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GUARDIAN(SM)
Semiannual Report To Policyowners June 30, 1999
Value Plus
THE GUARDIAN
SEPARATE ACCOUNT B
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 STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES A
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The Guardian Insurance &
Annuity Company, Inc.
A wholly owned subsidiary of
The Guardian Life Insurance Company of America
Executive Office
7 Hanover Square
New York, New York 10004
Customer Service Office
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002-6210
1-800-221-3253
Distributed by:
Guardian Investor Services Corporation(R)
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Performance Summary
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Investment Option Total Returns*
The Guardian Stock Fund............................ 8.17%
Baillie Gifford International Fund................. 3.37%
Value Line Centurion Fund..........................10.47%
Value Line Strategic Asset Mgt. Trust..............10.55%
The Guardian Bond Fund.............................-1.65%
The Guardian Cash Fund............................. 1.96%
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Smith Barney Fund Stripped (Zero) U.S. Traeasury Securities,
Series A, Consisting of one protfolio of "zero coupon" U.S.
Treasury securities, provided the following yield to maturity
as of June 30, 1999: 2004 Trust (maturing 11/15/04): 5.05%
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* The chart above shows the total returns for each investment option under
Value Plus based on the percentage change in unit values during the period
from January 1, 1999 to June 30, 1999. In contrast to the returns
presented in the portfolio managers' interviews, changes in unit values
reflect the effects of morality and expense risk and administrative
service charges as well as each option's expenses to give you a better
picture of an investment option's performance under the contract. Total
return performance figures stated above do not, however, reflect the
annual contract fee or possible withdrawal charges. Deductions of these
amounts would reduce the stated total returns. Past performance is not a
guarantee of future results. Investment returns and principal value will
vary with market conditions.
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Dear Contractowner:
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[PHOTO OMITTED]
Joseph D. Sargent,
CLU President & CEO
Dear Contractowner:
As 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 proud to present this Semiannual Report on the
performance of your contract's separate account and its underlying investment
options during the first half of 1999. I hope you will enjoy learning more about
your investments as well as the economic outlook for the rest of the year.
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 the investment options available under Value Plus,
which are subject to the risks of investing in securities. We are very proud of
our ratings because they reflect the strength of GIAC, which stands behind the
contract's guarantees.
New Format of Semiannual Report
You may have noticed that this report looks a little different from the
1998 Annual Report. In addition to the new larger format, we have consolidated
the information for other GIAC variable annuity products in this report, in an
effort to reduce expenses. To avoid confusion, the information pertaining to
contracts other than Value Plus is clearly labeled.
New Executive Offices
GIAC headquarters relocated to 7 Hanover Square, New York, New York,
10004-2616, on July 1, 1999. Our new home supports our efforts to improve
technology, streamline service and add new capabilities to serve you better.
This relocation will in no way interfere with your ability to communicate with
us. Our customer service address in Bethlehem, PA, and our toll-free customer
service number, (800) 221-3253, remain the same.
Our every action, whether the relocation of our headquarters or the
revision of our semiannual reports, has only one motivation - to deliver greater
value and service to you. As always, we appreciate your business and we thank
you for continuing to invest for your future through GIAC.
Sincerely,
/s/ Joseph D. Sargent
Joseph D. Sargent, CLU
President and Chief Executive Officer
The Guardian Insurance & Annuity Company, Inc.
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SEMIANNUAL REPORT FOR
Select Guard
Value Plus
Table of Contents
Portfolio Schedule
Manager of
Interview Investments
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Economic Report 3
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The Guardian Stock Fund 6 34
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The Guardian Bond Fund 10 42
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The Guardian Cash Fund 18 48
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Baillie Gifford International Fund 12 56
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Value Line Centurion Fund 14 66
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Value Line Strategic Asset Management Trust 16 74
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Smith Barney Stripped ("Zero") US Treasury 86
This fund is only available to policyowners
of Value Plus
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The Guardian Separate Account C 20
For Select Guard policyowners
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The Guardian Separate Account B 26
For Value Plus policyowners
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Investments offered through The Guardian Insurance & Annuity Company, Inc. are
not deposits or obligations of, or guaranteed or endorsed by, any bank or
depository institution, nor are they federally insured by the Federal Deposit
Insurance Corporation, The Federal Reserve Board, or any other agency. They
involve investment risk, including possible loss of principal amount invested.
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Economic Report
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[PHOTO OMITTED]
Frank J. Jones, Ph.D.,
Chief Investment Officer,
Co-Portfolio Manager,
The Guardian Stock Fund
Myopia vs. The Big Picture
The major peril in writing a comment such as this is that during the time
between my writing it and your reading it, the message becomes dated or even
obsolete. This author has frequently been a victim to this peril. Perhaps
uncharacteristically, this comment attempts to focus on the big picture
underlying the economy and the bond and stock markets, and not myopically on the
ephemeral data hitting the tape each minute of the hour and day.
To begin with some perspective, the current economic expansion began
during April 1991, making it the longest peacetime expansion since World War II.
The current bull market in stocks began, by some measures, during September
1990. Obviously, on an historical basis the end of either would not be
premature.
First, the background for this discussion. The Federal Reserve Board (Fed)
eased interest rates three times by a total of 0.75% during late 1998 due to
concerns about credit stress in the U.S. and international economic weakness.
During 1999, the economy has been unexpectedly strong, the bond markets
unexpectedly weak (higher yields), and the stock market mixed (the Dow (DJIA)(1)
and NASDAQ(2) have been strong, small cap stocks weak and the Standard & Poor's
500 (S&P 500) Index(3) somewhere in between). The Fed, in general, and Alan
Greenspan, in particular, have been concerned about the effect of strong
economic growth on labor costs and inflation, even though neither of these have
evidenced themselves yet.
In this vein, the Fed "took back" one of the three previous easings by
raising rates by 0.25% on June 30. During August - the time of this writing -
bond yields had increased to their highest levels since November 1997 and the
S&P 500 had declined by approximately 8% from its high of 1419 on July 16.
During late July/early August, there were announcements of lower productivity
and higher wage increases during the second quarter of 1999, adding to the Fed
concerns. The former was particularly troublesome because Greenspan has
rationalized the length and strength of the non-inflationary expansion on the
basis of the high productivity resulting from innovations in technology and
communications.
Considering the big picture, what factors typically end expansions? The
most common cause is developing or actual inflation which prompts the Fed to
tighten, or raise rates, often precipitously. Often excesses of some type,
frequently inventory excesses, accompany the inflationary forces. Currently
there are no significant excesses and Greenspan and the Fed appear to be
prepared to act pre-emptively and gradually to obviate the need for a later
draconian tightening that could jeopardize the expansion. This is clear from
Greenspan's comments to Congress on July 22, as indicated in the excerpts below.
"If new data suggest it is likely that the pace of cost and price
increases will be picking up, the Federal Reserve will have to act promptly and
forcefully so as to preclude imbalances from arising that would only require a
more disruptive adjustment later - one that could impair the expansion and bring
into question whether the many gains already made can be sustained...."
"When we can be pre-emptive we should, because moderate pre-emptive
actions can obviate more drastic actions at a later date that can destabilize
the economy."
It appears that the Treasury market has already priced in one or two Fed
tightenings. If inflation becomes significant and requires more Fed tightening,
an outcome we do not think likely, yields could increase further. If, on the
other hand, the economy slows somewhat during late 1999, which seems likely,
yields could decline.
Other factors which could also abort the expansion are higher taxes (taxes
are, in fact, likely to be decreased), tighter regulation, and protectionism.
None seem probable.
The economy could slow, but it is not likely to contract. That is, a
recession is not on the "radar screen". Economic growth will continue to proceed
in various paces, but will not end.
The "big picture" of the stock market involves three variables, namely
corporate profits, interest rates, and current valuations. Stock prices increase
when profits increase and when bond yields decrease. In addition, stock prices
are more likely to increase when current val-
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(1) The Dow Jones Industrial Average (DJIA) is an unmanaged index of 30
industrial stocks listed on the New York Stock Exchange that is generally
considered to be representative of U.S. stock market activity.
(2) The NASDAQ Composite Index is a broad-based capitalization-weighted index of
all NASDAQ National Market stocks.
(3) The S&P 500 Index is an unmanaged index of 500 large cap stocks that is
generally considered to be representative of U.S. stock market performance.
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uations (such as the price-to-earnings ratio) are lower than they have been. How
is the stock market currently positioned with respect to these three variables?
As indicated, economic growth is likely to remain solid. Thus, corporate
profits should continue to increase. With respect to bond yields, unless the Fed
fails and inflation increases, bond yields should not increase much more and
could decrease if economic growth eases somewhat. The case relative to
valuations is more difficult. On the one hand, and well noted in the press, many
stocks have very high or even extreme valuations, particularly large cap growth
stocks and technology and internet stocks. On the other hand, small cap and
cyclical stocks have lower valuations. The stock market seems to be begging for
rotation whereby the valuations of the various sectors of the stock market would
converge.
To be philosophical about the last four years of stock market returns in
excess of 20% and the prospects for the future, consider the counsel of the
Nobel Prize winning economist Paul Samuelson: "Economists have no theory of how
long a bubble will last." So, his advice is to "develop a philosophical
attitude. Any prosperity in a speculative market is lent to you by the Fates and
may have a string on it, and may be taken away."
Consider one other characteristic of the current stock market which
affects stock market volatility. Prior to 1959, the dividend yield on stocks was
higher than the bond yield. For example, during 1955, the dividend yield on the
S&P 500 was 4.6% and the ten-year Treasury yield was 2.8%. The rationale for
this relationship was twofold. First, stocks were considered to be more risky
than bonds and, thus, it was deemed, should have higher yields (just as
non-investment grade or high yield bonds have higher yields than investment
grade bonds). Second, capital gains were expected to be low and so most of the
return on common stocks had to be dividends. After 1958, while dividend yields
were lower than bond yields, dividends continued to increase and reached 5.7%
during 1980. Since then, the S&P 500 dividend yields decreased to 1.7% during
1998 and 1.2% during the second quarter of 1999. In fact, many technology stocks
pay no dividends. Obviously now, dividends represent a nearly inconsequential
component of total return.
What is the effect of the recent lower dividends? In general, the dividend
stream is much more stable than capital gains. Hence stocks, due to their
present low dividend yield, are currently much more volatile than they were
previously.
Overall, while volatility will continue to be an unfavorable
characteristic of the stock market, and there could be a moderate decline in the
stock market, I cannot become a stock market bear, and could even be bullish on
some sectors.
Regards,
/s/ Frank J. Jones
Frank J. Jones, Ph.D.
Chief Investment Officer
The Guardian Insurance & Annuity Company, Inc.
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The Guardian Stock Fund.
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Larry Luxenberg, C.F.A.
Co-Portfolio Manager]
[PHOTO OMITTED]
John B. Murphy, C.F.A.
Co-Portfolio Manager]
Objective: Long-term growth of capital
Portfolio: At least 80% common stocks and securities convertible into common
stocks
Inception: April 13, 1983
Net Assets at June 30, 1999: $3,736,297,042
Q. How has the Fund performed during the first six months of 1999?
A. During most of the last two years, a narrow group of stocks has powered the
advance of the Standard & Poor's 500 Index (S&P 500)(1), and in the first half
of 1999, the Index had a total return of 12.38%. Starting in April, this advance
has broadened as the worldwide financial crisis environment has dissipated. In
the face of continuing great volatility, The Guardian Stock Fund returned
8.44%(2).
Q. What was your investment strategy during this time?
A. For most of the last five years, we have been favoring large cap, high
quality growth stocks. These stocks have done particularly well since the
financial crisis began in Thailand in July 1997. More recently, the series of
central bank interest rate easings has strengthened economies around the world.
As a consequence, the stock market returns have broadened. We have, therefore,
adopted a more neutral stance, gradually adding to mid-cap and small-cap
positions and to some economically sensitive names. We believe that many
large-cap growth stocks will continue to prosper but, in addition, many
previously overlooked companies will join the advance. As has been our
historical practice, we are making a gradual shift and continue to closely
monitor economic developments both domestically and abroad.
At mid-year, the U.S. economy continues to be buoyant. While the economy
is growing rapidly, inflation remains subdued. The Federal Reserve raised
interest rates once, but signs of bottlenecks or dislocations in the economy are
difficult to detect. Moreover, foreign economies have begun to bounce back from
a scary two-year period of rolling financial crises that showed how closely
linked the global economy has become.
Q. Which sectors are you emphasizing?
A. Our biggest commitment this year has been to technology stocks. We had 32% of
the Fund in technology stocks -- broadly defined -- at mid-year. By our
reckoning the S&P weighting in technology was 24%. We believe that this is a
dramatic period of technological advances powered by the rapid maturation of the
Internet. The portfolio is positioned to benefit from the companies that provide
the structure making these advances in communications and other areas possible.
Prominent among our holdings are Microsoft, IBM, Intel, Sun Microsystems, MCI
Worldcom, Lucent, Cisco and Oracle. The growth in the areas these companies
serve will continue to be tremendous for years.
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We believe that this is a dramatic period of technological advances
powered by the rapid maturation of the Internet. The portfolio is
positioned to benefit from the companies that provide the structure making
these advances in communications and other areas possible.
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We also continue to overweight consumer cyclical stocks. U.S. consumers
have been the big beneficiaries of this period of prosperity.
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(1) 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.
(2) Total return figures are historical and assume the reinvestment of dividends
and distributions and the deduction of all Fund expenses. The actual total
returns for owners of the variable annuity contracts or variable life
insurance policies that provide for investment in the Fund will be lower to
reflect separate account and contract/policy charges. Past performance is
not a guarantee of future results. Investment return and principal value
will fluctuate so that the value of your investment, when redeemed, may be
worth more or less than the original cost.
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Q. What do you foresee for the market over the remainder of the year?
A. If the last few years have taught us anything, it is to be cautious in
forecasting. As the millenium approaches, concern about the Year 2000 bug has
declined, and economies around the world have begun to improve. In the U.S. the
major debate is now what to do with a projected extra $1 trillion budget surplus
over the next 15 years. A mere seven years ago, Washington had no memory of a
time of surplus and in fact despaired of ever bringing the budget into balance.
Corporations are better managed than they have been in at least a generation.
Creativity is spurring incredible advances in such areas as the life sciences
and communications. While stock market valuations as measured by the S&P 500 are
high, the broad market is not expensive by historical measures.
More volatility in the market will not surprise us, especially as we move
into the normally treacherous fall period. But given the current benign economic
backdrop, it is hard to be too negative on the long-term outlook for equities.
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The Guardian Stock Fund Profile
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Top Ten Holdings as of June 30, 1999
Percent
Company of Net Assets
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1. Microsoft Corp. 5.11%
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2. Int'l. Business Machines 4.53%
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3. MCI WorldCom, Inc. 2.32%
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4. Pfizer, Inc. 2.19%
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5. Intel Corp. 1.99%
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6. General Electric Co. 1.97%
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7. Lucent Technologies, Inc. 1.93%
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8. Wal-Mart Stores, Inc. 1.84%
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9. Ford Motor Co. 1.47%
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10. Hewlett Packard Co. 1.45%
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AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED JUNE 30, 1999
Life of Fund
1 Year 5 Years 10 Years (since 4/13/83)
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The Guardian Stock Fund 14.64% 25.34% 18.66% 17.99%
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S&P 500 Index 22.76% 27.86% 18.76% 17.56%
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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.
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Sector Weightings of Common Stocks
as of June 30, 1999
[The following table was depicted as a pie chart in the printed material]
Basic Industries 1.48%
Energy 5.22%
Financial 15.93%
Capital Goods/ Technology 33.78%
Transportation 1.60%
Utilities 8.43%
Conglomerates 1.39%
Credit Cyclicals 0.52%
Capital Goods 2.56%
Consumer Services 6.03%
Consumer Staples 12.51%
Consumer Cyclical 10.55%
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Growth of a Hypothetical $10,000 Investment
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A hypothetical $10,000 investment made at the incep tion of The Guardian Stock
Fund on April 13, 1983 would have grown to $146,868 on June 30, 1999. 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 $135,742. 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 under standing of the
investment's real worth.
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The Guardian Bond Fund
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Thomas G. Sorell, C.F.A.
Co-Portfolio Manager
[PHOTO OMITTED]
Howard W. Chin,
Co-Portfolio Manager
Q. How did the Fund perform during the first half of 1999?
A. The Fund had a total return of -1.41%(1) for the six months ended June 30,
1999, while the average fund in our Lipper Intermediate Investment Grade(2) peer
group returned -1.21% for the same period. The group consists of variable
annuity subaccounts that invest primarily in investment-grade debt with average
maturities of 5-10 years. Another commonly used benchmark, the Lehman Aggregate
Bond Index(3), returned -1.37% for the first half of 1999.
Q. What factors affected the Fund's performance?
A. During the first half of 1999, interest rates rose approximately 1.00%.
Investors abandoned the safe haven sought in U.S. Treasury securities during
1998's fourth quarter financial crisis and recognized that the U.S. economy
remained impervious to these events as Gross Domestic Product grew 4.3% in
1999's first quarter following a 6% increase in 1998's fourth quarter. Although
inflation remained low during the second quarter of 1999, investors became
increasingly concerned that an emerging recovery in Asia, rising commodity
prices, and a low U.S. unemployment rate would increase inflationary risks.
These concerns led market participants late in the quarter to expect that the
Federal Reserve (Fed) would soon adopt a tightening bias(4) in monetary policy.
In May, the Fed adopted a tightening bias and on June 30th raised the Fed Funds
rate 25 basis points (0.25%) to 5%, its first increase in the target Fed Funds
rate since March 1997.
Q. What was your investment strategy during this period?
A. During the first quarter, the Fund continued to increase its exposure to
spread assets (corporate bonds, mortgage and asset-backed securities) especially
corporate and asset-backed securities which remained attractively priced on a
relative valuation basis. The Fund benefited from this increased allocation to
spread sectors during this quarter as yield spreads narrowed, and spread sector
bonds significantly outperformed equivalent duration Treasuries, effectively
cushioning the Fund's performance from the full effect of rising interest rates.
Both corporate and mortgage-backed securities, which are the two largest spread
sectors represented in the Fund, performed exceptionally well over this period.
For example, according to the Lehman Aggregate Bond Index, corporate bonds
outperformed Treasuries by 132 basis points (1.32%) in the first quarter of 1999
while mortgage-backed securities outperformed Treasuries by 48 basis points
(0.48%).
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The Fund's overall strategy is to maximize the total return of a
diversified fixed income portfolio of investment-grade corporate,
mortgage-backed, asset-backed, and U. S. government securities.
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During April, spread sector bonds continued to outperform Treasuries and
began to exhibit less attractive risk/return profiles at which point, the Fund
started reducing its holdings in corporate bonds. This strategy was both
appropriate and successful as spread assets
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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 for 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. 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. The Lehman
Aggregate Bond Index is not available for direct investment, and the returns
do not reflect the fees and expenses that have been deducted from the Fund.
(4) The Federal Reserve Board (Fed) announces a bias after their Federal
Reserve Open Market Committee (FOMC) meetings. The bias reflects the
consensus of the Fed and indicates the more likely direction that the Fed
may take in changing interest rates. There can be a tightening, easing, or
neutral bias announced. In this case, a tightening bias was announced,
meaning that the Fed was more likely to raise interest rates than lower
them in the future. The bias is in place until the next FOMC meeting,
where the Fed may announce a change in bias, or reaffirm their current bias.
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reacted poorly to the Fed's policy change in May, widening significantly in
yield spread and underperforming Treasuries.
As the first half of 1999 came to a close, yields on spread assets had
widened sufficiently that the Fund again found them to be attractive on a
relative valuation basis. Prior to the second quarter's close, the Fund moved to
its most overweighted position in spread assets in several years. While the
potential benefits of this strategy did not contribute positively to our
performance during June as liquidity began to suffer and volatility increased,
we believe that continued strength in the U.S. economy, increasing corporate
profitability, and relatively stable financial markets will support enhanced
performance of these asset classes.
Q. What is your outlook for the remainder of the year?
A. The Fund's overall strategy is to maximize the total return of a diversified
fixed income portfolio of investment-grade corporate, mortgage-backed,
asset-backed, and U. S. government securities. We currently believe that the
spread sectors remain fundamentally attractive relative to their recent
historical value but may suffer intermittently from short-term concerns of
reduced market liquidity as investors monitor future Fed activity and focus on
potential dislocations associated with Year 2000 concerns. Nevertheless, in our
opinion, asset valuations have already sufficiently discounted these risks.
As 1999 progresses, our strategy will continue to focus on monitoring and
balancing these risks by actively adjusting our asset allocations to reflect
changes in sector valuations and continuing to identify attractive investment
opportunities within these sectors.
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The Guardian Bond Fund Profile
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AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
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1 Year ..................................................... 2.51%
5 Years .................................................... 7.11%
10 Years ................................................... 7.71%
Since Inception (5/1/83) ................................... 8.89%
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Recent Asset Allocation Strategy
(% Market Values)
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Bailie Gifford International Fund
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[PHOTO OMITTED]
R. Robin Menzies,
Portfolio Manager
Objective: Long-term capital appreciation
Portfolio: At least 80% in a diversified portfolio of common stocks of companies
domiciled outside of the United States
Inception: February 8, 1991
Net Assets at June 30, 1999: $702,813,100
Q. How did the Fund perform in the first six months of 1999?
A. For the six months ended June 30, 1999, the Fund produced a total return of
3.63%.(1) This compares with the total return of 4.11% for the Morgan Stanley
Capital International (MSCI) Europe, Australia, and Far East (EAFE) Index.(2)
The international markets' behavior during the period can be characterized
as strong in Asia and dull in Europe. The MSCI Pacific ex-Japan Index(3) showed
a total return of 26.23% and MSCI Japan(4) Index showed a total return of
20.82%, while MSCI UK(5) Index was up by only 2.62%, and MSCI Europe ex-UK(6)
Index fell by 4.40%. Part of the weakness was attributable to currency factors.
The total return of the MSCI Europe ex-UK Index was a positive 8.20% in local
currency terms, but those currencies, predominantly the Euro, were weak against
the Dollar.
Q. What factors contributed to the Fund's performance?
A. The reason that the Fund's performance during the past six months was
slightly behind that of the MSCI EAFE Index was that the Fund had, on average,
less of its portfolio invested in Asia than the weight within the EAFE Index. By
the end of the second quarter, there was little difference in the Asian
proportions of the Fund and the Index. The Fund's performance was helped by the
fact that the stocks that the Fund held in Japan rose by significantly more than
the MSCI Japan Index.
During the past six months, it became clear that the countries of the
Pacific ex-Japan region were recovering quicker than previously had been
expected from the recessions they had suffered due to the depreciation of many
of their currencies and the accompanying high interest rates. Also, as a result
of very high levels of government spending, the Japanese economy recovered, too.
Japan's Gross Domestic Product grew by 7.9% in the first quarter. In contrast,
economic activity in Continental Europe was patchy. While France expanded, both
the German and Italian economies did not do as well as expected.
The changes in activity in the various international economies led to
changes in our evaluation of the prospects for the companies in the different
regions, and, in consequence, we increased the Fund's exposure to Asia and
reduced that in Europe.
Q. What is your outlook for the rest of the year?
A. Our investment strategy continues to be one of identifying individually
attractive companies domiciled in developed markets outside North America. Our
analysts conduct disciplined research on the universe of stocks available for
investment, looking at the prospects of the industries in which the companies
operate, the companies' competitive positions, profitability, and management
strategies. This involves many meetings and much travel from our offices in
Edinburgh.
================================================================================
"The international markets' behavior during the period can be
characterized as strong in Asia and dull in Europe."
================================================================================
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends
and distributions, and the deduction of all Fund expenses. The actual total
returns for owners of the variable annuity contracts or variable life
insurance policies that provide for investment in the Fund will be lower to
reflect separate account and contract/policy charges. Past performance is
not a guarantee of future results. Investment return and principal value
will fluctuate so that the value of your investment, when redeemed, may be
worth more or less than the original cost.
(2) The Morgan Stanley Capital International (MSCI) Europe, Australia and Far
East (EAFE) 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 the returns do not reflect the
fees and expenses that have been deducted from the Fund's return.
(3) The MSCI Pacific Ex-Japan Index is an unmanaged index generally considered
to be representative of the stock market activity of Australia, Singapore,
Hong Kong and New Zealand. The returns for the index do not reflect expenses
that are deducted from the Fund's return.
(4) The MSCI Japan Index is an unmanaged index generally considered to be
representative of Japanese stock market activity. The returns for the index
do not reflect expenses that are deducted from the Fund's return.
(5) The MSCI UK Index is an unmanaged index generally considered to be
representative of stock market activity in the United Kingdom. The returns
for the index do not reflect expenses that are deducted from the Fund's
return.
(6) The MSCI Europe Ex-UK Index is an unmanaged index generally considered to be
representative of European stock market activity, excluding the United
Kingdom. The returns for the index do not reflect expenses that are deducted
from the Fund's return.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Looking forward, we expect growth to remain strong in Asia and believe
that the weakness of the Euro should improve the competitive position of
companies exporting from Europe, and eventually lead to a recovery in the
region. We will continue to follow our strategy of investing in fundamentally
attractive businesses, wherever they are based internationally.
- --------------------------------------------------------------------------------
Baillie Gifford International Fund Profile
- ----------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
================================================================================
1 Year ..................................................... 5.34%
3 Years .................................................... 13.91%
5 Years .................................................... 12.41%
Since Inception (2/8/91) ................................... 13.01%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition by Geographical
Location as of June 30, 1999
[The following table was depicted as a pie chart in the printed material]
United Kingdom 21.47%
Europe 45.31%
Japan 24.15%
Pacific 7.96%
Cash 1.02%
Latin America 0.09%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 1999
Percent
Company of Net Assets Nature of Company Country
- --------------------------------------------------------------------------------
1. Mannesmann AG 3.49% Industrial Machinery Germany
- --------------------------------------------------------------------------------
2. Glaxo Wellcome 2.50% Drugs & Health Care United Kingdom
- --------------------------------------------------------------------------------
3. Elf Aquitaine 2.41% Oil-Integrated France
- --------------------------------------------------------------------------------
4. BP Amoco PLC 2.21% Oil-International United Kingdom
- --------------------------------------------------------------------------------
5. Banco Santander
Central Hispano S.A. 1.97% Banks Spain
- --------------------------------------------------------------------------------
6. DaimlerChrysler AG 1.85% Automotive Germany
- --------------------------------------------------------------------------------
7. Nokia OYJ 1.85% Telecommunications Finland
- --------------------------------------------------------------------------------
8. Acciona S.A. 1.83% Construction & Housing Spain
- --------------------------------------------------------------------------------
9. Vodafone Group 1.79% Telecommunications United Kingdom
- --------------------------------------------------------------------------------
10. Fujitsu Ltd. 1.69% Computer Systems Japan
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund
- -------------------------------------
[PHOTO OMITTED]
Left to Right; Alan N. Hoffman, CFA, Senior Portfolio Manager, Philip
J. Orlando, CFA, Chief Investment Officer & Centurion Team Leader and Nancy L.
Bendig, Senior Portfolio Manager
Objective: Long-term growth of capital
Portfolio: At least 90% common stocks
Inception: November 15, 1983
Net Assets at June 30, 1999: $885,486,767
Q. For the six months ended June 30, 1999, how did the Value Line Centurion Fund
perform?
A. For the six months ended June 30, 1999, the Centurion Fund produced a total
return of 10.74%(1), compared with total returns of 12.38% for the Standard &
Poor's 500 Index(2) (S&P 500) and 9.24% for the Russell 2000 Index(3).
Q. What factors affected the Fund's performance and what was your investment
strategy during this time period?
A. From the beginning of the year through April 9th, growth stocks were king,
value was an afterthought, and cash was trash. As a result, Centurion's
fully-invested portfolio emphasis on technology, healthcare, retail, and
financial-service stocks paid off handsomely, as Centurion surged by 12.2%, the
S&P 500 rose 10.1%, and the Russell 2000 actually declined by -3.7%.
At this point in time, however, investor psychology changed dramatically,
as investors perceived that nascent economic recoveries in Brazil, Germany and
Japan were sustainable. Consequently, investors commenced a brutally volatile
and extreme sector rotation out of the growth stocks and into the beaten-down
cyclicals - that is, companies whose economically-sensitive earnings would
respond powerfully to a global economic resurgence.
During the two-month period from April 9th through June 15th, Centurion's
performance was -10.9%. Centurion underperformed the S&P 500 by 7.4%, as the
Index returned -3.5% for the same two months. Centurion also underperformed by
nearly 18% the Russell 2000, which returned 7.1% over that two-month time frame.
By mid-June, however, investors began to recognize that it was premature
to anticipate robust global growth. Despite encouraging, yet precarious, first
steps out of recession by Brazil, Germany and Japan, the regional economies of
Latin America, Europe and the Pacific Rim are not completely out of the woods.
The markets concluded that cyclical stocks simply will not get, as yet, the
global economic juice needed to power earnings and sustain their second-quarter
rally.
As a result, the investor pendulum swung out of cyclicals and back into
growth, clearly benefiting Centurion. For the fortnight that closed the second
quarter, Centurion soared from 1.3% to 10.7%, compared with the S&P 500's move
from 6.5% to 12.4% and the Russell 2000's increase from 3.4% to 9.1%.
================================================================================
We believe that inflation will remain benign, which could spark a rally in the
bond market, with lower interest rates perhaps approaching 5.50%.
================================================================================
Q. What is your outlook for the remainder of the year?
A. For the rest of 1999, we believe that the Federal Reserve is on hold.
Chairman Alan Greenspan surpris-
- --------------------------------------------------------------------------------
(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 to reflect separate account and contract/policy charges. Past
performance is not a guarantee of future results. Investment return and
principal value will fluctuate so that the value of your investment, when
redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that is
generally considered to be representative of U.S. stock market activity. The
S&P 500 Index is not available for direct investment and its returns do not
reflect the fees and expenses that have been deducted from the Fund.
(3) The Russell 2000 Index is an unmanaged index that is generally considered to
be representative of small capitalization issues in the U.S. stock market.
The returns for the Russell 2000 Index do not reflect expenses that are
deducted from the Fund's returns.
(4) The Federal Reserve Board (Fed) announces a bias after their Open Market
Committee (FOMC) meetings or after raising or lowering interest rates. The
bias reflects the consensus of the Fed and indicates the more likely
direction that the Fed may take in changing interest rates. There can be a
tightening, easing, or neutral bias announced. In this case, a neutral bias
was announced, meaning that the Fed was more likely to keep interest rates
the same than change them in the future.
- --------------------------------------------------------------------------------
14
<PAGE>
ingly shifted the Fed's monetary policy bias to neutral(4), after preemptively
increasing the federal funds rate by 25 basis points (0.25%) to 5.00% (the Fed's
first such move in more than two years) at its recent June 30th Open Market
Committee (FOMC) meeting. The long bond's yield increase from 4.70% last October
to 6.20% in June has contributed to a sequential deceleration in Gross Domestic
Product (GDP) growth in the U.S., from 6.0% in the fourth quarter of 1998, to
4.3% in the first quarter of 1999, to 2.3% in the second quarter of 1999.
We believe that inflation will remain benign, which could spark a rally in
the bond market, with lower interest rates perhaps approaching 5.50%. We expect
solid double-digit corporate profit gains, which points to a continued
longer-term positive bias for the equity markets. We remain cautious, however,
due to the possibility of some profit taking during the seasonally weak months
of September and October, because of conservative corporate earnings guidance
relating to Year 2000 concerns.
- --------------------------------------------------------------------------------
Value Line Centurion Fund Profile
- -------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
================================================================================
1 Year ...................................................... 22.08%
5 Years ..................................................... 25.64%
10 Years .................................................... 19.04%
Since Inception (11/15/83) .................................. 15.21%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 1999
1. Cisco Systems Inc.
- --------------------------------------------------------------------------------
2. Tellabs Inc.
- --------------------------------------------------------------------------------
3. Medtronic Inc.
- --------------------------------------------------------------------------------
4. IBM Corp.
- --------------------------------------------------------------------------------
5. State Street Corp.
- --------------------------------------------------------------------------------
6. Clear Channel Comm. Inc.
- --------------------------------------------------------------------------------
7. Amgen Inc.
- --------------------------------------------------------------------------------
8. American Express Co.
- --------------------------------------------------------------------------------
9. Microsoft Corp.
- --------------------------------------------------------------------------------
10. Fifth Third Bancorp
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
[The following table was depicted as a pie chart in the printed material]
Consumer Cyclical 0.75%
Energy 1.19%
Technology 22.04%
Financial 19.01%
Transportation 1.82%
Utilities 3.25%
Capital Goods 6.69%
Consumer Goods (Non-Durables) 18.44%
Consumer Growth 23.51%
Cash 3.31%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Allocation as of June 30, 1999
[The following table was depicted as a pie chart in the printed material]
Cash 3.31%
Stock 96.69%
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- --------------------------------------------------
[PHOTO OMITTED]
Standing Left to Right: Nancy L. Bendig, Senior Portfolio Manager,
Stephen E. Grant, Senior Portfolio Manager & SAM Team Leader, and Bruce H.
Alston, CFA, Director of Fixed Income
Objective: High total return consistent with reasonable risk
Portfolio: Stocks, bonds and money market instruments
Inception: October 1, 1987
Net Assets at June 30, 1999: $1,519,651,498
Q. How did the SAM Trust perform in the first half of 1999?
A. The Trust performed very well relative to both its benchmark and its peers.
Its six-month total return was 10.82%(1). This compared with a total return of
12.38% for the Standard & Poor's 500 Index(2) (S&P 500) and a total return of
- -2.60% for the Lehman Government/Corporate Bond Index(3). SAM has nearly kept
pace with the S&P 500 over the years, while advancing well ahead of the Lehman
Bond Index.
Among its peer group, the Trust ranked 3 out of the 92 flexible variable
annuity underlying funds followed by Lipper Analytical Services(4) for the
six-month period ended June 30. For the past 12 months, it ranked 3 out of 92
funds; for five years, 4 out of 60 funds; and for ten years, 4 out of 38 funds.
Q. What factors affected performance in the six-month period?
A. Excellent stock selection was key to SAM's returns in the year's first half.
As in 1998, the stock portion of the portfolio outperformed the S&P 500, helped
in part by a moderate overweighting in the technology sector. About one-third of
our stockholdings are in small- and mid-capitalization equities, an area that
continued to lag the S&P 500, but we overcame this through good specific stock
selection.
A secondary factor affecting performance was asset allocation. The Trust
started 1999 with about 85% of assets in stocks, 10% in bonds, and 5% in cash
equivalents. By the end of January, we had reduced the stock position to 70% of
assets. In the remaining months of the year's first half, stock exposure was
gradually reduced even further to only 50% of assets. The proceeds were
redirected mainly into bonds, which were raised to 20% of assets by the end of
January and then gradually to 35% by the end of June. Cash rose to about 15% of
total assets in the period. The move out of stocks and into bonds proved to be
premature (at best), since stocks ended the first half with a strong gain to new
highs, while bonds continued falling in price until a moderate rally in late
June.
================================================================================
Excellent stock selection was key to SAM's returns in the year's first
half. As in 1998, the stock portion of the portfolio outperformed the S&P
500, helped in part by a moderate overweighting in the technology sector.
================================================================================
Q. How do you select individual stocks and bonds?
A. For stock selection, we rely on the Value Line Timeliness Ranking System, a
proprietary tool that has been in use for nearly 35 years. This system favors
stocks with strong earnings momentum and strong price momentum. These tend to be
fast-growing companies whose stock price can be more volatile than that of the
average company. To reduce risk, we maintain a diversi-
- --------------------------------------------------------------------------------
(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 an 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.
Likewise, return figures for the S&P 500 Index do not reflect any sales
charges that an investor may have to pay when purchasing or redeeming shares
of the Fund.
(3) The Lehman Government/Corporate Bond Index is an unmanaged index that is
generally considered to be representative of U.S. government and corporate
bond market activity. The Lehman Government/Corporate Bond Index is not
available for direct investment, and the returns do not reflect the fees and
expenses that have been deducted from the Fund.
(4) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. 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.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
fied portfolio that does not stray too far from the industry weightings of the
S&P 500.
In bond selection, we stay with high-quality holdings. The mix varies
among Treasury securities, U.S. agencies, and corporate bonds depending upon
available yields, and our economic outlook. We continue to emphasize Treasuries
and agencies at this time.
Q. What is your outlook for the rest of the year?
A. Keep in mind that the Trust's central tendency, or neutral position, is to be
weighted 55% in stocks, 35% in bonds, and 10% in cash. Thus, our recent changes
have essentially brought us back to a neutral allocation. To determine asset
allocation, we rely on Value Line's proprietary models, which use a number of
economic and financial data. We heavily overweighted the portfolio toward stocks
in the third quarter of last year to take advantage of a sharp market drop at
that time. This year, as the stock market rallied to new highs, and as interest
rates rose, our models told us to begin moving out of stocks and back into
bonds. If current trends continue, we may reduce SAM's stock exposure still
further.
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust Profile
- ---------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
================================================================================
1 Year ..................................................... 22.44%
5 Years .................................................... 20.63%
10 Years ................................................... 17.05%
Since Inception (10/1/87) .................................. 15.48%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 1999
1. VISX Inc.
- --------------------------------------------------------------------------------
2. Omnicom Group Inc.
- --------------------------------------------------------------------------------
3. Cisco Systems Inc.
- --------------------------------------------------------------------------------
4. Tyco International Ltd.
- --------------------------------------------------------------------------------
5. Allergan Inc.
- --------------------------------------------------------------------------------
6. Wal Mart Stores Inc.
- --------------------------------------------------------------------------------
7. Enron Corp.
- --------------------------------------------------------------------------------
8. Airtouch Comm. Inc.
- --------------------------------------------------------------------------------
9. Biogen Inc.
- --------------------------------------------------------------------------------
10. Symbol Technologies Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
[The following table was depicted as a pie chart in the printed material]
Stocks 49.98%
Bonds 34.65%
Cash 15.38%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund.
- -------------------------------------
[PHOTO OMITTED]
Alexander M. Grant, Jr.,
Portfolio Manager
Objective: As high a level of current income as is consistent with preservation
of capital and liquidity
Portfolio: Short-term money market instruments
Inception: November 1, 1981
Net Assets at June 30, 1999: $442,622,986
Q. How has The Guardian Cash Fund performed during the first half of 1999?
A. As of June 30, 1999, the effective 7-day annualized yield for The Guardian
Cash Fund was 4.45%(1). The Fund produced an annualized total return of 4.42%(2)
for the half-year ended June 30, 1999. In contrast, the effective 7-day
annualized yield of Tier One money market funds as measured by IBC Financial
Data was 4.26%; total annualized return for the same category was 4.27%. IBC
Financial Data is a research firm that tracks money market funds.
Q. What was your investment strategy during this period?
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
securities from issuers that 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 Ratings
Group for the Fund's portfolio. Most of the portfolio (98.01%) was invested in
commercial paper; the balance (1.99%) was invested in repurchase agreements.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $10.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE FUND.
- --------------------------------------------------------------------------------
Q. What factors affected the Fund's performance?
A. Money market funds are directly affected by the actions of the Federal
Reserve Board (Fed). The Fed's policy-making open market committee (FOMC) raised
the Fed funds target rate on June 30, 1999 by 25 basis points (0.25%) to 5.00%.
The Fed Funds target is the rate at which banks can borrow from each other
overnight. While the Federal Reserve Board does not set this rate, it can
establish a target rate, and through open market operations, the Fed can move
member banks in the direction of that target rate. The Discount Rate is the rate
at which banks can borrow directly from the Federal Reserve. Another factor
affecting performance was the portfolio's average maturity - 22 days as of June
30, 1999. The average Tier One money market fund as measured by IBC Financial
Data had an average maturity of 51 days.
================================================================================
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.
================================================================================
Q. What is your outlook for the remainder of the year?
A. Uncertainty with the direction of the stock market contributes to large daily
inflows and outflows of funds in the Cash Fund. As the stock market rallies, our
investors typically transferred cash to equity funds. During those times when
the stock market stalls, we see cash inflows.
- --------------------------------------------------------------------------------
(1) Yields are annualized historical figures and will vary as interest rates
change. Effective yield assumes that income is reinvested. Past performance
is not a guarantee of future results.
(2) Total return figures are historical and assume the reinvestment of dividends
and distributions, and the deduction of all Fund expenses. The actual total
returns for owners of the variable annuity contracts or variable life
insurance policies 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
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account C INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
---------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Shares owned in underlying fund -- Note 1 ......................... 135,338 27,419 1,408 57,722
Net asset value per share (NAV) ................................... 51.83 11.74 10.00 21.38
----------- ----------- ----------- -----------
Total Assets (Shares x NAV) ..................................... $ 7,014,572 $ 321,899 $ 14,080 $ 1,234,096
Liabilities
Due to Guardian Insurance & Annuity Company, Inc. ................. 24,625 1,153 115 2,263
----------- ----------- ----------- -----------
Net Assets ...................................................... $ 6,989,947 $ 320,746 $ 13,965 $ 1,231,833
=========== =========== =========== ===========
Number of units outstanding ........................................ 124,737.259 14,988.955 867.400 57,213.534
Unit value ......................................................... 56.04 21.40 16.10 21.53
FIFO Cost .......................................................... $ 5,491,423 $ 329,483 $ 14,080 $ 1,078,657
<CAPTION>
Value Line
Strategic
Value Line Asset
Centurion Management
---------------------------
<S> <C> <C>
Assets
Shares owned in underlying fund -- Note 1 ......................... 31,466 51,551
Net asset value per share (NAV) ................................... 33.71 27.95
----------- -----------
Total Assets (Shares x NAV) ..................................... $ 1,060,717 $ 1,440,845
Liabilities
Due to Guardian Insurance & Annuity Company, Inc. ................. 2,162 2,090
----------- -----------
Net Assets ...................................................... $ 1,058,555 $ 1,438,755
=========== ===========
Number of units outstanding ........................................ 17,884.436 29,469.888
Unit value ......................................................... 59.19 48.82
FIFO Cost .......................................................... $ 815,189 $ 1,072,192
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account C
- ------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
----------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ 16,475 $ 7,562 $ 897 $ 3,052
Expenses -- Note 3:
Mortality and expense risk charges .............................. 17,117 779 112 2,836
----------- ----------- ----------- -----------
Net investment income/(expense) .................................. (642) 6,783 785 216
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 95,343 273 -- 20,910
Reinvested realized gain distributions .......................... 160,401 878 -- 13,985
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments ........................... 255,744 1,151 -- 34,895
----------- ----------- ----------- -----------
Net change in unrealized appreciation/(depreciation) of investments 269,708 (13,353) -- 5,355
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ........... 525,452 (12,202) -- 40,250
----------- ----------- ----------- -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations .... $ 524,810 $ (5,419) $ 785 $ 40,466
=========== =========== =========== ===========
<CAPTION>
Value Line
Strategic
Value Line Asset
Centurion Management
--------------------------
<S> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ -- $ --
Expenses -- Note 3:
Mortality and expense risk charges .............................. 2,835 3,681
----------- -----------
Net investment income/(expense) .................................. (2,835) (3,681)
----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 12,945 29,146
Reinvested realized gain distributions .......................... -- --
----------- -----------
Net realized gain/(loss) on investments ........................... 12,945 29,146
----------- -----------
Net change in unrealized appreciation/(depreciation) of investments 90,005 112,091
----------- -----------
Net realized and unrealized gain/(loss) from investments ........... 102,950 141,237
----------- -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations .... $ 100,115 $ 137,556
=========== ===========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
20 & 21
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account C INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1998 (Audited) and
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
--------------------------------------------------------
<S> <C> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ 22,622 $ 14,831 $ 1,814 $ 168
Net realized gain/(loss) from sale of investments ................. 243,231 259 -- 114,402
Reinvested realized gain distributions ............................ 652,078 3,958 -- 59,081
Net change in unrealized appreciation/(depreciation) of investments 109,502 1,777 -- 49,642
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 1,027,433 20,825 1,814 223,293
----------- ----------- ----------- -----------
1998 Policy Transactions
Net policy purchase payments ...................................... 831,980 48,151 12,086 210,740
Transfer on account of death and other terminations ............... (424,652) (6,971) (12,263) (60,605)
Transfer of policy loans .......................................... (127,939) (4,595) (2,375 (275,220)
Transfer between investment divisions ............................. 8,971 (1,061) -- 1,159
Transfer of cost of insurance and policy fees -- Note 3 ........... (218,363) (10,762) (3,176) (48,616)
Transfers -- other ................................................ 464 2 (1) 21
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 70,461 24,764 (979) (172,521)
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ............................. 1,097,894 45,589 835 50,772
Net Assets at December 31, 1997 ................................... 5,196,393 269,170 39,237 1,118,356
----------- ----------- ----------- -----------
Net Assets at December 31, 1998 ................................... $ 6,294,287 $ 314,759 $ 40,072 $ 1,169,128
=========== =========== =========== ===========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ (642) $ 6,783 $ 785 $ 216
Net realized gain/(loss) from sale of investments ................. 95,343 273 -- 20,910
Reinvested realized gain distributions ............................ 160,401 878 -- 13,985
Net change in unrealized appreciation/(depreciation) of investments 269,708 (13,353) -- 5,355
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 524,810 (5,419) 785 40,466
----------- ----------- ----------- -----------
1999 Policy Transactions
Net policy purchase payments ...................................... 429,536 20,383 8,856 99,363
Transfer on account of death and other terminations ............... (78,425) (2,565) (22,537) (28,152)
Transfer of policy loans .......................................... (77,360) (102) (6,001) (24,048)
Transfer between investment divisions ............................. 8,403 (1,021) (5,837) (275)
Transfer of cost of insurance and policy fees -- Note 3 ........... (111,337) (5,289) (1,373) (24,643)
Transfers -- other ................................................ 33 -- -- (6)
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 170,850 11,406 (26,892) 22,239
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ............................. 695,660 5,987 (26,107) 62,705
Net Assets at December 31, 1998 ................................... 6,294,287 314,759 40,072 1,169,128
----------- ----------- ----------- -----------
Net Assets at June 30, 1999 ....................................... $ 6,989,947 $ 320,746 $ 13,965 $ 1,231,833
----------- ----------- ----------- -----------
<CAPTION>
Value Line
Strategic
Value Line Asset
Centurion Management
-------------------------
<S> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ (2,288) $ 24,978
Net realized gain/(loss) from sale of investments ................. 43,574 32,453
Reinvested realized gain distributions ............................ 50,196 91,453
Net change in unrealized appreciation/(depreciation) of investments 111,291 129,000
----------- -----------
Net increase/(decrease) resulting from operations ................. 202,773 277,884
----------- -----------
1998 Policy Transactions
Net policy purchase payments ...................................... 123,106 158,898
Transfer on account of death and other terminations ............... (78,661) (78,534)
Transfer of policy loans .......................................... (35,056) (24,752)
Transfer between investment divisions ............................. (11) (9,058)
Transfer of cost of insurance and policy fees -- Note 3 ........... (29,980) (41,983)
Transfers -- other ................................................ 85 55
----------- -----------
Net increase/(decrease) from policy transactions .................. (20,517) 4,626
----------- -----------
Total Increase/(Decrease) in Net Assets ............................. 182,256 282,510
Net Assets at December 31, 1997 ................................... 762,029 1,027,524
----------- -----------
Net Assets at December 31, 1998 ................................... $ 944,285 $ 1,310,034
=========== ===========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ (2,835) $ (3,681)
Net realized gain/(loss) from sale of investments ................. 12,945 29,146
Reinvested realized gain distributions ............................ -- --
Net change in unrealized appreciation/(depreciation) of investments 90,005 112,091
----------- -----------
Net increase/(decrease) resulting from operations ................. 100,115 137,556
----------- -----------
1999 Policy Transactions
Net policy purchase payments ...................................... 64,728 76,198
Transfer on account of death and other terminations ............... (18,842) (23,489)
Transfer of policy loans .......................................... (15,120) (38,416)
Transfer between investment divisions ............................. (516) (754)
Transfer of cost of insurance and policy fees -- Note 3 ........... (16,150) (22,368)
Transfers -- other ................................................ 55 (6)
----------- -----------
Net increase/(decrease) from policy transactions .................. 14,155 (8,835)
----------- -----------
Total Increase/(Decrease) in Net Assets ............................. 114,270 128,721
Net Assets at December 31, 1998 ................................... 944,285 1,310,034
----------- -----------
Net Assets at June 30, 1999 ....................................... $ 1,058,555 $ 1,438,755
----------- -----------
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
22 & 23
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account C
- ----------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ----------------------
Note 1 -- Organization
- ----------------------
The Guardian Separate Account C (the Account), a unit investment trust
registered under the Investment Company Act of 1940, as amended, was established
by The Guardian Insurance & Annuity Company, Inc. (GIAC) on August 10, 1988.
GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of
America (Guardian). GIAC issues the annual 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 to one or
more investment divisions established within the Account as selected by the
policyowner. The policyowner also has the ability to transfer his or her policy
value among the investment divisions within the Account. The Account currently
comprises six investment divisions which invest in shares 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). However, a
policyowner can only invest in up to four investment divisions.
GSF, GBF and GCF each has an investment advisory agreement with Guardian
Investor Services Corporation, a wholly owned subsidiary of GIAC. BGIF is
managed by 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.
The change in net assets maintained in the Account provide the basis for
the periodic determination of benefits under the policies. The net assets may
not be less than the amount required under state insurance laws to provide for
death benefits (without regard to the minimum death benefit guarantee) and other
policy benefits. Additional assets are held in GIAC's general account to cover
the contingency that the 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) Net proceeds from the sale of annual premium variable life insurance
policies are invested by the Account's investment divisions in shares of the
corresponding Funds at the net asset value of each Fund's shares. All
distributions made by a Fund are reinvested in shares of the same Fund.
(b) The market value of the investments in the Funds is based on the net
asset value of the respective Funds as of their close of business on the
valuation date.
(c) Investment transactions are accounted for on the trade date and income
is recorded on the ex-dividend date.
(d) The cost of investments sold is determined on a first in, first out
(FIFO) basis.
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
- --------------------------------------
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 a daily charge from the net assets
of the Account which, on an annual basis, is equal to a rate of .50% of the
policy account value. For the six months ending June 30, 1999 this amount was
$27,360.
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
Under the terms of the policy, GIAC also deducts a daily charge from the
policy account value for the cost of life insurance. The amount, based on
various factors, is compensation to GIAC for the anticipated cost of paying
death benefits. The charge is deducted from the investment base at the end of
each month. For the six months ending June 30, 1999 and the year ended December
31, 1998, deductions for the cost of life insurance amounted to $181,160 and
$352,880, respectively.
Additional charges are assessed against the annual premium. These include
a $50 annual policy fee, and an annual state premium tax charge of approximately
2.5% of the basic premium.
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 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, if any, which are attributable to the Account.
- ----------------------------
Note 4 -- Purchase and Sales
- ----------------------------
During the six months ended June 30, 1999 and the year ended December 31,
1998, purchases and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
Purchases Purchases Sales Sales
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. .... $ 544,496 $1,301,371 $ 230,363 $ 553,661
The Guardian Bond Fund, Inc. ..... 28,361 65,559 9,516 22,486
The Guardian Cash Fund, Inc. ..... 8,038 16,224 35,032 15,143
Baillie Gifford International Fund 113,031 317,063 79,755 430,347
Value Line Centurion Fund, Inc. .. 59,144 164,284 49,989 136,023
Value Line Strategic Asset
Management Trust ............... 60,395 249,514 76,230 128,706
---------- ---------- ---------- ----------
Total .......................... $ 813,465 $2,114,015 $ 480,885 $1,286,366
========== ========== ========== ==========
</TABLE>
Note: In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
-----------------------------------------------
<S> <C> <C> <C>
Assets
Shares owned in underlying fund -- Note 1 .................................. 3,775,939 2,420,184 3,549,869
Net asset value per share (NAV) ............................................ 51.83 11.74 10.00
------------- ------------- -------------
Total Assets (Shares x NAV) ............................................... $ 195,706,925 $ 28,412,957 $ 35,498,688
Liabilities
Due to Guardian Insurance & Annuity Company, Inc. .......................... 19,265 2,846 338,999
------------- ------------- -------------
Net Assets -- Note 4 ...................................................... $ 195,687,660 $ 28,410,111 $ 35,159,689
============= ============= =============
Number of units outstanding .................................................. 1,948,202.903 983,979.762 1,794,968.826
Unit value ................................................................... 100.45 28.87 19.59
FIFO Cost .................................................................... $ 155,916,231 $ 29,344,341 $ 35,498,688
<CAPTION>
Value Line
Baillie Strategic
Gifford Value Line Asset
International Centurion Management
-----------------------------------------------
<S> <C> <C> <C>
Assets
Shares owned in underlying fund -- Note 1 .................................. 630,818 3,069,394 1,266,099
Net asset value per share (NAV) ............................................ 21.38 33.71 27.95
------------- ------------- -------------
Total Assets (Shares x NAV) ............................................... $ 13,486,882 $ 103,469,284 $ 35,387,478
Liabilities
Due to Guardian Insurance & Annuity Company, Inc. .......................... 1,595 10,401 3,945
------------- ------------- -------------
Net Assets -- Note 4 ...................................................... $ 13,485,287 $ 103,458,883 $ 35,383,533
============= ============= =============
Number of units outstanding .................................................. 583,707.319 1,181,648.869 670,812.008
Unit value ................................................................... 23.10 87.55 52.75
FIFO Cost .................................................................... $ 12,738,992 $ 79,060,475 $ 25,646,164
<CAPTION>
Smith Barney
Fund 2004
-------------
<S> <C>
Assets
Shares owned in underlying fund -- Note 1 .................................. 9,113,206
Net asset value per share (NAV) ............................................ 0.73
-------------
Total Assets (Shares x NAV) ............................................... $ 6,695,473
Liabilities
Due to Guardian Insurance & Annuity Company, Inc. .......................... 1,671
-------------
Net Assets -- Note 4 ...................................................... $ 6,693,802
=============
Number of units outstanding .................................................. 128,330.584
Unit value ................................................................... 52.16
FIFO Cost .................................................................... $ 4,781,286
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- ----------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
-----------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ 460,817 $ 668,991 $ 842,437
Expenses -- Note 3:
Mortality and expense risk charges ....................................... 474,548 69,989 96,035
------------- ------------- -------------
Net investment income/(expense) ........................................... (13,731) 599,002 746,402
------------- ------------- -------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 10,331,915 (147,819) --
Reinvested realized gain distributions ................................... 4,486,438 77,691 --
------------- ------------- -------------
Net realized gain/(loss) on investments .................................... 14,818,353 (70,128) --
Net change in unrealized appreciation/(depreciation) of investments ........ 25,173 (1,026,780) --
------------- ------------- -------------
Net realized and unrealized gain/(loss) from investments ..................... 14,843,526 (1,096,908) --
------------- ------------- -------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ 14,829,795 $ (497,906) $ 746,402
============= ============= =============
<CAPTION>
Value Line
Baillie Strategic
Gifford Value Line Asset
International Centurion Management
-----------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ 33,459 $ -- $ --
Expenses -- Note 3:
Mortality and expense risk charges ....................................... 32,846 249,366 85,612
------------- ------------- -------------
Net investment income/(expense) ........................................... 613 (249,366) (85,612)
------------- ------------- -------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 417,075 5,840,167 1,324,112
Reinvested realized gain distributions ................................... 153,340 -- --
------------- ------------- -------------
Net realized gain/(loss) on investments .................................... 570,415 5,840,167 1,324,112
Net change in unrealized appreciation/(depreciation) of investments ........ (179,002) 4,081,275 2,150,824
------------- ------------- -------------
Net realized and unrealized gain/(loss) from investments ..................... 391,413 9,921,442 3,474,936
------------- ------------- -------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ 392,026 $ 9,672,076 $ 3,389,324
============= ============= =============
<CAPTION>
Smith Barney
Fund 2004
-------------
<S> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ --
Expenses -- Note 3:
Mortality and expense risk charges ....................................... 26,145
-------------
Net investment income/(expense) ........................................... (26,145)
-------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 552,060
Reinvested realized gain distributions ................................... --
-------------
Net realized gain/(loss) on investments .................................... 552,060
Net change in unrealized appreciation/(depreciation) of investments ........ (806,040)
-------------
Net realized and unrealized gain/(loss) from investments ..................... (253,980)
-------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ (280,125)
=============
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
26 & 27
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1998 (Audited) and
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
----------------------------------------------
<S> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ 785,824 $ 1,347,573 $ 1,781,581
Net realized gain/(loss) from sale of investments ................. 20,459,401 (9,192) --
Reinvested realized gain distributions ............................ 19,892,487 347,936 --
Net change in unrealized appreciation/(depreciation) of investments (9,255,640) 320,086 --
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 31,882,072 2,006,403 1,781,581
------------- ------------- -------------
1998 Policy Transactions
Net policy purchase payments ...................................... -- -- 592,915
Transfer of net policy loading -- Note 3 .......................... (163,656) (23,106) (49,433)
Transfer on account of death ...................................... (1,429,136) (229,758) (419,861)
Transfer on account of other terminations ......................... (5,045,779) (1,366,661) (2,818,547)
Transfer of policy loans .......................................... (2,421,724) (836,466) (660,755)
Transfer of cost of insurance and policy fees -- Note 3 ........... (2,515,933) (455,421) (708,818)
Transfer between investment divisions ............................. (1,486,763) 1,402,000 (534,389)
Transfers -- other ................................................ (29,237) (6,609) (2,901)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. (13,092,228) (1,516,021) (4,601,789)
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets ............................. 18,789,844 490,382 (2,820,208)
Net Assets at December 31, 1997 .................................. 173,125,131 27,214,106 38,158,883
------------- ------------- -------------
Net Assets at December 31, 1998 .................................. $ 191,914,975 $ 27,704,488 $ 35,338,675
============= ============= =============
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ (13,731) $ 599,002 $ 746,402
Net realized gain/(loss) from sale of investments ................. 10,331,915 (147,819) --
Reinvested realized gain distributions ............................ 4,486,438 77,691 --
Net change in unrealized appreciation/(depreciation) of investments 25,173 (1,026,780) --
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 14,829,795 (497,906) 746,402
------------- ------------- -------------
1999 Policy Transactions
Net policy purchase payments ...................................... -- -- 195,874
Transfer of net policy loading -- Note 3 .......................... (56,297) (11,826) (10,704)
Transfer on account of death ...................................... (708,062) (87,434) (5,157)
Transfer on account of other terminations ......................... (4,378,240) (291,232) (1,303,116)
Transfer of policy loans .......................................... (782,790) (163,408) (365,109)
Transfer of cost of insurance and policy fees -- Note 3 ........... (1,346,822) (228,702) (325,138)
Transfer between investment divisions ............................. (3,778,923) 1,986,651 888,066
Transfers -- other ................................................ (5,976) (520) (104)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. (11,057,110) 1,203,529 (925,388)
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets ............................. 3,772,685 705,623 (178,986)
Net Assets at December 31, 1998 .................................. 191,914,975 27,704,488 35,338,675
------------- ------------- -------------
Net Assets at June 30, 1999 ...................................... $ 195,687,660 $ 28,410,111 $ 35,159,689
============= ============= =============
<CAPTION>
Value Line
Baillie Strategic
Gifford Value Line Asset
International Centurion Management
-----------------------------------------------
<S> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ 12,050 $ (169,948) $ 661,765
Net realized gain/(loss) from sale of investments ................. 1,918,655 11,395,122 3,341,162
Reinvested realized gain distributions ............................ 694,143 5,067,463 2,344,129
Net change in unrealized appreciation/(depreciation) of investments (16,477) 5,468,485 765,425
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 2,608,371 21,761,122 7,112,481
------------- ------------- -------------
1998 Policy Transactions
Net policy purchase payments ...................................... -- -- --
Transfer of net policy loading -- Note 3 .......................... (38,711) (61,480) (54,745)
Transfer on account of death ...................................... (368,359) (714,278) (131,469)
Transfer on account of other terminations ......................... (727,267) (3,926,389) (1,659,288)
Transfer of policy loans .......................................... (183,897) (1,178,658) (599,046)
Transfer of cost of insurance and policy fees -- Note 3 ........... (190,976) (1,221,051) (440,555)
Transfer between investment divisions ............................. (789,594) 1,244,451 (251,487)
Transfers -- other ................................................ (10,301) (59,160) (11,341)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. (2,309,105) (5,916,565) (3,147,931)
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets ............................. 299,266 15,844,557 3,964,550
Net Assets at December 31, 1997 .................................. 13,541,320 81,485,954 28,208,307
------------- ------------- -------------
Net Assets at December 31, 1998 .................................. $ 13,840,586 $ 97,330,511 $ 32,172,857
============= ============= =============
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ 613 $ (249,366) $ (85,612)
Net realized gain/(loss) from sale of investments ................. 417,075 5,840,167 1,324,112
Reinvested realized gain distributions ............................ 153,340 -- --
Net change in unrealized appreciation/(depreciation) of investments (179,002) 4,081,275 2,150,824
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 392,026 9,672,076 3,389,324
------------- ------------- -------------
1999 Policy Transactions
Net policy purchase payments ...................................... -- -- --
Transfer of net policy loading -- Note 3 .......................... (8,168) (21,856) (13,341)
Transfer on account of death ...................................... (120,092) (383,695) (13,167)
Transfer on account of other terminations ......................... (315,459) (1,928,328) (835,729)
Transfer of policy loans .......................................... (156,269) (446,691) (172,422)
Transfer of cost of insurance and policy fees -- Note 3 ........... (86,981) (729,870) (260,091)
Transfer between investment divisions ............................. (60,386) (5,909) 1,118,475
Transfers -- other ................................................ 30 (27,355) (2,373)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. (747,325) (3,543,704) (178,648)
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets ............................. (355,299) 6,128,372 3,210,676
Net Assets at December 31, 1998 .................................. 13,840,586 97,330,511 32,172,857
------------- ------------- -------------
Net Assets at June 30, 1999 ...................................... $ 13,485,287 $ 103,458,883 $ 35,383,533
============= ============= =============
<CAPTION>
Smith Barney
Fund 2004
-------------
<S> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ (54,947)
Net realized gain/(loss) from sale of investments ................. 1,160,312
Reinvested realized gain distributions ............................ --
Net change in unrealized appreciation/(depreciation) of investments (337,780)
-------------
Net increase/(decrease) resulting from operations ................. 767,585
-------------
1998 Policy Transactions
Net policy purchase payments ...................................... --
Transfer of net policy loading -- Note 3 .......................... (10,648)
Transfer on account of death ...................................... --
Transfer on account of other terminations ......................... (238,311)
Transfer of policy loans .......................................... (263,328)
Transfer of cost of insurance and policy fees -- Note 3 ........... (103,121)
Transfer between investment divisions ............................. 415,782
Transfers -- other ................................................ (332)
-------------
Net increase/(decrease) from policy transactions .................. (199,958)
-------------
Total Increase/(Decrease) in Net Assets ............................. 567,627
Net Assets at December 31, 1997 .................................. 6,707,210
-------------
Net Assets at December 31, 1998 .................................. $ 7,274,837
=============
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ (26,145)
Net realized gain/(loss) from sale of investments ................. 552,060
Reinvested realized gain distributions ............................ --
Net change in unrealized appreciation/(depreciation) of investments (806,040)
-------------
Net increase/(decrease) resulting from operations ................. (280,125)
-------------
1999 Policy Transactions
Net policy purchase payments ...................................... --
Transfer of net policy loading -- Note 3 .......................... (4,179)
Transfer on account of death ...................................... (12,457)
Transfer on account of other terminations ......................... (259,934)
Transfer of policy loans .......................................... 174,410
Transfer of cost of insurance and policy fees -- Note 3 ........... (51,814)
Transfer between investment divisions ............................. (147,974)
Transfers -- other ................................................ 1,038
-------------
Net increase/(decrease) from policy transactions .................. (300,910)
-------------
Total Increase/(Decrease) in Net Assets ............................. (581,035)
Net Assets at December 31, 1998 .................................. 7,274,837
-------------
Net Assets at June 30, 1999 ...................................... $ 6,693,802
=============
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
28 & 29
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- --------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ----------------------
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), 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. 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
corresponding 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.
- --------------------------------------------------------------------------------
30
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
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.
- --------------------------------------
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. For the six months ended June 30,
1999 the total amount of these charges was $1,034,541.
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.
For the six months ended June 30, 1999 and year ended December 31, 1998 these
fees amounted to $126,371 and $401,779 respectively.
In addition, GIAC also makes a monthly charge for the cost of life
insurance, based on the account value of the policyowner's insurance in force,
as compensation for the anticipated cost of paying death benefits. For the six
months ended June 30, 1999 and year ended December 31, 1998, deductions for cost
of life insurance amounted to $3,029,418 and $5,331,692, respectively.
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, June 30, 1999
- -----------------------------------
At June 30, 1999, net assets of the Account were as follows:
Accumulation of Single Premium
Variable Life Insurance
Policyowners' Accounts $ 417,472,847
Owned by GIAC 806,118
-------------
$ 418,278,965
=============
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 $126,371 at June 30, 1999 may
be transferred by GIAC to its general account.
- -----------------------------
Note 5 -- Purchases and Sales
- -----------------------------
During the six months ended June 30, 1999 and the year ended December 31, 1998
purchases and sales of shares of the Funds were as follows:
- --------------------------------------------------------------------------------
31
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- ------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
<TABLE>
<CAPTION>
Purchases Purchases Sales Sales
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. .... $ 10,936,551 $ 42,987,410 $ 17,541,406 $ 35,512,717
The Guardian Bond Fund, Inc. ..... 6,935,094 7,083,905 5,057,884 6,924,015
The Guardian Cash Fund, Inc. ..... 19,738,132 43,594,897 19,889,333 46,423,310
Baillie Gifford International Fund 1,774,745 6,645,091 2,370,270 8,257,111
Value Line Centurion Fund, Inc. .. 8,749,629 21,739,663 12,553,333 22,809,153
Value Line Strategic Asset
Management Trust ............... 2,484,980 5,542,631 2,752,627 5,703,163
Smith Barney Fund 2004 ........... 485,257 1,387,604 813,168 1,649,562
------------ ------------ ------------ ------------
Total .......................... $ 51,104,388 $128,981,201 $ 60,978,021 $127,279,031
============ ============ ============ ============
</TABLE>
NOTE: In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
32
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- ----------------------
COMMON STOCKS -- 95.3%
- ----------------------
Shares Value
- ---------------------------------------------------------------------------
Aerospace and Defense -- 0.8%
58,100 Alliant Techsystems, Inc.* $ 5,025,650
365,774 United Technologies Corp. 26,221,424
--------------
31,247,074
--------------
Air Transportation -- 0.4%
151,000 Continental Airlines, Inc.* 5,681,375
141,000 Delta Airlines, Inc. 8,125,125
--------------
13,806,500
--------------
Appliance and Furniture -- 0.3%
309,000 Ethan Allen Interiors, Inc. 11,664,750
61,400 Furniture Brands Int'l., Inc.* 1,711,525
--------------
13,376,275
--------------
Automotive -- 1.9%
975,000 Ford Motor Co. 55,026,562
230,000 General Motors Corp. 15,180,000
--------------
70,206,562
--------------
Automotive Parts -- 0.1%
160,753 Delphi Automotive Systems Corp. 2,983,978
--------------
Biotechnology -- 1.3%
241,000 Amgen, Inc.* 14,670,875
170,000 Biogen, Inc.* 10,933,125
62,900 MedImmune, Inc.* 4,261,475
210,500 Sepracor, Inc.* 17,103,125
--------------
46,968,600
--------------
Broadcasting -- 3.2%
212,400 Adelphia Comm. Corp.* 13,513,950
625,400 CBS Corp. 27,165,813
80,100 Chancellor Media Corp.* 4,415,512
190,000 Clear Channel Comm., Inc.* 13,098,125
330,000 Comcast Corp. 12,684,375
739,200 Infinity Broadcasting Corp.* 21,991,200
376,100 MediaOne Group, Inc.* 27,972,438
--------------
120,841,413
--------------
Building Materials and Homebuilders -- 0.8%
16,500 Crossman Communities, Inc.* 479,531
150,000 D.R. Horton, Inc. 2,493,750
145,000 Lennar Corp. 3,480,000
157,800 Lone Star Industries, Inc. 5,927,362
79,650 Martin Marietta Materials, Inc. 4,699,350
102,620 Southdown, Inc. 6,593,335
137,100 Vulcan Materials Co. 6,615,075
--------------
30,288,403
--------------
Capital Goods-Miscellaneous Technology -- 1.1%
43,000 AFC Cable Systems, Inc.* 1,518,437
110,232 At Home Corp.* 5,945,638
38,600 Critical Path, Inc. 2,135,062
59,600 Doubleclick, Inc.* 5,468,300
59,200 E Bay, Inc.* 8,961,400
138,000 MindSpring Enterprises, Inc.* 6,115,125
63,000 Yahoo, Inc.* 10,851,750
--------------
40,995,712
--------------
Chemicals -- 0.0%
112,100 Cambrex Corp. 2,942,625
--------------
Computer Software -- 8.6%
376,900 America Online, Inc.* 41,647,450
200,000 BMC Software, Inc.* 10,800,000
220,000 Computer Associates Int'l., Inc. 12,100,000
27,000 DST Systems, Inc.* 1,697,625
2,118,800 Microsoft Corp.* 191,089,275
928,300 Novell, Inc.* 24,599,950
742,500 Oracle Corp.* 27,565,313
348,300 SunGuard Data Systems, Inc.* 12,016,350
--------------
321,515,963
--------------
Computer Systems -- 11.0%
246,600 Apple Computer, Inc.* 11,420,662
809,800 EMC Corp.* 44,539,000
538,000 Hewlett Packard Co. 54,069,000
1,309,000 Int'l. Business Machines 169,188,250
656,400 Lexmark Int'l. Group, Inc.* 43,363,425
230,000 Pitney Bowes, Inc. 14,777,500
192,200 Seagate Technology* 4,925,125
206,000 Solectron Corp.* 13,737,625
735,600 Sun Microsystems, Inc.* 50,664,450
105,000 Xerox Corp. 6,201,563
--------------
412,886,600
--------------
Conglomerates -- 1.3%
310,000 Textron, Inc. 25,516,875
265,400 Tyco Int'l. Ltd. 25,146,650
--------------
50,663,525
--------------
Drugs and Hospitals -- 7.7%
735,600 Bristol-Myers Squibb Corp. 51,813,825
171,000 Johnson & Johnson 16,758,000
359,164 Medtronic, Inc. 27,969,896
719,800 Merck & Co., Inc. 53,265,200
186,000 Monsanto Corp. 7,335,375
27,000 Patterson Dental Co.* 938,250
746,600 Pfizer, Inc. 81,939,350
531,800 Schering-Plough Corp. 28,185,400
263,000 Warner-Lambert Co.* 18,245,625
--------------
286,450,921
--------------
Electrical Equipment -- 2.0%
651,200 General Electric Co. 73,585,600
--------------
Entertainment and Leisure -- 0.9%
400,000 Carnival Corp. 19,400,000
316,000 Viacom, Inc.* 13,904,000
--------------
33,304,000
--------------
Financial-Banks -- 6.7%
314,000 Bank of America Corp. 23,020,125
565,000 Banc One Corp. 33,652,813
260,000 Bank of New York, Inc. 9,538,750
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- ---------------------------------------------------------------------------
488,100 Chase Manhattan Corp.* $ 42,281,662
706,500 Citigroup, Inc. 33,558,750
140,000 Fifth Third Bancorp 9,318,750
324,000 Firstar Corp. 9,072,000
60,000 FirstMerit Corp. 1,683,750
305,000 Fleet Financial Group, Inc. 13,534,375
84,379 Hudson United Bancorp 2,584,107
22,627 M & T Bank Corp. 12,444,850
394,000 Mellon Bank Corp. 14,331,750
427,200 North Fork Bancorp 9,104,700
75,000 Premier Bancshares, Inc., GA 1,373,437
247,332 Premier National Bancorp, Inc. 4,853,890
174,000 SunTrust Banks, Inc. 12,082,125
148,500 Union BanCal Corp. 5,364,563
23,000 U.S. Trust Corp. 2,127,500
43,000 Webster Financial Corp. 1,166,375
147,000 Zions Bancorp 9,334,500
--------------
250,428,772
--------------
Financial-Other -- 5.3%
294,400 American Express Co. 38,308,800
210,300 Charles Schwab Corp. 23,106,713
258,400 Federal Home Loan Mortgage Corp. 14,987,200
156,600 Federal National Mortgage Assn. 10,707,525
29,100 Goldman Sachs Group, Inc.* 2,102,475
135,000 Hambrecht & Quist Group, Inc.* 5,011,875
338,000 Investment Technology Group, Inc. 10,942,750
338,000 Jefferies Group, Inc. 10,140,000
87,332 Legg Mason, Inc. 3,362,282
158,600 Lehman Brothers Hldgs., Inc.* 9,872,850
124,000 Merrill Lynch & Co., Inc. 9,912,250
148,800 J. P. Morgan & Co., Inc. 20,906,400
384,075 Morgan Keegan, Inc. 7,273,420
199,000 Morgan Stanley Dean Witter & Co. 20,397,500
203,400 Paine Webber Group, Inc. 9,508,950
31,000 Ragen MacKenzie Group, Inc.* 368,125
--------------
196,909,115
--------------
Financial-Thrift -- 1.0%
209,800 Astoria Financial Corp. 9,218,087
142,700 BankAtlantic Bancorp, Inc. 1,159,438
244,550 BankAtlantic Bancorp, Inc. Class A 1,772,987
27,040 California Federal Bancorp, Inc.* 32,110
179,277 Charter One Financial, Inc. 4,986,142
216,500 Coastal Bancorp, Inc. 8,660,000
20,000 Coast Federal Litigation Trust* 21,250
220,000 Dime Bancorp, Inc. 4,427,500
40,000 Golden State Bancorp, Inc.* 52,500
478,200 Sovereign Bancorp, Inc. 5,798,175
--------------
36,128,189
--------------
Food, Beverage and Tobacco -- 0.6%
276,200 Anheuser-Busch Cos., Inc. 19,592,938
72,788 Earthgrains Co. 1,878,840
41,070 Tootsie Roll Industries, Inc. 1,586,329
--------------
23,058,107
--------------
Household Products -- 0.4%
365,200 Dial Corp. 13,580,875
--------------
Insurance -- 2.1%
134,400 American Gen. Hospitality Corp. 10,130,400
215,000 American Int'l. Group, Inc. 25,168,438
6,961 Berkshire Hathaway, Inc.* 15,592,640
86,200 Chicago Title Corp. 3,076,262
54,000 Jefferson-Pilot Corp. 3,574,125
103,270 Liberty Financial Cos., Inc. 3,007,739
100,500 Reinsurance Group of America 3,366,750
216,000 State Auto Financial Corp. 2,916,000
160,000 Transamerica Corp. 12,000,000
--------------
78,832,354
--------------
Merchandising-Department Stores -- 2.8%
272,900 Dayton Hudson Corp. 17,738,500
238,500 Saks, Inc.* 6,886,687
376,800 TJX Cos., Inc. 12,552,150
1,427,000 Wal-Mart Stores, Inc. 68,852,750
--------------
106,030,087
--------------
Merchandising-Drugs -- 0.5%
251,472 CVS Corp. 12,762,204
220,000 Walgreen Co. 6,462,500
--------------
19,224,704
--------------
Merchandising-Food -- 1.3%
130,000 Albertson's, Inc. 6,703,125
730,000 Kroger Co.* 20,394,375
430,390 Safeway, Inc.* 21,304,305
--------------
48,401,805
--------------
Merchandising-Special -- 4.0%
160,000 Abercrombie & Fitch Co.* 7,680,000
247,800 Best Buy, Inc.* 16,726,500
344,900 BJ's Wholesale Club, Inc.* 10,368,556
140,000 Costco Cos., Inc.* 11,208,750
487,500 GAP, Inc. 24,557,813
562,000 Home Depot, Inc. 36,213,875
190,400 Lowes Cos., Inc. 10,793,300
159,000 Ross Stores, Inc. 8,009,625
500,000 Tandy Corp. 24,437,500
--------------
149,995,919
--------------
Miscellaneous-Consumer Growth Cyclical -- 0.1%
30,000 Avis Rent A Car, Inc.* 873,750
59,366 Nielsen Media Research, Inc.* 1,736,456
--------------
2,610,206
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited) (Continued)
Shares Value
- ---------------------------------------------------------------------------
Miscellaneous-Consumer Growth Staples -- 0.4%
110,000 A.C. Nielsen Corp.* $ 3,327,500
285,000 Valassis Communications, Inc.* 10,438,125
--------------
13,765,625
--------------
Oil and Gas Producing -- 1.3%
251,900 Anadarko Petroleum Corp. 9,273,069
233,600 Apache Corp. 9,110,400
205,000 Basin Exploration, Inc.* 4,112,812
234,800 Burlington Resources, Inc. 10,155,100
8,800 Callon Petroleum Co.* 90,750
143,300 Devon Energy Corp. 5,122,975
74,200 Newfield Exploration Co.* 2,110,063
152,100 Vastar Resources, Inc. 7,975,744
--------------
47,950,913
--------------
Oil and Gas Services -- 1.1%
386,000 Halliburton Co. 17,466,500
254,000 Schlumberger Ltd. 16,176,625
312,000 Transocean Offshore, Inc. 8,190,000
--------------
41,833,125
--------------
Oil-Integrated-Domestic -- 0.2%
236,000 Conoco, Inc. 6,578,500
--------------
Oil-Integrated-International -- 2.3%
230,000 Chevron Corp. 21,893,125
489,800 Exxon Corp. 37,775,825
403,000 Texaco, Inc. 25,187,500
--------------
84,856,450
--------------
Paper and Forest Products -- 0.7%
183,800 Georgia Pacific Corp.* 8,707,525
341,100 International Paper Co. 17,225,550
--------------
25,933,075
--------------
Publishing and Print -- 1.6%
376,300 Dun & Bradstreet Corp. 13,335,131
628,200 Time Warner, Inc. 46,172,700
--------------
59,507,831
--------------
Railroads -- 0.8%
319,400 Kansas City Southern Inds., Inc. 20,381,713
188,000 Union Pacific Corp. 10,962,750
--------------
31,344,463
--------------
Restaurants -- 0.3%
141,700 Outback Steakhouse, Inc.* 5,570,581
233,400 Wendy's Int'l., Inc.* 6,608,138
--------------
12,178,719
--------------
Semiconductors -- 5.8%
252,200 Adaptec, Inc.* 8,905,812
672,000 Advanced Micro Devices, Inc.* 12,138,000
181,000 Applied Materials, Inc.* 13,371,375
1,250,300 Intel Corp. 74,392,850
550,000 Micron Technology, Inc.* 22,171,875
410,000 Motorola, Inc. 38,847,500
132,000 Texas Instruments 19,140,000
470,000 Xilinx, Inc.* 26,907,500
--------------
215,874,912
--------------
Textile-Apparel and Production -- 0.2%
196,000 Jones Apparel Group, Inc.* 6,725,250
--------------
Transportation-Miscellaneous -- 0.4%
181,400 FDX Corp.* 9,840,950
334,200 Maritrans, Inc. 1,879,875
45,000 Sea Containers Ltd. 1,510,312
--------------
13,231,137
--------------
Truckers -- 0.2%
168,600 Navistar Int'l. Corp., Inc.* 8,430,000
--------------
Utilities-Electric -- 1.5%
153,000 Consolidated Edison, Inc. 6,923,250
158,000 DQE 6,339,750
146,740 Duke Energy Co. 7,978,988
159,600 Energy East Corp. 4,149,600
313,000 IPALCO Enterprises 6,631,687
185,300 Montana Power Co. 13,063,650
64,500 New Century Energies, Inc. 2,503,406
58,000 Nisource, Inc. 1,497,125
170,000 Texas Utilities Co. 7,012,500
--------------
56,099,956
--------------
Utilities-Telecommunications -- 12.3%
702,800 Ameritech Corp. 51,655,800
850,453 AT & T Corp. 47,465,908
310,000 Bell Atlantic Corp. 20,266,250
672,000 Cisco Systems, Inc.* 43,302,000
495,000 GTE Corp. 37,496,250
1,066,900 Lucent Technologies, Inc. 71,949,069
1,005,608 MCI WorldCom, Inc.* 86,545,139
349,000 Nortel Networks Corp. 30,297,563
85,000 QUALCOMM, Inc.* 12,197,500
125,600 SBC Communications, Inc. 7,284,800
422,000 Sprint Corp. 22,286,875
105,500 Sprint PCS* 6,026,687
115,000 Vodafone Airtouch PLC 22,655,000
--------------
459,428,841
--------------
TOTAL COMMON STOCKS
(Cost $2,409,580,271) 3,561,002,681
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
- ------------------------------
SHORT-TERM INVESTMENTS -- 2.0%
- ------------------------------
Principal
Amount Value
- ---------------------------------------------------------------------------
$ 25,000,000 BTR Dunlop Finance, Inc.
5.75%, due 7/1/99 $ 25,000,000
24,000,000 Rio Tinto America, Inc.
5.75%, due 7/1/99 24,000,000
25,000,000 Sonoco Products Co.
5.80%, due 7/1/99 25,000,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $74,000,000) 74,000,000
--------------
- ----------------------------
REPURCHASE AGREEMENT -- 2.5%
- ----------------------------
$ 94,119,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/99, maturity value
$94,131,732 at 4.87%, due
7/1/99 (collateralized by
$2,165,000 Federal Farm Credit
Bank Notes, 4.62%, due 8/2/99,
by $23,465,000 Federal Home
Loan Mortgage Corp. Notes,
4.87%, due 7/12/99, by
$23,465,000 Federal National
Mortgage Assn. Notes, 5.25%,
due 1/15/03, by $23,465,000
Federal National Mortgage
Assn. Notes, 5.62%, due
3/15/01, and by $23,465,000
Federal National Mortgage
Assn. Notes, 6.59%, due
5/21/02)
$ 94,119,000
--------------
TOTAL REPURCHASE AGREEMENT
(Cost $94,119,000) 94,119,000
--------------
TOTAL INVESTMENTS -- 99.8%
(Cost $2,577,699,271) 3,729,121,681
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 0.2% 7,175,361
--------------
NET ASSETS -- 100.0% $3,736,297,042
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investments, at market (cost $2,577,699,271) $ 3,729,121,681
Cash 988
Receivable for securities sold 24,560,629
Dividends receivable 2,339,301
Receivable for fund shares sold 367,293
Interest receivable 12,732
---------------
TOTAL ASSETS 3,756,402,624
---------------
LIABILITIES
Payable for securities purchased 10,369,293
Payable for fund shares redeemed 4,668,382
Accrued expenses 336,900
Due to affiliates 4,731,007
---------------
TOTAL LIABILITIES 20,105,582
---------------
NET ASSETS $ 3,736,297,042
===============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 72,088
Additional paid-in capital 2,295,077,577
Undistributed net investment income 1,352,119
Accumulated net realized gain on investments 288,372,848
Net unrealized appreciation of investments 1,151,422,410
---------------
NET ASSETS $ 3,736,297,042
===============
Shares Outstanding -- $0.001 par value 72,088,129
---------------
NET ASSET VALUE PER SHARE $ 51.83
===============
STATEMENT OF OPERATIONS
SIX MONTHS ENDED
June 30, 1999 (Unaudited)
Investment Income:
Dividends $ 16,203,295
Interest 3,038,560
Less: Foreign tax withheld (7,852)
---------------
Total Income 19,234,003
---------------
Expenses:
Investment advisory fees -- Note B 9,020,458
Custodian fees 186,324
Printing expense 87,305
Legal fees 21,750
Registration fees 13,925
Audit fees 8,750
Directors' fees -- Note B 6,250
Other 350
---------------
Total Expenses 9,345,112
---------------
Net Investment Income 9,888,891
---------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized gain on investments 288,375,087
Net change in unrealized appreciation
of investments (3,613,260)
---------------
Net Realized and Unrealized Gain
on Investments 284,761,827
---------------
Net Increase in Net Assets
from Operations $ 294,650,718
===============
See notes to financial statements.
- --------------------------------------------------------------------------------
38
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
(Unaudited) (Audited)
--------------- --------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 9,888,891 $ 32,273,803
Net realized gain on investments 288,375,087 372,509,200
Net change in unrealized appreciation of investments (3,613,260) 212,338,243
--------------- ---------------
Net Increase in Net Assets from Operations 294,650,718 617,121,246
--------------- ---------------
Dividends and Distributions to Shareholders from:
Net investment income (8,823,177) (32,287,254)
Net realized gain on investments (85,900,990) (380,510,130)
--------------- ---------------
Total Dividends and Distributions to Shareholders (94,724,167) (412,797,384)
--------------- ---------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from capital share transactions--Note G (128,825,390) 238,685,174
--------------- ---------------
Net Increase in Net Assets 71,101,161 443,009,036
Net Assets:
Beginning of period 3,665,195,881 3,222,186,845
--------------- ---------------
End of period* $ 3,736,297,042 $ 3,665,195,881
=============== ===============
* Includes undistributed net investment income of: $ 1,352,119 $ 286,405
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
39
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1999 ------------------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........ $ 49.08 $ 46.05 $ 38.59 $ 34.72 $ 27.33 $ 29.00
------------- ---------- ---------- ---------- ----------- -----------
Income from investment
operations:
Net investment
income ................... 0.14 0.47 0.52 0.53 0.44 0.40
Net realized and
unrealized gain/
(loss) on investments .... 3.96 8.56 12.97 8.62 9.01 (0.77)
------------- ---------- ---------- ---------- ----------- -----------
Net increase/(decrease)
from investment
operations ............... 4.10 9.03 13.49 9.15 9.45 (0.37)
------------- ---------- ---------- ---------- ----------- -----------
Dividends and Distributions
to Shareholders from:
Net investment income ...... (0.13) (0.47) (0.52) (0.54) (0.44) (0.40)
Net realized gain .......... (1.22) (5.53) (5.51) (4.74) (1.62) (0.90)
------------- ---------- ---------- ---------- ----------- -----------
Total dividends and
distributions ............ (1.35) (6.00) (6.03) (5.28) (2.06) (1.30)
------------- ---------- ---------- ---------- ----------- -----------
Net asset value, end of
period ................... $ 51.83 $ 49.08 $ 46.05 $ 38.59 $ 34.72 $ 27.33
------------- ---------- ---------- ---------- ----------- -----------
Total return* ................ 8.44% 19.86% 35.58% 26.90% 34.65% (1.27)%
------------- ---------- ---------- ---------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) .......... $ 3,736,297 $3,665,196 $3,222,187 $2,226,728 $ 1,615,271 $ 1,038,991
Ratio of expenses to
average net assets ....... 0.52%(a) 0.52% 0.52% 0.53% 0.53% 0.53%
Ratio of net investment
income to average net assets 0.55%(a) 0.95% 1.17% 1.50% 1.39% 1.49%
Portfolio turnover
rate ..................... 33% 56% 51% 66% 78% 53%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
41
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
June 30,1999 (Unaudited)
- --------------------
ASSET BACKED -- 8.8%
- --------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 2,700,000 Amresco 1997-1 M1F
7.42% due 3/25/27 $ 2,687,769
4,300,000 Arcadia Automobile Rec. Tr.
1999-A A5
6.12% due 12/15/06 4,258,806
5,500,000 Comed Transitional Funding Tr.
1998 A3
5.34% due 3/25/04 5,395,555
3,600,000 Contimortgage Home Equity Loan Tr.
1999-1 A3
6.17% due 5/25/21 3,548,016
3,200,000 Green Tree Finl. Corp.
1998-4 A5
6.18% due 12/1/17 3,151,680
4,300,000 Peco Energy Transition Tr.
1999-A A6
6.05% due 3/1/09 4,117,594
2,900,000 Pemex Finance Ltd.
6.125% due 11/15/03+ 2,903,799
4,798,000 Premier Auto Tr. 1997-2B
6.53% due 12/6/03 4,822,902
------------
TOTAL ASSET BACKED
(Cost $31,307,116) 30,886,121
------------
- ----------------------------------
COMMERCIAL MORTGAGE BACKED -- 4.9%
- ----------------------------------
$ 3,700,000 Chase Coml. Mtg. Secs. Corp.
1998-1 A2
6.56% due 5/18/08 $ 3,617,120
3,441,905 Comm 1999-1 A1
6.145% due 2/15/08 3,373,033
3,700,000 First Union Coml. Mtg. Tr.
1999-Cl A2
6.07% due 10/15/35 3,485,844
3,305,391 First Union Lehman Brothers
1998-Cl A1
6.28% due 6/18/07 3,251,150
3,483,540 Heller Finl. Coml. Mtg. Asset Co.
1999-PH1 A1
6.50% due 2/15/08 3,451,770
------------
TOTAL COMMERCIAL MORTGAGE BACKED
(Cost $17,663,848) 17,178,917
------------
- ------------------------
CORPORATE BONDS -- 43.2%
- ------------------------
Automotive -- 1.9%
$ 3,500,000 Ford Motor Co.
6.375% due 2/1/29 $ 3,040,951
3,700,000 Ford Motor Credit Co.
5.75% due 2/23/04 3,564,650
------------
6,605,601
------------
Banks -- 3.0%
3,600,000 Capital One Bank
6.48% due 1/28/02 3,568,612
3,500,000 Citicorp
6.375% due 11/15/08 3,324,839
3,600,000 Korea Dev. Bank
7.125% due 9/7/01 3,589,729
------------
10,483,180
------------
Building Products -- 0.4%
1,700,000 Lafarge Corp.
6.375% due 7/15/05 1,656,177
------------
Chemicals-Major -- 2.0%
3,500,000 ICI Wilmington,Inc.
6.75% due 9/15/02 3,496,903
3,500,000 Rohm & Haas
7.85% due 7/15/29 3,497,445
------------
6,994,348
------------
Entertainment -- 2.7%
3,500,000 Time Warner,Inc.
6.95% due 1/15/28 3,235,824
7,100,000 Time Warner,Inc.
6.625% due 5/15/29 6,254,319
------------
9,490,143
------------
Fertilizer -- 1.0%
3,600,000 IMC Global
7.40% due 11/1/02 3,653,240
------------
Financial-Other -- 4.9%
3,500,000 Donaldson Lufkin & Jenrette
Sec. Corp.
6.11% due 5/15/01 3,481,937
3,600,000 Lehman Brothers Hldgs.,Inc.
6.625% due 4/1/04 3,512,545
7,000,000 Lehman Brothers Hldgs.,Inc.
6.00% due 2/26/01 6,915,958
3,500,000 Paine Webber Group,Inc.
6.45% due 12/1/03 3,425,012
------------
17,335,452
------------
Food and Beverage -- 7.6%
3,500,000 Kroger Co.
6.80% due 12/15/18 3,189,309
3,500,000 Fred Meyer,Inc.
7.45% due 3/1/08 3,522,176
3,500,000 Pepsi Bottling Group,Inc.
7.00% due 3/1/29 3,271,754
3,250,000 Safeway,Inc.
5.875% due 11/15/01 3,200,324
3,200,000 Joseph E. Seagram & Sons,Inc.
7.60% due 12/15/28 3,086,522
3,500,000 Joseph E. Seagram & Sons,Inc.
6.40% due 12/15/03 3,444,147
See notes to financial statements.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
42
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 7,200,000 Joseph E. Seagram & Sons,Inc.
6.25% due 12/15/01 $ 7,145,402
------------
26,859,634
------------
Homebuilders -- 1.0%
3,500,000 Marlin Water Trust/Cap.+
7.09% due 12/15/01 3,514,518
------------
Hospital-Supplies -- 1.0%
3,500,000 Mallinckrodt,Inc.+
6.30% due 3/15/11 3,456,555
------------
Insurance -- 1.0%
3,500,000 Conseco,Inc.
6.40% due 6/15/01 3,420,165
------------
Merchandising-Department Stores -- 2.1%
3,750,000 Federated Department
Stores,Inc.
6.125% due 9/1/01 3,724,552
3,600,000 Saks,Inc.
7.25% due 12/1/04 3,607,571
------------
7,332,123
------------
Merchandising-Drugs -- 1.0%
3,500,000 Rite Aid Corp.
6.70% due 12/15/01 3,484,876
------------
Merchandising-Mass -- 1.9%
2,500,000 Aramark Svcs.,Inc.
6.75% due 8/1/04 3,395,837
3,400,000 Wal Mart Stores,Inc.
8.75% due 12/29/06 3,464,940
------------
6,860,777
------------
Miscellaneous-Capital Goods -- 1.4%
5,000,000 Ikon Capital,Inc.
6.73% due 6/15/01 4,954,290
------------
Miscellaneous-Financial -- 1.0%
3,500,000 Comdisco,Inc.
6.13% due 8/1/01 3,469,599
------------
Oil-Integrated Domestic -- 2.9%
3,600,000 Occidental Petroleum Corp.
8.45% due 2/15/29 3,751,189
3,000,000 Occidental Petroleum Corp.
7.65% due 2/15/06 3,018,984
3,500,000 Occidental Petroleum Corp.
7.375% due 11/15/08 3,446,471
------------
10,216,644
------------
Pollution Controls -- 1.0%
3,500,000 USA Waste Svcs.,Inc.
6.125% due 7/15/01 3,476,518
------------
Railroads -- 1.9%
3,600,000 CSX Corp.
7.25% due 5/1/04 3,651,070
3,500,000 Union Pacific Corp.
6.625% due 2/1/29 3,066,059
------------
6,717,129
------------
Telecommunications -- 1.8%
3,500,000 AT & T Corp.
6.50% due 3/15/29 3,147,851
3,500,000 Lucent Technologies,Inc.
6.45% due 3/15/29 3,198,132
------------
6,345,983
------------
Utilities-Electric -- 1.7%
2,500,000 Cinergy Corp.
6.125% due 4/15/04 2,429,572
3,600,000 Niagara Mohawk Power Corp.
6.875% due 3/1/01 3,629,621
------------
6,059,193
------------
TOTAL CORPORATE BONDS
(Cost $156,451,951) 152,386,145
------------
- ------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATION -- 1.6%
- ------------------------------------------
$ 5,749,319 GE Capital Mortgage Svcs.,Inc.
1996-3A7 7.00% due 3/25/26
(Cost $5,757,306) $ 5,695,109
------------
- -------------------------------
MORTGAGE PASS-THROUGHS -- 24.1%
- -------------------------------
FHLMC
$ 15,300,000 6.50%,(30 yr. TBA)(a) $ 14,797,976
753,473 7.00%,8/1/08 758,438
FNMA
13,000,000 6.50%,(30 yr. TBA)(a) 12,565,306
24,900,000 7.00%,(30 yr. TBA)(a) 24,635,438
10,000,000 7.50%,(30 yr. TBA)(a) 10,100,000
6,227,838 6.00%,1/1/29 5,864,319
704,310 6.50%,9/1/12 694,936
6,241,554 6.50%,2013 6,157,417
4,426,921 6.50%,11/1/28 4,284,861
647,537 8.00%,6/1/08 666,186
5,241 8.25%,1/1/09 5,517
284,520 8.50%,8/1/09 297,625
GNMA
4,490,857 6.50%,2029 4,329,052
1,980 11.50%,7/20/00 2,017
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $86,915,360) 85,159,088
------------
- ------------------------
U.S. GOVERNMENT -- 15.4%
- ------------------------
U.S. Treasury Bonds
$ 7,500,000 5.25%,11/15/28 $ 6,637,500
2,500,000 6.625%,2/15/27 2,632,032
U.S. Treasury Notes
6,550,000 5.25%,5/15/04 6,435,375
7,250,000 5.50%,5/15/09 7,080,082
3,000,000 5.625%,5/15/08 2,938,125
See notes to financial statements.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
43
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
June 30,1999 (Unaudited)(Continued)
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 7,650,000 6.00%,7/31/02 $ 7,726,500
5,500,000 6.125%,8/15/07 5,560,159
1,500,000 6.25%,6/30/02 1,523,907
10,000,000 6.50%,8/15/05 10,309,380
3,400,000 6.625%,4/30/02 3,485,000
------------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $54,813,071) 54,328,060
------------
- -------------------------
COMMERCIAL PAPER -- 19.4%
- -------------------------
Automotive -- 2.9%
$ 10,119,000 General Motors Acceptance Corp.
5.10% due 8/16/99(a) $ 10,071,694
------------
Banks -- 1.5%
5,190,000 Dresdner US Finance
4.86% due 7/14/99(a) 5,180,892
------------
Conglomerates -- 1.4%
5,000,000 BTR Dunlop Finance,Inc.
4.86% due 7/14/99(a) 4,991,225
------------
Financial -- 4.3%
6,498,000 Associates Corp. of North America
4.83% due 7/14/99(a) 6,486,666
4,647,000 Goldman Sachs Group LP
4.82% due 7/14/99(a) 4,638,912
4,000,000 Lehman Brothers Hldgs.,Inc.
4.90% due 7/14/99(a) 3,992,922
------------
15,118,500
------------
Food and Beverage -- 2.5%
8,827,000 Cadbury Schweppes Money Mgt. PLC
5.80% due 7/1/99(b) 8,827,000
------------
Mining -- 3.5%
12,565,000 Rio Tinto America,Inc.
5.00% due 7/14/99(a) 12,542,313
------------
Telecommunications -- 3.3%
11,800,000 Lucent Technologies,Inc.
4.81% due 7/14/99(a) 11,779,504
------------
TOTAL COMMERCIAL PAPER
(Cost $68,511,128) 68,511,128
------------
- ----------------------------
REPURCHASE AGREEMENT -- 4.9%
- ----------------------------
$ 17,222,000 State Street Bank & Trust Co.
repurchase agreement,
dated 6/30/99,maturity
value $17,224,330 at 4.87%,
due 7/1/99 (collateralized by
$3,290,000 Federal Home Loan
Bank Notes,5.125%,due 10/15/03,
by $9,185,000 Federal National
Mortgage Assn. Notes,6.08%,due
5/10/04,and by $5,105,000
Federal Home Loan Bank Notes,
6.13%,due 5/10/04 $ 17,222,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $17,222,000) 17,222,000
------------
TOTAL INVESTMENTS -- 122.3%
(Cost $438,641,780) 431,366,568
------------
PAYABLES FOR REVERSE REPURCHASE
AGREEMENTS(b) -- (2.5%) (8,825,000)
PAYABLES FOR MORTGAGE PASS-THROUGHS
DELAYED DELIVERY
SECURITIES(a) -- (17.6%) (62,098,720)
LIABLITIES IN EXCESS OF CASH,RECEIVABLES
AND OTHER ASSETS -- (2.2%) (7,881,576)
------------
NET ASSETS -- 100.0% $352,561,272
============
(a) Commercial paper with the total amount of $59,684,128 is segregated to
cover forward mortgage purchases.
(b) Commercial paper in the amount of $8,827,000 is segregated to cover
reverse repurchase agreements.
See notes to financial statements.
- --------------------------------------------------------------------------------
44
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investments, at market (cost $438,641,780) $ 431,366,568
Cash 1,342
Receivable for securities sold 18,776,095
Interest receivable 3,698,679
Receivable for fund shares sold 770
-------------
TOTAL ASSETS 453,843,454
=============
LIABILITIES
Payable for forward mortgage
securities -- Note E 62,098,720
Payable for securities purchased 29,611,861
Payable for reverse repurchase
agreements -- Note D 8,825,000
Payable for fund shares redeemed 211,984
Accrued expenses 43,471
Due to affiliates 491,146
-------------
TOTAL LIABILITIES 101,282,182
-------------
NET ASSETS $ 352,561,272
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 3,001,702
Additional paid-in capital 359,046,897
Undistributed net investment income 1,797,106
Accumulated net realized gain on investments (4,009,221)
Net unrealized appreciation of investments (7,275,212)
-------------
NET ASSETS $ 352,561,272
=============
Shares Outstanding -- $0.10 par value 30,017,017
-------------
NET ASSET VALUE PER SHARE $ 11.75
=============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Interest $ 10,944,672
-------------
Expenses:
Investment advisory fees -- Note B 912,934
Custodian fees 51,926
Printing expense 22,131
Interest expense -- reverse repurchase
agreements 15,471
Audit fees 8,750
Directors' fees -- Note B 6,250
Legal fees 1,492
Registration fees 1,326
Other 350
-------------
Total Expenses 1,020,630
-------------
Net Investment Income 9,924,042
-------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized loss on investments (3,808,421)
Net change in unrealized appreciation
of investments (11,009,297)
-------------
Net Realized and Unrealized Loss
on Investments (14,817,718)
-------------
Net Decrease in Net Assets
from Operations $ (4,893,676)
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
45
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- -----------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 9,924,042 $ 20,326,792
Net realized gain/(loss) on investments (3,808,421) 7,360,219
Net change in unrealized appreciation of investments (11,009,297) 676,254
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations (4,893,676) 28,363,265
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income (8,310,258) (20,238,880)
Net realized gain on investments (965,081) (4,804,462)
------------- -------------
Total Dividends and Distributions to Shareholders (9,275,339) (25,043,342)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from
capital share transactions -- Note G (14,656,808) 22,655,261
------------- -------------
Net Increase/(Decrease) in Net Assets (28,825,823) 25,975,184
Net Assets:
Beginning of period 381,387,095 355,411,911
------------- -------------
End of period* $ 352,561,272 $ 381,387,095
============= =============
* Includes undistributed net investment income of: $ 1,797,106 $ 183,322
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
46
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1999 -------------------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........... $ 12.23 $ 12.11 $ 11.83 $ 12.25 $ 11.08 $ 12.24
----------- ----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment
income ...................... 0.34 0.69 0.75 0.76 0.76 0.40
Net realized and unrealized
gain/(loss)
on investments .............. (0.51) 0.28 0.29 (0.42) 1.17 (0.82)
----------- ----------- ----------- ----------- ----------- -----------
Net increase/(decrease)
from investment operations .. (0.17) 0.97 1.04 0.34 1.93 (0.42)
----------- ----------- ----------- ----------- ----------- -----------
Dividends and Distributions
to Shareholders from:
Net investment income ......... (0.28) (0.69) (0.76) (0.76) (0.76) (0.68)
Net realized gain ............. (0.03) (0.16) -- -- -- (0.06)
----------- ----------- ----------- ----------- ----------- -----------
Total dividends and
distributions ............... (0.31) (0.85) (0.76) (0.76) (0.76) (0.74)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
period ........................ $ 11.75 $ 12.23 $ 12.11 $ 11.83 $ 12.25 $ 11.08
----------- ----------- ----------- ----------- ----------- -----------
Total return* ................... (1.41)% 8.10% 8.99% 2.88% 17.59% (3.45)%
----------- ----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............. $ 352,561 $ 381,387 $ 355,412 $ 354,433 $ 374,462 $ 308,978
Ratio of expenses to
average net assets .......... 0.56%(a) 0.67% 0.59% 0.54% 0.54% 0.54%
Ratio of expenses (excluding
interest expense)
to average net assets ....... 0.55%(a) 0.55% 0.55% N/A N/A N/A
Ratio of net investment
income to average net assets 5.44%(a) 5.51% 6.15% 6.12% 6.43% 5.69%
Portfolio turnover rate ....... 150% 287% 340% 188% 298% 311%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
47
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- -------------------------
COMMERCIAL PAPER -- 98.9%
- -------------------------
Principal
Amount Value
- --------------------------------------------------------------------------
FINANCIAL -- 19.7%
Bank Holding Companies -- 4.5%
$ 20,000,000 J.P. Morgan & Co., Inc.
4.91% due 9/15/99 $ 19,792,689
-------------
Finance Companies -- 15.2%
20,000,000 Associates First Capital
4.84% due 7/22/99 19,943,533
21,000,000 Bear Stearns Cos., Inc.
4.83% due 7/12/99 20,969,008
6,500,000 Lehman Brothers Hldgs., Inc.
5.587% due 7/29/99 6,500,000
20,000,000 USAA Capital Corp.
5.00% due 7/26/99 19,930,557
-------------
67,343,098
-------------
Total Financial 87,135,787
-------------
INDUSTRIAL -- 79.2%
Automotive -- 13.8%
20,000,000 DaimlerChrysler N.A. Hldgs. Corp.
4.90% due 7/23/99 19,940,111
20,000,000 Ford Motor Credit Co.
4.83% due 7/9/99 19,978,533
21,000,000 General Motors Acceptance Corp.
4.80% due 7/13/99 20,966,400
-------------
60,885,044
-------------
Beverages -- 4.1%
18,000,000 Coca Cola Co.
4.76% due 7/2/99 17,997,620
-------------
Computer Systems -- 4.5%
20,000,000 IBM Credit Corp.
4.83% due 7/19/99 19,951,700
-------------
Conglomerates -- 9.0%
20,000,000 BTR Dunlop Fin., Inc.
4.81% due 7/8/99 19,981,294
20,000,000 General Electric Cap. Corp.
4.86% due 8/2/99 19,913,600
-------------
39,894,894
-------------
Containers-Metals and Plastics -- 5.0%
22,000,000 Sonoco Products Co.
5.80% due 7/1/99 22,000,000
-------------
Drugs -- 4.5%
20,000,000 Pfizer, Inc.
4.88% due 7/15/99 19,962,045
-------------
Machinery and Equipment -- 5.9%
5,000,000 John Deere Capital
5.02% due 7/23/99 4,984,661
8,000,000 John Deere Credit Group PLC
4.82% due 7/6/99 7,994,644
13,360,000 Xerox Capital Europe PLC
5.00% due 7/27/99 13,311,756
-------------
26,291,061
-------------
Metals -- 8.8%
18,000,000 Alcoa, Inc.
4.84% due 8/4/99 17,917,720
21,000,000 Rio Tinto America, Inc.
4.81% due 7/14/99 20,963,524
-------------
38,881,244
-------------
Oil and Gas Services -- 1.6%
7,500,000 Motiva Enterprises
5.04% due 8/5/99 7,463,250
-------------
Oil-Integrated-International -- 4.5%
20,000,000 Shell Oil Co.
4.85% due 8/3/99 19,911,083
-------------
Telecommunications -- 8.7%
20,500,000 Ameritech Capital Fdg. Corp.
4.97% due 7/21/99 20,443,397
18,000,000 Telstra Corp. Ltd.
5.05% due 8/19/99 17,876,275
-------------
38,319,672
-------------
Utilities-Electric -- 8.8%
20,000,000 FPL Group Capital, Inc.
5.00% due 7/6/99 19,986,111
19,000,000 Virginia Electric & Power Co.
4.84% due 7/7/99 18,984,673
-------------
38,970,784
-------------
Total Industrial 350,528,397
-------------
TOTAL COMMERCIAL PAPER
(Cost $437,664,184) 437,664,184
-------------
- ----------------------------
REPURCHASE AGREEMENT -- 2.0%
- ----------------------------
$ 8,924,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/99, maturity value
$8,925,207 at 4.87% due
7/1/99 (collateralized by
$9,105,000 Federal Home Loan
Bank Notes, 6.13% due 5/10/04) $ 8,924,000
-------------
TOTAL REPURCHASE AGREEMENT
(Cost $8,924,000) 8,924,000
-------------
TOTAL INVESTMENTS -- 100.9%
(Cost $446,588,184) 446,588,184
LIABILITIES IN EXCESS OF CASH,
RECEIVABLES AND OTHER
ASSETS -- (0.9%) (3,965,198)
-------------
NET ASSETS -- 100.0% $ 442,622,986
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investments, at market (cost $446,588,184) $446,588,184
Cash 174
Receivable for fund shares sold 87,040
Interest receivable 3,225
------------
TOTAL ASSETS 446,678,623
------------
LIABILITIES
Payable for fund shares redeemed 3,408,711
Accrued expenses 59,521
Due to affiliates 587,405
------------
TOTAL LIABILITIES 4,055,637
------------
NET ASSETS $442,622,986
============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 4,426,230
Additional paid-in capital 438,196,756
------------
NET ASSETS $442,622,986
============
Shares Outstanding -- $0.10 par value 44,262,299
------------
NET ASSET VALUE PER SHARE $ 10.00
============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Interest $ 10,709,749
------------
Expenses:
Investment advisory fees -- Note B 1,080,809
Custodian fees 42,750
Printing expense 10,182
Audit fees 8,500
Directors' fees -- Note B 6,250
Legal fees 2,050
Registration fees 1,000
Other 350
------------
Total Expenses 1,151,891
------------
Net Investment Income,
Representing Net Increase in
Net Assets from Operations $ 9,557,858
============
See notes to financial statements.
- --------------------------------------------------------------------------------
49
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
STATEMENT OF CHANGES IN NET ASSETS
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
(Unaudited) (Audited)
------------- -------------
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 9,557,858 $ 20,633,220
------------- -------------
Net Increase in Net Assets from Operations 9,557,858 20,633,220
------------- -------------
Dividends to Shareholders from:
Net investment income (9,557,858) (20,633,220)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from
capital share transactions -- Note G 23,140,332 51,360,205
------------- -------------
Net Increase in Net Assets 23,140,332 51,360,205
Net Assets:
Beginning of period 419,482,654 368,122,449
------------- -------------
End of period $ 442,622,986 $ 419,482,654
============= =============
See notes to financial statements.
- --------------------------------------------------------------------------------
50
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1999 -------------------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .......... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment
income ..................... 0.22 0.50 0.50 0.49 0.54 0.38
Dividends to
Shareholders from:
Net investment income ........ (0.22) (0.50) (0.50) (0.49) (0.54) (0.38)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
period ....................... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------- ----------- ----------- -----------
Total return* .................. 2.21% 5.10% 5.14% 4.98% 5.52% 3.82%
----------- ----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............ $ 442,623 $ 419,483 $ 368,122 $ 378,322 $ 356,820 $ 386,986
Ratio of expenses to
average net assets 0.53%(a) 0.53% 0.54% 0.54% 0.54% 0.54%
Ratio of net investment
income to average net assets 4.42%(a) 4.99% 5.02% 4.86% 5.39% 3.81%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ---------------------------------------------
Note A - Organization and Accounting Policies
- ---------------------------------------------
The Guardian Stock Fund, Inc. (GSF), The Guardian Bond Fund, Inc. (GBF)
and The Guardian Cash Fund, Inc. (GCF) (collectively, the Funds and
individually, a Fund), are each incorporated in the state of Maryland and are
diversified open-end management investment companies registered under the
Investment Company Act of 1940, as amended (1940 Act).
GSF offers two classes of shares: Class I and Class II. The Class I shares
of GSF, and shares of GBF and GCF, are only sold to certain separate accounts of
The Guardian Insurance & Annuity Company, Inc. (GIAC). GIAC is a wholly-owned
subsidiary of The Guardian Life Insurance Company of America (Guardian Life).
GSF's Class II shares are offered through the ownership of variable annuities
and variable life insurance policies issued by other insurance companies that
offer GSF as an investment option through their separate accounts. The two
classes of shares for GSF represent interests in the same portfolio of
investments, have the same rights and are generally identical in all respects
except that each class bears certain class expenses, and has exclusive voting
rights with respect to any matter to which a separate vote of any class is
required.
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.
Significant accounting policies of the Funds are as follows:
Investments
Securities listed on national securities exchanges are valued based upon
closing prices on these exchanges. Securities traded in the over-the-counter
market and listed securities for which there have been no trades for the day are
valued at the mean of the bid and asked prices.
Pursuant to valuation procedures approved by the Board of Directors,
certain debt securities may be valued each business day by an independent
pricing service (Service). Debt securities for which quoted bid prices are
readily available and representative of the bid side of the market, in the
judgement of the Service, are valued at the bid price. 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 an
identified cost basis. Interest income, including amortization of premium and
discount, is recorded when earned. Dividends are recorded on the ex-dividend
date.
Federal Income Taxes
Each Fund qualifies and intends to remain qualified to be taxed as a
"regulated investment company" under the provisions of the Internal Revenue Code
(Code), and as such will not be subject to federal income tax on investment
income (including any realized capital gains) which is distributed to its
shareholders in accordance with the applicable provisions of the Code.
Therefore, no federal income tax provision is required.
Reclassifications of Capital Accounts
The treatment for financial statement purposes of distributions made
during the year from net investment income and net realized gains may differ
from their ultimate treatment for federal income tax purposes. These
- --------------------------------------------------------------------------------
52
<PAGE>
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
differences primarily are caused by differences in the timing of the recognition
of certain components of income or capital gain, and the recharacterization of
foreign exchange gains or losses to either ordinary income or realized capital
gains for federal income tax purposes. Where such differences are permanent in
nature, they are reclassified in the components of net assets based on their
ultimate characterization for federal income tax purposes. Any such
reclassifications will have no effect on net assets, results of operations, or
net asset value per share of the Fund.
Dividend Distributions
GSF and GBF intend to distribute each year, as dividends or capital gain
distributions, substantially all net investment income and net capital gains
realized. All such dividends or distributions are credited in the form of
additional shares of the applicable Fund at net asset value on the ex-dividend
date. Such distributions are determined in conformity with federal income tax
regulations. Differences between the recognition of income on an income tax
basis and recognition of income based on generally accepted accounting
principles may cause temporary overdistributions of net realized gains and net
investment income. Currently, the policy of GSF and GBF is to distribute net
investment income approximately every six months and net capital gains annually.
This policy is, however, subject to change at any time by each Fund's Board of
Directors.
GCF earns interest on its investments daily and distributes all of its net
investment income, increased or decreased by realized gains or losses, each day
GCF is open for business. Earnings for Saturdays, Sundays and holidays are paid
as a dividend on the next business day.
All dividends and distributions are credited in the form of additional
shares of GCF at net asset value on the payable date.
- -----------------------------------------
Note B -- Investment Advisory Agreements
and Payments to Related Parties
- -----------------------------------------
Each Fund has an investment advisory agreement with Guardian Investor
Services Corporation (GISC), a wholly-owned subsidiary of GIAC. GISC receives a
management fee from each Fund computed at the rate of .50% of the daily average
net assets during the fiscal year, payable quarterly. If total expenses of any
Fund (excluding taxes, interest and brokerage commissions, but including the
investment advisory fee) exceed 1% per annum of the average daily net assets of
the Fund, GISC has agreed to assume any such expenses. None of the Funds
exceeded this limit during the six months ended June 30, 1999.
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 agreements remain in force. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Funds will require the seller to deposit additional collateral by
the next business day. If the request for additional collateral is not met, or
the seller defaults, the Funds maintain the right to sell the collateral and may
claim any resulting loss against the seller. Each Fund's Board of Directors has
established standards to evaluate creditworthiness of broker-dealers and banks
which engage in repurchase agremeents 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 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
- --------------------------------------------------------------------------------
53
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
applicable. Reverse repurchase agreements involve the risk that the buyer of the
securities sold by GBF may be unable to deliver the securities when the Fund
seeks to repurchase them. Interest paid on reverse repurchase agreements for the
six months ended June 30, 1999 amounted to $15,471.
Information regarding transactions by GBF under reverse repurchase
agreement is as follows:
Face Market
Value Value
----- -----
$8,825,000 Reverse Repurchase Agreement with Lehman Brothers,
Inc., 5.80% dated 6/30/99, to be repurchased at
$8,826,054 on 7/1/99 .............................. $ 8,825,000
Average amount outstanding during the period ...... $ 2,766,901
Weighted average interest rate during the period .. 1.18%
- ----------------------------------
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 de livery by different pools of
mortgages with different prepayment histories than those securities sold. Dur
ing the period between the sale and repurchase, the Fund will not be entitled to
receive interest and prin cipal payments on the securities sold. Dollar roll
trans actions involve the risk that the buyer of the securities sold by GBF may
be unable to deliver the securities when GBF seeks to repurchase them.
- --------------------------------
Note F - Investment Transactions
- --------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the six months ended June 30, 1999 were as follows:
GSF GBF
--- ---
Purchases ................................ $1,164,620,505 $ 541,265,586
Proceeds ................................. $1,367,976,179 $ 533,387,965
The cost of investments owned at June 30, 1999 for federal income tax
purposes was the same as for financial reporting purposes. The gross unrealized
appreciation and depreciation of investments at June 30, 1999 for GSF and GBF
were as follows:
GSF GBF
--- ---
Gross Appreciation........................ $1,195,799,924 $ 282,828
Gross Depreciation........................ (44,377,514) (7,558,040)
-------------- -------------
Net Unrealized Appreciation/(Depreciation) $1,151,422,410 $ (7,275,212)
============== =============
- --------------------------------------------------------------------------------
54
<PAGE>
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
- --------------------------------------
Note G - Transactions in Capital Stock
- --------------------------------------
There are 400,000,000 shares of $0.001 par value capital stock authorized
for GSF, divided into two classes, designated Class I and Class II shares. GSF
Class I consists of 300,000,000 shares and Class II consists of 100,000,000
shares. There are 100,000,000 shares of $0.10 par value capital stock authorized
for GBF and GCF. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
(Unaudited) (Audited) (Unaudited) (Audited)
- --------------------------------------------------------------------------------------------------------
Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian Stock Fund, Inc.
Shares sold 2,237,910 7,866,954 $ 112,581,066 $ 380,142,286
Shares issued in reinvestment of
dividends and distributions 1,892,590 8,374,382 94,724,167 412,797,384
Shares repurchased (6,713,544) (11,538,716) (336,130,623) (554,254,496)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) (2,583,044) 4,702,620 $(128,825,390) $ 238,685,174
- --------------------------------------------------------------------------------------------------------
o The Guardian Bond Fund, Inc.
Shares sold 2,403,044 6,974,815 $ 29,259,135 $ 87,077,087
Shares issued in reinvestment of
dividends and distributions 794,802 2,050,219 9,275,339 25,043,342
Shares repurchased (4,373,961) (7,180,997) (53,191,282) (89,465,168)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) (1,176,115) 1,844,037 $ (14,656,808) $ 22,655,261
- --------------------------------------------------------------------------------------------------------
o The Guardian Cash Fund, Inc.
Shares sold 18,094,877 45,585,640 $ 180,948,763 $ 455,856,396
Shares issued in reinvestment of
dividends 955,786 2,063,322 9,557,858 20,633,220
Shares repurchased (16,736,629) (42,512,942) (167,366,289) (425,129,411)
- --------------------------------------------------------------------------------------------------------
Net increase 2,314,034 5,136,020 $ 23,140,332 $ 51,360,205
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
55
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- --------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- ----------------------
COMMON STOCKS -- 98.8%
- ----------------------
Shares Value
- -----------------------------------------------------------------------
AUSTRALIA -- 2.9%
Banks -- 1.1%
221,600 Commonwealth Bank of Australia $ 3,523,053
243,700 National Australia Bank 4,027,447
Beverages -- 0.4%
1,163,700 Fosters Brewing Group 3,275,525
Business Services -- 0.5%
133,910 Brambles Industries Ltd. 3,523,144
Mining -- 0.6%
269,100 Broken Hill Ppty. 3,113,049
773,000 Pasminco Ltd.* 852,334
Telecommunications -- 0.3%
351,000 Telstra Corp. 2,008,671
------------
20,323,223
------------
CHILE -- 0.1%
Mining -- 0.1%
129,500 Antofagasta Hldgs. 594,002
------------
FINLAND -- 1.9%
Telecommunications -- 1.9%
148,600 Nokia OYJ 13,020,670
------------
FRANCE -- 8.1%
Banks -- 1.0%
38,910 Societe Generale 6,854,864
Computer Software and Technology -- 1.0%
45,040 CAP Gemini 7,075,855
Construction Materials -- 0.9%
66,000 Lafarge 6,272,930
Financial Services -- 1.5%
89,010 AXA UAP 10,854,733
Oil-Integrated -- 2.4%
115,310 Elf Aquitaine 16,914,823
Retail-Food and Drug -- 1.3%
62,100 Carrefour 9,122,252
------------
57,095,457
------------
GERMANY -- 10.3%
Automotive -- 1.9%
150,460 DaimlerChrysler AG 13,028,545
Banks -- 1.0%
112,500 Bayerische Vereinsbank AG 7,306,151
Chemicals -- 1.7%
266,000 BASF AG 11,749,734
Drugs and Health Care -- 0.6%
99,440 GEHE AG 4,571,846
Industrial Machineries -- 3.5%
163,930 Mannesmann AG 24,503,156
Software -- 1.4%
29,090 SAP AG 9,835,878
Telecommunications -- 0.2%
38,730 Deutsche Telekom* 1,624,941
------------
72,620,251
------------
HONG KONG -- 2.6%
Conglomerates -- 1.3%
991,000 Hutchison Whampoa 8,972,978
Real Estate -- 0.9%
409,000 Cheung Kong Hldgs. 3,637,383
311,000 Sun Hung Kai Pptys. 2,835,982
Telecommunications -- 0.4%
1,002,800 Hong Kong Telecom. 2,604,390
------------
18,050,733
------------
HUNGARY -- 0.3%
Pharmaceuticals -- 0.3%
51,700 Richter Gedeon VEG 2,247,315
------------
IRELAND -- 2.6%
Banks -- 1.2%
650,100 Allied Irish Bank 8,544,486
Construction Materials -- 1.4%
555,000 CRH PLC 9,840,496
------------
18,384,982
------------
ITALY -- 3.1%
Banks -- 2.3%
3,457,000 Banco di Roma 4,971,291
818,860 Sao Paolo IMI SPA 11,142,411
Oil and Gas -- 0.1%
189,600 Tecnost SPA* 467,124
Telecommunications -- 0.7%
2,032,600 Olivetti SPA* 4,882,063
2,032,600 Olivetti SPA (rights)* 273,437
------------
21,736,326
------------
JAPAN -- 24.2%
Automotive -- 0.6%
101,000 Honda Motor Co. 4,283,128
Automotive Parts -- 0.9%
295,000 Denso Corp. 5,999,008
Chemicals -- 2.7%
408,000 Kao Corp. 11,467,306
1,715,000 Sumitomo Chemical* 7,868,273
Computer Systems -- 1.7%
590,000 Fujitsu Ltd. 11,876,085
Drugs and Health Care -- 1.0%
284,000 Sankyo Co. 7,160,453
Electronics -- 4.3%
1,105,000 Hitachi 10,367,653
460,000 Matsushita Electric Works 4,441,432
43,000 Rohm Co. 6,735,967
47,600 Sony Corp. 5,134,992
41,000 TDK Corp. 3,751,922
Engineering and Machineries -- 0.9%
57,300 SMC Corp.* 6,418,244
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
56
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------------
Financial Services -- 4.7%
477,000 Mitsubishi Trading & Brokerage $ 4,637,117
433,000 Nomura Securities Co. Ltd. 5,072,010
134,100 Promise Co. 7,926,056
729,000,000 Sanwa Int'l. Financial 6,327,602
12,800 Shohkoh Fund & Co. 9,184,426
Leisure Products -- 0.4%
18,100 Toho Co. 2,648,342
Merchandising-Mass -- 1.2%
33,500 Ryohin Keikaku Co. Ltd. 8,432,462
Photography -- 0.6%
105,000 Fuji Photo Film Co. 3,975,366
Retail Trade -- 0.8%
80,000 Ito Yokado Co. 5,356,700
Telecommunications -- 3.7%
975 Nippon Tele. & Tel. Corp. 11,364,388
217 NTT Mobile Comm. Network, Inc. 2,941,886
868 NTT Mobile Comm.
Network, Inc. - New* 11,624,039
Tobacco -- 0.7%
434 Japan Tobacco, Inc.* 4,807,473
------------
169,802,330
------------
NETHERLANDS -- 3.6%
Banks -- 0.9%
288,100 ABN AMRO Hldgs. NV* 6,236,747
Broadcasting and Publishing -- 1.6%
274,400 Ver Ned Uitgevers 10,961,031
Computer Services -- 1.1%
304,300 CMG PLC 7,999,037
------------
25,196,815
------------
NEW ZEALAND -- 0.2%
Telecommunications -- 0.2%
389,412 Telecom. Corp. of New Zealand 1,670,011
------------
POLAND -- 0.9%
Electrical Equipments -- 0.9%
428,950 Elektrim* 6,063,091
------------
PORTUGAL -- 0.4%
Transportation -- 0.4%
70,430 Brisa (Auto Estrada) 2,904,111
------------
SINGAPORE -- 1.3%
Banks -- 0.3%
258,000 Overseas Chinese Bank 2,152,526
Publishing -- 1.0%
411,846 Singapore Press Hldgs. 7,017,353
------------
9,169,879
------------
SOUTH KOREA -- 0.9%
Telecommunications -- 0.5%
211,700 SK Telecom. Ltd. ADR* 3,598,900
Utilities-Electric -- 0.4%
152,340 Korea Electric Power Corp. ADR* 3,122,970
------------
6,721,870
------------
SPAIN -- 4.7%
Banks -- 2.0%
1,333,000 Banco Santander Central Hispano S.A. 13,878,646
Construction and Housing -- 1.8%
269,470 Acciona S.A. 12,841,918
Gas Distribution -- 0.9%
91,400 Gas Natural SDG* 6,642,490
------------
33,363,054
------------
SWEDEN -- 4.0%
Construction and Mining Equipment -- 1.0%
266,400 Atlas Copco AB 7,155,048
Retail-General -- 1.3%
364,800 Hennes & Mauritz 9,024,384
Telecommunications -- 1.7%
369,900 LM Ericsson 11,873,925
------------
28,053,357
------------
SWITZERLAND -- 5.2%
Business Services -- 1.4%
18,309 Adecco S.A. 9,807,342
Insurance -- 1.4%
17,156 Zurich Allied AG 9,752,366
Pharmaceuticals -- 1.2%
847 Roche Hldgs. AG 8,703,659
Telecommunications -- 1.2%
21,500 Swisscom AG 8,087,904
------------
36,351,271
------------
UNITED KINGDOM -- 21.5%
Banks -- 4.5%
252,000 Barclays 7,328,618
300,625 Halifax PLC 3,582,383
218,000 HSBC Hldgs.* 7,707,454
670,000 Lloyds TSB Group PLC 9,098,196
188,000 National Westminster Bank Co. PLC 3,985,707
Computer Software and Technology -- 0.2%
39,338 Sage Group 1,398,247
Conglomerates -- 2.0%
787,000 Hanson PLC 7,070,901
489,000 Rentokil Initial PLC 1,896,135
694,153 Williams Hldgs. 4,584,526
Data Services -- 0.5%
253,933 Reuters Group PLC 3,340,186
Drugs and Health Care -- 3.3%
633,000 Glaxo Wellcome 17,590,623
438,000 Smithkline Beecham 5,695,781
Electronics -- 0.4%
373,000 Electrocomponents 2,745,686
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
57
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ---------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited) (Continued)
CONVERTIBLE BOND -- 0.1%
Shares Value
- -----------------------------------------------------------------------
Financial Services -- 0.6%
316,000 CGU PLC $ 4,550,099
Food, Beverage and Tobacco -- 1.8%
961,900 Imperial Tobacco 10,545,137
145,702 Whitbread 2,257,586
Industrial Machineries -- 0.5%
278,000 Smiths Industries PLC 3,689,624
Insurance -- 0.4%
186,000 Prudential Corp. 2,741,257
Leisure Products -- 0.3%
120,000 Granada Group 2,222,513
Oil-International -- 2.2%
866,968 BP Amoco PLC 15,524,106
Oil and Gas -- 0.7%
617,000 Shell Transport & Trading 4,629,321
Telecommunications -- 3.6%
547,000 British Telecom. 9,156,659
343,991 Cable & Wireless Co.* 3,307,517
639,000 Vodafone Group 12,570,155
Transportation -- 0.5%
398,000 BAA PLC 3,834,976
------------
151,053,393
------------
TOTAL COMMON STOCKS
(Cost $540,246,152) 694,422,141
------------
- ------------------------
CONVERTIBLE BOND -- 0.1%
- ------------------------
Principal
Amount Value
- -----------------------------------------------------------------------
$ 916,400 Tecnost Int'l.
4.487% due 6/23/04
(Cost $970,363) $ 961,392
------------
- ----------------------------
REPURCHASE AGREEMENT -- 0.9%
- ----------------------------
$ 5,969,000 State Street Bank & Trust Co.
repurchased agreement, dated
6/30/99, maturity value
$5,969,663 at 4.00% due 7/1/99
(collateralized by U.S.
Treasury Notes $6,090,000
3.375% due 1/15/07) $ 5,969,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $5,969,000) 5,969,000
------------
TOTAL INVESTMENTS -- 99.8%
(Cost $547,185,515) 701,352,533
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 0.2% 1,460,567
------------
NET ASSETS -- 100.0% $702,813,100
============
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
58
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investments, at market (cost $547,185,515) $ 701,352,533
Cash 576
Foreign currency (cost $1,641,099) 1,486,473
Dividend reclaims receivable 984,854
Dividends receivable 707,428
Receivable for fund shares sold 477,564
Interest receivable 1,585
-------------
TOTAL ASSETS 705,011,013
-------------
LIABILITIES
Accrued expenses 294,050
Payable for fund shares redeemed 142,714
Due to affiliates 1,761,149
-------------
TOTAL LIABILITIES 2,197,913
-------------
Net Assets $ 702,813,100
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 3,287,331
Additional paid-in capital 503,284,440
Distributions in excess of net investment income (748,911)
Accumulated net realized gain on investments
and foreign currency related transactions 43,017,646
Net unrealized appreciation of investments
and translation of other assets and
liabilities denominated in foreign currencies 153,972,594
-------------
NET ASSETS $ 702,813,100
=============
Shares Outstanding -- $0.10 par value 32,873,314
-------------
NET ASSET VALUE PER SHARE $ 21.38
=============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Dividends $ 7,506,060
Interest 203,981
Less: Foreign tax withheld (857,263)
-------------
Total Income 6,852,778
-------------
Expenses:
Investment advisory fees -- Note B 2,706,876
Custodian fees 484,512
Printing expense 89,821
Audit fees 10,500
Directors' fees -- Note B 6,250
Legal fees 3,050
Registration fees 458
Other 350
-------------
Total Expenses 3,301,817
-------------
Net Investment Income 3,550,961
-------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized gain on investments -- Note A 44,061,702
Net realized loss on foreign currency
related transactions -- Note A (1,045,051)
Net change in unrealized appreciation of
investments -- Note C (22,195,123)
Net change in unrealized appreciation from
translation of assets and liabilities
denominated in foreign currencies -- Note C (79,022)
-------------
Net Realized and Unrealized Gain on
Investments and Foreign Currencies 20,742,506
-------------
Net Increase in Net Assets
from Operations $ 24,293,467
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
59
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 3,550,961 $ 3,351,082
Net realized gain on investments and foreign currency related transactions 43,016,651 40,487,438
Net change in unrealized appreciation/(depreciation) on investments and
translation of other assets and liabilities denominated in foreign currencies (22,274,145) 71,008,066
------------- -------------
Net Increase in Net Assets from Operations 24,293,467 114,846,586
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income (1,741,332) (3,351,082)
Distributions in excess of net investment income -- (409,367)
Net realized gain on investments (7,980,294) (33,666,022)
------------- -------------
Total Dividends and Distributions to Shareholders (9,721,626) (37,426,471)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note E 7,951,197 68,158,477
------------- -------------
Net Increase in Net Assets 22,523,038 145,578,592
Net Assets:
Beginning of period 680,290,062 534,711,470
------------- -------------
End of period* $ 702,813,100 $ 680,290,062
============= =============
* Includes distributions in excess of net investment income of: $ (748,911) $ (2,558,540)
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
60
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1999 -----------------------------------------------------------------
Unaudited) 1998 1997 1996 1995 1994
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............. $ 20.92 $ 18.27 $ 17.26 $ 15.37 $ 14.69 $ 14.69
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income ........... 0.11 0.13 0.15 0.15 0.16 0.15
Net realized and unrealized
gain/(loss) on investments and
translation of other assets and
liabilities denominated
in foreign currencies ......... 0.65 3.73 1.91 2.21 1.49 (0.02)
--------- --------- --------- --------- --------- ---------
Net increase from
investment operations ......... 0.76 3.86 2.06 2.36 1.65 0.13
--------- --------- --------- --------- --------- ---------
Dividends and Distributions to
Shareholders from:
Net investment income ........... (0.05) (0.11) (0.15) (0.14) (0.15) (0.13)
Distributions in excess of net
investment income ............. -- (0.01) (0.15) (0.10) (0.12) --
Net realized gain on investments
and foreign currency related
transactions .................. (0.25) (1.09) (0.75) (0.23) (0.70) --
--------- --------- --------- --------- --------- ---------
Total dividends and distributions (0.30) (1.21) (1.05) (0.47) (0.97) (0.13)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period .... $ 21.38 $ 20.92 $ 18.27 $ 17.26 $ 15.37 $ 14.69
--------- --------- --------- --------- --------- ---------
Total return* ..................... 3.63% 21.17% 11.93% 15.41% 11.23% 0.87%
--------- --------- --------- --------- --------- ---------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............... $ 702,813 $ 680,290 $ 534,711 $ 456,203 $ 317,287 $ 303,050
Ratio of expenses to average
net assets .................... 0.98%(a) 0.98% 0.97% 0.98% 0.99% 1.03%
Ratio of net investment income
to average net assets ......... 0.26%(a) 0.55% 0.74% 0.94% 0.97% 1.11%
Portfolio turnover
rate .......................... 28% 47% 51% 38% 52% 27%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
61
<PAGE>
- --------------------------------------------------------------------------------
GIAC Funds, Inc., (Baillie Gifford International Fund)
- ------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ---------------------------------------------
Note A - Organization and Accounting Policies
- ---------------------------------------------
GIAC Funds, Inc. (the Company) is a diversified open-end management
investment company registered under the Investment Company Act of 1940, as
amended (1940 Act), which was incorporated in Maryland on October 29, 1990.
Shares of the Company are offered in three series: Baillie Gifford International
Fund (BGIF), Baillie Gifford Emerging Markets Fund (BGEMF) and The Guardian
Small Cap Stock Fund (GSCSF). Information presented in this financial statement
pertains to BGIF. The financial statements for the other remaining funds of GIAC
are presented in separate reports. 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
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 D).
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 or loss on foreign currency related transactions. Realized
foreign exchange gains and losses which result from changes in foreign exchange
rates between the trade and settlement dates on security and currency
transactions are also included in net realized gain or loss on foreign currency
related transactions. Net currency gains and losses from valuing investments and
other assets and liabilities denominated in foreign currency at the period end
exchange rate are reflected in net change in unrealized appreciation or
depreciation from translation of other assets and liabillities 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 cur-
- --------------------------------------------------------------------------------
62
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
rency 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 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.
- -----------------------------------------
Note B - Investment Management Agreements
- -----------------------------------------
The Fund has an investment management agreement with Guardian Baillie
Gifford Limited (GBG), a Scottish corporation formed through a joint venture
between GIAC and Baillie Gifford Overseas Limited (BG Overseas). GBG is
responsible for the overall investment management of the 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.
- --------------------------------------------------------------------------------
63
<PAGE>
- --------------------------------------------------------------------------------
GIAC Funds, Inc., (Baillie Gifford International Fund)
- ------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
As compensation for its services, GBG receives a management fee computed
at the annual 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 six months ended June 30, 1999 were as follows:
Purchases.............................. $203,432,757
Proceeds............................... $188,610,501
The cost of investments owned at June 30, 1999 for federal income tax
purposes is the same as for financial reporting purposes. The gross unrealized
appreciation and depreciation of investments excluding foreign currency at June
30, 1999 were as follows:
64
Gross Appreciation..................... $172,018,502
Gross Depreciation..................... (17,851,484)
------------
Net Unrealized Appreciation............ $154,167,018
============
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.
- ------------------------------
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.
- --------------------------------------
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>
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
(Unaudited) (Audited) (Unaudited) (Audited)
- ---------------------------------------------------------------------------------------------------
Shares Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .................... 2,239,730 6,525,306 $ 47,032,992 $ 133,897,400
Shares issued in reinvestment of
dividends and distributions .. 453,011 1,785,599 9,721,626 37,426,471
Shares repurchased ............. (2,331,607) (5,068,012) (48,803,421) (103,165,394)
- ---------------------------------------------------------------------------------------------------
Net increase ................ 361,134 3,242,893 $ 7,951,197 $ 68,158,477
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
64
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
65
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- -------------------
COMMON STOCKS-96.7%
- -------------------
Shares Value
- ---------------------------------------------------------------------------
Advertising -- 1.6%
180,000 Omnicom Group, Inc. $ 14,400,000
------------
Air Transport -- 1.3%
200,000 Delta Air Lines, Inc. 11,525,000
------------
Auto & Truck -- 0.7%
100,000 General Motors Corp. 6,600,000
------------
Bank -- 5.3%
50,000 Chase Manhattan Corp. 4,331,250
400,000 Mellon Bank Corp. 14,550,000
225,000 State Street Corp. 19,209,375
140,000 Zions Bancorporation 8,890,000
------------
46,980,625
------------
Bank-Midwest -- 2.0%
270,000 Fifth Third Bancorp 17,971,875
------------
Computer & Peripherals -- 9.1%
320,000 Cisco Systems, Inc.* 20,640,000
330,000 Dell Computer Corp.* 12,210,000
320,000 EMC Corp.* 17,600,000
150,000 International Business Machines Corp. 19,387,500
160,000 Sun Microsystems, Inc.* 11,020,000
------------
80,857,500
------------
Computer Software & Services -- 2.0%
200,000 Microsoft Corp.* 18,037,500
------------
Diversified Companies -- 3.3%
100,000 AlliedSignal Inc. 6,300,000
135,000 Tyco International, Ltd. 12,791,250
135,000 United Technologies Corp. 9,677,813
------------
28,769,063
------------
Drug -- 11.0%
300,000 Amgen Inc.* 18,262,500
150,000 Biogen, Inc.* 9,646,875
125,000 Lilly (Eli) & Co. 8,953,125
175,000 MedImmune, Inc.* 11,856,250
180,000 Merck & Co., Inc. 13,320,000
100,000 Pfizer, Inc. 10,975,000
275,000 Schering-Plough Corp. 14,575,000
140,000 Warner-Lambert Co. 9,712,500
------------
97,301,250
------------
Drugstore -- 1.1%
200,000 CVS Corp. 10,150,000
------------
Electrical Equipment -- 1.6%
125,000 General Electric Co. 14,125,000
------------
Entertainment -- 2.2%
276,000 Clear Channel Communications, Inc.* 19,026,750
------------
Financial Services -- 5.0%
140,000 American Express Co. 18,217,500
300,000 Citigroup Inc. 14,250,000
75,500 Concord EFS, Inc.* 3,194,594
160,000 FINOVA Group, Inc. (The) 8,420,000
------------
44,082,094
------------
Food Wholesalers -- 0.8%
170,500 USFoodservice* 7,267,562
------------
Foreign Telecommunication -- 1.7%
75,000 Vodafone AirTouch PLC (ADR) 14,775,000
------------
Grocery -- 1.0%
180,000 Safeway Inc.* 8,910,000
------------
Homebuilding -- 0.8%
200,000 Centex Corp. 7,512,500
------------
Hotel/Gaming -- 1.5%
300,000 Harrah's Entertainment, Inc.* 6,600,000
300,000 Mandalay Resort Group* 6,337,500
------------
12,937,500
------------
Household Products -- 3.0%
65,000 Clorox Company (The) 6,942,812
100,000 Colgate-Palmolive Co. 9,875,000
260,000 Dial Corp. (The) 9,668,750
------------
26,486,562
------------
Insurance-Diversified -- 1.7%
125,000 American International Group, Inc. 14,632,813
------------
Insurance-Life -- 1.2%
160,000 Equitable Companies, Inc. (The) 10,720,000
------------
Internet -- 1.9%
150,000 American Online, Inc.* 16,575,000
------------
Machinery -- 1.0%
135,000 Ingersoll-Rand Co. 8,724,375
------------
Medical Services -- 1.0%
100,000 Wellpoint Health Networks Inc.* 8,487,500
------------
Medical Supplies -- 4.6%
150,000 Cardinal Health, Inc. 9,618,750
120,000 Johnson & Johnson 11,760,000
250,000 Medtronic, Inc. 19,468,750
------------
40,847,500
------------
Office Equipment & Supplies -- 1.0%
300,000 Staples, Inc.* 9,281,250
------------
Oilfield Services/Equipment -- 1.2%
400,000 Transocean Offshore, Inc. 10,500,000
------------
Precision Instrument -- 0.8%
100,000 Eastman Kodak Co. 6,775,000
------------
Retail Building Supply -- 2.2%
110,000 Home Depot, Inc. (The) 7,088,125
220,000 Lowe's Companies, Inc. 12,471,250
------------
19,559,375
------------
Retail-Special Lines -- 4.7%
200,000 Bed Bath & Beyond Inc.* 7,700,000
200,000 Best Buy Co., Inc.* 13,500,000
202,500 Gap, Inc. 10,200,937
200,000 Tandy Corp. 9,775,000
------------
41,175,937
------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
66
<PAGE>
Shares Value
- ---------------------------------------------------------------------------
Retail Store -- 6.3%
150,000 Costco Companies, Inc.* $ 12,009,375
250,000 Dayton Hudson Corp. 16,250,000
200,000 Kohl's Corp.* 15,437,500
250,000 Wal-Mart Stores, Inc. 12,062,500
------------
55,759,375
------------
Securities Brokerage -- 1.9%
150,000 Schwab (Charles) Corp. 16,481,250
------------
Semiconductor -- 2.4%
250,000 Intel Corp. 14,875,000
100,000 Vitesse Semiconductor Corp.* 6,743,750
------------
21,618,750
------------
Telecommunications Equipment -- 5.4%
200,000 Lucent Technologies Inc. 13,487,500
100,000 QUALCOMM Incorporated* 14,350,000
300,000 Tellabs, Inc.* 20,268,750
------------
48,106,250
------------
Telecommunication Services -- 1.6%
250,000 AT&T Corp. 13,953,125
------------
Thrift -- 2.3%
220,400 Federal Home Loan Mortgage Corp. 12,783,200
115,000 Federal National Mortgage Association 7,863,125
------------
20,646,325
------------
Trucking/Transportation Leasing -- 0.5%
120,000 CNF Transportation Inc. 4,605,000
------------
TOTAL COMMON STOCKS AND
TOTAL INVESTMENT SECURITIES -- 96.7%
(Cost $536,843,345) 856,164,606
------------
Principal
Amount Value
- ---------------------------------------------------------------------------
- -----------------------------
REPURCHASE AGREEMENTS -- 4.2%
- -----------------------------
(including accrued interest)
$ 36,100,000 Collateralized by $25,650,000
U.S. Treasury Bonds 13 7/8%,
due 5/15/11, with a value of
$36,891,914 (With Morgan
Stanley & Co., Incorporated 4.85%,
dated 6/30/99, due 7/1/99,
delivery value $36,104,863) $ 36,104,863
1,400,000 Collateralized by $1,405,000
U.S. Treasury Notes 6 1/2%,
due 5/31/01, with a value of
$1,437,073 (With State Street
Bank & Trust Company
4.00%, dated 6/30/99, due 7/1/99,
delivery value $1,400,156) 1,400,156
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $37,505,019) 37,505,019
------------
EXCESS OF LIABILITIES OVER
CASH AND RECEIVABLES -- (-0.9%) (8,182,858)
============
NET ASSETS -- 100.0% $885,486,767
============
NET ASSET VALUE
PER OUTSTANDING SHARE
($885,486,767 / 26,265,766
shares outstanding) $ 33.71
============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
67
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS:
Investment securities, at value
(cost $536,843,345) $ 856,164,606
Repurchase agreements (cost $37,505,019) 37,505,019
Cash 44,309
Receivable for capital shares sold 516,155
Dividends and interest receivable 452,875
Prepaid insurance expenses 20,044
-------------
TOTAL ASSETS 894,703,008
-------------
LIABILITIES:
Payable for securities purchased 8,182,737
Payable for capital shares repurchased 491,416
Accrued expenses:
Advisory fee 344,624
GIAC administrative service fee 160,000
Other 37,464
-------------
TOTAL LIABILITIES 9,216,241
-------------
NET ASSETS $ 885,486,767
-------------
NET ASSETS CONSIST OF:
Capital stock, at $1.00 par value
(authorized 50,000,000, outstanding
26,265,766 shares) $ 26,265,766
Additional paid-in capital 420,206,085
Undistributed net investment income 2,706,632
Undistributed net realized gain on investments 116,987,023
Net unrealized appreciation of investments 319,321,261
-------------
NET ASSETS $ 885,486,767
=============
NET ASSET VALUE PER
OUTSTANDING SHARE
($885,486,767 / 26,265,766
shares outstanding) $ 33.71
=============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Dividends $ 2,417,286
Interest 529,351
------------
Total Income 2,946,637
------------
Expenses:
Investment advisory fee 2,089,446
GIAC administrative service fee 299,604
Custodian fees 40,537
Auditing and legal fees 16,465
Directors' fees and expenses 7,796
Insurance and dues 5,642
Taxes and other 5,612
Printing and stationery 905
------------
Total Expenses Before Custody Credits 2,466,007
Less: Custody Credits (2,208)
------------
Net Expenses 2,463,799
------------
Net Investment Income 482,838
------------
Net Realized and Unrealized Gain
on Investments:
Net realized gain 54,551,064
Change in net unrealized appreciation 30,935,585
------------
Net Realized Gain and Change in Net
Unrealized Appreciation on Investments 85,486,649
------------
Net Increase in Net Assets from Operations $ 85,969,487
============
See notes to financial statements.
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1999
(Unaudited) and for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
------------- -------------
<S> <C> <C>
Operations:
Net investment income $ 482,838 $ 2,239,792
Net realized gain on investments 54,551,064 62,454,321
Change in net unrealized appreciation 30,935,585 117,641,538
------------- -------------
Net increase in net assets from operations 85,969,487 182,335,651
------------- -------------
Distributions to Shareholders:
Net investment income -- (2,335,121)
Net realized gain from investment transactions -- (45,405,144)
------------- -------------
Total distributions -- (47,740,265)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares 59,499,899 66,666,181
Proceeds from reinvestment of distributions to shareholders -- 47,740,265
Cost of shares repurchased (75,189,769) (153,885,228)
------------- -------------
Net decrease from capital share transactions (15,689,870) (39,478,782)
------------- -------------
Total Increase in Net Assets 70,279,617 95,116,604
Net Assets:
Beginning of period 815,207,150 720,090,546
------------- -------------
End of period 885,486,767 $ 815,207,150
============= =============
Undistributed Net Investment Income, at End of Period 2,706,632 $ 2,223,794
============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
69
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ------------------------------------
1 -- Significant Accounting Policies
- ------------------------------------
Value Line Centurion Fund, Inc. (the "Fund") is an open-end diversified
management investment company whose primary investment objective is long-term
growth of capital. The Fund's portfolio will usually consist of common stocks
ranked 1 or 2 for year-ahead performance by The Value Line Investment Survey,
one of the nation's major investment advisory services.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
(A) Security Valuation
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities and for securities traded in the
over-the-counter market, the security is valued at the midpoint between the
latest available and representative asked and bid prices. Short-term instruments
with maturities of 60 days or less are valued at amortized cost, which
approximates market value. Short-term instruments with maturities greater than
60 days, at the date of purchase, are valued at the midpoint between the latest
available and representative asked and bid prices, and commencing 60 days prior
to maturity such securities are valued at amortized cost. Other assets and
securities for which market valuations are not readily available are valued at
fair value as the Board of Directors may determine in good faith.
(B) Repurchase Agreements
In connection with transactions in repurchase agreements, the Fund's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the Fund has the right to liquidate the collateral and
apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
(C) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders. Therefore, no federal income tax is
required.
(D) Dividends and Distributions
It is the Fund's policy to distribute to its shareholders, as dividends
and as capital gains distributions, all the net investment income for the year
and all net capital gains realized by the Fund, if any. Such distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. All dividends or distributions will be
payable in shares of the Fund at the net asset 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 fed-
- --------------------------------------------------------------------------------
70
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
eral 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 Fund are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance and Annuity Company, Inc.
(GIAC). Transactions in capital stock were as follows:
Six Months
Ended
June 30, Year Ended
1999 December 31,
(Unaudited) 1998
----------- ------------
Shares sold 1,849,031 2,514,811
Shares issued in reinvestment
of dividends and distributions -- 1,781,353
----------- -----------
1,849,031 4,296,164
Shares repurchased 2,367,584 5,730,080
----------- -----------
Net decrease (518,553) (1,433,916)
=========== ===========
Dividends per share from net
investment income $ -- $ .09
=========== ===========
Distributions per share from
net realized gains $ -- $ 1.75
=========== ===========
- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Six Months Ended
June 30, 1999
(Unaudited)
----------------
PURCHASES:
Investment Securities $ 255,141,534
=============
SALES:
Investment Securities $ 291,175,423
=============
At June 30, 1999, the aggregate cost of investment securities and
repurchase agreements for federal income tax purposes was $575,437,791. The
aggregate appreciation and depreciation of investments for the six months ended
June 30, 1999, based on a comparison of investment values and their costs for
federal income tax purposes was $322,912,837 and $4,681,003 respectively,
resulting in a net appreciation of $318,231,834.
- --------------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Interested Parties
- --------------------------------------------------
An advisory fee of $2,089,446 was paid or payable to Value Line, Inc. (the
Adviser), the Fund's investment adviser, for the six months ended June 30, 1999.
This was computed at the rate of 1/2 of 1% of the average daily net assets of
the Fund during the period and paid monthly. The Adviser provides research,
investment programs, supervision of the investment portfolio and pays costs of
administrative services, office space, equipment and compensation of
administrative, bookkeeping, and clerical personnel necessary for managing the
affairs of the Fund. The Adviser also provides persons, satisfactory to the
Fund's Board of Directors, to act as officers and employees of the Fund and pays
their salaries and wages. The Fund bears all other costs and expenses.
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 $1,484 for the six months ended June 30,
1999. During the six months ended June 30, 1999, the Fund paid brokerage
commissions totalling $226,112 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 six months ended June 30, 1999, the
Fund incurred expenses of $299,604 in connection with such services rendered by
GIAC.
- --------------------------------------------------------------------------------
71
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the
periods indicated:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1999 -------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......... $ 30.44 $ 25.52 $ 24.83 $ 24.25 $ 17.83 $ 18.52
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income ...................... .02 .09 .09 .08 .12 .10
Net gains or losses on securities
(both realized and unrealized) ........... 3.25 6.67 5.30 3.71 6.96 (.51)
-------- -------- -------- -------- -------- --------
Total from investment operations ........... 3.27 6.76 5.39 3.79 7.08 (.41)
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ...... -- (.09) (.09) (.12) (.10) (.01)
Distributions from capital gains .......... -- (1.75) (4.61) (3.09) (.56) (.27)
-------- -------- -------- -------- -------- --------
Total distributions ....................... -- (1.84) (4.70) (3.21) (.66) (.28)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................ $ 33.71 $ 30.44 $ 25.52 $ 24.83 $ 24.25 $ 17.83
======== ======== ======== ======== ======== ========
Total return** ................................ 10.74+ 27.47% 21.39% 17.34% 40.08% (2.21)%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands) ...... $885,487 $815,207 $720,091 $639,341 $525,449 $352,745
Ratio of operating expenses to average
net assets .................................. .59%(1)* .59%(1) .60%(1) .59%(1) .62% .61%
Ratio of net investment income to average
net assets .................................. .11%* .31% .35% .36% .60% .57%
Portfolio turnover rate ....................... 31%+ 112% 85% 141% 114% 122%
</TABLE>
+ Not annualized
* Annualized
(1) Before offset of custody credits.
** Total returns do not reflect the effects of charges deducted under the
terms of GIAC's variable contracts. Including such charges would reduce
the total returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
72
<PAGE>
- --------------------------------------------------------------------------------
Other Information (unaudited)
- ---------
Year 2000
- ---------
Like other mutual funds, the Fund could be adversely if the computer
systems used by the Adviser and other service providers do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly known as the "Year 2000 Problem." The Adviser is taking steps
that it believes are reasonably designed to address the Year 2000 Problem with
respect to the computer systems that it uses and to obtain satisfactory
assurances that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Fund.
The Year 2000 Problem is expected to impact corporations which may include
issuers of portfolio securities held by the Fund, to varying degrees based upon
various factors, including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Fund is unable to predict
what impact, if any, the Year 2000 Problem will have on issuers of the portfolio
securities held by the Fund.
- --------------------------------------------------------------------------------
73
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- ----------------------
COMMON STOCKS -- 50.0%
- ----------------------
Shares Value
- ---------------------------------------------------------------------------
Advertising -- 1.2%
48,000 Interpublic Group of Companies, Inc. $ 4,158,000
177,000 Omnicom Group, Inc. 14,160,000
--------------
18,318,000
--------------
Aerospace/Defense -- 1.0%
104,000 General Dynamics Corp. 7,124,000
89,000 Gulfstream Aerospace Corp.* 6,013,062
36,000 Litton Industries, Inc.* 2,583,000
--------------
15,720,062
--------------
Air Transport -- 0.7%
180,000 Comair Holdings, Inc. 3,746,250
95,000 SkyWest, Inc. 2,369,062
136,500 Southwest Airlines Co. 4,248,563
--------------
10,363,875
--------------
Alternate Energy -- 0.6%
153,000 AES Corp.* 8,893,125
--------------
Apparel -- 0.2%
51,000 Tommy Hilfiger Corp.* 3,748,500
--------------
Bank -- 0.4%
179,000 AmSouth Bancorporation 4,150,562
57,000 SouthTrust Corp. 2,187,375
--------------
6,337,937
--------------
Bank-Midwest -- 1.1%
68,000 Fifth Third Bancorp 4,526,250
121,000 First Tennessee National Corp. 4,635,812
62,000 Northern Trust Corp. 6,014,000
35,700 Old Kent Financial Corp. 1,494,938
--------------
16,671,000
--------------
Beverage-Alcoholic -- 0.2%
62,000 Coors (Adolph) Co. Class "B" 3,069,000
--------------
Building Materials -- 0.0%
6,000 USG Corp. 336,000
--------------
Cable TV -- 1.5%
116,000 Cablevision Systems Corp. Class "A"* 8,120,000
190,000 Comcast Corp. Class "A"* 7,303,125
48,000 EchoStar Communications Corp.
Class "A"* 7,365,000
--------------
22,788,125
--------------
Chemical-Specialty -- 0.5%
72,000 Avery Dennison Corp. 4,347,000
70,000 Rohm and Haas Co. 3,001,250
--------------
7,348,250
--------------
Computer & Peripherals -- 2.4%
115,000 Adaptec, Inc.* 4,060,938
219,422 Cisco Systems, Inc.* 14,152,719
35,000 Hewlett-Packard Co. 3,517,500
54,000 International Business Machines Corp. 6,979,500
186,000 Unisys Corp.* 7,242,375
--------------
35,953,032
--------------
Computer Software & Services -- 3.5%
50,000 Adobe Systems, Inc. 4,107,812
123,000 American Management Systems, Inc.* 3,943,688
101,000 Citrix Systems, Inc.* 5,706,500
84,000 Comverse Technology, Inc.* 6,342,000
101,000 Electronics For Imaging, Inc.* 5,188,875
174,000 Mercury Interactive Corp.* 6,155,250
91,000 Microsoft Corp.* 8,207,063
229,500 Paychex, Inc. 7,315,312
98,000 Siebel Systems, Inc.* 6,504,750
--------------
53,471,250
--------------
Diversified Companies -- 1.5%
72,000 Danaher Corp. 4,185,000
3,000 Textron, Inc. 246,938
146,000 Tyco International, Ltd. 13,833,500
62,000 United Technologies Corp. 4,444,625
--------------
22,710,063
--------------
Drug -- 2.7%
88,000 Amgen Inc.* 5,357,000
179,000 Biogen, Inc.* 11,511,938
28,000 Bristol-Myers Squibb Co. 1,972,250
110,000 Forest Laboratories, Inc.* 5,087,500
26,000 Immunex Corp.* 3,313,375
110,000 MedImmune, Inc.* 7,452,500
86,000 Millennium Pharmaceuticals, Inc. * 3,096,000
40,000 Sepracor, Inc.* 3,250,000
--------------
41,040,563
--------------
Drugstore -- 0.4%
131,000 CVS Corp. 6,648,250
--------------
Electrical Equipment -- 0.2%
54,000 Semtech Corp.* 2,814,750
--------------
Electronics -- 2.3%
148,000 Gemstar International Group, Ltd.* 9,657,000
52,000 Gilat Satellite Networks Ltd.* 2,730,000
92,000 Lexmark International Group, Inc.
Class "A"* 6,077,750
303,125 Symbol Technologies, Inc. 11,177,734
33,000 Uniphase Corp.* 5,478,000
--------------
35,120,484
--------------
Entertainment -- 2.0%
168,000 CBS Corp.* 7,297,500
57,000 Chancellor Media Corp.* 3,142,125
143,315 Clear Channel Communications, Inc.* 9,879,778
97,000 Time Warner, Inc. 7,129,500
58,000 USA Networks, Inc.* 2,327,250
--------------
29,776,153
--------------
Food Processing -- 0.6%
127,000 Quaker Oats Co. (The) 8,429,625
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
74
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- ---------------------------------------------------------------------------
Foreign Telecommunication -- 1.1%
13,000 Nokia Corp. (ADR) Class "A" $ 1,190,313
53,000 Nortel Networks Corp. 4,601,062
53,500 Vodafone AirTouch PLC (ADR) 10,539,500
--------------
16,330,875
--------------
Furniture/Home Furnishings -- 0.2%
90,000 Ethan Allen Interiors, Inc. 3,397,500
--------------
Grocery -- 1.1%
351,800 Kroger Co.* 9,828,413
144,800 Safeway Inc.* 7,167,600
--------------
16,996,013
--------------
Home Appliance -- 0.3%
74,000 Maytag Corp. 5,156,875
--------------
Homebuilding -- 0.2%
18,000 Centex Corp. 676,125
75,000 Lennar Corp. 1,800,000
--------------
2,476,125
--------------
Hotel/Gaming -- 0.2%
121,000 Mandalay Resort Group* 2,556,125
--------------
Household Products -- 0.2%
53,000 Kimberly-Clark Corp. 3,021,000
--------------
Insurance-Diversified -- 0.6%
79,430 American International Group, Inc. 9,298,274
--------------
Insurance-Life -- 0.2%
64,000 AFLAC, Inc. 3,064,000
--------------
Internet -- 0.4%
38,000 America Online, Inc.* 4,199,000
66,000 Macromedia, Inc.* 2,326,500
--------------
6,525,500
--------------
Machinery -- 0.7%
74,000 Briggs & Stratton Corp. 4,273,500
93,000 Ingersoll - Rand Co. 6,010,125
--------------
10,283,625
--------------
Medical Services -- 0.6%
42,000 CIGNA Corp. 3,738,000
28,000 PacifiCare Health Systems, Inc.
Class "B"* 2,014,250
46,000 WellPoint Health Networks Inc.* 3,904,250
--------------
9,656,500
--------------
Medical Supplies -- 2.8%
107,000 Allergan, Inc. 11,877,000
74,000 AmeriSource Health Corp. Class "A"* 1,887,000
105,000 Boston Scientific Corp.* 4,613,438
58,000 Johnson & Johnson 5,684,000
42,000 Stryker Corp. 2,525,250
206,000 VISX, Inc.* 16,312,625
--------------
42,899,313
--------------
Natural Gas-Diversified -- 1.0%
141,000 Enron Corp. 11,526,750
69,000 Williams Companies, Inc. (The) 2,936,812
--------------
14,463,562
--------------
Newspaper -- 0.3%
111,000 News Corp., Ltd. (ADR) 3,919,687
--------------
Office Equipment & Supplies -- 1.1%
108,000 Pitney Bowes, Inc. 6,939,000
291,655 Staples, Inc.* 9,023,077
--------------
15,962,077
--------------
Precision Instrument -- 0.4%
104,000 Waters Corp.* 5,525,000
--------------
Publishing -- 0.2%
20,000 CMGI Inc.* 2,281,250
26,000 Reader's Digest Association, Inc.
Class "A" 1,033,500
--------------
3,314,750
--------------
Recreation -- 1.0%
40,000 Carnival Corp. 1,940,000
111,000 Harley-Davidson, Inc. 6,035,625
174,000 Royal Caribbean Cruises, Ltd. 7,612,500
--------------
15,588,125
--------------
Restaurant -- 0.3%
145,000 Brinker International, Inc.* 3,942,187
--------------
Retail Building Supply -- 1.1%
150,000 Home Depot, Inc. (The) 9,665,625
115,000 Lowe's Companies, Inc. 6,519,063
--------------
16,184,688
--------------
Retail-Special Lines -- 4.2%
141,040 Abercrombie & Fitch Co. Class "A"* 6,769,920
104,000 AnnTaylor Stores Corp.* 4,680,000
181,000 Bed Bath & Beyond Inc.* 6,968,500
153,000 Best Buy Co., Inc.* 10,327,500
82,000 Circuit City Stores-Circuit City Group 7,626,000
100,500 Dollar Tree Stores, Inc.* 4,422,000
140,250 Gap, Inc. 7,065,094
85,000 Hollywood Entertainment Corp.* 1,662,812
6,405 Intimate Brands, Inc. Class "A" 303,437
28,000 Ross Stores, Inc. 1,410,500
160,000 TJX Companies, Inc. (The) 5,330,000
20,000 Tandy Corp. 977,500
65,900 Tiffany & Co. 6,359,350
--------------
63,902,613
--------------
Retail Store -- 1.8%
126,000 Dayton Hudson Corp. 8,190,000
108,000 Kohl's Corp.* 8,336,250
240,000 Wal-Mart Stores, Inc. 11,580,000
--------------
28,106,250
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
75
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited) (Continued)
Shares on
Principal
Amount Value
- ---------------------------------------------------------------------------
Semiconductor -- 2.7%
78,000 Linear Technology Corp. $ 5,245,500
61,000 Motorola, Inc. 5,779,750
95,000 PMC-Sierra, Inc.* 5,599,063
55,000 QLogic Corp.* 7,260,000
60,000 RF Micro Devices, Inc.* 4,477,500
67,500 TranSwitch Corp.* 3,197,812
92,000 Vitesse Semiconductor Corp.* 6,204,250
60,000 Xilinx, Inc.* 3,435,000
--------------
41,198,875
--------------
Telecommunications Equipment -- 1.4%
170,000 General Instrument Corp.* 7,225,000
32,000 QUALCOMM Incorporated* 4,592,000
89,000 Scientific-Atlanta, Inc. 3,204,000
90,000 Tellabs, Inc.* 6,080,625
--------------
21,101,625
--------------
Telecommunication Services -- 2.5%
43,000 ALLTEL Corp. 3,074,500
255,000 CenturyTel, Inc. 10,136,250
41,000 Global TeleSystems Group, Inc.* 3,321,000
76,000 MediaOne Group, Inc.* 5,652,500
170,000 SBC Communications Inc. 9,860,000
128,000 WinStar Communications, Inc.* 6,240,000
--------------
38,284,250
--------------
Toiletries/Cosmetics -- 0.4%
44,000 Avon Products, Inc. 2,442,000
86,000 Lauder (Estee) Companies Inc. (The)
Class "A" 4,310,750
--------------
6,752,750
--------------
TOTAL COMMON STOCKS
(Cost $436,059,148) 759,466,208
--------------
- ----------------------------------
U.S. TREASURY OBLIGATIONS -- 18.8%
- ----------------------------------
$ 45,000,000 U.S. Treasury Notes
4.00%, due 10/31/00 $ 44,192,700
29,000,000 U.S. Treasury Notes
5.25%, due 5/31/01 28,857,900
30,000,000 U.S. Treasury Notes
5.75%, due 6/30/01 30,111,900
10,000,000 U.S. Treasury Notes
6.50%, due 5/31/02 10,230,300
36,500,000 U.S. Treasury Notes
4.75%, due 2/15/04 34,982,330
14,250,000 U.S. Treasury Notes
5.875%, due 11/15/05 14,206,252
14,250,000 U.S. Treasury Notes
5.625%, due 2/15/06 13,997,063
15,000,000 U.S. Treasury Notes
4.75%, due 11/15/08 13,761,150
59,500,000 U.S. Treasury Bonds
7.25%, due 8/15/22 66,603,705
30,000,000 U.S. Treasury Bonds
6.00%, due 2/15/26 29,239,500
--------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $288,323,883) 286,182,800
--------------
- -------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 14.6%
- -------------------------------------------
$ 13,000,000 Federal Home Loan Bank Bonds
5.375%, due 3/2/01 $ 12,930,450
18,000,000 Federal Home Loan Mortgage
Corp. Debentures, 5.75%, due 6/15/01 17,976,420
15,000,000 Federal Home Loan Bonds
5.125%, due 2/26/02 14,710,050
21,000,000 Federal National Mortgage
Association Notes,
5.375%, due 3/15/02 20,710,620
12,000,000 Federal Home Loan
Mortgage Corp. Debentures,
5.500%, due 5/15/02 11,877,120
13,500,000 Federal National Mortgage
Association Notes,
4.750%, due 11/14/03 12,809,205
44,000,000 Federal Home Loan Mortgage
Corp. Debentures,
5.000%, due 1/15/04 42,071,480
5,500,000 Federal National Mortgage
Association Notes,
5.125%, due 2/13/04 5,286,655
29,000,000 Federal National Mortgage
Association Notes,
5.625%, due 5/14/04 28,424,930
10,000,000 Federal National Mortgage
Association Notes,
5.750%, due 6/15/05 9,822,200
13,000,000 Federal National Mortgage
Association Notes,
6.500%, due 7/16/07 13,048,490
10,000,000 Federal National Mortgage
Association Notes, Pool 380188,
6.450%, due 4/1/08 9,746,880
14,000,000 Federal Home Loan Mortgage
Corp. Debentures,
5.750%, due 4/15/08 13,393,940
10,000,000 Federal National Mortgage
Association Notes,
5.250%, due 1/15/09 9,168,000
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $226,515,882) 221,976,440
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
76
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount Value
- ---------------------------------------------------------------------------
- -------------------------------
CORPORATE BONDS & NOTES -- 1.2%
- -------------------------------
Chemical-Diversified -- 0.3%
$ 5,000,000 Goodrich (B.F.) Co. (The) Notes
6.45%, due 4/15/08 $ 4,761,550
Telecommunication Services -- 0.9%
5,000,000 AirTouch Communications Inc. Notes
6.65%,due 5/1/08 4,879,550
5,000,000 MCI WorldCom, Inc. Sr. Notes
6.40%, due 8/15/05 4,883,900
4,000,000 MCI WorldCom, Inc. Sr. Notes
6.50%, due 4/15/10 3,831,120
--------------
13,594,570
--------------
TOTAL CORPORATE BONDS & NOTES
(Cost $18,965,259) 18,356,120
--------------
TOTAL INVESTMENT SECURITIES -- 84.6%
(Cost $969,864,172) 1,285,981,568
--------------
- -------------------------------
SHORT-TERM INVESTMENTS -- 13.1%
- -------------------------------
REPURCHASE AGREEMENTS -- 3.2%
(including accrued interest)
$ 47,900,000 Collateralized by $39,840,000
U.S. Treasury Bonds 11.125%,
due 8/15/03, with a value of
$48,825,924 (with State Street
Bank & Trust Company,
4.70%, dated 6/30/99, due 7/1/99,
delivery value of $47,906,254) $ 47,906,254
900,000 Collateralized by $905,000
U.S. Treasury Notes 5.25%,
due 1/31/01, with a value of
$921,859, (with State Street
Bank & Trust Company,
4.00%, dated 6/30/99, due 7/1/99,
delivery value $900,100) 900,100
--------------
48,806,354
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 9.9%
$30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes 4.73%, due 7/1/99 $ 30,000,000
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes 4.830%, due 7/16/99 29,939,625
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes 4.810%, due 7/19/99 29,927,850
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes 4.910%, due 7/22/99 29,914,075
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes 4.840%, due 7/26/99 29,899,167
--------------
149,680,717
--------------
TOTAL SHORT-TERM SECURITIES
(Cost $198,487,071) 198,487,071
--------------
CASH AND RECEIVABLES
LESS LIABILITIES -- 2.3% 35,182,859
--------------
NET ASSETS -- 100.0% $1,519,651,498
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,519,651,498 / 54,373,946
shares outstanding) $ 27.95
==============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
77
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investment in securities, at value
(cost $969,864,172) $1,285,981,568
Short-term investments (cost $198,487,071) 198,487,071
Cash 95,142
Receivable for securities sold 43,245,837
Interest and dividends receivable 7,945,329
Receivable for capital shares sold 307,932
Prepaid insurance expense 34,162
--------------
TOTAL ASSETS 1,536,097,041
--------------
LIABILITIES
Payable for securities purchased 15,009,375
Payable for capital shares repurchased 546,114
Accrued expenses:
Advisory fee 608,085
GIAC administrative service fee 235,000
Other 46,969
--------------
TOTAL LIABILITIES 16,445,543
--------------
NET ASSETS $1,519,651,498
==============
NET ASSETS CONSIST OF:
Capital stock, at $0.01 par value
(authorized unlimited, outstanding
54,373,946 shares) $ 543,740
Additional paid-in capital 873,609,810
Undistributed net investment income 25,323,729
Undistributed net realized gain on investments 304,056,823
Net unrealized appreciation of investments 316,117,396
--------------
NET ASSETS $1,519,651,498
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,519,651,498 / 54,373,946
shares outstanding) $ 27.95
==============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Interest $ 11,646,777
Dividends (Net of foreign withholding
tax of $1,531) 2,491,158
------------
Total Income 14,137,935
------------
Expenses:
Investment advisory fee 3,605,108
GIAC administrative service fee 457,877
Custodian fees 74,601
Audit and legal fees 16,462
Insurance and dues 13,195
Trustees' fees and expenses 7,797
Printing and stationery 905
Taxes and other 793
------------
Total Expenses Before Custody Credits 4,176,738
Less: Custody Credits (1,630)
------------
Net Expenses 4,175,108
------------
Net Investment Income 9,962,827
------------
Net Realized and Unrealized Gain (Loss)
On Investments:
Net realized gain 224,707,883
Net change in unrealized appreciation
(depreciation) (84,323,009)
------------
Net Realized Gain and Change in
Unrealized Appreciation (Depreciation)
on Investments 140,384,874
------------
Net Increase in Net Assets from Operations $150,347,701
============
See notes to financial statements.
- --------------------------------------------------------------------------------
78
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1999
(Unaudited) and for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income $ 9,962,827 $ 15,682,392
Net realized gain on investments 224,707,883 79,864,542
Change in net unrealized appreciation (depreciation) (84,323,009) 215,856,062
--------------- ---------------
Net increase in net assets from operations 150,347,701 311,402,996
--------------- ---------------
Distributions to Shareholders:
Net investment income -- (35,369,549)
Net realized gain from investment transactions -- (101,947,527)
--------------- ---------------
Total distributions -- (137,317,076)
--------------- ---------------
Trust Share Transactions:
Proceeds from sale of shares 57,549,365 98,680,308
Proceeds from reinvestment of distributions to shareholders -- 137,317,076
Cost of shares repurchased (102,529,265) (192,389,054)
--------------- ---------------
Net (decrease) increase from Trust share transactions (44,979,900) 43,608,330
--------------- ---------------
Total Increase in Net Assets 105,367,801 217,694,250
Net Assets:
Beginning of period 1,414,283,697 1,196,589,447
--------------- ---------------
End of period $ 1,519,651,498 $ 1,414,283,697
=============== ===============
Undistributed Net Investment Income, at End of Period $ 25,323,729 $ 15,360,902
=============== ===============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
79
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ------------------------------------
1 -- Significant Accounting Policies
- ------------------------------------
Value Line Strategic Asset Management Trust (the "Trust") is an open-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended, which seeks to achieve a high total investment
return consistent with reasonable risk by investing primarily in a broad range
of common stocks, bonds and money market instruments. The Trust will attempt to
acheive its objective by following an asset allocation strategy based on data
derived from computer models for the stock and bond markets that shifts the
asset 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 and for 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 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 shareholders.
Therefore, no federal income tax provision is required.
(D) Dividends and Distributions
It is the Trust's policy to distribute to its shareholders, 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
- --------------------------------------------------------------------------------
80
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. All dividends or distributions will be
payable in shares of the Trust at the net asset value on the ex-dividend date.
This policy is, however, subject to change at any time by the Board of Trustees.
(E) Amortization.
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments.
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income, adjusted for amortization of discount, including
original issue discount required for federal income tax purposes, is earned from
settlement date and recognized on the accrual basis. Dividend income is recorded
on the ex-dividend date.
- ----------------------------------------
2 -- Trust Share Transactions, Dividends
and Distributions
- ----------------------------------------
Shares of the Trust are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance & Annuity Company, Inc.
(GIAC). Transactions in shares of beneficial interest in the Trust were as
follows:
Six Months
Ended
June 30, Year Ended
1999 December 31,
(unaudited) 1998
------------ ------------
Shares sold 2,191,039 4,261,820
Shares issued in reinvestment
of dividends and
distributions -- 6,157,716
------------ ------------
2,191,039 10,419,536
Shares repurchased 3,887,268 8,418,685
------------ ------------
Net (decrease) increase (1,696,229) 2,000,851
============ ============
Dividends per share from net
investment income $ -- $ .68
============ ============
Distributions per share from
net realized gains $ -- $ 1.96
============ ============
- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Six Months Ended
June 30, 1999
(unaudited)
----------------
PURCHASES:
U.S. Treasury and Government
Agency Obligations $ 435,024,097
Other Investment Securities 156,244,585
-------------
$ 591,268,682
=============
SALES & MATURITIES:
U.S. Treasury and Government
Agency Obligations $ 24,375,169
Other Investment Securities 762,444,468
-------------
$ 786,819,637
=============
At June 30, 1999, the aggregate cost of investment securities and
short-term securities for federal income tax purposes was $1,168,351,243. The
aggregate appreciation and depreciation of investments at June 30, 1999, based
on a comparison of investment values and their costs for federal income tax
purposes was $329,007,065 and $12,889,669, respectively, resulting in a net
appreciation of $316,117,396.
- ---------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Affiliates
- ---------------------------------------------
An advisory fee of $3,605,108 was paid or payable to the Adviser, for the
six months ended June 30, 1999. This was computed at the rate of 1/2 of 1% of
the average daily net assets of the Trust during the period and paid monthly.
The Adviser provides research, investment programs, supervision of the
investment portfolio and pays costs of administrative services, office space,
equipment and compensation of administrative, bookkeeping and clerical personnel
necessary for managing the affairs of the Trust. The Adviser also provides
persons, satisfactory to the Trust's Board of Trustees, to act as officers and
employees of the Trust and pays their salaries and wages. The Trust bears all
other costs and expenses.
- --------------------------------------------------------------------------------
81
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
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 $1,484 by the Trust for the six months
ended June 30, 1999. During the six months ended June 30, 1999, the Trust paid
brokerage commissions totalling $373,703 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 six months ended June 30, 1999, the
Trust incurred expenses of $457,877 in connection with such services rendered by
GIAC.
- --------------------------------------------------------------------------------
82
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1999 ----------------------------------------------------
(Unaudited) 1998 1997 1996
------------- ----------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............... $ 25.22 $ 22.13 $ 21.90 $ 20.27
---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income ........................... .19 .30 .65 .53
Net gains or losses on securities (both realized
and unrealized) ................................ 2.54 5.43 2.65 2.56
---------- ---------- ---------- ----------
Total from investment operations ................ 2.73 5.73 3.30 3.09
---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income ........... -- (.68) (.55) (.37)
Distributions from capital gains ............... -- (1.96) (2.52) (1.09)
---------- ---------- ---------- ----------
Total distributions ............................ -- (2.64) (3.07) (1.46)
---------- ---------- ---------- ----------
Net asset value, end of period ..................... $ 27.95 $ 25.22 $ 22.13 $ 21.90
========== ========== ========== ==========
Total return** ..................................... 10.82%+ +27.45% +15.66% +15.87%
========== ========== ========== ==========
Ratios/Supplemental Data:
Net assets, end of period (in thousands) ........... $1,519,651 $1,414,284 $1,196,589 $1,072,785
Ratio of expenses to average net assets ............ .58%*(1) .58%(1) .59%(1) .58%(1)
Ratio of net investment income to average
net assets ....................................... 1.38%* 1.25% 3.08% 2.70%
Portfolio turnover rate ............................ 46%+ 106% 58% 71%
<CAPTION>
Years Ended December 31,
-----------------------
1995 1994
-----------------------
<S> <C> <C>
Net asset value, beginning of period ............... $ 16.13 $ 17.01
-------- --------
Income (loss) from investment operations:
Net investment income ........................... .39 .26
Net gains or losses on securities (both realized
and unrealized) ................................ 4.17 (1.09)
-------- --------
Total from investment operations ................ 4.56 (.83)
-------- --------
Less distributions:
Dividends from net investment income ........... (.26) (.01)
Distributions from capital gains ............... (.16) (.04)
-------- --------
Total distributions ............................ (.42) (.05)
-------- --------
Net asset value, end of period ..................... $ 20.27 $ 16.13
======== ========
Total return** ..................................... +28.54% -4.88%
======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands) ........... $876,509 $662,721
Ratio of expenses to average net assets ............ .60% .60%
Ratio of net investment income to average
net assets ....................................... 2.18% 1.65%
Portfolio turnover rate ............................ 63% 100%
</TABLE>
+ Not annualized
* Annualized.
(1) Before offset of custody credits.
** Total returns do not reflect the effects of charges deducted under the
terms of GIAC's variable contracts. Including such charges would reduce
the total returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
83
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
Other Information (unaudited)
- ---------
Year 2000
- ---------
Like other mutual funds, the Trust could be adversely if the computer
systems used by the Adviser and other service providers do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly known as the "Year 2000 Problem." The Adviser is taking steps
that it believes are reasonably designed to address the Year 2000 Problem with
respect to the computer systems that it uses and to obtain satisfactory
assurances that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Trust.
The Year 2000 Problem is expected to impact corporations which may include
issuers of portfolio securities held by the Trust, to varying degrees based upon
various factors, including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Trust is unable to
predict what impact, if any, the Year 2000 Problem will have on issuers of the
portfolio securities held by the Trust.
See notes to financial statements.
- --------------------------------------------------------------------------------
84
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
85
<PAGE>
- --------------------------------------------------------------------------------
The Smith Barney Fund Stripped ("Zero")
- ---------------------------------------
U.S. TREASURY SECURITIES, SERIES A - 2004 TRUST
Statements of Financial Condition
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Trust Property:
Investment in securities at value (amortized cost for 1998 and 1997,
respectively, $6,568,487 and $6,203,299) ........................... $7,555,637 $6,867,227
Net other assets ................................................... 8,267 8,051
---------- ----------
$7,563,904 $6,875,278
========== ==========
Interest of Holders (for 1998 and 1997 respectively
9,929,560 and 10,130,360 units of fractional undivided
interest outstanding)
Cost of Trust units, net of gross transaction charges ........... $4,620,899 $4,613,820
Unrealized appreciation of investment ........................... 987,150 663,928
Undistributed net investment income ............................. 1,955,855 1,597,530
---------- ----------
Net assets ......................................................... $7,563,904 $6,875,278
========== ==========
Net asset value per unit ........................................... $ 0.7618 $ 0.6787
========== ==========
</TABLE>
Portfolio as of December 31, 1998
<TABLE>
<CAPTION>
Aggregate
Principal Maturity Amortized
Amount Title of Security Coupon Date Cost Value
------ ----------------- ------ ---- ---- -----
<S> <C> <C> <C> <C> <C>
$ 9,890,000 Stripped U.S. Treasury Securities ... 0% 11/15/04 $ 6,517,981 $ 7,502,356
39,560 U.S. Treasury Bonds ................. 11.625% 11/15/04 50,506 53,281
----------- ----------- -----------
$ 9,929,560 $ 6,568,487 $ 7,555,637
=========== =========== ===========
</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 ... 0% 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>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
86
<PAGE>
- --------------------------------------------------------------------------------
Statements of Operations and Changes in Net Assets
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operations
Interest income ................................ $ 483,638 $ 551,982 $ 465,421
Expenses:
Trustee fees ................................. (64) (6,164) (3,636)
Other ........................................ (4,223) (1,016) (1,370)
----------- ----------- -----------
Total expenses .............................. (4,287) (7,180) (5,006)
----------- ----------- -----------
Net investment income ....................... 479,351 544,802 460,415
Realized gain on sale of securities ............ 54,129 103,648 119,372
Increase (decrease) in unrealized appreciation . 323,222 102,937 (559,965)
----------- ----------- -----------
Net increase in net assets from operations .. 856,702 751,387 19,822
----------- ----------- -----------
Distributions from net investment income ....... (99,923) (239,262) (385,864)
----------- ----------- -----------
Capital Share Transactions:
Proceeds from sales of units ................. 137,400 -- 112,346
Redemption of units:
Principal .................................. (151,424) (407,070) (430,883)
Realized gains ............................. (54,129) (103,648) (119,372)
----------- ----------- -----------
Net decrease from capital share transactions (68,153) (510,718) (437,909)
----------- ----------- -----------
Increase (decrease) in net assets ............ 688,626 1,407 (803,951)
Net assets:
Beginning of year ............................ 6,875,278 6,873,871 7,677,822
----------- ----------- -----------
End of year .................................. $ 7,563,904 $ 6,875,278 $ 6,873,871
=========== =========== ===========
Units subscribed ........................... 200,800 -- --
=========== =========== ===========
Units sold ................................. -- -- 200,800
=========== =========== ===========
Units redeemed ............................. 200,800 1,154,600 1,455,800
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
87
<PAGE>
- --------------------------------------------------------------------------------
The Smith Barney Fund Stripped ("Zero")
- ---------------------------------------
U.S. Treasury Securities, Series A - 2004 Trust
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- -------------------------------------
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, 1998, 1997, and 1996, the Sponsor,
Smith Barney Inc., received transaction charges aggre gating $13,985, $1,871,
and $25,797. Trans action charges with respect to initial deposit were waived by
the Sponsor.
- -----------------
3. -- Investments
- -----------------
At December 31, 1998 and 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 $987,150 and $663,928 at December 31, 1998
and 1997, respectively.
There were no purchases of securities during the years ended December 31,
1998 and 1997. The aggregate proceeds from sales during the years ended December
31, 1998 and 1997 was $280,203 and $749,980.
- ------------------------------
4. -- Supplemental Information
- ------------------------------
Selected data per 1,000 units of the Fund outstanding throughout the years
ended December 31, 1998, 1997, and 1996, respectively, are as follows (based on
average units outstanding throughout the years):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income ..................................... $ 47.85 $ 50.44 $ 39.22
Expenses ............................................ (.42) (.66) (.42)
------- ------- -------
Net investment income ............................. 47.43 49.78 38.80
Increase (decrease) in unrealized appreciation* ..... 35.69 19.78 (41.94)
------- ------- -------
Net increase (decrease) in net assets from operations 83.12 69.56 (3.14)
Net assets:
Beginning of year ................................. 678.68 609.12 612.26
------- ------- -------
End of year ....................................... $761.80 $678.68 $609.12
======= ======= =======
</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.
- --------------------------------------------------------------------------------
88
<PAGE>
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