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DECEMBER 31, 1997 [LOGO] VALUE plus
Annual Report to Policyowners
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The Guardian Separate Account B
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The Guardian Stock Fund, Inc.
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The Guardian Bond Fund, Inc.
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The Guardian Cash Fund, Inc.
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Baillie Gifford International Fund
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Value Line Centurion Fund, Inc.
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Value Line Strategic Asset Management Trust
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Smith Barney Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A
Executive Offices
201 Park Avenue South
New York, New York 10003
Customer Service Office
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002-6210
1-800-221-3253
Distributed by: [LOGO]
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Guardian Investor Services Corporation (R)
[LOGO] The Guardian (R)
The Guardian Insurance &
Annuity Company, Inc.
A wholly owned subsidiary of
The Guardian Life Insurance Company of America
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Performance Summary
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[GRAPHIC OMITTED]
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Investment Option Total Return*
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The Guardian Stock Fund .............. 34.91%
Baillie Gifford International Fund ... 11.37%
Value Line Centurion Fund ............ 20.78%
Value Line Strategic Asset Mgt. Trust. 15.08%
The Guardian Bond Fund ............... 8.44%
The Guardian Cash Fund ............... 4.62%
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Smith Barney Fund Stripped (Zero) U.S. Treasury Securities, Series A, consisting
of one portfolio of "zero coupon" U.S. Treasury securities, provided the
following yield to maturity as of December 31, 1997:
2004 Trust (maturing 11/15/04): 4.93%
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* The chart above shows the total returns for each investment option under
ValuePlus based on the percentage change in unit values during the period
January 1, 1997 through December 31, 1997. In contrast to the returns
presented in the portfolio managers' interviews, changes in unit values
reflect the effects of mortality and expense risk charges as well as each
option's expenses to give you a better picture of an investment option's
performance under the policy. The total return performance figures stated
above do not reflect the policy loading or cost of insurance charges.
Deduction of these amounts (which differ among insureds based on age,
class and sex) would reduce the stated total returns. Past performance is
not a guarantee of future results. Investment returns and principal value
will vary with market conditions.
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Dear Contractowner:
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[Photo of Joseph D. Sargent, CLU President & CEO]
As the President and Chief Executive Officer of The Guardian Insurance &
Annuity Company, Inc. (GIAC) and its parent, The Guardian Life Insurance Company
of America, I am pleased to introduce this annual report on the performance
results of your contract's separate account and its underlying investment
options for the year ended December 31, 1997.
On Our Ratings
Once again, we are proud to report that as of December 31, 1997, the date
of this report, GIAC continues to enjoy exemplary ratings from four of the
nation's leading insurance company evaluators: Moody's, Standard & Poor's, A.M.
Best, and Duff & Phelps. GIAC's solid ratings reflect its ability to meet its
guarantee of your contract's Fixed-Rate Option and pre-retirement death benefit.
However, these ratings do not apply to Value Plus's underlying variable
investment options, which are subject to the risks of investing in securities.
We are very proud of our ratings as they reflect the strength of GIAC, which
stands behind the policy's guarantees.
Our Commitment to You
We at GIAC are proud of our tradition of commitment to you, our
contractowners. Following this letter is an economic report from Frank J. Jones,
Ph.D., Chief Investment Officer of GIAC. I believe that you will enjoy reading
his insightful economic overview presented to you as part of our ongoing
commitment to provide increasing levels of information and service.
Following Dr. Jones' economic report are interviews with the managers of
the underlying variable options. I invite you to read the interviews to learn
more about the strategies used to manage your investment options during 1997.
Thank you for continuing to invest for your future through GIAC.
Regards,
/s/ Joseph D. Sargent
Joseph D. Sargent, CLU
President and Chief Executive Officer
The Guardian Insurance & Annuity Company, Inc.
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VALUE PLUS
Table of Contents
Portfolio Schedule
Manager of
Interview Investments
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Economic Report 4
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The Guardian Stock Fund 8 30
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Objective: Long-term growth of capital
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Portfolio: At least 80% common stocks and
securities convertible into
common stocks
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Inception: April 13, 1983
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Net Assets at December 31, 1997: $3,222,186,845
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"We believe that soundly-based quantitative models provide a valuable tool. At
the same time, fast-breaking news and unusual investment issues require the
balanced judgment of a capable portfolio manager. We believe the surest path to
consistently above-average returns requires the synergistic results of combining
good quantitative tools with good manager judgment."
-- Charles E. Albers, C.F.A.
Portfolio Manager
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The Guardian Bond Fund 12 42
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Objective: Maximum current income without undue
risk of principal. Capital appreciation
is a secondary objective
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Portfolio: At least 80% investment-grade debt
securities and U.S. government securities
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Inception: May 1, 1983
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Net Assets at December 31, 1997: $355,411,911
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"The Fund's overall strategy was to maximize the total return of a diversified
fixed-income portfolio of investment grade corporate, mortgage-backed,
asset-backed, and U.S. Government securities. Specifically, we sought to
identify attractive asset allocation weightings based on relative valuation
analysis and then invest in securities that had superior risk/return profiles
while not engaging in interest rate or market timing strategies."
-- Thomas G. Sorell, C.F.A.
Co-Portfolio Manager
-- Howard W. Chin
Co-Portfolio Manager
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The Guardian Cash Fund 20 48
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Objective: As high a level of current income as is
consistent with preservation of capital
and liquidity
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Portfolio: Short-term money market
instruments
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Inception: November 1, 1981
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Net Assets at December 31, 1997: $368,122,449
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"The Guardian Cash Fund is a place for our investors to put their money while
they decide their preferred long-term investment vehicle, be it stocks or bonds.
Also, some of our investors prefer the relative stability of the money markets.
To best accommodate all our investors, we will continue to try to provide a
strong 7-day yield, while offering safety and liquidity"
-- Alexander M. Grant, Jr.
Portfolio Manager
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Portfolio Schedule
Manager of
Interview Investments
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Baillie Gifford International Fund 14 60
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Objective: Long-term capital appreciation
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Portfolio: At least 80% in a diversified portfolio
of common stocks of companies
domiciled outside of the United States
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Inception: February 8, 1991
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Net Assets at December 31, 1997: $534,711,470
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"Guardian Baillie Gifford Limited continued to employ its strategy of managing a
diversified portfolio of international equities, paying particular attention to
the fundamental attractions of individual companies in terms of their
profitability, strength of balance sheet, and earnings growth prospects."
-- R. Robin Menzies
Portfolio Manager
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Value Line Centurion Fund 16 74
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Objective: Long-term growth of capital
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Portfolio: At least 90% common stocks
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Inception: November 15, 1983
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Net Assets at December 31, 1997: $720,090,546
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"We believe that industry focus and bottoms-up stock selection from among the #1
and #2 ranked stocks in The Value Line Ranking System are critical, with an
emphasis on those areas which can produce well-above-trendline revenue and
profit growth. We expect that these sectors will continue to include:
technology, financials, consumer nondurables (especially health care), and
energy (particularly oil service and equipment)."
-- Value Line, Inc.
Investment Adviser
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Value Line Strategic Asset Management Trust 18 84
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"For stock selection, we rely primarily on the Value Line Timeliness Ranking
System, which favors stocks with strong earnings and price momentum. To reduce
risk, we maintain a diversified portfolio that doesn't stray too far from the
industry weightings of the S&P 500."
-- Value Line, Inc.
Investment Adviser
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The Guardian Separate Account B 22
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The Smith Barney Fund Stripped ("Zero") 98
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Economic Report:
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[Photo of Frank J. Jones, Ph.D. Chief Investment Officer]
1997 In The Economic/ Financial Hall of Fame
Recently a new member has been elected into the Baseball Hall of Fame, the
Heisman Trophy winner has been selected, and the Number 1 college football
team(s) in the country has (have) been picked. In the spirit of the times, and
given the end of the year, I thought it would be interesting to consider various
calendar years for inclusion in the U.S. economic/financial Hall of Fame.
To begin with my conclusion, I believe that 1997 should be included in the
U.S. economic/financial Hall of Fame. And perhaps a statue of 1997 should even
be positioned in the Hall's entrance, just as a statue of Babe Ruth appears in
the entrance of the Baseball Hall of Fame in Cooperstown. The year 1997 may be
the best U.S. economic/financial year ever.
Let me begin my case for 1997 in the Hall of Fame with some supporting
statistics. First, consider economic statistics:
o Strong economic growth: the real Gross Domestic Product growth for
the year was 3.8%, the highest since 1988;
o The unemployment rate decreased to 4.6% during November, the lowest
since October 1973;
o Capacity utilization increased to 83.4% at year end, the highest
since September 1995;
o Industrial production increased by 5% during 1997, the strongest
year since 1994;
o Labor productivity, specifically manufacturing productivity,
increased by 9.8% during the third quarter of 1997, the strongest
growth in a quarter since the second quarter of 1982;
o And, not surprisingly, consumer confidence is at a 28-year high.
These economic growth statistics are strong in isolation, but are even
stronger considering that the economy is ending its seventh year of expansion
(which started during March 1991), the second longest post- WWII expansion,
exceeded only by the 34 quarter expansion that began during 1960.
Given such strong growth seven years into an expansion, inflation would
have been expected to be a problem. Consider, however, the following:
o The Consumer Price Index (CPI) during 1997 increased by only 1.7%,
the lowest level since 1986 (1.1%), which was caused by declining
oil prices; core CPI (excluding food and energy) increased by 2.2%,
the lowest since 1965 (1.5%);
o The Producer Price Index (PPI) declined by 1.2% during 1997,
following a 2.8% increase in 1996; this decrease was the largest
decrease since a 3.3% decrease in 1986, due mainly to falling oil
prices. The core rate of PPI, which excludes food and energy, rose
by only 0.1% during 1997, the smallest annual gain on record;
o Gold prices have fallen below $280 as of January 1998, the lowest
since June 1979 -- recall that in January 1980, gold prices hit $850
an ounce. As a result, gold mutual funds were the worst performing
mutual funds during 1997;
o Despite the low unemployment, due mainly to strong productivity
increases, wages have increased to a level of moderate concern, but
not as much as might have been expected. Specifically, during 1997
hourly earnings increased by 3.7%, the highest year over year level
since 1989, and the unemployment cost index increased by 3.3%, the
highest since 1993.
With respect to monetary policy during 1997, there was only one Fed
action, a tightening from 5% to 5.25% on March 25, 1997. Although subsequent
potential Fed tightenings were widely discussed and, indeed, the Fed was on the
fence twice during the year, no such tightening occurred. And at the end of
1997, the markets believed that a Fed ease was more likely than a
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4
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tightening. The Fed, however, seems unlikely to increase or decrease rates soon,
and could remain on the sidelines all year.
With respect to fiscal policy, the federal budget deficit, which was
$290.4 billion during 1992, decreased to a deficit of only $22.6 billion during
1997, essentially a rounding error in a $1.6 trillion budget. This is the lowest
deficit since 1974, and represented only 0.3% of GDP, which was the lowest since
1970. Many analysts, however, assert, with considerable justification, that the
decline in the budget was mainly due to the strong economy, which led to high
individual and business income tax receipts, and the strong stock market, which
led to large capital gains tax receipts, rather than government policy. Many
analysts are forecasting a budget surplus for 1998, the first since 1969.
This remarkable combination of strong growth and low unemployment, on one
hand, and declining inflation, on the other hand, has led to the assertion that
"inflation is missing." To respond to this conundrum of the missing inflation, a
new paradigm has evolved. This paradigm's proponents state that, due mainly to
improvements in technology, productivity has increased significantly, but this
increase is not being captured in our current productivity measures. Thus, they
assert, potential GDP has now increased to 3% or more. They further assert that
inflation has not increased due to this increase in productivity and potential
real GDP growth.
Those espousing the traditional view, who would expect higher inflation,
given the current unemployment rate/capacity utilization/economic growth
environment, may cede that some fundamental changes may be occurring, but that
the major factors in explaining the current lack of inflation are temporary. The
temporary factors include the strong dollar, the reduction in the growth rate of
health care costs, declining computer prices and low energy and food costs.
As a result of stable Fed policy, low inflation, and the declining federal
budget deficit, the 30-year Treasury yield decreased to 5.69% on January 12,
1998, its lowest level since 30-year Treasuries have been auctioned beginning in
1977. And these low yields increased housing sales to eleven-year highs.
Overall, the U.S. economy of 1997 was not a bad economy! In fact, if
someone made us an offer today to "can" the 1997 economy and open the can again
at the end of 1998 and repeat it, I believe that we would quickly agree.
But to be in the Hall of Fame, in addition to having a good economy, the
stock and bond markets must also perform well. In a year of such ideal economic
conditions, the bond and stock markets would be expected to perform well. In
fact, both had strong years during 1997. Specifically, after reaching a high of
7.11% during April 1997, the 30-year Treasury bond yield declined to 5.92% by
the end of 1997. The Lehman Aggregate Bond Index returned 9.65% during 1997.(1)
Perhaps even more surprising, the stock market followed very strong
performances during 1995 and 1996 with another strong performance during 1997,
as summarized in the table below. This was the first time in history that the
DJIA has returned over 20% three years in a row.(2)
DJIA S&P 500(3)
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1995 24.91% 37.38%
1996 28.90% 22.83%
1997 36.89% 33.28%
10-year Average 19.23% 17.92%
My case for inducting 1997 into the economic/financial Hall of Fame and
perhaps even putting a statue in the hall entrance rests. Long live 1997.
But What Are the Prospects For 1998?
Economic and financial performance is often driven by unexpected economic
shocks. And despite the strong performance in the economy and the financial
markets during 1997, there was an unexpected shock, commonly called the "Asian
flu." The Asian flu began with the devaluation of the Thai baht on July 2, 1997
and continued with significant pressure on the
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(1) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity.
(2) The Dow Jones Industrial Average (DJIA) is an unmanaged average of 30
industrial stocks listed on the New York Stock Exchange that is generally
considered to be representative of U.S. stock market performance.
(3) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity.
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5
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Hong Kong markets, which prompted the October 25th one-day decline in the DJIA
by 554 points or 7.2%. In addition to spreading from Thailand to Malaysia,
Indonesia and the Philippines, the flu spread immediately to Korea and continues
to provide major concerns for Hong Kong and Japan. Concerns for the economies in
not only non-Japan Asia, but also their impacts on Japan, Europe and the U.S.,
appear to be diverging rather than converging.
The unexpected event of 1998 could be a continuation of the Asian flu. The
IMF "flu shots" might not be enough to cure the patients. The effect of the
Asian flu on the U.S. stock market is indicated by the fact that the DJIA
reached its 1997 high of 8259.31 on August 6 and closed the year at 7908.25,
4.3% below this record level.
The moderating effects of the Asian flu on the U.S. economy, however,
while causing significant problems, may have obviated another problem. Had the
Asian flu not occurred, the Fed would have been faced with a strong economy and
growing wage rates and, despite the absence of actual inflation, may well have
made one or more preemptive tightenings during the second half of 1997. Even one
tightening may have had a significant effect on the U.S. stock and bond markets
through expectations of subsequent tightenings. The onset of the Asian flu
probably averted a Fed tightening for two reasons. First, the common view was
that the Asian situation would reduce real GDP in the U.S. by 0.5% or more, a
decline in economic growth which has been sufficient for the Fed to avoid
tightening. Second, the Fed was handcuffed from tightening because of the effect
it would have had on the world markets, which may have been much more severe
than its minimal effect on the U.S. economy.
What about 1998? First, do not expect another 1997 in terms of stock
market performance. The major uncertainty for 1998 continues to be the effect of
the Asian situation on U.S. economic growth and U.S. corporate profits. While
the Asian situation will certainly mitigate U.S. inflation, it will also
certainly reduce exports by the U.S. to Asia, not only the Flying Tigers, but
also Korea and very importantly Japan, and also reduce the pricing power of U.S.
corporations which export to these countries or compete with imports from those
countries. While the operating earnings growth of S&P 500 companies was 10.5%
during 1997, it is likely to be less than that, perhaps 5% - 8%, during 1998.
But the stock market appears more attractive now than it did on August 6 when
the Dow was at 8,259.31. Other potential threats, however, include slow European
growth and the effects of the European Monetary Unit, the maturation of the U.S.
economic expansion and trade wars induced by developing protectionism and
isolationism.
Our expectations for 1998 are modest. However, modest expectations are not
negative expectations. We do not expect a recession during 1998 and in general
our expectations are ambivalent regarding whether the next Fed movement will be
an easing due to the inflationary effects of Asia or a tightening due to
increasing employment growth and wage increases. The balance is between a strong
domestic economy and an economic drag from Asia. The year 1998 could be a solid
performer, even if not a "Ruthian" look-alike or even a Hall of Fame candidate,
for both the economy and the markets.
Regards,
/s/ Frank J. Jones
Frank J. Jones, Ph.D.
Chief Investment Officer
The Guardian Insurance & Annuity Company, Inc.
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7
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The Guardian Stock Fund
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[Photo of Charles E. Albers, C.F.A. Portfolio Manager]
Q. How did the Fund perform in 1997?
A. The year 1997 was terrific for most U.S. equity investors. Despite
challenging crosscurrents within the market, the Fund performed very well, both
absolutely and relative to our mutual fund peer group.
During 1997, the Fund provided a return of 35.58% to its shareholders.(1)
That result bettered the 33.28% total return of the benchmark S&P 500 Composite
Index.(2) Also, the Fund's 1997 return substantially exceeded the return of the
average fund in our peer group, Lipper's U.S. Growth Funds offered through
variable insurance products, which was 25.51% over the same period.(3) For the
year, the Fund ranked in the top 3.9% of the Lipper peer group.
Of course, from a shareholder's viewpoint, what matters most is the
long-term investment record. Here, too, the Fund looks good. For the 5-year
period ended December 31, 1997, the Fund ranked in the top 1.8% of the Lipper
peer group; for the period of the last 10 years, it ranked in the top 2.6% of
the peer group.(4) (See details in the following table.) We think these
statistics are pretty impressive!
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Comparative Average Ranking Information
Annual Total Returns for Periods Ended
for Periods December 31, 1997
ended December 31, 1997 ---------------------------
----------------------------------- Guardian Guardian
Guardian Lipper U.S. Underlying Stock Fund Stock Fund
Stock Fund Growth Fund Average Lipper Rank Percent Rank
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1 Year 35.58% 25.51% 5 (out of 127) 3.9%
5 Year 22.37% 16.88% 1 (out of 55) 1.8%
10 Year 19.37% 15.85% 1 (out of 38) 2.6%
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Q. What factors affected the Fund's performance in 1997?
A. Looking back, three factors were critical.
First, we did a comparatively good job of addressing the important
cap-size issue. In 1997, for the third consecutive year, large cap stocks
performed better than small caps, as shown in this table:
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Total Returns (%)
-----------------------------
1995 1996 1997
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Large-Caps
(S&P 500 Composite Index) + 37.4% + 22.8% + 33.3%
Small-Caps
(Russell 2000 Index)(5) + 28.4% + 16.5% + 22.2%
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Throughout this period, the Fund has correctly maintained a weighted
average cap size which was larger than our peer group of mutual funds, and this
has benefited the Fund's relative performance. We tilted the GPAF portfolio
slightly more towards small caps in the second quarter, which proved timely as
small caps outperformed large caps during the second and third quarters.
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(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Composite Index is an unmanaged index of 500 large-cap U.S.
stocks that is generally considered to be representative of U.S. stock
market activity. The S&P 500 Index is not available for direct investment
and its returns do not reflect expenses, which are deducted from the
Fund's return.
(3) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service and its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
(4) Lipper rankings were reported by Lipper Variable Insurance Products
Performance Analysis Service, in its underlying Fund report dated December
31, 1997.
(5) The Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market.
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Next, during the third quarter, we perceived the developing Asian
contagion a bit earlier than most U.S. money managers. In the fall of 1997, we
reacted by paring back positions in many companies with significant Asian
exposure, while re-deploying the proceeds into other companies with more
domestically-oriented businesses. That move undoubtedly benefited our results in
the fourth quarter, when the impact of the Asian financial collapse became
widely discounted in U.S. market prices.
And, finally, another factor which contributed to our relatively good
investment performance was our multi-factor quantitative stock scoring system.
This system has generally provided us solid guidance over the years in stock
selection, and this favorable record continued in 1997.
Q. What strategies do you use to manage the Fund?
A. There was no change in our strategic approach during this period. We believe
that soundly-based quantitative models provide a valuable tool. At the same
time, fast-breaking news and unusual investment issues require the balanced
judgment of a capable portfolio manager. We believe the surest path to
consistently above-average returns requires the synergistic results of combining
good quantitative tools with good manager judgment.
Our quantitative models look at the portfolio two different ways:
"top-down" and "bottom-up." The "top-down" approach involves a cluster of
different predictive models that we use to identify which overall portfolio
style has the best performance prospects. The "bottom-up" approach uses our
multi-factor stock scoring system to identify specific attractive stocks within
our 2,000-stock research universe. We believe that both the "top-down" and
"bottom-up" perspectives are important, and the best results can be achieved by
combining both within one portfolio.
Q. How has the portfolio been positioned in different economic sectors?
A. The portfolio's principal sector overweight during 1997 has been Financials,
which represented 30.7% of the portfolio at year-end, compared with 17.1% in the
S&P 500 Composite Index. This sector was a strong outperformer during the year,
benefiting from a decline in interest rates, the best asset quality in a
generation, industry consolidation and more efficient use of capital.
The portfolio at year-end also had major stakes in the Energy (17.3%) and
Capital Goods/Technology (13.4%) sectors. (See following pie chart for the
complete portfolio breakdown.) Importantly, the major sector with the worst
relative market performance in 1997 was Basic Industries, and the Fund was
underweighted there compared with the benchmark.
Q. Have you any comments on the outlook for 1998?
A. We are certainly not market timers. We are cautiously optimistic about market
prospects for 1998. As usual, we counsel investors to take a long-term view of
the equity investment process.
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The Guardian Stock Fund Profile
as of December 31, 1997
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Sector Weightings of Common Stocks
Held by the Fund on December 31, 1997
[The following was represented as a pie chart in the printed material.]
Consumer Cyclicals -- 5.7%
Credit Cyclicals -- 0.5%
Consumer Staples -- 9.5%
Financial -- 30.7%
Basic Industry -- 4.9%
Capital Goods -- 7.3%
Conglomerates -- 1.6%
Consumer Services -- 2.5%
Transportation -- 2.8%
Utilities -- 3.8%
Energy -- 17.3%
Capital Goods/Technology -- 13.4%
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The Guardian Stock Fund
Top 10 Holdings as of 12/31/97
1. General Electric Co. 3.50%
2. Exxon Corp. 2.92%
3. Int'l Business Machines 2.12%
4. Citicorp 1.64%
5. BankAmerica Corp. 1.63%
6. Microsoft Corp. 1.62%
7. E.I. Dupont deNemours, Inc. 1.49%
8. Chase Manhattan Corp. 1.48%
9. Storage Technology Corp. 1.42%
10. Travelers Group, Inc. 1.41%
For a complete list of portfolio holdings, please see the Schedule of
Investments.
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Average Annual Returns for Periods Ended 12/31/97(1)
Life of Fund
1 Year 5 Years 10 Years (since 4/13/83)
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The Guardian Stock Fund 35.58% 22.37% 19.37% 17.87%
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S&P 500 Index(2) 33.28% 20.17% 17.92% 16.80%
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(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect expenses, which have been deducted from the Fund's
return.
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10
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Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line graph in the printed material]
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GSF S&P CPI
--- --- ---
4/13/83 10000 10000 10000
10891 10844 10333
83 11028 10867 10336
10684 10328 10571
84 12218 11529 10754
14360 13501 10958
85 16130 15169 11162
20326 18307 11152
86 18889 17985 11295
22920 22898 11580
87 19241 18903 11794
23115 21283 12029
88 23160 21989 12314
26541 25595 12650
89 28613 28887 12885
28334 29749 13252
90 25224 27959 13680
29788 31938 13874
91 34293 36439 14088
34598 36196 14302
92 41178 39207 14516
46490 41100 14720
93 49396 43130 14913
47471 41667 15097
94 48767 43679 15311
58848 52468 15545
95 65667 59992 15668
72792 66015 15973
96 83330 73770 16176
110475 91429 16627
Dec 31, 97 112983 94035 16827
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A hypothetical $10,000 investment made at the inception of The Guardian Stock
Fund on April 13, 1983 would have grown to $112,983 on December 31, 1997. We
compare our performance to that of the S&P 500 Index, which is an unmanaged
index that is generally considered the performance benchmark of the U.S. stock
market. While you cannot invest directly in the S&P 500 Index, a similar
hypothetical investment would now be worth $94,035. The Cost of Living, as
measured by the Consumer Price Index, which is generally representative of the
level of U.S. inflation, is also provided to lend a more complete understanding
of the investment's real worth.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund
- ---------------------------------------
[Photo of Thomas G. Sorell, C.F.A. Co-Portfolio Manager]
[Photo of Howard W. Chin, Co-Portfolio Manager]
Q. How did the Fund perform during 1997?
A. The Fund had a total return of 8.99%(1) for the year ended December 31, 1997,
outperforming the average fund in our Lipper Intermediate Investment Grade peer
group,(2) which returned 8.46% for the year. This group consists of other
variable annuity subaccounts that invest primarily in investment grade debt with
average maturities of 5-10 years. Another commonly used benchmark, the Lehman
Aggregate Bond Index, which is not available for direct investment and does not
reflect deductions for fund expenses, returned 9.65% in 1997.(3)
Q. What factors affected the Fund's performance?
A. During the first quarter of 1997, the market feared that the Federal Reserve
would tighten monetary policy if the economy did not slow sufficiently to reduce
the risk of future increases in inflation.
As the prospect for Fed tightening became more apparent, interest rates
rose and bonds performed poorly in the first quarter. The Federal Reserve did in
fact decide to increase the Fed Funds rate by 25 basis points on March 25th.
Ironically, March 1997 represented the peak in interest rates for the
year, and the surprise was that even with a strong economy, there was little if
any evidence of incipient inflation. The Fed, by moving only once and exhibiting
extreme patience while the economy continued to advance, appeared to change its
modus operandi from taking preemptive policy action to a more complacent
perspective that considered the possibility of some new inflation paradigm.
As the market observed continued Fed inaction, interest rates began to
decline during the second and third quarters, and dropped decidedly further
during the October equity "correction" and the subsequent financial crisis in
Asia. As the year closed, 10 and 30 year Treasury rates had fallen by almost 120
basis points from the March 1997 high. Consequently, bonds performed very well
in 1997, returning 9.65%, as measured by the Lehman Aggregate Index.
As reported in our semiannual report to shareholders, the Fund
outperformed our benchmark, the Lehman Aggregate Bond Index, during the first
half of 1997, principally due to the Fund's relative overweight in corporate,
mortgage-backed and asset-backed securities (spread sectors).
During the second quarter, as yield spreads narrowed and valuations became
expensive in many sectors of the fixed-income markets, the Fund became more
defensive and started reducing its exposure to spread sectors early in the third
quarter. However, we were still over weighted in spread products in October when
the U.S. equity market declined and the Asian financial crisis adversely
affected the performance of corporate bonds. In addition, yield spreads for
mortgage-backed and asset-backed products widened in
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service and its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
(3) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity.
(4) Duration-adjusted, expressed in percentage terms, represents the excess
return over the weighted average return of a group of similar duration
Treasuries.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
sympathy with corporate bonds, and although the portfolio's reallocation into
Treasuries was already underway, the Fund's remaining holdings in these three
areas negatively affected the Fund's performance during this period.
In October, corporate bonds had their worst performance in more than a
decade, underperforming Treasuries by 80 basis points on a duration-adjusted
basis.(4) Although the Fund returned 90 basis points in October, we
underperformed relative to our benchmark due to our still-significant exposure
to corporate and asset-backed securities. Even after October, we remained
concerned about widening corporate spreads and, with the decline in interest
rates, became increasingly concerned that mortgage prepayments would adversely
impact mortgage-backed returns. We continued to reduce our corporate and
mortgage-backed holdings in the fourth quarter, which served us well through the
balance of the year.
On an absolute basis, corporate bonds as measured by the Lehman Aggregate
Index returned 10.23% for 1997, largely due to the rally in the Treasury market.
However, on a duration-adjusted basis, the investment grade corporate bond
sector underperformed Treasuries by 29 basis points. The Fund did benefit from
its holdings in higher yielding triple-B media/cable and tobacco securities that
performed exceptionally well during 1997, providing 95 and 158 basis points,
respectively, in excess return over comparable Treasuries. Overall however, the
benefit of owning corporate bonds during the first half of 1997 was eliminated
in the second half, and adversely affected our relative performance.
In contrast, the mortgage-backed sector as measured by the Lehman
Aggregate Index had a return of 9.49% for 1997, less on a nominal basis than
corporates, but significantly better when measured on a duration-adjusted basis,
outperforming Treasuries by 121 basis points. Much of the outperformance was due
to the strong dollar roll market and the market's expectation of low prepayment
risk and interest rate volatility. The mortgage-backed sector earned a 7.41%
nominal return in 1997, but as a result of widening corporate spreads and new
issue supply, underperformed Treasuries on a duration-adjusted basis by 12 basis
points.
Therefore, for the entire year our mortgage and Treasury investments
increased our overall performance while our corporate and asset-backed
positions, on average, reduced our returns relative to similar duration Treasury
securities.
Q. What strategies did you use to manage the Fund?
A. The Fund's overall strategy was to maximize the total return of a diversified
fixed-income portfolio of investment grade corporate, mortgage-backed,
asset-backed, and U.S. Government securities. Specifically, we sought to
identify attractive asset allocation weightings based on relative valuation
analysis and then invest in securities that had superior risk/return profiles
while not engaging in interest rate or market timing strategies. At year-end,
the Fund remains cautious on the relative value of mortgage-backed and corporate
securities, and will maintain an underweight relative to our benchmark until
these sectors become more attractive on a risk/return basis. At that time, we
would expect to increase our allocation to these asset classes and reduce our
holdings in U.S. Government securities.
- --------------------------------------------------------------------------------
The Guardian Bond Fund Profile
as of December 31, 1997 (1)
- ---------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
FOR PERIODS ENDED 12/31/97 (1)
- --------------------------------------------------------------------------------
1 Year....................................... 8.99%
5 Years...................................... 6.94%
10 Years..................................... 8.93%
Since Inception (5/1/83)..................... 9.36%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line graph in the printed material]
- --------------------------------------------------------------------------------
GBF Lehman
--- ------
4/29/83 10000 10000
83 9925 10204
84 11219 11750
85 13728 14347
86 15766 16537
87 15816 16992
88 17351 18332
89 19758 20996
90 21254 22877
91 24695 26538
92 26597 28502
93 29218 31281
94 28209 30369
95 33170 35979
96 34124 37286
12/31/97 37191 40885
- --------------------------------------------------------------------------------
To give you a comparison, the chart above shows the performance of a $10,000
investment made in The Guardian Bond Fund and in the Lehman Aggreate Bond Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ---------------------------------------
[Photo of R. Robin Menzies, Portfolio Manager]
Q. How did the Fund perform during 1997?
A. The fund performed well in 1997, with a total return of 11.93%(1) compared to
an increase of 2.1% in the Morgan Stanley Capital International (MSCI) Europe,
Australia, and Far East (EAFE) Index.(2) There were marked divergences in the
performance of individual international markets during the year, with European
markets generally strong, and Asian ones weak.
Q. What factors affected the Fund's performance during the year?
A. The Fund's good performance relative to the MSCI EAFE Index was due in part
to the Fund's underweighted investment in Japan as compared to the Index. The
Fund generally had some 10% less invested in Japan than did the Index over the
course of the year. At the end of the year, the Index weighting in Japan was
25.2%, compared to the Fund's 14.8%. In addition, the Japanese stocks held by
the Fund, in aggregate, performed significantly better that the Japanese
component of MSCI EAFE, as the Fund's exposure to Japanese banks, one of the
weakest areas of the Tokyo market, was negligible.
To put events in Asia into a European context, the first point to note is
that the region, including Japan, only accounts for around 10% of Europe's
exports. This leads us to believe that the direct impact of the Asian crisis on
European economic growth will be modest in the short term. Growth in the German
economy has exceeded expectations in 1997 -- a year ago we thought that it was
optimistic to forecast growth of 2% for 1997, but the consensus is now up to
2.5% -- but continued strength in net exports has been entirely responsible for
this improvement. Growth in the French economy remains almost as polarised, with
Gross Domestic Product growth heavily dependent upon net trade.
Q. What strategies did you use to manage the Fund and what are your expectations
for the future?
A. Guardian Baillie Gifford Limited continued to employ its strategy of managing
a diversified portfolio of international equities, paying particular attention
to the fundamental attractions of individual companies in terms of their
profitability, strength of balance sheet, and earnings growth prospects.
Overall, the Japanese economy seems unlikely to grow this year, and may
only rise 1% or so next year. With the risk of further collapses in the
financial sector still present, a low Japanese weighting concentrated on
successful exporters still seems appropriate for the Fund. With so much
uncertainty in the general background, it is difficult to be too categorical
about the prospects for 1998. We expect that the interest rate background will
continue to be favorable, but that there will be many nasty surprises on the
profits front, as the consequences of the Asian upheavals show themselves in
various unexpected places. We think it will be necessary to be flexible as to
policy and alert to problems developing in individual companies.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The MSCI EAFE Index is an unmanaged index that is generally considered to
be representative of international stock market activity. The MSCI EAFE
Index is not available for direct investment and its returns do not
reflect the fees and expenses that have been deducted from the Fund's
return.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund Profile
as of December 31, 1997(1)
- ------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
FOR PERIODS ENDED 12/31/97 (1)
- --------------------------------------------------------------------------------
1 Year......................................... 11.93%
3 Years........................................ 12.83%
5 Years........................................ 14.24%
Since Inception (2/8/91)....................... 12.28%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment(1)
[The following table was depicted as a line graph in the printed material]
- --------------------------------------------------------------------------------
Index Fund
----- ----
2/8/91 10000 10000
91 10226 9383
92 9014 8548
93 11984 11458
94 12950 11557
95 14446 12855
96 15365 14836
12/31/97 15681 16606
- --------------------------------------------------------------------------------
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Baillie Gifford International Fund and the MSCI/EFAE Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition by Geographical Location
[The following is represented by a pie chart in the printed material.]
U.K. -- 23.7%
Cash -- 1.8%
Latin America -- 4.5%
Asia -- 6.1%
Europe -- 49.1%
Japan -- 14.8%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Holdings
Company Nature of Company Country
1. Novartis AG Pharmaceuticals Switzerland
2. Glaxo Wellcome Pharmaceuticals UK
3. ABN Amro Hldgs. NV Banking Netherlands
4. Zurich Insurance Insurance Switzerland
5. Banco Santander S.A. Banking Spain
6. Bayerische Vbank Banking Germany
7. Mannesmann AG Telecommunications Germany
8. BMW Car Manufacturer Germany
9. Adidas AG Sports Apparel Germany
10. Abbey National Banking UK
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund
- ---------------------------------------
Q. For the 12 months ended December 31, 1997, how did the Value Line Centurion
Fund perform?
A. For the 12 months ended December 31, 1997, the Centurion Fund produced a
total return of 21.4%,(1) compared with total returns of 33.4% for the S&P
500(2) and 24.9% for the Dow Jones Industrial Average.(3)
The Centurion Fund enjoyed a competitive ten-plus months in 1997, besting
the market by 100 basis points at 34.0% in mid-October and staying even with the
S&P 500 at about 29.0% during early November. But the extraordinary confluence
of global events in Southeast Asia, Latin America, and the Middle East took a
decidedly negative toll on the Centurion Fund's equity investments over the last
eight weeks of the year, resulting in disappointing full-year performance.
Q. What factors affected Fund performance?
A. The Centurion Fund's strong performance during most of the year was largely
attributable to profitable investments in technology, financial services, energy
(with an emphasis on oil service and equipment), and consumer nondurables (with
a health care focus). But the political, economic and currency woes in Southeast
Asia, combined with the banking crisis in Latin America and the international
diplomatic stalemate among the United Nations, Iraq and the United States,
simultaneously impacted the very sectors of the market and the individual stocks
which screened as the most attractive to us in the Value Line Ranking System.
Q. What factors influenced your strategies for the Fund in 1997? What are your
expectations for 1998?
A. We had expected over the course of 1997 that the strong U.S. dollar (which
makes our exports more expensive) and the unwinding of inventory stockpiles
would combine to slow Gross Domestic Product (GDP) as we progressed through the
year and into 1998. Moreover, as the Southeast Asian crisis began to unfold in
earnest during October, we further expected that weakened Asian economies would
additionally curtail our GDP growth. We are now expecting GDP growth of about
2.0-2.5% during 1998, down from what we had believed to be an unsustainably high
level during 1997.
We continue to believe that inflationary pressures will remain benign,
coming off 10-year lows in both wholesale and retail inflation during 1997, with
core levels expected to approximate perhaps 2.0% or less in 1998.
We do not expect the economy to slip into recession, nor do we have a
deflationary economic forecast, primarily because of our belief that Federal
Reserve Chairman Alan Greenspan will remain ever vigilant regarding changes in
global economic conditions. Chairman Greenspan takes his responsibility as the
world's most important global banker very seriously, and we do not believe that
the Fed wishes to potentially exacerbate a global economic crisis by raising
interest rates. As a result, we do not expect any change in Chairman Greenspan's
neutral monetary policy stance for at least the next few Federal Open Market
Committee (FOMC) meetings, unless global conditions should weaken materially. In
such a case, we expect that the Fed's bias would shift toward a modest easing.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund.
(3) The Dow Jones Industrial Average (DJIA) is an unmanaged average of 30
industrial stocks listed on the New York Stock Exchange that, like the S&P
500 Index, is generally considered to be representative of U.S. stock
market performance. The DJIA is not available for direct investment and
its returns do not reflect the fees and expenses that have been deducted
from the Fund.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
In a dramatic flight to quality, investors have shifted into 30-year
Treasuries as a safe haven, and yields have plunged from a peak of 7.17% in
April 1997 to a recent record low of about 5.70%. While long rates could
temporarily back up to about 6.00% near-term due to profit taking, we now
believe that the economic problems in Asia and their impact on the U.S. could
drive yields down to the 5.25-5.50% level at their 1998 lows. Commensurate with
this diminution in economic growth, we expect corporate profit growth of about
7-8% in 1998, about half the level achieved last year.
In the wake of the Asian crisis, the Dow Jones Industrial Average (DJIA)
plunged 16% from record levels just below 8,300 in August to just under 7,000 in
October. The market has been stuck in a volatile trading mode ever since, as
investors, who are cautiously waiting for more definitive news regarding U.S.
corporate earnings, are contemplating whether or not to scale this global wall
of worry.
Given our muted forecast for corporate earnings growth for the broad
market in 1998, we believe that industry focus and bottom-up stock selection
from among the #1 and #2 ranked stocks in The Value Line Ranking System are
critical, with an emphasis on those areas that can produce well-above-trendline
revenue and profit growth.
- --------------------------------------------------------------------------------
Value Line Centurion Fund Profile
as of December 31, 1997
- ---------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition by Economic Sector
Consumer Goods
(Non-Durables) -- 20.05%
Capital Goods -- 3.67%
Energy -- 13.26%
Consumer Growth -- 3.02%
Financial -- 25.36%
Technology -- 25.20%
Cash -- 9.44%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
FOR PERIODS ENDED 12/31/97(1)
- --------------------------------------------------------------------------------
1 Year....................................... 21.39%
5 Years...................................... 16.33%
10 Years..................................... 17.76%
Since Inception (11/15/83) .................. 14.13%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Holdings
1. Gillette Company
2. Citicorp
3. Mellon Bank Corp.
4. Transocean Offshore Inc.
5. Cisco Systems Inc.
6. General Electric Company
7. American International Group Inc.
8. Sun America Inc.
9. Procter & Gamble Company
10. Medtronic Inc.
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment(1)
[The following table was depicted as a line graph in the printed material]
- --------------------------------------------------------------------------------
Fund S&P
---- ---
11/15/83 10000 10000
83 9180 10038
84 8420 10650
85 11108 14012
86 12982 16613
87 12611 17461
88 13568 20312
89 17841 26684
90 18833 25827
91 28662 33660
92 30361 36217
93 33156 39841
94 32422 40347
95 45416 55417
96 53291 68042
12/31/97 64689 92025
- --------------------------------------------------------------------------------
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Value Line Centurion Fund and in the S&P 500 Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
[LOGO]
Q. How did the SAM Trust perform in 1997?
A. The Trust earned a total return of 15.66% in 1997.(1) This compared with a
total return of 33.36% for the unmanaged Standard & Poor's 500 Index(2) and a
total return of 9.76% for the unmanaged Lehman Government/Corporate Bond
Index.(3)
Since inception just over ten years ago, the Trust's long-term
performance has stayed within shouting distance of the S&P 500, with an
annualized total return of 14.37% versus the S&P's 14.68%. That's a feat to be
pleased with, considering that SAM's holdings of bonds and cash have translated
into significantly reduced risk exposure by comparison with an all-stock
portfolio. Over the same period, the Lehman Government/Corporate Bond Index
returned 9.52% annually.
Q. What factors affected performance of the Trust during the year?
A. SAM's performance was limited in 1997 by its underweighting in stocks, which
made up only 40%-50% of total assets during the year. SAM was correspondingly
overweighted in cash, which generated low returns relative to stocks and bonds
in the period. The Trust held roughly an average weighting in bonds at around
30% of total assets, in a year of above-average returns for bonds.
Looking at just the stock portion of the portfolio, performance lagged a
bit behind the S&P 500. That can be attributed to the Trust's holdings of mid-
and small-capitalization equities, which made up about 40% of total
stockholdings. Indices of mid- and small-cap stocks in 1997 lagged the S&P 500,
which is an index that represents the large-cap stocks.
Q. How does the Trust determine asset allocation?
A. SAM uses Value Line's proprietary stock and bond market models to determine
the suggested optimal asset allocation at any given time. The 1995-97 rise in
stock prices, combined with relatively flat interest rates, were the main
factors that led the stock market model to underweight stocks last year. Near
the end of 1997, however, the model returned to the Fund's neutral position of
55% in stocks due to a drop in long-term interest rates, a rise in free reserves
in the banking system, and a pause in the stock market's steep climb.
Q. What strategies were used in stock and bond selection?
A. For stock selection, we rely primarily on the Value Line Timeliness Ranking
System, which favors stocks with strong earnings and price momentum. To reduce
risk, we maintain a diversified portfolio that doesn't stray too far from the
industry weightings of the S&P 500; this can mean investment in some stocks
ranked only neutral by our System. For bond selection, we stay with high-quality
issues. In recent years, we have invested in U.S. Treasuries only. Late in 1997,
however, we swapped some Treasuries into bonds issued by U.S. agencies as yield
spreads became more attractive.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies which provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund's return.
(3) The Lehman Government/Corporate Bond Index is an unmanaged index that is
generally considered to be representative of U.S. government and corporate
bond market activity. The Lehman Government/Corporate Bond Index is not
available for direct investment and the returns do not reflect the fees
and expenses that have been deducted from the Fund.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
Profile as of December 31, 1997
- -------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Stock Holdings
1. Coca-Cola Enterprises Inc.
2. Safeway Inc.
3. Omnicom Group Inc.
4. Tyco International Ltd.
5. Symbol Technologies
6. U.S. Bancorp
7. Conseco Inc.
8. General Electric Co.
9. Compuware Corp.
10. Pfizer Inc.
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
FOR PERIODS ENDED 12/31/97(1)
- --------------------------------------------------------------------------------
1 Year....................................... 15.66%
5 Years...................................... 12.88%
10 Years..................................... 15.38%
Since Inception (10/1/87).................... 14.37%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment(1)
[The following table was depicted as a line graph in the printed material]
- --------------------------------------------------------------------------------
Date SAM Trust L G/C Index S&P 500
---- --------- ----------- -------
10/1/87 10000 10000 10000
87 9476 10583 7745
88 10453 11385 9010
89 13124 13006 11836
90 13104 14083 11456
91 18784 16355 14931
92 21611 17594 16065
93 24174 19535 17673
94 22994 18849 17897
95 29556 22476 24582
96 34246 23128 30182
12/31/97 39608 25388 39844
- --------------------------------------------------------------------------------
To give you a comparison, the chart above shows the performance of a $10,000
investment made in the Value Line SAM Trust, the S&P 500 Index and in the Lehman
Government/Corporate Bond Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition by Asset Class
[The following is represented by two pie charts in the printed material.]
December 31, 1996 December 31, 1997
Cash 22.2% Cash 15.7%
Stocks 48.0% Stocks 56.9%
Bonds 29.8% Bonds 27.4%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund
- ----------------------
[PHOTO OMITTED]
Alexander M. Grant, Jr.,
Portfolio Manager
Q. How did the Guardian Cash Fund perform during 1997?
A. As of December 30, 1997, the effective 7-day annualized yield for The
Guardian Cash Fund was 5.38%.(1) The Fund produced a total return of 5.14% in
1997.2 In contrast, the effective 7-day annualized yield of the Fund's peer
group of Tier One money market funds, as measured by IBC Financial Data, was
5.20% and the average total return for 1997 for such funds was 5.04%. IBC
Financial Data is a research firm that tracks money market funds.
Q. What factors affected the Fund's performance?
A. Money market funds are directly affected by the actions of the Federal
Reserve Board. On March 25, the Federal Reserve raised the Fed Funds target rate
from 5.25% to 5.50%. This move followed several months of strong economic data
particularly with respect to housing data, consumer consumption and payroll
data. The Discount Rate was left unchanged at 5.00%. The Fed Funds target rate
is the rate at which banks can borrow from each other overnight. While the
Federal Reserve Board does not set this rate, it can establish a target rate
and, through open market operations, the Fed can move member banks in the
direction of that target rate. The Discount Rate is the rate at which banks can
borrow directly from the Federal Reserve.
Uncertainty with the direction of the stock market contributed to large
daily inflows and outflows of funds in the Cash Fund during late 1997. As the
stock market rallied, our investors transferred cash to equity funds. During
those times when the stock market stalled, we saw cash inflows. Another factor
affecting performance was the portfolio's average maturity -- 24 days as of
December 30, 1997. The average Tier One money market fund as measured by IBC
Financial Data had an average maturity of 60 days.
Q. What was your investment strategy during the year?
A. The Guardian Cash Fund is a place for our investors to put their money while
they decide their preferred long-term investment vehicle, be it stocks or bonds.
Also, some of our investors prefer the relative stability of the money markets.
To best accommodate all our investors, we will continue to try to provide a
strong 7-day yield, while offering safety and liquidity. Our investment strategy
was to create a diversified portfolio of money market instruments that presents
minimal credit risks according to our criteria. As always, we only purchased for
the Fund's Portfolio, securities from issuers that had received ratings in the
two highest credit quality categories established by nationally recognized
statistical ratings organizations like Moody's Investors Service Inc. and
Standard & Poor's Corporation. At year end, most of the portfolio (95.3%) was
invested in commercial paper; the balance (4.7%) was invested in repurchase
agreements.
- --------------------------------------------------------------------------------
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. WHILE THE FUND SEEKS TO MAINTAIN A STABLE PRICE OF $10.00 PER SHARE,
THERE IS NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Yields are annualized historical figures. Effective yield assumes that
income is reinvested. Yields will vary as interest rates change. Past
performance is not a guarantee of future results.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Investment return and principal value will fluctuate so that the value of
your investment, when redeemed, may be worth more or less than the
original cost.
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
21
<PAGE>
- ---------
Separate
Account B
- ---------
1
- ---------
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- -------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
Guardian Guardian Guardian Gifford Value Line
Stock Bond Cash International Centurion
Combined Fund Fund Fund Fund Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIFO Cost ................................. -- $124,255,075 $ 27,464,251 $38,478,303 $ 12,610,808 $ 66,698,381
=====================================================================================
Assets
Shares owned in underlying fund -- Note 1 -- 3,762,785 2,249,344 3,847,830 741,882 3,195,824
Net asset value per share ............... -- 46.05 12.11 10.00 18.27 25.52
Total Assets (Shares x NAV) ............ $ 369,056,632 173,276,237 27,239,561 38,478,303 13,554,178 81,557,429
------------- ----------- ---------- ---------- ---------- ----------
Liabilities
Due to Guardian Insurance & Annuity
Company, Inc. ........................... 615,721 151,106 25,455 319,420 12,858 71,475
------------- ----------- ---------- ---------- ---------- ----------
Net Assets -- Note 4 ................... $ 368,440,911 $173,125,131 $ 27,214,106 $38,158,883 $ 13,541,320 $ 81,485,954
============= =========== ========== ========== ========== ==========
</TABLE>
Value Line
Baillie Strategic
Asset Smith Barney
Management Fund 2004
Trust Trust
---------------------------
FIFO Cost ................................. $ 21,409,071 $ 3,658,783
============ ===========
Assets
Shares owned in underlying fund -- Note 1 1,275,831 9,895,093
Net asset value per share ............... 22.13 0.68
Total Assets (Shares x NAV) ............ 28,234,135 6,716,789
------------ -----------
Liabilities
Due to Guardian Insurance & Annuity
Company, Inc. ........................... 25,828 9,579
Net Assets -- Note 4 ................... $ 28,208,307 $ 6,707,210
============ ===========
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- -------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................... $ 6,616,178 $ 1,739,515 $1,710,580 $2,055,188 $ 225,674 $ 258,705
Expenses -- Note 3:
Mortality and expense risk charges ..... 1,829,589 799,675 140,921 206,307 77,516 415,848
----------- ----------- ---------- ---------- ----------- ------------
Net investment income/(expense) ........ 4,786,589 939,840 1,569,659 1,848,881 148,158 (157,143)
----------- ----------- ---------- ---------- ----------- ------------
Realized and Unrealized Gain/(Loss)
from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of
investments ........................... 33,104,686 16,057,632 (28,485) -- 2,352,225 12,106,826
Reinvested realized gain distributions . 35,270,854 18,616,046 -- -- 532,799 13,251,425
----------- ----------- ---------- ---------- ----------- ------------
Net realized gain/(loss) on investments 68,375,540 34,673,678 (28,485) -- 2,885,024 25,358,251
----------- ----------- ---------- ---------- ----------- ------------
Unrealized appreciation/(depreciation) of
investments:
End of year ............................ 74,481,960 49,021,162 (224,690) -- 943,370 14,859,048
Beginning of year ...................... 78,601,661 40,371,170 (956,520) -- 2,125,966 25,706,875
----------- ----------- ---------- ---------- ----------- ------------
Change in unrealized
appreciation/(depreciation) ........... (4,119,701) 8,649,992 731,830 -- (1,182,596) (10,847,827)
----------- ----------- ---------- ---------- ----------- ------------
Net realized and unrealized gain/(loss)
from investment ....................... 64,255,839 43,323,670 703,345 -- 1,702,428 14,510,424
----------- ----------- ---------- ---------- ----------- ------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ................ $69,042,428 $44,263,510 $2,273,004 $1,848,881 $ 1,850,586 $ 14,353,281
=========== =========== ========== ========== =========== ============
</TABLE>
Investment Income
Income:
Reinvested dividends ................... $ 626,516 $ --
Expenses -- Note 3:
Mortality and expense risk charges ..... 138,362 50,960
----------- ----------
Net investment income/(expense) ........ 488,154 (50,960)
----------- ----------
Realized and Unrealized Gain/(Loss)
from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of
investments ........................... 2,000,608 615,880
Reinvested realized gain distributions . 2,870,584 --
----------- ----------
Net realized gain/(loss) on investments 4,871,192 615,880
----------- ----------
Unrealized appreciation/(depreciation) of
investments:
End of year ............................ 6,825,064 3,058,006
Beginning of year ...................... 8,402,162 2,952,008
----------- ----------
Change in unrealized
appreciation/(depreciation) ........... (1,577,098) 105,998
----------- ----------
Net realized and unrealized gain/(loss)
from investment ....................... 3,294,094 721,878
----------- ----------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ................ $ 3,782,248 $ 670,918
=========== ==========
See notes to financial statements.
- --------------------------------------------------------------------------------
22 & 23
<PAGE>
- ---------
Separate
Account B
- ---------
1
- ---------
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- -------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
Combined Fund Fund Fund Fund
=============================================================================
<S> <C> <C> <C> <C> <C>
- ----------------------------------------
1996 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................. $ 5,044,245 $ 1,046,574 $ 1,656,987 $ 2,044,858 $ 123,398
Net realized gain/(loss) from sale of
investments .................................... 31,428,234 14,529,250 (55,858) -- 1,323,959
Reinvested realized gain distributions .......... 24,404,170 14,617,378 -- -- 189,128
Change in unrealized
appreciation/(depreciation) of investments ..... (14,370,296) (3,243,103) (864,248) -- 152,402
------------- ------------- ------------ ------------ ------------
Net increase/(decrease) resulting from
operations ..................................... 46,506,353 26,950,099 736,881 2,044,858 1,788,887
------------- ------------- ------------ ------------ ------------
- ------------------------
1996 Policy Transactions
- ------------------------
Transfer of net premium ......................... 539,171 -- -- 539,171 --
Transfer of net policy loading -- Note 3 ........ (1,703,389) (557,957) (180,262) (334,255) (82,603)
Transfer on account of death .................... (2,934,635) (788,898) (390,279) (407,011) (6,239)
Transfer on account of other terminations ....... (13,965,860) (4,180,301) (1,259,971) (4,704,225) (599,693)
Transfer of policy loans ........................ (4,194,389) (1,481,557) (222,194) (1,124,798) 160,415
Transfer of cost of insurance -- Note 3 ......... (4,497,215) (1,594,165) (458,676) (720,637) (181,730)
Transfer between/within separate accounts ....... (37,810) 1,647,418 276,538 (1,048,573) 1,324,368
Transfers -- other .............................. (11,906) (2,751) (4,514) 1,524 (2,959)
------------- ------------- ------------ ------------ ------------
Net increase/(decrease) from contract
transactions ...................................... (26,806,033) (6,958,211) (2,239,358) (7,798,804) 611,559
------------- ------------- ------------ ------------ ------------
Total Increase/(Decrease) in Net Assets ............ 19,700,320 19,991,888 (1,502,477) (5,753,946) 2,400,446
Net Assets at December 31, 1995 ................. 305,807,360 112,676,724 29,564,177 44,457,736 11,844,423
------------- ------------- ------------ ------------ ------------
Net Assets at December 31, 1996 ................. $ 325,507,680 $ 132,668,612 $ 28,061,700 $ 38,703,790 $ 14,244,869
============= ============= ============ ============ ============
- ----------------------------------------
1997 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................. $ 4,786,589 $ 939,840 $ 1,569,659 $ 1,848,881 $ 148,158
Net realized gain/(loss) from sale of
investments .................................... 33,104,686 16,057,632 (28,485) -- 2,352,225
Reinvested realized gain distributions .......... 35,270,854 18,616,046 -- -- 532,799
Change in unrealized appreciation/(depreciation)
of investments ................................. (4,119,701) 8,649,992 731,830 -- (1,182,596)
------------- ------------- ------------ ------------ ------------
Net increase/(decrease) resulting from operations 69,042,428 44,263,510 2,273,004 1,848,881 1,850,586
------------- ------------- ------------ ------------ ------------
- ------------------------
1997 Policy Transactions
- ------------------------
Transfer of net premium ......................... 753,182 -- -- 753,182 --
Transfer of net policy loading -- Note 3 ........ (1,164,126) (423,917) (108,632) (207,932) (64,311)
Transfer on account of death .................... (2,292,225) (514,975) (321,279) (361,895) (67,956)
Transfer on account of other terminations ....... (13,397,199) (3,693,179) (1,068,823) (3,254,809) (504,070)
Transfer of policy loans ........................ (5,432,246) (2,815,136) (436,744) (722,315) (191,337)
Transfer of cost of insurance -- Note 3 ......... (5,117,351) (2,111,617) (446,903) (702,194) (201,200)
Transfer between/within separate accounts ....... 582,233 5,757,291 (736,067) 2,099,999 (1,523,096)
Transfers -- other .............................. (41,465) (5,458) (2,150) 2,176 (2,165)
------------- ------------- ------------ ------------ ------------
Net increase/(decrease) from contract transactions . (26,109,197) (3,806,991) (3,120,598) (2,393,788) (2,554,135)
------------- ------------- ------------ ------------ ------------
Total Increase/(Decrease) in Net Assets ............ 42,933,231 40,456,519 (847,594) (544,907) (703,549)
Net Assets at December 31, 1996 ................. 325,507,680 132,668,612 28,061,700 38,703,790 14,244,869
------------- ------------- ------------ ------------ ------------
Net Assets at December 31, 1997 ................. $ 368,440,911 $ 173,125,131 $ 27,214,106 $ 38,158,883 $ 13,541,320
============= ============= ============ ============ ============
<CAPTION>
Value Line
Strategic
Value Line Asset Smith Barney
Centurion Management Fund 2004
Fund Trust Trust
=========================================
<S> <C> <C> <C>
- ----------------------------------------
1996 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................. $ (60,117) $ 284,736 $ (52,191)
Net realized gain/(loss) from sale of
investments .................................... 10,162,138 4,611,619 857,126
Reinvested realized gain distributions .......... 8,355,825 1,241,839 --
Change in unrealized
appreciation/(depreciation) of investments ..... 7,032,842) (2,470,206) (912,299)
------------ ------------ -----------
Net increase/(decrease) resulting from
operations ..................................... 11,425,004 3,667,988 (107,364)
------------ ------------ -----------
- ------------------------
1996 Policy Transactions
- ------------------------
Transfer of net premium ......................... -- -- --
Transfer of net policy loading -- Note 3 ........ (345,696) (165,141) (37,475)
Transfer on account of death .................... (876,377) (408,587) (57,244)
Transfer on account of other terminations ....... (2,255,596) (955,665) (10,409)
Transfer of policy loans ........................ (816,910) (696,729) (12,616)
Transfer of cost of insurance -- Note 3 ......... (1,063,484) (388,429) (90,094)
Transfer between/within separate accounts ....... (1,804,596) 7,769 (440,734)
Transfers -- other .............................. (2,051) (617) (538)
------------ ------------ -----------
Net increase/(decrease) from contract
transactions ...................................... (7,164,710) (2,607,399) (649,110)
------------ ------------ -----------
Total Increase/(Decrease) in Net Assets ............ 4,260,294 1,060,589 (756,474)
Net Assets at December 31, 1995 ................. 74,773,962 24,999,578 7,490,760
------------ ------------ -----------
Net Assets at December 31, 1996 ................. $ 79,034,256 $ 26,060,167 $ 6,734,286
============ ============ ===========
- ----------------------------------------
1997 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................. $ (157,143) $ 488,154 $ (50,960)
Net realized gain/(loss) from sale of
investments .................................... 12,106,826 2,000,608 615,880
Reinvested realized gain distributions .......... 13,251,425 2,870,584 --
Change in unrealized appreciation/(depreciation)
of investments ................................. (10,847,827) (1,577,098) 105,998
------------ ------------ -----------
Net increase/(decrease) resulting from operations 14,353,281 3,782,248 670,918
------------ ------------ -----------
- ------------------------
1997 Policy Transactions
- ------------------------
Transfer of net premium ......................... -- -- --
Transfer of net policy loading -- Note 3 ........ (225,853) (107,968) (25,513)
Transfer on account of death .................... (875,544) (131,528) (19,048)
Transfer on account of other terminations ....... (3,829,645) (662,124) (384,549)
Transfer of policy loans ........................ (876,097) (325,194) (65,423)
Transfer of cost of insurance -- Note 3 ......... (1,171,378) (393,226) (90,833)
Transfer between/within separate accounts ....... (4,890,720) (12,824) (112,350)
Transfers -- other .............................. (32,346) (1,244) (278)
------------ ------------ -----------
Net increase/(decrease) from contract transactions . (11,901,583) (1,634,108) (697,994)
------------ ------------ -----------
Total Increase/(Decrease) in Net Assets ............ 2,451,698 2,148,140 (27,076)
Net Assets at December 31, 1996 ................. 79,034,256 26,060,167 6,734,286
------------ ------------ -----------
Net Assets at December 31, 1997 ................. $ 81,485,954 $ 28,208,307 $ 6,707,210
============ ============ ===========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
24 & 25
<PAGE>
- ---------
Separate
Account B
- ---------
1
- ---------
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
Note 1 -- Organization
The Guardian Separate Account B (the Account) of The Guardian Insurance &
Annuity Company, Inc. (GIAC) is a unit investment trust registered under the
Investment Company Act of 1940, as amended. GIAC established the Account as a
separate investment account on November 16, 1984. The Account commenced
operations on June 28, 1985. GIAC, a wholly owned subsidiary of The Guardian
Life Insurance Company of America (Guardian Life), issues the single premium
variable life insurance policies offered through the Account. GIAC provides for
variable accumulations and benefits under the policies by crediting the net
premium payments or policy loan repayments to one or more investment divisions
established within the Account as selected by the policyowner. The Account
currently comprises seven investment divisions which invest in the shares of
certain mutual funds and a unit investment trust. However, a policyowner can
only invest in up to four investment divisions. Prior to February 28, 1997,
policyowners could also allocate net premium purchase payments or transfers of
contract values to The Guardian Real Estate Account (GREA), another separate
investment account established by GIAC. Effective December 19, 1997 GREA was
liquidated and all balances in that account were transfered to the Guardian Cash
Fund or other investment divisions within the account as instructed by the
policyowners. The policyowner also has the ability to transfer his or her policy
value among the investment divisions within the Account. Six of the investment
divisions of the Account invest in shares of one of the following mutual funds:
The Guardian Stock Fund, Inc. (GSF), The Guardian Bond Fund, Inc. (GBF), The
Guardian Cash Fund, Inc. (GCF), Baillie Gifford International Fund (BGIF), Value
Line Centurion Fund, Inc. and Value Line Strategic Asset Management Trust
(collectively, the Funds and individually, a Fund). The Account's other
investment division purchases units in The Smith Barney Fund of Stripped
("Zero") U.S. Treasury Securities, Series A-2004 Trust (the "Trust").
GSF, GBF and GCF each has an investment advisory agreement with Guardian
Investor Services Corporation, a wholly owned subsidiary of GIAC. BGIF has an
investment advisory agreement with Guardian Baillie Gifford Ltd., a joint
venture company formed by GIAC and Baillie Gifford Overseas Ltd.
Under applicable insurance law, the assets and liabilities of the Account
are clearly identified and distinguished from the other assets and liabilities
of GIAC. The assets of the Account will not be charged with any liabilities
arising out of any other business conducted by GIAC, but the obligations of the
Account, including the promise to make benefit payments, are obligations of
GIAC.
Changes in net assets maintained in the Account provide the basis for the
periodic determination of benefits under the policies. The net assets are
sufficient to fund the amount required under state insurance law to provide for
death benefits (without regard to the policy's minimum death benefit guarantee)
and other policy benefits. Additional assets are held in GIAC's general account
to cover the contingency that a policy's guaranteed minimum death benefit might
exceed the death benefit which would have been payable in the absence of such
guarantee.
Note 2 -- Significant Accounting Policies
The following is a summary of significant accounting policies of the
Account.
Investments
(a) Proceeds from the sale of single premium variable life insurance
policies are invested by the Account's investment divisions in shares of the
corre-
- --------------------------------------------------------------------------------
26
<PAGE>
---------
Separate
Account B
---------
1
---------
- --------------------------------------------------------------------------------
sponding Funds or Trust at net asset value. All distributions made by a Fund are
reinvested in shares of the same Fund.
(b) The market value of the investments in the Funds is based on the net
asset value of the respective Funds as of their close of business on the
valuation date.
(c) The market value of the investments in the Trust is determined by
Standard & Poor's Corporation (the Evaluator) on the basis of current offering
bid prices for the securities, if available, current prices for comparable
securities, the value of the securities as determined by appraisal, or any
combination of the foregoing.
(d) Investment transactions are accounted for on the trade date and income
is recorded on the ex-dividend date.
(e) The cost of investments sold is determined on a first in, first out
(FIFO) basis.
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
Purchase and Sales
During the years ended December 31, 1997 and December 31, 1996, purchases
and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
The Guardian Separate Account B Purchases Purchases Sales Sales
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. .... $ 45,028,218 $ 36,247,162 $ 29,223,645 $ 27,494,931
The Guardian Bond Fund, Inc. ..... 5,812,810 7,625,304 7,359,829 8,199,714
The Guardian Cash Fund, Inc. ..... 39,140,318 36,123,548 39,644,331 41,847,880
Baillie Gifford International Fund 5,223,804 6,159,251 7,094,469 5,230,882
Value Line Centurion Fund, Inc. .. 24,923,425 22,011,550 23,716,878 20,854,937
The Value Line Strategic Asset ...
Management Trust ................ 5,226,943 6,938,828 3,496,941 8,009,846
Smith Barney Fund 2004 Trust ..... 184,955 628,819 931,948 1,327,931
------------ ------------ ------------ ------------
Total ........................ $125,540,473 $115,734,462 $111,468,041 $112,966,121
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
27
<PAGE>
- ---------
Separate
Account B
- ---------
1
- ---------
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- -------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Note 3 -- Administrative and Mortality and Expense Risk Charges
GIAC assumes mortality and expense risk related to the operations of the
Account. To cover these risks, GIAC deducts from each policy a daily charge from
the net assets of the Account which, on an annual basis, is equal to a rate of
.50% of a policy's account value. GIAC pays all transaction charges to Smith
Barney Inc. on the sale of Trust units to the Account and deducts a daily asset
charge against the assets of the Trust for reimbursement of these transaction
charges. The asset charge is currently equivalent to an effective annual rate of
.25% of the daily unit value of the Trust.
GIAC deducts certain charges from the single premium which are known as
"policy loading". The policy loading includes sales and administrative expenses,
state premium taxes and a risk charge for the guaranteed minimum death benefit.
The gross single premium paid by a policyowner is allocated to the Account on
the policy date and becomes the policy's account value. Thereafter, allocated
policy loading is subtracted from a policy's account value in equal yearly
installments at the beginning of the second through the eleventh policy years.
In addition, GIAC also makes a monthly charge for the cost of life
insurance, based on the account value of the policyowner's insurance inforce,
as compensation for the anticipated cost of paying death benefits.
Currently, GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
Under current laws, GIAC may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
In the event of a material change in applicable state or local tax laws, GIAC
reserves the right to charge the Account for such taxes attributable to the
Account.
Note 4 -- Net Assets, December 31, 1997
At December 31, 1997, net assets of the Account were as follows:
Accumulation of Single Premium
Variable Life Insurance
Policyowners' Accounts $367,106,642
Owned by GIAC 1,334,269
------------
$368,440,911
============
The amount retained by GIAC in the Account comprises GIAC's initial
contribution to the Account together with amounts which GIAC allocated to the
Account to facilitate the commencement of its operations, unamortized allocated
policy loading (see Note 3), and amounts accruing to GIAC from the operations of
the Account and retained therein. Amounts retained by GIAC in the Account in
excess of unamortized allocated policy loading of $1,164,127 at December 31,
1997 may be transferred by GIAC to its general account.
In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
28
<PAGE>
---------
Separate
Account B
---------
1
---------
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
and the Policyowners of The Guardian Separate Account B, "Value Plus"
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the investment divisions
relating to The Guardian Stock Fund, Inc., The Guardian Bond Fund, Inc., The
Guardian Cash Fund, Inc., Baillie Gifford International Fund, Value Line
Centurion Fund, Inc., Value Line Strategic Asset Management Trust and The Smith
Barney Fund Stripped ("Zero") U.S. Treasury Securities, Series A-2004 Trust
(constituting The Guardian Separate Account B, "Value Plus") at December 31,
1997, and the results of each of their operations for the year then ended and
the changes in each of their net assets for each of the two years then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the management of The Guardian Insurance
& Annuity Company, Inc.; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1997 by correspondence with the
transfer agents of the underlying funds, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 18, 1998
- --------------------------------------------------------------------------------
29
<PAGE>
- ------------
The Guardian
Stock Fund,
Inc.
- ------------
2
- ------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- ---------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1997
- ----------------------
COMMON STOCKS -- 92.6%
- ----------------------
Shares Value
- ----------------------------------------------------------------
Aerospace and Defense -- 2.1%
24,000 Alliant Techsystems, Inc.* $ 1,338,000
32,600 General Dynamics Corp. 2,817,862
77,025 Lockheed Martin Corp. 7,586,962
170,290 Northrop Grumman Corp. 19,583,350
201,750 Precision Castparts Corp. 12,168,047
95,800 Rockwell Int'l. Corp. 5,005,550
25,000 Sundstrand Corp. 1,259,375
40,000 Thiokol Corp. 3,250,000
53,000 TRW, Inc. 2,828,875
168,100 United Technologies Corp. 12,239,781
-----------
68,077,802
-----------
Air Transportation -- 1.1%
63,000 Alaska Air Group, Inc.* 2,441,250
143,000 AMR Corp., DE* 18,375,500
43,000 Comair Hldgs., Inc.* 1,037,375
151,000 Continental Airlines, Inc.* 7,266,875
77,000 UAL Corp.* 7,122,500
-----------
36,243,500
-----------
Appliance and Furniture -- 0.6%
115,000 Ethan Allen Interiors, Inc. 4,434,687
174,000 Furniture Brands Int'l., Inc.* 3,567,000
50,000 Hon Industries, Inc. 2,950,000
50,000 Knoll Corp.* 1,606,250
30,000 Leggett & Platt, Inc. 1,256,250
100,000 Herman Miller, Inc. 5,456,250
-----------
19,270,437
-----------
Automotive Parts -- 0.9%
38,000 Arvin Industries, Inc. 1,265,875
19,437 Autoliv, Inc. 636,562
37,500 Borg-Warner Automotive, Inc. 1,950,000
131,000 Cooper Tire & Rubber Co.* 3,193,125
73,000 Cummins Engines, Inc. 4,311,562
84,000 Goodyear Tire & Rubber Co. 5,344,500
45,000 Kaydon Corp. 1,468,125
276,933 Meritor Automotive, Inc. 5,832,901
24,000 Modine Manufacturing Co.* 819,000
112,000 Timken Co. 3,850,000
17,000 Tower Automotive, Inc.* 715,062
-----------
29,386,712
-----------
Biotechnology -- 0.2%
93,600 Amgen, Inc. 5,066,100
-----------
Building Materials and Homebuilders -- 1.0%
58,000 AK Steel Hldg. Corp. 1,025,875
18,000 Armstrong World Industries, Inc. 1,345,500
33,000 Centex Construction Products, Inc. 994,125
65,000 Fleetwood Enterprises, Inc. 2,758,437
92,500 Lafarge Corp. 2,734,531
95,000 Lennar Corp. 2,048,437
9,400 Lone Star Industries, Inc. 499,375
79,650 Martin Marietta Materials, Inc. 2,912,203
120,000 McGrath Rentcorp 2,940,000
24,000 Medusa Corp. 1,003,500
68,200 Sherwin-Williams Co. 1,892,550
62,000 Southdown, Inc. 3,658,000
65,000 USG Corp.* 3,185,000
36,000 U.S. Home Corp.* 1,413,000
6,300 Valspar Corp. 200,812
45,700 Vulcan Materials Co. 4,667,112
-----------
33,278,457
-----------
Chemicals -- 3.6%
68,000 Albemarle Corp. 1,623,500
141,000 Cambrex Corp. 6,486,000
49,000 Carlisle Cos., Inc. 2,094,750
115,000 Crompton & Knowles Corp.* 3,047,500
51,000 Dexter Corp. 2,202,562
160,000 Dow Chemical Co. 16,240,000
798,000 E.I. Dupont de Nemours, Inc. 47,929,875
81,100 Lubrizol Corp. 2,990,562
150,000 Millennium Chemicals, Inc.* 3,534,375
113,500 Minnesota Mng. & Mfg. Co. 9,314,094
147,000 Morton Int'l., Inc. 5,053,125
102,000 PPG Industries, Inc. 5,826,750
40,000 Rohm & Haas Co. 3,830,000
150,900 Solutia, Inc.* 4,027,144
56,300 Union Carbide Corp.* 2,435,537
-----------
116,635,774
-----------
Computer Software -- 2.3%
134,400 Adobe Systems, Inc. 5,544,000
145,000 Autodesk, Inc.* 5,365,000
11,700 ChoicePoint, Inc.* 558,675
See notes to financial statements.
* Non-income producing security.
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27,000 DST Systems, Inc.* $ 1,152,562
9,900 J.D. Edwards* 292,050
404,100 Microsoft Corp.* 52,229,925
52,000 Sterling Software, Inc.* 2,132,000
138,800 SunGuard Data Systems, Inc.* 4,302,800
65,000 Symantec Corp.* 1,425,937
36,000 Wind River Systems, Inc.* 1,428,750
-----------
74,431,699
-----------
Computer Systems -- 6.4%
351,000 Compaq Computer Corp. 19,809,562
49,500 Diebold, Inc. 2,505,937
30,300 DII Group, Inc.* 825,675
57,500 Honeywell, Inc. 3,938,750
654,500 Int'l. Business Machines 68,436,156
478,200 Lexmark Int'l. Group, Inc.* 18,171,600
246,000 Oracle Systems Corp.* 5,488,875
115,000 Pitney Bowes, Inc. 10,342,812
160,600 Quantum Corp.* 3,222,037
30,700 Sanmina Corp.* 2,079,925
174,000 SCI Systems, Inc.* 7,579,875
72,000 Smart Modular Technologies, Inc.* 1,656,000
738,200 Storage Technology Corp.* 45,722,262
91,000 Stratus Computer, Inc.* 3,440,937
227,800 Sun Microsystems, Inc.* 9,083,525
247,800 Western Digital Corp.* 3,980,287
-----------
206,284,215
-----------
Conglomerates -- 1.3%
205,800 Allied Signal, Inc. 8,013,337
149,800 Loews Corp. 15,897,525
310,000 Textron, Inc. 19,375,000
-----------
43,285,862
-----------
Containers-Metals and Plastic -- 0.1%
37,000 Aptargroup, Inc. 2,053,500
-----------
Cosmetics and Toiletries -- 0.1%
21,600 Alberto-Culver Co. 583,200
60,800 Helen of Troy Ltd.* 980,400
43,000 Herbalife Int'l., Inc. 917,332
-----------
2,480,932
-----------
Drugs and Hospitals -- 5.4%
228,100 Abbott Laboratories 14,954,806
110,000 Acuson, Inc.* 1,821,875
99,660 Allegiance Corp. 3,531,701
31,300 C.R. Bard, Inc.* 980,081
44,200 Becton Dickinson & Co. 2,210,000
429,600 Bristol-Myers Squibb Corp. 40,650,900
44,200 Columbia Healthcare Corp.* 1,312,077
25,000 Health Care & Retirement Co.* 1,006,250
42,000 ICN Pharmaceuticals, Inc. 2,050,125
34,200 Integrated Health Svcs., Inc. 1,066,612
205,696 Eli Lilly & Co., Inc. 14,321,584
56,300 Lincare Hldgs., Inc.* 3,209,100
209,700 Merck & Co., Inc. 22,280,625
81,300 Mylan Labs, Inc. 1,702,219
18,000 Patterson Dental Co.* 814,500
142,800 Pfizer, Inc. 10,647,525
26,000 Safeskin Corp.* 1,475,500
413,400 Schering-Plough Corp. 25,682,475
12,000 Unitrin, Inc. 775,500
354,000 Universal Health Services, Inc.* 17,832,750
46,700 Warner-Lambert Co. 5,790,800
26,000 Wellpoint Health Networks, Inc.* 1,098,500
-----------
175,215,505
-----------
Electrical Equipment -- 3.9%
94,600 Emerson Electric Co. 5,338,987
1,541,200 General Electric Co. 113,085,550
12,800 W.W. Grainger, Inc. 1,244,000
25,000 Hubbel, Inc. 1,232,812
13,000 Jabil Circuit, Inc.* 516,750
90,000 Raychem Corp. 3,875,625
-----------
125,293,724
-----------
Electronics and Instruments -- 0.4%
64,400 Analogic Corp. 2,447,200
84,400 Dynatech Corp.* 3,956,250
75,000 Fluke Corp. 1,954,687
60,000 Tektronix, Inc. 2,381,250
39,900 Texas Instruments, Inc.* 1,792,859
-----------
12,532,246
-----------
Energy-Miscellaneous -- 0.4%
192,500 Giant Industries, Inc. 3,657,500
237,430 Holly Corp. 6,559,004
See notes to financial statements.
* Non-income producing security.
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SCHEDULE OF INVESTMENTS (continued)
December 31, 1997
Shares Value
- ----------------------------------------------------------------
84,000 Howell Corp. $ 1,454,250
-----------
11,670,754
-----------
Entertainment and Leisure -- 0.1%
16,500 Anchor Gaming* 919,875
34,000 Harley-Davidson, Inc. 930,750
-----------
1,850,625
-----------
Financial-Banks -- 12.1%
20,000 Associated Bank Corp. 1,102,500
720,000 BankAmerica Corp. 52,560,000
172,011 Bank of Boston Corp. 16,158,282
130,000 Bank of New York, Inc. 7,515,625
146,000 Barnett Banks, Inc. 10,493,750
13,000 CCB Financial Corp. 1,397,500
434,468 Chase Manhattan Corp. 47,574,246
417,484 Citicorp 52,785,632
81,000 City National Corp. 2,991,938
96,800 Comerica, Inc. 8,736,200
26,250 Commerce Bankshares, Inc. 1,778,437
30,000 Compass Bancshares, Inc. 1,312,500
20,000 Cullen Frost Bankers, Inc. 1,213,750
313,700 First Chicago NBD Corp. 26,193,950
19,900 First Empire State Corp. 9,253,500
60,000 First Merit Corp. 1,702,500
543,800 First Union Corp. 27,869,750
185,000 Fleet Financial Group, Inc. 13,863,437
81,922 Hubco, Inc. 3,205,197
43,000 Imperial Bancorp* 2,120,437
70,000 KeyCorp 4,956,875
197,000 Mellon Bank Corp. 11,943,125
87,796 National City Corp. 5,772,587
332,800 Nationsbank Corp. 20,238,400
270,120 Norwest Corp. 10,433,385
50,000 Premier Bancshares, Inc., GA 1,343,750
79,500 Provident Financial Group, Inc. 3,855,750
108,000 Star Banc Corp. 6,196,500
116,000 State Street Corp. 6,749,750
327,033 Summit Bancorp 17,414,507
49,500 Union BanCal Corp.* 5,321,250
23,000 U.S. Trust Corp. 1,440,375
21,500 Webster Financial Corp. 1,429,750
12,000 Westamerica Bancorp 1,227,000
72,000 Zions Bancorp 3,267,000
-----------
391,419,135
-----------
Financial-Other -- 7.3%
294,400 American Express Co. 26,275,200
75,000 Bear Stearns Cos., Inc.* 3,562,500
11,000 Community First Bankshares 585,750
102,000 Countrywide Credit Industries, Inc. 4,373,250
11,600 Donaldson Lufkin & Jenrette* 922,200
21,666 Duff & Phelps Credit Rating Co. 880,181
190,200 A.G. Edwards, Inc. 7,560,450
258,400 Federal Home Loan Mortgage Corp. 10,836,650
434,600 Federal National Mortgage Assn. 24,799,362
33,000 Fidelity National Financial, Inc.* 1,027,125
144,000 Franklin Resources, Inc. 12,519,000
125,000 H & R Block, Inc. 5,601,562
338,000 Jefferies Group, Inc. 13,836,875
43,667 Legg Mason, Inc. 2,442,604
109,500 Lehman Brothers Hldgs., Inc. 5,584,500
188,000 McDonald & Co. Investments, Inc. 5,334,500
257,200 Merrill Lynch & Co., Inc. 18,759,525
384,075 Morgan Keegan, Inc. 9,721,897
180,100 Morgan Stanley Dean Witter 10,648,412
22,000 ONBANCorp, Inc. 1,551,000
37,666 Pacific Crest Capital, Inc.* 687,405
175,000 Paine Webber Group, Inc.* 6,048,438
230,737 Raymond James Financial, Inc 9,157,375
50,000 SLM Hldg. Corp.* 6,956,250
846,000 Travelers Group, Inc. 45,578,250
-----------
235,250,261
-----------
Financial-Thrift -- 2.1%
67,200 Astoria Financial Corp. 3,746,400
325,000 Bank Atlantic Bancorp, Inc. 5,371,563
27,040 California Federal Bancorp, Inc.* 770,640
163,170 Charter One Financial, Inc. 10,300,106
73,500 CitFed Bancorp, Inc. 2,866,500
66,000 Coastal Bancorp, Inc. 2,301,750
20,000 Coast Savings Financial, Inc.* 1,371,250
155,925 Commercial Federal Corp. 5,545,083
101,000 Dime Bancorp, Inc.* 3,055,250
40,000 Golden State Bancorp, Inc.* 1,495,000
76,000 Greenpoint Financial Corp. 5,514,750
See notes to financial statements.
* Non-income producing security.
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124,000 Long Island Bancorp, Inc. $ 6,153,500
29,452 MAF Bancorp, Inc. 1,041,865
123,543 Progressive Bank, Inc. 4,725,520
634,129 Sovereign Bancorp, Inc. 13,158,177
-----------
67,417,354
-----------
Food, Beverage and Tobacco -- 2.2%
204,000 Campbell Soup Co. 11,857,500
58,900 CKE Restaurants, Inc. 2,481,163
187,200 ConAgra, Inc. 6,142,500
71,000 Dean Foods Co. 4,224,500
53,744 Earthgrains Co. 2,525,968
86,000 Fortune Brands, Inc. 3,187,375
56,000 Hershey Foods Corp. 3,468,500
35,000 Hormel Foods Corp. 1,146,250
142,000 Interstate Bakeries Corp. 5,307,250
493,600 Philip Morris Cos., Inc. 22,366,250
18,100 Ralston-Purina Group 1,682,169
18,000 Schweitzer-Mauduit Int'l., Inc. 670,500
38,000 Smithfield Foods, Inc.* 1,254,000
74,300 Unilever NV 4,639,106
-----------
70,953,031
-----------
Footwear -- 0.3%
81,200 Footstar, Inc.* 2,182,250
49,000 Payless ShoeSource, Inc.* 3,289,125
147,700 Reebok Int'l. Ltd.* 4,255,606
64,000 Stride Rite Corp.* 768,000
-----------
10,494,981
-----------
Household Products -- 0.8%
105,000 Dial Corp. 2,185,313
249,800 Procter & Gamble Co. 19,937,163
200,000 Tupperware Corp. 5,575,000
-----------
27,697,476
-----------
Insurance -- 6.8%
37,500 Allied Group, Inc. 1,073,438
382,300 Allstate Corp. 34,741,513
76,000 AMBAC Financial Group, Inc. 3,496,000
198,000 Amer. Bankers Ins. Group, Inc. 9,095,625
30,000 W.R. Berkley Corp.* 1,316,250
46,000 Chubb Corp. 3,478,750
74,100 Cigna Corp. 12,823,931
60,000 CMAC Investment Corp. 3,622,500
18,000 Enhance Financial Svcs. Group, Inc. 1,071,000
130,000 Equitable Cos., Inc.* 6,467,500
98,000 Everest Reinsurance Hldgs. 4,042,500
66,700 Executive Risk, Inc. 4,656,494
42,000 Financial Sec. Assur. Hldgs. Ltd. 2,026,500
40,000 Fremont General Corp. 2,190,000
78,000 Frontier Insurance Group, Inc. 1,784,250
66,300 General RE Corp. 14,055,600
81,900 Hartford Financial Svcs. Group, Inc. 7,662,769
150,000 Horace Mann Educators Corp. 4,265,625
36,000 Jefferson Pilot Corp. 2,803,500
103,270 Liberty Financial Cos., Inc. 3,898,443
132,000 Lincoln National Corp., Inc. 10,312,500
181,400 Marsh & McLennan Cos., Inc. 13,525,638
50,600 MBIA, Inc. 3,380,713
30,000 Mercury General Corp. 1,657,500
315,000 MGIC Investment Corp. 20,947,500
21,000 NAC RE Corp. 1,025,063
40,000 Ohio Casualty Corp. 1,785,000
118,000 Old Republic Int'l. Corp. 4,388,125
33,000 Orion Capital Corp. 1,532,438
84,371 ReliaStar Financial Group 3,475,030
97,800 St. Paul Cos., Inc.* 8,025,713
108,000 State Auto Financial Corp. 3,483,000
162,000 SunAmerica, Inc. 6,925,500
88,000 Torchmark, Inc. 3,701,500
60,000 Travelers Ppty. Casualty Corp. 2,640,000
225,000 USF&G Corp.* 4,964,063
35,000 Vesta Insurance Group, Inc.* 2,078,125
-----------
218,419,596
-----------
Lodging -- 0.2%
238,000 Prime Hospitality Corp.* 4,849,250
17,000 Promus Hotel Corp.* 714,000
-----------
5,563,250
-----------
Machinery and Equipment -- 2.1%
68,000 AAR Corp. 2,635,000
25,000 Applied Power, Inc. 1,725,000
58,000 Case Corp. 3,505,375
297,600 Caterpillar, Inc. 14,452,200
91,400 Deere & Co. 5,329,763
See notes to financial statements.
* Non-income producing security.
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SCHEDULE OF INVESTMENTS (continued)
December 31, 1997
Shares Value
- ----------------------------------------------------------------
250,000 Dover Corp. $ 9,031,250
95,000 Eaton Corp. 8,478,750
79,900 Illinois Tool Works, Inc. 4,803,988
53,000 Kennametal, Inc. 2,746,063
99,100 Parker Hannifin Corp.* 4,546,213
50,000 Robbins & Myers, Inc. 1,981,250
25,000 SPX Corp.* 1,725,000
54,000 Texas Industries, Inc. 2,430,000
63,000 Universal Corp., VA 2,590,875
65,000 US Industries, Inc. 1,958,125
-----------
67,938,852
-----------
Merchandising-Department Stores -- 1.4%
110,000 Carson Pirie Scott & Co.* 5,513,750
61,000 Dayton Hudson Corp. 4,117,500
125,000 Federated Department Stores, Inc.* 5,382,813
215,000 Fred Meyer, Inc., DE* 7,820,625
38,000 MacFrugals Bargains Closeouts* 1,562,750
87,000 Shopko Stores, Inc.* 1,892,250
20,000 Stein Mart, Inc.* 535,000
138,400 TJX Cos., Inc. 4,757,500
321,000 Wal-Mart Stores, Inc. 12,659,438
-----------
44,241,626
-----------
Merchandising-Drugs -- 0.2%
50,250 Arbor Drugs, Inc. 929,625
50,000 Bergen Brunswig Corp. 2,106,250
37,000 General Nutrition Cos., Inc.* 1,258,000
110,000 Walgreen Co. 3,451,250
-----------
7,745,125
-----------
Merchandising-Food -- 0.6%
60,000 Fleming Cos., Inc.* 806,250
188,995 Safeway, Inc.* 11,953,934
20,000 Suiza Foods Corp.* 1,191,250
113,000 Supervalu, Inc. 4,731,875
-----------
18,683,309
-----------
Merchandising-Mass -- 0.1%
43,500 Brylane, Inc.* 2,142,375
20,000 Lands End, Inc.* 701,250
-----------
2,843,625
-----------
Merchandising-Special -- 1.5%
34,000 Barnes & Noble, Inc.* 1,134,750
69,000 BJ's Wholesale Club, Inc.* 2,164,875
107,400 Burlington Coat Factory* 1,765,388
70,000 Claire's Stores, Inc. 1,360,625
70,736 CVS Corp. 4,531,525
71,000 The Dress Barn* 2,014,625
360,000 GAP, Inc. 12,757,500
35,000 Homebase, Inc.* 275,625
137,160 Host Marriott Services Corp.* 2,040,255
135,000 Pier 1 Imports, Inc. 3,054,375
46,000 Proffitts, Inc.* 1,308,125
159,000 Ross Stores, Inc. 5,783,625
250,000 Tandy Corp. 9,640,625
42,500 Tiffany & Co., Inc. 1,532,656
-----------
49,364,574
-----------
Metals-Miscellaneous -- 0.2%
70,700 Alumax, Inc.* 2,403,800
24,800 Aluminum Co. of America* 1,746,506
54,000 Titanium Metals Corp.* 1,559,250
-----------
5,709,556
-----------
Miscellaneous-Capital Goods -- 0.3%
69,000 Aeroquip-Vickers, Inc.* 3,385,313
100,000 Tidewater, Inc. 5,512,500
-----------
8,897,813
-----------
Miscellaneous-Consumer Growth Staples -- 0.7%
70,000 American Greetings Corp. 2,738,750
93,100 Cognizant Corp. 4,148,769
86,500 Deluxe Corp.* 2,984,250
52,500 Interpublic Group Cos., Inc. 2,615,156
110,000 A.C. Nielsen Corp.* 2,681,250
190,000 Valassis Communications, Inc.* 7,030,000
-----------
22,198,175
-----------
Natural Gas-Diversified -- 0.2%
267,600 Mitchell Energy & Dev. Corp. 7,793,850
-----------
Oil and Gas Producing -- 3.6%
294,000 Apache Corp. 10,308,375
148,000 Barrett Resources Corp.* 4,477,000
205,000 Basin Exploration, Inc.* 3,638,750
280,400 Tom Brown, Inc.* 5,397,700
64,300 Callon Petroleum Co.* 1,046,884
304,000 Chieftain Int'l., Inc.* 6,460,000
See notes to financial statements.
* Non-income producing security.
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247,000 Devon Energy Corp. $ 9,509,500
163,600 Diamond Offshore Drilling, Inc. 7,873,250
238,288 EEX Corp.* 2,159,485
228,100 Enron Oil and Gas Co. 4,832,869
61,900 Forcenergy Gas Exploration, Inc.* 1,621,006
151,200 Meridian Resource Corp.* 1,445,850
750,900 Petromet Resources Ltd.* 1,642,594
45,900 Petsec Energy Ltd.* 631,125
137,600 Pogo Producing Co. 4,059,200
95,000 Pride Int'l., Inc.* 2,398,750
1,160,000 Ranger Oil Ltd. 7,975,000
650,700 Rigel Energy Corp.* 5,327,606
325,100 St. Mary Land & Exploration Co. 11,378,500
487,520 Seagull Energy Corp.* 10,055,100
60,700 Snyder Oil Corp. 1,107,775
100,000 USX Marathon Group 3,375,000
152,100 Vastar Resources, Inc.* 5,437,575
107,000 Vintage Petroleum, Inc. 2,033,000
451,300 Wainoco Oil Ltd.* 3,582,194
-----------
117,774,088
-----------
Oil and Gas Services -- 4.0%
75,000 BJ Services Co.* 5,395,313
86,090 Camco Int'l., Inc. 5,482,857
58,400 Cliffs Drilling Co.* 2,912,700
70,000 Cooper Cameron Corp.* 4,270,000
148,000 ENSCO Int'l., Inc. 4,958,000
190,400 Halliburton Co. 9,888,900
30,276 Halter Marine Group, Inc.* 874,220
376,800 Input/Output, Inc.* 11,186,250
55,000 Lone Star Technologies, Inc.* 1,560,625
521,000 Nabors Industries, Inc.* 16,378,938
360,000 Noble Drilling Corp.* 11,025,000
189,300 Offshore Logistics, Inc.* 4,046,288
339,400 Schlumberger Ltd. 27,321,700
125,000 Smith Int'l., Inc.* 7,671,875
52,000 Transocean Offshore, Inc. 2,505,750
235,400 Varco Int'l., Inc.* 5,046,388
30,000 Veritas DGC, Inc.* 1,185,000
118,000 Weatherford Enterra, Inc.* 5,162,500
100,000 Willbros Group, Inc.* 1,500,000
-----------
128,372,304
-----------
Oil-Integrated-Domestic -- 1.7%
247,600 Amoco Corp. 21,076,950
114,600 Atlantic Richfield Co. 9,182,325
185,000 Murphy Oil Corp. 10,024,688
142,000 Sun, Inc.* 5,972,875
460,500 Tesoro Petroleum, Inc.* 7,137,750
-----------
53,394,588
-----------
Oil-Integrated-International -- 6.0%
228,800 Chevron Corp. 17,617,600
1,539,800 Exxon Corp. 94,216,513
529,800 Mobil Corp. 38,244,938
578,500 Royal Dutch Petroleum Co. 31,347,469
226,800 Texaco, Inc. 12,332,250
-----------
193,758,770
-----------
Paper and Forest Products -- 0.8%
52,857 Deltic Timber Corp. 1,446,960
548,000 Rayonier, Inc. 23,324,250
-----------
24,771,210
-----------
Publishing-News -- 0.7%
35,100 Central Newspapers, Inc. 2,595,206
133,400 Gannett Co., Inc. 8,245,788
74,100 Harte-Hanks Communications 2,750,963
27,000 Houghton Mifflin Co. 1,036,125
80,000 New York Times Co. 5,290,000
6,700 Washington Post Co. 3,259,550
-----------
23,177,632
-----------
Railroads -- 0.7%
47,949 Burlington Northern Santa Fe 4,456,260
109,000 Kansas City Southern Inds., Inc. 3,460,750
216,600 Norfolk Southern Corp. 6,673,988
107,900 Union Pacific Corp. 6,737,006
-----------
21,328,004
-----------
Real Estate -- 0.1%
95,000 LNR Property Corp. 2,244,375
-----------
Semiconductor -- 0.3%
41,000 ADE Corp.* 717,500
80,000 Dallas Semiconductor Corp. 3,260,000
200,000 National Semiconductor Corp.* 5,187,500
42,000 Unitrode Corp.* 903,000
See notes to financial statements.
* Non-income producing security.
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35
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Inc.
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2
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SCHEDULE OF INVESTMENTS (continued)
December 31, 1997
Shares Value
- ----------------------------------------------------------------
43,000 VLSI Technology, Inc.* $ 1,015,875
-------------
11,083,875
-------------
Textile-Apparel and Production -- 0.8%
70,000 Burlington Industries, Inc.* 966,875
98,000 Jones Apparel Group, Inc.* 4,214,000
29,000 Kellwood Co.* 870,000
129,000 Liz Claiborne, Inc. 5,393,813
37,500 Nautica Enterprises, Inc.* 871,875
15,000 St. John Knits, Inc. 600,000
115,000 Unifi, Inc. 4,679,063
148,000 V.F. Corp. 6,798,750
29,200 Westpoint Stevens, Inc.* 1,379,700
-------------
25,774,076
-------------
Transportation-Miscellaneous -- 0.6%
96,000 Airborne Freight Corp. 5,964,000
33,000 Air Express Int'l. Corp.* 1,006,500
37,000 Alexander & Baldwin, Inc.* 1,010,563
22,000 Expeditors Int'l. Wash., Inc. 847,000
54,000 GATX Corp. 3,918,375
376,700 Maritrans, Inc. 3,672,825
58,000 Trinity Industries, Inc. 2,588,250
-------------
19,007,513
-------------
Truckers -- 0.3%
25,000 Arnold Industries, Inc. 431,250
32,100 FRP Pptys., Inc.* 1,007,138
25,000 Roadway Express, Inc. 553,125
33,000 Rollins Truck Leasing Corp. 589,875
25,000 Swift Transportation, Inc.* 809,375
60,000 U.S. Freightways Corp. 1,950,000
45,000 Werner Enterprises, Inc. 922,500
105,000 Yellow Corp.* 2,638,125
-------------
8,901,388
-------------
Utilities-Electric -- 0.9%
22,700 Central LA Electric Co.* 734,913
76,740 Duke Energy Co. 4,249,478
135,000 Florida Progress Corp.* 5,298,750
160,000 FPL Group, Inc. 9,470,000
56,500 IPALCO Enterprises 2,369,469
26,000 KU Energy Corp. 1,020,500
7,000 Minnesota Power & Light Co. * 304,938
40,000 New Century Energies, Inc. 1,917,500
29,000 NIPSCO Industries, Inc. 1,433,688
96,300 Texas Utilities Co. 4,002,469
-------------
30,801,705
-------------
Utilities-Gas and Pipeline -- 0.2%
5,100 Indiana Energy, Inc.* 167,981
45,000 KN Energy, Inc. 2,430,000
79,800 New York State E&G Corp.* 2,832,900
26,300 NICOR, Inc. 1,109,531
-------------
6,540,412
-------------
Utilities-Telecommunications -- 2.9%
29,000 Aliant Communications, Inc. 909,875
438,000 Ameritech Corp. 35,259,000
241,900 Bay Networks, Inc.* 6,183,569
82,204 Bell Atlantic Corp. 7,480,565
423,200 Bellsouth Corp. 23,831,450
29,000 Harris Corp., DE 1,330,375
191,000 SBC Communications, Inc. 13,990,750
150,000 WorldCom, Inc.* 4,550,150
-------------
93,535,734
-------------
TOTAL COMMON STOCKS
(Cost $2,043,457,680) 2,986,155,107
-------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
36
<PAGE>
------------
The Guardian
Stock Fund,
Inc.
------------
2
------------
- --------------------------------------------------------------------------------
- ----------------------------
REPURCHASE AGREEMENT -- 7.4%
- ----------------------------
Principal
Amount Value
- ----------------------------------------------------------------
$239,782,000 Goldman Sachs Group, LP
repurchase agreement,
dated 12/31/97, maturity
value $239,861,927
at 6.00%, due 1/2/98
(collateralized by
$244,695,000 U.S.
Treasury Notes,
6.125%, due 12/31/01) $ 239,782,000
--------------
TOTAL REPURCHASE AGREEMENT
(Cost $239,782,000) 239,782,000
--------------
TOTAL INVESTMENTS -- 100.0%
(Cost $2,283,239,680) 3,225,937,107
--------------
LIABILITIES IN EXCESS OF
CASH, RECEIVABLES
AND OTHER ASSETS -- (0.0%) (3,750,262)
--------------
NET ASSETS -- 100.00% $3,222,186,845
==============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
37
<PAGE>
- ----------------
The Guardian
Stock Fund,Inc.
- ----------------
2
- ----------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1997
ASSETS:
Investments, at identified cost* $2,283,239,680
==============
Investments, at market 2,986,155,107
Repurchase agreement 239,782,000
--------------
TOTAL INVESTMENTS 3,225,937,107
Cash 683
Receivable for securities sold 25,827,847
Dividends receivable 3,018,922
Receivable for fund shares sold 1,743,539
Interest receivable 40,004
--------------
TOTAL ASSETS 3,256,568,102
--------------
LIABILITIES:
Payable for securities purchased 26,459,564
Payable for fund shares redeemed 3,539,469
Accrued expenses 316,955
Due to affiliates 4,065,269
--------------
TOTAL LIABILITIES 34,381,257
--------------
NET ASSETS $3,222,186,845
==============
COMPONENTS OF NET ASSETS:
Capital stock, at par $ 6,996,855
Additional paid-in capital 2,178,293,026
Undistributed net investment income 298,413
Accumulated net realized gain on investments 93,901,124
Net unrealized appreciation of investments 942,697,427
--------------
NET ASSETS $3,222,186,845
==============
Shares Outstanding -- $0.10 par value 69,968,553
--------------
NET ASSET VALUE PER SHARE $ 46.05
==============
* Includes repurchase agreement.
STATEMENT OF OPERATIONS
Year Ended
December 31, 1997
Investment Income:
Dividends $ 38,097,129
Interest 8,826,326
Less: Foreign tax withheld (226,317)
--------------
Total Income 46,697,138
--------------
Expenses:
Investment advisory fees -- Note B 13,778,322
Custodian fees 327,608
Registration fees 112,000
Printing expense 66,200
Audit fees 17,500
Insurance expense 15,509
Directors' fees -- Note B 12,500
Legal fees 5,600
Transfer agent fees 3,300
Other 700
--------------
Total Expenses 14,339,239
--------------
Net Investment Income 32,357,899
--------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized gain on investments 392,500,062
Net change in unrealized appreciation
of investments 391,861,332
--------------
Net Realized and Unrealized Gain
on Investments 784,361,394
--------------
Net Increase in Net Assets
from Operations $ 816,719,293
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
38
<PAGE>
----------------
The Guardian
Stock Fund,Inc.
----------------
2
----------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
-------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS
From Operations:
Net investment income $ 32,357,899 $ 27,147,649
Net realized gain on investments 392,500,062 222,958,266
Net change in unrealized appreciation of investments 391,861,332 203,188,926
--------------- ---------------
Net Increase in Net Assets from Operations 816,719,293 453,294,841
--------------- ---------------
Dividends and Distributions to Shareholders from:
Net investment income (32,059,486) (27,352,727)
Net realized gain on investments (344,492,912) (243,546,609)
--------------- ---------------
Total Dividends and Distributions to Shareholders (376,552,398) (270,899,336)
--------------- ---------------
From Capital Share Transactions:
Net increase in net assets from capital share
transactions -- Note G 555,292,020 429,061,626
--------------- ---------------
Net Increase in Net Assets 995,458,915 611,457,131
Net Assets:
Beginning of year 2,226,727,930 1,615,270,799
--------------- ---------------
End of year* $ 3,222,186,845 $ 2,226,727,930
=============== ===============
* Includes undistributed net investment income of: $ 298,413 $ --
</TABLE>
See notes to financial statements
- -------------------------------------------------------------------------------
39
<PAGE>
- ---------------
The Guardian
Stock Fund,Inc.
- ---------------
2
- ---------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding
throughout the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ......... $ 38.59 $ 34.72 $ 27.33 $ 29.00 $ 25.52 $ 23.28 $ 17.85 $ 21.39
---------- ---------- ---------- ---------- -------- -------- -------- --------
Income from investment
operations
Net investment
income .................. 0.52 0.53 0.44 0.40 0.58 0.48 0.63 0.69
Net realized and
unrealized gain/
(loss) on investments ... 12.97 8.62 9.01 (0.77) 4.47 3.97 5.74 (3.13)
---------- ---------- ---------- ---------- -------- -------- -------- --------
Net increase/
(decrease) from
investment operations ..... 13.49 9.15 9.45 (0.37) 5.05 4.45 6.37 (2.44)
---------- ---------- ---------- ---------- -------- -------- -------- --------
Dividends and Distributions
to Shareholders from:
Net investment income ..... (0.52) (0.54) (0.44) (0.40) (0.59) (0.48) (0.64) (0.71)
Net realized gain ......... (5.51) (4.74) (1.62) (0.90) (0.98) (1.73) (0.30) (0.39)
---------- ---------- ---------- ---------- -------- -------- -------- --------
Total dividends and
distributions ............. (6.03) (5.28) (2.06) (1.30) (1.57) (2.21) (0.94) (1.10)
---------- ---------- ---------- ---------- -------- -------- -------- --------
Net asset value, end of
year ...................... $ 46.05 $ 38.59 $ 34.72 $ 27.33 $ 29.00 $ 25.52 $ 23.28 $ 17.85
---------- ---------- ---------- ---------- -------- -------- -------- --------
Total return* ............... 35.58% 26.90% 34.65% (1.27) 19.96% 20.07% 35.96% (11.85)%
---------- ---------- ---------- ---------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of year
(000's omitted) ......... $3,222,187 $2,226,728 $1,615,271 $1,038,991 $869,114 $537,354 $380,962 $256,039
Ratio of expenses to
average net assets ...... 0.52% 0.53% 0.53% 0.53% 0.54% 0.55% 0.56% 0.57%
Ratio of net invest-
ment income to
average net assets ...... 1.17% 1.50% 1.39% 1.49% 2.20% 2.14% 3.07% 3.66%
Portfolio turnover
rate .................... 51% 66% 78% 53% 45% 62% 51% 54%
Average rate of
commissions paid(a) ..... $ 0.0457 $ 0.0469
</TABLE>
Year Ended December 31,
-----------------------
1989 1988
-----------------------
Net asset value,
beginning of year ......... $ 19.18 $ 16.35
-------- --------
Income from investment
operations
Net investment
income .................. 0.84 0.52
Net realized and
unrealized gain/
(loss) on investments ... 3.61 2.80
-------- --------
Net increase/
(decrease) from
investment operations ..... 4.45 3.32
-------- --------
Dividends and Distributions
to Shareholders from:
Net investment income ..... (0.90) (0.49)
Net realized gain ......... (1.34) --
-------- --------
Total dividends and
distributions ............. (2.24) (0.49)
-------- --------
Net asset value, end of
year ...................... $ 21.39 $ 19.18
-------- --------
Total return* ............... 23.55% 20.37%
-------- --------
Ratios/supplemental data:
Net assets, end of year
(000's omitted) ......... $269,950 $172,900
Ratio of expenses to
average net assets ...... 0.57% 0.61%
Ratio of net invest-
ment income to
average net assets ...... 4.13% 2.88%
Portfolio turnover
rate .................... 38% 71%
Average rate of
commissions paid(a) .....
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
See notes to financial statements.
- --------------------------------------------------------------------------------
40
<PAGE>
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- --------------------------------------------------------------------------------
41
<PAGE>
- --------------
The Guardian
Bond Fund,Inc.
- --------------
3
- --------------
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
December 31, 1997
- ---------------------
ASSET BACKED -- 12.6%
- ---------------------
Principal
Amount Value
- --------------------------------------------------------------
$ 2,700,000 Amresco 1997 -- 1 M1F
7.42% due 3/25/27 $ 2,744,280
4,000,000 Bear Asset Trust 1997-1 A
6.682% due 2/15/06 4,010,000
4,000,000 California Infrastructure
Dev. PG & E 97-1 A7
6.42% due 9/25/08 4,038,800
4,000,000 California Infrastructure
Dev. SCE 97-1 A6
6.38% due 9/25/08 4,027,600
3,500,000 Deutsche Financial 1997-1 A2
6.55% due 9/15/27 3,507,700
4,000,000 Federal Home Loan
Mtg. Corp. T-9 A4
6.78% due 3/25/17 4,002,800
5,160,000 Green Tree 1997-E HEM1
7.28% due 1/15/29 5,184,252
2,971,622 Green Tree Recreational 1997-B A1
6.55% due 7/15/28 3,063,485
3,900,000 Premier Auto Tr. 1997-2 B
6.53% due 12/6/03 3,921,918
6,250,000 UCFC Loan Tr. 1997-D A6
7.095% due 4/15/27 6,297,500
4,000,000 Vanderbilt Mtg. 1997-C 1A4
6.92% due 10/7/12 4,040,000
------------
TOTAL ASSET BACKED
(Cost $44,559,554) 44,838,335
------------
- -------------------------
CORPORATE BONDS -- 20.5%
- -------------------------
Energy-Miscellaneous -- 0.7%
$ 2,500,000 Consumers Energy Co.
7.50% due 6/1/02 $ 2,532,475
------------
Financial-Other -- 6.0%
2,000,000 Bear Stearns Cos., Inc.
6.625% due 10/1/04 2,006,480
9,500,000 Lehman Brothers, Inc.
6.92% due 10/4/99 9,597,850
3,500,000 Salomon, Inc.
6.65% due 7/15/01 3,529,540
6,000,000 Salomon, Inc.
6.625% due 11/30/00 6,055,980
------------
21,189,850
------------
Insurance -- 1.1%
3,500,000 Zurich Capital Tr.+
8.376% due 6/1/37 3,814,020
------------
Machinery and Construction -- 1.1%
4,000,000 McDermott Int'l., Inc.
6.57% due 4/20/98 4,000,520
------------
Merchandising-Mass -- 1.0%
3,400,000 Wal Mart Stores, Inc.
8.75% due 12/29/06 3,484,490
------------
Miscellaneous-Capital Goods -- 1.4%
5,000,000 Ikon Capital, Inc.
6.73% due 6/15/01 5,063,750
------------
Oil-Integrated-International -- 0.7%
3,500,000 LG Caltex Oil Corp.+
7.50% due 7/15/07 2,521,050
------------
Railroads -- 2.0%
3,100,000 Burlington Northern Santa Fe
6.875% due 12/1/27 3,111,191
3,500,000 Norfolk Southern Corp.
7.80% due 5/15/27 3,934,140
------------
7,045,331
------------
Telecommunications -- 3.3%
4,000,000 TCI Communications, Inc.
8.75% due 8/1/15 4,635,960
7,000,000 TCI Communications, Inc.
7.25% due 6/15/99 7,080,290
------------
11,716,250
------------
Tobacco -- 1.2%
4,000,000 Philip Morris Cos., Inc.
7.50% due 4/1/04 4,189,080
------------
See notes to financial statements.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
42
<PAGE>
--------------
The Guardian
Bond Fund,Inc.
--------------
3
--------------
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------
Utilities-Gas and Pipeline -- 2.0%
$ 3,500,000 Tennessee Gas Pipeline Co.
7.50% due 4/1/17 $ 3,730,510
3,500,000 TransCanada Pipelines Ltd.
7.06% due 10/14/25 3,556,945
------------
7,287,455
------------
TOTAL CORPORATE BONDS
(Cost $72,314,479) 72,844,271
------------
- ------------------------------
MORTGAGE PASS-THROUGHS -- 7.8%
- ------------------------------
$22,050,000 FNMA TBA
7.00% due 1/1/28 (a) $ 22,213,170
1,805,510 FHLMC Pool #E54124
7.00% due 8/1/08 1,844,743
502,703 FNMA Pool #068106
8.50% due 8/1/09 525,510
877,341 FNMA Pool #068772
8.00% due 6/1/08 912,900
10,054 FNMA Pool #072923
8.25% due 1/1/09 10,469
2,100,000 GNMA TBA
7.00% due 1/1/28 2,117,934
4,855 GNMA Pool #000375
11.50% due 7/20/00 5,108
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $27,341,069) 27,629,834
------------
- -----------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 4.2%
- -----------------------
$ 5,000,000 Federal Home Loan Mtg. Corp.
1998 EB 7.00% due 1/15/25 $ 5,019,000
4,000,000 Federal National Mortgage Assn.
1995-13C 6.50% due 10/25/08 3,980,000
5,887,372 GE Capital Mortgage Svcs., Inc.
1996-3A7 7.00% due 3/25/26 5,897,381
------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $14,765,717) 14,896,381
------------
- ----------------------
US GOVERNMENT -- 50.3%
- ----------------------
$20,000,000 US Treasury Bonds
6.625% due 2/15/27 $ 21,712,400
7,150,000 US Treasury Bonds
6.375% due 8/15/27 7,541,034
4,500,000 US Treasury Notes
7.875% due 11/15/04 5,030,865
12,000,000 US Treasury Notes
7.75% due 2/15/01 12,688,080
3,000,000 US Treasury Notes
7.50% due 10/31/99 3,092,820
23,600,000 U.S. Treasury Notes
6.875% due 8/31/99 24,042,500
30,700,000 U.S. Treasury Notes
6.625% due 6/30/01 31,549,162
12,500,000 U.S. Treasury Notes
6.125% due 8/15/07 12,845,750
15,750,000 U.S. Treasury Notes
6.00% due 8/15/00 15,863,243
4,100,000 U.S. Treasury Notes
5.875% due 11/15/99 4,114,719
10,000,000 U.S. Treasury Notes
5.875% due 3/31/99 10,026,600
8,250,000 U.S. Treasury Notes
5.75% due 8/15/03 8,255,115
15,000,000 U.S. Treasury Notes
5.75% due 11/30/02 15,011,700
7,000,000 U.S. Treasury Notes
5.625% due 10/31/99 6,993,420
------------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $176,848,279) 178,767,408
------------
- --------------------
YANKEE BONDS -- 2.1%
- --------------------
$ 4,000,000 Avon Energy Partners Hldgs.+
6.73% due 12/11/02 $ 4,027,600
3,500,000 People's Republic of China
7.375% due 7/3/01 3,462,550
------------
TOTAL YANKEE BONDS
(Cost $7,579,450) 7,490,150
------------
See notes to financial statements.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
43
<PAGE>
- --------------
The Guardian
Bond Fund,Inc.
- --------------
3
- --------------
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS (Continued)
December 31, 1997
Principal
Amount Value
- --------------------------------------------------------------
- -----------------------------
COMMERCIAL PAPER (a) -- 21.0%
- -----------------------------
Chemicals -- 3.7%
$13,099,000 Dow Chem Co.
6.70% due 1/2/98 $ 13,096,562
------------
Conglomerates -- 7.6%
15,044,000 Koch Industries, Inc.
6.70% due 1/2/98 15,041,200
11,955,000 Sony Europe Fin. PLC
5.88% due 1/20/98 11,917,900
------------
26,959,100
------------
Electronics and Instruments -- 4.5%
16,000,000 Dominion Semiconductors
5.78% due 1/14/98 15,966,604
------------
Other Major Banks -- 4.0%
14,062,000 Barclays U.S. Funding Corp.
5.80% due 1/14/98 14,032,548
------------
Paper and Forest Products -- 0.6%
2,127,000 Union Camp Corp.
5.96% due 1/22/98 2,119,605
------------
Savings and Loan -- 0.6%
2,300,000 Standard Credit Card Master Tr.
6.02% due 1/14/98 2,295,000
------------
TOTAL COMMERCIAL PAPER
(Cost $74,469,419) 74,469,419
------------
- ----------------------------
REPURCHASE AGREEMENT -- 1.6%
- ----------------------------
5,824,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/97, maturity
value $5,825,893 at 5.85%
due 1/2/98 (collateralized by
$5,945,000 U.S. Treasury
Notes, 5.875% due 2/28/99) $ 5,824,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $5,824,000) 5,824,000
------------
TOTAL INVESTMENTS -- 120.1%
(Cost $423,701,967) 426,759,798
PAYABLES FOR REVERSE REPURCHASE
AGREEMENTS(a) -- (7.9%) (28,131,250)
PAYABLES FOR MORTGAGE
PASS-THROUGHS DELAYED
DELIVERY SECURITIES(a) -- (6.8%) (24,331,104)
OTHER LIABILITIES IN EXCESS OF
CASH, RECEIVABLES AND OTHER
ASSETS -- (5.4%) (18,885,533)
------------
NET ASSETS -- 100.0% $355,411,911
============
(a) Total commercial paper is segregated to cover delayed delivery securities
purchases and reverse repurchase agreements.
See notes to financial statements.
- --------------------------------------------------------------------------------
44
<PAGE>
--------------
The Guardian
Bond Fund,Inc.
--------------
3
--------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1997
ASSETS:
Investments, at identified cost* $ 423,701,967
=============
Investments, at market 420,935,798
Repurchase agreement 5,824,000
-------------
TOTAL INVESTMENTS 426,759,798
Cash 333
Receivable for securities sold 30,719,969
Interest receivable 4,576,914
Receivable for fund shares sold 126,974
-------------
TOTAL ASSETS 462,183,988
-------------
LIABILITIES:
Payable for securities purchased 53,511,187
Payable for reverse repurchase
agreements -- Note D 28,131,250
Payable for mortgage pass-through
delayed delivery securities -- Note E 24,331,104
Payable for fund shares redeemed 284,083
Accrued expenses 31,995
Due to affiliates 482,458
-------------
TOTAL LIABILITIES 106,772,077
-------------
NET ASSETS $ 355,411,911
=============
COMPONENTS OF NET ASSETS:
Capital stock, at par $ 2,934,910
Additional paid-in capital 351,115,236
Undistributed net investment income 598,263
Accumulated net realized loss on investments (2,294,329)
Net unrealized appreciation of investments 3,057,831
-------------
NET ASSETS $ 355,411,911
=============
Shares Outstanding -- $0.10 par value 29,349,095
-------------
NET ASSET VALUE PER SHARE $ 12.11
=============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1997
Investment Income:
Interest $ 23,174,400
-------------
Expenses:
Investment advisory fees -- Note B 1,730,953
Custodian fees 116,476
Audit fees 17,500
Directors' fees -- Note B 12,500
Printing expense 8,500
Transfer agent fees 3,300
Legal fees 2,985
Registration fees 2,652
Insurance expense 2,467
Other 700
-------------
Total Expenses 1,898,033
-------------
Net Investment Income 21,276,367
-------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized loss on investments (62,653)
Net change in unrealized depreciation
of investments 8,436,647
-------------
Net Realized and Unrealized Gain
on Investments 8,373,994
-------------
Net Increase in Net Assets
from Operations $ 29,650,361
=============
* Includes repurchase agreement
See notes to financial statements.
- --------------------------------------------------------------------------------
45
<PAGE>
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The Guardian
Bond Fund,Inc.
- --------------
3
- --------------
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 21,276,367 $ 22,010,719
Net realized gain/(loss) on investments (62,653) 2,193,816
Net change in unrealized appreciation/(depreciation)
of investments 8,436,647 (14,421,607)
------------- -------------
Net Increase in Net Assets from Operations 29,650,361 9,782,928
------------- -------------
Dividends to Shareholders from:
Net investment income (21,605,507) (22,033,188)
------------- -------------
From Capital Share Transactions:
Net decrease in net assets from capital share
transactions -- Note G (7,065,940) (7,778,324)
------------- -------------
Net Increase/(Decrease) in Net Assets 978,914 (20,028,584)
Net Assets:
Beginning of year 354,432,997 374,461,581
------------- -------------
End of year* $ 355,411,911 $ 354,432,997
============= =============
* Includes undistributed net investment income of: $ 598,263 $ 998,872
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
46
<PAGE>
--------------
The Guardian
Bond Fund,Inc.
--------------
3
--------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ..... $ 11.83 $ 12.25 $ 11.08 $ 12.24 $ 12.26 $ 12.33 $ 11.56 $ 11.67 $ 11.16 $ 11.12
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment
income .............. 0.75 0.76 0.76 0.40 0.70 0.81 0.92 0.97 0.98 1.03
Net realized and
unrealized gain/
(loss) on invest-
ments ............... 0.29 (0.42) 1.17 (0.82) 0.50 0.13 0.91 (0.11) 0.55 0.02
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase/
(decrease) from
investment
operations .......... 1.04 0.34 1.93 (0.42) 1.20 0.94 1.83 0.86 1.53 1.05
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Dividends and Distributions
to Shareholders from:
Net investment income . (0.76) (0.76) (0.76) (0.68) (0.70) (0.81) (0.92) (0.97) (1.02) (1.01)
Net realized gain ..... -- -- -- (0.06) (0.52) (0.20) (0.14) -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions ....... (0.76) (0.76) (0.76) (0.74) (1.22) (1.01) (1.06) (0.97) (1.02) (1.01)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year .................. $ 12.11 $ 11.83 $ 12.25 $ 11.08 $ 12.24 $ 12.26 $ 12.33 $ 11.56 $ 11.67 $ 11.16
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total return* ........... 8.99% 2.88% 17.59% (3.45)% 9.85% 7.70% 16.19% 7.57% 13.88% 9.70%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of year
(000's omitted) ..... $355,412 $354,433 $374,462 $308,978 $340,269 $284,330 $222,299 $165,844 $147,753 $113,616
Ratio of expenses to
average net assets .. 0.55% 0.54% 0.54% 0.54% 0.55% 0.56% 0.57% 0.58% 0.60% 0.61%
Ratio of net invest-
ment income to
average net assets .. 6.15% 6.12% 6.43% 5.69% 5.56% 6.70% 7.81% 8.53% 8.78% 8.97%
Portfolio turnover
rate ................ 340% 188% 298% 311% 220% 57% 43% 39% 158% 24%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
47
<PAGE>
- --------------
The Guardian
Cash Fund,Inc.
- --------------
4
- --------------
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
December 31, 1997
- -------------------------
COMMERCIAL PAPER -- 95.3%
- -------------------------
Principal
Amount Value
- --------------------------------------------------------------
FINANCIAL -- 30.4%
Bank Holding Companies -- 4.4%
$16,000,000 J.P. Morgan & Co., Inc.
5.60% due 1/6/98 $ 15,987,556
------------
Finance Companies -- 13.0%
16,000,000 Nat'l. Rural Utils. Coop. Fin. Corp.
5.54% due 1/8/98 15,982,764
16,000,000 Private Export Funding Corp.
5.70% due 2/4/98 15,913,867
16,000,000 USAA Capital Corp.
5.67% due 1/26/98 15,937,000
------------
47,833,631
------------
Other Major Banks -- 13.0%
16,000,000 Barclays U.S. Funding Corp.
5.68% due 1/21/98 15,949,511
16,000,000 Commerzbank U.S. Fin.
5.69% due 1/14/98 15,967,124
16,000,000 Deutsche Bank Fin., Inc.
5.69% due 1/16/98 15,962,067
------------
47,878,702
------------
Total Financial 111,699,889
------------
INDUSTRIAL -- 64.9%
Automotive -- 8.7%
16,000,000 Ford Motor Credit Co.
5.71% due 1/15/98 15,964,471
16,000,000 Toyota Motor Credit Co.
5.65% due 1/28/98 15,932,200
------------
31,896,671
------------
Conglomerates -- 4.3%
16,000,000 General Electric Cap. Corp.
5.60% due 1/20/98 15,952,711
------------
Containers-Metals and Plastics -- 4.3%
16,000,000 Sonoco Products Co.
5.82% due 1/13/98 15,968,960
------------
Electrical Equipment -- 4.3%
16,000,000 Emerson Electric
5.73% due 1/29/98 15,928,693
------------
Electronic Components -- 4.3%
16,000,000 Rockwell Int'l. Corp.
5.75% due 2/3/98 15,915,667
------------
Food and Beverage -- 13.0%
16,000,000 Cargill, Inc.
5.72% due 2/18/98 15,877,973
16,000,000 Coca Cola Co.
5.73% due 2/9/98 15,900,680
16,000,000 Kellogg Co.
5.70% due 2/13/98 15,891,066
------------
47,669,719
------------
Household Products -- 4.4%
16,000,000 Procter & Gamble Co.
5.57% due 1/9/98 15,980,196
------------
Publishing-News -- 4.3%
16,000,000 Gannett, Inc.
5.65% due 1/12/98 15,972,378
------------
Telecommunications -- 13.0%
16,000,000 American Telephone & Telegraph
Co. 5.53% due 1/5/98 15,990,169
16,000,000 British Telecommunications PLC
5.70% due 2/5/98 15,911,333
16,000,000 Lucent Technologies, Inc.
5.68% due 2/2/98 15,919,218
------------
47,820,720
------------
Utilities-Electric -- 4.3%
16,000,000 Carolina Power & Light Co.
5.82% due 1/30/98 15,924,987
------------
Total Industrial 239,030,702
------------
TOTAL COMMERCIAL PAPER
(Cost $350,730,591) 350,730,591
------------
See notes to financial statements.
- --------------------------------------------------------------------------------
48
<PAGE>
--------------
The Guardian
Cash Fund,Inc.
--------------
4
--------------
- --------------------------------------------------------------------------------
- ----------------------------
REPURCHASE AGREEMENT -- 4.7%
- ----------------------------
Principal
Amount Value
- --------------------------------------------------------------
$17,265,000 State Street Bank & Trust Co.
repurchase agreement, dated
12/31/97, maturity value
$17,270,611 at 5.85% due
1/2/98 (collateralized by
$17,615,000 U.S. Treasury
Notes, 5.875% due 2/28/99) $ 17,265,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $17,265,000) 17,265,000
------------
TOTAL INVESTMENTS -- 100.0%
(Cost $367,995,591) 367,995,591
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 0.0% 126,858
------------
NET ASSETS -- 100.0% $368,122,449
============
See notes to financial statements.
- --------------------------------------------------------------------------------
49
<PAGE>
- --------------
The Guardian
Cash Fund,Inc.
- --------------
4
- --------------
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1997
ASSETS:
Investments, at identified cost* $367,995,591
============
Investments, at market 350,730,591
Repurchase agreement 17,265,000
------------
TOTAL INVESTMENTS 367,995,591
Cash 113
Receivable for fund shares sold 928,773
Interest receivable 2,805
------------
TOTAL ASSETS 368,927,282
------------
LIABILITIES:
Payable for fund shares redeemed 242,066
Accrued expenses 57,515
Due to affiliates 505,252
------------
TOTAL LIABILITIES 804,833
------------
NET ASSETS $368,122,449
============
COMPONENTS OF NET ASSETS:
Capital stock, at par $ 3,681,225
Additional paid-in capital 364,441,224
------------
NET ASSETS $368,122,449
============
Shares Outstanding -- $0.10 par value 36,812,245
------------
NET ASSET VALUE PER SHARE $ 10.00
============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1997
Investment Income:
Interest $ 21,731,247
------------
Expenses:
Investment advisory fees -- Note B 1,955,040
Custodian fees 81,651
Registration fees 18,321
Audit fees 17,000
Directors' fees -- Note B 12,500
Printing expense 9,600
Transfer agent fees 3,300
Legal fees 2,800
Insurance expense 2,635
Other 700
------------
Total Expenses 2,103,547
------------
Net Investment Income,
Representing Net Increase in
Net Assets from Operations $ 19,627,700
============
* Includes repurchase agreement.
See notes to financial statements.
- --------------------------------------------------------------------------------
50
<PAGE>
--------------
The Guardian
Cash Fund,Inc.
--------------
4
--------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
1997 1996
------------- -------------
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 19,627,700 $ 18,377,984
------------- -------------
Net Increase in Net Assets from Operations 19,627,700 18,377,984
------------- -------------
Dividends to Shareholders from:
Net investment income (19,627,700) (18,377,984)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from
capital share transactions -- Note G (10,199,261) 21,501,621
------------- -------------
Net Increase/(Decrease) in Net Assets (10,199,261) 21,501,621
Net Assets:
Beginning of year 378,321,710 356,820,089
------------- -------------
End of year $ 368,122,449 $ 378,321,710
============= =============
See notes to financial statements.
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------
The Guardian
Cash Fund,Inc.
- --------------
4
- --------------
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ..... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income . 0.50 0.49 0.54 0.38 0.26 0.35 0.54 0.77 0.87 0.72
Dividends to
Shareholders from:
Net investment income . (0.50) (0.49) (0.54) (0.38) (0.26) (0.35) (0.54) (0.77) (0.87) (0.72)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year .................. $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total return* ........... 5.14% 4.98% 5.52% 3.82% 2.64% 3.21% 5.59% 7.95% 8.70% 7.20%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of year
(000's omitted) ..... $368,122 $378,322 $356,820 $386,986 $310,798 $318,879 $331,677 $331,600 $262,865 $228,310
Ratio of expenses to
average net assets .. 0.54% 0.54% 0.54% 0.54% 0.54% 0.54% 0.55% 0.56% 0.56% 0.58%
Ratio of net invest-
ment income to
average net assets .. 5.02% 4.86% 5.39% 3.81% 2.61% 3.17% 5.44% 7.67% 8.67% 7.17%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
52
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
53
<PAGE>
--------------
The Guardian
Stock, Bond
& Cash
--------------
4
--------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- ----------------------------------------------
Note A -- Organization and Accounting Policies
- ----------------------------------------------
The Guardian Stock Fund, Inc. (GSF), The Guardian Bond Fund, Inc. (GBF)
and The Guardian Cash Fund, Inc. (GCF) (collectively, the Funds and
individually, a Fund), are each incorporated in the state of Maryland and are
diversified open-end management investment companies registered under the
Investment Company Act of 1940, as amended (1940 Act). Shares of the Funds are
only sold to certain separate accounts of The Guardian Insurance & Annuity
Company, Inc. (GIAC). GIAC is a wholly owned subsidiary of The Guardian Life
Insurance Company of America (Guardian Life). The Funds are available for
investment only through the purchase of certain variable annuity and variable
life insurance contracts issued by GIAC. Significant accounting policies of the
Funds are as follows:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
Investments in GSF and GBF are carried at value. Securities listed on
national securities exchanges are valued based upon closing prices on these
exchanges. Securities traded in the over-the-counter market and listed
securities for which there have been no trades for the day are valued at the
mean of the bid and asked prices.
Certain debt securities may be valued each business day by an independent
pricing service (Service) approved by the Board of Directors. Debt securities
for which quoted bid prices, in the judgment of the Service, are readily
available and representative of the bid side of the market, are valued at the
mean between the quoted bid prices (as obtained by the Service from dealers in
such securities) and asked prices (as calculated by the Service based upon its
evaluation of the market for such securities). Other debt securities that are
valued by the Service are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of securities
of comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions.
Securities for which market quotations are not readily available,
including certain mortgage-backed securities and restricted securities, are
valued by using methods that each Fund's Board of Directors, in good faith,
believes will accurately reflect their fair value.
The valuation of securities held by GCF is based upon their amortized cost
which approximates market value, in accordance with Rule 2a-7 under the 1940
Act. Amortized cost valuations do not take into account unrealized gains and
losses.
Investment securities transactions are recorded on the date of purchase or
sale. Repurchase agreements are carried at cost, which approximates value (see
Note C).
Net realized gain or loss on sales of investments is determined on the
identified cost basis. Interest income, including amortization of premium and
discount, is recorded when earned. Dividends are recorded on the ex-dividend
date.
Federal Income Taxes
Each Fund qualifies and intends to remain qualified to be taxed as a
"regulated investment company" under the provisions of the Internal Revenue Code
(Code), and as such will not be subject to federal income tax on investment
income (including any realized capital gains) which is distributed to its
shareholders in accordance with the applicable provisions of the Code.
Therefore, no federal income tax provision is required.
Reclassifications of Capital Accounts
The treatment for financial statement purposes of
- --------------------------------------------------------------------------------
54
<PAGE>
- --------------
The Guardian
Stock, Bond
& Cash
- --------------
4
- --------------
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (continued)
distributions made during the year from net investment income and net realized
gains may differ from their ultimate treatment for federal income tax purposes.
These differences primarily are caused by differences in the timing of the
recognition of certain components of income or capital gain, and the
recharacterization of foreign exchange gains or losses to either ordinary income
or realized capital gains for federal income tax purposes. Where such
differences are permanent in nature, they are reclassified in the components of
net assets based on their ultimate characterization for federal income tax
purposes. Any such reclassifications will have no effect on net assets, results
of operations, or net asset value per share of the Fund.
During the year ended December 31, 1997, GBF reclassified amounts to paid-in
capital from undistributed/(overdistributed) net investment income and
accumulated net realized gain/(loss) on investments. Increase (decrease) to the
various capital accounts were as follows:
Undistributed/ Accumulated
(overdistributed) net realized
Paid-in net investment gain/(loss) on
capital income investments
------- ----------------- --------------
GBF -- $(71,469) $71,469
Dividend Distributions
GSF and GBF intend to distribute each year, as dividends or capital gain
distributions, substantially all net investment income and net capital gains
realized. All such dividends or distributions are credited in the form of
additional shares of the applicable Fund at net asset value on the ex-dividend
date. Such distributions are determined in conformity with federal income tax
regulations. Differences between the recognition of income on an income tax
basis and recognition of income based on generally accepted accounting
principles may cause temporary overdistributions of net realized gains and net
investment income. Currently, the policy of GSF and GBF is to distribute net
investment income approximately every six months and net capital gains annually.
This policy is, however, subject to change at any time by each Fund's Board of
Directors.
GCF earns interest on its investments daily and distributes all of its net
investment income, increased or decreased by realized gains or losses, each day
GCF is open for business. Earnings for Saturdays, Sundays and holidays are paid
as a dividend on the next business day.
All dividends and distributions are credited in the form of additional
shares of GCF at net asset value on the payable date.
- -----------------------------------------
Note B -- Investment Advisory Agreements
and Payments to Related Parties
- -----------------------------------------
Each Fund has an investment advisory agreement with Guardian Investor
Services Corporation (GISC), a wholly owned subsidiary of GIAC. GISC receives a
management fee from each Fund computed at the rate of .50% of the daily average
net assets during the fiscal year, payable quarterly. If total expenses of any
Fund (excluding taxes, interest and brokerage commissions, but including the
investment advisory fee) exceeds 1% per annum of the average daily net assets of
the Fund, GISC has agreed to assume any such expenses. None of the Funds
exceeded this limit during the year ended December 31, 1997.
No compensation is paid by any of the Funds to a director who is deemed to
be an "interested person" (as defined in the 1940 Act) of a Fund. Each director
not deemed an "interested person" is paid an annual fee of $500 by each Fund,
and $350 for attendance at each meeting of each Fund.
- -------------------------------
Note C -- Repurchase Agreements
- -------------------------------
Collateral underlying repurchase agreements takes the form of either cash
or fully negotiable U.S. government securities. Repurchase agreements are fully
collateralized (including the interest earned thereon) and such collateral is
marked to market daily while the
- --------------------------------------------------------------------------------
55
<PAGE>
- --------------
The Guardian
Stock, Bond
& Cash
- --------------
4
- --------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (continued)
agreements remain in force. If the value of the underlying securities falls
below the value of the repurchase price plus accrued interest, the Funds will
require the seller to deposit additional collateral by the next business day. If
the request for additional collateral is not met, or the seller defaults, the
Funds maintain the right to sell the collateral and may claim any resulting loss
against the seller. Each Fund's Board of Directors has established standards to
evaluate the creditworthiness of broker-dealers and banks which engage in
repurchase agreements with each Fund.
- ---------------------------------------
Note D -- Reverse Repurchase Agreements
- ---------------------------------------
GBF may enter into reverse repurchase agreements with banks or third party
broker-dealers to borrow short term funds. Interest on the value of reverse
repurchase agreements issued and outstanding is based upon competitive market
rates at the time of issuance. At the time GBF enters into a reverse repurchase
agreement, it establishes and maintains cash, U.S. Government securities or
liquid, unencumbered securities that are marked to market daily in a segregated
account with the Fund's custodian. The value of such segregated assets must be
at least equal to the value of the repurchase obligation (principal plus accrued
interest), as applicable. Reverse repurchase agreements involve the risk that
the buyer of the securities sold by GBF may be unable to deliver the securities
when the Fund seeks to repurchase them. Interest paid on reverse repurchase
agreements for the year ended December 31, 1997 amounted to $128,421.
Information regarding transactions by The Guardian Bond Fund under reverse
repurchase agreements is as follows:
Face Market
Value Value
----- -----
$13,093,750 Reverse Repurchase Agreement with Lehman Brothers,
Inc., 6.125% dated 12/31/97, to be repurchased at
$13,097,715 on 1/2/98, collateralized by
$13,099,000 Dow Chem Co., 6.70% due 1/2/98 ......... $13,093,750
15,037,500 Reverse Repurchase Agreement with Goldman Sachs,
LP, 5.75% dated 12/31/97, to be repurchased at
$15,041,552 on 1/2/98, collateralized by
$15,044,000 Koch Industries, Inc., 6.70% due 1/2/98 15,037,500
-----------
$28,131,250
===========
Average amount outstanding during the year ......... $ 417,211
Average monthly shares outstanding during the year . 31,244,159
Average debt per share outstanding during the year . $ 0.01
Weighted average interest rate during the year ..... 4.86%
- --------------------------------------------------------------------------------
56
<PAGE>
--------------
The Guardian
Stock, Bond
& Cash
--------------
4
--------------
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (continued)
- ----------------------------------
Note E -- Dollar Roll Transactions
- ----------------------------------
GBF may enter into dollar roll transactions with financial institutions to
take advantage of opportunities in the mortgage market. A dollar roll
transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase similar securities at an agreed upon price
and date. The securities repurchased will bear the same interest as those sold,
but generally will be collateralized at time of delivery by different pools of
mortgages with different prepayment histories than those securities sold. During
the period between the sale and repurchase, the Fund will not be entitled to
receive interest and principal payments on the securities sold. Dollar roll
transactions involve the risk that the buyer of the securities sold by GBF may
be unable to deliver the securities when GBF seeks to repurchase them.
- ---------------------------------
Note F -- Investment Transactions
- ---------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the year ended December 31, 1997 were as follows:
GSF GBF
--- ---
Purchases........................... $1,425,160,077 $1,154,534,542
Proceeds............................ $1,319,415,028 $1,145,649,039
The cost of investments owned at December 31, 1997 for federal income tax
purposes was the same as for financial reporting purposes. The gross unrealized
appreciation and depreciation of investments at December 31, 1997 for GSF and
GBF were as follows:
GSF GBF
--- ---
Gross Appreciation.................. $ 973,907,288 $ 4,232,080
Gross Depreciation.................. (31,209,861) (1,174,249)
-------------- --------------
Net Unrealized Appreciation....... $ 942,697,427 $ 3,057,831
============== =============
- --------------------------------------------------------------------------------
57
<PAGE>
- --------------
The Guardian
Stock, Bond
& Cash
- --------------
4
- --------------
- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (continued)
- ---------------------------------------
Note G -- Transactions in Capital Stock
- ---------------------------------------
There are 100,000,000 shares of $0.10 par value capital stock authorized
for each of the Funds. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------
Shares Amount
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian Stock Fund, Inc.
Shares sold 9,514,978 9,984,589 $ 429,926,820 $ 376,271,228
Shares issued in reinvestment of
dividends and distributions 8,346,801 7,056,955 376,552,398 270,899,336
Shares repurchased (5,599,554) (5,854,449) (251,187,198) (218,108,938)
- --------------------------------------------------------------------------------------------
Net increase 12,262,225 11,187,095 $ 555,292,020 $ 429,061,626
- --------------------------------------------------------------------------------------------
o The Guardian Bond Fund, Inc.
Shares sold 3,714,602 4,464,537 $ 45,183,038 $ 53,654,579
Shares issued in reinvestment of
dividends and distributions 1,799,751 1,871,161 21,605,507 22,033,188
Shares repurchased (6,115,919) (6,951,420) (73,854,485) (83,466,091)
- --------------------------------------------------------------------------------------------
Net decrease (601,566) (615,722) $ (7,065,940) $ (7,778,324)
- --------------------------------------------------------------------------------------------
o The Guardian Cash Fund, Inc.
Shares sold 30,190,330 33,287,898 $ 301,903,299 $ 332,878,981
Shares issued in reinvestment of
dividends and distributions 1,962,770 1,837,798 19,627,700 18,377,984
Shares repurchased (33,173,026) (32,975,534) (331,730,260) (329,755,344)
- --------------------------------------------------------------------------------------------
Net increase/(decrease) (1,019,926) 2,150,162 $ (10,199,261) $ 21,501,621
- --------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
Note H -- Line of Credit
- ------------------------
A $20,000,000 line of credit available to each Fund and the other Guardian
related Funds has been established with Morgan Guaranty Trust Company. The rate
of interest charged on any borrowings is based upon the prevailing Federal Funds
rate at the time of the loan plus .25% calculated on a 360 day basis per annum.
For the year ended December 31, 1997, none of the Funds borrowed against this
line of credit.
- --------------------------------------------------------------------------------
58
<PAGE>
--------------
The Guardian
Stock, Bond
& Cash
--------------
4
--------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors and Shareholders
The Guardian Stock Fund, Inc.
The Guardian Bond Fund, Inc.
The Guardian Cash Fund, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of The Guardian Stock Fund, Inc., The
Guardian Bond Fund, Inc. and The Guardian Cash Fund, Inc. as of December 31,
1997, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the ten years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Guardian Stock Fund, Inc., The Guardian Bond Fund, Inc. and The Guardian Cash
Fund, Inc. at December 31, 1997, the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended, and the financial highlights for each of the ten years in the
period then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 9, 1998
- --------------------------------------------------------------------------------
59
<PAGE>
- ---------------
Baillie Gifford
International
Fund
- ---------------
5
- ---------------
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1997
- ----------------------
COMMON STOCKS -- 98.4%
- ----------------------
Shares Value
- --------------------------------------------------------------------------
ARGENTINA -- 0.8%
Banks -- 0.4%
76,000 Banco de Galicia Y
Buenos Aires S.A. ADR* $ 1,957,000
Oil and Gas -- 0.4%
315,055 Perez Companc S.A. 2,249,920
------------
4,206,920
------------
AUSTRALIA -- 2.1%
Banks -- 0.6%
496,000 Australia & NZ Bank Group 3,277,937
Beverage -- 0.5%
1,335,300 Fosters Brewing Group 2,541,222
Business Services -- 0.6%
175,700 Brambles Industries Ltd. 3,486,904
Real Estate -- 0.4%
101,632 Lend Lease Corp. 1,987,159
------------
11,293,222
------------
BRAZIL -- 2.2%
Food, Beverage and Tobacco -- 0.3%
110,000 Comp. Cerveja Ria Brahma ADR 1,560,625
Petroleum Services -- 0.3%
75,000 Petroleo Brasileiro S.A. ADR 1,725,000
Retail-Food -- 0.3%
64,000 Comp. Brasileira de Distribution GDR+ 1,240,000
Telecommunications -- 0.9%
43,553 Telecom. Brasileiras ADR 5,071,202
Utilities-Electric -- 0.4%
27,300 Comp. Energetica de Minas ADR 1,201,200
61,000 Comp. Pamanaense de Energia ADR 834,938
------------
11,632,965
------------
CHILE -- 0.2%
Retail-Food -- 0.2%
65,604 Distribucion Y Servicio S.A. ADR* 1,217,774
------------
CZECH REPUBLIC -- 0.2%
Banks -- 0.2%
75,866 Komercni Banka S.A. GDR 910,392
------------
FRANCE -- 4.0%
Electronics-Semiconductor -- 1.0%
86,200 SGS Thomson Microelectronics NV* 5,335,133
Oil-Integrated -- 1.9%
86,550 Elf Aquitaine 10,066,462
Retail Trade -- 1.1%
11,850 Comptoirs Modernes 6,064,302
------------
21,465,897
------------
GERMANY -- 13.4%
Automobile -- 2.3%
16,110 Bayerische Motoren Werke AG* 12,044,776
Banks -- 2.4%
199,700 Bayerische Vereinsbank AG* 13,065,783
Chemicals -- 0.7%
108,610 BASF AG 3,848,849
Drugs and Health Care -- 0.9%
99,440 GEHE AG 4,974,902
Footwear -- 2.2%
89,300 Adidas AG 11,744,840
Industrial Machineries -- 2.3%
24,180 Mannesmann AG 12,218,027
Insurance -- 0.7%
9,370 Munchener Ruckvers* 3,531,427
Software -- 1.9%
34,140 SAP AG 10,371,333
------------
71,799,937
------------
HONG KONG -- 3.0%
Conglomerates -- 1.2%
579,000 CITIC Pacific Ltd. 2,301,355
644,000 Hutchison Whampoa 4,039,024
Real Estate -- 1.8%
891,000 Henderson Land Development 4,196,864
1,088,220 Hong Kong Land Hldgs. 2,089,382
598,000 Hysan Development Co. 1,192,296
698,000 New World Development Co. 2,414,041
------------
16,232,962
------------
See notes to financial statements.
* Non-income producing security.
+ Rule 144A restricted security.
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International
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5
---------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------
HUNGARY -- 1.1%
Food and Beverage -- 0.4%
27,000 Pick Szeged RT $ 2,154,765
Pharmaceuticals -- 0.7%
31,700 Richter Gedeon VEG 3,599,998
------------
5,754,763
------------
IRELAND -- 1.9%
Banks -- 0.9%
512,000 Allied Irish Bank 4,955,358
Construction Materials -- 1.0%
444,600 CRH PLC 5,183,889
------------
10,139,247
------------
ITALY -- 5.4%
Oil-lntegrated -- 1.3%
1,214,200 Eni Spa 6,884,356
Telecommunications -- 4.1%
1,625,440 Telecom. Italia SPA 10,382,969
2,435,000 Telecom. Italia MOB 11,238,991
------------
28,506,316
------------
JAPAN -- 14.8%
Automobiles -- 1.2%
176,000 Honda Motor Co. 6,456,613
Chemicals -- 0.7%
200,000 Shin Etsu Chemical Co. 3,814,046
Computer Systems -- 1.1%
107 NTT Data Comm. Systems 5,760,971
Drugs and Health Care -- 0.6%
146,000 Sanyo Co. 3,298,613
Electronics -- 2.7%
75,000 Rohm Co. 7,639,580
77,400 Sony Corp. 6,876,311
Financial Services -- 3.0%
240,100 Credit Saison Co. 5,921,130
111,440 Promise Co. 6,179,257
12,800 Shohkoh Fund & Co.* 3,901,662
Industrial Machineries -- 0.9%
57,700 SMC Corp. 5,081,948
Leisure Products -- 0.4%
18,150 Toho Co. 1,932,182
Photography -- 1.9%
185,000 Canon, Inc. 4,307,268
153,000 Fuji Photo Film Co. 5,858,926
Real Estate -- 0.9%
426,000 Mitsubishi Estate 4,632,917
Retail Trade -- 0.3%
133,000 Jusco Co. 1,874,244
Telecommunications -- 1.1%
210,000 Matsushita Communications 5,596,997
------------
79,132,665
------------
MEXICO -- 1.0%
Conglomerates -- 0.2%
156,000 Alfa S.A. 1,057,332
Media and Entertainent -- 0.3%
83,000 TV Azteca S.A. de C.V. ADR* 1,872,687
Retail Trade -- 0.2%
290,000 Organiz. Soriana* 1,275,634
Telecommunications -- 0.3%
23,800 Telefonos de Mexico S.A. ADR 1,334,288
------------
5,539,941
------------
NETHERLANDS -- 5.6%
Banks -- 2.6%
700,250 ABN Amro Hldgs. NV 13,641,345
Broadcasting and Publishing -- 1.9%
360,000 Ver Ned Uitgevers 10,155,599
Semiconductor-Equipment -- 1.1%
90,150 ASM Lithography Hldgs.* 5,913,225
------------
29,710,169
------------
NEW ZEALAND -- 0.6%
Telecommunications -- 0.6%
679,000 Telecom. Corp. of New Zealand 3,292,082
------------
See notes to financial statements.
* Non-income producing security.
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Baillie Gifford International Fund
- ----------------------------------
SCHEDULE OF INVESTMENTS (continued)
December 31, 1997
Shares Value
- --------------------------------------------------------------------------
NORWAY -- 0.8%
Publishing -- 0.8%
261,800 Schibsted ASA* $ 4,483,969
------------
POLAND -- 0.5%
Electrical Equipment -- 0.5%
266,150 Elektrim 2,574,671
------------
SINGAPORE -- 0.3%
Publishing -- 0.3%
127,000 Singapore Press Hldgs. 1,589,855
------------
SPAIN -- 2.5%
Banks -- 2.5%
394,500 Banco Santander S.A. 13,180,209
------------
SWEDEN -- 4.2%
Conglomerates -- 1.2%
72,000 Incentive AB 6,501,845
Construction and Mining Equipment -- 1.2%
216,000 Atlas Copco AB 6,433,834
Telecommunications -- 1.8%
255,500 LM Ericsson* 9,605,505
------------
22,541,184
------------
SWITZERLAND -- 9.8%
Business Services -- 1.0%
18,309 Adecco S.A. 5,306,502
Industrial Machineries -- 0.4%
1,245 Bobst AG 1,831,885
Insurance -- 2.5%
28,080 Zurich Versicherungs-Gesellschaft* 13,375,089
Pharmaceuticals -- 5.9%
19,530 Novartis AG 31,676,773
------------
52,190,249
------------
UNITED KINGDOM -- 24.0%
Banks -- 6.1%
642,000 Abbey National 11,557,156
437,500 HSBC Hldgs. 10,793,278
550,000 Lloyds TSB Group PLC* 7,155,272
188,000 National Westminster Bank Co. PLC 3,124,955
Conglomerates -- 2.5%
1,675,000 Rentokil Initial PLC 7,412,522
1,077,000 Williams Hldgs. 5,979,127
Containers-Paper and Plastic -- 0.5%
600,000 Bunzl PLC 2,330,708
Distributors -- 0.2%
204,000 Litho Supplies 789,090
Drugs and Health Care -- 3.4%
583,000 Glaxo Wellcome 13,899,046
124,000 Zeneca Group 4,392,246
Electronics -- 0.7%
373,000 Eletrocomponents 2,775,316
139,000 Premier Farnell 999,987
Engineering -- 0.9%
243,000 Siebe 4,769,574
Food, Beverage and Tobacco -- 2.4%
350,000 Devro Int'l. 2,167,279
961,900 Imperial Tobacco 6,051,097
327,702 Whitbread 4,811,960
Insurance -- 0.6%
100,000 Britannic Assurance 1,798,538
420,000 Cox Insurance Hldgs. PLC 1,634,944
Leisure Products -- 0.7%
243,000 Granada Group 3,711,886
Mining -- 0.2%
239,672 Antofagasta Hldgs. 1,299,082
Newspapers -- 0.2%
164,000 Southnews PLC 1,225,633
Oil-lnternational -- 2.1%
847,872 British Petroleum 11,216,099
Retail Trade -- 1.5%
331,000 Argos PLC 2,987,453
475,087 Dixons Group 4,767,819
Telecommunications -- 1.6%
992,991 Cable & Wireless Co.* 4,305,808
585,000 Vodafone Group 4,227,795
See notes to financial statements.
* Non-income producing security.
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Shares Value
- --------------------------------------------------------------------------
Transportation -- 0.4%
288,000 BAA PLC $ 2,355,739
------------
128,539,409
------------
TOTAL COMMON STOCKS
(Cost $420,480,722) 525,934,798
------------
- ----------------------------
REPURCHASE AGREEMENT -- 0.6%
- ----------------------------
Principal
Amount Value
- --------------------------------------------------------------------------
$ 3,262,000 State Street Bank & Trust Co.
repurchase agreement, dated
12/31/97, maturity value
$3,262,906 at 5.00% due 1/2/98
(collateralized by $3,330,000
U.S. Treasury Notes, 5.625%
due 11/30/99) $ 3,262,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $3,262,000) 3,262,000
------------
TOTAL INVESTMENTS -- 99.0%
(Cost $423,742,722) 529,196,798
CASH, RECEIVABLES AND OTHER ASSETS
LESS LIABILITIES -- 1.0% 5,514,672
------------
NET ASSETS -- 100.0% $534,711,470
============
Glossary of terms:
ADR - American Depository Receipt.
GDR - Global Depository Receipt.
See notes to financial statements.
* Non-income producing security.
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Fund
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5
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Baillie Gifford International Fund
- ----------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1997
ASSETS:
Investments, at identified cost* $ 423,742,722
=============
Investments, at market 525,934,798
Repurchase agreement 3,262,000
-------------
TOTAL INVESTMENTS 529,196,798
Cash 466
Foreign currency (cost $4,725,729) 4,538,813
Receivable for securities sold 2,554,830
Dividends receivable 724,862
Dividend reclaims receivable 277,112
Receivable for fund shares sold 117,808
Interest receivable 453
-------------
TOTAL ASSETS 537,411,142
-------------
LIABILITIES:
Payable for fund shares redeemed 1,166,441
Accrued expenses 170,941
Due to affiliates 1,362,290
-------------
TOTAL LIABILITIES 2,699,672
-------------
NET ASSETS $ 534,711,470
=============
COMPONENTS OF NET ASSETS:
Capital stock, at par $ 2,926,929
Additional paid-in capital 427,576,050
Distributions in excess of net investment income (4,371,711)
Accumulated net realized gain on investments
and foreign currency related transactions 3,341,529
Net unrealized appreciation of investments
and translation of other assets and liabilities
denominated in foreign currencies 105,238,673
-------------
NET ASSETS $ 534,711,470
=============
Shares Outstanding -- $0.10 par value 29,269,287
-------------
NET ASSET VALUE PER SHARE $ 18.27
=============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1997
Investment Income:
Dividends $ 9,121,720
Interest 622,498
Less: Foreign tax withheld (968,229)
-------------
Total Income 8,775,989
-------------
Expenses:
Investment advisory fees -- Note B 4,111,020
Custodian fees 767,340
Registration fees 29,000
Audit fees 21,000
Directors' fees -- Note B 12,500
Printing expense 12,500
Transfer agent fees 3,300
Insurance expense 3,179
Legal fees 2,950
Other 700
-------------
Total Expenses 4,963,489
-------------
Net Investment Income 3,812,500
-------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized gain on investments -- Note A 24,244,922
Net realized loss on foreign currency
related transactions -- Note A (806,875)
Net change in unrealized appreciation of
investments -- Note C 27,413,628
Net change in unrealized depreciation from
translation of other assets and liabilities
denominated in foreign currencies -- Note C (161,464)
-------------
Net Realized and Unrealized Gain on
Investments and Foreign Currencies 50,690,211
-------------
Net Increase in Net Assets
from Operations $ 54,502,711
-------------
* Includes repurchase agreement.
See notes to financial statements.
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International
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STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 3,812,500 $ 3,598,533
Net realized gain on investments and foreign currency
related transactions 23,438,047 6,850,247
Net change in unrealized appreciation/(depreciation)
on investments and translation of other assets and
liabilities denominated in foreign currencies 27,252,164 45,984,301
------------- -------------
Net Increase in Net Assets from Operations 54,502,711 56,433,081
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income (3,812,500) (3,598,533)
Distributions in excess of net investment income (4,530,809) (2,499,964)
Net realized gain from investments (20,727,823) (5,631,085)
------------- -------------
Total Dividends and Distribution to Shareholders (29,071,132) (11,729,582)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from capital share
transactions -- Note E 53,077,150 94,212,372
------------- -------------
Net Increase in Net Assets 78,508,729 138,915,871
Net Assets:
Beginning of year 456,202,741 317,286,870
------------- -------------
End of year* $ 534,711,470 $ 456,202,741
============= =============
* Includes overdistributed net investment income of: $ (4,371,711) $ (180,888)
</TABLE>
See notes to financial statements.
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International
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Baillie Gifford International Fund
- ----------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
February 8,
Year Ended December 31, 1991* to
------------------------------------------------------------------ December 31,
1997 1996 1995 1994 1993 1992 1991
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ................ $ 17.26 $ 15.37 $ 14.69 $ 14.69 $ 11.16 $ 12.37 $ 10.00
-------- -------- -------- -------- -------- ------- -------
Income from Investment Operations
Net investment income ........... 0.15 0.15 0.16 0.15 0.23 0.09 0.04
Net realized and unrealized
gain/(loss) on investments and
translation of other assets and
liabilities denominated
in foreign currencies ......... 1.91 2.21 1.49 (0.02) 3.54 (1.20) 2.52
-------- -------- -------- -------- -------- ------- -------
Net increase/(decrease) from
investment operations ......... 2.06 2.36 1.65 0.13 3.77 (1.11) 2.56
-------- -------- -------- -------- -------- ------- -------
Dividends and Distributions to
Shareholders from:
Net investment income ........... (0.15) (0.14) (0.15) (0.13) (0.24) (0.10) (0.04)
Distributions in excess of
net investment income ......... (0.15) (0.10) (0.12) -- -- -- --
Net realized gain on investments
and foreign currency related
transactions .................. (0.75) (0.23) (0.70) -- -- -- (0.15)
-------- -------- -------- -------- -------- ------- -------
Total dividends and distributions (1.05) (0.47) (0.97) (0.13) (0.24) (0.10) (0.19)
-------- -------- -------- -------- -------- ------- -------
Net asset value, end of period ....... $ 18.27 $ 17.26 $ 15.37 $ 14.69 $ 14.69 $ 11.16 $ 12.37
======== ======== ======== ======== ======== ======= =======
Total return** ....................... 11.93% 15.41% 11.23% 0.87% 34.04% (8.90)% 8.56%
======== ======== ======== ======== ======== ======= =======
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............... $534,711 $456,203 $317,287 $303,050 $186,795 $55,175 $36,012
Ratio of expenses to average
net assets .................... 0.97% 0.98% 0.99% 1.03% 1.11% 1.26% 1.67%(a)
Ratio of net investment income to
average net assets ............ 0.74% 0.94% 0.97% 1.11% 1.75% 0.88% 0.61%(a)
Portfolio turnover
rate .......................... 51% 38% 52% 27% 18% 44% 14%
Average rate of commissions
paid(b) ....................... $ 0.0214 $ 0.0364
</TABLE>
* Commencement of operations.
** Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
See notes to financial statements.
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GIAC Funds, Inc.
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GIAC Funds, Inc. (Baillie Gifford International Fund)
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- ----------------------------------------------
Note A -- Organization and Accounting Policies
- ----------------------------------------------
GIAC Funds, Inc. (the Company) is a diversified open-end management
investment company registered under the Investment Company Act of 1940, as
amended (1940 Act), which was incorporated in Maryland on October 29, 1990. The
Company was known as Baillie Gifford International Fund, Inc. prior to October
11, 1994 and GBG Funds, Inc. prior to March 27, 1997. Shares of the Fund are
only sold to certain separate accounts of The Guardian Insurance & Annuity
Company, Inc. (GIAC). GIAC is a wholly owned subsidiary of The Guardian Life
Insurance Company of America. The Fund is available for investment only through
certain variable annuity and variable life insurance contracts issued by GIAC.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Valuation of Investments
Investments are carried at value. Securities listed on foreign exchanges
and for which market quotations are readily available are valued at the closing
price on the exchange on which the securities are traded or, if there have been
no sales during the day, at the mean of the closing bid and asked prices.
Securities traded in the over-the-counter market are valued at the mean between
the bid and asked prices. Securities listed or traded on any domestic (U.S.)
exchanges are valued at the last sale price or, if there have been no sales
during the day, at the mean of the closing bid and asked prices. Securities for
which market quotations are not readily available, including restricted
securities and illiquid assets, are valued at fair value as determined in good
faith by or under the direction of the Company's Board of Directors. Investing
outside of the U.S. may involve certain considerations and risks not typically
associated with domestic investments including: the possibility of political and
economic unrest and different levels of governmental supervision and regulation
of foreign securities markets.
Repurchase agreements are carried at cost which approximates market value
(See Note E).
Foreign Currency Translation
The books and records of the Fund are maintained in U.S. dollars as
follows:
(1) The foreign currency market value of investment securities and other
assets and liabilities stated in foreign currencies are translated into U.S.
dollars at the current rate of exchange.
(2) Purchases, sales, income and expenses are translated at the rate of
exchange prevailing on the respective dates of such transactions.
The resulting gains and losses are included in the Statement of Operations
as follows:
Realized foreign exchange gains and losses, which result from changes in
foreign exchange rates between the date on which the Fund earns dividends and
interest or pays foreign withholding taxes or other expenses and the date on
which U.S. dollar equivalent amounts are actually received or paid, are included
in net realized gain on foreign currency related transactions. Realized foreign
exchange gains and losses which result from changes in foreign exchange rates
between the trade and settlement dates on security and currency transactions are
also included in net realized gain or loss on foreign currency related
transactions. Net currency gains and losses from valuing investments and other
assets and liabilities denominated in foreign currency at the period end
exchange rate are
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----------------
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NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997
reflected in net change in unrealized appreciation or depreciation from
translation of other assets and liabilities denominated in foreign currencies.
Forward Foreign Currency Contracts
The Fund may enter into forward foreign currency contracts in connection
with planned purchases or sales of securities, or to hedge against changes in
currency exchange rates affecting the values of securities denominated in a
particular currency. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Fluctuations in the value of forward foreign currency exchange contracts
are recorded for book purposes as unrealized gains or losses on foreign currency
related transactions by the Fund. When forward contracts are closed, the Fund
records realized gains or losses equal to the differences between the values of
such forward contracts at the time each was opened and the value at the time
each was closed. Such amounts are recorded in net realized gain or loss on
foreign currency related transactions. The Fund will not enter into a forward
foreign currency contract if such contract would obligate the Fund to deliver an
amount of foreign currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency.
Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Net realized gains
or losses on sales of investments are determined on the identified cost basis.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on an accrual basis.
Taxes
The Fund intends to continue to qualify to be taxed as a "regulated
investment company" under the provisions of the U.S. Internal Revenue Code
(Code), and as such will not be subject to federal income tax on income
(including any realized capital gains) which is distributed to its shareholders
in accordance with the provisions of the Code. Therefore, no federal income tax
provision is required. Losses on security transactions arising after October 31
are treated as arising on the first day of the Fund's next fiscal year.
Investment income received from investments in foreign currencies may be
subject to foreign withholding tax. Whenever possible, the Fund will attempt to
operate so as to qualify for reduced tax rates or tax exemptions in those
countries with which the United States has a tax treaty.
Dividends and Distributions to Shareholders
The Fund intends to distribute each year, as dividends, substantially all
net investment income and net realized capital gains. All such dividends or
distributions are credited in the form of additional shares of the Fund at net
asset value on the ex-dividend date. Such distributions are determined in
conformity with federal income tax regulations. Differences between the
recognition of income on an income tax basis and recognition of income based on
generally accepted accounting principles may cause temporary overdistributions
of net realized gains and net investment income. Currently, the Fund's policy is
to distribute net investment income approximately every six months and net
capital gains once a year. This policy is, however, subject to change at any
time by the Company's Board of Directors.
Reclassifications of Capital Accounts
The treatment for financial statement purposes of distributions made
during the year from net investment income and net realized gains may differ
from the ultimate treatment for federal income tax purposes. These differences
primarily are caused by differences in the timing of the recognition of certain
components of income or capital gain; and the rechar-
- --------------------------------------------------------------------------------
69
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GIAC Funds, Inc.
- ----------------
5
- ----------------
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GIAC Funds, Inc. (Baillie Gifford International Fund)
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997
acterization of foreign exchange gains or losses to either ordinary income or
realized capital gains for federal income tax purposes. Where such differences
are permanent in nature, they are reclassified in the components of net assets
based on their ultimate characterization for federal income tax purposes. Any
such reclassifications will have no effect on net assets, results of operations,
or net asset value per share of the Fund.
During the year ended December 31, 1997, BGIF reclassified amounts to
paid-in capital from undistributed/(overdistributed) net investment income and
accumulated net realized gain/(loss) on investment and foreign currency related
transactions. Increase (decrease) to the various capital accounts were as
follows:
Undistributed/ Accumulated
(overdistributed) net realized
Paid-in net investment gain/(loss) on
capital income investments
------- -------------- --------------
BGIF -- $339,986 $(339,986)
- -----------------------------------------
Note B -- Investment Management Agreement
and Payment to Related Parties
- -----------------------------------------
The Fund has an investment management agreement with Guardian Baillie
Gifford Ltd. (GBG), a Scottish corporation formed through a joint venture
between GIAC and Baillie Gifford Overseas Ltd. (BG Overseas). GBG is responsible
for the overall investment management of the Fund's portfolio subject to the
supervision of the Company's Board of Directors. GBG has entered into
sub-investment management agreement with BG Overseas pursuant to which BG
Overseas is responsible for the day-to-day management of the Fund. GBG
continually monitors and evaluates the performance of BG Overseas.
As compensation for its services, GBG receives a management fee computed
at the rate of .80% of BGIF's average daily net assets. One-half of this fee
(.40%) is payable by GBG to BG Overseas for its services. Payment of the
sub-investment management fee does not represent a separate or additional
expense to the Fund.
No compensation is paid by the Company to a director who is deemed to be
an "interested person" (as defined in the 1940 Act) of the Company. Each
director not deemed an "interested person" is paid an annual fee of $500 and
$350 for attendance at each meeting of the Company.
- ---------------------------------
Note C -- Investment Transactions
- ---------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the year ended December 31, 1997 were as follows:
Purchases.................... $285,465,465
Proceeds..................... $256,495,307
The cost of investments owned at December 31, 1997 for federal income tax
purposes is the same as for financial reporting purposes. The gross unrealized
appreciation and (depreciation) of investments at December 31, 1997 were as
follows:
Gross Appreciation........... $124,312,393
Gross Depreciation........... (18,858,317)
------------
Net Unrealized Appreciation.. $105,454,076
============
Forward foreign currency contracts represent commitments to purchase or
sell a specified amount of foreign currency at a future date and at a future
price. Risks may arise from the potential inability of a counterparty to meet
the terms of a contract and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
- --------------------------------------------------------------------------------
70
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GIAC Funds, Inc.
----------------
5
----------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997
There were no open forward foreign currency contracts at December 31,
1997.
- -------------------------------
Note D -- Repurchase Agreements
- -------------------------------
Collateral underlying repurchase agreements takes the form of either cash
or fully negotiable U.S. government securities. Repurchase agreements are fully
collateralized (including the interest earned thereon) and such collateral is
marked-to-market daily while the agreements remain in force. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Fund will require the seller to deposit additional collateral by
the next business day. If the request for additional collateral is not met, or
the seller defaults, the Fund maintains the right to sell the collateral and may
claim any resulting loss against the seller. The Company's Board of Directors
has established standards to evaluate the creditworthiness of broker-dealers and
banks which engage in repurchase agreements with the Fund. Repurchase agreements
of more than seven days duration (or investments in any other securities which
are deemed to be not readily marketable by the staff of the Securities and
Exchange Commission) are not permitted if more than 10% of the Fund's net assets
would be so invested.
- ---------------------------------------
Note E -- Transactions in Capital Stock
- ---------------------------------------
There are 1,000,000,000 shares of $0.10 par value capital stock authorized
for the Fund. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------
Shares Amount
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,510,606 8,699,658 $ 103,914,585 $ 141,728,936
Shares issued in reinvestment of
dividends and distributions 1,589,325 688,306 29,071,132 11,729,581
Shares repurchased (4,262,859) (3,603,378) (79,908,567) (59,246,145)
- -----------------------------------------------------------------------------------------------------
Net increase 2,837,072 5,784,586 $ 53,077,150 $ 94,212,372
- -----------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
Note F -- Line of Credit
- ------------------------
A $20,000,000 line of credit available to the Fund and the other Guardian
related Funds has been established with Morgan Guaranty Trust Company. The rate
of interest charged on any borrowings is based upon the prevailing Federal Funds
rate at the time of the loan plus .25% calculated on a 360 day basis per annum.
For the year ended December 31, 1997, the Fund has not borrowed against this
line of credit.
+ Commencement of operations.
- --------------------------------------------------------------------------------
71
<PAGE>
- ----------------
GIAC Funds, Inc.
- ----------------
5
- ----------------
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders Baillie Gifford International Fund (a
portfolio of the GIAC Funds, Inc.)
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Baillie Gifford International Fund
(one of the portfolios constituting the GIACFunds, Inc.), as of December 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Baillie Gifford International Fund at December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
February 9, 1998
- --------------------------------------------------------------------------------
72
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- --------------------------------------------------------------------------------
73
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Centurion Fund,
Inc.
- ---------------
6
- ---------------
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1997
- ----------------------
COMMON STOCKS -- 90.7%
- ----------------------
Shares Value
- ---------------------------------------------------------------
Bank -- 9.2%
100,000 BankBoston Corporation $ 9,393,750
150,000 BankAmerica Corp. 10,950,000
150,000 Citicorp 18,965,625
300,000 Mellon Bank Corp. 18,187,500
150,000 State Street Corp. 8,728,125
-------------
66,225,000
-------------
Computer & Peripherals -- 10.2%
300,000 Bay Networks, Inc.* 7,668,750
300,000 Cisco Systems, Inc.* 16,725,000
250,000 Compaq Computer Corp. 14,109,375
100,000 Dell Computer Corp.* 8,400,000
375,000 EMC Corp.* 10,289,063
400,000 Quantum Corp.* 8,025,000
200,000 Sun Microsystems, Inc.* 7,975,000
-------------
73,192,188
-------------
Computer Software & Services -- 6.2%
200,000 BMC Software, Inc.* 13,125,000
200,000 Computer Associates International, Inc. 10,575,000
100,000 Microsoft Corp.* 12,925,000
150,000 Networks Associates, Inc.* 7,931,250
-------------
44,556,250
-------------
Drug -- 7.1%
260,000 Amgen Inc.* 14,072,500
140,000 Lilly (Eli) & Co. 9,747,500
120,000 Merck & Co., Inc. 12,750,000
100,000 Pfizer, Inc. 7,456,250
60,000 Warner-Lambert Co. 7,440,000
-------------
51,466,250
-------------
Electrical Equipment -- 2.3%
225,000 General Electric Co. 16,509,375
-------------
Financial Services -- 3.0%
300,000 Money Store Inc. (The) 6,300,000
285,000 Travelers Group, Inc. 15,354,375
-------------
21,654,375
-------------
Healthcare Information Systems -- 2.0%
300,000 HBO & Co. 14,400,000
-------------
Household Products -- 3.9%
165,000 Colgate-Palmolive Co. $ 12,127,500
200,000 Procter & Gamble Co. 15,962,500
-------------
28,090,000
-------------
Insurance-Diversified -- 2.3%
150,000 American International Group, Inc. 16,312,500
-------------
Insurance-Life -- 4.1%
300,000 Conseco, Inc. 13,631,250
375,000 SunAmerica Inc. 16,031,250
-------------
29,662,500
-------------
Manufactured Housing/
Recreational Vehicles -- 1.4%
300,000 Oakwood Homes Corp. 9,956,250
-------------
Medical Supplies -- 6.4%
200,000 Cardinal Health, Inc. 15,025,000
125,000 Guidant Corp. 7,781,250
120,000 Johnson & Johnson 7,905,000
300,000 Medtronic, Inc. 15,693,750
-------------
46,405,000
-------------
Oilfield Services/Equipment -- 13.3%
150,000 BJ Services Co.* 10,790,625
250,000 Baker Hughes Inc. 10,906,250
400,000 ENSCO International Inc. 13,400,000
300,000 Global Marine, Inc.* 7,350,000
200,000 Halliburton Co. 10,387,500
500,000 Parker Drilling Co.* 6,093,750
125,000 Schlumberger Ltd. 10,062,500
160,000 Smith International, Inc.* 9,820,000
350,000 Transocean Offshore, Inc. 16,865,625
-------------
95,676,250
-------------
Retail Store -- 0.9%
100,300 Dayton Hudson Corp. 6,770,250
-------------
Securities Brokerage -- 3.2%
200,000 Merrill Lynch & Co., Inc. 14,587,500
200,000 Schwab (Charles) Corp. 8,387,500
-------------
22,975,000
-------------
Semiconductor -- 2.0%
200,000 Intel Corp. 14,050,000
-------------
See notes to financial statements.
- --------------------------------------------------------------------------------
74
<PAGE>
---------------
Value Line
Centurion Fund,
Inc.
---------------
6
---------------
Shares Value
- ------------------------------------------------------------------
Telecommunications Equipment -- 4.9%
200,000 ADC Telecommunications Inc.* $ 8,350,000
800,000 PairGain Technologies, Inc.* 15,500,000
220,000 Tellabs, Inc.* 11,632,500
------------
35,482,500
------------
Thrift -- 3.6%
215,000 Federal Home Loan Mortgage Corp. 9,016,562
165,000 Federal National Mortgage Association 9,415,313
120,000 Washington Mutual, Inc. 7,657,500
------------
26,089,375
------------
Tobacco -- 1.9%
300,000 Philip Morris Companies, Inc. 13,593,750
------------
Toiletries/Cosmetics -- 2.8%
200,000 Gillette Co. 20,087,500
------------
TOTAL COMMON STOCKS AND
TOTAL INVESTMENT SECURITIES -- 90.7%
(Cost $482,410,175) 653,154,313
------------
- ------------------------------
SHORT-TERM INVESTMENTS -- 9.9%
- ------------------------------
Principal
Amount Value
- ------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 3.4%
$25,000,000 Federal National Mortagage
Association Discount Notes 5.69%,
due 1/21/98 $ 24,920,972
------------
REPURCHASE AGREEMENT -- 6.5%
(including accrued interest)
$46,600,00 Collateralized by $47,320,000
U.S. Treasury Notes 6%, due 6/30/99,
with a value of $47,556,600 (With
First Chicago Capital Markets, Inc.
5.85%, dated 12/31/97 due 1/2/98,
delivery value $46,615,145) 46,607,572
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $71,528,544) 71,528,544
EXCESS OF LIABILITIES OVER CASH AND
RECEIVABLES -- (-0.6%) (4,592,311)
------------
NET ASSETS -- 100.0% $720,090,546
============
NET ASSET VALUE PER
OUTSTANDING SHARE
($720,090,546 / 28,218,235
shares outstanding) $ 25.52
============
* Non-income producing
See notes to financial statements.
- --------------------------------------------------------------------------------
75
<PAGE>
- ---------------
Value Line
Centurion Fund,
Inc.
- ---------------
6
- ---------------
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1997
ASSETS:
Investment securities, at value
(cost $482,410,175) $653,154,313
Short-term investments (cost $71,528,544) 71,528,544
Cash 55,108
Receivable for securities sold 3,269,851
Dividends and interest receivable 346,937
Receivable for capital shares sold 83,122
------------
TOTAL ASSETS 728,437,875
------------
LIABILITIES:
Payable for securities purchased 6,762,728
Payable for capital shares repurchased 1,108,332
Accrued expenses:
Advisory fee 304,124
GIAC administrative service fee 115,000
Other 57,145
------------
TOTAL LIABILITIES 8,347,329
------------
NET ASSETS $720,090,546
============
NET ASSETS CONSIST OF:
Capital stock, at $1.00 par value
(authorized 50,000,000, outstanding
28,218,235 shares) $ 28,218,235
Additional paid-in capital 473,422,268
Undistributed investment income -- net 2,319,123
Undistributed net realized gain on investments 45,386,782
Unrealized net appreciation of investments 170,744,138
------------
NET ASSETS $720,090,546
============
NET ASSET VALUE PER
OUTSTANDING SHARE
($720,090,546 / 28,218,235
shares outstanding) $ 25.52
============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1997
Investment Income:
Dividends $ 4,355,316
Interest 2,256,072
------------
Total Income 6,611,388
------------
Expenses:
Investment advisory fee 3,485,040
GIAC administrative service fee 498,103
Custodian fees 73,975
Insurance and dues 45,801
Auditing and legal fees 37,543
Postage 16,963
Directors' fees and expenses 15,010
Printing and stationery 8,275
Taxes and other 749
------------
Total Expenses Before Custody Credits 4,181,459
Less: Custody Credits (5,747)
------------
Net Expenses 4,175,712
------------
Investment Income -- Net 2,435,676
------------
Realized and Unrealized Gain on
Investments -- Net:
Realized gain -- net 45,610,251
Change in unrealized appreciation 83,192,727
------------
Net Realized Gain and Change in Unrealized
Appreciation on Investments 128,802,978
------------
Net Increase in Net Assets from Operations $131,238,654
============
See notes to financial statements.
- --------------------------------------------------------------------------------
76
<PAGE>
---------------
Value Line
Centurion Fund,
Inc.
---------------
6
---------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
for the Years Ended
December 31, 1997 and 1996
1997 1996
------------- -------------
Operations:
Investment income -- net $ 2,435,676 $ 2,135,403
Realized gain on
investments -- net 45,610,251 114,105,936
Change in unrealized
appreciation 83,192,727 (25,679,011)
------------- -------------
Net increase in net assets
from operations 131,238,654 90,562,328
------------- -------------
Distributions to Shareholders:
Investment income -- net (2,225,662) (2,617,548)
Realized gain from investment
transactions -- net (114,003,360) (67,401,766)
------------- -------------
Total distributions (116,229,022) (70,019,314)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares 80,062,970 134,593,465
Proceeds from reinvestment of
distributions to shareholders 116,229,022 70,019,314
Cost of shares repurchased (130,551,904) (111,263,942)
------------- -------------
Net increase from capital
share transactions 65,740,088 93,348,837
------------- -------------
Total Increase in Net Assets 80,749,720 113,891,851
Net Assets:
Beginning of year 639,340,826 525,448,975
------------- -------------
End of year $ 720,090,546 $ 639,340,826
============= =============
Undistributed Investment
Income -- Net at End of Year $ 2,319,123 $ 2,109,109
============= =============
See notes to financial statements.
- --------------------------------------------------------------------------------
77
<PAGE>
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Value Line
Centurion Fund,
Inc.
- ---------------
6
- ---------------
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- ------------------------------------
1 -- Significant Accounting Policies
- ------------------------------------
Value Line Centurion Fund, Inc. (the "Fund") is an open-end diversified
management investment company registered under the Investment Company Act of
1940, as amended, whose primary investment objective is long-term growth of
capital. The Fund's portfolio will usually consist of common stocks ranked 1 or
2 for year-ahead performance by The Value Line Investment Survey, one of the
nation's major investment advisory services.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
(A) Security Valuation
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities and for securities traded in the
over-the-counter market, the security is valued at the midpoint between the
latest available and representative asked and bid prices. Short-term instruments
with maturities of 60 days or less are valued at amortized cost, which
approximates market value. Short-term instruments with maturities greater than
60 days at the date of purchase are valued at the midpoint between the latest
available and representative asked and bid prices and, commencing 60 days prior
to maturity, such securities are valued at amortized cost. Other assets and
securities for which market valuations are not readily available are valued at
fair value as the Board of Directors may determine in good faith.
(B) Repurchase Agreements
In connection with transactions in repurchase agreements, the Fund's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the Fund has the right to liquidate the collateral and
apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
(C) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholder. Therefore, no federal income tax
provision is required.
(D) Dividends and Distributions
It is the Fund's policy to distribute to its shareholder, as dividends and
as capital gains distributions, all the net investment income for the year and
all net capital gains realized by the Fund, if any. Such distributions are
determined in accordance with income tax
- --------------------------------------------------------------------------------
78
<PAGE>
---------------
Value Line
Centurion Fund,
Inc.
---------------
6
---------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
regulations which may differ from generally accepted accounting principles. All
dividends or distributions will be payable in shares of the Fund at the net
asset value on the ex-dividend date. This policy is, however, subject to change
at any time by the Board of Directors.
(E) Amortization
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income on investments adjusted for amortization of discount,
including original issue discount required for federal income tax purposes, is
earned from settlement date and recognized on the accrual basis. Dividend income
is recorded on the ex-dividend date.
- ----------------------------------------------
2 -- Capital Share Transactions, Dividends and
Distributions
- ----------------------------------------------
Shares of the Fund are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance and Annuity Company, Inc.
(GIAC). Transactions in capital stock were as follows:
Year Ended Year Ended
December 31, December 31,
1997 1996
------------ ------------
Shares sold 3,037,284 5,349,533
Shares issued in reinvestment
of dividends and distributions 4,477,235 3,184,143
--------- ---------
7,514,519 8,533,676
Shares repurchased 5,048,869 4,453,198
--------- ---------
Net increase 2,465,650 4,080,478
========= =========
Dividends per share from net
investment income $ .09 $ .12
========= =========
Distributions per share from
net realized gains $ 4.61 $ 3.09
========= =========
- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Year Ended
December 31,
1997
----------------
PURCHASES:
Investment Securities $551,943,242
============
SALES:
Investment Securities $642,605,742
============
At December 31, 1997, the aggregate cost of investment securities and
short-term investments for federal income tax purposes is $553,938,719. The
aggregate appreciation and depreciation of invest-
- --------------------------------------------------------------------------------
79
<PAGE>
- ---------------
Value Line
Centurion Fund,
Inc.
- ---------------
6
- ---------------
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
ments for the year ended December 31, 1997, based on a comparison of investment
values and their costs for federal income tax purposes is $178,685,518 and
$7,941,380 respectively, resulting in a net appreciation of $170,744,138.
- ---------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Affiliates
- ---------------------------------------------
An advisory fee of $3,485,040 was paid or payable to Value Line, Inc. (the
Adviser), the Fund's investment adviser, for the year ended December 31, 1997.
This was computed at an annual rate of 1/2 of 1% of the average daily net assets
of the Fund during the year and paid monthly. The Adviser provides research,
investment programs, supervision of the investment portfolio and pays costs of
administrative services, office space, equipment and compensation of
administrative, bookkeeping, and clerical personnel necessary for managing the
affairs of the Fund. The Adviser also provides persons, satisfactory to the
Fund's Board of Directors, to act as officers and employees of the Fund and pays
their salaries and wages. The Fund bears all other costs and expenses.
Certain officers and directors of the Adviser and Value Line Securities,
Inc., (the Fund's distributor and a registered broker/dealer) and of GIAC are
also officers and directors of the Fund. A former officer of GIAC who is also a
director of the Fund was paid a fee of $2,718 for the year ended December 31,
1997. During the year ended December 31, 1997, the Fund paid brokerage
commissions totalling $448,753 to Value Line Securities, Inc., a wholly owned
subsidiary of the Adviser, which clears its transactions through unaffiliated
brokers.
The Fund has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contract-owner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the year ended December 31, 1997, the Fund
incurred expenses of $498,103 in connection with such services rendered by GIAC.
- --------------------------------------------------------------------------------
80
<PAGE>
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Value Line
Centurion Fund,
Inc.
---------------
6
---------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 24.83 $ 24.25 $ 17.83 $ 18.52 $ 20.04
-------- --------- -------- -------- --------
Income (loss) from investment operations:
Net investment income .09 .08 .12 .10 .12
Net gains or losses on securities (both
realized and unrealized) 5.30 3.71 6.96 (.51) 1.73
-------- --------- -------- -------- --------
Total from investment operations 5.39 3.79 7.08 (.41) 1.85
-------- --------- -------- -------- --------
Less distributions:
Dividends from net investment income (.09) (.12) (.10) (.01) (.12)
Distributions from capital gains (4.61) (3.09) (.56) (.27) (3.25)
-------- --------- -------- -------- --------
Total distributions (4.70) (3.21) (.66) (.28) (3.37)
-------- --------- -------- -------- --------
Net asset value, end of year $ 25.52 $ 24.83 $ 24.25 $ 17.83 $ 18.52
-------- --------- -------- -------- --------
Total return** 21.39% +17.34% +40.08% -2.21% +9.21%
======== ========= ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of year (in thousands) $720,091 $ 639,341 $525,449 $352,745 $373,910
Ratio of operating expenses to average
net assets .60%(1) .59%(1) .62% .61% .61%
Ratio of net investment income to average
net assets .35% .36% .60% .57% .57%
Portfolio turnover rate 85% 141% 114% 122% 118%
Average commissions paid per share of
common stock investments purchased/sold $ .0493 $ .049(2)
</TABLE>
(1) Before offset of custody credits.
(2) Disclosure effective for fiscal years beginning on or after 9/1/95.
** Total returns do not reflect the effects of charges deducted under the
terms of GIAC's variable contracts. Including such charges would reduce
the total returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
81
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Value Line
Centurion Fund,
Inc.
- ---------------
6
- ---------------
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Value Line Centurion Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Value Line Centurion Fund, Inc.
(the "Fund") at December 31, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 13, 1998
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6
---------------
- --------------------------------------------------------------------------------
- ----------------------------
Shareholders Meeting Results (unaudited)
- ----------------------------
A special meeting of shareholders of Value Line Centurion Fund, Inc. was
held on October 30, 1997. The matters voted upon by the shareholders and
the resulting votes for each matter are presented below.
1. The election of six Directors to serve until their successors are duly
elected and qualified.
Number of Votes:
---------------
Director For Withheld Broker Non-Votes*
-------- --- -------- -----------------
Jean Bernhard Buttner 28,633,179 233,545 0
John W. Chandler 28,610,654 256,070 0
Leo R. Futia 28,608,431 258,294 0
David H. Porter 28,622,697 244,027 0
Paul Craig Roberts 28,628,244 238,480 0
Nancy-Beth Sheerr 28,623,902 242,822 0
2. Ratification of the selection of Price Waterhouse LLP as independent
accountants for the fiscal year ending December 31, 1997.
Number of Votes:
---------------
For Against Abstain Broker Non-Votes*
--- ------- ------- ----------------
28,479,364 102,682 284,677 0
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
- --------------------------------------------------------------------------------
83
<PAGE>
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Value Line
Strategic Asset
Management
- ---------------
7
- ---------------
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1997
- ------------------------
COMMON STOCKS -- 56.9%
- ------------------------
Shares Value
- --------------------------------------------------------
Advertising -- 1.1%
306,000 Omnicom Group, Inc. $12,966,750
-----------
Aerospace/Defense -- 1.7%
115,000 BE Aerospace, Inc.* 3,076,250
35,000 General Dynamics Corp. 3,025,313
29,000 Northrop Grumman Corp. 3,335,000
81,700 Precision Castparts Corp. 4,927,531
53,000 Sundstrand Corp. 2,669,875
45,000 Thiokol Corp. 3,656,250
-----------
20,690,219
-----------
Air Transport -- 1.2%
96,000 Airborne Freight Corp. 5,964,000
87,700 Alaska Air Group, Inc.* 3,398,375
80,000 Comair Holdings, Inc. 1,930,000
55,000 U.S. Airways Group, Inc.* 3,437,500
-----------
14,729,875
-----------
Apparel -- 0.8%
60,000 Jones Apparel Group, Inc.* 2,580,000
63,200 Liz Claiborne, Inc. 2,642,550
36,000 Nautica Enterprises, Inc.* 837,000
66,000 V.F. Corp. 3,031,875
-----------
9,091,425
-----------
Auto & Truck -- 0.3%
130,000 Navistar International
Corp., Inc.* 3,225,625
-----------
Auto Parts-Original Equipment -- 0.7%
38,000 Eaton Corp. 3,391,500
112,000 Tower Automotive, Inc.* 4,711,000
-----------
8,102,500
-----------
Bank -- 0.8%
88,000 Mellon Bank Corp. 5,335,000
78,000 SouthTrust Corp. 4,948,125
-----------
10,283,125
-----------
Bank-Midwest -- 1.6%
12,300 National City Corp. 808,725
70,000 Northern Trust Corp. 4,882,500
98,000 Norwest Corp. 3,785,250
82,000 U.S. Bancorp 9,178,875
-----------
18,655,350
-----------
Beverage-Soft Drink -- 1.1%
376,000 Coca-Cola Enterprises Inc. 13,371,500
-----------
Building Materials -- 0.3%
80,000 Masco Corp. 4,070,000
-----------
Cable TV -- 0.3%
28,000 Comcast Corp. Class "A" 883,750
110,000 Tele-Communications, Inc.-
TCI Group Series "A"* 3,073,125
-----------
3,956,875
-----------
Cement & Aggregates -- 0.1%
18,000 Vulcan Materials Co. 1,838,250
-----------
Chemical-Specialty -- 0.2%
28,000 Rohm & Haas Co. 2,681,000
-----------
Coal/Alternate Energy -- 0.6%
159,000 AES Corp.* 7,413,375
-----------
Computer & Peripherals -- 1.9%
46,000 American Power Conversion
Corp.* 1,086,750
88,000 Bay Networks, Inc.* 2,249,500
128,000 EMC Corp.* 3,512,000
50,000 International Business Machines
Corp 5,228,125
52,000 MRV Communications, Inc.* 1,241,500
60,000 Storage Technology Corp.* 3,716,250
60,000 Tech Data Corp.* 2,332,500
218,000 Unisys Corp.* 3,024,750
-----------
22,391,375
-----------
Computer Software & Services -- 2.8%
30,000 Citrix Systems, Inc.* 2,280,000
63,000 Computer Associates International,
Inc 3,331,125
268,000 Compuware Corp.* 8,576,000
90,000 Fiserv, Inc.* 4,421,250
15,000 Hyperion Software Corp.* 536,250
20,000 National Data Corp. 722,500
116,000 PeopleSoft, Inc.* 4,524,000
140,000 Symantec Corp.* 3,071,250
63,000 Systems & Computer Technology
Corp.* 3,126,375
50,000 Veritas Software Corp.* 2,550,000
-----------
33,138,750
-----------
See notes to financial statements.
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Shares Value
- ------------------------------------------------------
Diversified Companies -- 1.6%
34,000 Danaher Corp. $ 2,146,250
17,000 GATX Corp. 1,233,562
50,000 Raychem Corp. 2,153,125
44,000 Textron, Inc. 2,750,000
240,000 Tyco International, Ltd. 10,815,000
-----------
19,097,937
-----------
Drug -- 2.1%
24,000 Dura Pharmaceuticals, Inc.* 1,101,000
76,000 ICN Pharmaceuticals, Inc. 3,709,750
73,000 MedImmune, Inc.* 3,129,875
35,000 Merck & Co., Inc. 3,718,750
108,000 Pfizer, Inc. 8,052,750
62,000 Schering-Plough Corp. 3,851,750
16,000 Sepracor, Inc.* 641,000
42,000 Vical, Inc.* 504,000
-----------
24,708,875
-----------
Drugstore -- 0.7%
90,000 CVS Corp. 5,765,625
54,000 Rite Aid Corp. 3,169,125
-----------
8,934,750
-----------
Electrical Utility-Central -- 0.4%
50,000 Cinergy Corp. 1,915,625
100,000 Houston Industries, Inc. 2,668,750
-----------
4,584,375
-----------
Electric Utility-East -- 1.1%
51,700 American Electric Power Co.,
Inc. 2,669,012
56,000 Consolidated Edison, Inc. 2,296,000
140,994 Duke Energy Corp. 7,807,543
-----------
12,772,555
-----------
Electric Utility-West -- 0.2%
100,000 Edison International 2,718,750
-----------
Electrical Equipment -- 0.7%
120,000 General Electric Co. 8,805,000
-----------
Electronics -- 1.2%
62,000 Lexmark International Group,
Inc. Class "A"* 2,356,000
144,400 Spectrian Corp.* 2,779,700
256,500 Symbol Technologies, Inc. 9,682,875
-----------
14,818,575
-----------
Entertainment -- 1.7%
132,000 CBS Corp. 3,885,750
47,000 Chancellor Media Corp.* 3,507,375
90,000 Clear Channel Communications,
Inc.* 7,149,375
68,000 King World Productions, Inc. 3,927,000
25,000 Time Warner Inc. 1,550,000
-----------
20,019,500
-----------
Environmental -- 0.6%
135,000 Allied Waste Industries,
Inc.* 3,147,188
98,000 USA Waste Services, Inc.* 3,846,500
25,000 U.S. Filter Corp.* 748,437
-----------
7,742,125
-----------
Financial Services -- 0.9%
11,800 Countrywide Credit Industries,
Inc. 505,925
58,000 Green Tree Financial Corp. 1,518,875
37,000 Loews Corp. 3,926,625
94,000 Money Store Inc. (The) 1,974,000
51,000 Travelers Group, Inc. 2,747,625
-----------
10,673,050
-----------
Food Processing -- 1.6%
40,000 ConAgra, Inc. 1,312,500
52,000 Dean Foods Co. 3,094,000
75,000 Interstate Bakeries Corp. 2,803,125
66,000 Quaker Oats Co. 3,481,500
68,000 Smithfield Foods, Inc.* 2,244,000
44,200 Suiza Foods Corp.* 2,632,663
62,000 Unilever N.V. (New York Shares) 3,871,125
-----------
19,438,913
-----------
Foreign Telecommunication -- 0.2%
60,000 Ericsson (L.M.) Telephone Co.-
Class "B"(ADR) 2,238,750
-----------
Grocery -- 1.9%
166,000 Kroger Co.* 6,131,625
205,400 Safeway, Inc.* 12,991,550
70,000 Whole Foods Market, Inc.* 3,578,750
-----------
22,701,925
-----------
Health Care Information System -- 0.4%
96,000 HBO & Co. 4,608,000
-----------
See notes to financial statements.
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- -------------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1997
Shares Value
- --------------------------------------------------------
Home Appliance -- 0.1%
22,000 Maytag Corp. $ 820,875
-----------
Hotel/Gaming -- 0.9%
60,000 Hilton Hotels Corp. 1,785,000
200,000 Prime Hospitality Corp.* 4,075,000
44,000 Promus Hotel Corp.* 1,848,000
157,000 Rio Hotel & Casino, Inc.* 3,297,000
-----------
11,005,000
-----------
Industrial Services -- 0.6%
82,000 Equifax, Inc. 2,905,875
52,000 Robert Half International, Inc.* 2,080,000
200,000 Superior Energy Sevices, Inc.* 2,025,000
-----------
7,010,875
-----------
Insurance-Diversified -- 0.8%
100,000 American Bankers
Insurance Group, Inc. 4,593,750
25,000 American International Group, Inc. 2,718,750
32,400 Lincoln National Corp. 2,531,250
-----------
9,843,750
-----------
Insurance-Life -- 1.4%
201,000 Conseco, Inc. 9,132,937
50,000 Equitable Companies, Inc. (The) 2,487,500
34,700 SunAmerica Inc. 1,483,425
80,000 Torchmark Corp. 3,365,000
-----------
16,468,862
-----------
Insurance-Property/Casualty -- 1.4%
15,500 ACE, Ltd. 1,495,750
70,000 Allstate Corp. (The) 6,361,250
44,000 Executive Risk Inc. 3,071,750
51,000 Progressive Corp. 6,113,625
-----------
17,042,375
-----------
Machinery -- 1.3%
20,000 Cummins Engine Company, Inc. 1,181,250
64,000 DT Industries, Inc. 2,176,000
116,000 Dover Corp. 4,190,500
45,000 Ingersoll -- Rand Co. 1,822,500
53,550 Parker -- Hannifin Corp. 2,456,606
100,000 Terex Corp.* 2,350,000
41,000 Zoltek Companies, Inc.* 1,142,875
-----------
15,319,731
-----------
Medical Services -- 1.0%
150,000 Health Management Associates, Inc.
Class "A"* 3,787,500
73,000 Lincare Holdings, Inc.* 4,161,000
70,000 Universal Health Services, Inc.
Class "B"* 3,526,250
-----------
11,474,750
-----------
Medical Supplies -- 1.4%
60,000 Guidant Corp. 3,735,000
55,154 Johnson & Johnson 3,633,270
44,000 McKesson Corp. 4,760,250
73,000 Safeskin Corp.* 4,142,750
18,000 Sofamor Danek Group, Inc.* 1,171,125
-----------
17,442,395
-----------
Metal Fabricating -- 0.1%
20,000 Trinity Industries, Inc. 892,500
-----------
Natural Gas-Distribution -- 0.2%
50,000 MCN Energy Group Inc. 2,018,750
-----------
Newspaper -- 0.4%
62,000 New York Times Co. (The) Class "A" 4,099,750
6,000 Tribune Co. 374,918
-----------
4,474,668
-----------
Office Equipment & Supplies -- 0.8%
160,000 Office Depot, Inc.* 3,830,000
195,625 Staples, Inc.* 5,428,594
-----------
9,258,594
-----------
Oilfield Services/Equipment -- 0.5%
160,000 Global Industries, Ltd.* 2,720,000
310,000 Grey Wolf, Inc.* 1,666,250
21,500 Pride International, Inc.* 542,875
50,000 Tuboscope Inc.* 1,203,125
-----------
6,132,250
-----------
Packaging & Container -- 0.3%
62,000 Sealed Air Corp.* 3,828,500
-----------
Petroleum-Integrated -- 2.4%
50,000 Amoco Corp. 4,256,250
60,000 Atlantic Richfield Co. 4,807,500
80,000 British Petroleum Co. PLC (ADR) 6,375,000
46,000 Mobil Corp. 3,320,625
See notes to financial statements.
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Shares Value
- ---------------------------------------------------------
Petroleum-Integrated -- 2.4% (continued)
125,000 Occidental Petroleum Corp. $ 3,664,062
180,000 USX-- Marathon Group 6,075,000
------------
28,498,437
------------
Petroleum-Producing -- 0.4%
50,000 Burlington Resources, Inc. 2,240,625
60,000 Noble Affiliates, Inc. 2,115,000
------------
4,355,625
------------
Precision Instrument -- 0.2%
30,000 Perkin-Elmer Corp. 2,131,875
------------
Publishing -- 0.3%
55,000 McGraw-Hill Companies, Inc. 4,070,000
------------
Recreation -- 0.5%
12,000 Carnival Corp. Class "A" 664,500
166,000 Harley-Davidson, Inc. 4,544,250
10,000 Royal Caribbean Cruises, Ltd. 533,125
------------
5,741,875
------------
Restaurant -- 0.5%
70,000 CKE Restaurants, Inc. 2,948,750
78,000 Rainforest Cafe, Inc.* 2,574,000
------------
5,522,750
------------
Retail-Special Lines -- 3.6%
38,000 Barnes & Noble, Inc.* 1,268,250
119,000 Best Buy Co., Inc.* 4,388,125
104,000 Borders Group, Inc.* 3,256,500
130,000 CompUSA, Inc.* 4,030,000
75,000 Gap, Inc. 2,657,813
58,000 General Nutrition Companies, Inc.* 1,972,000
107,000 Goody's Family Clothing, Inc.* 2,909,062
100,000 Michaels Stores, Inc.* 2,925,000
36,000 Payless ShoeSource, Inc.* 2,416,500
95,400 Pier 1 Imports, Inc. 2,158,425
146,000 Ross Stores Inc. 5,310,750
200,000 TJX Companies, Inc. 6,875,000
70,000 Tandy Corp. 2,699,375
------------
42,866,800
------------
Retail Building Supply -- 0.3%
68,000 Lowes Companies, Inc. 3,242,750
------------
Retail Store -- 3.5%
111,437 Consolidated Stores Corp.* 4,896,263
104,000 Costco Companies Inc.* 4,641,000
80,000 Dayton-Hudson Corp. 5,400,000
94,797 Dollar General Corp. 3,436,391
150,000 Family Dollar Stores, Inc. 4,396,875
60,000 Federated Department Stores, Inc.* 2,583,750
97,000 Kohl's Corp.* 6,608,125
168,000 Meyer (Fred), Inc.* 6,111,000
100,000 Proffitt's, Inc.* 2,843,750
55,000 Stein Mart, Inc.* 1,471,250
------------
42,388,404
------------
Securities Brokerage -- 0.2%
75,000 Schwab (Charles) Corp. 3,145,313
------------
Semiconductor -- 0.1%
16,000 Dallas Semiconductor Corp. 652,000
------------
Shoe -- 0.2%
119,250 Wolverine World Wide, Inc. 2,698,031
------------
Telecommunications Equipment -- 0.3%
46,000 Loral Space & Communications Ltd.* 986,125
32,000 PairGain Technologies, Inc.* 620,000
30,000 QUALCOMM Incorporated* 1,515,000
------------
3,121,125
------------
Telecommunications Services -- 1.7%
88,000 AirTouch Communications, Inc.* 3,657,500
42,000 Bell Atlantic Corp. 3,822,000
66,000 BellSouth Corp. 3,716,625
104,000 Cincinnati Bell, Inc. 3,224,000
145,000 Mobile Telecommunications
Technologies Corp. * 3,190,000
116,000 WinStar Communications, Inc.* 2,892,750
------------
20,502,875
------------
Tobacco -- 0.5%
129,000 Philip Morris Companies, Inc. 5,845,313
------------
Toiletries/Cosmetics -- 0.2%
40,000 Avon Products, Inc. 2,455,000
------------
TOTAL COMMON STOCKS
(Cost $506,870,546) 680,741,122
------------
See notes to financial statements.
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SCHEDULE OF INVESTMENTS
December 31, 1997
----------------------------------
U.S. TREASURY OBLIGATIONS -- 23.3%
----------------------------------
Principal
Amount Value
- ----------------------------------------------------------------
$55,000,000 U.S. Treasury Notes 6 3/4%,
due 5/31/99 $ 55,807,400
50,000,000 U.S. Treasury Notes 6 3/8%,
due 5/15/00 50,744,500
16,000,000 U.S. Treasury Notes 7 3/4%,
due 2/15/01 16,914,400
50,000,000 U.S. Treasury Notes 6 1/2%,
due 5/31/02 51,448,500
31,000,000 U.S. Treasury Notes 5 7/8%,
due 11/15/05 31,161,820
20,000,000 U.S. Treasury Notes 6 1/8%,
due 8/15/07 20,548,800
45,000,000 U.S. Treasury Bonds 7 1/4%,
due 8/15/22 51,962,400
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $268,841,843) 278,587,820
------------
------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 4.1%
------------------------------------------
6,740,000 Federal National Mortgage Association
6.85%, due 8/22/05 7,065,205
27,000,000 Federal Home Loan Mortgage Corp.
7.10%, due 4/10/07 29,017,710
13,000,000 Federal National Mortgage Association
6.50%, due 7/16/07 13,450,190
-------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (Cost $48,992,347) 49,533,105
-------------
TOTAL INVESTMENT SECURITIES -- 84.3%
(Cost $824,704,736) 1,008,862,047
-------------
-------------------------------
SHORT-TERM INVESTMENTS -- 17.8%
-------------------------------
Principal
Amount Value
- ----------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 11.9%
$62,000,000 U.S. Treasury Notes 6.125%,
due 3/31/98 $ 62,115,320
60,000,000 U.S. Treasury Notes 6.25%,
due 6/30/98 60,238,800
20,000,000 U.S. Treasury Notes 6.125%,
due 8/31/98 20,066,800
--------------
142,420,920
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 5.0%
20,000,000 Federal Farm Credit Bank Notes
5.50% due 1/2/98 20,000,000
20,000,000 Federal Farm Credit Bank Notes
5.55% due 3/2/98 19,983,400
20,000,000 Federal Farm Credit Bank Notes
5.62% due 4/1/98 20,000,000
--------------
59,983,400
--------------
REPURCHASE AGREEMENT -- 0.9%
(includes accrued interest)
$10,700,000 Collateralized by $10,055,000
U.S. Treasury Notes 7 3/4%,
due 2/15/01, with a value
of $10,925,386 (with Morgan
Stanley & Co., 6.20%,
dated 12/31/97, due 1/2/98,
delivery value of $10,703,686) $ 10,701,843
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $212,679,131) 213,106,163
--------------
EXCESS OF LIABILITIES OVER
CASH AND RECEIVABLES -- (-2.1%) (25,378,763)
--------------
NET ASSETS -- 100.0% $1,196,589,447
==============
NET ASSET VALUE PER
OUTSTANDING SHARE $ 22.13
($1,196,589,447 / 54,069,324 ==============
shares outstanding)
* Non-income producing.
See notes to financial statements.
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STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1997
ASSETS
Investment in securities,
at value (cost $824,704,736) $1,008,862,047
Short-term investments
(cost $212,679,131) 213,106,163
Cash 20,153
Receivable for securities sold 11,418,429
Interest and dividends receivable 6,606,779
Receivable for trust shares sold 156,143
--------------
TOTAL ASSETS 1,240,169,714
--------------
LIABILITIES
Payable for securities purchased 41,626,036
Payable for trust shares
repurchased 1,192,959
Accrued expenses:
Advisory fee 502,653
GIAC administrative service fee 175,000
Other 83,619
--------------
TOTAL LIABILITIES 43,580,267
--------------
NET ASSETS $1,196,589,447
==============
NET ASSETS CONSIST OF:
Capital stock, at $0.01 par value
(authorized unlimited,
outstanding 54,069,324 shares) $ 540,693
Additional paid-in capital 874,984,427
Undistributed net investment
income 35,048,059
Undistributed net realized gain
on investments 101,431,925
Unrealized net appreciation of
investments 184,584,343
--------------
NET ASSETS $1,196,589,447
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,196,589,447 / 54,069,324
shares outstanding) $ 22.13
==============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1997
Investment Income:
Interest $ 36,864,264
Dividends (Net of foreign
withholding tax of $30,786) 5,046,573
--------------
Total Income 41,910,837
--------------
Expenses:
Investment advisory fee 5,718,843
GIAC administrative service fee 721,790
Custodian fees 115,214
Insurance and dues 78,989
Audit and legal fees 37,984
Postage 24,387
Trustees' fees and expenses 15,010
Printing and Stationary 11,917
Taxes and other 3,674
--------------
Total Expenses Before Custody
Credits 6,727,808
Less: Custody credits (3,696)
--------------
Net Expenses 6,724,112
--------------
Investment Income -- Net 35,186,725
--------------
Realized and Unrealized Gain on
Investments -- Net:
Realized gain -- net 101,703,718
Change in unrealized
appreciation of investments 30,109,960
--------------
Net Realized Gain and Change in
Unrealized Appreciation on
Investments 131,813,678
--------------
Net Increase in Net Assets from
Operations $ 167,000,403
==============
See notes to financial statements.
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STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended
December 31, 1997 and 1996
1997 1996
Operations: -------------- --------------
Investment income -- net $ 35,186,725 $ 26,749,041
Realized gain on investments
-- net 101,703,718 122,797,850
Change in unrealized
appreciation 30,109,960 (6,850,866)
-------------- --------------
Net increase in net assets
from operations 167,000,403 142,696,025
-------------- --------------
Distributions to Shareholders:
Investment income -- net (26,826,322) (16,568,632)
Realized gain from investment
transactions -- net (122,913,330) (48,810,295)
-------------- --------------
Total distributions (149,739,652) (65,378,927)
-------------- --------------
Trust Share Transactions:
Proceeds from sale of shares 69,411,109 119,168,249
Proceeds from reinvestment of
distributions to shareholders 149,739,652 65,378,927
Cost of shares repurchased (112,606,824) (65,588,322)
-------------- --------------
Net increase from Trust share
transactions 106,543,937 118,958,854
-------------- --------------
Total Increase in Net Assets 123,804,688 196,275,952
Net Assets:
Beginning of year 1,072,784,759 876,508,807
-------------- --------------
End of year $1,196,589,447 $1,072,784,759
============== ==============
Undistributed Investment Income
-- Net at End of Year $ 35,048,059 $ 26,687,656
============== ==============
See notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- ------------------------------------
1 -- Significant Accounting Policies
- ------------------------------------
Value Line Strategic Asset Management Trust (the "Trust") is an open-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended, which seeks to achieve a high total investment
return consistent with reasonable risk by investing primarily in a broad range
of common stocks, bonds and money market instruments. The Trust will attempt to
acheive its objective by following an asset allocation strategy based on data
derived from computer models for the stock and bond markets that shifts the
assets of the Trust among equity, debt and money market securities as the models
indicate and its investment adviser, Value Line, Inc. (the "Adviser"), deems
appropriate.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Trust in the preparation of its financial statements.
(A) Security Valuation.
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities traded in the over-the-counter market,
the security is valued at the midpoint between the latest available and
representative bid and asked prices.
The Board of Trustees has determined that the value of bonds and other
fixed-income securities be calculated on the valuation date by reference to
valuations obtained from an independent pricing service which determines
valuations for normal institutional-size trading units of debt securities,
without exclusive reliance upon quoted prices. This service takes into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data in determining valuations.
Short-term instruments with maturities of 60 days or less are valued at
amortized cost which approximates market value. Short-term instruments with
maturities greater than 60 days at the date of purchase are valued at the
midpoint between the latest available and representative asked and bid prices,
and commencing 60 days prior to maturity such securities are valued at amortized
cost. Other assets and securities for which market valuations are not readily
available are valued at fair value as the Board of Trustees may determine in
good faith.
(B) Repurchase Agreements.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the Trust has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. Under
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NOTES TO FINANCIAL STATEMENTS
December 31, 1997
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral or proceeds may
be subject to legal proceedings.
(C) Federal Income Taxes.
It is the Trust's policy to qualify under, and comply with, the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholder.
Therefore, no federal income tax provision is required.
(D) Dividends and Distributions.
It is the Trust's policy to distribute to its shareholder, as dividends
and as capital gains distributions, all the net investment income for the year
and all the net capital gains realized by the Trust, if any. Such distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. All dividends or distributions will be
payable in shares of the Trust at the net asset value on the ex-dividend date.
This policy is, however, subject to change at any time by the Board of Trustees.
(E) Amortization.
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments.
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income, adjusted for amortization of discount, including
original issue discount required for federal income tax purposes, is earned from
settlement date and recognized on the accrual basis. Dividend income is recorded
on the ex-dividend date.
- ----------------------------------------
2 -- Trust Share Transactions, Dividends
and Distributions
- ----------------------------------------
Shares of the Trust are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance & Annuity Company, Inc.
(GIAC). Transactions in shares of beneficial interest in the Trust were as
follows:
Year Ended Year Ended
December 31, December 31,
1997 1996
------------ ------------
Shares sold 3,117,519 5,553,832
Shares issued to shareholder
in reinvestment of dividends
and distributions 7,049,889 3,244,612
---------- ---------
10,167,408 8,798,444
Shares repurchased 5,083,552 3,048,207
---------- ---------
Net increase 5,083,856 5,750,237
========== =========
Dividends per share from
net investment income $ .55 $ .37
========== =========
Distributions per share from
net realized gains $ 2.52 $ 1.09
========== =========
- --------------------------------------------------------------------------------
92
<PAGE>
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Value Line
Strategic Asset
Management
---------------
7
---------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Year Ended
December 31,
1997
------------
PURCHASES:
U.S. Treasury and Government
Agency Obligations $229,329,847
Other Investment Securities 492,963,637
------------
$722,293,484
============
SALES & MATURITIES:
U.S. Treasury and Government
Agency Obligations $ 88,974,609
Other Investment Securities 451,590,646
------------
$540,565,255
============
At December 31, 1997, the aggregate cost of investment securities and
short-term investments for federal income tax purposes is $1,037,692,219. The
aggregate appreciation and depreciation of investments at December 31, 1997,
based on a comparison of investment values and their costs for federal income
tax purposes is $198,824,897 and $14,548,906, respectively, resulting in a net
appreciation of $184,275,991.
- ---------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Affiliates
- ---------------------------------------------
An advisory fee of $5,718,843 was paid or payable to the Adviser, for the
year ended December 31, 1997. This was computed at an annual rate of 1/2 of 1%
of the average daily net assets of the Trust during the year and paid monthly.
The Adviser provides research, investment programs, supervision of the
investment portfolio and pays costs of administrative services, office space,
equipment and compensation of administrative, bookkeeping and clerical personnel
necessary for managing the affairs of the Trust. The Adviser also provides
persons, satisfactory to the Trust's Board of Trustees, to act as officers and
employees of the Trust and pays their salaries and wages. The Trust bears all
other costs and expenses.
Certain officers and directors of the Adviser and Value Line Securities,
Inc. (the Trust's distributor and a registered broker/dealer), and of GIAC are
also officers and Trustees of the Trust. A former officer of GIAC who is also a
trustee of the Trust was paid a fee of $2,718 by the Trust for the year ended
December 31, 1997. During the year ended December 31, 1997, the Trust paid
brokerage commissions totalling $427,025 to Value Line Securities, Inc., a
wholly owned subsidiary of the Adviser, which clears its transactions through
unaffiliated brokers.
The Trust has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contract-owner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the year ended December 31, 1997, the Trust
incurred expenses of $721,790 in connection with such services rendered by GIAC.
- --------------------------------------------------------------------------------
93
<PAGE>
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Value Line
Strategic Asset
Management
- ---------------
7
- ---------------
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 21.90 $ 20.27 $ 16.13 $ 17.01 $ 15.94
---------- ---------- -------- -------- --------
Income (loss) from investment
operations:
Net investment income .65 .53 .39 .26 .27
Net gains or losses on
securities (both realized
and unrealized) 2.65 2.56 4.17 (1.09) 1.62
---------- ---------- -------- -------- --------
Total from investment operations 3.30 3.09 4.56 (.83) 1.89
---------- ---------- -------- -------- --------
Less distributions:
Dividends from net investment
income (.55) (.37) (.26) (.01) (.28)
Distributions from capital gains (2.52) (1.09) (.16) (.04) (.54)
---------- ---------- -------- -------- --------
Total distributions (3.07) (1.46) (.42) (.05) (.82)
---------- ---------- -------- -------- --------
Net asset value, end of year $ 22.13 $ 21.90 $ 20.27 $ 16.13 $ 17.01
========== ========== ======== ======== ========
Total return** 15.66% 15.87% 28.54% -4.88% 11.86%
========== ========== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in
thousands) $1,196,589 $1,072,785 $876,509 $662,721 $615,648
Ratio of operating expenses to
average net assets .59%(1) .58%(1) .60% .60% .61%
Ratio of net investment income to
average net assets 3.08% 2.70% 2.18% 1.65% 1.96%
Portfolio turnover rate 58% 71% 63% 100% 110%
Average commissions paid per share
of common stock purchased/sold $ .0492 $ .0490(2) -- -- --
</TABLE>
(1) Before offset of custody credits.
(2) Disclosure effective for fiscal years beginning on or after 9/1/95.
** Total returns do not reflect the effects of charges deducted under the terms
of GIAC's variable contracts. Including such charges would reduce the total
returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
94
<PAGE>
---------------
Value Line
Strategic Asset
Management
---------------
7
---------------
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Value Line Strategic Asset Management Trust
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Value Line Strategic Asset
Management Trust (the "Trust") at December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 13, 1998
- --------------------------------------------------------------------------------
95
<PAGE>
- ---------------
Value Line
Strategic Asset
Management
- ---------------
7
- ---------------
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
- ----------------------------
Shareholders Meeting Results (unaudited)
- ----------------------------
A special meeting of shareholders of Value Line Strategic Asset Management
Trust was held on October 30, 1997. The matters voted upon by the shareholders
and the resulting votes for each matter are presented below.
1. The election of six Trustees to serve until their successors are duly elected
and qualified.
Number of Votes:
----------------
Trustee For Withheld Broker Non-Votes*
------- --- -------- -----------------
Jean Bernhard Buttner 53,878,977 1,133,303 0
John W. Chandler 53,878,977 1,133,303 0
Leo R. Futia 53,878,977 1,133,303 0
David H. Porter 53,878,977 1,133,303 0
Paul Craig Roberts 53,878,977 1,133,303 0
Nancy-Beth Sheerr 53,878,977 1,133,303 0
2. Ratification of the selection of Price Waterhouse LLP as independent
accountants for the fiscal year ending December 31, 1997.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
52,315,878 398,070 2,398,332 0
* Broker non-votes are proxies received by the Trust from brokers or
nominees when the broker or nominee neither has received instructions from
the beneficial owner or other persons entitled to vote nor has
discretionary power to vote on a particular matter.
- --------------------------------------------------------------------------------
96
<PAGE>
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- --------------------------------------------------------------------------------
97
<PAGE>
- ----------------
The Smith Barney
Fund of Stripped
- ----------------
8
- ----------------
- --------------------------------------------------------------------------------
The Smith Barney Fund Stripped ("Zero")
- ---------------------------------------
U.S. TREASURY SECURITIES, SERIES A - 2004 TRUST
Statements of Financial Condition
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Trust Property:
Investment in securities at value (amortized cost for 1997 and 1996,
respectively, $6,203,299 and $6,307,161) ......................... $6,867,227 $6,868,152
Net other assets ................................................... 8,051 5,719
---------- ----------
$6,875,278 $6,873,871
========== ==========
Interest of Holders (for 1997 and 1996 respectively
10,130,360 and 11,284,960 units of fractional undivided
interest outstanding)
Cost of Trust units, net of gross transaction charges ............ $4,613,820 $5,020,890
Unrealized appreciation of investment ............................ 663,928 560,991
Undistributed net investment income .............................. 1,597,530 1,291,990
---------- ----------
Net assets ........................................................ $6,875,278 $6,873,871
========== ==========
Net asset value per unit ........................................... $ .6787 $ .6091
========== ==========
</TABLE>
Portfolio as of December 31, 1997
<TABLE>
<CAPTION>
Aggregate
Principal Maturity Amortized
Amount Title of Security Coupon Date Cost Value
--------- ----------------- ------ -------- -------- -----
<S> <C> <C> <C> <C> <C>
$ 10,090,000 Stripped U.S. Treasury Securities .000% 11/15/04 $ 6,150,708 $ 6,813,676
40,360 U.S. Treasury Bonds 11.625% 11/15/04 52,591 53,551
------------ ----------- -----------
$ 10,130,360 $ 6,203,299 $ 6,867,227
============ =========== ===========
</TABLE>
Portfolio as of December 31, 1996
<TABLE>
<CAPTION>
Aggregate
Principal Maturity Amortized
Amount Title of Security Coupon Date Cost Value
--------- ----------------- ------ -------- -------- -----
<S> <C> <C> <C> <C> <C>
$ 11,240,000 Stripped U.S. Treasury Securities .000% 11/15/04 $ 6,248,576 $ 6,808,855
44,960 U.S. Treasury Bonds 11.625% 11/15/04 58,585 59,297
------------ ----------- -----------
$ 11,284,960 $ 6,307,161 $ 6,868,152
============ =========== ===========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
98
<PAGE>
----------------
The Smith Barney
Fund of Stripped
----------------
8
----------------
- --------------------------------------------------------------------------------
Statements of Operations and Changes in Net Assets
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operations
Interest income ........................................... $ 551,982 $ 465,421 $ 552,120
Expenses:
Trustee fees ............................................ (6,164) (3,636) (3,840)
Other ................................................... (1,016) (1,370) (3,085)
----------- ----------- -----------
Total expenses ......................................... (7,180) (5,006) (6,925)
----------- ----------- -----------
Net investment income .................................. 544,802 460,415 545,195
Realized gain on sale of securities ....................... 103,648 119,372 245,044
Increase (decrease) in unrealized appreciation ............ 102,937 (559,965) 943,325
----------- ----------- -----------
Net increase (decrease) in net assets from operations .. 751,387 19,822 1,733,564
Distributions from net investment income .................. (239,262) (385,864) (554,891)
Capital Share Transactions:
Proceeds from sales of units ............................ -- 112,346 2,399,934
Redemption of units:
Principal ............................................. (407,070) (430,883) (827,333)
Realized gains ........................................ (103,648) (119,372) (245,044)
----------- ----------- -----------
Net increase (decrease) from capital share transactions (510,718) (437,909) 1,327,557
----------- ----------- -----------
Increase (decrease) in net assets ....................... 1,407 (803,951) 2,506,230
Net assets:
Beginning of year ....................................... 6,873,871 7,677,822 5,171,592
----------- ----------- -----------
End of year ............................................. $ 6,875,278 $ 6,873,871 $ 7,677,822
=========== =========== ===========
Units sold ................................................ -- 200,800 4,317,200
=========== =========== ===========
Units redeemed ............................................ 1,154,600 1,455,800 2,811,200
=========== =========== ===========
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
99
<PAGE>
- ----------------
The Smith Barney
Fund of Stripped
- ----------------
8
- ----------------
- --------------------------------------------------------------------------------
THE SMITH BARNEY FUND STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES A - 2004 TRUST
- -----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- -------------------------------------
1. -- Significant Accounting Policies
- -------------------------------------
The Smith Barney Fund Stripped ("Zero") U.S. Treasury Securities, Series
A-2004 Trust (the "Fund") is registered under the Investment Company Act of 1940
as a Unit Investment Trust. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
Valuation of securities by the evaluator was made on the basis of current
bid prices for the obligations.
The difference between the initial cost of Stripped U.S. Treasury
Securities and principal amount of each security is being amortized over the
period to its maturity date using the interest method.
All items of income and expenses are attributable to the unit holders, on
a pro rata basis, for Federal income tax purposes in accordance with the grantor
trust rules of the Internal Revenue Code. Accordingly, no provision for taxes is
required to be made by the Fund.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
judgments that affect the reported amount of assets and liabilities and
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
- -------------------------
2. -- Transaction Charges
- -------------------------
During the years ended December 31, 1997, 1996, and 1995, the Sponsor,
Smith Barney Inc., received transaction charges aggregating $1,871, $25,797 and
$37,088. Transaction charges with respect to initial deposit were waived by the
Sponsor.
- -----------------
3. -- Investments
- -----------------
At December 31, 1997, the cost of investments for Federal income tax
purposes was the same as the cost for financial reporting purposes. There was
gross unrealized appreciation of $663,928.
There were no purchases of securities during the year ended December 31,
1997. The aggregate proceeds from sales during the year ended December 31, 1997
was $749,980.
- ------------------------------
4. -- Supplemental Information
- ------------------------------
Selected data per 1,000 units of the Fund outstanding throughout the years
ended December 31, 1997, 1996 and 1995, respectively, are as follows (based on
average units outstanding throughout the years):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Interest income ..................................... $ 50.44 $ 39.22 $ 46.89
Expenses ............................................ (.66) (.42) (.58)
-------- -------- --------
Net investment income ............................. 49.78 38.80 46.31
Increase (decrease) in unrealized appreciation* ..... 19.78 (41.94) 97.25
-------- -------- --------
Net increase (decrease) in net assets from operations 69.56 (3.14) 143.56
Net assets:
Beginning of year ................................. 609.12 612.26 468.70
-------- -------- --------
End of year ....................................... $ 678.68 $ 609.12 $ 612.26
======== ======== ========
</TABLE>
* If the amount shown per 1,000 units outstanding throughout the period does not
accord with the change in the aggregate gains or losses in the portfolio of
securities for the period, it is due to the timing of sales and redemptions of
the Fund's units in relation to fluctuating market values for the portfolio.
- --------------------------------------------------------------------------------
100
<PAGE>
----------------
The Smith Barney
Fund of Stripped
----------------
8
----------------
- --------------------------------------------------------------------------------
The Smith Barney Fund Stripped ("Zero")
- ---------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Sponsor and Holders of
The Smith Barney Fund Stripped ("Zero")
U.S. Treasury Securities, Series A-2004 Trust:
We have audited the accompanying statements of financial condition of The
Smith Barney Fund Stripped ("Zero") U.S. Treasury Securities, Series A-2004
Trust, including the schedule of portfolio investments, as of December 31, 1997
and 1996, and the related statements of operations and changes in net assets for
each of the years in the three-year period ended December 31, 1997. These
financial statements are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmations with the custodian of cash and securities owned at December 31,
1997. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Smith Barney Fund
Stripped ("Zero") U.S. Treasury Securities, Series A-2004 Trust, at December 31,
1997 and 1996, and the results of its operations and the changes in its net
assets for each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
February 17, 1998
- --------------------------------------------------------------------------------
101
<PAGE>
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