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June 30, 1998 [LOGO] VALUE
GUARD II
Semiannual Report to Contractowners
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The Guardian Separate Account a
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The Guardian Stock Fund, Inc.
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The Guardian Bond Fund, Inc.
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The Guardian Cash Fund, Inc.
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Gabelli Capital Asset Fund
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Baillie Gifford International Fund
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Baillie Gifford Emerging Markets Fund
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The Guardian Small Cap Stock Fund
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Value Line Centurion Fund, Inc.
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Value Line Strategic Asset Management Trust
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MFS Growth with Income Series
Executive Offices
201 Park Avenue South
New York, New York 10003
Customer Service Office
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002-6210
1-800-221-3253
Distributed by: [LOGO]
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Guardian Investor Services Corporation(R)
[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
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[GRAPHIC OMITTED]
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Investment Option Total Return*
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The Guardian Stock Fund ................................... 12.83%
Baillie Gifford International Fund ........................ 18.62%
Baillie Gifford Emerging Markets Fund ..................... -18.55%
Value Line Centurion Fund ................................. 15.07%
Value Line Strategic Asset Mgt. Trust ..................... 14.80%
Gabelli Capital Asset Fund ................................ 13.10%
The Guardian Bond Fund .................................... 3.46%
The Guardian Cash Fund .................................... 2.05%
The Guardian Small Cap Stock Fund ......................... 7.04%
MFS Growth with Income Series ............................. 15.55%
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Fixed-Rate Option
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The annual rates of interest declared for amounts deposited or renewed (on a
contract anniversary) in the Fixed-Rate Option from January 1, 1988 to June 30,
1998 was 5.50%. This rate is subject to change at any time, and may be higher or
lower for new deposits or renewals, but is guaranteed until the following
contract anniversary.
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* 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, 1998 through June 30, 1998. 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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Dear Contractowner:
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[Photo of Joseph D. Sargent CLU President & CEO]
As the President and Chief Executive Officer of The Guardian Insurance &
Annuity Company, Inc. (GIAC) and its parent, The Guardian Life Insurance Company
of America, I am pleased to introduce this semiannual report on the performance
results of your contract's separate account and its underlying investment
options during the first six months of 1998.
On Our Ratings
Once again, we are proud to report that as of June 30, 1998, the date of
this report, GIAC continues to enjoy exemplary ratings from four of the nation's
leading insurance company evaluators: Moody's, Standard & Poor's, A.M. Best, and
Duff & Phelps. GIAC's solid ratings reflect its ability to meet its guarantee of
your contract's Fixed-Rate Option and pre-retirement death benefit. However,
these ratings do not apply to 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 GIAC, which stands behind
the contract's guarantees.
I am pleased to announce that GIAC has been granted membership in the
Insurance Marketplace Standards Association (IMSA). IMSA is an independent
voluntary organization created by the life insurance industry as a means to
ensure that qualifying companies meet and maintain high standards of ethical
conduct.
Our Commitment to You
We at GIAC are proud of our tradition of commitment to you, our
contractowners. Following this letter is an economic report from Frank J. Jones,
Ph.D., Chief Investment Officer of GIAC. I believe that you will enjoy reading
his insightful economic overview presented to you as part of our ongoing
commitment to provide increasing levels of information and service.
Following Dr. Jones' economic report are interviews with the managers of
the underlying variable options. I invite you to read the interviews to learn
more about the strategies used to manage your investment options during the
first half of 1998.
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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VALUE GUARD II
Table of Contents
Portfolio Schedule
Manager of
Interview Investments
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Economic Report 5
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The Guardian Stock Fund 8 40
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Objective: Long-term growth of capital
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Portfolio: At least 80% common stocks
and securities convertible
into common stocks
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Inception: April 13, 1983
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Net Assets at June 30, 1998: $3,595,851,964
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"While many foreign economies were experiencing difficulties, the domestic
economy continued receiving accolades . . . In our portfolio, we tried to
capitalize on this state of affairs by overweighting stable, high-quality growth
stocks in which the preponderance of issuers' income came from the U.S."
-- Frank J. Jones, Ph.D. -- Larry Luxenberg, C.F.A.
Co-Portfolio Manager Co-Portfolio Manager
-- John B. Murphy, C.F.A.
Co-Portfolio Manager
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The Guardian Bond Fund 12 50
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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
debt securities and U.S.
government securities
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Inception: May 1, 1983
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Net Assets at June 30, 1998: $361,835,345
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"We currently believe that corporate and mortgage-backed valuations are the most
attractive that they have been in some time, but nevertheless we remain cautious
and will be very selective with respect to corporate credits and the mortgage
risk exposure we include in the Fund."
-- Thomas G. Sorell, C.F.A.
Co-Portfolio Manager
-- Howard W. Chin
Co-Portfolio Manager
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The Guardian Cash Fund 28 58
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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 June 30, 1998: $410,010,361
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"The Guardian Cash Fund is a place for our investors to put their money while
they determine their preferred long term investment vehicle, be it stocks or
bonds."
-- Alexander M. Grant, Jr.
Portfolio Manager
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Gabelli Capital Asset Fund 14 70
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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 June 30, 1998: $155,062,893
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"We buy high quality, dominant market share companies in a wide variety of
industries. We believe that over the long term these companies will succeed
irrespective of shorter term macroeconomic trends and that we will be rewarded
for our investment patience."
-- Mario J. Gabelli, C.F.A.
Portfolio Manager
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Portfolio Schedule
Manager of
Interview Investments
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Baillie Gifford International Fund 16 78
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Objective: Long-term capital
appreciation
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Portfolio: At least 80% in a diversified
portfolio 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 June 30, 1998: $652,263,045
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"We believe that detailed analysis of the businesses of individual companies has
been the best route to investment success. As a result, we have had a low
weighting in Japan for the Fund, and the Japanese holdings have been
concentrated in companies that are global leaders in areas like electronics,
office equipment, and auto manufacturing."
-- R. Robin Menzies
Portfolio Manager
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Baillie Gifford Emerging Markets Fund 18 86
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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 June 30, 1998: $62,881,944
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"To sum up: The emerging markets have taken a beating, but the concept is still
intact and good growth prospects can be found there at lower valuations than
elsewhere. We need to see some stability in Asia before becoming really
confident, but the longer term prospects are good."
-- Edward H. Hocknell
Portfolio Manager
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The Guardian Small Cap Stock Fund 20 94
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Objective: Long-term growth of capital
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Portfolio: At least 85% in a diversified
portfolio of common stocks and
convertible securities issued
by companies with small market capitalization
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Inception: July 16, 1997
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Net Assets at June 30, 1998: $121,585,633
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"In this difficult market we also emphasize systematic efforts to weed out
possible sources of trouble early in the process. Companies and industries, once
they begin struggling, tend to face difficulties for a long time. Investors and
analysts are amazed at how far down a stock can go. While we tend to be patient
long-term investors, sometimes the old Wall Street axiom of `cut your losses' is
a wise one."
-- Larry Luxenberg, C.F.A.
Portfolio Manager
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Value Line Centurion Fund 22 108
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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 June 30, 1998: $771,036,028
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"Our top-down strategy has been consistently focused on our forecast for
decelerating economic growth, benign inflation, neutral monetary policy, lower
interest rates, and a modest increase in corporate profits. All of these factors
suggest a positive bias to the equity markets, with an emphasis on
large-capitalization Blue Chip growth companies within the industry sectors
identified earlier (technology, financials, retailers, healthcare, and
airlines)."
-- Value Line, Inc.
Investment Adviser
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Portfolio Schedule
Manager of
Interview Investments
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Value Line Strategic Asset Management Trust 24 116
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Objective: High total return consistent
with reasonable risk
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Portfolio: Stocks, bonds and money
market instruments
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Inception: October 1, 1987
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Net Assets at June 30, 1998: $1,332,492,199
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"For stock selection, we stay with stocks that are showing strong earnings
momentum and strong price momentum, relying largely on the proprietary Value
Line stock ranking systems. We maintain a very diversified portfolio of over 200
stocks in many different industries, which aids in reducing risk. For bond
selection, we stay with high-quality issues."
-- Value Line, Inc.
Investment Adviser
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MFS Growth with Income Series 26 128
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Objective: Reasonable current income
and long-term growth of
capital and income
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Portfolio: At least 65% of its assets
in equity securities that are
believed to have long-term
prospects for growth and income
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Inception: October 9, 1995
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Net Assets at June 30, 1998: $145,486,534
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"We feel the strength of this portfolio's overall performance is the result of
our adherence to a strong investment discipline. We invest in
large-capitalization, high-quality companies, seek growth at a reasonable price,
strive for a dividend yield that is 90% of that of the S&P 500, seek to keep
volatility lower than that of the S&P 500, and try to stay fully invested."
-- John D. Laupheimer, Jr.
Co-Portfolio Manager
-- Kevin R. Parke
Co-Portfolio Manager
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The Guardian Separate Account A 30
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Economic Report:
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[Photo of Frank J. Jones, Ph. D. Chief Investment Officer]
From Goldilocks to Jekyll and Hyde
A year ago, we described the U.S. economy as a Goldilocks economy, that
is, an economy with high economic growth, low unemployment, high capacity
utilization, and no real sector weakness, but also with no price or wage
pressures. By mid-1998, the Goldilocks economy has given way to a Dr. Jekyll and
Mr. Hyde economy, an economy with very strong domestic consumption and business
investment sectors and still absent inflation, but weak export sectors,
including manufacturing and agriculture, and increasing labor costs.
What caused the transition from Goldilocks to Jekyll and Hyde? Two
factors. First, the economic expansion had been too strong for too long. The
expansion is into its eighth year (the last recession ended during March 1991),
and real Gross Domestic Product (GDP) has grown at approximately 4% for two
years. Wage and price pressures were bound to develop. Wage pressures have been
developing (average hourly earnings costs increased by 4.13% over the last 12
months) and, although inflation is not a concern (over the last twelve months,
the Consumer Price Index (CPI) has increased by 1.6% and the Producer Price
Index (PPI) has decreased by 0.8%, respectively), neither has deflation been
mentioned recently, as it frequently was earlier during the year.
Second, on July 2, 1997, Thailand devalued its baht. Sounds innocuous
enough. But what has resulted is similar to the "Butterfly Effect" from chaos
theory whereby a butterfly stirring the air today in Peking can transform storm
systems next month in New York. From Thailand, the crisis went to other Asian
countries: Malaysia, Philippines, Indonesia, South Korea, Hong Kong (a crisis
last October), and even affected Japan and potentially China. It subsequently
went to the developing Eastern European countries, and even Russia. Then on to
Latin America, including Brazil. And after all these, not surprisingly, to the
U.S. The transmission process from Thailand to the U.S. has taken longer than
many thought (last January when the effect was not yet significant, many pundits
said the worst was over) but may turn out to be stronger than originally
expected.
The current symmetry in the concerns about the U.S. economy were well
captured by Alan Greenspan's recent comments to Congress.
A bullish view of the U.S. economy emphasizes:
o an unemployment rate near its 20-year lows;
o consumer confidence at a 30-year high, mainly based on high employment
and high personal income;
o a resulting high level of consumer demand; and
o strength in the interest rate sensitive sectors of the economy,
particularly housing, due to the low yield levels.
A bearish view of the economy, however, emphasizes:
o weak exports, particularly to Asia, due to the strong dollar;
o the weak export sectors particularly affected were manufacturing and
agriculture (which were also affected by El Nino weather patterns); and
o the actual and potential effects of the G.M. strike.
These contrary concerns have caused and will continue to cause a balance
in Fed concerns and continued Fed inaction (the only Fed change since January
31, 1996 was the 25 basis point tightening of the Federal Funds Rate to 5.50% on
March 25, 1997). The Fed balance is further stabilized by the absence of
observed inflation (as indicated above), but offset by increasing wage inflation
(as indicated above).
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5
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As the markets, and even some Fed members, have oscillated between
expectations of a Fed easing and a Fed tightening, the Fed has done nothing. And
at his recent Congressional testimony, while Greenspan emphasized the risk of
undue economic strength more than the risk of undue economic weakness, he
suggested that the Fed would most likely continue to watch vigilantly and remain
inactive. The Fed will steer between the Scylla of economic strength and the
Charybdis of economic weakness (which Greenspan referred to as "important
crosscurrents") by maintaining an even keel.
Greenspan's forecast for real GDP growth for 1998 was in the range of 3%
to 3.25% (implying a slowing from the first quarter's 5.4% growth) and a range
of 2.0% to 2.5% in 1999. The forecast for CPI was a range of from 2% to 2.5% in
1999 from less than 2% in 1998. I believe the markets would welcome these
forecasts becoming reality. And I also believe that these forecasts are
reasonable.
Greenspan again alluded to the "New Paradigm" for reconciling rapid
economic growth and low inflation. This paradigm suggests that recent
productivity gains, most likely linked to improved technology, have been higher
than in recent history and higher than measured. It may also be the reason that
faster economic growth has been achieved without inflation. If so,
optimistically, more rapid, non-inflationary growth could continue. It is,
however, premature to declare victory for this paradigm.
Consider the prospects for the stock market in a similar vein. The
"positives" for the stock market are low inflation, low yields, at least
reasonable economic growth, and, on a secular basis, very favorable demographics
(the Baby Boomers are now between 34 and 52 years old, years of significant
savings, and are very common stock-oriented). The "negatives" are the continuing
high valuations for stocks (which are based on continued strong profit growth)
and concerns about future profits, particularly related to the risks in Asia.
We provide one other thought with respect to the stock market. Perhaps the
period most like the current period was 1972, when valuations were high and
market strength was narrow (old timers will remember the "nifty fifty"of this
period). During December 1972, the trailing Price Earnings (P/E) ratio for the
S&P 500 was 18.4; during July 1998, it was 28.1. After the nifty fifty, the S&P
500 declined by 23.15% during 1973 and 25.82% during 1974. The cause for this
decline, most likely, was the beginning of the OPEC oil cartel and inflation.
Could Asia be the current equivalent? Not likely, but possibly.
While stock performance has been strong during 1998, there has been
considerable variation among large cap, mid cap, and small cap stocks. A rally
in small cap stocks is overdue. But do not bet on it. Not yet.
Despite the old saw that "you can't tell a bubble until it bursts" and
Greenspan's continued references to a U.S. asset bubble and "irrational
exuberance," the stock market will continue to be volatile, but the onset of a
bear market does not seem likely. And, in fact, Greenspan's continued caution
may prove to be constructive by constraining the stock market from continued
growth at an unsustainable pace.
To consider the bright side of the Asia effect, imagine what current U.S.
conditions would be without the Asian effect. Without the economy-slowing
effects of Asia (during second quarter 1998 real GDP actually increased by
5.4%), the Fed would have undoubtedly tightened the Fed funds rate, most likely
more than once. A not-unlikely mid-1998 scenario without Asia would be:
o a Federal Funds rate of 6.25% (three 25 basis point tightenings) rather
than the current 5.50%; and
o a 30-year Treasury yield of 6.25% -- a flat yield curve (as of this
writing, with the Federal Funds rate at 5.50% the 30-year Treasury is
at 5.70%)
And the strength of the U.S. economy without the Asian problems may not
have slowed to a sustainable
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6
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pace even with such Fed changes. Thus, more tightenings might be expected. And
how would the stock market be performing under such actions and expectations?
Not well. Thus, from a purely parochial perspective, we must say, "Thank you,
Asia."
I believe that the economy and the markets will be better served if
something like Greenspan's forecast -- with Asia -- comes to pass rather than
the likely ex-Asia outcome described above. And based on his track record, I'll
go with Greenspan.
Regards,
/s/ Frank J. Jones
Frank J. Jones, Ph.D.
Chief Investment Officer
The Guardian Insurance & Annuity Company, Inc.
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7
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The Guardian Stock Fund
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[Photo of Frank J. Jones, Ph.D. Co-Portfolio Manager]
[Photo of Larry Luxenberg, C.F.A. Co-Portfolio Manager]
[Photo of John B. Murphy, C.F.A. Co-Portfolio Manager]
Q. U.S. stock market averages continued their powerful advance in the first half
of 1998, although the performance for the broad market was more varied. How
did the Fund perform during this time?
A. The Fund advanced 13.38%(1) in the first half of the year, compared with a
total return of 17.68% for the S&P 500.(2) Over the last twelve months the Fund
was up 29.22%, slightly behind the S&P 500's 30.03% total return and ahead of
the 27.86% total return of the Lipper Average U.S. Growth Fund.(3)
Q. What factors affected the Fund's performance during this period?
A. Two notable policies have contributed to the Fund's recent performance.
First, for most of the last four years, we have anticipated that large stocks
would outperform smaller ones. Over the last three years we have increased our
portfolio's weighted average market capitalization by $47.5 billion to a total
of $61.5 billion as of June 30, 1998, as shown below.
The Guardian Stock Fund
Weighted Average Market Capitalization
($ Billions)
[The following table was depicted as a bar chart in the printed material.]
6/30/95 6/30/96 6/30/97 6/30/98
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$14.0 $34.7 $46.1 $61.5
Secondly, we recognized early on that the economic problems in Asia would
have profound and long-lasting effects on the economies of major countries
throughout the world. We have lowered our holding in companies whose profits
were heavily dependent on Asia.
The last year has been an unusual period in which the very largest stocks
have dominated the stock market averages. Performance has been concentrated in a
handful of huge companies such as Microsoft, General Electric and Pfizer. Part
of the phenomenon can be attributed to economic fundamentals. In addition, an
influx of foreign money, which generally seeks out the household names first,
has had an impact. Then, too, with the current worldwide economic volatility,
investors place a premium on safety.
While there is no telling how long these trends will continue, we believe
they are powerful. As of mid-year, our portfolio was positioned to benefit from
a continuation of these trends into the third quarter.
Q. Were there any other important strategies that you used to manage the Fund?
A. While many foreign economies were experiencing difficulties, the domestic
economy continued receiving accolades. Pundits competed to heap praise on 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 that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 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 expenses deducted from the Fund.
(3) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service and its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses.
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8
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most balanced economic recovery in a generation. Among the most popular
nicknames were the "Goldilocks Economy" (not too hot, not too cold, just right)
and "Supertanker America."
In our portfolio, we tried to capitalize on this state of affairs by
overweighting stable, high-quality growth stocks in which the preponderance of
issuers' income came from the U.S. In addition, we sought to benefit from the
gradual reduction in domestic interest rates, a nearly unprecedented situation
this late in a U.S. recovery. Employment remained strong, consumer confidence
soared, and inflation was on the verge of disappearing.
Q. What are the portfolio's weights in different sectors and how have these
affected performance this year?
A. Our sector weights are generally unchanged from last year. Our largest
weighting remained in financial stocks. At mid-year, 28.1% of the portfolio was
in financials compared to 17.7% for the S&P 500. Financials continue to benefit
from the continuing decline in interest rates, stable economic growth, and
industry consolidation.
Our second largest concentration was in consumer staples with 12.9%,
although that was under the S&P's 22.6% weighting. We have been increasing our
weighting in the pharmaceutical companies but have been underweighted in such
areas as tobacco and food. Pharmaceutical companies are benefiting from a golden
age of discovery of important new medicines. Given the strong increase in
disposable income, we have been gradually increasing our weighting in additional
areas that would benefit, such as retail and homebuilders.
Q. What problems do you foresee looming that could upset this happy state of
affairs?
A. The biggest concern at mid-summer had to be the continuing difficulties in
Asia, including Japan. The huge contraction in economic activity there casts a
shadow over worldwide commerce. If the economies of mainland Asia and Japan do
not begin a bottoming process, there is a risk of spreading deflationary
pressures and social chaos. Leaders worldwide recognize the scope and severity
of the problems, and we are hopeful that they will act prudently.
In the U.S., corporations have had their highest profit margins since the
mid-1960's. They have benefited from a period of intense cost-cutting and
reorganization, effective deployment of technology and telecommunications, and
progressive management. Most companies now have little ability to raise prices
and those most exposed to foreign competition must continually find new ways to
lower prices. At the same time, a scarcity of workers has put pressure on wages
for the first time in this recovery. As a consequence, corporate profits now
seem likely to be squeezed and are particularly vulnerable to any revenue
shortfalls.
An unknown wild card is the ability of corporations and governments
worldwide to adapt their computer systems to the new millenium, the "Y2K"
problem. While predictions of doom are increasing, no one seems to know with any
certainty what the end result will be. Hopefully, the feverish and expensive
efforts underway will be successful.
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9
<PAGE>
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The Guardian Stock Fund Profile
as of June 30, 1998
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Sector Weightings of Common Stocks
Held by the Fund on June 30, 1998
[The following table was depicted as a pie chart in the printed material.]
Basic Industry 4.6%
Consumer Services 1.9%
Transportation 2.9%
Capital Goods 5.8%
Utilities 7.8%
Energy 10.5%
Consumer Cyclicals 11.3%
Financial 28.1%
Consumer Staples 12.9%
Capital Goods/Technology 12.4%
Conglomerates 1.3%
Credit Cyclicals 0.5%
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Top 10 Holdings as of 6/30/98
1. General Electric Co. 3.91%
2. Exxon Corp. 3.07%
3. Microsoft Corp. 2.86%
4. Pfizer, Inc. 2.25%
5. Int'l Business Machines 2.10%
6. Chase Manhattan Corp. 1.83%
7. Storage Technology Corp. 1.80%
8. Wal-Mart Stores 1.76%
9. BankAmerica Corp. 1.74%
10. E.I. Dupont de Nemours, Inc. 1.66%
For a complete list of portfolio holdings, please see the Schedule of
Investments.
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Average Annual Returns for Periods Ended 6/30/98(1)
Life of Fund
1 Year 5 Years 10 Years (since 4/13/83)
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The Guardian Stock Fund 29.22% 22.47% 18.68% 18.20%
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S&P 500 Index(2) 30.03% 22.98% 18.44% 17.45%
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(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect expenses that have been deducted from the Fund's
return.
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10
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Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line chart in the printed material.]
GSF S&P CPI
--- --- ---
4/13/83 10000 10000 10000
10891 10844 10333
83 11028 10867 10336
10684 10328 10571
84 12218 11529 10754
14360 13501 10958
85 16130 15169 11162
20326 18307 11152
86 18889 17985 11295
22920 22898 11580
87 19241 18903 11794
23115 21283 12029
88 23160 21989 12314
26541 25595 12650
89 28613 28887 12885
28334 29749 13252
90 25224 27959 13680
29788 31938 13874
91 34293 36439 14088
34598 36196 14302
92 41178 39207 14516
46490 41100 14720
93 49396 43130 14913
47471 41667 15097
94 48767 43679 15311
58848 52468 15545
95 65667 59992 15668
72792 66015 15973
96 83330 73770 16176
99134 85090 16463
97 112983 94035 16627
6/30/98 128110 110637 17090
A hypothetical $10,000 investment made at the inception of The Guardian Stock
Fund on April 13, 1983 would have grown to $128,110 on June 30, 1998. We compare
our performance to that of the S&P 500 Index, which is an unmanaged index that
is generally considered the performance benchmark of the U.S. stock market.
While you cannot invest directly in the S&P 500 Index, a similar hypothetical
investment would now be worth $110,637. 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.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund
- -----------------------------------
[Photo of Thomas G. Sorell, C.F.A.]
[Photo of Howard W. Chin Co-Portfolio Manager]
Q. How did the Fund perform during the first half of 1998?
A. The Fund performed well for the first half of 1998. The Fund had a total
return of 3.96%(1) for the six months ended June 30, 1998, exceeding the return
of the average fund in our Lipper Intermediate Investment Grade peer group,(2)
which returned 3.79% for the same period. This group consists of variable
annuity subaccounts that invest primarily in investment grade debt with average
maturities of 5-10 years. Another commonly used benchmark, the Lehman Aggregate
Bond Index,(3) which is not available for direct investment, returned 3.93% for
the first half of 1998.
Q. What factors affected the Fund's performance?
A. Early in the year market participants expected that the Asian financial
crisis would significantly slow U.S. economic growth and might motivate the
Federal Reserve to ease monetary policy. However, as it became apparent that
U.S. domestic demand remained robust and that the Asian effect might not reduce
growth sufficiently to alleviate inflationary pressures from developing, market
psychology changed to one of expecting the Fed to leave rates unchanged. The
Fed's patience and inaction proved appropriate as the economy grew 5.5% in the
first quarter but slowed to 1.4% in the second quarter.
Although it was not clear to what degree the financial crisis in Asia
would slow U.S. economic growth, there is no doubt that it caused a flight to
quality as both U.S. and international investors sought U.S. Treasuries as a
safe investment haven. By July, Treasury rates had declined 15 to 30 basis
points along the yield curve, with the 30-year Treasury bond declining to its
lowest level (5.57%) since first issued in 1977.
Unlike 1997, when the Fund's performance was driven by its overweight in
the spread product sectors (corporate bonds, mortgage- and asset-backed
securities), performance in the first half of 1998 was driven by the Treasury
sector. For the most part, spread products have lagged the performance of
Treasuries in 1998. As the year began, the Fund was properly positioned for
this, being overweighted in U.S. Treasuries, and the Fund's performance
benefited. As the year progressed, the Fund began to reduce the Treasury
position and reinvest in cheaper spread sectors, particularly corporate and
mortgage-backed securities. This strategy worked until further spread widening
in June, and ultimately acted as a small positive contribution to overall
performance for the first half of the year.
As mentioned earlier, the corporate bond sector experienced some
volatility during the first half of 1998, returning 4.15%, as measured by the
Lehman Corporate Bond Index, but underperformed comparable-duration Treasuries
by 25 basis points, or 0.25%.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service 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.
(3) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The Lehman
Aggregate Bond Index is not available for direct investment and the
returns do not reflect the fees and expenses that have been deducted from
the Fund.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Corporate bonds began the year by underperforming by 54 basis points (0.54%) on
a duration-adjusted basis(4) in January, and underperformed once again in June
by 47 basis points (0.47%). In the intervening months, the corporate market
performed fairly well, but not enough to overcome January and June's negative
returns.
Historically low interest rates were a significant contributor to the
sector's underperformance as corporations deluged the market with new issuance
to take advantage of attractive financing rates. As of June 30, 1998, corporate
issuance had exceeded $200 billion; an increase of $70 billion relative to the
comparable period last year.
Within the corporate market, only two sectors outperformed Treasuries
during the first half of 1998; Finance and Media/Cable. The Fund was well
represented in these two sectors.
The mortgage-backed securities sector returned 3.38% in the first half of
1998 as measured by the Lehman Mortgage-Backed Index, and outperformed
comparable-duration Treasuries by 0.10%. Interest rate volatility continued to
remain at low levels, and although low Treasury yields have caused prepayment
concerns, the Fund was positioned favorably since a high percentage of its
holdings were in below par mortgages, which have less exposure to prepayment
risk relative to higher coupons. Much of the widening observed in the
mortgage-backed sector was experienced by the higher coupons.
- --------------------------------------------------------------------------------
(4) Duration-adjusted, expressed in percentage terms, represents the excess
return over the weighted average return of a group of similar duration
Treasuries.
- --------------------------------------------------------------------------------
The Guardian Bond Fund Profile
as of June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
for Periods Ended 6/30/98(1)
================================================================================
1 Year .......................................... 9.48%
5 Years ......................................... 6.27%
10 Years ........................................ 8.76%
Since Inception (5/1/83) ........................ 9.32%
- --------------------------------------------------------------------------------
The Fund also offset some of its prepayment risk by adding
mortgage-related asset-backed securities such as home equity loans and
manufactured housing loans which have less incentive to refinance due to their
lower loan balances. Asset-backed securities returned 3.61% as measured by the
Lehman Asset-Backed Index, but turned in the best performance among the various
components of the Index on a duration-adjusted basis, outperforming Treasuries
by 0.21%.
Q. What strategies did you use to manage the Fund and what is your outlook for
the rest of 1998?
A. Owning corporate, mortgage-backed and asset-backed securities provided a
small positive return to the Fund's performance, while our early defensive
position in U.S. Treasuries served us extremely well. We currently believe that
corporate and mortgage-backed valuations are the most attractive that they have
been in some time, but nevertheless we remain cautious and will be very
selective with respect to both the corporate credits and the mortgage risk
exposure we include in the Fund. As always, we will continue to adjust asset
allocations to reflect changes in sector valuations and take advantage of
attractive investment opportunities.
Composition by Asset Class as of 6/30/98
[The following table was depicted as a line graph in the printed material.]
Mortgage Pass-Throughs 12.4%
Yankee Bonds 2.2%
Asset-Backed 14.4%
Multi-Class MBS 7.3%
Corporate Bonds 36.9%
U.S. Government Securities 25.7%
Cash Equivalents 1.1%
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- -----------------------------------
[Photo of Mario J. Gabelli, C.F.A. Portfolio Manager]
Q. How did the Fund perform for the first six months of 1998?
A. For the six months ended June 30, 1998, the Fund's total return was 13.7%.(1)
The Standard & Poor's ("S&P") 500(2) and Russell 2000 Index(3) had returns of
17.7% and 4.9%, respectively, over the same period. Each index is an unmanaged
indicator of stock market performance. The Fund was up 33.6% over the trailing
twelve-month period. The S&P 500 and Russell 2000 rose 30.2% and 16.5%,
respectively, over the same twelve-month period. For the three year period ended
June 30, 1998, the Fund's return averaged 24.1% annually, versus average annual
returns of 30.2% and 18.9% for the S&P 500 and Russell 2000, respectively. Since
inception on May 1, 1995 through June 30, 1998, the Fund has had a cumulative
total return of 94.9%, which equates to an average annual total return of 23.4%.
In the second quarter of 1998, there was a continuation of the best of
times for large stocks and the worst of times for small cap stocks. During the
quarter, the large cap market, as measured by the S&P 500 Index, rose 3.3% while
small cap stocks, as measured by the Russell 2000 Index, declined by 4.7%. U.S.
Government Bonds rallied in a classic global "flight to quality," with the yield
on the 30-year U.S. Treasury Bond falling to 5.57% in mid-June.
Q. What factors affected the Fund's performance?
A. In reviewing our successes during the first half of the year, retail, media
and telecommunications holdings proved largely resistant to the Asian Flu. With
the domestic economy still rolling along and consumer confidence at record
levels, selected retailers posted solid earnings gains. Media stocks
(broadcasters, cable television operators and entertainment software producers)
also benefited from positive earnings reports and further consolidation in their
industries. Telephone companies advanced as investors focused on the
opportunities being presented by global deregulation. We believe these groups
will continue to perform well in the months ahead.
Our disappointments were largely in industry groups that were, or were
likely to be impacted by Asian economic woes. Agricultural equipment
manufacturers suffered as Asian economic weakness foreshadowed reduced
agricultural exports and restrained cash flows for American farmers. Aircraft
suppliers nose-dived as Southeast Asian airlines began scaling back expansion
plans. Energy stocks contracted as weakening demand from Asia combined with
weather-related factors and overproduction from OPEC nations to drop oil prices
to a twelve year low. Finally, manufacturing companies going head to head with
Asian competitors fell along with the yen and other Asian currencies.
Q. What strategies do you use to manage the Fund?
A. We buy high quality, dominant market share companies in a wide variety of
industries. We believe that over the long term these companies will succeed
irrespective of shorter term macroeconomic trends and that we will be rewarded
for our investment patience.
While investors worry about a substantial correction
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies which provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses 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 Russell 2000 is
not available for direct investment, and its returns do not reflect the
fees and expenses deducted from the Fund.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
or even a bear market for the Dow Jones Industrial Average and S&P 500, small
cap stocks are already experiencing one. Although as of the end of second
quarter 1998, the Russell 2000 is up modestly, approximately 60% of all
Nasdaq-listed stocks are off 20% or more from their 52-week highs. What is wrong
with small cap stocks? In our opinion, nothing. In fact, we believe that small
companies operating primarily in the domestic market are far less vulnerable to
Asian economic problems than the large multinationals. This has not prevented
investors from abandoning small cap stocks to chase large cap stock returns. Is
this likely to change in the foreseeable future? We do not know, and in a sense,
do not care. We are patient value investors who count on Mr. Market's mood
swings to allow us to buy quality companies at discount prices. The fact that
Mr. Market, perhaps fueled by the migration of assets into S&P index funds, is
mindlessly lavishing attention on large companies and ignoring more
fundamentally attractive smaller ones makes it easier for us to pick up small
cap stock bargains.
As always, there are plenty of things for pessimists to worry about and
for optimists to cheer. As investment realists, we do a little of both. We take
the threat posed by the Asian Flu seriously. However, we believe the U.S.
economy and stock market will be relatively resistant, though not immune, to
this latest global financial virus. Our opinions on the economy and the market
duly stated, let us remind you we spend most of our time and energy researching
individual companies that we believe will do well over the longer term
irrespective of shorter term economic and market trends.
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund Profile
as of June 30, 1998
- -------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
for Periods Ended 6/30/98(1)
================================================================================
1 Year ................................... 33.60%
3 Years .................................. 24.10%
Since Inception (5/1/95) ................. 23.44%
- --------------------------------------------------------------------------------
Q. What is your outlook for the remainder of the year?
A. Is it time to quarantine your investment portfolio by significantly reducing
your exposure to equities? Let's diagnose the problem and venture an opinion on
just how vulnerable the U.S. economy and stock market may be. We do not expect a
painless solution (for them or us) to Japan and Southeast Asia's economic
problems. Japan appears committed to exporting its way out of recession rather
than undertaking any serious domestic economic reforms. Without massive currency
intervention, which is disruptive in its own right, we will probably continue to
see a weak yen against the dollar. Despite International Monetary Fund (IMF)
bailouts, most Asian currencies are likely to remain anemic. This is not good
news for any American company going head to head with Japan or its Asian
neighbors in the domestic and international markets. The same holds true for
European manufacturers, particularly if the new euro rivals the dollar in
strength.
Additionally, the Asian Flu has some positive side effects. Lower
commodity prices, low cost Asian imports and continued domestic pricing
restraint should keep inflation in check and perhaps allow interest rates to
trend down even further. This should help sustain the robust service sector of
the economy--now 55% of U.S. Gross Domestic Product and growing. Despite
Asian-induced jitters and slowing corporate profit growth, there is still a lot
of money coming into equity mutual funds. The question of the day becomes how
investors will react if the market waters become even choppier. Will they head
to shore or simply not venture farther out to sea? With so much liquidity and
the current low returns from equity alternatives, we think the latter is more
likely.
We believe it is still too early to accurately assess the impact of Asian
economic distress on the U.S. economy and corporate earnings. However, Asia's
problems may prolong investment uncertainty and restrain stock prices, perhaps
for the balance of the year. Looking farther ahead, we believe equities will
still provide investors with superior risk adjusted returns relative to other
asset classes and that our value discipline will continue to reward
shareholders.
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- --------------------------------------
[Photo of R. Robin Menzies, Portfolio Manager]
Q. How did the Fund perform for the first six months of 1998?
A. The first six months, and particularly the second quarter of the year was
packed with incident: the new European currency was successfully launched and
the European Central Bank got under way, while in Asia the Japanese economy and
currency weakened and the Asian crisis deepened. The contrast between generally
good news in the west and bad news in the east was reflected in market
movements. For the first half of 1998 the Fund returned 19.20%,(1) while the
Morgan Stanley Capital International (MSCI) Europe, Australia, and Far East
(EAFE) Index(2) returned 16.08% during this period. Even in the west, where
equities performed well, there were signs that investors were beginning to favor
bond markets as the quarter progressed. This tendency was less marked in Europe
than it was in the U.S., where earnings growth is clearly slowing and Treasury
obligations attracted those looking for a safe haven.
Q. What factors affected the Fund's performance and what strategies did you use
to manage the Fund?
A. We always felt that the Asian crisis would deepen and so resisted the
temptation to reinvest in those markets when they staged an ill-founded recovery
earlier in the year. In fact, Asian markets have deteriorated even more than we
anticipated. A vicious circle has developed in which worsening Asian prospects
undermine confidence in Japanese banks and exporters, weakening the yen, which
in turn makes it more difficult for the rest of Asia to export its way out of
trouble. There is a danger that this vortex will suck in the Chinese, which
would have a very harmful effect on the whole region. The only way for this
vicious circle to be broken is for the Japanese economy to stabilize, and this
requires continual fiscal stimulus (the most recently announced package is just
starting to take effect) backed up by structural reform. The likelihood is that
the Japanese will do just enough to stop the situation deteriorating
dramatically - but the possibility that they might not is the single greatest
threat to world financial markets at the moment.
We believe that detailed analysis of the businesses of individual
companies has been the best route to investment success. As a result, we have
had a low weighting in Japan for the Fund, and the Japanese holdings have been
concentrated in companies that are global leaders in areas like electronics,
office equipment, and auto manufacturing. And it was our company analysis that
deterred us from going back into the other Asian markets which bounced in the
first quarter and then retreated again. We have little invested there.
On the surface at least, it is surprising that European stock markets have
continued to perform very well despite the problems of Asia. On further
investigation, however, the good performance does have solid foundations:
European companies are continuing to restructure and pass on more of the
benefits of their success to shareholders; euro interest rates will remain
sustainably low for some time to come and, on top of this, the long-awaited
recovery is finally taking place. The result is that top line growth is
amplifying the effect of cost cutting, which is leading to strong earnings
growth against a background of low interest rates. This happy combination is
likely to persist as there is still considerable underused capacity on the
Continent. It is not surprising, therefore, that Euro-
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The MSCI EAFE Index is an unmanaged index that is generally considered to
be representative of international stock market activity. The MSCI EAFE
Index is not available for direct investment and its returns do not
reflect the fees and expenses that have been deducted from the Fund's
return.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
pean markets have done well and we continue to have a heavy weighting in them.
It is worth saying something about the effect that the Asian crisis has
had so far on the global economy. The crisis has had two main outcomes, as far
as the rest of the world is concerned: it has altered trade patterns and
depressed commodity prices. Western exports to Asia have fallen sharply, and
this has shown up in deteriorating trade deficits. Few Asian countries are
showing much increase in exports in U.S. dollar terms, although volumes have
picked up. In any case, the effect is likely to be a slightly dampening one on
growth in the West.
Industrial commodities are now 24.3% cheaper in U.S. dollar terms than
they were a year ago using the Economist index, and the Brent crude oil price is
22.3% lower. These sharp declines are damaging some countries (Chile, for
example with its dependence on copper, and Norway with its huge oil revenues),
but the overall effect is likely to be positive on margins and inflation.
As a result of these two Asian effects (lower growth because of weaker
trade and lower inflation), the balance of attraction tipped towards bonds in
most markets during the quarter, apart from in Europe, where growth and profits
remain strong.
- --------------------------------------------------------------------------------
Baillie Gifford International Fund Profile
as of June 30, 1998
- -------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
for Periods Ended 6/30/98(1)
================================================================================
1 Year .................................... 16.40%
3 Years ................................... 19.48%
5 Years ................................... 15.63%
Since Inception (2/8/91) .................. 14.08%
- --------------------------------------------------------------------------------
Q. What is your outlook for the international market?
A. The final piece of the jigsaw puzzle is the so called "technical position,"
in other words the supply and demand for equities in world markets. This remains
extremely favorable and goes a long way to explain equity markets' resilience.
The retirees of the future are pouring money into equities and there is a
significant switch in favor of equities away from traditional cash and bond
based investments taking place in Europe. At the same time, equity issuance
remains very low. The favorable technical position and Europe's good prospects
are the two main supports for our generally optimistic view.
We are positive about Continental Europe, less so about the UK. Many of
the smaller Asian economies have deep seated problems. The progress of reform in
Japan is an important factor for markets. We believe that the authorities are
likely to do just enough to get by. Markets in the rest of the world will
probably continue to receive support from technical factors and try their
hardest to put a positive interpretation on bad news from Asia.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- ---------------------------------------
[Photo of Edward H. Hocknell, Portfolio Manager]
Q. How did the Fund perform during the first half of 1998?
A. For the six months ended June 30, 1998, the Fund returned -18.15%(1),
compared with a return of -19.87% over the same period from the Morgan Stanley
Capital International (MSCI) Emerging Markets Free (EMF) Index.(2) The Fund's
performance was hit by the renewed weakness in the emerging markets following
investors' reappraisal of the depth of the Asian crisis. Asian markets performed
worse, but the others did not escape. One effect of the Asian crisis was to
spread concerns (partially with respect to Latin America) about growth,
commodity prices and the interest rates that other emerging economies would have
to pay in the future. Central European markets were largely unharmed during the
period (Poland's market, for example, rose by over 14%).
Q. What factors affected the performance of the Fund?
A. We remained overweighted in the Latin American and Central European markets
during the period. This strategy hurt us in the first quarter of the year as
Asia enjoyed a short lived recovery, but was beneficial over the period as a
whole.
The outlook for the emerging markets is clouded by the deteriorating
situation in Asia. Years of low interest rates have led to excessive investment
and bad debts, which have severely weakened the financial infrastructure of many
Asian economies. Whatever problems Latin America suffers from, they are not the
result of years of low interest rates and excessive investment. Nevertheless,
emerging market investors have shown once again their tendency to tar all the
emerging markets with the same brush. Geographic diversification has provided
little protection (in the short term at least). There has been no place to hide.
Q. What strategies did you use to manage the Fund and what is your outlook going
forward?
A. The crisis rumbles on in Asia. There will be no quick bailout on the Mexican
model. Some countries have responded well to the challenge - Korea is a good
example - and others, such as China, Taiwan and India, have enough momentum to
maintain their growth, albeit at a lower level than in recent years. These are
the countries where we have maintained an exposure for the Fund in the belief
that, from a longer term perspective, some excellent companies can now be bought
at very low valuations. We are keeping pretty well clear of Indonesia, Thailand
and Malaysia where massive amounts of capital are still required to stabilize
the situation. Our perception is that consensus expectations for Asian growth
and profitability over the next couple of years are only just now beginning to
catch up with reality, having previously been too high, so it is still too early
to become optimistic about equity prices there. We should also like to see
evidence that the Japanese yen has stabilized before becoming more confident
about the region.
The situation in Latin America is quite different. Governments there
reacted sensibly to the Asian crisis; although growth has decelerated as rates
have had to rise, we do not expect the tough monetary disciplines of recent
years to be abandoned. Shares are rea-
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The Morgan Stanley Capital International (MSCI) Emerging Markets Free
Index (EMF) is an unmanaged index that is generally considered to be
representative of the stock market activity of emerging markets. The Index
is a market capitalization weighted index composed of companies
representative of the market structure of 22 emerging market countries in
Europe, Latin America, and the Pacific Basin. The MSCI EMF Index excludes
closed markets and those shares in otherwise free markets which may not be
purchased by foreigners. The MSCI EMF Index is not available for direct
investment and the returns do not reflect the fees and expenses that have
been deducted from the Fund.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
sonably valued on undemanding expectations for earnings growth, and the better
companies have continued to cut costs and consolidate. We think the fears about
continuing reform in Brazil are overdone; the market is now trading at less than
10 times 1998 earnings and has been depressed by extraneous concerns (a possible
currency crisis in Russia, for example). The Fund now has a heavy weighting in
Brazil.
We have recently become more optimistic about Central Europe (Poland,
Hungary and the Czech Republic). Markets there have been quite weak and are
reasonably valued. We expect them to show good earnings growth again this year.
They are all beneficiaries of a stronger recovery than expected in Germany, and
there is now the prospect (however distant) of eventual inclusion in the single
European currency, which will have a beneficial effect on interest rates and
long term inflation expectations.
To sum up: The emerging markets have taken a beating, but the concept is
still intact and good growth prospects can be found there at lower valuations
than elsewhere. We need to see some stability in Asia before becoming really
confident, but the longer term prospects are good.
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund Profile
as of June 30, 1998
- ---------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
for Periods Ended 6/30/98(1)
================================================================================
1 Year .................................. -30.78%
3 Years ................................. 2.22%
Since Inception (10/17/94) .............. -2.52%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[The following table was depicted as a line graph in the printed material.]
Europe 16.8%
South Africa 4.0%
Cash 7.1%
Asia 20.9%
Latin America 51.2%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Holdings
Company Country Nature of Company
1. Petrobras Brazil Energy
2. Telebras ADR Brazil Telecommunications
3. Telesp Brazil Telecommunications
4. CIE Mexico Media & Entertainment
5. Bank Roswoju Eksport Poland Banking
6. Comp. Brasileiras de Dist. Brazil Retail
7. Banco Itau Brazil Banking
8. Elektrim Poland Electricals
9. Richter Gedeon Hungary Pharmaceuticals
10. Bank Handlowy Poland Banking
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ----------------------------------
[Photo of Larry Luxenberg, C.F.A. Portfolio Manager]
Q. Small cap stocks have been ignored in this market, which has favored large
cap stocks. How has the Fund fared during the first half of 1998?
A. This has been a discouraging period for small cap stocks as investors seem to
ignore any good news and cling to anything bad. In spite of this, the actual
returns have not been too bad. In the first half of 1998, the Fund had a return
of 7.56%,(1) compared to 4.93% for the Russell 2000,(2) a leading index of small
cap performance. From July 16, 1997, the date the Fund commenced operations,
through June 30, 1998, the Fund had a return of 23.36%, compared to 13.60% for
the Russell 2000 and 24.24% for the S&P 500.(3)
Q. What were the significant factors that affected the Fund's performance?
A. We continued to overweight financial stocks, which have benefited from the
current benign interest rate environment. Additionally, we added to our holdings
in retailers, homebuilders and business services, which are benefiting from the
extended recovery, high consumer confidence and increasing disposable income.
In this difficult market we also emphasize systematic efforts to weed out
possible sources of trouble early in the process. Companies and industries, once
they begin struggling, tend to face difficulties for a long time. Investors and
analysts are always amazed at how far down a stock can go. While we tend to be
patient long-term investors, sometimes the old Wall Street axiom of "cut your
losses" is a wise one.
Q. What strategies are used to manage the Fund?
A. We look for dynamic companies with sound business models able to exploit
opportunities in our fast-changing economy. Many of our companies are in
businesses that did not exist a decade ago.
Also, we continue to invest in companies whose operations are largely
domestic. Most of our companies do not have much direct exposure to the Asian
economies. Meanwhile, we have been looking for companies in market niches, who
can heavily influence their own fate regardless of external economic forces.
With outsourcing and partnerships so prevalent, small companies with important
breakthroughs are able to grow much faster than in the past.
Q. What is the outlook for small cap stocks?
A. While small cap stocks have trailed the broad market recently, historically
they have outperformed large cap stocks, according to a recent Ibbotson
Sinquefield study.(4) The timing of any switch in performance is uncertain, but
the fundamental outlook continues to improve.
While some small caps have had unexpected earnings difficulties, so too
have some large cap stocks.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The Russel 2000 is
not available for direct investment, and its returns do not reflect the
fees and expenses deducted from the Fund.
(3) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses deducted from the Fund.
4 The study is taken from Stocks, Bonds, Bills & Inflation 1997
Yearbook,(TM) Ibbotson, Chicago (annually updates work by Roger G.
Ibbotson and Rex Sinquefield).
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
But what is harder to explain is why small cap companies that have performed
well and met or exceeded investors expectations still lag the bigger cap stocks.
One reason is that in times of turmoil, investors prefer perceived safety as
opposed to opportunity -- fear triumphs over greed. With the cloud of financial
meltdown and disarray in Asia overhanging our markets, investors have continued
to gravitate to the largest companies. A second reason is the continued
popularity of indexing, much of which is tied to the S&P 500. In the short-run
this becomes a self-fulfilling prophecy in which cash is blindly thrown at the
largest stocks. Thirdly, the U.S. economic recovery, which began during the Gulf
War, is now one of the longest on record. In the early phases, corporate profit
growth was rapid. Companies had downsized during the recession and profitability
soared afterwards.
Now after years of near record margins and profitability, companies are
having difficulty maintaining that growth. Pricing power is confined to small
sectors of the economy, wages are rising and cost cutting opportunities are much
diminished. Productivity, however, has been improving. Normally, late in a bull
market, investors turn to smaller and more speculative issues as performance
gets harder to come by. Lately, much of that sort of attention has been confined
to internet stocks and other technology issues. Investment fads can persist for
long periods. In time, though, these excesses or neglected securities tend to
correct. No doubt in some future report we will be remarking that small caps are
the current "smash hit" among investors.
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund Profile
as of June 30, 1998
- -----------------------------------------
Top 10 Holdings as of 6/30/98
1. AFC Cable Systems, Inc. 3.03%
2. Fidelity National Financial, Inc. 2.60%
3. Ethan Allen Interiors, Inc. 2.38%
4. National RV Holdings, Inc. 1.18%
5. Lone Star Industries, Inc. 1.13%
6. Northwest Pipe Co. 1.09%
7. Hain Food Group, Inc. 1.07%
8. Shopko Stores, Inc. 1.06%
9. Southdown, Inc. 1.00%
10. Harte-Hanks Communications 0.95%
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
Total Return(1)
================================================================================
Since Inception (7/16/97)................................. 22.35%
- --------------------------------------------------------------------------------
Sector Weightings of Common Stocks
[The following table was depicted as a pie chart in the printed material.]
Utilities 0.3%
Credit Cyclicals 4.0%
Consumer Cyclicals 20.7%
Transportation 4.9%
Consumer Services 6.5%
Financial 22.5%
Consumer Staples 7.5%
Basic Industry 4.2%
Energy 5.2%
Capital Goods/Technology 13.6%
Capital Goods 10.6%
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund
- -------------------------------------
Q. How did the Fund perform for the first six months of 1998?
A. For the six months ended June 30, 1998, the Centurion Fund produced a total
return of 15.64%,(1) compared with total returns of 17.68% for the S&P 500(2)
and 14.11% for the Dow Jones Industrial Average.(3)
After a checkered start to the year, amid lingering global concerns about
developments in Southeast Asia, Latin America, and the Middle East, the
combination of Value Line's top-down analysis and bottoms-up stock selection has
fared better as 1998 progressed, resulting in strengthening relative
performance.
Q. What factors affected the performance of the Fund?
A. From a bottom-up standpoint, the Value Line Timeliness Ranking System had an
excellent first half in 1998, with each of its five "ranks" performing exactly
in line. That is, stocks included in the System's Rank 1 category (the highest
rating) outperformed Rank 2's on an overall basis, which outperformed Rank 3's
on an overall basis, etc. From a sector standpoint, our proprietary systems and
models continued to identify those industries that are producing robust earnings
growth, principally technology (with a software, hardware and networking focus);
financial services (with a broad smattering of brokers, banks, insurers, and
consumer finance companies); retailers; and consumer nondurables (with an
emphasis on healthcare).
Q. What strategies did you use to manage the Fund?
A. Our top-down strategy has been consistently focused on our forecast for
decelerating economic growth, benign inflation, neutral monetary policy, lower
interest rates, and a modest increase in corporate profits. All of these factors
suggest a positive bias to the equity markets, with an emphasis on
large-capitalization Blue Chip growth companies within the industry sectors
identified earlier (technology, financials, retailers, healthcare, and
airlines).
Q. What are your expectations for the rest of 1998?
A. Looking forward, we believe that developments in Japan hold the key to the
performance of the U.S. financial markets. In a stunning turn of events, Japan's
Liberal Democratic Party recently suffered a humiliating defeat in parliamentary
elections, as voters expressed their displeasure with the ruling party's
confusion and lack of decision in dealing with the country's worst economic
crisis in more than half a century. Moreover, Prime Minister Hashimoto resigned
in reaction to this vote of no confidence.
For U.S. financial markets, this introduces a significant element of
uncertainty, as we have no idea whether the new Prime Minister's political and
economic agenda will include a sorely needed overhaul of its banking system,
permanent tax cuts, an increase in government spending, and/or lower interest
rates. In fact, if Japan's reform efforts to emerge from recession are
unsuccessful, then the recent coordinated currency intervention to support the
yen/dollar relationship could prove to be short lived.
- --------------------------------------------------------------------------------
(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 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.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
Nevertheless, investors appear satisfied that any political change in
Japan will likely result in positive economic reform, and U.S. financial markets
surged to record highs in the days following the election.
Back in the United States, we do not believe that the upwardly revised
5.5% level of Gross Domestic Product (GDP) growth reported is sustainable for
the following reasons: the weakness in end-market demand for U.S. goods from
troubled Southeast Asian countries, the strong dollar (which makes our exports
more expensive), the planned reduction of the U.S. inventory overhang, and the
contentious General Motors labor strike. All in, we are forecasting a
deceleration in GDP growth throughout the balance of 1998.
We continue to believe that inflation will remain muted, with consumer and
wholesale levels estimated at 2.0% or less during 1998. Although the U.S. job
market has been very tight, there is very little pricing power for U.S.
companies in the midst of a competitive global marketplace. As a result,
companies do not appear to have the ability to fully pass along the cost of
their employees' higher wages to their customers in the form of higher prices,
for fear of losing market share. This developing trend should continue to
pressure margins and corporate profits, and we are forecasting only moderate
earnings growth of about 6% in 1999.
It remains our long-held belief that Fed Chairman Alan Greenspan does not
wish to potentially exacerbate a global currency or economic crisis by raising
interest rates, so we expect a neutral U.S. monetary policy indefinitely.
After surging to record highs earlier this summer, the Dow Jones
Industrial Average has corrected, reflecting investor concern about the Asian
impact on second quarter 1998 earnings. We believe that this consolidation could
serve as an attractive longer-term buy point, once we get through the release of
earnings. More strength in the market could be expected through Labor Day in a
late summer rally, before the market potentially succumbs to seasonal third
quarter 1998 earnings concerns during September and October.
- --------------------------------------------------------------------------------
Value Line Centurion Fund Profile
as of June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
for Periods Ended 6/30/98(1)
================================================================================
1 Year ................................. 27.71%
5 Years ................................ 18.24%
10 Years ............................... 18.12%
Since Inception (11/15/83) ............. 14.75%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- --------------------------------------------
Q. How did the SAM Trust perform in the first half of 1998?
A. The Trust earned a total return of 15.36% in the six-month period ended June
30, 1998, nearly equaling its full-year return for 1997.(1) This compared with a
total return of 17.68% for the unmanaged Standard & Poor's 500 Index(2) and a
total return of 4.17%% for the unmanaged Lehman Government/Corporate Bond
Index(3) in the first half of 1998.
For these six months, the Trust ranked 11 out of 342 funds in the flexible
variable annuity category (separate accounts), according to Lipper Analytical
Services.4 For the 12-month period through June 30, the Trust ranked 4 out of
320 funds in its category; for five years, it ranked 24 out of 112 funds; for
ten years, 1 out of 35 funds.
Q. What factors affected performance of the Trust in the six-month period?
A. One key plus was the Trust's increased allocation to stocks. Through most of
1997, only about 45% of the Trust's assets were in stocks, with the remainder in
bonds and cash. In the final two months of 1997 and the first quarter of 1998,
we gradually moved the stock allocation up to about 75%. Given the strong market
in this year's first half, this proved to be the right move.
Another plus was good stock selection. The Trust's stock portfolio
outperformed the S&P 500, in spite of the marked relative weakness of the stock
market's smaller-company stocks (those with market capitalizations of under $5
billion), which make up nearly half of the Trust's stockholdings.
Q. Why did you increase the Trust's investment in stocks?
A. To determine asset allocation among the three asset classes (stocks, bonds,
cash), we use Value Line's proprietary stock and bond models. Our models
incorporate a number of different financial and economic variables; from these
are generated forecasts of the total returns from stocks and bonds in the coming
six months. Last October, the stock market fell in the wake of the economic
crisis in Asia. The cheaper stock prices, combined with falling interest rates,
turned our model more favorably toward the stock market. In the months ahead,
unless we see a large change in stock prices or interest rates, we expect the
Trust's allocation to remain at about 75% stocks, 15%-20% bonds, and 5%-10%
cash. This compares to the Trust's prescribed central tendency of 55% stocks,
35% bonds, and 10% cash.
Q. What strategies were used in stock and bond selection?
A. For stock selection, we stay with stocks that are showing strong earnings
momentum and strong price momentum, relying largely on the proprietary Value
Line stock ranking systems. We maintain a very diversified portfolio of over 200
stocks in many different industries, which aids in reducing risk. For bond
selection, we stay with high-quality issues. This year, we have continued our
program of swapping out of some U.S. Treasuries and into U.S. agencies and
high-rated corporate bonds, where relative yields have become more attractive.
- --------------------------------------------------------------------------------
(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 deducted from the Fund.
(3) The Lehman Government/Corporate Bond Index is an unmanaged index that is
generally considered to be representative of U.S. government and corporate
bond market activity. The Lehman Government/Corporate Bond Index is not
available for direct investment and the returns do not reflect the fees
and expenses that have been deducted from the Fund.
(4) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service 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.
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
Profile as of June 30, 1998
- -------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Stock Holdings
1. General Electric Co.
2. Pfizer Inc.
3. Tyco International Ltd.
4. Omnicom Group Inc.
5. Safeway Inc.
6. WalMart Stores Inc.
7. Kohls Corp.
8. Compuware Corp.
9. Symbol Technologies, Inc.
10. Zions Bancorporation
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
Average Annual Returns
for Periods Ended 6/30/98(1)
================================================================================
1 Year ................................. 24.66%
5 Years ................................ 14.83%
10 Years ............................... 16.08%
Since Inception (10/1/87) .............. 15.18%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[The following table was depicted as a pie chart in the printed material.]
Portfolio Composition by Asset Class
December 31, 1997 June 30, 1998
----------------- -------------
Cash 15.7% 3.7%
Bonds 27.4% 17.6%
Stocks 56.9% 78.7%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
MFS Growth with Income Series
- ---------------------------------
[Photo of John D. Laupheimer, Jr. Co-Portfolio Manager]
[Photo of Kevin R. Parke Co-Portfolio Manager]
Q. For the six months ended June 30, 1998, how did the Series perform?
A. For the six months ended June 30, 1998, the Series provided a total return of
16.12% (including the reinvestment of any distributions).(1) This compares to a
17.71% return for the Standard & Poor's 500 Composite Index (the S&P 500) for
the same period. The S&P 500 is a popular, unmanaged index of common stock total
return performance. It is not possible to invest directly in an index.(2)
Q. What factors affected the Series' performance and what strategies did you use
to manage the Series during this period?
A. We feel the strength of this portfolio's overall performance is the result of
our adherence to a strong investment discipline. We invest in
large-capitalization, high-quality companies, seek growth at a reasonable price,
strive for a dividend yield that is 90% of that of the S&P 500, seek to keep
volatility lower than that of the S&P 500, and try to stay fully invested. As
important, MFS(R) Original Research(SM), our process of selecting stocks through
in-depth fundamental analysis of companies' earnings outlooks, managements,
business models, competitive strategies, market positions, and growth prospects,
sets us apart and has been a clear factor in our success.
In the financial services sector, we're featuring investments in insurance
companies based on funda mental strengths and as a means of leveraging the
growing trend toward consolidation in this industry. Consolidation should allow
companies to function more efficiently and produce cleaner, more profitable
balance sheets, which positively impact share prices. Because consolidation in
the insurance industry is a newer phenomenon than it is in the banking business,
we are focusing less on banking and brokerage stocks. Some key holdings for the
sector include Hartford Financial Services, Chubb, and Allstate.
Air Products, an industrial gas company, is a new stock in the portfolio's
top 10 that exemplifies the type of company we seek out. It locates its plants
at customer sites, and customers contract to take a certain amount of product or
to pay the difference for what they don't use. Any excess product that the plant
can make is sold to other customers, which helps keep plants running more
profitably. Also, the company has modified its management compensation plan to
focus on earnings growth. As a result, Air Products is more rigorously examining
its corporate investments, which has helped earnings growth more easily reach
the bottom line. The company has potential earnings growth in the mid teens, and
its stock sells for a reasonable price given its earnings prospects, so we get
growth at a good price.
One of the household names in the portfolio, and a long-term holding, is
Gillette. Its much-touted new razor product is an excellent example of the
strength of the company's business model. Unlike companies that rely on gaining
new customers or increasing
- --------------------------------------------------------------------------------
(1) All results are historical and, therefore, are not an indication of future
results. The investment return and principal value of an investment in the
product will vary with changes in market conditions, and shares, when
redeemed, may be worth more or less than the original cost. Returns shown
do not reflect the deduction of the mortality and expense risk charges and
administration fees. Please refer to the annuity product's annual report
for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts. All results reflect any
applicable expense subsidies and waivers, without which the performance
results would have been less favorable. Subsidies and waivers may be
rescinded at any time.
(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 expenses deducted from the Fund.
- --------------------------------------------------------------------------------
26
<PAGE>
consumption among existing customers, Gillette has built a successful business
by constantly improving its products and convincing customers to pay more for
them.
Consolidation is a theme that has been prominent in many industries
recently. Among mergers that have had an impact on this portfolio is the one
between American Home Products (AHP) and Monsanto. This is a very strategic
merger for both companies. American Home Products, one of the world's largest
pharmaceutical and health care companies, produces products such as Advil and
Robitussin. Monsanto, in addition to producing well-known products like
NutraSweet and Round-Up, has cutting-edge agricultural products that should
thrive under AHP's management and strong financial discipline. We are optimistic
about the new company's growth prospects.
While the portfolio is allowed to invest up to 35% of assets in
international stocks, we'll probably never reach that level. Currently, we're
only about 8% invested in non-U.S. dollar stocks and feel that 10% to 15% is a
reasonable maximum. Investing in foreign and emerging market securities involves
special risks. These risks may increase share price volatility. Please see a
prospectus for details. We only invest overseas if we find a company with
quality and growth potential equivalent to those of a U.S. company and whose
stock is selling at a discount sufficient to compensate for currency risk. As a
result of this investment strategy, the portfolio doesn't have much exposure to
economies in Asia such as Malaysia, Indonesia, and Singapore. Japan is a
consumer economy, and some of our holdings have a presence there.
However, U.S. companies have had a hard time selling products in Japan
because of that country's trade barriers. This has provided some protection
that, combined with the strength of the European and American economies, has
limited the impact of Asian turmoil on stocks in the portfolio.
- --------------------------------------------------------------------------------
Average Annual Returns
for Periods Ended 6/30/98(1)
================================================================================
1 Year .................................. 27.77%
Since Inception (10/9/95) ............... 28.96%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund
- --------------------------------
[Photo of Alexander M. Grant, Jr. Portfolio Manager]
Q. How did the Fund perform during the first half of 1998?
A. As of June 26, 1998, the effective 7-day annualized yield for the Fund was
5.06%.(1) The Fund produced an annualized total return of 5.07%(2) in the first
half of 1998. In contrast, the effective 7-day annualized yield of Tier One
money market funds, as measured by IBC Financial Data, was 4.91% on June 26,
1998. These funds had a six-month total return of 4.95% for the period ended
June 30, 1998. IBC Financial Data is a research firm that tracks money market
funds.
Q. What was your investment strategy during the year?
A. The Guardian Cash Fund is a place for our investors to put their money while
they determine their preferred long term investment vehicle, be it stocks or
bonds. Also, some of our investors prefer the relative stability of the money
markets. To best accommodate all our investors, we will continue to try to
provide a strong 7-day yield, while offering safety and liquidity. Our
investment strategy was to create a diversified portfolio of money market
instruments that presents minimal credit risks according to our criteria. As
always, we only purchased securities from issuers that had received ratings in
the two highest credit quality categories established by nationally recognized
statistical ratings organizations like Moody's Investors Service, Inc., and
Standard & Poor's Corporation for the Fund's portfolio. At month-end June 1998,
most of the portfolio (94.4%) was invested in commercial paper; the balance
(5.6%) was invested in repurchase agreements.
Q. What factors affected the Fund's performance?
A. Money market funds are directly affected by the actions of the Federal
Reserve Board. The Federal Reserve last changed the Fed Funds target from 5.25%
to 5.50% on March 25,1997. The Discount Rate was left unchanged at 5.00%. This
move followed several months of strong economic data, particularly with respect
to housing data, consumer consumption and payroll data, but has since held
steady in the absence of consistent inflation indicators. The Fed Funds target
is the rate at which banks can borrow from each other overnight. While the
Federal Reserve Board does not set this rate, it can establish a target rate
and, through open market operations, the Fed can move member banks in the
direction of that target rate. The Discount Rate is the rate at which banks can
borrow directly from the Federal Reserve. Uncertainty with the direction of the
stock market contributed to large daily inflows and outflows of funds in the
Cash Fund. As the stock market rallied, our investors transferred cash to equity
funds. During those times when the stock market stalled, we saw cash inflows.
Another factor affecting performance was the portfolio's average maturity -- 29
days as of June 30, 1998. The average Tier One money market fund as measured by
IBC Financial Data had an average maturity of 52 days.
- --------------------------------------------------------------------------------
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. WHILE THE FUND SEEKS TO MAINTAIN A STABLE PRICE OF $10.00 PER SHARE,
THERE IS NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Yields are annualized historical figures. Effective yield assumes that
income is reinvested. Yields will vary as interest rates change. Past
performance is not a guarantee of future results.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
29
<PAGE>
- ---------
Separate
Account A
- ---------
1
- ---------
- --------------------------------------------------------------------------------
The Guardian Separate Account A
- ------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIFO Cost .............................................. -- $ 402,396,287 $ 70,062,492 $ 99,399,177
==================================================================
Assets:
Shares owned in underlying fund -- Note 1 ........... -- 11,756,655 5,887,981 9,939,918
Net asset value per share (NAV) ..................... -- 50.62 12.28 10.00
Total Assets (Shares x NAV) ....................... $1,199,595,719 595,121,870 72,304,405 99,399,177
-------------- -------------- -------------- --------------
Liabilities:
Risk charges and other liabilities .................. 11,276,611 364,860 33,428 10,552,662
-------------- -------------- -------------- --------------
Net Assets -- Note 3 .............................. $1,188,319,108 $ 594,757,010 $ 72,270,977 $ 88,846,515
============== ============== ============== ==============
<CAPTION>
Baillie
Gabelli Baillie Gifford Guardian
Capital Gifford Emerging Small
Asset International Markets Cap Stock
Fund Fund Fund Fund
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIFO Cost .............................................. $ 10,894,148 $ 28,911,125 $ 4,865,322 $ 8,871,441
====================================================================
Assets:
Shares owned in underlying fund -- Note 1 ........... 677,484 1,612,533 422,772 615,354
Net asset value per share (NAV) ..................... 17.40 21.57 8.26 14.55
Total Assets (Shares x NAV) ....................... 11,788,223 34,782,335 3,492,099 8,953.398
-------------- -------------- -------------- --------------
Liabilities:
Risk charges and other liabilities .................. 15,786 21,099 13,326 9,940
-------------- -------------- -------------- --------------
Net Assets -- Note 3 .............................. $ 11,772,437 $ 34,761,236 $ 3,478,773 $ 8,943,458
============== ============== ============== ==============
<CAPTION>
Value Line
Strategic
Value Line Asset MFS Growth
Centurion Management With Income
Fund Trust Series
--------------------------------------------------
<S> <C> <C> <C>
FIFO Cost .............................................. $ 145,873,909 $ 95,090,407 $ 3,967,814
==================================================
Assets:
Shares owned in underlying fund -- Note 1 ........... 7,382,477 5,942,007 219,899
Net asset value per share (NAV) ..................... 29.51 25.53 19.09
Total Assets (Shares x NAV) ....................... 217,856,893 151,699,438 4,197,881
-------------- -------------- --------------
Liabilities:
Risk charges and other liabilities .................. 147,838 105,233 12,439
-------------- -------------- --------------
Net Assets -- Note 3 .............................. $ 217,709,055 $ 151,594,205 $ 4,185,442
============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account A
- ------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1998 (Unaudited)
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends .............................. $ 6,963,068 $ 2,541,526 $ 1,781,849 $ 2,480,504
Expenses -- Note 4:
Mortality and expense risk charges ................ 6,200,833 2,946,498 358,460 711,907
-------------- -------------- -------------- --------------
Net investment income/(expense) ...................... 762,235 (404,972) 1,423,389 1,768,597
-------------- -------------- -------------- --------------
Realized and Unrealized Gain/(Loss)
from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments . 65,112,544 37,869,884 423,630 --
Reinvested realized gain distributions ............ 15,857,819 15,594,738 -- --
-------------- -------------- -------------- --------------
Net realized gain/(loss) on investments ........... 80,970,363 53,464,622 423,630 --
-------------- -------------- -------------- --------------
Unrealized appreciation/(depreciation) of investments:
End of period ..................................... 329,263,597 192,725,583 2,241,913 --
Beginning of period ............................... 278,770,663 174,862,215 1,600,425 --
-------------- -------------- -------------- --------------
Change in unrealized appreciation/(depreciation) .. 50,492,934 17,863,368 641,488 --
-------------- -------------- -------------- --------------
Net realized and unrealized gain/(loss) from
investments ....................................... 131,463,297 71,327,990 1,065,118 --
-------------- -------------- -------------- --------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations ...................................... $ 132,225,532 $ 70,923,018 $ 2,488,507 $ 1,768,597
============== ============== ============== ==============
<CAPTION>
Baillie
Gabelli Baillie Gifford Guardian
Capital Gifford Emerging Small
Asset International Markets Cap Stock
Fund Fund Fund Fund
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends .............................. $ -- $ 128,567 $ 26,708 $ 3,914
Expenses -- Note 4:
Mortality and expense risk charges ................ 54,905 175,036 22,786 45,166
-------------- -------------- -------------- --------------
Net investment income/(expense) ...................... (54,905) (46,469) 3,922 (41,252)
-------------- -------------- -------------- --------------
Realized and Unrealized Gain/(Loss)
from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments . 462,294 2,507,590 (418,532) 443,401
Reinvested realized gain distributions ............ -- 200,153 -- 62,928
-------------- -------------- -------------- --------------
Net realized gain/(loss) on investments ........... 462,294 2,707,743 (418,532) 506,329
-------------- -------------- -------------- --------------
Unrealized appreciation/(depreciation) of investments:
End of period ..................................... 894,075 5,871,210 (1,373,223) 81,957
Beginning of period ............................... 122,712 3,010,429 (951,467) 65,474
-------------- -------------- -------------- --------------
Change in unrealized appreciation/(depreciation) .. 771,363 2,860,781 (421,756) 16,483
-------------- -------------- -------------- --------------
Net realized and unrealized gain/(loss) from
investments ....................................... 1,233,657 5,568,524 (840,288) 522,812
-------------- -------------- -------------- --------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations ...................................... $ 1,178,752 $ 5,522,055 $ (836,366) $ 481,560
============== ============== ============== ==============
<CAPTION>
Value Line
Strategic
Value Line Asset MFS Growth
Centurion Management With Income
Fund Trust Series
--------------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends .............................. $ -- $ -- $ --
Expenses -- Note 4:
Mortality and expense risk charges ................ 1,109,294 765,417 11,364
-------------- -------------- --------------
Net investment income/(expense) ...................... (1,109,294) (765,417) (11,364)
-------------- -------------- --------------
Realized and Unrealized Gain/(Loss)
from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments . 15,817,561 7,948,634 58,082
Reinvested realized gain distributions ............ -- -- --
-------------- -------------- --------------
Net realized gain/(loss) on investments ........... 15,817,561 7,948,634 58,082
-------------- -------------- --------------
Unrealized appreciation/(depreciation) of investments:
End of period ..................................... 71,982,984 56,609,031 230,067
Beginning of period ............................... 56,698,127 43,356,343 6,405
-------------- -------------- --------------
Change in unrealized appreciation/(depreciation) .. 15,284,857 13,252,688 223,662
-------------- -------------- --------------
Net realized and unrealized gain/(loss) from
investments .......................................... 31,102,418 21,201,322 281,744
-------------- -------------- --------------
--------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations ...................................... $ 29,993,124 $ 20,435,905 $ 270,380
============== ============== ==============
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
30 & 31
<PAGE>
- ---------
Separate
Account A
- ---------
1
- ---------
- --------------------------------------------------------------------------------
The Guardian Separate Account A
- ----------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1997 (Audited) and
Six Months Ended June 30, 1998
Guardian Guardian Guardian
Stock Bond Cash
Combined Fund Fund Fund
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------
1997 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) .................. $ 9,089,068 $ 605,354 $ 3,877,137 $ 4,085,586
Net realized gain/(loss) from sale of investments 93,323,696 47,887,247 202,097 --
Reinvested realized gain distributions ........... 112,230,160 61,424,847 -- --
Change in unrealized appreciation/(depreciation)
of investments ................................. 4,338,935 38,412,340 1,635,658 --
--------------- --------------- --------------- ---------------
Net increase/(decrease) resulting from operations 218,981,859 148,329,788 5,714,892 4,085,586
--------------- --------------- --------------- ---------------
- --------------------------
1997 Contract Transactions
- --------------------------
Net contract purchase payments ................... 24,107,494 10,374,116 1,586,753 3,527,527
Transfer between/within separate accounts ........ 2,416,257 13,431,260 (1,184,645) (4,371,355)
Administrative charges -- Note 4 ................. (707,936) (275,799) (53,203) (70,872)
Redemptions and annuity benefits ................. (130,860,387) (55,936,460) (12,295,923) (21,850,781)
Transfers -- other ............................... 7,777 5,536 1,051 211
--------------- --------------- --------------- ---------------
Net increase/(decrease) from contract transactions (105,036,795) (32,401,347) (11,945,967) (22,765,270)
--------------- --------------- --------------- ---------------
Actuarial Increase in Reserves for Contracts in
Payment Period .................................. 147,554 51,954 26,295 9,876
--------------- --------------- --------------- ---------------
Total Increase/(Decrease) in Net Assets ............ 114,092,618 115,980,395 (6,204,780) (18,669,808)
Net Assets at December 31, 1996 .................. 1,019,143,565 453,310,147 80,383,567 105,060,746
--------------- --------------- --------------- ---------------
Net Assets at December 31, 1997 .................. $ 1,133,236,183 $ 569,290,542 $ 74,178,787 $ 86,390,938
=============== =============== =============== ===============
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) .................. $ 762,235 $ (404,972) $ 1,423,389 $ 1,768,597
Net realized gain/(loss) from sale of investments 65,112,544 37,869,884 423,630 --
Reinvested realized gain distributions ........... 15,857,819 15,594,738 -- --
Change in unrealized appreciation/(depreciation)
of investments ................................. 50,492,934 17,863,368 641,488 --
--------------- --------------- --------------- ---------------
Net increase/(decrease) resulting from operations 132,225,532 70,923,018 2,488,507 1,768,597
--------------- --------------- --------------- ---------------
- --------------------------
1998 Contract Transactions
- --------------------------
Net contract purchase payments ................... 8,592,427 4,010,814 606,373 686,478
Transfer between/within separate accounts ........ -- (12,702,191) 668,895 17,385,755
Administrative charges -- Note 4 ................. (387,030) (170,436) (25,722) (34,842)
Redemptions and annuity benefits ................. (85,338,382) (36,566,896) (5,655,750) (17,363,363)
Transfers -- other ............................... 19,387 15,605 (216) (305)
--------------- --------------- --------------- ---------------
Net increase/(decrease) from contract transactions (77,113,598) (45,413,104) (4,406,420) 673,723
--------------- --------------- --------------- ---------------
Actuarial Increase in Reserves for Contracts in
Payment Period ................................... (29,009) (43,446) 10,103 13,257
--------------- --------------- --------------- ---------------
Total Increase/(Decrease) in Net Assets ............ 55,082,925 25,466,468 (1,907,810) 2,455,577
Net Assets at December 31, 1997 .................. 1,133,236,183 569,290,542 74,178,787 86,390,938
--------------- --------------- --------------- ---------------
Net Assets at June 30, 1998 ...................... $ 1,188,319,108 $ 594,757,010 $ 72,270,977 $ 88,846,515
=============== =============== =============== ===============
<CAPTION>
Baillie
Gabelli Baillie Gifford Guardian
Capital Gifford Emerging Small
Asset International Markets Cap Stock
Fund Fund Fund Fund
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------
1997 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) .................. $ (35,128) $ 157,705 $ (40,469) $ (10,081)
Net realized gain/(loss) from sale of investments 720,243 2,902,243 1,073,259 222,969
Reinvested realized gain distributions ........... 449,809 1,194,480 304,105 93,923
Change in unrealized appreciation/(depreciation)
of investments ................................. 118,931 (881,238) (1,319,637) 65,474
--------------- --------------- --------------- ---------------
Net increase/(decrease) resulting from operations 1,253,855 3,373,190 17,258 372,285
--------------- --------------- --------------- ---------------
- --------------------------
1997 Contract Transactions
- --------------------------
Net contract purchase payments ................... 184,369 830,875 271,541 286,829
Transfer between/within separate accounts ........ 2,637,909 (3,007,920) 669,543 7,175,793
Administrative charges -- Note 4 ................. (2,124) (17,348) (4,517) (829)
Redemptions and annuity benefits ................. (276,543) (4,059,503) (558,217) (97,791)
Transfers -- other ............................... (96) (2,390) 2,273 694
--------------- --------------- --------------- ---------------
Net increase/(decrease) from contract transactions 2,543,515 (6,256,286) 380,623 7,364,696
--------------- --------------- --------------- ---------------
Actuarial Increase in Reserves for Contracts in
Payment Period .................................. -- 4,082 1 --
--------------- --------------- --------------- ---------------
Total Increase/(Decrease) in Net Assets ............ 3,797,370 (2,879,014) 397,882 7,736,981
Net Assets at December 31, 1996 .................. 2,755,428 33,607,088 5,848,197 --
--------------- --------------- --------------- ---------------
Net Assets at December 31, 1997 .................. $ 6,552,798 $ 30,728,074 $ 6,246,079 $ 7,736,981
=============== =============== =============== ===============
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) .................. $ (54,905) $ (46,469) $ 3,922 $ (41,252)
Net realized gain/(loss) from sale of investments 462,294 2,507,590 (418,532) 443,401
Reinvested realized gain distributions ........... -- 200,153 -- 62,928
Change in unrealized appreciation/(depreciation)
of investments ................................. 771,363 2,860,781 (421,756) 16,483
--------------- --------------- --------------- ---------------
Net increase/(decrease) resulting from operations 1,178,752 5,522,055 (836,366) 481,560
--------------- --------------- --------------- ---------------
- --------------------------
1998 Contract Transactions
- --------------------------
Net contract purchase payments ................... 195,781 267,073 40,975 169,800
Transfer between/within separate accounts ........ 4,167,545 544,567 (1,691,516) 694,580
Administrative charges -- Note 4 ................. (2,609) (9,426) (1,838) (1,650)
Redemptions and annuity benefits ................. (323,771) (2,291,789) (279,080) (137,906)
Transfers -- other ............................... 3,941 (1,403) 519 93
--------------- --------------- --------------- ---------------
Net increase/(decrease) from contract transactions 4,040,887 (1,490,978) (1,930,940) 724,917
--------------- --------------- --------------- ---------------
Actuarial Increase in Reserves for Contracts in
Payment Period ................................... -- 2,085 -- --
--------------- --------------- --------------- ---------------
Total Increase/(Decrease) in Net Assets ............ 5,219,639 4,033,162 (2,767,306) 1,206,477
Net Assets at December 31, 1997 .................. 6,552,798 30,728,074 6,246,079 7,736,981
--------------- --------------- --------------- ---------------
Net Assets at June 30, 1998 ...................... $ 11,772,437 $ 34,761,236 $ 3,478,773 $ 8,943,458
=============== =============== =============== ===============
<CAPTION>
Value Line
Strategic
Value Line Asset MFS Growth
Centurion Management With Income
Fund Trust Series
-----------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------
1997 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) .................. $ (1,427,833) $ 1,874,877 $ 1,920
Net realized gain/(loss) from sale of investments 27,333,854 12,980,580 1,204
Reinvested realized gain distributions ........... 33,645,989 15,102,492 14,515
Change in unrealized appreciation/(depreciation)
of investments ................................. (22,943,368) (10,755,630) 6,405
--------------- --------------- ---------------
Net increase/(decrease) resulting from operations 36,608,642 19,202,319 24,044
--------------- --------------- ---------------
- --------------------------
1997 Contract Transactions
- --------------------------
Net contract purchase payments ................... 3,481,121 3,549,084 15,279
Transfer between/within separate accounts ........ (10,003,032) (3,676,985) 745,689
Administrative charges -- Note 4 ................. (199,512) (83,697) (35)
Redemptions and annuity benefits ................. (20,551,346) (15,214,920) (18,903)
Transfers -- other ............................... (123) 442 179
--------------- --------------- ---------------
Net increase/(decrease) from contract transactions (27,272,892) (15,426,076) 742,209
--------------- --------------- ---------------
Actuarial Increase in Reserves for Contracts in
Payment Period .................................. 43,842 11,491 13
--------------- --------------- ---------------
Total Increase/(Decrease) in Net Assets ............ 9,379,592 3,787,734 766,266
Net Assets at December 31, 1996 .................. 199,305,680 138,872,712 --
--------------- --------------- ---------------
Net Assets at December 31, 1997 .................. $ 208,685,272 $ 142,660,446 $ 766,266
=============== =============== ===============
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) .................. $ (1,109,294) $ (765,417) $ (11,364)
Net realized gain/(loss) from sale of investments 15,817,561 7,948,634 58,082
Reinvested realized gain distributions ........... -- -- --
Change in unrealized appreciation/(depreciation)
of investments ................................. 15,284,857 13,252,688 223,662
--------------- --------------- ---------------
Net increase/(decrease) resulting from operations 29,993,124 20,435,905 270,380
--------------- --------------- ---------------
- --------------------------
1998 Contract Transactions
- --------------------------
Net contract purchase payments ................... 1,198,698 1,326,439 89,996
Transfer between/within separate accounts ........ (8,385,059) (3,806,123) 3,123,547
Administrative charges -- Note 4 ................. (92,798) (47,238) (471)
Redemptions and annuity benefits ................. (13,682,473) (8,973,583) (63,771)
Transfers -- other ............................... (965) 2,718 (600)
--------------- --------------- ---------------
Net increase/(decrease) from contract transactions (20,962,597) (11,497,787) 3,148,701
--------------- --------------- ---------------
Actuarial Increase in Reserves for Contracts in
Payment Period ................................... (6,744) (4,359) 95
--------------- --------------- ---------------
Total Increase/(Decrease) in Net Assets ............ 9,023,783 8,933,759 3,419,176
Net Assets at December 31, 1997 .................. 208,685,272 142,660,446 766,266
--------------- --------------- ---------------
Net Assets at June 30, 1998 ...................... $ 217,709,055 $ 151,594,205 $ 4,185,442
=============== =============== ===============
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
32 & 33
<PAGE>
- ---------
Separate
Account A
- ---------
1
- ---------
- --------------------------------------------------------------------------------
The Guardian Separate Account A
- ----------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- ----------------------
Note 1 -- Organization
- ----------------------
The Guardian Separate Account A (the Account), a unit investment trust
registered under the Investment Company Act of 1940, as amended, was established
by The Guardian Insurance & Annuity Company, Inc. (GIAC) on October 31, 1981.
GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of
America (Guardian Life). GIAC issues the deferred variable annuity contracts
offered through the Account. GIAC provides for accumulations and benefits under
the contracts by crediting the net contract purchase payments to one or more
investment divisions established within the Account or to the Fixed Rate Option
(FRO), as selected by the contractowner. Amounts allocated to the FRO are
maintained by GIAC in its general account. On May 1 and June 1, 1997, GIAC
created two new investment divisions within the Account, the MFSGrowth With
Income Series and The Guardian Small Cap Stock Fund. The contractowner may
transfer his or her contract value among the ten investment divisions within the
Account or the FRO. However, a contractowner may only invest in up to six
investment divisions, including the FRO. The ten 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), The Guardian Small Cap Stock Fund (GSCF), Value Line
Centurion Fund, Inc., Value Line Strategic Asset Management Trust and MFSGrowth
With Income Series (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. Beginning in
1997, contractowners who qualify may also purchase an optional Enhanced Death
Benefit Rider which may provide greater death benefits than the proceeds payable
under the basic contract.
GSF, GBF, GCF and GSCF 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
- --------------------------------------------------------------------------------
34
<PAGE>
---------
Separate
Account A
---------
1
---------
- --------------------------------------------------------------------------------
the trade date and income is recorded on the ex-dividend date.
(d) The cost of investments sold is determined on a first in, first out
(FIFO) basis.
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal income taxes are payable by GIAC with
respect to the operations of the Account.
Purchases and Sales
During the six months ended June 30, 1998 and the year ended December 31,
1997, purchases and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
The Guardian Separate Account A Purchases Purchases Sales Sales
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. ....... $ 34,740,142 $112,853,486 $ 65,566,982 $ 84,330,505
The Guardian Bond Fund, Inc. ........ 7,374,167 12,308,410 10,418,739 20,434,712
The Guardian Cash Fund, Inc. ........ 41,269,148 65,275,320 38,274,920 82,620,099
Gabelli Capital Asset Fund .......... 7,208,848 7,515,637 3,237,961 4,564,281
Baillie Gifford International Fund .. 7,738,663 8,730,393 9,120,921 13,610,316
Baillie Gifford Emerging Markets Fund 774,092 8,194,196 2,708,322 7,539,126
The Guardian Small Cap Stock Fund ... 5,561,223 9,469,995 4,829,464 1,996,684
Value Line Centurion Fund, Inc. ..... 1,865,841 45,798,590 24,118,438 40,843,115
Value Line Strategic Asset
Management Trust .................. 1,729,483 25,125,559 14,147,271 23,516,968
MFS Growth With Income Series ....... 3,622,898 819,987 474,198 60,160
------------ ------------ ------------ ------------
Total ........................... $111,884,505 $296,091,573 $172,897,216 $279,515,966
============ ============ ============ ============
</TABLE>
- -----------------------------------
Note 3 -- Net Assets, June 30, 1998
- -----------------------------------
<TABLE>
<CAPTION>
Accumulation Total
Units Owned Unit Value Unit Value
----------- ---------- ----------
<S> <C> <C> <C>
REGULAR CONTRACT
Tax-Qualified Accounts:
The Guardian Stock Fund, Inc. ............ 2,858,519.461 $110.259925 $315,180,141
The Guardian Bond Fund, Inc. ............. 996,312.896 33.411049 33,287,859
The Guardian Cash Fund, Inc. ............. 1,269,590.414 24.489868 31,092,102
Gabelli Capital Asset Fund ............... 243,196.288 18.893074 4,594,725
Baillie Gifford International Fund ....... 712,732.625 21.266022 15,156,988
Baillie Gifford Emerging Markets Fund .... 179,875.462 8.772533 1,577,963
The Guardian Small Cap Stock Fund ........ 397,396.376 12.119905 4,816,406
Value Line Centurion Fund, Inc. .......... 1,762,817.012 64.895604 114,399,075
Value Line Strategic Asset Management
Trust .................................. 2,224,111.663 41.099882 91,410,727
MFS Growth With Income Series ............ 138,578.084 12.021030 1,665,851
</TABLE>
- --------------------------------------------------------------------------------
35
<PAGE>
- ---------
Separate
Account A
- ---------
1
- ---------
- --------------------------------------------------------------------------------
The Guardian Separate Account A
- ----------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Accumulation Total
Units Owned Unit Value Unit Value
----------- ---------- ----------
<S> <C> <C> <C>
Non-Tax-Qualified Accounts:
The Guardian Stock Fund, Inc. ............. 2,260,621.720 $ 110.259925 $ 249,255,981
The Guardian Bond Fund, Inc. .............. 1,052,294.308 33.411049 35,158,257
The Guardian Cash Fund, Inc. .............. 2,191,973.115 24.489868 53,681,132
Gabelli Capital Asset Fund ................ 337,909.765 18.893074 6,384,154
Baillie Gifford International Fund ........ 842,118.896 21.266022 17,908,519
Baillie Gifford Emerging Markets Fund ..... 206,885.130 8.772533 1,814,907
The Guardian Small Cap Stock Fund ......... 300,088.352 12.119905 3,637,042
Value Line Centurion Fund, Inc. ........... 1,447,275.066 64.895604 93,921,790
Value Line Strategic Asset Management Trust 1,352,490.396 41.099882 55,587,196
MFS Growth With Income Series ............. 196,625.517 12.021030 2,363,641
ENHANCED DEATH BENEFIT RIDER
Tax-Qualified Accounts:
The Guardian Stock Fund, Inc. ............. 536,703.497 11.901338 6,387,490
The Guardian Bond Fund, Inc. .............. 30,062.792 10.446531 314,052
The Guardian Cash Fund, Inc. .............. 126,023.073 10.242664 1,290,812
Gabelli Capital Asset Fund ................ 23,753.872 12.016959 285,449
Baillie Gifford International Fund ........ 26,519.957 12.506145 331,662
Baillie Gifford Emerging Markets Fund ..... 1,472.757 8.861338 13,051
The Guardian Small Cap Stock Fund ......... 24,054.497 10.842937 260,821
Value Line Centurion Fund, Inc. ........... 168,221.368 11.732266 1,973,618
Value Line Strategic Asset Management Trust 129,608.827 11.762245 1,524,491
MFS Growth With Income Series ............. 7,238.862 12.296286 89,011
Non-Tax-Qualified Accounts:
The Guardian Stock Fund, Inc. ............. 593,572.161 11.901338 7,064,303
The Guardian Bond Fund, Inc. .............. 114,153.808 10.446531 1,192,511
The Guardian Cash Fund, Inc. .............. 153,295.321 10.242664 1,570,152
Gabelli Capital Asset Fund ................ 42,282.569 12.016959 508,108
Baillie Gifford International Fund ........ 75,920.426 12.506145 949,472
Baillie Gifford Emerging Markets Fund ..... 8,219.927 8.861338 72,840
The Guardian Small Cap Stock Fund ......... 21,137.115 10.842937 229,188
Value Line Centurion Fund, Inc. ........... 406,102.761 11.732266 4,764,506
Value Line Strategic Asset Management Trust 178,478.959 11.762245 2,099,313
MFS Growth With Income Series ............. 5,030.300 12.296286 61,854
----------------
1,163,877,160
Contracts receiving annuity payments ...... .................................. 8,125,651
Interest of GIAC in separate account ...... .................................. 16,316,297
----------------
Total Net Assets ............................ .................................. $ 1,188,319,108
================
</TABLE>
- --------------------------------------------------------------------------------
36
<PAGE>
---------
Separate
Account A
---------
1
---------
- --------------------------------------------------------------------------------
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.
- ------------------------------------------
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.
There is an additional charge for the Enhanced Death Benefit Rider equal
to an annual rate of .30% of the daily net assets of the applicable contract;
(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 premium
payment or upon annuitization, as determined in accordance with applicable state
law.
Currently GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
- ----------------------------------------------------------------------------
Note 5 -- Accumulation Values for the Current Period and the Four Prior Year
Ends for Both Qualified and Non-Qualified Accounts
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REGULAR CONTRACT
The Guardian Stock Fund, Inc. ....... $110.259925 $ 97.721248 $ 72.788450 $ 57.928841 $ 43.446001
The Guardian Bond Fund, Inc. ........ 33.411049 32.294381 29.924450 29.376248 25.230236
The Guardian Cash Fund, Inc. ........ 24.489868 23.998976 23.050182 22.171865 21.217142
Gabelli Capital Asset Fund .......... 18.893074 16.705120 11.831565 10.763220 --
Baillie Gifford International Fund .. 21.266022 17.927664 16.175077 14.153848 12.851309
Baillie Gifford Emerging Markets Fund 8.772533 10.770121 10.666664 8.646640 8.785416
The Guardian Small Cap Stock Fund ... 12.119905 11.323159 -- -- --
Value Line Centurion Fund, Inc. ..... 64.895604 56.395899 46.919586 40.383489 29.115003
Value Line Strategic Asset
Management Trust .................. 41.099882 35.800735 31.260980 27.247234 21.407853
MFS Growth With Income Series ....... 12.021030 10.402993 -- -- --
</TABLE>
- --------------------------------------------------------------------------------
37
<PAGE>
- ---------
Separate
Account A
- ---------
1
- ---------
- --------------------------------------------------------------------------------
The Guardian Separate Account A
- ----------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
June 30, December 31, December 31, December 31, December 31,
ENHANCED DEATH BENEFIT RIDER 1998 1997 1996 1995 1994
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. ....... $11.901338 $10.563642 -- -- --
The Guardian Bond Fund, Inc. ........ 10.446531 10.112433 -- -- --
The Guardian Cash Fund, Inc. ........ 10.242664 10.052316 -- -- --
Gabelli Capital Asset Fund .......... 12.016959 10.641134 -- -- --
Baillie Gifford International Fund .. 12.506145 10.558620 -- -- --
Baillie Gifford Emerging Markets Fund 8.861338 10.895404 -- -- --
The Guardian Small Cap Stock Fund ... 10.842937 10.210823 -- -- --
Value Line Centurion Fund, Inc. ..... 11.732266 10.210823 -- -- --
Value Line Strategic Asset
Management Trust .................. 11.762245 10.260962 -- -- --
MFS Growth With Income Series ....... 12.296286 10.657050 -- -- --
</TABLE>
NOTE: In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
38
<PAGE>
- ------------
The Guardian
Stock Fund,
Inc.
- ------------
2
- ------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- ---------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- ----------------------
COMMON STOCKS -- 94.5%
- ----------------------
Shares Value
- ----------------------------------------------------------------------
Aerospace and Defense -- 1.7%
38,500 Alliant Techsystems, Inc.* $ 2,435,125
80,000 Cordant Technologies, Inc. 3,690,000
65,200 General Dynamics Corp. 3,031,800
77,025 Lockheed Martin Corp. 8,155,022
110,290 Northrop Grumman Corp. 11,373,656
201,750 Precision Castparts Corp. 10,768,406
95,800 Rockwell Int'l. Corp. 4,604,387
53,000 Sundstrand Corp. 3,034,250
168,100 United Technologies Corp. 15,549,250
-------------
62,641,896
-------------
Air Transportation -- 1.7%
63,000 Alaska Air Group, Inc.* 3,437,437
125,000 America West Hldg. Corp.* 3,570,312
351,000 AMR Corp., DE* 29,220,750
43,000 Comair Hldgs., Inc. 1,327,625
151,000 Continental Airlines, Inc.* 9,192,125
88,000 Delta Airlines, Inc. 11,374,000
37,000 UAL Corp.* 2,886,000
-------------
61,008,249
-------------
Appliance and Furniture -- 0.7%
206,000 Ethan Allen Interiors, Inc. 10,287,125
174,000 Furniture Brands Int'l., Inc.* 4,882,875
100,000 Hon Industries, Inc. 3,400,000
50,000 Knoll Corp.* 1,475,000
60,000 Leggett & Platt, Inc. 1,500,000
200,000 Herman Miller, Inc. 4,862,500
-------------
26,407,500
-------------
Automotive -- 2.2%
350,000 Chrysler Corp. 19,731,250
965,000 Ford Motor Co. 56,935,000
56,800 General Motors Corp. 3,794,950
-------------
80,461,200
-------------
Automotive Parts -- 0.6%
38,000 Arvin Industries, Inc. 1,379,875
68,000 Cooper Tire & Rubber Co. 1,402,500
84,000 Goodyear Tire & Rubber Co. 5,412,750
104,500 Kaydon Corp. 3,690,156
276,933 Meritor Automotive, Inc. 6,646,392
24,000 Modine Mfg. Co. 831,000
18,400 Timken Co. 566,950
-------------
19,929,623
-------------
Biotechnology -- 0.2%
93,600 Amgen, Inc.* 6,119,100
-------------
Building Materials and Homebuilders -- 1.0%
33,000 Centex Construction Products, Inc. 1,270,500
16,500 Crossman Communities, Inc.* 501,187
65,000 Fleetwood Enterprises, Inc. 2,600,000
150,000 D.R. Horton, Inc.* 3,131,250
92,500 Lafarge Corp. 3,636,406
95,000 Lennar Corp. 2,802,500
9,400 Lone Star Industries, Inc. 724,387
79,650 Martin Marietta Materials, Inc. 3,584,250
24,000 Medusa Corp. 1,506,000
62,000 Southdown, Inc. 4,425,250
65,000 USG Corp. 3,518,125
36,000 U.S. Home Corp.* 1,485,000
6,300 Valspar Corp. 249,638
45,700 Vulcan Materials Co. 4,875,619
-------------
34,310,112
-------------
Capital Goods-Miscellaneous Technology -- 0.0%
43,000 AFC Cable Systems, Inc.* 1,526,500
-------------
Chemicals -- 4.2%
68,000 Albemarle Corp. 1,500,250
282,000 Cambrex Corp. 7,402,500
49,000 Carlisle Cos., Inc. 2,110,062
115,000 Crompton & Knowles Corp. 2,896,563
38,400 Dexter Corp. 1,221,600
270,000 Dow Chemical Co. 26,105,625
798,000 E.I. Dupont de Nemours, Inc. 59,550,750
260,000 Lyondell Petrochemical Co. 7,913,750
150,000 Millennium Chemicals, Inc. 5,081,250
153,500 Minnesota Mining & Mfg. Co. 12,615,781
147,000 Morton Int'l., Inc. 3,675,000
102,000 PPG Industries, Inc. 7,095,375
40,000 Rohm & Haas Co. 4,157,500
215,000 Solutia, Inc. 6,167,813
56,300 Union Carbide Corp. 3,005,012
-------------
150,498,831
-------------
Computer Software -- 3.6%
11,700 ChoicePoint, Inc.* 592,312
215,000 Computer Associates Int'l., Inc. 11,945,937
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
39
<PAGE>
------------
The Guardian
Stock Fund,
Inc.
------------
2
------------
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------
27,000 DST Systems, Inc.* $ 1,512,000
9,900 J.D. Edwards* 425,081
944,400 Microsoft Corp.* 102,349,350
104,000 Sterling Software, Inc.* 3,074,500
138,800 SunGuard Data Systems, Inc.* 5,326,450
65,000 Symantec Corp.* 1,698,125
36,000 Wind River Systems, Inc.* 1,291,500
-------------
128,215,255
-------------
Computer Systems -- 5.9%
26,000 Apple Computer, Inc.* 744,250
379,600 Compaq Computer Corp. 10,771,150
57,500 Honeywell, Inc. 4,804,844
654,500 Int'l. Business Machines 75,144,781
478,200 Lexmark Int'l. Group, Inc.* 29,170,200
230,000 Pitney Bowes, Inc. 11,068,750
61,400 Sanmina Corp.* 2,663,225
1,476,400 Storage Technology Corp.* 64,038,850
227,800 Sun Microsystems, Inc.* 9,895,063
247,800 Western Digital Corp.* 2,927,138
-------------
211,228,251
-------------
Conglomerates -- 1.0%
149,800 Loews Corp. 13,051,325
310,000 Textron, Inc. 22,223,125
-------------
35,274,450
-------------
Containers-Metals and Plastic -- 0.1%
37,000 Aptargroup, Inc. 2,300,938
-------------
Cosmetics and Toiletries -- 0.0%
21,600 Alberto-Culver Co. 548,100
16,966 Herbalife Int'l., Inc. 349,932
-------------
898,032
-------------
Drugs and Hospitals -- 8.4%
1,000,000 Abbott Laboratories 40,875,000
99,660 Allegiance Corp. 5,107,575
192,000 American Home Products Corp. 9,936,000
275,000 Arterial Vascular Engineering, Inc.* 9,831,250
17,400 Biomet, Inc.* 575,287
489,600 Bristol-Myers Squibb Corp. 56,273,400
25,000 Health Care & Retirement Co.* 985,937
112,600 Lincare Hldgs., Inc.* 4,736,238
349,700 Merck & Co., Inc. 46,772,375
27,000 Patterson Dental Co.* 988,875
741,600 Pfizer, Inc. 80,602,650
27,000 Safeskin Corp.* 1,110,375
503,400 Schering-Plough Corp. 46,124,025
-------------
303,918,987
-------------
Electrical Equipment -- 3.9%
1,541,200 General Electric Co. 140,249,200
25,000 Hubbel, Inc. 1,040,625
-------------
141,289,825
-------------
Electronics and Instruments -- 0.2%
64,400 Analogic Corp. 2,881,900
42,200 Dynatech Corp.* 131,875
23,100 Fluke Corp. 759,413
60,000 Tektronix, Inc. 2,122,500
-------------
5,895,688
-------------
Energy-Miscellaneous -- 0.4%
451,300 Frontier Oil Corp.* 3,610,400
192,500 Giant Industries, Inc. 3,344,688
237,430 Holly Corp. 6,113,823
84,000 Howell Corp. 913,500
-------------
13,982,411
-------------
Entertainment and Leisure -- 0.5%
16,500 Anchor Gaming* 1,280,812
400,000 Carnival Corp. 15,850,000
-------------
17,130,812
-------------
Financial-Banks -- 10.1%
25,000 Associated Bank Corp. 940,625
720,000 BankAmerica Corp. 62,235,000
347,870 Bank of Boston Corp. 19,350,269
130,000 Bank of New York, Inc. 7,889,375
17,000 BB&T Corp. 1,149,625
13,000 CCB Financial Corp. 1,381,250
15,000 Centura Banks, Inc. 937,500
868,936 Chase Manhattan Corp. 65,604,668
188,284 Citicorp 28,101,387
81,000 City National Corp. 2,991,938
145,200 Comerica, Inc. 9,619,500
67,875 Commerce Bankshares, Inc. 3,313,148
22,000 Community First Bankshares 576,125
20,000 Cullen Frost Bankers, Inc. 1,085,000
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
40
<PAGE>
- ------------
The Guardian
Stock Fund,
Inc.
- ------------
2
- ------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- ---------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited) (Continued)
Shares Value
- ----------------------------------------------------------------------
73,867 Fifth Third Bancorp* $ 4,653,652
13,800 First Chicago NBD Corp. 1,223,025
60,000 First Merit Corp. 1,747,500
543,800 First Union Corp. 31,676,350
235,000 Fleet Financial Group, Inc. 19,622,500
81,922 Hubco, Inc. 2,933,832
90,000 Imperial Bancorp* 2,700,000
140,000 KeyCorp 4,987,500
22,627 M & T Bank Corp. 12,535,358
197,000 Mellon Bank Corp. 13,716,125
89,068 National City Corp. 6,323,828
270,120 Norwest Corp. 10,095,735
75,000 Premier Bancshares, Inc., GA 1,987,500
108,000 Star Banc Corp. 6,898,500
327,033 Summit Bancorp 15,534,067
49,500 Union BanCal Corp. 4,776,750
45,000 U.S. Bancorp, Inc. 1,935,000
23,000 U.S. Trust Corp. 1,753,750
43,000 Webster Financial Corp. 1,429,750
21,500 Wells Fargo & Co. 7,933,500
36,000 Westamerica Bancorp 1,156,500
72,000 Zions Bancorp 3,825,000
-------------
364,621,132
-------------
Financial-Other -- 8.2%
294,400 American Express Co. 33,561,600
200,495 Associates First Capital Corp. 15,413,053
137,000 Countrywide Credit Industries, Inc. 6,952,750
25,000 Dain Rauscher Corp. 1,368,750
23,200 Donaldson, Lufkin & Jenrette Sec. Corp. 1,178,850
21,666 Duff & Phelps Credit Rating Co. 1,207,879
190,200 A.G. Edwards, Inc. 8,119,162
258,400 Federal Home Loan Mortgage Corp. 12,160,950
434,600 Federal National Mortgage Assn. 26,401,950
288,000 Franklin Resources, Inc. 15,552,000
125,000 H & R Block, Inc. 5,265,625
338,000 Jefferies Group, Inc. 13,858,000
43,667 Legg Mason, Inc. 2,513,563
122,000 Lehman Brothers Hldgs., Inc. 9,462,625
238,000 McDonald & Co. Investments, Inc. 7,809,375
257,200 Merrill Lynch & Co., Inc. 23,726,700
384,075 Morgan Keegan, Inc. 9,937,941
230,000 Morgan Stanley Dean Witter 21,016,250
175,000 Paine Webber Group, Inc. 7,503,125
26,200 Ragen MacKenzie Group, Inc.* 396,275
346,106 Raymond James Financial, Inc. 10,361,533
175,000 SLM Hldg. Corp. 8,575,000
846,000 Travelers Group, Inc. 51,288,750
-------------
293,631,706
-------------
Financial-Thrift -- 1.8%
16,164 H.F. Ahmanson & Co. 1,147,644
67,200 Astoria Financial Corp. 3,595,200
406,250 BankAtlantic Bancorp, Inc. 4,968,828
27,040 California Federal Bancorp, Inc.* 581,360
170,740 Charter One Financial, Inc. 5,751,804
99,000 Coastal Bancorp, Inc. 2,425,500
20,000 Coast Federal Litigation Trust* 302,500
155,925 Commercial Federal Corp. 4,931,128
220,000 Dime Bancorp, Inc. 6,586,250
40,000 Golden State Bancorp, Inc.* 1,190,000
40,000 Golden State Bancorp, Inc.* (warrants) 212,500
152,000 Greenpoint Financial Corp. 5,719,000
124,000 Long Island Bancorp, Inc. 7,533,000
29,452 MAF Bancorp, Inc. 1,071,317
37,666 Pacific Crest Capital, Inc.* 663,863
123,543 Progressive Bank, Inc. 4,825,898
760,954 Sovereign Bancorp, Inc. 12,436,842
-------------
63,942,634
-------------
Food, Beverage and Tobacco -- 1.4%
64,790 CKE Restaurants, Inc. 2,672,588
53,744 Earthgrains Co. 3,002,946
186,000 Fortune Brands, Inc. 7,149,375
142,000 Interstate Bakeries Corp. 4,712,625
493,600 Philip Morris Cos., Inc. 19,435,500
83,100 Pioneer Hi-Bred Int'l., Inc. 3,438,263
150,000 Sara Lee Corp. 8,390,625
38,000 Smithfield Foods, Inc.* 1,159,000
63,000 Universal Corp., VA 2,354,625
-------------
52,315,547
-------------
Footwear -- 0.3%
111,200 Footstar, Inc.* 5,337,600
49,000 Payless ShoeSource, Inc.* 3,610,687
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
41
<PAGE>
------------
The Guardian
Stock Fund,
Inc.
------------
2
------------
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------
64,000 Stride Rite Corp. $ 964,000
-------------
9,912,287
-------------
Household Products -- 1.0%
185,200 Dial Corp. 4,803,625
349,800 Procter & Gamble Co. 31,853,663
-------------
36,657,288
-------------
Insurance -- 6.1%
37,500 Allied Group, Inc. 1,755,469
492,300 Allstate Corp. 45,076,219
30,000 W.R. Berkley Corp. 1,201,875
153,000 Chicago Title Corp.* 7,066,688
46,000 Chubb Corp. 3,697,250
222,300 Cigna Corp. 15,338,700
60,000 CMAC Investment Corp. 3,690,000
36,000 Enhance Financial Svcs. Group, Inc. 1,215,000
130,000 Equitable Cos., Inc. 9,741,875
98,000 Everest Reinsurance Hldgs. 3,766,875
66,700 Executive Risk, Inc. 4,919,125
33,000 Fidelity National Financial, Inc. 1,313,813
42,000 Financial Sec. Assur. Hldgs. Ltd. 2,467,500
66,300 General RE Corp. 16,807,050
81,900 Hartford Financial Svcs. Group, Inc. 9,367,313
150,000 Horace Mann Educators Corp. 5,175,000
54,000 Jefferson Pilot Corp. 3,128,625
103,270 Liberty Financial Cos., Inc. 3,562,815
132,000 Lincoln National Corp., Inc. 12,061,500
272,100 Marsh & McLennan Cos., Inc. 16,445,044
50,600 MBIA, Inc. 3,788,675
30,000 Mercury General Corp. 1,933,125
315,000 MGIC Investment Corp. 17,974,687
229,500 Old Republic Int'l. Corp. 6,727,219
144,000 Penn America Group, Inc.* 1,944,000
67,000 Reinsurance Group of America* 3,437,938
85,059 ReliaStar Financial Group 4,082,832
151,445 St. Paul Cos., Inc. 6,370,155
108,000 State Auto Financial Corp. 3,442,500
12,000 Unitrin, Inc. 834,000
-------------
218,332,867
-------------
Lodging -- 0.2%
100,000 Fairfield Communities, Inc.* 1,918,750
238,000 Prime Hospitality Corp.* 4,150,125
-------------
6,068,875
-------------
Machinery and Equipment -- 0.6%
102,000 AAR Corp. 3,015,375
74,200 Dover Corp. 2,541,350
95,000 Eaton Corp. 7,386,250
79,900 Illinois Tool Works, Inc. 5,328,331
99,100 Parker Hannifin Corp. 3,778,188
25,000 SPX Corp.* 1,609,375
-------------
23,658,869
-------------
Merchandising-Department Stores -- 2.7%
122,000 Dayton Hudson Corp. 5,917,000
125,000 Federated Department Stores, Inc.* 6,726,562
215,000 Fred Meyer, Inc., DE* 9,137,500
87,000 Shopko Stores, Inc.* 2,958,000
40,000 Stein Mart, Inc.* 540,000
376,800 TJX Cos., Inc. 9,090,300
1,036,000 Wal-Mart Stores, Inc. 62,937,000
-------------
97,306,362
-------------
Merchandising-Drugs -- 0.5%
12,000 Cardinal Health, Inc. 1,125,000
251,472 CVS Corp. 9,791,691
37,000 General Nutrition Cos., Inc.* 1,151,625
110,000 Walgreen Co. 4,544,375
-------------
16,612,691
-------------
Merchandising-Food -- 0.9%
240,000 Albertson's, Inc. 12,435,000
377,990 Safeway, Inc.* 15,379,468
20,000 Suiza Foods Corp.* 1,193,750
113,000 Supervalu, Inc. 5,014,375
-------------
34,022,593
-------------
Merchandising-Mass -- 0.1%
43,500 Brylane, Inc.* 2,001,000
20,000 Lands End, Inc.* 632,500
-------------
2,633,500
-------------
Merchandising-Special -- 2.8%
47,100 Best Buy, Inc.* 1,704,313
69,000 BJ's Wholesale Club, Inc.* 2,803,125
71,000 The Dress Barn* 1,766,125
360,000 GAP, Inc. 22,185,000
376,000 Home Depot, Inc. 31,231,500
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
42
<PAGE>
- ------------
The Guardian
Stock Fund,
Inc.
- ------------
2
- ------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- ---------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited) (Continued)
Shares Value
- ----------------------------------------------------------------------
53,400 Lowes Cos., Inc.* $ 2,166,038
275,000 Pier 1 Imports, Inc. 6,565,625
238,500 Proffitts, Inc.* 9,629,437
159,000 Ross Stores, Inc. 6,837,000
250,000 Tandy Corp. 13,265,625
42,500 Tiffany & Co., Inc. 2,040,000
-------------
100,193,788
-------------
Metals-Miscellaneous -- 0.1%
48,924 Alumax, Inc. 2,268,850
-------------
Miscellaneous-Capital Goods -- 0.1%
69,000 Aeroquip-Vickers, Inc. 4,027,875
-------------
Miscellaneous-Consumer Growth Staples -- 0.8%
70,000 American Greetings Corp. 3,565,625
178,100 Cognizant Corp.* 11,220,300
52,500 Interpublic Group Cos., Inc. 3,186,094
110,000 A.C. Nielsen Corp.* 2,777,500
190,000 Valassis Communications, Inc.* 7,326,875
-------------
28,076,394
-------------
Natural Gas-Diversified -- 0.1%
258,600 Mitchell Energy & Dev. Corp. 4,978,050
-------------
Oil and Gas Producing -- 1.7%
118,400 Barrett Resources Corp.* 4,432,600
205,000 Basin Exploration, Inc.* 3,613,125
64,300 Callon Petroleum Co.* 920,294
304,000 Chieftain Int'l., Inc.* 7,201,000
247,000 Devon Energy Corp. 8,629,563
243,600 Diamond Offshore Drilling, Inc. 9,744,000
44,700 Forcenergy Gas Exploration, Inc.* 796,219
151,200 Meridian Resource Corp.* 1,067,850
750,900 Petromet Resources Ltd.* 1,689,525
45,900 Petsec Energy Ltd.* 743,006
95,000 Pride Int'l., Inc.* 1,609,062
650,700 Rigel Energy Corp.* 5,925,303
325,100 St. Mary Land & Exploration Co. 7,843,037
60,700 Snyder Oil Corp. 1,210,206
152,100 Vastar Resources, Inc. 6,644,869
-------------
62,069,659
-------------
Oil and Gas Services -- 2.6%
150,000 BJ Services Co.* 4,359,375
86,090 Camco Int'l., Inc. 6,704,259
70,000 Cooper Cameron Corp.* 3,570,000
87,500 ENSCO Int'l., Inc. 1,520,313
190,400 Halliburton Co. 8,484,700
376,800 Input/Output, Inc.* 6,711,750
580,300 Nabors Industries, Inc.* 11,497,194
235,000 Noble Drilling Corp.* 5,654,687
189,300 Offshore Logistics, Inc.* 3,360,075
339,400 Schlumberger Ltd. 23,185,263
125,000 Smith Int'l., Inc.* 4,351,562
52,000 Transocean Offshore, Inc. 2,314,000
235,400 Varco Int'l., Inc.* 4,663,862
30,000 Veritas DGC, Inc.* 1,498,125
112,100 Weatherford Enterra, Inc.* 4,161,713
100,000 Willbros Group, Inc.* 1,562,500
-------------
93,599,378
-------------
Oil-Integrated-Domestic -- 0.3%
142,000 Sun, Inc. 5,511,375
460,500 Tesoro Petroleum, Inc.* 7,310,437
-------------
12,821,812
-------------
Oil-Integrated-International -- 4.7%
228,800 Chevron Corp. 19,004,700
1,539,800 Exxon Corp. 109,806,988
529,800 Mobil Corp. 40,595,925
-------------
169,407,613
-------------
Paper and Forest Products -- 0.5%
52,857 Deltic Timber Corp. 1,324,729
245,000 Kimberly Clark Corp. 11,239,375
123,000 Rayonier, Inc. 5,658,000
-------------
18,222,104
-------------
Publishing-News -- 0.8%
35,100 Central Newspapers, Inc. 2,448,225
133,400 Gannett Co., Inc. 9,479,737
188,200 Harte-Hanks Communications 4,857,912
80,000 New York Times Co. 6,340,000
16,000 Tribune Co. 1,101,000
6,700 Washington Post Co. 3,859,200
-------------
28,086,074
-------------
Railroads -- 0.4%
47,949 Burlington Northern Santa Fe 4,707,992
182,500 Kansas City Southern Inds., Inc. 9,056,562
-------------
13,764,554
-------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
43
<PAGE>
------------
The Guardian
Stock Fund,
Inc.
------------
2
------------
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------
Real Estate -- 0.1%
95,000 LNR Property Corp. $ 2,434,375
-------------
Textile-Apparel and Production -- 1.0%
70,000 Burlington Industries, Inc.* 984,375
129,000 Liz Claiborne, Inc. 6,740,250
196,000 Jones Apparel Group, Inc.* 7,166,250
29,000 Kellwood Co. 1,036,750
37,500 Nautica Enterprises, Inc.* 1,005,469
15,000 St. John Knits, Inc. 579,375
295,000 Unifi, Inc. 10,103,750
148,000 V.F. Corp. 7,622,000
58,400 Westpoint Stevens, Inc.* 1,927,200
-------------
37,165,419
-------------
Transportation-Miscellaneous -- 0.6%
192,000 Airborne Freight Corp. 6,708,000
37,000 Alexander & Baldwin, Inc. 1,077,625
22,000 Expeditors Int'l. Wash., Inc. 968,000
108,000 GATX Corp.* 4,738,500
376,700 Maritrans, Inc. 3,413,844
45,000 Sea Containers Ltd.* 1,721,250
58,000 Trinity Industries, Inc. 2,407,000
-------------
21,034,219
-------------
Truckers -- 0.1%
32,100 FRP Pptys., Inc.* 1,043,250
49,500 Rollins Truck Leasing Corp. 612,563
60,000 U.S. Freightways Corp. 1,970,625
56,250 Werner Enterprises, Inc. 1,072,266
-------------
4,698,704
-------------
Utilities-Electric -- 1.1%
22,700 Cleco Corp. 675,325
76,740 Duke Energy Co. 4,546,845
79,800 Energy East Corp. 3,321,675
185,000 Florida Progress Corp. 7,608,125
210,000 FPL Group, Inc. 13,230,000
56,500 IPALCO Enterprises 2,510,719
43,420 LG & E Energy Corp. 1,175,054
7,000 Minnesota Power & Light Co. 278,250
58,000 NIPSCO Industries, Inc. 1,624,000
96,300 Texas Utilities Co. 4,008,488
-------------
38,978,481
-------------
Utilities-Gas and Pipeline-- 0.1%
5,100 Indiana Energy, Inc. 152,362
45,000 KN Energy, Inc. 2,438,438
26,300 NICOR, Inc. 1,055,288
-------------
3,646,088
-------------
Utilities-Telecommunications -- 6.4%
29,000 Aliant Communications, Inc. 795,687
702,800 Ameritech Corp. 31,538,150
689,200 AT & T Corp. 39,370,550
680,000 Bell Atlantic Corp. 31,025,000
853,200 BellSouth Corp. 57,271,050
495,000 GTE Corp.* 27,534,375
472,000 SBC Communications, Inc. 18,880,000
135,000 Sprint Corp.* 9,517,500
325,000 U.S. West, Inc.* 15,275,000
-------------
231,207,312
-------------
TOTAL COMMON STOCKS
(Cost $2,230,631,491) 3,399,434,760
-------------
- ----------------------------
REPURCHASE AGREEMENT -- 4.9%
- ----------------------------
Shares Value
- ----------------------------------------------------------------------
Principal
Amount Value
- ----------------------------------------------------------------------
$ 174,758,000 State Street Bank & Trust Co.
repurchase agreement,
dated 6/30/98, maturity value
$174,785,670 at 5.70%, due 7/1/98
(collateralized by $178,260,000
U.S. Treasury Notes, 6.00%,
due 6/30/99) $ 174,758,000
--------------
TOTAL REPURCHASE AGREEMENT
(Cost $174,758,000) 174,758,000
--------------
TOTAL INVESTMENTS -- 99.4%
(Cost $2,405,389,491) 3,574,192,760
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 0.6% 21,659,204
--------------
NET ASSETS -- 100.0% $3,595,851,964
==============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
44
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Stock Fund,Inc.
- ----------------
2
- ----------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS
Investments, at market (cost $2,405,389,491) $3,574,192,760
Cash 41,840
Receivable for securities sold 53,432,072
Dividends receivable 2,942,866
Receivable for fund shares sold 642,156
Interest receivable 26,670
Other assets 2,365
--------------
TOTAL ASSETS 3,631,280,729
--------------
LIABILITIES
Payable for securities purchased 29,463,899
Payable for fund shares redeemed 1,038,829
Accrued expenses 214,485
Due to affiliates 4,711,552
--------------
TOTAL LIABILITIES 35,428,765
--------------
NET ASSETS $3,595,851,964
==============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 71,043
Additional paid-in capital 2,237,947,021
Undistributed net investment income 2,078,030
Accumulated net realized gain on investments 186,952,601
Net unrealized appreciation of investments 1,168,803,269
--------------
NET ASSETS $3,595,851,964
==============
Shares Outstanding -- $0.001 par value 71,042,956
--------------
NET ASSET VALUE PER SHARE $ 50.62
==============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1998 (Unaudited)
Investment Income:
Dividends $ 20,822,564
Interest 5,248,728
Less: Foreign tax withheld (6,750)
--------------
Total Income 26,064,542
--------------
Expenses:
Investment advisory fees -- Note B 8,558,120
Custodian fees 193,992
Printing expense 163,525
Registration fees 42,000
Audit fees 8,750
Directors' fees -- Note B 8,000
Legal fees 2,800
Insurance expense 2,286
Transfer agent fees 1,650
Other 350
--------------
Total Expenses 8,981,473
--------------
Net Investment Income 17,083,069
--------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized gain on investments 186,953,070
Net change in unrealized appreciation
of investments 226,105,842
--------------
Net Realized and Unrealized Gain
on Investments 413,058,912
--------------
Net Increase in Net Assets
from Operations $ 430,141,981
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
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2
----------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1998 1997
(Unaudited) (Audited)
--------------- ---------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 17,083,069 $ 32,357,899
Net realized gain on investments 186,953,070 392,500,062
Net change in unrealized appreciation of investments 226,105,842 391,861,332
--------------- ---------------
Net Increase in Net Assets from Operations 430,141,981 816,719,293
--------------- ---------------
Dividends and Distributions to Shareholders from:
Net investment income (15,303,452) (32,059,486)
Net realized gain on investments (93,901,593) (344,492,912)
--------------- ---------------
Total Dividends and Distributions to Shareholders (109,205,045) (376,552,398)
--------------- ---------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note G 52,728,183 555,292,020
--------------- ---------------
Net Increase in Net Assets 373,665,119 995,458,915
Net Assets:
Beginning of period 3,222,186,845 2,226,727,930
--------------- ---------------
End of period* $ 3,595,851,964 $ 3,222,186,845
=============== ===============
* Includes undistributed net investment income of: $ 2,078,030 $ 298,413
</TABLE>
See notes to financial statements.
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Stock Fund,Inc.
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The Guardian Stock Fund, Inc.
- -----------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding
throughout the periods indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1998 --------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ...... $ 46.05 $ 38.59 $ 34.72 $ 27.33 $ 29.00
--------------- --------------- --------------- ------------- -------------
Income from investment
operations:
Net investment
income ................. 0.25 0.52 0.53 0.44 0.40
Net realized and
unrealized gain/
(loss) on investments .. 5.90 12.97 8.62 9.01 (0.77)
--------------- --------------- --------------- ------------- -------------
Net increase/(decrease)
from investment
operations ............. 6.15 13.49 9.15 9.45 (0.37)
--------------- --------------- --------------- ------------- -------------
Dividends and Distributions
to Shareholders from:
Net investment income .... (0.22) (0.52) (0.54) (0.44) (0.40)
Net realized gain ........ (1.36) (5.51) (4.74) (1.62) (0.90)
--------------- --------------- --------------- ------------- -------------
Total dividends and
distributions .......... (1.58) (6.03) (5.28) (2.06) (1.30)
--------------- --------------- --------------- ------------- -------------
Net asset value, end of
period ................... $ 50.62 $ 46.05 $ 38.59 $ 34.72 $ 27.33
--------------- --------------- --------------- ------------- -------------
Total return* .............. 13.38% 35.58% 26.90% 34.65% (1.27)%
--------------- --------------- --------------- ------------- -------------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ........ $ 3,595,852 $ 3,222,187 $ 2,226,728 $ 1,615,271 $ 1,038,991
Ratio of expenses to
average net assets ..... 0.52%(a) 0.52% 0.53% 0.53% 0.53%
Ratio of net invest-
ment income to
average net assets ..... 1.00%(a) 1.17% 1.50% 1.39% 1.49%
Portfolio turnover
rate ................... 23% 51% 66% 78% 53%
Average rate of
commissions paid(b) .... $ 0.0509 $ 0.0457 $ 0.0469
<CAPTION>
Year Ended December 31, (Audited)
--------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------
Net asset value,
beginning of period ...... $ 25.52 $ 23.28 $ 17.85 $ 21.39 $ 19.18 $ 16.35
----------- ----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment
income ................. 0.58 0.48 0.63 0.69 0.84 0.52
Net realized and
unrealized gain/
(loss) on investments .. 4.47 3.97 5.74 (3.13) 3.61 2.80
----------- ----------- ----------- ----------- ----------- -----------
Net increase/(decrease)
from investment
operations ............. 5.05 4.45 6.37 (2.44) 4.45 3.32
----------- ----------- ----------- ----------- ----------- -----------
Dividends and Distributions
to Shareholders from:
Net investment income .... (0.59) (0.48) (0.64) (0.71) (0.90) (0.49)
Net realized gain ........ (0.98) (1.73) (0.30) (0.39) (1.34) --
----------- ----------- ----------- ----------- ----------- -----------
Total dividends and
distributions .......... (1.57) (2.21) (0.94) (1.10) (2.24) (0.49)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
period ................... $ 29.00 $ 25.52 $ 23.28 $ 17.85 $ 21.39 $ 19.18
----------- ----------- ----------- ----------- ----------- -----------
Total return* .............. 19.96% 20.07% 35.96% (11.85)% 23.55% 20.37%
----------- ----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ........ $ 869,114 $ 537,354 $ 380,962 $ 256,039 $ 269,950 $ 172,900
Ratio of expenses to
average net assets ..... 0.54% 0.55% 0.56% 0.57% 0.57% 0.61%
Ratio of net invest-
ment income to
average net assets ..... 2.20% 2.14% 3.07% 3.66% 4.13% 2.88%
Portfolio turnover
rate ................... 45% 62% 51% 54% 38% 71%
Average rate of
commissions paid(b)
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to the
terms of GIAC's variable contracts. Inclusion of such charges would reduce
the total returns for all periods shown.
(a) Annualized.
(b) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged.
See notes to financial statements.
- --------------------------------------------------------------------------------
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- ----------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- ---------------------
ASSET BACKED -- 14.4%
- ---------------------
Principal
Amount Value
- -----------------------------------------------------------------------
$ 3,500,000 Advanta Mtg. Loan Trust 1998 A3
6.27% due 12/25/17 $ 3,519,215
2,700,000 Amresco 1997-1 M1F
7.42% due 3/25/27 2,769,201
5,000,000 CS First Boston 1996-2 A5
6.90% due 6/15/27 5,121,900
3,900,000 Deutsche Financial 1997-1 A2
6.55% due 9/15/27 3,937,284
3,500,000 EQCC Home Equity Loan Tr. 1996 A4
6.56% due 3/15/23 3,546,270
3,750,000 Green Tree 1998-4 A5
6.18% due 4/1/30 3,760,500
3,500,000 Green Tree 1997-E HEA4
6.69% due 1/15/29 3,531,500
3,500,000 Money Store Tr. 1998-A AF5
6.37% due 12/15/02 3,517,080
4,360,000 Premier Auto Tr. 1997-2 B
6.53% due 12/6/03 4,423,089
3,300,000 Sears Cr. Account Master 1998-1 A
5.80% due 8/15/05 3,291,090
3,500,000 UAC Auto Trust 1997-B A2
6.70% due 6/10/03 3,547,495
6,250,000 UCFC Loan Tr. 1997-D A6
7.095% due 4/15/27 6,410,188
4,500,000 Vanderbilt Mtg. 1997-B 1A3
6.975% due 8/7/11 4,599,540
------------
TOTAL ASSET BACKED
(Cost $51,540,110) 51,974,352
------------
- ------------------------
CORPORATE BONDS -- 36.9%
- ------------------------
Aerospace and Defense -- 1.7%
2,800,000 Lockheed Martin Corp.
6.55% due 5/15/99 2,808,487
3,500,000 Raytheon Co.
5.95% due 3/15/01 3,498,999
------------
6,307,486
------------
Automotive -- 0.7%
2,850,000 Ford Motor Credit Co.
6.125% due 4/28/03 2,854,996
------------
Beverage and Tobacco -- 2.8%
3,500,000 Coca Cola Enterprises, Inc.
6.95% due 11/15/26 3,669,029
3,000,000 Philip Morris Cos., Inc.
7.50% due 4/1/04 3,154,839
3,500,000 Philip Morris Cos., Inc.
6.15% due 3/15/00 3,498,215
------------
10,322,083
------------
Conglomerates -- 1.0% 3,500,000 Tyco Int'l. Group S.A.
6.125% due 6/15/01 3,509,611
------------
Entertainment -- 0.8%
2,850,000 Time Warner, Inc.
6.95% due 1/15/28 2,889,088
------------
Financial-Other -- 12.3%
3,500,000 Associates Corp. of North America
5.85% due 1/15/01 3,488,779
2,850,000 Bear Stearns Cos., Inc.
6.20% due 3/30/03 2,854,583
3,500,000 Donaldson, Lufkin & Jenrette Sec. Corp.
6.11% due 5/15/01 3,503,150
3,500,000 Hutchinson Whampoa Fin. C I Ltd.+
7.50% due 8/1/27 2,678,526
9,500,000 Lehman Brothers Hldgs., Inc.
6.92% due 10/4/99 9,601,650
7,000,000 Lehman Brothers Hldgs., Inc.
6.00% due 2/26/01 6,974,660
3,500,000 Merrill Lynch & Co.
6.02% due 5/11/01 3,505,205
2,350,000 Morgan Stanley Dean Witter
6.09% due 3/9/01 2,349,530
3,500,000 Salomon, Inc.
6.65% due 7/15/01 3,558,146
6,000,000 Salomon, Inc.
6.625% due 11/30/00 6,089,358
------------
44,603,587
------------
Hospital-Supplies -- 1.0%
3,500,000 Mallinckrodt, Inc.+
6.30% due 3/15/11 3,510,731
------------
See notes to financial statements.
+ Rule 144A restricted security.
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- --------------------------------------------------------------------------------
Principal
Amount Value
- -----------------------------------------------------------------------
Household Products -- 1.0%
$ 3,500,000 U.S. Filter Corp.+
6.375% due 5/15/11 $ 3,495,450
------------
Insurance -- 1.9% 3,500,000 Conseco, Inc.
6.40% due 6/15/01 3,494,050
3,100,000 Zurich Capital Tr.+
8.376% due 6/1/37 3,441,062
------------
6,935,112
------------
Merchandising-Department Stores -- 1.9%
3,500,000 Dayton Hudson Corp.
5.95% due 6/15/00 3,499,209
3,400,000 Wal Mart Stores, Inc.
8.75% due 12/29/06 3,481,260
------------
6,980,469
------------
Merchandising-Food -- 1.0%
3,500,000 Albertsons, Inc.
6.625% due 6/1/28 3,485,650
------------
Miscellaneous-Capital Goods -- 1.4%
5,000,000 Ikon Capital, Inc.
6.73% due 6/15/01 5,086,710
------------
Miscellaneous-Financial -- 1.0%
3,500,000 Comdisco, Inc.
6.06% due 5/5/00 3,501,379
------------
Oil and Gas Producing -- 0.8%
2,700,000 Vastar Resources, Inc.
6.00% due 4/20/00 2,701,064
------------
Oil-Integrated-International -- 0.5%
2,200,000 LG Caltex Oil Corp.+
7.50% due 7/15/07 1,645,600
------------
Railroads -- 1.1%
3,500,000 Norfolk Southern Corp.
7.80% due 5/15/27 4,008,102
------------
Telecommunications -- 3.4%
2,850,000 Lucent Technologies, Inc.
6.50% due 1/15/28 2,906,421
3,500,000 MCI Communications Corp.
6.125% due 4/15/02 3,503,679
5,900,000 TCI Communications, Inc.
7.25% due 6/15/99 5,965,915
------------
12,376,015
------------
Utilities-Gas and Pipeline -- 2.6%
2,350,000 Occidental Petroleum Corp.
6.40% due 4/1/03 2,365,881
7,000,000 Williams Cos., Inc.+
5.95% due 2/15/00 6,987,841
------------
9,353,722
------------
TOTAL CORPORATE BONDS
(Cost $133,403,981) 133,566,855
------------
- -----------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 7.3%
- -----------------------
4,000,000 Bear Asset Trust 1997-1 A
6.682% due 2/15/06 4,006,400
3,500,000 Bear Stearns Coml. Mtg. Secs., Inc.
CTF 1998-1 A2
6.44% due 6/1/30 3,540,600
5,000,000 Federal Home Loan Mtg. Corp.
1998 EB 7.00% due 1/15/25 5,081,170
4,000,000 Federal National Mortgage Assn.
1995-13C 6.50% due 10/25/08 4,024,960
5,839,826 GE Capital Mortgage Svcs., Inc.
1996-3A7 7.00% due 3/25/26 5,918,294
3,850,000 GMAC Coml. Mtg. Sec., Inc.
1998-1C 6.806% due 4/15/08 3,953,180
------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $26,160,004) 26,524,604
------------
See notes to financial statements.
+ Rule 144A restricted security.
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The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited) (Continued)
- -------------------------------
MORTGAGE PASS-THROUGHS -- 12.4%
- -------------------------------
Principal
Amount Value
- -----------------------------------------------------------------------
$ 1,639,441 FHLMC Pool E54124
7.00% due 8/1/08 $ 1,669,787
9,500,000 FNMA TBA
6.50% (15 yr.)(a) 9,553,390
30,350,000 FNMA TBA
6.50% (30 yr.)(a) 30,217,006
443,464 FNMA Pool 068106
8.50% due 8/1/09 470,369
816,228 FNMA Pool 068772
8.00% due 6/1/08 847,856
8,754 FNMA Pool 072923
8.25% due 1/1/09 9,145
2,100,000 GNMA TBA
6.50% (30 yr.)(a) 2,094,735
3,957 GNMA Pool 000375
11.50% due 7/20/00 4,116
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $44,635,876) 44,866,404
------------
- ------------------------
U.S. GOVERNMENT -- 25.7%
- ------------------------
13,500,000 U.S. Treasury Bonds
6.625% due 2/15/27 15,250,788
150,000 U.S. Treasury Bonds
6.375% due 8/15/27 164,766
12,950,000 U.S. Treasury Bonds
6.125% due 11/15/27(b) 13,876,741
2,250,000 U.S. Treasury Notes
7.875% due 11/15/04 2,527,031
3,000,000 U.S. Treasury Notes
7.50% due 10/31/99 3,074,064
8,000,000 U.S. Treasury Notes
6.875% due 8/31/99 8,120,000
500,000 U.S. Treasury Notes
6.625% due 6/30/01 514,531
10,000,000 U.S. Treasury Notes
6.50% due 5/15/05 10,556,250
6,600,000 U.S. Treasury Notes
6.50% due 8/15/05 6,967,125
4,250,000 U.S. Treasury Notes
6.125% due 8/15/07 4,423,986
3,435,000 U.S. Treasury Notes
6.00% due 8/15/00 3,467,203
4,100,000 U.S. Treasury Notes
5.875% due 11/15/99 4,117,937
3,500,000 U.S. Treasury Notes
5.625% due 10/31/99 3,503,283
2,700,000 U.S. Treasury Notes
5.625% due 5/15/01 2,709,283
6,300,000 U.S. Treasury Notes
5.50% due 3/31/00 6,298,034
3,500,000 U.S. Treasury Notes
5.50% due 5/31/03 3,500,000
4,000,000 U.S. Treasury Notes
5.50% due 2/15/08 3,998,752
------------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $90,875,396) 93,069,774
------------
- --------------------
YANKEE BONDS -- 2.2%
- --------------------
2,350,000 Petroliam Nasional Berhad+
6.625% due 10/18/01 2,174,523
2,400,000 Thailand Kingdom
7.55% due 8/15/99 2,362,750
3,500,000 Yorkshire Pwr. Fin., Ltd.+
6.154% due 2/25/03 3,510,006
------------
TOTAL YANKEE BONDS
(Cost $8,075,087) 8,047,279
------------
- -------------------------
COMMERCIAL PAPER -- 15.4%
- -------------------------
Conglomerates -- 0.9%
3,387,000 General Elec. Cap. Corp.
5.51% due 7/14/98(a) 3,380,261
------------
Financial-Other -- 7.4%
9,637,000 Dakota Certificates
5.52% due 7/20/98(a) 9,608,924
15,000,000 Goldman Sachs Group LP
5.51% due 7/14/98(a) 14,970,154
2,107,000 Merrill Lynch & Co., Inc.
5.53% due 7/21/98(a) 2,100,527
------------
26,679,605
------------
See notes to financial statements.
+ Rule 144A restricted security.
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- --------------------------------------------------------------------------------
Principal
Amount Value
- -----------------------------------------------------------------------
Oil and Gas Services -- 3.3%
$ 12,000,000 Baker Hughes, Inc.
5.52% due 7/14/98(a) $ 11,976,080
------------
Telecommunications -- 3.8%
13,585,000 Lucent Technologies, Inc.
6.00% due 7/1/98(b) 13,585,000
------------
TOTAL COMMERCIAL PAPER
(Cost $55,620,946) 55,620,946
------------
- ----------------------------
REPURCHASE AGREEMENT -- 0.3%
- ----------------------------
1,048,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/98, maturity value
$1,048,166 at 5.70% due 7/1/98
(collateralized by U.S. Treasury
Notes $1,075,000, 6.75% due
5/31/99) 1,048,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $1,048,000) 1,048,000
------------
TOTAL INVESTMENTS -- 114.6%
(Cost $411,359,400) 414,718,214
PAYABLES FOR REVERSE REPURCHASE
AGREEMENTS(a) -- (3.7%) (13,582,937)
PAYABLES FOR FORWARD
MORTGAGE SECURITIES(a) -- (11.6%) (41,865,131)
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 0.7% 2,565,199
------------
NET ASSETS -- 100.0% $361,835,345
============
(a) Commercial paper with the total of $42,035,946 is segregated to cover
forward mortgage purchases.
(b) Commercial paper in the amount of $13,585,000 is segregated to cover reverse
repurchase agreements.
See notes to financial statements.
- --------------------------------------------------------------------------------
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The Guardian Bond Fund, Inc.
- ----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS
Investments, at market (cost $411,359,400) $414,718,214
Cash 843
Interest receivable 4,010,134
Receivable for securities sold 2,732,414
Receivable for fund shares sold 643,735
Other assets 960
------------
TOTAL ASSETS 422,106,300
------------
LIABILITIES
Payable for forward mortgage
securities -- Note E 41,865,131
Payable for reverse repurchase
agreements -- Note D 13,582,937
Payable for securities purchased 2,783,182
Payable for fund shares redeemed 1,516,449
Accrued expenses 14,797
Due to affiliates 508,459
------------
TOTAL LIABILITIES 60,270,955
------------
NET ASSETS $361,835,345
============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 2,946,183
Additional paid-in capital 352,528,350
Undistributed net investment income 1,822,429
Accumulated net realized gain on investments 1,179,569
Net unrealized appreciation of investments 3,358,814
------------
NET ASSETS $361,835,345
============
Shares Outstanding -- $0.10 par value 29,461,827
------------
NET ASSET VALUE PER SHARE $ 12.28
============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1998 (Unaudited)
Investment Income:
Interest $ 11,174,943
------------
Expenses:
Investment advisory fees -- Note B 892,085
Custodian fees 54,001
Printing expense 21,260
Audit fees 8,750
Directors' fees -- Note B 6,250
Transfer agent fees 1,650
Legal fees 1,493
Registration fees 1,326
Insurance expense 1,122
Other 350
------------
Total Expenses 988,287
------------
Net Investment Income 10,186,656
------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized gain on investments 3,473,898
Net change in unrealized appreciation
of investments 300,983
------------
Net Realized and Unrealized Gain
on Investments 3,774,881
------------
Net Increase in Net Assets
from Operations $ 13,961,537
============
See notes to financial statements.
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--------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1998 1997
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 10,186,656 $ 21,276,367
Net realized gain/(loss) on investments 3,473,898 (62,653)
Net change in unrealized appreciation/(depreciation) of investments 300,983 8,436,647
------------- -------------
Net Increase in Net Assets from Operations 13,961,537 29,650,361
------------- -------------
Dividends to Shareholders from:
Net investment income (8,962,490) (21,605,507)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from capital share
transactions -- Note G 1,424,387 (7,065,940)
------------- -------------
Net Increase in Net Assets 6,423,434 978,914
Net Assets:
Beginning of period 355,411,911 354,432,997
------------- -------------
End of period* $ 361,835,345 $ 355,411,911
============= =============
* Includes undistributed net investment income of: $ 1,822,429 $ 598,263
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
54
<PAGE>
- --------------
The Guardian
Bond Fund,Inc.
- --------------
3
- --------------
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1998 -----------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ..... $ 12.11 $ 11.83 $ 12.25 $ 11.08 $ 12.24 $ 12.26
----------- ----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment
income ................ 0.35 0.75 0.76 0.76 0.40 0.70
Net realized and
unrealized gain/
(loss) on investments . 0.13 0.29 (0.42) 1.17 (0.82) 0.50
----------- ----------- ----------- ----------- ----------- -----------
Net increase/(decrease)
from investment
operations ............ 0.48 1.04 0.34 1.93 (0.42) 1.20
----------- ----------- ----------- ----------- ----------- -----------
Dividends and Distributions
to Shareholders from:
Net investment income ... (0.31) (0.76) (0.76) (0.76) (0.68) (0.70)
Net realized gain ....... -- -- -- -- (0.06) (0.52)
----------- ----------- ----------- ----------- ----------- -----------
Total dividends and
distributions ......... (0.31) (0.76) (0.76) (0.76) (0.74) (1.22)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
period .................. $ 12.28 $ 12.11 $ 11.83 $ 12.25 $ 11.08 $ 12.24
----------- ----------- ----------- ----------- ----------- -----------
Total return* ............. 3.96% 8.99% 2.88% 17.59% (3.45)% 9.85%
----------- ----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ....... $ 361,835 $ 355,412 $ 354,433 $ 374,462 $ 308,978 $ 340,269
Ratio of expenses to
average net assets .... 0.55%(a) 0.55% 0.54% 0.54% 0.54% 0.55%
Ratio of net invest-
ment income to
average net assets .... 5.71%(a) 6.15% 6.12% 6.43% 5.69% 5.56%
Portfolio turnover
rate .................. 139% 340% 188% 298% 311% 220%
<CAPTION>
Year Ended December 31, (Audited)
-----------------------------------------------------------------------
1992 1991 1990 1989 1988
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ..... $ 12.33 $ 11.56 $ 11.67 $ 11.16 $ 11.12
----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment
income ................ 0.81 0.92 0.97 0.98 1.03
Net realized and
unrealized gain/
(loss) on investments . 0.13 0.91 (0.11) 0.55 0.02
----------- ----------- ----------- ----------- -----------
Net increase/(decrease)
from investment
operations ............ 0.94 1.83 0.86 1.53 1.05
----------- ----------- ----------- ----------- -----------
Dividends and Distributions
to Shareholders from:
Net investment income ... (0.81) (0.92) (0.97) (1.02) (1.01)
Net realized gain ....... (0.20) (0.14) -- -- --
----------- ----------- ----------- ----------- -----------
Total dividends and
distributions ......... (1.01) (1.06) (0.97) (1.02) (1.01)
----------- ----------- ----------- ----------- -----------
Net asset value, end of
period .................. $ 12.26 $ 12.33 $ 11.56 $ 11.67 $ 11.16
----------- ----------- ----------- ----------- -----------
Total return* ............. 7.70% 16.19% 7.57% 13.88% 9.70%
----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ....... $ 284,330 $ 222,299 $ 165,844 $ 147,753 $ 113,616
Ratio of expenses to
average net assets .... 0.56% 0.57% 0.58% 0.60% 0.61%
Ratio of net invest-
ment income to
average net assets .... 6.70% 7.81% 8.53% 8.78% 8.97%
Portfolio turnover
rate .................. 57% 43% 39% 158% 24%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to the
terms of GIAC's variable contracts. Inclusion of such charges would reduce
the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
55
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- --------------------------------------------------------------------------------
56
<PAGE>
- --------------
The Guardian
Cash Fund,Inc.
- --------------
4
- --------------
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- -------------------------
COMMERCIAL PAPER -- 94.4%
- -------------------------
Principal
Amount Value
- -----------------------------------------------------------------------
FINANCIAL -- 27.6%
Bank Holding Companies -- 4.0%
$ 16,500,000 J.P. Morgan & Co., Inc.
5.50% due 8/21/98 $ 16,371,438
------------
Finance Companies -- 11.7%
16,000,000 Goldman Sachs Group LP
5.51% due 7/10/98 15,977,960
16,000,000 Merrill Lynch & Co., Inc.
5.51% due 7/31/98 15,926,533
16,000,000 Private Export Funding Corp.
5.49% due 8/5/98 15,914,600
------------
47,819,093
------------
Other Major Banks -- 7.9%
16,500,000 Commerzbank U.S. Finance
5.55% due 7/27/98 16,433,862
16,000,000 Dresdner U.S. Finance
5.51% due 8/3/98 15,919,187
------------
32,353,049
------------
Utilities-Electric -- 4.0%
16,500,000 Nat'l. Rural Utils. Coop. Fin. Corp.
5.47% due 7/17/98 16,459,887
------------
Total Financial 113,003,467
------------
INDUSTRIAL -- 66.8%
Automotive -- 15.8%
16,500,000 Daimler Benz North America Co.
5.52% due 8/20/98 16,373,500
16,500,000 Ford Motor Credit Co.
5.54% due 7/6/98 16,487,304
16,000,000 Toyota Motor Credit Co.
5.48% due 7/20/98 15,953,724
16,000,000 Volkswagen of America, Inc.
5.51% due 7/20/98 15,953,471
------------
64,767,999
------------
Computer Systems -- 4.0%
16,500,000 Int'l. Business Machines
5.51% due 7/22/98 16,446,966
------------
Conglomerates -- 4.0%
16,500,000 General Electric Cap. Corp.
5.51% due 8/13/98 16,391,407
------------
Food and Beverage -- 7.7%
$15,000,000 H. J. Heinz Co.
5.50% due 7/23/98 14,949,583
16,500,000 Hershey Foods Corp.
5.51% due 7/24/98 16,441,915
------------
31,391,498
------------
Household Products -- 3.9%
16,075,000 Colgate Palmolive Co.
5.50% due 9/10/98 15,900,631
------------
Machinery -- 3.9%
16,000,000 Deere & Co.
5.48% due 7/9/98 15,980,516
------------
Metals -- 4.0%
16,500,000 Aluminum Co. of America
5.55% due 7/8/98 16,482,194
------------
Oil-Integrated-Domestic -- 4.0%
16,500,000 Shell Finance
5.50% due 7/23/98 16,444,542
------------
Oil-Integrated-International -- 3.9%
16,000,000 Texaco, Inc.
5.49% due 8/4/98 15,917,040
------------
Telecommunications -- 11.8%
16,500,000 Bell Atlantic Financial Svcs.
5.52% due 7/10/98 16,477,230
16,000,000 GTE Finance Corp.
5.56% due 7/22/98 15,948,107
16,000,000 Telstra Corp. Ltd.
5.54% due 8/24/98 15,867,040
------------
48,292,377
------------
Utilities-Electric -- 3.8%
16,000,000 Electricite de France
5.47% due 8/12/98 15,897,893
------------
Total Industrial 273,913,063
------------
TOTAL COMMERCIAL PAPER
(Cost $386,916,530) 386,916,530
------------
See notes to financial statements.
- --------------------------------------------------------------------------------
57
<PAGE>
--------------
The Guardian
Cash Fund,Inc.
--------------
4
--------------
- --------------------------------------------------------------------------------
- ----------------------------
REPURCHASE AGREEMENT -- 5.6%
- ----------------------------
Principal
Amount Value
- -----------------------------------------------------------------------
$ 23,159,000 State Street Bank & Trust Co.
repurchase agreement,
dated 6/30/98, maturity
value $23,162,667 at 5.70%
due 7/1/98 (collateralized
by $23,630,000 U.S.
Treasury Notes, 6.75%
due 5/31/99) $ 23,159,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $23,159,000) 23,159,000
------------
TOTAL INVESTMENTS -- 100.0%
(Cost $410,075,530) 410,075,530
LIABILITIES IN EXCESS OF CASH,
RECEIVABLES AND
OTHER ASSETS -- (0.0%) (65,169)
------------
------------
NET ASSETS -- 100.0% $410,010,361
============
See notes to financial statements.
- --------------------------------------------------------------------------------
58
<PAGE>
- --------------
The Guardian
Cash Fund,Inc.
- --------------
4
- --------------
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS
Investments, at market (cost $410,075,530) $410,075,530
Cash 88
Receivable for fund shares sold 1,270,424
Interest receivable 3,666
Other assets 1,140
------------
TOTAL ASSETS 411,350,848
------------
LIABILITIES
Payable for fund shares redeemed 769,314
Accrued expenses 53,787
Due to affiliates 517,386
------------
TOTAL LIABILITIES 1,340,487
------------
NET ASSETS $410,010,361
============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 4,100,104
Additional paid-in capital 405,910,257
------------
NET ASSETS $410,010,361
============
Shares Outstanding -- $0.10 par value 41,001,036
------------
NET ASSET VALUE PER SHARE $ 10.00
============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1998 (Unaudited)
Investment Income:
Interest $ 10,642,138
------------
Expenses:
Investment advisory fees -- Note B 947,962
Custodian fees 39,583
Printing expense 8,828
Audit fees 8,500
Directors' fees -- Note B 7,125
Transfer agent fees 1,650
Legal fees 1,400
Insurance expense 1,122
Registration fees 1,000
Other 350
------------
Total Expenses 1,017,520
------------
Net Investment Income,
Representing Net Increase in
Net Assets from Operations $ 9,624,618
============
See notes to financial statements.
- --------------------------------------------------------------------------------
59
<PAGE>
--------------
The Guardian
Cash Fund,Inc.
--------------
4
--------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Six Months Year Ended
Ended December 31,
June 30, 1998 1997
(Unaudited) (Audited)
------------- -------------
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 9,624,618 $ 19,627,700
------------- -------------
Net Increase in Net Assets from Operations 9,624,618 19,627,700
------------- -------------
Dividends to Shareholders from:
Net investment income (9,624,618) (19,627,700)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from
capital share transactions -- Note G 41,887,912 (10,199,261)
------------- -------------
Net Increase/(Decrease) in Net Assets 41,887,912 (10,199,261)
Net Assets:
Beginning of period 368,122,449 378,321,710
------------- -------------
End of period $ 410,010,361 $ 368,122,449
============= =============
See notes to financial statements.
- --------------------------------------------------------------------------------
60
<PAGE>
- --------------
The Guardian
Cash Fund,Inc.
- --------------
4
- --------------
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1998 -----------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........ $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment
income ................... 0.25 0.50 0.49 0.54 0.38 0.26
Dividends and Distributions
to Shareholders from:
Net investment income ...... (0.25) (0.50) (0.49) (0.54) (0.38) (0.26)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
period ..................... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------- ----------- ----------- -----------
Total return* ................ 2.54% 5.14% 4.98% 5.52% 3.82% 2.64%
----------- ----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) .......... $ 410,010 $ 368,122 $ 378,322 $ 356,820 $ 386,986 $ 310,798
Ratio of expenses to
average net assets ....... 0.54%(a) 0.54% 0.54% 0.54% 0.54% 0.54%
Ratio of net invest-
ment income to
average net assets ....... 5.08%(a) 5.02% 4.86% 5.39% 3.81% 2.61%
<CAPTION>
-----------------------------------------------------------------------
1992 1991 1990 1989 1988
-----------------------------------------------------------------------
Net asset value,
beginning of period ........ $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment
income ................... 0.35 0.54 0.77 0.87 0.72
Dividends and Distributions
to Shareholders from:
Net investment income ...... (0.35) (0.54) (0.77) (0.87) (0.72)
----------- ----------- ----------- ----------- -----------
Net asset value, end of
period ..................... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------- ----------- -----------
Total return* ................ 3.21% 5.59% 7.95% 8.70% 7.20%
----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) .......... $ 318,879 $ 331,677 $ 331,600 $ 262,865 $ 228,310
Ratio of expenses to
average net assets ....... 0.54% 0.55% 0.56% 0.56% 0.58%
Ratio of net invest-
ment income to
average net assets ....... 3.17% 5.44% 7.67% 8.67% 7.17%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to the
terms of GIAC's variable contracts. Inclusion of such charges would reduce
the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
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62
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The Guardian
Stock, Bond
& Cash
- --------------
4
- --------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- ----------------------------------------------
Note A -- Organization and Accounting Policies
- ----------------------------------------------
The Guardian Stock Fund, Inc. (GSF), The Guardian Bond Fund, Inc. (GBF)
and The Guardian Cash Fund, Inc. (GCF) (collectively, the Funds and
individually, a Fund), are each incorporated in the state of Maryland and are
diversified open-end management investment companies registered under the
Investment Company Act of 1940, as amended (1940 Act).
GSF offers two classes of shares: Class I and Class II. The Class I shares
of GSF, and shares of GBF and GCF, are only sold to certain separate accounts of
The Guardian Insurance & Annuity Company, Inc. (GIAC). GIAC is a wholly-owned
subsidiary of The Guardian Life Insurance Company of America (Guardian Life).
GSF's Class II shares are offered through the ownership of variable annuities
and variable life insurance policies issued by other insurance companies that
offer GSF as an investment option through their separate accounts. The two
classes of shares for GSF represent interests in the same portfolio of
investments, have the same rights and are generally identical in all respects
except that each class bears certain class expenses, and has exclusive voting
rights with respect to any matter to which a separate vote of any class is
required. 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
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.
- --------------------------------------------------------------------------------
63
<PAGE>
--------------
The Guardian
Stock, Bond
& Cash
--------------
4
--------------
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
Investment securities transactions are recorded on the date of purchase or
sale. Repurchase agreements are carried at cost, which approximates value (see
Note C).
Net realized gain or loss on sales of investments is determined on an
identified cost basis. Interest income, including amortization of premium and
discount, is recorded when earned. Dividends are recorded on the ex-dividend
date.
Federal Income Taxes
Each Fund qualifies and intends to remain qualified to be taxed as a
"regulated investment company" under the provisions of the Internal Revenue Code
(Code), and as such will not be subject to federal income tax on investment
income (including any realized capital gains) which is distributed to its
shareholders in accordance with the applicable provisions of the Code.
Therefore, no federal income tax provision is required.
Reclassifications of Capital Accounts
The treatment for financial statement purposes of distributions made
during the year from net investment income and net realized gains may differ
from their ultimate treatment for federal income tax purposes. These differences
primarily are caused by differences in the timing of the recognition of certain
components of income or capital gain, and the recharacterization of foreign
exchange gains or losses to either ordinary income or realized capital gains for
federal income tax purposes. Where such differences are permanent in nature,
they are reclassified in the components of net assets based on their ultimate
characterization for federal income tax purposes. Any such reclassifications
will have no effect on net assets, results of operations, or net asset value per
share of the Fund.
Dividend Distributions
GSF and GBF intend to distribute each year, as dividends or capital gain
distributions, substantially all net investment income and net capital gains
realized. All such dividends or distributions are credited in the form of
additional shares of the applicable Fund at net asset value on the ex-dividend
date. Such distributions are determined in conformity with federal income tax
regulations. Differences between the recognition of 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 com-
- --------------------------------------------------------------------------------
64
<PAGE>
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The Guardian
Stock, Bond
& Cash
- --------------
4
- --------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
missions, but including the investment advisory fee) exceed 1% per annum of the
average daily net assets of the Fund, GISC has agreed to assume any such
expenses. None of the Funds exceeded this limit during the six months ended June
30, 1998.
No compensation is paid by any of the Funds to a director who is deemed to
be an "interested person" (as defined in the 1940 Act) of a Fund. Each director
not deemed an "interested person" is paid an annual fee of $500 by each Fund,
and $350 for attendance at each meeting of each Fund.
- -------------------------------
Note C -- Repurchase Agreements
- -------------------------------
Collateral underlying repurchase agreements takes the form of either cash
or fully negotiable U.S. government securities. Repurchase agreements are fully
collateralized (including the interest earned thereon) and such collateral is
marked-to-market daily while 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 creditworthiness of broker-dealers and banks
which engage in repurchase agreements with each Fund.
- ---------------------------------------
Note D -- Reverse Repurchase Agreements
- ---------------------------------------
GBF may enter into reverse repurchase agreements with banks or third party
broker-dealers to borrow short-term funds. Interest on the value of reverse
repurchase agreements issued and outstanding is based upon competitive market
rates at the time of issuance. At the time GBF enters into a reverse repurchase
agreement, it establishes and maintains cash, U.S. government securities or
liquid, unencumbered securities that are marked-to-market daily in a segregated
account with the Fund's custodian. The value of such segregated assets must be
at least equal to the value of the repurchase obligation (principal plus accrued
interest), as applicable. Reverse repurchase agreements involve the risk that
the buyer of the securities sold by GBF may be unable to deliver the securities
when the Fund seeks to repurchase them. Interest paid on reverse repurchase
agreements for the six months ended June 30, 1998 amounted to $282,863.
Information regarding transactions by GBF under reverse repurchase
agreements is as follows:
<TABLE>
<CAPTION>
Face Market
Value Value
----- -----
<S> <C> <C>
$13,582,938 Reverse Repurchase Agreement with J. P. Morgan, 6.00% dated
6/30/98, to be repurchased at $13,584,919 on 7/1/98, collateralized by
$13,585,000 Lucent Technologies, Inc., 6.00% due 7/1/98 ............................ $ 13,582,938
Average amount outstanding during the period ....................................... $ 12,969,665
Average monthly shares outstanding during the period ............................... 29,122,803
Average debt per share outstanding during the period ............................... $ 0.45
Weighted average interest rate during the period ................................... 4.49%
</TABLE>
- --------------------------------------------------------------------------------
65
<PAGE>
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The Guardian
Stock, Bond
& Cash
--------------
4
--------------
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
- ----------------------------------
Note E -- Dollar Roll Transactions
- ----------------------------------
GBF may enter into dollar roll transactions with financial institutions to
take advantage of opportunities in the mortgage market. A dollar roll
transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase similar securities at an agreed upon price
and date. The securities repurchased will bear the same interest as those sold,
but generally will be collateralized at time of delivery by different pools of
mortgages with different prepayment histories than those securities sold. During
the period between the sale and repurchase, the Fund will not be entitled to
receive interest and principal payments on the securities sold. Dollar roll
transactions involve the risk that the buyer of the securities sold by GBF may
be unable to deliver the securities when GBF seeks to repurchase them.
- ---------------------------------
Note F -- Investment Transactions
- ---------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the six months ended June 30, 1998 were as follows:
GSF GBF
--- ---
Purchases ............................. $ 756,625,827 $ 492,459,212
Proceeds .............................. $ 756,355,281 $ 483,988,557
The cost of investments owned at June 30, 1998 for federal income tax
purposes was the same as for financial reporting purposes. The gross unrealized
appreciation and depreciation of investments at June 30, 1998 for GSF and GBF
were as follows:
GSF GBF
--- ---
Gross Appreciation .................... $ 1,206,622,362 $ 4,540,684
Gross Depreciation .................... (37,819,093) (1,181,870)
--------------- ---------------
Net Unrealized Appreciation ......... $ 1,168,803,269 $ 3,358,814
=============== ===============
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66
<PAGE>
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The Guardian
Stock, Bond
& Cash
- --------------
4
- --------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
- ---------------------------------------
Note G -- Transactions in Capital Stock
- ---------------------------------------
There are 400,000,000 shares of $0.001 par value capital stock authorized
for GSF, divided into two classes, designated Class I and Class II shares. GSF
Class I consists of 300,000,000 shares and Class II consists of 100,000,000
shares. There are 100,000,000 shares of $0.10 par value capital stock authorized
for GBF and GCF. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
(Unaudited) (Audited) (Unaudited) (Audited)
- ---------------------------------------------------------------------------------------------------------------
Shares Amount
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian Stock Fund, Inc.
Shares sold 3,806,719 9,514,978 $ 186,682,674 $ 429,926,820
Shares issued in reinvestment of
dividends and distributions 2,168,488 8,346,801 109,205,045 376,552,398
Shares repurchased (4,900,804) (5,599,554) (243,159,536) (251,187,198)
- ---------------------------------------------------------------------------------------------------------------
Net increase 1,074,403 12,262,225 $ 52,728,183 $ 555,292,020
- ---------------------------------------------------------------------------------------------------------------
o The Guardian Bond Fund, Inc.
Shares sold 2,843,311 3,714,602 $ 35,192,875 $ 45,183,038
Shares issued in reinvestment of
dividends and distributions 731,035 1,799,751 8,962,491 21,605,507
Shares repurchased (3,461,614) (6,115,919) (42,730,979) (73,854,485)
- ---------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 112,732 (601,566) $ 1,424,387 $ (7,065,940)
- ---------------------------------------------------------------------------------------------------------------
o The Guardian Cash Fund, Inc.
Shares sold 19,250,479 30,190,330 $ 192,504,794 $ 301,903,299
Shares issued in reinvestment of
dividends and distributions 962,462 1,962,770 9,624,618 19,627,700
Shares repurchased (16,024,150) (33,173,026) (160,241,500) (331,730,260)
- ---------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 4,188,791 (1,019,926) $ 41,887,912 $ (10,199,261)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
Note H -- Line of Credit
- ------------------------
A $50,000,000 line of credit available to each Fund and the other
Guardian-related Funds has been established with Morgan Guaranty Trust Company.
The rate of interest charged on any borrowings is based upon the prevailing
Federal Funds rate at the time of the loan plus .25% calculated on a 360 day
basis per annum. For the six months ended June 30, 1998, none of the Funds
borrowed against this line of credit.
- --------------------------------------------------------------------------------
67
<PAGE>
--------------
The Guardian
Stock, Bond
& Cash
--------------
4
--------------
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
- -----------------------------
Note I -- Shareholder Meeting
- -----------------------------
A special meeting of shareholders of the Fund was held on April 21, 1998
to vote on several proposals, including the amendment and restatement of the
Fund's Articles of Incorporation, comprehensive amendments to the Fund's
fundamental investment restrictions, and the selection of the Fund's independent
public accountants. The shares of the Fund were voted by GIAC on behalf of the
beneficial owners of Fund shares. The proposal relating to the Fund's investment
restrictions was divided into sub-proposals for each investment restriction
proposed for amendment. Each of the proposals was approved by a substantial
margin.
The voting tabulations for each proposal approved at the meeting are as
follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Amendment and restatement of
the Fund's Articles of Incorporation 16,095,158.351 963,839.873 1,524,300.460
2. Amendment of the Fund's
investment restriction relating to:
A. Prospectus disclosure 15,911,129.922 915,270.120 1,756,898.642
B. Unseasoned issuers 15,856,583.017 969,817.025 1,756,898.642
C. Borrowing 15,812,306.448 1,014,093.594 1,756,898.642
D. Pledge of assets 15,886,420.113 939,979.929 1,756,898.642
E. Securities lending 15,868,613.628 957,786.414 1,756,898.642
F. Industry concentration 15,927,935.095 898,464.947 1,756,898.642
G. Issuer diversification 15,896,955.491 929,444.551 1,756,898.642
H. Warrants 15,896,732.686 929,667.356 1,756,898.642
I. Illiquid/restricted securities 15,865,573.303 960,826.739 1,756,898.642
J. Investment in other mutual funds 15,882,042.522 944,357.520 1,756,898.642
K. Margin and short sales 15,815,723.876 1,010,676.166 1,756,898.642
L. Options 15,835,977.980 990,422.062 1,756,898.642
M. Commodities 15,784,608.023 1,041,792.019 1,756,898.642
N. Real estate 15,868,064.285 958,335.757 1,756,898.642
O. Oil and gas 15,872,532.047 953,867.995 1,756,898.642
P. Ownership by management 15,870,628.361 955,771.681 1,756,898.642
Q. Acquisition of control 15,907,652.388 918,747.654 1,756,898.642
R. Senior securities 15,907,927.213 918,472.829 1,756,898.642
3. Ratification of the selection of
the Fund's independent accountants 16,959,428.569 274,790.785 1,349,079.330
</TABLE>
- --------------------------------------------------------------------------------
68
<PAGE>
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- ----------------------
COMMON STOCKS -- 94.1%
- ----------------------
Shares Value
- ----------------------------------------------------------------------
Aerospace -- 1.1%
5,000 Boeing Co. $ 222,813
70,000 Fairchild Corp., Cl. A 1,413,125
-------------
1,635,938
Agriculture -- 1.5%
15,000 Archer-Daniels-Midland Co. 290,625
18,000 DeKalb Genetics Corp., Cl. B 1,703,250
5,000 Monsanto Co. 279,375
-------------
2,273,250
-------------
Automotive: Parts and Accessories -- 3.2%
12,000 Echlin Inc. 588,750
50,000 GenCorp Inc. 1,312,500
45,000 Modine Manufacturing Co. 1,558,125
8,000 Ragan (Brad) Inc. 314,000
20,000 TransPro Inc. 148,750
55,500 Wynn's International Inc. 1,068,375
-------------
4,990,500
-------------
Aviation: Parts and Services -- 2.7%
16,500 AAR Corp. 487,781
24,000 Barnes Group Inc. 649,500
25,000 Coltec Industries Inc.+ 496,875
16,000 Curtiss-Wright Corp. 627,000
7,500 Hi-Shear Industries Inc. 20,156
31,000 Hudson General Corp. 1,569,375
10,000 Moog Inc., Cl. A+ 381,875
-------------
4,232,562
-------------
Broadcasting -- 5.5%
67,000 Ackerley Communications Inc. 1,407,000
27,235 Chris-Craft Industries Inc. 1,489,414
12,000 Gray Communications
Systems Inc. 388,500
50,000 Gray Communications
Systems Inc., Cl. B 1,543,750
18,000 Grupo Televisa SA, GDR+ 677,250
23,000 Liberty Corp. 1,157,188
16,500 United Television Inc. 1,889,241
-------------
8,552,343
-------------
Building and Construction -- 0.4%
20,000 Nortek Inc. 615,000
-------------
Business Services -- 0.4%
20,000 EnviroSource Inc.+ 350,000
10,000 Republic Industries Inc.+ 250,000
-------------
600,000
-------------
Cable -- 8.7%
43,300 BET Holdings Inc., Cl. A+ 2,725,194
85,000 Cablevision Systems Corp., Cl. A+ 7,097,500
50,000 MediaOne Group Inc. 2,196,875
17,000 Tele-Communications Inc., Cl. A+ 653,438
27,000 Tele-Communications International
Inc., Cl. A + 542,531
20,000 United International
Holdings Inc., Cl. A+ 320,000
-------------
13,535,538
-------------
Consumer Products -- 2.4%
100,000 Carter-Wallace Inc. 1,806,250
18,000 Gallaher Group plc+ 393,750
20,000 General Cigar Holdings Inc. 197,500
18,000 General Cigar Holdings Inc.,
Cl. B (a) 177,750
35,000 General Housewares Corp. 352,188
21,000 National Presto Industries Inc. 817,688
-------------
3,745,126
-------------
Consumer Services -- 1.9%
39,000 Loewen Group Inc. 1,053,000
95,000 Rollins Inc. 1,947,500
-------------
3,000,500
-------------
Diversified Industrial -- 5.0%
6,000 Crane Co. 291,375
46,000 GATX Corp. 2,018,250
20,000 Honeywell Inc. 1,671,250
45,000 ITT Industries Inc. 1,681,875
50,000 Katy Industries Inc. 912,500
20,000 Thomas Industries Inc. 488,750
45,000 Tyler Corp.+ 464,063
10,000 WHX Corp. 128,750
-------------
7,656,813
-------------
See notes to financial statements.
- --------------------------------------------------------------------------------
69
<PAGE>
---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------
Energy -- 2.0%
12,000 Eastern Enterprises $ 514,500
90,000 Kaneb Services Inc.+ 489,375
40,000 Pennzoil Co. 2,025,000
-------------
3,028,875
-------------
Entertainment -- 10.1%
84,664 Ascent Entertainment Group Inc.+ 941,887
3,500 Fisher Companies Inc. 250,250
45,000 Gaylord Entertainment Co., Cl. A 1,451,250
40,000 GC Companies Inc.+ 2,075,000
92,000 Tele-Communications Inc./Liberty
Media Group, Cl. A+ 3,570,750
23,000 Time Warner Inc. 1,965,063
80,000 USA Networks Inc.+ 2,010,000
58,000 Viacom Inc., Cl. A+ 3,393,000
-------------
15,657,200
-------------
Equipment and Supplies -- 9.4%
26,000 Aeroquip-Vickers Inc. 1,517,750
26,000 AMETEK Inc. 762,125
40,000 Ampco-Pittsburgh Corp. 615,000
30,000 CLARCOR Inc. 630,000
15,000 CTS Corp. 447,188
7,000 Daniel Industries Inc. 133,000
100,000 Fedders Corp. 668,750
30,000 Flowserve Corp. 731,250
12,500 Franklin Electric Co. Inc. 850,000
100,000 Hussmann International Inc. 1,875,000
22,000 IDEX Corp. 759,000
28,000 Navistar International Corp.+ 808,500
14,000 Pittway Corp. 1,067,500
30,000 Sequa Corp., Cl A 2,002,500
30,000 SPS Technologies Inc.+ 1,755,000
-------------
14,622,563
-------------
Financial Services -- 5.1%
19,500 Allied Group Inc. 912,844
58,000 American Bankers Insurance
Group Inc. 3,487,250
30,000 Argonaut Group Inc. 948,750
5,000 Mellon Bank Corp. 348,125
63,000 Midland Co. 1,441,125
30,300 Pioneer Group Inc. 797,269
-------------
7,935,363
-------------
Food and Beverage -- 8.5%
4,000 Bestfoods Inc. 232,250
44,000 Celestial Seasonings Inc.+ 2,178,000
31,200 Corn Products International Inc.+ 1,064,700
15,000 General Mills Inc. 1,025,625
12,000 Heinz (H.J.) Co. 673,500
3,000 Keebler Foods Co. 82,500
25,000 Kellogg Co. 939,063
38,000 PepsiCo Inc. 1,565,125
20,000 Quaker Oats Co. 1,098,750
35,000 Seagram Co. Ltd. 1,432,813
11,000 Tootsie Roll Industries Inc. 844,250
7,000 Twinlab Corp. 305,813
78,000 Whitman Corp. 1,794,000
-------------
13,236,389
-------------
Health Care -- 0.7%
120,000 IVAX Corp.+ 1,110,000
-------------
Hotels and Gaming -- 2.1%
102,000 Aztar Corp.+ 694,875
30,000 Hilton Hotels Corp. 855,000
100,000 Jackpot Enterprises Inc. 1,256,250
50,000 Trump Hotels & Casino
Resorts Inc.+ 353,125
-------------
3,159,250
-------------
Home Furnishings -- 0.2%
5,000 Triangle Pacific Corp. 275,000
-------------
Paper and Forest Products -- 0.3%
12,000 Sealed Air Corp. 441,000
-------------
Publishing -- 7.8%
22,000 Dow Jones & Co. Inc. 1,226,500
22,000 Golden Books Family
Entertainment Inc.+ 84,563
15,000 Harcourt General Inc. 892,500
24,000 Lee Enterprises Inc. 735,000
20,500 McClatchy Newspapers Inc., Cl. A 709,813
8,000 McGraw-Hill Companies Inc. 652,500
67,000 Media General Inc., Cl. A 3,299,750
22,000 Meredith Corp. 1,032,625
15,000 Pulitzer Publishing Co. 1,338,750
40,000 Reader's Digest Association Inc., Cl. B 1,085,000
See notes to financial statements.
- --------------------------------------------------------------------------------
70
<PAGE>
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
SCHEDULE OF INVESTMENTS (Continued)
June 30, 1998 (Unaudited)
Shares Value
- ----------------------------------------------------------------------
Publishing -- 7.8% (continued)
56,000 Thomas Nelson Inc. $ 749,000
5,000 Times Mirror Co., Cl. A 314,375
-------------
12,120,376
-------------
Real Estate -- 1.2%
32,000 Griffin Land & Nurseries Inc. 560,000
75,000 Catellus Development Corp. 1,326,563
-------------
1,886,563
-------------
Retail -- 5.5%
10,000 Aaron Rents Inc. 100,000
5,000 Aaron Rents Inc., Cl. A 181,250
80,000 American Stores Co. 1,935,000
50,000 Bruno's Inc., New+ 52,500
65,000 Giant Food Inc., Cl. A 2,799,063
15,000 Lillian Vernon Corp. 249,375
10,000 Mercantile Stores Co. 789,375
53,000 Neiman Marcus Group Inc.+ 2,302,188
18,500 Scheib (Earl) Inc. 143,375
-------------
8,552,126
-------------
Specialty Chemical -- 1.1%
11,000 Arco Chemical Co. 630,438
18,000 Ferro Corp. 455,625
20,000 Sybron Chemicals Inc. 640,000
-------------
1,726,063
-------------
Telecommunications -- 3.6%
200,750 Citizens Utilities Co., Cl. B 1,932,219
40,000 Frontier Corp. 1,260,000
20,000 GST Telecommunications Inc.+ 288,750
49,500 Rogers Communications Inc., Cl. B+ 445,500
25,000 Southern New England
Telecommunications Corp. 1,637,500
1,366 US West Inc. 64,179
-------------
5,628,148
-------------
Wireless Communications -- 3.7%
25,000 360(degrees)Communications Co.+ 800,000
20,000 Centennial Cellular Corp., Cl. A+ 746,250
45,000 COMSAT Corp. 1,274,063
55,000 Rogers Cantel Mobile
Communications Inc., Cl. B+ 687,500
55,000 Telephone and Data Systems Inc. 2,165,625
-------------
5,673,438
-------------
TOTAL COMMON STOCKS
(Cost $112,702,237) 145,889,924
-------------
- ---------------------------
U.S. TREASURY BILLS -- 7.8%
- ---------------------------
Principal
Amount Value
- ----------------------------------------------------------------------
$ 12,173,000 4.87% to 5.16%++
due 08/06/98 -- 09/17/98 12,076,617
-------------
TOTAL U.S. TREASURY BILLS
(Cost $12,076,617) 12,076,617
-------------
TOTAL INVESTMENTS -- 101.9%
(Cost $124,778,854) 157,966,541
-------------
OTHER ASSETS AND
LIABILITIES (Net) -(1.9)% (2,903,648)
-------------
NET ASSETS -- 100.0% $ 155,062,893
=============
For Federal tax purposes:
Aggregate cost $124,778,854
============
Gross unrealized appreciation $ 36,382,276
Gross unrealized depreciation (3,194,589)
------------
Net unrealized appreciation $ 33,187,687
============
(a) Security fair valued as determined by the Board of Directors.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
GDR -- Global Depositary Receipt
See notes to financial statements.
- --------------------------------------------------------------------------------
71
<PAGE>
---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998 (Unaudited)
Assets:
Investments, at value (cost $124,778,854) $157,966,541
Cash 535
Dividends and interest receivable 87,032
Receivable for investments sold 195,552
Receivable for capital shares sold 212,700
Deferred organizational expenses 38,243
------------
Total Assets 158,500,603
------------
Liabilities:
Payable for investments purchased 2,757,345
Payable for capital shares redeemed 445,744
Payable for investment advisory fees 122,686
Accrued Directors' fees 6,750
Other accrued expenses 105,185
------------
Total Liabilities 3,437,710
------------
Net Assets applicable to 8,911,147 shares
outstanding $155,062,893
============
Net Assets consist of:
Capital stock, at par value $ 8,911
Additional paid-in capital 118,194,672
Undistribution investment income 205,643
Accumulated net realized gain on investments 3,465,980
Net unrealized appreciation on investments 33,187,687
------------
Total Net Assets $155,062,893
============
Net Asset Value, offering and redemption
price per share (155,062,893 / 8,911,147
shares outstanding; 500,000,000 shares
authorized of $0.001 par value) $ 17.40
============
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Unaudited)
Investment Income:
Dividends $ 394,894
Interest 593,361
------------
Total Investment Income 988,255
------------
Expenses:
Investment advisory fees 653,358
Legal and audit fees 22,000
Custodian fees 20,463
Directors' fees 13,100
Organizational expenses 10,658
Shareholder services fees 5,556
Miscellaneous 57,477
------------
Total Expenses 782,612
------------
Net Investment Income 205,643
------------
Net Realized and Unrealized Gain on
Investments:
Net realized gain on investments 3,516,395
Net change in unrealized appreciation
on investments 12,397,172
------------
Net realized and unrealized gain on
investments 15,913,567
------------
Net increase in net assets resulting from
operations $ 16,119,210
============
See notes to financial statements.
- --------------------------------------------------------------------------------
72
<PAGE>
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31,
(Unaudited) 1997
------------- ------------
<S> <C> <C>
Operations:
Net investment income $ 205,643 $ 118,286
Net realized gain on investments 3,516,395 7,046,284
Net change in unrealized appreciation on investments 12,397,172 17,681,316
------------- -------------
Net increase in net assets resulting from operations 16,119,210 24,845,886
Distributions to shareholders:
Net investment income -- (118,286)
In excess of net investment income -- (8,067)
Net realized gain on investments -- (7,046,284)
In excess of net realized gain on investments -- (29,472)
------------- -------------
Total distributions to shareholders -- (7,202,109)
Capital share transactions:
Net increase in net assets from capital share transactions 33,593,418 36,244,957
------------- -------------
Net increase in net assets 49,712,628 53,888,734
Net Assets:
Beginning of period 105,350,265 51,461,531
------------- -------------
End of period $ 155,062,893 $ 105,350,265
============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
73
<PAGE>
---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- ----------------
1 -- Description
- ----------------
The Gabelli Capital Asset Fund (the "Fund"), a series of Gabelli Capital
Series Funds, Inc. (the "Company"), was organized on April 8, 1993 as a
Maryland corporation. The Company is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), whose primary objective is growth of capital. The Fund
commenced operations on May 1, 1995. Shares of the Fund are available to the
public only through the purchase of certain variable annuity and variable life
insurance contracts issued by The Guardian Insurance & Annuity Company, Inc.
- ------------------------------------
2 -- Significant Accounting Policies
- ------------------------------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Fund in the
preparation of its financial statements.
Security Valuation
Portfolio securities listed or traded on a nationally recognized
securities exchange, quoted by the National Association of Securities Dealers
Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange (if there were no sales that
day, the security is valued at the average of the closing bid and asked prices).
All other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest average of the bid and asked prices.
When market quotations are not readily available, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Board of Directors.
Short term debt securities with remaining maturities of 60 days or less are
valued at amortized cost, unless the Directors determine such does not reflect
the securities' fair value, in which case these securities will be valued at
their fair value as determined by the Directors. Options are valued at the last
sale price on the exchange on which they are listed. If no sales of such options
have taken place that day, they will be valued at the mean between their closing
bid and asked prices.
Securities Transactions and Investment Income
Securities transactions are accounted for on the trade date, with realized
gain or loss on the sale of investments determined by using the identified cost
method. Interest income (including amortization of premium and accretion of
discount) is recorded as earned. Dividend income is recorded on the
ex-dividend date.
Dividends and Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the
ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund.
Provision for Income Taxes
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
- --------------------------------------------------------------------------------
74
<PAGE>
- ---------------
Gabelli Capital
Asset Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1998 (Unaudited)
amended. As a result, a Federal income tax provision is not required.
Organizational Expenses
A total of $100,000 in expenses 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 organizational
costs were deferred and are being amortized on a straight-line basis over a
period of 60 months from the date the Fund commenced investment operations.
- --------------------------------------
3 -- Agreements with Affiliated Partie
- --------------------------------------
Pursuant to a management agreement (the "Management Agreement"), the
Fund will pay Guardian Investor Services Corporation (the "Manager") a fee,
computed daily and paid monthly, at the annual rate of 1.00% of the value of the
Fund's average daily net assets. Pursuant to an Investment Advisory Agreement
among the Fund, the Manager and Gabelli Funds, Inc. (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
Company who are its affiliates. As compensation for its services and the
related expenses borne by the Adviser, the Manager pays the Adviser a fee,
computed daily and paid monthly, at the annual rate of 0.75% of the value of the
Fund's average daily net assets.
- -------------------------
4 -- Portfolio Securities
- -------------------------
Purchases and sales of securities for the six months ended June 30, 1998,
other than short term securities, aggregated $63,882,218 and $25,496,124,
respectively.
- ---------------------------------
5 -- Transactions with Affiliates
- ---------------------------------
During the six months ended June 30, 1998, the Fund paid brokerage
commissions of $88,420 to Gabelli & Company, Inc. and its affiliates.
- -------------------------------
6 -- Capital Stock Transactions
- -------------------------------
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
6/30/98 12/31/97
----------- -----------
Shares Amount Shares Amount
------- -------- ------- -------
<S> <C> <C> <C> <C>
Shares sold 2,765,511 $ 45,755,568 3,454,754 $ 50,227,654
Shares issued upon re-
investment of dividends -- -- 478,228 7,202,109
Shares redeemed (735,539) (12,162,150) (1,507,694) (21,184,806)
------------ ------------ ------------ ------------
Net increase 2,029,972 $ 33,593,418 2,425,288 $ 36,244,957
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
75
<PAGE>
---------------
Gabelli Capital
Asset Fund
---------------
5
---------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period.
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1998 --------------------------------------------
(Unaudited) 1997 1996 1995+
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period ............ $ 15.31 $ 11.55 $ 10.70 $ 10.00
----------- ----------- ----------- -----------
Net investment income ........................... 0.02 0.02 0.02 0.03(a)
Net realized and unrealized gain on investments . 2.07 4.88 1.16 0.80
----------- ----------- ----------- -----------
Total from investment operations ................ 2.09 4.90 1.18 0.83
----------- ----------- ----------- -----------
Distributions to shareholders:
From net investment income ...................... -- (0.02) (0.02) (0.03)
From net realized gain on investments ........... -- (1.12) (0.31) (0.09)
In excess of net realized gain on investments ... -- (0.00)(b) -- (0.01)
----------- ----------- ----------- -----------
Total distributions ............................. -- (1.14) (0.33) (0.13)
----------- ----------- ----------- -----------
Net asset value, end of period ...................... $ 17.40 $ 15.31 $ 11.55 $ 10.70
=========== =========== =========== ===========
Total return++ .................................. 13.7% 42.6% 11.0% 8.4%
=========== =========== =========== ===========
Ratios to average net assets and supplemental data:
Net assets, end of period (in 000's) ................ $ 155,063 $ 105,350 $ 51,462 $ 26,364
Ratio of net investment income to average
net assets ........................................ 0.31%(c) 0.17% 0.21% 0.75%(c)
Ratio of operating expenses to average
net assets (d) .................................... 1.19%(c) 1.17% 1.31% 1.78%(c)
Portfolio turnover rate ............................. 21% 65% 53% 81%
</TABLE>
- -----------
+ From commencement of operations on May 1, 1995.
++ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period including reinvestment of dividends. Total return for the period of
less than one year is not annualized.
(a) Net investment income before expenses assumed by the Manager and Adviser
was $0.03.
(b) Amount represents less than $0.005 per share.
(c) Annualized.
(d) The ratio of operating expenses to average net assets before reimbursement
of expenses assumed by the Manager and Adviser would have been 1.92% for
the year ended December 31, 1995.
See notes to financial statements.
- --------------------------------------------------------------------------------
76
<PAGE>
- ---------------
Baillie Gifford
International
Fund
- ---------------
6
- ---------------
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- ----------------------
COMMON STOCKS -- 96.6%
- ----------------------
Shares Value
- -----------------------------------------------------------------------
ARGENTINA -- 0.4%
Oil and Gas -- 0.2%
266,600 Perez Companc S.A $ 1,338,526
Telecommunications -- 0.2%
29,300 Telefonica de Argentina ADR* 950,419
------------
2,288,945
------------
AUSTRALIA -- 1.8%
Banks -- 0.4%
176,800 National Australia Bank 2,337,644
Beverage -- 0.5%
1,335,300 Fosters Brewing Group 3,149,771
Business Services -- 0.5%
175,700 Brambles Industries Ltd. 3,456,293
Consumer Goods -- 0.1%
258,000 Woolworths Ltd. 840,806
Real Estate -- 0.3%
101,632 Lend Lease Corp. 2,059,825
------------
11,844,339
------------
BRAZIL -- 1.2%
Food, Beverage and Tobacco -- 0.2%
93,000 Comp. Cerveja Ria Brahma ADR 1,162,500
Petroleum Services -- 0.2%
75,000 Petroleo Brasileiro S.A. ADR 1,394,233
Retail-Food -- 0.2%
64,000 Comp. Brasileira de Distribution ADR+ 1,448,000
Telecommunications -- 0.3%
11,000 Telecom. Brasileiras ADR 1,201,063
4,606,790 Telesp. Tel. Sao Paolo 1,038,285
Utilities-Electric -- 0.3%
20,221 Comp. Energetica de Minas ADR 629,420
18,479 Comp. Energetica de Minas ADR+ 575,195
61,000 Comp. Paranaense de Energia ADR 564,250
------------
8,012,946
------------
CHILE -- 0.1%
Retail-Food -- 0.1%
38,400 Distribucion Y Servicio S.A. ADR 576,000
------------
FRANCE -- 9.2%
Capital Goods -- 0.9%
28,300 Alcatel Alsthom 5,762,327
Construction Materials -- 2.7%
172,000 Lafarge 17,781,233
Financial Services -- 2.7%
154,000 AXA UAP 17,321,402
Oil-Integrated -- 1.9%
86,550 Elf Aquitaine 12,168,566
Retail Trade -- 1.0%
13,035 Comptoirs Modernes 6,791,645
------------
59,825,173
------------
GERMANY -- 18.8%
Automobiles -- 2.9%
18,636 Bayerische Motoren Werke AG 18,858,688
Banks -- 2.1%
161,500 Bayerische Vereinsbank AG 13,701,239
Chemicals -- 1.2%
159,800 BASF AG 7,598,131
Drugs and Health Care -- 0.8%
99,440 GEHE AG 5,334,675
Footwear -- 2.4%
89,300 Adidas AG 15,572,847
Industrial Machineries -- 4.0%
254,655 Mannesmann AG 26,193,408
Insurance -- 2.6%
34,600 Munchener Ruckvers* 17,190,163
Software -- 2.8%
29,720 SAP AG 18,045,080
------------
122,494,231
------------
HONG KONG -- 0.7%
Conglomerates -- 0.5%
644,000 Hutchison Whampoa 3,399,535
Real Estate -- 0.2%
698,000 New World Development Co. 1,351,316
------------
4,750,851
------------
See notes to financial statements.
* Non-income producing security.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
77
<PAGE>
---------------
Baillie Gifford
International
Fund
---------------
6
---------------
- --------------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------------
HUNGARY -- 0.9%
Food and Beverage -- 0.3%
27,000 Pick Szeged RT $ 1,579,373
Pharmaceuticals -- 0.6%
51,700 Richter Gedeon VEG 4,161,537
------------
5,740,910
------------
IRELAND -- 2.3%
Banks -- 1.1%
512,000 Allied Irish Bank 7,401,924
Construction Materials -- 1.2%
555,000 CRH PLC 7,880,362
------------
15,282,286
------------
ITALY -- 7.9%
Banks -- 3.8%
9,152,000 Banco di Roma* 19,058,618
371,000 Istituto Bco. Sao Paolo Torino* 5,355,931
Telecommunications -- 4.1%
1,625,444 Telecom. Italia SPA 11,970,696
2,435,000 Telecom. Italia MOB 14,897,116
------------
51,282,361
------------
JAPAN -- 11.2%
Automobile -- 0.8%
136,000 Honda Motor Co. 4,858,899
Chemicals -- 1.2%
321,000 Kao Corp. 4,968,106
166,000 Shin Etsu Chemical Co. 2,881,319
Drugs and Health Care -- 0.6%
184,000 Sankyo Co. 4,205,106
Electronics -- 3.3%
160,000 Canon, Inc. 3,645,042
457,000 Matsushita Electric Works 3,701,743
55,000 Rohm Co. 5,668,258
60,800 Sony Corp. 5,254,647
41,000 TDK Corp.* 3,039,343
Financial Services -- 2.4%
142,800 Credit Saison Co. 2,840,095
134,100 Promise Co. 5,537,795
585,000,000 Sanwa Int'l. Financial* 4,315,470
12,800 Shohkoh Fund & Co. 3,156,722
Leisure Products -- 0.3%
18,100 Toho Co. 1,911,188
Photography -- 0.6%
118,000 Fuji Photo Film Co. 4,121,935
Real Estate -- 0.4%
281,000 Mitsubishi Estate 2,479,352
Retail Trade -- 0.6%
80,000 Ito Yokado Co.* 3,778,115
Telecommunications -- 1.0%
778 Nippon Tele. & Tel. Corp. 6,470,673
------------
72,833,808
------------
MEXICO -- 0.7%
Paper and Forest Products -- 0.1%
191,000 Kimberly-Clark de Mexico 674,893
Retail Trade -- 0.2%
84,000 Grupo Elektra S.A. de C.V. GDR 819,000
237,000 Organiz. Soriana 675,221
Telecommunications -- 0.1%
4,400,000 Telesp. Celular S.A.* 365,224
Transportation -- 0.3%
49,000 Grupo Television S.A. de C.V. ADR* 1,843,625
------------
4,377,963
------------
NETHERLANDS -- 2.5%
Banks -- 0.5%
131,397 ABN Amro Hldgs. NV 3,076,865
Broadcasting and Publishing -- 2.0%
360,000 Ver Ned Uitgevers 13,087,689
------------
16,164,554
------------
NEW ZEALAND -- 0.1%
Telecommunications -- 0.1%
444,012 Telecom. Corp. of New Zealand 951,892
------------
PEOPLE'S REPUBLIC OF CHINA -- 0.2%
Telecommunications -- 0.2%
736,000 China Telecom.* 1,277,646
------------
See notes to financial statements.
* Non-income producing security.
- ------------------------------------------------------------------------
78
<PAGE>
- ---------------
Baillie Gifford
International
Fund
- ---------------
6
- ---------------
- ------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)(Continued)
Shares Value
- -----------------------------------------------------------------------
POLAND -- 0.8%
Electrical Equipment -- 0.8%
428,950 Elektrim* $ 5,228,097
------------
SINGAPORE -- 0.2%
Publishing -- 0.2%
162,052 Singapore Press Hldgs 1,086,758
------------
SPAIN -- 4.4%
Banks -- 2.4%
612,600 Banco Santander S.A 15,679,523
Industrials -- 2.0%
55,800 Grupo Acciona S.A.* 13,274,104
------------
28,953,627
------------
SWEDEN -- 3.5%
Construction and Mining Equipment -- 0.9%
216,000 Atlas Copco AB 5,890,171
Telecommunications -- 2.6%
578,000 LM Ericsson 16,884,905
------------
22,775,076
------------
SWITZERLAND -- 6.9%
Business Services -- 1.3%
18,309 Adecco S.A 8,270,063
Insurance -- 2.7%
28,080 Zurich Versicherungs-Gesellschaft 17,949,838
Pharmaceuticals -- 2.9%
11,210 Novartis AG 18,684,567
------------
44,904,468
------------
UNITED KINGDOM -- 22.8%
Banks -- 3.3%
429,500 HSBC Hldgs 10,412,817
550,000 Lloyds TSB Group PLC 7,700,239
188,000 National Westminster Bank Co. PLC 3,361,908
Conglomerates -- 3.6%
1,382,000 Hanson PLC 8,405,161
1,123,000 Rentokil Initial PLC 8,081,565
1,077,000 Williams Hldgs 6,923,327
Containers-Paper and Plastic -- 0.4%
600,000 Bunzl PLC 2,825,132
Data Services -- 0.4%
253,933 Reuters Group PLC 2,904,345
Drugs and Health Care -- 3.5%
583,000 Glaxo Wellcome 17,512,097
124,000 Zeneca Group 5,325,141
Electronics -- 0.5%
373,000 Electrocomponents 2,927,151
Engineering -- 0.7%
243,000 Siebe 4,856,673
Financial Services -- 0.9%
316,000 CGU PLC* 5,898,850
Food, Beverage and Tobacco -- 2.6%
350,000 Devro Int'l 2,942,429
961,900 Imperial Tobacco 7,098,893
418,702 Whitbread 6,781,335
Leisure Products -- 0.7%
243,000 Granada Group 4,471,223
Mining -- 0.1%
129,500 Antofagasta Hldgs 540,565
Newspapers -- 0.4%
300,000 Southnews PLC 2,579,686
Oil-International -- 1.6%
735,313 British Petroleum 10,730,553
Retail Trade -- 0.6%
475,087 Dixons Group 3,791,748
Telecommunications -- 2.9%
492,000 British Telecom.* 6,079,044
642,991 Cable & Wireless Co.* 6,516,764
483,000 Vodafone Group 6,133,167
Transportation -- 0.6%
288,000 BAA PLC* 3,111,252
44,000 Stagecoach Hldgs.* 936,702
------------
148,847,767
------------
TOTAL COMMON STOCKS
(Cost $460,442,756) 629,499,698
------------
See notes to financial statements.
* Non-income producing security.
- -------------------------------------------------------------------------------
79
<PAGE>
---------------
Baillie Gifford
International
Fund
---------------
6
---------------
- -------------------------------------------------------------------------------
- ----------------------------
REPURCHASE AGREEMENT -- 1.3%
- ----------------------------
Principal
Shares Value
- -----------------------------------------------------------------------
$ 8,749,000 State Street Bank & Trust Co.
repurchase agreement, dated 6/30/98,
maturity value $8,750,215 at 5.00%
due 7/1/98 (collateralized by
$8,930,000 U.S. Treasury Notes,
8.75% due 5/15/17) $ 8,749,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $8,749,000) 8,749,000
------------
TOTAL INVESTMENTS -- 97.9%
(Cost $469,191,756) 638,248,698
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 2.1% 14,014,347
------------
NET ASSETS -- 100.0% $652,263,045
============
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
See notes to financial statements.
- -------------------------------------------------------------------------------
80
<PAGE>
- ---------------
Baillie Gifford
International
Fund
- ---------------
6
- ---------------
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS
Investments, at market (cost $469,191,756) $ 638,248,698
Cash 919
Foreign currency (cost $23,718,584) 23,615,261
Receivable for securities sold 3,387,097
Dividend reclaims receivable 764,481
Dividends receivable 749,840
Receivable for fund shares sold 238,654
Interest receivable 1,215
Other assets 660
-------------
TOTAL ASSETS 667,006,825
-------------
LIABILITIES
Payable for investments purchased 10,982,975
Payable for fund shares redeemed 1,247,222
Unrealized depreciation on closed forward
exchange currency contracts 751,400
Accrued expenses 214,219
Due to affiliates 1,547,964
-------------
TOTAL LIABILITIES 14,743,780
-------------
NET ASSETS $ 652,263,045
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 3,023,857
Additional paid-in capital 447,930,381
Distributions in excess of net investment income (3,306,756)
Accumulated net realized gain on investments
and foreign currency related transactions 36,414,070
Net unrealized appreciation of investments
and translation of other assets and
liabilities denominated in foreign currencies 168,201,493
-------------
NET ASSETS $ 652,263,045
=============
Shares Outstanding -- $0.10 par value 30,238,568
-------------
NET ASSET VALUE PER SHARE $ 21.57
=============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1998 (Unaudited)
Investment Income:
Dividends $ 6,943,888
Interest 316,630
Less: Foreign tax withheld (865,317)
-------------
Total Income 6,395,201
-------------
Expenses:
Investment advisory fees -- Note B 2,406,476
Custodian fees 420,024
Printing expense 82,500
Audit fees 10,500
Directorsi fees -- Note B 6,250
Transfer agent fees 1,650
Legal fees 1,475
Insurance expense 1,381
Registration fees 1,000
Other 350
-------------
Total Expenses 2,931,606
-------------
Net Investment Income 3,463,595
-------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized gain on investments -- Note A 36,813,651
Net realized loss on foreign currency
related transactions -- Note A (6,897)
Net change in unrealized appreciation of
investments -- Note C 63,602,866
Net change in unrealized depreciation from
translation of other assets and liabilities
denominated in foreign currencies -- Note C (640,046)
-------------
Net Realized and Unrealized Gain on
Investments and Foreign Currencies 99,769,574
-------------
Net Increase in Net Assets
from Operations $ 103,233,169
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
81
<PAGE>
---------------
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International
Fund
---------------
6
---------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1998 1997
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 3,463,595 $ 3,812,500
Net realized gain on investments and foreign currency
related transactions 36,806,754 23,438,047
Net change in unrealized appreciation/(depreciation)
on investments and translation of other assets and
liabilities denominated in foreign currencies 62,962,820 27,252,164
------------- -------------
Net Increase in Net Assets from Operations 103,233,169 54,502,711
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income (2,398,640) (3,812,500)
Distributions in excess of net investment income -- (4,530,809)
Net realized gain on investments (3,734,213) (20,727,823)
------------- -------------
Total Dividends and Distribution to Shareholders (6,132,853) (29,071,132)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from capital share
transactions -- Note E 20,451,259 53,077,150
------------- -------------
Net Increase in Net Assets 117,551,575 78,508,729
Net Assets:
Beginning of period 534,711,470 456,202,741
------------- -------------
End of period* $ 652,263,045 $ 534,711,470
============= =============
* Includes distributions in excess of net investment income of: $ (3,306,756) $ (4,371,711)
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
82
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International
Fund
- ---------------
6
- ---------------
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
February 8,
Six Months 1991* to
Ended Year Ended December 31, (Audited) December 31,
June 30, 1998 ------------------------------------------------------------------- 1991
(Unaudited) 1997 1996 1995 1994 1993 1992 (Audited)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ......... $ 18.27 $ 17.26 $ 15.37 $ 14.69 $ 14.69 $ 11.16 $ 12.37 $ 10.00
-------- -------- -------- -------- -------- -------- ------- -------
Income from investment
operations:
Net investment income ..... 0.12 0.15 0.15 0.16 0.15 0.23 0.09 0.04
Net realized and unrealized
gain/(loss) on investments
and translation of other
assets and liabilities
denominated in
foreign currencies ...... 3.38 1.91 2.21 1.49 (0.02) 3.54 (1.20) 2.52
-------- -------- -------- -------- -------- -------- ------- -------
Net increase/(decrease) from
investment operations ... 3.50 2.06 2.36 1.65 0.13 3.77 (1.11) 2.56
-------- -------- -------- -------- -------- -------- ------- -------
Dividends and Distributions
to Shareholders from:
Net investment income ..... (0.08) (0.15) (0.14) (0.15) (0.13) (0.24) (0.10) (0.04)
Distributions in excess of
net investment income ... -- (0.15) (0.10) (0.12) -- -- -- --
Net realized gain on invest-
ments and foreign currency
related transactions .... (0.12) (0.75) (0.23) (0.70) -- -- -- (0.15)
-------- -------- -------- -------- -------- -------- ------- -------
Total dividends and
distributions ........... (0.20) (1.05) (0.47) (0.97) (0.13) (0.24) (0.10) (0.19)
-------- -------- -------- -------- -------- -------- ------- -------
Net asset value, end of
period ...................... $ 21.57 $ 18.27 $ 17.26 $ 15.37 $ 14.69 $ 14.69 $ 11.16 $ 12.37
-------- -------- -------- -------- -------- -------- ------- -------
Total return** ................ 19.20% 11.93% 15.41% 11.23% 0.87% 34.04% (8.90)% 8.56%
-------- -------- -------- -------- -------- -------- ------- -------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ........... $652,263 $534,711 $456,203 $317,287 $303,050 $186,795 $55,175 $36,012
Ratio of expenses to average
net assets ................ 0.97%(a) 0.97% 0.98% 0.99% 1.03% 1.11% 1.26% 1.67%(a)
Ratio of net investment
income to average net
assets .................... 1.15%(a) 0.74% 0.94% 0.97% 1.11% 1.75% 0.88% 0.61%(a)
Portfolio turnover
rate ...................... 29% 51% 38% 52% 27% 18% 44% 14%
Average rate of
commissions paid(b) ....... $ 0.0012 $ 0.0214 $ 0.0364
</TABLE>
* Commencement of operations.
** Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
See notes to financial statements.
- --------------------------------------------------------------------------------
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84
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Emerging
Markets Fund
- ---------------
7
- ---------------
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- ----------------------
COMMON STOCKS -- 88.0%
- ----------------------
Shares Value
- ----------------------------------------------------------------------
ARGENTINA -- 6.6%
Banks -- 0.5%
16,699 Banco Galicia Y
Buenos Aires S.A. ADR* $ 304,757
Building Construction -- 0.6%
114,000 Dycasa Dragados S.A. 353,451
Oil and Gas -- 1.2%
154,300 Perez Companc S.A. 774,698
Real Estate -- 1.4%
29,732 IRSA Inversiones Y Represente GDR* 865,945
Retail-Food -- 1.4%
61,000 Imp. Y Exp. Patagonia* 905,981
Telecommunications -- 1.5%
29,153 Telefonica de Argentina S.A. ADR* 945,650
-----------
4,150,482
-----------
BRAZIL -- 23.9%
Banks -- 2.0%
2,221,000 Banco Itau S.A. 1,267,442
Food, Beverage and Tobacco -- 1.4%
1,400,000 Comp. Cerv. Ria Brahma 871,558
Industrial Machineries -- 1.8%
69,000 Elevadores Atlas 1,163,373
Petroleum Services -- 3.4%
11,600,000 Petroleo Brasileiro S.A. 2,156,413
Real Estate -- 0.6%
18,100 Brazil Realty S.A. GDR* 403,769
Retail-Food -- 2.1%
57,700 Comp. Brasileiras de Dist. ADR 1,305,462
Telecommunications -- 7.8%
26,000,000 Ericsson Telecom. S.A. 494,574
17,600 Telecom. Brasileiras S.A. ADR 1,921,700
10,354,581 Telecom. de Sao Paolo S.A. 1,872,827
9,889,784 Telesp. Celular S.A.* 598,049
Textile-Apparel and Production -- 1.0%
230,800 Confeccoes Guararapes S.A. 627,522
Utilities-Electric and Water -- 3.8%
31,400,700 Comp. Energetica de Minas 977,411
13,034 Comp. Paranaense de Energia ADR 120,564
4,499,998 Comp. Saneam. Basico
Est. de Sao Paolo 540,832
7,266,276 Eletropaulo Metropolitana S.A. 546,596
7,266,276 Emp. Bandeirante de Energia S.A.* 114,973
7,266,276 Emp. Metropolitana Aguas Energia* 5,654
7,266,276 Emp. Paulista Transmissao
de Energia* 25,696
4,274,280 Light Particapacoes 1,515
-----------
15,015,930
-----------
CHILE -- 5.1%
Chemicals -- 0.9%
17,240 Sociedad Quimica Y Minera
de Chile S.A. ADR 577,540
Food and Beverage -- 1.1%
42,600 Embotelladora Andina S.A. ADR 665,625
Mining -- 0.8%
120,000 Antofagasta Hldgs. 500,909
Mutual Fund -- 1.2%
25,600 Genesis Chile Fund 755,200
Retail-Food -- 1.1%
46,584 Distribucion Y Servicio ADR 698,760
-----------
3,198,034
-----------
COLOMBIA -- 2.2%
Banks -- 0.5%
17,000 Banco Ganadero S.A. ADR 299,625
Gas Distribution -- 0.7%
91,000 Promigas S.A. 452,009
Retail-Food -- 0.8%
272,000 Almacenes Exito S.A. 536,449
Tobacco -- 0.2%
76,018 Coltabaco 113,833
-----------
1,401,916
-----------
CZECH REPUBLIC -- 1.2%
Financial Services -- 0.4%
40,000 IKS KB Plus* 236,686
Food and Beverage -- 0.2%
79,500 Prazske Pivovary* 168,179
Telecommunications -- 0.6%
27,200 SPT Telecom. AS* 376,098
-----------
780,963
-----------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
85
<PAGE>
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Baillie Gifford
Emerging
Markets Fund
---------------
7
---------------
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------
HONG KONG -- 2.2%
Real Estate -- 1.1%
2,900,000 China Overseas Land $ 374,290
149,000 New World Development Co. 288,462
Telecommunications -- 1.1%
406,000 China Telecom.* 704,788
-----------
1,367,540
-----------
HUNGARY -- 8.2%
Building Construction and Materials -- 1.0%
18,580 Zalakeramia 660,263
Consumer Goods -- 0.8%
18,500 Graboplast Textile 468,740
Food, Beverage and Tobacco -- 1.2%
12,500 Pick Szeged RT 731,191
Lodging -- 0.9%
28,150 Danubius Hotel* 566,476
Pharmaceuticals -- 1.9%
14,880 Richter Gedeon VEG 1,197,749
Plastics -- 1.3%
21,260 Pannonplast 787,587
Transportation -- 1.1%
36,500 North American Bus* 717,814
-----------
5,129,820
-----------
INDIA -- 3.1%
Computer Software -- 1.7%
200 Aptech Ltd. 2,332
20,800 Infosys Technology Ltd. 1,090,405
Mutual Fund -- 1.4%
113,500 Indian Opportunity Fund* 879,625
-----------
1,972,362
-----------
INDONESIA -- 0.0%
Household Products -- 0.0%
6,000 Unilever Indonesia* 11,468
-----------
MALAYSIA -- 0.3%
Food, Beverage and Tobacco -- 0.3%
130,000 RJ Reynolds Berhad 180,120
-----------
MEXICO -- 13.7%
Banks -- 0.9%
290,000 Grupo Financiero Banamex* 564,798
Conglomerates -- 0.7%
55,000 Grupo Carso S.A. de C.V. ADR 452,952
Financial Services -- 1.0%
540,500 Grupo Financiero Banorte* 601,525
Food, Beverage and Tobacco -- 2.4%
260,000 Grupo Continental 868,065
19,200 Pan American Beverages, Inc. 603,600
Media and Entertainment -- 4.1%
609,840 Corp. Interamericana Entretenimiento* 1,696,734
23,700 Grupo Television S.A. de C.V. ADR* 891,713
Paper and Forest Products -- 1.6%
290,000 Kimberly-Clark de Mexico 1,024,706
Real Estate -- 1.3%
148,800 Corp. Geo S.A.* 831,313
Retail Trade -- 1.1%
40,300 Grupo Elektra S.A. GDR 392,925
108,000 Organiz. Soriana 307,696
Telecommunications -- 0.6%
8,200 Telefonos de Mexico S.A. ADR 394,113
-----------
8,630,140
-----------
PAKISTAN -- 0.1%
Banks -- 0.1%
183,500 Faysal Bank 35,820
-----------
PEOPLE'S REPUBLIC OF CHINA -- 1.7%
Household Products -- 1.0%
770,000 Guandong Kelon Elec. Hldgs. 606,220
Utilities-Electric -- 0.7%
1,540,000 Beijing Datang Power Gen. Co.* 432,305
-----------
1,038,525
-----------
PERU -- 0.8%
Telecommunications -- 0.8%
245,000 Telefonica del Peru* 504,596
-----------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
86
<PAGE>
- ---------------
Baillie Gifford
Emerging
Markets Fund
- ---------------
7
- ---------------
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited) (Continued)
- ----------------------
COMMON STOCKS -- 88.0%
- ----------------------
Shares Value
- ----------------------------------------------------------------------
PHILIPPINES -- 0.2%
Business Services -- 0.1%
450,000 Int'l. Container Terminal Svcs.* $ 51,258
Food and Beverage -- 0.1%
385,368 RFM Corp. 55,449
-----------
106,707
-----------
POLAND -- 6.0%
Banks -- 4.1%
60,000 Bank Handlowy Warsaw 1,144,250
53,000 Bank Roswoju Eksport 1,436,335
Electrical Equipment -- 1.9%
100,000 Elektrim* 1,218,813
-----------
3,799,398
-----------
PORTUGAL -- 0.6%
Financial Services -- 0.6%
15,050 Comp. de Seguros Tranquilidade 407,638
-----------
SINGAPORE -- 0.1%
Construction -- 0.1%
98,000 Clipsal Industries Ltd.* 87,710
-----------
SOUTH AFRICA -- 4.0%
Brewing -- 0.8%
24,000 South African Breweries 493,761
Conglomerates -- 0.5%
57,434 Barlow Ltd. 302,667
Consumer Goods -- 0.7%
77,000 Ellerine Hldgs.* 422,007
Financial Services -- 1.6%
351,000 FirstRand Ltd. 538,634
24,300 Liberty Life Assoc. 473,707
Oil-Domestic -- 0.4%
44,683 Sasol 258,830
-----------
2,489,606
-----------
SOUTH KOREA -- 3.7%
Electronic Equipments -- 0.6%
24,000 Samsung Electronics Ltd. GDR*+ 381,000
Health Care -- 1.8%
130,000 Medison Co. 1,131,464
Retail-Apparel -- 1.3%
42,000 Younggone Corp.* 822,870
-----------
2,335,334
-----------
SRI LANKA -- 0.8%
Banks -- 0.8%
264,800 National Development Bank 506,116
----------
TAIWAN -- 3.5%
Banks -- 0.0%
84 ICBC 107
Financial Services -- 1.4%
372,375 China Development* 861,565
Industrial Machineries -- 1.1%
603,000 Yungtay Engineering Co. Ltd. 728,292
Textile-Apparel and Production -- 1.0%
789,600 Far East Textile 611,265
----------
2,201,229
----------
TOTAL COMMON STOCKS
(Cost $62,162,733) 55,351,454
-----------
- -------------------------
CONVERTIBLE BONDS -- 4.9%
- -------------------------
Principal
Amount Value
- ----------------------------------------------------------------------
$1,075,000 Metro Pacific Capital
2.50% due 4/11/03 $ 851,937
1,100,000 Orient Semiconductor Elect. Ltd.
1.50% due 2/26/03 971,190
200,000 RFM Capital
2.75% due 5/30/06 174,500
1,100,000 Siliconware Precision Industries
.50% due 7/21/04 1,055,780
-----------
TOTAL CONVERTIBLE BONDS
(Cost $3,546,297) 3,053,407
-----------
See notes to financial statements.
* Non-income producing security.
+ Rule 144 A restricted security.
- --------------------------------------------------------------------------------
87
<PAGE>
---------------
Baillie Gifford
Emerging
Markets Fund
---------------
7
---------------
- --------------------------------------------------------------------------------
- ----------------------------
REPURCHASE AGREEMENT -- 4.8%
- ----------------------------
Principal
Amount Value
- ----------------------------------------------------------------------
$3,041,000 State Street Bank & Trust Co.
repurchase agreement,
dated 6/30/98, maturity value
$3,041,422 at 5.00% due 7/1/98
(collateralized by $3,105,000
U.S. Treasury Bonds, 8.125%
due 8/15/21) $ 3,041,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $3,041,000) 3,041,000
-----------
TOTAL INVESTMENTS -- 97.7%
(Cost $68,750,030) 61,445,861
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 2.3% 1,436,083
-----------
NET ASSETS -- 100.0% $62,881,944
===========
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
See notes to financial statements.
- --------------------------------------------------------------------------------
88
<PAGE>
- ----------------
Baillie Gifford
Emerging Markets
Fund
- ----------------
7
- ----------------
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS
Investments, at market (cost $68,750,030) $ 61,445,861
Cash 126
Foreign currency (cost $1,132,949) 1,092,916
Receivable for securities sold 351,599
Dividends receivable 304,782
Interest receivable 15,042
Receivable for fund shares sold 5,276
Dividend reclaims receivable 2,332
Deferred organization expenses 1,547
------------
TOTAL ASSETS 63,219,481
------------
LIABILITIES
Accrued expenses 44,464
Payable for fund shares redeemed 41,528
Due to affiliates 251,545
------------
TOTAL LIABILITIES 337,537
------------
NET ASSETS $ 62,881,944
============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 760,833
Additional paid-in capital 75,192,469
Distributions in excess of net investment income (455,906)
Distributions in excess of net realized gain on
investments and foreign currency
related transactions (5,262,677)
Net unrealized depreciation of investments
and translation of other assets and
liabilities denominated in foreign currencies (7,352,775)
------------
NET ASSETS $ 62,881,944
============
Shares Outstanding -- $0.10 par value 7,608,334
------------
NET ASSET VALUE PER SHARE $ 8.26
============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1998 (Unaudited)
Investment Income:
Dividends $ 1,228,280
Interest 64,404
Less: Foreign tax withheld (137,319)
------------
Total Income 1,155,365
------------
Expenses:
Investment advisory fees -- Note B 386,691
Custodian fees 144,562
Printing expense 12,500
Audit fees 10,500
Directors' fees -- Note B 6,250
Registration fees 2,960
Transfer agent fees 1,650
Insurance expense 878
Legal fees 509
Deferred organization expense 252
Other 350
------------
Total Expenses 567,102
------------
Net Investment Income 588,263
------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized loss on investments -- Note A (3,686,214)
Net realized loss on foreign currency related
transactions -- Note A (337,248)
Net change in unrealized appreciation of
investments -- Note C (10,885,321)
Net change in unrealized appreciation from
translation of other assets and liabilities
denominated in foreign currencies -- Note C (58,209)
------------
Net Realized and Unrealized Loss on
Investments and Foreign Currencies (14,966,992)
------------
Net Decrease in Net Assets
from Operations $(14,378,729)
============
See notes to financial statements.
- --------------------------------------------------------------------------------
89
<PAGE>
----------------
Baillie Gifford
Emerging Markets
Fund
----------------
7
----------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1998 1997
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 588,263 $ 734,015
Net realized gain/(loss) on investments and
foreign currency related transactions (4,023,462) 2,641,526
Net change in unrealized appreciation/
(depreciation) on investments and
translation of other assets and liabilities
denominated in foreign currencies (10,943,530) (4,534,373)
------------ ------------
Net Decrease in Net Assets from Operations (14,378,729) (1,158,832)
------------ ------------
Dividends and Distributions to Shareholders from:
Net investment income (481,281) (470,207)
Net realized gains on investments and foreign
currency related transactions -- (2,641,526)
In excess of net realized gains on investments
and foreign currency transactions -- (1,578,227)
------------ ------------
Total Dividends and Distributions to Shareholders (481,281) (4,689,960)
------------ ------------
From Capital Share Transactions:
Increase/(Decrease) in net assets from capital share
transactions -- Note E (9,271,755) 25,800,397
------------ ------------
Net Increase/(Decrease) in Net Assets (24,131,765) 19,951,605
Net Assets:
Beginning of period 87,013,709 67,062,104
------------ ------------
End of period* $ 62,881,944 $ 87,013,709
============ ============
* Includes distributions in excess of net investment income of: $ (455,906) $ (562,888)
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
90
<PAGE>
- ---------------
Baillie Gifford
International
Fund
- ---------------
7
- ---------------
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
October 17,
Six Months 1994* to
Ended Year Ended December 31, (Audited) December 31,
June 30, 1998 --------------------------------- 1994
(Unaudited) 1997 1996 1995 (Audited)
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .............. $ 10.17 $ 10.54 $ 8.46 $ 8.68 $ 9.87
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income/(loss) ..... 0.07 0.09 0.07 0.07 (0.01)
Net realized and unrealized
gain/(loss) on investments
and translation of other assets
and liabilities denominated in
foreign currency ............... (1.92) 0.12 2.01 (0.12) (1.17)
------- ------- ------- ------- -------
Net increase/(decrease) from
investment operations .......... (1.85) 0.21 2.08 (0.05) (1.18)
------- ------- ------- ------- -------
Dividends and Distributions
to Shareholders from:
Net investment income ............ (0.06) (0.06) -- (0.07) (0.01)
Distributions in excess of
net investment income .......... -- -- -- (0.10) --
Net realized gain on invest-
ments and foreign currency
related transactions ........... -- (0.33) -- -- --
In excess of net realized gain
on investments ................. -- (0.19) -- -- --
------- ------- ------- ------- -------
Total dividends and
distributions .................. (0.06) (0.58) -- (0.17) (0.01)
------- ------- ------- ------- -------
Net asset value, end of
period ........................... $8.26 $10.17 $10.54 $8.46 $8.68
------- ------- ------- ------- -------
Total return** ..................... (18.15)% 1.97% 24.59% (0.60)% (11.97)%
------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ................ $62,882 $87,014 $67,062 $34,218 $24,069
Ratio of expenses to average
net assets ..................... 1.47%(a) 1.40% 1.53% 1.67% 2.28%(a)
Ratio of net investment
income to average
net assets ..................... 1.52%(a) 0.76% 0.85% 0.89% 0.94%(a)
Portfolio turnover
rate ........................... 29% 64% 46% 52% --
Average rate of
commissions paid(b) ............ $0.0001 $0.0003 $0.0313
</TABLE>
* Commencement of public offering of the Fundis shares.
** Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
See notes to financial statements.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
92
<PAGE>
- ------------
The Guardian
Small Cap
Stock Fund
- ------------
8
- ------------
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- ----------------------
COMMON STOCKS -- 95.0%
- ----------------------
Shares Value
- ----------------------------------------------------------------------
Aerospace-Defense -- 0.5%
31,000 Kaman Corp. $ 589,969
------------
Air Transportation -- 1.3%
21,000 Airnet Systems, Inc.* 338,625
12,000 Alaska Air Group, Inc.* 654,750
21,000 America West Hldg. Corp.* 599,812
------------
1,593,187
------------
Appliance and Furniture -- 3.4%
57,900 Ethan Allen Interiors, Inc. 2,891,381
32,000 Furniture Brands Int'l., Inc.* 898,000
20,000 SMed Int'l., Inc.* 360,000
------------
4,149,381
------------
Automotive Parts -- 0.8%
18,100 Arvin Industries, Inc. 657,256
30,000 Automobile Protection Corp.* 298,125
------------
955,381
------------
Building Materials and Homebuilders -- 6.6%
17,100 Cameron Ashley Building Products* 288,563
18,000 Crossman Communities, Inc.* 546,750
18,000 Engle Homes, Inc. 281,250
30,000 Giant Cement Hldgs., Inc.* 858,750
33,000 D. R. Horton, Inc.* 688,875
27,500 Lennar Corp. 811,250
17,800 Lone Star Industries, Inc. 1,371,713
31,700 National RV Hldgs., Inc.* 1,430,462
3,500 NCI Building Systems, Inc.* 202,125
16,900 Southdown, Inc. 1,206,238
77,000 Stratus Pptys., Inc.* 327,250
------------
8,013,226
------------
Capital Goods-Miscellaneous -- 4.8%
40,000 Cultural Access World Wide* 390,000
44,500 Dispatch Mgt. Svcs. Corp.* 1,118,062
33,000 Dynamex, Inc.* 400,125
36,000 Hawk Corp.* 634,500
75,000 Hawker Pacific Aerospace* 834,375
27,000 Ladish, Inc.* 337,500
30,000 LMI Aerospace* 301,880
9,700 Market Facts, Inc.* 210,975
27,000 SOS Staffing Svcs., Inc.* 474,187
34,350 Western Staff Svcs., Inc.* 635,475
35,000 Zomax Optical Media, Inc.* 538,125
------------
5,875,204
------------
Capital Goods-Miscellaneous Technology -- 5.6%
103,500 AFC Cable Systems, Inc.* 3,674,250
7,900 Alliant Techsystems, Inc.* 499,675
22,000 Centex Construction Products, Inc. 847,000
24,000 Chart Industries, Inc. 573,000
26,500 Kaydon Corp. 935,781
12,200 National Computer Systems, Inc. 292,800
------------
6,822,506
------------
Chemicals -- 2.7%
9,100 AptarGroup, Inc. 565,906
30,000 Cambrex Corp. 787,500
23,000 LeaRonal, Inc. 549,125
28,500 MacDermid, Inc. 805,125
3,500 Minerals Technologies, Inc.* 178,062
16,000 Myers Industries, Inc. 384,000
------------
3,269,718
------------
Computer Software -- 1.8%
44,000 Ducocorp, Inc.* 288,750
33,500 May & Speh, Inc.* 665,813
6,750 National Instruments Corp.* 241,312
6,000 Visio Corp.* 286,500
18,200 Wind River Systems, Inc.* 652,925
------------
2,135,300
------------
Computer Systems -- 1.8%
50,000 Dunn Computer Corp., VA* 412,500
18,500 Henry Jack & Associates, Inc. 635,937
40,200 HTE, Inc.* 542,700
65,000 The Intercept Group, Inc.* 483,438
13,000 Sandisk Corp.* 179,562
------------
2,254,137
------------
Drugs and Hospitals -- 2.9%
14,400 Boron LePore & Associates, Inc.* 547,200
42,000 Depotech Corp.* 65,625
15,000 Genesis Health Ventures, Inc.* 375,000
9,000 Integrated Health Svcs., Inc. 337,500
75,000 Iomed, Inc.* 384,375
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
93
<PAGE>
------------
The Guardian
Small Cap
Stock Fund
------------
8
------------
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------
12,000 Jones Pharma, Inc. $ 397,500
32,000 King Pharmaceuticals, Inc.* 448,000
6,700 Maxxim Medical, Inc.* 194,300
20,000 Respironics, Inc.* 311,250
19,350 United Payors & United Providers, Inc.* 437,794
------------
3,498,544
------------
Electrical Equipment -- 2.4%
38,400 Daisytek Int'l. Corp.* 976,800
53,000 EFTC Corp.* 689,000
17,400 Esterline Technologies Corp.* 363,225
17,500 Kopin Corp.* 336,875
18,000 Power One, Inc.* 169,875
8,200 Sanmina Corp.* 355,675
------------
2,891,450
------------
Electronics and Instruments -- 0.6%
41,000 FARO Technologies, Inc.* 433,063
19,000 SMART Modular Technologies, Inc.* 277,875
------------
710,938
------------
Energy-Miscellaneous -- 0.6%
95,000 Frontier Oil Corp.* 760,000
------------
Entertainment and Leisure -- 0.7%
11,200 Anchor Gaming* 869,400
------------
Financial-Banks -- 3.0%
8,100 Cullen Frost Bankers, Inc. 439,425
18,090 Fifth Third Bancorp* 1,139,670
3,500 Prime Bancshares, Inc. 88,812
5,000 Republic Banking Corp. of Florida 80,000
13,600 Silicon Valley Bancshares* 484,075
10,900 U.S. Bancorp, Inc. 842,706
16,500 Westamerica Bancorp 530,063
------------
3,604,751
------------
Financial-Other -- 3.8%
10,000 Dain Rauscher Corp. 547,500
20,000 DVI, Inc.* 510,000
20,000 Federated Investors, Inc., PA* 370,000
16,700 Freedom Securities Corp.* 302,688
6,100 Jefferies Group, Inc. 250,100
28,000 McDonald & Co. Investments, Inc. 918,750
34,000 Morgan Keegan, Inc. 879,750
23,600 Ragen Mackenzie Group, Inc.* 356,950
20,000 Southwest Securities Group, Inc. 450,000
------------
4,585,738
------------
Financial-Thrift -- 1.3%
5,500 Astoria Financial Corp. 294,250
27,500 BankAtlantic Bancorp, Inc. 324,844
10,800 Coast Federal Litigation Trust* 163,350
4,500 Commercial Federal Corp. 142,312
29,348 Peoples Heritage Financial Group 693,347
------------
1,618,103
------------
Food, Beverage and Tobacco -- 3.0%
19,800 Earthgrains Co. 1,106,325
34,900 Fresh Foods, Inc.* 523,500
50,000 Hain Food Group, Inc.* 1,293,750
44,000 Omega Protein Corp.* 676,500
------------
3,600,075
------------
Footwear -- 0.7%
8,000 Footstar, Inc.* 384,000
33,700 Shoe Carnival, Inc.* 467,587
------------
851,587
------------
Household Products -- 0.9%
59,000 Home Products Int'l., Inc.* 685,875
13,800 Oneida Ltd. 422,625
------------
1,108,500
------------
Insurance -- 10.1%
26,600 American Heritage Life Investments 615,125
17,500 American Insurance Group* 205,625
12,750 W.R. Berkley Corp. 510,797
21,000 Chicago Title Corp.* 969,938
10,100 CMAC Investment Corp. 621,150
30,000 Enhance Financial Svcs. Group, Inc. 1,012,500
9,000 Executive Risk, Inc. 663,750
79,200 Fidelity National Financial, Inc. 3,153,150
12,000 Financial Sec. Assur. Hldgs. Ltd. 705,000
22,000 Harleysville Group, Inc. 456,500
4,800 Markel Corp.* 854,400
45,000 Penn America Group, Inc. 607,500
8,000 Presidential Life Corp.* 171,000
11,000 Reinsurance Group of America* 564,437
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
94
<PAGE>
- ------------
The Guardian
Small Cap
Stock Fund
- ------------
8
- ------------
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)(Continued)
Shares Value
- ----------------------------------------------------------------------
23,000 State Auto Financial Corp. $ 733,125
10,000 Stewart Information Svcs. Corp. 485,625
------------
12,329,622
------------
Lodging -- 1.7%
36,400 Fairfield Communities, Inc.* 698,425
45,000 ILX, Inc.* 264,375
51,500 Signature Resorts, Inc.* 849,750
19,000 Silverleaf Resorts, Inc.* 289,750
------------
2,102,300
------------
Machinery and Equipment -- 3.3%
6,150 AAR Corp. 181,809
11,000 Graco, Inc. 383,625
13,800 Manitowoc Co., Inc. 556,313
56,000 Northwest Pipe Co.* 1,316,000
10,500 SPX Corp.* 675,938
9,900 Varlen Corp. 341,550
19,800 Wabash National Corp.* 509,850
------------
3,965,085
------------
Merchandising-Department Stores -- 1.1%
37,600 Shopko Stores, Inc.* 1,278,400
------------
Merchandising-Drugs -- 0.0%
1,400 Duane Reade, Inc.* 42,000
------------
Merchandising-Food -- 1.2%
25,000 Smithfield Foods, Inc.* 762,500
9,476 Tootsie Roll Industries, Inc. 727,283
------------
1,489,783
------------
Merchandising-Mass -- 1.5%
19,100 Brylane, Inc.* 878,600
30,800 Lands End, Inc.* 974,050
------------
1,852,650
------------
Merchandising-Special -- 7.2%
47,100 1-800 Contacts, Inc.* 718,275
42,300 American Coin Merchandising* 835,425
10,000 Ames Department Stores, Inc.* 263,125
6,600 A.C. Moore Arts & Crafts, Inc.* 107,250
8,000 BJ's Wholesale Club, Inc.* 325,000
26,000 The Dress Barn* 646,750
13,000 Freds, Inc. 331,500
30,000 Genesis Direct, Inc.* 333,750
50,000 The Good Guys, Inc.* 673,438
40,000 Homebase, Inc.* 317,500
15,000 Hughes Supply, Inc. 549,375
16,700 Miami Computer Supplies* 267,200
35,000 Pier 1 Imports, Inc. 835,625
13,500 Stage Stores, Inc.* 610,875
26,000 Stein Mart, Inc.* 351,000
22,000 Trans World Entertainment Corp.* 948,750
18,000 Wet Seal, Inc.* 576,000
------------
8,690,838
------------
Metals-Steel -- 0.6%
25,000 Quanex Corp. 757,813
------------
Miscellaneous-Consumer Growth Staples -- 2.0%
50,000 Innotrac Corp.* 475,000
49,800 Mail Well Hldgs., Inc.* 1,080,037
12,300 StaffMark, Inc.* 450,487
12,000 Valassis Communications, Inc.* 462,750
------------
2,468,274
------------
Oil and Gas Producing -- 3.1%
30,000 Basin Exploration, Inc.* 528,750
125,000 Beau Canada Exploration Ltd.* 148,653
22,000 Bellwether Exploration Co.* 171,875
21,800 Callon Petroleum Co.* 312,013
242,800 Canadian 88 Energy Corp.* 1,016,725
37,000 Chieftain Int'l., Inc.* 876,438
50,000 Petromet Resources Ltd.* 112,500
16,000 Rigel Energy Corp.* 145,697
7,000 St. Mary Land & Exploration Co. 168,875
14,000 Snyder Oil Corp. 279,125
------------
3,760,651
------------
Oil and Gas Services -- 1.2%
3,000 Friede Goldman Int'l., Inc.* 86,625
20,600 Unifab Int'l., Inc.* 334,750
26,200 Varco Int'l., Inc.* 519,088
29,000 Willbros Group, Inc.* 453,125
------------
1,393,588
------------
Paper and Forest Products -- 0.4%
17,700 Deltic Timber Corp. 443,606
------------
Pollution Control -- 0.3%
21,000 Imco Recycling, Inc. 388,500
------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
95
<PAGE>
------------
The Guardian
Small Cap
Stock Fund
------------
8
------------
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------
Publishing-News -- 2.0%
15,000 Bowne & Co., Inc. $ 675,000
44,400 Harte-Hanks Communications 1,146,075
6,200 Pulitzer Publishing Co. 553,350
------------
2,374,425
------------
Real Estate Investment Trust -- 3.3%
16,000 American Gen. Hospitality Corp. 340,000
4,147 Apartment Investment & Mgt. Co. 163,807
8,000 Arden Realty, Inc. 207,000
12,000 Brandywine Realty Trust 268,500
7,500 Camden Ppty. Trust 223,125
12,000 Colonial Pptys. Trust, Inc. 372,000
13,500 Commercial Net Lease Realty, Inc. 218,531
15,000 Eldertrust 257,813
30,000 Innkeepers USA Trust 378,750
7,500 JDN Realty Corp. 239,062
12,000 Mills Corp. 288,000
68,000 Sunstone Hotel Investors, Inc. 905,250
7,400 Tower Realty Trust, Inc. 165,575
------------
4,027,413
------------
Textile-Apparel and Production -- 1.9%
33,000 Burlington Industries, Inc.* 464,063
2,200 Columbia Sportswear Co.* 41,800
20,000 Mohawk Industries, Inc.* 633,750
7,600 Nautica Enterprises, Inc.* 203,775
3,700 St. John Knits, Inc. 142,913
40,000 Tropical Sportswear Int'l. Corp.* 850,000
------------
2,336,301
------------
Transportation-Miscellaneous -- 3.4%
26,800 Airborne Freight Corp. 936,325
16,500 Budget Group, Inc.* 526,969
4,300 Central Parking Corp. 199,950
37,500 Dollar Thrifty Automotive Group, Inc.* 496,875
12,900 Expeditors Int'l. Wash., Inc. 567,600
28,800 Maritrans, Inc. 261,000
54,000 Rollins Truck Leasing Corp. 668,250
13,200 Sea Containers Ltd. 504,900
------------
4,161,869
------------
Truckers -- 0.9%
17,500 U.S. Freightways Corp. 574,766
24,750 Werner Enterprises, Inc. 471,797
------------
1,046,563
------------
Utilities-Electric -- 0.0%
1,500 Minnesota Power & Light Co. 59,625
------------
Utilities-Gas and Pipeline -- 0.2%
5,700 Cleco Corp. 169,575
3,800 Indiana Energy, Inc. 113,522
------------
283,097
------------
Utilities-Telecommunications -- 0.4%
43,000 Startec Global Communications Corp.* 494,500
------------
TOTAL COMMON STOCKS
(Cost $100,856,263) 115,503,998
------------
- ----------------------------
REPURCHASE AGREEMENT -- 5.4%
- ----------------------------
Principal
Amount Value
- ----------------------------------------------------------------------
$6,536,000 State Street Bank & Trust Co.
repurchase agreement, dated 6/30/98,
maturity value $6,537,035 at 5.70%
due 7/1/98 (collateralized by
$6,670,000 U.S. Treasury Notes,
6.75%, due 5/31/99) $ 6,536,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $6,536,000) 6,536,000
------------
TOTAL INVESTMENTS -- 100.4%
(Cost $107,392,263) 122,039,998
LIABILITIES IN EXCESS OF CASH,
RECEIVABLES AND OTHER
ASSETS -- (0.4%) (454,365)
------------
NET ASSETS -- 100.0% $121,585,633
============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
96
<PAGE>
- ------------
The Guardian
Small Cap
Stock Fund
- ------------
8
- ------------
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS
Investments, at market (cost $107,392,263) $ 122,039,998
Cash 4,497
Receivable for securities sold 692,934
Receivable for fund shares sold 165,886
Dividends receivable 59,776
Other assets 1,458
Interest receivable 1,035
-------------
TOTAL ASSETS 122,965,584
-------------
LIABILITIES
Payable for securities purchased 1,102,425
Accrued expenses 15,013
Payable for fund shares redeemed 131
Due to affiliates 262,382
-------------
TOTAL LIABILITIES 1,379,951
-------------
NET ASSETS $ 121,585,633
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 835,923
Additional paid-in capital 106,975,233
Undistributed net investment income 16,864
Distributions in excess of net realized
gain on investments (890,122)
Net unrealized appreciation of investments 14,647,735
-------------
NET ASSETS $ 121,585,633
=============
Shares Outstanding -- $0.10 par value 8,359,231
-------------
NET ASSET VALUE PER SHARE $ 14.55
=============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1998 (Unaudited)
Investment Income:
Dividends $ 378,486
Interest 176,279
-------------
Total Income 554,765
-------------
Expenses:
Investment advisory fees -- Note B 411,365
Custodian fees 37,159
Printing expense 14,125
Audit fees 8,750
Directors' fees -- Note B 8,000
Registration fees 2,350
Transfer agent fees 1,650
Insurance expense 704
Legal fees 600
Other 350
Deferred organization expense 98
-------------
Total Expenses 485,151
-------------
Net Investment Income 69,614
-------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note C
Net realized loss on investments -- Note A (903,399)
Net change in unrealized appreciation of
investments -- Note C 7,441,690
-------------
Net Realized and Unrealized Gain
on Investments 6,538,291
-------------
Net Increase in Net Assets
from Operations $ 6,607,905
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
97
<PAGE>
------------
The Guardian
Small Cap
Stock Fund
------------
8
------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from
April 2,
Six Months 1997+ to
Ended December 31,
June 30, 1998 1997
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 69,614 $ 165,805
Net realized gain/(loss) on investments (903,399) 1,925,041
Net change in unrealized appreciation of investments 7,441,690 7,206,045
------------- ------------
Net Increase in Net Assets from Operations 6,607,905 9,296,891
------------- ------------
Dividends and Distributions to Shareholders from:
Net investment income (52,750) (165,805)
Net realized gain on investments (848,131) (1,063,633)
------------- ------------
Total Dividends and Distributions to Shareholders (900,881) (1,229,438)
------------- ------------
From Capital Share Transactions:
Increase in net assets from capital share transactions -- Note E 28,129,206 79,681,950
------------- ------------
Net Increase in Net Assets 33,836,230 87,749,403
Net Assets:
Beginning of period 87,749,403 --
------------- ------------
End of period* $ 121,585,633 $ 87,749,403
============= ============
* Includes undistributed net investment income of: $ 16,864 $ --
</TABLE>
+ Commencement of operations.
See notes to financial statements.
- --------------------------------------------------------------------------------
98
<PAGE>
- ------------
The Guardian
Small Cap
Stock Fund
- ------------
8
- ------------
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
Six Months April 2, 1997*
Ended to December 31,
June 30, 1998 1997
(Unaudited) (Audited)
-----------------------------------
Net asset value,
beginning of period ................ $ 13.63 $ 10.00
------------- -------------
Income from investment
operations:
Net investment
income ........................... 0.01 0.03
Net realized and
unrealized gain
on investments ................... 1.02 3.80
------------- -------------
Net increase from
investment
operations ....................... 1.03 3.83
------------- -------------
Dividends and Distributions
to Shareholders from:
Net investment income .............. (0.01) (0.03)
Net realized gain .................. (0.10) (0.17)
------------- -------------
Total dividends and
distributions .................... (0.11) (0.20)
------------- -------------
Net asset value, end of
period ............................. $ 14.55 $ 13.63
------------- -------------
Total return** ....................... 7.56% 38.32%
------------- -------------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) .................. $ 121,586 $ 87,749
Ratio of expenses to
average net assets ............... 0.88%(a) 0.96%(a)
Ratio of net investment
income to average net assets ..... 0.13%(a) 0.48%(a)
Portfolio turnover
rate ............................. 20% 22%
Average rate of
commissions paid(b) .............. $ 0.0288 $ 0.0296
* Commencement of operations.
** Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trade on
which commissions are charged.
See notes to financial statements.
- --------------------------------------------------------------------------------
99
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
100
<PAGE>
- ----------------
GIAC Funds, Inc.
- ----------------
8
- ----------------
- --------------------------------------------------------------------------------
GIAC Funds, Inc. (including: Baillie Gifford
International Fund, Baillie Gifford Emerging Markets
Fund and The Guardian Small Cap Stock Fund)
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- ----------------------------------------------
Note A -- Organization and Accounting Policies
- ----------------------------------------------
GIAC Funds, Inc. (the Company) is a diversified open-end management
investment company registered under the Investment Company Act of 1940, as
amended (1940 Act), which was incorporated in Maryland on October 29, 1990. The
Company was known as Baillie Gifford International Fund, Inc. prior to October
11, 1994 and GBG Funds, Inc. prior to March 27, 1997. Shares of the Company are
offered in three series: Baillie Gifford International Fund (BGIF), Baillie
Gifford Emerging Markets Fund (BGEMF) and The Guardian Small Cap Stock Fund
(GSCSF). The series are collectively referred to herein as the "Funds". Shares
of the Funds are only sold to certain separate accounts of The Guardian
Insurance & Annuity Company, Inc. (GIAC). GIAC is a wholly- owned subsidiary of
The Guardian Life Insurance Company of America (Guardian Life). The Funds are
available for investment only through certain variable annuity and variable life
insurance contracts issued by GIAC. Upon commencing its operations on September
13, 1994 (BGEMF) and on April 2, 1997 (GSCSF) each Fund sold 2,000,000 shares of
its capital stock to Guardian Life for $20,000,000 per Fund 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.
Valuation of Investments
Securities listed on foreign exchanges and for which market quotations are
readily available are valued at the closing price on the exchange on which the
securities are traded at the close of the appropriate exchange or, if there have
been no sales during the day, at the mean of the closing bid and asked prices.
Securities traded in the over-the-counter market are valued at the mean between
the bid and asked prices. Securities listed or traded on any domestic (U.S.)
exchanges are valued at the last sale price or, if there have been no sales
during the day, at the mean of the closing bid and asked prices. Securities for
which market quotations are not readily available, including restricted
securities and illiquid assets, are valued at fair value as determined in good
faith by or under the direction of the Company's Board of Directors. Investing
outside of the U.S. may involve certain considerations and risks not typically
associated with domestic investments, including: the possibility of political
and economic unrest and different levels of governmental supervision and
regulation of foreign securities markets.
Repurchase agreements are carried at cost which approximates market value
(See Note D).
Foreign Currency Translation
The books and records of the Funds are maintained in U.S. dollars as
follows:
(1) The foreign currency market value of investment securities and other
assets and liabilities stated in foreign currencies are translated into U. S.
dollars at the current rate of exchange.
(2) Purchases, sales, income and expenses are translated at the rate of
exchange prevailing on the respective dates of such transactions.
The resulting gains and losses are included in the Statement of Operations
as follows:
Realized foreign exchange gains and losses, which
- --------------------------------------------------------------------------------
101
<PAGE>
----------------
GIAC Funds, Inc.
----------------
8
----------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
result from changes in foreign exchange rates between the date on which the
Funds earn dividends and interest or pay foreign withholding taxes or other
expenses and the date on which U.S. dollar equivalent amounts are actually
received or paid, are included in net realized gain or loss on foreign currency
related transactions. Realized foreign exchange gains and losses which result
from changes in foreign exchange rates between the trade and settlement dates on
security and currency transactions are also included in net realized gains or
losses on foreign currency related transactions. Net currency gains and losses
from valuing 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 other assets and
liabilities denominated in foreign currencies.
Forward Foreign Currency Contracts
The Funds may enter into forward foreign currency contracts in connection
with planned purchases or sales of securities, or to hedge against changes in
currency exchange rates affecting the values of securities denominated in a
particular currency. A forward foreign currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Fluctuations in the value of forward foreign currency exchange contracts
are recorded for book purposes as unrealized gains or losses on foreign currency
related transactions by the Funds. When forward contracts are closed, the Funds
record realized gains or losses equal to the 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. None of the Funds 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 an identified cost basis.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on an accrual basis. Dividends on foreign securities are recorded when
the Funds are informed of the dividend.
Taxes
Each Fund intends to continue to qualify to be taxed as a "regulated
investment company" under the provisions of the Internal Revenue Code (Code),
and as such will not be subject to federal income tax on income (including any
realized capital gains) which is distributed to its shareholders in accordance
with the provisions of the Code. Therefore, no federal income tax provision is
required. Losses on security transactions arising after October 31 are treated
as arising on the first day of the Funds' next fiscal year.
Investment income received from investments in foreign currencies may be
subject to foreign withholding tax. Whenever possible, the Funds will attempt to
operate so as to qualify for reduced tax rates or tax exemptions in those
countries with which the United States has a tax treaty.
Dividends and Distributions to Shareholders
The Funds intend to distribute each year, as dividends, substantially all
net investment income and net realized capital gains. All such dividends or
distributions are credited in the form of additional shares of the Funds at net
asset value on the ex-dividend date.
- --------------------------------------------------------------------------------
102
<PAGE>
- ----------------
GIAC Funds, Inc.
- ----------------
8
- ----------------
- --------------------------------------------------------------------------------
GIAC Funds, Inc. (including: Baillie Gifford
International Fund, Baillie Gifford Emerging Markets
Fund and The Guardian Small Cap Stock Fund)
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
Such distributions are determined in conformity with federal income tax
regulations. Differences between the recognition of income on an income tax
basis and recognition of income based on generally accepted accounting
principles may cause temporary overdistributions of net realized gains and net
investment income. Currently, the Funds' policy is to distribute net investment
income approximately every six months and net capital gains once a year. This
policy is, however, subject to change at any time by the Company's Board of
Directors.
Reclassifications of Capital Accounts
The treatment for financial statement purposes of distributions made
during the year from net investment income and net realized gains may differ
from their ultimate treatment for federal income tax purposes. These differences
primarily are caused by differences in the timing of the recognition of certain
components of income or capital gain; and the recharacterization of foreign
exchange gains or losses to either ordinary income or realized capital gains for
federal income tax purposes. Where such differences are permanent in nature,
they are reclassified in the components of net assets based on their ultimate
characterization for federal income tax purposes. Any such reclassifications
will have no effect on net assets, results of operations, or net asset value per
share of the Funds.
- ------------------------------------------
Note B -- Investment Management Agreements
and Payments to Related Parties
- ------------------------------------------
BGIF and BGEMF have an investment management agreement with Guardian
Baillie Gifford Limited (GBG), a Scottish corporation formed through a joint
venture between GIAC and Baillie Gifford Overseas Limited (BG Overseas). GBG is
responsible for the overall investment management of the Funds' portfolios
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 BGIF and BGEMF. GBG
continually monitors and evaluates the performance of BG Overseas.
As compensation for its services, GBG receives a management fee computed
at the annual rate of .80% of BGIF's average daily net assets and 1.00% of
BGEMF's average daily net assets. One-half of these fees (.40% relating to BGIF
and .50% relating to BGEMF) are payable by GBG to BG Overseas for its services.
Payment of the sub-investment management fees does not represent a separate or
additional expense to the Funds.
GSCSF has an investment advisory agreement with Guardian Investor Services
Corporation (GISC), a wholly-owned subsidiary of GIAC. GISC receives a
management fee from GSCSF at an annual rate of .75% of its average daily net
assets.
No compensation is paid by the Company to a director who is deemed to be
an "interested person" (as defined in the 1940 Act) of the Company. Each
director not deemed an "interested person" is paid an annual fee of $500 and
$350 for attendance at each meeting of the Company.
- --------------------------------------------------------------------------------
103
<PAGE>
----------------
GIAC Funds, Inc.
----------------
8
----------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
- ---------------------------------
Note C -- Investment Transactions
- ---------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the six months ended June 30, 1998 were as follows:
BGIF BGEMF GSCSF
---- ----- -----
Purchases ............ $171,993,131 $20,854,390 $47,389,542
Proceeds ............. $168,369,664 $28,795,706 $21,041,810
The cost of investments owned at June 30, 1998 for federal income tax
purposes for BGIF, BGEMF and GSCSF are the same as the cost for financial
reporting purposes. The gross unrealized appreciation and (depreciation) of
investments excluding foreign currency at June 30, 1998, were as follows:
<TABLE>
<CAPTION>
BGIF BGEMF GSCSF
---- ----- -----
<S> <C> <C> <C>
Gross Appreciation ........................... $ 182,492,208 $ 6,372,833 $ 20,171,658
Gross Depreciation ........................... (13,435,266) (13,677,002) (5,523,923)
------------- ------------ ------------
Net Unrealized Appreciation/Depreciation.... $ 169,056,942 $ (7,304,169) $ 14,647,735
============= ============ ============
</TABLE>
Forward foreign currency contracts represent commitments to purchase or
sell a specified amount of foreign currency at a future date and at a future
price. Risks may arise from the potential inability of a counterparty to meet
the terms of a contract and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
There were no open forward foreign currency contracts at June 30, 1998.
- -------------------------------
Note D -- Repurchase Agreements
- -------------------------------
Collateral underlying repurchase agreements takes the form of either cash
or fully negotiable U.S. government securities. Repurchase agreements are fully
collateralized (including the interest earned thereon) and such collateral is
marked-to-market daily while the agreements remain in force. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Funds will require the seller to deposit additional collateral by
the next business day. If the request for additional collateral is not met, or
the seller defaults, the Funds maintain the right to sell the collateral and may
claim any resulting loss against the seller. The Company's Board of Directors
has established standards to evaluate the creditworthiness of broker-dealers and
banks which engage in repurchase agreements with the Funds. 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 BGIF's
or 15% of BGEMF's or GSCSF's net assets would be so invested.
- --------------------------------------------------------------------------------
104
<PAGE>
- ----------------
GIAC Funds, Inc.
- ----------------
8
- ----------------
- --------------------------------------------------------------------------------
GIAC Funds, Inc. (including: Baillie Gifford
International Fund, Baillie Gifford Emerging Markets
Fund and The Guardian Small Cap Stock Fund)
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
- ---------------------------------------
Note E -- Transactions in Capital Stock
- ---------------------------------------
There are 1,000,000,000 shares of $0.10 par value capital stock authorized for
each of the Funds. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
(Unaudited) (Audited) (Unaudited) (Audited)
- ----------------------------------------------------------------------------------------------------------------------------
Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
|_| Baillie Gifford International Fund
Shares sold 3,085,046 5,510,606 $ 63,649,453 $ 103,914,585
Shares issued in reinvestment of
dividends and distributions 289,013 1,589,325 6,132,854 29,071,132
Shares repurchased (2,404,778) (4,262,859) (49,331,048) (79,908,567)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase 969,281 2,837,072 $ 20,451,259 $ 53,077,150
- ----------------------------------------------------------------------------------------------------------------------------
|_| Baillie Gifford Emerging Markets Fund
Shares sold 673,800 4,436,117 $ 6,412,075 $ 52,148,316
Shares issued in reinvestment of
dividends and distributions 58,765 461,151 481,281 4,689,960
Shares repurchased (1,676,993) (2,709,884) (16,165,111) (31,037,879)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (944,428) 2,187,384 $ (9,271,755) $ 25,800,397
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Period from Six Months Ended Period from
June 30, April 2, 1997+ to June 30, April 2, 1997+ to
1998 December 31, 1997 1998 December 31, 1997
(Unaudited) (Audited) (Unaudited) (Audited)
- ----------------------------------------------------------------------------------------------------------------------------
Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
|_| The Guardian Small Cap Stock Fund
Shares sold 2,985,942 6,957,498 $ 43,805,409 $ 86,846,310
Shares issued in reinvestment of
dividends and distributions 62,605 92,788 900,880 1,229,438
Shares repurchased (1,128,601) (611,001) (16,577,083) (8,393,798)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase 1,919,946 6,439,285 $ 28,129,206 $ 79,681,950
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
- --------------------------------------------------------------------------------
105
<PAGE>
----------------
GIAC Funds, Inc.
----------------
8
----------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
- ------------------------
Note F -- Line of Credit
- ------------------------
A $50,000,000 line of credit available to each Fund and the other
Guardian-related Funds has been established with Morgan Guaranty Trust Company.
The rate of interest charged on any borrowings is based upon the prevailing
Federal Funds rate at the time of the loan plus .25% calculated on a 360 day
basis per annum. For the six months ended June 30, 1998, none of the Funds
borrowed against this line of credit.
- --------------------------------------------------------------------------------
106
<PAGE>
- ---------------
Value Line
Centurion Fund,
Inc.
- ---------------
9
- ---------------
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998
- ----------------------
COMMON STOCKS -- 96.6%
- ----------------------
Shares Value
- -----------------------------------------------------------------------
Advertising -- 0.8%
125,000 Omnicom Group, Inc. $ 6,234,375
------------
Air Transport -- 2.5%
75,000 AMR Corp.* 6,243,750
100,000 Airborne Freight Corp. 3,493,750
175,000 Alaska Air Group, Inc.* 9,548,437
------------
19,285,937
------------
Auto Parts-Replacement -- 0.5%
60,000 Federal-Mogul Corp. 4,050,000
------------
Bank -- 7.7%
85,000 BankAmerica Corp. 7,347,188
150,000 BankBoston Corp. 8,343,750
80,000 Citicorp 11,940,000
200,000 Mellon Bank Corp. 13,925,000
100,000 State Street Corp. 6,950,000
197,000 Zions Bancorporation 10,465,625
------------
58,971,563
------------
Coal/Alternate Energy -- 1.7%
250,000 AES Corp.* 13,140,625
------------
Computer & Peripherals -- 8.1%
190,000 Cisco Systems, Inc.* 17,491,875
375,000 Compaq Computer Corp. 10,640,625
160,000 Dell Computer Corp.* 14,850,000
300,000 EMC Corp.* 13,443,750
135,000 Sun Microsystems, Inc.* 5,864,062
------------
62,290,312
------------
Computer Software & Services -- 9.8%
280,000 BMC Software, Inc.* 14,542,500
200,000 Computer Associates
International, Inc. 11,112,500
100,000 Microsoft Corp.* 10,837,500
225,000 Networks Associates, Inc.* 10,771,875
515,000 Parametric Technology Corp.* 13,969,375
300,000 PeopleSoft, Inc.* 14,100,000
------------
75,333,750
------------
Diversified Companies -- 0.4%
100,000 Nortek, Inc.* 3,075,000
------------
Drug -- 8.0%
200,000 Lilly (Eli) & Co. 13,212,500
120,000 Merck & Co., Inc. 16,050,000
100,000 Pfizer, Inc. 10,868,750
100,000 Schering - Plough Corp. 9,162,500
180,000 Warner - Lamabert Co. 12,487,500
------------
61,781,250
------------
Electrical Equipment -- 2.1%
175,000 General Electric Co. 15,925,000
------------
Entertainment -- 2.3%
165,000 Clear Channel Communications, Inc.* 18,005,625
------------
Financial Services -- 2.8%
200,000 Donaldson, Lufkin & Jenrette, Inc. 10,162,500
185,000 Travelers Group, Inc. 11,215,625
------------
21,378,125
------------
Food Wholesalers -- 1.0%
225,000 U.S. Foodservice, Inc.* 7,889,063
------------
Grocery -- 2.7%
250,000 Albertson's, Inc. 12,953,125
135,000 Whole Foods Market, Inc.* 8,167,500
------------
21,120,625
------------
Healthcare Information Systems -- 1.8%
400,000 HBO & Co. 14,100,000
------------
Homebuilding -- 0.7%
135,000 Centex Corp. 5,096,250
------------
Household Products -- 3.9%
165,000 Colgate - Palmolive Co. 14,520,000
170,000 Procter & Gamble Co. 15,480,625
------------
30,000,625
------------
Insurance-Diversified -- 1.1%
60,000 American International Group, Inc. 8,760,000
------------
Insurance-Life -- 2.6%
135,000 Conseco, Inc. 6,311,250
60,000 Equitable Companies, Inc. (The) 4,496,250
155,000 SunAmerica, Inc. 8,902,812
------------
19,710,312
------------
Insurance-Property/Casualty -- 1.8%
150,000 Allstate Corp. (The) 13,734,375
------------
Internet -- 0.7%
50,000 American Online, Inc.* 5,300,000
------------
See notes to financial statements.
- --------------------------------------------------------------------------------
107
<PAGE>
---------------
Value Line
Centurion Fund,
Inc.
---------------
9
---------------
Shares Value
- -----------------------------------------------------------------------
Manufactured Housing/
Recreational Vehicles -- 0.8%
200,000 Oakwood Homes Corp. $ 6,000,000
------------
Medical Supplies -- 5.7%
100,000 Cardinal Health, Inc. 9,375,000
225,000 Guidant Corp. 16,045,313
120,000 Johnson & Johnson 8,850,000
150,000 Medtronic, Inc. 9,562,500
------------
43,832,813
------------
Office Equipment & Supplies -- 1.6%
420,000 Staples, Inc.* 12,153,750
------------
Oilfield Services/Equipment -- 4.6%
150,000 BJ Services Co.* 4,359,375
185,000 Baker Hughes, Inc. 6,394,063
100,000 Halliburton Co. 4,456,250
100,000 Schlumberger Ltd. 6,831,250
70,000 Smith International, Inc.* 2,436,875
255,000 Transocean Offshore, Inc. 11,347,500
------------
35,825,313
------------
Retail Building Supply -- 1.2%
55,000 Home Depot, Inc. (The) 4,568,438
120,000 Lowes Companies, Inc. 4,867,500
------------
9,435,938
------------
Retail-Special Lines -- 3.2%
235,000 Bed Bath & Beyond, Inc.* 12,175,937
200,000 Gap, Inc. 12,325,000
------------
24,500,937
------------
Retail Store -- 2.5%
200,000 Consolidated Stores Corp.* 7,250,000
250,000 Dayton Hudson Corp. 12,125,000
------------
19,375,000
------------
Securities Brokerage -- 1.2%
100,000 Merrill Lynch & Co., Inc. 9,225,000
------------
Semiconductor -- 1.9%
200,000 Intel Corp. 14,825,000
------------
Telecommunications Equipment -- 1.9%
200,000 Tellabs, Inc.* 14,325,000
------------
Telecommunication Services -- 2.5%
330,000 AirTouch Communications, Inc.* 19,284,375
------------
Shares
or
Principal
Amount Value
- -----------------------------------------------------------------------
Thrift -- 2.8%
150,000 Federal Home Loan Mortgage Corp. $ 7,059,375
115,000 Federal National
Mortgage Association 6,986,250
180,000 Washington Mutual, Inc. 7,818,750
------------
21,864,375
------------
Tobacco -- 1.5%
300,000 Philip Morris Companies, Inc. 11,812,500
------------
Toiletries/Cosmetics -- 2.2%
300,000 Gillette Co. 17,006,250
------------
TOTAL COMMON STOCKS AND
TOTAL INVESTMENT
SECURITIES -- 96.6%
(Cost $536,550,329) 744,649,063
------------
- ----------------------------
REPURCHASE AGREEMENT -- 5.0%
- ----------------------------
(including accrued interest)
$ 38,500,000 Collateralized by $39,030,000
U.S. Treasury Notes 5.625%,
due 11/30/00, with a value
of $39,288,123 (With Morgan
Stanley, Dean Witter,
Discover & Co., Inc., 5.72%,
dated 6/30/98, due 7/1/98,
delivery value $38,506,117) 38,506,117
------------
EXCESS OF LIABILITIES OVER
CASH AND RECEIVABLES -- ( - 1.6%) (12,119,152)
============
NET ASSETS -- 100.0% $771,036,028
============
NET ASSET VALUE
PER OUTSTANDING SHARE
($771,036,028 / 26,128,878
shares outstanding) $ 29.51
============
*Non-income producing
See notes to financial statements.
- --------------------------------------------------------------------------------
108
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Centurion Fund,
Inc.
- ---------------
9
- ---------------
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS:
Investment securities, at value
(cost $536,550,329) $744,649,063
Repurchase agreement (cost $38,506,117) 38,506,117
Cash 59,591
Receivable for securities sold 2,266,676
Dividends and interest receivable 313,125
Receivable for capital shares sold 20,315
------------
TOTAL ASSETS 785,814,887
------------
LIABILITIES:
Payable for securities purchased 13,775,264
Payable for capital shares repurchased 542,560
Accrued expenses:
Advisory fee 308,409
GIAC administrative service fee 110,000
Other 42,626
------------
TOTAL LIABILITIES 14,778,859
------------
NET ASSETS $771,036,028
============
NET ASSETS CONSIST OF:
Capital stock, at $1.00 par value
(authorized 50,000,000, outstanding
26,128,878 shares) $ 26,128,878
Additional paid-in capital 418,003,582
Undistributed net investment income 3,823,194
Undistributed net realized gain on investments 114,981,640
Net unrealized appreciation of investments 208,098,734
------------
NET ASSETS $771,036,028
============
NET ASSET VALUE PER
OUTSTANDING SHARE
($771,036,028 / 26,128,878
shares outstanding) $ 29.51
============
STATEMENT OF OPERATIONS
SIX MONTHS ENDED
June 30, 1998 (Unaudited)
Investment Income:
Dividends $ 2,367,742
Interest 1,320,885
------------
Total Income 3,688,627
------------
Expenses:
Investment advisory fee 1,849,114
GIAC administrative service fee 257,413
Custodian fees 37,403
Auditing and legal fees 20,896
Insurance and dues 11,261
Directors' fees and expenses 8,155
Printing and stationery 1,213
Taxes and other 382
------------
Total Expenses Before Custody Credits 2,185,837
Less:Custody Credits (1,281)
------------
Net Expenses 2,184,556
------------
Net Investment Income 1,504,071
------------
Net Realized and Unrealized Gain on
Investments:
Net realized gain 69,594,858
Change in net unrealized appreciation 37,354,596
------------
Net Realized Gain and Change in Net
Unrealized Appreciation on Investments 106,949,454
------------
Net Increase in Net Assets from Operations $108,453,525
============
See notes to financial statements.
- --------------------------------------------------------------------------------
109
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Centurion Fund,
Inc.
---------------
9
---------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
for the Six Months Ended June 30, 1998 (Unaudited)
and for the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1998 December 31,
(Unaudited) 1997
------------- -------------
<S> <C> <C>
Operations:
Net investment income $ 1,504,071 $ 2,435,676
Net realized gain on investments 69,594,858 45,610,251
Change in net unrealized appreciation 37,354,596 83,192,727
------------- -------------
Net increase in net assets from operations 108,453,525 131,238,654
------------- -------------
Distributions to Shareholders:
Net investment income -- (2,225,662)
Net realized gain from investment transactions -- (114,003,360)
------------- -------------
Total distributions -- (116,229,022)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares 25,638,830 80,062,970
Proceeds from reinvestment of distributions to shareholders -- 116,229,022
Cost of shares repurchased (83,146,873) (130,551,904)
------------- -------------
(Decrease) Increase from capital share transactions (57,508,043) 65,740,088
------------- -------------
Total Increase in Net Assets 50,945,482 80,749,720
Net Assets:
Beginning of period 720,090,546 639,340,826
------------- -------------
End of period $ 771,036,028 $ 720,090,546
============= =============
Undistributed Net Investment Income, at End of Period $ 3,823,194 $ 2,319,123
============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
110
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Centurion Fund,
Inc.
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9
- ---------------
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- ------------------------------------
1 -- Significant Accounting Policies
- ------------------------------------
Value Line Centurion Fund, Inc. (the "Fund") is an open-end diversified
management investment company whose primary investment objective is long-term
growth of capital. The Fund's portfolio will usually consist of common stocks
ranked 1 or 2 for year-ahead performance by The Value Line Investment Survey,
one of the nation's major investment advisory services.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
(A) Security Valuation
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities and for securities traded in the
over-the-counter market, the security is valued at the midpoint between the
latest available and representative asked and bid prices. Short-term instruments
with maturities of 60 days or less are valued at amortized cost, which
approximates market value. Short-term instruments with maturities greater than
60 days, at the date of purchase, are valued at the midpoint between the latest
available and representative asked and bid prices, and commencing 60 days prior
to maturity such securities are valued at amortized cost. Other assets and
securities for which market valuations are not readily available are valued at
fair value as the Board of Directors may determine in good faith.
(B) Repurchase Agreements
In connection with transactions in repurchase agreements, the Fund's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the Fund has the right to liquidate the collateral and
apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
(C) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its 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 accepted accounting principles. All dividends or distributions will be
payable in shares of the Fund at the net asset
- --------------------------------------------------------------------------------
111
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Centurion Fund,
Inc.
---------------
9
---------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
value on the ex-dividend date. This policy is, however, subject to change at any
time by the Board of Directors.
(E) Amortization
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income on investments adjusted for amortization of discount,
including original issue discount required for federal income tax purposes, is
earned from settlement date and recognized on the accrual basis. Dividend income
is recorded on the ex-dividend date.
- ----------------------------------------------
2 -- Capital Share Transactions, Dividends and
Distributions
- ----------------------------------------------
Shares of the Fund are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance and Annuity Company, Inc.
(GIAC). Transactions in capital stock were as follows:
Six Months Ended Year Ended
June 30, 1998, December 31,
(Unaudited) 1997
---------------- ------------
Shares sold 941,835 3,037,284
Shares issued in reinvestment
of dividends and distributions -- 4,477,235
----------- -----------
941,835 7,514,519
Shares repurchased 3,031,192 5,048,869
----------- -----------
Net (decrease) increase (2,089,357) 2,465,650
=========== ===========
Dividends per share $ -- $ .09
=========== ===========
Distributions per share from
net realized gains $ -- $ 4.61
=========== ===========
- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Six Months Ended
June 30, 1998
(Unaudited)
----------------
PURCHASES:
Investment Securities $351,833,014
============
SALES:
Investment Securities $367,288,760
============
At June 30, 1998, the aggregate cost of investment securities and
repurchase agreement for federal income tax purposes was $575,056,446. The
aggregate appreciation and depreciation of investments for the period ended June
30, 1998, based on a comparison of investment values and their costs for federal
income tax purposes was $217,524,487 and $9,425,753 respectively, resulting in a
net appreciation of $208,098,734.
- ---------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Affiliates
- ---------------------------------------------
An advisory fee of $1,849,114 was paid or payable to Value Line, Inc. (the
Adviser), the Fund's investment adviser, for the six months ended June 30, 1998.
This was computed at the rate of 1/2 of 1% of the average daily net assets of
the Fund during the period and paid monthly. The Adviser provides 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.
- --------------------------------------------------------------------------------
112
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Centurion Fund,
Inc.
- ---------------
9
- ---------------
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited) (Continued)
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 $792 for the six months ended June 30,
1998. During the period ended June 30, 1998, the Fund paid brokerage commissions
totalling $337,569 to Value Line Securities, Inc., a wholly owned subsidiary of
the Adviser, which clears its transactions through unaffiliated brokers.
The Fund has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contractowner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the period ended June 30, 1998, the Fund
incurred expenses of $257,413 in connection with such services rendered by GIAC.
- --------------------------------------------------------------------------------
113
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Centurion Fund,
Inc.
---------------
9
---------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1998 --------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 25.52 $ 24.83 $ 24.25 $ 17.83 $ 18.52 $ 20.04
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income .06 .09 .08 .12 .10 .12
Net gains or losses on securities
(both realized and unrealized) 3.93 5.30 3.71 6.96 (.51) 1.73
-------- -------- -------- -------- -------- --------
Total from investment operations 3.99 5.39 3.79 7.08 (.41) 1.85
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income -- (.09) (.12) (.10) (.01) (.12)
Distributions from capital gains -- (4.61) (3.09) (.56) (.27) (3.25)
-------- -------- -------- -------- -------- --------
Total distributions -- (4.70) (3.21) (.66) (.28) (3.37)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 29.51 $ 25.52 $ 24.83 $ 24.25 $ 17.83 $ 18.52
======== ======== ======== ======== ======== ========
Total return** 15.64%+ 21.39% 17.34% 40.08% -2.21% 9.21%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $771,036 $720,091 $639,341 $525,449 $352,745 $373,910
Ratio of operating expenses to average
net assets .59%*(1) .60%(1) .59%(1) .62% .61% .61%
Ratio of net investment income to average
net assets .41%* .35% .36% .60% .57% .57%
Portfolio turnover rate 50%+ 85% 141% 114% 122% 118%
</TABLE>
(1) Before offset of custody credits.
** 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.
+ Not annualized
* Annualized
See notes to financial statements.
- --------------------------------------------------------------------------------
114
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Strategic Asset
Management
- ---------------
10
- ---------------
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- ------------------------
COMMON STOCKS -- 78.7%
- ------------------------
Shares Value
- -----------------------------------------------------------------------
Advertising -- 1.2%
198,000 Omnicom Group, Inc. $ 9,875,250
150,000 Synder Communications, Inc.* 6,600,000
---------------
16,475,250
---------------
Aerospace/Defense -- 1.4%
68,000 BE Aerospace, Inc.* 1,980,500
90,000 Cordant Technologies, Inc. 4,151,250
70,000 General Dynamics Corp. 3,255,000
12,000 Gulfstream Aerospace Corp.* 558,000
19,000 Litton Industries, Inc.* 1,121,000
24,000 Northrop Grumman Corp. 2,475,000
40,400 Precision Castparts Corp. 2,156,350
58,000 Sundstrand Corp. 3,320,500
---------------
19,017,600
---------------
Air Transport -- 1.6%
138,000 Airborne Freight Corp. 4,821,375
77,700 Alaska Air Group, Inc.* 4,239,506
90,000 America West Holdings
Corp. Class "B"* 2,570,625
110,000 Comair Holdings, Inc. 3,396,250
20,000 Continental Airlines, Inc. Class "B"* 1,217,500
55,000 U.S. Airways Group, Inc.* 4,358,750
---------------
20,604,006
---------------
Apparel -- 1.1%
70,520 Abercrombie & Fitch Co. Class "A"* 3,102,880
85,000 Fruit of the Loom, Inc. Class "A"* 2,820,937
120,000 Jones Apparel Group, Inc.* 4,387,500
12,000 Tommy Hilfiger Corp.* 750,000
66,000 V.F. Corp. 3,399,000
---------------
14,460,317
---------------
Auto & Truck -- 0.3%
130,000 Navistar International Corp., Inc.* 3,753,750
16,000 PACCAR, Inc. 836,000
---------------
4,589,750
---------------
Auto Parts -- Original Equipment -- 0.5%
36,000 Magna International, Inc. Class "A" 2,470,500
82,000 Tower Automotive, Inc.* 3,515,750
---------------
5,986,250
---------------
Auto Parts -- Replacement -- 0.5%
100,000 Federal-Mogul Corp. 6,750,000
---------------
Bank -- 2.4%
123,000 AmSouth Bancorporation 4,835,437
54,999 First Union Corp. 3,203,692
88,000 Mellon Bank Corp. 6,127,000
165,000 North Fork Bancorporation, Inc. 4,032,187
117,000 SouthTrust Corp. 5,089,500
158,500 Zions Bancorporation 8,420,313
---------------
31,708,129
---------------
Bank - Midwest -- 1.3%
70,000 Northern Trust Corp. 5,337,500
116,000 Norwest Corp. 4,335,500
174,000 U.S. Bancorp 7,482,000
---------------
17,155,000
---------------
Beverage - Alcoholic -- 0.2%
60,000 Canandaigua Brands, Inc.
Class "A"* 2,951,250
---------------
Beverage - Soft Drink -- 0.3%
87,000 Coca-Cola Enterprises, Inc. 3,414,750
---------------
Building Materials -- 0.3%
60,000 Masco Corp. 3,630,000
---------------
Cable TV -- 0.9%
16,000 Cablevision Systems Corp.
Class "A"* 1,336,000
126,000 Comcast Corp. Class "A" 5,114,813
150,000 Tele-Communications, Inc.-
TCI Group Series "A"* 5,765,625
---------------
12,216,438
---------------
Cement & Aggregates -- 0.1%
8,800 Vulcan Materials Co. 938,850
---------------
Chemical - Diversified -- 0.6%
72,000 Goodrich (B.F.) Co. (The) 3,573,000
57,000 PPG Industries, Inc. 3,965,063
---------------
7,538,063
---------------
Coal/Alternate Energy -- 0.6%
159,000 AES Corp.* 8,357,438
---------------
Computer & Peripherals -- 2.0%
59,000 Cisco Systems, Inc.* 5,431,688
128,000 EMC Corp.* 5,736,000
160,000 FORE Systems, Inc.* 4,240,000
62,000 Storage Technology Corp.* 2,689,250
See notes to financial statements.
- --------------------------------------------------------------------------------
115
<PAGE>
---------------
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Strategic Asset
Management
---------------
10
---------------
- --------------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------------
Computer & Peripherals -- 2.0% (continued)
40,000 Tech Data Corp.* $ 1,715,000
218,000 Unisys Corp.* 6,158,500
---------------
25,970,438
---------------
Computer Software & Services -- 7.6%
34,000 Autodesk, Inc. 1,313,250
78,000 BMC Software, Inc.* 4,051,125
120,000 Cadence Design Systems, Inc.* 3,750,000
72,000 CIBER, Inc.* 2,736,000
72,000 Citrix Systems, Inc.* 4,923,000
63,000 Computer Associates
International, Inc. 3,500,438
174,000 Compuware Corp.* 8,895,750
71,000 Computer Horizons Corp.* 3,112,500
60,000 Comverse Technology, Inc.* 2,631,437
150,000 FileNet Corp.* 4,331,250
135,000 Fiserv, Inc.* 5,733,281
63,500 Hyperion Software Corp.* 1,809,750
48,000 Information Management
Resources, Inc.* 1,623,000
78,500 JDA Software Group, Inc.* 3,434,375
86,000 Keane, Inc.* 4,816,000
122,000 Legato Systems, Inc.* 4,758,000
52,000 Mercury Interactive Corp.* 2,320,500
48,000 Microsoft Corp.* 5,202,000
20,000 National Data Corp. 875,000
141,000 Paychex, Inc. 5,736,938
59,000 PeopleSoft, Inc.* 2,773,000
44,000 Saville Systems, PLC (ADR)* 2,205,500
110,000 SunGard Data Systems, Inc.* 4,221,250
110,000 Systems & Computer
Technology Corp.* 2,970,000
129,000 Veritas Software Corp.* 5,337,375
57,000 Visio Corp.* 2,721,750
76,000 Wang Laboratories, Inc.* 1,933,250
116,000 Xylan Corp.* 3,458,250
---------------
101,173,969
---------------
Diversified Companies -- 1.4%
92,000 Danaher Corp. 3,375,250
16,000 Textron, Inc. 1,147,000
158,000 Tyco International, Ltd. 9,954,000
46,000 United Technologies Corp. 4,255,000
---------------
18,731,250
---------------
Drug -- 3.8%
74,000 ALZA Corp.* 3,200,500
28,000 Biovial Corp. International* 896,000
10,000 Forest Laboratories, Inc.* 357,500
114,000 ICN Pharmaceuticals, Inc. 5,208,375
58,000 Immunex Corp.* 3,842,500
73,000 MedImmune, Inc.* 4,553,375
121,000 Mylan Laboratories, Inc. 3,637,563
98,000 Pfizer, Inc. 10,651,375
72,000 Quintiles Transnational Corp.* 3,541,500
75,000 Schering-Plough Corp. 6,871,875
34,000 Vical, Inc.* 575,875
57,000 Warner-Lambert Co. 3,954,375
70,000 Watson Pharmaceuticals, Inc.* 3,268,125
---------------
50,558,938
---------------
Drugstore -- 0.6%
126,000 CVS Corp. 4,906,125
88,000 Rite Aid Corp. 3,305,500
---------------
8,211,625
---------------
Electrical Utility - Central -- 1.0%
100,000 DTE Energy Co. 4,037,500
100,000 FirstEnergy Corp. 3,075,000
100,000 Houston Industries, Inc. 3,087,500
90,000 UniCom Corp. 3,155,625
---------------
13,355,625
---------------
Electric Utility - East -- 0.4%
96,000 Consolidated Edison, Inc. 4,422,000
100,000 Niagara Mohawk Power Corp.* 1,493,750
---------------
5,915,750
---------------
Electric Utility - West -- 0.2%
100,000 Edison International 2,956,250
---------------
Electrical Equipment -- 1.5%
56,000 Cooper Industries, Inc. 3,076,500
180,000 General Electric Co. 16,380,000
8,000 Honeywell Inc. 668,500
---------------
20,125,000
---------------
See notes to financial statements.
- --------------------------------------------------------------------------------
116
<PAGE>
- ---------------
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Strategic Asset
Management
- ---------------
10
- ---------------
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
Shares Value
- -----------------------------------------------------------------------
Electronics -- 1.5%
87,000 Gemstar International Group, Ltd.* $ 3,257,063
135,000 Lexmark International Group, Inc.
Class "A"* 8,235,000
228,750 Symbol Technologies, Inc. 8,635,312
---------------
20,127,375
---------------
Entertainment -- 2.3%
142,000 CBS Corp. 4,508,500
114,000 Chancellor Media Corp.* 5,660,812
60,000 Clear Channel Communications, Inc.* 6,547,500
91,000 Jacor Communications, Inc.* 5,369,000
120,000 Sinclair Broadcast Group, Inc.
Class "A"* 3,450,000
65,000 Time Warner, Inc. 5,553,438
---------------
31,089,250
---------------
Environmental -- 0.6%
135,000 Allied Waste Industries, Inc.* 3,240,000
98,000 USA Waste Services, Inc.* 4,838,750
---------------
8,078,750
---------------
Financial Services -- 1.2%
53,000 American Express Co. 6,042,000
94,000 AMRESCO, Inc.* 2,737,750
16,249 Associates First Capital Corp.
Class "A" 1,249,142
47,000 FINOVA Group, Inc. (The) 2,661,375
51,000 Travelers Group, Inc. 3,091,875
---------------
15,782,142
---------------
Food Processing -- 0.4%
10,000 Earthgrains Co. (The) 558,750
74,200 Suiza Foods Corp.* 4,428,812
---------------
4,987,562
---------------
Food Wholesalers -- 0.3%
96,000 Supervalu, Inc. 4,260,000
---------------
Foreign Electronics/Entertainment -- 0.2%
38,000 Philips Electronics N.V.
(N.Y. Shares) 3,230,000
---------------
Foreign Telecommunication -- 0.7%
84,000 Alcatel Alsthom (ADR) 3,417,750
82,000 Nokia Corp. (ADR) Class "A" 5,950,125
---------------
9,367,875
---------------
Furniture/Home Furnishings -- 0.7%
64,000 Ethan Allen Interiors, Inc. 3,196,000
110,000 Furniture Brands International, Inc.* 3,086,875
132,000 Miller (Herman), Inc. 3,209,250
---------------
9,492,125
---------------
Grocery -- 2.1%
78,000 Albertson's, Inc. 4,041,375
96,000 Kroger Co.* 4,116,000
148,000 Meyer (Fred), Inc.* 6,290,000
226,800 Safeway, Inc.* 9,227,925
78,000 Whole Foods Market, Inc.* 4,719,000
---------------
28,394,300
---------------
Healthcare Information Systems -- 0.7%
192,000 HBO & Co. 6,768,000
25,400 Shared Medical Systems Corp. 1,865,312
---------------
8,633,312
---------------
Home Appliance -- 0.8%
78,000 Black & Decker Corp. 4,758,000
117,000 Maytag Corp. 5,776,875
---------------
10,534,875
---------------
Homebuilding -- 0.5%
80,000 Centex Corp. 3,020,000
110,000 Lennar Corp. 3,245,000
---------------
6,265,000
---------------
Hotel/Gaming -- 0.2%
17,500 Prime Hospitality Corp.* 305,156
127,000 Rio Hotel & Casino, Inc.* 2,397,125
---------------
2,702,281
---------------
Household Products -- 0.3%
47,000 Colgate-Palmolive Co. 4,136,000
---------------
Industrial Services -- 0.6%
66,000 Apollo Group, Inc. Class "A"* 2,182,125
90,000 Robert Half International, Inc.* 5,028,750
94,000 Superior Energy Sevices, Inc.* 475,875
---------------
7,686,750
---------------
Insurance - Diversified -- 2.1%
73,000 Ambac Financial Group, Inc. 4,270,500
100,000 American Bankers Insurance
Group, Inc. 6,012,500
4,000 American General Corp. 284,750
34,000 American International Group, Inc. 4,964,000
See notes to financial statements.
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Strategic Asset
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10
---------------
- --------------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------------
Insurance - Diversified -- 2.1% (continued)
40,000 AON Corp. $ 2,810,000
18,000 CMAC Investment Corp. 1,107,000
48,000 Lincoln National Corp. 4,386,000
58,500 Marsh & McLennan Companies, Inc. 3,535,594
---------------
27,370,344
---------------
Insurance - Life -- 1.7%
144,000 AFLAC, Inc. 4,365,000
57,000 Conseco, Inc. 2,664,750
84,000 Equitable Companies, Inc. (The) 6,294,750
75,000 ReliaStar Financial Corp. 3,600,000
45,000 SunAmerica, Inc. 2,584,688
70,000 Torchmark Corp. 3,202,500
---------------
22,711,688
---------------
Insurance - Property/Casualty -- 1.3%
79,500 ACE, Ltd. 3,100,500
70,000 Allstate Corp. (The) 6,409,375
44,000 EXEL, Ltd. 3,423,750
44,000 Executive Risk, Inc. 3,245,000
20,000 Mercury General Corp. 1,288,750
---------------
17,467,375
---------------
Internet -- 0.1%
40,000 IDT Corp.* 1,202,500
---------------
Machinery -- 0.6%
60,000 Applied Power, Inc. Class "A" 2,062,500
74,000 Dover Corp. 2,534,500
100,000 Terex Corp.* 2,850,000
---------------
7,447,000
---------------
Manufactured Housing/
Recreational Vehicles -- 0.3%
88,000 Fleetwood Enterprises, Inc. 3,520,000
---------------
Medical Services -- 1.6%
80,000 Health Management Associates, Inc.
Class "A"* 2,675,000
92,000 Integrated Health Services, Inc. 3,450,000
62,000 Lincare Holdings, Inc.* 2,607,875
48,000 PacifiCare Health Systems, Inc.
Class "B"* 4,242,000
115,000 Rexall Sundown, Inc.* 4,053,750
20,000 Total Renal Care Holdings, Inc.* 690,000
70,000 Universal Health Services, Inc. 4,086,250
Class "B"* 21,804,875
---------------
Medical Supplies -- 3.0%
67,000 Allegiance Corp. 3,433,750
96,000 Arterial Vascular Engineering, Inc.* 3,432,000
51,000 Becton, Dickinson & Co. 3,958,875
45,000 Cardinal Health, Inc. 4,218,750
88,000 McKesson Corp. 7,150,000
146,000 Safeskin Corp.* 6,004,250
50,000 Sofamor Danek Group, Inc.* 4,328,125
72,000 STERIS Corp.* 4,578,750
58,000 VISX, Inc.* 3,451,000
---------------
40,555,500
---------------
Metal Fabricating -- 0.7%
55,000 Illinois Tool Works, Inc. 3,667,813
89,000 Timken Co. 2,742,312
82,000 Trinity Industries, Inc. 3,403,000
---------------
9,813,125
---------------
Newspaper -- 1.2%
60,000 Gannett Co., Inc. 4,263,750
67,000 New York Times Co. (The) Class "A" 5,309,750
96,000 News Corp., Ltd. (ADR) 3,084,000
54,000 Tribune Co. 3,715,875
---------------
16,373,375
---------------
Office Equipment & Supplies -- 1.6%
175,000 Office Depot, Inc.* 5,523,437
253,437 Staples, Inc.* 7,333,833
50,000 United Stationers, Inc.* 3,237,500
55,000 Xerox Corp. 5,589,375
---------------
21,684,145
---------------
Packaging & Container -- 0.3%
96,000 Owens-Illinois, Inc.* 4,296,000
---------------
Paper & Forest Products -- 0.6%
68,000 Bowater, Inc. 3,213,000
200,000 Mail-Well, Inc.* 4,337,500
---------------
7,550,500
---------------
Petroleum - Integrated -- 0.4%
140,000 USX-Marathon Group 4,803,750
---------------
Precision Instrument -- 0.5%
120,000 EG & G, Inc. 3,600,000
58,000 Waters Corp.* 3,418,375
---------------
7,018,375
---------------
See notes to financial statements.
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- ---------------
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
Shares Value
- -----------------------------------------------------------------------
Publishing -- 0.6%
40,000 CMG Information Services, Inc.* $ 2,830,000
55,000 McGraw-Hill Companies, Inc. 4,485,937
---------------
7,315,937
---------------
Recreation -- 1.4%
82,000 Action Performance Companies, Inc.* 2,639,375
112,000 Carnival Corp. 4,438,000
166,000 Harley-Davidson, Inc. 6,432,500
68,000 Royal Caribbean Cruises, Ltd. 5,406,000
---------------
18,915,875
---------------
Restaurant -- 0.6%
135,000 Brinker International, Inc.* 2,598,750
92,500 CKE Restaurants, Inc. 3,815,625
106,000 Landry's Seafood Restaurants, Inc.* 1,917,938
---------------
8,332,313
---------------
Retail Building Supply -- 0.4%
136,000 Lowes Companies, Inc. 5,516,500
---------------
Retail - Special Lines -- 5.3%
38,000 Barnes & Noble, Inc.* 1,422,625
104,000 Bed Bath & Beyond, Inc.* 5,388,500
200,000 Best Buy Co., Inc.* 7,225,000
96,000 Borders Group, Inc.* 3,552,000
82,000 Circuit City Stores-Circuit City Group 3,843,750
100,500 Dollar Tree Stores, Inc.* 4,082,813
105,000 Gap, Inc. 6,470,625
107,000 General Nutrition Companies, Inc.* 3,330,375
107,000 Goody's Family Clothing, Inc.* 5,871,625
100,000 Michaels Stores, Inc.* 3,528,125
45,000 Payless ShoeSource, Inc.* 3,315,937
165,400 Pier 1 Imports, Inc. 3,948,925
100,000 Ross Stores Inc. 4,300,000
180,000 Sunglass Hut International, Inc.* 1,991,250
334,000 TJX Companies, Inc. 8,057,750
70,000 Tandy Corp. 3,714,375
28,000 Williams-Sonoma, Inc.* 890,750
---------------
70,934,425
---------------
Retail Store -- 4.1%
104,000 Costco Companies, Inc.* 6,558,500
144,000 Dayton Hudson Corp. 6,984,000
118,496 Dollar General Corp. 4,687,998
300,000 Family Dollar Stores, Inc. 5,550,000
66,000 Federated Department Stores, Inc.* 3,551,625
212,000 Kmart Corp.* 4,081,000
174,000 Kohl's Corp.* 9,026,250
70,000 Proffitt's, Inc.* 2,826,250
34,000 Stage Stores, Inc.* 1,538,500
150,000 Wal-Mart Stores, Inc. 9,112,500
---------------
53,916,623
---------------
Semiconductor -- 0.7%
101,000 PMC-Sierra, Inc.* 4,734,375
132,000 Vitesse Semiconductor Corp.* 4,075,500
---------------
8,809,875
---------------
Shoe -- 0.2%
119,250 Wolverine World Wide, Inc. 2,586,234
---------------
Telecommunications Equipment -- 1.1%
150,000 General Instrument Corp.* 4,078,125
69,000 Level One Communications, Inc.* 1,621,500
46,000 Loral Space & Communications, Ltd.* 1,299,500
84,000 Tekelec * 3,759,000
56,000 Tellabs, Inc.* 4,011,000
---------------
14,769,125
---------------
Telecommunication Services -- 3.1%
88,000 AirTouch Communications, Inc.* 5,142,500
82,000 BellSouth Corp. 5,504,250
87,000 Century Telephone Enterprises, Inc. 3,991,125
104,000 Cincinnati Bell, Inc. 2,977,000
94,000 ICG Communications, Inc.* 3,436,875
88,000 Intermedia Communications, Inc.* 3,690,500
110,000 MediaOne Group, Inc.* 4,833,125
56,000 Pacific Gateway Exchange, Inc.* 2,243,500
180,000 SkyTel Communications, Inc.* 4,213,125
3,004 U.S. West, Inc. 141,188
128,000 WinStar Communications, Inc.* 5,496,000
---------------
41,669,188
---------------
Tobacco -- 0.2%
57,000 Philip Morris Companies, Inc. 2,244,375
---------------
Toiletries/Cosmetics -- 0.1%
22,000 Avon Products, Inc. 1,705,000
---------------
TOTAL COMMON STOCKS
(Cost $775,829,588) 1,047,893,555
---------------
See notes to financial statements.
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- --------------------------------------------------------------------------------
Principal
Amount Value
- -----------------------------------------------------------------------
- -----------------------------------
U.S. TREASURY OBLIGATIONS -- 5.7%
- -----------------------------------
$ 50,000,000 U.S. Treasury Notes
6 1/2%, due 5/31/02 $ 51,630,500
20,000,000 U.S. Treasury Bonds
7 1/4%, due 8/15/22 23,932,800
--------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $69,559,877) 75,563,300
--------------
- ---------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.1%
- ---------------------------------------------
15,000,000 Federal Home Loan Banks
5.625%, due 3/19/01 14,974,200
17,000,000 Federal Home Loan Banks
5.40%, due 1/15/03 16,807,390
19,000,000 Federal Home Loan Mortgage Corp.
5.75%, due 7/15/03 19,023,940
10,000,000 Federal National Mortgage Association
5.75%, due 6/15/05 10,005,300
6,740,000 Federal National Mortgage Association
6.850%, due 8/22/05 7,164,553
27,000,000 Federal Home Loan Mortgage Corp.
7.10%, due 4/10/07 29,306,610
13,000,000 Federal National Mortgage Association
6.50%, due 7/16/07 13,595,660
10,000,000 Federal National Mortgage
Association D.U.S. Pool #380188
6.450%, due 4/25/08 10,184,375
14,000,000 Federal Home Loan Corp.
5 3/4%, 4/15/08 13,947,780
--------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost $133,616,548) 135,009,808
--------------
- ---------------------------------
CORPORATE BONDS & NOTES -- 1.8%
- ---------------------------------
Bank -- 0.7%
10,000,000 International Bank for
Reconstruction & Development
Global Bonds 6.375%, due 5/24/01 10,173,700
--------------
Chemical -- Diversified -- 0.4%
5,000,000 Goodrich (B.F.) Co. (The) Notes
6.45%, due 4/15/08 5,044,650
--------------
Telecommunication Services -- 0.7%
5,000,000 AirTouch Communications, Inc.
Notes 6.65%, due 5/1/08 5,066,100
4,000,000 MCI Communications Corp. Sr.
Notes 6.50%, due 4/15/10 3,982,960
--------------
9,049,060
--------------
TOTAL CORPORATE BONDS & NOTES
(Cost $24,155,146) 24,267,410
--------------
TOTAL INVESTMENT SECURITIES -- 96.3%
(Cost $1,003,161,159) 1,282,734,073
--------------
- --------------------------------
SHORT-TERM INVESTMENTS -- 3.9%
- --------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 1.9%
25,000,000 Federal Home Loan Mortgage Corp.
Discount Notes 5.46%,
due 7/14/98 24,950,708
--------------
REPURCHASE AGREEMENTS -- 2.0%
(includes accrued interest)
26,900,000 Collateralized by $27,065,000
U.S. Treasury Notes 5 7/8%,
due 11/30/01, with a value
of $27,452,680 (with Morgan
Stanley & Co., 5.72%,
dated 6/30/98, due 7/1/98,
delivery value of $26,904,274) 26,904,274
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $51,854,982) 51,854,982
--------------
EXCESS OF LIABILITIES OVER CASH AND
RECEIVABLES -- (-0.2%) (2,096,856)
--------------
NET ASSETS -- 100.0% $1,332,492,199
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,332,492,199 / 52,198,028
shares outstanding) $ 25.53
==============
* Non-income producing.
See notes to financial statements.
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Value Line Strategic Asset Management Trust
- -------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS
Investment in securities, at value
(cost $1,003,161,159) $1,282,734,073
Short-term investments (cost $51,854,982) 51,854,982
Cash 16,355
Receivable for securities sold 2,487,187
Interest and dividends receivable 3,610,328
Receivable for trust shares sold 157,463
--------------
TOTAL ASSETS 1,340,860,388
--------------
LIABILITIES
Payable for securities purchased 6,266,646
Payable for trust shares repurchased 1,346,552
Accrued expenses:
Advisory fee 532,230
GIAC administrative service fee 162,000
Other 60,761
--------------
TOTAL LIABILITIES 8,368,189
--------------
NET ASSETS $1,332,492,199
==============
NET ASSETS CONSIST OF:
Capital stock, at $0.01 par value
(authorized unlimited, outstanding
52,198,028 shares) $ 521,980
Additional paid-in capital 830,590,010
Undistributed net investment income 44,516,145
Undistributed net realized gain on investments 177,291,150
Net unrealized appreciation of investments 279,572,914
--------------
NET ASSETS $1,332,492,199
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,332,492,199 / 52,198,028
shares outstanding) $ 25.53
==============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1998 (Unaudited)
Investment Income:
Interest $ 9,813,959
Dividends (Net of foreign withholding
tax of $18,424) 3,286,846
-------------
Total Income 13,100,805
-------------
Expenses:
Investment advisory fee 3,145,711
GIAC administrative service fee 362,251
Custodian fees 83,355
Audit and legal fees 21,398
Insurance and dues 18,295
Trustees' fees and expenses 8,155
Printing and stationary 1,213
Taxes and other 307
-------------
Total Expenses Before Custody Credits 3,640,685
Less: Custody credits (7,966)
-------------
Net Expenses 3,632,719
-------------
Net Investment Income 9,468,086
-------------
Net Realized and Unrealized Gain on
Investments
Net realized gain 75,859,225
Net change in unrealized appreciation 94,988,571
-------------
Net Realized Gain and Change in Net
Unrealized Appreciation on Investments 170,847,796
-------------
Net Increase in Net Assets from Operations $ 180,315,882
=============
See notes to financial statements.
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STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 (Unaudited)
and for the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1998 December 31,
(Unaudited) 1997
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income $ 9,468,086 $ 35,186,725
Net realized gain on investments 75,859,225 101,703,718
Change in net unrealized appreciation 94,988,571 30,109,960
--------------- ---------------
Net increase in net assets from operations 180,315,882 167,000,403
--------------- ---------------
Distributions to Shareholders:
Net investment income -- (26,826,322)
Net realized gain from investment transactions -- (122,913,330)
--------------- ---------------
Total distributions -- (149,739,652)
--------------- ---------------
Trust Share Transactions:
Proceeds from sale of shares 43,658,815 69,411,109
Proceeds from reinvestment of distributions to shareholders -- 149,739,652
Cost of shares repurchased (88,071,945) (112,606,824)
--------------- ---------------
(Decrease) Increase from Trust share transactions (44,413,130) 106,543,937
--------------- ---------------
Total Increase in Net Assets 135,902,752 123,804,688
Net Assets:
Beginning of period 1,196,589,447 1,072,784,759
--------------- ---------------
End of period $ 1,332,492,199 $ 1,196,589,447
=============== ===============
Undistributed Net Investment Income, at End of Period $ 44,516,145 $ 35,048,059
=============== ===============
</TABLE>
See notes to financial statements.
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- -------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- ------------------------------------
1 -- Significant Accounting Policies
- ------------------------------------
Value Line Strategic Asset Management Trust (the "Trust") is an open-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended, which seeks to achieve a high total investment
return consistent with reasonable risk by investing primarily in a broad range
of common stocks, bonds and money market instruments. The Trust will attempt to
acheive its objective by following an assets allocation strategy based on data
derived from computer models for the stock and bond markets that shifts the
assets of the Trust among equity, debt and money market securities as the models
indicate and its investment adviser, Value Line, Inc. (the "Adviser"), deems
appropriate.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contigent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Trust in the preparation of its financial statements.
(A) Security Valuation.
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities traded in the over-the-counter market,
the security is valued at the midpoint between the latest available and
representative bid and asked prices.
The Board of Trustees has determined that the value of bonds and other
fixed-income securities be calculated on the valuation date by reference to
valuations obtained from an independent pricing service which determines
valuations for normal institutional-size trading units of debt securities,
without exclusive reliance upon quoted prices. This service takes into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data in determining valuations.
Short-term instruments with maturities of 60 days or less are valued at
amortized cost which approximates market value. Short-term instruments with
maturities greater than 60 days at the date of purchase are valued at the
midpoint between the latest available and representative asked and bid prices,
and commencing 60 days prior to maturity such securities are valued at amortized
cost. Other assets and securities for which market valuations are not readily
available are valued at fair value as the Board of Trustees may determine in
good faith.
(B) Repurchase Agreements.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the 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
June 30, 1998 (Unaudited)
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, adjusted for amortization of discount, including
original issue discount required for federal income tax purposes, is earned from
settlement date and recognized on the accrual basis. Dividend income is recorded
on the ex-dividend date.
- ----------------------------------------
2 -- Trust Share Transactions, Dividends
and Distributions
- ----------------------------------------
Shares of the Trust are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance & Annuity Company, Inc.
(GIAC). Transactions in shares of beneficial interest in the Trust were as
follows:
Six Months Ended Year Ended
June 30, December 31,
1998 (Unaudited) 1997
---------------- ------------
Shares sold 1,806,353 3,117,519
Shares issued to shareholder
in reinvestment of dividends
and distributions -- 7,049,889
------------ ----------
1,806,353 10,167,408
Shares repurchased 3,677,649 5,083,552
------------ ----------
Net (decrease) increase (1,871,296) 5,083,856
============ ==========
Dividends per share from
net investment income $ -- $ .55
============ ==========
Distributions per share from
net realized gains $ -- $ 2.52
============ ==========
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Strategic Asset
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- -------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Six Months Ended
June 30,
1998
(Unaudited)
----------------
PURCHASES:
U.S. Treasury and Government
Agency Obligations $111,576,556
Other Investment Securities 606,663,518
------------
$718,240,074
============
SALES & MATURITIES:
U.S. Treasury and Government
Agency Obligations $374,078,721
Other Investment Securities 383,661,991
------------
$757,740,712
============
At June 30, 1998, the aggregate cost of investment securities and
short-term investments for federal income tax purposes was $1,055,016,141. The
aggregate appreciation and depreciation of investments at June 30, 1998, based
on a comparison of investment values and their costs for federal income tax
purposes was $293,561,334 and $13,988,420, respectively, resulting in a net
appreciation of $279,572,914.
- ---------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Affiliates
- ---------------------------------------------
An advisory fee of $3,145,711 was paid or payable to the Adviser, for the
period ended June 30, 1998. This was computed at the rate of 1/2 of 1% of the
average daily net assets of the Trust during the period and paid monthly. The
Adviser provides research, investment programs, supervision of the investment
portfolio and pays costs of administrative services, office space, equipment and
compensation of administrative, bookkeeping and clerical personnel necessary for
managing the affairs of the Trust. The Adviser also provides persons,
satisfactory to the Trust's Board of Trustees, to act as officers and employees
of the Trust and pays their salaries and wages. The Trust bears all other costs
and expenses.
Certain officers and directors of the Adviser and Value Line Securities,
Inc. (the Trust's distributor and a registered broker/dealer), and of GIAC are
also officers and Trustees of the Trust. A former officer of GIAC who is also a
trustee of the Trust was paid a fee of $792 by the Trust for the six months
ended June 30, 1998. During the period ended June 30, 1998, the Trust paid
brokerage commissions totalling $430,869 to Value Line Securities, Inc., a
wholly owned subsidiary of the Adviser, which clears its transactions through
unaffiliated brokers.
The Trust has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contractowner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the period ended June 30, 1998, the Trust
incurred expenses of $362,251 in connection with such services rendered by GIAC.
- --------------------------------------------------------------------------------
125
<PAGE>
---------------
Value Line
Strategic Asset
Management
---------------
10
---------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1998 ---------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 22.13 $ 21.90 $ 20.27 $ 16.13 $ 17.01 $ 15.94
---------- ---------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income .20 .65 .53 .39 .26 .27
Net gains or losses on securities
(both realized and unrealized) 3.20 2.65 2.56 4.17 (1.09) 1.62
---------- ---------- ---------- --------- --------- ---------
Total from investment operations 3.40 3.30 3.09 4.56 (.83) 1.89
---------- ---------- ---------- --------- --------- ---------
Less distributions:
Dividends from net investment income -- (.55) (.37) (.26) (.01) (.28)
Distributions from capital gains -- (2.52) (1.09) (.16) (.04) (.54)
---------- ---------- ---------- --------- --------- ---------
Total distributions -- (3.07) (1.46) (.42) (.05) (.82)
---------- ---------- ---------- --------- --------- ---------
Net asset value, end of period $ 25.53 $ 22.13 $ 21.90 $ 20.27 $ 16.13 $ 17.01
========== ========== ========== ========= ========= =========
Total return** 15.36%+ 15.66% 15.87% 28.54% -4.88% 11.86%
========== ========== ========== ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $1,332,492 $1,196,589 $1,072,785 $ 876,509 $ 662,721 $ 615,648
Ratio of operating expenses to average
net assets .58%*(1) .59%(1) .58%(1) .60% .60% .61%
Ratio of net investment income to
average net assets 1.50%* 3.08% 2.70% 2.18% 1.65% 1.96%
Portfolio turnover rate 59%+ 58% 71% 63% 100% 110%
</TABLE>
(1) Before offset of custody credits.
** 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.
+ Not annualized.
* Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
126
<PAGE>
- -----------
MFS Growth
with Income
Series
- -----------
11
- -----------
- --------------------------------------------------------------------------------
MFS Growth with Income Series
- -----------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- ----------------------
COMMON STOCKS -- 92.9%
- ----------------------
Shares Value
- -----------------------------------------------------------------------
U.S. Stocks -- 84.9%
Aerospace -- 4.4%
26,155 Allied Signal, Inc. $ 1,160,628
10,218 General Dynamics Corp. 475,137
8,819 Goodrich (B.F.) Co. 437,643
15,067 Lockheed Martin Corp. 1,595,219
13,809 Raytheon Co., "A" 795,744
20,805 United Technologies Corp. 1,924,462
--------------
6,388,833
--------------
Agricultural Products -- 0.1%
3,700 Case Corp. 178,525
--------------
Airlines -- 0.1%
1,770 AMR Corp.* 147,353
--------------
Apparel and Textiles -- 0.3%
6,986 VF Corp. 359,779
--------------
Automotive -- 0.8%
6,700 Federal Mogul Corp. 452,250
5,323 Ford Motor Co. 314,057
5,900 TRW, Inc. 322,287
--------------
1,088,594
--------------
Banks and Credit Companies -- 7.0%
1,077 Bank of New York, Inc. 65,360
16,524 Comerica, Inc. 1,094,715
9,200 Firstar Corp. 349,600
3,074 Fleet Financial Group, Inc. 256,679
16,562 National City Corp. 1,175,902
7,226 Northern Trust Corp. 550,983
50,777 Norwest Corp. 1,897,790
13,992 State Street Corp. 972,444
7,988 SunTrust Banks, Inc. 649,524
51,814 US Bancorp 2,228,002
22,237 Washington Mutual, Inc. 965,920
--------------
10,206,919
--------------
Building -- 0.7%
10,741 American Standard Cos., Inc.* 479,989
15,097 Sherwin Williams Co. 500,088
--------------
980,077
--------------
Business Machines -- 1.7%
13,754 International Business Machines
Corp. 1,579,131
8,235 Xerox Corp. 836,882
--------------
2,416,013
--------------
Business Services -- 1.0%
15,069 Computer Sciences Corp. 964,416
8,815 DST Systems, Inc.* 493,640
--------------
1,458,056
--------------
Cellular Telephones -- 0.1%
2,845 Century Telephone Enterprises, Inc. 130,514
--------------
Chemicals -- 2.2%
55,546 Air Products & Chemicals, Inc. 2,221,840
4,319 DuPont (E.I.) de Nemours & Co., Inc. 322,305
15,272 Praxair, Inc. 714,921
--------------
3,259,066
--------------
Computer Software - Personal Computers -- 1.6%
9,068 Compaq Computer Corp. 257,304
18,672 Microsoft Corp.* 2,023,578
--------------
2,280,882
--------------
Computer Software - Systems -- 1.6%
7,172 BMC Software, Inc.* 372,496
26,278 Computer Associates
International, Inc. 1,460,071
20,274 Oracle Corp.* 497,980
--------------
2,330,547
--------------
Consumer Goods and Services -- 8.0%
19,994 Black & Decker Corp. 1,219,634
4,751 Clorox Co. 453,127
18,312 Colgate-Palmolive Co. 1,611,456
28,434 Gillette Co. 1,611,852
35,219 Kimberly-Clark Corp. 1,615,672
29,909 Philip Morris Cos., Inc. 1,177,667
11,903 Procter & Gamble Co. 1,083,917
26,861 Service Corp. International 1,151,665
27,847 Tyco International Ltd. 1,754,361
--------------
11,679,351
--------------
Electrical Equipment -- 2.7%
9,566 Cooper Industries, Inc. 525,532
22,911 General Electric Co. 2,084,901
6,056 Honeywell, Inc. 1,341,680
--------------
3,952,113
--------------
See notes to financial statements.
- --------------------------------------------------------------------------------
127
<PAGE>
-----------
MFS Growth
with Income
Series
-----------
11
-----------
- --------------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------------
Entertainment -- 0.6%
3,540 CBS Corp. $ 112,395
5,500 Time Warner, Inc. 469,906
5,670 Viacom, Inc., "B"* 330,278
--------------
912,579
--------------
Financial Institutions -- 4.1%
5,610 Associates First Capital Corp., "A" 431,269
14,037 Beneficial Corp. 2,150,293
14,801 CIT Group, Inc., "A" 555,037
19,678 Federal Home Loan Mortgage Corp. 926,096
8,591 Heller Financial, Inc., "A"* 257,730
8,380 Household International, Inc. 416,905
6,413 Merrill Lynch & Co., Inc. 591,599
7,541 Morgan Stanley, Dean Witter & Co. 689,059
525 Waddell & Reed Financial, Inc., "A" 12,567
--------------
6,030,555
--------------
Food and Beverage Products -- 3.6%
13,282 Ace Ltd. 517,998
18,755 Archer-Daniels-Midland Co. 363,378
13,900 Bestfoods Co. 807,069
3,412 Coca-Cola Co. 291,726
850 Corn Products International, Inc.* 28,794
3,435 General Mills, Inc. 234,868
4,651 Hershey Foods Corp. 320,919
13,568 Interstate Bakeries Corp. 450,288
5,585 McCormick & Co., Inc. 199,489
8,000 Nabisco Holdings Corp., "A" 288,500
14,194 Ralston Purina Co. 1,658,037
--------------
5,161,066
--------------
Insurance -- 9.1%
18,265 Allstate Corp. 1,672,389
23,560 Chubb Corp. 1,893,635
21,158 CIGNA Corp. 1,459,902
2,183 Conseco, Inc. 102,055
17,670 Hartford Financial Services
Group, Inc. 2,021,006
11,357 Lincoln National Corp. 1,037,746
5,211 MBIA, Inc. 390,174
10,517 Progressive Corp. 1,482,897
32,308 Torchmark Corp. 1,478,091
7,798 Transamerica Corp. 897,745
13,376 Travelers Group, Inc. 810,920
--------------
13,246,560
--------------
Machinery -- 0.6%
9,300 Eaton Corp. 723,075
4,761 York International Corp. 207,401
--------------
930,476
--------------
Medical and Health Products -- 8.1%
40,146 American Home Products Corp. 2,077,555
31,811 Bristol-Myers Squibb Co. 3,656,277
15,893 Johnson & Johnson 1,172,109
7,171 McKesson Corp. 582,644
2,579 Merck & Co., Inc. 344,941
14,395 Pfizer, Inc. 1,564,557
11,700 Pharmacia & Upjohn, Inc. 539,662
1,865 Schering Plough Corp. 170,881
24,041 Warner-Lambert Co. 1,667,844
--------------
11,776,470
--------------
Medical and Health Technology and Services -- 3.4%
35,725 Columbia/HCA Healthcare Corp. 1,040,491
100 Fresenius National Medical Care, Inc.* 6
37,995 HEALTHSOUTH Corp.* 1,013,992
6,724 Medtronic, Inc. 428,655
29,935 Tenet Healthcare Corp.* 935,469
24,975 United Healthcare Corp. 1,585,912
--------------
5,004,525
--------------
Metals and Minerals -- 0.2%
4,671 Phelps Dodge Corp. 267,123
--------------
Oils -- 3.8%
3,390 Chevron Corp. 281,582
32,177 Exxon Corp. 2,294,622
14,351 Mobil Corp. 1,099,645
19,189 Texaco, Inc. 1,145,344
20,539 USX-Marathon Group 704,744
--------------
5,525,937
--------------
Photographic Products -- 0.0%
600 Eastman Kodak Co. 43,838
--------------
Pollution Control -- 0.8%
4,744 Browning Ferris Industries, Inc. 164,854
28,555 Waste Management, Inc. 999,425
--------------
1,164,279
--------------
Printing and Publishing -- 1.6%
19,039 Gannett Co., Inc. 1,352,959
See notes to financial statements.
- --------------------------------------------------------------------------------
128
<PAGE>
- -----------
MFS Growth
with Income
Series
- -----------
11
- -----------
- --------------------------------------------------------------------------------
MFS Growth with Income Series
- -----------------------------
SCHEDULE OF INVESTMENTS (continued)
June 30, 1998 (Unaudited)
Shares Value
- -----------------------------------------------------------------------
14,871 Tribune Co. $ 1,023,311
--------------
2,376,270
--------------
Railroads -- 1.0%
12,161 Burlington Northern
Santa Fe Railway Co. 1,194,058
4,749 CSX Corp. 216,080
--------------
1,410,138
--------------
Restaurants and Lodging -- 0.6%
9,148 Cendant Corp.* 190,964
9,170 McDonalds Corp. 632,730
--------------
823,694
--------------
Stores -- 5.9%
19,356 CVS Corp. 753,674
11,738 Home Depot, Inc. 974,988
5,343 Liz Claiborne, Inc. 279,172
11,555 Nordstrom, Inc. 892,624
9,776 Office Depot, Inc.* 308,555
23,859 Penney (J.C.), Inc. 1,725,304
35,927 Rite Aid Corp. 1,349,508
25,910 Sears, Roebuck & Co. 1,582,129
11,572 Wal-Mart Stores, Inc. 702,999
--------------
8,568,953
--------------
Supermarkets -- 1.3%
10,842 Kroger Co.* 464,851
500 Meyer (Fred), Inc. 21,250
34,390 Safeway, Inc.* 1,399,243
--------------
1,885,344
--------------
Telecommunications -- 3.1%
3,843 AirTouch Communications, Inc.* 224,575
11,600 Alltel Corp. 539,400
9,436 Cincinnati Bell, Inc. 270,106
4,619 Cisco Systems, Inc.* 425,237
4,823 Lucent Technologies, Inc. 401,213
16,786 MCI Communications Corp. 975,686
17,314 Sprint Corp. 1,220,637
9,000 WorldCom, Inc.* 435,938
--------------
4,492,792
--------------
Utilities - Electric -- 2.1%
3,659 Carolina Power & Light Co. 158,709
12,742 Cinergy Corp. 445,970
8,680 CMS Energy Corp. 381,920
7,119 FPL Group, Inc. 448,497
5,549 Illinova Corp. 166,470
3,362 New Century Energies, Inc. 152,761
5,975 Pinnacle West Capital Corp. 268,875
14,357 Texas Utilities Co. 597,610
8,849 Unicom Corp. 310,268
5,240 Wisconsin Energy Corp. 159,165
--------------
3,090,245
--------------
Utilities - Gas -- 0.9%
12,415 Columbia Gas System, Inc. 690,556
12,645 KN Energy, Inc. 685,201
--------------
1,375,757
--------------
Utilities - Telephone -- 1.8%
5,390 Bell Atlantic Corp. 245,919
8,462 BellSouth Corp. 568,012
19,884 GTE Corp. 1,106,047
18,270 SBC Communications, Inc. 730,800
--------------
2,650,778
--------------
Total U.S. Stocks $ 123,594,001
--------------
Foreign Stocks -- 8.0%
Bermuda -- 0.7%
12,656 Exel Ltd. (Insurance) 984,795
--------------
Canada -- 0.7%
18,121 Canadian National Railway Co.
(Railroads) 962,678
--------------
France -- 0.9%
23,365 Alcatel Alsthom Compagnie, ADR
(Telecommunications) 950,663
2,471 Sanofi S.A. (Medical and
Health Products) 290,178
--------------
1,240,841
--------------
Germany -- 0.5%
7,205 Henkel KGAA (Chemicals) 711,925
--------------
Japan -- 0.5%
14,880 AFLAC, Inc. (Insurance) 451,050
3,000 Sony Corp. (Electronics) 259,463
--------------
710,513
--------------
See notes to financial statements.
- --------------------------------------------------------------------------------
129
<PAGE>
-----------
MFS Growth
with Income
Series
-----------
11
-----------
Shares Value
- -----------------------------------------------------------------------
Netherlands -- 1.2%
4,836 Akzo Nobel N.V. (Chemicals) $ 1,073,822
8,187 Ing Groep N V, ADR
(Financial Services) 535,225
2,600 Ing Groep N.V. (Financial
Services)* 170,057
--------------
1,779,104
--------------
Sweden -- 0.8%
280 Mandamus Fastighet (Real Estate
Investment Trust)* 1,753
2,026 Securitas AB (Security Services) 99,080
63,300 Skandia Forsakrings AB (Insurance) 903,719
6,770 Sparbanken Sverige AB, "A"
(Banks and Credit Cos.) 203,482
--------------
1,208,034
--------------
Switzerland -- 0.7%
275 Nestle AG, Registered Shares
(Food and Beverage Products) 588,819
283 Novartis AG (Pharmaceuticals) 471,169
--------------
1,059,988
--------------
United Kingdom -- 2.0%
23,504 British Petroleum PLC, ADR (Oils) 2,074,228
22,377 Lloyds TSB Group PLC
(Banks and Credit Cos.)* 312,969
32,392 PowerGen PLC
(Utilities -- Electric)* 447,368
--------------
2,834,565
--------------
Total Foreign Stocks 11,492,443
--------------
Total Stocks (Identified Cost, $119,597,588) $ 135,086,444
--------------
- -----------------------
Preferred Stock -- 0.0%
- -----------------------
Consumer Goods and Services
200 Newell Financial Trust Co.##*
(Identified Cost, 11,325) 11,550
--------------
- -----------------------------------
Convertible Preferred Stock -- 0.4%
- -----------------------------------
Consumer Goods and Services -- 0.2%
4,398 Newell Financial Trust Co., 5.25%* $ 253,984
--------------
Utilities - Electric -- 0.2%
4,265 Houston Industries, Inc., 7% 317,742
--------------
Total Convertible Preferred Stock (Identified
Cost, $472,791) 571,726
--------------
- ------------------------------
Short-Term Obligations -- 5.8%
- ------------------------------
Principal
Amount
(000 Omitted) Value
- ----------------------------------------------------------------------
$ 4,870 Federal Home Loan Mortgage
Corp., due 7/01/98 $ 4,870,000
3,600 Federal National Mortgage Assn.,
due 7/06/98 3,597,285
--------------
Total Short-Term Obligations, at
Amortized Cost 8,467,285
--------------
Total Investments (Identified Cost,
$128,548,989) 144,137,005
Other Assets, Less Liabilities -- 0.9% 1,349,529
--------------
NET ASSETS -- 100.0% $ 145,486,534
=============
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
- --------------------------------------------------------------------------------
130
<PAGE>
- -----------
MFS Growth
with Income
Series
- -----------
11
- -----------
- --------------------------------------------------------------------------------
MFS Growth with Income Series
- -----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS:
Investments, at value
(identified cost, $128,548,989) $144,137,005
Cash 4,459
Receivable for investments sold 683,691
Receivable for Series shares sold 3,128,053
Dividends receivable 181,991
Deferred organization expenses 4,169
Other assets 458
------------
TOTAL ASSETS $ 48,139,826
------------
LIABILITIES:
Payable for investments purchased $ 2,388,876
Payable for Series shares reacquired 251,735
Payable to affiliates --
Management fee 8,798
Shareholder servicing agent fee 411
Administrative fee 180
Accrued expenses and other liabilities 3,292
------------
TOTAL LIABILITIES $ 2,653,292
------------
NET ASSETS $145,486,534
============
NET ASSETS consist of:
Paid-in capital $127,634,780
Unrealized appreciation on investments and
translation of assets and liabilities in
foreign currencies 15,588,053
Accumulated undistributed net realized gain
on investments and foreign currency
transactions 1,883,700
Accumulated undistributed net investment
income 380,001
------------
TOTAL $145,486,534
============
SHARES OF BENEFICIAL
INTEREST OUTSTANDING 7,620,796
============
NET ASSET VALUE PER SHARE
(net assets/shares of beneficial interest
outstanding) $ 19.09
============
STATEMENT OF OPERATIONS
SIX MONTHS ENDED
June 30, 1998 (Unaudited)
NET INVESTMENT INCOME:
Income:
Dividends $ 708,005
Interest 161,099
Foreign taxes withheld (9,976)
------------
Total Investment Income $ 859,128
============
Expenses:
Management fee $ 359,345
Trustees' compensation 1,017
Shareholder servicing agent fee 16,825
Administrative fee 7,171
Printing 31,831
Custodian fee 19,993
Auditing fees 10,350
Amortization of organization expenses 918
Miscellaneous 11,490
------------
Total Expenses $ 458,940
Fees paid indirectly (1,236)
Preliminary reimbursement of expense to
investment adviser 21,423
------------
Net Expenses $ 479,127
------------
Net Investment Income $ 380,001
------------
Realized and Unrealized Gain (Loss) on
Investments:
Realized gain (loss) (identified
cost basis):
Investment transactions $ 2,041,914
Foreign currency transactions (2,071)
------------
Net Realized Gain on Investments and
Foreign Currency Transactions $ 2,039,843
Change in unrealized appreciation:
Investments $ 10,323,099
Translation of assets and liabilities in
foreign currencies 102
------------
Net Unrealized Gain on Investments and
Foreign Currency Translation $ 10,323,201
------------
Net Realized and Unrealized Gain on
Investments and Foreign Currency $ 12,363,044
------------
Increase in Net Assets from Operations $ 12,743,045
============
See notes to financial statements.
- --------------------------------------------------------------------------------
131
<PAGE>
-----------
MFS Growth
with Income
Series
-----------
11
-----------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Six Months Year Ended
Ended December 31,
June 30, 1998 1997
(Unaudited) (Audited)
------------- ------------
Increase (decrease) in net assets:
From Operations:
Net investment income $ 380,001 $ 234,505
Net realized gain on investments and
foreign currency transactions 2,039,843 962,798
Net unrealized gain on investments and
foreign currency translation 10,323,201 4,430,038
------------ ------------
Increase in net assets from operations $ 12,743,045 $ 5,627,341
------------ ------------
Distributions declared to Shareholders:
From net investment income $ -- $ (236,004)
From net realized gain on investments and
foreign currency transactions -- (962,798)
In excess of net investment income -- (501)
In excess of net realized gain on investments
and foreign currency transactions -- (143,538)
------------ ------------
Total distributions declared to shareholders $ -- $ (1,342,841)
------------ ------------
Net Increase in Net Assets from Series Share
Transactions $ 74,698,419 $ 44,586,457
------------ ------------
Total increase in net assets $ 87,441,464 $ 48,870,957
Net Assets:
At beginning of period 58,045,070 9,174,113
------------ ------------
At end of period (including accumulated
undistributed net investment income
of $380,001 and $0, respectively) $145,486,534 $ 58,045,070
============ ============
See notes to financial statements.
- --------------------------------------------------------------------------------
132
<PAGE>
- -----------
MFS Growth
with Income
Series
- -----------
11
- -----------
- --------------------------------------------------------------------------------
MFS Growth with Income Series
- -----------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- ------------------------------
1 -- Business and Organization
- ------------------------------
MFS Growth with Income Series (the Series) is a diversified series of
MFS(R) Variable Insurance Trust(SM) (the Trust) which is comprised of the
following 13 series: MFS(R) Bond Series, MFS(R) Emerging Growth Series,
MFS(R)/Foreign & Colonial Emerging Markets Equity Series, MFS(R) Growth with
Income Series, MFS(R) High Income Series, MFS(R) Limited Maturity Series, MFS(R)
Money Market Series, MFS(R) New Discovery Series, MFS(R) Research Series, MFS(R)
Total Return Series, MFS(R) Utilities Series, MFS(R) Value Series, and MFS(R)
World Governments Series. The Series is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The shareholders of each Series of
the Trust are separate accounts of insurance companies which offer variable
annuity and/or life insurance products. As of June 30, 1998, there were 37
shareholders in the Series.
- ------------------------------------
2 -- Significant Accounting Policies
- ------------------------------------
General
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations
Equity securities listed on securities exchanges or reported through the
NASDAQ system are reported at market value using last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are reported at market value using last quoted bid prices. Debt
securities (other than short-term obligations which mature in 60 days or less),
including listed issues, and forward contracts are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
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, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. Securities
for which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation
Investment valuations, other assets, and liabilities initially expressed
in foreign currencies are converted each business day into U.S. dollars based
upon current exchange rates. Purchases and sales of foreign investments, income,
and expenses are converted into U.S. dollars based upon currency exchange rates
prevailing on the respective dates of such transactions. Gains and losses
attributable to foreign currency exchange rates on sales of securities are
recorded for financial statement purposes as net realized gains and losses on
investments. Gains and losses attributable to foreign exchange rate movements on
income and expenses are recorded for financial statement purposes as foreign
currency transaction gains and losses. That portion of
- --------------------------------------------------------------------------------
133
<PAGE>
-----------
MFS Growth
with Income
Series
-----------
11
-----------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1998 (Unaudited)
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
Deferred Organization Expenses
Costs incurred by the Series in connection with its organization have been
deferred and are being amortized on a straight-line basis over a five-year
period beginning on the date of commencement of Series operations.
Forward Foreign Currency Exchange Contracts
The Series may enter into forward foreign currency exchange contracts for
the purchase or sale of a specific foreign currency at a fixed price on a future
date. Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar. The Series will enter into forward contracts for hedging purposes as
well as for non-hedging purposes. For hedging purposes, the Series may enter
into contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. The Series may also use contracts
in a manner intended to protect foreign currency-denominated securities from
declines in value due to unfavorable exchange rate movements. For non-hedging
purposes, the Series may enter into contracts with the intent of changing the
relative exposure of the Series' portfolio of securities to different currencies
to take advantage of anticipated changes. The forward foreign currency exchange
contracts are adjusted by the daily exchange rate of the underlying currency and
any gains or losses are recorded as unrealized until the contract settlement
date. On contract settlement date, the gains or losses are recorded as realized
gains or losses on foreign currency transactions.
Investment Transactions and Income
Investment transactions are recorded on the trade date. Interest income is
recorded on the accrual basis. All discount is accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividends received in cash are recorded on the ex-dividend date. Dividend and
interest payments received in additional securities are recorded on the
ex-dividend or ex-interest date in an amount equal to the value of the security
on such date.
Fees Paid Indirectly
The Series' custody fee is calculated as a percentage of the Series'
month-end net assets. The fee is reduced according to an arrangement that
measures the value of cash deposited with the custodian by the Series. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions
The Series' policy is to comply with the provisions of the Internal
Revenue Code (the Code) applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investments. Accordingly, no provision for federal income or excise tax
is provided. The Series files a tax return annually using tax accounting methods
required under provisions of the Code, which may differ from generally accepted
accounting principles, the basis on which these financial statements are
prepared. Accordingly, the amount of net investment income and net realized gain
reported on these financial statements may differ from that reported on the
Series' tax return.
- --------------------------------------------------------------------------------
134
<PAGE>
- -----------
MFS Growth
with Income
Series
- -----------
11
- -----------
- --------------------------------------------------------------------------------
MFS Growth with Income Series
- -----------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1998 (Unaudited)
Distributions to shareholders are recorded on the ex-dividend date. The
Series distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
overdistributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
- ---------------------------------
3 -- Transactions with Affiliates
- ---------------------------------
Investment Adviser
The Series has an investment advisory agreement with Massachusetts
Financial Services Company (MFS) to provide overall investment advisory and
administrative services, and general office facilities. The management fee is
computed daily and paid monthly at an annual rate of 0.75% of average daily net
assets. The Series has a temporary expense reimbursement agreement whereby MFS
has voluntarily agreed to pay all of the Series' operating expenses, exclusive
of management fees. The Series in turn will pay MFS an expense reimbursement fee
not greater than 0.25% of average daily net assets. To the extent that the
expense reimbursement fee exceeds the Series' actual expenses, the excess will
be applied to amounts paid by MFS in prior years. At June 30, 1998, the
aggregate unreimbursed expenses owed to MFS by the Series amounted to $63,790.
The Series pays no compensation directly to its Trustees who are officers
of the investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain officers and
Trustees of the Series are officers or directors of MFS and MFS Service Center,
Inc. (MFSC).
Administrator
The Series has an administrative services agreement with MFS to provide
the Series with certain financial, legal, shareholder servicing, compliance, and
other administrative services. As a partial reimbursement for the cost of
providing these services, the Series pays MFS an administrative fee at the
following annual percentages of the Series' average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Shareholder Servicing Agent
MFSC, a wholly-owned subsidiary of MFS, earns a fee for its services as
shareholder servicing agent. The fee is calculated as a percentage of the
Series' average daily net assets at an effective annual rate of 0.035%.
- -------------------------
4 -- Portfolio Securities
- -------------------------
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$87,657,731, and $16,414,592, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Series, as computed on a federal income tax basis, are
as follows:
Aggregate cost $128,548,989
------------
Gross unrealized appreciation $ 16,820,296
Gross unrealized depreciation (1,232,280)
------------
Net unrealized appreciation $ 15,588,016
------------
- --------------------------------------------------------------------------------
135
<PAGE>
-----------
MFS Growth
with Income
Series
-----------
11
-----------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1998 (Unaudited)
- ----------------------------------
5 -- Shares of Beneficial Interest
- ----------------------------------
The Series' Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest (without
par value). Transactions in Series shares were as follows:
Six Months Ended Year Ended
6/30/98 12/31/97
------------------------ ------------------------
Shares Amount Shares Amount
--------- ------------ --------- ------------
Shares sold 4,712,988 $ 86,057,038 3,352,466 $ 52,088,636
Shares issued to
shareholders in
reinvestment of
distributions -- -- 83,407 1,342,841
Shares reacquired (622,888) (11,358,619) (611,729) (8,845,020)
--------- ------------ --------- ------------
Net increase 4,090,100 $ 74,698,419 2,824,144 $ 44,586,457
========= ============ ========= ============
- -------------------
6 -- Line of Credit
- -------------------
The Series and other affiliated funds participate in a $805 million
unsecured line of credit provided by a syndication of banks under a line of
credit agreement. Borrowings may be made to temporarily finance the repurchase
of Series shares. Interest is charged to each fund, based on its borrowings, at
a rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Series for the six months ended June 30, 1998, was $114.
- --------------------------------------------------------------------------------
136
<PAGE>
- -----------
MFS Growth
with Income
Series
- -----------
11
- -----------
- --------------------------------------------------------------------------------
MFS Growth with Income Series
- -----------------------------
FINANCIAL HIGHLIGHTS
Per share data (for a share outstanding throughout each period):
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1998 -------------------------- Period Ended
(Unaudited) 1997 1996 December 31, 1995*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.44 $ 12.98 $ 10.61 $ 10.00
----------- ----------- ----------- -----------
Income from investment operations#:
Net investment income### $ 0.07 $ 0.16 $ 0.18 $ 0.05
Net realized and unrealized gain on investments
and foreign currency transactions 2.58 3.70 2.42 0.61
----------- ----------- ----------- -----------
Total from investment operations $ 2.65 $ 3.86 $ 2.60 $ 0.66
----------- ----------- ----------- -----------
Less distributions declared to shareholders:
From net investment income $ -- $ (0.07) $ (0.09) $ (0.05)
From net realized gain on investments and
foreign currency transactions -- (0.29) (0.13) --
In excess of net realized gain on investments
and foreign currency transactions -- (0.04) (0.01) --
----------- ----------- ----------- -----------
Total distributions declared to shareholders $ -- $ (0.40) $ (0.23) $ (0.05)
----------- ----------- ----------- -----------
Net asset value, end of period $ 19.09 $ 16.44 $ 12.98 $ 10.61
=========== =========== =========== ===========
Total return 16.12%+ 29.78% 24.46% 6.64%++
Ratios (to average net assets)/Supplemental Data ss.:
Expenses 1.00%+ 1.00% 1.00% 1.00%+
Net investment income 0.79%+ 0.93% 1.52% 2.20%+
Portfolio turnover 18% 42% 41% 2%
Net assets at end of period (000 omitted) $ 145,487 $ 58,045 $ 9,174 $ 365
</TABLE>
* For the period from the commencement of the Series' investment operations,
October 9, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Series' expenses are calculated without reduction for fees paid
indirectly.
ss. Subject to reimbursement by the Series, the investment adviser voluntarily
agreed to maintain the expenses of the Series, exclusive of management
fees, at not more than 0.25% of average daily net assets. To the extent
actual expenses were over/under this limitation, the net investment income
(loss) per share and the ratios would have been:
<TABLE>
<S> <C> <C> <C> <C>
Net investment income (loss) $ 0.07 $ 0.13 $ 0.05 $ (0.41)
Ratios (to average net assets):
Expenses## 0.96%+ 1.10% 2.07% 21.44%+
Net investment income (loss) 0.83%+ 0.82% 0.46% (18.24)%+
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
137
<PAGE>
[LOGO]The Guardian(R) BULK RATE MAIL
U.S. POSTAGE PAID
The Guardian Insurance & Annuity Company, Inc. PERMIT NO. 1104
201 Park Avenue South CLIFTON, NJ
New York, NY 10003
EB-010250 6/98 [RECYCLE LOGO] Printed on recycled paper
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
"Semi-Annual Report to Shareholders" dated June 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000356385
<NAME> Separate Account A - Value Guard II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 870,332,124
<INVESTMENTS-AT-VALUE> 1,199,595,719
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,199,595,719
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,276,611
<TOTAL-LIABILITIES> 11,276,611
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 762,235
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 80,970,363
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 329,263,597
<NET-ASSETS> 1,188,319,108
<DIVIDEND-INCOME> 6,963,068
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 6,200,833
<NET-INVESTMENT-INCOME> 762,235
<REALIZED-GAINS-CURRENT> 80,970,363
<APPREC-INCREASE-CURRENT> 50,492,934
<NET-CHANGE-FROM-OPS> 132,225,532
<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> 6,200,833
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,200,833
<AVERAGE-NET-ASSETS> 2,321,555,291
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 131,463,297
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .003
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
