GUARDIAN SEPARATE ACCOUNT A
N-30D, 1997-08-29
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- --------------------------------------------------------------------------------
JUNE 30, 1997                                                   [LOGO] Value
                                                                       Guard II


Semiannual Report to Contractowners

- -------------------------------------------     Executive Offices             
The Guardian Separate Account A                 201 Park Avenue South         
- -------------------------------------------     New York, New York 10003      
                                                                              
- -------------------------------------------     Customer Service Office       
The Guardian Stock Fund, Inc.                   P.O. Box 26210                
- -------------------------------------------     Lehigh Valley, Pennsylvania   
The Guardian Bond Fund, Inc.                    18002-6210                    
- -------------------------------------------     1-800-221-3253                
The Guardian Cash Fund, Inc.                                                  
- -------------------------------------------     Distributed by:     [Logo]    
Gabelli Capital Asset Fund                      Guardian Investor Services    
- -------------------------------------------     Corporation                   
Baillie Gifford International Fund                                            
- -------------------------------------------     [Logo] The Guardian(R)        
Baillie Gifford Emerging Markets Fund                                         
- -------------------------------------------     The Guardian Insurance &      
Value Line Centurion Fund, Inc.                 Annuity Company, Inc.         
- -------------------------------------------                                   
Value Line Strategic Asset Management Trust     A wholly owned subsidiary of  
- -------------------------------------------     The Guardian Life Insurance   
                                                Company of America            
                                                
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
Performance Summary
- ---------------------------------------

[Sketch of Guardian Life Building]

- -------------------------------------------------------
  Investment Option                       Total Return*
  ------------------------            -----------------
  The Guardian Stock Fund.............        18.39%
  Baillie Gifford International Fund..        14.06%
  Baillie Gifford Emerging Markets Fund       19.98%
  Value Line Centurion Fund...........         9.37%
  Value Line Strategic Asset Mgt. Trust        6.51%
  Gabelli Capital Asset Fund..........        20.71%
  The Guardian Bond Fund..............         2.99%
  The Guardian Cash Fund..............         1.98%
  The Guardian Real Estate Account....        14.23%
- -------------------------------------------------------
  Fixed-Rate Option
  ------------------------
  The annual rate of interest declared for amounts 
  deposited or renewed (on a contract anniversary) 
  in the Fixed-Rate Option from January 1, 1997 to 
  June 30, 1997 was 5.50%. This rate is subject to 
  change at any time, and may be higher or lower for 
  new deposits or renewals on a contract anniversary, 
  but is guaranteed until the following contract 
  anniversary.
- -------------------------------------------------------

*  The chart above shows the total returns for each investment option under
   Value Guard II based on the percentage change in unit values during the
   period January 1, 1997 through June 30, 1997. In contrast to the returns
   presented in the portfolio managers' interviews, changes in unit values
   reflect the effects of mortality and expense risk charges as well as each
   option's expenses to give you a better picture of an investment option's
   performance under the contract. Total return performance figures stated above
   do not, however, reflect the annual contract administration charge or
   possible withdrawal charges. Deduction of these amounts would reduce the
   stated total returns. Past performance is not a guarantee of future results.
   Investment returns and principal value will vary with market conditions.

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
  Dear Contractowner:
- ---------------------------------------

[Photo of Joseph D. Sargent, CLU President & CEO]

      As the President and Chief Executive Officer of The Guardian Insurance &
Annuity Company, Inc. (GIAC) and its parent, The Guardian Life Insurance Company
of America, I am pleased to introduce this semiannual report on the performance
results of your contract's separate account and its underlying investment
options during the first six months of 1997.

On Our Ratings

      Once again, we are proud to report that as of June 30, 1997, the date of
this report, GIAC continues to enjoy exemplary ratings from four of the nation's
leading insurance company evaluators: Moody's, Standard & Poor's, A.M. Best, and
Duff & Phelps. GIAC's solid ratings reflect its ability to meet its guarantee of
your contract's Fixed-Rate Option and pre-retirement death benefit. However,
these ratings do not apply to The Guardian Investor's underlying variable
investment options, which are subject to the risks of investing in securities.
We are very proud of our ratings as they reflect the strength of GIAC, which
stands behind the contract's guarantees.

Our Commitment to You

      We at The Guardian are proud of our tradition of commitment to you, our
contractowners. Following this letter is an economic report from Frank J. Jones,
Ph.D., Chief Investment Officer of GIAC. I believe that you will enjoy reading
his insightful economic overview presented to you as part of our ongoing
commitment to provide increasing levels of information and service.

      Following Dr. Jones' economic report are interviews with the managers of
the underlying variable options. I invite you to read the interviews to learn
more about the strategies used to manage your investment options during the
first half of 1997.

      Thank you for continuing to invest for your future through GIAC.

Regards,


/s/ Joseph D. Sargent

Joseph D. Sargent, CLU
President and Chief Executive Officer
The Guardian Insurance & Annuity Company, Inc.

- --------------------------------------------------------------------------------
<PAGE>

VALUE GUARD II
Table of Contents

                                                    Portfolio          Schedule 
                                                     Manager              of    
                                                    Interview        Investments
- --------------------------------------------------------------------------------
Economic Report                                                           4
- ---------------------------------------

- --------------------------------------------------------------------------------
The Guardian Stock Fund                                 6                32
- ---------------------------------------

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 June 30, 1997:         $2,755,629,244
- --------------------------------------------------------------------------------

"Our quantitative models look at the portfolio two different ways: "top-down"
and "bottom-up." The "top-down" approach involves a cluster of different
predictive models that we use to identify which overall portfolio style has the
most attractive performance prospects. The "bottom-up" approach uses our
multi-factor stock scoring system to identify specific attractive stocks within
our 2000-stock research universe."

                                                    -- Charles E. Albers, C.F.A.
                                                       Portfolio Manger

- --------------------------------------------------------------------------------
The Guardian Bond Fund                                 10               42
- ---------------------------------------

Objective:    Maximum current income without undue
              risk of principal. Capital appreciation
              is a secondary objective.
- --------------------------------------------------------------------------------
Portfolio:    At least 80% investment-grade bonds and
              U.S. government securities
- --------------------------------------------------------------------------------
Inception:    May 1, 1983
- --------------------------------------------------------------------------------
Net Assets at June 30, 1997:         $342,478,207
- --------------------------------------------------------------------------------

"The Fund's overall strategy continues to focus on "optimal" asset allocation
and security selection within the various bond sectors, and to avoid market
timing. This strategy should provide opportunities to outperform our benchmark
and peer groups with a relatively low risk profile."

                                                     -- Thomas G. Sorell, C.F.A.
                                                        Portfolio Manager

- --------------------------------------------------------------------------------
The Guardian Cash Fund                                 22                50
- ---------------------------------------

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 June 30, 1997:         $399,335,104
- --------------------------------------------------------------------------------

"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."

                                                      -- Alexander M. Grant, Jr.
                                                         Portfolio Manager

- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund                             12                60
- ---------------------------------------

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 June 30, 1997:         $68,479,691
- --------------------------------------------------------------------------------

"Although we are not market timers, we do have opinions on the market, which we
are happy to share with our shareholders. Over the last 2 1/2 years, equities
investors have enjoyed a "best of all possible worlds" environment for
stocks--modest economic growth, low inflation, low interest rates, and strong
corporate earnings gains."

                                                     -- Mario J. Gabelli, C.F.A.
                                                        Portfolio Manager
<PAGE>

                                                    Portfolio          Schedule 
                                                     Manager              of    
                                                    Interview        Investments
- --------------------------------------------------------------------------------
Baillie Gifford International Fund                     14                68
- ---------------------------------------

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 June 30, 1997:         $550,744,229
- --------------------------------------------------------------------------------

"During this period, many markets continued to be expensive, relative to
historic levels, on a number of different measures. However, we have recognized
that a high level of liquidity worldwide has been driving markets. Our strategy
has continued to be one of stock-driven allocation and this proved successful
again in the first half of this year."

                                                            -- R. Robin Menzies
                                                               Portfolio Manager

- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund                  16                76
- ---------------------------------------

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 June 30, 1997:         $108,752,230
- --------------------------------------------------------------------------------

"We remain optimistic about the investment prospects for emerging markets in
general. Growth rates remain high and the international background is favorable:
interest rates may rise further in the developed countries, but not by very
much."

                                                           -- Edward H. Hocknell
                                                              Portfolio Manager

- --------------------------------------------------------------------------------
Value Line Centurion Fund                              18                90
- ---------------------------------------

Objective:    Long-term growth of capital
- --------------------------------------------------------------------------------
Portfolio:    At least 90% common stocks
- --------------------------------------------------------------------------------
Inception:    November 15, 1983
- --------------------------------------------------------------------------------
Net Assets at June 30, 1997:         $672,281,829
- --------------------------------------------------------------------------------

"We continue to believe that we are in the midst of a moderate-growth economy
with benign levels of inflation. As a result, the Value Line Ranking System
screens for stocks that are expected to produce revenue and earnings growth that
could be significantly above the 7-8% level expected for the S&P 500 over the
next five years."

                                                           -- Value Line, Inc.
                                                              Investment Adviser

- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust            20                98
- -------------------------------------------

Objective:    High total return consistent with
              reasonable risk
- --------------------------------------------------------------------------------
Portfolio:    Stock, bonds and money market instruments
- --------------------------------------------------------------------------------
Inception:   October 1, 1987
- --------------------------------------------------------------------------------
Net Assets at June 30, 1997:         $1,151,969,591
- --------------------------------------------------------------------------------

"To reduce risk, we maintain a very diversified portfolio and avoid large bets
on any particular sector or company. In addition, we invest in certain stocks
that are ranked neutral by our Ranking System, such utilities or energy
companies, in order to increase the portfolio's dividend yield and further
reduce risk."

                                                           -- Value Line, Inc.
                                                              Investment Adviser

- --------------------------------------------------------------------------------
The Guardian Separate Account A                                          24
- ---------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
Economic Report:
- ---------------------------------------

The Return of Goldilocks

The economy is now in its seventh year of uninterrupted growth -- the current
expansion began in March, 1991. Growth during this period, however, has not been
uniform -- it has oscillated between periods of rapid and slow growth (but
growth nevertheless). Occasionally during this period, economists have observed
that we have a "Goldilocks" economy in which growth is "not too hot, not too
cold."

      Goldilocks seems to have returned. The unemployment rate during May was a
24-year low of 4.8%; jobs are being created at a robust pace (1.4 million jobs
created during the first half of 1997); labor costs have retreated somewhat from
a previously inflation-inducing level (the 12-month average hourly earnings rate
through March, 1997 increased at an annual rate of 4.1% and decreased to a more
moderate annual rate of 3.5% through June); inflation is near a 31-year low (the
Consumer Price Index (CPI) is up at an annual rate of 2.3% over the year through
June and the Producer Price Index (PPI) declined by 0.3% over this period); gold
prices are at an 11-year low; and consumer confidence is high.

      How can we still have such moderate inflationary forces with the economy
so strong and labor markets so tight? Certainly, the significantly increased use
of technology, increased productivity, the discipline of global competition and
the strong dollar have served to moderate inflation. But even discounting these
forces, the Fed is uncertain or even confused about this issue. In this regard,
the following is an excerpt from the May 20, 1997 Federal Open Market Committee
(FOMC) meeting minutes:

      With regard to the outlook for inflation, members observed that
      increases in prices had remained subdued despite the rapid expansion
      in economic activity in recent quarters and the associated increases
      in pressures on already highly utilized resources. The appreciation
      of the dollar undoubtedly had helped dampen domestic inflation this
      year, and reported increases in consumer prices also had been held
      down to a marginal extent by an ongoing series of technical
      adjustments in the CPI.

      These were only partial explanations, however, and the members found
      it very difficult to account for the surprisingly benign behavior of
      inflation in an economy that had been operating at a level
      approximating full employment -- indeed, possibly above sustainable
      full employment in labor markets in the view of a number of members,
      especially taking into consideration the recent further decline in
      the unemployment rate.

      When the Fed tightened monetary policy on March 25 by increasing the
Federal Funds rate by 25 basis point or 0.25%, the first Fed action since
January 31, 1996 and the first Fed tightening since February 1, 1995, the
markets thought, based on history, that this would be the first in a series of
tightenings. On April 11, the 30-year Treasury yield increased to its 1997 high
of 7.17% and the DJIA (Dow Jones Industrial Average)(1) decreased to 6,392, 9.8%
below its previous high on March 11. However, the Fed refrained from tightening
at its next meeting on May 20 in a marginal decision (see the above quote) and
again at its July 2 meeting, in an easy decision. The May non-tightening by the
Fed made Alan Greenspan, the Federal Reserve Chairman, seem prescient, as did
the difficult and widely scrutinized August 1996 non-tightening.

      Where do we go from here? Real Gross Domestic Product (GDP) increased by
5.9% in the first quarter of 1997, faster than could be sustained given the
initial full utilization of labor and capital. This expectation is what caused
the Fed to tighten during March. Second quarter real GDP increased by only 2.2%.
The Fed's expectation of this slow growth caused the Fed non-tightenings during
May and July.

- --------------------------------------------------------------------------------
(1) The Dow Jones Industrial Average (DJIA) is an unmanaged average of 30
industrial stocks listed on the New York Stock Exchange that, like the S&P 500
Index, is generally considered to be representative of U.S. stock market
performance. The DJIA is not available for direct investment and its returns do
not reflect the fees and expenses that are deducted from the Funds in The Park
Avenue Portfolio.


- --------------------------------------------------------------------------------
                                       4
<PAGE>

- --------------------------------------------------------------------------------

      Either the first quarter 1997 economic growth rate of 5.9% or the second
quarter 1997 rate of 2.2% was a "head fake" (despite the warm first quarter
weather factor which added to first quarter growth at the expense of second
quarter growth). But which quarterly growth rate was the head fake? Probably
both! Real GDP growth during the third and fourth quarters will be well within
this range, probably within the fairly wide range of 21 1/42% to 31 1/42%. Given
the current high utilization rate of capital and labor and the maximum
sustainable economic growth rate of 21 1/42% to 23 1/44%, this level of economic
growth rate is expected to tax capital and labor resources, and cause an
increase in labor costs and inflation. Given these conditions, the Fed may have
to respond with one or two moderate tightenings at the September 30 FOMC meeting
or after, but not a more aggressive series of tightenings, as expected after the
March tightening.

      While such growth during the second half of 1997 and potential Fed
moderate responses may cause short-term instability in the stock and bond
markets, these events may prolong the seven-year economic expansion -- due to 
the lack of excesses of any type -- and keep Goldilocks in residence.

      July was an interesting, pivotal and positive month for the markets. The
Fed refrained from tightening at its July 1 FOMC meeting, a "lay-up" decision.
More importantly, June employment growth was somewhat less than expected and the
increase in labor costs was also less than expected. Finally, a balanced budget
plan was agreed to by the President and Congress.

      The following "headlines" summarize market activity so far this year:

      o  The DJIA,(1) S&P 500,(2) NASDAQ Composite(3) and Russell 2000(4) 
         indexes were all at record levels during late July (the S&P 500 
         returned 30.19% for the year through July 31);

      o  Cash inflows into stock mutual funds have remained high during 1997;

      o  The 10-year Treasury yield decreased to 6.35%, the lowest since
         November 29, 1996;

      o  June, 1997 experienced the highest new issuance of junk bonds ever
         (with only a slight widening of spreads);

      o  The U.S. dollar has grown very strong against the German mark, the
         British pound and the Japanese yen; and

      o  The stock markets of the U.K., Germany, France, Italy, Hong Kong
         (the latter, despite the transition from the U.K. to China), Mexico
         and several other developed and developing countries, as well as the
         U.S., reached record highs.

      With respect to the U.S. stock market, the major negative is the current
rich market valuation levels. However, there are also many positives for the
stock market. Among these positives are the prolonged strong economy, the
correspondingly strong corporate profits, and the low inflation environments
(helped by the strong dollar). The strong corporate profits can be attributed to
strong productivity gains which were achieved, in part, by advances in
technology, corporate restructuring and, as a result, global competition.

      Obviously, optimism is high -- Goldilocks has returned. But while some of
the markets seem to have "thrown caution to the wind," individual investors
should not. These observations lead to our bottom line, which is to maintain our
offensive approach, but be prepared for short term volatility. Do not bail out,
but tighten your seat belts.

Regards,


/s/ Frank J. Jones

Frank J. Jones, Ph.D.
Chief Investment Officer
The Guardian Insurance & Annuity Company, Inc.

- --------------------------------------------------------------------------------
(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 are deducted from the
    Funds in The Park Avenue Portfolio.
(3) The Nasdaq Composite Index is a broad-based capitalization-weighted index
    of all Nasdaq National Market and small cap stocks.
(4) 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.


- --------------------------------------------------------------------------------
                                       5
<PAGE>

- --------------------------------------------------------------------------------
The Guardian Stock Fund
- ---------------------------------------

[Photo of Charles E. Albers, C.F.A. Portfolio Manager]

Q. The stock market's continued strength in 1997 has surprised many market
   observers. How has the Fund performed during the first half of 1997? 

A. The Guardian Stock Fund has performed very well in the first half of 1997,
   both absolutely and also relative to our mutual fund peer group. The return
   to our shareholders for that period was a robust 18.97%,(1) far above
   historic average returns for the U.S. stock market. Also, that return
   substantially exceeded the return of the average fund in our peer group,
   Lipper U.S. Variable Insurance Product Underlying Growth Funds,(2) which was
   a lesser 13.88% over the same period. This was accomplished in an
   environment where the large-cap stock index, the S&P 500,(3) completely
   dominated the results of most "active" money managers: its total return for
   the six-months ended June 30, 1997 was 20.60%.

      Of course, from a shareholder's viewpoint, what is most important is the
long-term investment record. Here, too, the Fund has done well, placing it in
the top 2% of Lipper U.S. Variable Insurance Product Underlying Growth Funds
over the last 5 years, ranking number 1 out of 50 for the five-year period and
number 1 out of 31 funds (top 4%) for the 10-year peiod ended June 30, 1997.(4)

- --------------------------------------------------------------------------------
                Comparative Average
                Annual Total Returns
                  for the Periods
                ended June 30, 1997 
         -----------------------------------   Guardian Stock   Guardian Stock
         Guardian Lipper   U.S. Underlying          Fund             Fund
           Stock Fund   Growth Funds Average    Lipper Rank(4)   Percent Rank
- --------------------------------------------------------------------------------
 1 Year     + 36.19%           + 24.07%         7 (out of 117)     Top 6%
 5 Year     + 23.43%           + 17.07%         1 (out of 50)      Top 2%
10 Year     + 15.77%           + 12.62%         1 (out of 31)      Top 4%


Q. What factors affected Fund performance in the first half of 1997? 

A. Six months ago, in the Annual Report to shareholders, we said:

      "We continue to believe that well-established, large-cap companies have
the better prospects in 1997. This view is supported both by our quantitative
'style predictor' models and also by our fundamental investment judgment."

      Our judgment at that time has been vindicated by subsequent developments.
The current multi-year cycle of domestic large-cap outperformance, which began
in 1995, has continued to roll on in the first half of 1997. This phenomenon is
shown in the following table:

- --------------------------------------------------------------------------------
                                                     Total Returns(%)
                                           -------------------------------------
                                           Year Ended  Year Ended  Six months
                                            Dec. 31,    Dec. 31,     ended
                                              1995        1996   June 30, 1997
- --------------------------------------------------------------------------------
Large-Cap Stocks                                       
 (S&P 500)                                  + 37.4%     + 22.8%     + 20.6%
                                                       
Small-Cap Stocks                                       
 (Russell 2000)(5)                          + 28.4%     + 16.5%     + 10.2%
                                            -------     -------     -------
Amount of Large-Cap                                    
 Outperformance                             +  9.0%     +  6.3%     + 10.4%
================================================================================
(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) 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 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.
(4) Lipper rankings were reported by Lipper Variable Insurance Products
    Performance Analysis Service, in its underlying Fund report dated June 30,
    1997.
(5) 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.


- --------------------------------------------------------------------------------
                                       6
<PAGE>

- --------------------------------------------------------------------------------

      Throughout this period, from mid-1995 through mid-1997, we have positioned
the Fund with a portfolio cap-size which has been much larger than those of most
other actively managed funds, and this has given us a meaningful competitive
advantage during this period.

  [The following table was represented as a bar graph in the printed material.]

================================================================================
                             The Guardian Stock Fund

                           Weighted Average Market Cap
- --------------------------------------------------------------------------------

            ($ billion)

            6/30/95     12/21/95    6/30/96     12/31/96    6/63/97
            -------     --------    -------     --------    -------
            $14.0       $24.6       $34.7       $37.7       $46.1

      Another factor that contributed to our relatively good investment
performance in the first half of 1997 was our multi-factor quantitative stock
scoring system. This system has generally provided us with solid guidance over
the years in stock selection, and this favorable record has continued into 1997.

Q. What strategies did you use to manage the Fund during the first half of 1997?

A. There was no change in our strategic approach to managing the portfolio
during this period. We believe that soundly-based quantitative models provide a
valuable tool. At the same time, fast-breaking news and unusual investment
issues require the balanced judgment of a capable portfolio manager. We believe
the surest path to consistently above-average returns requires the synergistic
results of combining good quantitative tools with good manager judgment.

      Our quantitative models look at the portfolio two different ways:
"top-down" and "bottom-up." The "top-down" approach involves a cluster of
different predictive models that we use to identify which overall portfolio
style has the most attractive performance prospects. The "bottom-up" approach
uses our multi-factor stock scoring system to identify specific attractive
stocks within our 2000-stock research universe. We believe that both the
"top-down" and "bottom-up" perspectives are important, and the best results can
be achieved by combining them both within one portfolio.

Q. What are the portfolio's weights in different economic sectors, and how
   have these weightings affected performance?

A. The attached pie chart shows the Fund's portfolio weightings for each of the
major economic sectors as of June 30, 1997. These weightings are not the primary
driver of our portfolio management process, but there is an interesting
perspective here. The Fund's greatest sector overweight is the Financial sector
(26.3% weight vs. 15.3% in the S&P 500), and this sector was a superior
performer in the first half of 1997. The Fund's greatest sector underweight was
Utilities (3.2% weight vs. 8.5% in the S&P 500), and this sector was a
significant underperformer in the first half. The two largest S&P 500 sectors
are Consumer Staples and Technology, and the Fund weighting is close to the
benchmark for both.

Q. Many investors have shifted to passive "indexing" in recent years. What
   does the future hold for "active" portfolio management? 

A. As shown in the table above, within the U.S. stock market, large cap stocks
have been substantially outperforming small caps for roughly the last 3 years.
Most active money managers in the U.S. have tended to be substantially
"underweighted" in the S&P 500 (large-cap) stocks, particularly the mega-cap
stocks (the largest 50), causing their performance to lag the S&P 500 over this
span.

      In response to those trends, "indexing" has been experiencing a boomlet of
popularity. Many investors have been "throwing in the towel" on active portfolio
management and shifting their money into funds which mimic a stock price index,
most often the S&P 500. Promptly, those "index funds" turn around and buy the
underlying stocks, with most of the money going into the mega-cap stocks. In the
short run, this boomlet of popularity o7f indexing has been like a
self-fulfilling prophecy: with the mega-cap stocks getting much of the
incremental buying power, their prices have been pushed upward, leading the
market.


- --------------------------------------------------------------------------------
                                       7
<PAGE>

- --------------------------------------------------------------------------------

      Small cap stocks, compared to large ones, have now become very cheap by
historic norms. Over the long term, relative valuations between large caps and
small caps will almost certainly return to normal historic relationships, and
that implies that small caps will have to "catch up" on a relative performance
basis.

      The bottom line: Most active money managers have looked bad during the
last few years, at least relative to the S&P 500 Index. However, this seems to
be a very poor time for investors to throw in the towel on all active equity
managers. Indeed, over the next several years, it seems quite likely that many
active managers will be able to do substantially better than the venerable, but
now-bloated, S&P 500 Index. 

- --------------------------------------------------------------------------------
The Guardian Stock Fund Profile
as of June 30, 1997
- ---------------------------------------

                       Sector Weightings of Common Stocks
                        Held by the Fund on June 30, 1997

  [The following table was represented as a pie graph in the printed material.]

                           Utilities -- 2.5%
                           
                           Credit Cyclicals -- 0.5% 
                           
                           Transportation -- 2.0% 
                           
                           Consumer Cyclicals -- 3.1% 
                           
                           Consumer Services -- 2.0% 
                           
                           Conglomerates -- 1.7%
                           
                           Consumer Staples -- 18.8%
                           
                           Basic Industry -- 4.0%
                           
                           Capital Goods -- 6.2%
                           
                           Financial -- 27.3%
                           
                           Capital Goods/Technology -- 15.4%
                           
                           Energy -- 16.5%

- --------------------------------------------------------------------------------

                             The Guardian Stock Fund
                          Top 10 Holdings as of 6/30/97

- --------------------------------------------------------------------------------
   1. General Electric                        3.65%
- --------------------------------------------------------------------------------
   2. Bristol Myers Squibb                    2.67%
- --------------------------------------------------------------------------------
   3. Intel Corporation                       2.48%
- --------------------------------------------------------------------------------
   4. Exxon Corporation                       2.28%
- --------------------------------------------------------------------------------
   5. Citicorp                                2.27%
- --------------------------------------------------------------------------------
   6. Johnson & Johnson                       1.85%
- --------------------------------------------------------------------------------
   7. DuPont DeNemours                        1.83%
- --------------------------------------------------------------------------------
   8. Microsoft Corporation                   1.75%
- --------------------------------------------------------------------------------
   9. BankAmerica                             1.69%
- --------------------------------------------------------------------------------
  10. Royal Dutch Petroleum                   1.58%
- --------------------------------------------------------------------------------
  For a complete list of portfolio holdings, please see the Schedule of
  Investments.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

                             Average Annual Returns(1)

                                                                  Life of Fund
                               1 Year     5 Years     10 Years   (since 4/13/83)
- --------------------------------------------------------------------------------
The Guardian Stock Fund        36.19%      23.43%      15.77%       17.51%
- --------------------------------------------------------------------------------
S&P 500 Index(2)               34.59%      19.69%      14.53%       16.62%
- --------------------------------------------------------------------------------

(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 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's return.


- --------------------------------------------------------------------------------
                                       8
<PAGE>

- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment

- --------------------------------------------------------------------------------

                                    GSF           S&P         CPI
                                    ---           ---         ---

4/13/83                           $10,000       $10,000     $10,000
83
84
85
86
87
88
89                                            [NEED PLOT POINTS FOR THIS GRAPH]
90
91
92
93
94
95
96
6/30/97                           $99,134       $85,090     $16,463
                                                              

A hypothetical $10,000 investment made at the inception of The Guardian Stock
Fund on April 13, 1983 would have grown to $99,134 on June 30, 1997. We compare
our performance to that of the S&P 500 Index, which is an unmanaged index that
is generally considered the performance benchmark of the U.S. stock market.
While you may not invest directly in the S&P 500 Index, a similar hypothetical
investment would now be worth $85,090. 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.


- --------------------------------------------------------------------------------
                                       9
<PAGE>

- --------------------------------------------------------------------------------
The Guardian Bond Fund
- ---------------------------------------

[Photo of Thomas G. Sorell, C.F.A. Portfolio Manager]

Q. How did the Fund perform during the first half of 1997?

A. During the first half of 1997, the Fund returned 3.50%,(1) outperforming both
the Lehman Aggregate Bond Index(2) which returned 3.09% and the 3.11% average
return of our Lipper peer group.(3) Our Lipper peer group consists of other
Lipper variable annuity subaccounts that invest primarily in bonds rated "BBB"
or better.

Q. What factors affected the Fund's performance?

A. During the first quarter of 1997, fears that rapid economic growth would lead
to higher inflation, given tight labor markets and high levels of capacity
utilization, created a bearish market for bonds. The economy did in fact grow at
a rate of 4.9% in the first quarter, well beyond what most economists would
consider a non-inflationary pace. The Fed, anticipating this growth, tightened
monetary policy by raising the Fed Funds rate by 0.25% on March 25. Although
this move was not unexpected, the bond market, as measured by the Lehman
Aggregate Bond Index, had a -0.56% return during the first quarter. As the
economy slowed in the second quarter and the Fed left rates unchanged at the May
20 and July 2 policy meetings, the bond market recovered. With the Fed on hold,
the yield on the 30-year Treasury bond dropped over 40 basis points, or -0.40%,
during the second quarter and the Lehman Aggregate Bond Index posted its best
quarterly return (3.67%) since the fourth quarter of 1995.

      The Fund's performance is principally attributable to a significant
allocation to mortgage-backed securities and triple-B rated corporate bonds,
which were two of the best performing subsectors when measured by the Lehman
Aggregate Bond Index data on a duration-adjusted basis.(4) The Lehman Index's
asset classes had the following nominal six-month returns through June 30:
mortgage-backed securities 3.92%, corporate bonds 3.97%, and asset-backed
securities 2.96%. Measured on a duration-adjusted basis, mortgages outperformed
the other sectors, returning 1.14% over Treasuries, while the excess return on
all corporate bonds was 0.55%, (triple-B-rated issues earned 0.96%), and
asset-backed securities 0.25%.

      Mortgage-backed securities performed exceptionally well during the first
half of 1997 predominantly due to declining levels of implied interest rate
volatility and expectations of slower prepayment rates.

      The performance of the corporate sector varied significantly by credit
quality during the first half of 1997. While the entire sector returned 0.55% on
a duration-adjusted basis, bonds rated from triple-A to single-A returned
between 40 and 45 basis points, while bonds rated triple-B earned more than two
times that amount, returning 96 basis points. Our corporate bond investment
strategy throughout the first half was to overweight triple-B rated credits that
we believed had attractive return profiles as measured by both their breakeven
spreads(5) to Treasuries and our expectation of an improvement in credit
quality. Although we had numerous successes, one of our best was an investment
in Comcast 8 7/8 due 5/1/2017. The security was purchased at a spread of 153
basis points, or 1.53% over Treasuries, and as of June 30 the spread had
narrowed to 108 basis points or 1.08%. This represented a holding period return
of 7.01% and a return in excess of Treasuries of 3.91%.

- --------------------------------------------------------------------------------
(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 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.
(3) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
    and rating service and its database of performance information is based on
    historical total returns, which assume the 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.
(4) Duration-adjusted, expressed in percentage terms, represents the excess
    return over the weighted average return of a group of similar duration
    Treasuries.
(5) Breakeven spreads, expressed in percentage terms, for a particular
    security represents the amount of yield spread widening which can occur
    over a specified time period, and still match the total return of another
    duration-equivalent security (usually Treasuries).


- --------------------------------------------------------------------------------
                                       10
<PAGE>

The security was purchased at a spread of 153 basis points, or 1.53% over
Treasuries, and as of June 30 the spread had narrowed to 108 basis points or
1.08%. This represented a holding period return of 7.01% and a return in excess
of Treasuries of 3.91%.

      Asset-backed securities realized the lowest returns, both nominally and
duration-adjusted, of the three main spread sectors for the first six months of
1997, but provided an attractive alternative to short duration Treasuries.

Q. What strategies did you use to manage the Fund?

A. The Fund's overall strategy continues to focus on optimal asset allocation
and security selection, and to avoid market timing. This strategy should provide
opportunities to outperform our benchmark and peer groups with a relatively low
risk profile.

      More specifically, our strategy with respect to mortgage-backed securities
consisted of adding seasoned pools with favorable prepayment histories and
incremental option adjusted spread,(6) as well as continuing to finance newly
issued collateral. As Treasury yields declined further, we became concerned that
prepayment risk would rise and/or volatility would increase, both of which would
negatively affect the mortgage market. As of June 30, 1997, we are underweighted
in mortgages relative to the Lehman Aggregate Bond Index.

      Our corporate strategy has been to increase and diversify our corporate
holdings, especially in the higher yielding sector triple-B rated credits.
During the first half of 1997 we increased our corporate holdings to 35% of the
Fund's Portfolio. We made new investments in the transportation and bank capital
securities sectors, while adding to our exposure to the cable/media and tobacco
sectors. Overall, we will continue to take our credit risk in the short end of
the yield curve where breakeven spreads are attractive, and become more
defensive given the tight level of quality spreads by predominantly investing in
higher-rated improving credits in longer maturities.

      Our asset-backed securities strategy continues to focus on adding value at
the short end of the yield curve, and as of quarter-end the Fund was
substantially overweighted in this sector versus the Lehman Aggregate Bond
Index. During the first half of the year, the Fund moved from securities backed
by credit card and auto receivables into securities backed by home equity and
home improvement loans, which offered higher yield spreads and better
diversification.

- --------------------------------------------------------------------------------
(6) Option-adjusted spread means the incremental return or risk premium over
    Treasury securities, that has been adjusted for interest rate volatility and
    for the effect of options.

- --------------------------------------------------------------------------------
The Guardian Bond Fund Profile
as of June 30, 1997
- ------------------------------------

- --------------------------------------------------------------------------------
                            AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------

1 Year .................................................................  8.62%
5 Years ................................................................  6.73%
10 Years ...............................................................  8.59%
Since Inception (5/1/83) ...............................................  9.32%
                                                         
- --------------------------------------------------------------------------------

  [The following table was represented as a pie chart in the printed material.]

- --------------------------------------------------------------------------------
                               Guardian Bond Fund
                        (Asset Quality According to S&P)

                    AAA - 50.3%                                                 
                    BBB - 28.6%
                    A - 13.0%
                    AA - 4.1%
                    Other Assets - 1.6% 
                    Cash/Short Term Equivalent - 1.3% 
                    BB - 1.2%
- --------------------------------------------------------------------------------
                    

- --------------------------------------------------------------------------------
                                       11
<PAGE>

- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- ------------------------------------

[Photo of Mario J. Gabelli, C.F.A.
       Portfolio Manager]

Q. How did the Fund perform in the first half of 1997?

A. For the six months ended June 30, 1997, the Gabelli Capital Asset Fund's
total return was 21.3%,(1) compared to the Standard & Poor's (S&P) 500's(2)
20.6% and the Russell 2000's(3) 10.2% gains. Since inception on May 1, 1995
through June 30, 1997, the Fund has an aggregate total return of 45.9%, which
equates to an average annual return of 19.0%.

Q. What factors affected the Fund's performance in the first half of 1997?

A. Following the late March/early April correction that wiped out most of its
early gains, the market soared, posting one of the biggest quarterly advances in
history. Small and mid-sized stocks finally were noticed, as reflected by the
much better relative performance of broader market indices.

      The Fund benefited from the positive reappraisal of cable television
stocks sparked by the failure of Rupert Murdoch to obtain regulatory approval
for News Corporation Limited's proposed national satellite broadcasting network,
(labeled by Wall Street as "Death Star" for the cable television industry), and
Microsoft Corporation's $1 billion dollar investment in cable operator Comcast
Corporation. Ongoing merger and acquisition activity also helped buoy returns
with several of our portfolio holdings being taken out at significant premiums
to their public market prices. Finally, a number of the "sleepers" in the Fund
portfolio (stocks that had not participated in the 1995-96 bull market) woke up
refreshed from somewhat extended naps. Factoring in the Fund's holding period,
these were not home runs. They were singles and doubles that produce the kind of
consistent investment progress our value discipline is designed to provide.

Q. What strategies do you use to manage the Fund and what is your outlook for
   the second half of 1997?

A. We are stock pickers focusing on cash generating, dominant market share
companies trading at a significant discount to our rigorous fundamental
appraisal of their "real world" economic value. We grudgingly accept the fact
that market forces will have a temporary impact on our holdings. However, we
believe that if we do our fundamental homework and successfully identify
investment bargains, we will be rewarded with superior long-term returns.

      Although we are not market timers, we do have opinions on the market,
which we are happy to share with our shareholders. Over the last 2 1/2 years,
equities investors have enjoyed a "best of all possible worlds" environment for
stocks--modest economic growth, low inflation, low interest rates, and strong
corporate earnings gains. Current equities valuations reflect investors'
conviction that these favorable economic conditions will last indefinitely. If
they are right, stocks can continue to advance, albeit probably at a much less
torrid pace than in recent years. If we get any unexpected surprises on the
inflation front or if earnings in this slowing economy don't live up to what may
be somewhat optimistic forecasts, we could see a significant correction.

- --------------------------------------------------------------------------------
(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 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 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, which are deducted from the Fund's
    return.


- --------------------------------------------------------------------------------
                                       12
<PAGE>

- --------------------------------------------------------------------------------

      More importantly to our investment discipline, we believe what has been
primarily a momentum stock market is becoming a more normalized market of
stocks. Individual securities' fundamentals once again seem to matter. This is
the kind of environment in which stock pickers have the opportunity to excel.

      We continue to favor aerospace component companies, which will benefit
from the extended expansion of airline fleets around the globe. Although media
companies (publishing, broadcast, filmed entertainment, and cable television
operators) have already rebounded, we think there are still exceptional
investment opportunities in this broad group. Now that the new regulatory
framework for telecommunications companies is becoming more defined, we should
see a more positive contribution from portfolio holdings in this sector.

      Merger and acquisition activity should continue to provide a tailwind for
our portfolio. What has been "a deal a day" market is now a "two to three deal a
day" phenomenon. As the highly positive impact of cost cutting and productivity
gains on margins begins to wane, more and more companies will turn to
acquisitions to continue to grow earnings. This is not the re-conglomeratization
of America, but rather, larger companies targeting smaller companies to
complement their existing businesses. This feeds nicely into our focus on
smaller niche franchises.

- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund Profile
as of June 30, 1997
- ----------------------------------------

- --------------------------------------------------------------------------------
                                Top Ten Holdings

   1. International Family Entertainment, Inc.

   2. Cablevision Systems Corporation

   3. TCI Liberty Media Group

   4. ITT Corporation

   5. Gaylord Entertainment Company

   6. United Television, Inc.

   7. Sequa Corporation

   8. GC Companies, Inc.

   9. HSN, Inc.

  10. Quaker Oats Company

                   For a complete list of portfolio holdings,
                    please see the Schedule of Investments.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                            AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------

1 Year...............................................................   20.98%
Since Inception (5/1/95).............................................   19.02%
- --------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
                                       13
<PAGE>

- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- -----------------------------------------

[Photo of R. Robin Menzies, Portfolio Manager]

Q. How has the Fund performed during the first half of 1997?

A. The Fund performed well in the first half of this year, returning 15.4%(1)
compared to a rise of 11.3% in our benchmark index -- the Morgan Stanley Capital
International (MSCI) Europe, Australia and Far East (EAFE) Index.(2)

      Within the overall Index return, the Continental European region was the
strongest, its return of 17.1% in the first six months of 1997 being driven by
healthy stock markets in Germany (up 16.9%) and Switzerland (up 31.6%). Domestic
economies remain relatively weak but exporters in Germany have benefited from a
more competitive Deutschemark and strong demand from outside the region.
Strength in the Japanese market in the second quarter of the period, off the
back of good company results, reversed negative first quarter returns to give a
six-month rise of 9.2%, well ahead of the weak smaller Asia Pacific markets such
as Malaysia, which fell 11.8%.

Q. What factors contributed to the performance of the Fund?

A. The greatest contribution to the Fund's outperformance came from the very
good relative performance of the stocks we hold in Japan, with the Fund
returning 19.9% in this country during the first half of the year. This compares
very favorably with the Index return attributable to Japan of 9.2%. It is
encouraging that the share prices of well-managed, financially strong companies
with dominant market positions in attractive industries have been showing the
outperformance they deserve. We are seeing distinct changes in the financial
environment in Japan, with deregulation and welcome alterations to the rules
governing domestic pension fund investment, which we feel will lead to greater
acknowledgement by the market of the attractions of the highest quality
companies and to more appropriate ratings. It is also fair to say that a weaker
yen has helped exporters to increase profits ahead of the already buoyant 18%
year-on-year recurring profits growth of non-financial Japanese companies as a
whole.

      The Fund also gained from a strong performance in Continental Europe, with
a 47.1% return in Switzerland and 24.6% in the Netherlands. Additionally, the
portfolio contains many stocks benefiting from restructuring, with managements
focusing on making their companies more profitable and shareholder friendly. The
share prices of these stocks are reflecting the realization, by international
investors, of the potential cost efficiencies and enhanced earnings which can be
gained by the restructuring process.

      Our strategic country allocation also had a positive impact on the Fund's
overall performance. This came primarily from heavy weighting in Continental
Europe, where returns were high, together with an early move out of the less
attractive, smaller Asia Pacific markets.

- --------------------------------------------------------------------------------
(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 MSCI EAFE Index is an unmanaged index that is generally considered to be
    representative of international stock market activity. The Index is
    capitalization-weighted and carries a significantly higher weighting in
    Japan than the Fund is normally likely to have because the Fund seeks to
    diversify investments across all major international markets. The
    performance of the Fund and the MSCI EAFE Index may not therefore always
    correlate closely. The MSCI EAFE 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>

- --------------------------------------------------------------------------------

Q. What strategies did you use to manage the Fund?

A. During this period many markets continued to be expensive, relative to
historic levels, on a number of different measures. However, we have recognized
that a high level of liquidity worldwide has been driv-ing markets. Our strategy
has continued to be one of stock-driven allocation and this proved successful
again in the first half of this year. For example, in both Continental Europe
and Japan, by selecting the high quality exporters with dominant worldwide
market shares, the Fund's returns from these geographical areas have been high.
This is despite weak domestic economies which alone are not sufficiently strong
to underpin significant earnings growth. This approach continues to pay
dividends and our investment professionals' efforts are focused on finding
further attractive investments in the ever-changing stock markets of the world.

- --------------------------------------------------------------------------------
Baillie Gifford International Fund Profile
as of June 30, 1997
- ---------------------------------------------

  [The following table was represented as a pie chart in the printed material.]

- --------------------------------------------------------------------------------
                 Portfolio Composition by Geographical Location

                 U.K.  -- 13.4%                                  
                 Cash -- 2.8%
                 Latin America  -- 5.2%
                 Far East  -- 10.8%
                 (excluding Japan)
                 Continental
                   Europe  -- 41.6%
                 Japan -- 26.2%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                            AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------

1 Year ..............................................................     31.25%
3 Year ..............................................................     14.45%
5 Year ..............................................................     14.67%
Since Inception (2/8/91) ............................................     14.47%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                                 Top 10 Holdings

    Company             Nature of Company           Country
    -------             -----------------           -------
                                                    
  1. Novartis           Pharmaceuticals             Switzerland
                                                    
  2. Rohm               General Industry            Japan
                                                    
  3. Banco Santander    Banking                     Spain
                                                    
  4. Canon              Electronic Equipment        Japan
                                                    
  5. Volkswagen         Vehicle Manuf.              Germany
                                                    
  6. Mannesmann         Industrial Conglomerate     Germany
                                                    
  7. Sony               Electronic Equipment        Japan
                                                    
  8. Adidas             Sports Apparel              Germany
                                                    
  9. Gucci Group        Luxury Goods/Apparel        Italy
                                                    
 10. ABN Amro           Banking                     Netherlands
                                                    
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
                                       15
<PAGE>

- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- --------------------------------------------

[Photo of Edward H. Hocknell, Portfolio Manager]

Q. How did the Fund perform in the first half of 1997 and what factors affected
   the Fund's performance?

A. There has been a wide range of returns from the emerging markets in recent
months. The Asian markets have continued to disappoint and are still below the
levels they reached in 1993, while Latin America, however, has maintained its
strong outperformance, and has now reached new highs. The investor in Asia has
suffered a protracted bear market, while Brazil, Argentina and Mexico have been
among the world's best performers. It is hard to find convincing reasons why
this divergence should end soon.

      During the six months ended June 30, 1997, the Fund's total return was
21.2%(1) compared with a return of 17.8% from the Morgan Stanley Capital
International (MSCI) Emerging Markets Free (EMF) Index(2) over the same period.
One of the main reasons for the Fund's good performance in recent months is that
it has the freedom to be selective across a wide range of markets. This has
become increasingly important in the emerging markets because, in some cases,
the high levels of growth and inward investment that emerging countries are
enjoying are proving to be "too much of a good thing." Surging imports and
excessive bank lending are usually the first symptoms of the malaise afflicting
these countries; the illness then progresses to the stock market. The long-term
fundamentals are often fine, but investors do best by leaving such countries
alone for a while, keeping them under observation, and--as Peter Lynch puts
it--tuning in later.

Q. What has been happening in emerging market countries and how have you managed
   the Fund so far to adjust to these events? 

A. We remain most enthusiastic about the outlook for Latin America. The strong
recovery following 1995's recession is continuing; there is little evidence of
overheating. Growth in the region has slowed down a little, as consumers are
still wary, but we believe that the current pace is sustainable. Argentina has
done particularly well and should continue to grow at a rate of around 6%, or
more. Exports and the agricultural sector have revived; a wave of foreign
acquisitions has helped boost confidence in the banking sector, and the
government's revenues (which had been a source of concern) have begun to pick
up.

      Inflation in the region is continuing to fall sharply; in Brazil, for
example, it should be below 7% this year, less than one third of 1995's level.
There is still a need for further reform in Brazil, so it is reassuring that
President Cardoso has been allowed to seek re-election, and the stock market is
a little more than 12 times this year's earnings, which we believe is good
value. The improvement of Brazil's standing in the eyes of foreign investors was
vividly illustrated by the recent issue of an uncollateralized $3 billion dollar
30-year bond at less than 4% above U.S. long bond yields.

      Latin America now seems likely to enjoy the kind of steady growth which
has eluded it for many years. At the same time, the sharpest differences between
the region's main economies are diminishing, and this is leading to an even
greater emphasis on stock selection. We are finding that many companies, having
been starved of investment for years, are now achieving high marginal returns on
capital as they concentrate on the obvious, easy projects. We are currently
identifying numerous attractive investment opportunities of this kind and expect
to maintain a heavy weighting in Latin America.

      The outlook for the Asian economies is much more mixed. On the surface,
everything looks good: head-

- --------------------------------------------------------------------------------
(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 Morgan Stanley Capital International (MSCI) Emerging Markets Free Index
    (EMF) 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 which 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.


- --------------------------------------------------------------------------------
                                       16
<PAGE>

- --------------------------------------------------------------------------------

line growth rates are still impressive in most cases, but they conceal mounting
financial imbalances. In Malaysia, for example, we have become concerned about
excessive office building and its likely effects on the banking system; and in
Thailand, a large and persistent current account deficit is proving increasingly
hard to finance. There has also been excessive investment in industrial capacity
in several sectors, and this is restraining profitability.

      Hong Kong reverted to Chinese control at the end of June, and all the
omens (commercially, at least) look very good. We are encouraged that the
Chinese are effectively using the Hong Kong market to privatize state assets,
and that local companies are being treated even-handedly. Most of our
investments in Asia will continue to be focused on China, although, in the
medium term, we expect the whole region to benefit from the recovery of the
Japanese economy.

      In the rest of the emerging markets, one of the most striking events was
the disappointing devaluation of the Czech Krona, which has revealed some
intractable structural problems. The government's reaction will probably lead to
a sharp deceleration in growth rates for a while. As in Thailand, the number of
companies benefiting from devaluation is limited because so many of them have
foreign debts. We have reduced our exposure to the Czech Republic and may go
further.

      On the positive side, there has been some improvement in the South African
economy. Growth is very slow, even excluding the depressed agricultural sector,
but there is now scope to reduce the country's very high interest rates and this
has encouraged us to broaden our exposure to some of the country's well-run
businesses.

      We remain optimistic about the investment prospects for emerging markets
in general. Growth rates remain high and the international background is
favorable: interest rates may rise further in the developed countries, but not
by very much. Nevertheless, as recent events have shown, not all emerging
markets do well at the same time: while many are maturing into strong, steady
growers, others are finding that persistently high growth rates bring their own
problems. Against this background, the Fund will remain broadly diversified and
highly selective in the markets and companies in which it invests.

- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund Profile
as of June 30, 1997
- -------------------------------------------------

- --------------------------------------------------------------------------------
                            AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------

1 Year ...............................................................    41.44%
Since Inception (10/17/94) ...........................................    12.37%
- --------------------------------------------------------------------------------

  [The following table was represented as a pie chart in the printed material.]

- --------------------------------------------------------------------------------
                 Portfolio Composition by Geographical Location

         South Africa               3.6%
         Cash                       5.7%
         Europe                    10.3%
         Pacific Ex. Japan         39.9%
         Latin America             40.5%
- --------------------------------------------------------------------------------
                            
- --------------------------------------------------------------------------------
                                Top Ten Holdings

                                 Nature                           
     Company                     of Company             Country
     -------                     ----------             -------
                                                        
  1. Telebras ADR                Telecomm.              Brazil
                                                        
  2. Telebras                    Telecomm.              Brazil
                                                        
  3. Petrobas                    Energy                 Brazil
                                                        
  4. New World Development       Property               Hong Kong
                                                        
  5. China Resources             General Industry       Hong Kong
                                                        
  6. Hutchison Whampoa           Trading Conglom.       Hong Kong
                                                        
  7. Henderson Land              Property               Hong Kong
                                                        
  8. Telmex ADR                  Telecomm.              Mexico
                                                        
  9. China Travel                Transport              Hong Kong
                                                        
 10. HSBC                        Banking                Hong Kong
                                                        
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
                                       17
<PAGE>

- --------------------------------------------------------------------------------
Value Line Centurion Fund
- ---------------------------------

            [Value Line LOGO]

Q. How did the Fund perform for the six months ended June 30, 1997?

A. The Value Line Centurion Fund, with a 9.9%(1) return, underperformed the
20.6% return produced by the S&P 500(2) on a total return basis by 10.7% during
the first half of 1997. Most of the damage was done during the first quarter,
when Centurion produced a -4.8% return, which underperformed the 2.7% generated
by the S&P 500, for a total performance spread of -7.5%. Returns improved during
the second quarter, with Centurion producing a 15.5% return versus 17.5% for the
S&P 500.

Q. What factors affected the Fund's performance?

A. The Value Line Centurion Fund selects from among the #1 and #2 ranked stocks
in the Value Line Ranking System to make its bottoms-up stock picks and to
structure the portfolio. Unfortunately, the Value Line Ranking System, whose
focus is on small- and mid-capitalization growth stocks, was out of favor during
the early part of this year, as the market's focus was more attuned to
large-capitalization value stocks.

      To best illustrate this capitalization-based divergence in the financial
markets, consider the following relative performance trend. For the first four
months of this year, the S&P 500, as a proxy for large-capitalization stocks,
produced an 8.8% total return. That compares with a loss of -4.9% for the
Russell 2000,(3) as a small- and mid-cap proxy, over the same period of time,
for a total underperformance of -13.7%. During May and June, however, the S&P
500 was up 10.8%, versus 15.9% for the Russell 2000, as the small- and mid-cap
index outperformed the large-cap stocks by 5.1%.

      Moreover, even though the S&P 500 solidly outperformed the Russell 2000 in
the early going in 1997, the financial markets were highly volatile, suffered
from extremely narrow breadth and focused almost exclusively on the largest blue
chip stocks within the index. For example, the 50 largest companies within the
S&P 500 (known as the Nifty Fifty) comprise nearly half of that index's market
capitalization, while 20 of the 30 Dow Jones Industrial Average (DJIA)(4) stocks
are included within that largest 10% grouping. Further, the 100 largest stocks
in the S&P 500 collectively account for nearly two-thirds of the index's market
cap, while simultaneously accounting for 26 of the DJIA's 30 stocks. In
addition, with the divisor on the DJIA now at about 0.269, a single point move
in each of the 30 DJIA component stocks on the same day will result in roughly
an 111-point move.

      So it would appear that the financial market's focus on a New Era Nifty
Fifty or Hot One Hundred created enough volatility among a handful of stocks to
generate a powerful move for the entire S&P 500 Index. Unfortunately for Value
Line, only about one-third of the 100 largest S&P 500 stocks were ranked either
a #1 or a #2 in the Value Line Ranking System, which impaired our relative
performance over the first half of the year. However, the market's more recent
trend, in which its focus is broadening to allow small- and mid-cap stocks to
catch up to the large-caps, has benefited Value Line's relative performance.

- --------------------------------------------------------------------------------

(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 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, which are deducted from the Fund's
    return.

(4) The Dow Jones Industrial Average (DJIA) is an unmanaged average of 30
    industrial stocks listed on the New York Stock Exchange that, like the S&P
    500 Index, is generally considered to be representative of U.S. stock market
    performance. The DJIA is not available for direct investment and its returns
    do not reflect the fees and expenses that have been deducted from the Fund.


- --------------------------------------------------------------------------------
                                       18
<PAGE>

- --------------------------------------------------------------------------------

Q. What strategies did you use to manage the Fund?

A. We continue to believe that we are in the midst of a moderate-growth economy
with benign levels of inflation. As a result, the Value Line Ranking System
screens for stocks that are expected to produce revenue and earnings growth that
could be significantly above the 7-8% level expected for the S&P 500 over the
next five years. Yet, such stocks should trade at reasonable levels of relative
valuation for them to be attractive to us.

      Our models have identified three industry sectors that have particular
appeal to us, with regard to our dual disciplines for above-average sales and
profit growth and below-average relative valuation: technology, financial
services, and energy. Unfortunately, each of these three sectors, in which we
are overweighted compared with the S&P 500, underperformed the market during the
first quarter of 1997, resulting in our poor relative performance.

      Since that time, however, the markets have begun to recognize the strong
underlying fundamentals of these sectors, and technology, financial, and oil
service and drilling stocks have more recently outperformed their benchmark. We
believe that this trend will continue, as investors begin to sector rotate by
taking profits in stocks that have achieved fair value and by reinvesting those
funds in undervalued lagging issues.

      The combination of stronger-than-expected company profits and
lower-than-expected interest rates has ignited a furious 30% rally in the Dow
Jones Industrial Average (DJIA) over the past three months, to record levels,
just under 8,300. As of this writing, we are forecasting an upside objective for
the DJIA of about 8,900 in 1998 and 8,300 during 1997. As a result, we believe,
that the DJIA has probably rallied too far and too fast, discounting a
tremendous amount of good news on the economy, interest rates, and corporate
profits in the process. We would not be surprised to see a near-term
disappointment in any of these areas, which we believe could result in some
profit taking, perhaps to the 7,600 level.

- --------------------------------------------------------------------------------
Value Line Centurion Fund Profile
as of June 30, 1997
- ----------------------------------------

  [The following table was represented as a pie chart in the printed material.]

- --------------------------------------------------------------------------------
                    Portfolio Composition by Economic Sector

               Consumer Goods                            
                (Non-Durables) -- 13.6%
               Consumer Cyclical -- 0.1% 
               Capital Goods -- 3.1% 
               Energy -- 18.9% 
               Financial -- 27.2% 
               Consumer Growth -- 9.6% 
               Technology -- 20.6% 
               Cash -- 7.0%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                            AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------

1 Year ...............................................................    15.23%
5 Years ..............................................................    18.07%
10 Years .............................................................    13.95%
Since Inception (11/15/83) ...........................................    13.85%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                                 Top 10 Holdings

    1. Citicorp

    2. Transocean Offshore Inc.

    3. Nike Inc.

    4. Tidewater Inc

    5. Computer Assoc.

    6. Medtronic Inc.

    7. Conseco Inc.

    8. Ascend Communications Inc.

    9. Louisiana Land & Exploration Co.

   10. HBO & Co.

For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
                                       19
<PAGE>

- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- ------------------------------------------------

            [Value Line LOGO]

Q. How has the Trust performed during the first half of 1997?

A. In the first half of 1997, the Trust earned a total return of 7.03%.(1) This
compared with a total return of 20.61% for the unmanaged Standard & Poor's 500
Index(2) and a total return of 2.75% for the unmanaged Lehman
Government/Corporate Bond Index.(3)

      Since inception nearly ten years ago, the Trust has essentially matched
the performance of the S&P 500, with an annualized total return of 14.25% versus
the S&P's 14.31%. We are quite pleased with this track record, especially
considering that the Trust has held significant amounts of cash and bonds. Over
the same period, the Lehman Government/Corporate Bond Index returned 9.28%
annually.

Q. What factors affected performance of the Trust?

A. The portfolio's stock allocation has been only 45%-50% of total assets this
year, which reduced returns in the powerful stock market rally. Obviously,
during periods of rising stock prices, we would prefer to be 100% invested in
stocks. Over time, however, the portfolio's bond and cash holdings have produced
a reduced risk profile for investors, while still allowing the Trust to generate
excellent long-term total returns, as described above.

      A second factor limiting this year's gains has been stock selection.
Optimally, the Trust would have held the largest stocks in the S&P 500 during
the period. By contrast, though, the Trust holds a widely diversified portfolio
of over 100 small-, medium-, and large-capitalization stocks. Small- and mid-cap
stocks lagged the S&P 500 by an unusually large degree in the first half of
1997, and this affected the Trust's performance. The bond market, meanwhile, was
relatively flat in the first half of 1997 and had only a minor effect on
performance.

Q. How does the Trust determine asset allocation?

A. The Trust uses Value Line's proprietary stock and bond market models to
determine the suggested optimal asset allocation at any given time. These models
use a number of different economic and financial variables. This year's rise in
stock prices, combined with relatively steady interest rates, has kept the
Trust's stock allocation below its long-term central tendency of 55%. At June
30, the stock allocation was 45%. The bond model has maintained an essentially
neutral stance; hence, the approximately 30% position in bonds and remaining 25%
position in cash.

Q. What strategies were used in stock and bond selection?

A. For stock selection, we rely primarily upon the renowned Value Line
Timeliness Ranking System, which favors stocks with strong earnings and price

- --------------------------------------------------------------------------------
(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 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 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.


- --------------------------------------------------------------------------------
                                       20
<PAGE>

- --------------------------------------------------------------------------------

momentum. To reduce risk, we maintain a very diversified portfolio and avoid
large bets on any particular sector or company. In addition, we invest in
certain stocks that are ranked neutral by our Ranking System, such as utilities
or energy companies, in order to increase the portfolio's dividend yield and
further reduce risk.

      As for bonds, our policy is to invest only in high-quality securities. The
Trust's bondholdings are currently all in U.S. Treasuries, because the extra
yield currently offered by corporate bonds or U.S. agencies is too modest to be
attractive. Maturities in the portfolio range from one to 25 years, with an
average of about five years.

- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
Profile as of June 30, 1997
- ----------------------------------------------

- --------------------------------------------------------------------------------
                            AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------

1 Year .................................................................  12.32%
5 Years ................................................................  14.93%
Since Inception (10/1/87) ..............................................  14.25%
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
                             Top Ten Stock Holdings

  1. Safeway Inc.

  2. Johnson & Johnson

  3. Conseco

  4. Kroger Co.

  5. United Technologies

  6. Omnicom Group

  7. Pfizer Inc.

  8. Symbol Technologies

  9. Coca-Cola Enterprises

 10. International Business Machines

For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------

 [The following tables were represented as a pie chart in the printed material.]

- --------------------------------------------------------------------------------

                      Portfolio Composition by Asset Class

      December 31, 1996                           June 30, 1997
      -----------------                           -------------

       Cash       22.2%                         Cash        24.0%

       Stocks     48.0%                         Stocks      45.1%

       Bonds      29.8%                         Bonds       30.9%
- --------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
                                       21
<PAGE>

- --------------------------------------------------------------------------------
The Guardian Cash Fund
- -----------------------------

[Photo of Alexander M. Grant, Jr., Portfolio Manager]

Q. How did The Guardian Cash Fund perform during the first six months of 1997?

A. As of June 24, 1997, the effective 7-day annualized yield for the Fund was
5.20%.(1) The Fund produced an annualized total return of 4.99% through June
30.(2) In contrast, the average Tier One money market fund, as measured by IBC
Financial Data, had an effective 7-day annualized yield of 5.06% at June 24,
1997 and returned 4.89%. IBC Financial Data is a research firm that tracks money
market funds.

Q. What factors affected the Fund's performance?

A. Money market funds are directly affected by the actions of the Federal
Reserve Board. On March 25, the Federal Reserve raised the Federal Funds target
from 5.25% to 5.50%. This move followed several months of strong economic data
particularly with respect to housing data, consumer consumption and payroll
data. The discount rate was left unchanged at 5.00%. 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 Federal Reserve. Uncertainty regarding the direction of the
stock market contributed to large daily inflows and outflows of funds in the
Cash Fund. As the stock market rallied, cash was transferred by our investors to
equity funds. During those times when the stock market stalled, we saw cash
inflows. Another factor affecting performance was the portfolio's average
maturity--24 days as of June 24, 1997. The average Tier One money market fund,
as measured by IBC Financial Data, had an average maturity of 60 days.

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 upon 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
(95.5%) was invested in commercial paper; the balance (4.5%) was invested in
repurchase agreements.

INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. WHILE THE FUND SEEKS TO MAINTAIN A STABLE PRICE OF $10.00 PER SHARE,
THERE IS NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.

- --------------------------------------------------------------------------------

(1) Yields are annualized historical figures. Effective yield assumes that
    income is reinvested. 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. 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.


- --------------------------------------------------------------------------------
                                       22
<PAGE>

- --------------------------------------------------------------------------------



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- --------------------------------------------------------------------------------
                                       23

<PAGE>

- ---------                                                              ---------
Separate                                                               Separate 
Account A                                                              Account A
- ---------                                                              ---------
   1                                                                      1     
- ---------                                                              ---------

- --------------------------------------------------------------------------------
The Guardian Separate Account A
- ----------------------------------------

STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)

<TABLE>
<CAPTION>
                                                                                                                                  
                                                                                                                      Gabelli     
                                                                  Guardian         Guardian        Guardian           Capital     
                                                                    Stock            Bond            Cash              Asset      
                                                Combined            Fund             Fund            Fund              Fund       
                                          ----------------------------------------------------------------------------------------
<S>                                        <C>               <C>               <C>                <C>             <C>             
   FIFO Cost..............................              --   $   330,342,824  $    74,786,017     $ 118,159,056   $    2,898,300  
                                          ========================================================================================
Assets
   Shares outstanding.....................              --        11,450,282        6,325,786        11,815,906          237,102  
   Net asset value per share (NAV)........              --             44.93            11.88             10.00            14.01  
     Total Assets (Shares x NAV).......... $ 1,095,633,035       514,461,190       75,150,333       118,159,056        3,321,795  
                                           ---------------   ---------------   --------------     -------------   --------------  
Liabilities
   Risk charges and other liabilities.....      11,696,068           733,316          101,817        10,260,033           14,358  
                                           ---------------   ---------------   --------------     -------------   --------------  
     Net Assets -- Note 3................. $ 1,083,936,967   $   513,727,874   $   75,048,516     $ 107,899,023   $    3,307,437  
                                           ===============   ===============   ==============     =============   ==============  

<CAPTION>
                                                                   Baillie                          Value Line
                                                 Baillie          Gifford                           Strategic
                                                 Gifford          Emerging         Value Line          Asset
                                              International        Markets          Centurion       Management
                                                  Fund              Fund              Fund             Trust
                                          ----------------------------------------------------------------------
<S>                                         <C>               <C>              <C>               <C>            
   FIFO Cost..............................  $    28,075,940   $    8,333,189   $   116,518,132   $    84,134,489
                                          ======================================================================
Assets
   Shares outstanding.....................        1,782,221          759,904         7,256,347         6,050,361
   Net asset value per share (NAV)........            19.68            12.66             27.29             23.44
     Total Assets (Shares x NAV)..........       35,074,106        9,620,384       198,025,711       141,820,460
                                            ---------------   --------------   ---------------   ---------------
Liabilities
   Risk charges and other liabilities.....           64,161           22,543           272,620           227,220
                                            ---------------   --------------   ---------------   ---------------
     Net Assets -- Note 3.................  $    35,009,945   $    9,597,841   $   197,753,091   $   141,593,240
                                            ===============   ==============   ===============   ===============
</TABLE>

- --------------------------------------------------------------------------------
The Guardian Separate Account A
- ----------------------------------------

COMBINED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997 (Unaudited)

<TABLE>
<CAPTION>
                                                                                                                                   
                                                                                                                                   
                                                                                       Guardian        Guardian       Guardian     
                                                                                         Stock           Bond          Cash        
                                                                        Combined         Fund            Fund          Fund        
                                                                     --------------------------------------------------------------
<S>                                                                  <C>             <C>            <C>             <C>            
Investment Income                                                                                                                  
 Income:
    Reinvested dividends...........................................  $   7,695,774   $  2,407,353   $  2,236,054    $ 2,895,189    
 Expenses -- Note 4:
    Mortality and expense risk charges.............................      5,503,423      2,443,632        375,101        768,245    
                                                                     -------------   ------------   ------------    -----------    
 Net investment income/(expense)...................................      2,192,351        (36,279)     1,860,953      2,126,944    
                                                                     -------------   ------------   ------------    -----------    
Realized and Unrealized Gain/(Loss) from Investments Realized
 gain/(loss) from investments:
    Net realized gain/(loss) from sale of investments..............     47,517,354     23,691,264        (14,519)            --    
    Reinvested realized gain distributions.........................      8,640,668      8,577,665             --             --    
                                                                     -------------   ------------   ------------    -----------    
    Net realized gain/(loss) on investments........................     56,158,022     32,268,929        (14,519)            --    
                                                                     -------------   ------------   ------------    -----------    
 Unrealized appreciation/(depreciation) of investments:
    End of period..................................................    332,385,088    184,118,366        364,316             --    
    Beginning of period............................................    274,431,728    136,449,875        (35,233)            --    
                                                                     -------------   ------------   ------------    -----------    
    Change in unrealized appreciation/(depreciation)...............     57,953,360     47,668,491        399,549             --    
                                                                     -------------   ------------   ------------    -----------    
 Net realized and unrealized gain/(loss) from investments..........    114,111,382     79,937,420        385,030             --    
                                                                     -------------   ------------   ------------    -----------    
Net Increase/(Decrease) in Net Assets Resulting from Operations....  $ 116,303,733   $ 79,901,141   $  2,245,983    $ 2,126,944    
                                                                     =============   ============   ============    ===========    

<CAPTION>
                                                                                               Baillie                   Value Line 
                                                                 Gabelli        Baillie        Gifford                    Strategic 
                                                                 Capital        Gifford       Emerging     Value Line      Asset    
                                                                  Asset      International     Markets     Centurion     Management
                                                                  Fund           Fund          Fund         Fund           Trust   
                                                               ---------------------------------------------------------------------
<S>                                                             <C>          <C>           <C>           <C>            <C>        
Investment Income                                                            
 Income:                                                        
    Reinvested dividends....................................... $      --    $   121,051   $    36,127   $         --   $        --
 Expenses -- Note 4:                                            
    Mortality and expense risk charges.........................    16,637        167,601        42,812        991,521       697,874
                                                                ---------    -----------   -----------   ------------   -----------
 Net investment income/(expense)...............................   (16,637)       (46,550)       (6,685)      (991,521)     (697,874)
                                                                ---------    -----------   -----------   ------------   -----------
                                                                
Realized and Unrealized Gain/(Loss) from Investments Realized   
 gain/(loss) from investments:                                  
    Net realized gain/(loss) from sale of investments..........   125,100      1,180,873       515,805     16,064,642     5,954,189
    Reinvested realized gain distributions.....................        --         63,003            --             --            --
                                                                ---------    -----------   -----------   ------------   -----------
    Net realized gain/(loss) on investments....................   125,100      1,243,876       515,805     16,064,642     5,954,189
                                                                ---------    -----------   -----------   ------------   -----------
 Unrealized appreciation/(depreciation) of investments:         
    End of period..............................................   423,495      6,998,166     1,287,195     81,507,579    57,685,971
    Beginning of period........................................     3,781      3,891,667       368,170     79,641,494    54,111,974
                                                                ---------    -----------   -----------   ------------   -----------
    Change in unrealized appreciation/(depreciation)...........   419,714      3,106,499       919,025      1,866,085     3,573,997
                                                                ---------    -----------   -----------   ------------   -----------
 Net realized and unrealized gain/(loss) from investments......   544,814      4,350,375     1,434,830     17,930,727     9,528,186
                                                                ---------    -----------   -----------   ------------   -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 528,177    $ 4,303,825   $ 1,428,145   $ 16,939,206   $ 8,830,312
                                                                =========    ===========   ===========   ============   ===========
</TABLE>

                       See notes to financial statements.
- --------------------------------------------------------------------------------


                                    24 & 25
<PAGE>


- ---------                                                              ---------
Separate                                                               Separate 
Account A                                                              Account A
- ---------                                                              ---------
   1                                                                      1     
- ---------                                                              ---------

- --------------------------------------------------------------------------------
The Guardian Separate Account A
- ----------------------------------------

COMBINED STATEMENTS OF CHANGES IN NET ASSETS 
Year Ended December 31, 1996 (Audited) and 
Six Months Ended June 30, 1997 (Unaudited)

<TABLE>
<CAPTION>
                                                                                                                                    
                                                                                                                                    
                                                                                         Guardian        Guardian        Guardian   
                                                                                           Stock           Bond           Cash      
                                                                          Combined          Fund           Fund           Fund      
                                                                        ------------------------------------------------------------
<S>                                                                  <C>              <C>             <C>            <C>            
 ----------------------------------------
 1996 Increase/(Decrease) from Operations
 ----------------------------------------
  Net investment income/(expense)................................... $    10,062,981  $   1,615,116   $  4,367,881   $   4,257,376  
  Net realized gain/(loss) from sale of investments.................      82,062,621     42,407,435        (10,884)             --  
  Reinvested realized gain distributions............................      80,213,642     50,822,822             --              --  
  Change in unrealized appreciation/(depreciation) of investments...     (18,862,356)      (253,582)    (3,150,701)             --  
                                                                     ---------------  -------------   ------------   -------------  
  Net increase/(decrease) resulting from operations.................     153,476,888     94,591,791      1,206,296       4,257,376  
                                                                     ---------------  -------------   ------------   -------------  
 --------------------------
 1996 Contract Transactions
 --------------------------
  Net contract purchase payments....................................      24,075,467      9,924,177      1,988,885       3,429,096  
  Transfer between/within separate accounts.........................         308,745     (1,870,115)    (7,806,729)     13,382,907  
  Administrative charges............................................        (728,807)      (279,998)       (68,087)        (91,268) 
  Redemptions and annuity benefits..................................    (120,438,737)   (46,096,292)   (17,576,592)    (20,312,666) 
                                                                     ---------------  -------------   ------------   -------------  
  Net increase/(decrease) from contract transactions................     (96,783,332)   (38,322,228)   (23,462,523)     (3,591,931) 
                                                                     ---------------  -------------   ------------   -------------  
 Actuarial Increase in Reserves for Contracts in Payment Period.....         115,412         20,747         (3,156)         40,068  
                                                                     ---------------  -------------   ------------   -------------  
 Total Increase/(Decrease) in Net Assets............................      56,808,968     56,290,310    (22,259,383)        705,513  
  Net Assets at December 31, 1995...................................     962,334,597    397,019,837    102,642,950     104,355,233  
                                                                     ---------------  -------------   ------------   -------------  
  Net Assets at December 31, 1996 .................................. $ 1,019,143,565  $ 453,310,147   $ 80,383,567   $ 105,060,746  
                                                                     ===============  =============   ============   =============  
 ----------------------------------------
 1997 Increase/(Decrease) from Operations
 ----------------------------------------
  Net investment income/(expense)................................... $     2,192,351  $     (36,279)  $  1,860,953   $   2,126,944  
  Net realized gain/(loss) from sale of investments.................      47,517,354     23,691,264        (14,519)             --  
  Reinvested realized gain distributions............................       8,640,668      8,577,665             --              --  
  Change in unrealized appreciation/(depreciation) of investments...      57,953,360     47,668,491        399,549              --  
                                                                     ---------------  -------------   ------------   -------------  
  Net increase/(decrease) resulting from operations.................     116,303,733     79,901,141      2,245,983       2,126,944  
                                                                     ---------------  -------------   ------------   -------------  
 --------------------------
 1997 Contract Transactions
 --------------------------
  Net contract purchase payments....................................      13,535,110      5,653,624        817,602       1,965,828  
  Transfer between/within separate accounts.........................         137,728      1,629,701     (2,075,804)      9,325,152  
  Administrative charges-- Note 4...................................        (453,755)      (167,382)       (33,745)        (43,498) 
  Redemptions and annuity benefits..................................     (64,798,126)   (26,620,341)    (6,301,982)    (10,553,343) 
                                                                     ---------------  -------------   ------------   -------------  
  Net increase/(decrease) from contract transactions................     (51,579,043)   (19,504,398)    (7,593,929)        694,139  
                                                                     ---------------  -------------   ------------   -------------  
 Actuarial Increase in Reserves for Contracts in Payment Period.....          68,712         20,984         12,895          17,194  
                                                                     ---------------  -------------   ------------   -------------  
 Total Increase/(Decrease) in Net Assets............................      64,793,402     60,417,727     (5,335,051)      2,838,277  
  Net Assets at December 31, 1996...................................   1,019,143,565    453,310,147     80,383,567     105,060,746  
                                                                     ---------------  -------------   ------------   -------------  
  Net Assets at June 30, 1997 -- Note 3............................. $ 1,083,936,967  $ 513,727,874   $ 75,048,516   $ 107,899,023  
                                                                     ===============  =============   ============   =============  

<CAPTION>
                                                                                             Baillie                     Value Line
                                                                Gabelli        Baillie       Gifford                      Strategic
                                                                Capital        Gifford      Emerging      Value Line        Asset
                                                                Asset       International    Markets       Centurion     Management
                                                                Fund            Fund          Fund           Fund           Trust
                                                          --------------------------------------------------------------------------
<S>                                                         <C>           <C>            <C>          <C>             <C>          
 ----------------------------------------
 1996 Increase/(Decrease) from Operations
 ----------------------------------------
  Net investment income/(expense).........................  $   (24,405)  $    111,633   $   (53,439) $  (1,094,661)  $     883,480
  Net realized gain/(loss) from sale of investments.......      179,229      2,499,646       809,987     25,006,902      11,170,306
  Reinvested realized gain distributions..................       73,017        472,435            --     22,162,229       6,683,139
  Change in unrealized appreciation/(depreciation) 
    of investments........................................      (16,598)     1,601,966       258,555    (17,380,033)         78,037
                                                            -----------   ------------   -----------  -------------   -------------
  Net increase/(decrease) resulting from operations.......      211,243      4,685,680     1,015,103     28,694,437      18,814,962
                                                            -----------   ------------   -----------  -------------   -------------
 --------------------------
 1996 Contract Transactions
 --------------------------
  Net contract purchase payments..........................       55,211        765,019       200,290      3,982,773       3,730,016
  Transfer between/within separate accounts...............      888,354     (2,307,472)    1,735,713     (3,790,872)         76,959
  Administrative charges..................................       (1,846)       (22,723)       (3,672)      (171,338)        (89,875)
  Redemptions and annuity benefits........................     (354,750)    (3,717,522)     (413,091)   (15,832,074)    (16,135,750)
                                                            -----------   ------------   -----------  -------------   -------------
  Net increase/(decrease) from contract transactions......      586,969     (5,282,698)    1,519,240    (15,811,511)    (12,418,650)
                                                            -----------   ------------   -----------  -------------   -------------
 Actuarial Increase in Reserves for Contracts in 
   Payment Period.........................................           --          3,201            --         37,643          16,909
                                                            -----------   ------------   -----------  -------------   -------------
 Total Increase/(Decrease) in Net Assets..................      798,212       (593,817)    2,534,343     12,920,569       6,413,221
  Net Assets at December 31, 1995.........................    1,957,216     34,200,905     3,313,854    186,385,111     132,459,491
                                                            -----------   ------------   -----------  -------------   -------------
  Net Assets at December 31, 1996 ........................  $ 2,755,428   $ 33,607,088   $ 5,848,197  $ 199,305,680   $ 138,872,712
                                                            ===========   ============   ===========  =============   =============
 ----------------------------------------
 1997 Increase/(Decrease) from Operations
 ----------------------------------------
  Net investment income/(expense).........................  $   (16,637)  $    (46,550)       (6,685) $    (991,521)  $    (697,874)
  Net realized gain/(loss) from sale of investments.......      125,100      1,180,873       515,805     16,064,642       5,954,189
  Reinvested realized gain distributions..................           --         63,003            --             --              --
  Change in unrealized appreciation/(depreciation) 
    of investments........................................      419,714      3,106,499       919,025      1,866,085       3,573,997
                                                            -----------   ------------   -----------  -------------   -------------
  Net increase/(decrease) resulting from operations.......      528,177      4,303,825     1,428,145     16,939,206       8,830,312
                                                            -----------   ------------   -----------  -------------   -------------
 --------------------------
 1997 Contract Transactions
 --------------------------
  Net contract purchase payments..........................       36,727        516,984       211,334      2,088,719       2,244,292
  Transfer between/within separate accounts...............       79,173     (1,093,940)    2,494,541     (9,148,537)     (1,072,558)
  Administrative charges-- Note 4.........................       (1,159)       (10,702)       (2,376)      (141,310)        (53,583)
  Redemptions and annuity benefits........................      (90,909)    (2,314,802)     (382,000)   (11,310,512)     (7,224,237)
                                                            -----------   ------------   -----------  -------------   -------------
  Net increase/(decrease) from contract transactions......       23,832     (2,902,460)    2,321,499    (18,511,640)     (6,106,086)
                                                            -----------   ------------   -----------  -------------   -------------
 Actuarial Increase in Reserves for Contracts in 
  Payment Period..........................................           --          1,492            --         19,845          (3,698)
                                                            -----------   ------------   -----------  -------------   -------------
 Total Increase/(Decrease) in Net Assets..................      552,009      1,402,857     3,749,644     (1,552,589)      2,720,528
  Net Assets at December 31, 1996.........................    2,755,428     33,607,088     5,848,197    199,305,680     138,872,712
                                                            -----------   ------------   -----------  -------------   -------------
  Net Assets at June 30, 1997 -- Note 3...................  $ 3,307,437   $ 35,009,945   $ 9,597,841  $ 197,753,091   $ 141,593,240
                                                            ===========   ============   ===========  =============   =============
</TABLE>

                       See notes to financial statements.
- --------------------------------------------------------------------------------


                                    26 & 27
<PAGE>

- ---------     
Separate      
Account A     
- ---------     
   1          
- ---------     

- --------------------------------------------------------------------------------
The Guardian Separate Account A
- ----------------------------------------

NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)


  ----------------------
  Note 1 -- Organization
  ----------------------

      The Guardian Separate Account A (the Account), a unit investment trust
registered under the Investment Company Act of 1940, as amended, was established
by The Guardian Insurance & Annuity Company, Inc. (GIAC) on October 31, 1981.
GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of
America (Guardian Life). GIAC issues the deferred variable annuity contracts
offered through the Account. GIAC provides for accumulations and benefits under
the contracts by crediting the net premium purchase payments to one or more
investment divisions established within the Account or to the Fixed Rate Option
(FRO), as selected by the contractowner. Prior to February 28, 1997,
contractowners could also allocate net premium purchase payments or transfers of
contract values to The Guardian Real Estate Account (GREA), another separate
investment account established by GIAC. While GREA is no longer available as an
investment option, transfers from GREA to any investment division within the
Account or the FRO may continue to be made, subject to applicable restrictions.
Amounts allocated to the FRO are maintained by GIAC in its general account. The
contractowner may transfer his or her contract value among the eight investment
divisions within the Account or the FRO. The eight investment options of the
Account correspond to the following underlying mutual funds in which the
investment option invests: The Guardian Stock Fund, Inc. (GSF), The Guardian
Bond Fund, Inc. (GBF), The Guardian Cash Fund, Inc. (GCF), Gabelli Capital Asset
Fund (GCAF), Baillie Gifford International Fund (BGIF), Baillie Gifford Emerging
Markets Fund (BGEMF), Value Line Centurion Fund, Inc. and Value Line Strategic
Asset Management Trust (collectively, the Funds and individually, a Fund). A
tax-qualified and a non-tax-qualified investment division have been established
within each Account investment option available in the Account.

      GSF, GBF and GCF each has an investment advisory agreement with Guardian
Investor Services Corporation (GISC), a wholly owned subsidiary of GIAC. GCAF
has a management agreement with GISC. BGIF and BGEMF each has an investment
advisory agreement with 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 annuity payments, are obligations of
GIAC.

  -----------------------------------------
  Note 2 -- Significant Accounting Policies
  -----------------------------------------

      The following is a summary of significant accounting policies of the
Account.

Investments

      (a) Net proceeds of payments made by contractowners to the Account are
invested by the Account's investment divisions in shares of the corresponding
Funds at net asset value. All distributions made by a Fund are reinvested in
shares of the same Fund.

      (b) The market value of 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.

- --------------------------------------------------------------------------------


                                       28

<PAGE>

                                                                       ---------
                                                                       Separate 
                                                                       Account A
                                                                       ---------
                                                                          1     
                                                                       ---------
- --------------------------------------------------------------------------------
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 income taxes are payable by GIAC with
respect to the operations of the Account.

Annuity Reserves

      Annuity reserves are computed for currently payable contracts according to
the 1971 Individual Annuity Mortality Table and the 1983 Individual Annuity
Table. The assumed interest rate is 4.0%. Charges to annuity reserves for
mortality and expense risk experience are reimbursed to GIAC if the reserves
required are less than originally estimated. If additional reserves are
required, GIAC reimburses the Account.

Other Matters

      The amount retained by GIAC in the Account is comprised of amounts which
GIAC allocated to the Account to facilitate the commencement of operations of
the Account and certain of the Funds, as well as amounts accruing to GIAC from
the operations of the Account. Amounts retained by GIAC in the Account may be
transferred by GIAC to its general account.

      During the six months ended June 30, 1997 and the year ended December 31,
1996, purchases and sales of shares of the Funds were as follows:

<TABLE>
<CAPTION>
The Guardian Separate Account A            Purchases           Purchases              Sales            Sales
                                           June 30,          December 31,           June 30,       December 31,
                                            1997                1996                 1997             1996
                                        ------------        -------------       -------------     -------------
<S>                                     <C>                 <C>                 <C>               <C>          
Guardian Stock Fund ..................  $ 34,227,325        $  97,876,055       $  45,056,703     $  83,233,078
Guardian Bond Fund ...................     5,484,510           13,407,375          11,222,386        32,410,884
Guardian Cash Fund ...................    39,768,474           81,956,724          35,359,146        80,212,566
Gabelli Capital Asset Fund ...........     1,841,238            3,608,583           1,857,406         2,943,856
Baillie Gifford International Fund ...     4,148,928            9,367,859           7,017,336        14,028,689
Baillie Gifford Emerging Markets Fund      5,709,136            9,638,443           3,381,511         8,165,203
Value Line Centurion Fund ............     4,519,485           42,230,071          23,981,124        36,738,684
Value Line SAM Trust .................     3,773,175           15,614,499          10,539,261        20,298,424
                                        ------------        -------------       -------------     -------------
    Total ............................  $ 99,472,271        $ 273,699,609       $ 138,414,873     $ 278,031,384
                                        ============        =============       =============     =============
</TABLE>

  -----------------------------------------------
  Note 3 -- Net Assets, June 30, 1997 (Unaudited)
  -----------------------------------------------

<TABLE>
<CAPTION>
                                                                              Accumulation           Total
                                                           Units Owned         Unit Value          Unit Value
                                                          -------------       -------------      -------------
<S>                                                       <C>                   <C>               <C>         
Tax-Qualified Accounts:
   The Guardian Stock Fund, Inc. .....................    3,226,221.551         $86.171459        $278,008,218
   The Guardian Bond Fund, Inc. ......................    1,162,459.675          30.819682          35,826,638
   The Guardian Cash Fund, Inc. ......................    1,828,941.247          23.506415          42,991,852
   Gabelli Capital Asset Fund ........................      108,653.981          14.281639           1,551,757
   Baillie Gifford International Fund ................      846,497.498          18.449971          15,617,854
   Baillie Gifford Emerging Markets Fund .............      316,142.366          12.798320           4,046,091
   Value Line Centurion Fund, Inc. ...................    2,042,265.294          51.316793         104,802,505
   Value Line Strategic Asset Management Trust .......    2,626,921.768          33.296179          87,466,458
</TABLE>

- --------------------------------------------------------------------------------


                                       29

<PAGE>

- ---------     
Separate      
Account D     
- ---------     
   1          
- ---------     

- --------------------------------------------------------------------------------
The Guardian Separate Account D
- ----------------------------------------

NOTES TO FINANCIAL STATEMENTS (continued)

<TABLE>
<CAPTION>
                                                                              Accumulation           Total
                                                           Units Owned         Unit Value          Unit Value
                                                          -------------       -------------      -------------
<S>                                                       <C>                   <C>               <C>         
Non-Tax-Qualified Accounts:
   The Guardian Stock Fund, Inc. ......................   2,579,993.652         $86.171459      $  222,321,817
   The Guardian Bond Fund, Inc. .......................   1,203,983.846          30.819682          37,106,399
   The Guardian Cash Fund, Inc. .......................   2,713,560.534          23.506415          63,786,080
   Gabelli Capital Asset Fund .........................     122,932.650          14.281639           1,755,680
   Baillie Gifford International Fund .................   1,030,303.131          18.449971          19,009,063
   Baillie Gifford Emerging Markets Fund ..............     433,787.378          12.798320           5,551,750
   Value Line Centurion Fund, Inc. ....................   1,765,887.592          51.316793          90,619,688
   Value Line Strategic Asset Management Trust ........   1,601,460.467          33.296179          53,322,515
                                                                                                --------------
                                                                                                 1,063,784,365
   Contracts receiving annuity payments ...............                                              7,345,615
   Interest of GIAC in separate account ...............                                             12,806,987
                                                                                                --------------
      Total Net Assets ................................                                         $1,083,936,967
                                                                                                ==============
</TABLE>

NOTE: In some instances the calculation of total assets may not agree due to
      rounding.

  ------------------------------------------
  Note 4 -- Administrative and Mortality and
            Expense Risk Charges
  ------------------------------------------

Contractual charges paid to GIAC include:

      (1) a fixed annual $30 fee for single payment contracts and a fixed annual
$35 fee for flexible payment contracts to cover GIAC's administrative expenses.
This charge is deducted on each contract anniversary before annuitization and
upon surrender prior to annuitization;

      (2) a charge for mortality and expense risk is computed daily and is equal
to an annual rate of 1% of the average daily net assets applicable to
contractowners;

      (3) contingent deferred sales charges on certain partial or total
surrenders. These charges are assessed against redemptions and paid to GIAC
during the first six contract years for a Single Purchase Payment Contract. For
a Flexible Purchase Payment Contract, each payment is subject to a contingent
deferred sales charge for six years; and

      (4) a charge for premium taxes deducted from either the contract payment
or upon annuitization, as determined in accordance with applicable state law.

      Currently GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.

- --------------------------------------------------------------------------------
 Note 5 -- Accumulation Values for the Current Period and the Four Prior Year 
           Ends for Both Qualified and Non-Qualified Accounts
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                June 30,  December 31,  December 31,  December 31,   December 31,
                                                  1997       1996         1995           1994           1993
                                              ----------- ------------  ------------  ------------   ------------
<S>                                           <C>          <C>          <C>           <C>           <C>       
The Guardian Stock Fund, Inc. .............   $86.171459   $72.788450   $57.928841    $43.446001    $44.442667
The Guardian Bond Fund, Inc. ..............    30.819682    29.924450    29.376248     25.230236     26.391400
The Guardian Cash Fund, Inc. ..............    23.506415    23.050182    22.171865     21.217142     20.638921
Gabelli Capital Asset Fund ................    14.281639    11.831565    10.763220            --            --
Baillie Gifford International Fund ........    18.449971    16.175077    14.153848     12.851309     12.866264
Baillie Gifford Emerging Markets Fund .....    12.798320    10.666664     8.646640      8.785416            --
Value Line Centurion Fund, Inc. ...........    51.316793    46.919586    40.383489     29.115003     30.069047
Value Line Strategic Asset                                                                         
   Management Trust .......................    33.296179    31.260980    27.247234     21.407853     22.728967
</TABLE>

- --------------------------------------------------------------------------------


                                       30

<PAGE>



                      This page intentionally left blank.



- --------------------------------------------------------------------------------


                                       31

<PAGE>

- ----------------
  The Guardian
Stock Fund, Inc.
- ----------------
      2
- ----------------

- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------

SCHEDULE OF INVESTMENTS
June 30, 1997 (Unaudited)

- ----------------------
COMMON STOCKS -- 95.7%
- ----------------------

     Shares                                                Value
- ----------------------------------------------------------------

Aerospace and Defense -- 3.1%
   473,146  Boeing Co.                            $   25,106,310
    32,600  General Dynamics Corp.                     2,445,000
    60,800  Gulfstream Aerospace Corp.                 1,793,600
    77,025  Lockheed Martin Corp.                      7,976,902
   276,400  Logicon, Inc.                             14,649,200
   201,750  Precision Castparts Corp.                 12,029,344
    95,800  Rockwell Int'l. Corp.                      5,652,200
    25,000  Sundstrand Corp.                           1,395,312
    40,000  Thiokol Corp.                              2,800,000
    53,000  TRW, Inc.                                  3,011,063
   113,100  United Technologies Corp.                  9,387,300
                                                  --------------
                                                      86,246,231
                                                  --------------

Air Transportation -- 0.8%
   143,000  AMR Corp., DE                             13,227,500
   151,000  Continental Airlines, Inc.                 5,275,563
    54,000  UAL Corp.                                  3,864,375
                                                  --------------
                                                      22,367,438
                                                  --------------

Appliance and Furniture -- 0.3%
    40,000  Ethan Allen Interiors, Inc.                2,280,000
   136,500  Furniture Brands Int'l., Inc.              2,644,688
    40,000  Hon Industries, Inc.                       1,770,000
    30,000  Leggett & Platt, Inc.                      1,290,000
    50,000  Miller Herman, Inc.                        1,800,000
                                                  --------------
                                                       9,784,688
                                                  --------------

Automotive-Parts -- 0.3%
    19,437  AUTOLIV, INC.                                760,473
    37,500  BORG-WARNER AUTOMOTIVE, INC.               2,027,344
    84,000  GOODYEAR TIRE & RUBBER CO.                 5,318,250
    17,000  TOWER AUTOMOTIVE, INC.                       731,000
                                                  --------------
                                                       8,837,067
                                                  --------------

Biotechnology -- 0.2%
     93,600  Amgen, Inc                                5,440,500
                                                  --------------

Building Materials and Homebuilders -- 0.7%
    18,000  Armstrong World Industries, Inc.           1,320,750
   123,000  Johns Manville Corp.                       1,452,938
    95,000  Lennar Corp.                               3,034,063
   120,000  McGrath Rent Corp.                         2,460,000
    68,200  Sherwin-Williams Co.                       2,105,675
    30,000  Southdown, Inc.                            1,308,750
    65,000  USG Corp.                                  2,372,500
    36,000  U.S. Home Corp.                              956,250
    45,700  Vulcan Materials Co.                       3,587,450
    30,400  Webb (Del) Corp.                             494,000
                                                  --------------
                                                      19,092,376
                                                  --------------

Capital Goods-Miscellaneous Technology -- 0.5%
    79,650  Martin Marietta Materials, Inc.            2,578,669
   282,713  Paychex, Inc.                             10,743,075
    60,400  Rexel, Inc.                                1,117,400
                                                  --------------
                                                      14,439,144
                                                  --------------

Chemicals -- 2.6%
   141,000  Cambrex Corp.                              5,604,750
   798,000  E.I. Dupont de Nemours, Inc.              50,174,250
    81,100  Lubrizol Corp.                             3,401,131
    57,000  Morton Int'l., Inc.                        1,720,688
   102,000  PPG Industries, Inc.                       5,928,750
    40,000  Rohm & Haas Co.                            3,602,500
                                                  --------------
                                                      70,432,069
                                                  --------------

Computer Software -- 2.5%
    50,000  Affiliated Computer Services, Inc.         1,400,000
   107,800  BMC Software, Inc.                         5,969,425
    32,400  Cadence Design Systems, Inc.               1,085,400
    86,200  Compuware Corp.                            4,116,050
    56,000  Fair Isaac & Co., Inc.                     2,495,500
   380,000  Microsoft Corp.                           48,022,500
    52,000  Sterling Software, Inc.                    1,625,000
    69,400  SunGuard Data Systems, Inc.                3,227,100
                                                  --------------
                                                      67,940,975
                                                  --------------

Computer Systems -- 5.1%
   291,500  Compaq Computer Corp.                     28,931,375
    49,500  Diebold, Inc.                              1,930,500
    30,300  Hewlett Packard Co.                        1,696,800
    57,500  Honeywell, Inc.                            4,362,813
   299,500  Int'l. Business Machines                  27,011,156
   478,200  Lexmark Int'l. Group, Inc.                14,525,325
   115,000  Pitney Bowes, Inc.                         7,992,500
   114,000  Quantum Corp.                              2,315,625
    87,000  SCI Systems, Inc.                          5,546,250
   667,000  Storage Technology Corp.                  29,681,500
    49,000  Stratus Computer, Inc.                     2,450,000
   102,800  Sun Microsystems, Inc.                     3,826,088


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       32
<PAGE>

                                                                ----------------
                                                                  The Guardian
                                                                Stock Fund, Inc.
                                                                ----------------
                                                                      2
                                                                ----------------

- --------------------------------------------------------------------------------

     Shares                                                Value
- ----------------------------------------------------------------

    90,000  Tandem Computers, Inc.                $    1,822,500
   247,800  Western Digital Corp.                      7,836,675
                                                  --------------
                                                     139,929,107
                                                  --------------

Conglomerates -- 1.6%
   102,900  Allied Signal, Inc.                        8,643,600
   149,800  Loews Corp.                               14,998,725
   310,000  Textron, Inc.                             20,576,250
                                                  --------------
                                                      44,218,575
                                                  --------------

Drugs and Hospitals -- 11.2%
   401,300  Abbott Laboratories                       26,786,775
    99,660  Allegiance Corp.                           2,715,735
   460,700  American Home Products Corp.              35,243,550
    44,200  Becton Dickinson & Co.                     2,237,625
   903,400  Bristol-Myers Squibb Corp.                73,175,400
   102,848  Eli Lilly & Co., Inc.                     11,242,572
    25,000  Health Care & Retirement Corp.               834,375
    34,200  Integrated Health Services, Inc.           1,316,700
   789,800  Johnson & Johnson                         50,843,375
   136,400  Kinetic Concepts, Inc.                     2,455,200
    23,000  Lincare Hldgs., Inc.                         989,000
   288,500  Merck & Co., Inc.                         29,859,750
   250,900  Pfizer, Inc.                              29,982,550
   413,400  Schering-Plough Corp.                     19,791,525
    20,000  Sybron Int'l. Corp., WI                      797,500
    12,000  Unitrin, Inc.                                732,000
   362,000  Universal Health Services, Inc.           13,937,000
    46,700  Warner-Lambert Co.                         5,802,475
    26,000  Wellpoint Health Networks, Inc.            1,192,750
                                                  --------------
                                                     309,935,857
                                                  --------------

Electrical Equipment -- 4.3%
   256,800  Emerson Electric Co.                      14,140,050
 1,541,200  General Electric Co.                     100,755,950
    25,500  W.W. Grainger, Inc.                        1,993,781
     6,500  Jabil Circuit, Inc.                          545,188
                                                  --------------
                                                     117,434,969
                                                  --------------

Electronics and Instruments -- 0.3%
    64,400  Analogic Corp.                             2,189,600
    84,400  Dynatech Corp.                             3,017,300
    30,700  Sanmina Corp.                              1,949,450
                                                  --------------
                                                       7,156,350
                                                  --------------

Energy-Miscellanneous -- 0.4%
   192,500  Giant Industries, Inc.                     3,043,906
   237,430  Holly Corp.                                5,891,232
    84,000  Howell Corp.                               1,680,000
                                                  --------------
                                                      10,615,138
                                                  --------------

Entertainment and Leisure -- 0.1%
    78,800  Galoob Toys, Inc.                          1,487,350
    17,000  Harley-Davidson, Inc.                        814,938
    24,000  Regal Cinemas, Inc.                          792,000
                                                  --------------
                                                       3,094,288
                                                  --------------

Financial-Banks -- 13.4%
   244,839  Banc One Corp.                            11,859,389
   720,000  BankAmerica Corp.                         46,485,000
   171,000  Bank of Boston Corp.                      12,322,688
   146,000  Barnett Banks, Inc.                        7,665,000
   434,468  Chase Manhattan Corp.                     42,170,550
   517,484  Citicorp                                  62,389,165
    96,800  Comerica, Inc.                             6,582,400
    30,000  Compass Bancshares, Inc.                   1,008,750
   146,300  First Bank Systems Corp.                  12,490,363
   313,700  First Chicago NBD Corp.                   18,978,850
    19,900  First Empire State Corp.                   6,706,300
    30,000  First Merit Corp.                          1,440,000
   271,900  First Union Corp.                         25,150,750
    79,536  Hubco, Inc.                                2,306,544
    70,000  KeyCorp                                    3,911,250
   197,000  Mellon Bank Corp.                          8,889,625
    86,500  National City Corp.                        4,541,250
   332,800  Nationsbank Corp.                         21,465,600
   135,060  Norwest Corp.                              7,597,125
    50,000  Premier Bancshares, Inc., GA                 859,375
    79,500  Provident Financial Group, Inc.            3,398,625
   108,000  Star Banc Corp.                            4,563,000
   116,000  State Street Corp.                         5,365,000
   208,766  TCF Financial Corp.                       10,307,821
   564,000  Travelers Group, Inc.                     35,567,250
    49,500  Union BanCal Corp.                         3,557,813
    72,000  Zions Bancorp                              2,709,000
                                                  --------------
                                                     370,288,483
                                                  --------------


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       33
<PAGE>

- ----------------
  The Guardian
Stock Fund, Inc.
- ----------------
      2
- ----------------

- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------

SCHEDULE OF INVESTMENTS (continued)
June 30, 1997 (Unaudited)

     Shares                                                Value
- ----------------------------------------------------------------

Financial-Other -- 4.8%
   160,000  American Express Co.                  $   11,920,000
   102,000  Countrywide Credit Industires, Inc.        3,181,125
    21,666  Duff & Phelps Credit Rating Co.              658,105
   126,800  A.G. Edwards, Inc.                         5,420,700
   258,400  Federal Home Loan Mortgage Corp.           8,882,500
   434,600  Federal National Mortgage Assn.           18,959,425
   144,000  Franklin Resources, Inc.                  10,449,000
   124,600  Green Tree Financial Corp.                 4,438,875
   169,000  Jefferies Group, Inc.                      9,633,000
    72,000  Lehman Brothers Hldgs., Inc.               2,916,000
    94,000  McDonald & Co. Investments, Inc.           4,312,250
   502,200  Merrill Lynch & Co., Inc.                 29,943,675
    82,100  J.P. Morgan & Co., Inc.                    8,569,188
   256,050  Morgan Keegan, Inc.                        5,088,994
    30,000  Pacific Century Financial Corp.            1,387,500
   230,737  Raymond James Financial, Inc.              6,316,425
                                                  --------------
                                                     132,076,762
                                                  --------------

Financial-Thrift -- 2.1%
    67,200  Astoria Financial Corp.                    3,192,000
   200,000  Bank Atlantic Bancorp, Inc.                2,820,000
    27,040  California Federal Bancorp, Inc.             456,300
   155,400  Charter One Financial, Inc.                8,372,175
    49,000  CitFed Bancorp, Inc.                       1,898,750
    66,000  Coastal Bancorp, Inc.                      1,963,500
    20,000  Coast Savings Financial, Inc.                908,750
   243,600  Collective Bancorp, Inc.                  10,931,550
   103,950  Commercial Federal Corp.                   3,859,144
    55,000  Greenpoint Financial Corp.                 3,660,938
   124,000  Long Island Bancorp, Inc.                  4,502,750
    19,635  MAF Bancorp, Inc.                            822,216
    37,666  Pacific Crest Capital, Inc.                  499,075
   123,543  Progressive Bank, Inc.                     3,891,605
   634,129  Sovereign Bancorp, Inc.                    9,670,467
                                                  --------------
                                                      57,449,220
                                                  --------------

Food, Beverage and Tobacco -- 5.6%
   186,900  Anheuser-Busch Cos., Inc.                  7,838,119
   204,000  Campbell Soup Co.                         10,200,000
   608,900  Coca Cola Co.                             41,100,750
   506,700  Coca Cola Enterprises, Inc.               11,654,100
    93,600  ConAgra, Inc.                              6,002,100
    71,000  Dean Foods Co.                             2,866,625
     6,872  Earthgrains Co.                              450,545
    86,000  Fortune Brands, Inc.                       3,208,875
    86,000  Gallaher Group Plc.                        1,585,625
    56,000  Hershey Foods Corp.                        3,097,500
    71,000  Interstate Bakeries Corp.                  4,211,188
   904,400  Philip Morris Cos., Inc.                  40,132,750
    83,600  Ralston-Purina Group                       6,870,875
    18,000  Schweitzer-Mauduit Int'l., Inc.              675,000
    61,100  Unilever NV                               13,319,800
                                                  --------------
                                                     153,213,852
                                                  --------------

Footwear -- 0.4%
   146,800  Nike, Inc.                                 8,569,450
    49,000  Payless ShoeSource, Inc.                   2,679,688
                                                  --------------
                                                      11,249,138
                                                  --------------

Household Products -- 0.9%
   122,720  Kimberly-Clark Corp.                       6,105,320
   124,900  Procter & Gamble Co.                      17,642,125
                                                  --------------
                                                      23,747,445
                                                  --------------

Insurance -- 5.8%
   217,300  Allstate Corp.                            15,862,900
    38,000  AMBAC, Inc.                                2,902,250
    99,000  Amer. Bankers Ins. Group, Inc.             6,261,750
   136,300  Amer. Int'l. Group, Inc.                  20,359,813
    20,000  W.R. Berkley Corp.                         1,177,500
    46,000  Chubb Corp.                                3,076,250
    74,100  Cigna Corp.                               13,152,750
    22,000  Cincinnati Financial Corp.                 1,738,000
    60,000  CMAC Investment Corp.                      2,865,000
    18,000  Enhance Financial Svcs. Group, Inc.          789,750
    98,000  Everest Reinsurance Hldgs.                 3,883,250
    66,700  Executive Risk, Inc.                       3,468,400
    18,000  Financial Sec. Assur. Hldgs. Ltd.            700,875
    40,000  Fremont General Corp.                      1,610,000
    24,000  Frontier Insurance Group, Inc.             1,554,000
    36,900  General Re Corp.                           6,715,800
    61,900  Hartford Financial Svcs. Group, Inc.       5,122,225
    75,000  Horace Mann Educators Corp.                3,675,000
    36,000  Jefferson Pilot Corp.                      2,515,500
    68,847  Liberty Financial Cos., Inc.               3,433,744
    75,000  Lincoln National Corp., Inc.               4,828,125


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       34
<PAGE>

                                                                ----------------
                                                                  The Guardian
                                                                Stock Fund, Inc.
                                                                ----------------
                                                                      2
                                                                ----------------

- --------------------------------------------------------------------------------

     Shares                                                Value
- ----------------------------------------------------------------

    66,400  Marsh & McLennan Cos., Inc.           $    4,739,300
    25,300  MBIA, Inc.                                 2,854,156
    15,000  Mercury General Corp.                      1,091,250
   315,000  MGIC Investment Corp.                     15,100,313
    40,000  Ohio Casualty Corp.                        1,760,000
    90,000  Old Republic Int'l. Corp.                  2,728,125
    45,000  Progressive Corp. of Ohio                  3,915,000
    42,000  ReliaStar Financial Group                  3,071,250
    69,800  St. Paul Cos., Inc.                        5,322,250
   108,000  State Auto Financial Corp.                 2,430,000
   108,000  SunAmerica, Inc.                           5,265,000
    34,000  Torchmark, Inc.                            2,422,500
    60,000  Travelers Ppty. Casualty Corp.             2,392,500
                                                  --------------
                                                     158,784,526
                                                  --------------

Lodging -- 0.2%
    17,000  Doubletree Corp.                             699,125
   298,000  Prime Hospitality Corp.                    5,885,500
                                                  --------------
                                                       6,584,625
                                                  --------------

Machinery and Equipment -- 1.5%
    68,000  AAR Corp.                                  2,197,250
   148,800  Caterpillar, Inc.                         15,977,400
    91,400  Deere & Co.                                5,015,575
    15,000  Eaton Corp.                                1,309,688
   167,800  Illinois Tool Works, Inc.                  8,379,513
    40,000  Robbins & Myers, Inc.                      1,300,000
    35,000  Universal Corp., VA                        1,111,250
   110,000  York Int'l. Corp.                          5,060,000
                                                  --------------
                                                      40,350,676
                                                  --------------

Merchandising-Department Stores -- 0.6%
   110,000  Carson Pirie Scott & Co.                   3,492,500
    33,750  Consolidated Stores, Inc.                  1,172,813
    61,000  Dayton Hudson Corp.                        3,244,437
    66,250  Dollar General Corp.                       2,484,375
    23,000  MacFrugals Bargains Closeouts                626,750
    82,500  Fred Meyer Inc., DE                        4,264,219
    48,000  Shopko Stores, Inc.                        1,224,000
                                                  --------------
                                                      16,509,094
                                                  --------------

Merchandising-Drugs -- 0.4%
    35,000  Bergen Brunswig Corp.                        975,625
   100,000  Value Health, Inc.                         2,025,000
   125,000  Walgreen Co.                               6,703,125
                                                  --------------
                                                       9,703,750
                                                  --------------

Merchandising-Food -- 0.5%
   176,300  Richfood Hldgs., Inc.                      4,583,800
   188,995  Safeway, Inc.                              8,717,394
    19,000  Smithfield Foods, Inc.                     1,168,500
                                                  --------------
                                                      14,469,694
                                                  --------------

Merchandising-Special -- 0.6%
    70,736  CVS Corp.                                  3,625,220
   137,160  Host Marriott Services Corp.               1,611,630
    90,000  Pier 1 Imports, Inc.                       2,385,000
   125,000  Ross Stores, Inc.                          4,085,938
    20,000  Stein Mart, Inc.                             600,000
    42,500  Tiffany & Co., Inc.                        1,962,969
    35,000  Waban, Inc.                                1,126,562
                                                  --------------
                                                      15,397,319
                                                  --------------

Miscellaneous -- 0.1%
    21,600  Alberto-Culver Co.                           503,550
    30,400  Helen of Troy Ltd.                           779,000
    20,000  Lands End, Inc.                              592,500
    39,100  Mississippi Chemical Corp.                   811,325
    37,500  Zeigler Coal Hldg. Co.                       876,563
                                                  --------------
                                                       3,562,938
                                                  --------------

Miscellaneous-Consumer Growth Staples -- 0.6%
    93,100  Cognizant Corp.                            3,770,550
   117,000  Equifax, Inc.                              4,350,938
    35,000  Interpublic Group Cos., Inc.               2,145,937
    75,000  A.C. Nielsen Corp.                         1,471,875
    58,000  Omnicom Group                              3,574,250
    60,000  Valassis Communications, Inc.              1,440,000
                                                  --------------
                                                      16,753,550
                                                  --------------

Natural Gas-Diversified -- 0.6%
   428,000  ENSERCH Corp.                              9,523,000
   267,600  Mitchell Energy & Dev. Corp.               5,820,300
    62,000  Western Gas Resources, Inc.                1,209,000
                                                  --------------
                                                      16,552,300
                                                  --------------

Oil and Gas Producing -- 3.8%
   294,000  Apache Corp.                               9,555,000
   148,000  Barrett Resources Corp.                    4,430,750


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       35
<PAGE>

- ----------------
  The Guardian
Stock Fund, Inc.
- ----------------
      2
- ----------------

- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------

SCHEDULE OF INVESTMENTS (continued)
June 30, 1997 (Unaudited)

     Shares                                                Value
- ----------------------------------------------------------------

   205,000  Basin Exploration, Inc.               $    1,588,750
   280,400  Tom Brown, Inc.                            5,958,500
   140,000  Cairn Energy USA, Inc.                     1,837,500
   304,000  Chieftain Int'l., Inc.                     6,669,000
   247,000  Devon Energy Corp.                         9,077,250
    81,800  Diamond Offshore Drilling, Inc.            6,390,625
   228,100  Enron Oil and Gas Co.                      4,134,312
   419,800  Enserch Exploration, Inc.                  4,591,563
    61,900  Forcenergy Gas Exploration, Inc.           1,880,213
    30,600  Nuevo Energy Co.                           1,254,600
   750,900  Petromet Resources Ltd.                    1,736,456
    54,700  Petsec Energy Ltd.                         1,244,408
   137,600  Pogo Producing Co.                         5,323,400
 1,160,000  Ranger Oil Ltd.                           10,802,500
   365,700  Rigel Energy Corp.                         3,908,419
   325,100  St. Mary Land & Exploration Co.           11,419,138
   487,520  Seagull Energy Corp.                       8,531,600
    60,700  Snyder Oil Corp.                           1,115,363
    50,767  United Meridian Corp.                      1,523,010
    53,500  Vintage Petroleum, Inc.                    1,645,125
   320,000  Wainoco Oil Ltd.                           1,360,000
                                                  --------------
                                                     105,977,482
                                                  --------------

Oil and Gas Services -- 3.4%
    62,000  BJ Services Co.                            3,324,750
    86,090  Camco Int'l., Inc.                         4,713,428
    58,400  Cliffs Drilling Co.                        2,131,600
    70,000  Cooper Cameron Corp.                       3,272,500
    74,000  ENSCO Int'l., Inc.                         3,903,500
    95,200  Halliburton Co.                            7,544,600
    20,184  Halter Marine Group, Inc.                    484,416
   558,300  Input/Output, Inc.                        10,119,188
   521,000  Nabors Industries, Inc.                   13,025,000
   180,000  Noble Drilling Corp.                       4,061,250
   189,300  Offshore Logistics, Inc.                   3,573,038
    95,000  Pride Petroleum Services, Inc.             2,280,000
   169,700  Schlumberger Ltd.                         21,212,500
   125,000  Smith Int'l., Inc.                         7,593,750
    26,000  Transocean Offshore, Inc.                  1,888,250
   117,700  Varco Int'l., Inc.                         3,795,825
    70,000  Weatherford Enterra, Inc.                  2,695,000
                                                  --------------
                                                      95,618,595
                                                  --------------

Oil-Integrated-Domestic -- 1.3%
   122,600  Amoco Corp.                               10,658,538
   114,600  Atlantic Richfield Co.                     8,079,300
   185,000  Murphy Oil Corp.                           9,018,750
   460,500  Tesoro Petroleum, Inc.                     6,821,156
                                                  --------------
                                                      34,577,744
                                                  --------------

Oil-Integrated-International -- 6.2%
   228,800  Chevron Corp.                             16,916,900
 1,018,800  Exxon Corp.                               62,656,200
   529,800  Mobil Corp.                               37,019,775
   798,800  Royal Dutch Petroleum Co.                 43,135,200
   113,400  Texaco, Inc.                              12,332,250
                                                  --------------
                                                     172,060,325
                                                  --------------

Paper and Forest Products -- 1.0%
    50,000  Caraustar Industries, Inc.                 1,731,250
    18,000  Consolidated Papers, Inc.                    972,000
    52,857  Deltic Timber Corp.                        1,549,371
   548,000  Rayonier, Inc.                            23,050,250
                                                  --------------
                                                      27,302,871
                                                  --------------

Photography -- 0.4%
   154,000  Eastman Kodak Co.                         11,819,500
                                                  --------------

Publishing-News -- 0.5%
    35,100  Central Newspapers, Inc.                   2,514,038
    66,700  Gannett Co., Inc.                          6,586,625
    74,100  Harte-Hanks Communications                 2,185,950
    20,000  Lee Enterprises, Inc.                        527,500
     6,700  Washington Post Co.                        2,666,600
                                                  --------------
                                                      14,480,713
                                                  --------------

Railroads -- 0.7%
    47,949  Burlington Northern Santa Fe               4,309,416
    15,000  Kansas City Southern Inds., Inc.             967,500
    72,200  Norfolk Southern Corp.                     7,274,150
   107,900  Union Pacific Corp.                        7,606,950
                                                  --------------
                                                      20,158,016
                                                  --------------

Semiconductor -- 2.9%
    91,000  Adaptec, Inc.                              3,162,250
    88,100  Altera Corp.                               4,449,050
    80,000  Dallas Semiconductor Corp.                 3,140,000
   480,400  Intel Corp.                               68,126,725
                                                  --------------
                                                      78,878,025
                                                  --------------


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       36
<PAGE>

                                                                ----------------
                                                                  The Guardian
                                                                Stock Fund, Inc.
                                                                ----------------
                                                                      2
                                                                ----------------

- --------------------------------------------------------------------------------

     Shares                                                Value
- ----------------------------------------------------------------

Textile-Apparel and Production -- 0.5%
    73,000  Jones Apparel Group, Inc.             $    3,485,750
    70,000  Liz Claiborne, Inc.                        3,263,750
    72,600  Russell Corp.                              2,150,775
    64,000  V.F. Corp.                                 5,424,000
                                                  --------------
                                                      14,324,275
                                                  --------------

Transportation-Miscellaneous -- 0.3%
    46,000  Airborne Freight Corp.                     1,926,250
    22,000  Expeditors Int'l. Wash., Inc.                624,250
    32,000  GATX Corp.                                 1,848,000
   376,700  Maritrans, Inc.                            2,919,425
    58,000  Trinity Industries, Inc.                   1,841,500
                                                  --------------
                                                       9,159,425
                                                  --------------

Truckers -- 0.1%
    32,100  FRP Ppty., Inc.                              866,700
    25,000  Swift Transportation, Inc.                   737,500
                                                  --------------
                                                       1,604,200
                                                  --------------

Utilities-Communications -- 2.0%
   148,000  Ameritech Corp.                           10,054,750
   255,400  Bellsouth Corp.                           11,844,175
    14,500  Harris Corp., DE                           1,218,000
   345,200  NYNEX Corp.                               21,782,250
   161,900  SBC Communications, Inc.                  10,017,563
                                                  --------------
                                                      54,916,738
                                                  --------------

Utilities-Electric -- 0.4%
    36,000  CalEnergy, Inc.                            1,368,000
   104,440  Duke Power Co.                             5,006,593
    26,000  KU Energy Corp.                              887,250
    31,000  LG&E Energy Corp.                            683,938
    29,000  Nipsco Industries, Inc.                    1,198,062
    40,000  Public Service Co., CO                     1,660,000
                                                  --------------
                                                      10,803,843
                                                  --------------

Utilities-Gas and Pipeline -- 0.1%
    45,000  KN Energy, Inc.                            1,895,625
                                                  --------------

TOTAL COMMON STOCKS
  (Cost $1,812,743,421)                            2,637,235,521
                                                  --------------

- ------------------------------
SHORT-TERM INVESTMENTS -- 5.4%
- ------------------------------

  Principal
    Amount                                                 Value
- ----------------------------------------------------------------

COMMERCIAL PAPER -- 5.4% 
$50,000,000 Corning, Inc.
              6.15% due 7/1/97                    $   50,000,000
 48,400,000 Goldman Sachs Group, LP
              6.15% due 7/1/97                        48,400,000
 50,000,000 Koch Industries, Inc.
              6.07% due 7/1/97                        50,000,000
                                                  --------------               

TOTAL SHORT-TERM INVESTMENTS
  (Cost $148,400,000)                                148,400,000
                                                  --------------               

TOTAL INVESTMENTS -- 101.1%
  (Cost $1,961,143,421)                            2,785,635,521

PAYABLES IN EXCESS OF CASH,
  RECEIVABLES AND
  OTHER ASSETS -- (1.1%)                             (30,006,277)
                                                  --------------               

NET ASSETS -- 100.0%                              $2,755,629,244
                                                  ==============


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       37
<PAGE>

- ----------------
  The Guardian
Stock Fund, Inc.
- ----------------
      2
- ----------------

- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------

STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1997 (Unaudited)

ASSETS:
  Investments, at identified cost               $1,961,143,421
                                                ==============

  Investments, at market                         2,785,635,521
                                                --------------

  Cash                                               4,365,090
  Receivable for securities sold                    40,437,194
  Dividends receivable                               1,824,573
  Receivable for fund shares sold                    1,342,152
  Other assets                                           7,691
  Dividend reclaim receivable                               40
                                                --------------
  TOTAL ASSETS                                   2,833,612,261
                                                --------------

LIABILITIES:
  Payable for securities purchased                  72,116,914
  Payable for fund shares redeemed                   2,437,186
  Accrued expenses                                     216,322
  Due to affiliates                                  3,212,595
                                                --------------
  TOTAL LIABILITIES                                 77,983,017
                                                --------------
    NET ASSETS                                  $2,755,629,244
                                                --------------

COMPONENTS OF NET ASSETS:
  Capital stock, at par                         $    6,133,705
  Additional paid-in capital                     1,783,327,283
  Undistributed net investment income                1,766,455
  Accumulated net realized gain on investments     139,909,701
  Net unrealized appreciation of investments       824,492,100
                                                --------------
    NET ASSETS                                  $2,755,629,244
                                                ============== 

  Shares Outstanding -- $0.10 par value             61,337,052
                                                --------------

NET ASSET VALUE PER SHARE                       $        44.93
                                                ============== 

STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1997 (Unaudited)

Investment Income:
Income:
  Dividends                                     $   17,251,277
  Interest                                           3,835,043
                                                --------------
                                                    21,086,320
    Less: Foreign tax withheld                         134,197
                                                --------------
  Total Income                                      20,952,123
                                                --------------

Expenses:
  Investment advisory fees -- Note B                 6,075,082
  Custodian fees                                       148,474
  Registration fees                                     50,087
  Audit fees                                             8,750
  Insurance expense                                      7,691
  Directors' fees -- Note B                              6,250
  Legal fees                                             2,800
  Printing expense                                       2,750
  Transfer agent fees                                    1,650
  Other                                                    350
                                                --------------
  Total Expenses                                     6,303,884
                                                --------------

  Net Investment Income                             14,648,239
                                                --------------

Realized and Unrealized Gain/(Loss)
    on Investments -- Note D
  Net realized gain on investments                 139,914,958
  Net change in unrealized appreciation
    of investments                                 273,656,005
                                                --------------
  Net Realized and Unrealized Gain
    on Investments                                 413,570,963
                                                --------------
  Net Increase in Net Assets
    from Operations                             $  428,219,202
                                                ==============


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       38
<PAGE>

                                                                ----------------
                                                                  The Guardian
                                                                Stock Fund, Inc.
                                                                ----------------
                                                                      2
                                                                ----------------

- --------------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                                               Six Months              Year
                                                                                    Ended             Ended
                                                                                 June 30,      December 31,
                                                                                     1997              1996
                                                                              (Unaudited)         (Audited)
                                                                          ---------------   ---------------
<S>                                                                       <C>               <C>            
INCREASE IN NET ASSETS
  From Operations:
    Net investment income                                                 $    14,648,239   $    27,147,649
    Net realized gain on investments                                          139,914,958       222,958,266
    Net change in unrealized appreciation of investments                      273,656,005       203,188,926
                                                                          ---------------   ---------------
      Net Increase in Net Assets from Operations                              428,219,202       453,294,841
                                                                          ---------------   ---------------

  Dividends and Distributions to Shareholders from:
    Net investment income                                                     (12,881,784)      (27,352,727)
    Net realized gain on investments                                          (45,899,231)     (243,546,609)
                                                                          ---------------   ---------------
      Total Dividends and Distributions to Shareholders                       (58,781,015)     (270,899,336)
                                                                          ---------------   ---------------

  From Capital Share Transactions:
    Net increase in net assets from capital share transactions -- Note E      159,463,127       429,061,626
                                                                          ---------------   ---------------
    Net Increase in Net Assets                                                528,901,314       611,457,131

  Net Assets:
    Beginning of period                                                     2,226,727,930     1,615,270,799
                                                                          ---------------   ---------------
    End of period*                                                        $ 2,755,629,244   $ 2,226,727,930
                                                                          ===============   ===============

* Includes undistributed net investment income of:                        $     1,766,455   $            --
</TABLE>


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       39
<PAGE>

- ----------------
  The Guardian
Stock Fund, Inc.
- ----------------
      2
- ----------------

- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------

FINANCIAL HIGHLIGHTS

Selected data for a share of capital stock outstanding throughout the periods
indicated:

<TABLE>
<CAPTION>
                                 Six Months
                                    Ended                          Year Ended December 31, (Audited)                               
                                June 30, 1997   -----------------------------------------------------------------------------------
                                 (Unaudited)               1996             1995             1994           1993           1992    
                                 ------------   -----------------------------------------------------------------------------------
<S>                              <C>                  <C>              <C>              <C>              <C>            <C>        
Net asset value,
  beginning of period .....          $38.59               $34.72           $27.33           $29.00         $25.52         $23.28   
                                     ------               ------           ------           ------         ------         ------   
Income from investment
  operations
  Net investment
    income ................            0.24                 0.53             0.44             0.40           0.58           0.48   
  Net realized and
    unrealized gain/
    (loss) on invest-
    ments .................            7.08                 8.62             9.01            (0.77)          4.47           3.97   
                                     ------               ------           ------           ------         ------         ------   
  Net increase/
    (decrease) from
    investment
    operations ............            7.32                 9.15             9.45            (0.37)          5.05           4.45   
                                     ------               ------           ------           ------         ------         ------   

Dividends and Distributions
  to Shareholders from:
  Net investment income ...           (0.21)               (0.54)           (0.44)           (0.40)         (0.59)         (0.48)  
  Net realized gain .......           (0.77)               (4.74)           (1.62)           (0.90)         (0.98)         (1.73)  
                                     ------               ------           ------           ------         ------         ------   
  Total dividends and
    distributions .........           (0.98)               (5.28)           (2.06)           (1.30)         (1.57)         (2.21)  
                                     ------               ------           ------           ------         ------         ------   
Net asset value, end of
  period ..................          $44.93               $38.59           $34.72           $27.33         $29.00         $25.52   
                                     ------               ------           ------           ------         ------         ------   

Total return* .............           18.97%               26.90%           34.65%           (1.27)%        19.96%         20.07%  
                                     ------               ------           ------           ------         ------         ------   
Ratios/supplemental data:
  Net assets, end of period
    (000's omitted) .......      $2,755,629           $2,226,728       $1,615,271       $1,038,991       $869,114       $537,354   
  Ratio of expenses to
    average net assets ....            0.52%(a)             0.53%            0.53%            0.53%          0.54%          0.55%  
  Ratio of net invest-
    ment income to
    average net assets ....            1.21%(a)             1.50%            1.39%            1.49%          2.20%          2.14%  
  Portfolio turnover
    rate ..................              24%                  66%              78%              53%            45%            62%  
  Average rate of
    commissions paid(b) ...          $0.056               $0.047
</TABLE>

<TABLE>
<CAPTION>
                                
                                
                                -------------------------------------------------------------------------
                                       1991           1990           1989           1988           1987
                                -------------------------------------------------------------------------
<S>                                 <C>            <C>            <C>            <C>            <C>     
Net asset value,
  beginning of period .....           $17.85         $21.39         $19.18         $16.35         $17.15
                                      ------         ------         ------         ------         ------
Income from investment
  operations
  Net investment
    income ................             0.63           0.69           0.84           0.52           0.33
  Net realized and
    unrealized gain/
    (loss) on invest-
    ments .................             5.74          (3.13)          3.61           2.80           0.06
                                      ------         ------         ------         ------         ------
  Net increase/
    (decrease) from
    investment
    operations ............             6.37          (2.44)          4.45           3.32           0.39
                                      ------         ------         ------         ------         ------

Dividends and Distributions
  to Shareholders from:
  Net investment income ...            (0.64)         (0.71)         (0.90)         (0.49)         (0.43)
  Net realized gain .......            (0.30)         (0.39)         (1.34)            --          (0.76)
                                      ------         ------         ------         ------         ------
  Total dividends and
    distributions .........            (0.94)         (1.10)         (2.24)         (0.49)         (1.19)
                                      ------         ------         ------         ------         ------
Net asset value, end of
  period ..................           $23.28         $17.85         $21.39         $19.18         $16.35
                                      ------         ------         ------         ------         ------

Total return* .............            35.96%        (11.85)%        23.55%         20.37%          1.87%
                                      ------         ------         ------         ------         ------
Ratios/supplemental data:
  Net assets, end of period
    (000's omitted) .......         $380,962       $256,039       $269,950       $172,900       $139,437
  Ratio of expenses to
    average net assets ....             0.56%          0.57%          0.57%          0.61%          0.61%
  Ratio of net invest-
    ment income to
    average net assets ....             3.07%          3.66%          4.13%          2.88%          2.08%
  Portfolio turnover
    rate ..................               51%            54%            38%            71%            37%
  Average rate of
    commissions paid(b) ...     
</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.
(a)   Annualized.
(b)   For fiscal years beginning on or after September 1, 1995, a fund is
      required to disclose its average commission rate per share for trades on
      which commissions are charged.


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       40
<PAGE>

- --------------------------------------------------------------------------------



                       This page intentionally left blank.



- --------------------------------------------------------------------------------
                                       41

<PAGE>

- ---------------
 The Guardian 
Bond Fund, Inc.
- ---------------
       3
- ---------------

- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------

SCHEDULE OF INVESTMENTS
June 30, 1997 (Unaudited)

- ---------------------
ASSET BACKED -- 17.4%
- ---------------------

  Principal
   Amount                                                   Value
- --------------------------------------------------------------------
 $2,700,000 Amresco 1997-- 1 M1F
              7.42% due 3/25/27                          $ 2,712,960
  6,000,000 Contimortgage 1996-2 A4
              6.85% due 4/15/11                            6,028,080
  4,500,000 Contimortgage 1997-2 A7
              7.34% due 3/15/23                            4,532,850
  4,500,000 Contimortgage 1997-2 A8
              7.62% due 4/15/28                            4,543,650
  3,500,000 Deutsche Financial 1997-I A2
              6.55% due 9/15/27                            3,488,450
  5,250,000 Equi Credit 1996-1 A4
              6.56% due 3/15/23                            5,154,975
  1,100,000 Equi Credit 1997-2 A5
              6.54% due 4/15/11                            1,098,130
  4,500,000 Firstplus 1997-1 A4
              6.60% due 7/10/10                            4,474,800
  5,000,000 Green Tree 1996-1 A2
              5.85% due 3/15/27                            4,884,350
  4,672,710 Green Tree 1996-2 A1
              6.10% due 4/15/27                            4,663,925
  3,500,000 Green Tree Recreational 1997-B A1
              6.55% due 7/1/18                             3,492,300
  4,250,000 The Money Store 1997-A A7
              7.41% due 11/15/24                           4,291,140
  5,920,000 The Money Store 1996-C A11
              6.96% due 8/15/10                            5,957,296
  4,500,000 The Money Store 1995-C A9
              6.375% due 9/15/11                           4,442,400
                                                        ------------
TOTAL ASSET BACKED
  (Cost $59,602,204)                                      59,765,306
                                                        ------------
- ------------------------
CORPORATE BONDS -- 43.7%
- ------------------------
Biotechnology -- 1.0% $3,500,000 Millipore Corp. 
              7.20% due 4/1/02                           $ 3,534,685
                                                        ------------
Broadcasting -- 2.5%
  2,500,000 Time Warner, Inc. 
              7.95% due 2/1/00                             2,570,225
  3,000,000 Time Warner, Inc. 
              7.75% due 6/15/05                            3,048,750
  $ 300,000 Turner Broadcasting System, Inc. 
              8.375% due 7/1/13                          $ 3,111,450
                                                        ------------
                                                           8,730,425
                                                        ------------
Conglomerate -- 1.0% 3,500,000 RJR Nabisco, Inc. 
              7.625% due 9/15/03                           3,447,360
                                                        ------------
Containers-Metal -- 0.4%
  1,500,000 Crown Cork & Seal Financial, PLC
              7.00% due 12/15/06                           1,485,015
                                                        ------------
Drugs and Hospital -- 2.0% 7,000,000 Rhone Poulenc S.A 
              6.75% due 10/15/99                           7,013,510
                                                        ------------
Energy-Miscellaneous -- 0.7%
  2,500,000 Consumers Energy Co. 
              7.50% due 6/1/02                             2,529,200
                                                        ------------
Fertilizer -- 1.0%
  3,500,000 Potash Corp. Sask., Inc. 
              7.125% due 6/15/07                           3,479,840
                                                        ------------
Financial-Banks -- 3.2%
  7,000,000 Bankers Trust Pref. Capital Tr. II
              7.875% due 2/25/27                           6,770,470
                                                        ------------
  4,000,000 Nationsbank Capital Tr. IV
              8.25% due 4/15/27                            4,098,960
                                                        ------------
                                                          10,869,430
                                                        ------------
Financial-Other -- 5.5%
  9,500,000 Lehman Brothers, Inc. 
              6.92% due 10/4/99                            9,567,450
  6,000,000 Salomon, Inc. 
              6.70% due 12/1/98                            6,022,500
  3,000,000 Salomon, Inc. 
              7.25% due 5/1/01                             3,034,800
                                                        ------------
                                                          18,624,750
                                                        ------------
Insurance -- 2.5%
  5,000,000 Prudential Ins. Co. of America
              7.65% due 7/15/01                            5,059,550
  3,500,000 Zurich Capital Tr 
              8.376% due 6/1/37                            3,616,900
                                                        ------------
                                                           8,676,450
                                                        ------------


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       42
<PAGE>

                                                                 ---------------
                                                                  The Guardian
                                                                 Bond Fund, Inc.
                                                                 ---------------
                                                                        3
                                                                 ---------------

  Principal
   Amount                                                   Value
- --------------------------------------------------------------------
Machinery and Construction -- 2.2%
$ 3,500,000 Aktiebolaget SKF
              7.125% due 7/1/07                          $  3,468,745
  4,000,000 McDermott Int'l., Inc. 
              6.57% due 4/20/98                             3,995,880
                                                         ------------
                                                            7,464,625
                                                         ------------
Merchandising-Department Store -- 1.0%
  3,250,000 Sears Roebuck Acceptance Corp. 
              7.00% due 6/15/07                             3,219,905
                                                         ------------
Merchandising-Mass -- 1.0%
  3,400,000 Wal Mart Stores, Inc. 
              8.75% due 12/29/06                            3,505,604
                                                         ------------
Miscellaneous-Capital Goods -- 1.5%
  5,000,000 Ikon Capital, Inc. 
              6.73% due 6/15/01                             4,982,050
                                                         ------------
Oil-Integrated-International -- 1.5%
  5,000,000 Petroliam Nasional Berhad
              7.625% due 10/15/26                           4,993,300
                                                         ------------
Publishing -- 1.5%
  5,000,000 News Amer. Hldgs., Inc. 
              7.50% due 3/1/00                              5,099,300
                                                         ------------
Railroads -- 4.4% 4,000,000 CSX Corp. 
              7.90% due 5/1/17                              4,145,280
  7,000,000 CSX Corp. 
              7.95% due 5/1/26                              7,241,990
  3,500,000 Norfolk Southern Corp. 
              7.80% due 5/14/27                             3,594,850
                                                         ------------
                                                           14,982,120
                                                         ------------
Real Estate -- 0.6%
  2,000,000 Simon DeBartolo Group, LP
              6.875% due 11/15/06                           1,935,400
                                                         ------------
Telecommunications -- 3.2%
  3,500,000 Comcast Cable Communications
              8.875% due 5/1/17                             3,815,035
  7,000,000 TCI Communications
              7.25% due 6/15/99                             7,053,480
                                                         ------------
                                                           10,868,515
                                                         ------------
Tobacco -- 3.6%
$ 5,500,000 Bat Capital Corp. 
              6.875% due 4/15/03                         $  5,436,475
  4,000,000 Philip Morris Cos., Inc. 
              7.50% due 4/1/04                              4,064,320
  3,000,000 Philip Morris Cos., Inc. 
              7.20% due 2/1/07                              2,973,960
                                                         ------------
                                                           12,474,755
                                                         ------------
Utilities-Electric -- 1.4%
  5,000,000 Duquesne Lt. Co. Secd. Mtn. Bk 
              6.70% due 5/15/03                             4,887,900
                                                         ------------
Utilities-Gas and Pipeline -- 2.0%
  3,500,000 Tennessee Gas Pipeline Co. 
              7.50% due 4/1/17                              3,499,580
  3,500,000 Tennessee Gas Pipeline Co. 
              7.00% due 3/15/27                             3,497,900
                                                         ------------
                                                            6,997,480
                                                         ------------
TOTAL CORPORATE BONDS
  (Cost $149,335,829)                                     149,801,619
                                                         ------------

- -------------------------------
MORTGAGE PASS-THROUGHS -- 19.6%
- -------------------------------
$ 6,600,000 FNMA TBA
              6.50% due 7/15/12 (a)                      $  6,471,828
 32,300,000 FNMA TBA
              7.50% due 7/15/27 (a)                        32,387,856
  5,200,000 FNMA TBA
              7.00% due 7/15/12 (a)                         5,191,628
  1,989,826 FHLMC Pool #E54124
              7.00% due 8/1/08                              1,999,357
    530,755 FNMA Pool #068106
              8.50% due 8/1/09                                554,378
    989,995 FNMA Pool #068772
              8.00% due 6/1/08                              1,021,982
     11,868 FNMA Pool #072923
              8.25% due 1/1/09                                 12,252
  2,956,313 FNMA Pool #217042
              6.50% due 6/1/08                              2,919,832
      6,282 GNMA Pool #000375
             11.50% due 7/20/00                                 6,637


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       43
<PAGE>

- ---------------
 The Guardian 
Bond Fund, Inc.
- ---------------
       3
- ---------------

- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------

SCHEDULE OF INVESTMENTS (continued)
June 30, 1997 (Unaudited)

  Principal
   Amount                                                   Value
- --------------------------------------------------------------------
$  110,589 GNMA Pool #352913
             7.50% due 5/15/24                           $  111,431
   455,140 GNMA Pool #368294
             7.50% due 1/15/24                              458,603
   496,465 GNMA Pool #363384
             7.50% due 2/15/24                              500,243
   101,615 GNMA Pool #369417
             7.50% due 2/15/24                              102,389
   298,734 GNMA Pool #375967
             7.50% due 1/15/24                              301,007
   638,315 GNMA Pool #376437
             7.50% due 3/15/24                              643,172
   480,086 GNMA Pool #378966
             7.50% due 1/15/24                              483,739
   310,359 GNMA Pool #381252
             7.50% due 6/15/26                              311,557
 4,334,925 GNMA Pool #398991
             7.50% due 12/15/26                           4,351,658
    24,417 GNMA Pool #408194
             7.50% due 1/15/26                               24,511
    23,166 GNMA Pool #408275
             7.50% due 4/15/26                               23,255
    25,400 GNMA Pool #410325
             7.50% due 3/15/26                               25,498
 1,850,402 GNMA Pool #410896
             7.50% due 1/15/26                            1,857,544
   201,067 GNMA Pool #421100
             7.50% due 6/15/26                              201,843
    28,166 GNMA Pool #429109
             7.50% due 4/15/26                               28,275
   334,844 GNMA Pool #430117
             7.50% due 12/15/26                             336,137
   314,344 GNMA Pool #433313
             7.50%due 12/15/26                              315,558
   334,306 GNMA Pool #433316
             7.50% due 12/15/26                             335,597
   351,936 GNMA Pool #433329
             7.50% due 12/15/26                             353,296
 3,157,283 GNMA Pool #439470
             7.50% due 12/15/26                           3,169,470
   524,856 GNMAPool# 441339
             7.50% due 12/15/26                             526,882
$  610,382 GNMA Pool #441939
             7.50% due 12/15/26                          $  612,738
   250,791 GNMA Pool #442186
             7.50% due 12/15/26                             251,760
   809,545 GNMA Pool #442193
             7.50% due 12/15/26                             812,671
   545,259 GNMA Pool #222105
             7.50% due 3/15/24                              549,408
                                                         ------------
TOTAL MORTGAGE PASS-THROUGHS
  (Cost $66,960,940)                                      67,253,992
                                                         ------------
- ------------------------------------------
MULTI-CLASS MORTGAGE PASS-THROUGHS -- 3.0%
- ------------------------------------------
 $  178,401 Citibank, NA
              9.50% due 8/1/16                           $   180,631
    381,233 Federal Nat'l. Mortgage Assn 
              7.00% due 4/25/12                              379,803
  4,000,000 Federal Nat'l. Mortgage Assn 
              6.50% due 10/25/08                           3,828,720
  5,919,221 GE Capital Mortgage Svcs., Inc. 
              7.00% due 3/25/26                            5,730,398
                                                         ------------
TOTAL MULTI-CLASS MORTGAGE
  PASS-THROUGHS
(Cost $10,375,716)                                        10,119,552
                                                         ------------
- ------------------------
U.S. GOVERNMENT -- 11.2%
- ------------------------
$ 1,250,000 U.S. Treasury Bonds
              7.625% due 2/15/25                         $ 1,368,750
  3,000,000 U.S. Treasury Notes
              7.50% due 10/31/99                           3,085,320
  3,600,000 U.S. Treasury Notes
              6.875% due 8/31/99                           3,653,424
  2,250,000 U.S. Treasury Notes
              6.625% due 515/07                            2,268,630
  9,000,000 U.S. Treasury Notes
              6.50% due 5/31/01                            9,049,230
  3,000,000 U.S.Treasury Notes
              6.50% due 5/31/02                            3,012,180
  1,000,000 U.S. Treasury Notes
              6.50% due 11/15/06                             959,060


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       44
<PAGE>

- ---------------
 The Guardian 
Bond Fund, Inc.
- ---------------
       3
- ---------------

  Principal
   Amount                                                   Value
- --------------------------------------------------------------------
$10,000,000 U.S. Treasury Notes

              5.875% due 11/15/99                        $  9,935,900
    400,000 U.S. Treasury Notes
              5.875% due 2/15/00                              396,812
  4,500,000 U.S. Treasury Notes
              5.625% due 11/30/00                           4,407,885
                                                         ------------
TOTAL U.S. GOVERNMENT
  (Cost $ 38,304,376)                                      38,137,191
                                                         ------------
- --------------------
YANKEE BONDS -- 2.2%
- --------------------
$ 3,500,000 Corporacion Andina De Fomento
              7.25% due 3/1/07                           $  3,512,425
  4,250,000 Export Import Bank of Korea
              6.50% due 2/10/02                             4,169,973
                                                         ------------
TOTAL YANKEE BONDS
  (Cost $7,662,724)                                         7,682,398
                                                         ------------
- ----------------------------
REPURCHASE AGREEMENT -- 1.3%
- ----------------------------

  Principal                                 Maturity
   Amount                                     Date          Value
- --------------------------------------------------------------------

$ 4,402,000 State Street Bank & Trust
            repurchase agreement,
            dated 6/30/97, maturity
            value $4,402,715 at 5.85%
            due 7/1/97 (collateralized by
            $4,460,000 U.S. Treasury
            Notes, 6.00% due 5/31/98)         7/1/97      $ 4,402,000
                                                         ------------
TOTAL REPURCHASE AGREEMENT
  (Cost $4,402,000)                                         4,402,000
                                                         ------------
TOTAL INVESTMENTS(b) -- 98.4%
  (Cost $336,643,789)                                     337,162,058
                                                         ------------
- -------------------------------------
OTHER ASSETS LESS LIABILITIES -- 1.6%
- -------------------------------------
Commercial Paper Vs. Forward MBS Purchases(a)
Automobile
$ 2,035,000 Volkswagen of America, Inc. 
  5.50% due 7/17/97                                      $  2,030,026
                                                         ------------
Electronics and Instruments
$ 2,050,000 EG & G, Inc. 
              5.55% due 7/17/97                          $  2,044,944
 10,000,000 Xerox Corp. 
              5.50% due 7/14/97                             9,980,139
                                                         ------------
                                                           12,025,083
                                                         ------------
Financial
 10,664,000 Bank of America
              5.50% due 7/14/97                            10,642,820
 12,136,000 Goldman Sachs Group, LP
              5.55% due 7/14/97                            12,111,765
                                                         ------------
                                                           22,754,585
                                                         ------------
Financial-Other
  5,500,000 Clipper Receivables Corp. 
              5.57%   due 8/18/97                           5,459,153
                                                         ------------
Utilities-Electric
  4,200,000 PG & E Corp. 
              5.62% due 7/17/97                             4,189,509
                                                         ------------
TOTAL COMMERCIAL PAPER
  (Cost $46,416,355)                                       46,458,356
                                                         ------------
LIABILITIES                                               (41,142,207)
                                                         ------------
OTHER ASSETS LESS LIABILITIES                               5,316,149
                                                         ------------
NET ASSETS -- 100.0%                                     $342,478,207
                                                         ============

(a)  Total commercial paper is pledged against mortgage backed securities
     payables of $44,051,312.

(b)  Total investments including commercial paper with the cost of $383,060,144
     amounted to $383,620,414.

Glossary:

MBS -- Mortgage Backed Securities.


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       45
<PAGE>

- ---------------
 The Guardian 
Bond Fund, Inc.
- ---------------
       3
- ---------------

- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------

STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1997 (Unaudited)

ASSETS:
  Investments, at identified cost*              $ 383,060,144
                                                =============

  Investments, at market                          379,218,414
  Repurchase agreement                              4,402,000
                                                -------------
  TOTAL INVESTMENTS                               383,620,414

  Cash                                                    887
  Receivable for securities sold                   32,196,326
  Interest receivable                               3,443,733
  Dollar roll receivable                              410,480
  Receivable for fund shares sold                     219,913
  Other assets                                          1,244
                                                -------------
  TOTAL ASSETS                                    419,892,997
                                                -------------
LIABILITIES:
  Payable for securities purchased                 76,143,788
  Payable for fund shares sold                        780,914
  Accrued expenses                                     31,700
  Due to affiliates                                   458,388
                                                -------------
  TOTAL LIABILITIES                                77,414,790
                                                -------------
    NET ASSETS                                  $ 342,478,207
                                                =============
COMPONENTS OF NET ASSETS:
  Capital stock, at par                         $   2,881,604
  Additional paid-in capital                      344,665,604
  Undistributed net investment income               1,873,014
  Accumulated net realized loss on investments     (7,502,285)
  Net unrealized appreciation of investments          560,270
                                                -------------
    NET ASSETS                                  $ 342,478,207
                                                =============
  Shares Outstanding -- $0.10 par value            28,816,037
                                                -------------
NET ASSET VALUE PER SHARE                       $       11.88
                                                =============

* Includes repurchase agreement.

STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1997 (Unaudited)

Investment Income:
Income:
  Interest                                      $ 12,016,320
                                                -------------
Expenses:
  Investment advisory fees-- Note B                  853,458
  Custodian fees                                      61,760
  Audit fees                                           8,750
  Directors' fees                                      6,250
  Printing expense                                     2,750
  Transfer agent fees                                  1,650
  Legal fees                                           1,493
  Registration fees                                    1,327
  Insurance expense                                    1,223
  Other                                                  350
                                                -------------
  Total Expenses                                     939,011
                                                -------------

  Net Investment Income                           11,077,309
                                                -------------
Realized and Unrealized Gain/(Loss)
   on Investments -- Note D
  Net realized loss on investments                (5,199,140)
  Net change in unrealized depreciation
  of investments                                   5,939,086
                                                -------------
  Net Realized and Unrealized Gain
  on Investments                                     739,946
                                                -------------
  Net Increase in Net Assets
  from Operations                               $ 11,817,255
                                                =============


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       46
<PAGE>

                                                                 ---------------
                                                                  The Guardian
                                                                 Bond Fund, Inc.
                                                                 ---------------
                                                                        3
                                                                 ---------------

- --------------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                     Six Months            Year
                                                          Ended           Ended
                                                       June 30,    December 31,
                                                           1997            1996
                                                     (Unaudited)       (Audited)
                                                  -------------   -------------
<S>                                               <C>             <C>           
INCREASE/(DECREASE) IN NETASSETS
 From Operations:
   Net investment income                          $  11,077,309   $  22,010,719 
   Net realized gain/(loss) on investments           (5,199,140)      2,193,816
   Net change in unrealized appreciation/
   (depreciation) of investments                      5,939,086     (14,421,607)
                                                  -------------   -------------
     Net Increase in Net Assets from Operations      11,817,255       9,782,928
                                                  -------------   -------------
 Dividends to Shareholders from:                                  
   Net investment income                            (10,203,167)    (22,033,188)
                                                  -------------   -------------
 From Capital Share Transactions:                                 
   Net decrease in net assets from capital 
   share transactions-- Note E                      (13,568,878)     (7,778,324)
                                                  -------------   -------------
     Net Decrease in Net Assets                     (11,954,790)    (20,028,584)
 Net Assets:                                                      
   Beginning of period                              354,432,997     374,461,581
                                                  -------------   -------------
   End of period*                                 $ 342,478,207   $ 354,432,997
                                                  =============   =============

* Includes undistributed net investment 
   income of:                                     $   1,873,014   $     998,872
</TABLE>


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       47
<PAGE>

- ---------------
 The Guardian 
Bond Fund, Inc.
- ---------------
       3
- ---------------

- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------

FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:

<TABLE>
<CAPTION>
                         
                               Six Months   
                                  Ended                      Year Ended December 31, (Audited)
                              June 30, 1997  -----------------------------------------------------------------
                               (Unaudited)    1996      1995      1994     1993       1992      1991     1990  
                              -------------  -----------------------------------------------------------------
<S>                              <C>         <C>       <C>       <C>       <C>       <C>       <C>      <C>    
Net asset value,
  beginning of period ........   $11.83      $12.25    $11.08    $12.24    $12.26    $12.33    $11.56   $11.67 
                                 ------      ------    ------    ------    ------    ------    ------   ------ 
Income from investment
  operations
  Net investment
   income ....................     0.40        0.76      0.76      0.40      0.70      0.81      0.92     0.97 
  Net realized and unre-
   alized gain/(loss)
   on investments ............     0.01       (0.42)     1.17     (0.82)     0.50      0.13      0.91    (0.11)
                                 ------      ------    ------    ------    ------    ------    ------   ------ 
  Net increase/(decrease)
   from investment 
   operations ................     0.41        0.34      1.93     (0.42)     1.20      0.94      1.83     0.86 
                                 ------      ------    ------    ------    ------    ------    ------   ------ 
Dividends and Distributions
  to Shareholders from:
  Net investment income ......    (0.36)      (0.76)    (0.76)    (0.68)    (0.70)    (0.81)    (0.92)   (0.97)
  Net realized gain ..........      --          --        --      (0.06)    (0.52)    (0.20)    (0.14)     --  
                                 ------      ------    ------    ------    ------    ------    ------   ------ 
  Total dividends and
   distributions .............    (0.36)      (0.76)    (0.76)    (0.74)    (1.22)    (1.01)    (1.06)   (0.97)
                                 ------      ------    ------    ------    ------    ------    ------   ------ 
Net asset value, end of
  period .....................   $11.88      $11.83    $12.25    $11.08    $12.24    $12.26    $12.33   $11.56 
                                 ======      ======    ======    ======    ======    ======    ======   ====== 
Total return* ................     3.50%       2.88%    17.59%    (3.45)%    9.85%     7.70%    16.19%    7.57%
                                 ======      ======    ======    ======    ======    ======    ======   ====== 
Ratios/supplemental data:
  Net assets, end of period
   (000's omitted) ........... $342,478    $354,433  $374,462  $308,978  $340,269  $284,330  $222,299 $165,844 
  Ratio of expenses to
   average net assets ........     0.55%(a)    0.54%     0.54%     0.54%     0.55%     0.56%     0.57%    0.58%
  Ratio of net invest-
   ment income to
   average net assets ........     6.49%(a)    6.12%     6.43%     5.69%     5.56%     6.70%     7.81%    8.53%
  Portfolio turnover
   rate ......................      171%        188%      298%      311%      220%       57%       43%      39%
</TABLE>

                                 ---------------------------   
                                    1989     1988      1987   
                                 ---------------------------   
Net asset value,                                              
  beginning of period ........    $11.16    $11.12  $12.41    
                                  ------    ------  ------    
Income from investment                                        
  operations                                                  
  Net investment                                              
   income ....................      0.98      1.03    0.96    
  Net realized and unre-                                      
   alized gain/(loss)                                         
   on investments ............      0.55      0.02   (0.92)   
                                  ------    ------  ------    
  Net increase/(decrease)                                     
   from investment                                            
   operations ................      1.53      1.05    0.04    
                                  ------    ------  ------    
Dividends and Distributions                                   
  to Shareholders from:                                       
  Net investment income ......     (1.02)    (1.01)  (1.23)   
  Net realized gain ..........       --        --    (0.10)   
                                  ------    ------  ------    
  Total dividends and                                         
   distributions .............     (1.02)    (1.01)  (1.33)   
                                  ------    ------  ------    
Net asset value, end of                                       
  period .....................    $11.67    $11.16   $11.12   
                                  ======    ======  ======    
Total return* ................     13.88%     9.70%    0.32%  
                                  ======    ======  ======    
Ratios/supplemental data:                                     
  Net assets, end of period                                   
   (000's omitted) ...........  $147,753  $113,616 $103,846   
  Ratio of expenses to                                        
   average net assets ........      0.60%     0.61%    0.62%  
  Ratio of net invest-                                        
   ment income to                                             
   average net assets ........      8.78%     8.97%    8.97%  
  Portfolio turnover                                          
   rate ......................       158%       24%      67%  

*   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.

(a) Annualized.


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       48
<PAGE>

- --------------------------------------------------------------------------------



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- --------------------------------------------------------------------------------
                                       49

<PAGE>

- ---------------
 The Guardian
Cash Fund, Inc.
- ---------------
       4
- ---------------

- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------

SCHEDULE OF INVESTMENTS
June 30, 1997 (Unaudited)

- -------------------------
COMMERCIAL PAPER -- 95.8%
- -------------------------

Principal
   Amount                                               Value
- -------------------------------------------------------------

FINANCIAL -- 39.9%

Bank Holding Companies -- 8.0%
 $16,000,000  J.P. Morgan & Co., Inc.
                 5.53%  due 7/25/97             $  15,941,013
  16,000,000  Republic New York Corp.
                 5.53%  due 7/28/97                15,933,640
                                                -------------
                                                   31,874,653
                                                -------------

Finance Companies -- 19.9%
  16,000,000  Associates Corp. of N.A.
                 5.62%  due 7/2/97                 15,997,502
  16,000,000  Household Finance Corp.
                 5.56%  due 7/21/97                15,950,578
  16,000,000  Nat'l. Rural Utils. Coop. Fin. Corp.
                 5.50%  due 7/9/97                 15,980,444
  16,000,000  USAA Capital Corp.
                 5.55%  due 7/14/97                15,967,933
  16,000,000  U.S. Central Credit Union
                 5.53%  due 8/15/97                15,889,400
                                                -------------
                                                   79,785,857
                                                -------------

Insurance -- 4.0%
  16,000,000  American Gen. Financial Corp.
                 5.54% due 7/30/97                 15,928,596
                                                -------------

Other Major Banks -- 8.0%
  16,000,000  Barclays U.S. Funding Corp.
                 5.50% due 7/7/97                  15,985,333
  16,000,000  Dresdner U.S. Finance Co.
                 5.54% due 7/11/97                 15,975,378
                                                -------------
                                                   31,960,711
                                                -------------
              Total Financial                     159,549,817
                                                -------------

INDUSTRIAL  -- 55.9%

Aerospace and Defense -- 3.9%
  16,000,000  Rockwell Int'l. Corp.
                 5.53% due 8/20/97                 15,877,111
                                                -------------

Automotive -- 4.0%
  16,000,000  Ford Motor Credit Co.
                 5.54% due 8/4/97                  15,916,284
                                                -------------

Chemicals -- 8.0%
  16,000,000  E.I. Dupont de Nemours, Inc.
                 5.49% due 7/24/97                 15,943,880
  16,000,000  Monsanto Co.
                 5.53% due 8/1/97                  15,923,809
                                                -------------
                                                   31,867,689
                                                -------------

Conglomerates -- 8.0%
  16,000,000  General Electric Cap. Corp.
                 5.53% due 7/31/97                 15,926,267
  16,000,000  Mitsubishi Int'l. Corp.
                 5.59% due 7/29/97                 15,930,436
                                                -------------
                                                   31,856,703
                                                -------------

Food and Beverage -- 4.0%
  16,000,000  Hershey Foods Corp.
                 5.50% due 7/17/97                 15,960,889
                                                -------------

Household Products -- 4.0%
  16,000,000  Colgate Palmolive Co.
                 5.55% due 8/6/97                  15,911,200
                                                -------------

Oil-Integrated-International -- 4.0%
  16,000,000 Texaco, Inc.
                 5.52% due 7/10/97                 15,977,920
                                                -------------

Telecommunications -- 12.0%
  16,000,000  Bell Atlantic Fin'l. Svcs.
                 5.56% due 7/1/97                  16,000,000
  16,000,000  Lucent Technologies, Inc.
                 5.52% due 7/23/97                 15,946,027
  16,000,000  Southwestern Bell Telephone Co.
                 5.53% due 8/29/97                 15,854,991
                                                -------------
                                                   47,801,018
                                                -------------

Utilities-Electric -- 8.0%
  16,000,000  Carolina Power & Light Co.
                 5.53% due 7/18/97                 15,958,218
  16,000,000  Union Electric Co.
                 5.50% due 7/16/97                 15,963,333
                                                -------------
                                                   31,921,551
                                                -------------
              Total Industrial                    223,090,365
                                                -------------

TOTAL  COMMERCIAL PAPER
  (Cost $382,640,182)                             382,640,182
                                                -------------


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       50
<PAGE>

                                                                 ---------------
                                                                  The Guardian
                                                                 Cash Fund, Inc.
                                                                 ---------------
                                                                        4
                                                                 ---------------
- ----------------------------
REPURCHASE AGREEMENT -- 4.6%
- ----------------------------
- --------------------------------------------------------------------------------

   Principal                             Maturity
      Amount                               Date      Value
- -------------------------------------------------------------

$18,159,000    State Street Bank  & Trust
                 repurchase agreement,
                 date 6/30/97, maturity
                 value $18,161,951 at 5.85%
                 due 7/1/97 (collateralized
                 by $18,395,000 U.S.
                 Treasury Notes, 6.00%
                 due 5/31/98)           7/1/97   $ 18,159,000
                                                -------------

TOTAL REPURCHASE AGREEMENT
  (Cost $18,159,000)                               18,159,000
                                                -------------

TOTAL INVESTMENTS -- 100.4%
  (Cost $400,799,182)                             400,799,182

PAYABLES IN EXCESS OF CASH,
  RECEIVABLES AND
  OTHER ASSETS--(0.4%)                             (1,464,078)
                                                -------------

NET ASSETS-- 100.0%                             $ 399,335,104
                                                =============


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       51
<PAGE>

- ---------------
 The Guardian
Cash Fund, Inc.
- ---------------
       4
- ---------------

- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------

STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1997 (Unaudited)

ASSETS:
   Investments, at identified cost*              $400,799,182
                                                 ============

   Investments, at market                         382,640,182
   Repurchase agreement                            18,159,000
                                                 ------------
   TOTAL INVESTMENTS                              400,799,182

   Cash                                                   948
   Receivable for fund shares sold                    973,695
   Interest receivable                                  2,951
   Other assets                                         1,328
                                                 ------------
   TOTAL ASSETS                                   401,778,104
                                                 ------------

LIABILITIES:
   Payable for fund shares redeemed                 1,821,576
   Accrued expenses                                    72,582
   Due to affiliates                                  548,842
                                                 ------------
   TOTAL LIABILITIES                                2,443,000
                                                 ------------
     NET ASSETS                                  $399,335,104
                                                 ============

COMPONENTS OF NET ASSETS:
   Capital stock, at par                         $  3,993,351
   Additional paid-in capital                     395,341,753
                                                 ------------
     NET ASSETS                                  $399,335,104
                                                 ============

   Shares Outstanding-- $0.10 par value            39,933,510
                                                 ------------

NET ASSET VALUE PER SHARE                            $  10.00
                                                 ============

*     Includes repurchase agreement.


STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1997 (Unaudited)

Investment Income:
Income:
   Interest                                       $10,888,383
                                                 ------------

Expenses:
   Investment advisory fees-- Note B                  992,219
   Custodian fees                                      43,453
   Registration fees                                   18,321
   Audit fees                                           8,500
   Directors' fees-- Note B                             6,250
   Printing expense                                     2,750
   Transfer agent fees                                  1,650
   Legal fees                                           1,400
   Insurance expense                                    1,307
   Other                                                  350
                                                 ------------
   Total Expenses                                   1,076,200
                                                 ------------

Net Investment Income, Representing
  Net Increase in Net Assets
  from Operations                                $  9,812,183
                                                 ============


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       52
<PAGE>

                                                                 ---------------
                                                                  The Guardian
                                                                 Cash Fund, Inc.
                                                                 ---------------
                                                                        4
                                                                 ---------------

- --------------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

                                                     Six Months            Year
                                                          Ended           Ended
                                                       June 30,    December 31,
                                                           1997            1996
                                                     (Unaudited)       (Audited)
                                                   ------------    ------------
INCREASE IN NET ASSETS 
 From Operations:
    Net investment income                          $  9,812,183    $ 18,377,984
                                                   ------------    ------------
      Net Increase in Net Assets from Operations      9,812,183      18,377,984
                                                   ------------    ------------

 Dividends to Shareholders from:
    Net investment income                            (9,812,183)    (18,377,984)
                                                   ------------    ------------

 From Capital Share Transactions:
    Net increase in net assets from capital
    share transactions-- Note E                      21,013,394      21,501,621
                                                   ------------    ------------
      Net Increase in Net Assets                     21,013,394      21,501,621

 Net Assets:
    Beginning of period                             378,321,710     356,820,089
                                                   ------------    ------------
    End of period                                  $399,335,104    $378,321,710
                                                   ============    ============


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       53
<PAGE>

- ---------------
 The Guardian
Cash Fund, Inc.
- ---------------
       4
- ---------------

- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------

FINANCIAL HIGHLIGHTS

Selected data for a share of capital stock outstanding throughout the periods
indicated:

<TABLE>
<CAPTION>
                          Six Months
                             Ended                                       Year Ended December 31, (Audited)
                         June 30, 1997     ----------------------------------------------------------------------------------------
                          (Unaudited)           1996         1995         1994         1993         1992         1991         1990 
                         -------------     ----------------------------------------------------------------------------------------
<S>                        <C>             <C>          <C>          <C>          <C>          <C>          <C>          <C>       
Net asset value,
  beginning of period ...  $   10.00       $   10.00    $   10.00    $   10.00    $   10.00    $   10.00    $   10.00    $   10.00 
                           ---------       ---------    ---------    ---------    ---------    ---------    ---------    --------- 

Income from investment
  operations
  Net investment
    income ..............       0.24            0.49         0.54         0.38         0.26         0.35         0.54         0.77 
                           ---------       ---------    ---------    ---------    ---------    ---------    ---------    --------- 

Dividends to
  Shareholders from:
  Net investment income .      (0.24)          (0.49)       (0.54)       (0.38)       (0.26)       (0.35)       (0.54)       (0.77)
                           ---------       ---------    ---------    ---------    ---------    ---------    ---------    --------- 
Net asset value, end of
   period ...............  $   10.00       $   10.00    $   10.00    $   10.00    $   10.00    $   10.00    $   10.00    $   10.00 
                           =========       =========    =========    =========    =========    =========    =========    ========= 
Total return* ...........       2.47%           4.98%        5.52%        3.82%        2.64%        3.21%        5.59%        7.95%
                           =========       =========    =========    =========    =========    =========    =========    ========= 
Ratios/supplemental data:
Net assets, end of period
  (000's omitted) .......  $ 399,335       $ 378,322    $ 356,820    $ 386,986    $ 310,798    $ 318,879    $ 331,677    $ 331,600 
Ratio of expenses to
  average net assets ....       0.54%(a)        0.54%        0.54%        0.54%        0.54%        0.54%        0.55%        0.56%
Ratio of net investment
  income to average
  net assets ............       4.94%(a)        4.86%        5.39%        3.81%        2.61%        3.17%        5.44%        7.67%
</TABLE>


                            Year Ended December 31, (Audited)
                           -----------------------------------
                                1989         1988         1987

Net asset value,
  beginning of period ...  $   10.00    $   10.00    $   10.00
                           ---------    ---------    ---------

Income from investment
  operations
  Net investment
    income ..............       0.87         0.72         0.63
                           ---------    ---------    ---------

Dividends to
  Shareholders from:
  Net investment income .      (0.87)       (0.72)       (0.63)
                           ---------    ---------    ---------
Net asset value, end of
   period ...............  $   10.00    $   10.00    $   10.00
                           =========    =========    =========
Total return* ...........       8.70%        7.20%        6.30%
                           =========    =========    =========
Ratios/supplemental data:
Net assets, end of period
  (000's omitted) .......  $ 262,865    $ 228,310    $ 164,326
Ratio of expenses to
  average net assets ....       0.56%        0.58%        0.61%
Ratio of net investment
  income to average
  net assets ............       8.67%        7.17%        6.27%

*   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.

(a) Annualized.


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       54
<PAGE>

- --------------------------------------------------------------------------------



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- --------------------------------------------------------------------------------
                                       55
<PAGE>

- ------------------
   The Guardian
Stock, Bond & Cash
- ------------------
        4
- ------------------

- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------

COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)

- ----------------------------------------------
Note A -- Organization and Accounting Policies
- ----------------------------------------------

      The Guardian Stock Fund, Inc. (GSF), 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). Each Fund sold 10,000 of
its shares to The Guardian Insurance & Annuity Company, Inc. (GIAC) for $100,000
per Fund in order to facilitate the commencement of its operations. Such shares
were subsequently deposited in The Guardian Separate Account A, a separate
account of GIAC which is registered as a unit investment trust under the 1940
Act. Shares of the Funds are only sold to certain separate accounts of GIAC. The
Funds are available for investment only through the purchase of certain variable
annuity and variable life insurance contracts issued by GIAC. GIAC is a wholly
owned subsidiary of The Guardian Life Insurance Company of America (Guardian
Life). Significant accounting policies of the Funds are as follows:

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Investments

      Investments in GSF and GBF are carried at value. Securities listed on
national securities exchanges are valued based upon closing prices on these
exchanges. Securities traded in the over-the-counter market and listed
securities for which there have been no trades for the day are valued at the
mean of the bid and asked prices.

      Certain debt securities may be valued each business day by an independent
pricing service (Service) approved by the Board of Directors. Debt securities
for which quoted bid prices, in the judgment of the Service, are readily
available and representative of the bid side of the market, are valued at the
mean between the quoted bid prices (as obtained by the Service from dealers in
such securities) and asked prices (as calculated by the Service based upon its
evaluation of the market for such securities). Other debt securities that are
valued by the Service are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of 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 the
identified cost basis. Interest income, including amortization of premium and
discount, is recorded when earned. Dividends are re corded on the ex-dividend
date.


- --------------------------------------------------------------------------------
                                       56
<PAGE>

                                                              ------------------
                                                                 The Guardian
                                                              Stock, Bond & Cash
                                                              ------------------
                                                                       4
                                                              ------------------

- --------------------------------------------------------------------------------

COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited) (continued)

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
of 1986, as amended (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.

Reclassifications 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.

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 in come 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. GISC receives a
management fee from each Fund computed at the rate of .50% of the daily average
net assets during the fiscal year, payable quarterly. If total expenses of any
Fund (excluding taxes, interest and brokerage commissions, but including the
investment advisory fee) exceeds 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 six months ended June 30, 1997.

      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. The aggregate remuneration
paid by each Fund to its disinterested directors was $6,250 for the six months
ended June 30, 1997.


- --------------------------------------------------------------------------------
                                       57
<PAGE>

- ------------------
   The Guardian
Stock, Bond & Cash
- ------------------
        4
- ------------------

- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------

COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited) (continued)

- -------------------------------
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 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. Each Fund's Board of Directors has
established standards to evaluate the creditworthiness of broker-dealers and
banks which engage in repurchase agreements with each Fund. Repurchase
agreements of more than one week's duration (or investments in any other
securities which are deemed to be not readily marketable by the staff of the
Securities and Exchange Commission) are not permitted if more than 10% of a
Fund's net assets would be so invested.

- ---------------------------------
Note D -- Investment Transactions
- ---------------------------------

      Purchases and proceeds from sales of securities (excluding short-term
securities) were as follows:

                                                Six Months Ended June 30, 1997
                                                         (Unaudited)
                                               --------------------------------
                                                    GSF                GBF
                                                    ---                ---
Purchases
    Stocks and debt obligations ............   $ 689,635,573      $ 177,030,642
    U.S. Government and government
      agency obligations ...................            --          398,148,143
Proceeds
    Stocks and debt obligations ............   $ 562,392,414      $ 177,723,333
    U.S. Government and government
      agency obligations ...................            --          397,398,546

      The cost of investments owned at June 30, 1997 for federal income tax
purposes was the same as for financial reporting purposes. The gross unrealized
appreciation and depreciation of investments at June 30, 1997 for GSF and GBF
were as follows:

                                                    GSF                GBF
                                                    ---                ---
    Gross Appreciation .....................   $ 832,134,025      $   2,053,946
    Gross Depreciation .....................      (7,641,925)        (1,493,676)
                                               -------------      -------------
      Net Unrealized Appreciation ..........   $ 824,492,100      $     560,270
                                               =============      =============

- --------------------------------------------------------------------------------


                                       58
<PAGE>

                                                              ------------------
                                                                 The Guardian
                                                              Stock, Bond & Cash
                                                              ------------------
                                                                       4
                                                              ------------------

- --------------------------------------------------------------------------------

COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited) (continued)

- ---------------------------------------
Note E -- Transactions in Capital Stock
- ---------------------------------------

      There are 100,000,000 shares of $0.10 par value capital stock authorized.
Transactions in capital stock were as follows:

<TABLE>
<CAPTION>
                                      Six Months       Year Ended       Six Months       Year Ended
                                           Ended         December            Ended         December
                                   June 30, 1997         31, 1996    June 30, 1997         31, 1996
                                     (Unaudited)        (Audited)      (Unaudited)        (Audited)
- ----------------------------------------------------------------------------------------------------
                                                 Shares                            Amount
- ----------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>          <C>              <C>          
o The Guardian Stock Fund, Inc. 
Shares sold                            5,156,757        9,984,589    $ 216,285,699    $ 376,271,228
Shares issued in reinvestment of
  dividends and distributions          1,307,116        7,056,955       58,781,016      270,899,336
Shares repurchased                    (2,833,149)      (5,854,449)    (115,603,588)    (218,108,938)
- ----------------------------------------------------------------------------------------------------
   Net increase                        3,630,724       11,187,095    $ 159,463,127    $ 429,061,626
- ----------------------------------------------------------------------------------------------------
o The Guardian Bond Fund, Inc. 
Shares sold                            1,270,463        4,464,537    $  15,183,129    $  53,654,579
Shares issued in reinvestment of
  dividends and distributions            857,409        1,871,161       10,203,167       22,033,188
Shares repurchased                    (3,262,496)      (6,951,420)     (38,955,174)     (83,466,091)
- ----------------------------------------------------------------------------------------------------
   Net decrease                       (1,134,624)        (615,722)   ($ 13,568,878)   ($  7,778,324)
- ----------------------------------------------------------------------------------------------------
o The Guardian Cash Fund, Inc. 
Shares sold                           16,573,653       33,287,898    $ 165,736,537    $ 332,878,981
Shares issued in reinvestment of
  dividends and distributions            981,218        1,837,798        9,812,182       18,377,984
Shares repurchased                   (15,453,532)     (32,975,534)    (154,535,325)    (329,755,344)
- ----------------------------------------------------------------------------------------------------
   Net increase                        2,101,339        2,150,162    $  21,013,394    $  21,501,621
- ----------------------------------------------------------------------------------------------------
</TABLE>

- ------------------------
Note F -- Line of Credit
- ------------------------

      A $20,000,000 line of credit available to each Fund and the other Guardian
related Funds has been established with Morgan Guaranty Trust Company. The rate
of interest charged on any borrowings is based upon the prevailing Federal Funds
rate at the time of the loan plus .25% calculated on a 360 day basis per annum.
For the six months ended June 30, 1997, none of the Funds borrowed against this
line of credit.


- --------------------------------------------------------------------------------
                                       59

<PAGE>

- ---------------
Gabelli Capital
  Asset Fund
- ---------------
       5
- ---------------

- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------

SCHEDULE OF INVESTMENTS
June 30, 1997 (Unaudited)

- ----------------------
COMMON STOCKS -- 92.0%
- ----------------------

   Shares                                            Value
- ----------------------------------------------------------

Aerospace -- 0.6%
    8,000  Boeing Co.                           $  424,500
                                                ----------
Automotive: Parts and Accessories -- 3.6%
    5,000  Brad Ragan, Inc.+                       118,125
    3,000  Federal-Mogul Corporation               105,000
   40,000  GenCorp Inc.                            925,000
   23,000  Handy & Harman                          399,625
   10,000  TransPro Inc.                            86,875
   30,000  Wynn's International, Inc.              851,250
                                                ----------
                                                 2,485,875
                                                ----------
Aviation: Parts and Services -- 4.0%
   13,000  AAR Corp.                               420,062
   40,000  Coltec Industries Inc.+                 780,000
    5,000  Curtiss-Wright Corporation              291,250
    7,500  Hi-Shear Industries Inc.                 18,281
   27,000  Hudson General Corporation            1,026,000
    7,000  Moog, Inc., Class A+                    220,500
                                                ----------
                                                 2,756,093
                                                ----------
Broadcasting -- 8.7%
   65,000  Ackerley Communications Inc.            706,875
   23,442  Chris-Craft Industries, Inc.          1,131,077
    5,000  Gray Communications Systems, Inc.       112,187
   50,000  Gray Communications Systems, Inc.,
             Class B                             1,043,750
   30,000  Grupo Televisa S.A., GDR +              911,250
   10,000  LIN Television Corporation+             441,250
   16,000  United Television, Inc.               1,584,000
                                                ----------
                                                 5,930,389
                                                ----------
Cable -- 12.7%
   22,000  BET Holdings, Inc., Class A +           720,500
   48,000  Cablevision Systems Corporation,
             Class A+                            2,568,000
   75,000  International Family Entertainment,
             Inc., Class B+                      2,578,125
   95,000  Tele-Communications, Inc./Liberty
             Media Group, Class A+               2,256,250
   29,000  Tele-Communications International,
             Inc., Class A+                        447,687
   15,000  United International Holdings, Inc.,
             Class A+                              155,625
                                                ----------
                                                 8,726,187
                                                ----------
Consumer Products -- 4.1%
    6,500  Culbro Corporation+                     904,718
   10,000  Fortune Brands, Inc.                    373,125
   30,000  Gallaher Group plc+                     553,125
   25,000  General Housewares Corp.                246,875
   18,000  National Presto Industries Inc.         725,625
                                                ----------
                                                 2,803,468
                                                ----------
Consumer Services -- 3.3%
   40,000  HSN, Inc.+                            1,250,000
   50,000  Rollins, Inc.                         1,006,250
                                                ----------
                                                 2,256,250
                                                ----------
Diversified Industrial -- 4.2%
    7,500  Crane Co.                               313,594
   16,000  GATX Corporation                        924,000
    4,000  Honeywell, Inc.                         303,500
   10,000  ITT Industries Inc.                     257,500
   45,000  Katy Industries, Inc.                   669,375
   10,000  Thomas Industries Inc.                  287,500
   50,000  Tyler Corporation+                      103,125
                                                ----------
                                                 2,858,594
                                                ----------
Energy -- 1.3%
    5,000  Eastern Enterprises                     174,063
   90,000  Kaneb Services, Inc.+                   331,875
    5,000  Pennzoil Company                        383,750
                                                ----------
                                                   889,688
                                                ----------
Entertainment -- 8.6%
   14,664  Ascent Entertainment Group Inc.+        133,809
   70,000  Gaylord Entertainment Company,   
             Class A                             1,614,375
   30,000  GC Companies, Inc.+                   1,380,000
   25,000  Time Warner Inc.                      1,206,250
   41,000  Viacom Inc., Class A+                 1,206,938
   12,000  Viacom Inc., Class B+                   360,000
                                                ----------
                                                 5,901,372
                                                ----------
Equipment and Supplies -- 10.7%
   10,000  Aeroquip-Vickers Inc.                   472,500
   20,000  AMETEK, Inc.                            470,000
   16,200  Ampco-Pittsburgh Corporation            237,937
    6,000  CTS Corporation                         413,625
   12,500  Franklin Electric Company, Inc.         621,875


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       60
<PAGE>

                                                                 ---------------
                                                                 Gabelli Capital
                                                                    Asset Fund
                                                                 ---------------
                                                                        5
                                                                 ---------------
- --------------------------------------------------------------------------------
   Shares                                            Value
- ----------------------------------------------------------
   40,000  General Instrument Corporation+      $1,000,000
    8,000  Ingersoll Rand Co.                      494,000
   33,000  Navistar International Corporation+     569,250
   14,200  Pittway Corporation                     710,000
   28,000  Sequa Corporation, Class A+           1,578,500
   10,000  SPS Technologies, Inc.+                 710,000
                                                ----------
                                                 7,277,687
                                                ----------
Financial Services -- 1.7%
   22,600  Midland Company                       1,130,000
                                                ----------
Food and Beverage -- 6.4%
   50,000  Archer-Daniels-Midland Company        1,175,000
   37,000  Celestial Seasonings, Inc.+             925,000
   27,000  Quaker Oats Company                   1,211,625
    5,000  Seagram Company Ltd.                    201,250
    7,786  Tootsie Roll Industries, Inc.           346,477
   20,000  Whitman Corporation                     506,250
                                                ----------
                                                 4,365,602
                                                ----------
Health Care -- 2.2%
   20,000  Carter-Wallace, Inc.                    357,500
   60,000  IVAX Corp.+                             671,250
    5,000  Rhone-Poulenc Rorer, Inc.               454,375
                                                ----------
                                                 1,483,125
                                                ----------
Hotels/Casinos -- 4.6%
   35,000  Aztar Corporation+                      247,188
   30,000  ITT Corporation, New+                 1,831,875
   80,000  Jackpot Enterprises Inc.                910,000
   17,000  Trump Hotels & Casino Resorts, Inc.+    182,750
                                                ----------
                                                 3,171,813
                                                ----------
Publishing -- 7.4%
   20,000  Golden Books Family Entertainment,
             Inc.+                                 250,000
   15,000  Harcourt General, Inc.                  714,375
   15,000  Lee Enterprises, Incorporated           395,625
    5,000  McGraw-Hill Companies, Inc.             294,063
   25,000  Media General, Inc., Class A          1,000,000
   28,000  Meredith Corporation                    812,000
   14,666  Pulitzer Publishing Company             777,298
   60,000  Thomas Nelson Inc.                      832,500
                                                ----------
                                                 5,075,861
                                                ----------
Retail -- 4.3%
   50,000  Bruno's, Inc.+                          575,000
    5,000  Delchamps, Inc.                         160,000
   35,000  Giant Food Inc., Class A              1,141,875
   40,000  Neiman Marcus Group, Inc.+            1,050,000
                                                ----------
                                                 2,926,875
                                                ----------
Specialty Chemical -- 0.8%
   14,000  Ferro Corporation                       518,875
                                                ----------
Wireless Communications -- 2.8%
   32,000  Centennial Cellular Corp., Class A+     508,000
   30,000  COMSAT Corporation, Series 1            714,375
   12,000  Rogers Cantel Mobile Communications,
             Inc., Class B+                        227,250
   15,000  Telephone and Data Systems, Inc.        569,062
                                                ----------
                                                 2,018,687
                                                ----------
TOTAL COMMON STOCKS
 (Cost $51,382,890)                             63,000,941

- ---------------------------
U.S. TREASURY BILLS -- 9.1%
- ---------------------------

 Principal
    Amount                                           Value
- ----------------------------------------------------------
$6,235,000 4.30% to 5.10%++ due 07/10/1997
            08/21/1997                         $ 6,205,051
                                               -----------
TOTAL U.S. TREASURY BILLS
 (Cost $6,205,051)                               6,205,051
                                               -----------
TOTAL INVESTMENTS -- 101.1%
 (Cost $57,587,941) (a)                         69,205,992
                                               -----------
OTHER ASSETS AND LIABILITIES
 (Net) --(1.1)%                                   (726,301)
                                               -----------
NET ASSETS-- 100.0%                            $68,479,691
                                               ===========

(a) Aggregate cost for Federal tax purposes was $57,608,884. Net unrealized
    appreciation for Federal tax purposes was $11,597,108 (gross unrealized
    appreciation was $12,213,508 and gross unrealized depreciation was
    $616,400).
+   Non-income producing security.
++  Represents annualized yield at date of purchase.
GDR -- Global Depositary Receipt


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       61
<PAGE>

- ---------------
Gabelli Capital
  Asset Fund
- ---------------
       5
- ---------------

- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------

STATEMENT OF ASSETS
AND LIABILITIES

June 30, 1997 (Unaudited)

Assets:
  Investments, at value
 (Cost $57,587,941)                            $69,205,992
  Cash                                              29,085
  Receivables for investments sold               1,959,097
  Unamortized organization costs                    56,659
  Dividends receivable                              25,732
                                               -----------
    Total Assets                                71,276,565
                                               -----------
Liabilities:
  Payable for investments purchased              2,569,531
  Organization costs payable                        99,905
  Management fee payable                            53,293
  Accrued Directors' fees                           11,675
  Accrued expenses and other payables               62,470
                                               -----------
    Total Liabilities                            2,796,874
                                               -----------
  Net assets applicable to 4,886,306 shares of
  common stock outstanding                     $68,479,691
                                               ===========
NET ASSETS consist of:
  Shares of common stock at par value          $     4,886
  Additional paid-in capital                    54,020,234
  Undistributed net investment income                5,809
  Accumulated net realized
   gain on investments                           2,830,711
  Net unrealized appreciation of investments    11,618,051
                                               -----------
    Total Net Assets                           $68,479,691
                                               ===========
  Net Asset Value, offering and redemption
price per share ($68,479,691 / 4,886,306
shares outstanding; 500,000,000 shares
authorized of $0.001 par value)                $     14.01
                                               ===========

STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997 
(Unaudited)

Investment Income:
 Dividend income (net of foreign
 withholding taxes of $248)                    $   292,742
 Interest income                                    72,197
                                               -----------
    Total Investment Income                        364,939
                                               -----------
Expenses:
  Management fee                                   276,471
  Legal and audit fees                              22,680
  Directors' fees                                   17,403
  Custodian fees                                    15,124
  Amortization of organization costs                 9,918
  Shareholder services fees                          8,689
  Other                                              5,857
                                               -----------
  Total expenses                                   356,142
                                               -----------
Net Investment Income                                8,797
                                               -----------
Net Realized and Unrealized Gain on
Investments:
  Net realized gain on investments sold          2,851,654
  Change in net unrealized appreciation of
   investments during the year                   8,508,852
                                               -----------
Net realized and unrealized gain on investments 11,360,506
                                               -----------
Net increase in net assets resulting from
 operations                                    $11,369,303
                                               ===========


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       62
<PAGE>

                                                                 ---------------
                                                                 Gabelli Capital
                                                                    Asset Fund
                                                                 ---------------
                                                                        5
                                                                 ---------------
- --------------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS
June 30, 1997 (Unaudited)

                                                        Six Months
                                                          Ended        Year
                                                         6/30/97       Ended
                                                       (Unaudited)   12/31/96
                                                       -----------  -----------

Net investment income                                  $     8,797  $    92,133
Net realized gain on investments                         2,851,654    1,411,324
Net change in unrealized appreciation of investments     8,508,852    2,258,045
                                                       -----------  -----------
Net increase in net assets resulting from operations    11,369,303    3,761,502
Distribution to shareholders from:
   Net investment income                                        --      (95,723)
   Net realized gain on investments                             --   (1,416,212)
Net increase in net assets from Fund share
 transactions                                            5,648,857   22,848,022
                                                       -----------  -----------
Net increase in net assets                              17,018,160   25,097,589
NET ASSETS:
Beginning of period                                     51,461,531   26,363,942
                                                       -----------  -----------

End of period (including undistributed (distributions 
  in excess of) net investment income of $5,809 and 
  ($2,988), respectively)                              $68,479,691  $51,461,531
                                                       ===========  ===========


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       63
<PAGE>

- ---------------
Gabelli Capital
  Asset Fund
- ---------------
       5
- ---------------

- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------

FINANCIAL HIGHLIGHTS

 Per share amounts for a Fund share outstanding throughout each period.

<TABLE>
<CAPTION>
                                                       Six Months
                                                          Ended        Year       Period
                                                         6/30/97       Ended       Ended
                                                       (Unaudited)   12/31/96    12/31/95*
                                                      ------------   ---------   ---------

<S>                                                      <C>           <C>         <C>   
Operating performance:
Net asset value, beginning of period                     $11.55        $10.70      $10.00
                                                        -------       -------     -------
Net investment income                                        --          0.02        0.03(a)
Net realized and unrealized gain on investments            2.46          1.16        0.80
                                                        -------       -------     -------
Total from investment operations                           2.46          1.18        0.83
                                                        -------       -------     -------
Distributions to shareholders from:
 Net investment income                                       --         (0.02)      (0.03)
 Net realized gains                                          --         (0.31)      (0.09)
 Distributions in excess of net realized gains               --            --       (0.01)
                                                        -------       -------     -------
Total Distributions                                          --         (0.33)      (0.13)
                                                        -------       -------     -------
Net asset value, end of period                           $14.01        $11.55      $10.70
                                                        =======       =======     =======
Total return**                                             21.3%         11.0%        8.4%
                                                        =======       =======     =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)                    $68,480       $51,462     $26,364
 Ratio of net investment income to average
  net assets                                               0.03%+        0.21%       0.75%+
 Ratio of operating expenses to average
  net assets                                               1.29%+        1.31%       1.78%+(b)
Portfolio turnover rate                                    37.7%         53.2%       81.4%
Average commission rate (per share of security)         $0.0502       $0.0496         N/A
</TABLE>

- ------------
*   The Fund commenced 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. 
+   Annualized. 
(a) Net investment income before expenses assumed by the Manager and Adviser was
    $0.03. 
(b) Operating expense ratio before expenses assumed by the Manager and Adviser 
    was 1.92%.


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       64
<PAGE>

                                                                 ---------------
                                                                 Gabelli Capital
                                                                    Asset Fund
                                                                 ---------------
                                                                        5
                                                                 ---------------
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)

- ------------------------------------
1 -- Significant Accounting Policies
- ------------------------------------

      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"), whose primary objective is growth of capital. 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. The Fund commenced operations on May 1, 1995. On April 26,
1995, the Fund sold a total of 10,000 shares of common stock to Guardian
Insurance & Annuity Company, Inc. and proceeds to the Fund amounted to $100,000.
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 which are traded only on a nationally recognized
securities exchange or are quoted on Nasdaq are valued at the last sale price as
of the close of business on the day the securities are being valued or, lacking
any sales, at the mean between closing bid and asked prices; if there were no
asked prices quoted on that day, the security is valued at the closing bid
price. Other portfolio securities for which over-the-counter market quotations
are readily available are valued at the mean of the current bid and asked price;
if there were no asked prices quoted on that day, the security is valued at the
closing bid price. Portfolio securities which are traded on more than one
exchange or market are valued according to the broadest and most representative
market, as determined by Gabelli Funds, Inc. (the "Adviser"). Securities and
assets for which market quotations are not readily available are valued at fair
value, as determined in good faith by or under the direction of the Board of
Directors of the Company. Short-term investments that mature in more than 60
days are valued at the highest bid price obtained from a dealer maintaining an
active market in the security or on the basis of prices obtained from a pricing
service approved as reliable by the Board of Directors. Short-term investments
that mature in 60 days or less are valued at amortized cost, unless the Board of
Directors determines that such valuation does not constitute fair value. All
other investment assets, including restricted and not readily marketable
securities, are valued by the Fund under procedures established by and under the
general supervision and responsibility of the Fund's Board of Directors designed
to reflect in good faith the fair value of such securities. 

Repurchase Agreements.

      The Fund may engage in repurchase agreement transactions. Under the terms
of a typical repurchase agreement, the Fund takes possession of an underlying
debt obligation subject to an obligation of the seller to repurchase, and the
Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The value of the collateral is at least equal at all
times to the total amount of the repurchase obligations, including interest. In
the event of counterparty default, the Fund has the right to use the col-


- --------------------------------------------------------------------------------
                                       65
<PAGE>

- ---------------
Gabelli Capital
  Asset Fund
- ---------------
       5
- ---------------

- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------

NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited) (Continued)

lateral to offset losses incurred. There is potential loss to the Fund in the
event the Fund is delayed or prevented from exercising its rights to dispose of
the collateral securities, including the risk of a possible decline in the value
of the underlying securities during the period while the Fund seeks to assert
its rights. The Adviser, acting under the supervision of the Board of Directors,
reviews the value of the collateral and the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to evaluate
potential risks. 

Securities Transactions and Investment Income.

      Securities transactions are accounted for on the trade date with realized
gain or loss on investments determined using specific identification as the 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 dividends 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 has qualified and 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.

Deferred Organization Expenses.

      A total of $100,000 was incurred in connection with the organization of
the Fund. These costs were advanced by the Guardian Insurance & Annuity Company
Inc. and will be reimbursed by the Fund. These 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.

- ----------------------------------------
2. -- 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 percent 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 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 Fund 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
percent of the value of the Fund's average daily net assets.


- --------------------------------------------------------------------------------
                                       66
<PAGE>

                                                                 ---------------
                                                                 Gabelli Capital
                                                                    Asset Fund
                                                                 ---------------
                                                                        5
                                                                 ---------------
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited) (Continued)

- --------------------------
3. -- Portfolio Securities
- --------------------------

      Cost of purchases and proceeds from sales of investment securities for the
six months ended June 30, 1997, excluding U.S. government and short-term
investments, aggregated $20,296,281 and $21,492,974, respectively.

- ----------------------------------
4. -- Transactions with Affiliates
- ----------------------------------

      During the six months ended June 30, 1997, the Fund paid brokerage
commissions of $39,834 to Gabelli & Company, Inc. and its affiliates.

- ----------------------------
5. -- Shares of Common Stock
- ----------------------------

      Common stock transactions were as follows:

                                Six Months Ended              Year Ended
                                    6/30/97                    12/31/96
                                  -----------                 -----------
                              Shares      Amount         Shares       Amount
                              -------    --------        -------      -------
Shares Sold                 1,036,733   $12,994,736     2,913,475   $33,336,923
Shares issued upon re
  reinvestment of dividends        --           --        131,244     1,511,935
Shares Redeemed              (606,314)   (7,345,879)   (1,052,170)  (12,000,836)
                            ---------   -----------    ----------   -----------
Net increase                  430,419    $5,648,857     1,992,549   $22,848,022
                            =========   ===========    ==========   ===========


- --------------------------------------------------------------------------------
                                       67

<PAGE>

- ------------------
 Baillie Gifford 
International Fund
- ------------------
        6
- ------------------

- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------

SCHEDULE OF INVESTMENTS
June 30, 1997 (Unaudited)

- ----------------------
COMMON STOCKS -- 94.1%
- ----------------------
     Shares                                                Value
- ----------------------------------------------------------------
ARGENTINA -- 1.2%
 Gas Transport -- 0.3%
    126,500   Transportadora De Gas Del Sur         $  1,581,250
 Oil and Gas -- 0.5%
    315,055   Perez Companc S.A.                       2,530,284
 Telephone -- 0.4%
     64,500   Telefonica De Argentina S.A.             2,233,313
                                                    ------------
                                                       6,344,847
                                                    ------------
AUSTRALIA -- 3.5%
 Bank -- 0.8%
    608,000   Australia & NZ Bank Group                4,549,010
 Beverage -- 0.4%
  1,335,300   Fosters Brewing Group                    2,482,516
 Business Services -- 0.6%
    175,700   Brambles Industries Ltd.                 3,477,779
 Metals and Mining -- 0.4%
    325,689   WMC Ltd.                                 2,055,264
 Petroleum Services -- 0.7%
     39,961   Broken Hill Proprietary                    588,397
    358,200   Woodside Petroleum                       3,086,090
 Real Estate -- 0.6%
    162,332   Lend Lease Corp.                         3,435,107
                                                    ------------
                                                      19,674,163
                                                    ------------
BRAZIL -- 2.0%
 Food and Beverage -- 0.3%
    110,000   Companhia Cerveja Ria Brahma             1,684,375
 Petroleum Services -- 0.4%
     75,000   Petroleo Brasileiro S.A.                 2,175,000
 Retail Food -- 0.3%
     64,000   Companhia Brasileira De Distribution     1,536,000
 Telecommunications -- 1.0%
     35,300   Telecomunicacoes Brasileiras             5,356,775
                                                    ------------
                                                      10,752,150
                                                    ------------
CHILE -- 0.7%
 Mining -- 0.3%
    202,800   Antofagasta Hldgs.                       1,553,526
 Utility - Electric -- 0.4%
     60,000   Enersis S.A.                             2,133,750
                                                    ------------
                                                       3,687,276
                                                    ------------
CZECH REPUBLIC -- 0.2%
 Bank -- 0.2%
     45,996   Komercni Banka S.A.                        954,417
                                                    ------------
FRANCE -- 3.8%
 Broadcasting -- 0.6%
     17,100   Canal Plus                               3,328,807
 Consumer Goods -- 0.4%
     13,500   BIC                                      2,207,617
 Electronics -- 0.8%
     58,000   SGS Thomson Microelectronics NV          4,579,441
 Oil-Integrated -- 0.9%
     48,500   Elf Aquitaine                            5,232,358
 Retail Trade -- 1.1%
     11,850   Comptoirs Modernes                       6,250,957
                                                    ------------
                                                      21,599,180
                                                    ------------
GERMANY -- 10.2%
 Automobile -- 1.8%
     13,150   Volkswagen AG                           10,080,586
 Bank -- 0.8%
    152,000   Bayerische Hypo/Wech Bank                4,544,923
 Chemicals -- 2.4%
    187,690   BASF AG                                  6,935,738
    145,000   Hoechst AG                               6,150,507
 Drugs and Health Care-- 0.3%
     22,000   GEHE AG                                  1,501,061
 Footwear -- 1.5%
     76,000   Adidas AG                                8,410,068
 Industrial Machinery -- 1.7%
     20,450   Mannesmann AG                            9,110,515
 Software -- 0.7%
     20,100   SAP AG                                   4,033,599


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       68
<PAGE>

                                                              ------------------
                                                               Baillie Gifford 
                                                              International Fund
                                                              ------------------
                                                                      6
                                                              ------------------

     Shares                                                Value
- ----------------------------------------------------------------
 Telecommunications -- 1.0%
    225,470   Deutsche Telekom                      $  5,429,586
                                                    ------------
                                                      56,196,583
                                                    ------------
HONG KONG -- 6.4%
 Banks -- 1.9%
    195,500   HSBC Hldgs.                              5,895,591
    330,000   Hang Seng Bank                           4,706,801
 Conglomerates -- 1.7%
    579,000   CITIC Pacific Ltd.                       3,617,209
    644,000   Hutchison Whampoa                        5,569,424
 Real Estate -- 2.8%
    891,000   Henderson Land Development               7,906,787
  1,088,220   Hong Kong Land Hldgs.                    2,894,665
    768,000   New World Development Co.                4,579,867
                                                    ------------
                                                      35,170,344
                                                    ------------
HUNGARY -- 0.9%
 Food and Beverage -- 0.4%
     27,000   Pick Szeged RT                           2,075,869
 Pharmaceutical -- 0.5%
     31,700   Richter Gedeon VEG                       2,918,746
                                                    ------------
                                                       4,994,615
                                                    ------------
IRELAND -- 1.1%
 Bank -- 0.6%
    391,900   Allied Irish Bank                        3,009,997
 Construction Material -- 0.5%
    273,080   CRH                                      2,861,026
                                                    ------------
                                                       5,871,023
                                                    ------------
ITALY -- 5.5%
 Oil-lntegrated -- 1.2%
  1,214,200   Eni Spa                                  6,876,254
 Telephone -- 2.7%
  2,186,000   Telecom Italia                           7,016,263
  2,435,000   Telecom Italia MOB                       7,879,934
 Textile-Apparel and Production -- 1.6%
    127,800   Gucci Group NV                           8,333,792
                                                    ------------
                                                      30,106,243
                                                    ------------
JAPAN -- 25.0%
 Automobile -- 1.0%
    190,000   Honda Motor Co.                          5,718,897
 Business Services-- 0.7%
     54,000   Secom Co.                                3,962,136
 Chemical -- 1.0%
    200,000   Shin Etsu Chem. Co.                      5,304,485
 Computer Systems -- 1.4%
        200   NTT Data Communication Systems           7,729,890
 Drugs and Health Care -- 1.3%
    146,000   Sankyo Co.                               4,904,031
    102,000   Santen Pharmaceutical Co.                2,055,662
 Electrical Equipment -- 2.4%
    210,000   Matsushita Comm.                         7,090,386
    289,000   Omron Corp.                              6,126,941
 Electronics -- 5.6%
    390,000   Canon, Inc.                             10,615,949
    113,000   Rohm Co.                                11,633,223
    100,000   Sony Corp.                               8,715,757
 Financial Services -- 2.9%
    240,100   Credit Saison Co.                        5,865,294
    110,400   Promise Co.                              6,318,479
     12,800   Shohkoh Fund & Co.                       3,875,066
 Industrial Machinery -- 1.1%
     69,300   SMC Corp.                                5,852,592
 Leisure Product -- 0.5%
     16,500   Toho Co.                                 2,720,729
 Photography -- 1.1%
    153,000   Fuji Photo Film Co.                      6,153,638
 Real Estate -- 1.4%
    523,000   Mitsubishi Estate                        7,574,420
 Retail Trade -- 2.3%
    191,000   Jusco Co.                                6,448,875
    673,000   Mitsui & Co.                             6,458,733
 Telecommunications -- 1.1%
        816   DDI Corp.                                6,022,824


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       69
<PAGE>

- ------------------
 Baillie Gifford 
International Fund
- ------------------
        6
- ------------------

- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------

Schedule of investments (continued)
June 30, 1997 (Unaudited)

     Shares                                                Value
- ----------------------------------------------------------------
 Tires and Rubber -- 1.2%
    295,000   Bridgestone Corp.                     $  6,846,100
                                                    ------------
                                                     137,994,107
                                                    ------------
MEXICO -- 1.1%
 Conglomerate -- 0.3%
    207,000   Alfa S.A.                                1,411,689
 Food, Beverage and Tobacco -- 0.3%
     56,000   Pan American Beverages, Inc.             1,841,000
 Telecommunications -- 0.5%
     56,400   Telefonos De Mexico S.A.                 2,693,100
                                                    ------------
                                                       5,945,789
                                                    ------------
NETHERLANDS -- 4.8%
 Bank -- 1.5%
    445,200   ABN Amro Hldgs. NV                       8,301,146
 Broadcasting and Publishing -- 2.1%
    280,000   Ver Ned Uitgevers                        6,190,840
     43,010   Wolters Kluwer NV                        5,236,838
 Semiconductor-Equipment -- 1.2%
    118,000   ASM Lithography Hldgs.                   6,823,068
                                                    ------------
                                                      26,551,892
                                                    ------------
NEW ZEALAND -- 0.6%
 Telecommunications -- 0.6%
    679,000   Telecom Corp. of New Zealand             3,459,081
                                                    ------------
POLAND -- 0.3%
 Conglomerate -- 0.3%
    175,000   Elektrim                                 1,522,897
                                                    ------------
SINGAPORE -- 1.0%
 Bank -- 0.5%
    284,278   Overseas Chinese Bank                    2,942,795
 Publishing -- 0.5%
    127,000   Singapore Press Hldgs.                   2,558,299
                                                    ------------
                                                       5,501,094
                                                    ------------
SPAIN -- 2.0%
 Bank -- 2.0%
    351,500   Banco Santander S.A.                    10,823,902
                                                    ------------
SWEDEN -- 4.4%
 Business Services -- 0.8
    165,000   Securitas AB                             4,649,990
 Conglomerate -- 1.2%
     72,000   Incentive AB                             6,580,570
 Construction and Mining Equipment -- 1.0%
    216,000   Atlas Copco AB                           5,640,489
 Telecommunications -- 1.4%
    192,700   LM Ericsson                              7,585,437
                                                    ------------
                                                      24,456,486
                                                    ------------
SWITZERLAND -- 7.3%
 Business Services -- 1.0%
     13,800   Adecco S.A.                              5,293,151
      5,000   Danzas Hldgs. AG                            75,342
 Industrial Machinery -- 0.4%
      1,245   Bobst AG                                 2,114,795
 Insurance -- 1.1%
      7,080   Winterthur                               6,236,219
 Pharmaceutical -- 4.8%
     16,440   Novartis AG                             26,281,479
                                                    ------------
                                                      40,000,986
                                                    ------------
UNITED KINGDOM -- 12.1%
 Bank -- 1.6%
    288,000   Abbey National                           3,932,775
    376,000   National Westminster Bank Co., PLC       5,056,187
 Capital Goods-Technology -- 0.2%
    100,000   Sage Group                               1,090,772
 Chemical -- 0.1%
    245,000   Albright & Wilson                          652,798
 Conglomerate -- 0.5%
      8,658   BTR PLC (wts.)                                 288
    578,000   Williams Hldgs.                          3,128,268
 Construction Materials -- 0.1%
     43,220   CRH                                        452,718


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       70
<PAGE>

                                                              ------------------
                                                               Baillie Gifford 
                                                              International Fund
                                                              ------------------
                                                                      6
                                                              ------------------

     Shares                                                Value
- ----------------------------------------------------------------
 Distributor -- 0.1%
    204,000   Litho Supplies                        $    704,922
 Drugs and Healthcare -- 1.8%
    320,000   Glaxo Wellcome                           6,621,237
    104,000   Zeneca Group                             3,439,580
 Electronics -- 0.7%
    140,000   Eletrocomponents                         1,042,145
    139,000   Premier Farnell                          1,080,997
    340,000   Rotork                                   1,483,450
 Engineering -- 0.5%
    116,000   Siebe                                    1,966,521
     46,500   Vosper Thorncroft                          589,292
 Financial Services -- 0.2%
    135,000   3i Group                                 1,117,334
 Food, Beverage and Tobacco -- 1.3%
    190,000   Devro Int'l.                             1,072,620
    140,000   Highland Distilleries                      767,038
    538,900   Imperial Tobacco                         3,464,083
    153,000   Whitbread                                1,935,138
 Insurance -- 0.8%
     70,000   Britannic Assurance                        944,226
    344,000   Prudential Corp.                         3,362,251
 Leisure Product -- 0.5%
    203,000   Granada Group                            2,670,643
 Newspapers -- 0.3%
    250,000   Mirror Group PLC                           782,692
    164,000   Southnews PLC                            1,065,127
 Oil-lnternational -- 0.9%
    386,000   British Petroleum                        4,801,763
 Retail Trade -- 0.5%
    369,700   Dixons Group                             2,912,080
 Support Services -- 0.1%
    160,000   Dawson Hldgs.                              492,929
 Telecommunications -- 1.0%
    503,991   Cable & Wireless Co.                     2,660,571
    585,000   Vodafone Group                           2,854,409
 Transportations -- 0.9%
    130,000   Associated British Ports                   555,295
    288,000   BAA PLC                                  2,654,623
    400,000   Firstbus                                 1,398,853
                                                    ------------
                                                      66,753,625
                                                    ------------
TOTAL COMMON STOCKS
 (Cost $374,436,616)                                 518,360,700
                                                    ------------

- -----------------------
PREFERRED STOCK -- 0.3%
- -----------------------

     Shares                                                Value
- ----------------------------------------------------------------
     27,300   Companhia Energetica
              De Minas+
   (Cost $721,831)                                  $  1,405,950
                                                    ------------

- ----------------------
CORPORATE BOND -- 0.5%
- ----------------------

   Principal
     Amount                                                Value
- ----------------------------------------------------------------
 $2,400,000   MBL Int'l. Finance Exch. Gtd.
              Notes, 3% due 11/30/02
   (Cost $2,400,000)                                $  2,631,000
                                                    ------------


                       See notes to financial statements.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
                                       71
<PAGE>

- ------------------
 Baillie Gifford 
International Fund
- ------------------
        6
- ------------------

- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------

SCHEDULE OF INVESTMENTS (continued)
June 30, 1997 (Unaudited)

- ----------------------------
REPURCHASE AGREEMENT -- 1.9%
- ----------------------------
  Principal                              Maturity
     Amount                                Date            Value
- ----------------------------------------------------------------
$10,527,000 State Street Bank & Trust
            repurchase agreement, dated
            6/30/97, maturity value
            $10,528,462 at 5.00% due
            7/1/97 (collateralized by
            $10,740,000 U.S. Treasury
            Note, 5.875% due 1/31/99)     7/1/97    $ 10,527,000
                                                    ------------

TOTAL REPURCHASE AGREEMENT
 (Cost $10,527,000)                                   10,527,000
                                                    ------------

TOTAL INVESTMENTS -- 96.8%
 (Cost $388,085,447)                                 532,924,650
                                                    ------------

CASH, RECEIVABLES AND
 OTHER ASSETS LESS
  PAYABLES -- 3.2%                                    17,819,579
                                                    ------------

NET ASSETS -- 100.0%                                $550,744,229
                                                    ============


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       72
<PAGE>

                                                              ------------------
                                                               Baillie Gifford 
                                                              International Fund
                                                              ------------------
                                                                      6
                                                              ------------------

- --------------------------------------------------------------------------------

STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1997 (Unaudited)

ASSETS:
  Investments, at identified cost*                                $ 388,085,447
                                                                  =============
  Investments, at market                                            522,397,650
  Repurchase agreements                                              10,527,000
                                                                  -------------
  TOTAL INVESTMENTS                                                 532,924,650
                                                                  -------------

  Cash                                                                      729
  Foreign currency (Cost $6,693,663)                                  6,682,525
  Receivable for fund shares sold                                    10,419,716
  Receivable for securities sold                                      1,899,887
  Dividends receivable                                                  928,813
  Dividend reclaims receivable                                          487,251
  Interest receivable                                                     7,662
  Other assets                                                            1,601
                                                                  -------------
  TOTAL ASSETS                                                      553,352,834
                                                                  -------------

LIABILITIES:
  Payable for securities purchased                                    1,055,169
  Payable for fund shares redeemed                                      222,229
  Accrued expenses                                                      167,660
  Payable for foreign currency purchased                                  2,857
  Due to affiliates                                                   1,160,690
                                                                  -------------
  TOTAL LIABILITIES                                                   2,608,605
                                                                  -------------
    NET ASSETS                                                    $ 550,744,229
                                                                  =============

COMPONENTS OF NET ASSETS:
  Capital stock, at par                                           $   2,798,919
  Additional paid-in capital                                        405,227,373
  Undistributed net investment income                                 1,247,702
  Accumulated net realized loss on investments
    and foreign currency related transactions                        (3,369,547)
  Net unrealized appreciation of investments
    and translation of assets and liabilities in
    foreign currencies                                              144,839,782
                                                                  -------------
    NET ASSETS                                                    $ 550,744,229
                                                                  =============

  Shares Outstanding -- $0.10 par value                              27,989,195
                                                                  -------------

NET ASSET VALUE PER SHARE                                         $       19.68
                                                                  =============

* Includes repurchase agreement.


STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1997 (Unaudited)

Investment Income
Income:
   Dividends                                                       $  5,913,110
   Interest                                                             287,865
                                                                   ------------
                                                                      6,200,975
     Less: Foreign tax withheld                                         662,553
                                                                   ------------
 Total Income                                                         5,538,422
                                                                  -------------

Expenses:
   Investment advisory fees -- Note B                                 1,874,465
   Custodian fees                                                       327,509
   Registration fees                                                     14,500
   Audit fees                                                            10,500
   Directors' fees -- Note B                                              6,250
   Printing expenses                                                      2,750
   Transfer agent fees                                                    1,750
   Insurance expense                                                      1,577
   Legal fees                                                             1,475
   Other                                                                    360
                                                                   ------------
   Total Expenses                                                     2,241,136
                                                                   ------------
   Net Investment Income                                              3,297,286
                                                                   ------------

Realized and Unrealized Gain/(Loss) on
  Investments and Foreign Currencies -- Note D
  Net realized loss on investments -- Note A                         (2,193,373)
  Net realized loss on foreign currency
   related transactions -- Note A                                       (22,690)
  Net change in unrealized appreciation of
   investments -- Note D                                             66,798,755
  Net change in unrealized depreciation from
   translation of assets and liabilities in
   foreign currencies -- Note D                                          54,518
                                                                   ------------
Net Realized and Unrealized Gain on
  Investments and Foreign Currencies                                 64,637,210
                                                                  -------------
Net Increase in Net Assets
  from Operations                                                  $ 67,934,496
                                                                   ============


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       73
<PAGE>

- ------------------
 Baillie Gifford 
International Fund
- ------------------
        6
- ------------------

- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                                                                Six Months        Year Ended
                                                                                                     Ended      December 31,
                                                                                             June 30, 1997              1996
                                                                                               (Unaudited)         (Audited)
                                                                                             -------------     -------------
<S>                                                                                          <C>               <C>          
INCREASE/(DECREASE) IN NET ASSETS
  From Operations:
   Net investment income                                                                     $   3,297,286     $   3,598,533
   Net realized gain/(loss) on investments and foreign currency related transactions            (2,216,063)        6,850,247
   Net change in unrealized appreciation/(depreciation) on investments and translation of
     assets and liabilities in foreign currencies                                               66,853,273        45,984,301
                                                                                             -------------     -------------
     Net Increase in Net Assets from Operations                                                 67,934,496        56,433,081
                                                                                             -------------     -------------

  Dividends and Distributions to Shareholders from:
   Net investment income                                                                        (1,868,696)       (3,598,533)
   Distributions in excess of net investment income                                                     --        (2,499,964)
   Net realized gain from investments                                                           (2,124,775)       (5,631,085)
                                                                                             -------------     -------------
     Total Dividends and Distribution to Shareholders                                           (3,993,471)      (11,729,582)
                                                                                             -------------     -------------

  From Capital Share Transactions:
   Net increase in net assets from capital share transactions-- Note F                          30,600,463        94,212,372
                                                                                             -------------     -------------
     Net Increase in Net Assets                                                                 94,541,488       138,915,871

  Net Assets:
   Beginning of period                                                                         456,202,741       317,286,870
                                                                                             -------------     -------------
   End of period*                                                                            $ 550,744,229     $ 456,202,741
                                                                                             =============     =============

* Includes undistributed/(overdistributed) net investment income of:                         $   1,247,702     $    (180,888)
</TABLE>


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       74
<PAGE>

                                                              ------------------
                                                               Baillie Gifford 
                                                              International Fund
                                                              ------------------
                                                                      6
                                                              ------------------

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:

<TABLE>
<CAPTION>
                                             Six Months                                                               February 8,
                                               Ended                                                                   1991* to  
                                              June 30,                   Year Ended December 31, (Audited)            December 31,
                                               1997        ---------------------------------------------------------     1991
                                            (Unaudited)      1996        1995        1994        1993        1992      (Audited)
                                             ---------     ---------------------------------------------------------   ---------
<S>                                          <C>           <C>         <C>         <C>         <C>         <C>         <C>      
Net asset value,
  beginning of period .....................  $   17.26     $   15.37   $   14.69   $   14.69   $   11.16   $   12.37   $   10.00
                                             ---------     ---------   ---------   ---------   ---------   ---------   ---------
Income from Investment Operations
     Net investment income ................       0.12          0.15        0.16        0.15        0.23        0.09        0.04
     Net realized and unrealized gain/(loss)
        on investments and translation of
        assets and liabilities in foreign
        currencies ........................       2.41          2.21        1.49       (0.02)       3.54       (1.20)       2.52
                                             ---------     ---------   ---------   ---------   ---------   ---------   ---------
     Net increase/(decrease) from
        investment operations .............       2.53          2.36        1.65        0.13        3.77       (1.11)       2.56
                                             ---------     ---------   ---------   ---------   ---------   ---------   ---------

Dividends and Distributions to
  Shareholders from:
     Net investment income ................      (0.07)        (0.14)      (0.15)      (0.13)      (0.24)      (0.10)      (0.04)
     Distributions in excess of
        net investment income .............       --           (0.10)      (0.12)       --          --          --          --
     Net realized gain on investments
        and foreign currency related
        transactions ......................      (0.04)        (0.23)      (0.70)       --          --          --         (0.15)
                                             ---------     ---------   ---------   ---------   ---------   ---------   ---------
     Total dividends and distributions ....      (0.11)        (0.47)      (0.97)      (0.13)      (0.24)      (0.10)      (0.19)
                                             ---------     ---------   ---------   ---------   ---------   ---------   ---------

Net asset value, end of period ............  $   19.68     $   17.26   $   15.37   $   14.69   $   14.69   $   11.16   $   12.37
                                             =========     =========   =========   =========   =========   =========   =========

Total return+ .............................      15.40%        15.41%      11.23%       0.87%      34.04%      (8.90%)      8.56%
                                             =========     =========   =========   =========   =========   =========   =========

Ratios/supplemental data:
     Net assets, end of period
        (000's omitted) ...................  $ 550,744     $ 456,203   $ 317,287   $ 303,050   $ 186,795   $  55,175   $  36,012
     Ratio of expenses to average
        net assets ........................       0.96%(a)      0.98%       0.99%       1.03%       1.11%       1.26%       1.67%(a)
     Ratio of net investment income to
        average net assets ................       1.40%(a)      0.94%       0.97%       1.11%       1.75%       0.88%       0.61%(a)
     Portfolio turnover rate ..............         22%           38%         52%         27%         18%         44%         14%
     Average rate of commissions paid(b) ..  $   0.023     $   0.036
</TABLE>

- ----------
*     Commencement of operations.
+     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.
(a)   Annualized.
(b)   For fiscal years beginning on or after September 1, 1995, a fund is
      required to disclose its average commission rate per share for trades on
      which commissions are charged. 


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       75

<PAGE>

- ----------------
 Baillie Gifford
Emerging Markets
- ----------------
       7
- ----------------
- --------------------------------------------------------------------------------
  Baillie Gifford Emerging Markets Fund
- ---------------------------------------

  SCHEDULE OF INVESTMENTS
  June 30, 1997 (Unaudited)

- ------------------------
  COMMON STOCKS -- 85.0%
- ------------------------
   Shares                                      Value
- --------------------------------------------------------------------------------
ARGENTINA -- 6.5%
 Bank -- 0.6%
   17,000  Banco Ganadero S.A.           $   612,000
 Beverage-Brewing -- 0.3%
   29,200  Quilmes Industrial                299,300
 Building Construction -- 0.5%
  114,000  Dycasa Dragados S.A.              501,678
 Gas Transport -- 0.5%
   42,500  Transportadora De Gas Del Sur     531,250
 Oil and Gas -- 1.3%
  175,092  Perez Companc S.A.              1,406,207
 Real Estate -- 0.5%
   11,700  IRSA Inv. Y Represente            511,875
 Retail-Food -- 1.1%
   12,498  Disco S.A.                        495,233
   54,000  Imp. y Exp. Patagonia             793,923
 Telecommunications -- 1.0%
   13,850  Telecom Argentina                  72,308
    5,665  Telecom Argentina ADR             297,413
   23,900  Telefonica De Argentina S.A.      827,538

 Utility-Electric -- 0.7%
   39,415  Capex S.A.                        739,030
                                         -----------
                                           7,087,755
                                         -----------
BRAZIL -- 12.3%
 Industrial Machinery -- 1.0%
   80,000  Elevadores Atlas                1,042,218

 Metals-Steel -- 0.2%
    7,700  Usinas Siderurgicas De Minas       84,700
   15,800  Usinas Siderurgicas De Minas 
             ADR+                            173,800

 Petroleum Services -- 0.4%
   14,000  Petroleo Brasileiro S.A.          406,000

 Real Estate -- 0.3%
   13,000  Brazil Realty S.A.                322,418

 Retail-Food -- 1.2%
   16,000  Bomp. S.A. Supermercados          388,800
   36,500  Comp. Brasileira De Dist. GDR     876,000

 Telecommunications -- 6.3%
  21,000,000  Telecom. Brasileiras S.A.    2,847,987
      22,200  Telecom. Brasileiras 
                S. A., ADR                 3,368,850
   2,299,784  Telesp Tel Sao Paolo           678,261
      66,141  Telesp Tel Sao Paolo (rts.)        492

 Textile and Apparel -- 0.4%
      57,600  Confeccoes Guararapes S.A.     417,333

 Tobacco -- 0.9%
      89,600  Souza Cruz (Cia)               944,647

 Utilities-Electric -- 1.6%
1,180,000,000 CIA Elect. de Rio de Janeiro   854,953
   2,200,000  Light Particapacoes            876,689
                                         -----------
                                          13,283,148
                                         -----------
CHILE -- 3.6%

 Mining -- 1.3%
     179,400  Antofagasta Hldgs.           1,374,273

 Mutual Fund -- 1.2%
      25,600  Genesis Chile Fund           1,286,400

 Telecommunications -- 0.3%
      11,230  CIA De Telecom.                370,590

 Utilities-Electric -- 0.8%
      22,800  Empresa Nacional De Elec.      514,425
      11,500  Enersis S.A.                   408,969
                                         -----------
                                           3,954,657
                                         -----------
COLOMBIA -- 1.4%

 Gas Distribution -- 0.4%
      91,000  Promigas S.A.                  387,855

 Retail-Food -- 0.8%
     227,000  Almacenes Exito S.A.           811,457

 Tobacco -- 0.2%
      78,018  Coltabaco                      264,844
                                         -----------
                                           1,464,156
                                         -----------


                       See notes to financial statements.

+Rule 144A restricted security.
- --------------------------------------------------------------------------------
                                       76
<PAGE>

                                                                ----------------
                                                                 Baillie Gifford
                                                                Emerging Markets
                                                                ----------------
                                                                       7
                                                                ----------------
- --------------------------------------------------------------------------------
   Shares                                      Value
- --------------------------------------------------------------------------------

CZECH REPUBLIC -- 2.3%

 Bank -- 0.6%
   33,200  Komercni Banka                 $  688,900

 Food and Beverages -- 1.0%
    5,000  Plzensky Prazdroj                 475,772
   79,500  Prazske Pivorary                  539,465

 Telecommunications -- 0.7%
    7,500  SPT Telecom AS                    786,527
                                         -----------
                                           2,490,664
                                         -----------
HONG KONG -- 15.2%

 Air Transportation -- 1.4%
 2,650,000  China Travel Int'l., Inc.      1,539,246

 Bank -- 1.4%
   49,800  HSBC Hldgs.                     1,497,735

 Conglomerates -- 3.0%
  200,000  CITIC Pacific Ltd.              1,249,468
  238,000  Hutchinson Whampoa              2,058,265

 Electronics -- 0.6%
 2,300,000  Elec. & Eltek Int'l.             675,397

 Financial Services -- 2.5%
  420,000  China Resources EN              2,060,072
  135,000  Guoco Group                       710,957

 Lodging -- 0.2%
  150,000  Mandarin Oriental                 195,000

 Real Estate -- 5.4%
  231,000  Henderson Land Development      2,049,908
  229,878  Hong Kong Land Hldg.              611,475
1,650,000  Hon Kwok Land Inv. Ltd.           543,092
  409,000  New World Development Co.       2,439,017
  300,000  Tai Cheung Hldgs.                 238,147

 Utility-Electric -- 0.7%
 1,540,000  Beijing Datang Power Gen. Co.    710,635
                                         -----------
                                          16,578,414
                                         -----------


HUNGARY -- 5.0%

 Building Construction and Material -- 0.6%
   16,000  Zalakeramia                       619,344

 Consumer Goods -- 0.8%
   18,200  Graboplast Textile                855,122

 Food and Beverage -- 1.0%
   14,970  Pick Szeged RT                  1,150,954

 Lodging -- 0.8%
   30,600  Danubius Hotel                    904,301

 Pharmaceutical -- 1.0%
   11,500  Richter Gedeon VEG              1,039,489

 Plastic -- 0.8%
   18,200  Pannonplast                       913,425
                                         -----------
                                           5,482,635
                                         -----------
INDIA -- 2.6%
 Bank -- 0.5%
   20,000  State Bank India                  530,000

 Lodging -- 0.1%
    5,000  Indian Hotel                      118,750

 Mutual Fund -- 1.0%
  113,500  India Opportunity Fund          1,121,380

 Telecommunications -- 1.0%
   50,000  Videsh Sanchar Nigam Ltd.       1,037,500
                                         -----------
                                           2,807,630
                                         -----------
INDONESIA -- 2.6%

 Bank -- 0.6%
  480,000  Bank Bira                         705,592

 Food and Beverages --  1.9%
  390,000  Davomas Abadi                     481,086
  321,000  Daya Guna Samudera                577,457
  400,000  Fiskar Agung Perkasa              645,559
  110,000  Perushaan Perkebu                 312,089

 Household Product -- 0.1%
    6,000  Unilever Indonesia                106,085
                                         -----------
                                           2,827,868
                                         -----------


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       77
<PAGE>

- ----------------
 Baillie Gifford
Emerging Markets
- ----------------
       7
- ----------------
- --------------------------------------------------------------------------------
  Baillie Gifford Emerging Markets Fund
- ---------------------------------------

  SCHEDULE OF INVESTMENTS
  June 30, 1997 (Unaudited)

   Shares                                      Value
- --------------------------------------------------------------------------------

KOREA -- 1.2%

 Mutual Fund -- 1.2%
      160  Korea Asia Fund               $ 1,344,000
                                         -----------
MALAYSIA -- 2.7%

 Building Construction -- 0.3%
  142,000  IJM Corp. Berhad                  298,178

 Financial Services -- 0.8%
  210,000  Affin Hldgs. Berhad               499,207
  300,000  DCB Hldgs. Berhad                 333,994

 Food, Beverage and Tobacco -- 0.3%
  130,000   RJ Reynolds Berhad               324,485

 Insurance -- 0.6%
  121,000  Malaysian Assurance               704,715

 Publishing-News -- 0.7%
  130,000  New Straits Times                 762,282
                                         -----------
                                           2,922,861
                                         -----------
MEXICO -- 6.4%

 Building Material -- 0.4%
  330,000  Grupo Cementos Chihuahua          388,651

 Capital Goods-Technology -- 0.3%
   18,000  Acer Computec Latino Amer. S.A.   302,580

 Conglomerate -- 0.8%
  135,666  Alfa S.A.                         925,209

 Financial Services -- 1.0%
  600,000  Grupo Financiero Banorte          623,592
  125,000  Grupo Financiero Inbursa S.A.     531,614
      218  Grupo Financiero Inbursa S.A. 
             ADR                               4,224

 Food, Beverage and Tobacco -- 1.5%
   42,000  Grupo Carso S.A. De CV            592,200
  150,000  Grupo Continental                 411,450
   19,200  Pan American Beverages, Inc.      631,200

 Leisure Time -- 0.4%
   95,000  Corp. Interamericana 
                   Entretenimiento           405,819

 Retail Trade -- 0.4%
  180,000  Organiz. Soriana                  451,613

 Telecommunications -- 1.6%
   35,500  Telefonos De Mexico S.A.        1,695,125
                                         -----------
                                           6,963,277
                                         -----------
PAKISTAN -- 3.0%

 Bank -- 0.9%
1,556,000  Faysal Bank                     1,033,625

 Chemical -- 0.9%
  500,000  Fauji Fertilizer                  983,436

 Utility-Electric -- 1.2%
   53,000  Hub Power Co. GDR               1,298,500
                                         -----------
                                           3,315,561
                                         -----------
PANAMA -- 0.6%

 Bank -- 0.6%
   16,200  Banco Lat. Americano De Exp.      698,625
                                         -----------
PERU -- 1.8%

 Building Material -- 0.9%
   46,767  Cementos Lima                     941,511

 Chemical -- 0.2%
   16,500  Southern Peru Copper Corp.        246,296

 Food and Beverage -- 0.4%
  471,600  Cerv. Backus Johnston & Co.       490,713

 Telecommunications -- 0.3%
  106,000  Telefonica Del Peru               278,537
                                         -----------
                                           1,957,057
                                         -----------
PHILIPPINES -- 1.8%

 Business Services -- 0.4%
  900,000  Int'l. Container Terminal Svcs.   460,646

 Conglomerate -- 0.7%
  110,000  Benpres Hldgs. Corp.              786,500

 Food and Beverage -- 0.1%
  350,000  RFM Corp.                          84,926

 Homebuilder -- 0.3%
  900,000  C & P Homes, Inc.                 337,807


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       78
<PAGE>

                                                                ----------------
                                                                 Baillie Gifford
                                                                Emerging Markets
                                                                ----------------
                                                                       7
                                                                ----------------
- --------------------------------------------------------------------------------
   Shares                                      Value
- --------------------------------------------------------------------------------

 Real Estate -- 0.3%
2,500,000  MRC Allied Industries         $   289,089
                                         -----------
                                           1,958,968
                                         -----------
POLAND -- 2.3%

 Banks -- 1.1%
   59,000  Bank Handlowy Warsaw              627,912
   29,950  Bank Roswoju Eksport              628,800

 Chemical -- 0.4%
  102,086  Polifarb Wroclaw                  382,065

 Electrical Equipment -- 0.8%
   99,750  Elektrim                          868,051
                                         -----------
                                           2,506,828
                                         -----------
PORTUGAL -- 0.7%

 Telecommunications -- 0.7%
    8,500  Telecel-Comuni Pesoais S.A.       705,074
                                         -----------
SINGAPORE -- 1.3%

 Construction -- 0.3%
   98,000  Clipsal Industries                346,920

 Electronics -- 0.6%
  210,000  Venture Manufacturing             684,479

 Publishing -- 0.4%
   18,000  Singapore Press HD                362,594
                                         -----------
                                           1,393,993

SOUTH AFRICA -- 3.6%

 Bank -- 0.8%
  102,000  First National Bank               876,791

 Conglomerate -- 0.5%
  103,000  C.G. Smith                        574,367

 Industrial Machinery -- 0.6%
   57,000  Barlow Ltd.                       620,002

 Mining -- 1.2%
   17,000  De Beers Centenary                627,617
  134,000  Gencor                            617,280

 Oil-Domestic -- 0.5%
   44,683  Sasol                             585,990
                                         -----------
                                           3,902,047
                                         -----------
TAIWAN -- 7.8%

 Bank --0.3%
  128,700  ICBC                              305,547

 Building Construction -- 1.8%
  390,000  Cathay Construction               673,381
  248,250  China Development               1,281,434

 Computers and Business Equipment -- 1.7%
   60,000  Asustek Computer, Inc.            794,245
   90,000  Asustek Computer, Inc. GDR      1,019,250

 Electrical Equipment -- 0.9%
   47,000  Teco Elec. & Machinery Ltd.       923,550

 Food and Beverage -- 0.8%
  175,000  Taiwan Tea Corp.                  893,885

 Insurance -- 0.7%
  139,100  Cathay Life Insurance             795,572

 Merchandising-Department Store -- 0.5%
  371,049  Far East Dept. Store              589,941

 Plastic -- 0.3%
  140,000  Formosa Plastic                   367,777

 Steel -- 0.4%
  402,825  China Steel                       426,009

 Transportation -- 0.4%
  370,220  Yang Ming Marine                  434,143
                                         -----------
                                           8,504,734
                                         -----------
VENEZUELA -- 0.3%

 Oil and Gas Exploration -- 0.3%
   22,000  Benton Oil & Gas Co.              330,000
                                         -----------

TOTAL COMMON STOCKS
  (Cost $72,238,112)                      92,479,952
                                         -----------


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       79
<PAGE>

- ----------------
 Baillie Gifford
Emerging Markets
- ----------------
       7
- ----------------
- --------------------------------------------------------------------------------
  Baillie Gifford Emerging Markets Fund
- ---------------------------------------

  SCHEDULE OF INVESTMENTS
  June 30, 1997 (Unaudited)

- --------------------------
  PREFERRED STOCKS -- 7.6%
- --------------------------

   Shares                                      Value
- --------------------------------------------------------------------------------

63,999,737 Banco Bradesco S.A.            $  645,021
 1,429,000 Banco Itau S.A.                   800,415
10,000,000 Cemig CIA Energ. MG               515,536
 1,630,000 CIA Cerveja Ria Brahma          1,241,559
    73,000 Confeccoes  Guararapes S.A.       440,760
 1,840,000 Coteminas CIA Tec                 717,849
 1,840,000 Encorpar                              691
15,500,000 Ericsson Telecom S.A.             921,462
 9,097,200 Lojas Renner S.A.                 466,458
 8,800,000 Petrol Brasileiros              2,444,186
    68,368 RFM Corporation                    16,848
                                         -----------
 TOTAL  PREFERRED STOCKS
  (Cost $5,536,599)                        8,210,785
                                         -----------
- -------------------------
  CORPORATE BONDS -- 1.2%
- -------------------------

Principal
   Amount                                      Value
- --------------------------------------------------------------------------------
$1,075,000 Metro Pacific Capital,
             2.50% due 4/11/03           $ 1,134,125
 200,000   RFM Capital,
             2.75% due 5/30/06               209,000
                                         -----------
 TOTAL CORPORATE BONDS
  (Cost $1,453,522)                        1,343,125
                                         -----------

- ------------------------------
  REPURCHASE AGREEMENT -- 4.9%
- ------------------------------

Principal                       Maturity
   Amount                         Date         Value
- --------------------------------------------------------------------------------
$5,319,000 State Street Bank & Trust
repurchase agreement,
dated 6/30/97, maturity
value $5,319,739 at 5.00%
due 7/1/97 (collateralized
by $5,425,000 U.S.
Treasury Note, 5.875%
due 1/31/99)                     7/1/97  $ 5,319,000
                                         -----------
 TOTAL REPURCHASE AGREEMENT
  (Cost $5,319,000)                        5,319,000
                                         -----------

 TOTAL INVESTMENTS -- 98.7%
  (Cost $84,547,233)                     107,352,862

 CASH, RECEIVABLES AND OTHER
  ASSETS LESS PAYABLES-- 1.3%              1,399,368
                                         -----------
NET ASSETS-- 100.0%                     $108,752,230
                                         ===========

Glossary of terms:
ADR - American Depository Receipt.
GDR - Global Depository Receipt.


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       80
<PAGE>

                                                                ----------------
                                                                 Baillie Gifford
                                                                Emerging Markets
                                                                ----------------
                                                                       7
                                                                ----------------
- --------------------------------------------------------------------------------

STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1997 (Unaudited)

ASSETS:
  Investments, at identified cost*      $ 84,547,233
                                        ============
  Investments, at market                 102,033,862
  Repurchase agreements                    5,319,000
                                        ------------
  TOTAL INVESTMENTS                      107,352,862

  Foreign currency (Cost $1,591,935)       1,592,660
  Dividends receivable                       354,681
  Receivable for fund shares sold            219,473
  Receivable for securities sold              47,823
  Interest receivable                          7,193
  Foreign tax receivable                       3,316
  Other assets                                   237
  Deferred organization expenses-- Note C      1,416
                                        ------------
  TOTAL ASSETS                           109,579,661
                                        ------------
LIABILITIES:
  Payable for securities purchased           418,029
  Accrued expenses                            48,954
  Payable for fund shares redeemed            33,223
  Due to affiliates                          327,225
                                        ------------
  TOTAL LIABILITIES                          827,431
    NET ASSETS                          $108,752,230
                                        ============
COMPONENTS OF NET ASSETS:
  Capital stock, at par                 $    859,549
  Additional paid-in capital              84,442,371
  Undistributed net investment income        176,437
  Accumulated net realized gain on
    investments and foreign currency
    related transactions                     468,429
  Net unrealized appreciation of 
    investments and translation of 
    assets and liabilities in 
    foreign currencies                    22,805,444
                                        ------------
    NET ASSETS                          $108,752,230
                                        ============

  Shares Outstanding -- $0.10 par value    8,595,486
                                        ------------

  NET ASSET VALUE PER SHARE             $      12.65
                                        ============

* Includes repurchase agreement.

STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1997 (Unaudited)

Investment Income
Income:
  Dividends                             $  1,096,319
  Interest                                   150,699
                                        ------------
                                           1,247,018
    Less: Foreign tax withheld                52,888
                                        ------------
  Total Income                             1,194,130
                                        ------------
Expenses:
  Investment advisory fees -- Note B         442,501
  Custodian fees                             169,327
  Audit fees                                  10,500
  Directors' fees                              6,250
  Printing expenses                            2,750
  Registration fees                            2,228
  Transfer agent fees                          1,650
  Legal fees                                     510
  Deferred organization expense -- Note C        255
  Insurance expense                              230
  Other                                          350
                                        ------------
  Total Expenses                             636,551
  Net Investment Income                      557,579
                                        ------------
Realized and Unrealized Gain/(Loss) on
 Investments and Foreign Currencies 
    -- Note D
  Net realized gain on investments 
    -- Note A                              1,545,981
  Net realized loss on foreign 
    currency related
  transactions -- Note A                    (559,275)
  Net change in unrealized appreciation 
   of investments -- Note D               14,679,260
  Net change in unrealized appreciation
   from translation of assets and 
   liabilities in foreign currencies 
   -- Note D                                   1,056
                                        ------------
Net Realized and Unrealized Gain on
  Investments and Foreign Currencies      15,667,022
                                        ------------
Net Increase in Net Assets
  from Operations                        $16,224,601
                                        ============


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       81
<PAGE>

- ----------------
 Baillie Gifford
Emerging Markets
- ----------------
       7
- ----------------
- --------------------------------------------------------------------------------
  Baillie Gifford Emerging Markets Fund
- ---------------------------------------

  STATEMENT OF CHANGES IN NET ASSETS

                                                        Six Months          Year
                                                             Ended         Ended
                                                          June 30,  December 31,
                                                              1997          1996
                                                       (Unaudited)     (Audited)
                                                     -------------   -----------
INCREASE IN NET ASSETS
 From Operations:
   Net investment income                             $     557,579   $   434,950
   Net realized gain on investments
     and foreign currency related
     transactions                                          986,706     1,463,090
   Net change in unrealized appreciation/
     (depreciation) on investments and
     translation of assets and
     liabilities in foreign currencies                  14,680,316     8,859,289
                                                     -------------   -----------
     Net Increase in Net Assets from Operations         16,224,601    10,757,329
                                                     -------------   -----------

 Dividends to Shareholders from:
   Net investment income                                  (411,735)           --
                                                     -------------   -----------

 From Capital Share Transactions:
   Increase in net assets from capital share
     transactions-- Note F                              25,877,260    22,086,308
                                                     -------------   -----------
     Net Increase in Net Assets                         41,690,126    32,843,637

 Net Assets:
   Beginning of period                                  67,062,104    34,218,467
                                                     -------------   -----------
   End of period*                                    $ 108,752,230   $67,062,104
                                                     =============   ===========

* Includes undistributed net investment income of:   $     176,437   $    30,593


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       82
<PAGE>

                                                                ----------------
                                                                 Baillie Gifford
                                                                Emerging Markets
                                                                ----------------
                                                                       7
                                                                ----------------
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:

<TABLE>
<CAPTION>
                                                                                                October 17,
                                                    Six Months             Year Ended            1994* to
                                                      Ended          December 31, (Audited)    December 31,
                                                  June 30, 1997      ----------------------       1994
                                                   (Unaudited)         1996           1995      (Audited)
                                                  -------------      ----------------------    ------------
<S>                                                 <C>              <C>            <C>          <C>    
Net asset value, beginning of period ............   $  10.54         $  8.46        $  8.68      $  9.87
                                                    --------         -------        -------      -------
  Income from Investment Operations                                                 
    Net investment income/(loss) ................       0.06            0.07           0.07        (0.01)
    Net realized and unrealized gain/(loss)                                         
      on investments and                                                            
   translation of assets and liabilities in                                         
      foreign currency ..........................       2.10            2.01          (0.12)       (1.17)
                                                    --------         -------        -------      -------
    Net increase/(decrease) from investment                                         
      operations ................................       2.16            2.08          (0.05)       (1.18)
                                                    --------         -------        -------      -------
                                                                                    
  Dividends to Shareholders from:                                                   
    Net investment income .......................      (0.05)             --          (0.07)       (0.01)
    Dividends in excess of net investment income          --              --          (0.10)          --
                                                    --------         -------        -------      -------
    Total dividends .............................      (0.05)             --          (0.17)       (0.01)
                                                    --------         -------        -------      -------
Net asset value, end of period ..................   $  12.65         $ 10.54        $  8.46      $  8.68
                                                    ========         =======        =======      =======
Total return+ ...................................      21.20%          24.59%         (0.60)%     (11.97)%
                                                    ========         =======        =======      =======
Ratios/supplemental data:                                                           
  Net assets, end of period (000's omitted) .....   $108,752         $67,062        $34,218      $24,069
  Ratio of expenses to average net assets .......       1.44%(a)        1.53%          1.67%        2.28%(a)
  Ratio of net investment income to average                                         
    net assets ..................................       1.26%(a)        0.85%          0.89%        0.94%(a)
  Portfolio turnover ratio ......................         24%             46%            52%          --
  Average rate of commissions paid(b) ...........   $  0.023         $ 0.031        
</TABLE>

- ----------
*   Commencement of public offering of the Fund's shares.
+   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 the periods shown. The total return shown
    may not be consistent with the net income in net assets resulting from
    operations in the statement of operations due to the timing in
    reinvestment price dividends in 1995.
(a) Annualized.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
    required to disclose its average commission rate per share for trades on
    which commissions are charged.


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       83
<PAGE>

- ----------------

GIAC Funds, Inc.
- ----------------
       7
- ----------------

- --------------------------------------------------------------------------------
  GIAC Funds, Inc., Baillie Gifford International Fund
  and Baillie Gifford Emerging Markets Fund
- ------------------------------------------------------

  NOTES TO FINANCIAL STATEMENTS
  June 30, 1997 (Unaudited)

- ------------------------------------------------
  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. The
Company was known as Baillie Gifford International Fund, Inc. prior to October
11, 1994 and GBG Funds, Inc. prior to March 27, 1997. Shares of the Company are
offered in three series, two of which, Baillie Gifford International Fund (BGIF)
and Baillie Gifford Emerging Markets Fund (BGEMF) are included in this report.
The remaining series had not commenced operations during this period. The series
are collectively referred to herein as the "Funds." Shares of the Funds 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. The Funds are available for investment only through the
allocation of contract values under certain variable annuity and variable life
insurance contracts issued by GIAC. Upon commencing its operations on September
13, 1994, BGEMF sold 2,000,000 shares of its capital stock to The Guardian Life
Insurance Company of America for $20,000,000 to facilitate the commencement of
operations.

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Investments in foreign securities are vulnerable to the effects of
changes in the relative values of the local currency and the U.S. dollar and to
the effects of changes in each country's legal, political and economic
environment.

Valuation of Investments

      Investments are carried at value. 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 E).

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.


- --------------------------------------------------------------------------------
                                       84
<PAGE>

                                                                ----------------

                                                                GIAC Funds, Inc.
                                                                ----------------
                                                                       7
                                                                ----------------
- --------------------------------------------------------------------------------

  NOTES TO FINANCIAL STATEMENTS (continued)
  June 30, 1997 (Unaudited)

      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 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 gain or loss on foreign currency related
transactions. Net currency gains and losses from valuing investments and 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 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 exchange 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 differences between the values of
such forward contracts at the time each was opened and the value at the time
each was closed. Such amounts are recorded in net realized gain or loss on
foreign currency related transactions. Neither Fund will 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.

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 the 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 U.S. Internal Revenue Code of
1986, as amended (Code), and as such will not be subject to federal income tax
on income (including any realized capital gains) which is distributed in
accordance with the provisions of the Code to its shareholders. 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.

      Investment income received from investments in foreign currencies may be
subject to foreign withholding tax. Whenever possible, the Fund 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.

Dividends and Distributions to Shareholders

      The Funds intend to distribute each year, as dividends, 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 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 


- --------------------------------------------------------------------------------
                                       85
<PAGE>

- ----------------

GIAC Funds, Inc.
- ----------------
       7
- ----------------
- --------------------------------------------------------------------------------
  GIAC Funds, Inc., Baillie Gifford International Fund
  and Baillie Gifford Emerging Markets Fund
- ------------------------------------------------------

  NOTES TO FINANCIAL STATEMENTS (continued)
  June 30, 1997 (Unaudited)

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.

Reclassifications 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 Funds.

- --------------------------------------------
  Note B -- Investment Management Agreements
            and Payments to Related Parties
- --------------------------------------------

      The Company has investment management agreements with Guardian Baillie
Gifford Ltd. (GBG), a Scottish corporation formed through a joint venture
between GIAC and Baillie Gifford Overseas Ltd. (BG Overseas). GBG is responsible
for the overall investment management of the Funds' portfolios subject 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 the Funds' portfolios.
GBG continually monitors and evaluates the performance of BG Overseas.

      As compensation for its services, GBG receives a management fee computed
at the 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-management fees does not represent a separate or additional expense
to the Funds.

      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. The aggregate remunerations
paid by BGIF and BGEMF to the Company's disinterested directors amounted to
$6,250 for the six months ended June 30, 1997.

- ---------------------------------------------
  Note C -- Deferred Organization and Initial
            Offering Expenses
- ---------------------------------------------

      BGIF incurred expenses of $39,110 in connection with its organization and
registration. These expenses were advanced by GIAC and were repaid by BGIF upon
completion of its first year of operations. BGEMF's expenses of $2,536 in
connection with its organization and registration were advanced by GIAC and were
repaid upon completion of its first year of operations. These expenses have been
deferred and are being amortized on a straight-line basis over a five year
period, beginning with the commencement of BGIF's operations in February, 1991
and BGEMF's operations in September, 1994.

- -----------------------------------
  Note D -- Investment Transactions
- -----------------------------------

Purchases and proceeds from sales of securities (excluding short-term
securities) were as follows:


- --------------------------------------------------------------------------------
                                       86
<PAGE>

                                                                ----------------

                                                                GIAC Funds, Inc.
                                                                ----------------
                                                                       7
                                                                ----------------
- --------------------------------------------------------------------------------

  NOTES TO FINANCIAL STATEMENTS (continued)
  June 30, 1997 (Unaudited)

                                                 Six Months Ended June 30, 1997
                                                           (Unaudited)
                                                 -------------------------------
                                                    BGIF                BGEMF
                                                    ----                -----
Purchases

   Stocks and debt obligations ...............   $115,535,399        $43,574,761

Proceeds

   Stocks and debt obligations ...............   $103,049,225        $19,725,891

   The cost of investments owned at June 30, 1997 for federal income tax
purposes for BGIF and BGEMF are the same as for financial reporting purposes.
The gross unrealized appreciation and (depreciation) of investments at June 30,
1997 were as follows:

                                                    BGIF                BGEMF
                                                    ----                -----

Gross Appreciation ...........................   $147,181,388      $ 24,832,045

Gross Depreciation ...........................     (2,342,185)       (2,026,416)
                                                 ------------      ------------
      Net Unrealized Appreciation ............   $144,839,203      $ 22,805,629
                                                 ============      ============

   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.

   There were no open forward foreign currency contracts at June 30, 1997.

- --------------------------------
 Note E -- 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. Repurchase
agreements of more than seven days' duration (or investments in any other
securities which are deemed to be not readily marketable by the staff of the
Securities and Exchange Commission) are not permitted if more than 10% of the
applicable Fund's net assets would be so invested.


- --------------------------------------------------------------------------------
                                       87
<PAGE>

- ----------------

GIAC Funds, Inc.
- ----------------
       7
- ----------------
- --------------------------------------------------------------------------------
  GIAC Funds, Inc., Baillie Gifford International Fund
  and Baillie Gifford Emerging Markets Fund
- ------------------------------------------------------

  NOTES TO FINANCIAL STATEMENTS (continued)
  June 30, 1997 (Unaudited)

- ----------------------------------------
 Note F -- Transactions in Capital Stock
- ----------------------------------------

   There are 1,000,000,000 shares of $0.10 par value capital stock authorized.
Transactions in capital stock were as follows:

<TABLE>
<CAPTION>
                                               Six Months     Year Ended       Six Months        Year Ended
                                                    Ended       December            Ended          December
                                            June 30, 1997       31, 1996    June 30, 1997          31, 1996
                                              (Unaudited)      (Audited)      (Unaudited)         (Audited)
- -----------------------------------------------------------------------------------------------------------
                                                         Shares                          Amount
- -----------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>           <C>              <C>          
o Baillie Gifford International Fund:
Shares sold                                     3,073,516      8,699,658     $ 56,919,808     $ 141,728,936
Shares issued in reinvestments of dividends
  and distributions                               144,154        688,306        2,841,292        11,729,581
Shares repurchased                             (1,660,690)    (3,603,378)     (29,160,637)      (59,246,145)
- -----------------------------------------------------------------------------------------------------------
Net increase                                    1,556,980      5,784,586     $ 30,600,463     $  94,212,372
- -----------------------------------------------------------------------------------------------------------

o Baillie Gifford Emerging Markets Fund:
Shares sold                                     3,025,180      4,246,440     $ 35,989,748     $  40,664,774
Shares issued in reinvestments of dividends
  and distributions                                32,471             --          412,105                --
Shares repurchased                               (827,543)    (1,923,662)     (10,524,593)      (18,578,466)
- -----------------------------------------------------------------------------------------------------------
Net increase                                    2,230,108      2,322,778     $ 25,877,260     $  22,086,308
- -----------------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------
  Note G -- Line of Credit
- --------------------------

   A $20,000,000 line of credit available to each Fund and the other Guardian
related Funds has been established with Morgan Guaranty Trust Company. The rate
of interest charged on any borrowings is based upon the prevailing Federal Funds
rate at the time of the loan plus .25% calculated on a 360-day basis per annum.
For the six months ended June 30, 1997, neither of the Funds borrowed against
this line of credit.


- --------------------------------------------------------------------------------
                                       88
<PAGE>

- --------------------------------------------------------------------------------



                       This page intentionally left blank.



- --------------------------------------------------------------------------------
                                       89

<PAGE>

- --------------------
Value Line Centurion
     Fund, Inc.
- --------------------
         8
- --------------------

- --------------------------------------------------------------------------------
  Value Line Centurion Fund, Inc.
- ---------------------------------

  SCHEDULE OF INVESTMENTS
  June 30, 1997 (unaudited)*

  ----------------------
  COMMON STOCKS -- 89.5%
  ----------------------

   Shares                                                Value
- --------------------------------------------------------------------------------

Bank -- 8.0%
  150,000  BankAmerica Corp.                      $  9,684,375
  200,000  Citicorp                                 24,112,500
  300,000  Mellon Bank Corp.                        13,537,500
  100,000  NationsBank Corp.                         6,456,250
                                                  ------------
                                                    53,790,625
                                                  ------------
Bank-Midwest -- 1.1%
  151,567  Banc One Corp.                            7,341,527
                                                  ------------
Computer & Peripherals -- 6.0%
  200,000  Cisco Systems, Inc.*                     13,425,000
   65,000  Compaq Computer Corp.*                    6,451,250
   60,000  Dell Computer Corp.*                      7,046,250
  180,000  Gateway 2000, Inc.*                       5,838,750
  200,000  Sun Microsystems, Inc.*                   7,443,750
                                                  ------------
                                                    40,205,000
                                                  ------------
Computer Software & Services -- 7.9%
  200,000  BMC Software, Inc.*                      11,100,000
  350,000  Computer Associates International,
             Inc.                                   19,490,625
  100,000  Microsoft Corp.*                         12,637,500
  200,000  Oracle Systems Corp.*                    10,075,000
                                                  ------------
                                                    53,303,125
                                                  ------------
Drug -- 5.2%
  170,000  Amgen Inc.*                               9,881,250
  120,000  Merck & Co., Inc.                        12,420,000
  105,000  Pfizer, Inc.                             12,547,500
                                                  ------------
                                                    34,848,750
                                                  ------------
Financial Services -- 4.9%
  200,000  Green Tree Financial Corp.                7,125,000
  475,000  Money Store, Inc. (The)                  13,626,562
  190,000  Travelers Group, Inc.                    11,981,875
                                                  ------------
                                                    32,733,437
                                                  ------------
Healthcare Information Systems -- 2.6%
  250,000  HBO & Co.                                17,218,750
                                                  ------------
Insurance-Diversified -- 2.2%
  100,000  American International Group, Inc.       14,937,500
                                                  ------------
Insurance-Life -- 4.6%
  500,000  Conseco, Inc.                            18,500,000
  250,000  SunAmerica, Inc.                         12,187,500
                                                  ------------
                                                    30,687,500
                                                  ------------
Manufactured Housing/Recreational
 Vehicles -- 3.2%
  400,000  Coachmen Industries, Inc.                 6,850,000
  600,000  Oakwood Homes Corp.                      14,400,000
                                                  ------------
                                                    21,250,000
                                                  ------------
Medical Supplies -- 5.5%
  200,000  Cardinal Health, Inc.                    11,450,000
  120,000  Johnson & Johnson                         7,725,000
  220,000  Medtronic, Inc.                          17,820,000
                                                  ------------
                                                    36,995,000
                                                  ------------
Oilfield Services/Equipment -- 15.9%
  300,000  BJ Services Co.*                         16,087,500
  300,000  Baker Hughes Inc.                        11,606,250
  250,000  ENSCO International Inc.*                13,187,500
  350,000  Global Marine, Inc.*                      8,137,500
  135,000  Halliburton Co.                          10,698,750
  500,000  Tidewater, Inc.                          22,000,000
  350,000  Transocean Offshore, Inc.                25,418,750
                                                  ------------
                                                   107,136,250
                                                  ------------
Packaging & Container -- 0.1%
   25,100  Owens-Illinois, Inc.*                       778,100
                                                  ------------
Petroleum-Producing -- 2.8%
  325,000  Louisiana Land & Exploration Co.         18,565,625
                                                  ------------
Retail Building Supply -- 0.8%
  150,000  Lowe's Companies, Inc.                    5,568,750
                                                  ------------
Retail-Special Lines -- 2.1%
  300,000  Bed, Bath & Beyond, Inc.*                 9,112,500
  250,000  CompUSA, Inc.*                            5,375,000
                                                  ------------
                                                    14,487,500
                                                  ------------
Retail Store -- 1.5%
  400,000  Shopko Stores, Inc.*                     10,200,000
                                                  ------------


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       90
<PAGE>

                                                            --------------------
                                                            Value Line Centurion
                                                                 Fund, Inc.
                                                            --------------------
                                                                     8
                                                            --------------------

- --------------------------------------------------------------------------------
   Shares                                                Value
- --------------------------------------------------------------------------------

Securities Brokerage -- 2.8%
  200,000  Merrill Lynch & Co., Inc.              $ 11,925,000
  170,000  Schwab (Charles) Corp.                    6,916,875
                                                  ------------
                                                    18,841,875
                                                  ------------
Semiconductor -- 2.1%
  100,000  Intel Corp.                              14,181,250
                                                  ------------
Shoe -- 3.5%
  400,000  NIKE, Inc. Class "B"                     23,350,000
                                                  ------------
Telecommunications Equipment -- 2.5%
  200,000  Ascend Communications, Inc.*              7,875,000
  600,000  PairGain Technologies, Inc.*              9,300,000
                                                  ------------
                                                    17,175,000
                                                  ------------
Thrift -- 2.2%
  215,000  Federal Home Loan Mortgage
             Corp.                                   7,390,625
  165,000  Federal National Mortgage
             Association                             7,198,125
                                                  ------------
                                                    14,588,750
                                                  ------------
Tobacco -- 2.0%
  300,000  Philip Morris Companies, Inc.            13,312,500
                                                  ------------
TOTAL COMMON STOCKS AND
TOTAL INVESTMENT
SECURITIES -- 89.5%
(Cost $466,735,652)                                601,496,814
                                                  ------------

- -------------------------------
SHORT-TERM INVESTMENTS -- 16.5%
- -------------------------------

Principal
 Amount                                                  Value
- --------------------------------------------------------------------------------

U.S. GOVERNMENT AGENCY OBLIGATIONS -- 14.4%
$25,000,000 Federal National Mortgage
             Association Discount Notes
             5.41%, due 7/3/97                    $ 24,992,486
25,000,000  Federal Home Loan Mortgage Corp.,
             Discount Notes 5.43%, due 7/14/97      24,950,979
25,000,000  Federal National Mortgage
             Association Discount Notes
             5.49%, due 7/21/97                     24,923,750
22,000,000  Federal Farm Credit Bank Notes
             5.55%, due 8/1/97                      22,000,000
                                                  ------------
                                                    96,867,215
                                                  ------------
REPURCHASE AGREEMENT -- 2.1%
(including accrued interest)
14,500,000  Collateralized by $11,435,000
            U.S. Treasury Notes 11 7/8%,
            due 11/15/03, with a value of
            $14,813,685 (With Morgan Stanley
            & Co., Inc. 5.70%, dated 6/30/97,
            due 7/1/97, delivery value
            $14,502,296)                            14,502,296
                                                  ------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $111,369,511)                                111,369,511
                                                  ------------
EXCESS OF LIABILITIES OVER
CASH AND RECEIVABLES -- (-6.0%)                    (40,584,496)
                                                  ------------
NET ASSETS -- 100.0%                              $672,281,829
                                                  ============
NET ASSET VALUE PER
OUTSTANDING SHARE                                 $      27.29
                                                  ============
 ($672,281,829 / 24,633,438
  shares outstanding)

* Non-income producing


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       91
<PAGE>

- --------------------
Value Line Centurion
     Fund, Inc.
- --------------------
         8
- --------------------

- --------------------------------------------------------------------------------
  Value Line Centurion Fund, Inc.
- ---------------------------------

STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1997 (unaudited)

ASSETS:
  Investment securities, at value
   (cost $466,735,652)                                 $ 601,496,814
  Short-term investments (cost $111,369,511)             111,369,511
  Cash                                                        62,773
  Dividends and interest receivable                          457,025
  Receivable for capital shares sold                         189,368
                                                       -------------
    TOTAL ASSETS                                         713,575,491
                                                       -------------
LIABILITIES:
  Payable for securities purchased                        40,810,991
  Payable for capital shares repurchased                      51,481
  Accrued expenses:
   Advisory fee                                              275,612
   GIAC administrative service fee                           125,000
   Other                                                      30,578
                                                       -------------
    TOTAL LIABILITIES                                     41,293,662
                                                       -------------
NET ASSETS                                             $ 672,281,829
                                                       =============
NET ASSETS CONSIST OF:
  Capital stock, at $1.00 par value
   (authorized 50,000,000, outstanding
   24,633,438 shares)                                  $  24,633,438
  Additional paid-in capital                             383,705,646
  Undistributed investment income -- net                   3,435,265
  Undistributed net realized gain on investments         125,746,318
  Unrealized net appreciation of investments             134,761,162
                                                       -------------
NET ASSETS                                             $ 672,281,829
                                                       =============
NET ASSET VALUE PER
OUTSTANDING SHARE
  ($672,281,829 / 24,633,438
  shares outstanding)                                  $       27.29
                                                       =============

STATEMENT OF OPERATIONS 
Six Months Ended 
June 30, 1997 (unaudited)

Investment Income:
  Dividends                                            $   1,880,896
  Interest                                                 1,402,693
                                                       -------------
    Total Income                                           3,283,589
                                                       -------------
Expenses:
  Investment advisory fee                                  1,607,719
  GIAC administrative service fee                            268,488
  Custodian fees                                              38,249
  Auditing and legal fees                                     21,475
  Insurance and dues                                          16,160
  Directors' fees and expenses                                 7,509
  Taxes and other                                                666
                                                       -------------
    Total Expenses Before Custody Credits                  1,960,266
    Less: Custody Credits                                     (2,833)
                                                       -------------
    Net Expenses                                           1,957,433
                                                       -------------
Investment Income -- Net                                   1,326,156
                                                       -------------
Realized and Unrealized Gain on Investments -- Net:
  Realized gain -- net                                    11,966,427
  Change in unrealized appreciation
    of investments                                        47,209,751
                                                       -------------
Net Realized Gain and Change in Unrealized
  Appreciation on Investments                             59,176,178
                                                       -------------
Net Increase in Net Assets from Operations             $  60,502,334
                                                       =============


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       92
<PAGE>

                                                            --------------------
                                                            Value Line Centurion
                                                                 Fund, Inc.
                                                            --------------------
                                                                     8
                                                            --------------------

STATEMENT OF CHANGES IN NET ASSETS 
for the Six Months Ended June 30, 1997 (unaudited) 
and for the Year Ended December 31, 1996

<TABLE>
<CAPTION>
                                                                  Six Months
                                                                       Ended       Year Ended
                                                               June 30, 1997     December 31,
                                                                 (unaudited)            1996
                                                               -------------   -------------
<S>                                                            <C>             <C>          
Operations:
   Investment income -- net                                    $   1,326,156   $   2,135,403
   Realized gain on investments -- net                            11,966,427     114,105,936
   Change in unrealized appreciation                              47,209,751     (25,679,011)
                                                               -------------   -------------
   Net increase in net assets from operations                     60,502,334      90,562,328
                                                               -------------   -------------
Distributions to Shareholder:
   Investment income -- net                                               --      (2,617,548)
   Realized gain from investment transactions -- net                      --     (67,401,766)
                                                               -------------   -------------
   Total distributions                                                    --     (70,019,314)
                                                               -------------   -------------
Capital Share Transactions:
   Proceeds from sale of shares                                   35,194,947     134,593,465
   Proceeds from reinvestment of distributions to shareholder             --      70,019,314
   Cost of shares repurchased                                    (62,756,278)   (111,263,942)
                                                               -------------   -------------
   (Decrease) Increase from capital share transactions           (27,561,331)     93,348,837
                                                               -------------   -------------

Total Increase in Net Assets                                      32,941,003     113,891,851

Net Assets:
   Beginning of period                                           639,340,826     525,448,975
                                                               -------------   -------------
   End of period                                               $ 672,281,829   $ 639,340,826
                                                               =============   =============
Undistributed Investment Income -- Net at End of Period        $   3,435,265   $   2,109,109
                                                               =============   =============
</TABLE>


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       93
<PAGE>

- --------------------
Value Line Centurion
     Fund, Inc.
- --------------------
         8
- --------------------

- --------------------------------------------------------------------------------
  Value Line Centurion Fund, Inc.
- ---------------------------------

  NOTES TO FINANCIAL STATEMENTS
  June 30, 1997 (unaudited)

  ------------------------------------
  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. The Fund's 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 may 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 system 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 shareholder. Therefore, no federal income tax is
required.

(D) Dividends and Distributions

   It is the Fund's policy to distribute to its shareholder, as dividends and as
capital gains distributions, all the net investment income for the year and all
net 


- --------------------------------------------------------------------------------
                                       94
<PAGE>

                                                            --------------------
                                                            Value Line Centurion
                                                                 Fund, Inc.
                                                            --------------------
                                                                     8
                                                            --------------------

- --------------------------------------------------------------------------------
  NOTES TO FINANCIAL STATEMENTS
  June 30, 1997 (unaudited)

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
basis. Interest income on investments 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 -- Capital Share Transactions, Dividends and
       Distributions
  ----------------------------------------------

   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:


                                                Six Months Ended     Year Ended
                                                  June 30, 1997     December 31,
                                                   (unaudited)          1996
                                                ----------------    ------------
Shares sold                                          1,372,319         5,349,533
Shares issued in reinvestment
 of dividends and distributions                             --         3,184,143
                                                   -----------       -----------
                                                     1,372,319         8,533,676
Shares repurchased                                   2,491,466         4,453,198
                                                   -----------       -----------
Net (decrease) increase                             (1,119,147)        4,080,478
                                                   ===========       ===========
Dividends per share                                $        --       $       .12
                                                   ===========       ===========
Distributions per share from
 net realized gains                                $        --       $      3.09
                                                   ===========       ===========

  --------------------------------------
  3 -- Purchases and Sales of Securities
  --------------------------------------

   Purchases and sales of investment securities, excluding short-term
investments, were as follows:

                                                                Six Months Ended
                                                                  June 30, 1997
                                                                   (unaudited)
                                                                ----------------
PURCHASES:
 Investment Securities                                            $236,962,860
                                                                  ============
SALES:
 Investment Securities                                            $309,652,786
                                                                  ============


- --------------------------------------------------------------------------------
                                       95
<PAGE>

- --------------------
Value Line Centurion
     Fund, Inc.
- --------------------
         8
- --------------------

- --------------------------------------------------------------------------------
  Value Line Centurion Fund, Inc.
- ---------------------------------

  NOTES TO FINANCIAL STATEMENTS
  June 30, 1997 (unaudited)

   At June 30, 1997, the aggregate cost of investment securities and
short-term investments for federal income income tax purposes is $578,105,163.
The aggregate appreciation and depreciation of investments for the period ended
June 30, 1997, based on a comparison of investment values and their costs for
federal in come tax purposes is $146,663,494 and $11,902,332 respectively,
resulting in a net appreciation of $134,761,162.

  --------------------------------------------------
  4 -- Investment Advisory Contract, Management
       Fees and Transactions with Interested Parties
  --------------------------------------------------

   An advisory fee of $1,607,719 was paid or payable to Value Line, Inc. (the
Adviser), the Fund's investment adviser, for the period ended June 30, 1997.
This was computed at the rate of 1/2 of 1% of the average daily net assets of
the Fund during the period and paid monthly. The Adviser provides re search,
investment programs, supervision of the investment port folio 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) and of GIAC are
also officers and directors of the Fund. A former officer of GIAC, who is also a
director of the Fund, was paid a fee of $1,234 for the period ended June 30,
1997. During the six months ended June 30, 1997, the Fund paid brokerage
commissions totalling $191,662 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 contractowner 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 period ended June 30, 1997, the Fund
incurred expenses of $268,488 in connection with such services rendered by
GIAC.


- --------------------------------------------------------------------------------
                                       96
<PAGE>

                                                            --------------------
                                                            Value Line Centurion
                                                                 Fund, Inc.
                                                            --------------------
                                                                     8
                                                            --------------------

- --------------------------------------------------------------------------------

  FINANCIAL HIGHLIGHTS

  Selected data for a share of capital stock outstanding throughout each period:

<TABLE>
<CAPTION>
                                             Six Months Ended                       Year Ended December 31,
                                               June 30, 1997      -------------------------------------------------------
                                                (unaudited)       1996           1995        1994        1993        1992
                                                -----------       ----           ----        ----        ----        ----
<S>                                              <C>            <C>            <C>         <C>         <C>         <C>     
Net asset value, beginning of period             $  24.83       $  24.25       $  17.83    $  18.52    $  20.04    $  20.83
                                                 --------       --------       --------    --------    --------    --------
   Income (loss) from investment operations:
    Net investment income                             .06            .08            .12         .10         .12         .20
    Net gains or losses on securities (both 
     realized and unrealized)                        2.40           3.71           6.96        (.51)       1.73        1.03
                                                 --------       --------       --------    --------    --------    --------
    Total from investment operations                 2.46           3.79           7.08        (.41)       1.85        1.23
                                                 --------       --------       --------    --------    --------    --------
   Less distributions:
    Dividends from net investment income               --           (.12)          (.10)       (.01)       (.12)       (.19)
    Distributions from capital gains                   --          (3.09)          (.56)       (.27)      (3.25)      (1.83)
                                                 --------       --------       --------    --------    --------    --------
    Total distributions                                --          (3.21)          (.66)       (.28)      (3.37)      (2.02)
                                                 --------       --------       --------    --------    --------    --------
Net asset value, end of period                   $  27.29       $  24.83       $  24.25    $  17.83    $  18.52    $  20.04
                                                 ========       ========       ========    ========    ========    ========
Total return**                                       9.91%+        17.34%         40.08%     -2.21%        9.21%       5.93%
                                                 ========       ========       ========    ========    ========    ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands)         $672,282       $639,341       $525,449    $352,745    $373,910    $347,116
Ratio of operating expenses to average
  net assets                                          .59%*(1)       .60%(1)        .62%        .61%        .61%        .54%
Ratio of net investment income to average
  net assets                                          .41%*          .36%           .60%        .57%        .57%        .99%
Portfolio turnover rate                                39%+          141%           114%        122%        118%         83%
Average commissions paid per share of
  common stock investments purchased/sold        $  .0493(2)    $  .0490(2)
</TABLE>

(1) Before offset for custody credits.
(2) Disclosure effective for fiscal years beginning on or after 9/1/95.

+   Not annualized
*   Annualized
**  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.


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       97

<PAGE>

- --------------------
Value Line Strategic
  Asset Management
- --------------------
         9
- --------------------
- --------------------------------------------------------------------------------
  Value Line Strategic Asset Management Trust
- ---------------------------------------------

  SCHEDULE OF INVESTMENTS
  June 30, 1997 (unaudited)

  ----------------------
  COMMON STOCKS -- 45.2%
  ----------------------

   Shares                                      Value
- --------------------------------------------------------------------------------
Advertising -- 0.8%
  158,000  Omnicom Group, Inc.           $ 9,736,750
                                         -----------
Aerospace/Defense -- 2.1%
   75,000  BE Aerospace, Inc.*             2,371,875
  112,000  McDonnell Douglas Corp.         7,672,000
   29,000  Northrop Grumman Corp.          2,546,563
   89,700  Precision Castparts Corp.       5,348,362
   53,000  Sundstrand Corp.                2,958,062
   45,000  Thiokol Corp.                   3,150,000
                                         -----------
                                          24,046,862
                                         -----------
Air Transport -- 0.6%
   96,000  Airborne Freight Corp.          4,020,000
   90,000  U.S. Airways Group, Inc.*       3,150,000
                                         -----------
                                           7,170,000
                                         -----------
Apparel -- 0.6%
  126,800  Fruit of the Loom, Inc. 
             Class "A"*                    3,930,800
   63,200  Liz Claiborne, Inc.             2,946,700
                                         -----------
                                           6,877,500
                                         -----------
Auto & Truck -- 0.1%
   30,000  Paccar, Inc.                    1,393,125
                                         -----------
Auto Parts-Original Equipment -- 0.4%
  120,000  Tower Automotive, Inc.*         5,160,000
                                         -----------
Bank -- 0.6%
   88,000  Mellon Bank Corp.               3,971,000
   78,000  SouthTrust Corp.                3,227,250
                                         -----------
                                           7,198,250
                                         -----------
Bank-Midwest -- 0.6%
   82,000  First Bank System, Inc.         7,000,750
                                         -----------
Beverage-Soft Drink -- 0.8%
  396,000  Coca-Cola Enterprises Inc.      9,108,000
                                         -----------
Cement -- 0.1%
    3,800  Vulcan Materials Co.              298,300
                                         -----------
Chemical-Diversified -- 0.2%
   47,000  Cytec Industries, Inc.*         1,756,625
                                         -----------
Chemical-Specialty -- 0.2%
   27,000  Praxair, Inc.                   1,512,000
    7,000  Rohm & Haas Co.                   630,438
                                         -----------
                                           2,142,438
                                         -----------
Coal/Alternate Energy -- 0.5%
   79,500  AES Corp. (The)*                5,624,625
                                         -----------
Computer & Peripherals -- 0.9%
   50,000  Data General Corp.*             1,300,000
  104,000  International Business 
             Machines Corp.                9,379,500
                                         -----------
                                          10,679,500
                                         -----------
Computer Software & Services -- 1.9%
  134,000  Compuware Corp.*                6,398,500
   72,000  Electronics For Imaging, Inc.*  3,402,000
   90,000  Fiserv, Inc.*                   4,016,250
   40,000  McAfee Associates Inc.*         2,525,000
   60,000  National Data Corp.             2,598,750
   53,000  PeopleSoft, Inc.*               2,795,750
                                         -----------
                                          21,736,250
                                         -----------
Diversified Companies -- 3.0%
  102,000  AlliedSignal, Inc.              8,568,000
   34,000  Danaher Corp.                   1,727,625
   33,000  Raychem Corp.                   2,454,375
   56,000  Textron, Inc.                   3,717,000
  120,000  Tyco International, Ltd.        8,347,500
  120,000  United Technologies Corp.       9,960,000
                                         -----------
                                          34,774,500
                                         -----------
Drug -- 1.8%
  110,000  Bio-Technology General Corp.*   1,485,000
    7,000  Bristol-Myers Squibb Co.          567,000
   52,000  Dura Pharmaceuticals, Inc.*     2,073,500
   53,000  Merck & Co., Inc.               5,485,500
   24,000  NBTY, Inc.*                       672,000
   80,000  Pfizer, Inc.                    9,560,000
   81,000  Vical, Inc.*                    1,032,750
                                         -----------
                                          20,875,750
                                         -----------
Drugstore -- 0.4%
   94,000  CVS Corp.                       4,817,500
                                         -----------
Electric Utility-Central -- 0.3%
   30,000  Cinergy Corp.                   1,044,375
  100,000  Houston Industries, Inc.        2,143,750
                                         -----------
                                           3,188,125
                                         -----------


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       98
<PAGE>

                                                            --------------------
                                                            Value Line Strategic
                                                              Asset Management
                                                            --------------------
                                                                     9
                                                            --------------------
- --------------------------------------------------------------------------------
   Shares                                      Value
- --------------------------------------------------------------------------------
Electric Utility-East -- 0.9%
   51,700  American Electric Power Co., 
             Inc.                        $ 2,171,400
   30,000  Consolidated Edison Co. of
             New York, Inc.                  883,125
  140,994  Duke Power Co.                  6,758,900
                                         -----------
                                           9,813,425
                                         -----------
Electric Utility-West -- 0.2%
   80,000  Edison International            1,990,000
                                         -----------
Electrical Equipment -- 1.1%
   20,000  Cooper Industries, Inc.           995,000
  103,000  General Electric Co.            6,733,625
   41,000  Honewell, Inc.                  3,110,875
   26,000  Jabil Circuit, Inc.*            2,180,750
                                         -----------
                                          13,020,250
                                         -----------
Electronics -- 1.3%
   40,000  Hadco Corp.*                    2,620,000
   70,000  Lexmark International Group, 
             Inc.*                         2,126,250
  286,500  Symbol Technologies, Inc.       9,633,562
                                         -----------
                                          14,379,812
                                         -----------
Entertainment -- 0.5%
   90,000  Clear Channel Communications,
             Inc.*                         5,535,000
                                         -----------
Environmental -- 0.7%
   65,500  USA Waste Services, Inc.*       2,529,938
  125,000  U.S. Filter Corp.*              3,406,250
   60,000  United Waste Systems, Inc.*     2,460,000
                                         -----------
                                           8,396,188
                                         -----------
Financial Services -- 0.8%
   48,000  ADVANTA Corp. Class  "A"        1,764,000
   58,000  Green Tree Financial Corp.      2,066,250
   37,000  Loews Corp.                     3,704,625
   34,000  Travelers Group, Inc.           2,144,125
                                         -----------
                                           9,679,000
                                         -----------
Food Processing -- 0.9%
   38,000  Campbell Soup Co.               1,900,000
  150,000  Chiquita Brands International, 
             Inc.                          2,062,500
   50,000  ConAgra, Inc.                   3,206,250
   47,000  Dean Foods Co.                  1,897,625
   52,000  Morningstar Group Inc. (The)*   1,527,500
                                         -----------
                                          10,593,875
                                         -----------
Grocery -- 2.5%
   60,000  American Stores Co.             2,962,500
  356,000  Kroger Co.*                    10,324,000
  342,400  Safeway, Inc.*                 15,793,200
                                         -----------
                                          29,079,700
                                         -----------
Hotel/Gaming -- 0.9%
   44,000  Doubletree Corp.*               1,809,500
   60,000  Hilton Hotels Corp.             1,593,750
  195,000  International Game Technology   3,461,250
  200,000  Prime Hospitality Corp.*        3,950,000
                                         -----------
                                          10,814,500
                                         -----------
Household Products -- 0.4%
   31,000  Procter & Gamble Co.            4,378,750
                                         -----------
Industrial Services -- 0.5%
  152,000  Equifax, Inc.                   5,652,500
                                         -----------
Insurance-Diversified -- 1.1%
   50,000  American Bankers Insurance
             Group, Inc.                   3,162,500
   34,000  American International 
             Group, Inc.                   5,078,750
   56,000  Marsh & McClennan Companies,
             Inc.                          3,997,000
                                         -----------
                                          12,238,250
                                         -----------
Insurance-Life -- 1.6%
  336,000  Conseco, Inc.                  12,432,000
   50,000  Equitable Companies, Inc. 
             (The)                         1,662,500
   30,000  SunAmerica Inc.                 1,462,500
   40,000  Torchmark Corp.                 2,850,000
                                         -----------
                                          18,407,000
                                         -----------
Insurance-Property/Casualty -- 0.8%
   70,000  Allstate Corp. (The)            5,110,000
   51,000  Progressive Corp.               4,437,000
                                         -----------
                                           9,547,000
                                         -----------
Machinery -- 1.4%
  100,000  DT Industries, Inc.             3,575,000
   83,000  Deere & Co.                     4,554,625
   18,000  Dover Corp.                     1,107,000
   40,000  GATX Corp.                      2,310,000
   35,700  Parker-Hannifin Corp.           2,166,544
   57,000  Zoltek Companies, Inc.*         2,180,250
                                         -----------
                                          15,893,419
                                         -----------


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                       99
<PAGE>

- --------------------
Value Line Strategic
  Asset Management
- --------------------
         9
- --------------------
- --------------------------------------------------------------------------------
  Value Line Strategic Asset Management Trust
- ---------------------------------------------

  SCHEDULE OF INVESTMENTS
  June 30, 1997 (unaudited)

   Shares                                      Value
- --------------------------------------------------------------------------------
Medical Services -- 0.7%
   22,000  Aetna Inc.                    $ 2,252,250
  108,000  Tenet Healthcare Corp.*         3,192,750
   70,000  Universal Health Services, 
             Inc. Class "B"*               2,695,000
                                         -----------
                                           8,140,000
                                         -----------
Medical Supplies -- 1.7%
   20,000  Becton, Dickinson & Co.         1,012,500
  218,154  Johnson & Johnson              14,043,664
   32,000  McKesson Corp.                  2,480,000
   73,000  Safeskin Corp.*                 2,148,937
                                         -----------
                                          19,685,101
                                         -----------
Natural Gas-Diversified -- 0.2%
   50,000  Burlington Resources, Inc.      2,206,250
                                         -----------
Newspaper -- 0.1%
    8,000  Gannett Co., Inc.                 790,000
                                         -----------
Office Equipment & Supplies -- 0.5%
  267,625  Staples, Inc.*                  6,222,281
                                         -----------
Oilfield Services/Equipment -- 0.5%
   88,000  Baker Hughes Inc.               3,404,500
   80,000  Global Industries, Ltd.*        1,868,750
                                         -----------
                                           5,273,250
                                         -----------
Packaging & Container -- 0.1%
   28,000  Owens-Illinois, Inc.*             868,000
                                         -----------
Petroleum-Integrated -- 2.2%
   50,000  Amoco Corp.                     4,346,875
   60,000  Atlantic Richfield Co.          4,230,000
   80,000  British Petroleum Co. PLC 
             (ADR)                         5,990,000
   46,000  Mobil Corp.                     3,214,250
  115,000  Occidental Petroleum Corp.      2,882,188
  180,000  USX-Marathon Group              5,197,500
                                         -----------
                                          25,860,813
                                         -----------
Petroleum-Producing -- 0.4%
  249,000  Chesapeake Energy Corp.         2,443,312
   60,000  Noble Affiliates, Inc.          2,321,250
                                         -----------
                                           4,764,562
                                         -----------
Precision Instrument -- 0.2%
   30,000  Perkin-Elmer Corp.              2,386,875
                                         -----------

Recreation -- 0.3%
   83,000  Harley- Davidson, Inc.          3,978,812
                                         -----------
Retail-Special Lines -- 2.1%
   40,000  AnnTaylor Stores Corp.*           780,000
  108,000  Bed, Bath & Beyond, Inc.*       3,280,500
  104,000  Borders Group, Inc.*            2,509,000
   90,000  Goody's Family Clothing, Inc.*  2,463,750
   23,600  Pier 1 Imports, Inc.              625,400
  200,000  Ross Stores Inc.                6,537,500
  200,000  TJX Companies, Inc.             5,275,000
   70,000  Tiffany & Co.                   3,233,125
                                         -----------
                                          24,704,275
                                         -----------
Retail Building Supply -- 0.3%
  168,000  Eagle Hardware and Garden, 
             Inc.*                         3,843,000
                                         -----------
Retail Store -- 2.4%
  111,437  Consolidated Stores Corp.*      3,872,453
  128,000  Costco Companies Inc.*          4,208,000
   80,000  Dayton-Hudson Corp.             4,255,000
   75,838  Dollar General Corp.            2,843,925
  100,000  Family Dollar Stores, Inc.      2,725,000
  110,000  Meyer (Fred), Inc.*             5,685,625
   75,400  Shopko Stores, Inc.*            1,922,700
   55,000  Stein Mart, Inc.*               1,650,000
                                         -----------
                                          27,162,703
                                         -----------
Securities Brokerage -- 0.2%
   50,000  Schwab (Charles) Corp.          2,034,375
                                         -----------
Semiconductor-Capital Equipment -- 0.3%
  100,000  Kulicke & Soffa Industries 
             Inc.*                         3,246,875
                                         -----------
Shoe -- 0.3%
  119,250  Wolverine World Wide, Inc.      3,622,219
                                         -----------
Telecommunications Equipment -- 0.2%
  128,000  Loral Space & Communications 
             Ltd.*                         1,920,000
                                         -----------
Telecommunication Services -- 0.5%
  184,000  Cincinnati Bell, Inc.           5,796,000
                                         -----------
Tobacco -- 0.5%
  129,000  Philip Morris Companies, Inc.   5,724,375
                                         -----------
TOTAL COMMON STOCKS
(Cost $365,224,241)                      521,233,285
                                         -----------


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                      100
<PAGE>

                                                            --------------------
                                                            Value Line Strategic
                                                              Asset Management
                                                            --------------------
                                                                     9          
                                                            --------------------
- --------------------------------------------------------------------------------

- ------------------------------------
  U.S. TREASURY OBLIGATIONS -- 31.0%
- ------------------------------------

  Principal
   Amount                                      Value
- --------------------------------------------------------------------------------
$60,000,000 U.S. Treasury Notes 6 1/4%,
             due June 30, 1998          $ 60,284,400
20,000,000  U.S. Treasury Notes 6 1/8%,
              due August 31, 1998         20,052,200
70,000,000  U.S. Treasury Notes 6 3/4%,
              due May 31, 1999            70,803,600
50,000,000  U.S. Treasury Notes 6.375%,
              due May 15, 2000            50,156,500
16,000,000  U.S. Treasury Notes 7 3/4%,
              due February 15, 2001       16,722,400
50,000,000  U.S. Treasury Notes 6 1/2%,
              due May 31, 2002            50,172,500
38,000,000  U.S. Treasury Notes 5 7/8%,
              due November 15, 2005       36,340,160
50,000,000  U.S. Treasury Bonds 7 1/4%,
              due August 15, 2022         52,160,500
                                         -----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $355,496,104)                      356,692,260
                                         -----------
TOTAL INVESTMENT SECURITIES -- 76.2%
(Cost $720,720,345)                      877,925,545
                                         -----------

- ---------------------------------
  SHORT-TERM INVESTMENTS -- 23.7%
- ---------------------------------

  Principal
   Amount                                      Value
- --------------------------------------------------------------------------------
U.S. TREASURY AND GOVERNMENT AGENCY 
OBLIGATIONS -- 20.1%

$25,000,000 Federal National Mortgage
            Association Discount Note
            5.41%, due 7/3/97            $ 24,992,486
50,000,000  Federal National Mortgage
            Association Discount Notes
            5.44%, due 7/14/97             49,901,778
60,000,000  Federal Home Loan Mortgage
            Corp. Notes 5.44%, 
            due 7/14/97                   59,882,133
25,000,000  Federal National Mortgage
            Association 5.43%, 
            due 7/17/97                   24,939,667
10,000,000  Federal Farm Credit Bank 
            Notes 5.50%, due 9/2/97       10,000,000
62,000,000  U.S. Treasury Notes 6 1/8%,
            due March 31, 1998            62,200,260
                                         -----------
                                         231,916,324
                                         -----------
REPURCHASE AGREEMENTS -- 3.6%
 (includes accrued interest)
41,000,000  Collateralized by $33,135,000
            U.S. Treasury Notes 8 7/8%,
            due 2/15/19, with a value of
            $41,806,221 (with Goldman,
            Sachs & Co., 5 3/4%, dated
            6/30/97, due 7/1/97, delivery
            value of $41,006,549)         41,006,549
                                      --------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $272,732,301)                      272,922,873
                                      --------------
CASH AND RECEIVABLES
LESS LIABILITIES -- 0.1%                   1,121,173
                                      --------------
NET ASSETS -- 100.0%                  $1,151,969,591
                                      ==============
NET ASSET VALUE PER
OUTSTANDING SHARE                     $        23.44
                                      ==============

 ($1,151,969,591 / 49,143,606
  shares outstanding)

* Non-income producing.


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                      101
<PAGE>

- --------------------
Value Line Strategic
  Asset Management
- --------------------
         9
- --------------------
- --------------------------------------------------------------------------------
  Value Line Strategic Asset Management Trust
- ---------------------------------------------

  STATEMENT OF ASSETS
  AND LIABILITIES
  June 30, 1997 (unaudited)

ASSETS
  Investment in securities, at value
    (cost $720,720,345)               $  877,925,545
  Short-term investments (cost 
      $272,732,301)                      272,922,873
  Cash                                        71,790
  Receivable for securities sold          23,378,853
  Interest and dividends receivable        4,963,071
  Receivable for capital shares sold         732,863
                                      --------------
    TOTAL ASSETS                       1,179,994,995
                                      --------------
LIABILITIES
  Payable for securities purchased        25,635,185
  Payable for capital shares repurchased   1,712,471
  Accrued expenses:
   Advisory fee                              469,410
   GIAC administrative service fee           176,050
   Other                                      32,288
                                      --------------
    TOTAL LIABILITIES                     28,025,404
                                      --------------
NET ASSETS                            $1,151,969,591
                                      ==============
NET ASSETS CONSIST OF:
  Capital stock, at $0.01 par value
    (authorized unlimited, outstanding
    49,143,606 shares)                     $ 491,436
  Additional paid-in capital             771,977,352
  Undistributed net investment income     43,410,690
  Undistributed net realized gain on 
      investments                        178,694,341
  Unrealized net appreciation of 
      investments                        157,395,772
                                      --------------
NET ASSETS                            $1,151,969,591
                                      ==============
NET ASSET VALUE PER
OUTSTANDING SHARE
  ($1,151,969,591 / 49,143,606
shares outstanding)                   $        23.44
                                      ==============

STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1997 (unaudited)

Investment Income:
 Interest                                $17,349,296
 Dividends (Net of foreign withholding
   tax of $11,324)                         2,592,252
                                      --------------
   Total Income                           19,941,548
                                      --------------
Expenses:
 Investment advisory fee                   2,735,297
 GIAC administrative service fee             376,770
 Custodian fees                               51,539
 Insurance and dues                           28,090
 Audit and legal fees                         21,449
 Trustees' fees and expenses                   7,509
 Taxes and other                                 346
                                      --------------
   Total Expenses Before Custody 
      Credits                              3,221,000
                                      --------------
   Less: Custody credits                      (2,486)
                                      --------------
   Net Expenses                            3,218,514
                                      --------------
Investment Income -- Net                  16,723,034
                                      --------------
Realized and Unrealized Gain on
 Investments -- Net:
 Realized gain -- net                     56,052,804
 Change in unrealized appreciation of
  investments                              2,921,389
                                      --------------
Net Realized Gain and Change in
 Unrealized Appreciation on Investments   58,974,193
                                      --------------
Net Increase in Net Assets from 
 Operations                              $75,697,227
                                      ==============


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                      102
<PAGE>

                                                            --------------------
                                                            Value Line Strategic
                                                              Asset Management
                                                            --------------------
                                                                     9
                                                            --------------------
- --------------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS 
For the Six Months Ended June 30, 1997 (unaudited) 
and for the Year Ended December 31, 1996
<TABLE>
<CAPTION>
                                                                    Six Months              Year
                                                                         Ended             Ended
                                                                 June 30, 1997      December, 31
                                                                   (unaudited)              1996
                                                               ---------------   ---------------
<S>                                                            <C>               <C>            
Operations:
   Investment income -- net                                    $    16,723,034   $    26,749,041
   Realized gain on investments -- net                              56,052,804       122,797,850
   Change in unrealized appreciation                                 2,921,389        (6,850,866)
                                                               ---------------   ---------------
   Net increase in net assets from operations                       75,697,227       142,696,025
                                                               ---------------   ---------------
Distributions to Shareholder:
   Investment income -- net                                                 --       (16,568,632)
   Realized gain from investment transactions -- net                        --       (48,810,295)
                                                               ---------------   ---------------
   Total distributions                                                      --       (65,378,927)
                                                               ---------------   ---------------
Trust Share Transactions:
   Proceeds from sale of shares                                     42,577,220       119,168,249
   Proceeds from reinvestment of distributions to shareholder               --        65,378,927
   Cost of shares repurchased                                      (39,089,615)      (65,588,322)
                                                               ---------------   ---------------
   Increase from Trust share transactions                            3,487,605       118,958,854
                                                               ---------------   ---------------
Total Increase in Net Assets                                        79,184,832       196,275,952

Net Assets:
   Beginning of period                                           1,072,784,759       876,508,807
                                                               ---------------   ---------------
   End of period                                               $ 1,151,969,591   $ 1,072,784,759
                                                               ===============   ===============

Undistributed Investment Income -- Net at End of Period        $    43,410,690   $    26,687,656
                                                               ===============   ===============
</TABLE>


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                      103
<PAGE>

- --------------------
Value Line Strategic
  Asset Management
- --------------------
         9
- --------------------
- --------------------------------------------------------------------------------
  Value Line Strategic Asset Management Trust
- ---------------------------------------------

   NOTES TO FINANCIAL STATEMENTS
   June 30, 1997 (unaudited)

- --------------------------------------
  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
achieve 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 bid and asked 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 


- --------------------------------------------------------------------------------
                                      104
<PAGE>

                                                            --------------------
                                                            Value Line Strategic
                                                              Asset Management
                                                            --------------------
                                                                     9
                                                            --------------------
- --------------------------------------------------------------------------------

   NOTES TO FINANCIAL STATEMENTS
   June 30, 1997 (unaudited)

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 shareholder. Therefore, no federal
income tax provision is required.

(D) Dividends and Distributions.

   It is the Trust's policy to distribute to its shareholder, as dividends and
as capital gains distributions, all the net investment income for the year and
all the net capital 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 on investments, 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:

                                                Six Months Ended     Year Ended
                                                  June 30, 1997     December 31,
                                                   (unaudited)         1996
                                                ----------------    ------------
Shares sold                                         1,892,025        5,553,832
Shares issued to shareholder
 in reinvestment of dividends
 and distributions                                         --        3,244,612
                                                   ----------        ---------
                                                    1,892,025        8,798,444
Shares repurchased                                  1,733,887        3,048,207
                                                   ----------        ---------
Net increase                                          158,138        5,750,237
                                                   ==========        =========
Dividends per share from
 net investment income                             $       --        $     .37
                                                   ==========        =========
Distributions per share from
 net realized gains                                $       --        $    1.09
                                                   ==========        =========


- --------------------------------------------------------------------------------
                                      105
<PAGE>

- --------------------
Value Line Strategic
  Asset Management
- --------------------
         9
- --------------------
- --------------------------------------------------------------------------------
  Value Line Strategic Asset Management Trust
- ---------------------------------------------

   NOTES TO FINANCIAL STATEMENTS
   June 30, 1997 (unaudited)

- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------

   Purchases and sales of investment securities, excluding short-term
investments, were as follows:

                                    Six Months Ended
                                      June 30, 1997
                                       (unaudited)
                                    ----------------
PURCHASES:
 U.S. Treasury Obligations            $100,203,125
 Other Investment Securities           159,211,500
                                      ------------
                                      $259,414,625
                                      ============

SALES & MATURITIES:
 Investment Securities                $215,869,642
                                      ============

   At June 30, 1997, the aggregate cost of investment securities and short-term
investments for federal income tax purposes is $993,477,834. The aggregate
appreciation and depreciation of investments at June 30, 1997, based on a
comparison of investment values and their costs for federal income tax purposes
is $165,228,149 and $7,857,565, respectively, resulting in a net appreciation of
$157,370,584.

- -----------------------------------------------
  4 -- Investment Advisory Contract, Management
       Fees and Transactions with Affiliates
- -----------------------------------------------

   An advisory fee of $2,735,297 was paid or payable to the adviser, for the
period ended June 30, 1997. This was computed at the 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.

   Certain officers and directors of the Adviser and Value Line Securities, Inc.
(the Trust's distributor and a registered broker/dealer), and of GIAC are also
officers and Trustees of the Trust. A former officer of GIAC who is also a
Trustee of the Trust was paid a fee of $1,234 by the Trust for the period ended
June 30, 1997. During the six months ended June 30, 1997, the Trust paid
brokerage commissions totalling $177,818 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 contractowner 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 six months ended June 30, 1997, the Trust
incurred expenses of $376,770 in connection with such services rendered by GIAC.


- --------------------------------------------------------------------------------
                                      106
<PAGE>

                                                            --------------------
                                                            Value Line Strategic
                                                              Asset Management
                                                            --------------------
                                                                     9
                                                            --------------------
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

Selected data for a share of capital stock outstanding throughout each period:

<TABLE>
<CAPTION>
                                                   Six Months Ended                         Year Ended December 31,
                                                     June 30, 1997        ----------------------------------------------------------
                                                      (unaudited)          1996           1995        1994        1993        1992
                                                         ------           ------         ------      ------      ------      ------
<S>                                                  <C>              <C>              <C>         <C>         <C>         <C>     
Net asset value, beginning of period                     $21.90           $20.27         $16.13      $17.01      $15.94      $14.54
                                                         ------           ------         ------      ------      ------      ------
   Income (loss) from investment operations:
   Net investment income                                    .34              .53            .39         .26         .27         .26
   Net gains or losses on securities (both realized
    and unrealized)                                        1.20             2.56           4.17       (1.09)       1.62        1.93
                                                         ------           ------         ------      ------      ------      ------
   Total from investment operations                        1.54             3.09           4.56        (.83)       1.89        2.19
                                                         ------           ------         ------      ------      ------      ------
   Less distributions:
    Dividends from net investment income                     --             (.37)          (.26)       (.01)       (.28)       (.26)
    Distributions from capital gains                         --            (1.09)          (.16)       (.04)       (.54)       (.53)
                                                         ------           ------         ------      ------      ------      ------
    Total distributions                                      --            (1.46)          (.42)       (.05)       (.82)       (.79)
                                                         ------           ------         ------      ------      ------      ------
Net asset value, end of period                           $23.44           $21.90         $20.27      $16.13      $17.01      $15.94
                                                         ======           ======         ======      ======      ======      ======
Total return**                                             7.03%+          15.87%         28.54%     -4.88%       11.86%      15.05%
                                                         ======           ======         ======      ======      ======      ======

Ratios/Supplemental Data:
Net assets, end of period (in thousands)             $1,151,970       $1,072,785       $876,509    $662,721    $615,648    $362,045
Ratio of operating expenses to average
  net assets                                                .59%*(1)         .58%(1)        .60%        .60%        .61%        .55%
Ratio of net investment income to average
  net assets                                               3.06%*           2.70%          2.18%       1.65%       1.96%       2.18%
Portfolio turnover rate                                      25%+             71%            63%        100%        110%        106%
Average commissions paid per share of
  common stock purchased/sold                            $.0493(2)        $.0490(2)          --          --          --          --
</TABLE>

(1) Before offset for custody credits.
(2) Disclosure effective for fiscal years beginning on or after 9/1/95.

+  Not annualized
*  Annualized
** 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.


                       See notes to financial statements.
- --------------------------------------------------------------------------------
                                      107
<PAGE>

- --------------------------------------------------------------------------------



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- --------------------------------------------------------------------------------
                                      108

<PAGE>

[Logo]The Guardian(R)                                         BULK RATE MAIL
                                                              U.S. POSTAGE PAID
      The Guardian Insurance & Annuity Company, Inc.          PERMIT NO. 45
      201 Park Avenue South                                   NEWARK, NJ
      New York, NY 10003



EB-010250 6/97                                   [Logo]Printed on recycled paper

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>

<ARTICLE> 6
<LEGEND>
THE SEPARATE ACCOUNT A - VALUE GUARD II
     This schedule contains financial information extracted from
the "Semi-Annual Report to Shareholders" dated June 30, 1997.
</LEGEND>
<CIK> 0000356385
<NAME> SEPARATE ACCOUNT A - VALUE GUARD II
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               JUN-30-1997
<INVESTMENTS-AT-COST>                      763,247,947
<INVESTMENTS-AT-VALUE>                   1,095,633,035
<RECEIVABLES>                                        0
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                           1,095,633,035
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                   11,696,068
<TOTAL-LIABILITIES>                         11,696,068
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                             0
<SHARES-COMMON-STOCK>                                0
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                    2,192,351
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                     56,158,022
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                   332,385,088
<NET-ASSETS>                             1,083,936,967
<DIVIDEND-INCOME>                            7,695,774
<INTEREST-INCOME>                                    0
<OTHER-INCOME>                                       0
<EXPENSES-NET>                               5,503,423
<NET-INVESTMENT-INCOME>                      2,192,351
<REALIZED-GAINS-CURRENT>                    56,158,022
<APPREC-INCREASE-CURRENT>                   57,953,360
<NET-CHANGE-FROM-OPS>                      116,303,733
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                              0
<NUMBER-OF-SHARES-REDEEMED>                          0
<SHARES-REINVESTED>                                  0
<NET-CHANGE-IN-ASSETS>                               0
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                        5,503,423
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                              5,503,423
<AVERAGE-NET-ASSETS>                     1,051,540,266
<PER-SHARE-NAV-BEGIN>                                0
<PER-SHARE-NII>                                      0
<PER-SHARE-GAIN-APPREC>                    114,111,382
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                                  0
<EXPENSE-RATIO>                                   .005
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        


</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>

<ARTICLE> 6
<LEGEND>
BAILLIE GIFFORD EMERGING MARKETS FUND
     This schedule contains financial information extracted from the 
"Semiannual Report to Shareholders" dated June 30, 1997, and is qualified 
in its entirety to such financial statements.
</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                  6-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               JUN-30-1997
<INVESTMENTS-AT-COST>                           84,547
<INVESTMENTS-AT-VALUE>                         107,353
<RECEIVABLES>                                    2,225
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                                 2
<TOTAL-ASSETS>                                 109,580
<PAYABLE-FOR-SECURITIES>                           418
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                          409
<TOTAL-LIABILITIES>                                827
<SENIOR-EQUITY>                                    859
<PAID-IN-CAPITAL-COMMON>                        84,442
<SHARES-COMMON-STOCK>                            8,595
<SHARES-COMMON-PRIOR>                            6,365
<ACCUMULATED-NII-CURRENT>                          176
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                            468
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                        22,805      
<NET-ASSETS>                                   108,752
<DIVIDEND-INCOME>                                1,043
<INTEREST-INCOME>                                  151
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                     636
<NET-INVESTMENT-INCOME>                            557
<REALIZED-GAINS-CURRENT>                           987
<APPREC-INCREASE-CURRENT>                       14,680
<NET-CHANGE-FROM-OPS>                           16,225
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0 
<NUMBER-OF-SHARES-SOLD>                          3,025
<NUMBER-OF-SHARES-REDEEMED>                        827
<SHARES-REINVESTED>                                 32 
<NET-CHANGE-IN-ASSETS>                          41,690
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                             30
<OVERDIST-NET-GAINS-PRIOR>                        (518)
<GROSS-ADVISORY-FEES>                              513
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                    442
<AVERAGE-NET-ASSETS>                            89,234
<PER-SHARE-NAV-BEGIN>                            10.54
<PER-SHARE-NII>                                    .06
<PER-SHARE-GAIN-APPREC>                           2.10
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                         (0.5)
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              12.65
<EXPENSE-RATIO>                                   1.44
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>

<ARTICLE> 6
<LEGEND>
BAILLIE GIFFORD INTERNATIONAL FUND
     This schedule contains financial information extracted from the 
"Semiannual Report to Shareholders" dated June 30, 1997, and is qualified 
in its entirety to such financial statements.

</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                  6-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               JUN-30-1997
<INVESTMENTS-AT-COST>                          388,085
<INVESTMENTS-AT-VALUE>                         532,925
<RECEIVABLES>                                   20,426
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                                 2
<TOTAL-ASSETS>                                 553,353
<PAYABLE-FOR-SECURITIES>                         1,055
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                        1,553
<TOTAL-LIABILITIES>                              2,609
<SENIOR-EQUITY>                                  2,799
<PAID-IN-CAPITAL-COMMON>                       405,227
<SHARES-COMMON-STOCK>                           27,989
<SHARES-COMMON-PRIOR>                           26,432
<ACCUMULATED-NII-CURRENT>                        1,248
<OVERDISTRIBUTION-NII>                               0                      
<ACCUMULATED-NET-GAINS>                        (3,3697)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                       144,840
<NET-ASSETS>                                   550,744
<DIVIDEND-INCOME>                                5,250
<INTEREST-INCOME>                                  288
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                   2,241
<NET-INVESTMENT-INCOME>                          3,297
<REALIZED-GAINS-CURRENT>                        (2,216)
<APPREC-INCREASE-CURRENT>                       66,853
<NET-CHANGE-FROM-OPS>                           67,934
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                        1,869
<DISTRIBUTIONS-OF-GAINS>                         2,125
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                          3,073
<NUMBER-OF-SHARES-REDEEMED>                      1,661
<SHARES-REINVESTED>                                144
<NET-CHANGE-IN-ASSETS>                          95,541
<ACCUMULATED-NII-PRIOR>                              0        
<ACCUMULATED-GAINS-PRIOR>                          971
<OVERDISTRIB-NII-PRIOR>                           (181)
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                            3,049
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                  1,874
<AVERAGE-NET-ASSETS>                           472,500
<PER-SHARE-NAV-BEGIN>                            17.26
<PER-SHARE-NII>                                    .12
<PER-SHARE-GAIN-APPREC>                           2.41
<PER-SHARE-DIVIDEND>                              (.07)
<PER-SHARE-DISTRIBUTIONS>                         (.04)
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              19.68
<EXPENSE-RATIO>                                    .96
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>

<ARTICLE> 6
<LEGEND>
THE GUARDIAN BOND FUND
     This schedule contains financial information extracted from the 
"Semiannual Report to Shareholders" dated June 30, 1997, and is qualified 
in its entirety to such financial statements.

</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               JUN-30-1997
<INVESTMENTS-AT-COST>                          383,060
<INVESTMENTS-AT-VALUE>                         383,620
<RECEIVABLES>                                   36,270
<ASSETS-OTHER>                                       2
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                                 419,893
<PAYABLE-FOR-SECURITIES>                        76,144
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                        1,271
<TOTAL-LIABILITIES>                             77,415
<SENIOR-EQUITY>                                  2,882
<PAID-IN-CAPITAL-COMMON>                       344,666
<SHARES-COMMON-STOCK>                           28,816
<SHARES-COMMON-PRIOR>                           29,951
<ACCUMULATED-NII-CURRENT>                        1,873
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                         (7,502)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                           560
<NET-ASSETS>                                   342,478
<DIVIDEND-INCOME>                                    0
<INTEREST-INCOME>                               12,016
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                     939
<NET-INVESTMENT-INCOME>                         11,077
<REALIZED-GAINS-CURRENT>                        (5,199)
<APPREC-INCREASE-CURRENT>                        5,939
<NET-CHANGE-FROM-OPS>                           11,817
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                       10,203
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                          1,270
<NUMBER-OF-SHARES-REDEEMED>                      3,262
<SHARES-REINVESTED>                                857
<NET-CHANGE-IN-ASSETS>                         (11,955)
<ACCUMULATED-NII-PRIOR>                            999
<ACCUMULATED-GAINS-PRIOR>                       (2,303)
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                            1,800
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                    853
<AVERAGE-NET-ASSETS>                           344,208
<PER-SHARE-NAV-BEGIN>                            11.83
<PER-SHARE-NII>                                    .40
<PER-SHARE-GAIN-APPREC>                            .01
<PER-SHARE-DIVIDEND>                              (.36)
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              11.88
<EXPENSE-RATIO>                                    .55
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>

<ARTICLE> 6
<LEGEND>
THE GUARDIAN CASH FUND
     This schedule contains financial information extracted from the 
"Semiannual Report to Shareholders" dated June 30,1997, and is qualified 
in its entirety to such financial statements.

</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                  6-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               JUN-30-1997
<INVESTMENTS-AT-COST>                          400,799
<INVESTMENTS-AT-VALUE>                         400,799
<RECEIVABLES>                                      977
<ASSETS-OTHER>                                       2
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                                 401,778
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                        2,443
<TOTAL-LIABILITIES>                              2,443
<SENIOR-EQUITY>                                  3,993
<PAID-IN-CAPITAL-COMMON>                       395,342
<SHARES-COMMON-STOCK>                           39,933
<SHARES-COMMON-PRIOR>                           37,832
<ACCUMULATED-NII-CURRENT>                            0
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                              0    
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                             0  
<NET-ASSETS>                                   399,335
<DIVIDEND-INCOME>                                    0
<INTEREST-INCOME>                               10,888
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                   1,076
<NET-INVESTMENT-INCOME>                          9,812
<REALIZED-GAINS-CURRENT>                             0
<APPREC-INCREASE-CURRENT>                            0  
<NET-CHANGE-FROM-OPS>                            9,812
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                       (9,812)
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                         16,574
<NUMBER-OF-SHARES-REDEEMED>                     15,453
<SHARES-REINVESTED>                                981
<NET-CHANGE-IN-ASSETS>                          21,013
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                            1,889
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                    992
<AVERAGE-NET-ASSETS>                           400,176
<PER-SHARE-NAV-BEGIN>                            10.00
<PER-SHARE-NII>                                    .24
<PER-SHARE-GAIN-APPREC>                              0
<PER-SHARE-DIVIDEND>                              (.24)
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              10.00
<EXPENSE-RATIO>                                    .54
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<ARTICLE> 6
<LEGEND>
THE GUARDIAN STOCK FUND
     This schedule contains financial information extracted from the 
"Semiannual Report to Shareholders" dated June 30, 1997, and is qualified 
in its entirety to such financial statements.

</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                  6-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               JUN-30-1997
<INVESTMENTS-AT-COST>                        1,961,143
<INVESTMENTS-AT-VALUE>                       2,785,635
<RECEIVABLES>                                   47,969
<ASSETS-OTHER>                                       8
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               2,833,612
<PAYABLE-FOR-SECURITIES>                        72,117
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                        5,866
<TOTAL-LIABILITIES>                             77,983
<SENIOR-EQUITY>                                  6,134
<PAID-IN-CAPITAL-COMMON>                     1,783,327
<SHARES-COMMON-STOCK>                           61,337
<SHARES-COMMON-PRIOR>                           57,706
<ACCUMULATED-NII-CURRENT>                        1,766 
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                        139,910
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                       824,492
<NET-ASSETS>                                 2,755,629
<DIVIDEND-INCOME>                               17,117
<INTEREST-INCOME>                                3,835
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                   6,304
<NET-INVESTMENT-INCOME>                         14,648
<REALIZED-GAINS-CURRENT>                       139,915
<APPREC-INCREASE-CURRENT>                      273,656
<NET-CHANGE-FROM-OPS>                          428,219
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                       12,882
<DISTRIBUTIONS-OF-GAINS>                        45,899
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                          5,157
<NUMBER-OF-SHARES-REDEEMED>                      2,833
<SHARES-REINVESTED>                              1,307
<NET-CHANGE-IN-ASSETS>                         528,901
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                       45,894
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                            6,075
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                  6,304
<AVERAGE-NET-ASSETS>                         2,450,171
<PER-SHARE-NAV-BEGIN>                            38.59
<PER-SHARE-NII>                                    .24
<PER-SHARE-GAIN-APPREC>                           7.08
<PER-SHARE-DIVIDEND>                              (.21)
<PER-SHARE-DISTRIBUTIONS>                         (.77)
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              44.93
<EXPENSE-RATIO>                                    .52
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>


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