PROSPECTUS
May 1, 1996
THE GUARDIAN BOND FUND, INC.
The Guardian Bond Fund, Inc. (the "Fund") is an open-end investment company
(commonly known as a "mutual fund"). Its primary investment objective is to
secure maximum current income without undue risk to principal. Capital
appreciation is a secondary objective. The Fund primarily invests in corporate
and other debt obligations rated in one of the four highest categories
established by nationally recognized statistical ratings organizations, such as
Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, (commonly
referred to as "investment grade" debt obligations) and securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities. The
Fund's assets typically include mortgage-backed securities.
Shares of the Fund are available to the public only through the ownership
of variable annuities and variable life insurance policies issued by The
Guardian Insurance & Annuity Company, Inc. ("GIAC") through its separate
accounts.
This Prospectus sets forth important information that a GIAC contractowner
should know about the investment policies and operations of the Fund before
investing. This Prospectus should be retained for future reference. A Statement
of Additional Information, dated May 1, 1996, has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated herein by reference. A free
copy of the Statement of Additional Information may be obtained and further
inquiries can be made by calling 1-800-221-3253 or by writing to Guardian
Investor Services Corporation(R) ("GISC") at 201 Park Avenue South, New York,
New York 10003. GISC is the Fund's investment adviser and the principal
underwriter of of GIAC's variable annuities and variable life insurance
policies.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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FINANCIAL HIGHLIGHTS
The following table provides selected data, total returns and ratios for
one share of the Fund, and has been audited by Ernst & Young LLP, independent
auditors. This information is supplemented by the Fund's audited financial
statements, and their accompanying notes, for the year ended December 31, 1995,
which appear in the Fund's 1995 Annual Report to Shareholders. This Annual
Report includes further information about the Fund's 1995 performance and the
unqualified report of Ernst & Young LLP on the Fund's 1995 financial statements.
The 1995 Annual Report is incorporated by reference into the Statement of
Additional Information. Free copies of the Statement of Additional Information
and the Fund's 1995 Annual Report to Shareholders may be obtained by calling
1-800-221-3253 or by writing to GISC, 201 Park Avenue South, New York, New York
10003.
Selected data for a share of capital stock outstanding throughout the
periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .............. $ 11.08 $ 12.24 $ 12.26 $ 12.33 $ 11.56 $ 11.67 $ 11.16 $ 11.12 $ 12.41 $ 11.57
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Income from
investment operations
Net investment income .... 0.76 0.40 0.70 0.81 0.92 0.97 0.98 1.03 0.96 0.83
Net realized and
unrealized gain/(loss)
on investments ......... 1.17 (0.82) 0.50 0.13 0.91 (0.11) 0.55 0.02 (0.92) 0.83
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net increase/(decrease)
from investment
operations ............. 1.93 (0.42) 1.20 0.94 1.83 0.86 1.53 1.05 0.04 1.66
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Distributions to
shareholders
Distributions from net
investment income ...... (0.76) (0.68) (0.70) (0.81) (0.92) (0.97) (1.02) (1.01) (1.23) (0.79)
Distributions from net
realized gain .......... -- (0.06) (0.52) (0.20) (0.14) -- -- -- (0.10) (0.03)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total distributions ...... (0.76) (0.74) (1.22) (1.01) (1.06) (0.97) (1.02) (1.01) (1.33) (0.82)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net asset value, end of
period ................. $ 12.25 $ 11.08 $ 12.24 $ 12.26 $ 12.33 $ 11.56 $ 11.67 $ 11.16 $ 11.12 $ 12.41
======== ======== ======== ======== ======== ======== ======== ======== ======== =======
Total return* ............ 17.59% (3.45%) 9.85% 7.70% 16.19% 7.57% 13.88% 9.70% 0.32% 14.84%
======== ======== ======== ======== ======== ======== ======== ======== ======== =======
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ........ $374,462 $308,978 $340,269 $284,330 $222,299 $165,844 $147,753 $113,616 $103,846 $73,491
Ratio of expenses to
average net assets ..... 0.54% 0.54% 0.55% 0.56% 0.57% 0.58% 0.60% 0.61% 0.62% 0.69%
Ratio of net investment
income to average
net assets ............. 6.43% 5.69% 5.56% 6.70% 7.81% 8.53% 8.78% 8.97% 8.97% 9.10%
Portfolio turnover rate .. 298% 311% 220% 57% 43% 39% 158% 24% 67% 55%
</TABLE>
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* 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.
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INVESTMENT OBJECTIVES AND POLICIES
The Fund is registered with the SEC as an open-end, diversified, management
investment company. It is incorporated in Maryland and commenced its operations
in March 1983. The Fund's primary investment objective is to seek maximum
current income without undue risk of principal. Capital appreciation is a
secondary objective. The Fund's investment objectives are fundamental policies
which cannot be changed without shareholder approval. There can be no assurance
that such objectives will be achieved.
The Fund attempts to meet its objectives by normally investing at least 80%
of the value of its assets in (1) investment grade debt obligations and (2) U.S.
government securities and obligations of U.S. government agencies and
instrumentalities. The Fund's assets typically include mortgage-backed
securities. Under normal circumstances, at least 65% of the Fund's total assets
will be invested in debt obligations. A debt obligation is a certificate or
evidence of debt. The issuer of a debt obligation promises to pay interest for a
specified period and to repay the debt on a specified date.
Investment grade bonds are secured and unsecured debt obligations which are
either assigned ratings within the four highest rating categories established by
nationally recognized statistical ratings organizations ("NRSROs"), such as
Moody's or S&P, or which are deemed by GISC to be comparable to such securities.
Obligations rated Baa by Moody's or BBB by S&P are deemed medium grade and are
considered more speculative than higher-grade obligations. Changes in economic
conditions or other circumstances could lessen the ability of the issuers of
medium grade debt securities to make principal and interest payments.
A portion of the Fund's assets may be rated lower than investment grade,
typically when ratings assigned to investment grade debt obligations acquired by
the Fund are downgraded. Low quality debt is considered to be predominantly
speculative with respect to the issuer's ability to make principal and interest
payments. See "Risk Considerations." The Fund is not required to sell a security
automatically when its rating is downgraded below investment grade. Normally,
less than 10% of the Fund's assets will be invested in such low-quality debt.
See the Appendix to this Prospectus.
The Fund may invest in mortgage-backed securities, such as mortgage
pass-throughs and collateralized mortgage obligations ("CMOs"). A mortgage
pass-through is collateralized by a pool of mortgages that have a common coupon
rate (i.e., interest rate) and maturity. The holders of a particular mortgage
pass-through share the rights to receive interest and principal payments from
the underlying pool of mortgages, net of servicing fees, as payment for debt
service on the pass-through. CMOs are collateralized by pooled mortgage loans
that may not share coupon rate and maturity characteristics, so they are
multi-class bonds. CMO classes typically have different interests in the stream
of interest and principal payments from an underlying pool of mortgages. Hence,
the classes are paid sequentially according to the payment structure of the CMO.
Mortgage pass-throughs and CMOs may be issued or guaranteed by the U.S.
government and its agencies or instrumentalities, or by private entities.
Mortgage-backed securities issued by the Government National Mortgage
Association ("GNMA") are backed by the full faith and credit of the U.S.
government. Privately owned, government sponsored agencies like the Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC") issue their own guarantees for interest and principal
payments on the mortgage-backed securities and other obligations they issue.
These guarantees are supported only by the issuer's credit or the issuer's right
to borrow from the U.S. Treasury. Accordingly, such investments may involve a
greater risk of loss of principal and interest than other U.S. government
securities since the Fund must look principally or solely to the issuing or
guaranteeing agency or instrumentality for repayment.
Privately issued mortgage-backed securities purchased by the Fund must be
fully collateralized by GNMA
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certificates, other government mortgage-backed securities, or by whole loan
securities. Whole loan securities are securitized mortgage pools backed by fixed
or adjustable rate mortgages originated by private institutions.
Mortgage-backed securities may be more sensitive to interest rate changes
than conventional bonds, which can result in greater price volatility. Because
the collateral underlying mortgage-backed securities may be prepaid at any time,
mortgage-backed securities are also subject to greater prepayment risks than
conventional bonds. Accelerated prepayments of mortgage-backed securities
purchased at a premium impose a risk of loss of principal because the premium
may not have been fully amortized when the principal is repaid. Prepayments tend
to accelerate when interest rates decline, so the proceeds from prepaid
mortgage-backed securities are then likely to be reinvested at lower interest
rates. The Statement of Additional Information contains more information about
mortgage-backed securities, including securities known as "interest only" and
"principal only" stripped mortgage securities.
Some of the Fund's investments may have variable interest rates. When an
instrument provides for periodic adjustments to its interest rate, fluctuations
in principal value may be minimized. However, changes in the coupon rate can lag
behind changes in market rates, which may adversely affect the Fund's
performance.
The Fund also invests in Treasury bills, Treasury notes and Treasury bonds,
all of which are backed by the full faith and credit of the U.S. government.
From time to time, the Fund may also invest up to 10% of its total net assets in
securities of U.S. or foreign companies which are issued and settled overseas.
All such investments will be U.S. dollar-denominated. See "Risk Considerations."
The Fund may invest its available cash in: repurchase agreements;
commercial paper which is issued in reliance on the "private placement"
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 ("Section 4(2) paper"); and other money market instruments. In a repurchase
agreement transaction, the Fund purchases a debt security and obtains a
simultaneous commitment from the seller (i.e., a bank or securities dealer) to
repurchase the debt security at an agreed time and price, reflecting a market
rate of interest. Repurchase agreements are fully collateralized (including the
interest earned thereon) by U.S. government securities, bank obligations, cash
or cash equivalents, and are marked-to-market daily during their respective
terms. Costs, delays or losses could result if the seller becomes bankrupt or is
otherwise unable to repurchase a security that is subject to a repurchase
agreement. To attempt to minimize this risk, the Fund's Board of Directors
periodically receives and reviews information about the creditworthiness of
securities dealers and banks which enter into repurchase agreements with the
Fund. The Fund will not enter into a repurchase agreement which matures in more
than seven days, if, as a result, more than 10% of its net assets would be
invested in illiquid securities.
The Fund may engage in dollar roll and reverse repurchase agreement
transactions. In a dollar roll transaction, the Fund sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
purchase substantially similar securities on a specified future date from the
same party. In a dollar roll, the securities that are to be purchased will be of
the same type and have the same interest rate as the sold securities, but will
be supported by different pools of mortgages. A fund that engages in a dollar
roll forgoes principal and interest paid on the sold securities during the roll
period, but is compensated by the difference between the current sales price and
the lower forward price for the future purchase. In addition, the Fund earns
interest by investing the transaction proceeds during the roll period.
In a reverse repurchase agreement transaction, the Fund sells securities to
a bank or securities dealer and agrees to repurchase them at an agreed time and
price. During the period between the sale and the forward purchase, the Fund
will continue to receive principal and interest payments on the securities sold.
The Fund may also receive interest income similar to that received in the case
of dollar rolls.
The Fund will normally use the proceeds of dollar roll and reverse
repurchase agreement transactions to maintain offsetting positions in securities
or repurchase agreements that mature on or before the settlement date for the
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related dollar roll or reverse repurchase agreement. The market value of
securities sold under a reverse repurchase agreement or dollar roll is typically
greater than the amount to be paid for the related forward commitment. Reverse
repurchase agreements and dollar rolls involve the risk that the buyer of the
sold securities might be unable to deliver them when the Fund seeks to
repurchase the securities. If the buyer files for bankruptcy or becomes
insolvent, such buyer or its representative may ask for and receive an extension
of time to decide whether to enforce the Fund's repurchase obligation. The
Fund's use of the transaction proceeds may be restricted pending such decision.
Whenever the Fund enters into a dollar roll or reverse repurchase agreement
transaction, it will maintain cash, U.S. Government securities or liquid,
high-grade debt 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 forward commitment or repurchase obligation
(principal plus accrued interest), as applicable. Segregating assets may limit
the Fund's ability to pursue other investment opportunities.
Since the Fund will receive interest on the securities or repurchase
agreements in which it invests the transaction proceeds, dollar rolls and
reverse repurchase agreements may involve leverage. However, since the acquired
securities or repurchase agreements must satisfy the Fund's credit quality
requirements and mature on or before the settlement date for the related dollar
roll or reverse repurchase agreement, and because the Fund will segregate assets
as described above, GISC believes that these transactions do not present the
risks associated with other types of leverage. The Fund does not intend to enter
into dollar roll or reverse repurchase agreement transactions other than in such
circumstances or for temporary or emergency purposes. In addition, the staff of
the Securities and Exchange Commission has taken the position that dollar roll
and reverse repurchase agreement transactions are deemed to be borrowings within
the meaning of the 1940 Act. Although the Fund intends to engage in such
transactions only in the limited circumstances described above, the use of such
transactions will be subject to the Fund's investment limitation on borrowings,
set forth in the Statement of Additional Information, which limits the aggregate
borrowings of the Fund to no more than 33-1/3% of the value of the Fund's total
assets.
To earn additional income, the Fund may lend its portfolio securities to
securities dealers, banks or other institutional investors. Such loans must be
continuously secured by collateral, and the loaned securities must be
marked-to-market daily. The Fund will generally continue to be entitled to all
interest earned or dividends paid on the loaned securities, though lending fees
may be paid to the borrower from such interest or dividends. The Fund can
increase its income through securities lending by investing the cash collateral
deposited by the borrower in short-term interest-bearing obligations that meet
the Funds' credit quality requirements and investment policies. As with any
extension of credit, however, there are risks of delay in recovery of the loaned
securities and collateral should a borrower fail financially. The Fund will
cease to lend securities if, as a result, the aggregate value of securities then
on loan would exceed 33 1 1/43% of its total net assets. A significant portion
of the Fund's loan transactions may be with only one or a few institutions at
any given time. This practice can increase the risk to the Fund should a
borrower fail. Apart from lending its securities and acquiring debt securities,
the Fund will not make loans to other persons.
The Fund does not intend to engage in substantial short-term trading.
Nevertheless, it may sell portfolio securities without regard to the length of
time that they have been held to take advantage of new investment opportunities
or yield differentials, or to preserve gains or limit losses due to changing
economic conditions. While the emphasis is on income, careful consideration is
given to security of principal, marketability and diversification.
RISK CONSIDERATIONS
The levels and types of risks associated with investing in the Fund
generally correspond to the risks associated with the types of investments it
makes. Those risks are generally described throughout this Prospectus and the
Statement of Additional Information. In addition, the risks described below
should be considered.
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Market risk is the chance that a debt obligation's price will fall as
interest rates rise and rise as interest rates fall. Generally, the prices of
bonds with longer maturities fluctuate more than shorter-term bonds when
interest rates change. U.S. government securities and mortgage-backed
securities, like other debt obligations, are subject to market risk.
Financial or credit risk relates to an issuer's financial condition. In
general, there is a higher likelihood that financially weak issuers will fail to
make principal and interest payments under their debt obligations. NRSROs may
downgrade the ratings assigned to such issuers, highlighting their higher credit
risk. U.S. government securities are substantially protected from financial or
credit risk. However, certain agency obligations, while of the highest credit
quality, do not have a direct U.S. government guarantee.
Prepayment risk is the possibility that a debt security will be prepaid (or
"called") prior to its expected maturity date, and that the proceeds could be
invested at lower interest rates. Intermediate-term and long-term bonds commonly
provide call protection, but mortgage-backed securities can be prepaid whenever
their underlying collateral is prepaid. When a security is called early, the
potential for additional appreciation is lost. If a premium was paid to acquire
a called security, there may even be principal losses. Prepayments occur more
frequently when interest rates decline.
A security that is rated lower than investment grade may be somewhat or
predominantly speculative with respect to its issuer's ability to make principal
and interest payments. While lower rated obligations generally offer higher
current yields than higher grade issues, they also involve higher market and
credit risks. Low quality debt can be particularly sensitive to adverse changes
in general economic conditions, the financial condition of its issuer, or
stresses in its issuer's industry.
If a significant portion of the Fund's assets are or become illiquid, the
Fund may be unable to calculate its net asset value per share or manage its
portfolio effectively. Assets are illiquid when they are not readily marketable
at their approximate value within seven days. Securities which are not
registered under the Securities Act of 1933 (the "1933 Act") are also generally
considered to be illiquid. However, unregistered Section 4(2) paper, which may
be resold to qualified institutional buyers under 1933 Act Rule 144A, may be
treated by the Fund as liquid, and purchased without regard to its 10%
illiquidity limit, unless GISC determines under guidelines adopted by the Board
of Directors that any such paper is illiquid. See the Statement of Additional
Information to learn more about the Fund's illiquidity limit. Because it is
impossible to predict with assurance exactly how the market for Section 4(2)
paper sold and offered under Rule 144A will develop, GISC, pursuant to the
guidelines adopted by the Fund's Board of Directors, will carefully monitor the
Fund's investments in these securities, focusing on valuation, liquidity and
availability of information, among other things.
Securities issued or settled overseas present additional and different
risks to the Fund. Foreign securities may be affected by political, social and
economic developments abroad. Foreign companies and foreign financial
institutions may not be subject to accounting standards or governmental
supervision comparable to their U.S. counterparts, and there may be less public
information about their operations. Foreign markets may be less liquid or more
volatile than U.S. markets and may offer less protection to investors. Foreign
countries may impose withholding taxes on interest income from investments in
securities issued there, or may enact confiscatory taxation provisions targeted
to certain investors. The time period for settling transactions in foreign
securities may be longer than the time period permitted for the settlement of
domestic securities transactions. In addition, as described in the Statement of
Additional Information, the market prices for foreign securities are not
determined at the same time of day as the net asset value for the Fund's shares.
It may be difficult to obtain and enforce judgments against foreign entities,
and the expenses of litigation are likely to exceed those which would be
incurred in the United States.
The Fund's portfolio turnover rate is likely to vary from year to year.
Historical portfolio turnover rates are
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set forth under "Financial Highlights." A higher portfolio turnover rate (i.e.,
in excess of 100%) can result in correspondingly greater transaction costs to
the Fund, and increase its short-term capital gains or losses. The Fund's turn
over rate will not be a limiting factor when GISC wants to make portfolio
changes. However, the Fund may refrain from certain sales to comply with the
Internal Revenue Code provision which currently requires that less than 30% of
the gross income of a regulated investment company be derived from securities
held for less than three months.
For the year ended December 31, 1995, the Fund experienced a portfolio
turnover rate in excess of 100%. The Fund's high portfolio turnover rate was
attributable to GISC's decision to replace certain treasury bonds in the Fund's
portfolio with higher-yielding corporate bonds and asset-backed securities.
FUND MANAGEMENT AND THE INVESTMENT ADVISER
The management and affairs of the Fund are supervised by its Board of
Directors. The Board meets regularly to review the Fund's investments,
performance, expenses, and other business affairs. The Board elects the Fund's
officers. The Board has nine members. Five Directors are not "interested
persons" of the Fund, as that term is defined in the Investment Company Act of
1940 ("the 1940 Act"). The names and business experience of the Directors and
officers of the Fund are set forth in the Statement of Additional Information.
GISC serves as investment adviser and provides certain administrative
services and facilities necessary to conduct the ongoing business of the Fund.
GISC selects, buys and sells securities for the Fund; chooses brokers and
dealers to effect the transactions; and negotiates any brokerage commissions.
The Fund pays GISC an investment management fee for these services at an annual
rate of 0.50% of its average daily net assets. All payments are due on a
quarterly basis.
GISC is located at 201 Park Avenue South, New York, New York 10003. GISC is
wholly owned by GIAC, which is, in turn, wholly owned by The Guardian Life
Insurance Company of America ("Guardian Life"), a mutual life insurance company
organized in the State of New York in 1860. GISC is the investment adviser to
five of the six series funds comprising The Park Avenue Portfolio, which is an
open-end management investment company, and two other open-end management
investment companies. GISC is the manager of another open-end management
investment company and is the co-adviser of a separate account of GIAC. GISC is
also the principal underwriter and distributor of The Park Avenue Portfolio and
of variable annuities and variable life insurance policies issued by GIAC. See
the Statement of Additional Information.
Michele S. Babakian, Vice President of the Fund, has managed the Fund since
its inception in March, 1983. Ms. Babakian also manages the assets of The
Guardian Investment Quality Bond Fund, a series of The Park Avenue Portfolio,
and a portion of Guardian Life's fixed income assets. Ms. Babakian became a Vice
President of Guardian Life in January 1995, and was a Second Vice President
prior thereto.
PERFORMANCE OF THE FUND
The Fund may, from time to time, provide performance information in
advertisements, sales literature or other materials furnished to existing or
prospective owners of GIAC's variable contracts. When performance information is
provided in advertisements, it will include the effect of all charges deducted
under the terms of the specified contract, as well as all recurring and
non-recurring charges incurred by the Fund. All performance results are
historical and are not representative of future results.
Total return and average annual total return reflect the change in value of
an investment in the Fund over a specified period, assuming the reinvestment of
all capital gains distributions and income dividends. Average annual total
returns show the average change in value for each annual period within a
specified period. Total returns, which are
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not annualized, show the total percentage or dollar change in value over a
specified period. Promotional materials relating to the Fund's performance will
always at least provide average annual total returns for one, five and ten
years.
Yield is a measure of the net investment income earned on a hypothetical
investment over a specified base period of one month or 30 days. Yield is
expressed as a percentage of the value of a share at the beginning of the base
period. Yields are annualized, which means that they assume that the Fund will
generate the same level of net investment income over a one year period.
However, the Fund's yield will actually fluctuate daily. On occasion, the Fund
may also quote its historical or annualized distribution rates. A distribution
rate is simply a measure of the level of income dividends and short-term capital
gain dividends distributed for a specified period. A distribution rate is not a
complete measure of performance, and may be higher than yield for certain
periods.
The Fund may also compare its performance to other investment vehicles or
other mutual funds which have similar investment objectives or programs. Also,
the Fund may quote information from securities indices or financial and industry
or general interest publications in its promotional materials. Additionally, the
Fund's promotional materials may contain references to types and characteristics
of certain securities; features of its portfolio; financial markets; or
historical, current or prospective economic trends. Topics of general interest,
such as personal financial planning, may also be discussed. More information
about the Fund's performance is contained in the Fund's Statement of Additional
Information and Annual Report. Free copies may be obtained by calling
1-800-221-3253 or by writing to GISC.
CALCULATION OF NET ASSET VALUE
The Fund's net asset value per share ("NAV") is determined as of the
earlier of the close of trading on the New York Stock Exchange or 4:00 p.m.,
Eastern time, on each day on which the New York Stock Exchange is open for
business. NAV is calculated by subtracting the Fund's liabilities, including
expenses which are accrued daily, from its total assets and dividing the result
by the number of shares outstanding. The Fund values its assets at their current
market value when market quotations are readily available. If a market value
cannot be established, assets are valued at fair value as determined in good
faith by or under the direction of the Fund's Board of Directors. Short-term
securities which mature in 60 days or less are valued by using the amortized
cost method, unless the Board determines that this does not represent fair
value. Specific information about how the Fund values certain assets is set
forth in the Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
Fund shares are continuously offered to GIAC's separate accounts at the
then current NAV. GIAC then offers to its contractowners units in its separate
accounts which directly correspond to shares in the Fund. GIAC submits purchase
and redemption orders to the Fund based on allocation instructions for premium
payments, transfer instructions, or surrender and withdrawal requests which are
furnished to GIAC by such contractowners. Contractowners can send such
instructions and requests to GIAC at P.O. Box 26210, Lehigh Valley, PA 18002 by
first class mail or 3900 Burgess Place, Bethlehem, PA 18017 by overnight or
express mail. Payment for redeemed shares will ordinarily be made within three
(3) business days after the Fund receives a redemption order from GIAC. The
redemption price will be the NAV next determined after GIAC receives the
contractowner's instructions or request in proper form. The Fund may suspend the
right of redemption or postpone the date of payment during any period when
trading on the New York Stock Exchange is restricted, or such Exchange is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its NAV; or as
permitted by the SEC.
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The accompanying prospectus for a GIAC variable annuity or variable life
insurance policy describes the allocation, transfer and withdrawal provisions of
such annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to remain qualified as a regulated investment company
under the Internal Revenue Code of 1986, as amended ("Code"), so that it will
not be subject to federal income tax on net investment income and net capital
gains that are distributed to GIAC's separate accounts. GIAC reinvests all such
distributions in additional shares of the Fund at NAV. The Fund typically
distributes any net investment income twice each year and any net capital gains
once each year. The Fund's Board of Directors can change this policy.
Contractowners who own units in a separate account which correspond to shares in
the Fund will be notified when distributions are made.
The Code and its related Treasury Department regulations require mutual
funds that are offered through insurance company separate accounts to meet
certain diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts offered in connection with such separate
accounts. GISC intends to diversify the Fund's investments in accordance with
those requirements. The prospectuses for GIAC's variable annuities and variable
life insurance policies describe the federal income tax treatment of
distributions from such contracts.
The foregoing is only a summary of important federal tax law provisions
that can affect the Fund. Other federal, state, or local tax law provisions may
also affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a GIAC variable contract to or
from the Fund should consult a qualified tax adviser.
OTHER INFORMATION
Voting Rights. Through its separate accounts, GIAC is the Fund's sole
shareholder of record, so, under the 1940 Act, GIAC is deemed to be in control
of the Fund. Nevertheless, when a shareholders' meeting occurs, GIAC solicits
and accepts voting instructions from its contractowners who have allocated or
transferred monies for an investment in the Fund as of the record date for the
meeting. GIAC then votes the Fund's shares that are attributable to its
contractowners' interests in the Fund in accordance with their instructions.
GIAC will vote shares for which no instructions are received in the same
proportion as it votes shares for which it does receive instructions. GIAC will
vote any shares that it is entitled to vote directly due to amounts it has
contributed or accumulated in its separate accounts in the manner described in
the prospectuses for its variable annuities and variable life insurance
policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the directors.
The Fund is not required to hold annual shareholder meetings, but special
meetings may be called to elect or remove directors, change fundamental policies
or approve an investment advisory agreement, among other things.
Availability of the Fund. The Fund is only available to owners of variable
annuities or variable life insurance policies issued by GIAC through its
separate accounts. The Fund does not currently foresee any disadvantages to the
contractowners arising from offering its shares to variable annuity and variable
life insurance policy separate accounts simultaneously, and its Board monitors
events for the existence of any material irreconcilable conflict between or
among contractowners. If a material irreconcilable conflict arises, one or more
separate accounts may withdraw their investments in the Fund. This could
possibly force the Fund to sell portfolio securities at disadvantageous prices.
GIAC will bear the expenses of establishing separate portfolios for variable
annuity and variable life insurance separate accounts if such action becomes
necessary; however, ongoing expenses that are ultimately borne by contractowners
will likely increase due to the loss of the economies of scale benefits that can
be provided to mutual funds with substantial assets.
GBF-9
<PAGE>
Custodian, Transfer Agent and Dividend Paying Agent. State Street Bank and
Trust Company, Custody Division, 1776 Heritage Drive, North Quincy,
Massachusetts 02171, is the Fund's custodian, transfer agent and dividend paying
agent.
APPENDIX
Analysis of the Quality of The Guardian Bond Fund's Portfolio During 1995
This table shows the quality ratings of the instruments held in the Fund's
portfolio, based upon the weighted average ratings of all instruments held by
the Fund during 1995.
% of Assets
Held by the Fund in
% of Assets Held Unrated Bonds Deemed % of Other
Moody's/S&P by the Fund in Each of Comparable Quality Assets Held
Rating Category* Rating Category in Each Rating Category** by the Fund***
- ---------------- --------------- ----------------------- --------------
Aaa/AAA 64.90%
Aa/AA 3.20%
A/A 7.30% 2.10%
Baa/BBB 17.20%
Ba/BB 0.60%
B/B --%
----- ---- -----
Total: 93.20% + 2.10% + 14.70% = 100%
- ----------
* Both Moody's and S&P may rate a particular instrument, or one of these
rating services may rate an instrument while the other does not. Moody's
and S&P may also rate a particular instrument in different rating
categories. For purposes of this analysis, the average of the ratings given
by each of Moody's and S&P is used.
** Unrated instruments are typically judged to be within one of the four
grades of investment quality obligations by GISC. Less than 5% of the
Fund's assets are unrated by either Moody's or S&P.
*** During 1995 the "other assets" held by the Fund consisted of repurchase
agreements backed by either U.S. Treasury bills, Treasury notes or Treasury
bonds.
GBF-10
<PAGE>
THE GUARDIAN BOND FUND, INC.
201 Park Avenue South, New York, New York 10003
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus of The Guardian Bond Fund, Inc. (the
"Fund") dated May 1, 1996. A free copy of the Prospectus may be obtained by
writing to Guardian Investor Services Corporation(R), 201 Park Avenue South, New
York, New York 10003 or by telephoning 1-800-221-3253. Please retain this
document for future reference.
TABLE OF CONTENTS
Page
----
Investment Restrictions.................................................. 2
Special Investment Techniques and Risk Considerations.................... 3
Ratings of Debt Obligations.............................................. 4
Portfolio Transactions and Brokerage..................................... 4
Fund Management.......................................................... 4
Guardian Life and Other Fund Affiliates.................................. 7
Investment Adviser....................................................... 7
Performance Data......................................................... 8
Calculation of Net Asset Value........................................... 9
Custodian and Transfer Agent............................................. 10
Legal Opinions........................................................... 10
Independent Auditors and Financial Statements............................ 10
Appendix................................................................. 11
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which cannot be
changed without the approval of the holders of a majority of the outstanding
shares of the Fund. As defined by the Investment Company Act of 1940, as amended
(the "1940 Act"), the vote of a majority of the outstanding voting securities of
the Fund means the lesser of the vote of (a) 67 percent of the shares of the
Fund at a meeting where more than 50 percent of the outstanding voting shares
are present in person or by proxy, or (b) more than 50 percent of the
outstanding voting shares of the Fund. All percentage restrictions on
investments apply when an investment is made. A later increase or decrease
beyond a specified limit that results from a change in value or net assets shall
not constitute a violation of the applicable restriction. The following
investment restrictions provide that the Fund may not:
1. Purchase any security other than those discussed under "Investment
Objectives and Policies," as set forth in the Prospectus;
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than
three years of continuous operation. This restriction does not apply
to any obligation issued or guaranteed by the United States
Government, its agencies or instrumentalities;
3. Borrow money, except that the Fund may (i) borrow up to 5% of its
total assets (not including the amount borrowed) for temporary or
emergency purposes; and (ii) engage in reverse repurchase agreements,
dollar rolls or other transactions which may involve a borrowing from
banks or other persons, provided that the aggregate amount involved in
all such transactions shall not exceed 331 1/43% of the value of the
Fund's total assets (including the amount borrowed) less liabilities
(other than borrowings) or such other percentage permitted by law;
4. Mortgage, pledge or hypothecate more than 5% of the value of its total
assets, and then only to secure temporary or emergency borrowings
effected within the above restriction. For purposes of this
restriction, collateral arrangements which may be required in
connection with securities transactions by the Investment Company Act
of 1940 are not considered a pledge of assets;
5. Make loans of money, except through the purchase of debt obligations
and repurchase agreements in which the Fund may invest, consistent
with its investment objectives and policies, provided that repurchase
agreements maturing in more than seven days, when taken together and
at current value, may not exceed 10% of the Fund's net assets;
6. Purchase any securities other than the obligations of the U.S.
Government, or its agencies or instrumentalities, if, immediately
after such purchase, 25% or more of the value of the Fund's total
assets would be invested in the securities of issuers in the same
industry. (There is no limitation as to investments in obligations
issued or guaranteed by the United States Government or its agencies
or instrumentalities.) For the purpose of this restriction, gas,
electric, water and telephone utilities will each be treated as a
separate industry;
7. Invest more than 5% of the value of its total assets in the securities
of any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer. For
purposes of this restriction, all outstanding debt securities of an
issuer are considered as one class, and all preferred stock of an
issuer is considered as one class. This restriction does not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities;
8. Invest more than 5% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the New
York or American Stock Exchanges, except that warrants attached to
other securities are not subject to these limitations;
9. Invest more than 10% of the value of its total assets in securities
that are not readily marketable or which are restricted as to
disposition under the federal securities laws or otherwise. This
restriction will apply to repurchase agreements maturing in more than
seven days. This restriction will also apply to securities received as
a result of a corporate reorganization or similar transaction
affecting readily-marketable securities already held in the portfolio
of the Fund. To the extent that securities received under these
circumstances, together with other unmarketable securities, exceed 10%
of the value of the Fund's total assets, the Fund will attempt to
dispose of them in an orderly fashion in order to reduce its holdings
in such securities to less than 10%;
10. Engage in the underwriting of the securities of other issuers, except
to the extent that the Fund may be deemed to be an underwriter under
the Securities Act of 1933 in selling portfolio securities;
11. Purchase securities issued by any other investment company;
12. Purchase securities on margin or sell securities short, or participate
on a joint or a joint and several basis in any trading account in
securities;
2
<PAGE>
13. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof;
14. Purchase or sell commodities or commodity contracts;
15. Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations), securities that are
secured by interests in real estate, or securities that represent
interests in real estate, including real estate investment trusts;
16. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may
invest in the securities of companies which invest in or sponsor such
programs;
17. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, the officers, directors and employees of the Fund or of
the Adviser who individually own more than 1 1/42 of 1% of the
outstanding securities of such issuer together own more than 5% of the
securities of such issuer;
18. Purchase securities for the purpose of exercising control over another
company; and
19. Issue any senior securities (except for borrowing subject to the
restrictions set forth under Investment Restriction 3, above).
SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS
Payments of principal and interest on the mortgage obligations underlying
mortgage-backed securities are not passed through directly to the holders,
rather they are made to independent trustees created specifically to allocate
such interest and principal payments among the holders of the mortgage-backed
securities. In the event that the mortgages or mortgage pools which
collateralize mortgage-backed securities are prepaid, the mortgage- backed
securities will also be prepaid. For CMO classes which are designed to be
retired sequentially, the class next scheduled to mature generally will be paid
down first.
Many factors affect the frequency of unscheduled prepayments or
refinancings of the mortgages that collateralize mortgage-backed securities,
including interest rates, economic conditions, the ages of the mortgages and
locations of the mortgaged properties. Prepayments tend to occur more rapidly
after interest rates generally have declined. The return provided to the Fund
will be lower if the proceeds of prepaid mortgage-backed securities are
reinvested in securities with lower yields. In addition, the Fund may suffer
losses on prepaid obligations which were acquired at a premium.
When interest rates are rising, mortgage-backed securities may suffer price
declines, particularly if their durations extend due to slower than expected
mortgage prepayments. Securities that have lost value while held by the Fund
will have an adverse impact on the Fund's total return.
Stripped mortgage securities are another type of mortgage-backed security.
Stripped mortgage securities are created by separating the interest and
principal payments generated by a pool of mortgage-backed bonds to create two
classes of securities. Generally, one class receives only interest payments
("IOs") and one class receives only principal payments ("POs"). IOs and POs are
acutely sensitive to interest rate changes and to the rate of principal
prepayments. They are very volatile in price and may have lower liquidity than
most mortgage-backed securities. Certain CMOs may also exhibit these qualities,
especially those which pay variable rates of interest which adjust inversely
with and more rapidly than short-term interest rates. The Fund's Board of
Directors has adopted procedures for the use of its investment adviser, Guardian
Investor Services Corporation ("GISC"), when ascertaining the liquidity and fair
value of its investments, including its mortgage-backed securities holdings.
There is no guarantee that the Fund's investments in mortgage-backed securities
will be successful, and the Fund's total return could be adversely affected as a
result.
The Fund may lend a portion of its portfolio securities to broker-dealers,
banks and other institutional investors. The Fund will typically receive
commitment fees from the borrowers which are normally payable upon the
expiration of the loan transactions. However, if the Fund calls the loaned
securities prior to the expiration date of a loan, the Fund may not be entitled
to receive the entire commitment fee. The Fund does not expect to call loaned
securities prior to the loan expiration date unless the current market value of
the loaned securities exceeds the expected return of the loan, including the
entire commitment fee. Loan transactions may be structured to permit similar,
but not necessarily identical, securities to be returned to the Fund upon the
expiration of a loan.
Since there are risks of delays in recovery or even loss of rights in the
collateral related to all types of secured credit, the loans will be made only
to borrowers deemed by GISC to be creditworthy and will not be made unless, in
GISC's judgment, the income which can be earned justifies the risk. Any such
loans entered into by the Fund will create leverage for the Fund, as lender.
This leverage results from the expectation that the income and gains on the
securities acquired by the Fund with the loan collateral provided by the
borrower will exceed the cost of the loan transaction. Accordingly, the Fund
will only enter into a loan transaction if its earnings or net asset value are
expected to increase faster than otherwise would be the case. However, should
the income and gains earned on the securities acquired with the loan collateral
fail to exceed the cost of the loan, the Fund's earnings or net asset value will
decline faster than otherwise would be the case.
3
<PAGE>
In the event a borrower is unable to complete a loan transaction, or in the
event of any default or insolvency of a borrower, the Fund will retain the
collateral it received in connection with the loan transaction. If this
collateral is insufficient to fully satisfy its rights under the loan agreement,
the Fund will take whatever steps it deems advisable to satisfy its claim.
The Fund may pay reasonable custodian and administrative fees in connection
with the loans.
RATINGS OF DEBT OBLIGATIONS
Nationally recognized statistical ratings organizations ("NRSROs") are
private services that rate the credit quality of corporate debt obligations. A
description of the range of ratings assigned to such obligations by two leading
NRSROs (i.e., Moody's and Standard & Poor's) is included in the Appendix to this
Statement of Additional Information.
The Fund primarily purchases "investment grade" debt securities, or those
which are rated in one of the top four rating categories established by NRSROs.
However, as noted in the Prospectus, a small portion of the Fund's assets may be
invested in securities rated lower than "investment grade." Such holdings
typically result when securities that were acquired by the Fund as "investment
grade" securities are subsequently downgraded.
Lower rated debt securities may be subject to certain risks not typically
associated with "investment grade" debt securities, such as the following: (1)
reliable and objective information about the value of lower rated obligations
may be difficult to obtain because the market for such securities may be thinner
and less active than that for investment grade obligations; (2) adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower rated obligations, and,
in turn, adversely affect their marketability; (3) companies that issue lower
rated obligations may be in the growth stage of their development, or may be
financially troubled or highly leveraged, so they may not have more traditional
methods of financing available to them; (4) when other institutional investors
dispose of their holdings of lower rated debt securities, the general market and
the prices for such securities could be adversely affected; and (5) the market
for lower rated securities could be impaired if legislative proposals to limit
their use in connection with corporate reorganizations or to limit their tax and
other advantages are enacted.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GISC currently serves as investment adviser to several other
Guardian-sponsored mutual funds and may act as investment adviser to others in
the future. GISC allocates purchase and sale transactions among the Fund and its
other mutual fund clients as it deems equitable. GISC is also registered with
the Securities and Exchange Commission ("SEC") and the National Association of
Securities Dealers, Inc. as a broker-dealer. GISC has no formula for the
distribution of brokerage business when it places orders to buy and sell
approved investments. For over-the-counter transactions, GISC will attempt to
deal with a primary market maker unless better prices and execution are
available elsewhere. In allocating portfolio transactions to different brokers,
GISC gives consideration to brokers whom it believes can obtain the best price
and execution of orders, and to brokers who furnish statistical data, research
and other factual information. GISC is authorized to pay a commission in excess
of that which another broker may charge for effecting the same transaction if
GISC considers that the commissions it pays for brokerage, research services and
other statistical data are appropriate and reasonable for the services rendered.
The research services and statistical data which GISC receives in connection
with the Fund's portfolio transactions may be used by GISC to benefit its other
clients and will not necessarily be used in connection with the Fund.
GISC does not participate in commissions paid by the Fund to other brokers
or dealers and does not knowingly receive any reciprocal business directly or
indirectly as a result of paying commissions to other brokers or dealers. Since
it is expected that most purchases made by the Fund will be principal
transactions at net prices, the Fund will incur little or no brokerage costs.
For the fiscal years ended December 31, 1993, 1994 and 1995, the Fund paid no
brokerage commissions.
The Fund's annual portfolio turnover rate may vary greatly from year to
year, and it will not be a limiting factor when GISC deems portfolio changes
appropriate. For the years ended December 31, 1993, 1994 and 1995, the Fund's
annual portfolio turnover rates were 220%, 311%, and 298%, respectively. An
explanation of the Fund's portfolio turnover rate appears in the Prospectus.
FUND MANAGEMENT
The directors and officers of the Fund are named below. Information about
their principal occupations during the past five years and certain other current
affiliations is also provided. The business address of each director and officer
is 201 Park Avenue South, New York, New York 10003 unless otherwise noted. The
"Guardian Fund Complex" referred to in this biographical information is
comprised of (1) the Fund, (2) The Guardian Stock Fund, Inc., (3) The Guardian
Cash Fund, Inc., (4) The Park Avenue Portfolio (a series trust that issues its
shares in six series) and (5) GBG Funds, Inc. (a series fund that issues its
shares in two series).
4
<PAGE>
Name, Address and Age Title Business History
- --------------------- ----- ----------------
CHARLES E. ALBERS (55) Vice President Senior Vice President, The
Guardian Life Insurance Company
of America. Vice President,
Equity Securities, The Guardian
Insurance & Annuity Company,
Inc. Executive Vice President
of Guardian Investor Services
Corporation and Guardian Asset
Management Corporation. Officer
of four mutual funds within the
Guardian Fund Complex.
JOHN C. ANGLE* (72) Director Retired. Former Chairman of the
3800 South 42nd Street Board and Chief Executive
Lincoln, Nebraska 68506 Officer, The Guardian Life
Insurance Company of America;
Director 1/78-present. Director
(Trustee) of Guardian Investor
Services Corporation from
6/82-2/96 and The Guardian
Insurance & Annuity Company,
Inc. Director (Trustee) of five
mutual funds within the
Guardian Fund Complex.
MICHELE S. BABAKIAN (40) Vice President Vice President, Fixed-Income
Securities, The Guardian Life
Insurance Company of America
1/95-present; Second Vice
President, Fixed-Income
Securities prior thereto.
Assistant Vice President, The
Guardian Insurance & Annuity
Company, Inc. Vice President,
Guardian Investor Services
Corporation, Guardian Asset
Management Corporation, and
three mutual funds within the
Guardian Fund Complex.
JOSEPH A. CARUSO (44) Secretary Second Vice President and
Corporate Secretary, The
Guardian Life Insurance Company
of America 1/95-present;
Corporate Secretary
10/92-12/94; Assistant
Secretary prior thereto.
Secretary, The Guardian
Insurance & Annuity Company,
Inc., Guardian Investor
Services Corporation, Guardian
Asset Management Corporation,
Guardian Baillie Gifford
Limited and five mutual funds
within the Guardian Fund
Complex.
FRANK J. FABOZZI, PH.D. (47) Director Adjunct Professor of Finance,
858 Tower View Circle School of Management -- Yale
New Hope, Pennsylvania 18938 University 2/94-present;
Visiting Professor of Finance
and Accounting, Sloan School of
Management -- Massachusetts
Institute of Technology prior
thereto. Editor, Journal of
Portfolio Management. Director
(Trustee) of five mutual funds
within the Guardian Fund
Complex. Director (Trustee) of
various closed-end investment
companies sponsored by
Blackstone Financial
Management.
ARTHUR V. FERRARA* (65) Director Retired. Chairman of the Board
and Chief Executive Officer,
The Guardian Life Insurance
Company of America 1/93-12/95;
President and Chief Executive
Officer prior thereto; Director
1/81-present. Director
(Trustee) of Guardian Investor
Services Corporation, Guardian
Asset Management Corporation,
The Guardian Insurance &
Annuity Company, Inc. and five
mutual funds within the
Guardian Fund Complex.
LEO R. FUTIA* (76) Director Retired. Former Chairman of the
18 Interlaken Road Board and Chief Executive
Greenwich, Connecticut 06830 Officer, The Guardian Life
Insurance Company of America;
Director 5/70-present. Director
(Trustee) of The Guardian
Insurance & Annuity Company,
Inc., Guardian Investor
Services Corporation, and five
mutual funds within the
Guardian Fund Complex.
Director (Trustee) of various
mutual funds sponsored by Value
Line, Inc.
ALEXANDER M. GRANT, JR. (46) Treasurer Assistant Vice President,
Fixed-Income Securities, The
Guardian Life Insurance Company
of America 9/93-present;
Investment Officer prior
thereto. Officer of three
mutual funds within the
Guardian Fund Complex.
WILLIAM W. HEWITT, JR. (67) Director Retired. Former Executive Vice
P.O. Box 2359 President, Shearson Lehman
Princeton, New Jersey 08543 Brothers, Inc. Director
(Trustee) of five mutual funds
within the Guardian Fund
Complex. Director (Trustee) of
various mutual funds sponsored
by Mitchell Hutchins Asset
Management, Inc. and
PaineWebber, Inc.
THOMAS R. HICKEY, JR. (43) Vice President Vice President, Equity
Operations, The Guardian Life
Insurance Company of America
3/92-present; Second Vice
President and Equity Counsel
prior thereto. Vice President,
Administration, The Guardian
Insurance & Annuity Company,
Inc. Vice President, Guardian
Investor Services Corporation
and five mutual funds within
the Guardian Fund Complex.
- ----------
* Director who is deemed to be an "interested person" under the 1940 Act.
5
<PAGE>
Name, Address and Age Title Business History
- --------------------- ----- ----------------
FRANK J. JONES (57) President Executive Vice President and
Chief Investment Officer, The
Guardian Life Insurance Company
of America 1/94-present; Senior
Vice President and Chief
Investment Officer 8/91-12/93.
First Vice President, Director
of Global Fixed Income Research
and Economics, Merrill Lynch &
Co. prior thereto. Senior Vice
President and Chief Investment
Officer and Director, The
Guardian Insurance & Annuity
Company, Inc. Director,
Guardian Investor Services
Corporation. Officer of three
mutual funds within the
Guardian Fund Complex.
ANN T. KEARNEY (44) Controller Second Vice President, Group
Pensions, The Guardian Life
Insurance of America 1/95 to
present; Assistant Vice
President and Equity Controller
6/94-12/94; Assistant
Controller prior thereto.
Second Vice President of The
Guardian Insurance & Annuity
Company, Inc. and Guardian
Investor Services Corporation.
Controller of five mutual funds
within the Guardian Fund
Complex.
SIDNEY I. LIRTZMAN, PH.D. (64) Director Professor of Management 9/67-
38 West 26th Street present and Acting Dean of the
New York, New York 10010 School of Business Management
2/95-present, City University
of New York -- Baruch College.
President, Fairfield Consulting
Associates, Inc. Director
(Trustee) of five mutual funds
within the Guardian Fund
Complex.
FRANK L. PEPE (53) Vice President Vice President and Equity
Controller, The Guardian Life
Insurance Company of America
1/96-present; Second Vice
President and Equity Controller
prior thereto. Vice President
and Controller, The Guardian
Insurance & Annuity Company,
Inc. and Guardian Investor
Services Corporation.
Controller, Guardian Asset
Management Corporation. Officer
of five mutual funds within the
Guardian Fund Complex.
RICHARD T. POTTER, JR. (41) Counsel Vice President and Equity
Counsel, The Guardian Life
Insurance Company of America
1/96-present; Second Vice
President and Equity Counsel
1/93-12/95; Counsel 1/92-12/92.
Vice President-Counsel, Home
Life Insurance Company prior
thereto. Counsel, The Guardian
Insurance & Annuity Company,
Inc., Guardian Investor
Services Corporation, Guardian
Asset Management Corporation
and five mutual funds within
the Guardian Fund Complex.
JOSEPH D. SARGENT* (58) Director Chief Executive Officer, The
Guardian Life Insurance Company
of America, 1/96-present.
President and Director
1/93-present. Executive Vice
President prior thereto.
Director (Trustee) of The
Guardian Insurance & Annuity
Company, Inc., Guardian
Investor Services Corporation
and five mutual funds within
the Guardian Fund Complex.
CARL W. SCHAFER (60) Director President, Atlantic Foundation
P.O. Box 1164 (charitable foundation
Princeton, New Jersey 08542 supporting mainly oceanographic
exploration and research).
Director of Roadway Express
(trucking), Evans Systems, Inc.
(a motor fuels, convenience
store and diversified company),
Hidden Lake Gold Mines Ltd.
(gold mining), Electronic
Clearing House, Inc. (financial
transactions processing),
Wainoco Oil Corporation and
Nutraceutrix Inc.
(biotechnology). Chairman of
the Investment Advisory
Committee of the Howard Hughes
Medical Institute 1985-1992.
Director (Trustee) of five
mutual funds within the
Guardian Fund Complex. Director
(Trustee) of various mutual
funds sponsored by Mitchell
Hutchins Asset Management, Inc.
and PaineWebber, Inc.
ROBERT G. SMITH, PH.D. (63) Director President, Smith Affiliated
132 East 72nd Street Capital Corp. Director
New York, New York 10028 (Trustee) of five mutual funds
within the Guardian Fund
Complex.
The Fund pays Directors who are not "interested persons" directors' fees of
$350 per meeting and an annual retainer of $500. Directors who are "interested
persons," except Mr. Sargent, receive the same fees, but they are paid by GISC.
Mr. Sargent receives no compensation for his services as a Fund Director. All
officers of the Fund are employees of Guardian Life; they receive no
compensation from the Fund.
- ----------
* Director who is deemed to be an "interested person" under the 1940 Act.
6
<PAGE>
Each Fund Director is also a director of The Guardian Stock Fund, The
Guardian Cash Fund and GBG Funds, Inc., a series fund consisting of Baillie
Gifford International Fund and Baillie Gifford Emerging Markets Fund, and a
trustee of The Park Avenue Portfolio, a series trust consisting of The Guardian
Park Avenue Fund, The Guardian Investment Quality Bond Fund, The Guardian
Tax-Exempt Fund, The Guardian Cash Management Fund, The Guardian Baillie Gifford
International Fund and The Guardian Asset Allocation Fund. The Fund and the
other funds named in this paragraph are a "Fund Complex" for purposes of the
federal securities laws. The following table provides information about the
compensation paid by the Fund and the Fund Complex to the Fund's Directors for
the year ended December 31, 1995.
Compensation Table*
<TABLE>
<CAPTION>
Total Compensation
Aggregate Accrued Pension or Estimated from the Fund and
Compensation Retirement Benefits Annual Benefits Other Members of
Name and Title from the Fund*** Paid by the Fund Upon Retirement the Fund Complex***
- -------------- ---------------- ---------------- --------------- -------------------
<S> <C> <C> <C> <C>
Frank J. Fabozzi
Director $2,500 N/A N/A $32,000
William W. Hewitt, Jr.
Director 2,500 N/A N/A 35,300
Sidney I. Lirtzman
Director 2,500 N/A N/A 35,300
Carl W. Schafer**
Director 0 N/A N/A 3,000
Robert G. Smith
Director 2,500 N/A N/A 35,300
</TABLE>
* Directors who are "interested persons" of the Fund are not compensated by
the Fund, so information about their compensation is not included in this
table.
** Mr. Schafer became a Director of the Fund on March 20, 1996.
*** Includes compensation paid to attend meetings of the Board's Audit
Committee.
The Fund's officers and directors had an aggregate interest of less than 1%
in the Fund's outstanding shares as of February 1, 1996.
GUARDIAN LIFE AND OTHER FUND AFFILIATES
As of February 1, 1996, The Guardian Insurance & Annuity Company, Inc.
("GIAC") owned 100% of the Fund's outstanding shares. Such shares were allocated
among separate accounts established by GIAC. GIAC is a wholly owned subsidiary
of Guardian Life. The executive offices of GIAC and Guardian Life are located at
201 Park Avenue South, New York, New York 10003.
INVESTMENT ADVISER
Under the investment advisory agreement between the Fund and GISC, GISC
furnishes investment advice and provides or pays for certain of the Fund's
administrative costs. Among other things, GISC pays the fees and expenses of the
Fund Directors who are interested persons under the 1940 Act. GISC has also
agreed to assume those operating expenses of the Fund (excluding interest
charges and income, franchise and other taxes) which exceed one percent (1%) of
the Fund's average daily net assets for any fiscal year. For the year ended
December 31, 1995, the ratio of operating expenses to average daily net assets
of the Fund did not exceed 1%, so GISC was not obligated to assume any such
expenses. From time to time, GISC may, at its discretion, assume certain of the
Fund's ordinary operating expenses when they are less than 1% of average daily
net assets.
For the years ended December 31, 1993, 1994 and 1995, the Fund paid GISC
$1,585,061, $1,615,477 and $1,713,103, respectively, under the investment
advisory agreement.
The investment advisory agreement between the Fund and GISC will continue
in full force and effect from year to year so long as its continuance is
specifically approved at least annually by vote of a majority of the Fund's
outstanding voting shares, or by vote of the Fund's Board of Directors,
including a majority of the Directors who are not parties to the agreement or
"interested persons" of the Fund or of GISC, cast in person at a meeting called
for that purpose. The agreement will terminate automatically upon its
assignment, and may be terminated without penalty at any time by either party
upon 60 days' written notice.
If the investment advisory agreement is terminated and it is not replaced
by an agreement with another affiliate of Guardian Life, the Fund's continued
use of the name "The Guardian Bond Fund, Inc." is subject to the approval of
Guardian Life, because Guardian Life maintains the exclusive ownership interest
of the service mark "The Guardian Bond Fund, Inc."
A service agreement between GISC and Guardian Life provides that Guardian
Life will furnish the office space, clerical staff, services and facilities
which GISC needs to perform under the investment advisory agreement. GISC's
officers are salaried employees of Guardian Life; they receive no compensation
from GISC. GISC reimburses Guardian Life for its expenses under the service
agreement.
7
<PAGE>
PERFORMANCE DATA
As described in the Prospectus, the Fund may state its yield, cumulative
total returns and average annual total returns in advertisements, sales
materials and communications with existing or prospective owners of GIAC's
variable contracts. These various measures of performance are described below.
Yield is a measure of the net investment income per share earned over a
specific one month or 30-day period expressed as a percentage of the net asset
value of the Fund's shares. The Fund uses the following SEC standardized formula
to compute its yields. This standardized formula is not necessarily consistent
with generally accepted accounting principles:
YIELD = 2 [(a - b + 1)^6 - 1]
-----
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period.
d = the net asset value per share on the last day of the
period.
The Fund's yield for the month ended January 31, 1996 was 5.73%.
Average annual total returns and cumulative total returns measure both net
investment income and realized and unrealized appreciation or depreciation for a
specified period, assuming reinvestment of capital gains distributions and
income dividends. Average annual total returns are annualized, so they show the
average annual percentage change over the specified period. Cumulative total
returns are not annualized, so they show the aggregate percentage or dollar
value change over the specified period. The tables below show the Fund's returns
for the periods indicated. These figures reflect the reinvestment of all capital
gains distributions and income dividends paid by the Fund, and the deduction of
all Fund expenses. The actual returns for owners of GIAC's variable annuities or
variable life insurance policies will be lower to reflect the effects of charges
deducted under the terms of the specific contracts.
Year Ended Dec. 31 Total Return
------------------ ------------
1984.................................................... 13.04%
1985.................................................... 22.36%
1986.................................................... 14.84%
1987.................................................... 0.32%
1988.................................................... 9.70%
1989.................................................... 13.88%
1990.................................................... 7.57%
1991.................................................... 16.19%
1992.................................................... 7.70%
1993.................................................... 9.85%
1994.................................................... -3.45%
1995.................................................... 17.59%
Cumulative and
Average Annual
Period Ended December 31, 1995 Total Returns
------------------------------ -------------
Lifetime Total Return of the Fund*.......................... 231.70%
Average Annual Lifetime Total Return of the Fund*......... 9.93%
Ten-Year Total Return....................................... 141.61%
Average Annual Ten-Year Total Return...................... 9.22%
Five-Year Total Return...................................... 56.07%
Average Annual Five-Year Total Return..................... 9.31%
One-Year Total Return....................................... 17.59%
----------
* Beginning May 1, 1983 (commencement of the Fund's investment
operations).
Bond prices fluctuated during the periods covered by the tables and the
results illustrated above are not representative of future performance.
The Fund uses the following standardized formula prescribed by the SEC to
compute its average annual total return.
P (1 + T)^n = ERV
Where: P = a hypothetical initial purchase order of $1,000 (No sales
load is deducted as Fund shares are sold at net
8
<PAGE>
asset value).
T = average annual total return.
n = number of years.
ERV = ending redeemable value of the hypothetical $1,000 purchase
at the end of the period.
Total return is calculated in a similar manner, except that the results are
not annualized.
The following example shows the average annual total return performance of
the Fund for the periods indicated by showing the average annual percentage
change for each period and the ending redeemable value of a $1,000 investment.
The example takes into account all Fund expenses and assumes reinvestment of all
capital gains distributions and income dividends, but does not take into account
charges deducted under the terms of GIAC's variable contracts or Federal income
taxes and tax penalties that may be incurred when distributions are made from
such variable contracts.
% Change ERV
For the year ended December 31, 1995 .................. 17.59% $ 1,175.90
For the 5 years ended December 31, 1995 ............... 9.31% $ 1,560.70
For the 10 years ended December 31, 1995 .............. 9.22% $ 2,416.10
For the life of the Fund through December 31, 1995 .... 9.93% $ 3,317.00
As stated in the Prospectus, the Fund may also advertise "distribution
rates." Historical distribution rates are calculated by taking the sum of the
income and short-term capital gain dividends per share for a 12 month period and
dividing the result by the Fund's net asset value per share on the last day of
the calculation period. Annualized distribution rates are calculated by
multiplying the income and short-term capital gain dividends per share for the
last month by 12 and then dividing the result by the Fund's net asset value per
share as of the end of such month.
The distribution rate is simply a measure of the level of income dividends
and short-term capital gain dividends distributed for a specified period. It is
not a complete measure of performance, and may be greater than yield since, for
instance, it includes non-recurring short-term gains. The distribution rate may
not include the effects of amortizing bond premiums.
The Fund may compare its performance to that of other mutual funds with
similar investment objectives or programs, and may quote information from
financial, industry or general interest publications in its promotional
materials. Additionally, its materials may contain references to types and
characteristics of certain securities; features of its portfolio; financial
markets; or historical, current or prospective economic trends. Topics of
general interest, such as personal financial planning, may also be discussed.
Performance calculations contained in reports by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Morningstar, The WM Company,
Variable Annuity & Research Data Service or industry or financial publications
of general interest such as Business Week, Financial World, Forbes, Financial
Times, The Wall Street Journal, The New York Times, Barron's and Money which may
be quoted by the Fund are often based upon changes in net asset value with all
dividends reinvested and may not reflect the imposition of charges deducted
under the terms of GIAC's variable contracts.
The Fund's performance figures are based upon historical results and do not
represent future performance. Returns on net asset value will fluctuate. Factors
affecting the Fund performance include general market conditions, operating
expenses and investment management. Shares of the Fund are redeemable by GIAC on
behalf of GIAC contractowners at net asset value, which may be more or less than
original cost.
CALCULATION OF NET ASSET VALUE
The Fund's net asset per share is determined as of the earlier of 4:00 p.m.
Eastern time or the close of trading on the NYSE on each day on which the NYSE
is open for business. The net asset value per share is calculated by adding the
value of all securities, cash or other assets, subtracting liabilities, dividing
the remainder by the number of shares outstanding and adjusting the results to
the nearest full cent per share.
The calculation of the Fund's net asset value may not occur
contemporaneously with the determination of the value of any foreign securities
included in such calculation because trading on foreign exchanges may not take
place every day the NYSE is open and the NYSE may be closed when foreign
exchanges are open for business.
Securities Valuations. Securities which are listed or traded on any
securities exchange or on the NASDAQ National Market System 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. Investments in U.S. government securities
(other than short-term securities) are valued at the average of the quoted bid
and asked price in the over-the-counter market. Certain debt securities may be
valued at the average of the quoted bid and asked price in the over-the-counter
market. Certain debt securities may be valued each business day by an
independent pricing service ("Service"). Debt securities for which quoted bid
prices, in the judgment of the Service, are readily available and are
representative of the bid
9
<PAGE>
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 from dealers in 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 for securities of comparable quality, coupon, maturity and
type; indications as to values from dealers; and general market conditions.
Certain debt securities, including securities for which market quotations are
not readily available, such as illiquid securities, are valued at fair value as
determined in good faith by or under the direction of the Fund's Board of
Directors. Repurchase agreements are carried at cost which approximates market
value.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street Bank"), Custody
Division, 1776 Heritage Drive, North Quincy, Massachusetts 02171, is the
custodian of the Fund's assets. Portfolio securities purchased for the Fund
outside of the U.S. are cleared through foreign depositories and are maintained
in the custody of foreign banks and trust companies which are members of State
Street Bank's Global Custody Network. State Street Bank and each of the foreign
custodial institutions holding portfolio securities of the Fund have been
approved by the Board in accordance with regulations under the 1940 Act.
To the extent required by the SEC, the Board will review, at least
annually, whether it is in the best interest of the Fund and its shareholders to
maintain Fund assets in each foreign custodial institution. However, there can
be no assurance that the Fund will not be adversely affected by any
non-investment risks associated with holding assets abroad. Such risks may be
greater than those associated with holding assets in the U.S.
State Street Bank is also the Fund's transfer agent and dividend paying
agent. As such, State Street Bank issues and redeems shares of the Fund and
distributes dividends to the GIAC separate accounts which invest in the Fund's
shares on behalf of GIAC's variable contractowners.
State Street Bank plays no part in formulating the investment policies of
the Fund or in determining which portfolio securities are to be purchased or
sold by the Fund.
LEGAL OPINIONS
The legality of the Fund shares described in the Prospectus has been passed
upon by Richard T. Potter, Jr., Esq., Vice President and Equity Counsel, The
Guardian Life Insurance Company of America, who is also Counsel of the Fund.
Federal securities law matters relating to the Fund have been passed upon by the
law firm of Vedder, Price, Kaufman & Kammholz of Chicago, Illinois.
INDEPENDENT AUDITORS
AND FINANCIAL STATEMENTS
The independent auditors of the Fund are Ernst & Young LLP, 787 Seventh
Avenue, New York, New York 10019. Ernst & Young LLP audits and reports on the
financial statements of the Fund which appear in the Fund's Annual Report to
Shareholders for the year ended December 31, 1995. That Annual Report is
incorporated by reference in this Statement of Additional Information.
10
