31, 1999, no GSF Class II shares have been issued.
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.
Significant accounting policies of the Funds are as follows:
Investments
Securities listed on national securities exchanges are valued based upon
closing prices on these exchanges. Securities traded in the over-the-counter
market and listed securities for which there have been no trades for the day are
valued at the mean of the bid and asked prices.
Pursuant to valuation procedures approved by the Board of Directors,
certain debt securities may be valued each business day by an independent
pricing service (Service). Debt securities for which quoted bid prices are
readily available and representative of the bid side of the market, in the
judgement of the Service, are valued at the bid price. Other debt securities
that are valued by the Service are carried at fair value as determined by the
Service, based on methods which include consideration of: yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions.
Securities for which market quotations are not readily available,
including certain mortgage-backed securities and restricted securities, are
valued by using methods that each Fund's Board of Directors, in good faith,
believes will accurately reflect their fair value.
The valuation of securities held by GCF is based upon their amortized
cost, which approximates market value, in accordance with Rule 2a-7 under the
1940 Act. Amortized cost valuations do not take into account unrealized gains
and losses.
Investment securities transactions are recorded on the date of purchase or
sale. Repurchase agreements are carried at cost, which approximates value (see
Note C).
Net realized gain or loss on sales of investments is determined on an
identified cost basis. Interest income, including amortization of premium and
discount, is recorded when earned. Dividends are recorded on the ex-dividend
date.
Foreign Currency Translation
GSF is permitted to buy international securities that are not U.S. dollar
denominated. GSF'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.
- --------------------------------------------------------------------------------
72
<PAGE>
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
The resulting gains and losses are included in the Statement of Operations
as follows:
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 currency related transactions. Realized
foreign exchange gains and losses which result from changes in foreign exchange
rates between the trade and settlement dates on security and currency
transactions are also included in net realized gains and losses on foreign
currency related transactions. Net currency gains and losses from valuing other
assets and liabilities denominated in foreign currency at the period end
exchange rate are reflected in net change in unrealized appreciation or
depreciation from translation of assets and liabilities denominated in foreign
currencies.
Forward Foreign Currency Contracts
GSF 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 securities 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. Fluctuations in the value of forward foreign currency exchange
contracts are recorded for book purposes as unrealized gains or losses on
foreign currency related transactions by the Fund. When a forward contract is
closed, the Fund records realized gains or losses equal to the difference
between the value of such forward contract at the time it was opened and the
value at the time it was closed. Such amounts are recorded in net realized gain
or loss on foreign currency related transactions. The Fund will not enter into a
forward foreign currency contract if such contract would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency.
Futures Contracts
GSF may enter into financial futures contracts for the delayed delivery of
securities, currency or contracts based on financial indices at a fixed price on
a future date. In entering into such contracts, the Fund is required to deposit
either in cash or securities an amount equal to a certain percentage of the
contract amount. Subsequent payments are made or received by the Fund each day,
depending on the daily fluctuations in the value of the underlying security, and
are recorded for financial statement purposes as unrealized gains or losses by
the Fund. The Fund's investments in financial futures contracts are designed to
hedge against anticipated future changes in interest or exchange rates or
securities prices (or for non-hedging purposes). Should interest or exchange
rates or securities prices move unexpectedly, the Fund may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
Federal Income Taxes
Each 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 investment
income (including any realized capital gains) which is distributed to its
shareholders in accordance with the applicable provisions of the Code.
Therefore, no federal income tax provision is required.
At December 31, 1999, for federal income tax purposes, GBF had a net
capital loss carryforward of $7,464,775 which expires in 2007.
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.
- --------------------------------------------------------------------------------
73
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Variable Contract Funds (The Guardian Stock Fund),
The Guardian Bond Fund, The Guardian Cash Fund
- ---------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
During the year ended December 31, 1999, certain Portfolio Funds
reclassified amounts to paid-in capital from undistributed/(overdistributed) net
investment income and accumulated net realized gain/(loss) on investment and
foreign currency related transactions. Increases/(decreases) to the various
capital accounts were as follows:
Undistributed/ Accumulated
(overdistributed) net realized
net investment gain/(loss) on
income investments
----------------- ---------------
GSF $ (59) $ 59
GBF 11,475 (11,475)
Dividend Distributions
GSF and GBF intend to distribute each year, as dividends or capital gain
distributions, substantially all net investment income and net capital gains
realized. All such dividends or distributions are credited in the form of
additional shares of the applicable Fund at net asset value on the ex-dividend
date. Such distributions are determined in conformity with federal income tax
regulations. Differences between the recognition of income on an income tax
basis and recognition of income based on generally accepted accounting
principles may cause temporary overdistributions of net realized gains and net
investment income. Currently, the policy of GSF and GBF is to distribute net
investment income approximately every six months and net capital gains annually.
This policy is, however, subject to change at any time by each Fund's Board of
Directors.
GCF earns interest on its investments daily and distributes all of its net
investment income, increased or decreased by realized gains or losses, each day
GCF is open for business. Earnings for Saturdays, Sundays and holidays are paid
as a dividend on the next business day. All dividends and distributions are
credited in the form of additional shares of GCF at net asset value on the
payable date.
- -----------------------------------------------------------------------
Note B - Investment Advisory Agreements and Payments to Related Parties
- -----------------------------------------------------------------------
Each Fund has an investment advisory agreement with Guardian Investor
Services Corporation (GISC), a wholly-owned subsidiary of GIAC. Fees for
investment advisory services are paid at an annual rate of .50% of the average
daily net assets of each Fund. If total expenses of any Fund (excluding taxes,
interest and brokerage commissions, but including the investment advisory fee)
exceed 1% per annum of the average daily net assets of the Fund, GISC has agreed
to assume any such expenses. None of the Funds exceeded this limit during the
year ended December 31, 1999.
No compensation is paid by any of the Funds to a director who is deemed to
be an "interested person" (as defined in the 1940 Act) of a Fund. Each director
not deemed an "interested person" is paid an annual fee of $500 by each Fund,
and $350 for attendance at each meeting of each Fund.
- ------------------------------
Note C - Repurchase Agreements
- ------------------------------
Collateral underlying 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 such collateral is
marked-to-market daily while agreements remain in force. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Funds 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 Funds maintain the right to sell the collateral and may
claim any resulting loss against the seller. Each Fund's Board of Directors has
established standards to evaluate creditworthiness of broker-dealers and banks
which engage in repurchase agreements with each Fund.
- --------------------------------------
Note D - Reverse Repurchase Agreements
- --------------------------------------
GBF may enter into reverse repurchase agreements with banks or third-party
broker-dealers to borrow short-term funds. Interest on the value of reverse
repurchase agreements is based upon competitive market rates at the time of
issuance. At the time GBF enters into a reverse repurchase agreement, it
establishes and maintains cash, U.S. government securities or liquid,
unencumbered securities that are marked-to-market daily in a segregated account
with the Fund's custodian. The value of such segregated assets must be at least
equal to the value of the repurchase obligation (principal plus accrued
interest), as
- --------------------------------------------------------------------------------
74
<PAGE>
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
applicable. Reverse repurchase agreements involve the risk that the buyer of the
securities sold by GBF may be unable to deliver the securities when the Fund
seeks to repurchase them. Interest paid on reverse repurchase agreements for the
year ended December 31, 1999 amounted to $84,079.
Information regarding transactions by GBF under reverse repurchase
agreement is as follows:
Average amount outstanding during the period ............... $ 4,566,668
Weighted average interest rate during the period ........... 1.89%
- ---------------------------------
Note E - Dollar Roll Transactions
- ---------------------------------
GBF may enter into dollar roll transactions with financial institutions to
take advantage of opportunities in the mortgage market. A dollar roll
transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase similar securities at an agreed upon price
and date. The securities repurchased will bear the same interest as those sold,
but generally will be collateralized at time of delivery by different pools of
mortgages with different prepayment histories than those securities sold. During
the period between the sale and repurchase, the Fund will not be entitled to
receive interest and principal payments on the securities sold. Dollar roll
transactions involve the risk that the buyer of the securities sold by GBF may
be unable to deliver the securities when GBF seeks to repurchase them. There
were no dollar roll transactions outstanding at December 31, 1999.
- --------------------------------
Note F - Investment Transactions
- --------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
GSF GBF
--- ---
<S> <C> <C>
Purchases ............................................................... $2,583,705,089 $ 941,626,977
Proceeds ................................................................ $3,057,671,562 $ 919,489,697
</TABLE>
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. The gross unrealized appreciation and depreciation of investments at
December 31, 1999 for GSF and GBF were as follows:
<TABLE>
<CAPTION>
GSF GBF
--- ---
<S> <C> <C>
Gross Appreciation ...................................................... $1,561,747,641 $ 131,629
Gross Depreciation ...................................................... (38,952,786) (11,679,702)
-------------- --------------
Net Unrealized Appreciation/(Depreciation) ............................ $1,522,794,855 $ (11,548,073)
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
75
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Variable Contract Funds (The Guardian Stock Fund),
The Guardian Bond Fund, The Guardian Cash Fund
- ---------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
- --------------------------------------
Note G - Transactions in Capital Stock
- --------------------------------------
There are 400,000,000 shares of $0.001 par value capital stock authorized
for GSF, divided into two classes, designated Class I and Class II shares. GSF
Class I consists of 300,000,000 shares and Class II consists of 100,000,000
shares. There are 100,000,000 shares of $0.10 par value capital stock authorized
for each of GBF and GCF. Through December 31, 1999, no Class II shares of GSF
were sold. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Shares Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian Stock Fund
Shares sold 3,895,845 7,866,954 $ 200,708,021 $ 380,142,286
Shares issued in reinvestment of
dividends and distributions 10,952,668 8,374,382 579,528,909 412,797,384
Shares repurchased (13,883,608) (11,538,716) (710,398,541) (554,254,496)
- --------------------------------------------------------------------------------------------------------------------
Net increase 964,905 4,702,620 $ 69,838,389 $ 238,685,174
- --------------------------------------------------------------------------------------------------------------------
o The Guardian Bond Fund, Inc.
Shares sold 8,170,108 6,974,815 $ 96,955,789 $ 87,077,087
Shares issued in reinvestment of
dividends and distributions 1,912,437 2,050,219 22,027,550 25,043,342
Shares repurchased (8,296,810) (7,180,997) (99,309,344) (89,465,168)
- --------------------------------------------------------------------------------------------------------------------
Net increase 1,785,735 1,844,037 $ 19,673,995 $ 22,655,261
- --------------------------------------------------------------------------------------------------------------------
o The Guardian Cash Fund, Inc.
Shares sold 39,686,605 45,585,640 $ 396,866,179 $ 455,856,396
Shares issued in reinvestment of
dividends 2,130,972 2,063,322 21,309,724 20,633,220
Shares repurchased (35,353,014) (42,512,942) (353,530,138) (425,129,411)
- --------------------------------------------------------------------------------------------------------------------
Net increase 6,464,563 5,136,020 $ 64,645,765 $ 51,360,205
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
Note H - Line of Credit
- -----------------------
A $100,000,000 line of credit available to all of the Funds and other
related Guardian Funds has 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.
- --------------------------------------------------------------------------------
76
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors and Shareholders
The Guardian Stock Fund
(a portfolio of The Guardian Variable Contract Funds, Inc.)
The Guardian Bond Fund, Inc.
The Guardian Cash Fund, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the The Guardian Stock Fund (one of
the portfolios constituting The Guardian Variable Contract Funds, Inc.), The
Guardian Bond Fund, Inc. and The Guardian Cash Fund, Inc. as of December 31,
1999 and the related statements of operations for the year then ended, the
statements 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 Funds' 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 Stock Fund, The Guardian Bond Fund, Inc. and The Guardian Cash Fund,
Inc. at December 31, 1999, the results of their operations for the year then
ended, the changes in their 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.
Ernst & Young LLP
New York, New York
February 11, 2000
77
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- ----------------------
COMMON STOCKS -- 98.9%
- ----------------------
Market
Shares Cost Value
- --------------------------------------------------------------------------------
Agriculture -- 0.6%
89,250 Archer-Daniels-Midland Co. $ 1,490,053 $ 1,087,734
------------ -----------
Automotive -- 0.6%
15,000 General Motors Corp. 988,750 1,090,312
------------ -----------
Automotive: Parts and Accessories -- 3.9%
50,000 Dana Corp. 1,732,048 1,496,875
70,000 GenCorp Inc. 634,385 691,250
68,000 Modine Manufacturing Co. 2,300,741 1,700,000
40,000 Scheib (Earl) Inc.+ 278,875 117,500
60,000 Standard Motor Products Inc. 1,329,363 967,500
20,000 Superior Industries
International Inc. 509,781 536,250
35,000 Tenneco Automotive Inc. 322,819 325,937
22,000 TransPro Inc. 182,531 141,625
60,000 Wynn's International Inc. 719,079 847,500
------------ -----------
8,009,622 6,824,437
------------ -----------
Aviation: Parts and Services -- 1.7%
18,000 AAR Corp. 250,688 322,875
50,000 Barnes Group Inc. 1,200,490 815,625
16,000 Curtiss-Wright Corp. 470,869 590,000
65,000 Fairchild Corp., Cl. A+ 1,251,718 589,062
7,500 Hi-Shear Industries Inc. 21,717 17,344
22,000 Kaman Corp., Cl. A 315,843 283,250
15,000 Moog Inc., Cl. A+ 404,750 405,000
------------ -----------
3,916,075 3,023,156
------------ -----------
Broadcasting -- 7.0%
70,000 Ackerley Group Inc. 598,717 1,268,750
55,000 Chris-Craft Industries Inc.+ 2,374,656 3,966,875
60,000 Granite Broadcasting Corp.+ 685,316 607,500
18,000 Gray Communications
Systems Inc. 326,825 318,375
80,000 Gray Communications
Systems Inc., Cl. B 1,015,413 1,080,000
15,000 Hearst-Argyle Television Inc.+ 285,505 399,375
50,000 Liberty Corp. 2,460,502 2,109,375
19,000 United Television Inc. 1,676,374 2,616,062
------------ -----------
9,423,308 12,366,312
------------ -----------
Building and Construction -- 0.6%
2,222 Huttig Building Products Inc.+ 8,642 10,972
35,500 Nortek Inc.+ 1,035,180 994,000
------------ -----------
1,043,822 1,004,972
------------ -----------
Business Services -- 0.1%
35,000 Nashua Corp.+ 498,615 262,500
------------ -----------
Cable -- 6.7%
87,000 Cablevision Systems
Corp., Cl. A+ 761,369 6,568,500
60,000 MediaOne Group Inc.+ 1,847,623 4,608,750
10,000 UnitedGlobalCom Inc., Cl. A+ 72,961 706,250
------------ -----------
2,681,953 11,883,500
------------ -----------
Computer Software and Services -- 0.1%
20,000 Tyler Technologies Inc. 43,700 110,000
------------ -----------
Consumer Products -- 2.6%
115,000 Carter-Wallace Inc. 1,873,303 2,062,812
42,000 Gallaher Group plc, ADR 902,524 645,750
100,000 General Cigar Holdings Inc.+ 962,873 831,250
18,000 General Cigar Holdings
Inc., Cl. B+(a) 164,173 149,625
25,000 National Presto Industries Inc. 964,266 887,500
------------ -----------
4,867,139 4,576,937
------------ -----------
Consumer Services -- 1.7%
200,000 Rollins Inc. 3,862,912 3,000,000
------------ -----------
Diversified Industrial -- 1.8%
40,000 Ampco-Pittsburgh Corp. 639,126 405,000
10,000 Crane Co. 175,344 198,750
40,000 GATX Corp. 1,147,578 1,350,000
58,000 Katy Industries Inc. 848,600 503,875
19,000 Myers Industries Inc. 266,569 299,250
50,000 WHX Corp.+ 514,794 450,000
------------ -----------
3,592,011 3,206,875
------------ -----------
Energy and Utilities -- 6.6%
35,000 Eastern Enterprises 1,371,875 2,010,312
370,000 El Paso Electric Co.+ 3,313,201 3,630,625
20,000 Florida Progress Corp. 939,602 846,250
10,000 Florida Public Utilities Co. 166,612 170,000
85,000 Kaneb Services Inc.+ 259,250 371,875
10,000 New England Electric System 492,951 517,500
20,000 Southwest Gas Corp. 522,646 460,000
9,000 TNP Enterprises Inc. 343,042 371,250
40,000 United Water Resources Inc. 1,344,500 1,367,500
50,000 WICOR Inc. 1,467,581 1,459,375
10,000 Yankee Energy Systems Inc. 410,500 439,375
------------ -----------
10,631,760 11,644,062
------------ -----------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
78
<PAGE>
- --------------------------------------------------------------------------------
Market
Shares Cost Value
- --------------------------------------------------------------------------------
Entertainment -- 14.5%
77,000 Ascent Entertainment Group Inc.+ $ 870,278 $ 976,937
5,000 Disney (Walt) Co. 129,492 146,250
25,500 Fisher Companies Inc. 1,722,481 1,574,625
36,000 GC Companies Inc.+ 1,283,693 931,500
181,000 Liberty Media Group, Cl. A+ 1,138,968 10,271,750
5,000 Seagram Co. 169,625 224,688
29,000 Time Warner Inc. 584,210 2,100,687
57,500 USA Networks Inc.+ 786,615 3,176,875
100,000 Viacom Inc., Cl. A+ 1,656,274 6,043,750
------------ -----------
8,341,636 25,447,062
------------ -----------
Environmental Services -- 0.3%
60,000 EnviroSource Inc.+ 191,935 46,200
25,000 Waste Management Inc. 496,955 429,687
------------ -----------
688,890 475,887
------------ -----------
Equipment and Supplies -- 9.6%
35,000 AMETEK Inc. 633,686 667,188
35,000 Belden Inc. 658,062 735,000
25,000 CIRCOR International Inc.+ 269,028 257,813
38,000 CLARCOR Inc. 723,141 684,000
2,000 CTS Corp. 14,963 150,750
25,000 Cuno Inc.+ 469,302 517,578
11,000 Eastern Co. 189,462 171,875
135,500 Fedders Corp. 820,369 745,250
70,000 Flowserve Corp. 1,529,236 1,190,000
11,000 Franklin Electric Co. 361,576 772,063
85,000 Hussmann International Inc. 1,176,750 1,280,313
38,000 IDEX Corp. 1,112,725 1,154,250
13,000 Kollmorgen Corp. 208,144 160,063
70,000 Mark IV Industries Inc. 1,290,963 1,238,125
35,000 Navistar International Corp.+ 1,020,358 1,658,125
28,000 Pittway Corp. 527,107 1,261,750
30,000 Sequa Corp., Cl. A+ 1,048,824 1,618,125
50,000 SPS Technologies Inc.+ 2,114,263 1,596,875
25,000 UCAR International Inc.+ 578,100 445,312
40,000 Watts Industries Inc., Cl. A 557,285 590,000
------------ -----------
15,303,344 16,894,455
------------ -----------
Financial Services -- 3.5%
22,000 Allstate Corp. 636,172 528,000
65,000 Argonaut Group Inc. 1,964,414 1,291,875
30,000 Block (H&R) Inc. 1,323,538 1,312,500
24,000 Mellon Financial Corp. 758,895 817,500
47,000 Midland Co. 706,479 975,250
59,000 Pioneer Group Inc.+ 1,362,151 929,250
5,000 St. Paul Companies Inc. 158,125 168,438
6,000 Waddell & Reed
Financial Inc., Cl. A 136,800 162,750
------------ -----------
7,046,574 6,185,563
------------ -----------
Food and Beverage -- 6.7%
5,000 Bestfoods Inc. 252,493 262,813
10,000 Brown-Forman Corp., Cl. A 563,925 539,375
85,000 Celestial Seasonings Inc.+ 994,316 1,581,797
50,000 Corn Products
International Inc. 1,574,140 1,637,500
40,000 General Mills Inc. 1,389,781 1,430,000
18,000 Heinz (H.J.) Co. 965,487 716,625
42,000 Kellogg Co. 1,546,537 1,294,125
65,000 PepsiCo Inc. 2,405,671 2,291,250
22,660 Tootsie Roll Industries Inc. 400,141 746,364
30,000 Twinlab Corp.+ 346,301 238,125
80,000 Whitman Corp. 1,266,773 1,075,000
------------ -----------
11,705,565 11,812,974
------------ -----------
Health Care -- 2.4%
30,000 American Home Products Corp. 1,291,758 1,183,125
100,000 IVAX Corp.+ 953,380 2,575,000
5,000 Warner-Lambert Co. 414,000 409,688
------------ -----------
2,659,138 4,167,813
------------ -----------
Hotels and Gaming -- 3.6%
140,000 Aztar Corp.+ 999,359 1,522,500
15,000 Boca Resorts Inc., Cl. A+ 143,876 146,250
100,000 Gaylord Entertainment
Co., Cl. A 2,735,008 2,993,750
80,000 Hilton Hotels Corp. 1,188,722 770,000
90,000 Jackpot Enterprises Inc. 964,901 748,125
30,000 Trump Hotels & Casino
Resorts Inc.+ 215,792 101,250
------------ -----------
6,247,658 6,281,875
------------ -----------
Paper and Forest Products -- 0.9%
150,000 Pactiv Corp.+ 2,102,903 1,593,750
------------ -----------
Publishing -- 7.6%
33,000 Harcourt General Inc. 1,302,376 1,328,250
24,000 Lee Enterprises Inc. 591,706 766,500
25,000 McClatchy Newspapers
Inc., Cl. A 721,881 1,081,250
92,000 Media General Inc., Cl. A 3,989,689 4,784,000
13,000 Meredith Corp. 267,779 541,937
40,000 Penton Media Inc. 605,042 960,000
7,000 PRIMEDIA Inc.+ 87,573 115,500
20,000 Pulitzer Inc. 596,916 806,250
45,100 Reader's Digest
Association Inc., Cl. B 1,122,902 1,195,150
85,000 Thomas Nelson Inc. 1,018,131 786,250
10,000 Times Mirror Co., Cl. A 587,562 670,000
6,000 Tribune Co. 164,400 330,375
------------ -----------
11,055,957 13,365,462
------------ -----------
See accompanying notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
79
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
Market
Shares Cost Value
- --------------------------------------------------------------------------------
Real Estate -- 1.1%
125,000 Catellus Development Corp.+ $ 2,027,651 $ 1,601,563
35,000 Griffin Land & Nurseries Inc.+ 493,263 402,500
------------ -----------
2,520,914 2,004,063
------------ -----------
Retail -- 2.3%
5,000 Aaron Rents Inc. 100,625 88,750
10,000 Aaron Rents Inc., Cl. A 199,750 182,500
35,000 Albertson's Inc. 1,099,281 1,128,750
10,000 Blockbuster Inc., Cl. A+ 123,625 133,750
10,000 Hannaford Bros. Co. 719,979 693,125
40,000 Lillian Vernon Corp. 631,288 445,000
53,000 Neiman Marcus Group Inc.+ 1,409,652 1,427,688
------------ -----------
4,284,200 4,099,563
------------ -----------
Satellite -- 0.8%
20,000 COMSAT Corp. 576,807 397,500
10,000 General Motors Corp., Cl. H+ 515,292 960,000
------------ -----------
1,092,099 1,357,500
------------ -----------
Specialty Chemicals -- 1.9%
40,000 Bush Boake Allen Inc.+ 1,087,692 982,500
10,000 Dexter Corp. 346,313 397,500
40,000 Ferro Corp. 795,700 880,000
60,000 Omnova Solutions Inc. 476,259 465,000
52,000 Sybron Chemicals Inc.+ 1,378,505 611,000
------------ -----------
4,084,469 3,336,000
------------ -----------
Telecommunications -- 3.6%
28,000 AT&T Canada Inc., Cl. B+ 881,938 1,127,000
250,000 Citizens Utilities Co., Cl. B+ 2,700,319 3,546,875
58,000 Rogers Communications
Inc., Cl. B, ADR+ 435,006 1,435,500
5,000 Viatel Inc.+ 175,080 268,125
------------ -----------
4,192,343 6,377,500
------------ -----------
Wireless Communications -- 6.1%
58,000 Rogers Cantel Mobile
Communications Inc., Cl. B+ 600,232 2,109,750
68,000 Telephone & Data
Systems Inc. 2,837,053 8,568,000
------------ -----------
3,437,285 10,677,750
============ ===========
TOTAL COMMON STOCKS 135,812,695 174,158,014
------------ -----------
Principal Market
Amount Cost Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT
OBLIGATIONS -- 0.0%
U.S. TREASURY BILLS -- 0.0%
$62,000 U.S. TREASURY BILLS,
5.14% to 5.49%++,
due 01/13/00 to 01/27/00 $ 61,855 $ 61,855
------------ ------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS 61,855 61,855
------------ ------------
TOTAL INVESTMENTS -- 98.9% $135,874,550 174,219,869
============
OTHER ASSETS AND
LIABILITIES (Net) -- 1.1% 1,866,289
------------
- -------------------------------------------------------------------------------
NET ASSETS -- 100.0% $176,086,158
- -------------------------------------------------------------------------------
============
* For Federal tax purposes:
Aggregate cost $ 136,465,332
=============
Gross unrealized appreciation $ 51,044,250
Gross unrealized depreciation (13,289,713)
-------------
Net unrealized appreciation $ 37,754,537
=============
(a) Security fair valued under procedures established by the Board of
Directors.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
80
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
Assets:
Investments, at value (Cost $135,874,550) $ 174,219,869
Cash 49,088
Dividends and interest receivable 111,306
Receivable for investments sold 1,871,593
Receivable for Fund shares sold 91,510
Deferred organizational expenses 6,578
-------------
Total Assets 176,349,944
-------------
Liabilities:
Payable for Fund shares redeemed 64,829
Payable for investment advisory fees 146,556
Other accrued expenses 52,401
-------------
Total Liabilities 263,786
-------------
Net Assets applicable to 10,072,178 shares
outstanding $ 176,086,158
=============
Net Assets consist of:
Capital stock, at par value $ 10,072
Additional paid-in capital 137,968,153
Distributions in excess of net realized gain
on investments (237,386)
Net unrealized appreciation on investments 38,345,319
-------------
Total Net Assets $ 176,086,158
=============
Net Asset Value, offering and redemption
price per share ($176,086,158 / 10,072,178
shares outstanding; 500,000,000 shares
authorized of $0.001 par value) $ 17.48
=============
STATEMENT OF OPERATIONS
For the Year Ended
December 31, 1999
Investment Income:
Dividends $ 1,686,240
Interest 304,029
-------------
Total Investment Income 1,990,269
-------------
Expenses:
Management fees 1,656,001
Custodian fees 34,064
Legal and audit fees 33,333
Directors' fees 24,868
Organizational expenses 19,998
Shareholder services fees 12,170
Miscellaneous expenses 1,445
-------------
Total Expenses 1,781,879
-------------
Net Investment Income 208,390
-------------
Net Realized and Unrealized Gain on
Investments:
Net realized gain on investments 17,364,582
Net change in unrealized appreciation
on investments 12,026,657
-------------
Net Realized and Unrealized Gain
on Investments 29,391,239
-------------
Net Increase in Net Assets Resulting
from Operations $ 29,599,629
=============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
81
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Operations:
Net investment income $ 208,390 $ 257,776
Net realized gain on investments 17,364,582 7,189,741
Net change in unrealized appreciation on investments 12,026,657 5,528,146
------------- -------------
Net increase in net assets resulting from operations 29,599,629 12,975,663
------------- -------------
Distributions to shareholders:
Net investment income (208,945) (257,776)
Net realized gain on investments (16,915,440) (7,198,434)
In excess of net realized gain on investments -- (626,865)
------------- -------------
Total distributions to shareholders (17,124,385) (8,083,075)
------------- -------------
Capital share transactions:
Net increase in net assets from capital share transactions 8,249,947 45,118,114
------------- -------------
Net increase in net assets 20,725,191 50,010,702
Net Assets:
Beginning of period 155,360,967 105,350,265
------------- -------------
End of period $ 176,086,158 $ 155,360,967
------------- -------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
82
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ---------------
1. Organization
- ---------------
The Gabelli Capital Asset Fund (the "Fund"), a series of Gabelli Capital
Series Funds, Inc. (the "Company"), was organized on April 8, 1993 as a Maryland
corporation. The Company is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund's primary objective is growth of capital. The Fund
commenced investment operations on May 1, 1995. Shares of the Fund are available
to the public only through the purchase of certain variable annuity and variable
life insurance contracts issued by The Guardian Insurance & Annuity Company,
Inc. ("Guardian").
- ----------------------------------
2. Significant Accounting Policies
- ----------------------------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Fund in the
preparation of its financial statements.
Security Valuation.
Portfolio securities listed or traded on a nationally recognized
securities exchange, quoted by the National Association of Securities Dealers
Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are valued
at the last sale price on that exchange as of the close of business on the day
the securities are being valued (if there were no sales that day, the security
is valued at the average of the closing bid and asked prices or, if there were
no asked prices quoted on that day, then the security is valued at the closing
bid price on that day). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, LLC
(the "Adviser"). Securities and assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Directors. Short term debt securities with remaining maturities of 60 days or
less are valued at amortized cost, unless the Directors determine such does not
reflect the securities' fair value, in which case these securities will be
valued at their fair value as determined by the Directors. Debt instruments
having a maturity greater than 60 days are valued at the highest bid price
obtained from a dealer maintaining an active market in those securities. Options
are valued at the last sale price on the exchange on which they are listed. If
no sales of such options have taken place that day, they will be valued at the
mean between their closing bid and asked prices.
Securities Transactions and Investment Income.
Securities transactions are accounted for on the trade date with realized
gain or loss on the sale of investments determined by using the identified cost
method. Interest income (including amortization of premium and accretion of
discount) is recorded as earned. Dividend income is recorded on the ex-dividend
date.
Dividends and Distributions to Shareholders.
Dividends and distributions to shareholders are recorded on the
ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund.
Provision for Income Taxes.
The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. As a
result, a Federal income tax provision is not required.
- --------------------------------------------------------------------------------
83
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
Organizational Expenses.
A total of $100,000 in expenses was incurred in connection with the
organization of the Fund. These costs were advanced by Guardian and will be
reimbursed by the Fund. These organizational costs were deferred and are being
amortized on a straight-line basis over a period of 60 months from the date the
Fund commenced investment operations.
- -------------------------------------
3. Agreements with Affiliated Parties
- -------------------------------------
Pursuant to a management agreement (the "Management Agreement"), the Fund
will pay Guardian Investor Services Corporation (the "Manager") a fee, computed
daily and paid monthly, at the annual rate of 1.00% of the value of the Fund's
average daily net assets. Pursuant to an Investment Advisory Agreement among the
Fund, the Manager and the Adviser, the Adviser, under the supervision of the
Company's Board of Directors and the Manager, manages the Fund's assets in
accordance with the Fund's investment objectives and policies, makes investment
decisions for the Fund, places purchase and sale orders on behalf of the Fund,
provides investment research and provides facilities and personnel required for
the Fund's administrative needs. The Adviser may delegate its administrative
role and currently has done so to PFPC Inc. (formerly known as First Data
Investor Services Group, Inc.), the Fund's sub-administrator (the
"Sub-Administrator"). The Adviser will supervise the performance of
administrative and professional services provided by others and pays the
compensation of the Sub-Administrator and all officers and Directors of the
Company who are its affiliates. As compensation for its services and the related
expenses borne by the Adviser, the Manager pays the Adviser a fee, computed
daily and paid monthly, at the annual rate of 0.75% of the value of the Fund's
average daily net assets.
- -----------------------
4. Portfolio Securities
- -----------------------
Purchases and sales of securities for the year ended December 31, 1999,
other than short term securities, aggregated $85,908,157 and $96,593,824,
respectively.
- -------------------------------
5. Transactions with Affiliates
- -------------------------------
During the year ended December 31, 1999, the Fund paid brokerage
commissions of $196,044 to Gabelli & Company, Inc. and its affiliates.
- -----------------------------
6. Capital Stock Transactions
- -----------------------------
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 2,216,370 $ 39,308,449 4,460,537 $ 73,364,220
Shares issued upon re-investment of dividends 1,002,599 17,124,386 512,885 8,083,075
Shares redeemed (2,738,935) (48,182,888) (2,262,453) (36,329,181)
------------ ------------ ------------ ------------
Net increase 480,034 $ 8,249,947 2,710,969 $ 45,118,114
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
84
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995+
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period .............. $ 16.20 $ 15.31 $ 11.55 $ 10.70 $ 10.00
-------- -------- -------- ------- -------
Net investment income ............................. 0.02 0.03 0.02 0.02 0.03(a)
Net realized and unrealized gain on investments ... 3.15 1.74 4.88 1.16 0.80
-------- -------- -------- ------- -------
Total from investment operations .................. 3.17 1.77 4.90 1.18 0.83
-------- -------- -------- ------- -------
Distributions to shareholders:
Net investment income ............................. (0.02) (0.03) (0.02) (0.02) (0.03)
Net realized gain on investments .................. (1.87) (0.78) (1.12) (0.31) (0.09)
In excess of net realized gain on investments ..... -- (0.07) (0.00)(b) -- (0.01)
-------- -------- -------- ------- -------
Total distributions ............................... (1.89) (0.88) (1.14) (0.33) (0.13)
-------- -------- -------- ------- -------
Net asset value, end of period .................... $ 17.48 $ 16.20 $ 15.31 $ 11.55 $ 10.70
-------- -------- -------- ------- -------
Total return++ .................................... 19.8% 11.7% 42.6% 11.0% 8.4%
-------- -------- -------- ------- -------
Ratios to average net assets and supplemental data:
Net assets, end of period (in 000's) ................ $176,086 $155,361 $105,350 $51,462 $26,364
Ratio of net investment income to average net assets 0.13% 0.19% 0.17% 0.21% 0.75%(c)
Ratio of operating expenses to average net assets (d) 1.08% 1.12% 1.17% 1.31% 1.78%(c)
Portfolio turnover rate ............................. 54% 43% 65% 53% 81%
</TABLE>
- -----------
+ From commencement of investment operations on May 1, 1995.
++ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period including reinvestment of dividends. Total return for the period of
less than one year is not annualized.
(a) Net investment income before expenses assumed by the Manager and Adviser
was $0.03.
(b) Amount represents less than $0.005 per share.
(c) Annualized.
(d) The ratio of operating expenses to average net assets before reimbursement
of expenses assumed by the Manager and Adviser would have been 1.92% for
the period ended December 31, 1995.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
85
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Gabelli Capital Asset Fund (a
series of Gabelli Capital Series Fund, Inc.)
We have audited the accompanying statement of assets and liabilities of
the Gabelli Capital Asset Fund (the Fund) (a series of Gabelli Capital Series
Fund, Inc.) including the portfolio of investments, 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 periods indicated therein. 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. 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
Gabelli Capital Asset Fund of Gabelli Capital Series Fund, Inc. as of December
31, 1999, and 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 periods indicated therein, in conformity
with accounting principles generally accepted in the United States.
Ernst & Young LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
86
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
87
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- ---------------------
COMMON STOCKS-- 98.4%
- ---------------------
Shares Value
- --------------------------------------------------------------------------------
AUSTRALIA -- 2.2%
Banks -- 0.7%
221,600 Commonwealth Bank of Australia $ 3,815,951
157,600 National Australia Bank 2,410,721
Beverages -- 0.4%
1,370,800 Fosters Brewing Group 3,932,696
Business Services -- 0.4%
133,910 Brambles Industries Ltd. 3,703,114
Mining -- 0.5%
269,100 Broken Hill Ppty. 3,533,460
773,000 Pasminco Ltd.* 847,483
Telecommunications -- 0.2%
351,000 Telstra Corp. 1,907,973
---------------
20,151,398
---------------
FINLAND -- 6.2%
Telecommunications -- 6.2%
203,100 Nokia OYJ* 36,826,687
309,760 Sonera OYJ* 21,234,092
---------------
58,060,779
---------------
FRANCE -- 8.7%
Banks -- 1.0%
101,960 Banque Nationale de Paris* 9,408,178
Computer Software and Technology -- 0.8%
30,880 CAP Gemini* 7,838,953
Insurance -- 1.5%
100,950 AXA UAP* 14,074,165
Media and Entertainment -- 1.1%
19,820 Societe Television Francaise 1* 10,382,148
Oil and Gas -- 1.8%
125,900 Total Fina S.A.* 16,804,355
Retail-Food and Drugs -- 1.6%
78,880 Carrefour* 14,549,078
Telecommunications -- 0.9%
70,650 Equant NV* 8,020,775
---------------
81,077,652
---------------
GERMANY -- 10.6%
Automotive -- 0.5%
65,720 DaimlerChrysler AG* 5,110,873
Chemicals -- 1.3%
229,220 BASF AG* 11,776,139
Conglomerates -- 4.1%
159,370 Mannesmann AG* 38,449,644
Distributors -- 0.4%
99,440 GEHE AG* 3,856,578
Electronics and Electrical Equipment -- 1.6%
103,620 Epcos AG* 7,776,427
53,320 Siemens AG* 6,783,811
Software -- 1.4%
27,333 SAP AG* 13,464,071
Telecommunications -- 1.3%
165,990 Deutsche Telekom* 11,821,744
---------------
99,039,287
---------------
HONG KONG -- 3.3%
Banks -- 0.5%
1,552,600 Bank of East Asia Ltd.* 4,324,151
Computer Systems -- 0.4%
1,434,000 Legend Hldgs. Ltd.* 3,551,103
Conglomerates -- 1.3%
842,000 Hutchison Whampoa 12,239,789
Real Estate -- 0.8%
365,000 Cheung Kong Hldgs. 4,625,008
311,000 Sun Hung Kai Pptys. 3,240,625
Telecommunications-- 0.3%
631,500 SmarTone Telecom. Hldgs. Ltd. 3,046,408
---------------
31,027,084
---------------
IRELAND -- 1.9%
Banks -- 0.6%
529,600 Allied Irish Bank 6,039,133
Construction Materials -- 1.3%
555,000 CRH PLC 11,964,291
---------------
18,003,424
---------------
ITALY -- 2.3%
Banks -- 2.3%
148,400 Bipop-Carire SPA* 13,132,757
630,900 San Paolo IMI SPA* 8,573,392
---------------
21,706,149
---------------
JAPAN -- 28.9%
Automotive -- 1.8%
101,000 Honda Motor Co. 3,756,484
267,000 Toyota Motor Corp.* 12,935,794
Chemicals -- 0.9%
1,697,000 Sumitomo Chemical* 7,972,595
Commercial Services -- 0.9%
33,800 Benesse Corp.* 8,138,201
Computer Software and Technology -- 1.1%
10,400 Softbank Corp.* 9,955,173
Computer Systems -- 2.9%
590,000 Fujitsu Ltd. 26,910,052
Drugs and Health Care -- 0.8%
373,000 Sankyo Co. 7,666,634
Electronics -- 5.3%
1,105,000 Hitachi 17,737,105
43,000 Rohm Co. 17,676,422
47,600 Sony Corp. 14,116,473
Engineering and Machineries -- 1.4%
57,300 SMC Corp. 12,680,366
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
88
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Financial Services -- 3.7%
841,000 Mitsubishi Trading & Brokerage $ 7,408,241
433,000 Nomura Securities Co. Ltd.* 7,819,174
142,000 Promise Co. 7,227,170
729,000,000 Sanwa Int'l. Financial 7,857,246
10,240 Shohkoh Fund & Co. 4,054,106
Household Products -- 1.2%
408,000 Kao Corp. 11,640,599
Merchandising-Mass -- 1.2%
56,500 Ryohin Keikaku Co. Ltd. 11,342,028
Retail Trade -- 0.9%
80,000 Ito Yokado Co. 8,691,397
Telecommunications -- 6.8%
5,400 Hikari Tsushin, Inc. 10,834,883
975 Nippon Tele. & Tel. Corp. 16,700,108
940 NTT Mobile Comm. Network, Inc. 36,157,385
---------------
269,277,636
---------------
MALAYSIA -- 0.2%
Banks -- 0.2%
637,000 Malayan Banking Berhad 2,263,026
---------------
NETHERLANDS -- 4.6%
Banks -- 0.6%
218,580 ABN AMRO Hldgs. NV 5,460,625
Broadcasting and Publishing -- 1.6%
283,230 Ver Ned Uitgevers 14,887,561
Computer Services -- 0.7%
93,170 CMG PLC 6,935,867
Computer Systems -- 0.9%
75,200 ASM Lithography Hldg. NV* 8,355,522
Insurance -- 0.8%
77,860 Aegon NV* 7,521,652
---------------
43,161,227
---------------
NEW ZEALAND -- 0.3%
Telecommunications -- 0.3%
528,512 Telecom. Corp. of New Zealand 2,485,327
---------------
PORTUGAL -- 0.3%
Transportation -- 0.3%
352,150 Brisa (Auto Estrada)* 2,703,105
---------------
SINGAPORE -- 0.9%
Banks -- 0.3%
270,900 Overseas Chinese Bank 2,488,604
Publishing -- 0.6%
259,846 Singapore Press Hldgs.* 5,632,207
---------------
8,120,811
---------------
SOUTH KOREA -- 0.5%
Utilities-Electric -- 0.5%
284,940 Korea Electric Power Corp. ADR 4,772,745
---------------
SPAIN -- 4.5%
Banks -- 1.3%
1,109,160 Banco Santander Central Hispano S.A. 12,558,586
Construction and Housing -- 1.1%
181,080 Acciona S.A. 10,215,009
Gas Distribution -- 0.7%
274,200 Gas Natural SDG 6,317,043
Telecommunications -- 1.4%
511,660 Telefonica S.A.* 12,782,429
---------------
41,873,067
---------------
SWEDEN -- 4.1%
Construction and Mining Equipment -- 0.8%
264,217 Atlas Copco AB* 7,514,457
Retail-General -- 1.3%
364,800 Hennes & Mauritz* 12,218,592
Telecommunications -- 2.0%
288,050 LM Ericsson * 18,517,258
---------------
38,250,307
---------------
SWITZERLAND -- 3.3%
Business Services -- 1.5%
18,309 Adecco S.A.* 14,258,092
Insurance -- 0.9%
13,990 Zurich Allied AG* 7,977,718
Pharmaceuticals -- 0.9%
748 Roche Hldgs. AG* 8,878,478
---------------
31,114,288
---------------
UNITED KINGDOM -- 15.6%
Banks -- 3.8%
252,000 Barclays 7,241,520
300,625 Halifax PLC 3,282,653
654,000 HSBC Hldgs. 9,063,966
670,000 Lloyds TSB Group PLC 8,322,511
341,000 National Westminster Bank Co. PLC 7,325,871
Computer Software and Technology -- 0.5%
393,380 Sage Group* 4,816,535
Conglomerates -- 0.4%
278,000 Smiths Industries PLC 4,153,744
Construction -- 0.7%
787,000 Hanson PLC 6,597,742
Drugs and Health Care -- 1.8%
390,000 Glaxo Wellcome 11,049,622
438,000 Smithkline Beecham 5,553,886
Electronics -- 0.4%
373,000 Electrocomponents 4,127,173
Financial Services -- 0.4%
258,000 CGU PLC 4,163,307
Food, Beverage and Tobacco -- 1.0%
961,900 Imperial Tobacco 7,924,162
145,702 Whitbread 1,468,599
Insurance -- 0.4%
186,000 Prudential Corp. 3,629,386
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
89
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
Shares Value
- --------------------------------------------------------------------------------
Leisure Products -- 0.3%
240,000 Granada Group $ 2,422,950
Oil-International -- 1.6%
1,437,936 BP Amoco PLC 14,515,006
Oil and Gas -- 0.6%
617,000 Shell Transport & Trading 5,127,714
Telecommunications -- 3.7%
547,000 British Telecom. 13,253,537
279,991 Cable & Wireless Co.* 4,003,083
58,000 Energis PLC* 2,787,200
2,855,000 Vodafone Airtouch PLC 14,231,189
---------------
145,061,356
---------------
TOTAL COMMON STOCKS
(Cost $558,425,531) 918,148,668
---------------
- ----------------------------
REPURCHASE AGREEMENT -- 1.5%
- ----------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 14,428,000 State Street Bank & Trust Co.
repurchase agreement, dated
12/31/99, maturity value
$14,431,006 at 2.50% due 1/3/00(1) $ 14,428,000
---------------
TOTAL REPURCHASE AGREEMENT
(Cost $14,428,000) 14,428,000
---------------
TOTAL INVESTMENTS -- 99.9%
(Cost $572,853,531) 932,576,668
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 0.1% 967,274
---------------
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 933,543,942
===============
- --------------------------------------------------------------------------------
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
(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.
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
90
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1999
ASSETS
Investments, at market (cost $572,853,531) $ 932,576,668
Cash 959
Foreign currency (cost $1,122,612) 997,318
Dividends receivable 535,441
Dividend reclaims receivable 504,138
Receivable for fund shares sold 255,318
Interest receivable 1,002
-------------
TOTAL ASSETS 934,870,844
-------------
LIABILITIES
Accrued expenses 850,356
Payable for fund shares redeemed 476,546
-------------
TOTAL LIABILITIES 1,326,902
-------------
NET ASSETS $ 933,543,942
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 3,486,592
Additional paid-in capital 554,286,035
Distributions in excess of net investment income (2,497,259)
Accumulated net realized gain on investments
and foreign currency related transactions 18,694,823
Net unrealized appreciation of investments
and translation of other assets and
liabilities denominated in foreign currencies 359,573,751
-------------
NET ASSETS $ 933,543,942
=============
Shares Outstanding -- $0.10 par value 34,865,924
-------------
NET ASSET VALUE PER SHARE $ 26.78
=============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1999
Investment Income:
Dividends $ 10,776,920
Interest 286,590
Less: Foreign tax withheld (1,174,321)
-------------
Total Income 9,889,189
-------------
Expenses:
Investment advisory fees -- Note B 5,801,374
Custodian fees 968,997
Printing expense 140,000
Audit fees 22,734
Directors' fees -- Note B 12,500
Legal fees 8,000
Insurance expense 1,741
Registration fees 916
Other 700
-------------
Total Expenses 6,956,962
-------------
Net Investment Income 2,932,227
-------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized gain on investments -- Note A(1) 79,577,048
Net realized loss on foreign currency
related transactions -- Note A (3,505,893)
Net change in unrealized appreciation of
investments -- Note C 183,360,997
Net change in unrealized depreciation from
translation of assets and liabilities
denominated in foreign currencies -- Note C (33,985)
-------------
Net Realized and Unrealized Gain on
Investments and Foreign Currencies 259,398,167
-------------
Net Increase in Net Assets
from Operations $ 262,330,394
=============
(1) Net of foreign capital gains tax of $4,398.
See notes to financial statements.
- --------------------------------------------------------------------------------
91
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 2,932,227 $ 3,351,082
Net realized gain on investments and foreign currency related transactions 76,071,155 40,487,438
Net change in unrealized appreciation/(depreciation) on investments and
translation of other assets and liabilities denominated in foreign currencies 183,327,012 71,008,066
-------------- --------------
Net Increase in Net Assets from Operations 262,330,394 114,846,586
-------------- --------------
Dividends and Distributions to Shareholders from:
Net investment income (2,932,227) (3,351,082)
Distributions in excess of net investment income (349,444) (409,367)
Net realized gain on investments (64,946,896) (33,666,022)
-------------- --------------
Total Dividends and Distributions to Shareholders (68,228,567) (37,426,471)
-------------- -------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note E 59,152,053 68,158,477
------------- -------------
Net Increase in Net Assets 253,253,880 145,578,592
Net Assets:
Beginning of year 680,290,062 534,711,470
------------- -------------
End of year* $ 933,543,942 $ 680,290,062
============= =============
* Includes distributions in excess of net investment income of: $ (2,497,259) $ (2,558,540)
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
92
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ........................ $20.92 $18.27 $17.26 $15.37 $14.69
------ ------ ------ ------ ------
Income from investment operations:
Net investment income .................... 0.10 0.13 0.15 0.15 0.16
Net realized and unrealized
gain on investments and
translation of other assets and
liabilities denominated
in foreign currencies .................. 7.86 3.73 1.91 2.21 1.49
------ ------ ------ ------ ------
Net increase from
investment operations .................. 7.96 3.86 2.06 2.36 1.65
------ ------ ------ ------ ------
Dividends and Distributions to
Shareholders from:
Net investment income .................... (0.09) (0.11) (0.15) (0.14) (0.15)
Distributions in excess of net
investment income ...................... (0.01) (0.01) (0.15) (0.10) (0.12)
Net realized gain on investments
and foreign currency related
transactions ........................... (2.00) (1.09) (0.75) (0.23) (0.70)
------ ------ ------ ------ ------
Total dividends and distributions ........ (2.10) (1.21) (1.05) (0.47) (0.97)
------ ------ ------ ------ ------
Net asset value, end of year ............... $26.78 $20.92 $18.27 $17.26 $15.37
------ ------ ------ ------ ------
Total return* .............................. 39.11% 21.17% 11.93% 15.41% 11.23%
------ ------ ------ ------ ------
Ratios/supplemental data:
Net assets, end of year
(000's omitted) ........................ $933,544 $680,290 $534,711 $456,203 $317,287
Ratio of expenses to average
net assets ............................. 0.96% 0.98% 0.97% 0.98% 0.99%
Ratio of net investment income
to average net assets .................. 0.40% 0.55% 0.74% 0.94% 0.97%
Portfolio turnover
rate ................................... 52% 47% 51% 38% 52%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
93
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- ----------------------
COMMON STOCKS -- 97.4%
- ----------------------
Shares Value
- --------------------------------------------------------------------------------
ARGENTINA -- 1.7%
Banks -- 0.5%
34,800 Banco Rio de la Plata S.A. ADR* $ 424,125
Real Estate -- 0.3%
9,812 IRSA Inversiones Y Represente GDR 317,050
Retail-Food -- 0.5%
56,500 Imp. Y Exp. Patagonia 497,272
Telecommunications -- 0.4%
12,170 Telefonica de Argentina S.A. ADR 375,749
---------------
1,614,196
---------------
BRAZIL -- 8.6%
Banks -- 0.5%
5,400,000 Banco Itau S.A. 463,327
Gas Distribution -- 0.2%
17,007 Ultrapar Participacoes S.A. ADR* 195,581
Paper Products -- 0.5%
16,870 Aracruz Celulose S.A. ADR* 442,837
Petroleum Services -- 1.3%
48,400 Petroleo Brasileiro S.A. ADR 1,234,200
Real Estate -- 0.3%
18,100 Brazil Realty S.A. GDR* 242,546
Retail-Food -- 0.8%
23,720 Comp. Brasileiras de Dist. ADR* 766,452
Telecommunications -- 3.9%
42,000,000 Embratel Participacoes S.A.* 702,131
17,650 Embratel Participacoes S.A. ADR 480,962
9,618 Telecom. Centro Sul Participacoes ADR 600,638
21,027,300 Telecom. de Sao Paolo 286,339
26,600 Telecom. Norte Leste Participacoes ADR* 678,300
115,001,000 Telecom. Sudeste Celular
Participacoes S.A.* 849,865
Textile-Apparel and Production -- 0.5%
136,800 Confeccoes Guararapes S.A.* 424,069
Utilities-Electric and Water -- 0.6%
25,000 Comp. Energetica de Minas ADR 550,000
---------------
7,917,247
---------------
CHILE -- 1.4%
Chemicals -- 0.2%
6,040 Sociedad Quimica Y Minera
de Chile S.A. ADR* 190,638
Mining -- 0.7%
87,000 Antofagasta Hldgs. 604,284
Mutual Funds -- 0.3%
8,930 Genesis Chile Fund* 280,223
Telecommunications -- 0.2%
10,200 Comp. de Telecom. de Chile ADR 186,150
---------------
1,261,295
---------------
COLOMBIA -- 0.3%
Retail-Food -- 0.3%
116,911 Almacenes Exito S.A. 280,586
---------------
CZECH REPUBLIC -- 0.5%
Telecommunications -- 0.5%
26,500 SPT Telecom. AS* 427,789
---------------
GREECE -- 1.0%
Banks -- 0.4%
4,387 Alpha Credit Bank* 343,517
Hospitals and Health Care -- 0.3%
5,500 Athens Medical Care S.A.* 284,735
Telecommunications -- 0.3%
22,890 Panafon Hellenic Telecom S.A.* 307,342
---------------
935,594
---------------
HONG KONG -- 3.8%
Banks -- 0.5%
160,000 Guoco Group 487,811
Computer Systems -- 1.7%
636,000 Legend Hldgs. Ltd. 1,574,966
Conglomerates -- 0.7%
800,000 First Pacific Co. Ltd.* 622,628
Real Estate -- 0.7%
49,000 Cheung Kong Hldgs. 620,891
Utilities -- 0.2%
1,116,000 Shandong Int'l. Power* 157,921
---------------
3,464,217
---------------
HUNGARY -- 3.3%
Banks -- 1.1%
17,500 OTP Bank* 1,025,152
Chemicals -- 0.5%
11,000 BorsodChem RT 450,784
Pharmaceuticals -- 0.9%
12,000 Richter Gedeon VEG* 789,674
Telecommunications -- 0.8%
110,000 Matav RT* 770,906
---------------
3,036,516
---------------
INDIA -- 12.5%
Computer Software -- 12.5%
31,200 Aptech Ltd.* 1,267,366
10,000 Hughes Software Systems* 955,552
16,400 Infosys Technology Ltd. 5,472,793
39,000 NIIT Ltd. 2,972,562
17,000 Satyam Computer Services Ltd.* 859,379
---------------
11,527,652
---------------
ISRAEL -- 2.7%
Banks -- 0.7%
317,000 Bank Leumi Le -- Israel 666,870
Computer Software -- 0.4%
25,000 Sapiens Int'l. Corp. NV* 410,938
Conglomerates -- 0.7%
41,000 Clal Industries* 386,848
11,000 Koors Industries Ltd. ADR 220,000
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
94
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Electronic Equipment -- 0.2%
5,700 ECI Telecom. Ltd. $ 180,263
Telecommunications -- 0.7%
37,000 Elbit Ltd.* 654,437
---------------
2,519,356
---------------
MALAYSIA -- 3.0%
Banks -- 1.3%
351,000 Malayan Banking Berhad 1,246,974
Food, Beverage and Tobacco -- 0.2%
130,000 RJ Reynolds Berhad 161,474
Telecommunications -- 0.7%
1,100,000 Technology Resources Inds. Berhad* 680,263
Utilities -- 0.8%
271,000 Tenaga Nasional 698,895
---------------
2,787,606
---------------
MEXICO -- 12.0%
Banks -- 0.7%
160,000 Grupo Financiero Banamex
Accival S.A. de C.V.* 641,689
Conglomerates -- 1.2%
82,600 Alfa S.A.* 387,937
11,280 Desc S.A. de C.V. ADR* 188,940
11,200 Fomento Economico Mexicano ADR* 498,400
Construction -- 0.4%
231,600 Consorcio Ara S.A. de C.V.* 383,759
Financial Services -- 0.3%
201,400 Grupo Financiero Banorte* 303,960
Food, Beverage and Tobacco -- 0.7%
222,000 Grupo Continental 323,335
140,000 Grupo Industrial Bimbo S.A.* 312,507
Media and Entertainment -- 2.3%
340,000 Corp. Interamericana Entretenimiento* 1,358,206
11,900 Grupo Television S.A. de C.V. ADR* 812,175
Metals -- 0.7%
46,900 Tubos de Acero* 618,239
Paper Products -- 0.4%
104,000 Kimberly Clark Mexico 406,121
Real Estate -- 0.4%
95,300 Corp. Geo S.A. de C.V.* 359,072
Retail Trade -- 1.1%
62,400 Grupo Elektra S.A. de C.V. GDR* 600,600
82,700 Organiz. Soriana* 379,678
Telecommunications -- 3.8%
110,500 Grupo Carso Global Telecom.* 1,037,942
21,800 Telefonos de Mexico S.A. ADR 2,452,500
---------------
11,065,060
---------------
PANAMA -- 0.3%
Banks -- 0.3%
13,800 Banco Latinoamericano de
Exportaciones S.A.* 324,300
---------------
PEOPLE'S REPUBLIC OF CHINA -- 0.4%
Electrical Equipment -- 0.4%
500,000 Guandong Kelon Elec. Hldgs.* 379,494
---------------
PERU -- 1.0%
Banks -- 0.2%
18,300 Credicorp Ltd.* 219,600
Mining -- 0.4%
20,700 Comp. de Minas Buenaventura ADR 332,494
Telecommunications -- 0.4%
26,400 Telefonica del Peru S.A. ADR 353,100
---------------
905,194
POLAND -- 1.4%
Banks -- 0.5%
15,260 Bank Roswoju Eksport* 483,449
Metals -- 0.4%
58,500 KGHM Polska Miedz 367,836
Telecommunications -- 0.5%
70,000 Telekomunikacja Polska GDR 446,250
---------------
1,297,535
---------------
QATAR -- 0.7%
Computer Software -- 0.7%
86,000 Qatar Tele QSC (Q-Tell) GDR* 660,050
---------------
SOUTH AFRICA -- 6.9%
Banks -- 0.7%
150,000 Standard Bank Investment Corp. Ltd.* 622,664
Conglomerates -- 1.0%
90,000 Bidvest Group Ltd.* 878,798
Electronic Equipment -- 2.0%
32,000 MIH Ltd. Tortola* 1,888,000
Metals -- 0.6%
170,000 Gold Fields of South Africa* 414,297
139,800 Northam Platinum 174,892
Mining -- 1.7%
78,000 Anglovaal Mining Ltd. 679,253
117,000 Ashanti Goldfields Co. Ltd. GDR* 307,125
19,600 De Beers Centenary 570,008
Tobacco -- 0.9%
33,000 Compagnie Financiere Richemont AG 816,019
---------------
6,351,056
---------------
SOUTH KOREA -- 16.4%
Banks -- 1.0%
56,300 Hanvit Bank GDR* 363,135
41,816 Kookmin Bank GDR 607,377
Conglomerates -- 1.1%
68,000 Samsung Co.* 1,018,054
Construction -- 1.1%
25,797 Tae Young Corp.* 999,620
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
95
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
Shares Value
- --------------------------------------------------------------------------------
Electronic Equipment -- 6.2%
77,000 Comtec System* $ 1,044,298
53,250 Sam Hwa Electronics Co.* 914,465
13,000 Samsung Electro-Mechanics Co.* 864,377
12,400 Samsung Electronics* 2,904,800
Financial Services -- 0.7%
30,000 Dongwon Securities* 647,292
Metals -- 1.8%
46,200 Pohang Iron & Steel Co. Ltd. ADR 1,617,000
Telecommunications -- 1.4%
33,990 SK Telecom Ltd. ADR 1,304,366
Telecommunications-Specialty -- 1.9%
26,100 Korea Thrunet Co. Ltd.* 1,771,538
Utilities-Electric -- 1.2%
65,000 Korea Electric Power Corp. ADR 1,088,750
---------------
15,145,072
---------------
SPAIN -- 1.1%
Telecommunications-Specialty -- 1.1%
18,000 Terra Networks S.A. ADR* 985,500
---------------
TAIWAN -- 11.2%
Banks -- 0.9%
697,000 First Commercial Bank* 868,335
101 ICBC* 113
Electronics and Instruments -- 9.6%
264,500 Accton Technology Corp.* 897,539
164,000 Accton Technology Corp. GDR* 1,193,100
147,000 Hon Hai Precision* 1,096,001
541,000 Mitac Int'l. Corp.* 829,125
235,200 Taiwan Secom* 674,462
294,340 Taiwan Semiconductor* 1,566,187
434,200 United Micro Electronic* 1,549,479
44,000 Winbond Electronic Corp. GDR* 1,017,500
Financial Services -- 0.7%
424,200 China Development Industrial Bank* 675,801
---------------
10,367,642
---------------
THAILAND -- 1.6%
Real Estate -- 0.8%
1,523,300 Golden Land Ppty.* 788,646
Telecommunications -- 0.8%
180,000 Total Access Communication
Public Co.* 709,200
---------------
1,497,846
---------------
TURKEY -- 5.0%
Banks -- 3.0%
110,700 Haci Omer Sabanci Hldgs. S.A. ADR* 1,466,775
41,260,000 Yapi ve Kredi Bankasi A.S.* 1,274,161
Electronic Equipment -- 0.5%
1,876,000 Vestel Elektronik Sanayi ve Ticaret A.S.* 449,631
Media -- 1.0%
50,400,000 Hurriyet Gazetecilik ve Matbaacilik A.S.* 929,204
Retail-Appliances -- 0.5%
7,706,000 Arcelik A.S.* $ 504,357
---------------
4,624,128
---------------
VENEZUELA -- 0.6%
Telecommunications -- 0.6%
21,000 Compania Anonima Nacional
Telefonos de Venezuela ADR* 517,125
---------------
TOTAL COMMON STOCKS
(Cost $60,180,272) 89,892,056
---------------
- ------------------------
PREFERRED STOCKS -- 1.5%
- ------------------------
20,900 Comp. Vale do Rio Doce $ 578,467
94,000 Confeccoes Guararapes S.A. * 291,392
521,000 Itausa -- Investimentos Itau S.A. 539,314
---------------
TOTAL PREFERRED STOCKS
(Cost $1,151,741) 1,409,173
---------------
- ----------------------------
REPURCHASE AGREEMENT -- 1.7%
- ----------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 1,545,000 State Street Bank & Trust Co.
repurchase agreement, dated
12/31/99, maturity value
$1,545,322 at 2.50% due 1/3/00(1) $ 1,545,000
---------------
TOTAL REPURCHASE AGREEMENT
(Cost $1,545,000) 1,545,000
---------------
TOTAL INVESTMENTS -- 100.6%
(Cost $62,877,013) 92,846,229
LIABILITIES IN EXCESS OF CASH,
RECEIVABLES AND OTHER
ASSETS -- (0.6%) (589,805)
---------------
NET ASSETS -- 100.0% $ 92,256,424
---------------
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
(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.
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
96
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1999
ASSETS
Investments, at market (cost $62,877,013) $ 92,846,229
Cash 788
Foreign currency (cost $235,514) 237,422
Receivable for fund shares sold 250,229
Dividends receivable 165,448
Dividend reclaims receivable 316
Interest receivable 107
-------------
TOTAL ASSETS 93,500,539
-------------
LIABILITIES
Accrued foreign capital gains tax 1,124,027
Accrued expenses 120,088
-------------
TOTAL LIABILITIES 1,244,115
-------------
NET ASSETS $ 92,256,424
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 724,533
Additional paid-in capital 73,356,548
Distributions in excess of net investment income (1,236,713)
Accumulated net realized loss on
investments and foreign currency
related transactions (10,549,733)
Net unrealized appreciation of investments
and translation of other assets and
liabilities denominated in foreign currencies 29,961,789
-------------
NET ASSETS $ 92,256,424
=============
Shares Outstanding -- $0.10 par value 7,245,334
-------------
NET ASSET VALUE PER SHARE $ 12.73
=============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1999
Investment Income:
Dividends $ 994,214
Interest 93,498
Less: Foreign tax withheld (116,468)
-------------
Total Income 971,244
-------------
Expenses:
Investment advisory fees -- Note B 622,152
Custodian fees 222,206
Audit fees 22,733
Printing expense 15,000
Directors' fees -- Note B 12,500
Registration fees 2,000
Legal fees 1,019
Amortization of organization cost 400
Insurance expense 129
Other 700
-------------
Total Expenses 898,839
-------------
Net Investment Income 72,405
-------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized gain on investments -- Note A 4,361,428
Net realized loss on foreign currency related
transactions -- Note A (239,066)
Net change in unrealized depreciation of
investments -- Note C 34,299,017
Net change in unrealized depreciation from
translation of other assets and liabilities
denominated in foreign currencies -- Note C (2,961)
Foreign Capital Gains Tax (1,384,923)
-------------
Net Realized and Unrealized Gain on
Investments and Foreign Currencies 37,033,495
-------------
Net Increase in Net Assets
from Operations $ 37,105,900
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
97
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 72,405 $ 754,935
Net realized gain/(loss) on investments and foreign currency related transactions 2,737,439 (13,850,318)
Net change in unrealized appreciation/(depreciation) on investments and
translation of other assets and liabilities denominated in foreign currencies 34,296,056 (7,925,022)
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations 37,105,900 (21,020,405)
------------- -------------
Distributions to Shareholders from:
Tax return of capital -- (481,281)
------------- -------------
Total Distributions to Shareholders -- (481,281)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from capital share transactions-- Note E 4,486,963 (14,848,462)
------------- -------------
Net Increase/(Decrease) in Net Assets 41,592,863 (36,350,148)
Net Assets:
Beginning of year 50,663,561 87,013,709
------------- -------------
End of year* $ 92,256,424 $ 50,663,561
============= =============
* Includes distributions in excess of net investment income of: $ (1,236,713) $ (32,675)
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
98
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year.............................................. $ 7.39 $10.17 $10.54 $ 8.46 $8.68
------ ------ ------ ------ -----
Income from investment operations:
Net investment income.......................................... 0.01 0.09 0.09 0.07 0.07
Net realized and unrealized gain/(loss) on
investments and translation of other
assets and liabilities denominated in
foreign currency............................................. 5.33 (2.81) 0.12 2.01 (0.12)
------ ------ ------ ------ -----
Net increase/(decrease) from investment
operations................................................... 5.34 (2.72) 0.21 2.08 (0.05)
------ ------ ------ ------ -----
Dividends and Distributions
to Shareholders from:
Net investment income.......................................... -- -- (0.06) -- (0.07)
Distributions in excess of
net investment income......................................... -- -- -- -- (0.10)
Net realized gain on investments............................... -- -- (0.33) -- --
In excess of net realized gain on investments.................. -- -- (0.19) -- --
Tax return of capital.......................................... -- (0.06) -- -- --
------ ------ ------ ------ -----
Total dividends and distributions............................... -- (0.06) (0.58) -- (0.17)
------ ------ ------ ------ -----
Net asset value, end of year..................................... $12.73 $ 7.39 $10.17 $10.54 $8.46
------ ------ ------ ------ -----
Total return*.................................................... 72.26% (26.77)% 1.97% 24.59% (0.60)%
------ ------ ------ ------ -----
Ratios/supplemental data:
Net assets, end of year (000's omitted)........................ $92,256 $50,664 $87,014 $67,062 $34,218
Ratio of expenses to average net assets........................ 1.44% 1.49% 1.40% 1.53% 1.67%
Ratio of net investment income to average net assets........... 0.12% 1.16% 0.76% 0.85% 0.89%
Portfolio turnover rate........................................ 96% 69% 64% 46% 52%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
99
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- ----------------------
COMMON STOCKS -- 90.2%
- ----------------------
Shares Value
- --------------------------------------------------------------------------------
Aerospace and Defense -- 0.7%
11,200 Alliant Techsystems, Inc.* $ 697,900
20,200 L-3 Comm. Hldgs., Inc.* 840,825
15,100 Newport News Shipbuilding Corp. 415,250
------------
1,953,975
------------
Appliance and Furniture -- 0.7%
60,150 Ethan Allen Interiors, Inc. 1,928,559
Biotechnology -- 1.5%
25,400 Caliper Technologies, Inc.* 1,695,450
15,400 Enzon, Inc.* 667,975
6,900 Millenium Pharmaceuticals, Inc.* 841,800
6,800 Sepracor, Inc.* 674,475
------------
3,879,700
------------
Broadcasting -- 8.3%
5,000 ACME Comm., Inc.* 166,250
51,000 Adelphia Comm. Corp.* 3,346,875
62,800 Citadel Comm. Corp.* 4,074,150
26,200 Classic Comm., Inc.* 957,938
37,238 Cox Comm., Inc.* 1,917,757
17,300 Cox Radio, Inc.* 1,725,675
23,500 Cumulus Media, Inc.* 1,192,625
25,200 Entercom Comm. Corp.* 1,663,200
34,300 Insight Enterprises, Inc.* 1,016,138
34,200 Jones Intercable, Inc.* 2,370,488
9,600 OpenTV Corp.* 770,400
10,000 Radio Unica Comm., Inc.* 288,750
8,000 RealNetworks, Inc.* 962,500
25,000 Spanish Broadcasting Systems, Inc.* 1,006,250
------------
21,458,996
------------
Building Materials and Homebuilders -- 3.6%
16,000 Centex Corp. 395,000
58,000 Crossman Communities, Inc.* 899,000
18,900 Elcor Chemical Corp. 569,362
58,000 Lafarge Corp. 1,602,250
51,000 M.D.C. Hldgs., Inc. 800,062
21,300 Martin Marietta Materials, Inc. 873,300
47,550 National RV Hldgs., Inc.* 915,337
17,600 Southdown, Inc. 908,600
61,800 Thor Industries, Inc. 1,881,038
55,000 U.S. Concrete, Inc.* 330,000
------------
9,173,949
------------
Capital Goods-Miscellaneous Technology -- 4.4%
18,336 At Home, Inc.* 786,156
10,600 CMGI, Inc.* 2,934,875
6,200 CNET, Inc.* 351,850
17,200 Critical Path, Inc.* 1,623,250
1,000 Freemarkets, Inc.* 341,313
6,300 Intertrust Technologies Corp.* 741,037
31,600 National Computer Systems, Inc. 1,188,950
10,000 Netzero, Inc.* 269,375
23,100 Profit Recovery Group Int'l., Inc.* 613,594
34,000 Xircom, Inc.* 2,550,000
------------
11,400,400
------------
Chemicals -- 1.0%
24,000 Cabot Corp. 489,000
13,100 Dexter Corp. 520,725
16,500 MacDermid, Inc. 677,531
29,900 Spartech Corp. 964,275
------------
2,651,531
------------
Computer Software -- 9.1%
3,000 Agile Software Corp.* 651,703
6,300 Akamai Technologies, Inc.* 2,064,037
9,200 Bea Systems, Inc.* 643,425
10,600 Broadvision, Inc.* 1,802,662
5,400 Commerce One, Inc.* 1,061,100
8,000 Cybersource Corp.* 414,000
4,700 Digital Impact, Inc.* 235,587
2,500 E.Piphany, Inc.* 557,812
3,100 Engage Technologies, Inc.* 186,000
22,600 Fulton Financial Corp. 406,800
15,000 Inktomi Corp.* 1,331,250
3,700 Interwoven, Inc.* 450,013
10,000 KANA Comm., Inc.* 2,050,000
9,300 Legato Systems, Inc.* 639,956
29,900 Macromedia, Inc.* 2,186,438
6,100 Mercury Interactive Corp.* 658,419
3,000 Red Hat, Inc.* 633,750
2,500 Silknet Software, Inc.* 414,375
1,200 VA Linux Systems, Inc.* 247,950
22,800 VeriSign, Inc.* 4,353,375
12,500 Visio Corp.* 593,750
8,300 Vitria Technology, Inc.* 1,942,200
------------
23,524,602
------------
Computer Systems -- 4.2%
5,000 Alteon Websystems, Inc.* 438,750
6,200 Cacheflow, Inc.* 810,263
4,100 Cobalt Networks, Inc.* 444,338
8,800 Emulex Corp.* 990,000
10,800 FiniStar Corp.* 970,650
500 Foundry Networks, Inc.* 150,844
25,600 Henry Jack & Associates, Inc. 1,374,400
34,300 The Intercept Group, Inc.* 1,018,281
6,300 JNI Corp.* 415,800
50,000 Network Appliance, Inc.* 4,153,125
------------
10,766,451
------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
100
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Drugs and Hospitals -- 2.3%
23,700 Alpharma, Inc. $ 728,775
9,500 Andrx Corp.* 401,969
8,000 Idec Pharmaceuticals Corp.* 786,000
28,600 Jones Pharma, Inc. 1,242,312
21,100 King Pharmaceuticals, Inc.* 1,182,919
59,350 United Payors & United Prov., Inc.* 982,984
19,200 Watson Pharmaceuticals, Inc.* 687,600
------------
6,012,559
------------
Electrical Equipment -- 2.1%
25,000 Celestica, Inc.* 1,387,500
15,600 DII Group, Inc.* 1,107,112
20,800 Flextronics Int'l. Ltd.* 956,800
44,500 Plexus Corp.* 1,958,000
------------
5,409,412
------------
Electronics and Instruments -- 0.2%
11,000 Power Integrations, Inc.* 527,312
Electronics-Semiconductors -- 1.0%
11,800 AVX Corp. 589,262
9,400 Epcos AG* 702,063
22,500 Integrated Device Technology, Inc.* 652,500
11,700 Lattice Semiconductor Corp.* 551,363
------------
2,495,188
------------
Entertainment -- 0.0%
5,000 World Wrestling Federation Etmt.* 86,250
Financial-Banks -- 4.8%
11,800 Commerce Bancorp, Inc.* 477,162
28,300 Cullen Frost Bankers, Inc. 728,725
38,800 First Tenn Nat'l. Corp. 1,105,800
1,000 M & T Bank Corp. 414,250
20,300 Marshall & Ilsley Corp.* 1,275,094
36,000 National Commerce Bancorp 816,750
75,200 North Fork Bancorp 1,316,000
26,500 U.S. Trust Corp. 2,124,969
58,800 Valley National Bancorp 1,646,400
42,100 Zions Bancorp 2,491,794
------------
12,396,944
------------
Financial-Other -- 0.9%
24,000 Dain Rauscher Corp. 1,116,000
27,300 DLJ Direct* 370,256
6,100 Investment Technology Group, Inc.* 175,375
6,100 Jefferies Group, Inc. 134,200
13,300 Legg Mason, Inc. 482,125
------------
2,277,956
------------
Financial-Thrift -- 2.0%
65,000 Bay View Capital Corp.* $ 922,187
41,900 Commercial Federal Corp. 746,344
27,500 Dime Bancorp, Inc.* 415,938
130,148 Peoples Heritage Financial Group* 1,960,354
40,000 Waddell & Reed Financial, Inc. 1,085,000
------------
5,129,823
------------
Food, Beverage and Tobacco -- 0.6%
31,300 Adolph Coors Co. 1,643,250
------------
Footwear -- 0.0%
7,600 Madden Steven Ltd.* 144,875
------------
Household Products -- 0.4%
37,400 Church & Dwight, Inc. 998,112
------------
Insurance -- 0.7%
19,500 Arthur J. Gallagher & Co. 1,262,625
13,600 Hilb Rogal & Hamilton Co. 384,200
11,900 State Auto Financial Corp. 108,587
------------
1,755,412
------------
Machinery and Equipment -- 0.7%
57,300 JLG Industries, Inc. 913,219
27,800 Terex Corp.* 771,450
------------
1,684,669
------------
Machinery-Industrial Specialty -- 0.2%
24,900 Shaw Group, Inc.* 630,281
------------
Merchandising-Food -- 0.6%
152,600 Grand Union Co.* 1,545,075
------------
Merchandising-Special -- 4.4%
42,700 3 DO Co.* 388,303
56,000 Ames Department Stores, Inc.* 1,613,500
20,000 Ann Taylor Stores Corp.* 688,750
96,100 BJ's Wholesale Club, Inc.* 3,507,650
31,700 JAKKS Pacific, Inc.* 592,394
11,300 THQ, Inc.* 262,019
36,200 United Stationers, Inc.* 1,033,963
70,300 Zale Corp.* 3,400,762
------------
11,487,341
------------
Metals-Miscellaneous-- 0.1%
20,700 Ucar Int'l. Corp.* 368,719
------------
Miscellaneous-Capital Goods-- 0.2%
12,300 American Standards Cos., Inc.* 564,263
------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
101
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
Shares Value
- --------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Cyclical -- 1.6%
9,500 Agency.com Ltd.* $ 484,500
5,300 Go2Net* 461,100
16,700 Netratings, Inc.* 803,688
4,800 Retek, Inc.* 361,200
7,000 Sapient Corp.* 986,562
5,000 Viant Corp.* 495,000
16,000 Xpedior, Inc.* 460,000
------------
4,052,050
------------
Miscellaneous-Consumer Growth Staples -- 4.6%
20,000 Expedia, Inc.* 700,000
28,200 Intuit, Inc.* 1,690,237
16,900 Lamar Advertising Co.* 1,023,506
26,300 Learning Tree Int'l.* 736,400
65,000 Optimal Robotics Corp.* 2,421,250
89,800 Valassis Comm., Inc.* 3,794,050
20,500 Young & Rubicam, Inc. 1,450,375
------------
11,815,818
------------
Oil and Gas Producing -- 1.0%
15,100 Barrett Resources Corp.* 444,506
31,600 Louis Dreyfus Natural Gas Corp.* 572,750
19,500 Newfield Exploration Co.* 521,625
29,250 Spinnaker Exploration Co.* 413,156
15,700 Stone Energy Corp.* 559,313
------------
2,511,350
------------
Oil and Gas Services -- 1.9%
62,900 B.J. Svcs. Co.* 2,630,006
11,400 Cooper Cameron Corp.* 557,888
33,000 Maverick Tube Corp.* 814,687
60,000 Veritas DGC, Inc.* 840,000
------------
4,842,581
------------
Paper and Forest Products -- 0.4%
33,700 Abitibi-Consolidated, Inc. 400,188
10,700 Bowater, Inc. 581,144
------------
981,332
------------
Real Estate Investment Trust -- 0.4%
14,900 Alexandria Real Estate Equities 474,006
16,000 Home Pptys. NY, Inc. 439,000
------------
913,006
------------
Semiconductors -- 1.9%
46,000 Advanced Micro Devices, Inc.* 1,331,125
14,300 Kemet Corp.* 644,394
18,600 QLogic Corp.* 2,973,675
------------
4,949,194
------------
Semiconductors-Communications -- 4.9%
25,200 Applied Micro Circuits Corp.* 3,206,700
13,200 AudioCodes Ltd.* 1,214,400
18,200 Cypress Semiconductor Corp.* 589,225
7,400 DSP Group, Inc.* 688,200
13,300 Exar Corp.* 783,037
25,400 Metalink Ltd.* 517,525
8,600 RF Micro Devices, Inc.* 588,562
11,300 Semtech Corp.* 589,012
18,300 Transwitch Corp.* 1,327,894
68,000 Xilinx, Inc.* 3,091,875
------------
12,596,430
------------
Semiconductors-Equipment -- 2.1%
19,000 Advanced Energy Industries* 935,750
9,600 Credence Systems Corp.* 830,400
11,000 Cymer Corp.* 506,000
14,100 Helix Technology Corp. 631,856
16,400 KLA-Tencor Corp.* 1,826,550
6,800 Lam Resh Corp.* 758,625
------------
5,489,181
------------
Telecommunications -- 0.9%
25,400 Airnet Comm., Inc.* 923,925
55,500 Gric Comm., Inc.* 1,408,313
------------
2,332,238
------------
Telecommunications-Equipment -- 6.3%
7,500 Aether Systems, Inc.* 537,188
21,500 American Tower Corp.* 657,094
44,000 CommScope, Inc.* 1,773,750
24,800 Crown Castle, Int'l.* 796,700
9,600 Deltathree Comm., Inc.* 247,200
24,000 Dycom Industries, Inc.* 1,057,500
19,200 E Tek Dynamics, Inc.* 2,584,800
6,600 Harmonic, Inc.* 626,588
4,000 Juniper Networks, Inc.* 1,360,000
12,700 Metasolv Software, Inc.* 1,038,225
4,300 Optical Coating Lab., Inc. 1,272,800
17,200 Pinnacle Hldgs.* 728,850
9,100 Scientific Atlanta, Inc. 506,188
13,900 SDL, Inc.* 3,030,200
------------
16,217,083
------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
102
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Telecommunications-Specialty -- 5.5%
35,800 Exodus Comm., Inc.* $ 3,179,488
14,600 Intermedia Comm., Inc.* 566,663
17,700 ITC Deltacom* 488,962
30,550 Metromedia Fiber Network, Inc.* 1,464,491
22,200 Next Level Comm., Inc.* 1,662,225
60,000 Primus Telecomm. Group, Inc.* 2,295,000
7,500 Silicon Image, Inc.* 525,469
4,000 Sycamore Networks, Inc.* 1,232,000
14,200 Telecorp PCS, Inc.* 539,600
13,900 Time Warner Telecom, Inc.* 694,131
16,200 Tritel, Inc.* 513,338
12,400 Virata Corp.* 370,450
8,800 Winstar Comm., Inc.* 662,200
------------
14,194,017
------------
Textile-Apparel and Production -- 0.7%
29,000 Mohawk Industries, Inc.* 764,875
65,000 Shaw Industries, Inc. 1,003,437
------------
1,768,312
------------
Utilities-Electric -- 2.4%
39,300 Calpine Corp.* 2,515,200
9,000 CH Energy Group 297,000
16,200 Energy East Corp.* 337,162
66,100 Nisource, Inc.* 1,181,538
5,500 Otter Tail Power Co. 206,250
24,700 Philadelphia Subn. Corp.* 510,981
31,000 TNP Enterprises, Inc. 1,278,750
------------
6,326,881
------------
Utilities-Gas and Pipeline -- 0.6%
15,700 Equitable Res., Inc. 523,987
30,800 Midcoast Energy Res. 515,900
12,600 National Fuel Gas Co. 585,900
------------
1,625,787
------------
Utilities-Water -- 0.3%
10,400 E'Town Corp. 647,400
------------
TOTAL COMMON STOCKS
(Cost $150,112,987) 233,158,264
------------
- ---------------------------
REPURCHASE AGREEMENT-- 8.3%
- ---------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 21,355,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/99, maturity
value $21,360,784 at 3.25%,
due 1/3/00(1) $ 21,355,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $21,355,000) 21,355,000
------------
TOTAL INVESTMENTS -- 98.5%
(Cost $171,467,987) 254,513,264
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 1.5% 3,905,962
------------
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $258,419,226
============
- --------------------------------------------------------------------------------
(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.
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
103
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1999
ASSETS
Investments, at market (cost $171,467,987) $ 254,513,264
Cash 819
Receivable for securities sold 4,167,237
Receivable for fund shares sold 84,480
Dividends receivable 80,631
Interest receivable 1,928
Other assets 317
-------------
TOTAL ASSETS 258,848,676
-------------
LIABILITIES
Accrued expenses 178,828
Payable for fund shares redeemed 168,334
Payable for securities purchased 82,288
-------------
TOTAL LIABILITIES 429,450
-------------
NET ASSETS $ 258,419,226
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 1,503,948
Additional paid-in capital 185,227,068
Accumulated net realized loss
on investments (11,357,119)
Net unrealized appreciation of investments 83,045,329
-------------
NET ASSETS $ 258,419,226
=============
Shares Outstanding -- $0.10 par value 15,039,482
-------------
NET ASSET VALUE PER SHARE $ 17.18
=============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1999
Investment Income:
Dividends $ 1,152,055
Interest 754,759
Less: Foreign tax withheld (683)
-------------
Total Income 1,906,131
-------------
Expenses:
Investment advisory fees -- Note B 1,428,136
Custodian fees 84,250
Printing expense 32,734
Audit fees 19,232
Directors' fees -- Note B 12,500
Legal fees 1,600
Insurance expense 495
Registration fees 401
Amortization of organization cost 299
Other 700
-------------
Total Expenses 1,580,347
-------------
Net Investment Income 325,784
-------------
Realized and Unrealized Gain/(Loss)
on Investments-- Note C
Net realized gain on investments-- Note A 684,433
Net change in unrealized appreciation of
investments -- Note C 64,256,789
-------------
Net Realized and Unrealized Gain
on Investments 64,941,222
-------------
Net Increase in Net Assets
from Operations $ 65,267,006
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
104
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 325,784 $ 182,802
Net realized gain/(loss) on investments 684,433 (12,128,562)
Net change in unrealized appreciation of investments 64,256,789 11,582,495
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations 65,267,006 (363,265)
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income (283,666) (181,463)
Tax return of capital (43,726) --
Net realized gain on investments -- (848,131)
------------- -------------
Total Dividends and Distributions to Shareholders (327,392) (1,029,594)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from capital share transactions -- Note E (113,289) 107,236,357
------------- -------------
Net Increase in Net Assets 64,826,325 105,843,498
Net Assets:
Beginning of year 193,592,901 87,749,403
------------- -------------
End of year $ 258,419,226 $ 193,592,901
============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
105
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31, April 2, 1997*
--------------------------------- to December 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period................... $12.74 $13.63 $10.00
-------- -------- --------
Income from investment
operations:
Net investment
income................................ 0.02 0.01 0.03
Net realized and
unrealized gain/
(loss) on investments.................. 4.44 (0.79) 3.80
-------- -------- --------
Net increase/(decrease)
from investment
operations............................. 4.46 (0.78) 3.83
-------- -------- --------
Dividends and Distributions
to Shareholders from:
Net investment income................. (0.02) (0.01) (0.03)
Net realized gain..................... -- (0.10) (0.17)
-------- -------- --------
Total dividends and
distributions........................ (0.02) (0.11) (0.20)
-------- -------- --------
Net asset value, end of
period................................ $17.18 $12.74 $13.63
-------- -------- --------
Total return(a)......................... 35.04% (5.75)% 38.32%
-------- -------- --------
Ratios/supplemental data:
Net assets, end of period
(000's omitted)...................... $258,419 $193,593 $ 87,749
Ratio of expenses to
average net assets................... 0.83% 0.89% 0.96%(b)
Ratio of net investment
income to average net assets......... 0.17% 0.17% 0.48%(b)
Portfolio turnover
rate................................. 100% 59% 22%
</TABLE>
* Commencement of operations.
(a) Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(b) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
106
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
107
- ----------------------------------------------------
GIAC Funds, Inc. (including: Baillie Gifford
International Fund, Baillie Gifford Emerging Markets
Fund and The Guardian Small Cap Stock Fund)
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ----------------------------------------------
Note A -- Organization and Accounting Policies
- ----------------------------------------------
GIAC Funds, Inc. (the Company) is a diversified open-end management
investment company registered under the Investment Company Act of 1940, as
amended (1940 Act), which was incorporated in Maryland on October 29, 1990.
Shares of the Company are offered in three series: Baillie Gifford International
Fund (BGIF), Baillie Gifford Emerging Markets Fund (BGEMF) and The Guardian
Small Cap Stock Fund (GSCSF). The series are collectively referred to herein as
the "Funds". Shares of the Funds are sold only to certain separate accounts of
The Guardian Insurance & Annuity Company, Inc. (GIAC). GIAC is a wholly-owned
subsidiary of The Guardian Life Insurance Company of America (Guardian Life).
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.
Valuation of Investments
Securities listed on foreign exchanges and for which market quotations are
readily available are valued at the closing price on the exchange on which the
securities are traded at the close of the appropriate exchange or, if there have
been no sales during the day, at the mean of the closing bid and asked prices.
Securities traded in the over-the-counter market are valued at the mean between
the bid and asked prices. Securities listed or traded on any domestic (U.S.)
exchanges are valued at the last sale price or, if there have been no sales
during the day, at the mean of the closing bid and asked prices. Securities for
which market quotations are not readily available, including restricted
securities and illiquid assets, are valued at fair value as determined in good
faith by or under the direction of the Company's Board of Directors. Investing
outside of the U.S. may involve certain considerations and risks not typically
associated with domestic investments, including: the possibility of political
and economic unrest and different levels of governmental supervision and
regulation of foreign securities markets.
Repurchase agreements are carried at cost which approximates market value
(See Note D).
Foreign Currency Translation
The books and records of the Funds 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
as follows:
Realized foreign exchange gains and losses, which result from changes in
foreign exchange rates between the date on which the Funds earn dividends and
interest or pay 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 currency related transactions. Realized
foreign exchange gains and losses which result from changes in foreign exchange
rates between the trade and settlement dates on security and currency
transactions are also included in net realized gains or losses on foreign
currency related transactions. Net currency gains and losses from valuing other
assets and liabilities denominated in foreign currency at the period end
exchange rate are reflected in net change in unrealized appreciation or
depreciation from translation of other assets and liabilities denominated in
foreign currencies.
Forward Foreign Currency Contracts
The Funds 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 securities 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
rate. Fluctuations in the value of forward foreign currency exchange contracts
are recorded for book purposes as unrealized gains or losses on foreign currency
related transactions by the Funds. When forward contracts are closed, the Funds
record realized gains or losses equal to the difference between the values of
such forward contracts at the time each was opened and the value at the
- --------------------------------------------------------------------------------
108
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
time each was closed. Such amounts are recorded in net realized gain or loss on
foreign currency related transactions. None of the Funds will enter into a
forward foreign currency contract if such contract would obligate the Funds to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency.
Futures Contracts
BGIF and BGEMF may enter into financial futures contracts for the delayed
delivery of securities, currency or contracts based on financial indices at a
fixed price on a future date. In entering into such contracts, the Funds are
required to deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or received by
the Funds each day, depending on the daily fluctuations in the value of the
underlying security, and are recorded for financial statement purposes as
unrealized gains or losses by the Funds. The Funds' investments in financial
futures contracts are designed to hedge against anticipated future changes in
interest or exchange rates or securities prices (or for non-hedging purposes).
Should interest or exchange rates or securities prices move unexpectedly, the
Fund may not achieve the anticipated benefits of the financial futures contracts
and may realize a loss.
Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Net realized gains
or losses on sales of investments are determined on an identified cost basis.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on an accrual basis.
Taxes
Each Fund intends to continue to qualify 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 income (including any
realized capital gains) which is distributed to its shareholders in accordance
with the provisions of the Code. Therefore, no federal income tax provision is
required. Losses on security transactions arising after October 31 are treated
as arising on the first day of the Funds' next fiscal year.
Withholding taxes on foreign interest, dividends and capital gains in the
BGIF and BGEMF have been provided for in accordance with the applicable
country's tax rules and rates.
Investment income received from investments in foreign currencies may be
subject to foreign withholding tax. Whenever possible, the Funds will attempt to
operate so as to qualify for reduced tax rates or tax exemptions in those
countries with which the United States has a tax treaty.
At December 31, 1999, for federal income tax purposes, the following Funds
have net capital losses carryforward of:
Amount Expiration Date
------ ---------------
BGEMF $10,098,984 2006
GSCSF 9,591,694 2006
GSCSF 1,768,085 2007
Dividends and Distributions to Shareholders
The Funds intend to distribute each year, as dividends, substantially all
net investment income and net realized capital gains. All such dividends or
distributions are credited in the form of additional shares of the Funds at net
asset value on the ex-dividend date. Such distributions are determined in
conformity with federal income tax regulations. Differences between the
recognition of income on an income tax basis and recognition of income based on
generally accepted accounting principles may cause temporary overdistributions
of net realized gains and net investment income. Currently, the Funds' policy is
to distribute net investment income approximately every six months and net
capital gains once a year. This policy is, however, subject to change at any
time by the Company's Board of Directors.
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
- --------------------------------------------------------------------------------
109
<PAGE>
- --------------------------------------------------------------------------------
GIAC Funds, Inc. (including: Baillie Gifford
International Fund, Baillie Gifford Emerging Markets
Fund and The Guardian Small Cap Stock Fund)
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
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 Funds.
During the year ended December 31, 1999, certain Portfolio Funds
reclassified amounts to paid-in capital from undistributed/(overdistributed) net
investment income and accumulated net realized gain/(loss) on investment and
foreign currency related transactions. Increases/(decreases) to the various
capital accounts were as follows:
Undistributed Accumulated
(overdistributed) net realized
Paid-in net investment gain/(loss) on
capital income investments
----------- ---------------- --------------
BGIF -- $ 410,725 $ (410,725)
BGEMF $ (292,587) (1,276,443) 1,569,030
GSCSF (44,201) 1,608 42,593
- --------------------------------------------------------------------------
Note B -- Investment Management Agreements and Payments to Related Parties
- --------------------------------------------------------------------------
BGIF and BGEMF have an investment management agreement with Guardian
Baillie Gifford Limited (GBG), a Scottish corporation formed through a joint
venture between GIAC and Baillie Gifford Overseas Limited (BG Overseas). GBG is
responsible for the overall investment management of the Funds' portfolios sub
ject to the supervision of the Company's Board of Directors. GBG has entered
into sub-investment management agreements with BG Overseas pursuant to which BG
Overseas is responsible for the day-to-day management of BGIF and BGEMF. GBG
continually monitors and evaluates the performance of BG Overseas.
As compensation for its services, GBG receives a management fee computed
at the annual rate of .80% of BGIF's average daily net assets and 1.00% of
BGEMF's average daily net assets. One-half of these fees (.40% relating to BGIF
and .50% relating to BGEMF) are payable by GBG to BG Overseas for its services.
Payment of the sub-investment management fees does not represent a separate or
additional expense to the Funds.
GSCSF has an investment advisory agreement with Guardian Investor Services
Corporation (GISC), a wholly-owned subsidiary of GIAC. GISC receives a
management fee from GSCSF at an annual rate of .75% of its average daily net
assets.
No compensation is paid by the Company to a director who is deemed to be
an "interested person" (as defined in the 1940 Act) of the Company. Each
director not deemed an "interested person" is paid an annual fee of $500 and
$350 for attendance at each meeting of the Company.
- ---------------------------------
Note C -- Investment Transactions
- ---------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
BGIF BGEMF GSCSF
---- ----- -----
<S> <C> <C> <C>
Purchases ....................... $ 377,007,524 $ 62,981,479 $ 177,008,646
Proceeds ........................ $ 380,460,269 $ 57,326,386 $ 187,341,976
</TABLE>
The cost of investments owned at December 31, 1999 for federal income tax
purposes for BGIF, BGEMF and GSCSF was substantially the same as the cost for
financial reporting purposes. The gross unrealized appreciation and depreciation
of investments excluding foreign currency at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
BGIF BGEMF GSCSF
---- ----- -----
<S> <C> <C> <C>
Gross Appreciation .............. $ 374,776,118 $ 32,661,297 $ 89,413,466
Gross Depreciation .............. (15,052,981) (2,692,081) (6,368,189)
------------- ------------- -------------
Net Unrealized Appreciation ... $ 359,723,137 $ 29,969,216 $ 83,045,277
============= ============= =============
</TABLE>
Forward foreign currency contracts represent commitments to purchase or
sell a specified amount of foreign currency at a future date and at a future
price. 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.
- --------------------------------------------------------------------------------
110
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
- -------------------------------
Note D -- Repurchase Agreements
- -------------------------------
Collateral underlying 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 such collateral is
marked-to-market daily while the agreements remain in force. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Funds 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 Funds maintain the right to sell the collateral and may
claim any resulting loss against the seller. The Company's Board of Directors
has established standards to evaluate the creditworthiness of broker-dealers and
banks which engage in repurchase agreements with the Funds.
- ---------------------------------------
Note E -- Transactions in Capital Stock
- ---------------------------------------
There are 1,000,000,000 shares of $0.10 par value capital stock authorized
for each of the Funds. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------
Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o Baillie Gifford International Fund
Shares sold .............................. 4,523,096 6,525,306 $ 100,665,748 $ 133,897,400
Shares issued in reinvestment of
dividends and distributions ........... 2,779,331 1,785,599 68,228,567 37,426,471
Shares repurchased ....................... (4,948,683) (5,068,012) (109,742,262) (103,165,394)
- -------------------------------------------------------------------------------------------------------------
Net increase .......................... 2,353,744 3,242,893 $ 59,152,053 $ 68,158,477
- -------------------------------------------------------------------------------------------------------------
o Baillie Gifford Emerging Markets Fund
Shares sold .............................. 2,821,366 1,108,146 $ 26,596,653 $ 9,553,044
Shares issued in reinvestment of dividends -- 58,765 -- 481,282
Shares repurchased ....................... (2,432,410) (2,863,295) (22,109,690) (24,882,788)
- -------------------------------------------------------------------------------------------------------------
Net increase/(decrease) ............... 388,956 (1,696,384) $ 4,486,963 $ (14,848,462)
- -------------------------------------------------------------------------------------------------------------
o The Guardian Small Cap Stock Fund
Shares sold .............................. 3,451,011 11,667,174 $ 44,869,426 $ 145,794,573
Shares issued in reinvestment of
dividends and distributions ........... 21,302 73,035 327,392 1,029,594
Shares repurchased ....................... (3,624,740) (2,987,585) (45,310,107) (39,587,810)
- -------------------------------------------------------------------------------------------------------------
Net increase/(decrease) ............... (152,427) 8,752,624 $ (113,289) $ 107,236,357
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
Note F -- Line of Credit
- ------------------------
A $100,000,000 line of credit available to all of the Funds and other
related Guardian Funds has been established with State Street Bank and Trust
Company and Bank of Montreal. The rate of interest charged on any bor rowing 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.
- --------------------------------------------------------------------------------
111
<PAGE>
- --------------------------------------------------------------------------------
GIAC Funds, Inc. (including: Baillie Gifford
International Fund, Baillie Gifford Emerging Markets
Fund and The Guardian Small Cap Stock Fund)
- ----------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors and Shareholders
GIAC Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the GIAC Funds, Inc. (comprising,
respectively, the Baillie Gifford International Fund, Baillie Gifford Emerging
Markets Fund and The Guardian Small Cap Stock Fund), as of December 31, 1999,
and the related statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Funds' 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
each of the respective funds constituting the GIAC Funds, Inc. at December 31,
1999, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods indicated therein, in conformity
with accounting principles generally accepted in the United States.
Ernst & Young LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
112
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
113
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- ---------------------
COMMON STOCKS-- 98.6%
- ---------------------
Shares Value
- --------------------------------------------------------------------------------
Advertising -- 1.9%
180,000 Omnicom Group, Inc. $ 18,000,000
------------
Bank -- 4.8%
200,000 Chase Manhattan Corp. 15,537,500
200,000 Mellon Financial Corp. 6,812,500
225,000 State Street Corp. 16,439,062
140,000 Zions Bancorporation 8,286,250
------------
47,075,312
------------
Bank-Midwest -- 1.5%
200,000 Fifth Third Bancorp 14,675,000
------------
Computer & Peripherals -- 9.3%
200,000 Cisco Systems, Inc.* 21,425,000
330,000 Dell Computer Corp.* 16,830,000
200,000 EMC Corp.* 21,850,000
135,000 International Business Machines Corp. 14,580,000
200,000 Sun Microsystems, Inc.* 15,487,500
------------
90,172,500
------------
Computer Software & Services -- 5.8%
200,000 Adobe Systems, Inc. 13,450,000
240,000 BMC Software, Inc.* 19,185,000
200,000 Microsoft Corp.* 23,350,000
------------
55,985,000
------------
Diversified Companies -- 3.7%
200,000 Honeywell International Inc. 11,537,500
400,000 Tyco International, Ltd. 15,550,000
135,000 United Technologies Corp. 8,775,000
------------
35,862,500
------------
Drug -- 8.8%
100,000 Amgen Inc.* 6,006,250
100,000 Biogen, Inc.* 8,450,000
150,000 Immunex Corp.* 16,425,000
125,000 Lilly (Eli) & Co. 8,312,500
75,000 MedImmune, Inc.* 12,440,625
180,000 Merck & Co., Inc. 12,071,250
300,000 Pfizer, Inc. 9,731,250
275,000 Schering-Plough Corp. 11,601,563
------------
85,038,438
------------
Drugstore -- 0.8%
200,000 CVS Corp. 7,987,500
------------
Electric Utility - Central -- 1.5%
200,000 AES Corp.* 14,950,000
------------
Electrical Equipment -- 2.0%
125,000 General Electric Co. 19,343,750
------------
Entertainment -- 3.4%
200,000 Clear Channel Communications, Inc.* 17,850,000
215,000 Time Warner, Inc. 15,574,063
------------
33,424,063
------------
Financial Services - Diversified -- 5.2%
100,000 American Express Co. 16,625,000
156,250 American International Group, Inc. 16,894,531
300,000 Citigroup Inc. 16,668,750
------------
50,188,281
------------
Grocery -- 1.3%
360,000 Safeway Inc.* 12,802,500
------------
Hotel/Gaming -- 2.7%
400,000 Harrah's Entertainment, Inc.* 10,575,000
800,000 Mandalay Resort Group* 16,100,000
------------
26,675,000
------------
Household Products -- 1.3%
100,000 Colgate-Palmolive Co. 6,500,000
260,000 Dial Corp. (The) 6,321,250
------------
12,821,250
------------
Insurance-Life -- 1.1%
320,000 AXA Financial, Inc. 10,840,000
------------
Internet -- 2.3%
300,000 America Online, Inc.* 22,631,250
------------
Medical Supplies -- 4.9%
150,000 Cardinal Health, Inc. 7,181,250
120,000 Johnson & Johnson 11,175,000
300,000 Medtronic, Inc. 10,931,250
350,000 VISX, Inc.* 18,112,500
------------
47,400,000
------------
Office Equipment & Supplies -- 1.1%
500,000 Staples, Inc.* 10,375,000
------------
Retail Building Supply -- 2.5%
165,000 Home Depot, Inc. (The) 11,312,812
220,000 Lowe's Companies, Inc. 13,145,000
------------
24,457,812
------------
Retail-Special Lines -- 8.3%
200,000 Abercrombie & Fitch Co. Class "A"* 5,337,500
400,000 Bed Bath & Beyond Inc.* 13,900,000
200,000 Best Buy Co., Inc.* 10,037,500
350,000 Circuit City Stores-Circuit City Group 15,771,875
202,500 Gap, Inc. (The) 9,315,000
225,000 Intimate Brands Inc. Class "A" 9,703,125
200,000 Tandy Corp. 9,837,500
70,000 Tiffany & Co. 6,247,500
------------
80,150,000
------------
Retail Store -- 6.6%
150,000 Costco Wholesale Corp.* 13,687,500
250,000 Dayton Hudson Corp. 18,359,375
200,000 Kohl's Corp.* 14,437,500
250,000 Wal-Mart Stores, Inc. 17,281,250
------------
63,765,625
------------
See notes to financial statements.
- --------------------------------------------------------------------------------
114
<PAGE>
Shares Value
- --------------------------------------------------------------------------------
Securities Brokerage -- 2.2%
200,000 Donaldson, Lufkin &
Jenrette, Inc. - DLJ $ 9,675,000
300,000 Schwab (Charles) Corp. 11,512,500
-------------
21,187,500
-------------
Semiconductor -- 4.4%
200,000 Intel Corp. 16,462,500
100,000 PMC-Sierra, Inc.* 16,031,250
200,000 Vitesse Semiconductor Corp.* 10,487,500
-------------
42,981,250
-------------
Semiconductor Capital Equipment -- 2.1%
250,000 Altera Corp.* 12,390,625
65,000 Applied Materials, Inc.* 8,234,687
-------------
20,625,312
-------------
Shoe -- 1.3%
250,000 Nike, Inc. Class "B" 12,390,625
-------------
Telecommunications Equipment -- 6.0%
200,000 Lucent Technologies Inc. 14,962,500
140,000 QUALCOMM Inc.* 24,657,500
100,000 Scientific-Atlanta, Inc. 5,562,500
200,000 Tellabs, Inc.* 12,837,500
-------------
58,020,000
-------------
Thrift -- 1.8%
220,400 Federal Home Loan Mortgage Corp. 10,372,575
115,000 Federal National Mortgage Association 7,180,313
-------------
17,552,888
-------------
TOTAL COMMON STOCKS AND
TOTAL INVESTMENT SECURITIES -- 98.6%
(Cost $579,389,743) 957,378,356
-------------
Principal
Amount Value
- --------------------------------------------------------------------------------
- ----------------------------
REPURCHASE AGREEMENT -- 2.6%
- ----------------------------
(including accrued interest)
$ 25,200,000 Collateralized by $19,695,000
U.S. Treasury Bonds 12 3/4%,
due 11/15/10, with a value of
$25,723,882 (with Morgan
Stanley & Co., Incorporated 2.47%,
dated 12/31/99, due 1/3/00,
delivery value $25,205,187) $ 25,201,729
-------------
EXCESS OF LIABILITIES OVER
CASH AND OTHER ASSETS -- (-1.2%) (11,208,076)
==============
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 971,372,009
- --------------------------------------------------------------------------------
==============
NET ASSET VALUE
PER OUTSTANDING SHARE
($971,372,009 / 26,917,271
shares of capital stock outstanding) $ 36.09
==============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
115
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1999
ASSETS:
Investment securities, at value
(cost $579,389,743) $957,378,356
Repurchase agreement (cost $25,201,729) 25,201,729
Cash 1,517
Dividends receivable 317,325
Receivable for capital shares sold 85,193
Prepaid insurance expense 14,558
------------
TOTAL ASSETS 982,998,678
------------
LIABILITIES:
Payable for securities purchased 10,633,120
Payable for capital shares repurchased 397,310
Accrued expenses:
Advisory fee 397,539
GIAC administrative service fee 165,000
Other 33,700
------------
TOTAL LIABILITIES 11,626,669
------------
NET ASSETS $971,372,009
------------
NET ASSETS CONSIST OF:
Capital stock, at $1.00 par value
(authorized 50,000,000, outstanding
26,917,271 shares) $ 26,917,271
Additional paid-in capital 438,513,995
Undistributed net investment income 560,984
Undistributed net realized gain on investments 127,391,146
Net unrealized appreciation of investments 377,988,613
------------
NET ASSETS $971,372,009
============
NET ASSET VALUE PER
OUTSTANDING SHARE
($971,372,009 / 26,917,271 shares outstanding) $ 36.09
============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1999
Investment Income:
Dividends $ 4,447,173
Interest 1,327,692
-------------
Total Income 5,774,865
-------------
Expenses:
Investment advisory fee 4,313,362
GIAC administrative service fee 598,640
Custodian fees 83,323
Auditing and legal fees 38,543
Insurance 18,447
Directors' fees and expenses 14,023
Printing 11,982
Taxes and other 2,146
-------------
Total Expenses Before Custody Credits 5,080,466
Less: Custody Credits (5,718)
-------------
Net Expenses 5,074,748
-------------
Net Investment Income 700,117
-------------
Net Realized and Unrealized Gain
on Investments:
Net realized gain 128,491,663
Change in net unrealized appreciation 89,602,937
-------------
Net Realized Gain and Change in Net
Unrealized Appreciation on Investments 218,094,600
-------------
Net Increase in Net Assets from Operations $ 218,794,717
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
116
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Operations:
Net investment income $ 700,117 $ 2,239,792
Net realized gain on investments 128,491,663 62,454,321
Change in net unrealized appreciation 89,602,937 117,641,538
------------- -------------
Net increase in net assets from operations 218,794,717 182,335,651
------------- -------------
Distributions to Shareholders:
Net investment income (2,362,927) (2,335,121)
Net realized gain from investment transactions (63,536,476) (45,405,144)
------------- -------------
Total distributions (65,899,403) (47,740,265)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares 112,347,438 66,666,181
Proceeds from reinvestment of dividends and distributions to shareholder 65,899,403 47,740,265
Cost of shares repurchased (174,977,296) (153,885,228)
------------- -------------
Net increase (decrease) from capital share transactions 3,269,545 (39,478,782)
------------- -------------
Total Increase in Net Assets 156,164,859 95,116,604
Net Assets:
Beginning of year 815,207,150 720,090,546
------------- -------------
End of year $ 971,372,009 $ 815,207,150
------------- -------------
Undistributed Net Investment Income, at End of Year $ 560,984 $ 2,223,794
============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
117
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ------------------------------------
1 -- Significant Accounting Policies
- ------------------------------------
Value Line Centurion Fund, Inc. (the "Fund") is an open-end diversified
management investment company registered under the Investment Company Act of
1940, as amended, whose primary investment objective is long-term growth of
capital. The Fund's portfolio will usually consist of common stocks ranked 1 or
2 for year-ahead performance by The Value Line Investment Survey, one of the
nation's major investment advisory services.
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 and
disclosure of contingent 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. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
(A) Security Valuation
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities and for securities traded in the
over-the-counter market, the security is valued at the midpoint between the
latest available and representative asked and bid prices. Short-term instruments
with maturities of 60 days or less are valued at amortized cost, which
approximates market value. Short-term instruments with maturities greater than
60 days, at the date of purchase, are valued at the midpoint between the latest
available and representative asked and bid prices, and commencing 60 days prior
to maturity such securities are valued at amortized cost. Other assets and
securities for which market valuations are not readily available are valued at
fair value as the Board of Directors may determine in good faith.
(B) Repurchase Agreements
In connection with transactions in repurchase agreements, the Fund's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the Fund has the right to liquidate the collateral and
apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
(C) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders. Therefore, no federal income tax is
required.
(D) Dividends and Distributions
It is the Fund's policy to distribute to its shareholders, as dividends
and as capital gains distributions, all the net investment income for the year
and all net capital gains realized by the Fund, if any. Such distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. All dividends or distributions will be
payable in shares of the Fund at the net asset value on the ex-dividend date.
This policy is, however, subject to change at any time by the Board of
Directors.
(E) Amortization
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
asis. Interest income on investments adjusted for amortization of dis-
- --------------------------------------------------------------------------------
118
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
count, including original issue discount required for federal income tax
purposes, is earned from settlement date and recognized on the accrual basis.
Dividend income is recorded on the ex-dividend date.
- -----------------------------------------------------------
2 -- Capital Share Transactions, Dividends and Distribution
- -----------------------------------------------------------
Shares of the Fund are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance and Annuity Company, Inc.
(GIAC). Transactions in capital stock were as follows:
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ ------------
Shares sold 3,485,591 2,514,811
Shares issued in reinvestment of dividends
and distributions 2,140,286 1,781,353
---------- ----------
5,625,877 4,296,164
Shares repurchased 5,492,925 5,730,080
---------- ----------
Net increase (decrease) 132,952 (1,433,916)
========== ==========
Dividends per share from net investment income $ .09 $ .09
========== ==========
Distributions per share from net realized gains $ 2.42 $ 1.75
========== ==========
- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Year Ended
December 31,
1999
------------
PURCHASES:
Investment Securities $537,377,918
------------
SALES:
Investment Securities $604,806,009
------------
At December 31, 1999, the aggregate cost of investment securities and
repurchase agreement for federal income tax purposes was $604,604,092. The
aggregate appreciation and depreciation of investments for the year ended
December 31, 1999, based on a comparison of investment values and their costs
for federal income tax purposes was $385,006,612 and $7,030,619 respectively,
resulting in a net appreciation of $377,975,993.
- --------------------------------------------------------------------------------
4 -- Investment Advisory Contract, Management Fees and Transactions with
Interested Parties
- --------------------------------------------------------------------------------
An advisory fee of $4,313,362 was paid or payable to Value Line, Inc., the
Fund's investment adviser (the "Adviser"), for the year ended December 31, 1999.
This was computed at an annual rate of 1/2 of 1% of the average daily net assets
of the Fund during the year and paid monthly. The Adviser provides research,
investment programs, supervision of the investment portfolio and pays costs of
administrative services, office space, equipment and compensation of
administrative, bookkeeping, and clerical personnel necessary for managing the
affairs of the Fund. The Adviser also provides persons, satisfactory to the
Fund's Board of Directors, to act as officers and employees of the Fund and pays
their salaries and wages. The Fund bears all other costs and expenses.
Certain officers and directors of the Adviser and Value Line Securities,
Inc., (the Fund's distributor and a registered broker/dealer) are also officers
and directors of the Fund. During the year ended December 31, 1999, the Fund
paid brokerage commissions totaling $487,568 to Value Line Securities, Inc., a
wholly owned subsidiary of the Adviser, which clears its transactions through
unaffiliated brokers.
The Fund has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contract-owner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the year ended December 31, 1999, the Fund
incurred expenses of $598,640 in connection with such services rendered by GIAC.
- --------------------------------------------------------------------------------
119
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ..................... $ 30.44 $ 25.52 $ 24.83 $ 24.25 $ 17.83
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ................................ .03 .09 .09 .08 .12
Net gains on securities (both realized and unrealized) 8.13 6.67 5.30 3.71 6.96
-------- -------- -------- -------- --------
Total from investment operations ..................... 8.16 6.76 5.39 3.79 7.08
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ................ (.09) (.09) (.09) (.12) (.10)
Distributions from net realized gains ............... (2.42) (1.75) (4.61) (3.09) (.56)
-------- -------- -------- -------- --------
Total distributions ................................. (2.51) (1.84) (4.70) (3.21) (.66)
-------- -------- -------- -------- --------
Net asset value, end of year ........................... $ 36.09 $ 30.44 $ 25.52 $ 24.83 $ 24.25
======== ======== ======== ======== ========
Total return** ......................................... 28.23% 27.47% 21.39% 17.34% 40.08%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of year (in thousands) ................. $971,372 $815,207 $720,091 $639,341 $525,449
Ratio of expenses to average net assets ................ .59%(1) .59%(1) .60%(1) .59%(1) .62%
Ratio of net investment income to average net assets ... .08% .31% .35% .36% .60%
Portfolio turnover rate ................................ 64% 112% 85% 141% 114%
</TABLE>
** Total returns do not reflect the effects of charges deducted under the
terms of GIAC's variable contracts. Including such charges would reduce
the total returns for all periods shown.
(1) Ratio reflects expenses grossed up for custody credit arrangement. The
ratio of expenses to average net assets net of custody credits would not
have changed.
See notes to financial statements.
- --------------------------------------------------------------------------------
120
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
Value Line Centurion Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Value Line Centurion Fund, Inc.
(the "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. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial 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 incudes 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 securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
121
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- ----------------------
COMMON STOCKS -- 44.1%
- ----------------------
Shares Value
- --------------------------------------------------------------------------------
Advertising -- 1.2%
36,000 Interpublic Group of Companies, Inc. $ 2,076,750
177,000 Omnicom Group, Inc. 17,700,000
------------
19,776,750
------------
Aerospace/Defense -- 0.7%
193,000 General Dynamics Corp. 10,180,750
36,000 Litton Industries, Inc.* 1,795,500
------------
11,976,250
------------
Apparel -- 0.1%
102,000 Tommy Hilfiger Corp.* 2,377,875
------------
Bank-Midwest -- 0.6%
68,000 Fifth Third Bancorp 4,989,500
121,000 First Tennessee National Corp. 3,448,500
35,700 Old Kent Financial Corp. 1,262,887
------------
9,700,887
------------
Beverage-Alcoholic -- 0.2%
62,000 Coors (Adolph) Co. Class "B" 3,255,000
------------
Building Materials -- 0.0%
6,000 USG Corp. 282,750
------------
Cable TV -- 1.9%
116,000 Cablevision Systems Corp. Class "A"* 8,758,000
190,000 Comcast Corp. Class "A"* 9,606,875
132,000 EchoStar Communications Corp. Class "A"* 12,870,000
------------
31,234,875
------------
Chemical-Specialty -- 0.1%
20,000 Avery Dennison Corp. 1,457,500
------------
Computer & Peripherals -- 1.9%
115,000 Adaptec, Inc.* 5,735,625
195,422 Cisco Systems, Inc.* 20,934,582
91,000 Dell Computer Corp.* 4,641,000
------------
31,311,207
------------
Computer Software & Services -- 5.4%
100,000 Adobe Systems, Inc. 6,725,000
83,000 Citrix Systems, Inc.* 10,209,000
79,000 Comverse Technology, Inc.* 11,435,250
101,000 Electronics For Imaging, Inc.* 5,870,625
174,000 Mercury Interactive Corp.* 18,781,125
81,000 Microsoft Corp.* 9,456,750
229,500 Paychex, Inc. 9,180,000
174,000 Siebel Systems, Inc.* 14,616,000
------------
86,273,750
------------
Diversified Companies -- 0.9%
28,000 Textron, Inc. 2,147,250
228,000 Tyco International, Ltd. 8,863,500
62,000 United Technologies Corp. 4,030,000
------------
15,040,750
------------
Drug -- 3.7%
106,000 Amgen Inc.* 6,366,625
170,000 Biogen, Inc.* 14,365,000
42,000 Bristol-Myers Squibb Co. 2,695,875
110,000 Forest Laboratories, Inc.* 6,758,125
110,000 MedImmune, Inc.* 18,246,250
86,000 Millennium Pharmaceuticals, Inc. * 10,492,000
------------
58,923,875
------------
Electric Utility-Central -- 0.7%
153,000 AES Corp.* 11,436,750
------------
Electrical Equipment -- 0.3%
108,000 Semtech Corp.* 5,629,500
------------
Electronics -- 2.8%
202,000 Gemstar International Group, Ltd.* 14,392,500
98,000 JDS Uniphase Corp.* 15,808,625
233,125 Symbol Technologies, Inc. 14,818,008
------------
45,019,133
------------
Entertainment -- 1.9%
39,000 AMFM Inc.* 3,051,750
168,000 CBS Corp.* 10,741,500
86,315 Clear Channel Communications, Inc.* 7,703,614
75,000 Time Warner, Inc. 5,432,812
58,000 USA Networks, Inc.* 3,204,500
------------
30,134,176
------------
Financial Services-Diversified -- 0.2%
65,000 Citigroup Inc. 3,611,562
------------
Food Processing -- 0.5%
127,000 Quaker Oats Co. (The) 8,334,375
------------
Foreign Telecommunication -- 1.4%
106,000 Nortel Networks Corp. 10,706,000
30,000 Telefonos de Mexico S.A. (ADR) 3,375,000
182,500 Vodafone AirTouch PLC (ADR) 9,033,750
------------
23,114,750
------------
Furniture/Home Furnishings -- 0.2%
90,000 Ethan Allen Interiors, Inc. 2,885,625
------------
Grocery -- 0.2%
209,800 Kroger Co.* 3,959,975
------------
Hotel/Gaming -- 0.1%
57,000 Mandalay Resort Group* 1,147,125
------------
Household Products -- 0.2%
53,000 Kimberly-Clark Corp. 3,458,250
------------
Internet -- 0.6%
70,000 America Online, Inc.* 5,280,625
66,000 Macromedia, Inc.* 4,826,250
------------
10,106,875
------------
See notes to financial statements.
- --------------------------------------------------------------------------------
122
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Machinery -- 0.3%
74,000 Briggs & Stratton Corp. $ 3,968,250
------------
Medical Services -- 0.1%
28,000 PacifiCare Health Systems, Inc.* 1,484,000
------------
Medical Supplies -- 1.3%
214,000 Allergan, Inc. 10,646,500
58,000 Johnson & Johnson 5,401,250
97,000 VISX, Inc.* 5,019,750
------------
21,067,500
------------
Natural Gas-Diversified -- 0.8%
282,000 Enron Corp. 12,513,750
------------
Office Equipment & Supplies -- 0.7%
108,000 Pitney Bowes, Inc. 5,217,750
271,655 Staples, Inc.* 5,636,841
------------
10,854,591
------------
Precision Instrument -- 0.3%
104,000 Waters Corp.* 5,512,000
------------
Publishing -- 0.1%
26,000 Reader's Digest Association, Inc. Class "A" 760,500
------------
Recreation -- 1.0%
111,000 Harley-Davidson, Inc. 7,110,938
174,000 Royal Caribbean Cruises, Ltd. 8,580,375
------------
15,691,313
------------
Restaurant -- 0.2%
145,000 Brinker International, Inc.* 3,480,000
------------
Retail Building Supply -- 1.4%
225,000 Home Depot, Inc. (The) 15,426,563
115,000 Lowe's Companies, Inc. 6,871,250
------------
22,297,813
------------
Retail-Special Lines -- 3.2%
141,040 Abercrombie & Fitch Co. Class "A"* 3,764,005
104,000 AnnTaylor Stores Corp.* 3,581,500
181,000 Bed Bath & Beyond Inc.* 6,289,750
61,000 Best Buy Co., Inc.* 3,061,437
164,000 Circuit City Stores-Circuit City Group 7,390,250
100,500 Dollar Tree Stores, Inc.* 4,867,969
100,250 Gap, Inc. (The) 4,611,500
6,405 Intimate Brands, Inc. Class "A" 276,216
56,000 Ross Stores, Inc. 1,004,500
160,000 TJX Companies, Inc. (The) 3,270,000
20,000 Tandy Corp. 983,750
131,800 Tiffany & Co. 11,763,150
------------
50,864,027
------------
Retail Store -- 1.7%
94,000 Dayton Hudson Corp. 6,903,125
98,000 Kohl's Corp.* 7,074,375
196,000 Wal-Mart Stores, Inc. 13,548,500
------------
27,526,000
------------
Semiconductor -- 2.9%
78,000 Linear Technology Corp. 5,581,875
95,000 PMC-Sierra, Inc.* 15,229,687
80,000 QLogic Corp.* 12,790,000
110,000 RF Micro Devices, Inc.* 7,528,125
67,500 TranSwitch Corp.* 4,897,969
------------
46,027,656
------------
Telecommunications Equipment -- 2.2%
60,000 General Instrument Corp.* 5,100,000
116,000 QUALCOMM Inc.* 20,430,500
89,000 Scientific-Atlanta, Inc. 4,950,625
74,000 Tellabs, Inc.* 4,749,875
------------
35,231,000
------------
Telecommunication Services -- 1.8%
43,000 ALLTEL Corp. 3,555,563
245,000 CenturyTel, Inc. 11,606,875
76,000 MediaOne Group, Inc.* 5,837,750
170,000 SBC Communications Inc. 8,287,500
------------
29,287,688
------------
Toiletries/Cosmetics -- 0.3%
86,000 Estee Lauder Companies Inc. (The)
Class "A" 4,337,625
------------
TOTAL COMMON STOCKS
(Cost $306,391,714) 711,353,278
------------
See notes to financial statements.
- --------------------------------------------------------------------------------
123
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
Principal
Amount Value
- --------------------------------------------------------------------------------
- ----------------------------------
U.S. TREASURY OBLIGATIONS -- 16.8%
- ----------------------------------
$ 45,000,000 U.S. Treasury Notes
4.000%, due 10/31/00 $ 44,255,448
29,000,000 U.S. Treasury Notes
5.250%, due 5/31/01 28,628,597
30,000,000 U.S. Treasury Notes
5.750%, due 6/30/01 29,810,223
15,000,000 U.S. Treasury Notes
6.250%, due 8/31/02 14,980,347
14,250,000 U.S. Treasury Notes
5.875%, due 11/15/05 13,831,285
14,250,000 U.S. Treasury Notes
5.625%, due 2/15/06 13,632,565
33,000,000 U.S. Treasury Notes
6.500%, due 10/15/06 32,903,587
15,000,000 U.S. Treasury Notes
6.125%, due 8/15/07 14,629,165
15,383,250 U.S. Treasury Inflation Indexed Notes
3.875%, due 1/15/09 14,865,864
59,500,000 U.S. Treasury Bonds
7.250%, due 8/15/22 62,738,835
--------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $276,893,532) 270,275,916
--------------
- -------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 21.6%
- -------------------------------------------
17,000,000 Federal Home Loan Mortgage Corp.
5.750%, due 6/15/01 16,839,364
16,000,000 Federal Home Loan Banks
6.000%, due 11/15/01 15,849,334
15,000,000 Federal Home Loan Banks
5.125%, due 2/26/02 14,571,136
27,000,000 Federal Home Loan Mortgage Corp.
5.500%, due 5/15/02 26,356,614
21,000,000 Federal Home Loan Banks
6.000%, due 8/15/02 20,689,990
13,000,000 Federal National Mortgage Association
6.250%, due 11/15/02 12,874,966
13,500,000 Federal National Mortgage Association
4.750%, due 11/14/03 12,576,587
59,000,000 Federal Home Loan Mortgage Corp.
5.000%, due 1/15/04 55,267,035
5,500,000 Federal National Mortgage Association
5.125%, due 2/13/04 5,172,084
29,000,000 Federal National Mortgage Association
5.625%, due 5/14/04 27,718,551
17,000,000 Federal Home Loan Mortgage Corp.
6.250%, due 7/15/04 16,626,969
23,000,000 Federal National Mortgage Association
5.750%, due 6/15/05 21,874,237
10,000,000 Federal National Mortgage Association
Pool 380188, 6.45%, due 4/1/08 9,428,130
14,000,000 Federal Home Loan Mortgage Corp.
5.750%, due 4/15/08 12,895,702
10,000,000 Federal National Mortgage Association
5.250%, due 1/15/09 8,818,051
13,045,000 Federal National Mortgage Association
6.375%, due 6/15/09 12,452,940
45,000,000 Federal National Mortgage Association
6.625%, due 9/15/09 43,758,396
15,000,000 Federal Home Loan Mortgage Corp.
6.625%, due 9/15/09 14,575,890
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $359,458,445) 348,345,976
--------------
- -------------------------------
CORPORATE BONDS & NOTES -- 1.1%
- -------------------------------
Chemical-Diversified -- 0.3%
5,000,000 Goodrich (B.F.) Co. (The) Notes
6.450%, due 4/15/08 4,572,137
Telecommunication Services -- 0.8%
5,000,000 AirTouch Communications Inc. Notes
6.650%,due 5/1/08 4,691,887
5,000,000 MCI WorldCom, Inc. Sr. Notes
6.400%, due 8/15/05 4,797,534
4,000,000 MCI WorldCom, Inc. Sr. Notes
6.500%, due 4/15/10 3,711,724
--------------
13,201,145
--------------
TOTAL CORPORATE BONDS & NOTES
(Cost $18,967,354) 17,773,282
--------------
TOTAL INVESTMENT SECURITIES -- 83.6%
(Cost $961,711,045) 1,347,748,452
--------------
- -------------------------------
SHORT-TERM INVESTMENTS -- 15.8%
- -------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 8.0%
29,047,000 Federal Home Loan Mortgage Corp.
Discount Notes, 5.470%, 1/5/00 29,029,346
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes, 5.600%, 1/11/00 29,953,333
40,000,000 Federal Home Loan Mortgage Corp.
Discount Notes, 5.560%, 1/14/00 39,919,689
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes, 5.620%, 1/19/00 29,915,700
--------------
128,818,068
--------------
See notes to financial statements.
- --------------------------------------------------------------------------------
124
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 7.8%
(including accrued interest)
$ 62,000,000 Collateralized by $45,090,000
U.S. Treasury Bonds 10 5/8%,
due 8/15/15, with a value of
$63,118,951 (with Morgan Stanley &
Co., Inc., 2.47%, dated 12/31/99, due
1/3/00, delivery value of $62,012,762) $ 62,004,254
63,000,000 Collateralized by $31,360,000
U.S. Treasury Notes 6 1/2%,
due 8/31/01 and $31,567,000 U.S.
Treasury Notes 6 3/8%, due 3/31/01
with a total value of $64,296,606
(with Banc One Capital Markets, Inc.,
2.65%, dated 12/31/99, due 1/3/00,
delivery value $63,013,912) 63,004,637
--------------
125,008,891
--------------
TOTAL SHORT-TERM SECURITIES
(Cost $253,826,959) 253,826,959
--------------
CASH AND OTHER ASSETS
IN EXCESS OF LIABILITIES -- 0.6% 10,305,388
--------------
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $1,611,880,799
- --------------------------------------------------------------------------------
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,611,880,799 / 54,850,620
shares of beneficial interest outstanding) $ 29.39
==============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
125
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS:
Investment securities, at value
(cost $961,711,045) $1,347,748,452
Short-term investments (cost $253,826,959) 253,826,959
Cash 150,207
Interest and dividends receivable 9,964,094
Receivable for securities sold 2,693,035
Receivable for capital shares sold 97,472
Prepaid insurance expense 24,826
--------------
TOTAL ASSETS 1,614,505,045
--------------
LIABILITIES
Payable for capital shares repurchased 1,642,035
Accrued expenses:
Advisory fee 667,997
GIAC administrative service fee 265,843
Other 48,371
--------------
TOTAL LIABILITIES 2,624,246
--------------
NET ASSETS $1,611,880,799
--------------
NET ASSETS CONSIST OF:
Shares of beneficial interest, at $0.01 par value
(authorized unlimited, outstanding
54,850,620 shares) 548,506
Additional paid-in capital 883,244,575
Undistributed net investment income 31,635,575
Undistributed net realized gain on investments 310,414,736
Net unrealized appreciation of investments 386,037,407
--------------
NET ASSETS $1,611,880,799
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,611,880,799 / 54,850,620
shares outstanding) $ 29.39
==============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1999
Investment Income:
Interest $ 36,700,944
Dividends (Net of foreign withholding tax of $5,837) 3,636,934
-------------
Total Income 40,337,878
-------------
Expenses:
Investment advisory fee 7,451,342
GIAC administrative service fee 925,843
Custodian fees 149,285
Audit and legal fees 38,541
Insurance 35,264
Trustees' fees and expenses 14,023
Printing 12,925
Taxes and other 2,056
-------------
Total Expenses Before Custody Credits 8,629,279
Less: Custody Credits (3,639)
-------------
Net Expenses 8,625,640
-------------
Net Investment Income 31,712,238
-------------
Net Realized and Unrealized Gain (Loss)
On Investments:
Net realized gain 310,691,129
Net change in unrealized appreciation (14,402,998)
-------------
Net Realized Gain and Change in Unrealized Appreciation
on Investments 296,288,131
-------------
Net Increase in Net Assets from Operations $ 328,000,369
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
126
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Operations
Net investment income $ 31,712,238 $ 15,682,392
Net realized gain on investments 310,691,129 79,864,542
Change in net unrealized appreciation (14,402,998) 215,856,062
--------------- ---------------
Net increase in net assets from operations 328,000,369 311,402,996
--------------- ---------------
Distributions to Shareholders:
Net investment income (15,437,565) (35,369,549)
Net realized gain from investment transactions (79,625,333) (101,947,527)
--------------- ---------------
Total distributions (95,062,898) (137,317,076)
--------------- ---------------
Trust Share Transactions:
Proceeds from sale of shares 109,656,703 98,680,308
Proceeds from reinvestment of dividends and distributions to shareholder 95,062,898 137,317,076
Cost of shares repurchased (240,059,970) (192,389,054)
--------------- ---------------
Net (decrease) increase from Trust share transactions (35,340,369) 43,608,330
--------------- ---------------
Total Increase In Net Assets 197,597,102 217,694,250
Net Assets:
Beginning of year 1,414,283,697 1,196,589,447
--------------- ---------------
End of year $ 1,611,880,799 $ 1,414,283,697
=============== ===============
Undistributed Net Investment Income, at End of Year $ 31,635,575 $ 15,360,902
=============== ===============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
127
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ------------------------------------
1 -- Significant Accounting Policies
- ------------------------------------
Value Line Strategic Asset Management Trust (the "Trust") is an open-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended, which seeks to achieve a high total investment
return consistent with reasonable risk by investing primarily in a broad range
of common stocks, bonds and money market instruments. The Trust will attempt to
acheive its objective by following an asset allocation strategy based on data
derived from computer models for the stock and bond markets that shifts the
assets of the Trust among equity, debt and money market securities as the models
indicate and its investment adviser, Value Line, Inc. (the "Adviser"), deems
appropriate.
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 and
disclosure of contingent 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. The
following is a summary of significant accounting policies consistently followed
by the Trust in the preparation of its financial statements.
(A) Security Valuation.
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities traded in the over-the-counter market,
the security is valued at the midpoint between the latest available and
representative asked bid and prices.
The Board of Trustees has determined that the value of bonds and other
fixed-income securities be calculated on the valuation date by reference to
valuations obtained from an independent pricing service which determines
valuations for normal institutional-size trading units of debt securities,
without exclusive reliance upon quoted prices. This service takes into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data in determining valuations.
Short-term instruments with maturities of 60 days or less are valued at
amortized cost which approximates market value. Short-term instruments with
maturities greater than 60 days at the date of purchase are valued at the
midpoint between the latest available and representative asked and bid prices,
and commencing 60 days prior to maturity such securities are valued at amortized
cost. Other assets and securities for which market valuations are not readily
available are valued at fair value as the Board of Trustees may determine in
good faith.
(B) Repurchase Agreements
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the Trust has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
(C) Federal Income Taxes
It is the Trust's policy to qualify under, and comply with, the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(D) Dividends and Distributions
It is the Trust's policy to distribute to its shareholders, as dividends
and as capital gains distributions, all the net investment income for the year
and all the net capital
- --------------------------------------------------------------------------------
128
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
gains realized by the Trust, if any. Such distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. All dividends or distributions will be payable in shares
of the Trust at the net asset value on the ex-dividend date. This policy is,
however, subject to change at any time by the Board of Trustees.
(E) Amortization.
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments.
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income, adjusted for amortization of discount, including
original issue discount required for federal income tax purposes, is earned from
settlement date and recognized on the accrual basis. Dividend income is recorded
on the ex-dividend date.
- ----------------------------------------------------------
2 -- Trust Share Transactions, Dividends and Distributions
- ----------------------------------------------------------
Shares of the Trust are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance & Annuity Company, Inc.
(GIAC). Transactions in shares of beneficial interest in the Trust were as
follows:
Year Ended Year Ended
December 31, December 31,
1999 1998
----------- -----------
Shares sold 4,104,143 4,261,820
Shares issued in reinvestment
of dividends and distributions 3,617,310 6,157,716
----------- -----------
7,721,453 10,419,536
Shares repurchased 8,941,008 8,418,685
----------- -----------
Net (decrease) increase (1,219,555) 2,000,851
=========== ===========
Dividends per share from net
investment income $ .285 $ .68
=========== ===========
Distributions per share from
net realized gains $ 1.47 $ 1.96
=========== ===========
- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Year Ended
December 31,
1999
--------------
PURCHASES:
U.S. Treasury and Government
Agency Obligations $ 725,937,484
Other Investment Securities 170,135,232
--------------
$ 896,072,716
==============
SALES & MATURITIES:
U.S. Treasury and Government
Agency Obligations $ 191,104,011
Other Investment Securities 995,248,742
--------------
$1,186,352,753
==============
At December 31, 1999, the aggregate cost of investment securities and
short-term securities for federal income tax purposes is $1,215,538,004. The
aggregate appreciation and depreciation of investments at December 31, 1999,
based on a comparison of investment values and their costs for federal income
tax purposes is $410,144,859 and $24,107,452, respectively, resulting in a net
appreciation of $386,037,407.
- ------------------------------------------------------------------------
4 -- Investment Advisory Contract, Management Fees and Transactions with
Affiliates
- ------------------------------------------------------------------------
An advisory fee of $7,451,342 was paid or payable to the Adviser, for the
year ended December 31, 1999. This was computed at the annual rate of 1/2 of 1%
of the average daily net assets of the Trust during the period and paid monthly.
The Adviser provides research, investment programs, supervision of the
investment portfolio and pays costs of administrative services, office space,
equipment and compensation of administrative, bookkeeping and clerical personnel
necessary for managing the affairs of the Trust. The Adviser also provides
persons, satisfactory to the Trust's Board of Trustees, to act as officers and
employees of the Trust and pays their salaries and wages. The Trust bears all
other costs and expenses.
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129
<PAGE>
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Value Line Strategic Asset Management Trust
- -------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
Certain officers and directors of the Adviser and Value Line Securities,
Inc. (the Trust's distributor and a registered broker/dealer), are also officers
and Trustees of the Trust. During the year ended December 31, 1999, the Trust
paid brokerage commissions totaling $465,623 to Value Line Securities, Inc., a
wholly owned subsidiary of the Adviser, which clears its transactions through
unaffiliated brokers.
The Trust has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contract-owner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the year ended December 31, 1999, the Trust
incurred expenses of $925,843 in connection with such services rendered by GIAC.
- --------------------------------------------------------------------------------
130
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of stock outstanding throughout each year:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...................... $ 25.22 $ 22.13 $ 21.90 $ 20.27 $ 16.13
---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income ................................ .59 .30 .65 .53 .39
Net gains on securities (both realized and unrealized) 5.34 5.43 2.65 2.56 4.17
---------- ---------- ---------- ---------- --------
Total from investment operations ..................... 5.93 5.73 3.30 3.09 4.56
---------- ---------- ---------- ---------- --------
Less distributions:
Dividends from net investment income ................ (.29) (.68) (.55) (.37) (.26)
Distributions from net realized capital gains ....... (1.47) (1.96) (2.52) (1.09) (.16)
---------- ---------- ---------- ---------- --------
Total distributions ................................. (1.76) (2.64) (3.07) (1.46) (.42)
---------- ---------- ---------- ---------- --------
Net asset value, end of year ............................ $ 29.39 $ 25.22 $ 22.13 $ 21.90 $ 20.27
---------- ---------- ---------- ---------- --------
Total return** .......................................... 24.32% 27.45% 15.66% 15.87% 28.54%
---------- ---------- ---------- ---------- --------
Ratios/Supplemental Data:
Net assets, end of year (in thousands) .................. $1,611,881 $1,414,284 $1,196,589 $1,072,785 $876,509
Ratio of expenses to average net assets ................. .58%(1) .58%(1) .59%(1) .58%(1) .60%
Ratio of net investment income to average net assets .... 2.13% 1.25% 3.08% 2.70% 2.18%
Portfolio turnover rate ................................. 70% 106% 58% 71% 63%
</TABLE>
** Total returns do not reflect the effects of charges deducted under the
terms of GIAC's variable contracts. Including such charges would reduce
the total returns for all periods shown.
(1) Ratio reflects expenses grossed up for custody credit arrangement. The
ratio of expenses to average net assets net of custody credits would not
have changed.
See notes to financial statements.
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131
<PAGE>
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Value Line Strategic Asset Management Trust
- -------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees of
Value Line Strategic Asset Management Trust
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Value Line Strategic Asset
Management Trust (the "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. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial 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 incudes 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 securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 11, 2000
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132
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GUARDIAN(SM)
The Guardian Insurance & Annuity Company, Inc.
7 Hanover Square
New York, NY 10004
Pub. 3059 12/99 C Printed on recycled paper
