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DECEMBER 31, 1996 VALUE GUARD II
Annual Report to Contractowners
- -------------------------------------------
The Guardian Separate Account A
- -------------------------------------------
- -------------------------------------------
The Guardian Stock Fund, Inc.
- ------------------------------------------- Executive Offices
The Guardian Bond Fund, Inc. 201 Park Avenue South
- ------------------------------------------- New York, New York 10003
The Guardian Cash Fund, Inc.
- ------------------------------------------- Customer Service Office
Gabelli Capital Asset Fund P.O. Box 26210
- ------------------------------------------- Lehigh Valley, Pennsylvania
Baillie Gifford International Fund 18002-6210
- ------------------------------------------- 1-800-221-3253
Baillie Gifford Emerging Markets Fund
- ------------------------------------------- Distributed by: [Logo]
Value Line Centurion Fund, Inc. Guardian Investor Services
- ------------------------------------------- Corporation(R)
Value Line Strategic Asset Management Trust
- ------------------------------------------- [Logo] The Guardian(R)
The Guardian Insurance &
Annuity Company, Inc.
A wholly owned subsidiary of
The Guardian Life Insurance
Company of America
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<PAGE>
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Performance Summary
- ----------------------------------------
[Sketch of Guardian Life Building]
- ------------------------------------------------------
Investment Option Total Return*
----------------- -------------
The Guardian Stock Fund............. 25.64%
Baillie Gifford International Fund.. 14.27%
Baillie Gifford Emerging Markets Fund 23.36%
Value Line Centurion Fund........... 16.18%
Value Line Strategic Asset Mgt. Trust 14.72%
Gabelli Capital Asset Fund.......... 9.92%
The Guardian Bond Fund.............. 1.86%
The Guardian Cash Fund.............. 3.96%
The Guardian Real Estate Account.... 8.04%
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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, 1996 to August
31, 1996 was 5.25%. For amounts deposited or renewed
from Sept. 1, 1996 to Dec. 31, 1996, the rate 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, 1996 through December 31, 1996. 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.
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<PAGE>
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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 annual report on the performance results
of your contract's separate account and its underlying investment options for
the year ended December 31, 1996.
On Our Ratings
Once again, we are proud to report that as of December 31, 1996, the date
of this report, both GIAC and its parent, The Guardian Life Insurance Company of
America, continue to enjoy excellent 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 Value Guard II'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 the company standing 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 providing increasing levels of quality 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 1996.
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.
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VALUEGUARD II
Table of Contents
Portfolio Schedule
Manager of
Interview Investments
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Economic Report 4
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The Guardian Stock Fund 6 32
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Objective: Long-term growth of capital
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Portfolio: At least 80% common stocks andsecu-
rities convertible into common stocks
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Inception: April 13, 1983
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Net Assets at December 31, 1996: $2,226,727,930
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"We believe the best path to consistent returns, in excess of the indexes,
requires the synergistic results of combining good quantitative tools with good
manager judgment."
--Charles E. Albers, C.F.A
Portfolio Manager
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The Guardian Bond Fund 10 42
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Objective: Maximum current income without undue
risk of principal. Capital appreciation is a
secondary objective.
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Portfolio: At least 80% investment-grade bonds
and U.S. government securities
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Inception: May 1, 1983
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Net Assets at December 31, 1996: $354,432,997
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"New sectors in which we have concentrated our research efforts in the
fourth quarter are insurance-enhanced asset-backed securities, as well as "AA"
and "A" rated asset-backed securities and commercial mortgage-backed securities.
Through the selective purchase of corporate credits and new bond sectors, we
believe that the Fund can add incremental yield and total return in 1997."
--Michele S. Babakian
Portfolio Manager
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The Guardian Cash Fund 22 50
- ----------------------------------------
Objective: As high a level of current income as is
consistent with preservation of capital
and liquidity
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Portfolio: Short-term money market
instruments
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Inception: November 1, 1981
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Net Assets at December 31, 1996: $378,321,710
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"The Guardian Cash Fund is a place for our investors to put their money
while they decide their preferred long-term investment vehicle, be it stocks or
bonds. Also, some of our investors prefer the relative stability of the money
markets. To best accommodate all our investors, we will continue to try to
provide a strong 7-day yield, while offering safety and liquidity."
--Alexander M. Grant, Jr.
Portfolio Manager
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Gabelli Capital Asset Fund 12 62
- ---------------------------------------
Objective: Growth of capital. Current income
is a secondary objective.
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Portfolio: Primarily common and preferred stocks
and other securities representing
the right to acquire common stocks
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Inception: May 1, 1995
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Net Assets at December 31, 1996: $51,461,531
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"Whatever the market has in store for us, we will continue to focus on value.
We are favoring industries and individual companies in the early stages of
sustainable long-term earnings uptrends and on other fundamentally attractive
opportunities that participated only marginally in the 1996 bull market."
--Mario J. Gabelli, C.F.A.
Portfolio Manager
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<PAGE>
Portfolio Schedule
Manager of
Interview Investments
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Baillie Gifford International Fund 14 72
- ----------------------------------------
Objective: Long-term capital appreciation
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Portfolio: At least 80% in a diversified portfolio
of common stocks of companies
domiciled outside of the United States
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Inception: February 8, 1991
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Net Assets at December 31, 1996: $456,202,741
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"Guardian Baillie Gifford Limited continued to employ its strategy of
managing a diversified portfolio of international equities, paying particular
attention to the fundamental attractions of individual companies in terms of
their profitability, strength of balance sheet, and earnings growth prospects."
--R. Robin Menzies
Portfolio Manager
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Baillie Gifford Emerging Markets Fund 16 80
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Objective: Long-term capital appreciation
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Portfolio: At least 65% in a portfolio of
common stocks issued by emerging
market companies
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Inception: October 17, 1994
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Net Assets at December 31, 1996: $67,062,104
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"We look for strong businesses, whose growth prospects are sustainable
because of their market position and financial stability--allowing us to reduce
the risks of investing in these markets, while producing good performance. The
risks are further controlled by regular economic reviews and a high degree of
geographic diversification."
--Edward H. Hocknell
Portfolio Manager
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Value Line Centurion Fund 18 96
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Objective: Long-term growth of capital
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Portfolio: At least 90% common stocks
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Inception: November 15, 1983
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Net Assets at December 31, 1996: $639,418,647
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"As in 1996, sector focus in the new year should remain on those companies
that can produce above trendline revenue and profit growth, which includes
technology, financials, healthcare, and energy."
--Value Line, Inc.
Investment Adviser
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Value Line Strategic Asset Management Trust 20 106
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Objective: High total return consistent with
reasonable risk
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Portfolio: Stock, bonds and money market instruments
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Inception: October 1, 1987
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Net Assets at December 31, 1996: $1,072,553,000
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"To keep risk down to a reasonable level, we maintain a very diversified
portfolio of over 100 stockholdings and avoid large bets on any particular
sector or company."
--Value Line, Inc.
Investment Adviser
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The Guardian Separate Account 24
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<PAGE>
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Economic Report:
- ----------------------------------------
The 1996 U.S. Economy and Markets
[Photo of Frank J. Jones, Ph.D. Chief Investment Officer]
The year ended December 31, 1996 was again very strong for U.S. stocks and
mediocre for bonds, while the underlying economy was quite volatile on a
quarterly basis, but moderate on an annual basis. The most commonly used phrases
to describe the 1996 economy were "soft landing" and "goldilocks economy," the
latter meaning "not too hot, not too cold." The real Gross Domestic Product
(GDP) growth for 1996 was 2.5%. The increase in the core Consumer Price Index
(excluding food and energy) of 2.6% as of year-end 1996 was the lowest since
1965, despite the lowest unemployment rate since 1989 of 5.3%. One could
conclude then that the soft landing had been achieved, and the Fed changed
policy only once during the year, a 25 basis point tightening of the Federal
Funds Rate on January 31, 1996.
Overall during 1996, the bond market, as measured by the Lehman Aggregate
Bond Index, returned only 3.63%,(1) thus earning only approximately half its
coupon. The loss of principal was reflected by the fact that the 30-year
Treasury bond began in 1996 with a yield of 5.95% and ended the year at 6.64%,
an increase of 69 basis points.
Although the common stock market during 1996 was quite strong, returning
22.82% as measured by the S&P 500 Index,(2) it did not match the returns of
1995. This continued strength was due to extremely large and record cash inflows
into stock mutual funds (as addressed below) and reasonably strong corporate
profits, which offset the effect of the increase in yields. Within the stock
market, large capitalization stocks significantly outperformed small-cap
stocks--the DJIA returned 28.90%, with the S&P 500 returning 22.82%, and the
Russell 2000 returning 16.49%.2 This difference was interpreted as the result of
a defensive strategy by investors who were reacting to a "rich" stock market by
investing in relatively "safer" and more liquid high-cap stocks rather than
"riskier" and less liquid small-cap stocks.
What To Do In The Current Market
Portfolio management, for an individual or a professional, is a matter of
balancing return and safety (that is, the absence of risk), not only for
individual securities and asset classes (such as U.S. stocks), but also for the
portfolio as a whole. In general, if the average return of a security or asset
class is higher, its risk (that is, the variation in its return around the
long-term average return) is also higher. For example, stocks over the long term
have a higher average return than bonds, but stock returns are also more
volatile. Cash has an even lower average return and as well as lower risk than
bonds. However, stocks and bonds also have different return profiles over time.
And the return profiles of other asset classes, such as international stocks,
are even less similar.
Managing the risk of an overall investor portfolio has two components.
First, include some less risky assets, such as cash and bonds, in the portfolio.
But including a large portion of low-risk assets in a portfolio would be an
expensive way to reduce portfolio risk because these assets also have lower
portfolio returns. Second, include asset classes with different return profiles
in the portfolio. This is called portfolio diversification. In this regard, in
his recent book on investment risk, Against the Gods, Peter Bernstein
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(1) 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.
(2) The Dow Jones Industrial Average (DJIA) is an unmanaged average of 30
industrial stocks listed on the New York Stock Exchange that is generally
considered to be representative of U.S. stock market performance. 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
Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The indices are not
available for direct investment.
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4
<PAGE>
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explains "why diversification is the nearest an investor can ever come to a free
lunch."
The practical import of diversification is based on a very simple
principle. A bear market does not hurt unless you sell into it, either by choice
(as an investment decision) or by necessity (because the funds are needed for
other purposes).
Following conventional wisdom, if there is a bear market in one asset class
in your portfolio and you need funds, either sell the low-risk asset which has a
stable price or sell a higher-risk asset whose price has not declined at that
time. Try to avoid being in a position where you are forced to sell the asset
class which has temporarily declined in price. Risk management, including
diversification, takes care of not having to sell an asset when its price is
low. That leaves only choosing to sell an asset when its price is low as an
investment decision.
Diversify and Hold
The final issue I wish to address is whether, due to the significant cash
inflows into equity mutual funds during the last three to four years, individual
portfolios have become unbalanced with respect to common stock exposure. Thus,
as a result of this lack of diversification, investors may be vulnerable to
stock market declines and will be forced or inclined to sell significant amounts
of common stock in response to an initial decline in the stock market. I think
not.
While there have been significant cash inflows into common stock mutual
funds relative to bond funds in the last three years, investors' exposure to
common stock is not necessarily currently extreme for at least two reasons.
First, during the last three years, as shown in data from the Federal Reserve
System, households have been liquidating common stock in significant amounts
while they have been buying common stock mutual funds. This shift from
personally managing their stock portfolio to having their stock portfolios
professionally managed seems prudent. Investors may wish to trade individual
stocks as a hobby around their core, professionally managed, stock holdings. But
they should realize that their hobby may cost them money, as most hobbies do.
The net offset of these two changes in common stock holdings is positive, but
not nearly as extreme as would be thought by focusing just on the cash inflows
in the common stock mutual funds would suggest.
Second, one would have to consider the composition of the household
portfolios at the beginning of this period to conclude that the position at the
end of the period was extreme. In this regard, the significant increase in the
participation of households into the common stock market did not begin until the
1990s. Prior to this, investors had smaller stock positions because stock
returns had not been very attractive.
However, the current bull market in stocks began in 1982, with major
setbacks only in 1987 and 1990. It is this fairly sustained rally that has
induced households to increase their common stock holdings.
Conclusion
Will the stock market rally continue without significant setbacks? It is
unlikely that the approximate 60% return of 1995 and 1996 will be duplicated in
1997 and 1998. Will there be significant corrections? Perhaps and even very
likely. Will these corrections harm investors? Only if they are forced or choose
to sell into them. Can consumers or anyone else forecast these corrections?
Unlikely. The correct strategy is to diversify the portfolio, not only across
U.S. stocks, U.S. bonds and cash, but also foreign stocks and bonds, from both
developed and developing countries. Diversify and hold is the correct
prescription for the future.
Regards,
/s/ Frank J. Jones
Frank J. Jones, Ph.D.
Chief Investment Officer
The Guardian Insurance & Annuity Company, Inc.
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5
<PAGE>
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The Guardian Stock Fund
- ----------------------------------------
[Photo of Charles E. Albers, C F.A. Portfolio Manager]
Q. 1996 was another outstanding year for the Fund. What is your assessment of
how the Fund performed?
A. The Fund had excellent performance in 1996, both in absolute and relative
terms. In absolute terms, the Fund produced a total return to shareholders of
26.9%, after expenses.(1) For the second year in a row, following 34.7% in 1995,
the Fund was able to produce excellent absolute returns. The Fund's 1996 return
of 26.9% also represented a solid return on a relative basis, when comparing the
Fund's return to the average return of 20.4% shown by all Lipper U.S. Variable
Insurance Product Underlying Growth Funds, during the same period.(2) The Fund's
1996 performance ranked it solidly in the top quintile within Lipper's U.S.
category, ranking number 11 out of 106 U.S. underlying growth funds.(3) The Fund
also bettered the S&P 500 Index, which returned 22.8%.(4)
Of course, from the shareholders' viewpoint, it's really the long-term
results that count the most. Here too, the Fund has done well, placing it in the
top 5% of Lipper Underlying Growth Funds over the last 5 years, ranking number 2
out of 46 for the 5-year period ended December 31, 1996. For the 10-year period
ended December 31, 1996, the Fund ranked number 5 out of 30 underlying growth
funds, as reported by Lipper.
Q. What factors affected Fund performance in 1996?
A. Two factors deserve special mention here. First, for the second year in a
row, large-cap stocks outperformed small-cap stocks, as can be seen in the
following table:
Total Return%
-----------------------
1995 1996
------ ------
Large-Cap (S&P 500) +37.4% +22.8%
Small-Cap (Russell 2000)(5) +28.4% +16.5%
------ ------
Difference +9.0% +6.3%
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Fortunately, we perceived early in 1995 that a shift to large-caps would be
advantageous, and we tilted the Fund portfolio accordingly. That shift had a
very positive impact on investment performance in both 1995 and 1996.
The other factor which had a significant impact on 1996 results was our
proprietary stock scoring system. This system has historically provided us solid
guidance in stock selection, and this record continued into 1996. The predictive
power of this quantitative tool during 1996 can be seen in the table below.
1996 Price Performance (%)
Stock Scoring System --------------------------
Ranking S&P 500 Universe Next 1500 Stocks
------- ---------------- ----------------
Top Quintile 19.4% 23.7%
Universe Average 16.9% 15.2%
Bottom Quintile 9.5% 6.3%
This table shows that, within the S&P 500 stock universe, the stock scoring
system's top-ranked quintile (20%) of stocks appreciated 19.4%, approximately
10% better than the S&P 500 stocks in the
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(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies 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) 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.
(3) Lipper rankings were reported by Lipper Variable Insurance Products
Performance Analysis Service, in its report dated December 31, 1996.
(4) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market activity.
The S&P 500 Index is not available for direct investment and its returns do
not reflect the fees and expenses that have been deducted from the Fund's
return.
(5) The Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The Russell 2000 is
not available for direct investment and its returns do not reflect the fees
and expenses which are deducted from the Fund's return.
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6
<PAGE>
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system's bottom-ranked quintile. Moreover, in the "next 1500" universe of
smaller stocks, the spread between the top and bottom quintiles was much greater
at 17.4%. Generally, we find that the predictive power of our models is greater
within our universe for smaller cap stocks.
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Average Annual Total Returns for the
years ended December 31, 19961
1 year 26.90%
3 Years 19.04%
5 Years 19.43%
10 Years 16.00%
Inception 16.723%
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Q. What strategies did you use to manage the Fund during 1996?
A. There was no change in our strategic approach to managing the portfolio
during 1996. We believe that soundly-based quantitative models provide a
valuable tool to the equity portfolio manager. At the same time, fast-breaking
news and unusual investment issues require the balanced judgment of a capable
portfolio manager. We believe the best path to consistent returns, in excess of
the indexes, requires the synergistic results of combining good quantitative
tools with good manager judgment.
Our quantitative tools 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 portfolio style has the most
attractive performance prospects. The "bottom-up" approach uses our proprietary
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 have been the portfolio's weights in different economic sectors, and
how have these weightings affected performance?
A. The attached table shows the Fund's portfolio weightings for all of the major
economic sectors for the year ended December 31, 1996. As you can see, our three
largest positions were in Financial (26.0%), Consumer Staples (20.0%) and Energy
(17.9%). During 1996, the portfolio's relative weightings in the different
sectors contributed positively to the Fund's good relative performance.
Specifically, the Fund's two most overweighted sectors at 12/31/96, relative to
the S&P 500, were in Financials and Energy. The Fund overweighted the Financial
sector by 11.0% and the Energy sector by 8.2%. Both of these sectors
outperformed the market during the year.
Q. Looking ahead to 1997, how will you be managing the Fund?
A. 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. The current
business cycle expansion is in its mature stage and competitive business
pressures are intensifying in many industries and, thus, overall profit growth
is slowing. We expect this to continue in 1997. In such an environment, we
believe it is the high-quality large-cap companies that are in the best position
to sustain growth of sales and profits. And, the logic is perfectly clear: the
stock prices of those high-quality companies should do fairly well, following
the relatively good fundamental company profits.
As always, we will stay attuned to the changing investment environment. Our
goal is to produce superior results for our shareholders on a consistent basis.
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7
<PAGE>
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The Guardian Stock Fund Profile
as of December 31, 1996
- ----------------------------------------
Comparison of Common Stocks Held by the Fund on December 31, 1995 and
December 31, 1996 by Economic Sector
[The following table was represented asa a pie graph in the printed material.]
1995 1996
---- ----
Consumer Cyclical -- 3.1% Consumer Cyclical -- 3.3%
Other -- 10.4% Other -- 3.2%
Consumer Staples -- 18.3% Consumer Staples -- 20.0%
Consumer Services -- 2.4% Consumer Services -- 1.6%
Conglomerates -- 1.6% Conglomerates -- 1.9%
Financial -- 18.1% Financial -- 26.0%
Basic Industries -- 7.4% Basic Industries -- 4.7%
Capital Goods -- 3.3% Capital Goods -- 5.0%
Energy -- 12.1% Energy -- 17.9%
Technology -- 23.3% Technology -- 16.5%
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Portfolio Composition
The Guardian Stock Fund portfolio holds 300 securities in a variety of
economic sectors. The portfolio manager's goal is to position the portfolio for
consistent performance in both "bull" and "bear" markets.
[The following table was represented as a pie graph in the printed material.]
Cash & Cash Equivalents - 3.7% Common Stocks - 96.3%
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8
<PAGE>
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Growth of a Hypothetical $10,000 Investment
- --------------------------------------------------------------------------------
[The following table represents information that
was depicted in a graph in the printed material.]
GSF S&P CPI
--- --- ---
4/13/83 10000 10000 10000
83 11028 10867 10336
84 12218 11529 10754
85 16130 15169 11162
86 18889 17985 11295
87 19241 18903 11794
88 23160 21989 12314
89 28613 28887 12885
90 25224 27959 13680
91 34293 36439 14088
92 41178 39207 14516
93 49396 43130 14913
94 48767 43679 15311
95 65667 59992 15668
12/31/96 83330 73770 16176
A hypothetical $10,000 investment made at the inception of The Guardian Stock
Fund on April 13, 1983 would have grown to $83,330 on December 31, 1996. We
compare our performance to that of the S&P 500 Index, which is an unmanaged
index that is generally considered the performance benchmark of the U.S. stock
market. While you may not invest directly in the S&P 500 Index, a similar
hypothetical investment would now be worth $73,770. The Cost of Living, as
measured by the Consumer Price Index, which is generally representative of the
level of U.S. inflation, is also provided to lend a more complete understanding
of the investment's real worth.
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Average Annual Returns(1)
Life of Fund
1 Year 5 Years 10 Years (since 4/13/83)
- --------------------------------------------------------------------------------
The Guardian Stock Fund 26.90% 19.43% 16.00% 16.72%
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S&P 500 Index(2) 22.82% 15.14% 15.15% 15.68%
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(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies 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.
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9
<PAGE>
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The Guardian Bond Fund
- ----------------------------------------
[Photo of Michele S. Babakian, Portfolio Manager]
Q. How did the Fund perform in 1996?
A. The Fund had a total return of 2.88%(1) for the year ended December 31, 1996.
By comparison, the average fund in our Lipper(2) peer group, which consists of
other variable annuity sub-accounts that invest primarily in bonds having
investment grade ratings of "BBB" or better, had a total return of 3.18% for the
same period. Within this Lipper peer group the Fund ranked 20 out of 35
funds.(3) For the five and ten-year periods ended December 31, 1996, the Fund
ranked 19 out of 27 funds and 8 out of 16 funds, repectively. A broad market
benchmark we also compare ourselves against, the Lehman Aggregate Bond Index,(4)
had a total return of 3.63% for the year ended 1996.
Q. What factors affected the Fund's performance during 1996?
A. Aside from the Federal Reserve lowering the Fed Funds rate in February, the
rest of 1996 can be characterized as a year in which investors expected the Fed
to raise rates which caused a bearish sentiment to permeate the market. As the
market turned bearish, the duration of the Fund's portfolio was positioned
slightly shorter than the duration of the Lehman Aggregate Bond Index. We
position this portfolio's duration slightly longer than the duration of the
Index if we conclude, based on our assessment of the economy's growth, inflation
pressures, and the effects of fiscal and monetary policy, that yields will
decrease, or slightly shorter than the Index if we determine that yields will
rise. As 1996 consisted of a bear market for bonds, with occasional bullish
fervor, the portfolio's duration was approximately 5% shorter than the Index's
duration. This positioning reduced the portfolio's exposure to price deprecia
tion, which added to its total return.
Another major factor which positively affected the Fund's performance was
the change of allocation in the corporate bond and mortgage-backed securities
(MBS) sectors. Throughout the year the Fund increased its investments in a more
diverse group of corporate bond sectors and MBS products. This new positioning
of assets was positive for the Fund as the yield spreads on all of the sectors
we chose narrowed, or moved closer toward Treasury yields.
Corporate bond yield spreads tightened to historical lows for the year due
to positive corporate earnings and increasing demand from a growing investor
base. The corporate bond sector in which we invested the most new assets in 1996
was the finance sector. This sector returned 3.75% for the year, the highest
returning of the four major sectors within the Lehman Corporate Index. However,
the industrial sector contained the highest returning subsectors which included
airlines, gaming and lodging. We were not invested in those subsectors.
MBS, with high option adjusted spreads, benefited from a market with low
volatility, which improves MBS values, and demand from new investors such as
foreign accounts and hedge fund managers. The big
- --------------------------------------------------------------------------------
(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) Lipper Analytical Services, Inc. is an independent 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. Their returns do not
reflect the deduction of sales loads, and performance would be different if
sales loads were deducted.
(3) Lipper Rankings were reported by Lipper's Variable Insurance Products
Performance Analysis Special Report 4th Quarter 1996.
(4) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The Lehman
Mortgage-Backed Securities Index is an unmanaged index that is generally
considered to be representative of U.S. mortgage pass-through market
activity. Neither Index is available for direct investment and the returns
do not reflect the fees and expenses that have been deducted from the Fund.
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
total return play was in seasoned pass-throughs, especially the higher coupons.
Although we did not participate significantly in the seasoned pass-through
market, the portfolio was positioned with a 16% weight in current and premium
pass-throughs. Also in the portfolio were collateralized mortgage obligations
(CMOs) which comprised about 13% of the portfolio. Together these securities
provided a 29% portfolio weighting in the Fund. The Lehman Mortgage-Backed
Securities (MBS) Index(4) returned 5.35% for 1996.
Q. What strategies did you use to manage the Fund?
A. As 1996 consisted of a bear market with occasional bullish sentiment, we
managed the fund's duration to be approximately 5% shorter than the duration of
our benchmark, the Lehman Aggregate Bond Index. During those months when the
market yields were declining or holding steady, the Fund's duration was brought
up to a neutral position versus the Index.
With regard to asset allocation in this portfolio, our goal was to allocate
approximately 10% of the Fund's assets to Treasuries, 35-40% to corporates, 30%
to MBS, 15% to asset-backed securities (ABS) and the balance, 5%, to commercial
mortgage-backed securities (CMBS). This allocation would keep us invested in
yield product, or securities with a yield spread over Treasuries.
Our corporate strategy in 1996 was to diversify the portfolio among
corporate bond sectors and to focus more than before in the higher-yielding, BBB
sector. The largest sector in which we invested was the finance sector and our
positions in this sector included the industries of banking, brokerage,
insurance and real estate. Outside of finance, the telecommunications, tobacco
and yankee sectors were added to the portfolio's holdings. Many of the
securities which were purchased in these sectors were "BBB" in quality, the
investment grade quality group which had the best returns in 1996, according to
the Lehman Index data.
Two additional bond sectors, amortizing ABS and CMBS, performed well for
our Fund in 1996. As relative value investments, these two sectors were
higher-yielding than corporates and CMO securities of similar duration and
quality.
New sectors in which we have concentrated our research efforts in the
fourth quarter are insurance-enhanced ABS, as well as "AA" and "A" rated ABS and
CMBS. Through the selective purchase of corporate credits and new bond sectors,
we believe that the Fund can add incremental yield and total return in 1997.
- --------------------------------------------------------------------------------
The Guardian Bond Fund Profile
as of December 31, 1996
- ----------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------
1 Year ..................................................... 2.88%
5 Years .................................................... 6.68%
10 Years ................................................... 8.03%
Since Inception (5/1/83) ................................... 9.40%
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
GBF Lehman
--- ------
4/29/83 10000 10000
83 9925 10204
84 11219 11750
85 13728 14347
86 15766 16537
87 15816 16992
88 17351 18332
89 19758 20996
90 21254 22877
91 24695 26538
92 26597 28502
93 29218 31281
94 28209 30369
95 33170 35979
12/31/96 34124 37286
- --------------------------------------------------------------------------------
[The following table was represented as a pie graph in the printed material.]
- --------------------------------------------------------------------------------
Portfolio Composition by Quality
According to Standard & Poor's
AAA - 53.2%
AA - 2.9%
Not Rated - 2.6%
A - 13.9%
Cash Equivalents - 4.3%
Repurchase Agreements - 4.7%
BB - 0.8%
BBB - 17.6%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- ---------------------------------------
[Photo of Mario J. Gabelli, C.F.A, Portfolio Manager]
Q. How did the Fund perform in 1996?
A. For the year ended December 31, 1996, the Gabelli Capital Asset Fund's total
return was 11.0%.(1) In comparison, the S&P 500(2) had a return of 23.0% and the
Russell 2000(3) advanced 14.8% for the year. Since its inception on May 1, 1995
through December 31, 1996, the Fund has had an aggregate total return of 20.3%,
which is equal to an average annual total return of 11.7%.
Q. What factors affected the Fund's performance in 1996?
A. In 1995, the stock market clicked on all six cylinders. Moderate economic
growth, low inflation, declining interest rates, soaring corporate profits,
reasonable valuations, and strong cash flows into equity mutual funds all
powered broad-based market momentum. In 1996, three of these six cylinders began
misfiring. Long bond rates rose 100 basis points before subsiding to year-end
1995 levels. Corporate profits were up 10%, a good showing, but well below
1995's 18% gains. Equities valuations, at least for large-cap stocks, became
distinctly rich relative to historic benchmarks. Despite running on only three
cylinders, the market, as represented by the Dow Jones Industrial Average(4) and
the S&P 500, barreled ahead before stalling in December.
Shrinking supply and strong demand for stocks, particularly the blue chips,
were the primary forces driving the popular indices. Merger and acquisition
activity (around $350 billion for 1996) and share repurchase programs (about $30
billion) reduced stock inventories. The flood of money into equity mutual funds
(approximately $220 billion--with the overwhelming majority going into large-cap
growth funds, including S&P 500 Index funds) supercharged demand for a relative
handful of market pacesetters. In addition, the public pressure on fund
portfolio managers to avoid significant holdings of cash or bonds, so as not to
miss the joyride other managers were participating in, inspired many equity fund
managers to run almost all the fundamental red lights.
We motored ahead at a good clip, but with the seat belts fastened and
obeying all the fundamental rules of the road. Our performance was uninspiring
relative to the heavy footed large-cap growth stock funds, but competitive with
small- and mid-cap indices. Most importantly, we believe that we made
substantial progress without risking the kind of collisions that can occur when
excessive equities valuations run headlong into economic reality.
Q. What strategies do you use to manage the Fund and what is your outlook for
1997?
A. Whatever the market has in store for us, we will continue to focus on value.
We are favoring industries and individual companies in the early stages of
sustainable long-term earnings uptrends and on other fundamentally attractive
opportunities that participated only marginally in the 1996 bull market.
Aerospace component manufacturers should post superior earnings gains for the
next three to five years as airlines throughout the world continue to build and
- --------------------------------------------------------------------------------
(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.
(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's
return.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
refurbish their fleets. Auto after-market companies should grow earnings as the
economy and new car sales slow. As Personal Communications Services (PCS)
systems come on line in the year ahead, cellular telephone companies, which have
been under the cloud of future competition from PCS, will have an opportunity to
demonstrate the long-term viability of what we believe will remain a good growth
business. Also, enter tainment software and cable network stocks will get more
favorable reviews from investors in the year ahead.
Finally, and perhaps most importantly for 1997 return prospects, we believe
that corporate restructurings in the form of mergers and sales and spin-offs of
assets will continue at a feverish pace. There is a strong global appetite for
extending product lines and distribution systems via acquisitions. The world is
awash in liquidity and stock is an increasingly valuable currency. So, the
"let's make a deal" market we have experienced in the last few years will
continue. In response, corporate managements that hope to remain independent are
under pressure to surface the value of their businesses by jettisoning
underperforming divisions, spinning off undervalued assets and repurchasing
shares. We expect deals and corporate events of this nature to trigger some of
the biggest stock advances in 1997.
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund Profile
as of December 31, 1996
- ---------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------
1 Year................................... 11.00%
Since Inception (5/1/95)................. 11.70%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment(1)
- --------------------------------------------------------------------------------
Gabelli
S&P Capital
500 Asset
Index Fund
----- -------
5/1/95 10000 10000
6/30/95 10639 10200
9/30/95 11486 10570
12/31/95 12171 10836
3/31/96 12825 11615
6/30/96 13409 12061
9/30/96 13821 11899
12/31/96 14982 12029
To give you a comparison, the chart above shows the performance of a $10,000
investment made in the Gabelli Capital Asset Fund and in the S&P 500 Index.(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings
- --------------------------------------------------------------------------------
1. Tele-Communications, Inc./ Liberty Media Group
2. Cablevision Systems Corporation
3. United Television, Inc.
4. Gaylord Entertainment Company
5. Quaker Oats Company
6. Viacom Inc.
7. PepsiCo Inc.
8. General Instrument Corporation
9. GC Companies, Inc.
10. Rollins, Inc.
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ---------------------------------------
[Photo of R. Robin Menzies, Portfolio Manager]
Q. Last year, investors in the U.S. stock markets generally did quite well. How
did international markets perform compared with the U.S., as reflected in the
Fund's results?
A. The Fund performed well in 1996, with a total return of 15.4%,(1) outpacing
the 6.4% return posted by the Morgan Stanley Capital International (MSCI)
Europe, Australia, and Far East (EAFE) Index.(2) International markets, such as
Japan and Europe, have performed quite differently, but both have great
potential for future gains.
Starting in Japan, the MSCI Japan Index fell by 15.4% in 1996.(3) Nihon
Bashi, the Japanese equivalent of Wall Street, is at about half of its all-time
peak of 1989. The Japanese have been very cautious with their money, whereas
they used to be great stock market players. They have seen banks declare huge
bad-loan write-offs, stock prices plunge, and, in a country where life-time
employment was the norm in large corporations, jobs have been put at risk. But
it seems as if the worst is over--the Japanese authorities have been doing a
good job at sorting out their big problems and getting the economy on the move
again. In addition, unemployment is falling, incomes are rising, and thanks to
the Yen's decline, exports are doing well.
A less extreme but equally fascinating area is Europe. This does not
include the U.K., which is like the United States in that its economic recovery
is well on and interest rates are expected to rise in early 1997. Europe is
moving closer to economic and monetary union through a common currency, the
"Euro," which should be introduced by 1999. Having a common currency across a
range of countries far more diverse, both economically and culturally, than the
states of the United States imposes big strains on all involved. Questions to be
answered are who should be let in and how is inflation going to be kept down? In
the meantime, fiscal austerity--to meet the monetary union rules--plus high
unemployment and low inflation mean that interest rates will be kept low for as
long as possible. Low rates and corporate restructuring are a potent combination
that should lead to decent profits growth and a great background for European
equity markets in 1997.
Q. What factors affected the Fund's performance during this year?
A. The Fund's solid performance relative to the MSCI EAFE Index was due in large
part to the Fund's underweighted investment in Japan as compared to the Index.
The Index generally has about a 40% weighting in Japan, while throughout the
year the Fund held approximately 32% on average in Japan. Japan was the weakest
of the major markets in 1996. Performance was also helped by the impressive
returns of the stocks held by the Fund in Continental Europe, which ended 1996
with a return of 33.2% for the year, as compared with the 18.7% return of the
MSCI Europe Ex-U.K. Index(4) over the same period.
- --------------------------------------------------------------------------------
(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 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 expenses which are deducted from
the Fund's return.
(3) The MSCI Japan Index is an unmanaged index generally considered to be
representative of Japanese stock market activity. The returns for the index
do not reflect expenses which are deducted from the Fund's return.
(4) The MSCI Europe Ex-UK Index is an unmanaged index generally considered to be
representative of European stock market activity, excluding the United
Kingdom. The returns for the index do not reflect expenses which are
deducted from the Fund's return.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
Q. What strategies did you use to manage the Fund?
A. Guardian Baillie Gifford Limited continued to employ its strategy of managing
a diversified portfolio of international equities, paying particular attention
to the fundamental attractions of individual companies in terms of their
profitability, strength of balance sheet, and earnings growth prospects.
- --------------------------------------------------------------------------------
Baillie Gifford International Fund Profile
as of December 31, 1996
- ------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------
1 Year................................................................... 15.41%
3 Year................................................................... 8.99%
Since Inception (2/8/91)................................................. 12.34%
- --------------------------------------------------------------------------------
[The following table was represented as a pie graph in the printed material.]
- --------------------------------------------------------------------------------
Portfolio Composition by Geographical Location
U.K. -- 13.3%
Cash Equivalents -- 2.2%
Latin America -- 4.3%
Far East -- 16.8% (excluding Japan)
Continental Europe -- 35.4%
Japan -- 28.0%
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment(1)
Baillie
The Gifford
MSCI/EAFE International
Index Fund
--------- -------------
2/8/91 10000 10000
91 10226 10334
92 9014 9389
93 11984 12608
94 12950 12718
95 14446 14142
12/31/96 15365 16322
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Baillie Gifford International Fund and the MSCI/EFAE
Index(2).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Holdings
Company Nature of Company Country
------- ----------------- -------
1. Novartis Pharmaceuticals Switzerland
2. Canon, Inc. Office Equipment & Cameras Japan
3. NTT Data. Computer Systems Japan
4. Rohm Electronic Components Japan
5. Jusco Retailer Japan
6. BASF Chemicals Germany
7. Bridgestone Corp. Tires Japan
8. ABN Amro Banking Netherlands
9. Incentive Industrial Conglomerate Sweden
10. Compoirs Modernes Food Retailer France
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 1996 and what factors affected the Fund's
performance?
A. The Fund performed very well in 1996 with a total return of 24.6%,(1) (see
VITA, page 1) surpassing the total return of 6.0% from the Morgan Stanley
Capital International (MSCI) Emer-ging Markets Free (EMF) Index.(2)
The Fund outperformed the regional indices in all its primary areas of
investment: Latin America, Asia, Eastern Europe and South Africa. It benefited,
in particular, from its heavy weightings in the three main Eastern European
markets of Poland, Hungary and the Czech Republic, which together produced an
average return of 65.5% during the year. The Fund also benefited by
concentrating our investments in the following markets, whose market performance
was up in 1996: Hong Kong (+33.1%), Taiwan (+40.3%), and Brazil (+42.5%). From
the opposite point of view, the Fund also benefited by having a relatively low
exposure to India (-2.2%), Thailand (-36.6%) and South Africa (-18.1%).
Q. What are the reasons for investing in emerging markets?
A. The heart of the case for investing in emerging markets is their potential
for high levels of growth. Emerging markets as a whole are growing at around
twice the rate of the more mature economies, and we believe they are likely to
continue to do so. Huge amounts of foreign direct investment are pouring into
emerging markets--driven by the flight from high costs in developed
countries--which leads to soaring productivity gains. The growth can be
explosive: for example, over the last three years the Chinese economy has grown
by more than 10% per year, much faster than western countries. Governments
throughout the world are becoming more pro-business than ever
before--deregulation, privatization, and tariff reduction are policies that are
being widely implemented in developing countries.
Q. What strategies did you use to manage the Fund during 1996?
A. Guardian Baillie Gifford Limited continued to employ its strategy of
maintaining a diversified portfolio of emerging markets equities, paying
particular attention to the fundamental attractions of individual companies in
terms of their profitability, strength of balance sheet, and earnings growth
prospects.
Experience is vital in this field. Experience not just of the political and
economic risks, but also of the companies. In a given year, we meet the
managements of around 400 emerging market companies. We look for strong
businesses, whose growth prospects are sustainable because of their market
position and financial stability--allowing us to reduce the risks of investing
in these markets, while producing good performance. The risks are further
controlled by regular economic reviews and a high degree of geographic
diversification. There is now a large number of emerging markets to choose from
and the Fund spreads its investments across 22 such countries, with the list
growing all the time.
- --------------------------------------------------------------------------------
(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 Morgan Stanley Capital International (MSCI) Emerging Markets Free (EMF)
Index is an unmanaged index that is generally considered to be
representative of the stock market activity of emerging markets. The Index
is a market capitalization weighted index composed of companies
representative of the market structure of 22 emerging market countries in
Europe, Latin America, and the Pacific Basin. The MSCI EMF Index excludes
closed markets and those otherwise free markets which exclude investments by
foreigners. The MSCI EMF Index is not available for direct investment and
its returns do not reflect the fees and expenses that have been deducted
from the Fund.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund Profile
as of December 31, 1996
- ---------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------
1 Year............................................................... 24.59%
Since Inception (10/17/94)........................................... 3.99%
- --------------------------------------------------------------------------------
[The following table was represented by a pie graph in the printed material]
- --------------------------------------------------------------------------------
Portfolio Composition by Region
South Africa - 1.6%
Cash - 7.4%
Europe - 10.0%
Asia - 45.5%
Latin America - 35.5%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings
Nature
Company of Company Country
------- ---------- -------
1. New World Dvlp. Property Hong Kong
2. Citic Pacific Conglomerate Hong Kong
3. Henderson Land Property Hong Kong
4. Metro Pacific Property Hong Kong
5. Petrobras Energy Brazil
6. Peres Companc Energy & Utilities Argentina
7. HSBC Holdings Banking Hong Kong
8. Telemex Telephone Utility Mexico
9. Genesis Chile Fund Chile
10. Cathay Life Life Insurance Taiwan
& Property
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment(1)
Baillie
MSCI Gifford The
EMF Emerging IFCI
Index Markets Index
----- ------- -----
10/17/94 10000 10000 10000
12/31/94 8552 8948 8300
12/31/95 8106 8894 7596
12/31/96 8595 11081 8230
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Baillie Gifford Emerging Markets Fund, the Morgan Stanley
Capital International (MSCI) Emerging Markets Free (EMF) Index,(2) and in the
IFCI Index.(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) The IFCI Index is an unmanaged index that is generally considered to be
representative of the stock markets activity of emerging markets. The Index
is market capitalization-weighted and carries a significantly higher
weighting in a combination of Mexico and Malaysia (about 50 percent) than
the Fund is normally likely to have. The Fund may also invest in markets
such as Hong Kong and Singapore, which are not included in the Index, so the
performance of the Fund and Index may not always correlate closely. The IFCI
Index is not available for investment.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund
- ---------------------------------------
Q. For the 12 months ended December 31, 1996, how did the Value Line Centurion
Fund perform?
A. For the 12 months ended December 31, 1996, the Centurion Fund produced a
total return of 17.34%(1), compared with a total return of 22.96% for the S&P
500.(2) While the Centurion Fund enjoyed an excellent first nine months in 1996,
outperforming the S&P 500 on a total return basis by 14.84% versus 13.50%, the
Fund's performance was unfavorable in the fourth quarter, as Centurion
underperformed the S&P 500 by more than six percent (2.18% for the Fund versus
8.33% for the Index).
Q. What strategies did you use to manage the Fund during 1996?
A. As in the past, our strategies to manage the Centurion Fund during 1996 began
with our top-down forecast and continued with our bottoms-up investment
approach. Stock selection for the Fund is based on Value Line's proprietary
Ranking System. Each week Value Line ranks approximately 1,700 stocks in more
than 90 different industries on a scale of 1 (Highest) to 5 (Lowest). The
bottoms-up approach involves the purchase of stocks that rank a 1 or 2, meaning
they generally have above-average earnings and price momentum, but trade at
reasonable price/earnings multiples relative to their expected growth rates. We
maintained a constructive outlook for both the economy and the financial markets
in the United States during 1996, a view which we share entering 1997.
Q. What factors affected the Fund's performance?
A. The equity market's strong performance during the fourth quarter was
dominated by large-capitalization Dow Jones Industrial stocks. However, the vast
majority of these 30 stocks, which comprise about one quarter of the S&P 500 on
a market-capitalization weighted basis, were rated in the lower ranking
categories by Value Line's proprietary Ranking System. Because the Fund only
buys stocks in the upper ranking categories, most of the 30 stocks were not
purchased by the Centurion Fund. As a result of this structural discipline,
which has served the Fund well through much of its history, the Centurion Fund's
fourth-quarter underperformance partially offset its strong outperformance
during the first nine months of 1996.
Q. What is your outlook for 1997?
A. We continue to forecast a slow-growth, benign-inflation economic environment,
in which Gross Domestic Product (GDP) and the core levels of both wholesale and
consumer inflation will continue to approximate 2.0-3.0%. We do not expect the
economy to slip into recession, however, because we believe that Federal Reserve
Chairman Alan Greenspan will remain ever vigilant and is prepared to ease
monetary policy, if appropriate, during the first half of 1997. We expect
Congress and President Clinton to get together on a balanced budget deal early
in the new administration, which we believe may contain some necessary cuts in
government spending. Given our muted forecast for GDP growth, if the economy
weakens further in 1997 because of these government spending cuts, then the
- --------------------------------------------------------------------------------
(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 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>
- --------------------------------------------------------------------------------
Federal Reserve may need to step in and cut interest rates to stimulate the
economy and stave off recession. In fact, we believe that Chairman Greenspan
opted to jawbone the markets away from fair-value levels in his now-famous
"irrational exuberance" speech, to allow the markets some rally room in the
event that he eventually needs to ease mone tary policy.
We expect modest corporate profit growth of about 6.0% for
large-capitalization stocks during 1997. In conjunction with our 6.0% long bond
forecast, this translates into an upside objective of about 7,100 for the Dow
Jones Industrial Average (DJIA)(3) during 1997, compared with our 6,600 target
for the DJIA in 1996. Given a starting point of about 6,350 for the DJIA in
1997, implies estimated total return potential of about 14.0% for 1997.
As in 1996, sector focus in the new year should remain on those companies
that can produce above-trendline revenue and profit growth, which includes
technology, financials, healthcare, and energy. We believe that 1997 will be a
volatile year that will emphasize excellent bottoms-up stock-picking skills. If
our upside objectives for the DJIA are met, then we believe that a rolling
rotation may ensue at some point during 1997, in which investors lock in profits
from large-cap stocks and seek out undervalued smaller-caps, which have largely
produced excellent earnings gains but have dramatically underperformed the
large-caps over the past several months.
- --------------------------------------------------------------------------------
Value Line Centurion Fund Profile
as of December 31, 1996
- ---------------------------------------
[The following table was represented as a line graph in the printed material.]
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment(1)
Value Line
Centurion S&P 500
Fund Index
---------- -------
11/15/83 10000 10000
83 9180 10038
84 8420 10650
85 11108 14012
86 12982 16613
87 12611 17461
88 13568 20312
89 17841 26684
90 18833 25827
91 28662 33660
92 30361 36217
93 33156 39841
94 32422 40347
95 45416 55417
12/31/96 53291 68042
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Value Line Centurion Fund and in the S&P 500 Index.(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------
1 Year.................................................................. 17.34%
5 Years................................................................. 13.21%
10 Years................................................................ 15.17%
Since Inception (11/15/83).............................................. 13.59%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Holdings
o Nike, Inc. o Cascade Communications
o Intel Corp. o BMC Software Inc.
o Cisco Systems o Dell Computer
o Citicorp o Tidewater Inc.
o Transocean Offshore Inc. o GAP Inc.
- --------------------------------------------------------------------------------
[The following table was represented as a pie graph in the printed material.]
For a complete list of portfolio holdings, please see the
Schedule of Investments.
- --------------------------------------------------------------------------------
Portfolio Composition by Economic Sector
Consumer Non-Durables -- 14.93%
Capital Goods -- 4.36%
Transportation -- 2.39%
Energy -- 10.39%
Financial -- 17.95%
Consumer Growth -- 17.12%
Technology -- 29.57%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
Q. How did the Trust perform in 1996?
A. We were pleased with the Trust's total return of 15.87% in 1996.(1) This
extended its track record as one of the top-performing flexible funds since
inception nine years ago. For the one and five-year periods ended December 31,
1996 the trust ranked 22 out of 76 and 8 out of 54 underlying funds,
repectively, as reported by Lipper.(2) The 1996 return compared with a total
return of 22.82% for the unmanaged Standard & Poor's 500 Index and a total
return of 2.90% for the unmanaged Lehman Government/Corporate Bond Index.(3)
Q. Has the Trust continued to maintain a relatively large cash position?
A. The Trust's cash balances have remained at about 20% of assets since early
last year. In the spring and summer the stock allocation was brought down from
70% of assets to 45%-50%, where it has since remained. These assets were
redeployed into bonds, where the allocation rose to 30% by mid-summer, from its
previous allocation of 10%.
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. The rise in interest
rates, combined with the rise in stock prices, were the main factors that last
year made bonds increasingly attractive relative to stocks in our models. The
central tendency for the Trust's allocation over time will be 55% in stocks, 35%
in bonds, and 10% in cash equivalents. Thus, the Trust is still holding more
cash than can be expected over the long run, reflecting the current cautionary
stance of Value Line's models.
Q. How are stock selection and bond selection affecting performance?
A. Stock selection continued to be a clear plus for performance, as the stock
portion of the Trust produced a total return of 25.9% in 1996, outperforming the
S&P 500 Index. We rely primarily upon the renowned Value Line Timeliness Ranking
System, which favors stocks with strong earnings and price momentum. To keep
risk down to a reasonable level, we maintain a very diversified portfolio of
over 100 stockholdings 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, or in other words, stocks that are expected to perform in line with the
average stock for the coming year. Most commonly, these are utility or energy
stocks that increase the Trust's dividend yield and add diversification.
The Trust's bond holdings continue to be entirely in U.S. Treasuries, as we
believe the extra yield offered by corporates or agencies continues to be too
modest to be attractive. Maturities range from two to 25 years, with an average
of about seven years. Bond selection had little effect in last year's relatively
flat market. Our mandate is to invest only in high-quality bonds.
- --------------------------------------------------------------------------------
(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) Lipper rankings were reported by Lipper Variable Insurance Products
Performance Analysis Service, in its report dated December 31, 1996.
(3) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market activity.
The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The S&P 500
and the Lehman Aggregate Bond Index are not available for direct investment
and the returns do not reflect the fees and expenses that have been
deducted from the Fund.
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
Q. What would turn your model more bullish on the stock market?
A. Sharp changes in any of its variables could make the model turn bullish. The
clearest plus, however, would be a combination of cheaper stock prices and lower
interest rates.
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
Profile as of December 31, 1996
- -------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Stock Holdings
1. Safeway Inc
2. Equifax Inc.
3. Nike Inc.
4. Johnson & Johnson
5. Cardinal Health
6. Conseco Inc.
7. Praxair INc.
8. Staples Inc.
9. Chesapeake Energy Corp.
10. Williams Cos. Inc.
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------
1 Year.................................................................. 15.87%
5 Years................................................................. 12.76%
Since Inception (10/1/87)............................................... 14.23%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment(1)
Value Line Lehman
Strategic Asset Government/Corporate
Management Trust Bond Index S&P 500 Index
---------------- ---------- -------------
10/1/87 10000 10000 10000
87 9476 10583 7745
88 10453 11385 9010
89 13124 13006 11836
90 13104 14083 11456
91 18784 16355 14931
92 21611 17594 16065
93 24174 19535 17673
94 22994 18849 17897
95 29556 22476 24582
12/31/96 34246 23128 30182
To give you a comparison, the chart above shows the performance of a $10,000
investment made in the Value Line SAM Trust, the S&P 500 Index and in the Lehman
Government/Corporate Bond Index(3).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[The following tables were represented as pie charts in the printed material]
Portfolio Composition by Asset Class
December 31, 1995 December 31, 1996
----------------- -----------------
Cash & Cash Equivalents 30.0% Cash 22.2%
Stocks 60.2% Stocks 48.0%
Bonds 9.8% Bonds 29.8%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund
- ---------------------------------------
[Photo of Alexander M. Grant, Jr., Portfolio Manager]
Q. How did the Guardian Cash Fund perform in 1996?
A. As of December 31, 1996, the effective 7-day annualized yield for the
Guardian Cash Fund was 5.05%.(1) The Fund produced a total return of 4.98% in
1996.(2) In contrast, the average Tier One money market fund, as measured by IBC
Financial Data, had an effective 7-day annualized yield of 4.94% at December 31
and returned 4.90% in 1996. 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 January 31, 1996, the Fed lowered the Federal Funds target
rate 25 basis points to 5.25%. Return figures move with the Federal Funds Rate.
The Federal Funds Rate is the interest rate that member banks charge each other
when they lend money 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. Uncertainty
with the direction of the economy in 1996 and the strength 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 aver age maturity--19 days as
of December 31, 1996. The average Tier One money market fund as measured by IBC
Financial Data had an average maturity of 58 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 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. During 1996, 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
Corporation for the Fund's portfolio. As of December 31, 1996, most of the
portfolio (94%) was invested in commercial paper; the balance (6%) 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 and will vary as interest rates
change. Effective yield assumes that income is reinvested. 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 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.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
23
<PAGE>
- --------- ---------
Separate Separate
Account A Account A
- --------- ---------
1 1
- --------- ---------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
The Guardian Separate Account A
- -------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
Baillie
Gabelli Baillie Gifford
Guardian Guardian Guardian Capital Gifford Emerging
Stock Bond Cash Asset International Markets
Combined Fund Fund Fund Fund Fund Fund
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIFO Cost ................ -- $317,480,940 $80,538,411 $113,749,728 $2,789,368 $29,763,473 $5,489,759
============================================================================================
Assets
Shares outstanding ...... -- 11,762,913 6,805,002 11,374,973 241,831 1,949,892 555,781
Net asset value per share
(NAV) ................. -- 38.59 11.83 10.00 11.55 17.26 10.54
Total Assets (Shares x
NAV) ................ $1,029,104,922 453,930,815 80,503,178 113,749,728 2,793,149 33,655,140 5,857,929
-------------- ------------ ----------- ------------ ---------- ----------- ----------
Liabilities
Risk charges and other
liabilities ........... 9,961,357 620,668 119,611 8,688,982 37,721 48,052 9,732
-------------- ------------ ----------- ------------ ---------- ----------- ----------
Net Assets-- Note 3 ... $1,019,143,565 $453,310,147 $80,383,567 $105,060,746 $2,755,428 $33,607,088 $5,848,197
============== ============ =========== ============ ========== =========== ==========
</TABLE>
Value Line
Strategic
Value Line Asset
Centurion Management
Fund Trust
--------------------------
FIFO Cost ................ $119,915,130 $ 84,946,385
==========================
Assets
Shares outstanding ...... 8,036,916 6,349,697
Net asset value per share
(NAV) ................. 24.83 21.90
Total Assets (Shares x
NAV) ................ 199,556,624 139,058,359
------------ ------------
Liabilities
Risk charges and other
liabilities ........... 250,944 185,647
------------ ------------
Net Assets-- Note 3 ... $199,305,680 $138,872,712
============ ============
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
The Guardian Separate Account A
- -------------------------------
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
Gabelli
Guardian Guardian Guardian Capital
Stock Bond Cash Asset
Combined Fund Fund Fund Fund
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ...................... $ 20,355,914 $ 5,752,382 $ 5,261,013 $5,740,089 $ 4,741
Expenses-- Note 4:
Mortality and expense risk charges ........ 10,292,933 4,137,266 893,132 1,482,713 29,146
------------- ------------- ----------- ---------- ---------
Net investment income/(expense) ............ 10,062,981 1,615,116 4,367,881 4,257,376 (24,405)
------------- ------------- ----------- ---------- ---------
Realized and Unrealized Gain/(Loss) from
Investments Realized
gain/(loss) from investments:
Net realized gain/(loss) from sale
of investments ........................... 82,062,621 42,407,435 (10,884) -- 179,229
Reinvested realized gain distributions .... 80,213,642 50,822,822 -- -- 73,017
------------- ------------- ----------- ---------- ---------
Net realized gain/(loss) on investments ... 162,276,263 93,230,257 (10,884) -- 252,246
------------- ------------- ----------- ---------- ---------
Unrealized appreciation/(depreciation)
of investments:
End of year ............................... 274,431,728 136,449,875 (35,233) -- 3,781
Beginning of year ......................... 293,294,084 136,703,457 3,115,468 -- 20,379
------------- ------------- ----------- ---------- ---------
Change in unrealized appreciation
(depreciation) .......................... (18,862,356) (253,582) (3,150,701) -- (16,598)
------------- ------------- ----------- ---------- ---------
Net realized and unrealized gain/(loss)
from investments ......................... 143,413,907 92,976,675 (3,161,585) -- 235,648
------------- ------------- ----------- ---------- ---------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ................... $ 153,476,888 $ 94,591,791 $ 1,206,296 $4,257,376 $ 211,243
============= ============= =========== ========== =========
<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>
Investment Income
Income:
Reinvested dividends ...................... $ 468,432 $ -- $ 860,669 $ 2,268,588
Expenses-- Note 4:
Mortality and expense risk charges ........ 356,799 53,439 1,955,330 1,385,108
---------- ----------- ------------ -----------
Net investment income/(expense) ............ 111,633 (53,439) (1,094,661) 883,480
---------- ----------- ------------ -----------
Realized and Unrealized Gain/(Loss) from
Investments Realized
gain/(loss) from investments:
Net realized gain/(loss) from sale
of investments ........................... 2,499,646 809,987 25,006,902 11,170,306
Reinvested realized gain distributions .... 472,435 -- 22,162,229 6,683,139
---------- ----------- ------------ -----------
Net realized gain/(loss) on investments ... 2,972,081 809,987 47,169,131 17,853,445
---------- ----------- ------------ -----------
Unrealized appreciation/(depreciation)
of investments:
End of year ............................... 3,891,667 368,170 79,641,494 54,111,974
Beginning of year ......................... 2,289,701 109,615 97,021,527 54,033,937
---------- ----------- ------------ -----------
Change in unrealized appreciation
(depreciation) .......................... 1,601,966 258,555 (17,380,033) 78,037
---------- ----------- ------------ -----------
Net realized and unrealized gain/(loss)
from investments ......................... 4,574,047 1,068,542 29,789,098 17,931,482
---------- ----------- ------------ -----------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ................... $4,685,680 $ 1,015,103 $ 28,694,437 $18,814,962
========== =========== ============ ===========
</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
Years Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
Gabelli
Guardian Guardian Guardian Capital
Stock Bond Cash Asset
Combined Fund Fund Fund Fund
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
----------------------------------------
1995 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ........... $ 11,201,682 $ 1,078,276 $ 5,200,975 $ 5,206,548 $ (2,346)
Net realized gain/(loss) from sale of
investment .............................. 61,676,875 31,983,438 2,335,700 -- 46,326
Reinvested realized gain distributions .... 24,472,650 17,641,220 -- -- 20,051
Change in unrealized appreciation/
(depreciation) of investments ........... 110,832,166 50,854,688 7,676,224 -- 20,379
--------------- ------------- ------------- ------------- -----------
Net increase/(decrease) resulting
from operations ......................... 208,183,373 101,557,622 15,212,899 5,206,548 84,410
--------------- ------------- ------------- ------------- -----------
--------------------------
1995 Contract Transactions
--------------------------
Net contract purchase payments ............ 24,249,434 9,769,130 1,889,775 3,803,961 165,620
Transfer between/within separate accounts . 360,065 18,636,937 76,952 (16,853,974) 1,808,178
Administrative charges--Note 4 ............ (804,227) (295,556) (82,042) (112,317) (541)
Redemptions and annuity benefits .......... (104,254,320) (36,680,887) (12,073,173) (25,037,958) (100,451)
--------------- ------------- ------------- ------------- -----------
Net increase/(decrease) from contract
transactions ............................ (80,449,048) (8,570,376) (10,188,488) (38,200,288) 1,872,806
--------------- ------------- ------------- ------------- -----------
Actuarial Increase in Reserves for Contracts
in Payment Period ......................... 73,194 21,406 10,093 11,247 --
--------------- ------------- ------------- ------------- -----------
Total Increase/(Decrease) in Net Assets ..... 127,807,519 93,008,652 5,034,504 (32,982,493) 1,957,216
Net Assets at December 31, 1994 ........... 834,527,078 304,011,185 97,608,446 137,337,726 --
--------------- ------------- ------------- ------------- -----------
Net Assets at December 31, 1995 ........... $ 962,334,597 $ 397,019,837 $ 102,642,950 $ 104,355,233 $ 1,957,216
=============== ============= ============= ============= ===========
----------------------------------------
1996 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ........... $ 10,062,981 $ 1,615,116 $ 4,367,881 $ 4,257,376 $ (24,405)
Net realized gain/(loss) from sale of
investments ............................. 82,062,621 42,407,435 (10,884) -- 179,229
Reinvested realized gain distributions .... 80,213,642 50,822,822 -- -- 73,017
Change in unrealized appreciation/
(depreciation) of investments ........... (18,862,356) (253,582) (3,150,701) -- (16,598)
--------------- ------------- ------------- ------------- -----------
Net increase/(decrease) resulting
from operations ......................... 153,476,888 94,591,791 1,206,296 4,257,376 211,243
--------------- ------------- ------------- ------------- -----------
--------------------------
1996 Contract Transactions
--------------------------
Net contract purchase payments ............ 24,075,467 9,924,177 1,988,885 3,429,096 55,211
Transfer between/within separate accounts . 308,745 (1,870,115) (7,806,729) 13,382,907 888,354
Administrative charges-- Note 4 ........... (728,807) (279,998) (68,087) (91,268) (1,846)
Redemptions and annuity benefits .......... (120,438,737) (46,096,292) (17,576,592) (20,312,666) (354,750)
--------------- ------------- ------------- ------------- -----------
Net increase/(decrease) from contract
transactions ............................ (96,783,332) (38,322,228) (23,462,523) (3,591,931) 586,969
--------------- ------------- ------------- ------------- -----------
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) 705,513 798,212
Net Assets at December 31, 1995 ........... 962,334,597 397,019,837 102,642,950 104,355,233 1,957,216
--------------- ------------- ------------- ------------- -----------
Net Assets at December 31, 1996--Note 3 ... $ 1,019,143,565 $ 453,310,147 $ 80,383,567 $ 105,060,746 $ 2,755,428
=============== ============= ============= ============= ===========
<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>
----------------------------------------
1995 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ........... $ 215,453 $ 33,936 $ (978,429) $ 447,269
Net realized gain/(loss) from sale of
investment .............................. 3,163,941 (100,857) 15,666,522 8,581,805
Reinvested realized gain distributions .... 1,450,788 -- 4,303,964 1,056,627
Change in unrealized appreciation/
(depreciation) of investments ........... (1,692,149) 175,370 34,330,638 19,467,016
------------ ------------ ------------- -------------
Net increase/(decrease) resulting
from operations ......................... 3,138,033 108,449 53,322,695 29,552,717
------------ ------------ ------------- -------------
--------------------------
1995 Contract Transactions
--------------------------
Net contract purchase payments ............ 730,385 128,972 3,968,518 3,793,073
Transfer between/within separate accounts . (5,547,470) 1,949,978 4,394,453 (4,104,989)
Administrative charges--Note 4 ............ (26,816) (2,419) (182,645) (101,891)
Redemptions and annuity benefits .......... (3,681,044) (172,117) (15,789,120) (10,719,570)
------------ ------------ ------------- -------------
Net increase/(decrease) from contract
transactions ............................ (8,524,945) 1,904,414 (7,608,794) (11,133,377)
------------ ------------ ------------- -------------
Actuarial Increase in Reserves for Contracts
in Payment Period ......................... 1,477 -- 15,515 13,456
------------ ------------ ------------- -------------
Total Increase/(Decrease) in Net Assets ..... (5,385,435) 2,012,863 45,729,416 18,432,796
Net Assets at December 31, 1994 ........... 39,586,340 1,300,991 140,655,695 114,026,695
------------ ------------ ------------- -------------
Net Assets at December 31, 1995 ........... $ 34,200,905 $ 3,313,854 $ 186,385,111 $ 132,459,491
============ ============ ============= =============
----------------------------------------
1996 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ........... $ 111,633 $ (53,439) $ (1,094,661) $ 883,480
Net realized gain/(loss) from sale of
investments ............................. 2,499,646 809,987 25,006,902 11,170,306
Reinvested realized gain distributions .... 472,435 -- 22,162,229 6,683,139
Change in unrealized appreciation/
(depreciation) of investments ........... 1,601,966 258,555 (17,380,033) 78,037
------------ ------------ ------------- -------------
Net increase/(decrease) resulting
from operations ......................... 4,685,680 1,015,103 28,694,437 18,814,962
------------ ------------ ------------- -------------
--------------------------
1996 Contract Transactions
--------------------------
Net contract purchase payments ............ 765,019 200,290 3,982,773 3,730,016
Transfer between/within separate accounts . (2,307,472) 1,735,713 (3,790,872) 76,959
Administrative charges-- Note 4 ........... (22,723) (3,672) (171,338) (89,875)
Redemptions and annuity benefits .......... (3,717,522) (413,091) (15,832,074) (16,135,750)
------------ ------------ ------------- -------------
Net increase/(decrease) from contract
transactions ............................ (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 ..... (593,817) 2,534,343 12,920,569 6,413,221
Net Assets at December 31, 1995 ........... 34,200,905 3,313,854 186,385,111 132,459,491
------------ ------------ ------------- -------------
Net Assets at December 31, 1996--Note 3 ... $ 33,607,088 $ 5,848,197 $ 199,305,680 $ 138,872,712
============ ============ ============= =============
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
26 & 27
<PAGE>
- ---------
Separate
Account A
- ---------
1
- ---------
- --------------------------------------------------------------------------------
The Guardian Separate Account A
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- ----------------------
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 Guardian Real
Estate Account (GREA) or to the Fixed Rate Option (FRO), as selected by the
contractowner. GREA is another separate investment account established by GIAC.
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, GREA 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.
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.
- --------------------------------------------------------------------------------
28
<PAGE>
---------
Separate
Account A
---------
1
---------
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 years ended December 31, 1996 and December 31, 1995, purchases
and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
The Guardian Separate Account A Purchases Purchases Sales Sales
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Guardian Stock Fund ................. $ 97,876,055 $ 64,540,375 $ 83,233,078 $ 54,475,767
Guardian Bond Fund .................. 13,407,375 16,147,221 32,410,884 21,179,193
Guardian Cash Fund .................. 81,956,724 49,874,066 80,212,566 81,863,166
Gabelli Capital Asset Fund .......... 3,608,583 3,161,274 2,943,856 1,262,188
Baillie Gifford International Fund .. 9,367,859 11,256,843 14,028,689 18,203,364
Baillie Gifford Emerging Markets Fund 9,638,443 3,729,080 8,165,203 1,789,422
Value Line Centurion Fund ........... 42,230,071 22,162,956 36,738,684 26,496,222
Value Line SAM Trust: ............... 15,614,499 7,714,410 20,298,424 17,386,141
------------ ------------ ------------ ------------
Total ........................... $273,699,609 $178,586,225 $278,031,384 $222,655,463
============ ============ ============ ============
</TABLE>
- ---------------------------------------
Note 3 -- Net Assets, December 31, 1996
- ---------------------------------------
<TABLE>
<CAPTION>
Accumulation Total
Units Owned Unit Value Unit Value
----------- ------------ ----------
<S> <C> <C> <C>
Tax-Qualified Accounts:
The Guardian Stock Fund, Inc. ............... 3,375,757.185 $ 72.788450 $245,716,133
The Guardian Bond Fund, Inc. ................ 1,300,338.541 29.924450 38,911,916
The Guardian Cash Fund, Inc. ................ 1,935,600.424 23.050182 44,615,942
Gabelli Capital Asset Fund .................. 109,716.806 11.831565 1,298,122
Baillie Gifford International Fund .......... 951,280.837 16.175077 15,387,041
Baillie Gifford Emerging Markets Fund ....... 209,419.364 10.666664 2,233,806
Value Line Centurion Fund, Inc. ............. 2,247,318.826 46.919586 105,443,269
Value Line Strategic Asset Management Trust . 2,736,789.136 31.260980 85,554,710
</TABLE>
- --------------------------------------------------------------------------------
29
<PAGE>
- ---------
Separate
Account A
- ---------
1
- ---------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
The Guardian Separate Account A
- -------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Accumulation Total
Units Owned Unit Value Unit Value
----------- ------------ ----------
<S> <C> <C> <C>
Non-Tax-Qualified Accounts:
The Guardian Stock Fund, Inc. ................. 2,700,570.608 72.788450 196,570,349
The Guardian Bond Fund, Inc. .................. 1,316,330.707 29.924450 39,390,473
The Guardian Cash Fund, Inc. .................. 2,573,440.041 23.050182 59,318,261
Gabelli Capital Asset Fund .................... 123,171.039 11.831565 1,457,306
Baillie Gifford International Fund ............ 1,105,132.493 16.175077 17,875,603
Baillie Gifford Emerging Markets Fund ......... 338,849.266 10.666664 3,614,391
Value Line Centurion Fund, Inc. ............... 1,954,823.875 46.919586 91,719,527
Value Line Strategic Asset Management Trust ... 1,681,530.945 31.260980 52,566,305
-------------
1,001,673,154
Contracts receiving annuity payments 6,508,785
Interest of GIAC in separate account 10,961,626
-------------
Total Net Assets $1,019,143,565
==============
</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 Year and the Four Prior Year Ends
for Both Qualified and Non-Qualified Accounts
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. .......... $72.788450 $57.928841 $43.446001 $44.442667 $37.415159
The Guardian Bond Fund, Inc. ........... 29.924450 29.376248 25.230236 26.391400 24.261811
The Guardian Cash Fund, Inc. ........... 23.050182 22.171865 21.217142 20.638921 20.306987
Gabelli Capital Asset Fund ............. 11.831565 10.763220 -- -- --
Baillie Gifford International Fund ..... 16.175077 14.153848 12.851309 12.866264 9.693868
Baillie Gifford Emerging Markets Fund .. 10.666664 8.646640 8.785416 -- --
Value Line Centurion Fund, Inc. ........ 46.919586 40.383489 29.115003 30.069047 27.806724
Value Line Strategic Asset
Management Trust ..................... 31.260980 27.247234 21.407853 22.728967 20.520859
</TABLE>
30
<PAGE>
---------
Separate
Account A
---------
1
---------
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
and Contractowners of The Guardian Separate Account A, "Value Guard II"
In our opinion, the accompanying statement of assets and liabilities and the
related combined statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the investment
divisions relating to Guardian Stock Fund, Guardian Bond Fund, Guardian Cash
Fund, Gabelli Capital Asset Fund, Baillie Gifford International Fund, Baillie
Gifford Emerging Markets Fund, Value Line Centurion Fund and Value Line
Strategic Asset Management Trust (constituting The Guardian Separate Account A,
"Value Guard II", hereafter referred to as the "Separate Account") at December
31, 1996, and the results of each of their operations for the year then ended
and the changes in each of their net assets for each of the two years then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the management of The Guardian
Insurance & Annuity Company, Inc.; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
transfer agents of the underlying funds, provide a reasonable basis for the
opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
February 11, 1997
- --------------------------------------------------------------------------------
31
<PAGE>
- ----------------
The Guardian
Stock Fund, Inc.
- ----------------
2
- ----------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
SCHEDULE OF INVESTMENTS
December 31, 1996
- ----------------------
COMMON STOCKS -- 94.2%
- ----------------------
Shares Value
- ------------------------------------------------------------
Aerospace and Defense -- 5.1%
244,524 Boeing Co. $ 26,011,198
77,025 Lockheed Martin Corp. 7,047,788
276,400 Logicon, Inc. 10,088,600
702,000 McDonnell Douglas Corp. 44,928,000
201,750 Precision Castparts Corp. 10,011,844
95,800 Rockwell Int'l. Corp. 5,831,825
64,000 Sundstrand Corp. 2,720,000
11,900 Trinity Industries, Inc.* 448,166
83,000 United Technologies Corp. 5,478,000
112,565,421
--------------
Air Transportation -- 0.3%
69,800 AMR Corp. Del* 6,151,125
--------------
Appliance and Furniture -- 0.1%
99,000 Furniture Brands Int'l., Inc.* 1,386,000
25,000 Herman Miller, Inc. 1,415,625
--------------
2,801,625
--------------
Automotive -- 0.7%
464,200 Ford Motor Co. DE* 14,796,375
--------------
Biotechnology -- 0.2%
93,600 Amgen, Inc.* 5,089,500
--------------
Building Materials and Homebuilders -- 0.9%
18,000 Armstrong World Inds., Inc.* 1,251,000
35,500 Centex Corp.* 1,335,688
137,000 Coachmen Industries, Inc. 3,887,375
14,400 Del Webb Corp. 235,800
87,000 Fleetwood Enterprises, Inc. 2,392,500
57,000 Kaufman & Broad Home Corp.* 733,875
88,300 Lennar Corp.* 2,406,175
60,000 McGrath Rent Corp. 1,545,000
100,000 Oakwood Homes Corp.* 2,287,500
33,600 Pulte Corp.* 1,033,200
34,100 Sherwin-Williams Co.* 1,909,600
23,000 U.S. Home Corp.* 598,000
20,700 Vulcan Materials Co. 1,260,112
--------------
20,875,825
--------------
Capital Goods-Miscellaneous Technology -- 1.1%
79,650 Martin Marietta Materials, Inc. 1,851,862
116,500 Minesotta Mining & Mfg. Co. 9,654,937
188,475 Paychex, Inc. 9,694,683
60,400 Rexel, Inc.* 958,850
43,200 Schuller Corp. 459,000
--------------
22,619,332
--------------
Capital Goods-Technology-Telecommunications -- 0.1%
14,500 Harris Corp. DE 995,063
47,800 Network Equip. Technologies* 788,700
--------------
1,783,763
--------------
Chemicals -- 2.5%
60,000 Avery Dennison Corp. 2,122,500
141,000 Cambrex Corp. 4,617,750
424,200 E.I.Dupont De Nemours, Inc. 40,033,875
102,000 PPG Industries, Inc. 5,724,750
40,000 Rohm & Haas Co.* 3,265,000
--------------
55,763,875
--------------
Computer Software -- 3.5%
107,800 BMC Software, Inc.* 4,460,225
32,400 Cadence Design Systems, Inc.* 1,287,900
272,250 Computer Associates Int'l., Inc. 13,544,437
43,100 Compuware Corp.* 2,160,387
308,900 Electronic Data Systems Corp. 13,359,925
56,000 Fair Isaac & Co., Inc. 2,191,000
380,000 Microsoft Corp.* 31,397,500
34,000 OneWave, Inc.* 265,625
94,000 Parametric Technology Corp.* 4,829,250
87,000 Sterling Software, Inc.* 2,751,375
69,400 SunGuard Data Systems, Inc.* 2,741,300
--------------
78,988,924
--------------
Computer Systems -- 2.9%
332,000 Cisco Systems, Inc.* 21,123,500
94,900 Compaq Computer Corp.* 7,046,325
100,300 Computervision Corp.* 927,775
33,000 Diebold, Inc. 2,074,875
51,000 Health Mgmt. Systems, Inc.* 714,000
77,000 Imation Corp.* 2,165,625
90,000 Lexmark Int'l. Group, Inc.* 2,486,250
8,300 Mylex Corp.* 103,750
115,000 Pitney Bowes, Inc.* 6,267,500
87,000 SCI Systems, Inc.* 3,882,375
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
32
<PAGE>
----------------
The Guardian
Stock Fund, Inc.
----------------
2
----------------
- --------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
297,000 Storage Technology Corp.* $ 14,144,625
102,800 Sun Microsystems, Inc.* 2,640,675
90,000 Tandem Computers, Inc.* 1,237,500
--------------
64,814,775
--------------
Coal -- 0.0%
33,000 Eastern Enterprises 1,167,375
--------------
Conglomerates -- 1.8%
102,900 Allied Signal, Inc. 6,894,300
149,800 Loews Corp. 14,118,650
73,500 Tenneco, Inc.* 3,316,688
155,000 Textron, Inc. 14,608,750
--------------
38,938,388
--------------
Cosmetics and Toiletries -- 0.7%
12,000 Alberto-Culver Co.* 495,000
198,500 Gillette Co. 15,433,375
30,400 Helen of Troy Ltd.* 668,800
--------------
16,597,175
--------------
Drugs and Hospitals -- 12.3%
287,800 Abbott Labs. 14,605,850
99,660 Allegiance Corp. 2,753,108
460,700 American Home Products Corp. 27,008,538
48,300 Baxter International, Inc. 1,980,300
44,200 Becton Dickinson & Co. 1,917,175
343,300 Bristol-Myers Squibb Corp. 37,333,875
144,748 Eli Lilly & Co., Inc. 10,566,604
89,400 Genesis Health Ventures, Inc.* 2,782,575
175,986 Guidant Corp. 10,031,202
88,000 Integrated Health Services, Inc. 2,145,000
954,800 Johnson & Johnson 47,501,300
136,400 Kinetic Concepts, Inc. 1,670,900
53,700 Manor Care, Inc.* 1,449,900
121,600 Mariner Health Group, Inc.* 1,018,400
613,500 Merck & Co., Inc. 48,619,875
90,000 Old Republic Int'l. Corp.* 2,407,500
323,000 Pfizer, Inc. 26,768,625
225,700 Schering-Plough Corp. 14,614,075
44,000 Sun Healthcare Group, Inc.* 594,000
12,000 Unitrin, Inc. 669,000
362,000 Universal Health Services, Inc.* 10,362,250
73,200 Warner-Lambert Co. 5,490,000
--------------
272,290,052
--------------
Electrical Equipment -- 3.1%
128,400 Emerson Electric Co. 12,422,700
580,000 General Electric Co. 57,347,500
--------------
69,770,200
--------------
Electronics and Instruments -- 0.4%
64,400 Analogic Corp. 2,157,400
13,900 Ascend Communications, Inc.* 863,538
29,400 Dynatech Corp.* 1,300,950
42,600 Intergraph Corp.* 436,650
30,700 Sanmina Corp.* 1,734,550
34,200 Solectron Corp.* 1,825,425
--------------
8,318,513
--------------
Entertainment -- 0.1%
191,000 Galoob Toys, Inc.* 2,674,000
--------------
Energy-Miscellaneous -- 0.5%
192,500 Giant Industries, Inc. 2,695,000
237,430 Holly Corp. 6,351,252
84,000 Howell Corp. 1,254,750
--------------
10,301,002
--------------
Financial-Banks -- 10.7%
158,200 Banc One Corp. 6,802,600
30,000 Bancorp Hawaii, Inc. 1,260,000
278,400 BankAmerica Corp. 27,770,400
171,000 Bank of Boston Corp. 10,986,750
146,000 Barnett Banks, Inc. 6,004,250
50,000 Central & Southern Hldgs. Co. 587,500
308,568 Chase Manhattan Corp. 27,539,694
517,484 Citicorp 53,300,852
26,100 Comerica, Inc. 1,366,988
3 Crestar Financial Corp. 223
146,300 First Bank Systems, Corp. 9,984,975
115,800 First Chicago NBD Corp. 6,224,250
19,900 First Empire State Corp. 5,731,200
30,000 First Merit Corp. 1,065,000
226,700 First Union Corp. 16,775,800
79,537 Hubco, Inc. 1,948,647
50,000 Mellon Bank Corp. 3,550,000
166,400 Nationsbank Corp. 16,265,600
135,060 Norwest Corp. 5,875,110
22,500 Provident Bancorp, Inc.* 765,000
36,000 Star Banc Corp. 3,307,500
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
33
<PAGE>
- ----------------
The Guardian
Stock Fund, Inc.
- ----------------
2
- ----------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
SCHEDULE OF INVESTMENTS (continued)
December 31, 1996
Shares Value
- ------------------------------------------------------------
58,000 State Street Boston Corp. $ 3,741,000
564,000 Travelers Group, Inc. 25,591,500
22,000 UnionBanCal Corp.* 1,166,000
18,000 Zions Bancorp 1,872,000
--------------
239,482,839
--------------
Financial-Others -- 7.1%
160,000 American Express Co. 9,040,000
18,400 Countrywide Credit Inds., Inc.* 526,700
21,666 Duff & Phelps Cr. Rating Co. 522,692
126,800 A.G. Edwards, Inc. 4,263,650
64,600 Federal Home Loan Mortgage Corp. 7,114,075
664,600 Federal National Mortgage Assn. 24,756,350
18,000 Financial Sec. Assur. Hldgs Ltd. 591,750
516,000 First USA, Inc. 17,866,500
96,000 Franklin Resources, Inc. 6,564,000
655,600 Green Tree Financial Corp. 25,322,550
169,000 Jefferies Group, Inc. 6,823,375
94,000 McDonald & Co. Investments, Inc. 3,266,500
251,100 Merrill Lynch & Co., Inc. 20,464,650
82,100 J.P. Morgan & Co., Inc. 8,015,012
256,050 Morgan Keegan, Inc. 4,384,856
36,000 Morgan Stanley Group., Inc. 2,056,500
153,825 Raymond James Financial, Inc. 4,633,978
119,700 Salomon, Inc.* 5,640,863
200,000 Charles Schwab Corp. 6,400,000
--------------
158,254,001
--------------
Financial-Thrift -- 3.2%
67,200 Astoria Financial Corp. 2,478,000
270,400 California Federal Bancorp, Inc.* 6,624,800
155,400 Charter One Financial, Inc. 6,526,800
7,800 Citfed Bancorp, Inc.* 257,400
66,000 Coastal Bancorp, Inc. 1,509,750
243,600 Collective Bancorp, Inc. 8,556,450
69,300 Commercial Federal Corp. 3,326,400
55,000 Greenpoint Financial Corp. 2,598,750
124,000 Long Island Bancorp, Inc. 4,340,000
19,635 MAF Bancorp, Inc. 682,316
37,666 Pacific Crest Capital, Inc.* 433,159
123,543 Progressive Bank, Inc. 2,810,603
528,441 Sovereign Bancorp, Inc. 6,935,787
167,800 Standard Fed. Bancorp. 9,543,625
318,766 TCF Financial Corp. 13,866,321
--------------
70,490,161
--------------
Food, Beverage and Tobacco -- 4.7%
343,600 Anheuser Busch Cos., Inc. 13,744,000
110,000 Archer-Daniels-Midland Co. 2,420,000
102,000 Campbell Soup Co. 8,185,500
99,000 Coca Cola Co. 4,801,500
93,600 ConAgra, Inc. 4,656,600
6,872 Earthgrains Co. 359,062
75,000 Great Atlantic & Pacific Tea, Inc.* 2,390,625
56,000 Hershey Foods Corp. 2,450,000
41,000 Interstate Bakeries Corp.* 2,014,125
424,800 Philip Morris Cos., Inc. 47,843,100
60,400 Ralston-Purina Group 4,431,850
18,000 Schweitzer-Mauduit Int'l., Inc.* 569,250
61,100 Unilever NV 10,707,775
--------------
104,573,387
--------------
Footwear -- 0.4%
146,800 Nike, Inc. 8,771,300
--------------
Hardware and Tools -- 0.3%
187,100 Black & Decker Corp.* 5,636,388
--------------
Household Products -- 1.2%
20,400 Clorox Co.* 2,047,650
108,360 Kimberly Clark Corp. 10,321,290
124,900 Procter & Gamble Co. 13,426,750
--------------
25,795,690
--------------
Insurance -- 3.3%
165,700 Allstate Corp. 9,589,887
38,000 AMBAC, Inc. 2,522,250
99,000 Amer. Bankers Ins. Group, Inc. 5,061,375
136,300 Amer. Int'l. Group, Inc 14,754,475
60,000 CMAC Investment Corp. 2,205,000
18,000 Enhance Finl. Svcs. Group, Inc. 657,000
66,700 Executive Risk, Inc. 2,467,900
23,900 General Re Corp. 3,770,225
61,900 ITT Hartford Group, Inc. 4,178,250
60,000 Jefferson Pilot Corp. 3,397,500
68,847 Liberty Financial Cos., Inc. 2,676,427
108,000 MGIC Investment Corp. 8,208,000
45,000 Progressive Corp. OH 3,031,875
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
34
<PAGE>
----------------
The Guardian
Stock Fund, Inc.
----------------
2
----------------
- --------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
42,000 ReliaStar Financial Group* $ 2,425,500
108,000 State Auto Financial Corp. 1,944,000
108,000 Sun America, Inc. 4,792,500
60,000 Travelers Aetna Ppty. Cas. Corp. 2,122,500
--------------
73,804,664
--------------
Lodging -- 0.2%
298,000 Prime Hospitality Corp.* 4,805,250
--------------
Machinery and Equipment -- 1.3%
148,800 Caterpillar, Inc. 11,197,200
91,400 Deere & Co. 3,713,125
83,900 Illinois Tool Works, Inc. 6,701,512
75,000 JLG Industries, Inc. 1,200,000
40,000 Robbins & Myers, Inc. 1,000,000
110,000 York Int'l. Corp. 6,146,250
--------------
29,958,087
--------------
Merchandising-Department Stores -- 0.5%
110,000 Carson Pirie Scott & Co.* 2,777,500
53,000 Dollar General Corp. 1,696,000
497,100 K Mart Corp.* 5,157,413
23,000 MacFrugals Bargain Close Outs* 600,875
18,900 Mercantile Stores, Inc.* 933,188
--------------
11,164,976
--------------
Merchandising-Drugs -- 0.4%
80,000 DS Revco, Inc.* 2,960,000
84,300 Value Health, Inc.* 1,643,850
125,000 Walgreen Co. 5,000,000
--------------
9,603,850
--------------
Merchandising-Food -- 0.7%
93,000 Kroger Co.* 4,324,500
61,500 Richfood Holdings, Inc. 1,491,375
130,000 Safeway, Inc.* 5,557,500
86,000 Supervalu, Inc.* 2,440,250
41,400 Vons Cos., Inc.* 2,478,825
--------------
16,292,450
--------------
Merchandising-Special -- 0.3%
164,100 Claire Stores, Inc. 2,133,300
35,800 Friedmans, Inc.* 528,050
137,160 Host Marriott Services Corp.* 1,251,585
60,000 Pier 1 Imports, Inc. 1,057,500
17,000 Ross Stores, Inc. 850,000
30,000 Tiffany & Co., Inc. 1,098,750
--------------
6,919,185
--------------
Metals and Mining -- 0.5%
185,000 ASARCO, Inc.* 4,601,875
172,800 Bethlehem Steel Corp.* 1,555,200
94,400 Cyprus Amax Minerals Co.* 2,206,600
72,000 USX Steel Group* 2,259,000
--------------
10,622,675
--------------
Miscellaneous-Consumer Growth Staples -- 0.4%
93,100 Cognizant Corp.* 3,072,300
35,000 Interpublic Group Cos., Inc.* 1,662,500
75,000 A.C. Nielsen Corp.* 1,134,375
58,000 Omnicom Group 2,653,500
--------------
8,522,675
--------------
Natural Gas-Diversified -- 1.0%
428,000 Enserch Corp. 9,844,000
267,600 Mitchell Energy & Dev. Corp. 5,920,650
100,000 PanEnergy Corp. 4,500,000
62,000 Western Gas Res., Inc. 1,193,500
--------------
21,458,150
--------------
Oil and Gas Producing -- 5.4%
325,000 Alberta Energy Ltd.* 7,800,000
294,000 Apache Corp. 10,400,250
205,000 Basin Exploration, Inc.* 1,281,250
340,600 Tom Brown, Inc.* 7,110,025
140,000 Cairn Energy USA, Inc.* 1,400,000
304,000 Chieftain Int'l., Inc.* 7,904,000
247,000 Devon Energy Corp. 8,583,250
81,800 Diamond Offshore Drilling, Inc.* 4,662,600
500,100 Enron Oil and Gas Co. 12,627,525
460,000 Enserch Exploration, Inc.* 5,405,000
61,900 Forcenergy Gas Exploration, Inc.* 2,243,875
54,700 Petroleum Secs. Australia Ltd.* 1,244,425
750,900 Petromet Resources Ltd.* 1,595,662
137,600 Pogo Producing Co. 6,501,600
1,160,000 Ranger Oil Ltd.* 11,455,000
365,700 Rigel Energy Corp.* 3,634,144
487,520 Seagull Energy Corp.* 10,725,440
205,100 St. Mary Land & Exploration Co. 5,101,863
60,700 Snyder Oil Corp. 1,054,662
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
35
<PAGE>
- ----------------
The Guardian
Stock Fund, Inc.
- ----------------
2
- ----------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
SCHEDULE OF INVESTMENTS (continued)
December 31, 1996
Shares Value
- ------------------------------------------------------------
91,385 Union Pacific Res. Group, Inc. $ 2,673,011
94,767 United Meridian Corp.* 4,904,192
20,900 Vintage Petroleum, Inc. 721,050
220,000 Wainoco Oil Ltd.* 687,500
--------------
119,716,324
--------------
Oil-Integrated-Domestic -- 1.5%
122,600 Amoco Corp. 9,869,300
57,300 Atlantic Richfield Co. 7,592,250
185,000 Murphy Oil Corp. 10,290,625
460,500 Tesoro Petroleum, Inc.* 6,447,000
--------------
34,199,175
--------------
Oil-Integrated-International -- 5.6%
228,800 Chevron Corp. 14,872,000
509,400 Exxon Corp. 49,921,200
112,800 Mobil Corp. 13,789,800
199,700 Royal Dutch Petroleum Co. 34,098,775
121,000 Texaco, Inc. 11,873,125
--------------
124,554,900
--------------
Oil and Gas Services -- 2.9%
29,200 Cliffs Drilling Co.* 1,846,900
20,000 Cooper Cameron Corp.* 1,530,000
74,000 ENSCO Int'l., Inc.* 3,589,000
95,200 Halliburton Co. 5,735,800
226,300 Input/Output, Inc.* 4,186,550
521,000 Nabors Industries, Inc.* 10,029,250
180,000 Noble Drilling Corp.* 3,577,500
189,300 Offshore Logistics, Inc.* 3,667,688
95,000 Pride Petroleum Services, Inc.* 2,208,750
169,700 Schlumberger Ltd. 16,948,787
205,000 Smith Int'l., Inc.* 9,199,375
117,700 Varco Int'l., Inc.* 2,721,812
--------------
65,241,412
--------------
Paper and Forest Products -- 1.0%
50,000 Caraustar Industries, Inc. 1,662,500
548,000 Rayonier, Inc. 21,029,500
--------------
22,692,000
--------------
Photography -- 0.3%
93,700 Eastman Kodak Co. 7,519,425
--------------
Publishing-News -- 0.2%
82,500 A.H. Belo Corp. 2,877,188
3,700 Washington Post Co. 1,239,962
--------------
4,117,150
--------------
Railroads -- 0.8%
47,949 Burlington Northern Santa Fe 4,141,595
72,200 Norfolk Southern Corp.* 6,317,500
107,900 Union Pacific Corp. 6,487,487
--------------
16,946,582
--------------
Semiconductor -- 2.3%
89,500 Applied Magnetics Corp.* 2,673,813
368,300 Intel Corp.* 48,224,281
--------------
50,898,094
--------------
Textile-Apparel and Production -- 0.5%
103,900 Fruit of the Loom, Inc.* 3,935,213
72,600 Russell Corp. 2,159,850
64,000 V.F. Corp. 4,320,000
--------------
10,415,063
--------------
Transportation-Miscellaneous -- 0.0%
164,100 Maritrans, Inc. 1,005,113
--------------
Truckers -- 0.0%
32,100 FRP Pptys., Inc.* 818,550
--------------
Utilities-Communications -- 1.1%
128,500 Ameritech Corp. 7,790,313
177,000 Bellsouth Corp. 7,146,375
111,900 SBC Communications, Inc. 5,790,825
60,200 Sprint Corp. 2,400,475
40,666 360 Communications Co.* 940,401
--------------
24,068,389
--------------
Utilities-Gas and Pipeline -- 0.1%
45,000 KN Energy, Inc. 1,766,250
--------------
TOTAL COMMON STOCKS
(Cost $1,545,585,305) 2,096,421,400
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
36
<PAGE>
----------------
The Guardian
Stock Fund, Inc.
----------------
2
----------------
- --------------------------------------------------------------------------------
- ----------------------------
REPURCHASE AGREEMENT -- 5.0%
- ----------------------------
Principal Maturity
Amount Date Value
- ------------------------------------------------------------
$111,569,000 State Street Bank & Trust
repurchase agreement,
dated 12/31/96, maturity
value $111,622,460, 5.75%,
due 1/2/97 (collateralized by
$112,805,000 U.S. Treasury
Notes, 6.00% due 5/31/98)
1/2/97 $ 111,569,000
--------------
TOTAL REPURCHASE AGREEMENT
(Cost $111,569,000) 111,569,000
--------------
TOTAL INVESTMENTS -- 99.2%
(Cost $1,657,154,305) 2,207,990,400
CASH, RECEIVABLES
AND OTHER ASSETS
LESS PAYABLES -- 0.8% 18,737,530
--------------
NET ASSETS -- 100.0% $2,226,727,930
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
37
<PAGE>
- ----------------
The Guardian
Stock Fund, Inc.
- ----------------
2
- ----------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1996
ASSETS:
Investments, at identified cost* $1,657,154,305
==============
Investments, at market 2,096,421,400
Repurchase agreements 111,569,000
--------------
TOTAL INVESTMENTS 2,207,990,400
--------------
Cash 665
Receivable for securities sold 51,050,930
Dividends receivable 2,644,652
Receivable for fund shares sold 1,264,577
Interest receivable 17,820
Foreign tax receivable 8,049
--------------
TOTAL ASSETS 2,262,977,093
--------------
LIABILITIES:
Payable for securities purchased 32,466,025
Payable for fund shares redeemed 1,141,897
Accrued expenses 165,617
Due to affiliates 2,475,624
--------------
TOTAL LIABILITIES 36,249,163
--------------
NET ASSETS $2,226,727,930
==============
COMPONENTS OF NET ASSETS:
Capital Stock -- $0.10 par value
(100,000,000 shares authorized) $ 5,770,633
Paid-in capital 1,624,227,228
Accumulated net realized gain on
investments 45,893,974
Net unrealized appreciation of investments 550,836,095
--------------
NET ASSETS $2,226,727,930
==============
Shares Outstanding -- $0.10 par value 57,706,328
--------------
NET ASSET VALUE PER SHARE $ 38.59
==============
* Includes repurchase agreements.
STATEMENT OF OPERATIONS
Year Ended
December 31, 1996
Investment Income:
Income:
Dividends $ 30,703,343
Interest 6,072,611
--------------
36,775,954
--------------
Less: Foreign tax withheld 87,997
--------------
Total Income 36,687,957
--------------
Expenses:
Investment advisory fees-- Note B 9,077,501
Custodian fees 224,024
Registration fees 130,686
Printing expense 53,912
Audit fees 17,500
Insurance expense 15,032
Directors' fees-- Note B 12,000
Legal fees 5,648
Transfer agent fees 3,300
Other 705
--------------
Total Expenses 9,540,308
--------------
Net Investment Income $ 27,147,649
--------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note D
Net realized gain on investments $ 222,958,266
Net change in unrealized appreciation
of investments 203,188,926
--------------
Net Realized and Unrealized Gain
on Investments 426,147,192
--------------
Net Increase in Net Assets Resulting
from Operations $ 453,294,841
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
38
<PAGE>
----------------
The Guardian
Stock Fund, Inc.
----------------
2
----------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
From Operations:
Net investment income $ 27,147,649 $ 18,773,685
Net realized gain on investments 222,958,266 134,802,382
Net change in unrealized appreciation of investments 203,188,926 229,959,479
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 453,294,841 383,535,546
--------------- ---------------
Distributions to Shareholders:
Net investment income (27,352,727) (18,757,010)
Net realized gain on investments (243,546,609) (71,343,468)
--------------- ---------------
Total Distributions to Shareholders (270,899,336) (90,100,478)
--------------- ---------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions-- Note E 429,061,626 282,844,511
--------------- ---------------
Net Increase in Net Assets 611,457,131 576,279,579
Net Assets:
Beginning of year 1,615,270,799 1,038,991,220
--------------- ---------------
End of year* $ 2,226,727,930 $ 1,615,270,799
=============== ===============
* Includes undistributed net investment income of: -- $ 96,928
</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 years
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of year .............. $ 34.72 $ 27.33 $ 29.00 $ 25.52 $ 23.28 $ 17.85 $ 21.39
----------- ----------- ----------- --------- --------- --------- ---------
Income from investment
operations
Net investment
income ............. 0.53 0.44 0.40 0.58 0.48 0.63 0.69
Net realized and
unrealized gain/
(loss) on invest-
ments .............. 8.62 9.01 (0.77) 4.47 3.97 5.74 (3.13)
----------- ----------- ----------- --------- --------- --------- ---------
Net increase/
(decrease) from
investment
operations ......... 9.15 9.45 (0.37) 5.05 4.45 6.37 (2.44)
----------- ----------- ----------- --------- --------- --------- ---------
Distributions to
shareholders
Dividends from net
investment
income ............. (0.54) (0.44) (0.40) (0.59) (0.48) (0.64) (0.71)
Distributions from
net realized gain .. (4.74) (1.62) (0.90) (0.98) (1.73) (0.30) (0.39)
----------- ----------- ----------- --------- --------- --------- ---------
Total distributions .. (5.28) (2.06) (1.30) (1.57) (2.21) (0.94) (1.10)
----------- ----------- ----------- --------- --------- --------- ---------
Net asset value, end of
year ................. $ 38.59 $ 34.72 $ 27.33 $ 29.00 $ 25.52 $ 23.28 $ 17.85
=========== =========== =========== ========= ========= ========= =========
Total return* .......... 26.90% 34.65% (1.27)% 19.96% 20.07% 35.96% (11.85)%
=========== =========== =========== ========= ========= ========= =========
Ratios/supplemental data:
Net assets, end of
year (000's
omitted) ........... $ 2,226,728 $ 1,615,271 $ 1,038,991 $ 869,114 $ 537,354 $ 380,962 $ 256,039
Ratio of expenses to
average net
assets ............. 0.53% 0.53% 0.53% 0.54% 0.55% 0.56% 0.57%
Ratio of net invest-
ment income to
average net
assets ............ 1.50% 1.39% 1.49% 2.20% 2.14% 3.07% 3.66%
Portfolio turnover
ratio .............. 66% 78% 53% 45% 62% 51% 54%
Average rate of
commissions paid** . $ 0.047
</TABLE>
Year Ended December 31,
--------------------------------
1989 1988 1987
---- ---- ----
Net asset value,
beginning
of year .............. $ 19.18 $ 16.35 $ 17.15
--------- --------- ---------
Income from investment
operations
Net investment
income ............. 0.84 0.52 0.33
Net realized and
unrealized gain/
(loss) on invest-
ments .............. 3.61 2.80 0.06
--------- --------- ---------
Net increase/
(decrease) from
investment
operations ......... 4.45 3.32 0.39
--------- --------- ---------
Distributions to
shareholders
Dividends from net
investment
income ............. (0.90) (0.49) (0.43)
Distributions from
net realized gain .. (1.34) -- (0.76)
--------- --------- ---------
Total distributions .. (2.24) (0.49) (1.19)
--------- --------- ---------
Net asset value, end of
year ................. $ 21.39 $ 19.18 $ 16.35
========= ========= =========
Total return* .......... 23.55% 20.37% 1.87%
========= ========= =========
Ratios/supplemental data:
Net assets, end of
year (000's
omitted) ........... $ 269,950 $ 172,900 $ 139,437
Ratio of expenses to
average net
assets ............. 0.57% 0.61% 0.61%
Ratio of net invest-
ment income to
average net
assets ............ 4.13% 2.88% 2.08%
Portfolio turnover
ratio .............. 38% 71% 37%
Average rate of
commissions paid**
* 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.
** 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>
----------------
The Guardian
Stock Fund, Inc.
----------------
2
----------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
The Guardian Stock Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of The Guardian Stock Fund, Inc. as of
December 31, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the ten years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Guardian Stock Fund, Inc. at December 31, 1996, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and financial highlights for each of the ten years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
February 7, 1997
- --------------------------------------------------------------------------------
41
<PAGE>
- ---------------
The Guardian
Bond Fund, Inc.
- ---------------
3
- ---------------
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
December 31, 1996
- ---------------------
ASSET BACKED -- 17.9%
- ---------------------
Principal
Amount Value
- ------------------------------------------------------------
$14,000,000 Advanta Cr. Card Mst. Tr.,
6.05% due 8/1/03 $ 13,820,520
6,000,000 Chemical Mst. Cr. Card Tr.,
5.55% due 9/15/03 5,825,580
6,000,000 ContiMortgage Home Eq.
Loan Tr., 6.85% due 4/15/44 6,043,080
5,000,000 Green Tree Financial Corp.,
6.35% due 11/15/26 4,998,400
5,000,000 Green Tree Financial Corp.,
5.85% due 3/15/27 4,832,800
5,521,758 Green Tree Financial Corp.,
6.10% due 4/15/27 5,495,861
2,500,000 Green Tree Financial Corp.,
6.90% due 4/15/27 2,478,900
5,500,000 Money Store Tr.,
6.96% due 8/15/10 5,540,700
4,500,000 Money Store Tr.,
7.25% due 7/15/13 4,567,500
4,000,000 Olympic Automobile Rec. Tr.,
5.95% due 11/15/99 4,000,000
6,000,000 UCFC Loan Tr.,
7.18% due 1/15/25 5,987,400
--------------
TOTAL ASSET BACKED
(Cost $64,330,354) 63,590,741
--------------
- ------------------------
CORPORATE BONDS -- 33.9%
- ------------------------
Containers -- 1.7%
$ 6,000,000 Crown, Cork and Seal Fin. Plc.,
7.00% due 12/15/06 $ 5,948,160
--------------
Drugs and Hospitals-- 2.0%
7,000,000 Rhone Poulenc SA, 6.75%,
due 10/15/99 7,056,770
--------------
Electric Utilities -- 4.5%
2,500,000 Consumers Power Co.,
7.50% due 6/1/02 2,525,100
5,000,000 Duquesne Lt. Co. Secured Mtn.
Bk. Ent., 6.70% due 5/15/03 4,903,800
8,000,000 Tenaga Nasional Berhad,
7.875% due 6/15/04 8,414,480
--------------
15,843,380
--------------
Electronics -- 0.9%
$3,000,000 Pioneer Std. Electronics, Inc.
8.50% due 8/1/06 $ 3,039,300
--------------
Financial-Banks-- 2.9%
3,000,000 Comerica, Inc.,
7.25% due 8/1/07 3,019,080
4,000,000 First Union Instl.
8.04% due 12/1/26 3,989,000
3,000,000 PNC Bank NA-Pittsburgh, PA,
7.875% due 4/15/05 3,138,900
--------------
10,146,980
--------------
Financial-Miscellaneous -- 7.4%
3,500,000 Lehman Bros. Holdings, Inc.
7.25% due 10/15/03 3,507,420
9,500,000 Lehman Bros., Inc.
6.92% due 10/4/99 9,572,200
6,000,000 Salomon, Inc.,
6.70% due 121/98 6,022,680
4,500,000 Salomon, Inc.,
6.75% due 2/15/03 4,407,345
3,000,000 Salomon, Inc.,
7.25% due 5/1/01 3,028,380
--------------
26,538,025
--------------
Insurance -- 0.9%
3,200,000 Metropolitan Life Ins. Co.,
6.30% due 11/1/03 3,092,032
--------------
Machinery and Industrial Equipment -- 1.7%
6,000,000 McDermott International, Inc.,
6.57% due 4/20/98 6,000,600
--------------
Merchandising Mass -- 1.0%
3,400,000 Wal Mart Stores, Inc.,
8.75% due 12/29/06 3,503,564
--------------
Metals-Miscellaneous -- 1.4%
5,000,000 BHP Fin. USA Ltd.,
6.69% due 3/1/06 4,888,650
--------------
Miscellaneous Capital Goods-Technology -- 0.4%
1,500,000 Northrop Grumman Corp.,
7.75% due 3/1/16 1,494,855
--------------
See notes to financial statements.
- --------------------------------------------------------------------------------
42
<PAGE>
---------------
The Guardian
Bond Fund, Inc.
---------------
3
---------------
- --------------------------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
Natural Gas-Diversified -- 0.3%
$1,000,000 Texas Eastern Corp.,
8.50% due 2/10/97 $ 1,002,180
--------------
Paper and Forest Products -- 3.6%
7,000,000 Alco Standard Corp.,
6.75% due 12/1/25 6,446,230
5,500,000 Boise Cascade Corp. Mtn.
Bk. Ent., 9.85% due 6/15/02 6,219,785
--------------
12,666,015
--------------
Real Estate -- 1.7%
4,000,000 Post Apt. Homes,
7.25% due 10/1/03 4,040,200
2,000,000 Simon DeBartolo Group,
6.875% due 11/15/06 1,948,760
--------------
5,988,960
--------------
Telecommunications -- 2.0%
7,000,000 TCI Communications,
7.25% due 6/15/99 7,019,740
--------------
Tobacco -- 1.5%
5,500,000 Bat Cap. Corp.,
6.875% due 4/15/03 5,472,995
--------------
TOTAL CORPORATE BONDS
(Cost $120,864,862) 119,702,206
--------------
- ----------------------------------
COMMERCIAL MORTGAGE BACKED -- 2.0%
- ----------------------------------
$ 4,500,000 Donaldson, Lufkin, Jenrette
Mortgage Accep. Corp.,
7.67% due 2/12/06 $ 4,613,400
2,500,000 Mortgage Capital Fdg.,
7.90% due 2/15/06 2,606,250
--------------
TOTAL COMMERCIAL MORTGAGE
BACKED
(Cost $7,054,868) 7,219,650
--------------
- -------------------------------
MORTGAGE PASS-THROUGHS -- 15.6%
- -------------------------------
$16,000,000 FNMA TBA
7.50% due 1/25/27 $ 15,996,960
4,000,000 FNMA TBA
8.00% due 1/25/27 4,039,375
571,352 FNMA Pool #068106
8.50% due 8/1/09 598,291
1,085,077 FNMA Pool #068772
8.00% due 6/1/08 1,130,401
12,393 FNMA Pool #072923
8.25% due 1/1/09 12,912
339,738 FNMA Pool #250670
7.00% due 9/1/11 339,517
995,408 FNMA Pool #250697
7.00% due 10/1/11 994,761
6,185,874 FNMA Pool #324193
7.00% due 9/1/25 6,054,734
6,244,201 FNMA Pool #331814
7.00% due 12/1/25 6,111,824
25,159 FNMA Pool #337906
7.00% due 5/1/11 25,143
412,889 FNMA Pool #347386
7.00% due 8/1/11 412,621
28,818 FNMA Pool #351108
7.00% due 8/1/11 28,799
69,637 FNMA Pool #352540
7.00% due 9/1/11 69,592
730,717 FNMA Pool #352954
7.00% due 8/1/11 730,242
231,006 FNMA Pool #354107
7.00% due 8/1/11 230,855
902,245 FNMA Pool #355621
7.00% due 9/1/11 901,659
226,730 FNMA Pool #358079
7.00% due 9/1/11 226,583
495,292 FNMA Pool #358130
7.00% due 9/1/11 494,970
7,157 GNMA Pool #000375
11.50% due 7/20/00 7,552
116,483 GNMA Pool #352913
7.50% due 5/15/24 116,907
487,401 GNMA Pool #368294
7.50% due 1/15/24 490,087
508,313 GNMA Pool #363384
7.50% due 2/15/24 510,636
107,438 GNMA Pool #369417
7.50% due 2/15/24 107,929
307,740 GNMA Pool #375967
7.50% due 1/15/24 309,146
See notes to financial statements.
- --------------------------------------------------------------------------------
43
<PAGE>
- ---------------
The Guardian
Bond Fund, Inc.
- ---------------
3
- ---------------
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS (Continued)
December 31, 1996
Principal
Amount Value
- ------------------------------------------------------------
$ 674,719 GNMA Pool #376437
7.50% due 3/15/24 $ 677,802
517,817 GNMA Pool #378966
7.50% due 1/15/24 520,183
316,566 GNMA Pool #381252
7.50% due 6/15/26 316,924
4,355,723 GNMA Pool #398991
7.50% due 12/15/26 4,360,645
24,941 GNMA Pool #408194
7.50% due 1/15/26 24,985
24,974 GNMA Pool #408275
7.50% due 4/15/26 25,003
25,593 GNMA Pool #410325
7.50% due 3/15/26 25,638
1,896,184 GNMA Pool #410896
7.50% due 1/15/26 1,899,521
205,193 GNMA Pool #421100
7.50% due 6/15/26 205,425
28,307 GNMA Pool #429109
7.50% due 4/15/26 28,339
341,114 GNMA Pool #430117
7.50% due 12/15/26 341,499
318,013 GNMA Pool #433313
7.50% due 12/15/26 318,372
335,873 GNMA Pool #433316
7.50% due 12/15/26 336,253
355,985 GNMA Pool #433329
7.50% due 12/15/26 356,387
3,177,684 GNMA Pool #439470
7.50% due 12/15/26 3,181,275
527,161 GNMA Pool #441339
7.50% due 12/15/26 525,611
613,033 GNMA Pool #441939
7.50% due 12/15/26 611,231
251,997 GNMA Pool #442186
7.50% due 12/15/26 251,256
816,527 GNMA Pool #442193
7.50% due 12/15/26 814,127
572,499 GNMA Pool #222105
7.50% due 3/15/24 575,115
--------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $63,744,155) 55,337,087
--------------
- -------------------------------------------
MULTI CLASS MORTGAGE PASS-THROUGHS -- 12.7%
- -------------------------------------------
$ 198,456 Citibank, NA,
9.50% due 8/1/16 $ 202,326
4,750,000 Citicorp Mortgage Secs., Inc.,
6.50% due 1/25/24 4,096,875
5,000,000 Citicorp Mortgage Secs., Inc.,
6.25% due 3/25/24 4,653,100
1,096,262 Citicorp Mortgage Secs., Inc.,
7.75% due 11/25/06 1,099,003
1,330,183 Federal Home Loan Mortgage
Corp., 4.00% due 8/15/01 1,323,107
6,000,000 FNMA,
6.50% due 10/25/08 5,679,360
2,137,994 FNMA,
7.00% due 4/25/12 2,133,312
10,907,057 GE Capital Mortgage Svcs.,
Inc., 7.00% due 3/25/26 10,460,958
5,000,000 Residential Funding Mortgage Secs.
Inc., 5.95% due 11/25/23 4,479,000
1,265,539 Sears Mortgage Securities Corp.,
6.50% due 5/25/22 1,263,008
10,000,000 Securitized Asset Sales, Inc.,
7.41% due 4/25/24 9,680,000
--------------
TOTAL MULTI CLASS
MORTGAGE PASS-THROUGHS
(Cost $38,821,885) 45,070,049
--------------
- -------------------------------------------
SHORT-TERM INVESTMENT-MORTGAGE ROLL -- 4.6%
- -------------------------------------------
$16,248,000 Monte Rosa Cap.
5.43% due 1/14/97 $ 16,216,140
--------------
TOTAL MORTGAGE ROLL
(Cost $16,216,140) 16,216,140
--------------
- -------------------------
U. S. GOVERNMENT -- 12.3%
- -------------------------
$12,000,000 U.S. Treasury Bonds,
7.625% due 2/15/25 $ 13,329,360
4,000,000 U.S. Treasury Notes,
6.875% due 8/31/99 4,083,760
3,000,000 U.S. Treasury Notes,
7.50% due 10/31/99 3,111,570
4,000,000 U.S. Treasury Notes,
5.625% due 2/15/06 3,785,000
See notes to financial statements.
- --------------------------------------------------------------------------------
44
<PAGE>
---------------
The Guardian
Bond Fund, Inc.
---------------
3
---------------
- --------------------------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
$ 5,300,000 U.S. Treasury Notes,
6.50% due 2/15/06 $ 5,328,991
14,000,000 U.S. Treasury Notes,
6.25% due 10/31/01 14,013,160
--------------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $45,211,426) 43,651,841
--------------
- -------------------
YANKEE BOND -- 1.1%
- -------------------
$ 4,000,000 Hydro Quebec,
7.50% due 4/1/16 $ 4,042,840
--------------
TOTAL YANKEE BOND
(Cost $3,965,680) 4,042,840
--------------
- ----------------------------
REPURCHASE AGREEMENT -- 4.9%
- ----------------------------
Principal Maturity
Amount Date Value
- ------------------------------------------------------------
$17,302,000 State Street Bank & Trust
repurchase agreement,
dated 12/31/96, maturity
value $17,310,291, 5.75%,
due 1/2/97 (collateralized by
$17,495,000 U.S. Treasury
Notes, 6.00% due 5/31/98)
1/2/97 $ 17,302,000
--------------
TOTAL REPURCHASE AGREEMENT
(Cost $17,302,000) 17,302,000
--------------
TOTAL INVESTMENTS -- 105.0%
(Cost $377,511,370) 372,132,554
PAYABLES IN EXCESS OF CASH,
RECEIVABLES AND
OTHER ASSETS -- (5.0%) (17,699,557)
--------------
NET ASSETS -- 100.0% $ 354,432,997
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
45
<PAGE>
- ---------------
The Guardian
Bond Fund, Inc.
- ---------------
3
- ---------------
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1996
ASSETS:
Investments, at identified cost* $ 377,511,370
==============
Investments, at market 354,830,554
Repurchase agreements 17,302,000
--------------
TOTAL INVESTMENTS 372,132,554
--------------
Cash 684
Interest receivable 3,122,762
Receivable for fund shares sold 4,993
Foreign tax receivable 3,087
Principal paydowns receivable 1,978
Dollar roll receivable 1,491
--------------
TOTAL ASSETS 375,267,549
--------------
LIABILITIES:
Payable for securities purchased 20,224,264
Payable for fund shares redeemed 97,427
Accrued expenses 23,731
Due to affiliates 489,130
--------------
TOTAL LIABILITIES 20,834,552
--------------
NET ASSETS $ 354,432,997
==============
COMPONENTS OF NET ASSETS:
Common Stock -- $0.10 par value
(100,000,000 shares authorized) $ 2,995,066
Paid-in capital 358,121,020
Undistributed net investment income 998,872
Accumulated net realized loss on
investments (2,303,145)
Net unrealized depreciation of investments (5,378,816)
--------------
NET ASSETS $ 354,432,997
==============
Shares Outstanding-$0.10 par value 29,950,661
--------------
NET ASSET VALUE PER SHARE $ 11.83
==============
* Includes repurchase agreements.
STATEMENT OF OPERATIONS
Year Ended
December 31, 1996
Investment Income:
Income:
Interest $ 23,972,025
--------------
Expenses:
Investment advisory fees -- Note B 1,799,649
Custodian fees 101,736
Printing expense 19,248
Audit fees 17,500
Directors' fees-- Note B 12,000
Insurance expense 3,485
Transfer agent fees 3,300
Legal fees 2,885
Registration fees 798
Other 705
--------------
Total Expenses 1,961,306
--------------
Net Investment Income 22,010,719
--------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note D
Net realized gain on investments 2,193,816
Net change in unrealized appreciation
of investments (14,421,607)
--------------
Net Realized and Unrealized Loss
on Investments (12,227,791)
--------------
Net Increase in Net Assets
Resulting from Operations $ 9,782,928
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
46
<PAGE>
---------------
The Guardian
Bond Fund, Inc.
---------------
3
---------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
1996 1995
------------- --------------
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 22,010,719 $ 22,042,800
Net realized gain on investments 2,193,816 9,664,616
Net change in unrealized appreciation/
(depreciation) of investments (14,421,607) 23,262,625
------------- -------------
Net Increase in Net Assets Resulting
from Operations 9,782,928 54,970,041
------------- -------------
Distributions to Shareholders:
Net investment income (22,033,188) (22,025,063)
------------- -------------
Total Distributions to Shareholders (22,033,188) (22,025,063)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from
capital share transactions -- Note E (7,778,324) 32,538,518
------------- -------------
Net Increase/(Decrease) in Net Assets (20,028,584) 65,483,496
Net Assets:
Beginning of year 374,461,581 308,978,085
------------- -------------
End of year* $ 354,432,997 $ 374,461,581
============= =============
* Includes undistributed net investment
income of: $ 998,872 $ 737,841
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 years
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year ................ $ 12.25 $ 11.08 $ 12.24 $ 12.26 $ 12.33 $ 11.56 $ 11.67 $ 11.16
--------- --------- --------- --------- --------- --------- --------- ---------
Income from investment
operations
Net investment
income ............... 0.76 0.76 0.40 0.70 0.81 0.92 0.97 0.98
Net realized and unre-
alized gain/(loss)
on investments ....... (0.42) 1.17 (0.82) 0.50 0.13 0.91 (0.11) 0.55
--------- --------- --------- --------- --------- --------- --------- ---------
Net increase/
(decrease) from
investment
operations ........... 0.34 1.93 (0.42) 1.20 0.94 1.83 0.86 1.53
--------- --------- --------- --------- --------- --------- --------- ---------
Distributions to
shareholders
Distributions from net
investment
income .............. (0.76) (0.76) (0.68) (0.70) (0.81) (0.92) (0.97) (1.02)
Distributions from net
realized gain ....... -- -- (0.06) (0.52) (0.20) (0.14) -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Total distributions ... (0.76) (0.76) (0.74) (1.22) (1.01) (1.06) (0.97) (1.02)
--------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end of
year ................... $ 11.83 $ 12.25 $ 11.08 $ 12.24 $ 12.26 $ 12.33 $ 11.56 $ 11.67
========= ========= ========= ========= ========= ========= ========= =========
Total return* ............ 2.88% 17.59% (3.45)% 9.85% 7.70% 16.19% 7.57% 13.88%
========= ========= ========= ========= ========= ========= ========= =========
Ratios/supplemental data:
Net assets, end of
year (000's
omitted) ............. $ 354,433 $ 374,462 $ 308,978 $ 340,269 $ 284,330 $ 222,299 $ 165,844 $ 147,753
Ratio of expenses to
average net
assets ............... 0.54% 0.54% 0.54% 0.55% 0.56% 0.57% 0.58% 0.60%
Ratio of net invest-
ment income to
average net
assets ............... 6.12% 6.43% 5.69% 5.56% 6.70% 7.81% 8.53% 8.78%
Portfolio turnover
ratio ................ 188% 298% 311% 220% 57% 43% 39% 158%
</TABLE>
Year Ended December 31,
-----------------------
1988 1987
Net asset value, beginning
of year ................ $ 11.12 $ 12.41
--------- ---------
Income from investment
operations
Net investment
income ............... 1.03 0.96
Net realized and unre-
alized gain/(loss)
on investments ....... 0.02 (0.92)
--------- ---------
Net increase/
(decrease) from
investment
operations ........... 1.05 0.04
--------- ---------
Distributions to
shareholders
Distributions from net
investment
income .............. (1.01) (1.23)
Distributions from net
realized gain ....... -- (0.10)
--------- ---------
Total distributions ... (1.01) (1.33)
--------- ---------
Net asset value, end of
year ................... $ 11.16 $ 11.12
========= =========
Total return* ............ 9.70% .32%
========= =========
Ratios/supplemental data:
Net assets, end of
year (000's
omitted) ............. $ 113,616 $ 103,846
Ratio of expenses to
average net
assets ............... 0.61% 0.62%
Ratio of net invest-
ment income to
average net
assets ............... 8.97% 8.97%
Portfolio turnover
ratio ................ 24% 67%
* 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.
- --------------------------------------------------------------------------------
48
<PAGE>
---------------
The Guardian
Bond Fund, Inc.
---------------
3
---------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
The Guardian Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of The Guardian Bond Fund, Inc. as of
December 31, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the ten years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Guardian Bond Fund, Inc. at December 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and financial highlights for each of the ten years in the
period then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 7, 1997
- --------------------------------------------------------------------------------
49
<PAGE>
- ---------------
The Guardian
Cash Fund, Inc.
- ---------------
4
- ---------------
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
December 31, 1996
- -------------------------
COMMERCIAL PAPER -- 94.0%
- -------------------------
Principal
Amount Value
- ----------------------------------------------------------
FINANCIAL -- 36.8%
Bank Holding Companies -- 8.2%
$15,500,000 J.P. Morgan & Co., Inc.,
5.39% due 1/13/97 $ 15,472,152
15,500,000 Republic NY Corp.
5.34% due 1/23/97 15,449,418
--------------
30,921,570
--------------
Finance Companies -- 12.2%
15,500,000 Associates Corp. of N.A.,
5.31% due 1/15/97 15,467,992
15,500,000 National Rural Utils. Cooperative
Finance, 5.31% due 2/6/97 15,417,695
15,500,000 U.S. Central Credit Union,
5.30% due 1/24/97 15,447,515
--------------
46,333,202
--------------
Insurance-Multi Line -- 4.1%
15,500,000 American Gen. Finance Corp.,
5.31% due 1/10/97 15,479,424
--------------
Other Major Banks -- 12.3%
15,500,000 Commerzbank U.S. Fin.,
5.41% due 1/6/97 15,488,353
15,500,000 Dresdner U.S. Finance,
5.50% due 1/27/97 15,438,431
15,500,000 UBS Finance Delaware, Inc.,
6.25% due 1/2/97 15,497,309
--------------
46,424,093
--------------
Total Financial 139,158,289
--------------
INDUSTRIAL -- 57.2%
Aerospace and Defense -- 4.1%
15,500,000 Raytheon Co.,
5.34% due 1/17/97 15,463,213
--------------
Automotive -- 4.1%
15,500,000 Toyota Motor Credit Co.,
5.29% due 2/3/97 15,424,838
--------------
Chemicals -- 4.1%
15,500,000 Monsanto Co.,
5.38% due 1/14/97 15,469,887
--------------
Conglomerates -- 4.1%
$15,500,000 General Electric Cap.
Corp., 5.31% due 1/8/97 15,483,996
--------------
Containers-Metal and Plastic -- 4.1%
15,500,000 Sonoco Products Co.,
5.43% due 1/21/97 15,453,242
--------------
Electric Utilities -- 4.1%
15,500,000 Alabama Power Co.,
5.34% due 2/13/97 15,401,136
--------------
Food and Beverage -- 8.1%
15,500,000 Campbell Soup Co.,
5.35% due 1/31/97 15,430,896
15,500,000 H.J. Heinz Co.,
5.37% due 1/22/97 15,451,446
--------------
30,882,342
--------------
Machinery and Industrial Equipment -- 4.1%
15,500,000 John Deere Capital Corp.,
5.38% due 1/9/97 15,481,469
--------------
Oil Services -- 4.1%
15,500,000 Colonial Pipeline Co.,
5.35% due 2/19/97 15,387,130
--------------
Paper and Forest Products -- 4.1%
15,500,000 Westvaco Corp.,
5.35% due 1/16/97 15,465,448
--------------
Publishing-News -- 8.1%
15,500,000 Gannett, Inc.,
5.50% due 1/29/97 15,433,694
15,500,000 Knight Ridder, Inc.,
5.30% due 1/13/97 15,472,618
--------------
30,906,312
--------------
Telecommunications -- 4.1%
15,500,000 Bell Atlantic Financial
Svcs., 5.53% due 1/15/97 15,466,666
--------------
Total Industrial 216,285,679
--------------
TOTAL COMMERCIAL PAPER
(Cost $355,443,968) 355,443,968
--------------
See notes to financial statements.
- --------------------------------------------------------------------------------
50
<PAGE>
---------------
The Guardian
Cash Fund, Inc.
---------------
4
---------------
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date Value
- ----------------------------------------------------------
- ----------------------------
REPURCHASE AGREEMENT -- 6.0%
- ----------------------------
$22,799,000 State Street Bank & Trust
repurchase agreement,
dated 12/31/96, maturity
value $22,809,925, 5.75%, due
1/2/97 (collateralized by
$23,055,000 U.S. Treasury
Notes, 6.00% due
5/31/98) 1/2/97 $ 22,799,000
--------------
TOTAL REPURCHASE AGREEMENT
(Cost $22,799,000) 22,799,000
--------------
TOTAL INVESTMENTS -- 100.0%
(Cost $378,242,968) 378,242,968
CASH, RECEIVABLES AND OTHER
ASSETS LESS PAYABLES -- 0.0% 78,742
--------------
NET ASSETS -- 100.0% $ 378,321,710
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
51
<PAGE>
- ---------------
The Guardian
Cash Fund, Inc.
- ---------------
4
- ---------------
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1996
ASSETS:
Investments, at identified cost* $ 378,242,968
==============
Investments, at amortized cost $ 355,443,968
Repurchase agreements 22,799,000
--------------
TOTAL INVESTMENTS 378,242,968
Cash 612
Receivable for fund shares sold 1,798,675
Interest receivable 3,641
--------------
TOTAL ASSETS 380,045,896
--------------
LIABILITIES:
Payable for fund shares redeemed 1,177,352
Accrued expenses 34,473
Due to affiliates 512,361
--------------
TOTAL LIABILITIES 1,724,186
--------------
NET ASSETS $ 378,321,710
==============
COMPONENTS OF NET ASSETS:
Common Stock -- $0.10 par value
(100,000,000 shares authorized) $ 3,783,217
Paid-in capital 374,538,493
--------------
NET ASSETS $ 378,321,710
==============
Shares Oustanding 37,832,171
--------------
NET ASSET VALUE PER SHARE $ 10.00
==============
* Includes repurchase agreements.
STATEMENT OF OPERATIONS
Year Ended
December 31, 1996
INVESTMENT INCOME:
Income:
Interest $ 20,416,989
--------------
Expenses:
Investment advisory fees-- Note B 1,889,236
Custodian fees 87,234
Audit fees 17,000
Printing expense 13,404
Directors' fees-- Note B 12,000
Registration fees 10,010
Insurance expense 3,317
Transfer agent fees 3,300
Legal fees 2,799
Other 705
--------------
Total Expenses 2,039,005
--------------
Net Investment Income, Representing
Net Increase in Net Assets Resulting
from Operations $ 18,377,984
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
52
<PAGE>
---------------
The Guardian
Cash Fund, Inc.
---------------
4
---------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
1996 1995
------------- -------------
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 18,377,984 $ 19,747,755
------------- -------------
Net Increase in Net Assets Resulting
from Operations 18,377,984 19,747,755
------------- -------------
Distributions to Shareholders:
Net investment income (18,377,984) (19,747,755)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from
capital share transactions-- Note E 21,501,621 (30,165,747)
------------- -------------
Net Increase/(Decrease) in Net Assets 21,501,621 (30,165,747)
Net Assets:
Beginning of year 356,820,089 386,985,836
------------- -------------
End of year $ 378,321,710 $ 356,820,089
============= =============
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 years
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of year ............ $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from invest-
ment operations
Net investment
income .............. 0.49 0.54 0.38 0.26 0.35 0.54 0.77 0.87 0.72 0.63
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions to
Shareholders
Dividends from net
investment income ... (0.49) (0.54) (0.38) (0.26) (0.35) (0.54) (0.77) (0.87) (0.72) (0.63)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end
of year ............ $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return* ......... 4.98% 5.52% 3.82% 2.64% 3.21% 5.59% 7.95% 8.70% 7.20% 6.30%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental
data:
Net assets, end of
year (000's
omitted) ............ $378,322 $356,820 $386,986 $310,798 $318,879 $331,677 $331,600 $262,865 $228,310 $164,326
Ratio of expenses
to average net
assets .............. 0.54% 0.54% 0.54% 0.54% 0.54% 0.55% 0.56% 0.56% 0.58% 0.61%
Ratio of net invest-
ment income to
average net
assets .............. 4.86% 5.39% 3.81% 2.61% 3.17% 5.44% 7.67% 8.67% 7.17% 6.27%
</TABLE>
* Total returns do not reflect the effects of charges deducted under the terms
of GIAC's variable contracts. Including such charges would reduce the total
returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
54
<PAGE>
---------------
The Guardian
Cash Fund, Inc.
---------------
4
---------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
The Guardian Cash Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of The Guardian Cash Fund, Inc. as of
December 31, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the ten years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Guardian Cash Fund, Inc. at December 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and financial highlights for each of the ten years in the
period then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 7, 1997
- --------------------------------------------------------------------------------
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
December 31, 1996
- ----------------------------------------------
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
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
basis of identified cost. Interest income, including amortization of pre mium
and discount, is recorded when earned. Dividends are recorded on the ex-dividend
date.
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
- --------------------------------------------------------------------------------
56
<PAGE>
------------------
The Guardian
Stock, Bond & Cash
------------------
4
------------------
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996
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.
At December 31, 1996, for federal income tax purposes, The Guardian Bond
Fund, Inc. had a net capital loss carryforward of $2,300,269, which expires in
2002.
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.
During the year ended December 31, 1996, GSF and GBF reclassified amounts
between undistributed/ (overdistributed) net investment income and accumulated
net realized gain/(loss) on investments. Increases (decreases) to the capital
accounts were as follows:
Undistributed/ Accumulated net
(overdistributed) net realized gain/(loss)
investment income on investments
--------------------- --------------------
GSF $108,150 ($108,150)
GBF $283,500 ($283,500)
Dividend Distributions
GSF and GBF intend to distribute each year, as dividends or capital gain
distributions, substantially all net investment income and net capital gains
realized. All such dividends or distributions are credited in the form of
additional shares of the applicable Fund at net asset value on the ex-dividend
date. Such distributions are determined in conformity with federal income tax
regulations. Differences between the recognition of income on an income tax
basis and recognition of income based on generally accepted accounting
principles may cause temporary overdistributions of net realized gains and net
investment income. Currently, the policy of GSF and GBF is to distribute net
investment income approximately every six months and net capital gains annually.
This policy is, however, subject to change at any time by each Fund's Board of
Directors.
GCF earns interest on its investments daily and distributes all of its net
investment income, increased or decreased by realized gains or losses, each day
GCF is open for business. Earnings for Saturdays, Sundays and holidays are paid
as a dividend on the next business day.
All dividends and distributions are credited in the form of additional
shares of GCF at net asset value on the payable date.
- -----------------------------------------
Note B -- Investment Advisory Agreements
and Payments to Related Parties
- -----------------------------------------
Each Fund has an investment advisory agreement with Guardian Investor
Services Corporation (GISC), a wholly owned subsidiary of GIAC. 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 year ended December 31, 1996.
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
- --------------------------------------------------------------------------------
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 (continued)
December 31, 1996
$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
$12,000 for the year ended December 31, 1996.
- -------------------------------
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:
================================================================================
Year Ended December 31, 1996
----------------------------
GSF GBF
--- ---
Purchases
Stocks and debt obligations ............. $ 1,357,838,275 $ 250,356,405
U.S. Government and government
agency obligations .................... -- 404,931,606
Proceeds
Stocks and debt obligations ............. $ 1,154,966,929 $ 200,882,292
U.S. Government and government
agency obligations .................... -- 449,940,157
The cost of investments owned at December 31, 1996 for federal income tax
purposes was $1,657,154,305, $377,511,370 and $378,242,968 for GSF, GBF and GCF,
respectively. The gross unrealized appreciation and depreciation at December 31,
1996 for GSF and GBF were as follows:
GSF GBF
--- ---
Gross Appreciation ...................... $ 563,456,226 $ 1,202,180
Gross Depreciation ...................... (12,620,131) (6,580,996)
--------------- ---------------
Net Unrealized Appreciation/
(Depreciation) ...................... $ 550,836,095 $ (5,378,816)
=============== ===============
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58
<PAGE>
------------------
The Guardian
Stock, Bond & Cash
------------------
4
------------------
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996
- ---------------------------------------
Note E -- Transactions in Capital Stock
- ---------------------------------------
<TABLE>
<CAPTION>
The Guardian Stock Fund, Inc.
Year Ended December 31, Year Ended December 31,
1996 1995
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................... 9,984,589 $ 376,271,228 9,643,546 $ 313,867,818
Shares issued through reinvestment of
dividends from net investment
income and net realized gain on
sales of investments .............. 7,056,955 270,899,336 2,609,964 90,100,478
------------- ------------- ------------- -------------
17,041,544 647,170,564 12,253,510 403,968,296
Less shares repurchased ............. (5,854,449) (218,108,938) (3,748,523) (121,123,785)
------------- ------------- ------------- -------------
NET INCREASE ..................... 11,187,095 $ 429,061,626 8,504,987 $ 282,844,511
============= ============= ============= =============
<CAPTION>
The Guardian Bond Fund, Inc.
Year Ended December 31, Year Ended December 31,
1996 1995
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................... 4,464,537 $ 53,654,579 5,626,400 $ 67,253,610
Shares issued through reinvestment of
dividends from net investment
income and net realized gain on
sales of investments .............. 1,871,161 22,033,188 1,809,816 22,025,063
------------- ------------- ------------- -------------
6,335,698 75,687,767 7,436,216 89,278,673
Less shares repurchased ............. (6,951,420) (83,466,091) (4,756,442) (56,740,155)
------------- ------------- ------------- -------------
NET INCREASE/(DECREASE) .......... (615,722) $ (7,778,324) 2,679,774 $ 32,538,518
============= ============= ============= =============
<CAPTION>
The Guardian Cash Fund, Inc.
Year Ended December 31, Year Ended December 31,
1996 1995
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................... 33,287,898 $ 332,878,981 23,010,954 $ 230,109,542
Shares issued through reinvestment of
dividends from net investment
income and net realized gain on
sales of investments .............. 1,837,798 18,377,984 1,974,775 19,747,755
------------- ------------- ------------- -------------
35,125,696 351,256,965 24,985,729 249,857,297
Less shares repurchased ............. (32,975,534) (329,755,344) (28,002,304) (280,023,044)
------------- ------------- ------------- -------------
NET INCREASE/(DECREASE) .......... 2,150,162 $ 21,501,621 (3,016,575) $ (30,165,747)
============= ============= ============= =============
</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 year ended December 31, 1996, none of the Funds borrowed against this
line of credit.
- --------------------------------------------------------------------------------
59
<PAGE>
- ------------------
The Guardian
Stock, Bond & Cash
- ------------------
4
- ------------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996
- -----------------------------
Note G -- Shareholder Meeting
- -----------------------------
On March 20, 1996, a joint special meeting of the shareholders of GBF, GCF
and GSF was held.
The shareholders of GBF approved an amendment to two of the fund's
fundamental investment restrictions with respect to borrowings. The shareholder
votes were 26,215,846 FOR, 2,608,708 AGAINST and 1,837,584 ABSTAINING.
GBF shareholders also approved an amendment to the fund's fundamental
investment restriction with respect to industry concentration. The shareholder
votes were 26,993,271 FOR, 1,611,229 AGAINST and 2,057,637 ABSTAINING.
Shareholders of GBF elected the following directors with votes as
indicated:
NAME OF DIRECTOR FOR WITHHELD
- ---------------- --- --------
John C. Angle 30,017,871 644,266
Frank J. Fabozzi 30,088,503 573,634
Arthur V. Ferrara 30,035,617 626,520
Leo R. Futia 30,004,280 657,857
William W. Hewitt, Jr. 30,074,636 587,501
Sidney I. Lirtzman 30,094,251 567,887
Joseph D. Sargent 30,087,483 574,655
Carl W. Shafer 30,033,577 628,560
Robert G. Smith 30,085,832 576,305
Shareholders of GSF elected the following directors with votes as
indicated:
NAME OF DIRECTOR FOR WITHHELD
- ---------------- --- --------
John C. Angle 45,566,633 1,127,337
Frank J. Fabozzi 45,708,156 985,815
Arthur V. Ferrara 45,668,004 1,025,967
Leo R. Futia 45,538,413 1,155,557
William W. Hewitt, Jr. 45,681,177 1,012,793
Sidney I. Lirtzman 45,680,510 1,013,460
Joseph D. Sargent 45,705,286 988,684
Carl W. Shafer 45,677,502 1,016,468
Robert G. Smith 45,694,279 999,691
Shareholders of GCF elected the following directors with votes as
indicated:
NAME OF DIRECTOR FOR WITHHELD
- ---------------- --- --------
John C. Angle 32,724,210 758,234
Frank J. Fabozzi 32,841,587 640,857
Arthur V. Ferrara 32,825,686 656,758
Leo R. Futia 32,664,962 817,482
William W. Hewitt, Jr. 32,787,971 694,473
Sidney I. Lirtzman 32,837,957 644,487
Joseph D. Sargent 32,842,076 640,368
Carl W. Shafer 32,840,492 641,952
Robert G. Smith 32,838,128 644,316
- --------------------------------------------------------------------------------
60
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The Guardian
Stock, Bond & Cash
------------------
4
------------------
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
61
<PAGE>
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
SCHEDULE OF INVESTMENTS
December 31, 1996
- -----------------------
COMMON STOCKS -- 102.5%
- -----------------------
Shares Value
- ------------------------------------------------------------
Aerospace -- 1.7%
8,000 Boeing Co. $ 851,000
-----------
Automotive: Parts and Accessories -- 3.5%
10,000 Federal-Mogul Corporation 220,000
40,000 GenCorp Inc. 725,000
11,994 Handy & Harman 209,895
8,000 TransPro Inc. 73,000
18,250 Wynn's International, Inc. 577,156
-----------
1,805,051
-----------
Aviation: Parts and Services-- 6.9%
13,000 AAR Corp. 393,250
50,000 Coltec Industries Inc.+ 943,750
2,000 Curtiss-Wright Corporation 100,750
10,000 Flightsafety International Inc.+ 500,000
7,500 Hi-Shear Industries Inc. 19,688
20,000 Hudson General Corporation 745,000
10,000 Moog, Inc., Class A+ 233,750
10,000 Precision Castparts Corp. 496,250
6,000 Rohr Inc.+ 135,750
-----------
3,568,188
-----------
Broadcasting -- 13.5%
62,000 Ackerley Communications Inc. 728,500
8,500 BHC Communications, Inc., Class A+ 861,687
17,905 Chris-Craft Industries, Inc. 749,772
5,000 Gray Communications Systems, Inc. 94,375
50,000 Gray Communications Systems, Inc.,
Class B 850,000
20,000 Grupo Televisa S.A., GDR+ 512,500
10,000 Liberty Corporation 392,500
10,000 LIN Television Corporation+ 422,500
20,000 Renaissance Communications
Corporation+ 715,000
16,000 United Television, Inc. 1,378,000
12,000 Westinghouse Electric Corp. 238,500
-----------
6,943,334
-----------
Cable -- 11.6%
18,000 BET Holdings, Inc., Class A+ 517,500
50,000 Cablevision Systems Corporation,
Class A+ 1,531,250
55,000 International Family Entertainment,
Inc., Class B+ 852,500
23,000 Media General, Inc., Class A 695,750
65,000 Tele-Communications, Inc./Liberty
Media Group, Class A+ 1,856,563
25,000 Tele-Communications International,
Inc., Class A+ 331,250
15,000 United International Holdings, Inc.,
Class A+ 183,750
-----------
5,968,563
-----------
Consumer Products -- 5.7%
20,000 American Brands, Inc. 992,500
14,000 Culbro Corporation+ 908,250
23,000 General Housewares Corp. 224,250
10,000 National Presto Industries Inc. 373,750
6,000 Ralston Purina Group 440,250
-----------
2,939,000
-----------
Consumer Services -- 3.0%
22,500 HSN, Inc.+ 534,375
50,000 Rollins, Inc. 1,000,000
-----------
1,534,375
-----------
Diversified Industrial -- 5.7%
7,500 Crane Co. 217,500
20,000 GATX Corporation 970,000
5,000 Honeywell Inc. 328,750
10,000 ITT Industries Inc. 245,000
40,000 Katy Industries, Inc. 580,000
10,000 Thomas Industries Inc. 208,750
10,000 Trinity Industries, Inc. 375,000
-----------
2,925,000
-----------
Electrical Equipment and Supplies -- 2.1%
50,000 General Instrument Corporation+ 1,081,250
-----------
Energy -- 1.2%
3,000 Eastern Enterprises 106,125
160,000 Kaneb Services, Inc.+ 520,000
-----------
626,125
-----------
Entertainment -- 8.7%
60,000 Gaylord Entertainment Company,
Class A 1,372,500
30,000 GC Companies, Inc.+ 1,038,750
22,000 Time Warner Inc. 825,000
18,000 Viacom Inc., Class A+ 621,000
See notes to financial statements.
- --------------------------------------------------------------------------------
62
<PAGE>
---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
18,000 Viacom Inc., Class B
(non-voting)+ $ 627,750
-----------
4,485,000
-----------
Equipment and Supplies -- 9.5%
20,000 AMETEK, Inc. 445,000
10,000 CTS Corporation 427,500
3,000 Dynamics Corporation of America 84,750
12,500 Franklin Electric Company, Inc. 584,375
40,000 Goulds Pumps, Incorporated 917,500
8,000 Ingersoll Rand Co. 356,000
30,000 Navistar International Corporation+ 273,750
7,500 Pittway Corporation 390,938
17,500 Sequa Corporation, Class A+ 686,875
6,500 SPS Technologies, Inc.+ 417,625
8,000 TRINOVA Corporation 291,000
-----------
4,875,313
-----------
Financial Services -- 2.8%
8,000 American Express Company 452,000
8,000 H&R Block Inc. 232,000
20,000 Midland Company 770,000
-----------
1,454,000
-----------
Food and Beverage -- 6.2%
8,000 Celestial Seasonings, Inc.+ 158,000
40,000 PepsiCo, Inc. 1,170,000
33,000 Quaker Oats Company 1,258,125
8,000 Seagram Company Ltd. 310,000
7,560 Tootsie Roll Industries, Inc. 299,565
-----------
3,195,690
-----------
Health Care -- 0.7%
7,000 Genentech Inc.+ 375,375
-----------
Hotels/Gaming -- 4.1%
30,000 Aztar Corporation+ 210,000
10,000 Hilton Hotels Corporation 261,250
20,000 ITT Corporation, New+ 867,500
80,000 Jackpot Enterprises Inc. 780,000
-----------
2,118,750
-----------
Publishing -- 6.2%
15,000 Golden Books Family Entertainment,
Inc.+ 166,875
10,000 Houghton Mifflin Company 566,250
15,000 Lee Enterprises, Incorporated 348,750
12,000 Meredith Corporation 633,000
12,000 Providence Journal Company, Class A+ 367,500
14,666 Pulitzer Publishing Company 680,136
30,000 Thomas Nelson Inc. 446,250
-----------
3,208,761
-----------
Retail -- 3.8%
20,000 Bruno's, Inc.+ 345,000
25,000 Giant Food Inc., Class A 862,500
30,000 Neiman Marcus Group, Inc.+ 765,000
-----------
1,972,500
-----------
Specialty Chemical -- 0.8%
14,000 Ferro Corporation 397,250
-----------
Telecommunications -- 0.8%
13,100 Pacific Telecom, Inc.+ (a) 393,000
-----------
Wireless Communications -- 4.0%
30,000 Centennial Cellular Corp., Class A+ 363,750
33,000 COMSAT Corporation, Series 1 812,625
15,000 Rogers Cantel Mobile
Communications, Inc., Class B+ 290,625
16,000 Telephone and Data Systems, Inc. 580,000
-----------
2,047,000
-----------
TOTAL COMMON STOCKS
(Cost $49,662,151) 52,764,525
-----------
- -----------------------
PREFERRED STOCK -- 0.1%
- -----------------------
Equipment and Supplies -- 0.1%
1,000 Sequa Corporation, $5.00, Conv. Pfd. 70,000
-----------
TOTAL PREFERRED STOCK
(Cost $63,175) 70,000
-----------
See notes to financial statements.
- --------------------------------------------------------------------------------
63
<PAGE>
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
SCHEDULE OF INVESTMENTS (continued)
December 31, 1996
- ---------------------------
U.S. TREASURY BILLS -- 3.3%
- ---------------------------
Principal
Amount Value
- ------------------------------------------------------------
$1,678,000 4.638% to 4.998%++ due
01/16/1997 - 02/13/1997 $ 1,670,620
-----------
TOTAL U.S. TREASURY BILLS
(Cost $1,670,620) 1,670,620
-----------
TOTAL INVESTMENTS -- 105.9%
(Cost $51,395,946) (b) 54,505,145
-----------
OTHER ASSETS AND LIABILITIES
(Net)-- (5.9)% (3,043,614)
-----------
NET ASSETS-- 100.0% $51,461,531
===========
(a) Security fair valued under procedures established by the Board of Directors.
(b) Aggregate cost for Federal tax purposes was $51,416,889. Net unrealized
appreciation for Federal tax purposes was $3,088,256 (gross unrealized
appreciation was $5,580,222 and gross unrealized depreciation was
$2,491,966).
+ Non-income producing security.
++ Represents annualized yield at date of purchase (unaudited).
GDR -- Global Depositary Receipt
See notes to financial statements.
- --------------------------------------------------------------------------------
64
<PAGE>
---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1996
Assets:
Investments, at value
(Cost $51,395,946) $54,505,145
Unamortized organization costs 66,576
Dividends receivable 43,478
Receivable for investments sold 31,224
Other assets 26,200
-----------
Total Assets 54,672,623
-----------
Liabilities:
Due to custodian 3,000,001
Organization costs payable 99,905
Management fee payable 45,727
Accrued Directors' fees 6,250
Accrued expenses and other payables 59,209
-----------
Total Liabilities 3,211,092
-----------
Net assets applicable to 4,455,887 shares of
common stock outstanding $51,461,531
===========
NET ASSETS consist of:
Shares of common stock at par value $ 4,456
Additional paid-in capital 48,371,807
Distributions in excess of net realized
gain on investments (20,943)
Distributions in excess of
net investment income (2,988)
Net unrealized appreciation of investments 3,109,199
-----------
Total Net Assets $51,461,531
===========
Net Asset Value, offering and redemption
price per share ($51,461,531 / 4,455,887
shares outstanding; 500,000,000 shares
authorized of $0.001 par value) $ 11.55
===========
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
Investment Income:
Dividend income (net of foreign
withholding taxes of $738) $ 443,344
Interest income 214,850
-----------
Total Investment Income 658,194
-----------
Expenses:
Management fee 433,279
Legal and audit fees 39,886
Directors' fees 29,648
Custodian fees 22,275
Amortization of organization costs 20,000
Shareholder services fees 11,410
Other 9,563
-----------
Total expenses 566,061
-----------
Net Investment Income 92,133
-----------
Net Realized and Unrealized Gain on
Investments:
Net realized gain on investments sold 1,411,324
Change in net unrealized appreciation of
investments during the year 2,258,045
-----------
Net realized and unrealized gain on investments 3,669,369
-----------
Net increase in net assets resulting from
operations $ 3,761,502
===========
See notes to financial statements.
- --------------------------------------------------------------------------------
65
<PAGE>
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Period
Ended Ended
12/31/96 12/31/95*
------------ ------------
Net investment income $ 92,133 $ 77,973
Net realized gain on investments 1,411,324 234,480
Net change in unrealized appreciation
of investments 2,258,045 851,154
------------ ------------
Net increase in net assets resulting from
operations 3,761,502 1,163,607
Distribution to shareholders from:
Net investment income (95,723) (77,462)
Net realized gain on investments (1,416,212) (234,480)
Distributions in excess of net realized gain
on investments -- (16,055)
Net increase in net assets from Fund share
transactions 22,848,022 25,428,332
------------ ------------
Net increase in net assets 25,097,589 26,263,942
NET ASSETS:
Beginning of period 26,363,942 100,000
------------ ------------
End of period (including undistributed net
investment income of $511 at December 31, 1995) $ 51,461,531 $ 26,363,942
============ ============
- ----------
* The Fund commenced operations on May 1, 1995.
See notes to financial statements.
- --------------------------------------------------------------------------------
66
<PAGE>
---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- ------------------------------------
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. Other portfolio
securities for which over-the-counter market quotations are readily avail able
are valued at the latest average of the bid and asked price. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange 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
that security. 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.
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 collateral
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
- --------------------------------------------------------------------------------
67
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- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 (Continued)
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. Permanent
differences incurred during the year ended December 31, 1996 resulting from
different book and tax accounting policies for organization costs, are
reclassified between net investment income and paid-in capital at year end. The
reclassifications for the year ended December 31, 1996 were a decrease to
distributions in excess of net investment income of $91 and a decrease to
additional paid-in capital of $91.
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.
- --------------------------------------------------------------------------------
68
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---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 (Continued)
- --------------------------
3. -- Portfolio Securities
- --------------------------
Cost of purchases and proceeds from sales of investment securities for the
year ended December 31, 1996, excluding U.S. government and short-term
investments, aggregated $50,282,417 and $21,199,118, respectively.
- ----------------------------------
4. -- Transactions with Affiliates
- ----------------------------------
During the year ended December 31, 1996, the Fund incurred brokerage
commissions of $66,310 to Gabelli & Company, Inc. and its affiliates.
- ----------------------------
5. -- Shares of Common Stock
- ----------------------------
Common stock transactions were as follows:
Year Ended Period Ended
12/31/96 12/31/95*
---------- ------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares Sold 2,913,475 $ 33,336,923 2,907,580 $ 30,237,331
Shares issued upon re-
investment of dividends 131,244 1,511,935 30,769 327,997
Shares Redeemed (1,052,170) (12,000,836) (485,011) (5,136,996)
---------- ------------ --------- ------------
Net increase 1,992,549 $ 22,848,022 2,453,338 $ 25,428,332
========== ============ ========= ============
- ----------
* The Fund commenced operations on May 1, 1995.
- --------------------------------------------------------------------------------
69
<PAGE>
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
FINANCIAL HIGHLIGHTS
Per share amounts for a Fund share outstanding throughout each period/year
ended December 31,
1996 1995*
--------- ---------
Operating performance:
Net asset value, beginning of period $ 10.70 $ 10.00
--------- ---------
Net investment income 0.02 0.03(a)
Net realized and unrealized gain on investments 1.16 0.80
--------- ---------
Total from investment operations 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 $ 11.55 $ 10.70
========= =========
Total return** 11.0% 8.4%
========= =========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 51,462 $ 26,364
Ratio of net investment income to average
net assets 0.21% 0.75%+
Ratio of operating expenses to average
net assets 1.31% 1.78%+(b)
Portfolio turnover rate 53.2% 81.4%
Average commission rate (per share of security) $ 0.0496 N/A
- ----------
* 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.
- --------------------------------------------------------------------------------
70
<PAGE>
---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Gabelli Capital Asset Fund
(a series of Gabelli Capital Series Funds, Inc.)
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Gabelli Capital Asset Fund (a series
of Gabelli Capital Series Funds, Inc.) as of December 31, 1996, and the related
statement of operations for the year then ended, and the statement of changes in
net assets and the financial highlights for the year then ended and for the
period from May 1, 1995 (commencement of operations) through December 31, 1995.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of mate-rial misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Gabelli Capital Asset Fund at December 31, 1996, and the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the year then ended and for the period from May 1, 1995
to December 31, 1995, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
February 7, 1997
- --------------------------------------------------------------------------------
71
<PAGE>
- ------------------
Baillie Gifford
International Fund
- ------------------
6
- ------------------
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1996
- ----------------------
COMMON STOCKS -- 96.7%
- ----------------------
Shares Value
- ------------------------------------------------------------
ARGENTINA -- 1.4%
Bank -- 0.3%
49,450 Banco Frances Del Rio la Plata $ 1,359,875
Gas Transport -- 0.3%
126,500 Transportadora De Gas Del Sur* 1,549,625
Oil and Gas -- 0.4%
282,500 Perez Companc SA 1,986,373
Telephone -- 0.4%
64,500 Telefonica De Argentina SA 1,701,188
-------------
6,597,061
-------------
AUSTRALIA -- 4.4%
Bank -- 0.8%
608,000 Australia & NZ Bank Group 3,832,319
Business Services -- 0.8%
175,700 Brambles Industries Ltd 3,428,531
Metals and Mining -- 0.5%
325,689 WMC 2,052,868
Petroleum Services -- 1.6%
339,921 Broken Hill Proprietary 4,841,733
358,200 Woodside Petroleum 2,616,531
Real Estate -- 0.7%
162,332 Lend Lease Corp. 3,148,320
-------------
19,920,302
-------------
AUSTRIA -- 0.1%
Metals and Mining -- 0.1%
8,500 Boehler Uddeholm 608,348
-------------
BRAZIL -- 0.9%
Consumer Goods -- 0.1%
60,692 Companhia Cerveja Ria Brahma 652,439
Retail Food -- 0.2%
39,400 Companhia Brasileira De Distributor* 686,939
Telecommunications -- 0.6%
35,300 Telecomunicacoes Brasileiras 2,700,450
-------------
4,039,828
-------------
CHILE -- 0.6%
Electric Utilities -- 0.4%
60,000 Enersis SA 1,665,000
Mining-- 0.2%
202,800 Antofagasta Holdings 1,181,292
-------------
2,846,292
-------------
CZECH REPUBLIC -- 0.3%
Bank -- 0.3%
53,000 Komercni Banka AS 1,436,300
-------------
FRANCE -- 5.6%
Bank -- 0.4%
17,800 Societe Generale 1,924,603
Broadcasting -- 0.8%
17,100 Canal Plus* 3,776,930
Building Materials -- 0.5%
14,600 Cie De St Gobain 2,065,414
Consumer Goods -- 0.4%
13,500 BIC 2,024,285
Oil-Integrated -- 1.0%
48,500 Elf Aquitaine 4,414,869
Retail Trade -- 2.5%
31,000 Castorama Dubois 5,335,453
11,000 Comptoirs Modernes 5,936,205
-------------
25,477,759
-------------
GERMANY -- 9.4%
Air Travel -- 0.8%
266,000 Lufthansa AG 3,630,101
Automobile -- 1.1%
11,600 Volkswagen AG 4,824,539
Banks -- 1.7%
152,000 Bayerische Hypo-Bank* 4,598,128
65,800 Deutsche Bank AG 3,074,487
Chemicals -- 2.7%
166,000 BASF AG 6,394,905
122,400 Hoechst AG 5,782,740
Drugs and Health Care -- 0.4%
29,000 GEHE AG 1,856,317
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
72
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------------------
Baillie Gifford
International Fund
------------------
6
------------------
- --------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
Engineering and Telecommunications -- 1.4%
85,500 Deutsche Telekom* $ 1,803,012
10,650 Mannesmann AG 4,616,292
Footwear -- 1.0%
53,800 Adidas AG 4,649,987
Software -- 0.3%
11,331 SAP AG 1,542,659
-------------
42,773,167
-------------
HONG KONG -- 5.9%
Bank -- 0.9%
330,000 Hang Seng Bank 4,010,602
Conglomerates -- 1.8%
761,000 CITIC Pacific Ltd. 4,417,726
500,000 Hutchison Whampoa* 3,927,209
Real Estate -- 2.5%
473,000 Henderson Land Development 4,770,056
1,088,220 Hong Kong Land Holdings 3,025,252
525,000 New World Development Co. 3,546,609
Telephone -- 0.7%
1,948,400 Hong Kong Telecomm. 3,136,283
-------------
26,833,737
-------------
HUNGARY -- 0.6%
Food and Beverage -- 0.3%
27,000 Pick Szeged RT* 1,597,959
Pharmaceutical -- 0.3%
20,900 Richter Gedeon VEG 1,212,200
-------------
2,810,159
-------------
IRELAND -- 0.5%
Construction Materials -- 0.5%
200,000 CRH 2,074,225
-------------
ITALY -- 4.2%
Oil-Integrated -- 1.2%
1,108,000 Eni Spa* 5,686,078
Telephone -- 2.1%
1,600,000 Telecom Italia 4,155,570
2,110,000 Telecom Italia MOB 5,334,113
Textile-Apparel and Production -- 0.9%
62,000 Gucci Group NV 4,165,653
-------------
19,341,414
-------------
JAPAN -- 27.3%
Automobiles -- 2.0%
32,600 Autobacs Seven Co. 2,305,449
287,000 Calsonic Corp. 1,595,959
190,000 Honda Motor Co. 5,430,446
Business Services -- 0.8%
62,000 Secom Co. 3,752,871
Computer System -- 1.6%
257 NTT Data Comm. System 7,522,925
Drugs and Healthcare -- 1.3%
146,000 Sankyo Co. 4,135,049
93,000 Santen Pharmaceutical Co. 1,927,295
Electrical Equipment -- 1.2%
289,000 Omron Corp. 5,440,117
Electronics -- 5.3%
390,000 Canon, Inc. 8,621,017
64,000 Kyocera Corp. 3,989,984
113,000 Rohm Co. 7,415,595
61,000 Sony Corp.* 3,997,841
Financial Services -- 1.2%
110,400 Promise Co. 5,433,728
Industrial Machinery -- 2.9%
571,000 Mitsubishi Heavy Ind. 4,536,050
624,000 NSK 3,782,471
69,300 SMC Corp. 4,661,489
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
73
<PAGE>
- ------------------
Baillie Gifford
International Fund
- ------------------
6
- ------------------
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
SCHEDULE OF INVESTMENTS (continued)
December 31, 1996
Shares Value
- ------------------------------------------------------------
Insurance -- 0.3%
143,000 Tokio Marine and Fire $ 1,345,911
Leisure Products -- 0.5%
16,500 Toho Co. 2,393,576
Metals-Steel -- 0.9%
1,575,000 Sumitomo Metal Industries 3,875,961
Photography -- 1.1%
153,000 Fuji Photo Film Co. 5,046,714
Real Estate -- 1.2%
523,000 Mitsubishi Estate 5,374,061
Retail Trade -- 3.4%
191,000 Jusco Co.* 6,481,565
212,000 Marui Co. 3,825,922
673,000 Mitsui & Co. 5,462,568
Securities Broker -- 1.0%
287,000 Nomura Securities 4,312,063
Telephone -- 1.2%
816 DDI Corp. 5,397,254
Tires and Rubber-- 1.4%
331,000 Bridgestone Corp. 6,287,885
-------------
124,351,766
-------------
MALAYSIA -- 3.3%
Building Construction -- 1.0%
481,000 United Engineers Berhad 4,342,427
Conglomerate -- 0.9%
2,413,000 Renong Berhad 4,280,435
Leisure Time -- 0.7%
672,000 Resorts World Berhad 3,059,988
Telephone -- 0.7%
367,000 Telekom Malaysia 3,269,650
-------------
14,952,500
-------------
MEXICO -- 0.9%
Conglomerate -- 0.2%
207,000 Alfa SA* 955,850
Food, Beverages and Tobacco -- 0.3%
28,000 Pan American Beverage 1,312,500
Telecommunications -- 0.4%
56,400 Telefonos De Mexico SA 1,861,200
-------------
4,129,550
-------------
NETHERLANDS -- 4.2%
Bank -- 1.4%
96,000 ABN Amro Holdings NV 6,249,870
Broadcasting and Publishing -- 2.2%
280,000 Ver Ned Uitgevers 5,854,619
30,200 Wolters Kluwer NV 4,014,422
Semi Conductor Equipment -- 0.6%
59,000 ASM Lithography Hldg.* 2,949,146
-------------
19,068,057
-------------
NEW ZEALAND -- 0.8%
Telephone -- 0.8%
679,000 Telecom Corp of N.Z. 3,465,804
-------------
POLAND -- 0.3%
Conglomerate -- 0.3%
175,000 Elektrim 1,586,803
-------------
SINGAPORE -- 2.0%
Air Travel -- 0.4%
193,000 Singapore Airlines 1,751,661
Bank -- 0.5%
185,899 Overseas Chinese Bank 2,311,615
Conglomerate -- 0.5%
302,000 Keppel Corp. 2,352,462
Publishing -- 0.6%
127,000 Singapore Press HD 2,504,967
-------------
8,920,705
-------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
74
<PAGE>
------------------
Baillie Gifford
International Fund
------------------
6
------------------
- --------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
SPAIN -- 1.1%
Bank -- 1.1%
78,000 Banco Santander SA $ 4,992,721
-------------
SWEDEN -- 3.6%
Business Services -- 1.1%
165,000 Securitas AB 4,802,490
Conglomerate -- 1.3%
82,300 Incentive AB 5,973,475
Construction and Mining Equipment -- 1.2%
236,500 Atlas Copco AB 5,756,535
-------------
16,532,500
-------------
SWITZERLAND -- 5.6%
Business Services -- 0.9%
11,600 Adecco SA* 2,911,916
1,000 Danzas Holding 1,109,452
Industrial Machinery -- 0.2%
645 Bobst AG 872,208
Insurance -- 0.9%
7,080 Winterthur 4,094,075
Pharmaceuticals -- 3.6%
14,360 Novartis AG* 16,446,153
-------------
25,433,804
-------------
TAIWAN -- 0.4%
Financial-Other -- 0.3%
422,500 China Development 1,290,545
Transportation -- 0.1%
415,160 Yang Ming Marine 549,521
-------------
1,840,066
-------------
UNITED KINGDOM -- 13.3%
Bank -- 0.5%
212,000 National Westminster Bank PLC 2,491,554
Chemicals -- 0.1%
245,000 Albright & Wilson 705,157
Conglomerate -- 0.6%
594,000 BTR 2,900,291
8,658 BTR (wts) 890
Distributor -- 0.4%
140,000 Eletrocomponents 1,105,705
204,000 Litho Supplies 772,383
Drugs and Healthcare -- 1.5%
254,000 Glaxo Wellcome 4,133,973
104,000 Zeneca Group 2,930,958
Electric Utilities -- 0.2%
85,666 Yorkshire Electric Group 1,181,448
Electronics -- 0.3%
340,000 Rotork 1,499,914
Engineering -- 0.8%
116,000 Siebe 2,154,257
46,500 Vosper Thornycroft 692,282
170,000 Weir Group 757,238
Financial Services -- 0.2%
135,000 3i Group 1,126,349
Food, Beverage and Tobacco -- 2.0%
190,000 Devro International 875,621
351,000 Grand Metropolitan 2,754,120
140,000 Highland Distilleries 805,894
89,100 Iceland Group 129,750
369,900 Imperial Tobacco* 2,395,446
153,000 Whitbread 2,062,892
Household Products -- 0.5%
220,000 Life Sciences International 331,677
153,900 Reckitt & Colman 1,906,282
Insurance -- 0.8%
70,000 Britannic Assurance 863,457
344,000 Prudential Corp. 2,899,572
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
75
<PAGE>
- ------------------
Baillie Gifford
International Fund
- ------------------
6
- ------------------
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
SCHEDULE OF INVESTMENTS (continued)
December 31, 1996
Shares Value
- ------------------------------------------------------------
Leisure Time -- 0.9%
203,000 Granada Group $ 3,001,354
120,000 Vendome Lux Group SA 1,091,657
Newspaper -- 0.5%
250,000 Mirror Group PLC 920,850
155,000 Southnews PLC 1,301,182
Oil-International -- 1.0%
386,000 British Petroleum 4,629,090
Paper and Forest Products -- 0.3%
148,000 De La Rue 1,457,941
Retail Trade -- 0.8%
369,700 Dixons Group 3,439,217
Support Services -- 0.4%
16,000 Dawson Holdings* 637,314
Telephone -- 0.5%
585,000 Vodafone Group 2,475,501
Transportation -- 1.0%
130,000 Associated British Ports 636,971
288,000 BAA 2,388,076
400,000 Firstbus 1,411,684
-------------
60,867,947
-------------
TOTAL COMMON STOCKS
(Cost $363,422,855) 440,900,815
-------------
- -----------------------
PREFERRED STOCK -- 0.4%
- -----------------------
Shares Value
- ------------------------------------------------------------
54,567 Companhia Energetica De Minas+ $ 1,855,278
-------------
TOTAL PREFERRED STOCK
(Cost $1,442,790) 1,855,278
-------------
- ------------------------
CONVERTIBLE BOND -- 0.6%
- ------------------------
Principal
Amount Value
- ------------------------------------------------------------
$2,400,000 MBL Int'l Finance Exch. Gtd.
Notes, 3% due 11/30/02 $ 2,550,000
-------------
TOTAL CONVERTIBLE BOND
(Cost $2,400,000) 2,550,000
-------------
- ----------------------------
REPURCHASE AGREEMENT -- 1.0%
- ----------------------------
Principal Maturity
Amount Date Value
- ------------------------------------------------------------
$4,780,000 State Street Bank & Trust
repurchase agreement,
dated 12/31/96, maturity
value $4,781,892 at 4.75%
due 1/2/97 (collateralized
by $4,810,000 U.S.
Treasury Note, 6.25%
due 4/30/01) 1/2/97 $ 4,780,000
-------------
TOTAL REPURCHASE AGREEMENT
(Cost $4,780,000) 4,780,000
-------------
TOTAL INVESTMENTS -- 98.7%
(Cost $372,045,645) 450,086,093
CASH, RECEIVABLES AND
OTHER ASSETS LESS
PAYABLES -- 1.3% 6,116,648
-------------
NET ASSETS-- 100.0% $ 456,202,741
=============
See notes to financial statements.
* Non-income producing security.
+ Section 144A restricted securities.
- --------------------------------------------------------------------------------
76
<PAGE>
------------------
Baillie Gifford
International Fund
------------------
6
------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1996
ASSETS:
Investments, at identified cost* $ 372,045,645
=============
Investments, at market 445,306,093
Repurchase agreements 4,780,000
-------------
TOTAL INVESTMENTS 450,086,093
-------------
Cash 1,436
Foreign currency (Cost $7,860,847) 7,764,077
Receivable for securities sold 852,059
Dividends receivable 471,192
Receivable for fund shares sold 390,068
Foreign tax receivable 261,975
Interest receivable 6,831
-------------
TOTAL ASSETS 459,833,731
-------------
LIABILITIES:
Payable for securities purchased 2,367,873
Payable for fund shares redeemed 130,890
Accrued expenses 98,494
Foreign tax withholding 42,569
Due to affiliates 991,164
-------------
TOTAL LIABILITIES 3,630,990
-------------
NET ASSETS $ 456,202,741
=============
COMPONENTS OF NET ASSETS
Capital stock -- $0.10 par value
(1,000,000,000 shares authorized) $ 2,643,221
Paid-in capital 374,782,608
Overdistributed net investment income (180,888)
Accumulated net realized gain on
investments and foreign currency
related transactions 971,291
Net unrealized appreciation of
investments and translation of
assets and liabilities in foreign
currencies 77,986,509
-------------
NET ASSETS $ 456,202,741
=============
Shares outstanding -- $0.10 par value 26,432,215
-------------
NET ASSET VALUE PER SHARE $ 17.26
=============
* Includes repurchase agreements.
STATEMENT OF OPERATIONS
Year Ended
December 31, 1996
INVESTMENT INCOME
Income:
Dividends $ 7,600,963
Interest 566,159
-------------
8,167,122
Less: Foreign tax withheld 841,800
-------------
Total Income 7,325,322
-------------
Expenses:
Investment advisory fees -- Note 2 3,048,628
Custodian fees 586,742
Registration fees 29,039
Audit fees 21,000
Printing expense 18,669
Directors fees -- Note 2 12,000
Transfer agent fees 3,300
Insurance expense 2,956
Legal fees 2,936
Deferred organization expense -- Note 6 814
Other 705
-------------
Total Expenses 3,726,789
-------------
Net Investment Income 3,598,533
-------------
Realized and Unrealized Gain/(Loss) On
Investments and Currencies -- Note 4
Net realized gain on investments -- Note 1 6,547,518
Net realized gain on foreign currency
related transactions-- Note 1 302,729
Net change in unrealized appreciation of
investments -- Note 4 46,643,973
Net change in unrealized appreciation from
translation of assets and liabilities in
foreign currencies -- Note 4 (659,672)
-------------
Net Realized and Unrealized Gain on
Investments and Foreign Currencies 52,834,548
-------------
Net Increase in Net Assets
Resulting from Operations $ 56,433,081
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
77
<PAGE>
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Baillie Gifford
International Fund
- ------------------
6
- ------------------
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
1996 1995
------------ ------------
INCREASE IN NET ASSETS
From Operations:
Net investment income $ 3,598,533 $ 2,934,813
Net realized gain on investments
and foreign currency related transactions 6,850,247 17,921,236
Net change in unrealized appreciation
on investments and translation of
assets and liabilities in foreign currencies 45,984,301 11,642,633
------------ ------------
Net Increase in Net Assets Resulting
from Operations 56,433,081 32,498,682
------------ ------------
Distributions to Shareholders:
Dividends from net investment income (3,598,533) (2,934,813)
Distributions in excess of net investment income (2,499,964) (2,291,355)
Net realized gains from investments (5,631,085) (13,499,965)
------------ ------------
Total Distribution to Shareholders (11,729,582) (18,726,133)
------------ ------------
From Transaction in Shares:
Increase in net assets from capital share
transactions-- Note F 94,212,372 464,452
------------ ------------
Net Increase in Net Assets 138,915,871 14,237,001
Net Assets:
Beginning of year 317,286,870 303,049,869
------------ ------------
End of year* $456,202,741 $317,286,870
============ ============
* Includes overdistributed net investment
income of: $ (180,888) $ (263,641)
See notes to financial statements.
- --------------------------------------------------------------------------------
78
<PAGE>
------------------
Baillie Gifford
International Fund
------------------
6
------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Selected data for a share of capital stock outstanding throughout the periods indicated:
February 8,
1991** to
Year Ended December 31, December 31,
1996 1995 1994 1993 1992 1991
-------------------------------------------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................ $ 15.37 $ 14.69 $ 14.69 $ 11.16 $ 12.37 $ 10.00
-------- -------- -------- -------- -------- --------
Income from Investment Operations
Net investment income ............................. 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 .............. 2.21 1.49 (0.02) 3.54 (1.20) 2.52
-------- -------- -------- -------- -------- --------
Net increase/(decrease) from investment
operations ..................................... 2.36 1.65 0.13 3.77 (1.11) 2.56
-------- -------- -------- -------- -------- --------
Distributions to Shareholders
Dividends from net investment income .............. (0.14) (0.15) (0.13) (0.24) (0.10) (0.04)
Distributions in excess of net investment income .. (0.10) (0.12) -- -- -- --
Distributions from net realized gain on investments
and foreign currency related transactions ...... (0.23) (0.70) -- -- -- (0.15)
-------- -------- -------- -------- -------- --------
Total distributions ............................... (0.47) (0.97) (0.13) (0.24) (0.10) (0.19)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ...................... $ 17.26 $ 15.37 $ 14.69 $ 14.69 $ 11.16 $ 12.37
======== ======== ======== ======== ======== ========
Total return+ ....................................... 15.41% 11.23% 0.87% 34.04% (8.90%) 8.56%
======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000's omitted) ......... $456,203 $317,287 $303,050 $186,795 $ 55,175 $ 36,012
Ratio of expenses to average net assets ........... 0.98% 0.99% 1.03% 1.11% 1.26% 1.67%*
Ratio of net investment income to average
net assets ..................................... 0.94% 0.97% 1.11% 1.75% 0.88% 0.61%*
Portfolio turnover ratio .......................... 38% 52% 27% 18% 44% 14%
Average rate of commissions paid*** ............... $ 0.036
</TABLE>
- ----------
+ Total returns do not reflect the effects of charges deducted under the terms
of GIAC's variable contracts. Including such charges would reduce the total
returns for all periods shown.
* Annualized.
** Commencement of operations.
*** 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.
- --------------------------------------------------------------------------------
79
<PAGE>
- ----------------
Baillie Gifford
Emerging Markets
- ----------------
7
- ----------------
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1996
- ----------------------
COMMON STOCKS -- 82.6%
- ----------------------
Shares Value
- -------------------------------------------------------------
ARGENTINA -- 7.2%
Bank -- 0.8%
18,400 Banco Frances Del Rio La Plata $ 506,000
Beverage-Brewing -- 0.4%
29,200 Quilmes Industrial 237,250
Building Construction -- 0.2%
43,400 Dycasa Dragados SA 160,612
Electric Utilities -- 1.0%
42,000 Capex SA 698,250
Gas Transport -- 0.8%
42,500 Transportadora De Gas Del Sur* 520,625
Oil and Gas -- 1.7%
157,000 Perez Companc SA 1,103,931
Real Estate -- 0.5%
11,700 IRSA Inversiones Y Represente 372,938
Retail-Food -- 0.7%
15,500 Disco SA* 437,875
Telecommunications-- 0.4%
19,515 Telecom Argentina 285,797
Telephone -- 0.7%
19,200 Telefonica De Argentina SA 496,799
--------------
4,820,077
--------------
BRAZIL -- 6.2%
Industrial Machinery -- 1.0%
65,000 Elevadores Atlas* 638,052
Metals-Steel -- 0.4%
7,700 Usinas Siderurgicas De Minas+ 78,733
15,800 Usinas Siderurgicas De Minas ADR 161,555
Real Estate -- 0.4%
13,000 Brazil Realty SA* 247,000
Retail-Food -- 1.1%
16,000 Bompreco SA Supermercados* 288,000
26,200 Companhia Brasileira De Dist* 456,797
Telecommunications -- 2.1%
11,250,000 Telebras Telec Brasileiras 806,587
7,470 Telecomunicacoes Brasileiras 571,455
Telephone -- 0.4%
1,214,784 Telesp Tel Sao Paolo* 262,586
Tobacco -- 0.2%
21,500 Souza Cruz (Cia) 141,113
Utilities-Electricity-- 0.8%
2,200,000 Light Particapacoes* 533,539
--------------
4,185,417
--------------
CHINA -- 0.2%
Electrical Equipment -- 0.1%
144,000 Shanghai Shangling* 62,496
Tires and Rubber -- 0.1%
8,000 China Tire Hldgs. Ltd. 78,000
--------------
140,496
--------------
CHILE -- 4.3%
Mining -- 1.2%
139,400 Antofagasta Holdings* 811,993
Mutual Fund -- 1.5%
25,600 Genesis Chile Fund 1,036,800
Telecommunications -- 0.5%
3,500 Companhia De Telecommunicaciones 353,937
Utilities-Electricity -- 1.0%
22,800 Empresa Nacional De Elec. 353,400
11,500 Enersis SA 319,125
--------------
2,875,255
--------------
COLOMBIA -- 0.9%
Bank -- 0.4%
12,300 Banco Industrial Colombiano 255,225
Construction Materials -- 0.5%
32,700 Gran Cadena De Almacenes 335,175
--------------
590,400
--------------
CZECH REPUBLIC-- 3.0%
Banks -- 0.7%
17,000 Komercni Banka 460,700
Building Construction -- 0.6%
38,500 IPS Praha* 410,523
Food and Beverages-- 0.9%
2,400 Plzensky Prazdroj* 222,377
4,200 Prazske Pivorary 401,515
Telecommunications -- 0.8%
4,000 SPT Telecom AS* 497,996
--------------
1,993,111
--------------
See notes to financial statements.
* Non-income producing security.
+ Section 144A restricted securities
- --------------------------------------------------------------------------------
80
<PAGE>
----------------
Baillie Gifford
Emerging Markets
----------------
7
----------------
- --------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
HONG KONG -- 18.0%
Bank -- 1.6%
49,800 HSBC Holdings $ 1,065,602
Conglomerates-- 3.9%
300,000 CITIC Pacific Ltd. 1,741,548
1,800,000 CNT Group Ltd. 146,616
106,000 Hutchinson Whampoa* 832,568
Containers-Glass -- 0.2%
400,000 Sinocan Holdings 196,522
Financial Services -- 1.4%
135,000 Guoco Group 755,770
Industrial Machinery-- 0.5%
260,000 Chen Hsong Holdings 157,993
625,000 Lung Kee (Bermuda) 185,855
Leisure Time -- 1.2%
1,750,000 China Travel International 774,937
Lodging -- 0.3%
150,000 Mandarin Oriental 211,500
Publishing -- 0.3%
451,000 Oriental Press Group 187,123
Real Estate -- 7.4%
148,000 Henderson Land Development 1,492,533
1,650,000 Hon Kwok Land Inv. 639,990
229,878 Hong Kong Land Hldg. 639,061
280,000 New World Development Co. 1,891,525
300,000 Tai Cheung Holdings 283,147
Retail -- 0.5%
800,000 Esprit Asia 354,257
Telephone -- 0.7%
304,800 Hong Kong Telecommunications 490,628
--------------
12,047,175
--------------
HUNGARY -- 4.3%
Building Materials -- 0.7%
11,500 Zalakeramia 487,167
Consumer Goods -- 0.7%
14,000 Graboplast Textile* 473,593
Food and Beverage -- 0.7%
7,000 Pick Szeged RT*+ 436,767
Lodging -- 0.8%
20,000 Danubius Hotel* 525,665
Pharmaceutical-- 0.7%
8,000 Richter Gedeon VEG 466,208
Plastic -- 0.7%
13,750 Pannonplast 505,952
--------------
2,895,352
--------------
INDIA -- 1.2%
Automobile -- 0.1%
2,000 Bajaj Auto 68,000
Building and Construction-- 0.1%
5,500 Larsen & Toubro Ltd. 80,163
Drugs and Healthcare -- 0.0%
10,000 Core Health Care Parenterals 7,500
Electrical Equipment -- 0.0%
20,000 Himachal Futuristi* 20,000
Electric Utilities -- 0.0%
10,000 CESC 13,500
Financial Services-- 0.5%
20,000 St. Bk. India* 347,400
Lodging -- 0.2%
5,000 Indian Hotel* 126,550
Industrial Machinery -- 0.0%
23,000 NEPC Micon 5,290
Metals -- 0.1%
12,000 Indian Aluminum 60,600
Tobacco -- 0.2%
8,000 ITC Ltd. 82,000
--------------
811,003
--------------
INDONESIA -- 3.2%
Banks -- 1.1%
183,466 Bank International Indonesia 180,592
480,000 Bk Bira 569,009
Household Products -- 0.1%
6,000 Unilever Indonesia 88,400
Other -- 1.2%
138,000 Daya Guna Samudera* 160,669
400,000 Fiskagarung Perk* 334,462
110,000 London Sumatra* 291,067
See notes to financial statements.
* Non-income producing security.
+ Section 144A restricted securities
- --------------------------------------------------------------------------------
81
<PAGE>
- ----------------
Baillie Gifford
Emerging Markets
- ----------------
7
- ----------------
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
SCHEDULE OF INVESTMENTS (continued)
December 31, 1996
Shares Value
- ------------------------------------------------------------
Retail Trade -- 0.3%
200,000 Matahari Putra Pri $ 232,854
Tobacco-- 0.5%
60,000 HM Sampoerna* 320,068
--------------
2,177,121
--------------
KOREA -- 0.4%
Automobile -- 0.2%
17,000 Hyundai Motor Co.* 126,650
Electronics -- 0.2%
8,062 Samsung Electronics Ltd.+ 148,743
76 Samsung Electronics Ltd. (wts)+ 3,145
--------------
278,538
--------------
MALAYSIA -- 5.9%
Bank -- 0.6%
175,000 Southern Bank Berhad 422,392
Building Construction -- 0.8%
52,000 IJM Corp. Berhad 122,510
45,000 United Engineers Berhad 406,256
Business Services -- 0.2%
52,000 Kelang Container Terminal 123,540
Conglomerate -- 0.7%
250,000 Renong Berhad 443,477
Financial Services -- 1.1%
100,000 Affin Holdings Berhad 275,193
300,000 DCB Holdings Berhad* 451,396
Insurance -- 0.8%
110,000 Malaysian Assurance 535,736
Leisure Time -- 0.6%
90,000 Resorts World Berhad 409,820
Metals -- 0.3%
50,000 Maruichi Malay Steel 179,172
Telephone -- 0.3%
24,000 Telekom Malaysia 213,819
Tobacco -- 0.5%
130,000 R.J. Reynolds Berhad 352,603
--------------
3,935,914
--------------
MEXICO -- 6.2%
Capital Goods-Technology -- 0.5%
18,000 Acer Computec Latino Amer. SA* 315,720
Cement Construction -- 0.2%
140,000 Grupo Cem Chihuahua* 162,551
Conglomerates -- 0.6%
83,666 Alfa SA 390,059
Financial Services-- 1.1%
314,000 Grupo Fin Banorte* 311,128
125,217 Grupo Financiero Inbursa SA 430,862
Food, Beverage and Tobacco-- 1.8%
42,000 Grupo Carso SA De CV 441,000
60,000 Grupo Continental 299,543
9,600 Pan American Beverages, Inc. 450,000
Retail Trade -- 0.5%
180,000 Organiz Soriana 345,274
Telecommunications -- 1.5%
15,600 Carso Global Telecom SA* 36,186
28,600 Telefonos De Mexico SA 943,800
--------------
4,126,123
--------------
PAKISTAN -- 1.3%
Chemicals -- 0.7%
300,000 Fauji Fertilizer* 505,241
Electric Utilities -- 0.6%
319,000 Hub Power Co.* 394,250
--------------
899,491
--------------
PANAMA -- 0.8%
Bank -- 0.8%
10,000 Banco Latino Amricano De Exp.* 507,500
--------------
PERU -- 1.9%
Building Materials -- 0.7%
33,200 Cementos Lima* 485,637
Food and Beverage -- 0.6%
430,000 Backus & Johnston 370,477
Metals -- 0.3%
16,500 Southern Peru Copper Corp.* 236,434
See notes to financial statements.
* Non-income producing security.
+ Section 144A restricted securities
- --------------------------------------------------------------------------------
82
<PAGE>
----------------
Baillie Gifford
Emerging Markets
----------------
7
----------------
- --------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
Telecommunications -- 0.3%
106,000 Telefonica Del Peru $ 197,266
--------------
1,289,814
--------------
PHILIPPINES -- 2.7%
Business Services -- 0.7%
900,000 International Container* 470,532
Conglomerate -- 0.7%
65,000 Benpres Holdings Corp.* 487,500
Food and Beverage -- 0.0%
350,000 RFM Corp.* 59,886
Homebuilders -- 0.7%
900,000 C & P Homes, Inc. 461,977
Real Estate -- 0.6%
2,500,000 MRC Allied Industries* 332,700
--------------
1,812,595
--------------
POLAND -- 2.6%
Bank -- 0.4%
9,000 Bre (Bk Rozw Exp.) 269,931
Chemicals -- 0.9%
102,086 Polifarb Wroclaw 576,757
Conglomerate -- 1.1%
78,000 Elektrim 707,261
Food and Beverage-- 0.3%
4,000 Zywiec 185,534
--------------
1,739,483
--------------
PORTUGAL -- 0.1%
Telecommunications -- 0.1%
1,000 Telecel Comuni Pes* 63,850
--------------
SINGAPORE -- 3.5%
Air Travel -- 0.4%
27,000 Singapore Airlines 245,051
Automobile -- 0.3%
17,000 Cycle & Carriage 207,747
Bank -- 0.4%
19,884 Overseas Chinese Bank 247,253
Construction -- 0.2%
48,000 Clipsal Industries* 174,720
Electronics -- 0.8%
210,000 Venture Manufacturing* 522,261
Publishing -- 0.5%
18,000 Singapore Press HD 355,035
Real Estate -- 0.8%
66,000 DBS Land 242,907
95,000 Wing Tai Holdings 271,564
Retail Trade -- 0.1%
76,000 Courts (Singapore) 94,505
--------------
2,361,043
--------------
SOUTH AFRICA -- 1.7%
Mining -- 0.9%
10,000 De Beers Centenary 286,417
80,000 Gencor 290,691
Oil-Domestic -- 0.8%
44,683 Sasol 530,064
--------------
1,107,172
--------------
TAIWAN -- 6.9%
Bank -- 0.6%
128,700 ICBC 393,120
Container -- 0.7%
350,320 Ton Yi Industrial Corp. 435,671
Electronics -- 0.7%
228,530 Tatung 440,439
Financial-Other-- 0.7%
248,250 China Development 758,291
Insurance -- 1.3%
139,100 Cathay Pacific Ins. 885,182
Mechandising-Department Store -- 0.8%
371,049 Far East Dept. Store 508,674
Plastic -- 0.5%
140,000 Formosa Plastic* 351,273
Steel -- 0.5%
393,000 China Steel 368,706
Transportation -- 0.7%
170,220 Yang Ming Marine 490,036
--------------
4,631,392
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
83
<PAGE>
- ----------------
Baillie Gifford
Emerging Markets
- ----------------
7
- ----------------
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
SCHEDULE OF INVESTMENTS (continued)
December 31, 1996
Shares Value
- ------------------------------------------------------------
THAILAND -- 0.1%
Industrial Machinery -- 0.1%
15,000 CP Feedmill Co. $ 54,394
Trucking and Freight Forwarding-- 0.1%
28,000 Precious Shipping 46,947
--------------
101,341
--------------
TOTAL COMMON STOCKS
(Cost $47,986,678) 55,389,663
--------------
- ------------------------
PREFERRED STOCKS -- 7.8%
- ------------------------
Shares Value
- ------------------------------------------------------------
63,999,737 Banco Bradesco SA $ 463,784
900 Bardella Ind. SA 85,739
830,000 Brahma (CIA Cervejas) 453,700
18,355,000 Cemig CIA Energ. MG 625,317
600,500 Cent. Elet. Sta. Cata 560,567
1,840,000 Coteminas CIA Tec 587,203
9,097,200 Lojas Renner SA 420,234
7,200,000 Petrol Brasileiros 1,146,762
500,000 Telepar Tel. Parana 279,617
19,000,000 Unibanco 619,863
--------------
TOTAL PREFERRED STOCKS
(Cost $4,394,706) 5,242,786
--------------
- -------------------------
CONVERTIBLE BONDS -- 2.0%
- -------------------------
Principal
Amount Value
- ------------------------------------------------------------
$1,075,000 Metro Pacific Capital Convertible
B ds., 2.50% due 4/11/03 $ 1,144,875
200,000 RFM Capital Convertible Bds.,
2.75% due 5/30/06 200,000
--------------
TOTAL CONVERTIBLE BONDS
(Cost $1,468,847) 1,344,875
--------------
- ----------------------------
REPURCHASE AGREEMENT -- 7.2%
- ----------------------------
Principal Maturity
Amount Date Value
- ------------------------------------------------------------
$4,855,000 State Street Bank & Trust
repurchase agreement,
dated 12/31/96, maturity
value $4,856,281 at 4.75%
due 1/2/97 (collateralized
by $4,885,000 U.S.
Treasury Notes, 6.25%
due 4/30/01) 1/2/97 $ 4,855,000
--------------
TOTAL REPURCHASE AGREEMENT
(Cost $4,855,000) 4,855,000
--------------
TOTAL INVESTMENTS -- 99.6%
(Cost $58,705,231) 66,832,324
CASH, RECEIVABLES AND OTHER
ASSETS LESS PAYABLES -- 0.4% 229,780
--------------
NET ASSETS-- 100.0% $ 67,062,104
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
84
<PAGE>
----------------
Baillie Gifford
Emerging Markets
----------------
7
----------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1996
ASSETS:
Investments, at identified cost* $ 58,705,231
==============
Investments, at market $ 61,977,324
Repurchase agreements 4,855,000
--------------
TOTAL INVESTMENTS 66,832,324
Cash 2,871
Foreign currency (Cost $233,208) 232,987
Dividends receivable 115,594
Receivable for fund shares sold 75,840
Interest receivable 23,255
Foreign tax receivable 1,892
Deferred organization expenses -- Note 6 1,415
--------------
TOTAL ASSETS 67,286,178
--------------
LIABILITIES:
Accrued expenses 11,763
Foreign tax withholding 6,424
Due to affiliates 205,887
--------------
TOTAL LIABILITIES 224,074
--------------
NET ASSETS $ 67,062,104
==============
COMPONENTS OF NET ASSETS
Capital stock -- $0.10 par value
(1,000,000,000 shares authorized) $ 636,538
Paid-in capital 58,788,122
Undistributed net investment income 30,593
Accumulated net realized loss on
investments and foreign currency
related transactions (518,277)
Net unrealized appreciation of investments
and translation of assets and liabilities
in foreign currency 8,125,128
--------------
NET ASSETS $ 67,062,104
==============
Shares outstanding-- $0.10 par value 6,365,378
--------------
NET ASSET VALUE PER SHARE $ 10.54
==============
* Includes repurchase agreements.
STATEMENT OF OPERATIONS
Year Ended
December 31, 1996
INVESTMENT INCOME
Income:
Dividends $ 1,173,253
Interest 160,849
--------------
1,334,102
Less: Foreign tax withheld 115,372
--------------
Total Income 1,218,730
--------------
Expenses:
Investment advisory fees-- Note 2 513,410
Custodian fees 217,617
Audit fees 21,000
Directors' fees-- Note 2 12,000
Printing expense 7,714
Registration fees 6,187
Transfer agent fees 3,300
Legal fees 1,020
Deferred organization expense-- Note 6 509
Insurance expense 318
Other 705
--------------
Total Expenses 783,780
--------------
Net Investment Income 434,950
--------------
Realized and Unrealized Gain/(Loss) On
Investments and Currencies -- Note 4
Net realized gain on investments -- Note 1 2,318,728
Net realized loss on foreign currency related
transactions -- Note 1 (855,638)
Net change in unrealized depreciation of
investments -- Note 4 8,835,627
Net change in unrealized depreciation from
translation of assets and liabilities in foreign
currencies -- Note 4 23,662
--------------
Net Realized and Unrealized Gain on
Investments and Foreign Currencies 10,322,379
--------------
Net Increase in Net Assets
Resulting from Operations $ 10,757,329
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
85
<PAGE>
- ----------------
Baillie Gifford
Emerging Markets
- ----------------
7
- ----------------
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
1996 1995
----------- ------------
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 434,950 $ 263,088
Net realized gain/(loss) on investments and
foreign currency related transactions 1,463,090 (2,092,868)
Net change in unrealized depreciation on
investments and translation of assets and
liabilities in foreign currencies 8,859,289 2,264,145
----------- ------------
Net Increase in Net Assets Resulting from
Operations 10,757,329 434,365
----------- ------------
Distributions to Shareholders:
Dividends from net investment income -- (263,088)
Dividends in excess of net investment income -- (398,138)
----------- ------------
Total Distributions to Shareholders -- (661,226)
----------- ------------
From Transaction in Shares:
Increase in net assets from capital share
transactions -- Note F 22,086,308 10,376,428
----------- ------------
Net Increase in Net Assets 32,843,637 10,149,567
Net Assets:
Beginning of year 34,218,467 24,068,900
----------- ------------
End of year* $67,062,104 $ 34,218,467
=========== ============
* Includes undistributed/(overdistributed) net
investment income of: $ 30,593 $ (372,137)
See notes to financial statements.
- --------------------------------------------------------------------------------
86
<PAGE>
----------------
Baillie Gifford
Emerging Markets
----------------
7
----------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Selected data for a share of capital stock outstanding throughout the periods indicated:
October 17,
1994** to
Year Ended December 31, December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period ................. $ 8.46 $ 8.68 $ 9.87
----------- ----------- -----------
Income from Investment Operations
Net investment income/(loss) ....................... 0.07 0.07 (0.01)
Net realized and unrealized gain/(loss) on
investments and translation of assets and
liabilities in foreign currency .................. 2.01 (0.12) (1.17)
----------- ----------- -----------
Net increase/(decrease) from investment operations . 2.08 (0.05) (1.18)
----------- ----------- -----------
Distributions to Shareholders
Dividends from net investment income ............... -- (0.07) (0.01)
Dividends in excess of net investment income ....... -- (0.10) --
----------- ----------- -----------
Total distributions ................................ -- (0.17) (0.01)
----------- ----------- -----------
Net asset value, end of period ....................... $ 10.54 $ 8.46 $ 8.68
=========== =========== ===========
Total return+ ........................................ 24.59% (0.60)% (11.97)%
=========== =========== ===========
Ratios/supplemental data:
Net assets, end of period (000's omitted) .......... $ 67,062 $ 34,218 $ 24,069
Ratio of expenses to average net assets ............ 1.53% 1.67% 2.28%*
Ratio of net investment income to average net assets 0.85% 0.89% 0.94%*
Portfolio turnover ratio ........................... 46% 52% --
Average rate of commissions paid*** ................ $ 0.031
</TABLE>
- ----------
+ Total returns do not reflect the effects of charges deducted under the
terms of GIAC's variable contracts. Including such charges would reduce the
total returns for all the periods shown. The total return shown may not
accord 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.
* Annualized.
** Commencement of public offering of the Fund's shares.
*** 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.
- --------------------------------------------------------------------------------
87
<PAGE>
- ----------------
GBG Funds
- ----------------
7
- ----------------
- --------------------------------------------------------------------------------
GBG Funds Inc., Baillie Gifford International Fund
and Baillie Gifford Emerging Markets Fund
- --------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- ----------------------------------------------
Note A -- Organization and Accounting Policies
- ----------------------------------------------
GBG Funds, Inc. (the Company) is a diversified open-end management
investment company registered under the Investment Company Act of 1940, as
amended (1940 Act). The Company, which was incorporated in Maryland on October
29, 1990, was formerly known as Baillie Gifford International Fund, Inc. Shares
of the Company are offered in two series: Baillie Gifford International Fund
(BGIF) and Baillie Gifford Emerging Markets Fund (BGEMF). 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 and 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. Investment 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.
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
- --------------------------------------------------------------------------------
88
<PAGE>
----------------
GBG Funds
----------------
7
----------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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 basis of identified
cost. 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.
At December 31, 1996, for federal income tax purposes, Baillie Gifford
Emerging Markets Fund had a net capital loss carryforward of $501,191, which
expires in 2003.
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 temporary overdistributions
of net realized gains and net investment income. Currently, the Funds' policy is
to distribute net investment income
- --------------------------------------------------------------------------------
89
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- ----------------
GBG Funds
- ----------------
7
- ----------------
- --------------------------------------------------------------------------------
GBG Funds Inc., Baillie Gifford International Fund
and Baillie Gifford Emerging Markets Fund
- --------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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 Fund.
During the year ended December 31, 1996, BGIF and BGEMF reclassified
amounts to paid-in capital from overdistributed net investment income and
accumulated net realized gain/(loss) on investments and foreign currency related
transac tions. Increases (decreases) to the various capital accounts were as
follows:
Accumulated net
realized gain/(loss)
Undistributed/ on investments and
Paid in (overdistributed) net foreign currency
Capital investment income related transactions
------- ----------------- --------------------
BGIF $(25,320) $2,582,717 $(2,557,397)
BGEMF (75,674) (32,221) 107,895
- ------------------------------------------
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 daily average net assets and 1.00% of BGEMF's daily
average 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 per son" (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 $12,000, for
the year ended December 31, 1996.
- -------------------------------------------
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
- --------------------------------------------------------------------------------
90
<PAGE>
----------------
GBG Funds
----------------
7
----------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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:
For the Year Ended December 31, 1996
------------------------------------
BGIF BGEMF
---- -----
Purchases
Stocks and debt obligations ........... $238,875,217 $42,782,440
Proceeds
Stocks and debt obligations ........... $145,302,039 $22,715,331
The cost of investments owned at December 31, 1996 for federal income tax
purposes for BGIF and BGEMF are $372,048,224 and $58,423,833, respectively. The
gross unrealized appreciation and (depreciation) at December 31, 1996 were as
follows:
BGIF BGEMF
---- -----
Gross Appreciation ...................... $ 89,505,413 $ 11,953,937
Gross Depreciation ...................... (11,467,965) (3,767,734)
------------ ------------
Net Unrealized Appreciation .......... $ 78,037,448 $ 8,186,203
============ ============
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 December 31, 1996.
- --------------------------------------------------------------------------------
91
<PAGE>
- ----------------
GBG Funds
- ----------------
7
- ----------------
- --------------------------------------------------------------------------------
GBG Funds Inc., Baillie Gifford International Fund
and Baillie Gifford Emerging Markets Fund
- --------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- -------------------------------
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.
- ---------------------------------------
Note F -- Transactions in Capital Stock
- ---------------------------------------
Transactions in capital stock were as follows:
Baillie Gifford International Fund:
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1996 1995
------------------------------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ............................... 8,699,658 $ 141,728,936 4,880,975 $ 72,367,583
Shares issued in reinvestments of dividends
from net investment income and net
realized gain on sales of investments ... 688,306 11,729,581 1,223,131 18,726,133
---------- ------------- ---------- ------------
9,387,964 153,458,517 6,104,106 91,093,716
Less shares repurchased ................... (3,603,378) (59,246,145) (6,081,659) (90,629,264)
---------- ------------- ---------- ------------
NET INCREASE .............................. 5,784,586 $ 94,212,372 22,447 $ 464,452
========== ============= ========== ============
</TABLE>
Baillie Gifford Emerging Markets Fund:
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1996 1995
------------------------------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ............................... 4,246,440 $ 40,664,774 1,755,017 $ 14,439,213
Shares issued in reinvestments of dividends
from net investment income and net
realized gain on sales of investments ... -- -- 78,437 661,226
4,246,440 40,664,774 1,833,454 15,100,439
---------- ------------- ---------- ------------
Less shares repurchased ................... (1,923,662) (18,578,466) (564,171) (4,724,011)
---------- ------------- ---------- ------------
NET INCREASE .............................. 2,322,778 $ 22,086,308 1,269,283 $ 10,376,428
========== ============= ========== ============
</TABLE>
- --------------------------------------------------------------------------------
92
<PAGE>
----------------
GBG Funds
----------------
7
----------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- ------------------------
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 year ended December 31, 1996, neither of the Funds borrowed against this
line of credit.
- -----------------------------
Note H -- Shareholder Meeting
- -----------------------------
On March 20, 1996, a special meeting of the shareholders of BGIF and BGEMF
was held.
Shareholders of BGIF elected the following directors with votes as
indicated:
NAME OF DIRECTOR FOR WITHHELD
- ---------------- --- --------
John C. Angle 2,597,735 85,635
Frank J. Fabozzi 2,601,151 82,219
Arthur V. Ferrara 2,597,735 85,635
Leo R. Futia 2,596,994 86,376
William W. Hewitt, Jr. 2,601,151 82,219
Sidney I. Lirtzman 2,601,151 82,219
Joseph D. Sargent 2,600,039 83,331
Carl W. Shafer 2,597,937 85,433
Robert G. Smith 2,601,151 82,219
Shareholders of BGEMF elected the following directors with votes as
indicated:
NAME OF DIRECTOR FOR WITHHELD
- ---------------- --- --------
John C. Angle 19,687,492 372,059
Frank J. Fabozzi 19,731,574 327,977
Arthur V. Ferrara 19,714,830 344,721
Leo R. Futia 19,681,459 378,092
William W. Hewitt, Jr. 19,720,640 338,911
Sidney I. Lirtzman 19,729,190 330,361
Joseph D. Sargent 19,722,726 336,825
Carl W. Shafer 19,719,041 340,510
Robert G. Smith 19,723,008 336,543
- --------------------------------------------------------------------------------
93
<PAGE>
- ----------------
GBG Funds
- ----------------
7
- ----------------
- --------------------------------------------------------------------------------
GBG Funds Inc., Baillie Gifford International Fund
and Baillie Gifford Emerging Markets Fund
- --------------------------------------------------
REPORT OF ERNST & YOUNG INDEPENDENT AUDITORS
Board of Directors and Shareholders
GBG Funds, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Baillie Gifford Emerging Markets
Fund (one of the portfolios of GBG Funds, Inc.) as of December 31, 1996, and the
related statements of operations for the year then ended and the statement of
changes in net assets and financial highlights for the year then ended and the
period from September 13, 1994 to December 31, 1994. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Baillie Gifford Emerging Markets Fund at December 31, 1996 and the results of
its operations for the year then ended and the changes in its net assets and
financial highlights for the year then ended and the period from September 13,
1994 to December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
February 9, 1997
- --------------------------------------------------------------------------------
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----------------
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----------------
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95
<PAGE>
- --------------------
Value Line Centurion
Fund, Inc.
- --------------------
8
- --------------------
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- ---------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1996
----------------------
COMMON STOCKS -- 96.2%
----------------------
Shares Value
- --------------------------------------------------------------------------------
Air Transport -- 2.4%
100,000 AMR Corp.* $ 8,812,500
300,000 Alaska Air Group, Inc.* 6,300,000
-----------
15,112,500
-----------
Bank -- 6.1%
75,000 BankAmerica Corp. 7,481,250
200,000 Citicorp 20,600,000
150,000 Mellon Bank Corp. 10,650,000
-----------
38,731,250
-----------
Beverage-Soft Drink -- 1.0%
125,000 Coca-Cola Co. 6,578,125
-----------
Computer & Peripherals -- 16.9%
325,000 Cascade Communications Corp.* 17,915,625
400,000 Cisco Systems, Inc.* 25,450,000
175,000 Compaq Computer Corp.* 12,993,750
300,000 Dell Computer Corp.* 15,937,500
250,000 Gateway 2000, Inc.* 13,390,625
460,000 Sun Microsystems, Inc.* 11,816,250
140,000 3Com Corp.* 10,272,500
-----------
107,776,250
-----------
Computer Software & Services -- 5.6%
400,000 BMC Software, Inc.* 16,550,000
220,000 Computer Associates
International, Inc. 10,945,000
100,000 Microsoft Corp.* 8,262,500
-----------
35,757,500
-----------
Drug -- 5.4%
120,000 Amgen, Inc.* 6,525,000
250,000 Biogen Inc.* 9,687,500
120,000 Merck & Co., Inc. 9,510,000
105,000 Pfizer, Inc. 8,701,875
-----------
34,424,375
-----------
Financial Services -- 6.5%
300,000 First USA, Inc. 10,387,500
250,000 Green Tree Financial Corp. 9,656,250
475,000 Money Store, Inc. (The) 13,121,875
190,000 Travelers Group, Inc. 8,621,250
-----------
41,786,875
-----------
Grocery -- 1.2%
250,000 Great Atlantic & Pacific
Tea Co., Inc. 7,968,750
-----------
Healthcare Information Systems -- 1.9%
200,000 HBO & Co. $11,875,000
-----------
Insurance-Diversified -- 1.9%
113,500 American International
Group, Inc. 12,286,375
-----------
Insurance-Life -- 3.5%
175,000 Conseco, Inc. 11,156,250
250,000 SunAmerica, Inc. 11,093,750
-----------
22,250,000
-----------
Machinery-Construction & Mining -- 1.8%
285,000 Deere & Co. 11,578,125
-----------
Manufactured Housing/Recreational
Vehicles -- 3.1%
217,000 Coachmen Industries, Inc. 6,157,375
600,000 Oakwood Homes Corp. 13,725,000
-----------
19,882,375
-----------
Medical Services -- 1.6%
310,000 Omnicare, Inc. 9,958,750
-----------
Medical Supplies -- 2.5%
120,000 Johnson & Johnson 5,970,000
150,000 Medtronic, Inc. 10,200,000
-----------
16,170,000
-----------
Office Equipment & Supplies -- 1.1%
400,000 Staples, Inc.* 7,225,000
-----------
Oilfield Services/Equipment -- 8.5%
300,000 Baker Hughes, Inc. 10,350,000
350,000 Global Marine, Inc.* 7,218,750
335,000 Tidewater, Inc. 15,158,750
350,000 Transocean Offshore Inc. 21,918,750
-----------
54,646,250
-----------
Petroleum-Producing -- 1.7%
200,000 Louisiana Land &
Exploration Co. 10,725,000
-----------
Recreation -- 0.8%
185,000 Callaway Golf Company 5,318,750
-----------
Retail Building Supply -- 2.9%
250,000 Home Depot, Inc. 12,531,250
165,000 Lowe's Companies, Inc. 5,857,500
-----------
18,388,750
-----------
See notes to financial statements.
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<PAGE>
--------------------
Value Line Centurion
Fund, Inc.
--------------------
8
--------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Retail-Special Lines -- 6.7%
300,000 Bed, Bath & Beyond, Inc.* $ 7,275,000
320,000 CompUSA, Inc.* 6,600,000
500,000 Gap, Inc. 15,062,500
650,000 PETsMART, Inc.* 14,218,750
-----------
43,156,250
-----------
Semiconductor -- 3.8%
185,000 Intel Corp. 24,223,437
-----------
Shoe -- 4.2%
450,000 NIKE, Inc. Class "B" 26,887,500
-----------
Telecommunications Equipment -- 2.1%
250,000 Andrew Corp.* 13,265,625
-----------
Tobacco -- 1.8%
100,000 Philip Morris Companies, Inc. 11,262,500
-----------
Toiletries/Cosmetics -- 1.2%
100,000 Gillette Co. 7,775,000
-----------
TOTAL COMMON STOCKS AND
TOTAL INVESTMENT
SECURITIES -- 96.2%
(Cost $527,458,901) 615,010,312
-----------
- ------------------------------
SHORT-TERM INVESTMENTS -- 3.3%
- ------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.3%
(including accrued interest)
$21,200,000 Collateralized by $20,595,000
U.S. Treasury Notes 6 7/8%, due 7/31/99,
with a value of $21,653,502 (With
Morgan Stanley & Co., Inc. 6 1/4%,
dated 12/31/96, due 1/2/97, delivery
value $21,207,361) $21,203,681
-----------
CASH AND OTHER ASSETS
LESS LIABILITIES -- 0.5% 3,126,833
-----------
NET ASSETS -- 100.0% $639,340,826
============
NET ASSET VALUE PER
OUTSTANDING SHARE
($639,340,826 / 25,752,585
shares outstanding) $ 24.83
============
* Non-income producing
See notes to financial statements.
- --------------------------------------------------------------------------------
97
<PAGE>
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Value Line Centurion
Fund, Inc.
- --------------------
8
- --------------------
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- ---------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1996
ASSETS:
Investment securities, at value
(cost $527,458,901) $615,010,312
------------
Repurchase agreement
(cost $21,203,681) 21,203,681
Cash 42,760
Receivable for securities sold 6,086,974
Dividends receivable 331,938
Receivable for capital shares sold 172,541
------------
TOTAL ASSETS 642,848,206
------------
LIABILITIES:
Payable for securities purchased 2,826,351
Payable for capital shares repurchased 250,363
Accrued expenses:
Advisory fee 276,277
GIAC administrative service fee 100,000
Other 54,389
------------
TOTAL LIABILITIES 3,507,380
------------
NET ASSETS $639,340,826
============
NET ASSETS CONSIST OF:
Capital stock, at $1.00 par
value (authorized 50,000,000,
outstanding 25,752,585 shares) $ 25,752,585
Additional paid-in capital 410,147,830
Undistributed investment income -- net 2,109,109
Undistributed net realized gain
on investments 113,779,891
Unrealized net appreciation of
investments 87,551,411
------------
NET ASSETS $639,340,826
============
NET ASSET VALUE PER
OUTSTANDING SHARE
($639,340,826 / 25,752,585
shares outstanding) $ 24.83
============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1996
Investment Income:
Dividends (Net of foreign
withholding tax of $3,406) $ 3,683,356
Interest 1,934,932
------------
Total Income 5,618,288
------------
Expenses
Investment advisory fee 2,927,833
GIAC administrative service fee 406,412
Custodian fees 57,369
Auditing and legal fees 40,404
Insurance and dues 27,203
Registration fees 13,194
Directors' fees and expenses 12,876
Other 3,715
------------
Total Expenses Before Custody
Credits 3,489,006
Less:Custody Credits (6,121)
------------
Net Expenses 3,482,885
Investment Income -- Net 2,135,403
Realized and Unrealized Gain (Loss) on
Investments -- Net:
Realized gain -- net 114,105,936
Change in unrealized appreciation (25,679,011)
------------
Net Realized Gain and Change in
Unrealized Appreciation on
Investments 88,426,925
Net Increase in Net Assets from
Operations $ 90,562,328
============
See notes to financial statements.
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<PAGE>
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Value Line Centurion
Fund, Inc.
--------------------
8
--------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
for the Years Ended
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Operations:
Investment income -- net $ 2,135,403 $ 2,660,286
Realized gain on investments -- net 114,105,936 67,311,482
Change in unrealized appreciation (25,679,011) 73,727,354
------------- -------------
Net increase in net assets from operations 90,562,328 143,699,122
------------- -------------
Distributions to Shareholder:
Investment income-- net (2,617,548) (2,021,495)
Realized gain from investment transactions -- net (67,401,766) (11,320,362)
------------- -------------
Total distributions (70,019,314) (13,341,857)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares 134,593,465 112,731,860
Proceeds from reinvestment of distributions to shareholder 70,019,314 13,341,857
Cost of shares repurchased (111,263,942) (83,726,969)
------------- -------------
Increase from capital share transactions 93,348,837 42,346,748
------------- -------------
Total Increase in Net Assets 113,891,851 172,704,013
Net Assets:
Beginning of year 525,448,975 352,744,962
------------- -------------
End of year $ 639,340,826 $ 525,448,975
============= =============
Undistributed Investment Income -- Net at End of Year $ 2,109,109 $ 2,591,254
============= =============
</TABLE>
See notes to financial statements.
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99
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Value Line Centurion
Fund, Inc.
- --------------------
8
- --------------------
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Value Line Centurion Fund, Inc.
- ---------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
------------------------------------
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 of certain reported
amounts in the financial statements. 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 capital gains realized by the Fund, if any. Such distributions are
determined in accordance with income tax regulations which may differ from
generally ac-
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Fund, Inc.
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8
--------------------
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NOTES TO FINANCIAL STATEMENTS
December 31, 1996
cepted 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:
1996 1995
--------- ---------
Shares sold 5,349,533 5,179,470
Shares issued in reinvestment
of dividends and distributions 3,184,143 604,799
--------- ---------
8,533,676 5,784,269
Shares repurchased 4,453,198 3,901,173
--------- ---------
Net increase 4,080,478 1,883,096
========= =========
Dividends per share
from net investment income $ .12 $ .10
========= =========
Distributions per share from
net realized gains $ 3.09 $ .56
========= =========
--------------------------------------
3 -- Purchases and Sales of Securities
--------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
1996
------------
PURCHASES:
Investment Securities $788,301,479
============
SALES:
Investment Securities $774,434,883
============
At December 31, 1996, the aggregate cost of investment securities and
repurchase agreement for federal income tax purposes is $548,662,582. The
aggregate appreciation and depreciation of investments for the year ended
December 31, 1996, based on a comparison of investment values and their costs
for federal income tax purposes is $101,849,769 and $14,298,358 respectively,
resulting in a net appreciation of $87,551,411.
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Value Line Centurion Fund, Inc.
- ---------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
--------------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Interested Parties
--------------------------------------------------
An advisory fee of $2,927,833 was paid or payable to Value Line, Inc. (the
Adviser), the Fund's investment adviser, for the year ended December 31, 1996.
This was computed at an annual rate of 1/2 of 1% of the average daily net assets
of the Fund during the year and paid monthly. The Adviser provides research,
investment programs, supervision of the investment portfolio and pays costs of
administrative services, office space, equipment and compensation of
administrative, bookkeeping, and clerical personnel necessary for managing the
affairs of the Fund. The Adviser also provides persons, satisfactory to the
Fund's Board of Directors, to act as officers and employees of the Fund and pays
their salaries and wages. The Fund bears all other costs and expenses.
Certain officers and directors of the Adviser and Value Line Securities,
Inc., (the Fund's distributor and a registered broker/dealer) 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 $2,741 for the year ended December 31,
1996. During the year ended December 31, 1996, the Fund paid brokerage
commissions totalling $835,307 to Value Line Securities, Inc., a wholly owned
subsidiary of the Adviser, which clears its transactions through unaffiliated
brokers.
The Fund has an agreement with GIAC to reimburse GIAC for expenses incurred
in performing administrative and internal accounting functions in connection
with the establishment of contract-owner accounts and their ongoing maintenance,
printing and distribution of shareholder reports and providing ongoing
shareholder servicing functions. Such reimbursement is limited to an amount no
greater than $18.00 times the average number of accounts at the end of each
quarter during the year. During the year ended December 31, 1996, the Fund
incurred expenses of $406,412 in connection with such services rendered by GIAC.
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8
--------------------
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Value Line Centurion Fund, Inc.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 24.25 $ 17.83 $ 18.52 $ 20.04 $ 20.83
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income .08 .12 .10 .12 .20
Net gains or losses on securities (both realized
and unrealized) 3.71 6.96 (.51) 1.73 1.03
-------- -------- -------- -------- --------
Total from investment operations 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 year $ 24.83 $ 24.25 $ 17.83 $ 18.52 $ 20.04
======== ======== ======== ======== ========
Total return+ +17.34% +40.08% -2.21% +9.21% +5.93%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of year (in thousands) $639,341 $525,449 $352,745 $373,910 $347,116
Ratio of operating expenses to average
net assets .60%(1) .62% .61% .61% .54%
Ratio of net investment income to average
net assets .36% .60% .57% .57% .99%
Portfolio turnover rate 141% 114% 122% 118% 83%
Average commissions paid per share of
common stock investments purchased/sold $ .049(2)
</TABLE>
(1) Before offset of custody credits.
(2) Disclosure effective for fiscal years beginning on or after 9/1/95.
+ 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.
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8
- --------------------
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Value Line Centurion Fund, Inc.
- ---------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
Value Line Centurion Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Value Line Centurion Fund, Inc.
(the "Fund") at December 31, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 10, 1997
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SCHEDULE OF INVESTMENTS
December 31, 1996
----------------------
COMMON STOCKS -- 48.2%
----------------------
Shares Value
- --------------------------------------------------------------------------------
Advertising -- 0.7%
158,000 Omnicom Group, Inc. $ 7,228,500
-----------
Aerospace/Defense -- 1.8%
75,000 BE Aerospace, Inc.* 2,034,375
130,000 McDonnell Douglas Corp. 8,320,000
60,000 Northrop Grumman Corp. 4,965,000
89,700 Precision Castparts Corp. 4,451,363
-----------
19,770,738
-----------
Apparel -- 0.9%
129,000 Fruit of the Loom, Inc.
Class "A"* 4,885,875
110,000 Liz Claiborne, Inc. 4,248,750
-----------
9,134,625
-----------
Bank -- 0.5%
44,000 Mellon Bank Corp. 3,124,000
78,000 SouthTrust Corp. 2,720,250
-----------
5,844,250
-----------
Bank-Midwest -- 0.6%
90,000 First Bank System, Inc. 6,142,500
-----------
Beverage-Soft Drink -- 0.6%
132,000 Coca-Cola Enterprises Inc. 6,402,000
-----------
Chemical-Diversified -- 0.5%
36,000 Cytec Industries, Inc.* 1,462,500
40,000 Potash Corp. of
Saskatchewan, Inc. 3,400,000
-----------
4,862,500
-----------
Chemical-Specialty -- 1.0%
222,000 Praxair, Inc. 10,239,750
-----------
Coal/Alternate Energy -- 0.1%
30,000 AES Corp.* 1,395,000
-----------
Computer & Peripherals -- 0.9%
60,000 American Power Conversion
Corp.* 1,635,000
20,000 SCI Systems, Inc.* 892,500
152,000 Tech Data Corp.* 4,161,000
40,000 3Com Corp.* 2,935,000
-----------
9,623,500
-----------
Computer Software & Services -- 0.8%
60,000 Computer Associates
International, Inc. 2,985,000
60,000 National Data Corp. 2,610,000
45,000 Paychex Inc. 2,314,687
43,000 Structural Dynamics
Research Corp*. 860,000
-----------
8,769,687
-----------
Diversified Companies -- 2.7%
102,000 AlliedSignal, Inc. 6,834,000
34,000 Danaher Corp. 1,585,250
22,925 Mark IV Industries, Inc. 518,678
86,000 Raychem Corp. 6,890,750
107,000 Tyco International, Ltd. 5,657,625
120,000 United Technologies Corp. 7,920,000
-----------
29,406,303
-----------
Drug -- 1.9%
103,000 Dura Pharmaceuticals, Inc.* 4,918,250
96,000 Merck & Co., Inc. 7,608,000
80,000 Pfizer, Inc. 6,630,000
81,000 Vical, Inc.* 1,336,500
-----------
20,492,750
-----------
Drugstore -- 0.2%
52,626 Eckerd Corp.* 1,684,032
-----------
Electric Utility-Central -- 0.3%
23,200 Cinergy Corp. 774,300
100,000 Houston Industries, Inc. 2,262,500
-----------
3,036,800
-----------
Electric Utility-East -- 0.3%
51,700 American Electric Power
Co., Inc. 2,126,163
30,000 Consolidated Edison Co. of
New York, Inc. 877,500
-----------
3,003,663
-----------
Electric Utility-West -- 0.1%
80,000 Edison International 1,590,000
-----------
Electrical Equipment -- 0.5%
51,500 General Electric Co. 5,092,062
-----------
Electronics -- 0.8%
191,000 Symbol Technologies, Inc.* 8,451,750
-----------
See notes to financial statements.
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Shares Value
- --------------------------------------------------------------------------------
Entertainment -- 0.2%
61,000 Jacor Communications, Inc.* $ 1,669,875
-----------
Environmental -- 0.9%
127,500 USA Waste Services, Inc.* 4,064,062
125,000 U.S. Filter Corp.* 3,968,750
60,000 United Waste Systems, Inc.* 2,062,500
-----------
10,095,312
-----------
Financial Services -- 1.8%
98,000 ADVANTA Corp. Class "A" 4,189,500
53,000 ADVANTA Corp. Class "B" 2,166,375
135,750 CUC International, Inc.* 3,224,063
78,000 Green Tree Financial Corp. 3,012,750
20,000 Household International, Inc. 1,845,000
26,000 Loews Corp. 2,450,500
70,000 Olympic Financial Ltd.* 1,006,250
40,000 Travelers Group Inc. 1,815,000
-----------
19,709,438
-----------
Food Processing -- 0.8%
54,000 Campbell Soup Co. 4,333,500
50,000 ConAgra, Inc. 2,487,500
32,000 Hershey Foods Corp. 1,400,000
-----------
8,221,000
-----------
Grocery -- 2.5%
60,000 American Stores Co. 2,452,500
178,000 Kroger Co.* 8,277,000
372,400 Safeway, Inc.* 15,920,100
-----------
26,649,600
-----------
Healthcare Information Systems -- 0.1%
40,000 Medic Computer Systems, Inc.* 1,612,500
-----------
Home Appliance -- 0.1%
41,000 Black & Decker Corp. 1,235,125
-----------
Hotel/Gaming -- 1.3%
70,000 Doubletree Corp.* 3,150,000
80,000 Hilton Hotels Corp. 2,090,000
235,000 International Game Technology 4,288,750
35,000 MGM Grand, Inc.* 1,220,625
200,000 Prime Hospitality Corp.* 3,225,000
-----------
13,974,375
-----------
Industrial Services -- 1.3%
444,000 Equifax, Inc. 13,597,500
-----------
Insurance-Diversified -- 0.1%
30,000 American Bankers Insurance
Group, Inc. 1,533,750
-----------
Insurance-Life -- 1.0%
168,000 Conseco, Inc. 10,710,000
-----------
Insurance-Property/Casualty -- 0.7%
92,000 Allstate Corp. (The) 5,324,500
40,000 Progressive Corp. of
Ohio (The) 2,695,000
-----------
8,019,500
-----------
Machinery -- 1.1%
100,000 DT Industries, Inc. 3,500,000
104,000 Dover Corp. 5,226,000
21,000 Parker-Hannifin Corp. 813,750
57,000 Zoltek Companies, Inc.* 2,073,375
-----------
11,613,125
-----------
Machinery-Construction & Mining -- 0.2%
50,000 Deere & Co. 2,031,250
-----------
Manufactured Housing/
Recreational Vehicles -- 0.7%
442,393 Clayton Homes, Inc. 5,972,306
70,000 Oakwood Homes Corp. 1,601,250
-----------
7,573,556
-----------
Medical Services -- 0.5%
110,000 Omnicare, Inc. 3,533,750
70,000 Universal Health Services,
Inc. Class "B"* 2,003,750
-----------
5,537,500
-----------
Medical Supplies -- 3.5%
52,000 Becton, Dickinson & Co. 2,255,500
82,000 Boston Scientific Corp.* 4,920,000
195,375 Cardinal Health, Inc. 11,380,594
238,154 Johnson & Johnson 11,848,161
35,000 Medtronic, Inc. 2,380,000
122,000 United States Surgical Corp. 4,803,750
-----------
37,588,005
-----------
See notes to financial statements.
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SCHEDULE OF INVESTMENTS
December 31, 1996
Shares Value
- --------------------------------------------------------------------------------
Natural Gas-Diversified -- 1.6%
50,000 Burlington Resources, Inc. $ 2,518,750
135,000 PanEnergy Corp. 6,075,000
234,000 Williams Companies, Inc. 8,775,000
-----------
17,368,750
-----------
Office Equipment & Supplies -- 1.1%
28,000 Diebold, Inc. 1,760,500
527,625 Staples, Inc.* 9,530,227
-----------
11,290,727
-----------
Oilfield Services/Equipment -- 1.0%
140,000 Baker Hughes Inc. 4,830,000
135,000 Tidewater, Inc. 6,108,750
-----------
10,938,750
-----------
Petroleum-Integrated -- 2.2%
50,000 Amoco Corp. 4,025,000
30,000 Atlantic Richfield Co. 3,975,000
40,000 British Petroleum Co. PLC (ADR) 5,655,000
23,000 Mobil Corp. 2,811,750
115,000 Occidental Petroleum Corp. 2,688,125
180,000 USX-Marathon Group 4,297,500
-----------
23,452,375
-----------
Petroleum-Producing -- 1.1%
169,500 Chesapeake Energy Corp.* 9,428,437
60,000 Noble Affiliates, Inc. 2,872,500
-----------
12,300,937
-----------
Recreation -- 0.4%
83,000 Harley- Davidson, Inc. 3,901,000
-----------
Restaurant -- 0.1%
40,000 Applebee's International, Inc. 1,100,000
-----------
Retail-Special Lines -- 1.6%
220,000 Bed, Bath & Beyond, Inc.* 5,335,000
130,000 Claire's Stores, Inc. 1,690,000
100,000 Ross Stores Inc. 5,000,000
100,000 TJX Companies, Inc. 4,737,500
-----------
16,762,500
-----------
Retail Building Supply -- 0.3%
168,000 Eagle Hardware and Garden,
Inc.* 3,486,000
-----------
Retail Store -- 1.5%
98,750 Consolidated Stores Corp.* 3,172,344
80,000 Dayton-Hudson Corp. 3,140,000
60,671 Dollar General Corp. 1,941,472
110,000 Meyer (Fred), Inc.* 3,905,000
25,000 Neiman-Marcus Group, Inc.* 637,500
68,000 Price/Costco, Inc.* 1,708,500
55,000 Stein Mart, Inc.* 1,113,750
-----------
15,618,566
-----------
Securities Brokerage -- 0.3%
100,000 Schwab (Charles) Corp. 3,200,000
-----------
Shoe -- 1.4%
212,000 NIKE, Inc. Class "B" 12,667,000
79,500 Wolverine World Wide, Inc. 2,305,500
-----------
14,972,500
-----------
Telecommunications Equipment -- 0.9%
105,000 Andrew Corp.* 5,571,562
100,000 Tellabs, Inc.* 3,762,500
-----------
9,334,062
-----------
Telecommunication Services -- 2.0%
49,200 ACC Corp.* 1,488,300
40,000 Ascend Communications, Inc.* 2,485,000
92,000 Cincinnati Bell, Inc. 5,669,500
308,000 Loral Space & Communications
Ltd.* 5,659,500
218,000 WorldCom, Inc.* 5,681,625
-----------
20,983,925
-----------
Tobacco -- 0.5%
52,000 Philip Morris Companies, Inc. 5,856,500
-----------
Toys -- 0.1%
107,000 Galoob Toys, Inc.* 1,498,000
-----------
Trucking/Transportation Leasing -- 0.1%
33,000 XTRA Corp. 1,431,375
-----------
TOTAL COMMON STOCKS
(Cost $365,833,487) 517,037,788
-----------
See notes to financial statements.
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----------------------------------
U.S. TREASURY OBLIGATIONS -- 29.9%
----------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$62,000,000 U.S. Treasury Notes 6 1/8%,
due March 31, 1998 $62,298,840
60,000,000 U.S. Treasury Notes 6 1/4%,
due June 30, 1998 60,397,800
20,000,000 U.S. Treasury Notes 6 1/8%,
due August 31, 1998 20,090,200
70,000,000 U.S. Treasury Notes 6 3/4%,
due May 31, 1999 71,205,400
16,000,000 U.S. Treasury Notes 7 3/4%,
due February 15, 2001 16,907,360
38,000,000 U.S. Treasury Notes 5 7/8%,
due November 15, 2005 36,638,080
50,000,000 U.S. Treasury Bonds 7 1/4%,
due August 15, 2022 52,927,000
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $317,190,298) 320,464,680
-----------
TOTAL INVESTMENT SECURITIES -- 78.1%
(Cost $683,023,785) 837,502,468
-----------
-------------------------------
SHORT-TERM INVESTMENTS -- 23.0%
-------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 20.9%
10,000,000 Federal Farm Credit Bank
Notes 5.33%, due 1/2/97 10,000,000
25,000,000 Federal Home Loan Mortgage
Corp. Discount Notes
5.30%, due 1/13/97 24,955,833
50,000,000 Federal National Mortgage
Association Discount Notes
5.31%, due 1/15/97 49,896,750
25,000,000 Federal Home Loan Mortgage
Corp. Discount Notes 5.41%,
due 1/17/97 24,939,889
25,000,000 Federal Home Loan Mortgage
Corp. Discount Notes 5.42%,
due 1/17/97 24,939,778
50,000,000 Federal Home Loan Mortgage
Corp. Discount Notes 5.45%,
due 1/17/97 49,878,889
$20,000,000 Federal Farm Credit Bank
Notes 5.32%, due 2/3/97 19,999,200
10,000,000 Federal Farm Credit Bank
Notes 5.22%, due 3/3/97 9,996,500
10,000,000 Federal Farm Credit Bank
Notes 5.25%, due 4/1/97 10,000,000
--------------
224,606,839
--------------
REPURCHASE AGREEMENT -- 2.0%
(includes accrued interest)
21,900,000 Collateralized by
$20,685,000 U.S. Treasury
Notes 7 3/4%, due 1/31/00,
with a value of $22,372,823
(with Morgan Stanley & Co.,
Inc., 6 1/4%, dated 12/31/96,
due 1/2/97, delivery value
of $21,907,604) 21,903,802
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $246,514,941) 246,510,641
--------------
EXCESS OF LIABILITIES OVER CASH
AND RECEIVABLES -- (-1.0)% (11,228,350)
--------------
NET ASSETS -- 100.0% $1,072,784,759
==============
NET ASSET VALUE PER
OUTSTANDING SHARE $ 21.90
==============
($1,072,784,759 / 48,985,468
shares outstanding)
* Non-income producing.
See notes to financial statements.
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STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1996
ASSETS
Investment in securities, at value
(cost $683,023,785) $ 837,502,468
--------------
Short-term investments (cost
$246,514,941) 246,510,641
Cash 86,634
Receivable for securities sold 7,725,879
Interest and dividends receivable 4,649,887
Receivable for capital shares sold 332,891
--------------
TOTAL ASSETS 1,096,808,400
--------------
LIABILITIES
Payable for securities purchased 23,229,385
Payable for capital shares repurchased 116,015
Accrued expenses:
Advisory fee 453,398
GIAC administrative service fee 150,000
Other 74,843
--------------
TOTAL LIABILITIES 24,023,641
--------------
NET ASSETS $1,072,784,759
==============
NET ASSETS CONSIST OF:
Capital stock, at $0.01 par value
(authorized unlimited, outstanding
48,985,468 shares) $ 489,855
Additional paid-in capital 768,491,328
Undistributed net investment income 26,687,656
Undistributed net realized gain on
investments 122,641,537
Unrealized net appreciation of
investments 154,474,383
--------------
NET ASSETS $1,072,784,759
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,072,784,759 / 48,985,468
shares outstanding) $ 21.90
==============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1996
Investment Income:
Interest $ 27,273,951
Dividends (Net of foreign
withholding tax of $32,716) 5,246,213
--------------
Total Income 32,520,164
--------------
Expenses:
Investment advisory fee 4,947,837
GIAC administrative service fee 601,135
Custodian fees 107,905
Insurance and dues 48,205
Audit and legal fees 40,820
Registration and filing fee 19,195
Trustees' fees and expenses 12,876
Other 1,621
--------------
Total Expenses Before Custody
credits 5,779,594
Less: Custody credits (8,471)
--------------
Net Expenses 5,771,123
Investment Income -- Net 26,749,041
Realized and Unrealized Gain(Loss) on
Investments -- Net:
Realized gain -- net 122,797,850
Change in unrealized appreciation on
investments (6,850,866)
--------------
Net Realized Gain and Change in
Unrealized Appreciation on
Investments 115,946,984
--------------
Net Increase in Net Assets from
Operations $ 142,696,025
==============
See notes to financial statements.
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STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------------- -------------
<S> <C> <C>
Operations:
Investment income -- net $ 26,749,041 $ 16,828,354
Realized gain on investments -- net 122,797,850 51,170,099
Change in unrealized appreciation (6,850,866) 122,289,519
--------------- -------------
Net increase in net assets from operations 142,696,025 190,287,972
--------------- -------------
Distributions to Shareholder:
Investment income -- net (16,568,632) (10,739,197)
Realized gain from investment transactions -- net (48,810,295) (6,608,734)
--------------- -------------
Total distributions (65,378,927) (17,347,931)
--------------- -------------
Trust Share Transactions:
Proceeds from sale of shares 119,168,249 79,054,790
Proceeds from reinvestment of distributions to shareholder 65,378,927 17,347,931
Cost of shares repurchased (65,588,322) (55,555,221)
--------------- -------------
Increase from Trust share transactions 118,958,854 40,847,500
--------------- -------------
Total Increase in Net Assets 196,275,952 213,787,541
Net Assets:
Beginning of year 876,508,807 662,721,266
--------------- -------------
End of year $ 1,072,784,759 $ 876,508,807
=============== =============
Undistributed Investment Income -- Net at End of Year $ 26,687,656 $ 16,507,247
=============== =============
</TABLE>
See notes to financial statements.
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Value Line Strategic Asset Management Trust
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- ------------------------------------
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. The Trust's investment objective is to seek 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 of certain reported
amounts in the financial statements. Actual results may 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 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 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 Trust has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. Under
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NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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:
1996 1995
--------- ---------
Shares sold 5,553,832 4,235,882
Shares issued to shareholder
in reinvestment of dividends
and distributions 3,244,612 943,335
--------- ---------
8,798,444 5,179,217
Shares repurchased 3,048,207 3,023,224
--------- ---------
Net increase 5,750,237 2,155,993
========= =========
Dividends per share from
net investment income $ .37 $ .26
========= =========
Distributions per share from
net realized gains $ 1.09 $ .16
========= =========
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Value Line Strategic Asset Management Trust
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NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
1996
------------
PURCHASES:
U.S. Treasury Obligations $258,384,688
Other Investment Securities 394,973,196
------------
$653,357,884
============
SALES & MATURITIES:
U.S. Treasury Obligations $ 18,795,313
Other Investment Securities 525,540,911
------------
$544,336,224
============
At December 31, 1996, the aggregate cost of investment securities and
short-term investments for federal income tax purposes is $929,538,726. The
aggregate appreciation and depreciation of investments at December 31, 1996,
based on a comparison of investment values and their costs for federal income
tax purposes is $161,514,847 and $7,040,464, respectively, resulting in a net
appreciation of $154,474,383.
- ---------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Affiliates
- ---------------------------------------------
An advisory fee of $4,947,837 was paid or payable to the Adviser, for the
year ended December 31, 1996. This was computed at an annual the rate of 1/2 of
1% of the average daily net assets of the Trust during the year and paid
monthly. The Adviser provides research, investment programs, supervision of the
investment portfolio and pays costs of administrative services, office space,
equipment and compensation of administrative, bookkeeping and clerical personnel
necessary for managing the affairs of the 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 $2,741 by the Trust for the year ended
December 31, 1996. During the year ended December 31, 1996, the Trust paid
brokerage commissions totalling $461,300 to Value Line Securities, Inc., a
wholly owned subsidiary of the Adviser, which clears its transactions through
unaffiliated brokers.
The Trust has an agreement with GIAC to reimburse GIAC for expenses incurred
in performing administrative and internal accounting functions in connection
with the establishment of contract-owner accounts and their ongoing maintenance,
printing and distribution of shareholder reports and providing ongoing
shareholder servicing functions. Such reimbursement is limited to an amount no
greater than $18.00 times the average number of accounts at the end of each
quarter during the year. During the year ended December 31, 1996, the Trust
incurred expenses of $601,135 in connection with such services rendered by GIAC.
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FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 20.27 $ 16.13 $ 17.01 $ 15.94 $ 14.54
---------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income .53 .39 .26 .27 .26
Net gains or losses on securities (both realized
and unrealized) 2.56 4.17 (1.09) 1.62 1.93
---------- -------- -------- -------- --------
Total from investment operations 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 year $ 21.90 $ 20.27 $ 16.13 $ 17.01 $ 15.94
========== ======== ======== ======== ========
Total return+ +15.87% +28.54% -4.88% +11.86% +15.05%
========== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of year (in thousands) $1,072,785 $876,509 $662,721 $615,648 $362,045
Ratio of operating expenses to average
net assets .58%(1) .60% .60% .61% .55%
Ratio of net investment income to average
net assets 2.70% 2.18% 1.65% 1.96% 2.18%
Portfolio turnover rate 71% 63% 100% 110% 106%
Average commissions paid per share of
common stock investments purchased/sold $ .049(2) -- -- -- --
</TABLE>
(1) Before offset for custody credits.
(2) Disclosure effective for fiscal years beginning on or after 9/1/95.
* 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.
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Value Line Strategic Asset Management Trust
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees of
Value Line Strategic Asset Management Trust
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Value Line Strategic Asset
Management Trust (the "Trust") at December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 10, 1997
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<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 12/96 [Logo]Printed on recycled paper
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SEPARATE ACCOUNT A - VALUE GUARD II
This schedule contains financial information extracted from the "Annual
Report to Shareholders" dated December 31, 1996.
</LEGEND>
<CIK> 0000356385
<NAME> SEPARATE ACCOUNT A - VALUE GUARD II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 754,673,194
<INVESTMENTS-AT-VALUE> 1,029,104,922
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,029,104,922
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,961,357
<TOTAL-LIABILITIES> 9,961,357
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 10,062,981
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 162,276,263
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 274,431,728
<NET-ASSETS> 1,019,143,565
<DIVIDEND-INCOME> 20,355,914
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 10,292,933
<NET-INVESTMENT-INCOME> 10,062,981
<REALIZED-GAINS-CURRENT> 162,276,263
<APPREC-INCREASE-CURRENT> (18,862,356)
<NET-CHANGE-FROM-OPS> 153,476,888
<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> 10,292,933
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,292,933
<AVERAGE-NET-ASSETS> 990,739,081
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 143,413,907
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .010
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
