Registration Nos. 2-81149
811-3634
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
POST-EFFECTIVE AMENDMENT No. 18 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
AMENDMENT No. 19 |X|
(Check appropriate box or boxes)
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THE GUARDIAN STOCK FUND, INC.
(Exact Name of Registrant as Specified in Charter)
201 Park Avenue South, New York, New York 10003
(Address of Principal Executive Offices)
Registrant's Telephone Number: (212) 598-8359
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Copy to:
Richard T. Potter, Jr., Esq. Cathy G. O'Kelly, Esq.
c/o The Guardian Insurance & Vedder, Price, Kaufman & Kammholz
Annuity Company, Inc 222 North LaSalle Street
201 Park Avenue South Chicago, Illinois 60601
New York, New York 10003
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective (check appropriate
box):
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|_| on (date) pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(1) of Rule 485
|X| on May 1, 1999 pursuant to paragraph (a)(1) of Rule 485
|_| 75 days after filing pursuant to paragraph (a)(2) of Rule 485
|_| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
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THE GUARDIAN STOCK FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 495)
Form N-1A Item No.
Part A
<TABLE>
<S> <C> <C>
Item 1. Front and Back Cover Pages ..................................... Front and Back Cover Pages
Item 2. Risk/Return Summary: Investments, Risks, and Performance ....... Investment Objective; The Fund's principal investment
strategies; The principal risks of investing in the
Fund; How the Fund has performed
Item 3. Risk/Return Summary: Fee Table ................................. Fund Management
Item 4. Investment Objectives, Principal Investment Strategies, and The Fund's principal investment strategies; The
Related Risks ................................................ principal risks of investing in the Fund; Risks and
special investment techniques
Item 5. Management's Discussion of Fund Performance ................ ... How the Fund has performed
Item 6. Management, Organization, and Capital Structure ................ Fund Management
Item 7. Shareholder Information ........................................ Buying and Selling Fund Shares
Item 8. Distribution Arrangements ...................................... Buying and Selling Fund Shares
Item 9. Financial Highlights Information ............................... Financial Highlights
Part B
Item 10. Cover Page and Table of Contents ............................... Cover Page and Table of Contents
Item 11. Fund History ................................................... Not Applicable
Item 12. Description of the Fund and Its Investments and Risks .......... Investment Restrictions; Special Investment Techniques
Item 13. Management of the Fund ......................................... Fund Management
Item 14. Control Persons and Principal Holders of Securities ............ Guardian Life and Other Fund Affiliates
Item 15. Investment Advisory and Other Services ......................... Investment Adviser and Other Services; Custodian and
Transfer Agent; Independent Auditors and Financial
Statements
Item 16. Brokerage Allocation and Other Practices ....................... Portfolio Transactions and Brokerage
Item 17. Capital Stock and Other Securities ............................. Capital Stock
Item 18. Purchase, Redemption and Pricing of Shares ..................... Not Applicable
Item 19. Taxation of the Fund ........................................... Not Applicable
Item 20. Underwriters ................................................... Not Applicable
Item 21. Calculations of Performance Data ............................... Performance Data
Item 22. Financial Statements ........................................... Independent Auditors and Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
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(Front cover page)
The Guardian Stock Fund
Prospectus
May 1, 1999
Investment objective
The Guardian Stock Fund, Inc. seeks long-term growth of capital. Income is not a
specific objective, although it is anticipated that long-term growth of capital
will be accompanied by growth of income.
Class of shares
Class I shares are offered to the public only through ownership of variable
annuity contracts and variable life insurance policies issued by The Guardian
Insurance & Annuity Company, Inc. Class II shares are available only through
ownership of insurance and annuity products offered by other insurance
companies.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission, nor has the Commission
or any state securities commission passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank or depositary institution, are not federally insured by the Federal
Deposit
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Insurance Corporation, the Federal Reserve Board or any other agency, and
involve investment risk, including possible loss of the principal amount
invested.
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The Fund's principal investment strategies
At least 80% of the value of the Fund's total assets is usually invested in a
diversified portfolio of U.S. common stocks and convertible securities.
Convertible securities are described in the section called Risks and special
investment techniques. Under normal circumstances, the Fund intends to be fully
invested in these types of securities.
The Fund's adviser, Guardian Investor Services Corporation (GISC), uses a stock
selection system to identify securities that represent good relative value and
have reasonable prospects of superior relative price gain. This system uses
several quantitative models that score each security considered for purchase or
sale. In making investment decisions, GISC will also take into account the
risk-reward prospects for each security and the portfolio manager's judgment
about the outlook for specific industries, companies and the economy.
The Fund may invest up to 5% of its net assets in securities of U.S. or foreign
companies which are issued and settled overseas, and may enter into forward
foreign currency exchange contracts relating to these foreign investments.
From time to time the Fund may use options or futures contracts which are
described in Risks and special investment techniques. The Fund normally uses
options to try to hedge the value of portfolio securities, particularly where
the issuer is involved in merger negotiations or other corporate transactions.
The Fund uses futures - typically securities index futures - to better manage
its cash position.
The Fund may also make real estate investments, including real estate investment
trusts (REITs). REITs are entities that invest in income-producing real estate.
REITs typically derive income from rents paid on real property or interest on
mortgages on real property.
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As a temporary defensive strategy, the Fund may invest some or all of its assets
in debt obligations, including U.S. government securities, investment grade
corporate bonds, commercial paper, repurchase agreements and cash equivalents.
The effects of this defensive posture are discussed in Risks and special
investment techniques.
The principal risks of investing in the Fund
The Fund is subject to the general risks of investing in the stock markets,
which include the risk that share prices of the securities in its portfolio can
be driven up or down gradually or sharply by general conditions in the stock
markets, or by the performance of an individual company or industry. The Fund
could also be subject to the risks of foreign investing to the limited extent
that its portfolio may be invested overseas. The Fund's real estate investments,
including REITs, will be affected by changes in real estate conditions such as
overall property prices, property taxes, rental income and interest rates. More
detailed information about these risks appears in the section called Risks and
special investment techniques.
How the Fund has performed
The bar chart below provides some indication of the risks of investing in the
Fund by showing how the performance of Class I shares has varied over the past
10 years. The performance figures shown assume that all dividends and
distributions are reinvested in the Fund. Past results do not necessarily
indicate how the Fund will perform in the future.
Year-by-year returns
Total Returns
(Years ended December 31)
BAR CHART
During the period shown in the bar chart, the highest and lowest returns,
respectively, for a quarter were:
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Best quarter: --% for the quarter ended Month 00
Worst quarter: --% for the quarter ended Month 00
Returns of Class II shares would be different from the returns depicted in the
bar chart because they have different expenses from Class I shares.
Please refer to the prospectus for the variable annuity contract or variable
life insurance policy that offers the Fund to learn about expenses that will
affect your return.
Average annual total returns
This table provides some indication of the risks of investing in the Fund by
showing the average annual total returns for the 1, 5 and 10-year periods ended
December 31, 1998. It compares the Fund's performance with the S&P 500 Index, an
index of 500 large-cap U.S. stocks that is generally considered to be
representative of U.S. stock market activity. Past results do not necessarily
indicate how the Fund will perform in the future. Class II shares have not
previously been sold and, as a result, no performance history is available.
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1 year 5 years 10 years
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Class I shares 0.00% 0.00% 0.00%
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S&P 500 Index 0.00% 0.00% 0.00%
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Risks and special investment techniques
We've already briefly described the principal risks of investing in the Fund. In
this section of the prospectus, we describe the risks in more detail, as well as
some of the special investment techniques the Fund's adviser expects to use.
Principal risks to investors
Stock market risks
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You could lose money in connection with the Fund's equity investments, or the
Fund's performance could fall below that of other possible investments, if any
of the following occurs:
o The U.S. or a foreign stock market declines
o stocks are temporarily out of favor relative to bonds or cash
o an adverse event such as negative press reports about a company in the
Fund's portfolio depresses the value of the company's stock
o the investment adviser's judgment about the value or potential
appreciation of a particular stock proves to be incorrect
o companies pay lower stock dividends than expected, or pay no dividends at
all.
Foreign market risks
Investing in foreign securities involves additional risks. Foreign securities
may be affected by political, social and economic developments abroad. Financial
markets in foreign countries may be less liquid or more volatile than U.S.
markets. Less information may be available about foreign company operations, and
foreign countries may impose withholding taxes on interest and dividend income.
Government regulations and accounting standards may be less stringent as well.
Brokerage commissions and custodial fees for foreign investments are often
higher than those for investments in U.S. securities. Exchange rates can
adversely affect the value of foreign securities and their dividends or
earnings, irrespective of the underlying performance.
Diversification risk
In order to meet the Fund's investment objectives, GISC must try to determine
the proper mix of securities that will maximize the Fund's return. It may not
properly ascertain the appropriate mix of securities for any particular economic
cycle. Also, the timing of movements from one type of security to another could
have a negative effect on the Fund's overall objective.
Temporary defensive position
The Fund may take a temporary defensive position in order to try to respond to
emergency or extraordinary circumstances. The Fund may invest in debt
obligations or
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cash instruments, and may borrow up to 33 1/3% of the value of its total assets.
While this strategy may avoid losses for the Fund, it may also result in lost
investment opportunities.
Portfolio turnover
Portfolio turnover refers to the rate at which the securities held by the Fund
are replaced. The higher the rate, the higher the transactional and brokerage
costs associated with the turnover, unless the securities traded can be bought
and sold without corresponding commission costs. Active trading of securities
may also increase the Fund's realized capital gains or losses, which may affect
the taxes you pay as a Fund shareholder. Historically, the Fund has not had high
portfolio turnover; however, the Fund will buy and sell portfolio securities as
GISC sees fit in attempting to maximize returns.
Special investment techniques
Financial futures contracts
The Fund may enter into financial futures contracts, in which it agrees to buy
or sell certain financial instruments on a specified future date based on a
projected level of interest rates or the projected performance of a particular
security index. If the Fund's adviser misjudges the direction of interest rates
or markets, the Fund's overall performance could suffer. The risk of loss could
be substantial since a futures contract requires only a small deposit to take a
large position. A small change in a financial futures contract could have a
substantial impact, favorable or unfavorable.
Options
The Fund may purchase or sell options to buy or sell securities, indices of
securities or financial futures contracts within a specified future period. The
owner of an option has the right to buy or sell the underlying instrument at a
set price, by a specified date in the future. The Fund may, but is not required
to, use options to attempt to minimize the risk of the underlying investment and
to manage exposure to changes in foreign currencies. However, if the adviser
misjudges the direction of the market for a security, the Fund
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could lose money by using options - more money than it would have lost by
investing directly in the security.
Convertible securities
The Fund may invest in convertible securities, which are securities such as debt
or preferred stock, that can be exchanged for a set number of another security
(usually common shares) at a predetermined price.
Forward foreign currency exchange contracts
The Fund may use forward foreign currency exchange contracts to try to manage
the risk of changes in currency exchange rates. A forward foreign currency
exchange contract is an agreement to exchange a specified amount of U.S. dollars
for a specified amount of a foreign currency on a specific date in the future.
The outcome of this transaction depends on the adviser's ability to predict how
the U.S. dollar will fare against the foreign currency. The Fund uses these
contracts to try to hedge against adverse exchange rate changes, and not for
speculative purposes, but there is no guarantee of success.
Illiquid securities and exempt commercial paper
Illiquid securities are either not readily marketable at their approximate value
within seven days, are not registered under the federal securities laws (unless
they are exempt from registration, as noted in the following paragraph), or are
otherwise viewed as illiquid by the Securities and Exchange Commission.
Repurchase agreements that mature in more than seven days, certain variable rate
master demand notes, and over-the-counter options are treated as illiquid
securities. The absence of trading can make it difficult to value or dispose of
illiquid securities. It can also adversely affect the Fund's ability to
calculate its net asset value or manage its portfolio. The Fund may not invest
more than 15% of its net assets in illiquid securities.
Securities which qualify under an exemption from registration under federal
securities laws for resales to institutional investors may be treated by the
Fund as liquid. If the Fund's adviser determines that these securities are
liquid under guidelines adopted by the Board of Directors, they may be purchased
without regard to the 15% illiquidity limit.
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Similarly, the Fund typically treats commercial paper issued in reliance on an
exemption from registration under federal securities laws as liquid.
Investment grade securities
The Fund may purchase investment grade debt securities as a temporary defensive
measure. Investment grade securities are bonds or convertible preferred stock
that nationally recognized statistical ratings organizations, such as Moody's
Investors Service, Inc. and Standard & Poor's Ratings Group, rate as Aaa or AAA
(the highest quality) to Baa or BBB.
Money market instruments
Money market instruments are short-term debt instruments, which are written
promises to repay debt within a year. They include Treasury bills and
certificates of deposit, and they are characterized by safety and liquidity,
which means they are easily convertible into cash. Money market instruments may
be used by the Fund for cash management or temporary defensive purposes.
Repurchase agreements
In a repurchase agreement transaction, the Fund purchases a debt security and
obtains a simultaneous commitment from the selling bank or securities dealer to
repurchase that debt security at an agreed time and price, reflecting a market
rate of interest. Repurchase agreements are fully collateralized by U.S.
government securities, bank obligations and cash or cash equivalents. Costs,
delays or losses could result if the seller became bankrupt or was otherwise
unable to complete the repurchase agreement. To minimize this risk, the
investment adviser evaluates the creditworthiness of potential repurchase
agreement counterparties using guidelines adopted by the Board of Directors. The
Fund may use repurchase agreements for cash management or temporary defensive
purposes.
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Other
New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent and when
consistent with its investment objectives or regulatory and federal tax
considerations.
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Fund Management
The management and affairs of the Fund are supervised by its Board of Directors.
The Fund's investment adviser
Guardian Investor Services Corporation (GISC) is the adviser for the Fund. GISC
is wholly owned by The Guardian Life Insurance Company of America (Guardian
Life), a New York mutual insurance company. GISC is located at 201 Park Avenue
South, New York, New York 10003. GISC buys and sells securities, selects brokers
to effect transactions, and negotiates brokerage fees. GISC is the adviser to
several other mutual funds sponsored by Guardian Life, and it is the underwriter
and distributor of the Fund's shares and of variable annuity contracts and
variable life insurance contracts issued by The Guardian Insurance & Annuity
Company, Inc. (GIAC).
The Fund pays GISC a management fee for its services at an annual rate of 0.50%
of average net assets.
Portfolio managers
Frank Jones, Ph.D., Executive Vice President and Chief Investment Officer of
Guardian Life, manages the Fund jointly with Larry Luxenberg, CFA and John
Murphy, CFA. This team has managed the Fund since April 1998. Dr. Jones has been
with Guardian Life for five years. Mr. Luxenberg, Second Vice President, Equity
Securities, has been with Guardian Life for the past 15 years. Mr. Murphy, Vice
President, Equity Securities, has been with Guardian Life for the last 8 years.
Rule 12b-1 plan for Class II shares
Class II shares of the Fund are offered through variable annuities and variable
life insurance policies sponsored by other insurance companies. Class II shares
bear a pro-rata portion of the Fund's overall expenses, and also bear an annual
fee of 0.25% of the
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average daily net assets of Class II shares. This fee is paid under a Rule 12b-1
distribution plan for Class II shares and is used to pay for marketing and
distribution expenses and/or ongoing shareholder services provided to Class II
shareholders. Part or all of the 12b-1 fee may be paid to third parties that
provide shareholder services or sell Class II shares.
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Year 2000 considerations
Like other mutual fund companies and financial and business organizations around
the world, the Fund could be adversely affected if our computers or those of our
advisers or other service providers fail to process data properly as of January
1, 2000. Many computer systems today cannot distinguish the year 2000 from the
year 1900 because of the way dates were encoded and calculated in these systems.
Like our advisers and service providers, we are changing our systems where
necessary to address this problem. We fully expect that all relevant systems
will be adapted before January 1, 2000, and our service providers assure us that
they are doing the same. As of the date of this prospectus, we do not anticipate
that shareholders will experience negative effects on their investments or on
the services provided in connection with our Year 2000 conversion. However, we
cannot guarantee that our preparations will be successful.
It is possible that the markets for securities in which the Fund invests may be
detrimentally affected by computer failures throughout the financial industry
beginning January 1, 2000 if systems should cease to function at that time. This
may result in trade settlement problems and liquidity issues. Corporate and
governmental data processing errors may result in production problems for
individual companies and overall economic uncertainties. Earnings of individual
issuers may be affected by remediation costs. In addition, it has been reported
that foreign institutions have made less progress in addressing the Year 2000
problem than major U.S. entities, which could make certain Fund investments more
sensitive to these risks.
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Euro Conversion
On January 1, 1999, the European Monetary Union (EMU) launched a new currency,
the Euro. It became the official currency of 11 European countries (Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain) and replaced individual currencies in those countries. Three
other EU member countries (Denmark, Greece and the United Kingdom) may convert
to the Euro at a later date. It is expected that 46% of the capitalization of
the entire European market will be reflected in Euros, and most participating
governments will issue their bonds in Euros._It is impossible to predict what
effect, if any, the conversion to Euros will have on the Fund. The Euro
conversion presents investors with unique risks and uncertainties, including: 1)
the readiness of Euro payment, clearing and other operational systems; 2) the
legal treatment of debt instruments and financial contracts denominated in or
referring to existing national currencies rather than the Euro; 3) exchange-rate
fluctuations between the Euro and non-Euro currencies during the transition
period of January 1, 1999 through December 31, 2001 and beyond; 4) potential
U.S. tax issues with respect to Fund securities; and 5) the ability to manage
monetary policies among the participating countries. These and other factors
could adversely affect the value of or income from Fund securities.
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Buying and selling Fund shares
You can buy this Fund only if you're a contractowner of a variable annuity
contract or variable life insurance policy that offers the Fund as an investment
option. GIAC buys and sells Class I shares based on premium allocation,
transfer, withdrawal and surrender instructions made by GIAC contractowners, and
other insurance companies that offer the Fund through their variable annuity or
variable life insurance products buy and sell Class II shares based on
instructions from their contract owners.
The Fund will ordinarily make payment for redeemed shares within three business
days after it receives an order to sell shares. The redemption price will be the
net asset value next determined after GIAC or another insurance company, as
appropriate, receives the contract owner's instructions or request in proper
form. The Fund may refuse to redeem shares or postpone payment of proceeds
during any period when:
o trading on the New York Stock Exchange (NYSE) is restricted
o the NYSE is closed for other than weekends and holidays
o an emergency makes it not reasonably practicable for the Fund to dispose
of assets or calculate its net asset value (NAV); or
o as permitted by the Securities and Exchange Commission.
See the prospectus for your variable annuity contract or variable life insurance
policy for more details about the allocation, transfer and withdrawal provisions
of your annuity or policy.
Share price
The share price of the Fund is calculated each day that the NYSE is open. The
price is set at the close of trading on the NYSE or 4 p.m. Eastern time,
whichever is earlier. The price is based on the Fund's current NAV.
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NAV is the value of everything a Fund owns, minus everything it owes, divided by
the number of shares investors hold.
The Fund values its assets at current market prices when market prices are
readily available. If market value cannot be established, assets are valued at
fair value as determined in good faith by, or under the direction, of the Board
of Directors. Short-term securities that 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.
Dividends, Distribution and Taxes
Net investment income and net capital gains that are distributed to GIAC's
separate account by the Fund are reinvested by GIAC 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. GIAC contractowners will be notified when these
distributions are made.
Other information about the Fund
The Fund does not currently foresee any disadvantages to contractowners arising
from the fact that it offers shares to both variable annuity contract and
variable life insurance policy separate accounts. The Board monitors events to
ensure there are no material irreconcilable differences between or among
contractowners. If such a conflict should arise, one or more separate accounts
may withdraw their investment in the Fund. This could possibly force the Fund to
sell portfolio securities at disadvantageous prices.
If circumstances make it necessary to create separate portfolios for variable
annuity and variable life insurance separate accounts, GIAC or another insurance
company that offers the Fund will bear the expenses involved in setting up the
new portfolios. However, the ongoing expenses contractowners ultimately pay
would likely increase because of the loss of economies of scale provided by the
current arrangement.
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Financial highlights
The financial highlights table is intended to help you understand the financial
performance for the Fund over the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions.) This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, are included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
For the year ended December 31
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1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period
Income from Investment Operations
Net Investment Income
Net Gains or Losses on Securities
(both realized and unrealized)
Total from Investment Operations
Less Distributions
Dividends (from Net Investment
Income)
Distributions in excess of Net
Investment Income
Distributions (from Capital Gains)
Total Distributions
Net Asset Value, End of Period
Total Return
Ratios/Supplemental Data
Net Assets, End of Period
Ratio of Expenses to Average
Net Assets
Ratio of Net Income
(Loss) to Average Net Assets
Portfolio Turnover Rate
</TABLE>
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For more detailed information
Additional information about the Fund is available in the annual and semi-annual
reports to shareholders. In the Fund's annual report, you will find a discussion
of the market conditions and investment strategies that significantly affected
the Fund's performance during the past fiscal year.
The Fund's Statement of Additional Information contains additional information
about the Fund and has been filed with the SEC and is incorporated in this
prospectus by reference. A free copy of the Fund's Statement of Additional
Information and most recent annual report and semi-annual report may be
obtained, and further inquiries can be made, by calling 1-800-221-3253 or by
writing Guardian Investor Services Corporation at 201 Park Avenue South, New
York, New York 10003.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington D.C.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-SEC-0330. Reports and other information about the Fund
are available on the SEC's Internet site at Error! Bookmark not defined. and
copies of this information may be obtained, upon payment of a duplicating fee,
by writing the Public Reference Section of the SEC, Washington D.C. 20549-6009.
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.
1940 Act File No. 811-3636
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THE GUARDIAN STOCK FUND, INC.
201 Park Avenue South, New York, New York 10003
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STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
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This Statement of Additional Information is not a prospectus, but should
be read in conjunction with the Prospectus of The Guardian Stock Fund, Inc. (the
"Fund") dated May 1, 1999. The Prospectus may be obtained without charge either
by writing to Guardian Investor Services Corporation(R), 201 Park Avenue South,
New York, New York 10003 or by telephoning (800) 221-3253. Please retain this
document for future reference.
The Fund's latest Annual Report to shareholders contains the Fund's
financial statements and other information. A free copy of the Annual Report may
be obtained by calling toll-free (800) 221-3253.
TABLE OF CONTENTS
Page
----
Organization of the Fund ...................................................
Investment Restrictions.....................................................
Special Investment Techniques...............................................
Fund Management.............................................................
Guardian Life and Other Fund Affiliates.....................................
Investment Adviser and Other Services.......................................
Portfolio Transactions and Brokerage........................................
Performance Data............................................................
Calculation of Net Asset Value..............................................
Capital Stock ..............................................................
Custodian and Transfer Agent................................................
Legal Opinions..............................................................
Independent Auditors and Financial Statements...............................
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ORGANIZATION OF THE FUND
The Fund was organized in March 1983 as a Maryland corporation. The Fund is an
open-end, management investment company, and is "diversified" within the meaning
of the Investment Company Act of 1940, as amended (the "1940 Act").
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions. Investment
restrictions designated as "fundamental" 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.
Following the list of fundamental investment restrictions are the Fund's
"non-fundamental" restrictions. Non-fundamental restrictions may be changed by
the Board of Directors without shareholder approval. 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 fundamental investment restrictions provide that the Fund
may not:
1. Make any investment inconsistent with the Fund's classification as a
diversified company under the Investment Company Act of 1940;
2. Borrow money or pledge its assets, except that the Fund may (i) borrow for
temporary or emergency needs, and engage in reverse repurchase agreements,
mortgage 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 33 1/3% 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; (ii)
obtain such short-term credit as may be necessary for the clearance of
transactions in portfolio securities; and (iii) purchase securities on
margin to the extent permitted by applicable law;
3. Make loans to other persons except (i) loans of portfolio securities and
entry into repurchase agreements to the extent permitted under applicable
law; and (ii) to the extent that the purchase of debt obligations in which
the Fund may invest, consistent with its investment objectives and
policies, may be deemed to be loans;
4. 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 conducting their principal business activities
in the same industry or group of industries;
5. 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 connection with the sale of portfolio
securities;
6. Purchase or sell commodities or commodity contracts, except to the extent
permitted under applicable law without registration as a commodity pool
operator under the Commodity Exchange Act (or any comparable registration
under successor legislation);
7. Purchase, hold, sell or deal in real estate, although the Fund may (i)
purchase and sell securities that are secured by real estate or interests
therein; (ii) purchase and sell securities of issuers that engage in real
estate operations, as well as real estate investment trusts and
mortgage-related securities; and (iii) hold and sell real estate acquired
by the Fund as a result of the ownership of securities; and
8. Issue any senior securities to the extent such issuance would violate
applicable law.
The following non-fundamental restrictions, which may be changed by the Board
of Directors without shareholder approval, provide that the Fund may not:
1. Invest in (i) securities which at the time of such investment are not
readily marketable; (ii) securities restricted as to resale or other
disposition; or (iii) repurchase agreements maturing in more than seven
2
<PAGE>
days, if, as a result, more than 15% of the Fund's net assets (taken at
current value), or such other percentage provided by applicable law, would
then be invested in the aggregate in securities described in (i), (ii),
and (iii) above. This restriction shall not apply to securities which the
Board of Directors of the Fund has determined to be liquid pursuant to
applicable law;
2. Make short sales of securities or maintain a short position, except to the
extent permitted by applicable law; and
3. Purchase securities for the purpose of exercising control over another
company.
SPECIAL INVESTMENT TECHNIQUES
Convertible Securities.
As described in the Prospectus, the Fund is permitted to invest in
convertible securities. Convertible securities are bonds or preferred stock
issues which may be converted at a stated price within a specified period of
time into a specific number of shares of common stock of the same or a different
issuer. Convertible securities also have characteristics similar to
non-convertible debt securities in that they ordinarily provide income with
generally higher yields than those of common stock of the same or a similar
issuer. However, convertible securities are usually subordinated to
non-convertible debt securities. Convertible securities carry the potential for
capital appreciation should the value of the underlying common stock increase,
but they are subject to a lesser risk of a decline in value, relative to the
underlying common stock, due to their fixed-income nature. Due to the conversion
feature, however, the interest rate or dividend rate on convertible securities
is generally less than would be the case if the securities were not convertible.
In evaluating a convertible security for the Fund, Guardian Investor
Services Corporation ("GISC") looks primarily at the attractiveness of the
underlying common stock and at the fundamental business strengths of the issuer.
Other factors considered by GISC include the yield of the convertible security
in relation to the yield of the underlying common stock, the premium over
investment value and the degree of call protection.
Options on Securities.
General. The Fund may purchase put and call options and write (sell)
covered call options and secured put options. Basically, there are two types of
options: call options and put options. The purchaser of a call option acquires
the right to buy a security at a fixed price during a specified period. The
writer (seller) of such an option is then obligated to sell the security if the
option is exercised, and bears the risk that the security's market price will
increase over the purchase price set by the option. The purchaser of a put
option acquires the right to sell a security at a fixed price during a specified
period. The writer of such an option is then obligated to buy the security if
the option is exercised, and bears the risk that the security's market price
will decline from the purchase price set by the option. Options are typically
purchased subject to a premium which can reduce the risks retained by the option
writer.
As the writer of a covered call option or the purchaser of a secured put
option, the Fund must own securities that can be used to cover or secure any
such outstanding options. The cover for a call option that is related to a
foreign currency can be short-term debt securities having a value equal to the
option's face that are denominated in the same currency as the call. Also, when
the Fund writes a put option, it must place cash or liquid, unencumbered
securities, whose value is at least equal to the exercise price of the put
option, in a segregated account with its custodian, marked to market daily, in
accordance with SEC guidelines. Segregating assets may limit the Fund's ability
to pursue other investment opportunities while options are outstanding. Options
transactions can be voluntarily terminated before the exercise or expiration of
the options only by entering into closing transactions. The ability to close out
an option depends, in part, upon the liquidity of the option market. If the Fund
cannot close an option when it wants, it may miss alternative investment
opportunities.
Options trade on U.S. or foreign securities exchanges and in the
over-the-counter ("OTC") market. Exchange listed options are three-party
contracts issued by a clearing corporation. They generally have standardized
prices, expiration dates and performance mechanics. In contrast, all the terms
of an OTC option, including price and expiration date, are set by negotiation
between the buyer and seller. The Fund could lose any premium paid for an OTC
option, as well as any anticipated benefits of the transaction, if its
counterparty fails to perform under the option's terms. Generally, the staff of
the SEC currently requires OTC options and any assets used to cover such options
to be treated as illiquid assets because OTC options may not be actively traded.
Until the SEC staff revises this position, any of the Fund's OTC option
transactions would be subject to a limitation on investment in illiquid
securities of 15% of the Fund's net assets.
During the option period, the covered call writer gives up the potential
for capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the writer
having to deliver the underlying security to the holder of the option at the
exercise price, which will likely be lower than the security's value. For the
secured put writer, substantial depreciation in the value of the underlying
security would result in the exercise of the option by the holder, thereby
obligating the writer to purchase the underlying securities at the exercise
price, which will likely exceed the security's value. If a covered call option
expires unexercised, the writer realizes a gain and the buyer a loss in the
amount of the premium. If the covered call option writer has to sell the
underlying security because of the exercise of the call option, the writer
realizes a gain or loss from the sale of the underlying security, with the
proceeds being increased by the amount of the premium. If a secured put option
expires unexercised, the writer realizes a gain and the buyer a loss in the
amount of the premium. If the secured put writer has to buy the underlying
security because of the exer-
3
<PAGE>
cise of the put option, the secured put writer incurs an unrealized loss to the
extent that the current market value of the underlying security is less than the
exercise price of the put option. However, this would be offset in whole or in
part by gain from the premium received and any interest income earned on the
investment of the premium.
The exercise price of an option may be below, equal to or above the
current market value of the underlying security at the time the option is
written. The buyer of a put who also owns the related security is protected by
ownership of a put option against any decline in that security's price below the
exercise price less the amount paid for the option. The ability to purchase put
options allows the Fund to protect capital gains in an appreciated security
which is already owned, without being required to actually sell that security.
At times the Fund may seek to establish a position in securities upon which call
options are available. By purchasing a call option the Fund is able to fix the
cost of acquiring the security, this being the cost of the call plus the
exercise price of the option. This procedure also provides some protection from
an unexpected downturn in the market, because the Fund is only at risk for the
amount of the premium paid for the call option which it can, if it chooses,
permit to expire.
The Fund may also write or purchase spread options, which are options for
which the exercise price may be a fixed monetary spread or yield spread between
the security underlying the option and another security that is used as a
benchmark. Spread options involve the same risks as are associated with
purchasing and selling options on securities generally, as described above. The
writer (seller) of a spread option which expires unexercised realizes a gain in
the amount of the premium and any interest earned on the investment of the
premium. However, if the spread option is exercised, the writer will forego the
potential for capital appreciation or incur an unrealized loss to the extent the
market value of the underlying security exceeds or is less than the exercise
price of such spread option. The purchaser of a spread option incurs costs equal
to the amount of the premium paid for such option if the spread option expires
unexercised, or the associated transaction costs if the purchaser closes out the
spread option position.
The Fund may purchase a put option and a call option, each with the same
expiration date, on the same underlying security. The Fund will profit from the
combination position if an increase or decrease in the value of the underlying
security is sufficient for the Fund to profit from exercise of either the call
option or the put option. Combined option positions involve higher transaction
costs (because of the multiple positions taken) and may be more difficult to
open and close out than other option positions.
Options on Securities Indices. The Fund may write or purchase options on
securities indices. Index options offer the Fund the opportunity to achieve many
of the same objectives sought through the use of options on individual
securities. Options on securities indices are similar to options on a security
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike security options, all settlements are in cash and gain or loss depends on
the aggregate price movements in the relevant index rather than price movements
in individual securities.
Price movements in securities which the Fund owns or intends to purchase
probably will not correlate perfectly with movements in the level of a
securities index and, therefore, the Fund bears the risk of a loss on a
securities index option which is not completely offset by movements in the price
of such securities. Because securities index options are settled in cash, a call
writer cannot determine the amount of its settlement obligations in advance and,
unlike call writing on a specific security, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding underlying
securities. The Fund may, however, cover call options written on a securities
index by holding a mix of securities which substantially replicate the movement
of the index or by holding a call option on the securities index with an
exercise price no higher than the call option sold.
4
<PAGE>
When the Fund writes an option on a securities index, it will be required
to cover the option or to segregate assets equal in value to 100% of the
exercise price in the case of a put, or the contract value in the case of a
call. In addition, where the Fund writes a call option on a securities index at
a time when the exercise price exceeds the contract value, the Fund will
segregate, until the option expires or is closed out, cash or cash equivalents
equal in value to such excess.
Options on securities indices involve risks similar to those risks
relating to transactions in financial futures contracts described below. Also, a
purchased option may expire worthless, in which case the premium which was paid
for it is lost.
Financial Futures Transactions.
General. The Fund may enter into interest rate futures contracts and
securities index futures contracts (collectively referred to as "financial
futures contracts") primarily to manage the Fund's cash position or to hedge
(protect) against anticipated future changes in equity market conditions which
otherwise might affect adversely the value of securities which the Fund holds or
intends to purchase. A "sale" of a financial futures contract means the
undertaking of a contractual obligation to deliver the securities or the cash
value called for by the contract at a specified price during a specified
delivery period. A "purchase" of a financial futures contract means the
undertaking of a contractual obligation to acquire the securities at a specified
price during a specified delivery period.
Interest rate futures contracts obligate the long or short holder to take
or make delivery of a specified quantity of a financial instrument during a
specified future period at a specified price. Securities index futures contracts
are similar in economic effect, but they are based on a specific index of
securities (rather than on specified securities) and are settled in cash. The
Fund may also purchase and write put and call options on financial futures
contracts as an attempt to hedge against market risks.
When the Fund enters into a financial futures contract, it is required to
deposit with its custodian, on behalf of the broker, a specified amount of cash
or eligible securities called "initial margin." The initial margin required for
a financial futures contract is set by the exchange on which the contract is
traded. Subsequent payments, called "variation margin," to and from the broker
are made on a daily basis as the market price of the financial futures contract
fluctuates. At the time of delivery, pursuant to the contract, adjustments are
made to recognize differences in value arising from the delivery of securities
with a different interest rate than that specified in the contract. With respect
to securities index futures contracts, settlement is made by means of a cash
payment based on any fluctuation in the contract value since the last adjustment
in the variation margin was made.
Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contractual
commitment is closed out before delivery of the security. The offsetting of a
contractual obligation is accomplished by purchasing (or selling as the case may
be) on a commodities or futures exchange an identical financial futures contract
calling for delivery in the same month. Such a transaction, if effected through
a member of an exchange, cancels the obligation to make or take delivery of the
securities. All transactions in the futures market are made, offset or fulfilled
through a clearing house associated with the exchange on which the contracts are
traded. The Fund will incur brokerage fees when it purchases or sells financial
futures contracts, and will be required to maintain margin deposits. If a liquid
secondary market does not exist when the Fund wishes to close out a financial
futures contract, it will not be able to do so and will continue to be required
to make daily cash payments of variation margin in the event of adverse price
movements.
Special Considerations Relating to Financial Futures Contracts. Financial
futures contracts entail risks. There may be an imperfect correlation between
the price movements of financial futures contracts and the price movements of
the securities in which the Fund invests. There is also a risk that the Fund
could be unable to close a futures position when desired because there is no
liquid secondary market for it. The skills needed to use financial futures
contracts effectively are different from those needed to select the Fund's
investments. If GISC misjudges the general direction of interest rates or
markets, the Fund's overall performance may be poorer than if no financial
futures contracts had been entered into. It is possible that the Fund could lose
money on a financial futures contract and also on the price of related
securities, adversely affecting the Fund's performance. The risk of loss in
trading financial futures contracts can be substantial due to the low margin
deposits required and the extremely high degree of leverage involved in futures
pricing. A relatively small price movement in a financial futures contract could
have an immediate and substantial impact, which may be favorable or unfavorable
to a futures contractholder. It is possible for a price-related loss to exceed
the amount of the Fund's margin deposit.
The risks associated with purchasing and writing put and call options on
financial futures contracts can be influenced by the market for financial
futures contracts. An increase in the market value of a financial futures
contract on which the Fund has written an option may cause the option to be
exercised. In this situation, the benefit to the Fund would be limited to the
value of the exercise price of the option and, if the Fund closes out the
option, the cost of entering into the offsetting transaction could exceed the
premium the Fund initially received for writing the option. In addition, the
Fund's ability to enter into an offsetting transaction depends upon the market's
demand for such financial futures contracts. If a purchased option expires
unexercised, the Fund would realize a loss in the amount of the premium paid for
the option.
If the investment adviser's judgment about the general direction of
interest rates or markets is wrong, the overall performance may be poorer than
if the Fund had not entered into financial futures contracts. For example, in
some cases, securities called for by a financial futures contract may not have
been issued at the time the contract was written. There may also be an imperfect
correlation between movements in prices of financial futures contracts and
portfolio securities being hedged. The degree of difference in price movement
between financial futures contracts and the securities being hedged depends upon
such things as differences between the securities being hedged and the
securities underlying the financial futures contracts, and variations in
speculative market demand for financial futures contracts and securities. In
addition, the market prices of financial futures contracts may be affected by
certain factors. If participants in the futures
5
<PAGE>
market elect to close out their contracts through offsetting transactions rather
than meet margin requirements, distortions in the normal relationship between
the securities and financial futures markets could result. Price distortions
could also result if investors in financial futures contracts decide to make or
take delivery of underlying securities rather than engage in closing
transactions, which would reduce the liquidity of the futures market. In
addition, because the margin requirements in the futures markets are less
onerous than margin requirements in the cash market, increased participation by
the speculators in the futures market could cause temporary price distortions.
Due to the possibility of price distortions in the futures market and because
there may be an imperfect correlation between movements in the prices of
securities and movements in the prices of financial futures contracts, a correct
forecast of market trends by the investment adviser may still not result in a
successful hedging transaction. If this should occur, the Fund could lose money
on the financial futures contracts and also on the value of their portfolio
securities.
Regulatory Restrictions.
To the extent required to comply with the 1940 Act and rules and
interpretations thereunder, the Fund may not maintain open short positions in
financial futures contracts, call options written on financial futures contracts
or call options written on indexes if, in the aggregate, the market value of all
such open positions exceeds the current value of the securities in its
portfolio, plus or minus unrealized gains and losses on the open positions,
adjusted for the historical relative volatility of the relationship between the
portfolio and the positions. When purchasing a financial futures contract or
writing a put option on a financial futures contract, the Fund must segregate
cash, cash-equivalents (including any margin) or liquid debt obligations equal
to the market value of such contract. These cover and segregation requirements
may limit the Fund's ability to pursue other investment opportunities.
In order to comply with the Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool operator," the
Fund will use commodity futures or commodity options contracts solely for bona
fide hedging purposes within the meaning and intent of Regulation 1.3(z), or,
with respect to positions in commodity futures and commodity options contracts
that do not come with the meaning and intent of Regulation 1.3(z), the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the liquidation value of the assets of the Fund, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. In the case of an option that is in-the-money at the time of purchase, the
in-the-money amount (as defined in Section 190.01(x) of the CFTC Regulations)
may be excluded in computing such 5%.
Options on Financial Futures Contracts.
The Fund may purchase and write call and put options on financial futures
contracts. An option on a financial futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a financial
futures contract at a specified exercise price at any time during the period of
the option. Upon exercise, the writer of the option delivers the financial
futures contract to the holder at the exercise price. The Fund would be required
to deposit with its custodian initial margin and variation margin with respect
to put and call options on a financial futures contract it has written.
Foreign Securities and Forward Foreign Currency Transactions.
From time to time, the Fund may invest in securities of domestic (U.S.) or
foreign companies which are issued and settled overseas. Investing overseas
involves different and additional investment risks from investing in the U.S.
For example: (1) there may be less publicly available or less reliable
information about foreign companies and such companies may be subject to less
regulation and supervision than U.S. companies; (2) foreign stock exchanges and
brokers may be subject to less governmental regulation than similar U.S.
entities; (3) securities of foreign companies may be less liquid or more
volatile than securities of U.S. companies; (4) foreign companies may not be
subject to the same accounting, auditing, examina-
6
<PAGE>
tion and recordkeeping requirements which are imposed on U.S. companies; and (5)
securities issued by foreign companies may be adversely affected by political or
economic unrest, restrictions on the flow of international capital, withholding
taxes on interest or dividend income, expropriation, nationalization,
confiscatory taxation, investment or currency exchange controls, or other
foreign governmental laws or restrictions applicable to the payment of such
securities. In addition, the time period for settlement of transactions in
foreign securities may be longer than the corresponding period for settlement of
transactions in domestic securities. It may also be more difficult to obtain and
enforce judgments against foreign entities.
The foreign securities held by the Fund may be denominated in foreign
currencies and the Fund may temporarily hold foreign currency in connection with
such investments. As a result, the value of the assets held by the Fund may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations. The Fund may enter into forward foreign
currency exchange contracts ("forward currency contracts") in an effort to
control some of the uncertainties of foreign currency exchange rate
fluctuations. A forward currency contract is an agreement to purchase or sell a
specific currency at a specified future date and price agreed to by the parties
at the time of entering into the contract. The Fund will not engage in forward
currency contracts for speculation, but only as an attempt to hedge against
changes in currency exchange rates affecting the values of securities which it
holds or intends to purchase. Thus, the Fund will not enter into a forward
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.
The Fund will normally be expected to use forward currency contracts to
fix the value of certain securities it has agreed to buy or sell. For example,
when the Fund enters into a contract to purchase or sell securities denominated
in a particular foreign currency, the Fund could effectively fix the maximum
cost of those securities by purchasing or selling a foreign currency contract,
for a fixed value of another currency, in the amount of foreign currency
involved in the underlying transaction. In this way, the Fund can protect the
value of securities in the underlying transaction from an adverse change in the
exchange rate between the currency of the underlying securities in the
transaction and the currency denominated in the foreign currency contract,
during the period between the date the security is purchased or sold and the
date on which payment is made or received.
The Fund may also use forward currency contracts to hedge the value, in
U.S. dollars, of securities it currently owns. For example, if the Fund holds
securities denominated in a foreign currency and anticipates a substantial
decline (or increase) in the value of that currency against the U.S. dollar, the
Fund may enter into a foreign currency contract to sell (or purchase), for a
fixed amount of U.S. dollars, the amount of foreign currency approximating the
value of all or a portion of the securities held which are denominated in such
foreign currency.
Upon the maturity of a forward currency transaction, the Fund may either
accept or make delivery of the currency specified in the contract or, at any
time prior to maturity, enter into a closing transaction which involves the
purchase or sale of an offsetting contract. An offsetting contract terminates
the Fund's contractual obligation to deliver the foreign currency pursuant to
the terms of the forward currency contract by obligating the Fund to purchase
the same amount of the foreign currency, on the same maturity date and with the
same currency trader, as specified in the forward currency contract. The Fund
will realize a gain or loss as a result of entering into such an offsetting
contract to the extent the exchange rate between the currencies involved moved
between the time of the execution of the original forward currency contract and
the offsetting contract.
The use of forward currency contracts to protect the value of securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities the Fund owns or intends to acquire, but
it does fix a future rate of exchange. Although such contracts minimize the risk
of loss resulting from a decline in the value of the hedged currency, they also
limit the potential for gain resulting
7
<PAGE>
from an increase in the value of the hedged currency. The benefits of forward
currency contracts to the Fund will depend on the ability of the Fund's
investment adviser to accurately predict future currency exchange rates.
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 Bond Fund, Inc., (3) The Guardian
Cash Fund, Inc., (4) The Park Avenue Portfolio (a series trust that currently
issues its shares in nine series) and (5) GIAC Funds, Inc. (formerly GBG Funds,
Inc.) (a series fund that issues its shares in three series).
8
<PAGE>
Name and Address Title Business History
- ---------------- ----- ----------------
JOHN C. ANGLE* (75) Director Retired. Former Chairman
3800 South 42nd Street of the Board and Chief
Lincoln, Nebraska 68506 Executive 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
various mutual funds
within the Guardian Fund
Complex.
JOSEPH A. CARUSO (47) Secretary Vice President and
Corporate Secretary, The
Guardian Life Insurance
Company of America
3/96-present; Second Vice
President and Corporate
Secretary 1/95-2/96;
Corporate Secretary prior
thereto. Vice President
and Secretary, The
Guardian Insurance &
Annuity Company, Inc.
and Guardian Investor
Services Corporation.
Secretary, Guardian Asset
Management Corporation,
Park Avenue Life
Insurance Company,
Guardian Baillie Gifford
Limited and various
mutual funds within the
Guardian Fund Complex.
FRANK J. FABOZZI, PH.D. (50) Director Adjunct Professor of
858 Tower View Circle Finance, School of
New Hope, Pennsylvania 18938 Management -- Yale
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
various mutual funds
within the Guardian Fund
Complex. Director
(Trustee) of various
closed-end investment
companies sponsored by
Blackstone Financial
Management.
ARTHUR V. FERRARA* (68) Director Retired. Chairman of the
70 Baldwin Farms South Board and Chief Executive
Greenwich, CT 06831 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 various
mutual funds within the
Guardian Fund Complex.
- ----------
* Director who is deemed to be an "interested person" under the 1940 Act.
9
<PAGE>
Name and Address Title Business History
- ---------------- ----- ----------------
LEO R. FUTIA* (79) Director Retired. Former Chairman
18 Interlaken Road of the Board and Chief
Greenwich, Connecticut 06830 Executive 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
various mutual funds
within the Guardian Fund
Complex. Director
(Trustee) of various
mutual funds sponsored by
Value Line, Inc.
WILLIAM W. HEWITT, JR. (70) Director Retired. Former Executive
P.O. Box 2359 Vice President, Shearson
Princeton, New Jersey 08543 Lehman Brothers, Inc.
Director (Trustee) of
various mutual funds
within the Guardian Fund
Complex.
FRANK J. JONES, PH.D. (60), 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
prior thereto. Executive
Vice President and Chief
Investment Officer and
Director, The Guardian
Insurance & Annuity
Company, Inc. Executive
Vice President and Chief
Investment Officer, Park
Avenue Life Insurance
Company. Director and
President, Guardian Asset
Management Corporation.
Director, Guardian
Investor Services
Corporation and Guardian
Baillie Gifford Limited.
Officer of various mutual
funds within the Guardian
Fund Complex.
- ----------
* Director who is deemed to be an "interested person" under the 1940 Act.
10
<PAGE>
Name and Address Title Business History
- ---------------- ----- ----------------
ANN T. KEARNEY (47) 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 various
mutual funds within the
Guardian Fund Complex.
SIDNEY I. LIRTZMAN, PH.D. (68) Director Professor of Management
38 West 26th Street 9/67-present and Acting
New York, New York 10010 Dean of the School of
Business Management
2/95-present, City
University of New York --
Baruch College.
President, Fairfield
Consulting Associates,
Inc.; Director (Trustee)
of various mutual funds
within the Guardian Fund
Complex.
LAWRENCE A. LUXENBERG (43) Vice President Second Vice President,
Equity Securities, The
Guardian Life Insurance
Company of America
1/97-present; Assistant
Vice President, Equity
Securities, prior
thereto. Officer of
various mutual funds
within the Guardian Fund
Complex.
JOHN B. MURPHY (54) Vice President Vice President, Equity
Securities, The Guardian
Life Insurance Company of
America, since 6/97;
Second Vice President
prior thereto. Officer of
various mutual funds
within the Guardian Fund
Complex.
FRANK L. PEPE (56) 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.
Officer of various mutual
funds within the Guardian
Fund Complex.
- ----------
* Director who is deemed to be an "interested person" under the 1940 Act.
11
<PAGE>
Name and Address Title Business History
- ---------------- ----- ----------------
RICHARD T. POTTER, JR. (44) Counsel Vice President and Equity
Counsel, The Guardian
Life Insurance Company of
America 1/96-present;
Second Vice President and
Equity Counsel prior
thereto. Counsel, The
Guardian Insurance &
Annuity Company, Inc.,
Guardian Investor
Services Corporation,
Guardian Asset Management
Corporation and various
mutual funds within the
Guardian Fund Complex.
JOSEPH D. SARGENT* (61) Director President, Chief
Executive Officer and
Director, The Guardian
Life Insurance Company of
America, since 1/96;
President and Director
prior thereto. Director,
President and Chief
Executive Officer of The
Guardian Insurance &
Annuity Company, Inc.,
Guardian Asset Management
Corporation and Park
Avenue Life Insurance
Company. Director,
Guardian Investor
Services Corporation.
Director (Trustee) of
various mutual funds
within the Guardian Fund
Complex.
CARL W. SCHAFER (63) Director President, Atlantic
P.O. Box 1164 Foundation (charitable
Princeton, New Jersey 08542 foundation 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
various mutual funds
within the Guardian Fund
Complex. Director
(Trustee) of various
mutual funds sponsored by
Mitchell Hutchins Asset
Management, Inc. and
PaineWebber, Inc.
- ----------
* Director who is deemed to be an "interested person" under the 1940 Act.
12
<PAGE>
Name and Address Title Business History
- ---------------- ----- ----------------
ROBERT G. SMITH, PH.D. (66) Director President, Smith
132 East 72nd Street Affiliated Capital Corp.
New York, New York 10028 Director (Trustee) of
various 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.
Each Fund Director is also a director of The Guardian Bond Fund, Inc., The
Guardian Cash Fund, Inc., and GIAC Funds, Inc. (formerly GBG Funds, Inc.), a
series fund consisting of Baillie Gifford International Fund, Baillie Gifford
Emerging Markets Fund and The Guardian Small Cap Stock Fund, and a trustee of
The Park Avenue Portfolio, a series trust consisting of The Guardian Park Avenue
Fund, The Guardian Park Avenue Small Cap Fund, The Guardian Investment Quality
Bond Fund, The Guardian Tax-Exempt Fund, The Guardian High Yield Bond Fund, The
Guardian Cash Management Fund, The Guardian Baillie Gifford International Fund,
The Guardian Baillie Gifford Emerging Markets 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, 1998.
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 N/A N/A
William W. Hewitt, Jr.
Director N/A N/A
Sidney I. Lirtzman
Director N/A N/A
Carl W. Schafer
Director N/A N/A
Robert G. Smith
Director N/A N/A
</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.
** 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 April 1, 1999.
- ----------
* Director who is deemed to be an "interested person" under the 1940 Act.
13
<PAGE>
GUARDIAN LIFE AND OTHER FUND AFFILIATES
As of April 1, 1999, 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 AND OTHER SERVICES
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. Under the
investment advisory agreement, GISC has also agreed to assume those operating
expenses of the Class I shares 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,
1998, 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, 1996, 1997 and 1998, the Fund paid GISC
$9,077,501, $13,778,322, and $___________ 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 Stock Fund, Inc." is subject to the approval of
Guardian Life, because Guardian Life maintains the exclusive ownership interest
of the service mark "The Guardian Stock 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.
Under a Distribution Plan adopted by the Fund pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plan"), the Fund's Class II shares are authorized to
pay a monthly 12b-1 fee at an annual rate of up to 0.25% of average daily net
assets of the Class II shares as compensation for distribution and shareholder
servicing provided to Class II shareholders of the Fund. The 12b-1 fee may be
paid to third parties which may enter into agreements with GIAC to offer Class
II shares of the Fund under variable contracts issued by insurance companies
other than GIAC. Under the 12b-1 Plan, the fee may be used to pay for
communications equipment charges, printing prospectuses, statements of
additional information and reports for prospective shareholders, the costs of
printing sales literature and advertising materials, training and educating
sales personnel and other distribution-related overhead.
The Fund, on behalf of the Class II shares, has entered into a
Distribution Agreement with GISC to effectuate the 12b-1 Plan. The Fund does not
pay GISC any additional amount under the Distribution Agreement. Shareholders
are not responsible for any additional fee if the 12b-1 fee is not sufficient to
pay all the distribution expenses of the Class II shares. Any such excess will
be paid by GISC, and will not be carried forward and assessed against the 12b-1
fees due in succeeding years. Similarly, if the 12b-1 fee is greater than the
amounts spent in any year on distribution-related services on behalf of the
Class II shares,
14
<PAGE>
GISC is entitled to retain the excess. The Fund's Board of Directors may
negotiate changes to the 12b-1 Plan to reduce the amount of the 12b-1 fee or to
add services, or the Board may determine that the excess is justifiable in the
circumstances.
The 12b-1 Plan specifically provides that while it is in effect, the
selection and nomination of the Fund's Board who are not "interested persons" of
the Fund, as that term is defined in the 1940 Act, shall be made solely at the
discretion of the Directors who are not interested persons of the Fund. The fees
to be paid under the 12b-1 Plan may not be materially changed without approval
by vote of: (1) a majority of the Board; (2) a majority of the Directors who are
not "interested persons" of the Fund and who have no direct or indirect
financial interest in the operations of the 12b-1 Plan or related agreements
("Independent Directors"); and (3) a majority of the Fund's outstanding voting
Class II shares, as defined in the 1940 Act.
The 12b-1 Plan will continue from year to year if such continuance is
specifically approved by vote of the Board, and by vote of the Independent
Directors, cast in person at a meeting called for the purpose of voting on the
12b-1 Plan.
No Class II shares were sold during 1998, and therefore no fees were paid
under the 12b-1 Plan.
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.
For the years ended December 31, 1996, 1997 and 1998, the Fund paid
brokerage commissions of $2,630,124, $2,742,148, and $_________, respectively.
[Brokerage commissions increased in 1997 because the Fund experienced very
favorable inflows from GIAC contractowners, which increased investment
opportunities.] The Fund's portfolio turnover rates for the years ended December
31, 1996, 1997 and 1998 were 66%, 51%, and ___%, respectively. Changes in the
Fund's portfolio turnover rate do not indicate any change in the investment
policy. 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.
PERFORMANCE DATA
As described in the Prospectus, the Fund may state its cumulative total
return and average annual total return in advertisements, sales materials and
communications with existing or prospective owners of variable contracts.
"Cumulative total returns" and "average annual 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. Because Class II shares had not
commenced operations during 1998, no information is provided for Class II
shares.
The tables below show the Fund's returns (Class I shares only) for the
periods noted. 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 variable annuities or variable
life insurance policies will be lower to reflect the effects of charges deducted
under the terms of the specific contracts.
15
<PAGE>
Guardian
Stock Fund
Year Ended December 31, Total Return
______________________ ___________
1983*....................... 10.28 %
1984........................ 10.79 %
1985........................ 32.01 %
1986........................ 17.10 %
1987........................ 1.87 %
1988........................ 20.37 %
1989........................ 23.55 %
1990........................ (11.85)%
1991........................ 35.96 %
1992........................ 20.07 %
1993........................ 19.96 %
1994........................ (1.27)%
1995........................ 34.65 %
1996........................ 26.90 %
1997........................ 35.58 %
1998 ....................... _____ %
Cumulative and
Average Annual
Period Ended December 31, 1998 Total Returns
------------------------------ ------------
Lifetime Total Return of the Fund*........................
Average Annual Lifetime Total Return of the Fund........
Ten-Year Total Return.....................................
Average Annual Ten-Year Total Return....................
Five-Year Total Return....................................
Average Annual Five-Year Total Return...................
One-Year Total Return.....................................
- ----------
* Beginning April 13, 1983 (commencement of Fund's investment operations).
Stock 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 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 the results are not
annualized.
The following example shows the average annual total return performance of
the Class I shares 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 a shareholder's
variable contracts or federal income taxes and tax penalties that may be
incurred when distributions are made from such variable contracts.
16
<PAGE>
% Change ERV
--------- ----
For the year ended December 31, 1998................
For the 5 years ended December 31, 1998.............
For the 10 years ended December 31, 1998............
For the life of the Fund through December 31, 1997..
The Fund may also compare its performance to that of other mutual funds
with similar investment objectives or programs and may quote information from
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.
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 specific 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
on behalf of contractowners at net asset value, which may be more or less than
original cost.
CALCULATION OF NET ASSET VALUE
The Fund's net asset value 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 U.S.
or foreign 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. Where a security is traded on more
than one exchange, the security is valued on the exchange on which it is
principally traded unless it was not traded on that exchange on the date in
question. In such cases, the last sale price of the security on other exchanges
shall be used. Securities traded both on an exchange and in the over-the-counter
markets will be valued according to the broadest and most representative market.
Investments in U.S. government securities (other than short-term securities) are
valued at the quoted bid 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 side of the
market are valued at the quoted bid prices (as obtained 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
17
<PAGE>
good faith by or under the direction of the Fund's Board of Directors.
Repurchase agreements are carried at cost which approximates market value.
CAPITAL STOCK
The Fund is a Maryland corporation which commenced operations in April
1983. The Fund has authorized capital stock of 400,000,000 shares of $0.001 par
value. The Fund currently has authorized its shares in two classes, of which
300,000,000 shares are designated Class I shares and 100,000,000 shares are
designated Class II shares. Unissued shares may be redesignated by the Fund's
Board of Directors. Class I shares are offered through variable annuity
contracts and variable life insurance policies issued by GIAC, and Class II
shares are offered through variable annuity contracts and variable life
insurance policies issued by other insurance companies. Each class of shares is
invested in a common investment portfolio, but has a separate expense structure,
as described in "Fund Management and the Investment Adviser". The Fund currently
has one series fund. The Board of Directors may authorize additional classes and
series of shares in the future.
Through their respective separate accounts, GIAC and other participating
insurance companies are the Fund's only shareholders of record. Nevertheless,
when a shareholders' meeting occurs, each insurance company 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. Each
insurance company then votes the Fund's shares that are attributable to its
contractowners' interests in the Fund in accordance with their instructions.
Shares for which no instructions are received will be voted in the same
proportion as shares for which instructions have been received. Each
participating insurance company 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. All
classes of the Fund's shares are voted together as one class, unless a matter
affects only the shareholders of a particular class. In those cases only the
shareholders of the affected class will be eligible to vote on the matter.
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.
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 or under the direction of the Board in accordance with regulations
under the 1940 Act.
To the extent required by the SEC, the Board will review 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 separate accounts which invest in the Fund's shares
on behalf of 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 audited and reported on the
financial statements of the Fund which appear in the Fund's Annual Report to
Shareholders for the year ended December 31, 1998. That Annual Report is
incorporated by reference in this Statement of Additional Information.
18
<PAGE>
THE GUARDIAN STOCK FUND, INC.
PART C. OTHER INFORMATION
Item 23. Exhibits
Number Description
-------- -----------
(a) -- Form of Amendment and Restatement of Articles of
Incorporation(3)
(b) -- By-Laws(3)
(c) -- Not Applicable
(d) -- Investment Advisory Agreement(3)
(e)(i) -- Selected Dealers Agreement(1)
(e)(ii) -- Distribution Agreement(1)
(f) -- Not Applicable
(g) -- Custodian Agreement and Amendment to Custodian
Agreement(3)
(h) -- Transfer Agency Agreement(3)
(i) -- Opinion and Consent of Counsel(4)
(j)(i) -- Consent of Counsel*
(j)(ii) -- Consent of Ernst & Young LLP*
(j)(iii) -- Consent of Vedder, Price, Kaufman & Kammholz*
(k) -- Not Applicable
(l) -- Letter from The Guardian Insurance & Annuity Company,
Inc. with respect to providing the initial capital for
the Registrant(1)
(m) -- Not Applicable
(n) -- Financial Data Schedule*
(o) -- Not Applicable
(p) -- Miscellaneous
(p)(i) -- Powers of Attorney executed by a majority of the Board
of Directors and certain principal officers of the
Fund(4)
(p)(ii) -- Power of Attorney executed by Frank J. Fabozzi(2)
(p)(iii) -- Power of Attorney executed by Joseph D. Sargent(2)
(p)(iv) -- Power of Attorney executed by Carl W. Schafer(2)
- ----------
(1) Incorporated by reference to Registrant's filing (Reg. No. 2-81149) of
March 29, 1983.
(2) Incorporated by reference to Post-Effective Amendment No. 15 to the
Registrant's registration statement on Form N-1A (Reg. No. 2-81149), filed
via EDGAR on April 23, 1997.
(3) Incorporated by reference to Post-Effective Amendment No. 16 to the
Registrant's registration statement on Form N-1A (Reg. No. 2-81149), filed
via EDGAR on February 27, 1998.
(4) Incorporated by reference to Post-Effective Amendment No. 17 to the
Registrant's registration statement on Form N-1A (Reg. No. 2-81149), filed
via EDGAR on April 27, 1998.
* To be filed by amendment.
C-1
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
The following list sets forth the persons directly controlled by The
Guardian Life Insurance Company of America ("Guardian Life") as of __________,
1999:
Percentage of
State of Incorporation Voting Securities
Name of Entity or Organization Owned
------------ ------------------ -------------
The Guardian Insurance & Delaware 100%
Annuity Company, Inc.
Guardian Asset Management Delaware 100%
Corporation
Park Avenue Life Delaware 100%
Insurance Company
Guardian Reinsurance Connecticut 100%
Services Inc.
Physicians Health Delaware 14%
Services, Inc.
Private Healthcare Delaware 14%
Systems, Inc.
Managed Dental California 100%
Care, Inc.
The Guardian Baillie Gifford Massachusetts 30%
International Fund
The Guardian Investment Massachusetts 52%
Quality Bond Fund
Baillie Gifford Maryland 15%
International Fund
Baillie Gifford Emerging Maryland 23%
Markets Fund
The Guardian Tax-Exempt Fund Massachusetts 86%
The Guardian Asset Massachusetts 17%
Allocation Fund
The Guardian Park Avenue
Small Cap Fund Massachusetts 57%
The following list sets forth the persons directly controlled by
affiliates of Guardian Life, and thereby indirectly controlled by Guardian Life,
as of __________, 1999:
Approximate
Percentage of Voting
Securities Owned
Place of Incorporation by Guardian Life
Name of Entity or Organization Affiliates
------------ ------------------- --------------
Guardian Investor Services New York 100%
Corporation
Guardian Baillie Gifford Limited Scotland 51%
The Guardian Cash Fund, Inc. Maryland 100%
The Guardian Bond Fund, Inc. Maryland 100%
The Guardian Stock Fund, Inc. Maryland 100%
GIAC Funds, Inc. Maryland 100%
Item 25. Indemnification
Reference is made to Registrant's Amended and Restated Articles of
Incorporation which have been filed as Exhibit Number 1 to Post-Effective
Amendment No. 17 to the Registration Statement on February 27, 1998 and are
incorporated herein by reference.
C-2
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
Guardian Investor Services Corporation ("GISC") acts as the sole
investment adviser for The Guardian Stock Fund, Inc., The Guardian Cash Fund,
Inc., The Guardian Bond Fund, Inc., and six of the eight currently operating
series funds comprising The Park Avenue Portfolio, namely: The Guardian Cash
Management Fund, The Guardian Park Avenue Fund, The Guardian Park Avenue Small
Cap Fund, The Guardian Investment Quality Bond Fund, The Guardian Tax-Exempt
Fund and The Guardian Asset Allocation Fund, and one of the three series funds
comprising GIAC Funds, Inc. namely The Guardian Small Cap Stock Fund. GISC is
also the manager of Gabelli Capital Asset Fund. GISC's principal business
address is 201 Park Avenue South, New York, New York 10003. In addition, GISC is
the distributor of The Park Avenue Portfolio and variable annuities and variable
life insurance policies offered by The Guardian Insurance & Annuity Company,
Inc. ("GIAC") through its separate accounts. These separate accounts, The
Guardian/Value Line Separate Account, The Guardian Separate Account A, The
Guardian Separate Account B, The Guardian Separate Account C, The Guardian
Separate Account D, The Guardian Separate Account E, The Guardian Separate
Account K and The Guardian Separate Account M are all unit investment trusts
registered under the Investment Company Act of 1940, as amended.
A list of GISC's officers and directors is set forth below, indicating the
business, profession, vocation or employment of a substantial nature in which
each person has been engaged during the past two fiscal years for his or her own
account or in the capacity of director, officer, partner, or trustee, aside from
any affiliation with the Registrant. Except where otherwise noted, the principal
business address of each company is 201 Park Avenue South, New York, New York
10003.
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Philip H. Dutter Director Independent Consultant
(self-employed). Director: The
Guardian Life Insurance Company of
America. Director: The Guardian
Insurance & Annuity Company, Inc.
William C. Warren Director Retired.
Director: The Guardian Life
Insurance Company of America.
Director: The Guardian Insurance &
Annuity Company, Inc.
C-3
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Arthur V. Ferrara Director Retired. Chairman of the Board and
Chief Executive Officer: The
Guardian Life Insurance Company of
America until 12/95. Director
(Trustee) of The Guardian
Insurance & Annuity Company, Inc.,
and various Guardian-sponsored
mutual funds.
John M. Smith President & Executive Vice President: The
Director Guardian Life Insurance Company of
America. Executive Vice President
and Director: The Guardian
Insurance & Annuity Company, Inc.
Director: Guardian Baillie Gifford
Limited* and Guardian Asset
Management Corporation. President:
GIAC Funds, Inc.
Leo R. Futia Director Director: The Guardian Life
Insurance Company of America.
Director: The Guardian Insurance &
Annuity Company, Inc.
Director/Trustee of various
Guardian-sponsored mutual funds.
Director/Trustee of various mutual
funds sponsored by Value Line,
Inc.**
Peter L. Hutchings Director Executive Vice President and Chief
Financial Officer: The Guardian
Life Insurance Company of America.
Director: The Guardian Insurance &
Annuity Company, Inc. Director:
Guardian Asset Management
Corporation.
Ryan W. Johnson Senior Vice President Vice President, Equity Sales:
and National Sales The Guardian Life Insurance
Director Company of America since 3/98;
Second Vice President, Equity
Sales prior thereto.
- ----------
* Principal business address:1 Rutland Court, Edinburgh EH#3 8EY, Scotland.
** Principal business address:711 Third Avenue, New York, NY 10017.
C-4
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Frank J. Jones Director Executive Vice President and Chief
Investment Officer: The Guardian
Life Insurance Company of America.
Director, Executive Vice President
and Chief Investment Officer: The
Guardian Insurance & Annuity
Company, Inc. Director: Guardian
Asset Management Corporation and
Guardian Baillie Gifford Limited.*
Officer of various
Guardian-sponsored mutual funds.
Joseph D. Sargent Director President, Chief Executive Officer
and Director: The Guardian Life
Insurance Company of America.
President, Chief Executive Officer
and Director: The Guardian
Insurance & Annuity Company, Inc.
and Park Avenue Life Insurance
Company. Director: Guardian Asset
Management Corporation and Park
Avenue Life Insurance Company.
Director: Guardian Baillie Gifford
Limited.* Chairman and Director of
various Guardian-sponsored mutual
funds.
- ----------
**Principal business address: 1 Rutland Court, Edinburgh EH3 8EY, Scotland.
C-5
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Frank L. Pepe Vice President & Vice President and Equity
Controller Controller: The Guardian Life
Insurance Company of America.
Vice President and Controller: The
Guardian Insurance & Annuity
Company, Inc. Officer of various
Guardian-sponsored mutual funds.
Richard T. Potter, Vice President and Vice President and Equity Counsel:
Jr. Counsel The Guardian Life Insurance
Company of America. Counsel:
The Guardian Insurance & Annuity
Company, Inc., Guardian Asset
Management Corporation and various
Guardian-sponsored mutual funds.
Donald P. Sullivan, Vice President Second Vice President: The
Jr. Guardian Life Insurance Company of
America. Vice President: The
Guardian Insurance & Annuity
Company, Inc.
Kevin S. Alter Second Director, Broker-Dealer
Vice President Operations: The Guardian Life
Insurance Company of America.
Ann T. Kearney Second Vice Second Vice President: Group
President Pensions: The Guardian Life
Insurance Company of America.
Second Vice President: The
Guardian Insurance & Annuity
Company, Inc.
Alexander M. Grant, Second Vice Second Vice President:
Jr. President Investments: The Guardian Life
Insurance Company of America since
1/97; Assistant Vice President
prior thereto. Officer of various
Guardian-sponsored mutual funds.
Peggy L. Coppola Second Vice President Assistant Vice President, Equity
Sales, The Guardian Life Insurance
Company of America. Second Vice
President, The Guardian Insurance
& Annuity Company, Inc.
Earl Harry Treasurer Treasurer: The Guardian Life
Insurance Company of America since
7/96, Assistant Treasurer prior
thereto. Treasurer, The Guardian
Insurance &Annuity Company, Inc.
C-6
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Joseph A. Caruso Vice Presient and Vice President and Secretary, The
Secretary Guardian Life Insurance Company of
America since 3/96; Second Vice
President and Secretary prior
thereto. Secretary: The Guardian
Insurance & Annuity Company, Inc.,
Guardian Asset Management
Corporation, various
Guardian-sponsored mutual funds.
Item 27. Principal Underwriters
(a) GISC is the principal underwriter and distributor of the eight
operational series funds comprising The Park Avenue Portfolio, namely: The
Guardian Park Avenue Fund, The Guardian Park Avenue Small Cap Fund, The Guardian
Cash Management Fund, The Guardian Investment Quality Bond Fund, The Guardian
Tax-Exempt Fund, The Guardian Baillie Gifford International Fund, The Baillie
Gifford Emerging Markets Fund and The Guardian Asset Allocation Fund. In
addition, GISC is the distributor of variable annuities and variable life
insurance policies offered by GIAC through GIAC's separate accounts, The
Guardian/Value Line Separate Account, The Guardian Separate Account A, The
Guardian Separate Account B, The Guardian Separate Account C, The Guardian
Separate Account D, The Guardian Separate Account E, The Guardian Separate
Account K, and The Guardian Separate Account M, which are all registered as unit
investment trusts under the Investment Company Act of 1940, as amended. These
latter separate accounts buy and sell shares of The Guardian Stock Fund, Inc.,
The Guardian Bond Fund, Inc., The Guardian Cash Fund, Inc. and GIAC Funds, Inc.
on behalf of GIAC's variable contractowners.
(b) The principal business address of the officers and directors of GISC
listed below is 201 Park Avenue South, New York, New York 10003.
Position(s) Position(s)
Name with Underwriter with Registrant
----- --------------- -------------
John M. Smith President & Director None
Arthur V. Ferrara Director Director
Leo R. Futia Director Director
Peter L. Hutchings Director None
Philip H. Dutter Director None
William C. Warren Director None
Joseph D. Sargent Director Director
Frank J. Jones Director President
Ryan W. Johnson Vice President and None
National Sales Director
Frank L. Pepe Vice President & Controller Vice President
Richard T. Potter, Jr. Vice President and Counsel Counsel
Donald P. Sullivan, Jr. Vice President None
Ann T. Kearney Second Vice President Controller
Alexander M. Grant, Jr. Second Vice President Treasurer
Kevin S. Alter Second Vice President None
Donald P. Sullivan, Jr. Second Vice President None
Peggy L. Coppola Second Vice President None
Earl Harry Treasurer None
Joseph A. Caruso Vice President and Secretary Secretary
(c) Not Applicable.
C-7
<PAGE>
Item 28. Location of Accounts and Records
Most of the Registrant's accounts, books and other documents required to
be maintained by Section 31(a) of the Investment Company Act of 1940 and the
rules promulgated thereunder are maintained by the custodian and the transfer
agent for the Registrant, the State Street Bank and Trust Company, 1776 Heritage
Drive, North Quincy, Massachusetts 02171. The Registrant's corporate records are
maintained by the Registrant at 201 Park Avenue South, New York, New York 10003.
Item 29. Management Services
None.
Item 30. Undertakings
Not applicable.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the Investment
Company Act of 1940, the Registrant, The Guardian Stock Fund, Inc., certifies
that has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and the State of New York on the 26th day of February, 1999.
THE GUARDIAN STOCK FUND, INC.
By /s/ FRANK J. JONES
------------------------------
Frank J. Jones
President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
/s/FRANK J. JONES President
- -------------------------------------
Frank J. Jones (Principal Executive Officer)
/s/ALEXANDER M. GRANT* Treasurer
- -------------------------------------
Alexander M. Grant (Principal Financial Officer)
/s/FRANK L. PEPE* Controller
- -------------------------------------
Frank L. Pepe (Principal Accounting Officer)
/s/JOHN C. ANGLE* Director
- -------------------------------------
John C. Angle
Director
- -------------------------------------
Frank J. Fabozzi
/s/ARTHUR V. FERRARA* Director
- -------------------------------------
Arthur V. Ferrara
/s/LEO R. FUTIA* Director
- -------------------------------------
Leo R. Futia
/s/WILLIAM W. HEWITT, JR.* Director
- -------------------------------------
William W. Hewitt, Jr.
/s/SIDNEY I. LIRTZMAN* Director
- -------------------------------------
Sidney I. Lirtzman
Director
- -------------------------------------
Joseph D. Sargent
Director
- -------------------------------------
Carl W. Schafer
/s/ROBERT G. SMITH* Director
- -------------------------------------
Robert G. Smith
*By /s/ JOHN M. SMITH Date: February 26, 1999
- -------------------------------------
John M. Smith
Pursuant to a Power of Attorney
