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Semiannual Report To Policyowners June 30, 2000
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[LOGO]
GUARDIAN(SM)
Value Plus
THE GUARDIAN
SEPARATE ACCOUNT B
THE GUARDIAN STOCK FUND, INC.
----------------
THE GUARDIAN BOND FUND, INC.
----------------
THE GUARDIAN CASH FUND, INC.
----------------
BAILLIE GIFFORD
INTERNATIONAL FUND
----------------
VALUE LINE CENTURION FUND, INC.
----------------
VALUE LINE STRATEGIC ASSET
MANAGEMENT TRUST
---------------- The Guardian Insurance &
SMITH BARNEY FUND STRIPPED ("ZERO") Annuity Company, Inc.
U.S. TREASURY SECURITIES, SERIES A
---------------- 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................................. 3.04%
Baillie Gifford International Fund...................... -8.33%
Value Line Centurion Fund............................... 2.51%
Value Line Strategic Asset Mgt. Trust................... 4.94%
The Guardian Bond Fund.................................. 3.25%
The Guardian Cash Fund.................................. 2.57%
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Smith Barney Fund Stripped (Zero) U.S. Treasury Securities, Series A,
consisting of one portfolio of "zero coupon" U.S. Treasury securities,
provided the following yield to maturity as of June 30, 2000: 2004
Trust (maturing 11/15/04): 6.08%.
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* The chart above shows the total returns for each investment option under
ValuePlus based on the percentage change in unit values during the period
from January 1, 2000 through June 30, 2000. In contrast to the returns
presented in the portfolio managers' interviews, changes in unit values
reflect the effects of mortality and expense risk charges as well as each
option's expenses to give you a better picture of an investment option's
performance under the policy. The total return performance figures stated
above do not reflect the policy loading or cost of insurance charges.
Deduction of these amounts (which differ among insureds based on age,
class and sex) would reduce the stated total returns. Past performance is
not a guarantee of future results. Investment returns and principal value
will vary with market conditions.
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Dear Policyowner:
-----------------
[Photo of Joseph D. Sargent, CLU, President & CEO]
Dear Policyowner:
As President and Chief Executive Officer of The Guardian Insurance &
Annuity Company, Inc., and its parent, The Guardian Life Insurance Company of
America, I am pleased to send you this Semi-Annual Report on the performance of
your Value Plus policy's separate account and its underlying variable investment
options during the first six months of this year.
Helping You Reach Your Goals
As an owner of a variable life product, you are among a rapidly growing
group of people who are planning for their future with a retirement product that
is linked to the investment markets. A variable life product such as Value Plus
may be one of the best ways to prepare for your retirement and because of the
benefits it offers, may help you reach your goals faster.
This Report tells you how each investment option available in your policy
has performed. Also included is a letter from Frank J. Jones, Ph.D., our chief
investment officer, and interviews with the portfolio managers of the funds that
comprise our investment options. These materials discuss the current economic
environment as well as specific issues that may impact your investment strategy.
I am confident that this information will be invaluable to you as you
assess your financial situation and investment strategies.
Thank you for selecting Guardian to assist you in investing for your
future.
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 40
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The Guardian Cash Fund 18 46
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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 Fund Stripped ("Zero") US Treasury 84
This fund is only available to policyowners of
Value Plus
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The Guardian Separate Account B 20
For Value Plus policyowners
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The Guardian Separate Account C 28
For Select Guard 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 of Frank J. Jones, Ph.D., Chief Investment Officer]
Soft and Hard Landings: The Economy and the Stock Market
The current economic expansion, which began during March 1991, is the
longest post-war expansion. Within this sustained economic expansion, there have
been mini-economic cycles. At times, the economy grew at a rate that was thought
to be unsustainable without causing inflation. During those times, Federal
Reserve Bank (Fed) Chairman Alan Greenspan was able to moderate economic growth
without stopping it--that is, execute a "soft landing." At other times, for
example during the fall of 1998 due to the financial problems in Asia, Greenspan
relaxed monetary policy to avert a recession. Overall, during strong and weak
times, Maestro Greenspan has conducted the economy well and continued the long
expansion.
Recently, during late 1999 and early 2000, there was concern about
economic growth, which was considered too rapid and, thus, inflation-inducing.
As a result, Greenspan raised interest rates, referred to as "tightening," six
times since June 30, 1999 by a total of 1.75% (from 4.75% to 6.50%). The
economic reports for the second quarter support the conclusion that the economy
has begun another soft landing. If this proves to be so, the Fed tightenings
could be complete or almost so. There is some risk, however, that the recent
economic softening is a "head fake" and that the economy will restrengthen and
require further Fed tightenings. Currently, though, the markets are performing
on the basis of an expected soft landing.
How does this economic performance relate to the stock market? The S&P 500
Index(1) has returned over 20% per year for five consecutive years. Why the
incredible strength in the stock market? The answer to this question is the old
saying, "It's the economy, stupid." In addition, more recently, the technology
sector has not only supported the economy, including labor productivity, but
also the stock market.
During 1999, the S&P 500 returned 21.04%, and the NASDAQ(2) returned
86.13%. The stock market strength continued through early 2000, following the
strong economy. To better analyze the first half of 2000, divide it into
sub-periods, segregated by beginning/high/low/end, instead of two quarters, as
summarized below.
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Period S&P 500 NASDAQ DJIA
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1/1 to High 4.25% (3/24) 24.10% (3/10) 1.99% (1/14)
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High to Low -11.14% (4/14) -37.30% (5/23) -16.23% (3/7)
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Low to 6/30 7.49% 25.36% 7.16%
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1/1 to 6/30 -0.42% -2.46% -8.45%
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To illustrate the results in the sub-periods summarized in the chart, the
S&P 500 returned 4.25% through its high on March 24 and the NASDAQ returned a
remarkable 24.10% through March 10.
What is remarkable, however, is that on March 10 the NASDAQ achieved its
high of 5,049 and by May 23, had declined by 37.30% (during the week ending
April 14th alone, the NASDAQ had declined by 25.30%). This 37% decrease
represented a correction by any standard--thus, a hard landing. The S&P 500,
-11.14%, and the DJIA(3), -16.23%, were also very weak during this period.
From their respective lows (April 14 for the S&P 500 and on May 23 for
NASDAQ), through the end of the second quarter, the markets recovered strongly:
the S&P 500 returned 7.49%, and the NASDAQ returned a very strong 25.36%. The
DJIA also recovered well, +7.16%, from its low.
Focus back on the stock market as of March 10--the economy was very
strong, the Fed had tightened five times by a total of 1.25%, and the tightening
was perceived to be far from over. The broad stock market, as measured by the
S&P 500, and more so the NASDAQ, was "pricey" by any standards. With all of
these considerations, would a stock market correction at this time have been
surprising? Certainly not, and perhaps it was even inevitable. In fact, a stock
market correction could have happened earlier. That is the problem with trying
to time the market.
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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.
(2) The NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ National Market stocks.
(3) 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.
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In retrospect, sanity may have hit the Internet sector late in the first
quarter of 2000. Internet company layoffs received more press coverage than
IPOs. The Superbowl on January 30 may have been the best leading indicator of
the correction in internet stocks. No, not the actual game, but the plethora of
very expensive advertising by previously unheard of internet companies (some of
which have not been heard from since).
How have the individual components of the stock market performed during
the second quarter of this year? During 1998 and 1999 and even during the first
quarter of 2000, the stock market investment themes were simple. Buy big stocks
(large capitalization); buy growth stocks; and buy technology stocks. During
this year's second quarter, however, these themes became ineffectual. Rather,
during this time:
o Mid cap stocks outperformed both large cap and small cap stocks;
o Value mutual funds outperformed growth funds in all the
capitalization categories;
o Health care and REIT (Real Estate Investment Trust) stocks were the
strongest performing sectors, outperforming technology and
industrial stocks;
o The DJIA, composed primarily of large cap cyclical industrials,
significantly underperformed; and
o Bond funds performed well relative to stock funds.
Does this seem like a confused stock market? It does to the author. More
on this below:
Overall during the first half of 2000, the S&P 500 broke just about even,
-0.42%, and the NASDAQ was slightly negative, -2.46%. In retrospect, this
outcome does not seem too meager during a period of several Fed tightenings with
very high valuations at the beginning. As a frame of reference, during the last
year of multiple Fed tightenings, which was in 1994, the S&P 500 returned 1.31%
and the NASDAQ -3.20%. However, during 1995 (the last tightening occurring on
February 1, 1995), the S&P 500 returned 37.43% and the NASDAQ 40.99%.
The S&P 500 is flat to slightly down for 2000 after losing 11.10% from its
high to its low. The NASDAQ experienced a hard landing, a decline of 37.30% from
its high on March 10 to its low on May 23. During the second quarter, checking
accounts were a good investment. Thus, those watching for a stock market
correction should be looking in the rear view mirror.
There are reasons to believe the stock market correction is basically
over, and that while the market is not likely to return to "exuberance," there
will be moderate returns during the second half of 2000. First, the economy has
slowed, and another soft landing may have begun. This softening will be
supported by the consumer wealth effect resulting from the weakness of the stock
market during the second quarter of 2000. In this case, the Fed tightening
period is almost complete.
With the worst for the stock market likely over and corporate profits
likely to be moderately strong for the rest of the year, the last half of 2000
should show modest returns although perhaps not up to the standards of the last
five years. With respect to the technology sector, there will be a moderate
performance although the NASDAQ is unlikely to achieve its March 10 high (5,049)
by year-end. With respect to picking sectors, market capitalization and style,
it will be a good period for diversification.
While the overall market appears confused, as indicated above, individual
investors should not be. I submit that no investor, no matter how expert, could
have predicted the actual results for the first half of 2000. The appropriate
investment strategy, thus, is to maintain a stable (although not constant),
diversified, moderate risk portfolio. The results for the first half of 2000
show that a diversified portfolio of Guardian funds would have been a strong
strategy during that period.
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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[Photo of Larry Luxenberg, C.F.A., Co-Portfolio Manager]
[Photo of John B. Murphy, C.F.A., Co-Portfolio Manager]
[Photo of Mark Dunetz, 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, 2000: $4,114,644,955
Q. How has the Fund performed during the first half of 2000?
A. By any standard, this has been a tumultuous year for the stock market. After
the first two weeks of January, veteran stock market analysts were already
asserting that this was one of the most volatile periods in stock market
history. The rest of the first half has done nothing to change this view. Given
such volatility, any tally of performance can quickly change. Nonetheless, over
the six months ended June 30, 2000, The Guardian Stock Fund was up 3.30%(1)
while the S&P 500 Index(2) was down 0.42%.
Q. What was your investment strategy during this time?
A. The volatility of the first half of the year strengthened our beliefs in
three things. First, it is important to take a long-term outlook. Second, timing
the market is exceedingly difficult. Third, investing in good companies
eventually pays off.
In a fickle market, it's easy to get caught up in the almost daily mood
swings and give up too quickly on sound investment ideas. Moreover, many studies
have shown that missing just a few days during strong market rallies greatly
diminishes long-term returns. To cite just two examples: a study by Sanford
Bernstein & Co. showed that if an investor was out of the market for the ten
best days from 1980 to 1994, he missed more than one-quarter of the total S&P
500 returns. If he missed only forty days (fewer than three per year) during
that period, he lost nearly two-thirds of total returns. In a more recent
example, April was the third worst month in the entire history of the NASDAQ
Composite Index(3) while June was the third best month.
Our portfolio continues to emphasize large-cap growth stocks, although
over the last year, we have added to our weightings in mid- and small-cap
stocks. We plan
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The volatility of the first half of the year strengthened our beliefs in three
things. First, it is important to take a long-term outlook. Second, timing the
market is exceedingly difficult. Third, investing in good companies pays off
eventually.
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to continue adding selected small- and mid-cap companies with promising
fundamentals.
Q. What is your outlook for the second half of 2000?
A. Despite the market's first-half gyrations, we believe that the outlook for
stocks is still positive. Most importantly, the domestic and global economies
remain sound. At year-end, central banks eased monetary conditions to
accommodate concerns about Y2K disruptions. This interrupted a period of global
tightening and may have contributed to an unusually strong first quarter.
Concerns about the economy overheating and rising inflation have been put to
rest, at least temporarily. Now, with the central banks relegated to the
sidelines and growth still solid but slowing, it looks promising for stocks. As
recent actions show, policy errors have not been banished from Washington, but
with only one short recession in eighteen years, somebody is doing something
right.
Meanwhile, technological change around the globe is,
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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) 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 NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ National Market stocks.
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6
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if anything, accelerating. Mobile communications, both voice and data, are
proliferating. Internet traffic is doubling every quarter. The completion of the
mapping of the human genome is characteristic of great strides being made in the
life sciences. Corporations, freed from the drag of Y2K spending, can now update
their internal systems and plenty of innovative software and hardware is
available. Companies such as Cisco and Microsoft have converted most of their
internal systems to digital ones and realized tremendous efficiences as well as
greatly improved access to timely information.
While the short-term outlook is always difficult to gauge, the long-term
view still looks good. In our view, it would be premature to sound the death
knell for the longest-running bull market of our lifetimes.
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The Guardian Stock Fund Profile
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Top Ten Holdings as of June 30, 2000
Percentage of
Company Total Net Assets
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1. Microsoft Corp. 4.10%
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2. Intel Corp. 3.91%
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3. Cisco Systems, Inc. 3.61%
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4. General Electric Co. 3.57%
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5. Citigroup, Inc. 2.83%
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6. Nortel Networks Corp. 2.68%
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7. Oracle Corp. 2.20%
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8. EMC Corp. 2.18%
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9. Int'l Business Machines 2.12%
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10. Xilinx 1.48%
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AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED JUNE 30, 2000
Since
1 Year 5 Years 10 Years Inception
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The Guardian Stock Fund 24.95% 25.54% 20.54% 18.42%
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S&P 500 7.24% 23.78% 17.75% 13.55%
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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, 2000
[The following table was represented by a pie chart in the printed material.]
Utilities -- 0.22%
Consumer Cyclical -- 2.50%
Consumer Services -- 3.32%
Capital Goods -- 4.97%
Technology -- 45.28%
Consumer Staples -- 5.63%
Energy -- 7.51%
Finance -- 9.98%
Telecommunications -- 18.23%
Cash -- 2.36%
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Growth of a Hypothetical $10,000 Investment
[The following table was represented by a line graph in the printed material.]
[Plot points to come]
The Guardian Stock Fund S&P 500 Index Cost of Living
4/13/83
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
12/31/99 $183,486 $156,149 $17,508
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A hypothetical $10,000 investment made at the inception of The Guardian Stock
Fund on April 13, 1983 would have grown to $183,486 on June 30, 2000. 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 $156,149. The Cost of Living, as measured by the
Consumer Price Index, which is generally representative of the level of U.S.
inflation, is also provided to lend a more complete understanding of the
investment's real worth.
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The Guardian Bond Fund
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[Photo of Thomas G. Sorell, C.F.A., Co-Portfolio Manager]
[Photo of Howard W. Chin, Co-Portfolio Manager]
Q. How did the Fund perform during the first half of 2000?
A. The Fund had a total return of 3.51%(1) for the six months ended June 30,
2000, outperforming the average fund in our Lipper Intermediate Investment Grade
peer group,(2) which returned 3.19% for the same period. The group consists of
variable annuity sub-accounts 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 3.99% for the first half of 2000.
Q. What factors affected the Fund's performance?
A. During the first half of 2000, the Federal Reserve remained concerned that
rapid U.S. economic growth would result in increased inflationary pressures
given tight labor markets and other capacity constraints. Consequently, the
Federal Reserve Open Market Committee followed last year's round of tightening,
initiated in June 1999, with three additional moves in February, March, and May,
further increasing the Fed Funds rate by a total of 1.0% to 6.5%. As a result,
interest rates rose early in the first quarter with the 5-, 10-, and 30-year
Treasury rates all peaking near 6.75% and then declining steadily in March as
the Treasury announced new projections of large Federal surpluses and its intent
to start retiring government debt.
In addition, turbulence in the equity markets in March and April lent
support to the Treasury market as investors sought a safe haven from equity
volatility. By mid-April, 10- and 30-year Treasury rates had declined by
approximately 1.0% to 5.75%. However, as deteriorating inflation statistics were
reported, interest rates rose again, approaching first quarter highs of 6.75% in
mid-May and then proceeded to decline when evidence appeared that the Federal
Reserve's efforts to slow the economy might be succeeding.
The first half of 2000 came to a close with long-term interest rates
approximately 0.40% to 0.60% lower than they were when the year began, while
shorter maturities were little changed. This phenomenon, referred to as a yield
curve inversion, where long-term rates yield less than short-term rates, was in
part responsible for the poor performance of non-Treasury securities (spread
assets) in the fixed income markets during the first half of 2000.
Once again we find ourselves recounting the disparate performance between
Treasury securities and the other fixed income asset classes, corporate,
mortgage-backed, and asset-backed securities. The market for spread assets in
many respects resembled the fall of 1998 and performed as poorly, but without a
visible financial crisis like the Russian default or the collapse of a
well-known hedge fund. While the Lehman Aggregate Bond Index returned 3.99%
during the first six months of 2000, the Treasury component of this index earned
5.37%. These
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"The net result of these events was that on a nominal basis the investment grade
fixed income asset class outperformed most equity indices during the first half
of the year . . ."
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returns far exceeded what was earned by similar duration spread assets. By many
measures, corporate bonds in the first half of 2000 not only performed more
poorly than in 1998 but also actually approached levels not seen since the
recession of 1990. The Lehman Corporate Bond Index(4) underperformed Treasuries
for the first five months of the year by 3.30%, and not until June did corporate
bonds provide a return advantage over similar duration Treasuries. Still,
overall, the Lehman Corporate Bond Index returned approximately 2.70% less than
similar duration Treasuries.
This abysmal performance of corporate bonds was due to a combination of
factors. The first and most obvious factor was the fear that the Federal
Reserve, intent on slowing economic growth, would not succeed in orchestrating a
"soft landing" but would instead push the econ-
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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.
(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 Lehman Corporate Bond Index is an unmanaged index that is generally
considered to be representative of corporate bond market activity. The
Index is not available for direct investment and the returns do not
reflect the fees and expenses that have been deducted from the Fund.
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10
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omy into recession or a "hard landing." A second factor was the increasing
dichotomy in the equity market with respect to valuations between "old" and
"new" economy credits. A majority of the corporate bond market is comprised of
traditional "Blue Chip" companies that were experiencing weak stock prices.
These companies came under increasing pressure to repurchase stock at the
expense of overall creditworthiness. This, in conjunction with increased fears
of "event risk," such as leveraged buyouts for these undervalued companies, led
to heightened credit risk. A third factor discussed earlier was the inversion of
the Treasury curve, which caused further widening of long corporate spreads.
Much like the experience of the corporate sector, securitized products
(mortgage-backed [MBS], asset-backed [ABS], and commercial mortgage-backed
securities [CMBS]) suffered through five months of anemic performance only to
regain some ground in June as market participants became more confident that the
Fed may be nearing the end of its tightening efforts. For the first half of
2000, the Lehman MBS, ABS and CMBS indices showed positive returns of 3.67%,
3.35% and 3.66% respectively. On the surface, the spread sectors appeared to
perform reasonably in line with the overall Lehman Aggregate Index, but when
their returns are compared relative to similar-duration Treasuries, their weak
showings become apparent. Specifically, the MBS, ABS and CMBS sectors
underperformed by -0.51%,-0.26%, and -1.22%, respectively.
The weakness of the securitized products sector in the first half can be
attributed to two primary factors: the inversion of the yield curve and the
potential for increased regulatory scrutiny of the housing agencies that issue
MBS. Since MBS cashflows are spread out all along the curve, they were
particularly vulnerable to the effects of a reshaping of the yield curve.
Futhermore, as the Treasury buyback program increased concerns over the
impending prospects of illiquidity in Treasuries, investors became increasingly
doubtful about the validity of using the Treasury curve as the primary benchmark
of value and analytical framework for determining relative value. As a result,
investors came to expect some premium as compensation for these increased risks.
On the regulatory front, the debentures and MBS issued by the housing
agencies, Fannie Mae and Freddie Mac, came under intense pressure as both
Treasury officials, and members of Congress emphasized that the Agency issues
did not have the full-faith-and-credit guarantee of the U.S. government, and
indicated the likelihood of greater scrutiny and regulation. As a result of all
the uncertainty, yield spreads on both agency debt and MBS widened sharply.
The net result of these events was that on a nominal basis the investment
grade fixed income asset class outperformed most equity indices during the
first half of the year, and did so without the full benefit of the traditional
"yield" advantage it enjoys.
Q. What was your investment strategy during this period?
A. The Fund employed a very defensive credit strategy throughout the first half
of the year. Concerned about increasing credit risk in a Fed tightening
environment, the portfolio reduced its exposure to 30-year corporate bonds and
increased its exposure to the triple-A rated mortgage-backed sector. Corporate
credit risk was limited to shorter maturities with more attractive risk/return
profiles. The Fund also tended to favor a combination of very short and long
duration securities and underweight the intermediate part of the yield curve. As
the yield curve inverted, this strategy proved to be successful. While the
mortgage-backed sector outperformed corporate bonds, it still underperformed
Treasuries; therefore, while the Fund performed well, the overweight in high
quality spread assets still reduced the Fund's overall return.
Q. What is your outlook for the remainder of the year?
A. It now appears that the Federal Reserve is succeeding in starting to slow the
economy and that it may be near the end of the monetary tightening process.
However, the risk remains that after the economy slows, inflation trends will
require several additional Fed moves which could push the economy into
recession. Although this risk seems small and unlikely, it is nonetheless one
that would adversely affect the spread asset classes and therefore must be
watched. If in fact the Federal Reserve is almost done raising interest rates,
we would expect spread assets to once again outperform Treasuries, and fixed
income to generally perform well. As the year progresses, our strategy will
continue to focus on monitoring and balancing these risks by actively adjusting
our asset allocation 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
as of June 30, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 2000
================================================================================
1 Year ............................................................. 4.10%
5 Years ............................................................ 5.67%
10 Years ........................................................... 7.35%
Since Inception (5/1/83) ........................................... 8.35%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
11
<PAGE>
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Baillie Gifford International Fund
----------------------------------
[Photo of 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, 2000: $831,418,254
Q. How did the Fund perform for the first six months of 2000?
A. The Fund had a return of -8.10%(1) in the six months ending June 30, 2000.
This compares with the total return of -3.95% for the Morgan Stanley Capital
International (MSCI) Europe, Australia, and Far East (EAFE) Index.(2)
International markets were weak during the period, except those within
Continental Europe. The MSCI UK Index had a total return of -11.72%, the MSCI
Pacific ex-Japan Index returned -9.11%, and the MSCI Japan Index returned
-5.32%, while MSCI Europe ex-UK Index was up by only 0.56%. Part of the weakness
in this region was attributable to currency factors. The total return of the
MSCI Europe ex-UK Index was a positive 4.69% in local currency terms, but the
region's currencies, predominantly the Euro, were weak against the Dollar.(3)
Q. What factors affected the Fund's performance?
A. The main reason that the Fund's performance was behind that of the MSCI EAFE
Index was that some of the stocks the Fund held in Japan and in the telephone
services industries around the world performed poorly. This is in contrast to
those stocks' 1999 performance. In addition, the Fund had a greater amount
invested in the relatively weak Pacific ex-Japan region than in the EAFE Index.
During the course of the period, it became apparent that economic growth
in Continental Europe was accelerating, particularly in the core countries of
France and Germany. This acceleration was assisted by the continuing strength of
the Dollar (or weakness of the Euro), which improved the competitive position of
European exporting companies. While Japan showed very strong growth in its Gross
Domestic Product in the first quarter, there are lingering doubts about the
strength and coherence of its economic and fiscal policies. In contrast,
economic activity in many other Asian economies was strong, helped by burgeoning
growth in exports to the USA.
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 consequently, we decreased the Fund's exposure in Japan and
increased it in Europe.
Q. What is your outlook for the remainder 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 manage-
================================================================================
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
consequently, we decreased the Fund's exposure in Japan and increased it in
Europe.
================================================================================
ment strategies. This involves many meetings and much travel from our offices in
Edinburgh.
Looking forward, we expect growth to remain strong in Europe and Asia
ex-Japan, but the latter area is particularly sensitive to developments in the
U.S. economy. We will continue to follow our strategy of investing in
fundamentally attractive businesses, wherever they are based internationally.
--------------------------------------------------------------------------------
(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 changes.
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) Index is an unmanaged index that is generally considered to be
representative of international stock market activity. The MSCI EAFE Index
is not available for direct investment and the returns do not reflect the
fees and expenses that have been deducted from the Fund's return.
(3) The MSCI UK Index is an unmanaged index generally considered to be
representative of market activity in the United Kingdom. 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 MSCI Japan Index is an unmanaged index
generally considered to be representative of Japanese stock market
activity. 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 these indices do not reflect
expenses that are deducted from the Fund's return.
--------------------------------------------------------------------------------
12
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford International Fund Profile
------------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 2000
================================================================================
1 Year ................................................................. 23.37%
3 Years ................................................................ 14.82%
5 Years ................................................................ 17.24%
Since Inception (2/8/91) ............................................... 14.07%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Portfolio Composition by Geographical
Location as of June 30, 2000
[The following was represented by a pie chart in the printed material.]
Cash -- 0.46%
Pacific ex-Japan -- 8.27%
Japan -- 21.84%
Europe ex-UK -- 49.94%
UK -- 19.49%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 2000
Percent of
Total Net
Company Assets Industry Sector Country
--------------------------------------------------------------------------------
1. Nokia OYJ 4.55% Telecommunications Finland
--------------------------------------------------------------------------------
2. LM Ericsson 3.67% Telecommunications Sweden
--------------------------------------------------------------------------------
3. Vodafone Airtouch PLC 3.35% Telecommunications U.K.
--------------------------------------------------------------------------------
4. Total Fina Elf S.A. 2.96% Oil and Gas Producing France
--------------------------------------------------------------------------------
5. Philips Electronics (KON) 2.43% Semi-conductors Netherlands
--------------------------------------------------------------------------------
6 Ver Ned Uitgeuers 2.26% Electronic Publishing Netherlands
--------------------------------------------------------------------------------
7. BPAmoco PLC 2.25% Oil-Integrated-International U.K.
--------------------------------------------------------------------------------
8. San Paolo IMI SPA 2.15% Financial Bank Italy
--------------------------------------------------------------------------------
9. NTT DoCoMo, Inc. 2.03% Telecommunications Japan
--------------------------------------------------------------------------------
10. Intershop Comm. 1.97% Business Services Germany
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
13
<PAGE>
--------------------------------------------------------------------------------
Value Line Centurion Fund
-------------------------
[Photo of Stephen E. Grant, Senior Portfolio Manager; Philip J. Orlando, CFA,
Chief Investment Officer and Centurion Team Leader; and Alan N. Hoffman, CFA]
Objective: Long-term growth of capital
Portfolio: At least 90% common stocks
Inception: November 15, 1983
Net Assets at June 30, 2000: $918,312,127
Q. How did the Value Line Centurion Fund perform during the first half of 2000?
A. For the six months ended June 30, 2000, the Centurion Fund generated a total
return of 2.77%,(1) compared with negative total returns produced by the broad
equity market indices. The S&P 500 Index(2) was down 0.42%, the NASDAQ Composite
Index(3) declined 2.53%, and the Dow Jones Industrial Average(4) dropped by
8.49%.
Q. What factors affected the Fund's performance? What was your investment
strategy during this time period?
A. Centurion enjoyed an excellent first half of 2000, as the Fund was both fully
invested and had wide diversification among a number of market sectors,
including technology, telecommunications, pharmaceuticals, biotechnology,
retail, cyclicals, and financial-service stocks. Our disciplined, bottom-up
stock selection contributed significantly to our solid investment returns, as we
focused on companies offering the potential for well-above-average earnings
growth, combined with attractive relative valuation profiles.
Importantly, we positioned Centurion with many of the blue chip, large-cap
technology and telecommunications companies, which we believed were poised to
benefit from Herculean efforts both here and abroad to gain Y2K compliance.
However, we had correctly forecast that the dire, doomsday Y2K scenarios
-- which many investors had been spinning with regard to both the domestic and
global failure to successfully orchestrate the millennium calendar changeover --
were hugely overblown. As a result, we surmised that excessive inventory
stockpiles, which had been amassed as a precautionary buildup by both consumers
and businesses, would be worked down, which could result in significantly slower
economic growth during the first half of 2000, perhaps to a level below 4%,
compared with a robust 7.30% rate of growth in the last quarter of 1999, which
we felt was unsustainable.
================================================================================
Our disciplined, bottom-up stock selection contributed significantly to our
solid investment returns, as we focused on companies offering the potential for
well-above-average earnings growth, combined with attractive relative valuation
profiles.
================================================================================
Concurrently, the Federal Reserve continued to aggressively tighten
monetary policy. On the heels of three modest 25 basis point (0.25%) hikes in
June, August and November of 1999, Chairman Alan Greenspan engineered a pair of
quarter-point increases in February and March of this year, trumped by a
50-basis-point (0.50%) tightening at the May 16th Federal Open Market Committee
meeting.
Combined with the inventory reduction, higher interest rates will help to
ensure slower future economic growth. There is a lag, however, between the time
that a change in interest rates is implemented and when its subsequent impact on
the economy starts to become discernable.
--------------------------------------------------------------------------------
(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.
Investment return and principal value will fluctuate so that an investor's
shares, 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 NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ National Market stocks. The Index is not available for
direct investment and its returns do not reflect the fees and expenses
that have been deducted from the Fund.
(4) 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.
--------------------------------------------------------------------------------
14
<PAGE>
--------------------------------------------------------------------------------
Much like trying to turn a battleship in the ocean, it takes about six to nine
months for one-half of the effect of an interest-rate change to begin to impact
the economy. Further, it takes about 12 to 18 months for the full effect of that
interest-rate change to begin to work its magic.
As a result, with the first of six rate hikes in June 1999, and the most
recent occurring in May 2000, it is perfectly plausible that the economic
slowdown that such policy action would presage is just now starting to become
visible.
Q. What is your outlook for the future?
A. Looking forward, we believe that the backup in long rates earlier this year
to about 6.75% should represent the high water mark for 2000, and that the
recent rally back below 6.00% has legs. Specifically, as the inventory stockpile
is further reduced and as the Fed's six rate hikes work their way through the
pipeline, Gross Domestic Product should slow even more - to perhaps 3.0% by year
end -- and the 30-year Treasury bond should continue to rally, with the yield
approaching 5.50% later this year and perhaps 5.0% during 2001. Given positive
corporate earnings, particularly among technology and telecommunication
companies, we expect an election-year rally, which could propel the
equity-market indices to new all-time highs by the end of the year.
--------------------------------------------------------------------------------
Value Line Centurion Fund Profile
---------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIOD ENDED JUNE 30, 2000
================================================================================
1 Year ................................................................. 19.00%
5 Years ................................................................ 22.19%
10 Years ............................................................... 18.46%
Since Inception (11/15/83) ............................................. 15.56%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Top Ten Holdings
as of June 30, 2000
Percentage
Company of Portfolio
--------------------------------------------------------------------------------
1. Cisco Systems Inc. 2.21%
--------------------------------------------------------------------------------
2. General Electric Co. 2.16%
--------------------------------------------------------------------------------
3. Altera Corp. 2.05%
--------------------------------------------------------------------------------
4. Chase Manhattan Corp. 2.00%
--------------------------------------------------------------------------------
5. American Int'l Group Inc. 2.00%
--------------------------------------------------------------------------------
6. Citigroup Inc. 1.97%
--------------------------------------------------------------------------------
7. PMC-Sierra Inc. 1.93%
--------------------------------------------------------------------------------
8. EMC Corp. 1.88%
--------------------------------------------------------------------------------
9. Intel Corp. 1.82%
--------------------------------------------------------------------------------
10. Kohls Corp. 1.82%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
[The following was represented by a pie chart in the printed material.]
Consumer Goods
(Non-Durables) -- 11.87%
Consumer Cyclical -- 0.97%
Consumer Growth -- 23.92%
Capital Goods -- 8.21%
Utilities -- 0.99%
Financial -- 15.57%
Technology -- 36.68%
Cash -- 1.79%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
15
<PAGE>
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
-------------------------------------------
[Photo of Bruce H. Alston, CFA, Director of Fixed Income; Stephen E. Grant,
Senior Portfolio Manager and SAM Team Leader; and Philip J. Orlando, CFA, Chief
Financial Officer]
Objective: High total return consistent with reasonable risk
Portfolio: Stocks, bonds and money market instruments
Inception: October 1, 1987
Net Assets at June 30, 2000: $1,609,234,254
Q. How did the Value Line Strategic Asset Management Trust perform in the first
half of 2000?
A. The Trust enjoyed a good six months, both in absolute terms and relative to
its benchmarks. Its total return in the period was 5.21%.(1) This compared with
a total return of -0.42% for the S&P 500 Index(2) and a total return of 4.18%
for the Lehman Government/Corporate Bond Index.(3)
Since inception 13 years ago, the SAM Trust has returned more than the S&P
500, even while maintaining a reduced risk profile through its significant
holdings of bonds and cash. Among its peer group, the flexible variable annuity
underlying funds tracked by Lipper Analytical Services,(4) the Trust ranks 9th
out of 89 funds for the year ending June 30th, 4th out of 65 funds for five
years, and 1st out of 44 funds for ten years.
Q. What factors affected performance in the six-month period?
A. As in the past, the Trust benefited from excellent stock selection. We invest
in companies with strong earnings momentum and strong stock price momentum and
eliminate holdings that begin to lag on these measures. A recent purchase was
ADC Telecommunications, an equipment manufacturer that reported strong quarterly
earnings in February. We paid a near-record high average price of $45 for the
shares in February and March, and the stock closed June 30th at $84. Holdings
that more than doubled in share price in the first half included
Scientific-Atlanta, a cable equipment manufacturer purchased by the Trust in
1999 at $16, which closed this period at $74; Waters Corp., a producer of life
sciences instruments purchased at $25-$32 in 1998, which closed the period at
$125; and PMC-Sierra, a semiconductor manufacturer purchased in 1998 at $14,
which closed the period at $177.
Our asset allocation in the six-month period did not have a large effect
on performance. The Trust began the year at an underweighted 44% of assets in
stocks and
================================================================================
"We invest in companies with strong earnings momentum and strong stock price
momentum and eliminate holdings that begin to lag on these measures."
================================================================================
moved up to a neutral 55%-60% position in March, where it has since remained.
Bond holdings began the year at 39% of assets and were reduced to 30%-35% in
March. Cash instruments in the period were reduced from 16% of assets to 11%. To
determine asset allocation, we use Value Line's proprietary stock and bond
market models.
Q. What is your outlook for the rest of the year?
A. Our allocation models remain essentially neutral on
--------------------------------------------------------------------------------
(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.
(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>
--------------------------------------------------------------------------------
the U.S. financial markets for the months ahead. We don't try to anticipate
changes in the models' readings, but we can say that a further decline in
long-term interest rates would tilt us toward favoring stocks over bonds; on the
other hand, a rise in stock prices, all else held equal, would point to trimming
the Trust's stockholdings.
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust Profile
---------------------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 2000
================================================================================
1 Year ................................................................. 18.04%
5 Years ................................................................ 19.97%
10 Years ............................................................... 17.18%
Since Inception (10/1/87) .............................................. 15.96%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
as of June 30, 2000
[The following was represented by a pie chart in the printed material.]
Cash & Equivalents -- 9.68%
Equity -- 57.35%
Fixed Income -- 32.97%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Top Ten Common Stocks as of
June 30, 2000
Percentage of
Company Portfolio
--------------------------------------------------------------------------------
1. Mercury Interactive Corp. 1.99%
--------------------------------------------------------------------------------
2. General Electric Co. 1.79%
--------------------------------------------------------------------------------
3. PMC-Sierra Inc. 1.74%
--------------------------------------------------------------------------------
4. Siebel Systems Inc. 1.70%
--------------------------------------------------------------------------------
5. Cisco Systems Inc. 1.58%
--------------------------------------------------------------------------------
6. Millennium Pharmaceuticals Inc. 1.20%
--------------------------------------------------------------------------------
7. Symbol Technologies Inc. 1.17%
--------------------------------------------------------------------------------
8. JDS Uniphase Corp. 1.16%
--------------------------------------------------------------------------------
9. Enron Corp. 1.13%
--------------------------------------------------------------------------------
10. Allergan Inc. 0.99%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
17
<PAGE>
--------------------------------------------------------------------------------
The Guardian Cash Fund
----------------------
[Photo of 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, 2000: $415,816,706
Q. How did The Guardian Cash Fund perform during the first six months of 2000?
A. As of June 27, 2000, the effective 7-day annualized yield for The Guardian
Cash Fund was 6.31%.(1) The Fund produced an annualized total return of 5.65%(2)
for the half-year ended June 30, 2000. In contrast, the effective 7-day
annualized yield of Tier One money market funds as measured by iMoneyNet, Inc.
was 6.08%; total return for the same category was 5.43%. iMoneyNet, Inc.
(formerly IBC Financial Data) is a research firm that tracks money market funds.
Q. What was your investment strategy during the year?
A. The Guardian Cash Fund is a place for our investors to put their money while
they determine their preferred long term investment vehicle, be it stocks or
bonds. Also, some of our investors prefer the relative stability of the money
markets. To best accommodate all our investors, we will continue to try to
provide a strong 7-day yield, while offering safety and liquidity. Our
investment strategy was to create a diversified portfolio of money market
instruments that presents minimal credit risks according to our criteria. As
always, we only purchased securities from issuers that had received ratings in
the two highest credit quality categories established by nationally recognized
statistical ratings organizations like Moody's Investors Service Inc. and
Standard & Poor's Corporation for the Fund's portfolio. Most of the portfolio
(94.7%) was invested in commercial paper; the balance (5.3%) was invested in
repurchase agreements.
Q. What factors affected the Fund's performance?
A. Money market funds are directly affected by the actions of the Federal
Reserve Board (FED). Over the last twelve months, the Fed's policy-making Open
Market Committee (FOMC) raised the Fed Funds target rate six times, a combined
1.75% to a nine-year high of 6.50%. 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
================================================================================
"Money market funds are directly affected by the actions of the Federal Reserve
Board. Over the last twelve months the Fed's policy-making Open Market Committee
(FOMC) raised the Fed Funds target rate six times, a combined 1.75% to a
nine-year high of 6.50%."
================================================================================
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 of 25 days as of June
27, 2000. The average Tier One money market fund as measured by iMoneyNet, Inc.
had an average maturity of 56 days.
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. Due to the relatively short
average days-to-maturity, these daily fluctuations have little effect on the
Fund.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1) Yields are annualized historical figures. Effective yield assumes
reinvested income. Yields will vary as interest rates change. Past
performance is not a guarantee of future results.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment 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.
--------------------------------------------------------------------------------
18
<PAGE>
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
19
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account B
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------------------------
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................... 3,892,444 2,047,171 3,771,500 720,863
Net asset value per share (NAV) ............................. 57.02 11.81 10.00 24.61
------------- ------------- ------------- -------------
Total Assets (Shares x NAV) ............................... $ 221,947,176 $ 24,177,091 $ 37,715,000 $ 17,740,428
Liabilities:
Due to Guardian Insurance & Annuity Company, Inc. ........... 649,621 76,180 471,591 50,043
------------- ------------- ------------- -------------
---------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ...................................... $ 221,297,555 $ 24,100,911 $ 37,243,409 $ 17,690,385
---------------------------------------------------------------------------------------------------------------------------------
============= ============= ============= =============
FIFO Cost ..................................................... $ 182,904,919 $ 24,676,596 $ 37,715,000 $ 17,008,068
<CAPTION>
-----------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------
Value Line
Strategic
Value Line Asset Smith Barney
Centurion Management Fund 2004
-----------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................... 2,812,708 1,321,261 6,523,483
Net asset value per share (NAV) ............................. 37.09 30.92 0.77
------------- ------------- -------------
Total Assets (Shares x NAV) ............................... $ 104,323,348 $ 40,853,375 $ 5,023,734
Liabilities:
Due to Guardian Insurance & Annuity Company, Inc. ........... 316,314 118,460 25,539
------------- ------------- -------------
-----------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ...................................... $ 104,007,034 $ 40,734,915 $ 4,998,195
-----------------------------------------------------------------------------------------------------------------
============= ============= =============
FIFO Cost ..................................................... $ 81,013,317 $ 29,913,641 $ 4,201,357
</TABLE>
--------------------------------------------------------------------------------
The Guardian Separate Account B
-------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------------------------
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ...................................... $ -- $ -- $ 1,032,386 $ --
Expenses -- Note 3
Mortality and expense risk charges ........................ 564,951 65,313 94,932 42,426
------------- ------------- ------------- -------------
Net investment income/(expense) ............................. (564,951) (65,313) 937,454 (42,426)
------------- ------------- ------------- -------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ......... 7,317,009 (138,088) -- 1,004,217
Reinvested realized gain distributions .................... -- -- -- --
------------- ------------- ------------- -------------
Net realized gain/(loss) on investments ..................... 7,317,009 (138,088) -- 1,004,217
Net change in unrealized appreciation/(depreciation) ........ (879,024) 1,034,603 -- (2,535,019)
------------- ------------- ------------- -------------
Net realized and unrealized gain/(loss) from investments ...... 6,437,985 896,515 -- (1,530,802)
------------- ------------- ------------- -------------
---------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 5,873,034 $ 831,202 $ 937,454 $ (1,573,228)
---------------------------------------------------------------------------------------------------------------------------------
============= ============= ============= =============
<CAPTION>
-----------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------
Value Line
Strategic
Value Line Asset Smith Barney
Centurion Management Fund 2004
-----------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ...................................... $ -- $ -- $ --
Expenses -- Note 3
Mortality and expense risk charges ........................ 274,814 103,292 21,436
------------- ------------- -------------
Net investment income/(expense) ............................. (274,814) (103,292) (21,436)
------------- ------------- -------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ......... 1,095,834 1,630,381 831,169
Reinvested realized gain distributions .................... -- -- --
------------- ------------- -------------
Net realized gain/(loss) on investments ..................... 1,095,834 1,630,381 831,169
Net change in unrealized appreciation/(depreciation) ........ 1,226,837 396,102 (568,992)
------------- ------------- -------------
Net realized and unrealized gain/(loss) from investments ...... 2,322,671 2,026,483 262,177
------------- ------------- -------------
-----------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 2,047,857 $ 1,923,191 $ 240,741
-----------------------------------------------------------------------------------------------------------------
============= ============= =============
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
20 & 21
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account B
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1999 (Audited) and
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------
Guardian Guardian Guardian
Stock Bond Cash
-----------------------------------------------
<S> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ................................... $ (111,911) $ 1,411,773 $ 1,669,423
Net realized gain/(loss) from sale of investments ................. 22,183,995 (256,351) --
Reinvested realized gain distributions ............................ 29,230,175 77,691 --
Net change in unrealized appreciation/(depreciation) of investments 155,759 (1,629,504) --
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 51,458,018 (396,391) 1,669,423
------------- ------------- -------------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ...................................... -- -- 267,622
Transfer of net policy loading -- Note 3 .......................... (103,990) (15,791) (29,816)
Transfer on account of death ...................................... (1,196,094) (350,798) (449,356)
Transfer on account of other terminations ......................... (9,105,387) (754,310) (4,512,680)
Transfer of policy loans .......................................... (2,110,202) (341,959) (1,157,597)
Transfer of cost of insurance and policy fees -- Note 3 ........... (2,746,793) (473,633) (735,130)
Transfer between investment divisions ............................. (11,532,555) 661,676 9,751,271
Transfers -- other ................................................ (30,251) (1,772) (1,136)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. (26,825,272) (1,276,587) 3,133,178
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 24,632,746 (1,672,978) 4,802,601
Net Assets at December 31, 1998 ................................... 191,914,975 27,704,488 35,338,675
------------- ------------- -------------
------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 216,547,721 $ 26,031,510 $ 40,141,276
------------------------------------------------------------------------------------------------------------------------
============= ============= =============
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) .................................... $ (564,951) $ (65,313) $ 937,454
Net realized gain/(loss) from sale of investments .................. 7,317,009 (138,088) --
Net change in unrealized appreciation/(depreciation) of investments (879,024) 1,034,603 --
------------- ------------- -------------
Net increase/(decrease) resulting from operations .................. 5,873,034 831,202 937,454
------------- ------------- -------------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ....................................... -- -- 164,024
Transfer of net policy loading -- Note 3 ........................... (49,529) (5,951) (10,399)
Transfer on account of death ....................................... (636,701) (72,788) (479,919)
Transfer on account of other terminations .......................... (2,898,373) (439,685) (2,381,892)
Transfer of policy loans ........................................... (1,852,787) (168,704) (778,806)
Transfer of cost of insurance and policy fees -- Note 3 ............ (1,675,274) (213,569) (325,225)
Transfer between investment divisions .............................. 6,039,455 (1,860,228) (21,000)
Transfers -- other ................................................. (49,991) (876) (2,104)
------------- ------------- -------------
Net increase/(decrease) from policy transactions ................... (1,123,200) (2,761,801) (3,835,321)
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 4,749,834 (1,930,599) (2,897,867)
Net Assets at December 31, 1999 .................................... 216,547,721 26,031,510 40,141,276
------------- ------------- -------------
------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ........................................ $ 221,297,555 $ 24,100,911 $ 37,243,409
------------------------------------------------------------------------------------------------------------------------
============= ============= =============
<CAPTION>
-----------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------
Value Line
Baillie Strategic
Gifford Value Line Asset
International Centurion Management
-----------------------------------------------
<S> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ................................... $ (9,944) $ (232,679) $ 185,095
Net realized gain/(loss) from sale of investments ................. 1,151,356 15,731,879 2,521,955
Reinvested realized gain distributions ............................ 1,169,079 7,550,026 1,877,112
Net change in unrealized appreciation/(depreciation) of investments 2,340,487 1,755,661 2,953,142
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 4,650,978 24,804,887 7,537,304
------------- ------------- -------------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ...................................... -- -- --
Transfer of net policy loading -- Note 3 .......................... (20,325) (43,165) (39,013)
Transfer on account of death ...................................... (120,752) (686,549) (50,278)
Transfer on account of other terminations ......................... (772,439) (4,538,650) (1,683,601)
Transfer of policy loans .......................................... (517,997) (1,283,944) (614,180)
Transfer of cost of insurance and policy fees -- Note 3 ........... (187,108) (1,525,735) (521,676)
Transfer between investment divisions ............................. (457,889) 28,390 2,279,862
Transfers -- other ................................................ (1,664) (64,893) (4,485)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. (2,078,174) (8,114,546) (633,371)
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 2,572,804 16,690,341 6,903,933
Net Assets at December 31, 1998 ................................... 13,840,586 97,330,511 32,172,857
------------- ------------- -------------
------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 16,413,390 $ 114,020,852 $ 39,076,790
------------------------------------------------------------------------------------------------------------------------
============= ============= =============
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) .................................... $ (42,426) $ (274,814) $ (103,292)
Net realized gain/(loss) from sale of investments .................. 1,004,217 1,095,834 1,630,381
Net change in unrealized appreciation/(depreciation) of investments (2,535,019) 1,226,837 396,102
------------- ------------- -------------
Net increase/(decrease) resulting from operations .................. (1,573,228) 2,047,857 1,923,191
------------- ------------- -------------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ....................................... -- -- --
Transfer of net policy loading -- Note 3 ........................... (8,942) (13,218) (11,682)
Transfer on account of death ....................................... (151,207) (691,277) (239,320)
Transfer on account of other terminations .......................... (214,753) (1,967,035) (428,038)
Transfer of policy loans ........................................... (14,934) (756,846) (98,844)
Transfer of cost of insurance and policy fees -- Note 3 ............ (126,953) (820,870) (321,583)
Transfer between investment divisions .............................. 3,373,620 (7,796,878) 844,706
Transfers -- other ................................................. (6,608) (15,551) (10,305)
------------- ------------- -------------
Net increase/(decrease) from policy transactions ................... 2,850,223 (12,061,675) (265,066)
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 1,276,995 (10,013,818) 1,658,125
Net Assets at December 31, 1999 .................................... 16,413,390 114,020,852 39,076,790
------------- ------------- -------------
------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ........................................ $ 17,690,385 $ 104,007,034 $ 40,734,915
------------------------------------------------------------------------------------------------------------------------
============= ============= =============
<CAPTION>
-------------
INVESTMENT
DIVISIONS
-------------
Smith Barney
Fund 2004
-------------
<S> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ................................... $ (50,577)
Net realized gain/(loss) from sale of investments ................. 1,063,843
Reinvested realized gain distributions ............................ --
Net change in unrealized appreciation/(depreciation) of investments (1,328,857)
-------------
Net increase/(decrease) resulting from operations ................. (315,591)
-------------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ...................................... --
Transfer of net policy loading -- Note 3 .......................... (4,745)
Transfer on account of death ...................................... (64,978)
Transfer on account of other terminations ......................... (259,934)
Transfer of policy loans .......................................... 199,675
Transfer of cost of insurance and policy fees -- Note 3 ........... (96,264)
Transfer between investment divisions ............................. (730,755)
Transfers -- other ................................................ 1,049
-------------
Net increase/(decrease) from policy transactions .................. (955,952)
-------------
Total Increase/(Decrease) in Net Assets .............................. (1,271,543)
Net Assets at December 31, 1998 ................................... 7,274,837
-------------
--------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 6,003,294
--------------------------------------------------------------------------------------
=============
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) .................................... $ (21,436)
Net realized gain/(loss) from sale of investments .................. 831,169
Net change in unrealized appreciation/(depreciation) of investments (568,992)
-------------
Net increase/(decrease) resulting from operations .................. 240,741
-------------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ....................................... --
Transfer of net policy loading -- Note 3 ........................... (4,112)
Transfer on account of death ....................................... --
Transfer on account of other terminations .......................... (565,965)
Transfer of policy loans ........................................... (55,339)
Transfer of cost of insurance and policy fees -- Note 3 ............ (40,553)
Transfer between investment divisions .............................. (579,675)
Transfers -- other ................................................. (196)
-------------
Net increase/(decrease) from policy transactions ................... (1,245,840)
-------------
Total Increase/(Decrease) in Net Assets .............................. (1,005,099)
Net Assets at December 31, 1999 .................................... 6,003,294
-------------
--------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ........................................ $ 4,998,195
--------------------------------------------------------------------------------------
=============
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
22 & 23
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account B
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (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.
--------------------------------------------------------------------------------
24
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (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 ending June 30,
2000 the total amount of these charges was $1,167,164.
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 ending June 30, 2000 and the year ended December 31, 1999
these fees amounted to $103,833 and $256,845, 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 ending June 30, 2000 and the year ended December 31, 1999, deductions for
cost of life insurance amounted to $3,524,027 and $6,286,339, 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
-----------------------------
At June 30, 2000, net assets of the Account were as follows:
Accumulation of Single Premium
Variable Life Insurance
Policyowners' Accounts $449,500,593
Owned by GIAC 571,811
------------
$450,072,404
============
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 $103,833 at June 30, 2000 may
be transferred by GIAC to its general account.
--------------------------------------------------------------------------------
25
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account B
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
-----------------------------
Note 5 -- Purchases and Sales
-----------------------------
During the six months ending June 30, 2000 and the year ended December 31,
1999 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,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. ....... $ 18,048,304 $ 42,656,176 $ 19,170,270 $ 40,319,464
The Guardian Bond Fund, Inc. ........ 2,757,304 8,948,493 5,519,103 8,730,606
The Guardian Cash Fund, Inc. ........ 28,280,319 44,395,185 31,077,534 39,532,860
Baillie Gifford International Fund .. 7,104,616 4,780,387 4,254,393 5,695,557
Value Line Centurion Fund, Inc. ..... 8,898,451 27,652,340 20,960,126 28,429,074
Value Line Strategic Asset
Management Trust .................. 2,872,764 6,712,900 3,137,831 5,276,229
Smith Barney Fund 2004 .............. 241,862 556,779 1,487,703 1,561,731
------------ ------------ ------------ ------------
Total ............................. $ 68,203,620 $135,702,260 $ 85,606,960 $129,545,521
============ ============ ============ ============
</TABLE>
NOTE: In some instances the calculation of total assets may not agree due
to rounding.
--------------------------------------------------------------------------------
26
<PAGE>
--------------------------------------------------------------------------------
This page intentionally left blank.
--------------------------------------------------------------------------------
27
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account C
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------------
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
-------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Shares owned in underlying fund -- Note 1 ......................... 147,426 25,731 743 63,266
Net asset value per share (NAV) ................................... 57.02 11.81 10.00 24.61
----------- ----------- ----------- -----------
Total Assets (Shares x NAV) ..................................... $ 8,406,209 $ 303,889 $ 7,430 $ 1,556,964
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ............. 70,527 2,837 185 10,654
----------- ----------- ----------- -----------
-------------------------------------------------------------------------------------------------------------------------------
Net Assets ...................................................... $ 8,335,682 $ 301,052 $ 7,245 $ 1,546,310
-------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
Numbers of units outstanding ........................................ 119,621.572 13,582.614 429.097 58,510.349
Unit value .......................................................... 69.68 22.16 16.89 26.43
FIFO Cost ........................................................... $ 6,527,382 $ 310,182 $ 7,430 $ 1,279,545
<CAPTION>
--------------------------
INVESTMENT DIVISIONS
--------------------------
Value Line
Strategic
Value Line Asset
Centurion Management
--------------------------
<S> <C> <C>
Assets
Shares owned in underlying fund -- Note 1 ......................... 31,795 49,878
Net asset value per share (NAV) ................................... 37.09 30.92
----------- -----------
Total Assets (Shares x NAV) ..................................... $ 1,179,275 $ 1,542,235
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ............. 8,731 10,578
----------- -----------
--------------------------------------------------------------------------------------------------
Net Assets ...................................................... $ 1,170,544 $ 1,531,657
--------------------------------------------------------------------------------------------------
=========== ===========
Numbers of units outstanding ........................................ 16,703.155 28,325.433
Unit value .......................................................... 70.08 54.07
FIFO Cost ........................................................... $ 860,772 $ 1,129,839
</TABLE>
--------------------------------------------------------------------------------
The Guardian Separate Account C
-------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------------
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
-------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ -- $ -- $ 294 $ --
Expenses -- Note 3:
Mortality and expense risk charges .............................. 22,542 873 31 3,448
----------- ----------- ----------- -----------
Net investment income/(expense) ................................... (22,542) (873) 263 (3,448)
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 202,885 168 -- 30,258
Reinvested realized gain distributions .......................... -- -- -- --
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments ........................... 202,885 168 -- 30,258
Net change in unrealized appreciation/(depreciation) of investments 65,534 10,777 -- (164,996)
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ............ 268,419 10,945 -- (134,738)
----------- ----------- ----------- -----------
-------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..... $ 245,877 $ 10,072 $ 263 $ (138,186)
-------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
--------------------------
INVESTMENT DIVISIONS
--------------------------
Value Line
Strategic
Value Line Asset
Centurion Management
--------------------------
<S> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ -- $ --
Expenses -- Note 3:
Mortality and expense risk charges .............................. 3,190 4,305
----------- -----------
Net investment income/(expense) ................................... (3,190) (4,305)
----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 37,410 69,389
Reinvested realized gain distributions .......................... -- --
----------- -----------
Net realized gain/(loss) on investments ........................... 37,410 69,389
Net change in unrealized appreciation/(depreciation) of investments (2,083) 8,748
----------- -----------
Net realized and unrealized gain/(loss) from investments ............ 35,327 78,137
----------- -----------
--------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..... $ 32,137 $ 73,832
--------------------------------------------------------------------------------------------------
=========== ===========
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
28 & 29
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account C
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1999 (Audited) and
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------------
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
--------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ................................... $ (8,800) $ 16,873 $ 1,102 $ (1,958)
Net realized gain/(loss) from sale of investments ................. 277,939 598 -- 50,337
Reinvested realized gain distributions ............................ 1,100,519 878 -- 116,395
Net change in unrealized appreciation/(depreciation) of investments 559,852 (22,840) -- 292,331
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 1,929,510 (4,491) 1,102 457,105
----------- ----------- ----------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ...................................... 805,459 46,927 9,788 203,689
Transfer on account of death and other terminations ............... (272,763) (18,146) (23,152) (63,575)
Transfer of policy loans .......................................... (309,816) (1,137) (6,238) (43,590)
Transfer between investment divisions ............................. 9,493 (3,202) (5,837) (275)
Transfer of cost of insurance and policy fees -- Note 3 ........... (223,983) (10,301) (1,747) (50,693)
Transfers -- other ................................................ 77 (3) -- (5)
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 8,467 14,138 (27,186) 45,551
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 1,937,977 9,647 (26,084) 502,656
Net Assets at December 31, 1998 ................................... 6,294,287 314,759 40,072 1,169,128
----------- ----------- ----------- -----------
---------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 8,232,264 $ 324,406 $ 13,988 $ 1,671,784
---------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) .................................... $ (22,542) $ (873) $ 263 $ (3,448)
Net realized gain/(loss) from sale of investments .................. 202,885 168 -- 30,258
Reinvested realized gain distributions ............................. -- -- -- --
Net change in unrealized appreciation/(depreciation) of investments 65,534 10,777 -- (164,996)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations .................. 245,877 10,072 263 (138,186)
----------- ----------- ----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ...................................... 384,017 16,184 876 87,455
Transfer on account of death and other terminations ............... (394,902) (22,090) (8,102) (36,528)
Transfer of policy loans .......................................... (40,454) 1,585 6,203 (13,323)
Transfer between investment divisions ............................. 26,983 (24,593) (5,776) 2,305
Transfer of cost of insurance and policy fees -- Note 3 ........... (117,675) (4,319) (207) (27,226)
Transfers -- other ................................................ (428) (193) -- 29
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. (142,459) (33,426) (7,006) 12,712
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 103,418 (23,354) (6,743) (125,474)
Net Assets at December 31, 1999 ................................... 8,232,264 324,406 13,988 1,671,784
----------- ----------- ----------- -----------
---------------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ....................................... $ 8,335,682 $ 301,052 $ 7,245 $ 1,546,310
---------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
--------------------------
INVESTMENT DIVISIONS
--------------------------
Value Line
Strategic
Value Line Asset
Centurion Management
--------------------------
<S> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ................................... $ (3,454) $ 6,429
Net realized gain/(loss) from sale of investments ................. 26,550 74,346
Reinvested realized gain distributions ............................ 74,214 73,723
Net change in unrealized appreciation/(depreciation) of investments 165,062 147,086
----------- -----------
Net increase/(decrease) resulting from operations ................. 262,372 301,584
----------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ...................................... 117,389 145,836
Transfer on account of death and other terminations ............... (58,356) (113,921)
Transfer of policy loans .......................................... (15,225) (51,336)
Transfer between investment divisions ............................. 574 (754)
Transfer of cost of insurance and policy fees -- Note 3 ........... (31,755) (44,112)
Transfers -- other ................................................ 54 (7)
----------- -----------
Net increase/(decrease) from policy transactions .................. 12,681 (64,294)
----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 275,053 237,290
Net Assets at December 31, 1998 ................................... 944,285 1,310,034
----------- -----------
---------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 1,219,338 $ 1,547,324
---------------------------------------------------------------------------------------------------
=========== ===========
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) .................................... $ (3,190) $ (4,305)
Net realized gain/(loss) from sale of investments .................. 37,410 69,389
Reinvested realized gain distributions ............................. -- --
Net change in unrealized appreciation/(depreciation) of investments (2,083) 8,748
----------- -----------
Net increase/(decrease) resulting from operations .................. 32,137 73,832
----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ...................................... 52,356 55,977
Transfer on account of death and other terminations ............... (120,310) (122,006)
Transfer of policy loans .......................................... 1,440 (2,374)
Transfer between investment divisions ............................. 1,082 --
Transfer of cost of insurance and policy fees -- Note 3 ........... (15,499) (21,096)
Transfers -- other ................................................ -- --
----------- -----------
Net increase/(decrease) from policy transactions .................. (80,931) (89,499)
----------- -----------
Total Increase/(Decrease) in Net Assets .............................. (48,794) (15,667)
Net Assets at December 31, 1999 ................................... 1,219,338 1,547,324
----------- -----------
---------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ....................................... $ 1,170,544 $ 1,531,657
---------------------------------------------------------------------------------------------------
=========== ===========
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
30 & 31
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account C
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (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 ended June 30, 2000 this amount was
$34,389.
--------------------------------------------------------------------------------
32
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (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 ended June 30, 2000 and the year ended December
31, 1999, deductions for the cost of life insurance amounted to $186,023 and
$362,591, 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 -- Purchases and Sales
-----------------------------
During the six months ended June 30, 2000 and the year ended December 31,
1999, 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,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Guardian Stock Fund .......... $ 258,223 $ 1,739,641 $ 401,660 $ 631,592
The Guardian Bond Fund ........... 21,554 61,601 54,980 29,123
The Guardian Cash Fund ........... 1,222 9,882 7,934 36,814
Baillie Gifford International Fund 94,938 338,578 82,227 176,810
Value Line Centurion Fund ........ 49,516 185,868 130,448 101,213
Value Line Strategic Asset
Management Trust ............... 61,784 202,390 151,282 185,668
------------ ------------ ------------ ------------
Total .......................... $ 487,237 $ 2,537,960 $ 82,853 $ 1,161,220
============ ============ ============ ============
</TABLE>
Note: In some instances the calculation of total assets may not agree due to
rounding.
--------------------------------------------------------------------------------
33
<PAGE>
--------------------------------------------------------------------------------
The Guardian Stock Fund
-----------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Common Stocks -- 96.5%
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Appliance and Furniture -- 1.3%
204,500 Corning, Inc. $ 55,189,438
--------------------------------------------------------------------------------
Biotechnology -- 4.2%
96,500 Affymetrix, Inc.* 15,934,563
333,600 Amgen, Inc.* 23,435,400
206,100 Cephalon, Inc.* 12,340,238
285,800 Enzon, Inc.* 12,146,500
78,400 Genentech, Inc.* 13,484,800
196,500 Human Genome Sciences, Inc.* 26,208,188
130,500 Immunex Corp.* 6,451,594
172,100 MedImmune, Inc.* 12,735,400
208,400 Millenium Pharmaceuticals, Inc.* 23,314,750
38,500 Myriad Genetics, Inc.* 5,701,008
131,000 Sepracor, Inc.* 15,801,875
69,100 Vertex Pharmaceuticals, Inc.* 7,281,413
-------------
174,835,729
--------------------------------------------------------------------------------
Broadcasting -- 0.3%
330,700 Infinity Broadcasting Corp.* 12,049,881
--------------------------------------------------------------------------------
Capital Goods-Miscellaneous Technology -- 0.3%
80,500 Amdocs Ltd.* 6,178,375
148,600 Amkor Technology, Inc.* 5,247,437
-------------
11,425,812
--------------------------------------------------------------------------------
Computer Software -- 13.0%
135,100 Adobe Systems, Inc. 17,563,000
114,400 Advent Software, Inc.* 7,378,800
467,400 BEA Systems, Inc.* 23,107,088
204,200 BroadVision, Inc.* 10,375,912
47,800 Check Point Software
Technologies Ltd.* 10,121,650
75,000 Computer Associates Int'l., Inc. 3,839,062
48,000 i2 Technologies, Inc.* 5,004,750
175,200 Inktomi Corp.* 20,717,400
129,500 Mercator Software, Inc.* 8,903,125
200,400 Mercury Interactive Corp.* 19,388,700
110,600 Micromuse, Inc.* 18,302,572
2,106,435 Microsoft Corp.* 168,514,800
1,075,000 Oracle Corp.* 90,367,188
109,000 Rational Software Corp.* 10,130,188
347,500 Saga Systems, Inc.* 4,322,031
182,600 Siebel Systems, Inc.* 29,866,512
274,300 Symantec Corp.* 14,795,056
161,600 TIBCO Software, Inc.* 17,329,075
176,025 VeriSign, Inc.* 31,068,412
94,500 VERITAS Software Corp.* 10,679,977
203,200 Vitria Technology, Inc.* 12,420,600
-------------
534,195,898
--------------------------------------------------------------------------------
Computer Systems -- 10.1%
328,000 Apple Computer, Inc.* 17,179,000
624,400 Compaq Computer Corp. 15,961,225
96,400 Comverse Technology, Inc.* 8,965,200
1,003,700 Dell Computer Corp.* 49,494,956
151,200 Efficient Networks, Inc.* 11,122,650
1,167,600 EMC Corp.* 89,832,225
404,900 Hewlett Packard Co. 50,561,887
796,800 Int'l. Business Machines 87,299,400
73,500 Network Appliance, Inc.* 5,916,750
230,800 NVIDIA Corp.* 14,670,225
60,300 QLogic Corp.* 3,983,569
83,600 SanDisk Corp.* 5,115,275
610,200 Sun Microsystems, Inc.* 55,490,063
-------------
415,592,425
--------------------------------------------------------------------------------
Drugs and Hospitals -- 1.0%
287,000 Andrx Corp.* 18,345,578
222,400 Regeneron Pharmaceuticals, Inc.* 6,630,300
557,800 Tenet Healthcare Corp. 15,060,600
-------------
40,036,478
--------------------------------------------------------------------------------
Electrical Equipment -- 4.9%
177,700 American Power Conversion Corp.* 7,252,381
199,800 Arrow Electronics, Inc.* 6,193,800
132,600 Avnet, Inc. 7,856,550
210,974 Flextronics Int'l. Ltd.* 14,491,277
2,773,500 General Electric Co. 146,995,500
508,800 SCI Systems, Inc.* 19,938,600
-------------
202,728,108
--------------------------------------------------------------------------------
Electronics and Instruments -- 0.5%
107,600 Jabil Circuit, Inc.* 5,339,650
43,500 PerkinElmer, Inc.* 2,805,976
140,400 Sanmina Corp.* 12,004,200
-------------
20,149,826
--------------------------------------------------------------------------------
Electronics-Semiconductors -- 8.7%
380,000 Analog Devices, Inc.* 28,880,000
357,600 Atmel Corp.* 13,186,500
250,200 AVX Corp. 5,738,963
154,200 Burr-Brown Corp.* 13,367,212
92,200 Chartered Semiconductor Mfg. Ltd.* 8,298,000
58,600 Cree, Inc.* 7,823,100
46,600 EPCOS AG* 4,590,100
173,600 Integrated Device Technology, Inc.* 10,394,300
1,203,700 Intel Corp. 160,919,644
39,900 Intersil Hldgs. Corp.* 2,157,094
258,900 Int'l. Rectifier Corp.* 14,498,400
914,200 LSI Logic Corp.* 49,481,075
150,400 LTX Corp.* 5,254,600
157,050 Microchip Technology, Inc.* 9,150,616
132,500 Palm, Inc.* 4,422,187
118,200 STMicroelectronics N.V. 7,586,962
191,744 Taiwan Semiconductor
Mfg. Co. Ltd. ADS* 7,430,080
66,500 Taiwan Semiconductor
Mfg. Co. Ltd. ADS (new)* 2,581,031
-------------
355,759,864
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
34
<PAGE>
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Energy-Miscellaneous -- 0.1%
179,800 Tosco Corp. $ 5,090,588
--------------------------------------------------------------------------------
Entertainment and Leisure -- 2.3%
1,249,200 Walt Disney Co.* 48,484,575
226,300 Time Warner, Inc. 14,568,062
489,863 Viacom, Inc.* 33,402,533
------------
96,455,170
--------------------------------------------------------------------------------
Financial-Banks -- 3.5%
235,000 Bank of New York, Inc.* 10,927,500
1,933,700 Citigroup, Inc. 116,505,425
433,500 Mellon Financial Corp.* 15,795,656
166,765 Premier National Bancorp, Inc. 2,167,945
------------
145,396,526
--------------------------------------------------------------------------------
Financial-Other -- 4.4%
499,800 American Express Co. 26,052,075
240,400 Countrywide Credit Industries, Inc.* 7,287,125
87,332 Legg Mason, Inc. 4,366,600
425,500 Lehman Brothers Hldgs., Inc. 40,236,344
279,600 Merrill Lynch & Co., Inc. 32,154,000
607,800 Morgan Stanley Dean Witter & Co. 50,599,350
539,882 Charles Schwab Corp. 18,153,515
------------
178,849,009
--------------------------------------------------------------------------------
Financial-Thrift -- 0.6%
300,300 Charter One Financial, Inc. 6,906,900
336,700 Golden West Financial Corp.* 13,741,569
200,000 Washington Mutual, Inc.* 5,775,000
------------
26,423,469
--------------------------------------------------------------------------------
Merchandising-Special -- 0.7%
151,500 Best Buy, Inc.* 9,582,375
30,400 Borders Group, Inc.* 473,100
312,000 Starbucks Corp.* 11,914,500
212,800 United Stationers, Inc.* 6,889,400
------------
28,859,375
--------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Staples -- 0.2%
98,500 Omnicom Group, Inc. 8,772,656
--------------------------------------------------------------------------------
Natural Gas-Diversified -- 0.3%
178,900 Coastal Corp. 10,890,538
--------------------------------------------------------------------------------
Oil and Gas Producing -- 1.8%
333,500 Apache Corp. 19,613,969
155,000 Burlington Resources, Inc. 5,928,750
180,000 EOG Resources, Inc.* 6,030,000
266,600 Newfield Exploration Co.* 10,430,725
540,600 Talisman Energy, Inc.* 17,907,375
152,100 Vastar Resources, Inc. 12,491,212
------------
72,402,031
--------------------------------------------------------------------------------
Oil and Gas Services -- 2.7%
150,500 B.J. Svcs. Co.* 9,406,250
186,400 Cooper Cameron Corp.* 12,302,400
219,600 Global Marine, Inc.* 6,189,975
312,500 Halliburton Co. 14,746,094
304,200 Noble Drilling Corp.* 12,529,238
306,400 Santa Fe Int'l. Corp. 10,704,850
289,300 Schlumberger Ltd. 21,589,013
164,575 Transocean Sedco Forex, Inc. 8,794,477
329,400 Weatherford Int'l., Inc.* 13,114,238
------------
109,376,535
--------------------------------------------------------------------------------
Oil-Integrated-Domestic -- 0.3%
178,000 Kerr-McGee Corp. 10,490,875
--------------------------------------------------------------------------------
Oil-Integrated-International -- 2.5%
622,000 Exxon Mobil Corp. 48,827,000
859,200 Royal Dutch Petroleum Co. 52,894,500
------------
101,721,500
--------------------------------------------------------------------------------
Publishing-News -- 0.2%
110,000 Dow Jones & Co., Inc.* 8,057,500
--------------------------------------------------------------------------------
Semiconductors -- 3.5%
517,000 Advanced Micro Devices, Inc.* 39,938,250
512,400 Kemet Corp.* 12,842,025
518,000 Micron Technology, Inc.* 45,616,375
464,700 National Semiconductor Corp.* 26,371,725
555,300 Vishay Intertechnology, Inc.* 21,066,694
------------
145,835,069
--------------------------------------------------------------------------------
Semiconductors-Communications -- 6.8%
275,700 Altera Corp.* 28,104,169
206,200 Applied Micro Circuits Corp.* 20,362,250
92,700 Conexant Systems, Inc.* 4,507,537
547,600 Cypress Semiconductor Corp.* 23,136,100
439,000 Micrel, Inc.* 19,069,062
82,800 PMC-Sierra, Inc.* 14,712,525
52,500 RF Micro Devices, Inc.* 4,600,312
234,900 Semtech Corp.* 17,966,180
831,000 Texas Instruments, Inc. 57,079,313
172,050 Transwitch Corp.* 13,280,109
61,000 TriQuint Semiconductor, Inc.* 5,836,937
144,700 Vitesse Semiconductor Corp.* 10,644,494
737,400 Xilinx, Inc.* 60,881,587
------------
280,180,575
--------------------------------------------------------------------------------
Semiconductors-Equipment -- 3.2%
62,800 Advanced Energy Industries, Inc.* 3,701,275
278,928 Agilent Technologies, Inc.* 20,570,940
417,800 Applied Materials, Inc.* 37,863,125
288,600 Credence Systems Corp.* 15,927,113
239,200 KLA-Tencor Corp.* 14,008,150
313,800 Lam Research Corp.* 11,767,500
96,600 Novellus Systems, Inc.* 5,463,938
299,500 Teradyne, Inc.* 22,013,250
------------
131,315,291
--------------------------------------------------------------------------------
Telecommunications -- 1.8%
213,560 AT & T Corp. 6,753,835
206,400 AT & T Wireless Group* 5,753,400
233,100 McLeodUSA, Inc.* 4,822,256
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
35
<PAGE>
--------------------------------------------------------------------------------
The Guardian Stock Fund
-----------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
Shares Value
--------------------------------------------------------------------------------
887,100 Qwest Comm. Int'l., Inc.* $ 44,077,781
165,700 U S West, Inc. 14,208,775
---------------
75,616,047
--------------------------------------------------------------------------------
Telecommunications-Equipment -- 13.1%
252,800 American Tower Corp.* 10,538,600
121,000 Bookham Technology PLC* 7,169,250
55,000 Brocade Comm. Systems, Inc.* 10,091,641
119,100 Ciena Corp.* 19,852,481
2,334,000 Cisco Systems, Inc.* 148,354,875
77,700 Copper Mountain Networks, Inc.* 6,847,312
222,800 Crown Castle Corp.* 8,132,200
93,700 GlobeSpan, Inc.* 11,438,720
436,390 JDS Uniphase Corp.* 52,312,251
93,000 Juniper Networks, Inc.* 13,537,313
610,400 Nokia Corp. 30,481,850
1,616,700 Nortel Networks Corp. 110,339,775
245,600 Paradyne Networks, Inc.* 7,997,350
102,500 Pinnacle Hldgs., Inc.* 5,535,000
158,100 Proxim, Inc.* 15,646,959
293,000 QUALCOMM, Inc.* 17,580,000
39,700 Redback Networks, Inc.* 7,066,600
398,400 Scientific Atlanta, Inc. 29,680,800
76,700 SDL, Inc.* 21,873,881
132,000 Silicon Image, Inc.* 6,583,500
---------------
541,060,358
--------------------------------------------------------------------------------
Telecommunications-Specialty -- 4.1%
135,300 Advanced Fibre Comm., Inc.* 6,130,781
787,600 Exodus Comm., Inc.* 36,278,825
90,200 InfoSpace, Inc.* 4,983,550
199,300 Level 3 Comm., Inc.* 17,538,400
263,200 Nextel Comm., Inc.* 16,104,550
364,700 Nextel Partners, Inc.* 11,875,544
239,800 NEXTLINK Comm., Inc.* 9,097,412
45,400 Phone.com, Inc.* 2,956,675
261,400 Primus Telecomm. Group, Inc.* 6,502,325
374,600 Sprint Corp. 22,288,700
114,000 Triton PCS Hldgs., Inc.* 6,583,500
45,400 Williams Comm. Group* 1,506,713
208,000 Yahoo, Inc.* 25,766,000
---------------
167,612,975
--------------------------------------------------------------------------------
Utilities-Electric -- 0.1%
59,600 Calpine Corp.* 3,918,700
--------------------------------------------------------------------------------
Total Common Stocks
(Cost $2,569,263,123) 3,970,288,246
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Short-term Investments -- 1.5%
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
$ 29,000,000 Duke Capital Corp
7.00%, due 7/5/00 28,977,444
32,000,000 UBS Fin. (Delaware), Inc.
6.92%, due 7/5/00 31,975,396
--------------------------------------------------------------------------------
Total Short-term Investments
(Cost $60,952,840) 60,952,840
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreement -- 1.7%
--------------------------------------------------------------------------------
$ 69,229,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/00, maturity value $69,266,788
at 6.55% due 7/3/00(1)
(Cost $69,229,000) $ 69,229,000
--------------------------------------------------------------------------------
Total Investments -- 99.7%
(Cost $2,699,444,963) 4,100,470,086
Cash, Receivables and Other
Assets Less Liabilities -- 0.3% 14,174,869
--------------------------------------------------------------------------------
Net Assets -- 100.0% $ 4,114,644,955
--------------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
36
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments, at market (cost $2,699,444,963) $4,100,470,086
Receivable for securities sold 73,037,212
Receivable for fund shares sold 659,333
Dividends receivable 405,781
Interest receivable 12,596
Other assets 4,919
--------------
TOTAL ASSETS 4,174,589,927
--------------
LIABILITIES
Payable for securities purchased 50,622,468
Due to custodian 3,778,518
Payable for fund shares redeemed 3,446,233
Accrued expenses 408,106
Due to affiliates 1,689,647
--------------
TOTAL LIABILITIES 59,944,972
--------------
NET ASSETS $4,114,644,955
==============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 72,161
Additional paid-in capital 2,299,834,003
Undistributed net investment income 511,725
Accumulated net realized gain on investments 413,201,943
Net unrealized appreciation of investments 1,401,025,123
--------------
NET ASSETS $4,114,644,955
==============
Shares Outstanding -- $0.001 par value 72,160,543
--------------
NET ASSET VALUE PER SHARE $ 57.02
==============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Dividends $ 6,710,550
Interest 4,427,569
Less: Foreign tax withheld (86,287)
-------------
Total Income 11,051,832
-------------
Expenses:
Investment advisory fees -- Note B 10,423,998
Custodian fees 188,567
Printing expense 111,216
Legal fees 19,891
Registration fees 13,848
Audit fees 9,883
Directors' fees -- Note B 6,215
Insurance expense 4,036
Loan commitment fees -- Note H 3,428
Other 350
-------------
Total Expenses 10,781,432
-------------
Net Investment Income 270,400
-------------
Realized and Unrealized Gain/(Loss) on
Investments -- Note F
Net realized gain on investments 254,965,042
Net change in unrealized appreciation of
investments (121,770,269)
-------------
Net Realized and Unrealized Gain
on Investments 133,194,773
-------------
Net Increase in Net Assets
from Operations $ 133,465,173
=============
See notes to financial statements.
--------------------------------------------------------------------------------
37
<PAGE>
--------------------------------------------------------------------------------
The Guardian Stock Fund
-----------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 2000 1999
(Unaudited) (Audited)
--------------- ---------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 270,400 $ 16,343,111
Net realized gain on investments 254,965,042 635,478,868
Net change in unrealized appreciation of investments (121,770,269) 367,759,722
--------------- ---------------
Net Increase in Net Assets from Operations 133,465,173 1,019,581,701
--------------- ---------------
Dividends and Distributions to Shareholders from:
Net investment income -- (16,388,132)
Net realized gain on investments -- (563,140,777)
--------------- ---------------
Total Dividends and Distributions to Shareholders -- (579,528,909)
--------------- ---------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from capital share transactions -- Note G (193,907,280) 69,838,389
--------------- ---------------
Net Increase/(Decrease) in Net Assets (60,442,107) 509,891,181
Net Assets:
Beginning of period 4,175,087,062 3,665,195,881
--------------- ---------------
End of period* $ 4,114,644,955 $ 4,175,087,062
=============== ===============
* Includes undistributed net investment income of: $ 511,725 $ 241,325
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
38
<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, 2000 ----------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .......... $55.20 $49.08 $46.05 $38.59 $34.72 $27.33
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income ..................... 0.00 0.24 0.47 0.52 0.53 0.44
Net realized and unrealized
gain on investments ........ 1.82 14.49 8.56 12.97 8.62 9.01
------ ------ ------ ------ ------ ------
Net increase from
investment operations ...... 1.82 14.73 9.03 13.49 9.15 9.45
------ ------ ------ ------ ------ ------
Dividends and Distributions to
Shareholders from:
Net investment income ........ -- (0.24) (0.47) (0.52) (0.54) (0.44)
Net realized gain ............ -- (8.37) (5.53) (5.51) (4.74) (1.62)
------ ------ ------ ------ ------ ------
Total dividends and
distributions .............. -- (8.61) (6.00) (6.03) (5.28) (2.06)
------ ------ ------ ------ ------ ------
Net asset value, end of
period ..................... $57.02 $55.20 $49.08 $46.05 $38.59 $34.72
------ ------ ------ ------ ------ ------
Total return* .................. 3.30% 31.17% 19.86% 35.58% 26.90% 34.65%
------ ------ ------ ------ ------ ------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............ $4,114,645 $4,175,087 $3,665,196 $3,222,187 $2,226,728 $1,615,271
Ratio of expenses to
average net assets ......... 0.52%(a) 0.52% 0.52% 0.52% 0.53% 0.53%
Ratio of net investment
income to average net assets 0.01%(a) 0.45% 0.95% 1.17% 1.50% 1.39%
Portfolio turnover
rate ....................... 48% 74% 56% 51% 66% 78%
</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.
--------------------------------------------------------------------------------
39
<PAGE>
--------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
----------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Asset Backed -- 5.0%
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
$ 5,000,000 Advanta Mortgage Loan Tr.
1997-2 A5
7.25% due 6/25/27 $ 4,902,000
2,191,140 Amresco 1997-1 M1F
7.42% due 3/25/27 2,123,937
3,700,000 Centex Home Equity Loan Tr.
1999-2 A4
6.60% due 1/25/28 3,469,564
3,600,000 Contimortgage Home Equity Loan Tr.
1999-1 A3
6.17% due 5/25/21 3,417,084
3,600,000 Countrywide 2000-1 AF3
7.83% due 7/25/25 3,606,732
--------------------------------------------------------------------------------
Total Asset Backed
(Cost $17,860,355) 17,519,317
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Commercial Mortgage Backed -- 3.0%
--------------------------------------------------------------------------------
$ 3,600,000 Prudential Securities Secd. Fin. Corp.
2000-Cl A1
7.617% due 6/15/09 $ 3,622,640
6,943,521 TIAA Retail Comm'l. Mortgage Tr.
1999-Cl A
7.17% due 10/15/07+ 6,852,006
--------------------------------------------------------------------------------
Total Commercial Mortgage Backed
(Cost $10,395,723) 10,474,646
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Corporate Bonds -- 25.6%
--------------------------------------------------------------------------------
Aerospace and Defense -- 1.0%
$ 3,600,000 Raytheon Co.
8.20% due 3/1/06+ $ 3,655,876
--------------------------------------------------------------------------------
Electronics and Instruments -- 2.1%
7,200,000 Limestone Electronics Tr.
8.625% due 3/15/03+ 7,258,428
--------------------------------------------------------------------------------
Energy -- 1.9%
3,000,000 Occidental Petroleum Corp.
7.65% due 2/15/06 2,983,119
3,500,000 Phillips Petroleum Co.
8.75% due 5/25/10 3,705,996
------------
6,689,115
--------------------------------------------------------------------------------
Entertainment-Cable-Media -- 3.7%
2,500,000 Cox Comm., Inc.
7.875% due 8/15/09 2,494,842
3,600,000 CSC Hldgs., Inc.
8.125% due 7/15/09 3,503,412
3,650,000 Time Warner Entertainment Co.
7.25% due 9/1/08 3,525,436
3,650,000 Time Warner, Inc.
7.48% due 1/15/08 3,565,492
------------
13,089,182
--------------------------------------------------------------------------------
Financial-Other -- 1.0%
3,600,000 Lehman Brothers Hldgs., Inc.
6.50% due 10/1/02 3,512,736
--------------------------------------------------------------------------------
Machinery-Industrial Specialty -- 1.0%
3,500,000 Mallinckrodt, Inc.
6.30% due 3/15/11+ 3,453,111
--------------------------------------------------------------------------------
Merchandising-Department Stores -- 1.8%
Saks, Inc.
3,600,000 7.00% due 7/15/04 3,231,457
3,600,000 7.25% due 12/1/04 3,234,287
------------
6,465,744
--------------------------------------------------------------------------------
Merchandising-Food -- 1.0%
3,500,000 Aramark Svcs., Inc.
6.75% due 8/1/04 3,317,230
--------------------------------------------------------------------------------
Merchandising-Mass -- 1.0%
3,400,000 Wal-Mart Stores, Inc.
8.75% due 12/29/06 3,442,568
--------------------------------------------------------------------------------
Miscellaneous-Capital Goods -- 1.4%
5,000,000 Ikon Capital, Inc.
6.73% due 6/15/01 4,913,770
--------------------------------------------------------------------------------
Oil-Integrated-International -- 2.0%
7,200,000 YPF Sociedad Anonima
7.25% due 3/15/03 6,984,000
--------------------------------------------------------------------------------
Paper and Forest Products -- 1.0%
3,500,000 Int'l. Paper Co.
8.125% due 7/8/05+ 3,530,877
--------------------------------------------------------------------------------
Telecommunications -- 5.7%
Deutsche Telekom Int'l. Finance BV
3,600,000 8.00% due 6/15/10 3,636,828
3,600,000 8.25% due 6/15/30 3,656,092
GTE Corp.
3,500,000 6.94% due 4/15/28 3,090,986
3,600,000 7.51% due 4/1/09 3,544,488
3,600,000 Vodafone Airtouch PLC
7.75% due 2/15/10+ 3,569,227
2,400,000 Williams Comm. Group
10.875% due 10/1/09 2,346,000
------------
19,843,621
--------------------------------------------------------------------------------
See notes to financial statements.
+ Rule 144A restricted security.
--------------------------------------------------------------------------------
40
<PAGE>
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
Waste Services -- 1.0%
$ 3,500,000 USA Waste Svcs., Inc.
6.125% due 7/15/01 $ 3,389,036
--------------------------------------------------------------------------------
Total Corporate Bonds
(Cost $90,384,589) 89,545,294
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Collateralized Mortgage Obligation -- 4.5%
--------------------------------------------------------------------------------
$ 5,648,076 GE Capital Mortgage Svcs., Inc.
1996-3 A7 7.00% due 3/25/26 $ 5,360,364
6,813,148 Norwest Asset Securities
2000-2 A1 7.50% due 4/25/30 6,753,601
3,811,266 PNC Mortgage Securities Corp.
1998-10 A17 6.50%
due 12/25/28 3,658,396
--------------------------------------------------------------------------------
Total Collateralized Mortgage
Obligations
(Cost $16,055,544) 15,772,361
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Mortgage Pass-Throughs -- 38.9%
--------------------------------------------------------------------------------
FHLMC
$ 12,100,000 7.00%, (30 yr. TBA)(a) $ 11,684,062
1,914,452 6.50% due 6/1/29 1,807,664
967,147 6.50% due 7/1/29 913,200
1,678,100 6.50% due 9/1/29 1,584,496
637,468 7.00% due 8/1/08 629,500
FNMA
5,500,000 6.00%, (15 yr. TBA)(a) 5,200,938
1,000,000 6.50%, (15 yr. TBA)(a) 963,750
5,500,000 7.00%, (15 yr. TBA)(a) 5,393,438
24,900,000 7.00%, (30 yr. TBA)(a) 24,020,731
23,450,000 7.50%, (30 yr. TBA)(a) 23,098,250
16,500,000 8.00%, (30 yr. TBA)(a) 16,561,875
9,000,000 8.50%, (30 yr. TBA)(a) 9,160,308
4,176,707 6.50% due 11/1/28 3,941,141
535,674 8.00% due 6/1/08 540,136
4,512 8.25% due 1/1/09 4,613
228,765 8.50% due 8/1/09 232,574
GNMA
25,200,000 8.00%, (30 yr. TBA)(a) 25,459,862
940,719 6.50% due 1/15/29 892,817
987,243 6.50% due 2/15/29 936,973
530,792 6.50% due 3/15/29 503,764
2,428,512 6.50% due 4/15/29 2,304,851
152,273 6.50% due 7/15/29 144,518
--------------------------------------------------------------------------------
Total Mortgage Pass-Throughs
(Cost $135,722,452) 135,979,461
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Sovereign Debt -- 1.0%
--------------------------------------------------------------------------------
$ 3,600,000 Quebec Province CDA
7.50% due 9/15/29
(Cost $3,465,567) $ 3,530,117
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. Government and Agencies -- 19.1%
--------------------------------------------------------------------------------
FNMA
$ 12,625,000 7.25% due 1/15/10 $ 12,728,071
3,500,000 7.25% due 5/15/30 3,563,322
U.S. Treasury Bonds
1,570,000 5.25% due 2/15/29 1,392,885
4,000,000 6.00% due 2/15/26 3,910,000
2,175,000 6.125% due 11/15/27 2,168,203
4,850,000 6.125% due 8/15/29 4,901,531
3,950,000 6.25% due 5/15/30 4,146,268
5,500,000 6.625% due 2/15/27 5,831,721
4,000,000 9.25% due 2/15/16 5,182,500
U.S. Treasury Notes
3,500,000 4.25% due 11/15/03 3,283,438
2,450,000 5.50% due 2/15/08 2,345,875
1,800,000 6.00% due 8/15/09 1,785,375
1,900,000 6.50% due 8/15/05 1,920,187
6,175,000 6.50% due 2/15/10 6,385,339
7,200,000 6.75% due 5/15/05 7,368,754
--------------------------------------------------------------------------------
Total U.S. Government and Agencies
(Cost $65,760,203) 66,913,469
--------------------------------------------------------------------------------
See notes to financial statements.
--------------------------------------------------------------------------------
41
<PAGE>
--------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
----------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
--------------------------------------------------------------------------------
Commercial Paper -- 34.9%
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
Building Materials and Homebuilders -- 4.0%
$ 14,000,000 Martin Marietta Materials, Inc.
6.57% due 7/17/00(a) $ 13,959,120
--------------------------------------------------------------------------------
Computer Systems -- 2.1%
7,475,000 Xerox Corp.
6.72% due 7/20/00(a) 7,448,489
--------------------------------------------------------------------------------
Conglomerates -- 2.8%
9,600,000 Invensys PLC
6.63% due 7/17/00(a) 9,571,712
--------------------------------------------------------------------------------
Financial-Banks -- 4.0%
14,000,000 Baus Funding LLC
6.52% due 7/17/00(a) 13,959,431
--------------------------------------------------------------------------------
Financial-Other -- 14.3%
11,754,000 Amsterdam Funding Corp.
6.59% due 7/24/00(a) 11,704,512
14,000,000 Duke Capital Corp.
6.59% due 7/24/00(a) 13,941,056
4,200,000 General Electric Capital Corp.
6.54% due 7/20/00(a) 4,185,503
6,450,000 John Deere Capital Corp.
6.54% due 7/17/00(a) 6,431,252
14,000,000 Textron Fin. Corp.
6.57% due 7/17/00(a) 13,959,120
-------------
50,221,443
--------------------------------------------------------------------------------
Merchandising-Department Stores -- 4.0%
14,000,000 Target Corp.
6.57% due 7/17/00(a) 13,959,120
--------------------------------------------------------------------------------
Telecommunications -- 3.7%
13,000,000 AT & T Capital Corp.
6.50% due 7/17/00(a) 12,962,445
--------------------------------------------------------------------------------
Total Commercial Paper
(Cost $122,081,760) 122,081,760
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreement -- 2.1%
--------------------------------------------------------------------------------
$ 7,245,000 State Street Bank & Trust Co.
repurchase agreement,
dated 6/30/00, maturity
value $7,248,955 at 6.55%
due 7/3/00(1)
(Cost $7,245,000) $ 7,245,000
--------------------------------------------------------------------------------
Total Investments -- 134.1%
(Cost $468,971,193) 469,061,425
Payables for Mortgage Pass-Throughs
Delayed Delivery Securities(a) -- (34.6)% (121,136,232)
Cash, Receivables and Other
Assets Less Liabilities -- 0.5% 1,828,082
--------------------------------------------------------------------------------
Net Assets -- 100.0% $ 349,753,275
--------------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
(a) Commercial paper and repurchase agreement are segregated to cover forward
mortgage purchases.
See notes to financial statements.
--------------------------------------------------------------------------------
42
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments, at market (cost $468,971,193) $ 469,061,425
Cash 97
Receivable for securities sold 22,054,853
Interest receivable 4,003,720
Receivable for fund shares sold 24,360
Other assets 490
-------------
TOTAL ASSETS 495,144,945
-------------
LIABILITIES
Payable for forward mortgage securities
purchased 121,136,232
Payable for securities purchased 23,781,833
Payable for fund shares redeemed 291,490
Accrued expenses 38,420
Due to affiliates 143,695
-------------
TOTAL LIABILITIES 145,391,670
-------------
NET ASSETS $ 349,753,275
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 2,961,213
Additional paid-in capital 354,627,419
Undistributed net investment income 11,916,501
Accumulated net realized loss on investments (19,842,090)
Net unrealized appreciation of investments 90,232
-------------
NET ASSETS $ 349,753,275
=============
Shares Outstanding -- $0.10 par value 29,612,133
-------------
NET ASSET VALUE PER SHARE $ 11.81
=============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Interest $ 12,708,009
-------------
Expenses:
Investment advisory fees -- Note B 891,425
Custodian fees 52,736
Printing expense 11,208
Audit fees 9,883
Directors' fees -- Note B 6,215
Registration fees 2,281
Legal fees 1,974
Insurance expense 403
Loan commitment fees -- Note H 277
Other 350
------------
Total Expenses 976,752
------------
Net Investment Income 11,731,257
------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized loss on investments (11,256,271)
Net change in unrealized depreciation
of investments 11,638,305
------------
Net Realized and Unrealized Gain
on Investments 382,034
------------
Net Increase in Net Assets
from Operations $ 12,113,291
============
See notes to financial statements.
--------------------------------------------------------------------------------
43
<PAGE>
--------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
----------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 2000 1999
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 11,731,257 $ 21,052,916
Net realized loss on investments (11,256,271) (8,373,543)
Net change in unrealized appreciation/(depreciation) of investments 11,638,305 (15,282,158)
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations 12,113,291 (2,602,785)
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income -- (21,062,469)
Net realized gain on investments -- (965,082)
------------- -------------
Total Dividends and Distributions to Shareholders -- (22,027,551)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from capital share transactions -- Note G (38,790,770) 19,673,995
------------- -------------
Net Decrease in Net Assets (26,677,479) (4,956,341)
Net Assets:
Beginning of period 376,430,754 381,387,095
------------- -------------
End of period* $ 349,753,275 $ 376,430,754
============= =============
* Includes undistributed net investment income of: $ 11,916,501 $ 185,244
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
44
<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, 2000 --------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .......... $11.41 $12.23 $12.11 $11.83 $12.25 $11.08
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income ........ 0.40 0.68 0.69 0.75 0.76 0.76
Net realized and
unrealized gain/
(loss) on investments ...... -- (0.79) 0.28 0.29 (0.42) 1.17
------ ------ ------ ------ ------ ------
Net increase/(decrease)
from investment
operations ................. 0.40 (0.11) 0.97 1.04 0.34 1.93
------ ------ ------ ------ ------ ------
Dividends and Distributions
to Shareholders from:
Net investment income ........ -- (0.68) (0.69) (0.76) (0.76) (0.76)
Net realized gain ............ -- (0.03) (0.16) -- -- --
------ ------ ------ ------ ------ ------
Total dividends and
distributions .............. -- (0.71) (0.85) (0.76) (0.76) (0.76)
------ ------ ------ ------ ------ ------
Net asset value, end of
period ..................... $11.81 $11.41 $12.23 $12.11 $11.83 $12.25
------ ------ ------ ------ ------ ------
Total return* ................... 3.51% (0.84)% 8.10% 8.99% 2.88% 17.59%
------ ------ ------ ------ ------ ------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............ $349,753 $376,431 $381,387 $355,412 $354,433 $374,462
Ratio of expenses to
average net assets ......... 0.55%(a) 0.57% 0.67% 0.59% 0.54% 0.54%
Ratio of expenses (excluding
interest expense) to average
net assets ................. N/A 0.55% 0.55% 0.55% N/A N/A
Ratio of net investment
income to average net assets 6.58%(a) 5.78% 5.51% 6.15% 6.12% 6.43%
Portfolio turnover
rate ....................... 156% 257% 287% 340% 188% 298%
</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.
--------------------------------------------------------------------------------
45
<PAGE>
--------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
----------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Commercial Paper -- 94.7%
--------------------------------------------------------------------------------
Principal Maturity
Amount Date Value
-------------------------------------------------------------------------------
FINANCIAL -- 47.6%
Asset Backed Securities-Other -- 13.3%
$ 18,000,000 Clipper Receivables Corp.
6.57% 7/21/00 $ 17,934,300
Govco, Inc.
12,500,000 6.56% 8/21/00 12,383,833
7,000,000 6.56% 8/22/00 6,933,671
18,000,000 Variable Funding Capital
6.57% 7/5/00 17,986,860
------------
55,238,664
-------------------------------------------------------------------------------
Banks -- 12.0%
18,000,000 Bank of America Corp.
6.64% 10/10/00 17,664,680
15,000,000 Deutsche Bank
6.22% 7/10/00 15,000,000
17,000,000 Dresdner U.S. Fin.
6.54% 7/3/00 16,993,823
------------
49,658,503
-------------------------------------------------------------------------------
Finance Companies -- 17.5%
18,000,000 Associates First Capital
6.54% 7/24/00 17,924,790
8,000,000 California Housing Fin.
6.80% 7/5/00 8,000,000
16,000,000 Household Fin. Corp.
6.55% 7/5/00 15,988,356
16,000,000 Goldman Sachs Group, Inc.
6.54% 7/11/00 15,970,933
15,000,000 Private Export Funding Corp.
6.10% 7/6/00 14,987,292
------------
72,871,371
-------------------------------------------------------------------------------
Utilities-Electric and Water -- 4.8%
20,000,000 Nat'l. Rural Utils. Coop. Fin.
Corp., 5.97% 7/6/00 19,983,417
-------------------------------------------------------------------------------
Total Financial 197,751,955
-------------------------------------------------------------------------------
INDUSTRIAL -- 47.1%
Automotive -- 12.9%
18,000,000 DaimlerChrysler NA Hldg. Corp.
6.53% 7/17/00 17,947,760
18,000,000 Ford Motor Co.
6.54% 7/7/00 17,980,380
18,000,000 General Motors Acceptance Corp.
6.53% 7/18/00 17,944,495
------------
53,872,635
-------------------------------------------------------------------------------
Conglomerates -- 7.9%
18,000,000 General Electric Capital Corp.
6.58% 8/15/00 17,851,950
14,909,000 Invensys PLC
6.90% 7/6/00 14,894,712
------------
32,746,662
-------------------------------------------------------------------------------
Food, Beverage and Tobacco -- 4.3%
18,000,000 Heinz (H.J.) Co.
6.54% 8/11/00 17,865,930
-------------------------------------------------------------------------------
Manufacturing -- 3.6%
15,000,000 Illinois Tool Works, Inc.
6.55% 7/25/00 14,934,500
-------------------------------------------------------------------------------
Metals-Miscellaneous -- 4.3%
18,000,000 Rio Tinto America, Inc.
6.54% 8/14/00 17,856,120
-------------------------------------------------------------------------------
Oil and Gas Services -- 4.1%
17,000,000 Equilon Enterprises LLC
6.53% 8/4/00 16,895,157
-------------------------------------------------------------------------------
Telecommunications -- 6.4%
19,000,000 AT & T Capital Corp.
6.54% 8/8/00 18,868,837
8,000,000 Bell Atlantic Finl. Svcs.
6.50% 7/3/00 7,997,111
------------
26,865,948
-------------------------------------------------------------------------------
Utilities-Electric and Water -- 3.6%
15,000,000 Duke Capital Corp.
7.00% 7/5/00 14,988,334
-------------------------------------------------------------------------------
TOTAL INDUSTRIAL 196,025,286
-------------------------------------------------------------------------------
Total Commercial Paper
(Cost $393,777,241) 393,777,241
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreement -- 5.3%
--------------------------------------------------------------------------------
$ 22,130,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/00, maturity value
$22,142,079 at 6.55%
due 7/3/00(1)
(Cost $22,130,000) $ 22,130,000
-------------------------------------------------------------------------------
Total Investments -- 100.0%
(Cost $415,907,241) 415,907,241
Liabilities in Excess of Cash,
Receivables and Other Assets -- (0.0)% (90,535)
-------------------------------------------------------------------------------
Net Assets -- 100.0% $415,816,706
-------------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
See notes to financial statements.
--------------------------------------------------------------------------------
46
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments, at market (cost $415,907,241) $415,907,241
Cash 617
Interest receivable 427,288
Receivable for fund shares sold 61,008
Other assets 612
------------
TOTAL ASSETS 416,396,766
------------
LIABILITIES
Payable for fund shares redeemed 343,893
Accrued expenses 61,552
Due to affiliates 174,615
------------
TOTAL LIABILITIES 580,060
------------
NET ASSETS $415,816,706
============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 4,158,167
Additional paid-in capital 411,658,539
------------
NET ASSETS $415,816,706
============
Shares Outstanding -- $0.10 par value 41,581,671
------------
NET ASSET VALUE PER SHARE $ 10.00
============
STATEMENT OF OPERATIONS SIX MONTHS ENDED
June 30, 2000 (Unaudited)
Investment Income:
Interest $13,203,517
-----------
Expenses:
Investment advisory fees -- Note B 1,077,704
Custodian fees 42,668
Printing expense 12,706
Audit fees 9,633
Directors' fees -- Note B 6,215
Legal fees 2,038
Registration fees 994
Insurance expense 503
Loan commitment fees -- Note H 340
Other 350
-----------
Total Expenses 1,153,151
-----------
Net Investment Income,
Representing Net Increase in
Net Assets from Operations $12,050,366
===========
See notes to financial statements.
--------------------------------------------------------------------------------
47
<PAGE>
--------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
----------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31
June 30, 2000 1999
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 12,050,366 $ 21,309,724
------------- -------------
Net Increase in Net Assets from Operations 12,050,366 21,309,724
------------- -------------
Dividends to Shareholders from:
Net investment income (12,050,366) (21,309,724)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from capital share transactions -- Note G (68,311,713) 64,645,765
------------- -------------
Net Increase/(Decrease) in Net Assets (68,311,713) 64,645,765
Net Assets:
Beginning of period 484,128,419 419,482,654
------------- -------------
End of period $ 415,816,706 $ 484,128,419
============= =============
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
48
<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, 2000 --------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------
<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 .......................... 0.28 0.47 0.50 0.50 0.49 0.54
Dividends to
Shareholders from:
Net investment income ............ (0.28) (0.47) (0.50) (0.50) (0.49) (0.54)
------ ------ ------ ------ ------ ------
Net asset value, end of period ...... $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------ ------
Total return* ....................... 2.82% 4.77% 5.10% 5.14% 4.98% 5.52%
------ ------ ------ ------ ------ ------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ................. $415,817 $484,128 $419,483 $368,122 $378,322 $356,820
Ratio of expenses to
average net assets .............. 0.54%(a) 0.53% 0.53% 0.54% 0.54% 0.54%
Ratio of net investment
income to average net assets .... 5.59%(a) 4.68% 4.99% 5.02% 4.86% 5.39%
</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.
--------------------------------------------------------------------------------
49
<PAGE>
--------------------------------------------------------------------------------
The Guardian Variable Contract Funds (The Guardian Stock Fund),
The Guardian Bond Fund, The Guardian Cash Fund
---------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
----------------------------------------------
Note A -- Organization and Accounting Policies
----------------------------------------------
The Guardian Stock Fund (GSF), a series of The Guardian Variable Contract
Funds, Inc., 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). The financial statements for the other remaining funds of Guardian
Variable Contract Funds, Inc. are presented in separate reports.
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. As of June 30, 2000, no GSF Class II shares have been issued.
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.
Foreign Currency Translation
GSF is permitted to buy international securities that are not U.S. dollar
denominated. GSF's books and records 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.
--------------------------------------------------------------------------------
50
<PAGE>
--------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
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 a 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 gains and losses on foreign
currency related transactions. Net currency gains and losses from valuing 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 assets and liabilities denominated in foreign
currencies.
Forward Foreign Currency Contracts
GSF may enter into forward foreign currency contracts in connection with
planned purchases or sales of securities, or to hedge against changes in
currency exchange rates affecting the values of securities denominated in a
particular currency. A forward foreign currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
exchange 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 a forward contract is
closed, the Fund records realized gains or losses equal to the difference
between the value of such forward contract at the time it was opened and the
value at the time it 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.
Futures Contracts
GSF may enter into financial futures contracts for the delayed delivery of
securities, currency or contracts based on financial indices at a fixed price on
a future date. In entering into such contracts, the Fund is required to deposit
either in cash or securities an amount equal to a certain percentage of the
contract amount. Subsequent payments are made or received by the Fund each day,
depending on the daily fluctuations in the value of the underlying security, and
are recorded for financial statement purposes as unrealized gains or losses by
the Fund. The Fund's investments in financial futures contracts are designed to
hedge against anticipated future changes in interest or exchange rates or
securities prices (or for non-hedging purposes). Should interest or exchange
rates or securities prices move unexpectedly, the Fund may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
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.
Reclassification 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.
--------------------------------------------------------------------------------
51
<PAGE>
--------------------------------------------------------------------------------
The Guardian Variable Contract Funds (The Guardian Stock Fund),
The Guardian Bond Fund, The Guardian Cash Fund
---------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
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. Fees for
investment advisory services are paid at an annual rate of .50% of the average
daily net assets of each Fund. 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, 2000.
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 agreements with each Fund.
---------------------------------------
Note D -- Reverse Repurchase Agreements
---------------------------------------
GBF may enter into reverse repurchase agreements with banks or third-party
broker-dealers to borrow short-term funds. Interest on the value of reverse
repurchase agreements is based upon competitive market rates at the time of
issuance. At the time GBF enters into a reverse repurchase agreement, it
establishes and maintains cash, U.S. government securities or liquid,
unencumbered securities that are marked-to-market daily in a segregated account
with the Fund's custodian. The value of such segregated assets must be at least
equal to the value of the repurchase obligation (principal plus accrued
interest), as applicable. Reverse repurchase agreements involve the risk that
the buyer of the securities sold by GBF may be unable to deliver the securities
when the Fund seeks to repurchase them.
--------------------------------------------------------------------------------
52
<PAGE>
--------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
----------------------------------
Note E -- Dollar Roll Transactions
----------------------------------
GBF may enter into dollar roll transactions with financial institutions to
take advantage of opportunities in the mortgage market. A dollar roll
transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase similar securities at an agreed upon price
and date. The securities repurchased will bear the same interest as those sold,
but generally will be collateralized at time of delivery by different pools of
mortgages with different prepayment histories than those securities sold. During
the period between the sale and repurchase, the Fund will not be entitled to
receive interest and principal payments on the securities sold. Dollar roll
transactions involve the risk that the buyer of the securities sold by GBF may
be unable to deliver the securities when GBF seeks to repurchase them.
---------------------------------
Note F -- Investment Transactions
---------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the six months ended June 30, 2000 were as follows:
GSF GBF
--- ---
Purchases ...................... $1,940,969,416 $ 544,853,980
Proceeds ....................... $2,104,415,257 $ 574,275,890
The cost of investments owned at June 30, 2000 for federal income tax
purposes was substantially the same as the cost for financial reporting
purposes. The gross unrealized appreciation and depreciation of investments at
June 30, 2000 for GSF and GBF were as follows:
GSF GBF
--- ---
Gross Appreciation ............. $1,468,355,927 $ 2,858,369
Gross Depreciation ............. (67,330,804) (2,768,137)
-------------- --------------
Net Unrealized Appreciation .. $1,401,025,123 $ 90,232
============== ==============
--------------------------------------------------------------------------------
53
<PAGE>
--------------------------------------------------------------------------------
The Guardian Variable Contract Funds (The Guardian Stock Fund),
The Guardian Bond Fund, The Guardian Cash Fund
---------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (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 each of GBF and GCF. Through June 30, 2000, no Class II shares of GSF were
sold. 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,
2000 1999 2000 1999
(Unaudited) (Audited) (Unaudited) (Audited)
-------------------------------------------------------------------------------------------------------------------
Shares Amount
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian Stock Fund
Shares sold 2,474,583 3,895,845 $ 139,518,564 $ 200,708,021
Shares issued in reinvestment of
dividends and distributions -- 10,952,668 -- 579,528,909
Shares repurchased (5,950,118) (13,883,608) (333,425,844) (710,398,541)
-------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (3,475,535) 964,905 $ (193,907,280) $ 69,838,389
-------------------------------------------------------------------------------------------------------------------
o The Guardian Bond Fund, Inc.
Shares sold 1,031,842 8,170,108 $ 11,909,646 $ 96,955,789
Shares issued in reinvestment of
dividends and distributions -- 1,912,437 -- 22,027,550
Shares repurchased (4,398,576) (8,296,810) (50,700,416) (99,309,344)
-------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (3,366,734) 1,785,735 $ (38,790,770) $ 19,673,995
-------------------------------------------------------------------------------------------------------------------
o The Guardian Cash Fund, Inc.
Shares sold 19,744,962 39,686,605 $ 197,449,481 $ 396,866,179
Shares issued in reinvestment of
dividends 1,205,037 2,130,972 12,050,366 21,309,724
Shares repurchased (27,781,156) (35,353,014) (277,811,560) (353,530,138)
-------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (6,831,157) 6,464,563 $ (68,311,713) $ 64,645,765
-------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------
Note H -- Line of Credit
------------------------
A $100,000,000 line of credit available to all of the Funds and other
related Guardian Funds has been established with State Street Bank and Trust
Company and Bank of Montreal. The rate of interest charged on any borrowing is
based upon the prevailing Federal Funds rate at the time of the loan plus .50%
calculated on a 360 day basis per annum. For the six months ended June 30, 2000,
none of the Funds borrowed against this line of credit.
The Funds are obligated to pay State Street Bank and Trust Company and
Bank of Montreal a commitment fee computed at a rate of .08% per annum on the
average daily unused portion of the revolving credit.
--------------------------------------------------------------------------------
54
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--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
55
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford International Fund
----------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
-------------------------------------------------------
Common Stocks -- 99.6%
-------------------------------------------------------
Shares Value
-------------------------------------------------------
Australia -- 2.3%
Business Services -- 0.6%
153,410 Brambles Industries Ltd. $ 4,709,916
Energy-Miscellaneous -- 0.6%
430,100 Broken Hill Ppty. 5,080,121
Financial-Banks -- 0.4%
197,600 National Australia Bank 3,296,837
Food, Beverage and Tobacco -- 0.3%
1,014,300 Fosters Brewing Group 2,851,030
Merchandising-Mass -- 0.4%
970,000 Woolworths Ltd.* 3,576,369
-----------
19,514,273
-------------------------------------------------------
Finland -- 5.6%
Telecommunications -- 5.6%
742,002 Nokia OYJ 37,863,385
195,950 Sonera OYJ 8,932,762
-----------
46,796,147
-------------------------------------------------------
France -- 11.0%
Electronics and Instuments -- 1.2%
44,680 Legrand 10,024,163
Financial-Banks -- 1.2%
101,960 BNP Paribas 9,811,998
Insurance -- 1.9%
100,950 AXA UAP 15,902,206
Media and Entertainment -- 1.6%
198,200 Societe Television Francaise 1 13,813,178
Oil and Gas Producing -- 3.0%
160,730 Total Fina Elf S.A. 24,643,909
Retail-Food and Drug -- 2.1%
133,380 Aventis S.A.* 9,734,985
112,540 Carrefour 7,692,846
-----------
91,623,285
-------------------------------------------------------
Germany -- 6.6%
Business Services -- 2.3%
36,330 Intershop Comm.* 16,405,658
89,320 T Online* 2,895,047
Chemicals-Miscellaneous -- 1.1%
229,220 BASF AG 9,213,014
Computer Software -- 1.8%
96,825 SAP AG 14,374,244
Drugs and Hospitals -- 0.4%
99,440 GEHE AG 3,275,272
Electronics and Instruments -- 1.0%
83,406 Epcos AG* 8,320,303
-----------
54,483,538
-------------------------------------------------------
Hong Kong -- 3.5%
Computer Systems -- 0.3%
2,670,000 Legend Hldgs. Ltd. 2,585,915
Conglomerates -- 0.7%
440,000 Hutchison Whampoa 5,531,396
Financial-Banks -- 0.6%
2,038,600 Bank of East Asia Ltd. 4,759,479
Real Estate -- 1.2%
886,000 Cheung Kong Hldgs. 9,745,943
Telecommunications -- 0.5%
332,000 China Mobile* 2,927,971
814,000 China Unicom Ltd.* 1,717,696
Utilities-Electric -- 0.2%
638,500 Hong Kong Electric* 2,055,846
-----------
29,324,246
-------------------------------------------------------
Ireland -- 1.7%
Construction Materials -- 1.7%
755,910 CRH PLC 13,639,518
-------------------------------------------------------
Italy -- 4.5%
Financial-Banks -- 3.1%
1,033,800 Bipop-Carire SPA 8,132,627
1,006,900 San Paolo IMI SPA 17,870,341
Telecommunications -- 1.4%
1,108,950 Telecom Italia SPA 11,328,251
-----------
37,331,219
-------------------------------------------------------
Japan -- 21.9%
Automotive -- 1.1%
208,000 Toyota Motor Corp. 9,468,357
Chemicals -- 1.2%
1,697,000 Sumitomo Chemical 10,203,912
Commercial Services -- 0.2%
33,800 Benesse Corp. 2,341,360
Computer Software and
Technology -- 0.4%
23,700 Softbank Corp. 3,216,437
Computer Systems -- 1.3%
301,000 Fujitsu Ltd. 10,411,103
Drugs and Hospitals -- 1.3%
161,000 Takeda Chemical Industries
Ltd. 10,560,860
Electronics and Instruments -- 5.2%
33,500 Hirose Electric Co. Ltd.* 5,212,620
667,000 Hitachi 9,617,926
51,000 Kyocera Corp. 8,647,001
33,500 Rohm Co. 9,787,475
106,700 Sony Corp. 9,955,516
Engineering and Machineries -- 1.3%
57,300 SMC Corp. 10,773,621
Financial-Other -- 4.1%
841,000 Mitsubishi Trading & Brokerage 6,523,190
344,000 Nomura Securities Co. Ltd. 8,413,176
125,000 Promise Co. 9,872,297
729,000,000 Sanwa Int'l. Financial
Ltd.* 6,922,082
354,000 Sumitomo Marine & Fire
Insurance* 2,058,508
Household Products -- 1.3%
351,000 Kao Corp. 10,718,063
-------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
56
<PAGE>
Shares Value
------------------------------------------------------
Retail Trade -- 1.0%
19,600 Fast Retailing Co. Ltd.* $ 8,201,687
Telecommunications -- 3.5%
895 Nippon Tele. & Tel. Corp. 11,893,408
624 NTT DoCoMo, Inc. 16,878,376
------------
181,676,975
------------------------------------------------------
Netherlands -- 7.7%
Broadcasting and Publishing -- 2.3%
364,270 Ver Ned Uitgevers* 18,814,288
Computer Services -- 0.6%
372,680 CMG PLC 5,265,807
Computer Systems -- 1.2%
225,600 ASM Lithography Hldg. NV* 9,696,426
Electronics and Instruments -- 2.4%
428,450 Philips Electronics (KON) 20,206,645
Insurance -- 1.2%
273,400 Aegon NV 9,728,033
------------
63,711,199
------------------------------------------------------
New Zealand -- 0.5%
Telecommunications -- 0.5%
1,063,112 Telecom. Corp. of
New Zealand 3,715,358
------------------------------------------------------
Portugal -- 1.6%
Business Services -- 0.7%
PT Multimedia SGPS
93,920 Common* 4,662,604
93,920 Rights* 720,014
Transportation -- 0.9%
888,060 Brisa (Auto Estrada) 7,647,438
------------
13,030,056
------------------------------------------------------
Singapore -- 0.4%
Publishing and Printing -- 0.4%
238,846 Singapore Press Hldgs. 3,734,130
------------------------------------------------------
South Korea -- 1.0%
Electronics and Instruments -- 0.5%
21,500 Samsung Electronics GDR* 4,214,000
Utilities-Electric -- 0.5%
227,440 Korea Electric Power
Corp. ADR* 4,193,425
------------
8,407,425
------------------------------------------------------
Spain -- 3.0%
Financial-Banks -- 1.1%
886,200 Banco Santander Central
Hispano S.A.* 9,348,913
Telecommunications -- 1.9%
738,570 Telefonica S.A.* 15,865,045
------------
25,213,958
------------------------------------------------------
Sweden -- 4.6%
Construction and Mining
Equipment -- 0.6%
264,217 Atlas Copco AB 4,942,835
Retail-General -- 0.4%
146,110 Hennes & Mauritz 3,048,100
Telecommunications -- 3.6%
1,542,120 LM Ericsson 30,510,197
------------
38,501,132
------------------------------------------------------
Switzerland -- 4.3%
Business Services -- 1.9%
18,309 Adecco S.A. 15,555,860
Drugs and Hospitals -- 0.9%
748 Roche Hldgs. AG 7,281,457
Financial-Banks -- 1.5%
64,960 Credit Suisse Group 12,921,915
------------
35,759,232
------------------------------------------------------
Taiwan -- 0.5%
Electronics and Instruments -- 0.5%
143,190 Winbond Electronics Corp. GDR* 4,116,713
------------------------------------------------------
United Kingdom -- 18.9%
Capital Equipment -- 0.0%
39,460 Psion PLC 381,527
Computer Software -- 0.4%
393,380 Sage Group 3,184,444
Conglomerates -- 0.4%
278,000 Smiths Industries PLC 3,617,519
Constructions -- 0.9%
1,084,000 Hanson PLC 7,659,734
Drugs and Hospitals -- 2.4%
489,000 Glaxo Wellcome 14,257,983
438,000 Smithkline Beecham 5,732,680
Electronics -- 0.7%
199,000 ARM Hldgs. PLC* 2,131,836
373,000 Electrocomponents 3,809,607
Financial-Banks -- 3.2%
252,000 Barclays 6,264,777
300,625 Halifax PLC 2,883,911
654,000 HSBC Hldgs. 7,476,180
502,000 Lloyds TSB Group PLC 4,739,754
330,088 Royal Bank of Scotland* 5,523,984
Financial Services -- 1.3%
403,500 Amvescap PLC 6,471,678
258,000 CGU PLC* 4,294,177
Food, Beverage and Tobacco -- 1.3%
961,900 Imperial Tobacco* 9,213,002
145,702 Whitbread 1,311,747
Insurance -- 0.3%
186,000 Prudential Corp. 2,724,306
Leisure Products -- 0.3%
240,000 Granada Group 2,396,750
Oil and Gas -- 0.6%
617,000 Shell Transport & Trading* 5,148,707
Oil-Integrated-International -- 2.3%
1,947,936 BP Amoco PLC 18,686,651
------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
57
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford International Fund
----------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)(Continued)
Shares Value
------------------------------------------------------
Telecommunications -- 4.8%
547,000 British Telecom. $ 7,068,263
129,496 Cable & Wireless Co. 2,192,570
58,000 Energis PLC* 2,174,687
6,888,188 Vodafone Airtouch PLC 27,828,115
------------
157,174,589
------------------------------------------------------
Total Common Stocks
(Cost $626,245,950) 827,752,993
------------------------------------------------------
Total Investments -- 99.6%
(Cost $626,245,950) 827,752,993
Cash, Receivables and Other
Assets Less Liabilities -- 0.4% 3,665,261
------------------------------------------------------
Net Assets -- 100.0% $831,418,254
------------------------------------------------------
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, 2000 (Unaudited)
ASSETS
Investments, at market (cost $626,245,950) $ 827,752,993
Foreign currency (cost $3,852,364) 3,747,696
Dividend reclaims receivable 699,081
Receivable for securities sold 596,058
Dividends receivable 410,971
Receivable for fund shares sold 100,559
Other assets 975
-------------
TOTAL ASSETS 833,308,333
-------------
LIABILITIES
Accrued expenses 955,813
Due to custodian 491,552
Payable for fund shares redeemed 442,714
-------------
TOTAL LIABILITIES 1,890,079
-------------
NET ASSETS $ 831,418,254
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 3,379,034
Additional paid-in capital 527,199,068
Distributions in excess of net investment income (731,018)
Accumulated net realized gain on investments
and foreign currency related transactions 100,174,215
Net unrealized appreciation of investments
and translation of other assets and
liabilities denominated in foreign currencies 201,396,955
-------------
NET ASSETS $ 831,418,254
=============
Shares Outstanding -- $0.10 par value 33,790,341
-------------
NET ASSET VALUE PER SHARE $ 24.61
=============
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
Investment Income:
Dividends $ 6,739,092
Interest 162,925
Less: Foreign tax withheld (975,824)
-------------
Total Income 5,926,193
-------------
Expenses:
Investment advisory fees -- Note B 3,560,691
Custodian fees 504,423
Printing expense 71,385
Audit fees 11,623
Directors' fees -- Note B 6,215
Legal fees 3,228
Insurance expense 802
Loan commitment fees -- Note F 669
Registration fees 566
Other 350
-------------
Total Expenses 4,159,952
-------------
Net Investment Income 1,766,241
-------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized gain on investments -- Note A 83,611,879
Net realized loss on foreign currency
related transactions -- Note A (2,132,487)
Net change in unrealized appreciation of
investments -- Note C (158,216,094)
Net change in unrealized depreciation from
translation of assets and liabilities
denominated in foreign currencies -- Note C 39,298
-------------
Net Realized and Unrealized Loss on
Investments and Foreign Currencies (76,697,404)
-------------
Net Decrease in Net Assets
from Operations $ (74,931,163)
=============
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, 2000 1999
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 1,766,241 $ 2,932,227
Net realized gain on investments and foreign currency related transactions 81,479,392 76,071,155
Net change in unrealized appreciation/(depreciation) on investments and
translation of other assets and liabilities denominated in foreign currencies (158,176,796) 183,327,012
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations (74,931,163) 262,330,394
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income -- (2,932,227)
Distributions in excess of net investment income -- (349,444)
Net realized gain on investments -- (64,946,896)
------------- -------------
Total Dividends and Distributions to Shareholders -- (68,228,567)
------------- -------------
From Capital Share Transactions:
Increase/(Decrease) in net assets from capital share transactions -- Note E (27,194,525) 59,152,053
------------- -------------
Net Increase/(Decrease) in Net Assets (102,125,688) 253,253,880
Net Assets:
Beginning of period 933,543,942 680,290,062
------------- -------------
End of period* $ 831,418,254 $ 933,543,942
============= =============
* Includes distributions in excess of net investment income of: $ (731,018) $ (2,497,259)
</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, 2000 ---------------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............. $ 26.78 $ 20.92 $ 18.27 $ 17.26 $ 15.37 $ 14.69
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ........... 0.05 0.10 0.13 0.15 0.15 0.16
Net realized and unrealized
gain on investments and
translation of other assets and
liabilities denominated
in foreign currencies ......... (2.22) 7.86 3.73 1.91 2.21 1.49
----------- ----------- ----------- ----------- ----------- -----------
Net increase/(decrease) from
investment operations ......... (2.17) 7.96 3.86 2.06 2.36 1.65
----------- ----------- ----------- ----------- ----------- -----------
Dividends and Distributions to
Shareholders from:
Net investment income ........... -- (0.09) (0.11) (0.15) (0.14) (0.15)
Distributions in excess of net
investment income ............. -- (0.01) (0.01) (0.15) (0.10) (0.12)
Net realized gain on investments
and foreign currency related
transactions .................. -- (2.00) (1.09) (0.75) (0.23) (0.70)
----------- ----------- ----------- ----------- ----------- -----------
Total dividends and distributions -- (2.10) (1.21) (1.05) (0.47) (0.97)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period .... $ 24.61 $ 26.78 $ 20.92 $ 18.27 $ 17.26 $ 15.37
----------- ----------- ----------- ----------- ----------- -----------
Total return* ..................... (8.10)% 39.11% 21.17% 11.93% 15.41% 11.23%
----------- ----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............... $ 831,418 $ 933,544 $ 680,290 $ 534,711 $ 456,203 $ 317,287
Ratio of expenses to average
net assets .................... 0.93%(a) 0.96% 0.98% 0.97% 0.98% 0.99%
Ratio of net investment income
to average net assets ......... 0.40%(a) 0.40% 0.55% 0.74% 0.94% 0.97%
Portfolio turnover
rate .......................... 30% 52% 47% 51% 38% 52%
</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, 2000 (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 or the Fund), 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 The Guardian Insurance & Annuity Company, Inc. (GIAC) are presented in
separate reports. Shares of the Fund are only sold to certain separate accounts
of GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance
Company of America.
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 other assets
and liabilities denominated in foreign currency at the period end exchange rate
are reflected in net change in unrealized appreciation or depreciation from
translation of other assets and liabilities denominated in foreign currencies.
Forward Foreign Currency Contracts
The Fund may enter into forward foreign currency contracts in connection
with planned purchases or sales of securities, or to hedge against changes in
currency exchange rates affecting the values of securities denominated in a
particular currency. A forward exchange currency contract is a commitment to
purchase or sell a
--------------------------------------------------------------------------------
62
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
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.
Futures Contracts
The Fund may enter into financial futures contracts for the delayed
delivery of securities, currency or contracts based on financial indices at a
fixed price on a future date. In entering into such contracts, the Fund is
required to deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or received by
the Fund each day, depending on the daily fluctuations in the value of the
underlying security, and are recorded for financial statement purposes as
unrealized gains or losses by the Fund. The Fund's investments in financial
futures contracts are designed to hedge against anticipated future changes in
interest or exchange rates or securities prices (or for non-hedging purposes).
Should interest or exchange rates or securities prices move unexpectedly, the
Fund may not achieve the anticipated benefits of the financial futures contracts
and may realize a loss.
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.
Withholding taxes on foreign interest, dividends and capital gains in BGIF
have been provided for in accordance with the applicable country's tax rules and
rates.
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.
Reclassification 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
--------------------------------------------------------------------------------
63
<PAGE>
--------------------------------------------------------------------------------
GIAC Funds, Inc. (Baillie Gifford International Fund)
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
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 a sub-investment management agreement with BG Overseas pursuant to which BG
Overseas is responsible for the day-to-day management of the Fund. GBG
continually monitors and evaluates the performance of BG Overseas.
As compensation for its services, GBG receives a management fee computed
at the 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, 2000 were as follows:
Purchases ........................................................ $261,167,498
Proceeds ......................................................... $274,875,946
The cost of investments owned at June 30, 2000 for federal income tax
purposes was substantially the same as the cost for financial reporting
purposes. The gross unrealized appreciation and depreciation of investments
excluding foreign currency at June 30, 2000 were as follows:
Gross Appreciation ............................................ $ 231,725,173
Gross Depreciation ............................................ (30,218,130)
-------------
Net Unrealized Appreciation ................................ $ 201,507,043
=============
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.
--------------------------------------------------------------------------------
64
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
---------------------------------------
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,
2000 1999 2000 1999
(Unaudited) (Audited) (Unaudited) (Audited)
-----------------------------------------------------------------------------------------------------------------
Shares Amount
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,059,704 4,523,096 $ 53,365,190 $ 100,665,748
Shares issued in reinvestment of
dividends and distributions -- 2,779,331 -- 68,228,567
Shares repurchased (3,135,287) (4,948,683) (80,559,715) (109,742,262)
-----------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (1,075,583) 2,353,744 $ (27,194,525) $ 59,152,053
-----------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------
Note F -- Line of Credit
------------------------
A $100,000,000 line of credit available to the Fund and other related
Guardian Funds has been established with State Street Bank and Trust Company and
Bank of Montreal. The rate of interest charged on any borrowing is based upon
the prevailing Federal Funds rate at the time of the loan plus .50% calculated
on a 360 day basis per annum. For the period ended June 30, 2000, the Fund did
not borrow against this line of credit.
The Fund is obligated to pay State Street Bank and Trust Company and Bank
of Montreal a commitment fee computed at a rate of .08% per annum on the average
daily unused portion of the revolving credit.
--------------------------------------------------------------------------------
65
<PAGE>
--------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
-------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Common Stocks -- 98.2%
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Advertising -- 1.0%
100,000 Omnicom Group, Inc. $ 8,906,250
--------------------------------------------------------------------------------
Bank -- 3.9%
400,000 Chase Manhattan Corp. 18,425,000
100,000 State Street Corp. 10,606,250
140,000 Zions Bancorporation 6,424,688
-----------
35,455,938
--------------------------------------------------------------------------------
Bank-Midwest -- 0.7%
100,000 Fifth Third Bancorp 6,325,000
--------------------------------------------------------------------------------
Computer & Peripherals -- 10.5%
320,000 Cisco Systems, Inc.* 20,340,000
330,000 Dell Computer Corp.* 16,273,125
225,000 EMC Corp.* 17,310,938
135,000 International Business Machines Corp. 14,790,937
180,000 Network Appliance, Inc.* 14,490,000
150,000 Sun Microsystems, Inc.* 13,640,625
-----------
96,845,625
--------------------------------------------------------------------------------
Computer Software & Services -- 4.5%
100,000 Adobe Systems, Inc. 13,000,000
200,000 Microsoft Corp.* 16,000,000
150,000 Oracle Corp.* 12,609,375
-----------
41,609,375
--------------------------------------------------------------------------------
Diversified Companies -- 3.1%
240,000 Honeywell International, Inc. 8,085,000
300,000 Tyco International Ltd. 14,212,500
100,000 United Technologies Corp. 5,887,500
-----------
28,185,000
--------------------------------------------------------------------------------
Drug -- 8.2%
75,000 Biogen, Inc.* 4,837,500
150,000 Immunex Corp.* 7,415,625
125,000 Lilly (Eli) & Co. 12,484,375
120,000 MedImmune, Inc.* 8,880,000
180,000 Merck & Co., Inc. 13,792,500
300,000 Pfizer, Inc. 14,400,000
275,000 Schering-Plough Corp. 13,887,500
-----------
75,697,500
--------------------------------------------------------------------------------
Drugstore -- 0.9%
200,000 CVS Corp. 8,000,000
--------------------------------------------------------------------------------
Electric Utility - Central -- 1.0%
200,000 AES Corp. (The)* 9,125,000
--------------------------------------------------------------------------------
Electrical Equipment -- 3.2%
35,000 Corning Inc. 9,445,625
375,000 General Electric Co. 19,875,000
-----------
29,320,625
--------------------------------------------------------------------------------
Electronics -- 2.0%
100,000 Flextronics International, Ltd.* 6,868,750
100,000 JDS Uniphase Corp.* 11,987,500
-----------
18,856,250
--------------------------------------------------------------------------------
Entertainment -- 3.4%
200,000 Clear Channel Communications, Inc.* 15,000,000
215,000 Time Warner, Inc. 16,340,000
-----------
31,340,000
--------------------------------------------------------------------------------
Financial Services - Diversified -- 5.7%
300,000 American Express Co. 15,637,500
156,250 American International Group, Inc. 18,359,375
300,000 Citigroup, Inc. 18,075,000
-----------
52,071,875
--------------------------------------------------------------------------------
Foreign Telecommunications -- 1.5%
200,000 Nortel Networks Corp. 13,650,000
--------------------------------------------------------------------------------
Grocery -- 1.0%
200,000 Safeway Inc.* 9,025,000
--------------------------------------------------------------------------------
Household Products -- 1.2%
185,000 Colgate-Palmolive Co. 11,076,875
--------------------------------------------------------------------------------
Insurance - Life -- 1.2%
320,000 AXA Financial, Inc. 10,880,000
--------------------------------------------------------------------------------
Internet -- 1.7%
300,000 America Online, Inc.* 15,825,000
--------------------------------------------------------------------------------
Medical Supplies -- 3.6%
150,000 Cardinal Health, Inc. 11,100,000
120,000 Johnson & Johnson 12,225,000
200,000 Medtronic, Inc. 9,962,500
-----------
33,287,500
--------------------------------------------------------------------------------
Metals & Mining - Diversified -- 1.2%
380,000 Alcoa, Inc. 11,020,000
--------------------------------------------------------------------------------
Paper & Forest Products -- 1.0%
300,000 International Paper Co. 8,943,750
--------------------------------------------------------------------------------
Precision Instrument -- 0.5%
80,000 KLA-Tencor Corp.* 4,685,000
--------------------------------------------------------------------------------
Recreation -- 1.1%
270,000 Harley-Davidson, Inc. 10,395,000
--------------------------------------------------------------------------------
Retail Building Supply -- 1.6%
165,000 Home Depot, Inc. (The) 8,239,687
160,000 Lowe's Companies, Inc. 6,570,000
-----------
14,809,687
--------------------------------------------------------------------------------
Retail - Special Lines -- 8.1%
400,000 Bed Bath & Beyond Inc.* 14,500,000
200,000 Best Buy Co., Inc.* 12,650,000
370,000 Circuit City Stores, Inc. -
Circuit City Group 12,279,375
325,000 Gap, Inc. (The) 10,156,250
700,000 Intimate Brands Inc. Class "A" 13,825,000
160,000 Tiffany & Co. 10,800,000
-----------
74,210,625
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
66
<PAGE>
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Retail Store -- 5.7%
280,000 Costco Wholesale Corp.* $ 9,240,000
300,000 Kohl's Corp.* 16,687,500
200,000 Target Corp. 11,600,000
250,000 Wal-Mart Stores, Inc. 14,406,250
------------
51,933,750
--------------------------------------------------------------------------------
Securities Brokerage -- 2.5%
200,000 Donaldson, Lufkin &
Jenrette, Inc - DLJ 8,487,500
50,000 Lehman Brothers Holdings, Inc. 4,728,125
300,000 Schwab (Charles) Corp. 10,087,500
------------
23,303,125
--------------------------------------------------------------------------------
Semiconductor -- 6.7%
125,000 Intel Corp. 16,710,938
120,000 Motorola, Inc. 3,487,500
100,000 PMC - Sierra, Inc.* 17,768,750
30,000 SDL, Inc.* 8,555,625
200,000 Vitesse Semiconductor Corp.* 14,712,500
------------
61,235,313
--------------------------------------------------------------------------------
Semiconductor - Capital Equipment -- 4.6%
185,000 Altera Corp.* 18,858,437
100,000 Applied Materials, Inc.* 9,062,500
250,000 Novellus Systems, Inc.* 14,140,625
------------
42,061,562
--------------------------------------------------------------------------------
Telecommunications Equipment -- 5.3%
200,000 Lucent Technologies Inc. 11,850,000
140,000 QUALCOMM Inc.* 8,400,000
200,000 Scientific-Atlanta, Inc. 14,900,000
200,000 Tellabs, Inc.* 13,687,500
------------
48,837,500
--------------------------------------------------------------------------------
Thrift -- 1.6%
115,000 Fannie Mae 6,001,562
220,400 Freddie Mac 8,926,200
------------
14,927,762
--------------------------------------------------------------------------------
Total Common Stocks and Total Investment Securities -- 98.2%
(Cost $547,410,475) 901,845,887
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreement -- 2.2%
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
(including accrued interest)
$ 19,800,000 Collateralized by $20,275,000
U.S. Treasury Notes 5 1/2%,
due 2/28/03, with a value of
$20,207,508 (with State Street Bank
& Trust Company, 6.20%,
dated 6/30/00, due 7/3/00,
delivery value $19,810,230) $ 19,803,410
--------------------------------------------------------------------------------
Excess Of Liabilities Over
Cash And Other Assets -- (-0.4%) (3,337,170)
--------------------------------------------------------------------------------
Net Assets -- 100.0% $ 918,312,127
--------------------------------------------------------------------------------
Net Asset Value
Per Outstanding Share
($918,312,127 / 24,759,649
shares of outstanding) $ 37.09
=============
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
67
<PAGE>
--------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS:
Investment securities, at value
(cost $547,410,475) $901,845,887
Repurchase agreement (cost $19,803,410) 19,803,410
Cash 85,937
Dividends receivable 167,275
Receivable for capital shares sold 41,846
Prepaid insurance expense 5,000
------------
TOTAL ASSETS 921,949,355
------------
LIABILITIES:
Payable for securities purchased 2,594,216
Payable for capital shares repurchased 468,350
Accrued expenses:
Advisory fee 375,750
GIAC administrative service fee 150,000
Other 48,912
------------
TOTAL LIABILITIES 3,637,228
------------
NET ASSETS $918,312,127
============
NET ASSETS consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000, outstanding
24,759,649 shares) $ 24,759,649
Additional paid-in capital 364,881,632
Undistributed net investment income 741,151
Undistributed net realized gain on investments 173,494,283
Net unrealized appreciation of investments 354,435,412
------------
NET ASSETS $918,312,127
============
NET ASSET VALUE
PER OUTSTANDING SHARE
($918,312,127 / 24,759,649
shares outstanding) $ 37.09
============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Dividends (Net of foreign withholding
tax of $563) $ 2,034,352
Interest and other 866,605
------------
Total Income 2,900,957
------------
Expenses:
Investment advisory fee 2,297,392
GIAC administrative service fee 291,528
Custodian fees 47,857
Postage 29,019
Auditing and legal fees 19,251
Taxes and other 15,519
Insurance and dues 9,558
Directors' fees and expenses 7,152
Printing 5,132
------------
Total Expenses Before Custody Credits 2,722,408
Less:Custody Credits (1,618)
------------
Net Expenses 2,720,790
------------
Net Investment Income 180,167
------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain 46,103,137
Change in net unrealized appreciation (23,553,201)
------------
Net Realized Gain and Change in Net
Unrealized Appreciation on Investments 22,549,936
------------
Net Increase in Net Assets from Operations $ 22,730,103
============
See notes to financial statements.
--------------------------------------------------------------------------------
68
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 2000 (Unaudited) and
for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
2000 December 31,
(Unaudited) 1999
----------- ------------
<S> <C> <C>
Operations:
Net investment income $ 180,167 $ 700,117
Net realized gain on investments 46,103,137 128,491,663
Change in net unrealized appreciation (23,553,201) 89,602,937
------------- -------------
Net increase in net assets from operations 22,730,103 218,794,717
------------- -------------
Distributions to Shareholder:
Net investment income -- (2,362,927)
Net realized gain from investment transactions -- (63,536,476)
------------- -------------
Total distributions -- (65,899,403)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares 36,113,940 112,347,438
Proceeds from reinvestment of dividends and distributions to shareholder -- 65,899,403
Cost of shares repurchased (111,903,925) (174,977,296)
------------- -------------
Net (decrease) increase from capital share transactions (75,789,985) 3,269,545
------------- -------------
Total (Decrease) Increase in Net Assets (53,059,882) 156,164,859
Net Assets:
Beginning of period 971,372,009 815,207,150
============= =============
End of period $ 918,312,127 $ 971,372,009
============= =============
Undistributed Net Investment Income, at End of Period $ 741,151 $ 560,984
============= =============
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
69
<PAGE>
--------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
------------------------------------
1 -- Significant Accounting Policies
------------------------------------
Value Line Centurion Fund, Inc. (the "Fund") is an open-end diversified
management investment company registered under the Investment Company Act of
1940, as amended, whose primary investment objective is long-term growth of
capital. The Fund's portfolio will usually consist of common stocks ranked 1 or
2 for year-ahead performance by The Value Line Investment Survey, one of the
nation's major investment advisory services.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently 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
provision 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 dis-
--------------------------------------------------------------------------------
70
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
count, including original issue discount required for federal income tax
purposes, is earned from settlement date and recognized on the accrual basis.
Dividend income is recorded on the ex-dividend date.
------------------------------------------------------------
2 -- Capital Share Transactions, Dividends and Distributions
------------------------------------------------------------
Shares of the Fund are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance and Annuity Company, Inc.
(GIAC). Transactions in capital stock were as follows:
Six Months
Ended
June 30, Year Ended
2000 December 31,
(Unaudited) 1999
----------- ------------
Shares sold 1,013,849 3,485,591
Shares issued in reinvestment
of dividends and distributions -- 2,140,286
----------- -----------
1,013,849 5,625,877
Shares repurchased 3,171,471 5,492,925
----------- -----------
Net (decrease) increase (2,157,622) 132,952
----------- -----------
Dividends per share from net
investment income $ -- $ .09
=========== ===========
Distributions per share from
net realized gains $ -- $ 2.42
=========== ===========
--------------------------------------
3 -- Purchases and Sales of Securities
--------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Six Months Ended
June 30, 2000
(Unaudited)
----------------
PURCHASES:
Investment Securities $239,501,583
============
SALES:
Investment Securities $317,559,361
============
At June 30, 2000, the aggregate cost of investment securities and
repurchase agreement for federal income tax purposes was $567,245,553. The
aggregate appreciation and depreciation of investments at June 30, 2000, based
on a comparison of investment values and their costs for federal income tax
purposes was $369,917,006 and $15,513,262 respectively, resulting in a net
appreciation of $354,403,744.
------------------------------------------------------------------------
4 -- Investment Advisory Contract, Management Fees and Transactions with
Interested Parties
------------------------------------------------------------------------
An advisory fee of $2,297,392 was paid or payable to Value Line, Inc. (the
"Adviser"), the Fund's investment adviser, for the six months ended June 30,
2000. 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) are also officers
and directors of the Fund. During the six months ended June 30, 2000, the Fund
paid brokerage commissions totalling $214,393 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, 2000, the
Fund incurred expenses of $291,528 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, 2000 -----------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .................... $ 36.09 $ 30.44 $ 25.52 $ 24.83 $ 24.25 $ 17.83
-------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income ................ .01 .03 .09 .09 .08 .12
Net gains on securities
(both realized and unrealized) ..... .99 8.13 6.67 5.30 3.71 6.96
-------- -------- -------- -------- -------- --------
Total from investment operations ..... 1.00 8.16 6.76 5.39 3.79 7.08
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income . -- (0.09) (0.09) (.09) (.12) (0.10)
Distributions from capital gains ..... -- (2.42) (1.75) (4.61) (3.09) (0.56)
-------- -------- -------- -------- -------- --------
Total distributions .................. -- (2.51) (1.84) (4.70) (3.21) (0.66)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ........... $ 37.09 $ 36.09 $ 30.44 $ 25.52 $ 24.83 $ 24.25
======== ======== ======== ======== ======== ========
Total return** ........................... 2.77%+ 28.23% 27.47% 21.39% 17.34% 40.08%
======== ======== ======== ======== ======== ========
Ratios/Supplemental data:
Net assets, end of period
(in thousands) ....................... $918,312 $971,372 $815,207 $720,091 $639,341 $525,449
Ratio of expenses to
average net assets ................... 0.59%*(1) 0.59%(1) 0.59%(1) 0.60%(1) 0.59%(1) 0.62%
Ratio of net investment income
to average net assets ................ .04%* .08% .31% .35% .36% .60%
Portfolio turnover rate ................ 27%+ 64% 112% 85% 141% 114%
</TABLE>
(+) Not annualized
(*) Annualized
** 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.
(1) Ratio reflects expenses grossed up for custody credit arrangement. The
ratio of expenses to average net assets net of custody credits would not
have changed.
See notes to financial statements.
--------------------------------------------------------------------------------
72
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--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
73
<PAGE>
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
-------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Common Stocks -- 57.4%
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Advertising -- 1.2%
36,000 Interpublic Group of Companies, Inc. $ 1,548,000
177,000 Omnicom Group, Inc. 15,764,062
16,000 TMP Worldwide, Inc.* 1,181,000
------------
18,493,062
--------------------------------------------------------------------------------
Aerospace/Defense -- 0.6%
193,000 General Dynamics Corp. 10,084,250
--------------------------------------------------------------------------------
Bank-Midwest -- 0.6%
68,000 Fifth Third Bancorp 4,301,000
70,000 Northern Trust Corp. 4,554,375
37,485 Old Kent Financial Corp. 1,002,724
------------
9,858,099
--------------------------------------------------------------------------------
Beverage-Alcoholic -- 0.2%
62,000 Coors (Adolph) Co. Class "B" 3,751,000
--------------------------------------------------------------------------------
Cable TV -- 1.0%
86,000 Cablevision Systems Corp. Class "A"* 5,837,250
100,000 Comcast Corp. Class "A"* 4,050,000
202,000 EchoStar Communications Corp. Class "A"* 6,688,094
------------
16,575,344
--------------------------------------------------------------------------------
Chemical-Diversified -- 0.2%
43,000 Millipore Corp. 3,241,125
--------------------------------------------------------------------------------
Chemical-Specialty -- 0.2%
58,000 Avery Dennison Corp. 3,893,250
--------------------------------------------------------------------------------
Computer & Peripherals -- 4.1%
66,000 Apple Computer, Inc.* 3,456,750
90,000 Cabletron Systems, Inc.* 2,272,500
400,844 Cisco Systems, Inc.* 25,478,647
91,000 Dell Computer Corp.* 4,487,437
70,000 EMC Corp.* 5,385,625
40,000 Hewlett-Packard Co. 4,995,000
29,000 SanDisk Corp.* 1,774,438
100,000 Silicon Storage Technology, Inc.* 8,831,250
98,000 Sun Microsystems, Inc.* 8,911,875
------------
65,593,522
--------------------------------------------------------------------------------
Computer Software & Services -- 8.6%
32,000 Actuate Corp.* 1,708,000
95,000 Adobe Systems, Inc. 12,350,000
64,000 BroadVision, Inc.* 3,252,000
23,000 Business Objects S.A. (ADR)* 2,026,875
146,000 Citrix Systems, Inc.* 2,764,875
158,000 Comverse Technology, Inc.* 14,694,000
210,000 Electronic Data Systems Corp 8,662,500
64,000 Fiserv, Inc.* 2,768,000
2,000 Inktomi Corp.* 236,500
22,000 IONA Technologies PLC (ADR)* 1,386,000
331,000 Mercury Interactive Corp.* 32,024,250
131,000 Microsoft Corp.* 10,480,000
344,250 Paychex, Inc. 14,458,500
41,000 Rational Software Corp.* 3,810,438
167,000 Siebel Systems, Inc.* 27,314,937
------------
137,936,875
--------------------------------------------------------------------------------
Diversified Companies -- 1.0%
28,000 Textron, Inc. 1,520,750
228,000 Tyco International Ltd. 10,801,500
62,000 United Technologies Corp. 3,650,250
------------
15,972,500
--------------------------------------------------------------------------------
Drug -- 4.2%
158,000 Biogen, Inc.* 10,191,000
159,000 Biovail Corporation International *8,814,562
110,000 Forest Laboratories, Inc.* 11,110,000
10,000 Gene Logic Inc.* 356,875
52,000 Ivax Corp.* 2,158,000
147,000 MedImmune, Inc.* 10,878,000
172,000 Millennium Pharmaceuticals, Inc.* 19,242,500
27,000 Sepracor, Inc.* 3,256,875
40,000 Titan Pharmaceuticals, Inc.* 1,720,000
------------
67,727,812
--------------------------------------------------------------------------------
Electric Utility-Central -- 0.9%
306,000 AES Corp. (The)* 13,961,250
--------------------------------------------------------------------------------
Electric Utility-West -- 0.4%
88,000 Calpine Corp.* 5,786,000
--------------------------------------------------------------------------------
Electrical Equipment -- 3.2%
36,000 AVX Corp. 825,750
75,000 Brooks Automation, Inc.* 4,795,312
18,000 Corning Inc. 4,857,750
545,000 General Electric Co. 28,885,000
24,000 Kopin Corp.* 1,662,000
24,000 Power-One, Inc.* 2,734,500
108,000 Semtech Corp.* 8,260,313
------------
52,020,625
--------------------------------------------------------------------------------
Electronics -- 3.6%
36,000 Adaptive Broadband Corp.* 1,323,000
162,000 Gemstar International Group Ltd.* 9,955,406
156,000 JDS Uniphase Corp.* 18,700,500
349,687 Symbol Technologies, Inc. 18,883,098
53,000 Titan Corp.* 2,371,750
78,000 Varian Medical Systems, Inc.* 3,051,750
78,000 Vishay Intertechnology, Inc.* 2,959,125
------------
57,244,629
--------------------------------------------------------------------------------
Entertainment -- 2.1%
39,000 AMFM Inc.* 2,691,000
86,315 Clear Channel Communications, Inc.* 6,473,625
75,000 Time Warner, Inc. 5,700,000
116,000 USA Networks, Inc.* 2,508,500
33,000 Univision Communications, Inc.
Class "A"* 3,415,500
182,280 Viacom, Inc. Class "B"* 12,429,218
------------
33,217,843
--------------------------------------------------------------------------------
Financial Services-Diversified -- 0.2%
65,000 Citigroup, Inc. 3,916,250
--------------------------------------------------------------------------------
Food Processing -- 0.5%
114,000 Quaker Oats Company (The) 8,564,250
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
74
<PAGE>
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Food Wholesalers -- 0.1%
50,000 SYSCO Corp. $ 2,106,250
--------------------------------------------------------------------------------
Foreign Telecommunication -- 2.0%
160,000 Ericsson (L.M.) Telephone Co.
(ADR) Class "B" 3,200,000
96,000 Nokia Corp. (ADR) 4,794,000
212,000 Nortel Networks Corp. 14,469,000
60,000 Telefonos de Mexico S.A. de CV (ADR) 3,427,500
152,500 Vodafone AirTouch PLC (ADR) 6,319,219
-----------
32,209,719
--------------------------------------------------------------------------------
Furniture/Home Furnishings -- 0.1%
90,000 Ethan Allen Interiors, Inc. 2,160,000
--------------------------------------------------------------------------------
Industrial Services -- 0.3%
140,000 Robert Half International, Inc.* 3,990,000
20,000 TeleTech Holdings, Inc.* 621,250
-----------
4,611,250
--------------------------------------------------------------------------------
Internet -- 0.8%
70,000 America Online, Inc.* 3,692,500
66,000 Macromedia, Inc.* 6,381,375
12,900 VeriSign, Inc.* 2,276,850
-----------
12,350,725
--------------------------------------------------------------------------------
Machinery -- 0.8%
56,000 Dover Corp. 2,271,500
150,000 PRI Automation, Inc.* 9,808,594
-----------
12,080,094
--------------------------------------------------------------------------------
Medical Supplies -- 1.8%
214,000 Allergan, Inc. 15,943,000
82,000 Alpharma Inc. Class "A" 5,104,500
52,000 Johnson & Johnson 5,297,500
19,000 Techne Corp.* 2,470,000
-----------
28,815,000
--------------------------------------------------------------------------------
Natural Gas-Diversified -- 1.1%
282,000 Enron Corp 18,189,000
--------------------------------------------------------------------------------
Office Equipment & Supplies -- 0.0%
11,000 Lexmark International, Inc. Class "A"* 739,750
--------------------------------------------------------------------------------
Precision Instrument -- 1.3%
15,256 Agilent Technologies, Inc.* 1,125,130
81,000 LTX Corp.* 2,829,938
38,400 Newport Corp. 4,123,200
104,000 Waters Corp.* 12,980,500
-----------
21,058,768
--------------------------------------------------------------------------------
Publishing -- 0.1%
26,000 Reader's Digest Association, Inc. Class "A" 1,033,500
--------------------------------------------------------------------------------
Recreation -- 0.5%
222,000 Harley-Davidson, Inc. 8,547,000
--------------------------------------------------------------------------------
Restaurant -- 0.3%
145,000 Brinker International, Inc.* 4,241,250
--------------------------------------------------------------------------------
Retail Building Supply -- 1.1%
32,000 Fastenal Co. $ 1,620,000
225,000 Home Depot, Inc. (The) 11,235,938
115,000 Lowe's Companies, Inc. 4,722,187
-----------
17,578,125
--------------------------------------------------------------------------------
Retail-Special Lines -- 2.2%
101,000 AnnTaylor Stores Corp.* 3,345,625
10,000 Audiovox Corp. Class "A"* 220,625
181,000 Bed Bath & Beyond Inc.* 6,561,250
164,000 Circuit City Stores, Inc.-
Circuit City Group 5,442,750
150,750 Dollar Tree Stores, Inc.* 5,964,047
100,250 Gap, Inc. (The) 3,132,813
12,810 Intimate Brands, Inc. Class "A" 252,997
20,000 RadioShack Corp. 947,500
131,800 Tiffany & Co. 8,896,500
-----------
34,764,107
--------------------------------------------------------------------------------
Retail Store -- 1.7%
196,000 Kohl's Corp.* 10,902,500
94,000 Target Corp. 5,452,000
196,000 Wal-Mart Stores, Inc. 11,294,500
-----------
27,649,000
--------------------------------------------------------------------------------
Semiconductor -- 6.0%
47,000 Advanced Micro Devices, Inc.* 3,630,750
57,000 Amkor Technology, Inc.* 2,012,813
42,000 Analog Devices, Inc.* 3,192,000
22,000 Applied Micro Circuits Corp.* 2,172,500
67,000 Atmel Corp.* 2,470,625
24,000 Credence Systems Corp.* 1,324,500
68,000 Cypress Semiconductor Corp.* 2,873,000
23,000 Integrated Device Technology, Inc.* 1,377,125
78,000 International Rectifier Corp.* 4,368,000
90,000 Lam Research Corp.* 3,375,000
25,000 Lattice Semiconductor Corp.* 1,728,125
156,000 Linear Technology Corp. 9,974,250
52,000 Maxim Integrated Products, Inc.* 3,532,750
4,000 National Semiconductor Corp.* 227,000
158,000 PMC-Sierra, Inc.* 28,074,625
134,000 QLogic Corp.* 8,852,375
8,000 SDL, Inc.* 2,281,500
100,000 TelCom Semiconductor, Inc.* 4,037,500
101,250 TranSwitch Corp.* 7,815,234
46,000 Varian Semiconductor Equipment Associates, Inc.* 2,889,375
-----------
96,209,047
--------------------------------------------------------------------------------
Telecommunications Equipment -- 2.8%
80,000 ADC Telecommunications, Inc.* 6,710,000
66,000 CommScope, Inc.* 2,706,000
34,000 Polycom, Inc.* 3,199,187
78,000 Powerwave Technologies, Inc.* 3,432,000
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
75
<PAGE>
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
-------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
Shares Value
--------------------------------------------------------------------------------
Telecommunications Equipment -- 2.8% - con't
94,000 QUALCOMM, Inc.* $ 5,640,000
178,000 Scientific-Atlanta, Inc. 13,261,000
70,000 Tekelec* 3,373,125
74,000 Tellabs, Inc.* 5,064,375
100,000 Westell Technologies, Inc. Class "A"* 1,500,000
------------
44,885,687
--------------------------------------------------------------------------------
Telecommunication Services -- 1.0%
5,000 ADTRAN, Inc.* 299,375
43,000 ALLTEL Corp. 2,663,312
76,000 MediaOne Group, Inc.* 5,044,500
96,000 Metromedia Fiber Network, Inc. Class "A"* 3,810,000
72,000 Nextel Communications, Inc. Class "A"* 4,405,500
------------
16,222,687
--------------------------------------------------------------------------------
Wireless Networking -- 0.6%
110,000 RF Micro Devices Inc.* 9,638,750
--------------------------------------------------------------------------------
Total Common Stocks
(Cost $495,213,716) 922,927,395
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
U.S. Treasury Obligations -- 11.8%
--------------------------------------------------------------------------------
$29,000,000 U.S. Treasury Notes 5.25%, due 5/31/01 $ 28,682,827
30,000,000 U.S. Treasury Notes 5.75%, due 6/30/01 29,784,390
15,000,000 U.S. Treasury Notes 6.25%, due 8/31/02 14,943,750
49,000,000 U.S. Treasury Notes 6.50%, due 10/15/06 49,515,789
59,500,000 U.S. Treasury Bonds 7.25%, due 8/15/22 66,751,562
--------------------------------------------------------------------------------
TotaL U.S. Treasury Obligations
(Cost $188,965,111) 189,678,318
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. Government Agency Obligations -- 20.0%
--------------------------------------------------------------------------------
$27,000,000 Federal Home Loan Mortgage Corp.
7.000%, due 2/15/03 $ 27,016,281
13,000,000 Federal Home Loan Mortgage Corp.
7.375%, due 5/15/03 13,123,643
59,000,000 Federal Home Loan Mortgage Corp.
5.000%, due 1/15/04 55,278,693
29,000,000 Federal National Mortgage Association
5.625%, due 5/14/04 27,617,222
17,000,000 Federal Home Loan Mortgage Corp.
6.250%, due 7/15/04 16,529,202
16,000,000 Federal National Mortgage Association
6.500%, due 8/15/04 15,689,696
10,000,000 Federal National Mortgage Association
7.125%, due 2/15/05 10,034,640
23,000,000 Federal National Mortgage Association
5.750%, due 6/15/05 21,794,432
9,000,000 Private Export Funding Corp. Series "J"
7.650%, due 5/15/06 9,251,289
15,000,000 Federal National Mortgage Association
7.125%, due 3/15/07 15,043,800
10,000,000 Federal National Mortgage Association
Pool 380188, 6.45%, due 4/1/08 9,453,125
10,000,000 Federal National Mortgage Association
5.250%, due 1/15/09 8,775,460
45,000,000 Federal National Mortgage Association
6.625%, due 9/15/09 43,398,000
27,000,000 Federal Home Loan Mortgage Corp.
7.000%, due 3/15/10 26,772,525
12,000,000 Federal National Mortgage Association
7.125%, due 6/15/10 12,011,508
12,000,000 Federal Home Loan Mortgage Corp.
6.75%, due 9/15/29 11,475,048
--------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $330,549,895) 323,264,564
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Corporate Bonds and Notes -- 1.1%
--------------------------------------------------------------------------------
Chemical - Diversified -- 0.3%
$5,000,000 Goodrich (B.F.) Co. (The) Notes
6.45%, due 4/15/08 $ 4,564,160
--------------------------------------------------------------------------------
Telecommunication Services-0.8%
5,000,000 AirTouch Communications, Inc. Notes
6.65%,due 5/1/08 4,682,765
4,000,000 MCI Communications Corp. Sr. Notes
6.50%,due 4/15/10 3,634,548
5,000,000 WorldCom, Inc. Sr. Notes
6.40%, due 8/15/05 4,739,375
--------------
13,056,688
--------------------------------------------------------------------------------
Total Corporate Bonds & Notes
(Cost $18,969,427) 17,620,848
--------------------------------------------------------------------------------
Total Investment Securities -- 90.3%
(Cost $1,033,698,149) 1,453,491,125
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
76
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Short-term Investments -- 8.9%
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
U.S. Government Agency Obligations -- 3.1%
$15,000,000 Federal Home Loan Mortgage Corp.
Discount Notes, 6.406%, 7/11/00 $ 14,973,310
15,000,000 Federal Home Loan Mortgage Corp.
Discount Notes, 6.45%, due 7/25/00 14,935,500
20,000,000 Student Loan Marketing Association
Floating Rate Notes, 6.124%,
due 11/16/00+ 20,000,000
--------------
49,908,810
--------------------------------------------------------------------------------
Repurchase Agreements -- 5.8%
(including accrued interest)
46,000,000 Collateralized by $36,450,000
U.S. Treasury Bonds 8.50%,
due 2/15/20, with a value of
$46,902,338 with Morgan Stanley
Dean Witter & Co., 6.30%,
dated 6/30/00, due 7/3/00,
delivery value$46,024,150) 46,008,050
47,700,000 Collateralized by $44,740,000
U.S. Treasury Bonds 6.625%,
due 2/15/27, with a value of $48,629,707
(with Warburg Dillon Read LLC,
6.20%, dated 6/30/00, due 7/3/00,
delivery value $47,724,645) 47,708,215
--------------
93,716,265
--------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(Cost $143,625,075) 143,625,075
--------------------------------------------------------------------------------
CASH AND OTHER ASSETS
LESS LIABILITIES -- 0.8% 12,118,054
--------------------------------------------------------------------------------
Net Assets -- 100.0% $1,609,234,254
--------------------------------------------------------------------------------
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,609,234,254 / 52,049,198
shares of beneficial interest outstanding) $ 30.92
==============
(+) Resets weekly. Rate shown is as of June 30, 2000.
See notes to financial statements.
--------------------------------------------------------------------------------
77
<PAGE>
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
-------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS:
Investment securities, at value
(cost $1,033,698,149) $1,453,491,125
Short-term investments (cost $143,625,075) 143,625,075
Cash 121,420
Interest and dividends receivable 9,430,757
Receivable for securities sold 4,796,370
Receivable for trust shares sold 347,090
Prepaid insurance expense 9,000
--------------
TOTAL ASSETS 1,611,820,837
--------------
LIABILITIES:
Payable for trust shares repurchased 1,185,136
Payable for securities purchased 439,793
Accrued expenses:
Advisory fee 657,974
GIAC administrative service fee 230,000
Other 73,680
--------------
TOTAL LIABILITIES 2,586,583
--------------
NET ASSETS $1,609,234,254
==============
NET ASSETS CONSIST OF:
Shares of beneficial interest, at $0.01 par
value (authorized unlimited, outstanding
52,049,198 shares) $ 520,492
Additional paid-in capital 797,874,023
Undistributed net investment income 52,383,048
Undistributed net realized gain on investments 338,663,715
Net unrealized appreciation of investments 419,792,976
--------------
NET ASSETS $1,609,234,254
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,609,234,254 / 52,049,198
shares of beneficial interest outstanding) $ 30.92
==============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Interest $ 24,186,944
Dividends (Net of foreign withholding
tax of $9,416) 1,149,649
------------
Total Income 25,336,593
------------
Expenses:
Investment advisory fee 4,025,045
GIAC administrative service fee 360,077
Custodian fees 83,264
Postage 45,000
Taxes and other 25,494
Audit and legal fees 19,250
Insurance and dues 15,826
Printing 12,453
Trustees' fees and expenses 7,152
------------
Total Expenses Before Custody Credits 4,593,561
Less: Custody Credits (4,441)
------------
Net Expenses 4,589,120
------------
Net Investment Income 20,747,473
------------
Net Realized and Unrealized Gain
On Investments:
Net realized gain 28,248,979
Net change in unrealized
appreciation 33,755,569
------------
Net Realized Gain and Change in
Unrealized Appreciation (Depreciation)
on Investments 62,004,548
------------
Net Increase in Net Assets from Operations $ 82,752,021
============
See notes to financial statements.
--------------------------------------------------------------------------------
78
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 2000 (Unaudited) and
for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 2000 December 31,
(Unaudited) 1999
------------- ------------
<S> <C> <C>
Operations:
Net investment income $ 20,747,473 $ 31,712,238
Net realized gain on investments 28,248,979 310,691,129
Change in net unrealized appreciation (depreciation) 33,755,569 (14,402,998)
--------------- ---------------
Net increase in net assets from operations 82,752,021 328,000,369
--------------- ---------------
Distributions to Shareholder:
Net investment income -- (15,437,565)
Net realized gain from investment transactions -- (79,625,333)
--------------- ---------------
Total distributions -- (95,062,898)
--------------- ---------------
Trust Share Transactions:
Proceeds from sale of shares 46,579,525 109,656,703
Proceeds from reinvestment of dividends and
distributions to shareholder -- 95,062,898
Cost of shares repurchased (131,978,091) (240,059,970)
--------------- ---------------
Net decrease from trust share transactions (85,398,566) (35,340,369)
--------------- ---------------
Total (Decrease) Increase in Net Assets (2,646,545) 197,597,102
Net Assets:
Beginning of period 1,611,880,799 1,414,283,697
=============== ===============
End of period $ 1,609,234,254 $ 1,611,880,799
=============== ===============
Undistributed Net Investment Income, at End of Period $ 52,383,048 $ 31,635,575
=============== ===============
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
79
<PAGE>
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
-------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (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
assets of the Trust among equity, debt and money market securities as the models
indicate and its investment adviser, Value Line, Inc. (the "Adviser"), deems
appropriate.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contigent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Trust in the preparation of its financial statements.
(A) Security Valuation.
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities 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
--------------------------------------------------------------------------------
80
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
gains realized by the Trust, if any. Such distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. All dividends or distributions will be payable in shares
of the Trust at the net asset value on the ex-dividend date. This policy is,
however, subject to change at any time by the Board of Trustees.
(E) Amortization.
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments.
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income, adjusted for amortization of discount, including
original issue discount required for federal income tax purposes, is earned from
settlement date and recognized on the accrual basis. Dividend income is recorded
on the ex-dividend date.
----------------------------------------------------------
2 -- Trust Share Transactions, Dividends and Distributions
----------------------------------------------------------
Shares of the Trust are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance & Annuity Company, Inc.
(GIAC). Transactions in shares of beneficial interest in the Trust were as
follows:
Six Months Ended Year Ended
June 30, 2000 December 31,
(Unaudited) 1999
---------------- ------------
Shares sold 1,543,248 4,104,143
Shares issued
in reinvestment of dividends
and distributions -- 3,617,310
----------- -----------
1,543,248 7,721,453
Shares repurchased 4,344,670 8,941,008
----------- -----------
Net decrease (2,801,422) (1,219,555)
=========== ===========
Dividends per share from net
investment income $ -- $ .285
=========== ===========
Distributions per share from
net realized gains $ -- $ 1.48
=========== ===========
--------------------------------------
3 -- Purchases and Sales of Securities
--------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Six Months Ended
June 30,2000
(unaudited)
-----------------
PURCHASES:
U.S. Treasury and Government
Agency Obligations $193,446,593
Other Investment Securities 307,544,082
------------
$500,990,675
============
SALES & MATURITIES:
U.S. Treasury and Government
Agency Obligations $303,420,966
Other Investment Securities 154,421,790
------------
$457,842,756
============
At June 30, 2000, the aggregate cost of investment securities and
short-term securities for federal income tax purposes was $1,177,323,224. The
aggregate appreciation and depreciation of investments at June 30, 2000, based
on a comparison of investment values and their costs for federal income tax
purposes was $459,484,853 and $39,691,877, respectively, resulting in a net
appreciation of $419,792,976.
---------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Affiliates
---------------------------------------------
An advisory fee of $4,025,045 was paid or payable to the Adviser, for the
six months ended June 30, 2000. 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, 2000 (Unaudited) (Continued)
Certain officers and directors of the Adviser and Value Line Securities,
Inc. (the Trust's distributor and a registered broker/dealer), are also officers
and trustees of the Trust. During the six months ended June 30, 2000, the Trust
paid brokerage commissions totalling $100,504 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, 2000, the
Trust incurred expenses of $360,077 in connection with such services rendered by
GIAC.
--------------------------------------------------------------------------------
82
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 2000 -------------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 29.39 $ 25.22 $ 22.13 $ 21.90 $ 20.27 $ 16.13
---------- ---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income ................. .43 .59 .30 .65 .53 .39
Net gains on securities (both realized
and unrealized) ..................... 1.10 5.34 5.43 2.65 2.56 4.17
---------- ---------- ---------- ---------- ---------- --------
Total from investment operations ...... 1.53 5.93 5.73 3.30 3.09 4.56
---------- ---------- ---------- ---------- ---------- --------
Less distributions:
Dividends from net investment income . -- (.29) (.68) (.55) (.37) (.26)
Distributions from capital gains ..... -- (1.47) (1.96) (2.52) (1.09) (.16)
---------- ---------- ---------- ---------- ---------- --------
Total distributions .................. -- (1.76) (2.64) (3.07) (1.46) (.42)
---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of period .......... $ 30.92 $ 29.39 $ 25.22 $ 22.13 $ 21.90 $ 20.27
---------- ---------- ---------- ---------- ---------- --------
Total return** .......................... 5.21%+ 24.32% 27.45% 15.66% 15.87% 28.54%
---------- ---------- ---------- ---------- ---------- --------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ........................ $1,609,234 $1,611,881 $1,414,284 $1,196,589 $1,072,785 $876,509
Ratio of expenses to average net assets . .57%*(1) .58%(1) .58%(1) .59%(1) .58%(1) .60%
Ratio of net investment income to average
net assets ............................ 2.57%* 2.13% 1.25% 3.08% 2.70% 2.18%
Portfolio turnover rate ................. 33%+ 70% 106% 58% 71% 63%
</TABLE>
+ Not annualized
* Annualized.
(1) Ratio reflects expenses grossed up for custody credit arrangement. The
ratio of expenses to average net assets net of custody credits would not
have changed.
** 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>
--------------------------------------------------------------------------------
The Shearson Lehman Brothers Fund of Stripped ("Zero")
------------------------------------------------------
U.S. TREASURY SECURITIES, SERIES A - 2004 TRUST
Statements of Assets and Liabilities
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Trust Property:
Investment in securities at value (amortized cost for 1999 and 1998,
respectively, $6,389,793 and $6,568,487) ........................... $6,539,299 $7,555,637
Other assets ....................................................... 4,715 8,267
---------- ----------
$6,544,014 $7,563,904
---------- ----------
Interest of Holders: (for 1999 and 1998, respectively,
8,925,560 and 9,929,560 units of fractional undivided
interest outstanding)
Cost of Trust units, net of gross transaction charges ........... $4,295,202 $4,620,899
Unrealized appreciation on investment ........................... 149,506 987,150
Undistributed net investment income ............................. 2,099,306 1,955,855
---------- ----------
Net assets ......................................................... $6,544,014 $7,563,904
========== ==========
Net asset value per unit ........................................... $ 0.7332 $ 0.7618
========== ==========
</TABLE>
Schedules of Portfolio Investments
December 31, 1999
<TABLE>
<CAPTION>
Aggregate
Principal Maturity Amortized
Amount Title of Security Coupon Date Cost Value
------ ----------------- ------ ---- ---- -----
<C> <S> <C> <C> <C> <C>
$ 8,890,000 Stripped U.S. Treasury Securities .... 0% 11/15/04 $ 6,344,394 $ 6,496,412
35,560 U.S. Treasury Bonds .................. 11.625% 11/15/04 45,399 42,887
----------- ----------- -----------
$ 8,925,560 $ 6,389,793 $ 6,539,299
=========== =========== ===========
</TABLE>
December 31, 1998
<TABLE>
<CAPTION>
Aggregate
Principal Maturity Amortized
Amount Title of Security Coupon Date Cost Value
------ ----------------- ------ ---- ---- -----
<C> <S> <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>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
84
<PAGE>
--------------------------------------------------------------------------------
Statements of Operations and Changes in Net Assets
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operations:
Interest income ........................................ $ 554,383 $ 483,638 $ 551,982
Expenses:
Trustee fees ......................................... (5,059) (64) (6,164)
Other ................................................ (2,799) (4,223) (1,016)
----------- ----------- -----------
Total expenses ...................................... (7,858) (4,287) (7,180)
----------- ----------- -----------
Net investment income ............................... 546,525 479,351 544,802
Realized gain on sale of securities .................... 77,376 54,129 103,648
Net change in unrealized appreciation .................. (837,644) 323,222 102,937
----------- ----------- -----------
Net increase (decrease) in net assets from operations (213,743) 856,702 751,387
----------- ----------- -----------
Capital Share Transactions:
Proceeds from sales of units ......................... -- 137,400 --
Redemption of units .................................. (806,147) (305,476) (749,980)
----------- ----------- -----------
Net decrease from capital share transactions ....... (806,147) (168,076) (749,980)
----------- ----------- -----------
Increase (decrease) in net assets .................... (1,019,890) 688,626 1,407
Net assets:
Beginning of year .................................... 7,563,904 6,875,278 6,873,871
----------- ----------- -----------
End of year .......................................... $ 6,544,014 $ 7,563,904 $ 6,875,278
=========== =========== ===========
Units subscribed ................................... -- 200,800 --
=========== =========== ===========
Units redeemed ..................................... (1,004,000) (401,600) (1,154,600)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
85
<PAGE>
--------------------------------------------------------------------------------
The Shearson Lehman Brothers Fund of Stripped ("Zero")
------------------------------------------------------
U.S. Treasury Securities, Series A - 2004 Trust
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
-------------------------------------
1. -- Significant Accounting Policies
-------------------------------------
The Shearson Lehman Brothers Fund of Stripped ("Zero") U.S. Treasury
Securities, Series A-2004 Trust (the "Trust") 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 Trust in the
preparation of its financial statements. These 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, 1999, 1998, and 1997, the Sponsor,
Salomon Smith Barney Inc., received transaction charges aggregating $5,668,
$13,985, and $1,871, respectively. Transaction charges with respect to the
initial deposit were waived by the Sponsor.
-----------------
3. -- Investments
-----------------
At December 31, 1999 and 1998, the cost of investments for Federal income
tax purposes was the same as the cost for financial reporting purposes. The
aggregate gross unrealized appreciation for all securities amounted to $149,506
and $987,150 at December 31, 1999 and 1998, respectively.
During the years ended December 31, 1999 and 1998, purchases of securities
aggregated $0 and $137,400, respectively. The aggregate proceeds from sales
during the years ended December 31, 1999 and 1998 was $739,053 and $284,421,
respectively.
------------------------------
4. -- Supplemental Information
------------------------------
Selected data per 1,000 units of the Trust outstanding throughout the
years ended December 31, 1999, 1998, and 1997, respectively, are as follows
(based on average units outstanding throughout the year):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income ..................................... $ 57.54 $ 47.85 $ 50.44
Expenses ............................................ (.82) (.42) (.66)
------- ------- -------
Net investment income ............................. 56.72 47.43 49.78
Increase (decrease) in unrealized appreciation* ..... (85.34) 35.69 19.78
------- ------- -------
Net increase (decrease) in net assets from operations (28.62) 83.12 69.56
Net assets:
Beginning of year ................................. 761.80 678.68 609.12
------- ------- -------
End of year ....................................... $733.18 $761.80 $678.68
======= ======= =======
</TABLE>
* If the amount shown per 1,000 units outstanding throughout the period does
not agree 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 Trust's units in relation to the decrease in market
values of the portfolio.
--------------------------------------------------------------------------------
86
<PAGE>
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