Annual Report To Policyowners December 31, 1999
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[LOGO]
GUARDIAN(SM)
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Value Plus
THE GUARDIAN
SEPARATE ACCOUNT B
THE GUARDIAN STOCK FUND
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THE GUARDIAN BOND FUND, INC.
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THE GUARDIAN CASH FUND, INC.
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BAILLIE GIFFORD
INTERNATIONAL FUND
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VALUE LINE CENTURION FUND, INC.
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VALUE LINE STRATEGIC ASSET
MANAGEMENT TRUST
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THE SHEARSON LEHMAN BROTHERS
FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES, SERIES A
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The Guardian Insurance &
Annuity Company, Inc.
A wholly owned subsidiary of
The Guardian Life Insurance Company of America
Executive Office
7 Hanover Square
New York, New York 10004
Customer Service Office
P.O. Box 26210
Lehigh Valley, Pennsylvania 18002-6210
1-800-221-3253
Distributed by:
Guardian Investor Services Corporation(R)
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Performance Summary
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Investment Option Total Returns*
The Guardian Stock Fund................................. 30.51%
Baillie Gifford International Fund...................... 38.42%
Value Line Centurion Fund............................... 27.59%
Value Line Strategic Asset Mgt. Trust................... 23.70%
The Guardian Bond Fund.................................. -1.34%
The Guardian Cash Fund.................................. 4.25%
The Shearson Lehman Brothers Fund of Stripped ("Zero") U.S. Treasury
Securities, Series A, consisting of one portfolio of "zero coupon" U.S.
Treasury securities, provided the following yield to maturity as of
December 31, 1999: 2004 Trust (maturing 11/15/04): 5.05%.
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* The chart above shows the total returns for each investment option under
ValuePlus based on the percentage change in unit values during the period
from January 1, 1999 through December 31, 1999. 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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ANNUAL 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 36
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The Guardian Bond Fund 10 44
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The Guardian Cash Fund 18 50
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Baillie Gifford International Fund 12 62
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Value Line Centurion Fund 14 74
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Value Line Strategic Asset Management Trust 16 82
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The Shearson Lehman Brothers Fund of 94
Stripped ("Zero")
This fund is only available to policyowners of
Value Plus
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The Guardian Separate Account C 20
For Select Guard policyowners
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The Guardian Separate Account B 28
For Value Plus policyowners
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Investments offered through The Guardian Insurance & Annuity Company, Inc. are
not deposits or obligations of, or guaranteed or endorsed by, any bank or
depository institution, nor are they federally insured by the Federal Deposit
Insurance Corporation, The Federal Reserve Board, or any other agency. They
involve investment risk, including possible loss of principal amount invested.
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Dear Policyowner:
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[PHOTO OMITTED]
Joseph D. Sargent, CLU
President & CEO
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 Annual Report on the performance of your
policy's separate account and its underlying variable investment options during
the past 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, CLU
Joseph D. Sargent, CLU
President and Chief Executive Officer
The Guardian Insurance & Annuity Company, Inc.
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Economic Report
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[Photo of Frank J. Jones, Ph.D., Chief Investment Officer,
Co-Portfolio Manager, The Guardian Stock Fund]
Can Trees Grow to The Sky?
As of February 2000, the U.S. economy had grown for 106 consecutive months
(the current expansion began during April 1991), exceeding the longest
post-World War II expansion of 1961-69, which was supported by the Vietnam War.
And yet, the economy at present shows no significant geriatric strains.
The current stock market rally began during October 1990 (some say the
structural bull market began in 1982) and the S&P 500 Index(1) has returned over
20% for five consecutive years from 1995 through 1999, an unprecedented run.
Are these two streaks related? Can these two streaks continue? If not,
when will they end? This report addresses these key questions.
First, are they related? Obviously. Economists fret that a weakening
economy will weaken corporate profits and, thus, the stock market. On the other
hand, Alan Greenspan frets that a stock market correction will cause an economic
correction through the wealth effect, that is, funding consumption out of
wealth, rather than income. Who is right in terms of causality? Probably both. A
weakening in either the economy or the stock market could affect the other.
Can these two streaks continue? That is, can trees grow to the sky? It
seems clear that the economy and the stock market cannot continue to grow at
their recent pace. Real Gross Domestic Product (GDP) grew by 4% during 1999
(down from 4.6% during 1998), and the unemployment rate is 4.1%, the lowest
since 1969. Greenspan is appropriately concerned about labor shortages and
resulting labor cost increases, which has heretofore been mitigated by
immigration, job insecurity resulting from continuing corporate restructuring,
and other factors.
With respect to the stock market, stock prices have outgrown earnings for
several years. The price-to-earnings ratio for the S&P 500 was 31.49 at the end
of 1999, significantly the highest since World War II. The S&P 500 cannot
continue to return 20% every year - the average return over the period from
1926-1999 was 11.35%.
As the noted economist Herb Stein profoundly said, "If a trend cannot
continue, it will stop." Thus, these two trees cannot grow to the sky. But when
will they stop growing? Most immediately, will they stop growing during 2000?
This is the timely question. To put the answer before the reasoning, we expect
growth in the economy and the stock market to moderate during 2000, but do not
expect significant reversals.
Before we proceed, however, we should comment on the other major financial
market, the bond market, which is related to our expectation for 2000. If the
economy and the stock markets received grades of "A" during 1999, the bond
market received a "D-". 1999 experienced the second worst bond market
performance since 1973, the worst being 1994. This weak showing by bonds during
1999 was no surprise. During 1994, an even weaker year for bonds, the Federal
Reserve (Fed) tightened six times, increasing the Fed funds rate from 3% to
5.5%. During 1999, the Fed tightened three times, increasing the rate from 4.75%
to 5.50%.
The bond market never responds well to Fed tightening. But the three Fed
tightenings during 1999 and the two or perhaps more expected during 2000 should
moderate economic growth during 2000 to a level of about 3%-3 1/2%, which is
currently thought to be "sustainable," without causing a recession or even a
severe economic softening. That is, the weak bond market during 1999 planted the
seeds for a moderation in the economy during 2000.
The Economy
As indicated, as of February, the U.S. economy will have experienced its
longest post-World War II economic expansion, accompanied by a low unemployment
rate (the lowest in 29 years) and also moderate inflation. This combination of
desirable conditions, previously thought to be too good to be true, has been
referred to as the "New Economy" or "New Paradigm".
Among the reasons for this salutary environment are the following. First,
productivity has been quite high due to, among other factors, technology.
Second, monetary policy (due to Alan Greenspan) and fiscal policy (due primarily
to the strong economy resulting in a federal budget surplus) have been prudent.
Third, several factors have mitigated inflation. They include globalization, the
strong U.S. dollar, the (until recently) economic slowdown in Asia (and its
effect on commodity prices) and improved technology (including e-commerce), all
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(1) The Standard & Poor's (S&P 500) Index is an unmanaged index of 500 large-cap
U.S. stocks that is generally considered to be representative of U.S. stock
market activity.
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leading to weaker pricing power. Weaker labor unions, the increased use of
"temps" and the increased use of stock options rather than salary have also
moderated wage inflation. And fourth, the strong stock market has been both a
cause and an effect of the long expansion.
Looking back, why have past economic expansions ended? The first reason
has been the inventory cycles. However, while there will be some inventory
adjustment from the fourth quarter of 1999 through the first quarter of 2000,
due to Y2K, prudent inventory management, including "just in time" inventory,
may have rendered the inventory cycle obsolete. The second is inflation (at
times caused by oil shocks) and a resulting aggressive Fed tightening. This is
the reason we had recessions in 1960, 1970, 1980 and 1990. This threat to
economic expansion is alive and well, as indicated below.
There are three risks to the current economic expansion. The first is
continued above sustainable economic growth, leading to incipient inflation,
perhaps supported by increased oil prices, resulting in an aggressive Fed
tightening of interest rates (a la 1994).
The second is the current high trade deficit (a net import of goods and
services financed by international investment in U.S. financial markets). This
excess of imports over exports has satisfied the strong U.S. demand for consumer
goods and perhaps abated inflationary forces resulting from excess demand for
domestic production. This deficit could lead to a self-reinforcing cycle of:
o Weaker U.S. Dollar;
o Withdrawal of international funds from U.S.; and
o Weaker U.S. stock and bond markets.
Finally, there is the current high consumption (that is, a low, even
negative, savings rate) supported by the "wealth effect", due to a strong stock
market and strong residential housing prices. A decline in the stock market
(which Alan Greenspan has long thought to be overvalued) could cause a
significant decline in consumption, which is approximately two-thirds of GDP,
and cause a consumption-led recession during 2000.
Our expectation for the economy is that fundamental growth will
remain unsustainably strong and the Fed will raise rates two or more times
during the first half of 2000. However, adroit Fed policy will lead to
approximately 3% growth during 2000, which may be sustainable without
inflation. The two or three Fed tightenings expected during 2000 will
increase yields during the first half of 2000, but due to moderated
economic growth, yields should be lower than they are now by the end of
2000, providing moderate returns on bonds during 2000. The two other risks
mentioned will remain, but we do not believe that they will cause an end
to the expansion during 2000.
The Stock Market
The current bull market began during October of 1990, and the S&P 500 has
returned over 500% (including dividends) since then. In addition, as indicated,
the S&P 500 has returned over 20% annually during 1995-1999. Three fundamental
reasons for the long bull market are: the decline in interest rates; high profit
growth (due largely to the long economic expansion); and the decline in the
common stock risk premium. The risk premium has declined, as more individual
investors have become comfortable with the stock market, partly due to its long
sustained growth.
The main theme of the 1999 stock market was technology stocks. Technology
stocks tend to be growth rather than value stocks, but are dispersed across
large, mid and small capitalization stocks. In this regard, the S&P 500 returned
21.04% during 1999, while the S&P 500, exclusive of its technology issues,
returned only 2% and the technology sector (which represents approximately 29.7%
of the S&P 500) returned 74.76%. In addition, for non-technology stocks, the
stock market was unforgiving for stocks with weak earnings and rewarding for
those with strong earnings (for example, during 1999 Pfizer and GE returned
- -21.50% and 53.56%, respectively). At the opposite end of the technology sector
in the return universe was the utility sector, which behaves like bonds, and
returned -5.81% (as measured by the Dow Jones Utilities Average).(2)
Our expectation for the stock market is that while the market will exhibit
considerable volatility during 2000, due both to specific events and consumer
psychology, and while the S&P 500 will not return 20% or more during 2000, the
S&P 500 return will be moderate and more consistent with average historical
returns (11.35% over the period 1926-1999). There will again, however, be
considerable disparity among sectors and stocks. In particular, while there will
again be many technology "winners," there will also be many bankruptcies and
other weaknesses within technology stocks. This would be expected because many
of 1999's technology IPOs are basically yesterday's venture capital companies
going public prematurely, at least by previous standards.
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(2) The Dow Jones Utilities Average is an unmanaged average of utility stocks
listed on the New York Stock Exchange that is generally considered to be
representative of U.S. utility sector performance.
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Overview
Given our expectations for the economy and Fed behavior, bond yields
should increase early during the year, decrease later in the year, and bond
investors should experience a moderate return during 2000. Bonds returns,
however, will be much more competitive with stock returns than they were during
1999.
Stock investors should keep their seat belts on during 2000. Volatility
due to specific events, such as earnings announcements, and other factors
related to investor psychology will be high. But overall, the stock market,
based on reasonable corporate profits, should provide reasonable returns,
although most likely not the 20% returns on the S&P 500 that we have experienced
for the last five years.
This overview would not be complete without a comment on last year's
winner, technology stocks. Our sense is that, on average, technology stocks
will, despite considerable volatility, perform well during 2000. There will be a
major difference from 1999, however. During 1999, the flow of capital into
technology stocks was bountiful and, perhaps, indiscriminate. Many technology
stocks attracted funds even in the absence of actual profits, expected profits
or even revenues.
During 2000, however, while earnings growth will remain large and capital
will continue to flow into the technology sector, the funds will flow into the
sector in a much more judicious manner. There will be some big winners and
perhaps many big losers. This outcome would not be unexpected because many of
these new corporations were fundamentally venture capital companies which were
able to conduct IPOs only because of the bountiful and indiscriminate capital
flows. The easy money in this sector is gone; it's time for the pros.
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]
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 December 31, 1999: $4,175,087,062
Q. How did the Fund perform in 1999?
A. For an unprecedented fifth consecutive year, The Guardian Stock Fund had a
return of more than 20%. The Fund earned a total return of 31.17%(1) for the
year compared to 21.04% for the S&P 500 Index,(2) a margin of 10.13%. Once
again, this was a year of high volatility in the stock market. As the year
began, there was continuing concern about the global financial crisis as
Brazil's economy became only the latest to get crushed. By spring, however, it
became apparent that a global recovery was under way, particularly in some of
the hardest hit areas of Asia, such as Korea. By year-end the concern had
shifted 180 degrees: financial markets had come to believe the real threat was
too high a rate of growth, which could potentially re-ignite inflation. All year
the market continued to compress major moves -- which had once taken years --
into a matter of months.
Once again, the market also retained its narrow focus. In fact, according
to Merrill Lynch,(3) half of the S&P 500 stocks actually were down for the year.
The S&P 500's equally weighted index was up only 11.6%, a little over half of
the S&P 500 Index, which is weighted by the market capitalization of the
companies included in the Index. While real estate and other value stocks got
decimated, technology stocks soared. The rapid spread of the Internet and
improvements in networking and mobile communications as well as preparations for
Y2K spurred huge demand for technology. The NASDAQ Composite Index,(4) commonly
viewed now as a proxy for large technology stocks, was up over 86%, with much of
that coming late in the year.
Q. What factors affected performance in 1999?
A. The main factors contributing to our good performance in 1999 were our
assessments that technology and growth stocks would do well. We were
overweighted in technology stocks all year and continued that posture heading
into 2000. Technology stocks began to rally in the fall of 1998 and by late
winter many market strategists believed that their run was over.
In less than two weeks in mid-April, cyclical and deep value stocks --
stocks that are normally poor performers but can make large increase in value
when the economy expands -- had their biggest rally in a quarter-century, and
the technology rally looked like history. After an
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"The main factors contributing to our good performance in 1999 were
our assessments that technology and growth stocks would do well. We were
overweighted in technology stocks all year and continued that posture heading
into 2000."
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intensive review of our portfolio in early summer, we decided to remain with our
basic position. The biggest change we made was adding a heavier weighting of
mid- and small-cap stocks to the mix and we continued that through year-end. The
addition of Yahoo! to the S&P 500 in December brought the S&P 500's pure
Internet weighting (along with America Online) to almost 2.5%, reflecting the
market's assessment of the powerful transformation of the U.S. economy.
Q. What strategies do you use to manage the Fund?
A. We have for many years employed a combination of
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(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund.
(3) From Merrill Lynch "Style Performance Monitor," January 7, 2000.
(4) 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.
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quantitative techniques and fundamental judgements. We believe that this is the
best way to achieve consistently outstanding returns. As always, we continue to
refine our growing cluster of quantitative techniques. With a fast-changing
economy and volatile market, managers need to constantly explore new strategies
and be alert to declining effectiveness of older techniques. The rapid changes
in the economy are affecting nearly all industries and our analysts attempt to
keep up with the most important developments in such far-flung areas as
telecommunications, genomics (the study of genetics and DNA) and the Internet,
as well as the ramifications for older industries.
Q. What do you envision for the stock market in 2000?
A. Now that all the millennium hoopla has died down and Y2K's passage proved
uneventful, we look forward to another interesting year. The first few weeks of
the year had more volatility and excitement compressed into them than many prior
years. Once again, the financial markets focus intensely on the Federal Reserve
Board, with most people expecting from one to three more interest rate
increases. Overall, the economy remains robust, with growth accelerating and
inflation subdued even as this expansion becomes the longest in U.S. history.
The valuation in the stock market is high for the narrow group of leaders but
their growth and profitability are also exceptionally high.
While the last five years have been the best in modern stock market
history and volatility remains near a historic high, we continue to be
optimistic. Most importantly, the economy remains in the best shape it has been
in since the 1960s. Innovation is flourishing at the most rapid pace in perhaps
a century and the prospects for peace around the world are the brightest in a
long time. Under these circumstances, we find it hard to be pessimistic about
the stock market.
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The Guardian Stock Fund Profile
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Top Ten Holdings as of December 31, 1999
Percentage
Company of Net Assets
1. Microsoft Corp. 5.54%
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2. Intel Corp. 2.46%
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3. Int'l. Business Machines 2.06%
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4. Wal-Mart Stores, Inc. 1.89%
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5. General Electric Co. 1.84%
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6. America Online, Inc. 1.75%
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7. Citigroup, Inc. 1.63%
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8. EMC Corp. 1.53%
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9. Motorola, Inc. 1.45%
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10. Oracle Corp. 1.44%
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Average Annual Total Returns(1) for Periods Ended December 31, 1999
Life of Fund
1 Year 5 Years 10 Years (since 4/13/83)
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The Guardian Stock Fund 31.17% 29.48% 20.04% 18.74%
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S&P 500 Index 21.04% 28.51% 18.17% 17.50%
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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 December 31, 1999
[The following table was depicted as a pie chart in the printed material.]
Cash 4.68%
Telecommunication 18.03%
Technology 37.25%
Energy 5.18%
Basic Industries 1.58%
Financial 7.10%
Transportation 0.07%
Utilities 0.82%
Credit Cyclicals 0.15%
Consumer Services 7.70%
Capital Goods 1.87%
Consumer Cyclical 7.65%
Consumer Staples 7.92%
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Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line graph in the printed material.]
[Plot points to come]
The Guardian Stock Fund $177,629
S&P 500 Index $163,104
Cost of Living $17,232
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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 $177,629 on December 31, 1999. We
compare our performance to that of the S&P 500 Index, which is an unmanaged
index that is generally considered the performance benchmark of the U.S. stock
market. While you cannot invest directly in the S&P 500 Index, a similar
hypothetical investment would now be worth $163,104. 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 1999?
A. The Fund had a total return of -0.84%(1) for the year ended December 31,
1999, while the average fund in our Lipper Intermediate Investment Grade peer
group(2) returned -0.60% for the year. The group consists of 22 variable annuity
subaccounts that invest primarily in investment grade debt with average
maturities of 5-10 years. Another commonly used benchmark, the Lehman Aggregate
Bond Index,(3) returned -0.82% in 1999.
Q. What factors affected the Fund's performance?
A. The year 1999 saw a reversal of fortunes in the fixed income market, as many
of the factors that caused the sharp outperformance of Treasuries in 1998
(relative to the spread sectors, namely corporate bonds, mortgage and
asset-backed securities and agency debt) diminished as the year progressed.
First and foremost, the three interest rate reductions undertaken by the Federal
Reserve (Fed) in 1998 to inject liquidity and restore confidence during that
year's global and domestic financial crises were fully reversed. Amidst concerns
that the domestic economy was growing at an unsustainably strong rate, the Fed
increased the Fed Funds rate by 0.75% in a series of three tightenings over the
course of 1999. Further-more, the prospects for the overseas economies improved
in 1999, so the demand for Treasuries as a safe haven eased as well.
As a result of these combined effects, Treasury yields rose substantially.
The yield on the 2-year Treasury note increased by over 1.70% to finish 1999 at
a 6.24% yield, while the 30-year bond increased by nearly 1.40% to 6.48%.
Putting this into perspective, the Treasury component of the Lehman Aggregate
Bond Index returned -2.56% in 1999, after turning in a 10.03% performance in
1998. This sharp reversal was the primary reason that the overall Lehman
Aggregate Bond Index experienced a -0.82% return in 1999, a negative return for
only the second time in Index history. In fact, during the 1990s, the Lehman
Aggregate Bond Index, which is representative of the overall fixed income
market, earned an average annual return of 7.88%.
Even though Treasuries performed poorly in 1999, the spread sectors
enjoyed a very good year as their performance cushioned much of the weakness
experienced in the Treasury sector. For example, the two major spread sectors in
the Lehman Index, corporate bonds and mortgage-backed securities (MBS), both
outperformed Treasuries handily, returning 1.75% and 1.13%, respectively, over
comparable-duration Treasuries. The corresponding averages for the 1990s were
0.43% and 0.32%, respectively.
Speaking more broadly, the last two years are excellent examples of the
benefit of owning a well-diversified bond fund. In 1998, the Fund posted a good
performance in nominal terms due to the strong performance of Treasuries, but
the performance of the spread sectors was very disappointing. On the other hand,
in 1999, the Fund's performance was negative on a nominal basis due to the
increase in overall yields, but was somewhat offset by the exceptional
performance of the spread sectors. In both cases though, the Fund's performance
benefited from our focus on asset allocation.
Much of the spread sectors' outperformance occurred in the first and
fourth quarters. All spread assets were
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"Speaking more broadly, the last two years are excellent examples of the benefit
of owning a well-diversified bond fund."
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very undervalued coming into 1999 as a result of 1998's financial turmoil, but
as investor concerns eased, spread assets came back into favor, and turned in a
strong performance in the first quarter. Part of this strong performance was
eroded during 1999's middle quarters, as the prospect of higher interest rates
dampened the demand for fixed income assets in general. However, this weakness
proved to be temporary. The rise in yields greatly mitigated many fears of
prepayment risk in MBS and additional supply in corporates, and as concerns over
Y2K diminished, spread sectors outperformed in the fourth quarter, and
experienced a strong year overall.
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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 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) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
(3) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The Lehman
Aggregate Bond Index is not available for direct investment and the
returns do not reflect the fees and expenses that have been deducted from
the Fund.
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Q. What was your investment strategy during the year?
A. The Fund's performance in 1999 was the result of a reasonably successful
asset allocation strategy. We strongly favored spread assets over Treasuries for
much of the year, and at one point, we reduced our Treasury exposure to its
lowest level in several years.
We believed that all spread assets were still undervalued at the end of
1998, and entered 1999 in a significantly overweighted position in both
corporates and MBS. This posture served us well as these sectors outperformed in
the first quarter. Following some continued strong performance by spread assets,
we reduced our exposure to corporate bonds and decreased the duration of our MBS
holdings in the second quarter as these sectors became less attractive on a
risk/return basis, especially in the context of anticipated Fed tightenings.
After some subsequent weakening in these sectors, we resumed our strategy of
overweighting spread sectors after determining that the weakening had left them
fundamentally undervalued once again. Unfortunately, this move proved to be
somewhat early, as the sectors weakened further in the third quarter in the wake
of the market's reduced liquidity and increased volatility. Nonetheless, our
exposure left the Fund well-poised going forward. In fact, both corporates and
MBS outperformed comparable duration Treasuries in each of the last four months
of 1999, as measured by the Lehman Index.
The Fund's performance in 1999 was a result of our overweighted positions
in spread product, but it was further enhanced by our security selection.
Specifically, given our positive outlooks on both the economy and the corporate
profit picture, we increased our exposure to lower-rated investment grade bonds,
which subsequently returned more than their higher-rated counterparts. In
addition, we rebalanced our holdings in the MBS sector in favor of higher coupon
(and higher yielding) mortgage passthroughs, since the higher rate and lower
volatility environments improved their risk/return outlook and reduced the need
for the prepayment protection in discount securities.
- --------------------------------------------------------------------------------
The Guardian Bond Fund Profile
as of December 31, 1999
- ------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Returns(1)
for Period Ended December 31, 1999
================================================================================
1 Year ............................................... -0.84%
5 Years .............................................. 7.16%
10 Years ............................................. 7.27%
Since Inception (5/1/83) ............................. 8.66%
- --------------------------------------------------------------------------------
Q. What is your outlook for 2000?
A. The Fund's overall strategy is to maximize the total return of a diversified
fixed income portfolio of investment-grade corporate, mortgage-backed,
asset-backed, and Treasury securities. We will continue to focus on monitoring
and balancing these risks by actively adjusting our asset allocations as
appropriate, consistent with our views on relative sector valuations. We will
not take interest rate bets, but we do recognize that the market may be facing
the end of the decline in rates that has been in place since the 1980s. In any
event, our goal will remain to identify attractive investment opportunities that
will allow us to maximize returns in the context of a well-diversified
portfolio.
- --------------------------------------------------------------------------------
Recent Asset Allocation Strategy
(% Market Values, Total at Quarter End)
[The following table was depicted as a line graph in the printed material.]
[Plot points to come]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line graph in the printed material.]
[Plot points to come]
Lehman Aggregate Bond Index $44,075
The Guardian Bond Fund $42,625
To give you a comparison, the chart above shows the performance of a $10,000
investment made in The Guardian Bond Fund and in the Lehman Aggregate Bond
Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
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 December 31, 1999: $933,543,942
Q. How did the Fund perform?
A. The Fund performed well in 1999. The total return for the year was 39.11%,(1)
compared with the total return of 27.30% of the MSCI EAFE Index.(2) Most
international markets were strong. The major European markets benefited from an
upturn in economic activity in the region, while the Japanese market was strong
as the country moved to sort out the problems of its financial sector, which
until recently has been weak. In local currency terms (Pound Sterling), the
total return of the MSCI Europe ex-UK Index(3) was 37.04%, while in Yen terms,
the MSCI Japan Index(4) total return was 46.79%. However, currency fluctuations
had a major influence upon returns for the U.S. investor. The Euro, which was
launched at the beginning of the year, was weak against the Dollar, and the MSCI
Europe ex-UK Index had a total return of only 17.84% when expressed in Dollars.
In contrast, the Japanese Yen was surprisingly strong, and in Dollar terms the
MSCI Japan Index had a 61.77% total return.
Q. What factors affected the Fund's performance?
A. The Fund outperformed the MSCI EAFE Index for a number of reasons. Baillie
Gifford specializes in picking good businesses in which to invest. We conduct a
fundamental analysis of the prospects for a company, and usually meet with the
management, before we consider whether or not to purchase its stock. In 1999, we
had a good year at picking businesses, especially in two specific areas. Those
areas were the telecommunications sector, where the Fund had an above Index
exposure to mobile telephone network companies, and in Japan, where the stocks
held by the Fund did significantly better than the MSCI Japan Index.
Q. What is your outlook for the future?
A. We still believe that inflation is likely to remain very low by historical
standards, but we have become increasingly concerned about interest rates. We
think that the cautious rate rises which began last year in Europe and the U.S.
will continue, and that this may prove unsettling for markets in the early part
of this year.
Markets have become very narrow, and their leading stocks are very
vulnerable to a setback, especially if a bout of uncertainty about the path of
interest rates provides an excuse to take profits. Nevertheless, we are
confident that the long term earnings prospects of our
================================================================================
"Baillie Gifford specializes in picking good businesses in which to invest. We
conduct a fundamental analysis of the prospects for a company, and usually meet
with the management, before we consider whether or not to purchase its stock. In
1999, we had a good year at picking businesses."
================================================================================
investments are strong and that the central banks of the world are determined to
pre-empt inflation. This is a good background for investment in the longer term.
In the meantime, it continues to be our responsibility to search for good
investments among the many stocks that were left behind by 1999's amazing rally.
- --------------------------------------------------------------------------------
(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 an investor's shares, 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 Europe Ex-UK Index is an unmanaged index generally considered to
be representative of European stock market activity, excluding the United
Kingdom. The returns for the index do not reflect expenses that are
deducted from the Fund's return.
(4) The MSCI Japan Index is an unmanaged index generally considered to be
representative of Japanese stock market activity. The returns for the
index do not reflect expenses that are deducted from the Fund's return.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund Profile
- ------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Returns(1)
for Periods Ended December 31, 1999
================================================================================
1 Year ............................. 39.11%
3 Years ............................ 23.57%
5 Years ............................ 19.35%
Since Inception (2/8/91) ........... 16.01%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was represented as a line chart in the printed material.]
[PLOT POINTS TO COME]
Baillie Gifford International Fund The MSCI/EAFE Index
2/8/91
91
92
93
94
95
96
97
98
12/31/99 $37,447 $25,567
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Baillie Gifford International Fund and the MSCI/EAFE Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition by Geographical
Location as of December 31, 1999
[The following table was represented as a pie chart in the printed material.]
Pacific ex Japan 7.1%
Cash 1.5%
UK 15.6%
Europe ex UK 46.9%
Japan 28.9%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of December 31, 1999
<TABLE>
<CAPTION>
Percent of
Company Total Net Assets Industry Sector Country
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Mannesmann AG 4.12% Conglomerates Germany
- ------------------------------------------------------------------------------------------------------------
2. Nokia OYJ 3.94% Telecommunications Finland
- ------------------------------------------------------------------------------------------------------------
3. NTT Mobile Comm. Network, Inc. 3.87% Telecommunications Japan
- ------------------------------------------------------------------------------------------------------------
4. Fujitsu Ltd. 2.88% Computer Systems Japan
- ------------------------------------------------------------------------------------------------------------
5 Sonera OYJ 2.27% Telecommunications Finland
- ------------------------------------------------------------------------------------------------------------
6 LM Ericsson 1.98% Telecommunications Sweden
- ------------------------------------------------------------------------------------------------------------
7. Hitachi 1.90% Electronics Japan
- ------------------------------------------------------------------------------------------------------------
8. Rohm Co. 1.89% Electronics Japan
- ------------------------------------------------------------------------------------------------------------
9. Total Fina S.A. 1.80% Oil and Gas France
- ------------------------------------------------------------------------------------------------------------
10. Nippon Tele. & Tel. Corp 1.79% Telecommunications Japan
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund
- -------------------------
[Photo of Alan N. Hoffman, CFA,(left) and Senior Portfolio Manager, Philip J.
Orlando, CFA, Chief Investment Officer & Centurion Team Leader]
Objective: Long-term growth of capital
Portfolio: At least 90% common stocks
Inception: November 15, 1983
Net Assets at December 31, 1999: $971,372,009
Q. For the year ended December 31, 1999, how did The Value Line Centurion Fund
perform?
A. For the year ended December 31, 1999, the Fund produced an excellent total
return of 28.23%,(1) compared with total returns of 21.04% for the Standard &
Poor's 500 Index (S&P 500)(2) and 21.35% for the Russell 2000.(3)
Centurion enjoyed a powerful second half of 1999. The Fund was more than
98% invested in equities, and the emphasis was on the sectors of technology,
telecommunications, biotechnology, retail, and financial-service. Throughout
1999, Centurion was primarily invested in large-cap securities, and, as a
result, paid huge dividends because of the market's preference for these types
of stocks.
Q. What factors affected the Fund's performance, and what was your investment
strategy during this time period?
A. We had correctly anticipated that there would be a temporary surge in U.S.
Gross Domestic Product (GDP) during the second half of 1999, as many companies
spent aggressively to gain technological Y2K compliance. In addition, many
consumers and businesses shifted from a "Just in Time" to a "Just in Case"
inventory model as part of a precautionary buildup. As a result, GDP for the
third quarter of 1999 was a very strong 5.7% compared with only 1.9%
sequentially, and the fourth quarter produced a similarly robust 5.8%.
While we believed that the U.S. would be largely Y2K compliant by year
end, we anticipated that there would be pockets of the world, largely in the
Pacific Rim and Latin America, which would fail to meet the deadline and would
need to get caught up in a hurry. We also felt the large-cap technology and
telecommunications companies were particularly well positioned to benefit from
U.S. trends for compliance spending in the second half of 1999, as well as any
global remedial work for the first half of 2000, which would result in
well-above average revenue and earnings growth.
Moreover, we forecast that due to the strong economy and a "Millennium
Spirit," the holiday shopping season in 1999 would be the best of the decade. As
a result, we loaded up on many different retail stocks that we thought
================================================================================
"Centurion enjoyed a powerful second half of 1999. The Fund was more than 98%
invested in equities, and the emphasis was on the sectors of technology,
telecommunications, biotechnology, retail, and financial-service."
================================================================================
would best participate.
Q. What is your outlook for the future?
A. Looking forward, we believe that with global Y2K concerns hugely overblown,
inventory stockpiles must be worked down, which could result in significantly
slower economic growth during the first half of 2000, perhaps to a level of
about 3%.
Long bond yields have surged from a record low of 4.70% in October 1998 to
a recent high of 6.72%, the highest such level in two years, as investors have
seemingly discounted an estimated increase in interest rates of
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund.
(3) The Russell 2000 Index is an unmanaged index that is generally considered
to be representative of small capitalization issues in the U.S. stock
market. The returns for the Russell 2000 Index do not reflect expenses
that are deducted from the Fund's returns.
(4) The Federal Reserve Board announces a bias after their Open Market
Committee (FOMC) meetings. The bias reflects the consensus of the Federal
Reserve and indicates the more likely direction that the Fed may take in
changing interest rates. There can be a tightening, easing, or neutral
bias announced. A tightening bias means that the Fed is more likely to
raise interest rates than lower them in the future. The bias is in place
until the next FOMC meeting, where the Fed may announce a change in bias,
or reaffirm their current bias. 5 The Dow Jones Industrial Average (DJIA)
is an unmanaged average of 30 industrial stocks listed on the New York
Stock Exchange that is generally considered to be representative of U.S.
stock market performance.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
25 basis points (0.25%) or more by the Federal Reserve (Fed) at its upcoming
Federal Open Market Committee (FOMC) meeting on February 2nd. This gives the Fed
a free pass to raise and then hope that still higher interest rates will help to
ensure slower future economic growth.
But we do not believe that enough time will have elapsed after the
millennium calendar changeover for the Fed to fully evaluate if the economy has,
in fact, begun to slow. Rather, we would prefer that this gradualist Fed, led by
the newly re-appointed Chairman Alan Greenspan, shift to a tightening bias(4) in
February, raise rates by a quarter point (0.25%) at the March 21st FOMC meeting,
and then evaluate the subsequent pace of economic growth at the May 16th
meeting.
While long rates could retreat to about 7.00% in the near term, an
eventual slowing of the U.S. economy could spark a bond rally back to 6.00%,
which could spur the Dow Jones Industrial Average(5) to an election-year rally
that could approximate 13,000 by year end 2000.
- --------------------------------------------------------------------------------
Value Line Centurion Fund Profile
- ---------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Returns(1)
for Period Ended December 31, 1999
================================================================================
1 Year ............................. 28.23%
5 Years ............................ 26.67%
10 Years ........................... 19.48%
Since Inception (11/15/83) ......... 15.75%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Allocation as of December 31, 1999
[The following table was represented as a pie chart in the printed material.]
Cash & Equivalents 1.44%
Equity 98.56%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was represented as a line chart in the printed material.]
Value Line Centurion Fund S&P 500 Index
11/15/83
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
12/31/99 $105,731 $141,591
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Value Line Centurion Fund and in the S&P 500 Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings
as of December 31, 1999
Percentage
Company of Portfolio
- --------------------------------------------------------------------------------
1. Qualcomm Inc. 2.5%
- --------------------------------------------------------------------------------
2. Microsoft Corp. 2.4%
- --------------------------------------------------------------------------------
3. America Online Inc. 2.3%
- --------------------------------------------------------------------------------
4. EMC Corp. 2.2%
- --------------------------------------------------------------------------------
5. Cisco Systems Inc. 2.2%
- --------------------------------------------------------------------------------
6. General Electric Co. 2.0%
- --------------------------------------------------------------------------------
7. BMC Software Inc. 2.0%
- --------------------------------------------------------------------------------
8. Dayton Hudson Corp. 1.9%
- --------------------------------------------------------------------------------
9. VISX Inc. 1.9%
- --------------------------------------------------------------------------------
10. Omnicom Group Inc. 1.9%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
[The following table was represented as a pie chart in the printed material.]
Consumer Growth 30.59%
Capital Goods 5.69%
Technology 29.90%
Cash 1.44%
Consumer Goods (Non-Durables) 14.22%
Financial 16.62%
Utilities 1.54%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
[Photo of Stephen E. Grant, Senior Portfolio Manager & SAM Team Leader and Bruce
H. Alston, CFA, Director of Fixed Income]
Objective: High total return consistent with reasonable risk
Portfolio: Stocks, bonds and money market instruments
Inception: October 1, 1987
Net Assets at December 31, 1999: $1,611,880,799
Q. How did the Value Line Strategic Asset Management Trust perform in 1999?
A. The Trust enjoyed another excellent year, outpacing both its benchmarks and
its peers. Total return for the year was 24.32%,(1) compared with a total return
of 21.04% for the S&P 500 Index(2) and a total return of -1.89% for the Lehman
Government/Corporate Bond Index.(3) More than half of the Trust's gains came in
the second half of the year, during which it outpaced the S&P 500 by more than
four percentage points even though only 40%-50% of assets were invested in
stocks. Since inception over 12 years ago, the Trust has essentially kept pace
with the S&P 500, while its significant holdings of bonds and cash have meant a
much-reduced risk profile for our investors.
Among its peer group, the Trust ranked 11th out of 84 funds in the
flexible variable annuity category (underlying funds) for the 12 months ending
December 31st, according to Lipper Analytical Services.(4) For five years, the
Trust ranked 4th of 57 funds; for ten years, 3rd of 43 funds.
Q. What factors affected performance last year?
A. As in 1998, the Trust benefited from the strong performance of technology
stocks. The portfolio's overweighting in this sector, relative to the S&P 500,
included holdings in computer software, computer hardware, telecommunications,
semiconductors, electronics, and the Internet.
Asset allocation also affected performance. Keep in mind that the Trust's
central tendency, or neutral position, is to be weighted 55% in stocks, 35% in
bonds, and 10% in cash. In the opening months of the year, the Trust's
overweighting in stocks, at 60% to 85% of total assets, was a plus. By May,
however, we moved the allocation back to the neutral position, and during the
summer we moved still more assets out of stocks and into bonds and cash. This
hurt performance in the final quarter of the year, which was a strong period for
stocks and a weak period for bonds. For the full year, our bond holdings had a
slightly negative effect on performance, as interest payments failed to fully
offset the decline in bond prices.
================================================================================
"As in 1998, the Trust benefited from the strong performance of technology
stocks. The portfolio's overweighting in this sector, relative to the S&P 500,
included holdings in computer software, computer hardware, telecommunications,
semiconductors, electronics, and the Internet."
================================================================================
Q. What strategies were used in structuring the portfolio?
A. Asset allocation is guided by our proprietary stock and bond market models,
which use a number of economic and financial variables. Rising stock prices in
1999, com-
- --------------------------------------------------------------------------------
(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. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
bined with rising interest rates, caused the models to favor bonds and cash over
stocks as the year wore on.
For stock selection, we rely on the Value Line Timeliness Ranking System.
This proprietary tool favors stocks with strong earnings momentum and strong
stock price momentum. For bond selection, we stay with high-quality holdings,
primarily U.S. Treasuries and U.S. agencies. In 1999, we maintained average
duration and maturities that were somewhat below the benchmark index, which
proved to be a plus in this period of falling bond prices.
Q. What do you see ahead?
A. We see continued volatile markets. In the opening months of 2000, our models
continue to keep us underweighted in stocks relative to bonds and cash. To
become more positive on stocks, we would probably need to see lower interest
rates and/or lower stock prices.
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust Profile
- ---------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Returns(1)
for Periods Ended December 31, 1999
================================================================================
1 Year ............................. 24.32%
5 Years ............................ 22.24%
10 Years ........................... 16.94%
Since Inception (10/1/87) .......... 16.17%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
as of December 31, 1999
[The following table was represented as a pie chart in the printed material.]
Cash & Equivalents 16.39%
Equity 44.13%
Fixed Income 39.48%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Common Stocks as of
December 31, 1999
Percentage of
Company Portfolio
1. Cisco Systems, Inc. 1.3%
2. Qualcomm Inc. 1.3%
3. Mercury Interactive Corp. 1.2%
4. Medimmune Inc. 1.1%
5. Omnicom Group Inc. 1.1%
6. JDS Uniphase Corp. 1.0%
7. Home Depot Inc. 1.0%
8. PMC-Sierra Inc. 0.9%
9. Symbol Technologies Inc. 0.9%
10. Siebel Systems Inc. 0.9%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[The following table was represented as a line chart in the printed material.]
[PLOT POINTS TO COME]
<TABLE>
<CAPTION>
Value Line Strategic Asset Management Trust S&P 500 Index Lehman Brothers Government/Corporate Bond Index
<S> <C> <C> <C>
10/1/87
97
88
89
90
91
92
93
94
95
96
97
98
12/31/99 $62,758 $62,757 $27,198
</TABLE>
To give you a comparison, the chart above shows the performance of a $10,000
investment made in the Value Line Strategic Asset Management Trust, the S&P 500
Index and in the Lehman Brothers Government/ Corporate Bond Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 December 31, 1999: $484,128,419
Q. How did The Guardian Cash Fund perform during 1999?
A. As of December 31, 1999, the effective 7-day annualized yield for The
Guardian Cash Fund was 5.47%.(1) The Fund produced a total annualized return of
4.77%(2) for the year ended December 31, 1999. In contrast, the effective 7-day
annualized yield of Tier One money market funds as measured by IBC Financial
Data was 5.15%; total return for the same category was 4.48%. 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 decide their preferred long term investment vehicle, be it stocks or bonds.
Also, some of our investors prefer the relative stability of the money markets.
To best accommodate all our investors, we will continue to try to provide a
strong 7-day yield, while offering safety and liquidity. Our investment strategy
was to create a diversified portfolio of money market instruments that presents
minimal credit risks according to our criteria. As always, we only purchased
securities from issuers that 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 Ratings
Group for the Fund's portfolio. Most of the portfolio (95.8%) was invested in
commercial paper; the balance (4.2%) was invested in repurchase agreements.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARaNTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $10.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE FUND.
- --------------------------------------------------------------------------------
Q. What factors affected the Fund's performance?
A. Money market funds are directly affected by the actions of the Federal
Reserve Board (Fed). The Fed's policy making Open Market Committee (FOMC) raised
the Fed Funds target rate by 0.75% to 5.50% in the second half of 1999 with
increases of 0.25% on June 30, August 24, and again on November 16. The Fed
Funds target is the rate at which banks can borrow from each other overnight.
While the Federal Reserve Board does not set this rate, it can establish a
target rate and, through open market operations, the Fed can move member banks
in the direction of that target rate. The Discount Rate is the rate at which
banks can borrow directly from the
================================================================================
"To best accommodate all our investors, we will continue to try to provide a
strong 7-day yield, while offering safety and liquidity."
================================================================================
Federal Reserve. With the increase in interest rates during the later half of
the year, 30-day tier one commercial paper increased in yield by approximately
0.55% from 4.98% to 5.53%. Another factor affecting performance was the
portfolio's average maturity -- 21 days as of December 31, 1999. The average
Tier One money market fund as measured by IBC Financial Data had an average
maturity of 51 days. Y2K concerns caused most companies to avoid issuing
commercial paper in December. This, coupled with excess liquidity provided by
the Fed, drove year-end interest rates down to the 1-2% range.
Q. What is your outlook for 2000?
A. Uncertainty with the direction of the stock market contributes to large daily
inflows and outflows of funds in the Fund. As the stock market rallies, our
investors typically transfer 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.
- --------------------------------------------------------------------------------
(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 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.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account C INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
--------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Shares owned in underlying fund -- Note 1 ....................... 150,022 28,604 1,414 62,696
Net asset value per share (NAV) ................................. 55.20 11.41 10.00 26.78
----------- ----------- ----------- -----------
Total Assets (Shares x NAV) ................................... $ 8,281,227 $ 326,370 $ 14,142 $ 1,678,991
Liabilities
Due to Guardian Insurance & Annuity Company, Inc. ............... 48,963 1,964 154 7,207
----------- ----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
Net Assets .................................................... $ 8,232,264 $ 324,406 $ 13,988 $ 1,671,784
=========== =========== =========== ===========
- -------------------------------------------------------------------------------------------------------------------------------
Number of units outstanding ........................................ 121,745.124 15,111.584 849.715 57,987.127
Unit value ......................................................... 67.62 21.47 16.46 28.83
FIFO Cost .......................................................... $ 6,467,934 $ 343,440 $ 14,142 $ 1,236,576
<CAPTION>
Value Line
Strategic
Value Line Asset
Centurion Management
----------------------------
<S> <C> <C>
Assets
Shares owned in underlying fund -- Note 1 ....................... 33,940 52,861
Net asset value per share (NAV) ................................. 36.09 29.39
----------- -----------
Total Assets (Shares x NAV) ................................... $ 1,224,879 $ 1,553,597
Liabilities
Due to Guardian Insurance & Annuity Company, Inc. ............... 5,541 6,273
----------- -----------
- ---------------------------------------------------------------------------------------------------
Net Assets .................................................... $ 1,219,338 $ 1,547,324
=========== ===========
- ---------------------------------------------------------------------------------------------------
Number of units outstanding ........................................ 17,836.911 28,325.433
Unit value ......................................................... 68.36 54.63
FIFO Cost .......................................................... $ 904,294 $ 1,149,949
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account C
- -------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
--------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ 31,378 $ 18,462 $ 1,254 $ 5,821
Expenses -- Note 3:
Mortality and expense risk charges .............................. 40,178 1,589 152 7,779
----------- ----------- ----------- -----------
Net investment income/(expense) .................................. (8,800) 16,873 1,102 (1,958)
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 277,939 598 -- 50,337
Reinvested realized gain distributions .......................... 1,100,519 878 -- 116,395
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments ........................... 1,378,458 1,476 -- 166,732
Net change in unrealized appreciation/(depreciation) of investments 559,852 (22,840) -- 292,331
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ........... 1,938,310 (21,364) -- 459,063
----------- ----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .... $ 1,929,510 $ (4,491) $ 1,102 $ 457,105
=========== =========== =========== ===========
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Value Line
Strategic
Value Line Asset
Centurion Management
---------------------------
<S> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ 2,760 $ 14,293
Expenses -- Note 3:
Mortality and expense risk charges .............................. 6,214 7,864
----------- -----------
Net investment income/(expense) .................................. (3,454) 6,429
----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 26,550 74,346
Reinvested realized gain distributions .......................... 74,214 73,723
----------- -----------
Net realized gain/(loss) on investments ........................... 100,764 148,069
Net change in unrealized appreciation/(depreciation) of investments 165,062 147,086
----------- -----------
Net realized and unrealized gain/(loss) from investments ........... 265,826 295,155
----------- -----------
- --------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .... $ 262,372 $ 301,584
=========== ===========
- --------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
20 & 21
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account C INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
----------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 22,622 $ 14,831 $ 1,814 $ 168
Net realized gain/(loss) from sale of investments ................. 243,231 259 -- 114,402
Reinvested realized gain distributions ............................ 652,078 3,958 -- 59,081
Net change in unrealized appreciation/(depreciation) of investments 109,502 1,777 -- 49,642
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 1,027,433 20,825 1,814 223,293
----------- ----------- ----------- -----------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 831,980 48,151 12,086 210,740
Transfer on account of death and other terminations ............... (424,652) (6,971) (12,263) (60,605)
Transfer of policy loans .......................................... (127,939) (4,595) 2,375 (275,220)
Transfer between investment divisions ............................. 8,971 (1,061) -- 1,159
Transfer of cost of insurance and policy fees -- Note 3 ........... (218,363) (10,762) (3,176) (48,616)
Transfers -- other ................................................ 464 2 (1) 21
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 70,461 24,764 (979) (172,521)
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 1,097,894 45,589 835 50,772
Net Assets at December 31, 1997 ................................... 5,196,393 269,170 39,237 1,118,356
----------- ----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 6,294,287 $ 314,759 $ 40,072 $ 1,169,128
=========== =========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (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
=========== =========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Value Line
Strategic
Value Line Asset
Centurion Management
----------------------------
<S> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (2,288) $ 24,978
Net realized gain/(loss) from sale of investments ................. 43,574 32,453
Reinvested realized gain distributions ............................ 50,196 91,453
Net change in unrealized appreciation/(depreciation) of investments 111,291 129,000
----------- -----------
Net increase/(decrease) resulting from operations ................. 202,773 277,884
----------- -----------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... 123,106 158,898
Transfer on account of death and other terminations ............... (78,661) (78,534)
Transfer of policy loans .......................................... (35,056) (24,752)
Transfer between investment divisions ............................. (11) (9,058)
Transfer of cost of insurance and policy fees -- Note 3 ........... (29,980) (41,983)
Transfers -- other ................................................ 85 55
----------- -----------
Net increase/(decrease) from policy transactions .................. (20,517) 4,626
----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 182,256 282,510
Net Assets at December 31, 1997 ................................... 762,029 1,027,524
----------- -----------
- -----------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 944,285 $ 1,310,034
=========== ===========
- -----------------------------------------------------------------------------------------------------
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (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
=========== ===========
- -----------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
22 & 23
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account C
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ----------------------
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 (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 year ended December 31, 1999 this amount was
$63,776.
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (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 years ended December 31, 1999 and December 31, 1998,
deductions for the cost of life insurance amounted to $362,591 and $352,880,
respectively.
Additional charges are assessed against the annual premium. These include
a $50 annual policy fee, and an annual state premium tax charge of approximately
2.5% of the basic premium.
Currently, GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
Under current laws, GIAC may incur state and local taxes in several
states. At present, these taxes are not significant. In the event of a material
change in applicable state or local tax laws, GIAC reserves the right to charge
the Account for such taxes, if any, which are attributable to the Account.
- -----------------------------
Note 4 -- Purchases and Sales
- -----------------------------
During the years ended December 31, 1999 and December 31, 1998, purchases
and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
Purchases Purchases Sales Sales
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
The Guardian Stock Fund .......... $1,739,641 $1,301,371 $ 631,592 $ 553,661
The Guardian Bond Fund, Inc. ..... 61,601 65,559 29,123 22,486
The Guardian Cash Fund, Inc. ..... 9,882 16,224 36,814 15,143
Baillie Gifford International Fund 338,578 317,063 176,810 430,347
Value Line Centurion Fund, Inc. .. 185,868 164,284 101,213 136,023
Value Line Strategic Asset
Management Trust ............... 202,390 249,514 185,668 128,706
---------- ---------- ---------- ----------
Total .......................... $2,537,960 $2,114,015 $1,161,220 $1,286,366
========== ========== ========== ==========
</TABLE>
Note: In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account C
- -------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
and the Contract Owners of The Guardian Separate Account C
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the Guardian Stock,
Guardian Bond, Guardian Cash, Baillie Gifford International, Value Line
Centurion, and Value Line Strategic Asset Management investment divisions
(constituting The Guardian Separate Account C) at December 31, 1999, and the
results of each of their operations for the year then ended and the changes in
each of their net assets for each of the two years then ended, in conformity
with accounting principals generally accepted in the United States. These
financial statements are the responsibility of the management of The Guardian
Insurance & Annuity Company, Inc.; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of shares owned at December 31, 1999 by
correspondence with the transfer agents of the underlying funds, provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 16, 2000
- --------------------------------------------------------------------------------
26
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .......................... 3,924,477 2,282,417 4,051,222 613,182
Net asset value per share (NAV) .................................... 55.20 11.41 10.00 26.78
------------- ------------- ------------- -------------
Total Assets (Shares x NAV) ....................................... $ 216,632,391 $ 26,042,377 $ 40,510,981 $ 16,421,007
Liabilities:
Due to Guardian Insurance & Annuity Company, Inc. ................. 84,670 10,867 369,705 7,617
------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 .............................................. $ 216,547,721 $ 26,031,510 $ 40,141,276 $ 16,413,390
============= ============= ============= =============
- ------------------------------------------------------------------------------------------------------------------------------------
Number of units outstanding .......................................... 1,786,896.571 898,718.400 2,004,084.794 530,563.465
Unit value ........................................................... 121.19 28.97 20.03 30.94
FIFO Cost ............................................................ $ 176,711,110 $ 27,576,484 $ 40,510,981 $ 13,153,628
<CAPTION>
Value Line
Strategic
Value Line Asset Smith Barney
Centurion Management Fund 2004
-------------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .......................... 3,160,497 1,330,111 8,196,748
Net asset value per share (NAV) .................................... 36.09 29.39 0.73
------------- ------------- -------------
Total Assets (Shares x NAV) ....................................... $ 114,062,352 $ 39,091,958 $ 6,007,397
Liabilities:
Due to Guardian Insurance & Annuity Company, Inc. ................. 41,500 15,168 4,103
------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 .............................................. $ 114,020,852 $ 39,076,790 $ 6,003,294
============= ============= =============
- ------------------------------------------------------------------------------------------------------------------------
Number of units outstanding .......................................... 1,127,557.377 662,097.628 115,813.925
Unit value ........................................................... 101.12 59.02 51.84
FIFO Cost ............................................................ $ 91,979,158 $ 28,548,326 $ 4,616,027
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- -------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Baillie
Guardian Guardian Guardian Gifford
Stock Bond Cash International
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ 853,042 $ 1,551,783 $ 1,870,969 $ 60,924
Expenses -- Note 3:
Mortality and expense risk charges .............................. 964,953 140,010 201,546 70,868
------------- ------------- ------------- -------------
Net investment income/(expense) .................................... (111,911) 1,411,773 1,669,423 (9,944)
------------- ------------- ------------- -------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 22,183,995 (256,351) -- 1,151,356
Reinvested realized gain distributions .......................... 29,230,175 77,691 -- 1,169,079
------------- ------------- ------------- -------------
Net realized gain/(loss) on investments ........................... 51,414,170 (178,660) -- 2,320,435
Net change in unrealized appreciation/(depreciation) of investments 155,759 (1,629,504) -- 2,340,487
------------- ------------- ------------- -------------
Net realized and unrealized gain/(loss) from investments ............. 51,569,929 (1,808,164) -- 4,660,922
------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ...... $ 51,458,018 $ (396,391) $ 1,669,423 $ 4,650,978
============= ============= ============= =============
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Value Line
Strategic
Value Line Asset Smith Barney
Centurion Management Fund 2004
------------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................................ $ 280,786 $ 363,930 $ --
Expenses -- Note 3:
Mortality and expense risk charges .............................. 513,465 178,835 50,577
------------- ------------- -------------
Net investment income/(expense) .................................... (232,679) 185,095 (50,577)
------------- ------------- -------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............... 15,731,879 2,521,955 1,063,843
Reinvested realized gain distributions .......................... 7,550,026 1,877,112 --
------------- ------------- -------------
Net realized gain/(loss) on investments ........................... 23,281,905 4,399,067 1,063,843
Net change in unrealized appreciation/(depreciation) of investments 1,755,661 2,953,142 (1,328,857)
------------- ------------- -------------
Net realized and unrealized gain/(loss) from investments ............. 25,037,566 7,352,209 (265,104)
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ...... $ 24,804,887 $ 7,537,304 $ (315,591)
============= ============= =============
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
28 & 29
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
--------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 785,824 $ 1,347,573 $ 1,781,581
Net realized gain/(loss) from sale of investments ................. 20,459,401 (9,192) --
Reinvested realized gain distributions ............................ 19,892,487 347,936 --
Net change in unrealized appreciation/(depreciation) of investments (9,255,640) 320,086 --
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 31,882,072 2,006,403 1,781,581
------------- ------------- -------------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... -- -- 592,915
Transfer of net policy loading -- Note 3 .......................... (163,656) (23,106) (49,433)
Transfer on account of death ...................................... (1,429,136) (229,758) (419,861)
Transfer on account of other terminations ......................... (5,045,779) (1,366,661) (2,818,547)
Transfer of policy loans .......................................... (2,421,724) (836,466) (660,755)
Transfer of cost of insurance and policy fees -- Note 3 ........... (2,515,933) (455,421) (708,818)
Transfer between investment divisions ............................. (1,486,763) 1,402,000 (534,389)
Transfers -- other ................................................ (29,237) (6,609) (2,901)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. (13,092,228) (1,516,021) (4,601,789)
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 18,789,844 490,382 (2,820,208)
Net Assets at December 31, 1997 ................................... 173,125,131 27,214,106 38,158,883
------------- ------------- -------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 191,914,975 $ 27,704,488 $ 35,338,675
============= ============= =============
- ---------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (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
============= ============= =============
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Baillie
Gifford Value Line
International Centurion
----------------------------------
<S> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 12,050 $ (169,948)
Net realized gain/(loss) from sale of investments ................. 1,918,655 11,395,122
Reinvested realized gain distributions ............................ 694,143 5,067,463
Net change in unrealized appreciation/(depreciation) of investments (16,477) 5,468,485
------------- -------------
Net increase/(decrease) resulting from operations ................. 2,608,371 21,761,122
------------- -------------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... -- --
Transfer of net policy loading -- Note 3 .......................... (38,711) (61,480)
Transfer on account of death ...................................... (368,359) (714,278)
Transfer on account of other terminations ......................... (727,267) (3,926,389)
Transfer of policy loans .......................................... (183,897) (1,178,658)
Transfer of cost of insurance and policy fees -- Note 3 ........... (190,976) (1,221,051)
Transfer between investment divisions ............................. (789,594) 1,244,451
Transfers -- other ................................................ (10,301) (59,160)
------------- -------------
Net increase/(decrease) from policy transactions .................. (2,309,105) (5,916,565)
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 299,266 15,844,557
Net Assets at December 31, 1997 ................................... 13,541,320 81,485,954
------------- -------------
- -----------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 13,840,586 $ 97,330,511
============= =============
- -----------------------------------------------------------------------------------------------------------
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ (9,944) $ (232,679)
Net realized gain/(loss) from sale of investments ................. 1,151,356 15,731,879
Reinvested realized gain distributions ............................ 1,169,079 7,550,026
Net change in unrealized appreciation/(depreciation) of investments 2,340,487 1,755,661
------------- -------------
Net increase/(decrease) resulting from operations ................. 4,650,978 24,804,887
------------- -------------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... -- --
Transfer of net policy loading -- Note 3 .......................... (20,325) (43,165)
Transfer on account of death ...................................... (120,752) (686,549)
Transfer on account of other terminations ......................... (772,439) (4,538,650)
Transfer of policy loans .......................................... (517,997) (1,283,944)
Transfer of cost of insurance and policy fees -- Note 3 ........... (187,108) (1,525,735)
Transfer between investment divisions ............................. (457,889) 28,390
Transfers -- other ................................................ (1,664) (64,893)
------------- -------------
Net increase/(decrease) from policy transactions .................. (2,078,174) (8,114,546)
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 2,572,804 16,690,341
Net Assets at December 31, 1998 ................................... 13,840,586 97,330,511
------------- -------------
- -----------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 16,413,390 $ 114,020,852
============= =============
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Value Line
Strategic
Asset Smith Barney
Management Fund 2004
--------------------------------
<S> <C> <C>
- ----------------------------------------
1998 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 661,765 $ (54,947)
Net realized gain/(loss) from sale of investments ................. 3,341,162 1,160,312
Reinvested realized gain distributions ............................ 2,344,129 --
Net change in unrealized appreciation/(depreciation) of investments 765,425 (337,780)
------------- -------------
Net increase/(decrease) resulting from operations ................. 7,112,481 767,585
------------- -------------
- ------------------------
1998 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... -- --
Transfer of net policy loading -- Note 3 .......................... (54,745) (10,648)
Transfer on account of death ...................................... (131,469) --
Transfer on account of other terminations ......................... (1,659,288) (238,311)
Transfer of policy loans .......................................... (599,046) (263,328)
Transfer of cost of insurance and policy fees -- Note 3 ........... (440,555) (103,121)
Transfer between investment divisions ............................. (251,487) 415,782
Transfers -- other ................................................ (11,341) (332)
------------- -------------
Net increase/(decrease) from policy transactions .................. (3,147,931) (199,958)
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 3,964,550 567,627
Net Assets at December 31, 1997 ................................... 28,208,307 6,707,210
------------- -------------
- ---------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1998 ................................... $ 32,172,857 $ 7,274,837
============= =============
- ---------------------------------------------------------------------------------------------------------
- ----------------------------------------
1999 Increase/(Decrease) from Operations
- ----------------------------------------
Net investment income/(expense) ................................... $ 185,095 $ (50,577)
Net realized gain/(loss) from sale of investments ................. 2,521,955 1,063,843
Reinvested realized gain distributions ............................ 1,877,112 --
Net change in unrealized appreciation/(depreciation) of investments 2,953,142 (1,328,857)
------------- -------------
Net increase/(decrease) resulting from operations ................. 7,537,304 (315,591)
------------- -------------
- ------------------------
1999 Policy Transactions
- ------------------------
Net policy purchase payments ...................................... -- --
Transfer of net policy loading -- Note 3 .......................... (39,013) (4,745)
Transfer on account of death ...................................... (50,278) (64,978)
Transfer on account of other terminations ......................... (1,683,601) (259,934)
Transfer of policy loans .......................................... (614,180) 199,675
Transfer of cost of insurance and policy fees -- Note 3 ........... (521,676) (96,264)
Transfer between investment divisions ............................. 2,279,862 (730,755)
Transfers -- other ................................................ (4,485) 1,049
------------- -------------
Net increase/(decrease) from policy transactions .................. (633,371) (955,952)
------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 6,903,933 (1,271,543)
Net Assets at December 31, 1998 ................................... 32,172,857 7,274,837
------------- -------------
- ---------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 39,076,790 $ 6,003,294
============= =============
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
30 % 31
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ----------------------
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 (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.
- --------------------------------------------------------------------------------
32
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (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 year ended December 31, 1999
the total amount of these charges was $2,120,254.
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 years ended December 31, 1999 and 1998 these fees amounted to $256,845
and $401,779 respectively.
In addition, GIAC also makes a monthly charge for the cost of life
insurance, based on the account value of the policyowner's insurance in force,
as compensation for the anticipated cost of paying death benefits. For the years
ended December 31, 1999 and 1998, deductions for cost of life insurance amounted
to $6,286,339 and $5,331,692, respectively.
Currently, GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
Under current laws, GIAC may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
In the event of a material change in applicable state or local tax laws, GIAC
reserves the right to charge the Account for such taxes attributable to the
Account.
- ---------------------------------
Note 4 -- Net Assets, December 31
- ---------------------------------
At December 31, 1999, net assets of the Account were as follows:
Accumulation of Single Premium
Variable Life Insurance
Policyowners' Accounts $457,559,188
Owned by GIAC 675,645
------------
$458,234,833
============
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 $256,845 at December 31, 1999
may be transferred by GIAC to its general account.
33
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account B
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
- -----------------------------
Note 5 -- Purchases and Sales
- -----------------------------
During the years ended December 31, 1999 and 1998, purchases and sales of
shares of the Funds were as follows:
<TABLE>
<CAPTION>
Purchases Purchases Sales Sales
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Guardian Stock Fund .......... $ 42,656,176 $ 42,987,410 $ 40,319,464 $ 35,512,717
The Guardian Bond Fund, Inc. ..... 8,948,493 7,083,905 8,730,606 6,924,015
The Guardian Cash Fund, Inc. ..... 44,395,185 43,594,897 39,532,860 46,423,310
Baillie Gifford International Fund 4,780,387 6,645,091 5,695,557 8,257,111
Value Line Centurion Fund, Inc. .. 27,652,340 21,739,663 28,429,074 22,809,153
Value Line Strategic Asset
Management Trust ............... 6,712,900 5,542,631 5,276,229 5,703,163
Smith Barney Fund 2004 ........... 556,779 1,387,604 1,561,731 1,649,562
------------ ------------ ------------ ------------
Total .......................... $135,702,260 $128,981,201 $129,545,521 $127,279,031
============ ============ ============ ============
</TABLE>
NOTE: In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Guardian Insurance & Annuity Company, Inc.
and the Contract Owners of The Guardian Separate Account B
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the Guardian Stock,
Guardian Bond, Guardian Cash, Baillie Gifford International, Value Line
Centurion, Value Line Strategic Asset Management and Smith Barney Fund 2004
investment divisions (constituting The Guardian Separate Account B) at December
31, 1999, and the results of each of their operations for the year then ended
and the changes in each of their net assets for each of the two years then
ended, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the management of
The Guardian Insurance & Annuity Company, Inc.; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of shares owned at December 31, 1999 by
correspondence with the transfer agents of the underlying funds, provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 20, 2000
- --------------------------------------------------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund
- -----------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- ----------------------
COMMON STOCKS -- 96.0%
- ----------------------
Shares Value
- ---------------------------------------------------------------------------
Appliance and Furniture -- 0.2%
152,600 Whirlpool Corp.* $ 9,928,538
--------------
Automotive -- 0.4%
304,500 Ford Motor Co. 16,271,719
--------------
Biotechnology -- 2.3%
59,600 Affymetrix, Inc.* 10,113,375
482,000 Amgen, Inc.* 28,950,125
170,000 Biogen, Inc.* 14,365,000
285,800 Enzon, Inc.* 12,396,575
86,100 MedImmune, Inc.* 14,281,837
68,300 Millenium Pharmaceuticals* 8,332,600
65,500 Sepracor, Inc.* 6,496,781
--------------
94,936,293
--------------
Broadcasting -- 4.8%
212,400 Adelphia Comm. Corp.* 13,938,750
164,000 AMFM, Inc.* 12,833,000
625,400 CBS Corp.* 39,986,513
424,400 Charter Comm., Inc.* 9,283,750
190,000 Clear Channel Comm., Inc.* 16,957,500
330,000 Comcast Corp.* 16,685,625
238,700 Cox Comm., Inc.* 12,293,050
88,000 Cumulus Media, Inc.* 4,466,000
739,200 Infinity Broadcasting Corp.* 26,749,800
269,900 Insight Comm., Inc.* 7,995,787
470,400 MediaOne Group, Inc.* 36,132,600
32,200 RealNetworks, Inc.* 3,874,063
--------------
201,196,438
--------------
Building Materials and Homebuilders -- 0.1%
146,200 Crossman Communities, Inc.* 2,266,100
280,300 Johns Manville Corp. 3,924,200
--------------
6,190,300
--------------
Capital Goods-Miscellaneous Technology -- 3.0%
79,200 CMGI, Inc.* 21,928,500
61,200 CNET, Inc.* 3,473,100
233,800 Critical Path, Inc.* 22,064,875
83,400 Doubleclick, Inc.* 21,105,413
161,200 E Bay, Inc.* 20,180,225
129,800 Internet Capital Group, Inc.* 22,066,000
82,800 VerticalNet, Inc.* 13,579,200
--------------
124,397,313
--------------
Computer Software -- 12.8%
227,800 Adobe Systems, Inc. 15,319,550
57,200 Advent Software, Inc.* 3,685,825
37,300 Agile Software Corp.* 8,102,842
62,400 Ariba, Inc.* 11,068,200
173,400 Bea Systems, Inc.* 12,127,162
106,400 Broadvision, Inc.* 18,094,650
79,600 Citrix Systems, Inc.* 9,790,800
69,500 Commerce One, Inc.* 13,656,750
62,900 Cybersource Corp.* 3,255,075
135,200 Inktomi Corp.* 11,999,000
51,800 Legato Systems, Inc.* 3,564,488
100,200 Mercury Interactive Corp.* 10,815,338
55,300 Micromuse, Inc.* 9,401,000
1,982,100 Microsoft Corp.* 231,410,175
537,500 Oracle Corp.* 60,233,594
459,500 Saga Systems, Inc.* 9,161,281
233,000 Siebel Systems, Inc.* 19,572,000
601,000 Sybase, Inc.* 10,217,000
154,300 Symantec Corp.* 9,045,838
129,500 TSI Int'l. Software Ltd.* 7,332,937
86,400 VeriSign, Inc.* 16,497,000
46,800 Veritas Software Corp.* 6,698,250
276,300 Visio Corp.* 13,124,250
82,000 Vitria Technology, Inc.* 19,188,000
--------------
533,361,005
--------------
Computer Systems-- 6.6%
164,000 Apple Computer, Inc.* 16,861,250
210,500 Cabletron Systems, Inc.* 5,473,000
392,700 Dell Computer Corp.* 20,027,700
583,800 EMC Corp.* 63,780,150
145,200 Hewlett Packard Co. 16,543,725
796,800 Int'l. Business Machines 86,054,400
206,000 Solectron Corp.* 19,595,750
610,200 Sun Microsystems, Inc.* 47,252,363
--------------
275,588,338
--------------
Drugs and Hospitals -- 4.2%
143,500 Andrx Corp.* 6,071,844
735,600 Bristol-Myers Squibb Corp. 47,216,325
152,400 Idec Pharmaceuticals Corp.* 14,973,300
171,000 Johnson & Johnson 15,924,375
364,800 Merck & Co., Inc. 24,464,400
672,600 Pfizer, Inc. 21,817,462
531,800 Schering-Plough Corp. 22,435,313
263,000 Warner-Lambert Co. 21,549,562
--------------
174,452,581
--------------
Electrical Equipment -- 2.1%
73,400 DII Group, Inc.* 5,209,106
92,800 Flextronics Int'l. Ltd.* 4,268,800
495,600 General Electric Co. 76,694,100
--------------
86,172,006
--------------
Electronics and Instruments -- 0.3%
53,800 Jabil Circuit, Inc.* 3,927,400
104,300 Power Integrations, Inc.* 4,999,881
34,200 Sanmina Corp.* 3,415,725
--------------
12,343,006
--------------
Electronics-Semiconductors -- 4.8%
190,000 Analog Devices, Inc.* 17,670,000
357,600 Atmel Corp.* 10,571,550
125,100 AVX Corp.* 6,247,181
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- ---------------------------------------------------------------------------
72,200 Epcos AG* $ 5,392,437
240,200 Integrated Device
Technology, Inc.* 6,965,800
1,250,300 Intel Corp. 102,915,319
258,900 Int'l. Rectifier Corp.* 6,731,400
137,100 Lattice Semiconductor Corp.* 6,460,838
457,100 LSI Logic Corp.* 30,854,250
104,700 Microchip Technology, Inc.* 7,165,406
--------------
200,974,181
--------------
Entertainment and Leisure -- 1.0%
557,900 Blockbuster, Inc. 7,461,913
234,200 Time Warner, Inc. 16,964,862
316,000 Viacom, Inc.* 19,098,250
--------------
43,525,025
--------------
Financial-Banks -- 2.8%
156,700 Chase Manhattan Corp. 12,173,631
1,221,500 Citigroup, Inc. 67,869,594
140,000 Fifth Third Bancorp 10,272,500
393,100 Firstar Corp. 8,304,237
206,300 FleetBoston Financial Corp. 7,181,819
6,125 M & T Bank Corp. 2,537,281
155,800 North Fork Bancorp 2,726,500
247,332 Premier National Bancorp, Inc. 4,560,184
23,000 U.S. Trust Corp. 1,844,313
--------------
117,470,059
--------------
Financial-Other -- 4.0%
294,400 American Express Co. 48,944,000
41,300 Dain Rauscher Corp. 1,920,450
29,100 Goldman Sachs Group, Inc. 2,740,856
148,700 Jefferies Group, Inc. 3,271,400
87,332 Legg Mason, Inc. 3,165,785
425,500 Lehman Brothers Hldgs., Inc. 36,034,531
124,000 Merrill Lynch & Co., Inc. 10,354,000
112,800 J. P. Morgan & Co., Inc. 14,283,300
264,900 Morgan Stanley Dean Witter & Co. 37,814,475
281,100 Charles Schwab Corp. 10,787,212
--------------
169,316,009
--------------
Financial-Thrift -- 0.4%
833,140 Charter One Financial, Inc. 15,933,803
133,400 Commercial Federal Corp. 2,376,188
--------------
18,309,991
--------------
Food, Beverage and Tobacco -- 0.2%
109,300 Anheuser-Busch Cos., Inc. 7,746,638
--------------
Household Products -- 0.7%
256,300 Church & Dwight, Inc. 6,840,006
326,800 Kimberly-Clark Corp. 21,323,700
--------------
28,163,706
--------------
Insurance -- 0.0%
56,000 State Auto Financial Corp. 511,000
--------------
Merchandising-Department Stores -- 2.1%
139,100 Dayton Hudson Corp. 10,215,156
1,142,000 Wal-Mart Stores, Inc. 78,940,750
--------------
89,155,906
--------------
Merchandising-Special -- 3.0%
63,000 Amazon.com, Inc.* 4,795,875
247,800 Best Buy, Inc.* 12,436,463
344,900 BJ's Wholesale Club, Inc.* 12,588,850
140,000 Costco Wholesale Corp.* 12,775,000
630,000 Home Depot, Inc. 43,194,375
312,000 Starbucks Corp.* 7,566,000
500,000 Tandy Corp. 24,593,750
120,900 Zale Corp.* 5,848,537
--------------
123,798,850
--------------
Miscellaneous-Consumer Growth Cyclical -- 0.6%
101,200 Go2Net, Inc.* 8,804,400
76,000 Sapient Corp.* 10,711,250
56,000 Viant Corp.* 5,544,000
--------------
25,059,650
--------------
Miscellaneous-Consumer Growth Staples -- 1.5%
161,900 Interpublic Group Cos., Inc.* 9,339,606
191,300 Intuit, Inc.* 11,466,044
170,700 Lamar Advertising Co.* 10,338,019
510,000 Valassis Comm., Inc.* 21,547,500
153,000 Young & Rubicam, Inc. 10,824,750
--------------
63,515,919
--------------
Oil and Gas Producing -- 1.2%
207,200 Anadarko Petroleum Corp. 7,070,700
233,600 Apache Corp. 8,628,600
143,300 Devon Energy Corp. 4,710,987
284,200 Newfield Exploration Co.* 7,602,350
465,400 Talisman Energy, Inc* 11,984,050
152,100 Vastar Resources, Inc. 8,973,900
--------------
48,970,587
--------------
Oil and Gas Services -- 1.3%
210,900 B.J. Svcs. Co.* 8,818,256
186,400 Cooper Cameron Corp.* 9,121,950
312,500 Halliburton Co. 12,578,125
304,200 Noble Drilling Corp.* 9,962,550
203,900 Schlumberger Ltd. 11,469,375
39,475 Transocean Sedco Forex, Inc. 1,329,815
--------------
53,280,071
--------------
Oil-Integrated-Domestic -- 0.2%
417,500 Conoco, Inc. 10,385,313
--------------
Oil-Integrated-International -- 2.3%
230,000 Chevron Corp. 19,923,750
222,800 Exxon Mobil Corp. 17,949,325
459,400 Royal Dutch Petroleum Co.* 27,764,987
540,700 Texaco, Inc. 29,366,769
--------------
95,004,831
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund
- -----------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
Shares Value
- ---------------------------------------------------------------------------
Paper and Forest Products -- 1.5%
424,700 Abitibi-Consolidated, Inc. $ 5,043,312
94,200 Bowater, Inc. 5,116,238
136,300 Champion Int'l. Corp. 8,442,081
183,800 Georgia-Pacific Group 9,327,850
341,100 Int'l. Paper Co. 19,250,831
195,900 Mead Corp. 8,509,406
342,200 Smurfit-Stone Container Corp.* 8,383,900
--------------
64,073,618
--------------
Photography -- 0.4%
242,200 Eastman Kodak Co.* 16,045,750
--------------
Semiconductors -- 2.9%
252,200 Adaptec, Inc.* 12,578,475
672,000 Advanced Micro Devices, Inc.* 19,446,000
152,200 Kemet Corp.* 6,858,512
623,300 Micron Technology, Inc.* 48,461,575
361,500 National Semiconductor Corp.* 15,476,719
181,900 Sawtek, Inc.* 12,107,719
193,300 Vishay Intertechnology, Inc.* 6,113,113
--------------
121,042,113
--------------
Semiconductors-Communications -- 4.8%
195,700 Altera Corp.* 9,699,381
152,000 Applied Micro Circuits Corp.* 19,342,000
92,700 Conexant Systems, Inc.* 6,152,963
359,300 Cypress Semiconductor Corp.* 11,632,337
87,300 DSP Group, Inc.* 8,118,900
80,100 Linear Technology Corp.* 5,732,156
53,900 Micrel, Inc.* 3,068,931
91,400 PMC Sierra, Inc.* 14,652,563
224,000 RF Micro Devices, Inc.* 15,330,000
234,900 Semtech Corp.* 12,244,162
264,000 Texas Instruments, Inc. 25,575,000
114,700 Transwitch Corp.* 8,322,919
82,500 Triquint Semiconductor, Inc.* 9,178,125
246,000 Vitesse Semiconductor Corp.* 12,899,625
831,600 Xilinx, Inc.* 37,811,812
--------------
199,760,874
--------------
Semiconductors-Equipment -- 2.6%
82,500 Agilent Technologies, Inc.* 6,378,281
233,900 Applied Materials, Inc.* 29,632,206
286,400 Cadence Design Systems, Inc.* 6,873,600
109,300 Credence Systems Corp.* 9,454,450
124,000 Cymer Corp.* 5,704,000
99,700 DuPont Photomasks, Inc.* 4,810,525
119,600 KLA-Tencor Corp.* 13,320,450
104,600 Lam Resh Corp.* 11,669,437
299,500 Teradyne, Inc.* 19,767,000
--------------
107,609,949
--------------
Telecommunications -- 6.5%
617,053 AT & T Corp. 31,315,440
310,000 Bell Atlantic Corp. 19,084,375
495,000 GTE Corp. 34,928,437
828,762 MCI WorldCom, Inc.* 43,976,184
498,000 Nortel Networks Corp. 50,298,000
1,050,484 SBC Comm., Inc. 51,211,095
422,000 Sprint Corp. 28,405,875
181,800 US West, Inc. 13,089,600
--------------
272,309,006
--------------
Telecommunications-Equipment -- 7.8%
252,800 American Tower Corp.* 7,726,200
36,000 AudioCodes Ltd.* 3,312,000
119,100 Ciena Corp.* 6,848,250
551,000 Cisco Systems, Inc.* 59,025,875
153,900 CommScope, Inc.* 6,204,094
386,500 Crown Castle, Int'l.* 12,416,313
105,900 E Tek Dynamics, Inc.* 14,256,788
31,000 Juniper Networks, Inc.* 10,540,000
675,200 Lucent Technologies, Inc. 50,513,400
410,000 Motorola, Inc. 60,372,500
102,600 Nokia Corp.* 19,494,000
35,100 Optical Coating Lab., Inc. 10,389,600
102,500 Pinnacle Hldgs.* 4,343,437
104,400 Proxim, Inc.* 11,484,000
192,000 QUALCOMM, Inc.* 33,816,000
181,200 Scientific Atlanta, Inc. 10,079,250
76,100 Tellabs, Inc.* 4,884,669
--------------
325,706,376
--------------
Telecommunications-Specialty -- 5.7%
135,300 Advanced Fibre Comm., Inc.* 6,046,219
968,400 America Online, Inc.* 73,053,675
393,800 Exodus Comm., Inc.* 34,974,362
741,075 Global Crossing Ltd.* 37,053,750
300,300 GST Telecomm., Inc.* 2,721,469
141,400 Intermedia Comm., Inc.* 5,488,088
78,800 Level 3 Comm., Inc.* 6,451,750
105,500 Sprint PCS (FON Group)* 10,813,750
154,000 Time Warner Telecom, Inc.* 7,690,375
45,400 Williams Comm. Group* 1,313,762
84,800 Winstar Comm., Inc.* 6,381,200
104,000 Yahoo, Inc.* 44,999,500
--------------
236,987,900
--------------
Transportation-Miscellaneous -- 0.1%
40,900 United Parcel Svcs. 2,822,100
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
38
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- ---------------------------------------------------------------------------
Utilities-Electric -- 0.6%
29,800 Calpine Corp.* $ 1,907,200
159,600 Energy East Corp. 3,321,675
477,400 Montana Power Co. 17,216,238
141,600 Potomac Electric Power Co. 3,247,950
--------------
25,693,063
--------------
Utilities-Gas and Pipeline -- 0.2%
284,800 Keyspan Corp. 6,603,800
--------------
TOTAL COMMON STOCKS
(Cost $2,485,884,967) 4,008,679,822
--------------
- ----------------------------
REPURCHASE AGREEMENT -- 4.5%
- ----------------------------
Principal
Amount Value
- ---------------------------------------------------------------------------
$ 188,464,000 State Street Bank & Trust Co.
repurchase agreement, dated
12/31/99, maturity value $188,515,042
at 3.25%, due 1/3/00 (1) $ 188,464,000
--------------
TOTAL REPURCHASE AGREEMENT
(Cost $188,464,000) 188,464,000
--------------
TOTAL INVESTMENTS -- 100.5%
(Cost $2,674,348,967) 4,197,143,822
LIABILITIES IN EXCESS OF CASH,
RECEIVABLES AND OTHER
ASSETS -- (0.5%) (22,056,760)
--------------
- ---------------------------------------------------------------------------
NET ASSETS -- 100.0% $4,175,087,062
==============
- ---------------------------------------------------------------------------
(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.
- --------------------------------------------------------------------------------
39
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund
- -----------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1999
ASSETS
Investments, at market (cost $2,674,348,967) $4,197,143,822
Cash 99,034
Dividends receivable 1,530,256
Receivable for fund shares sold 252,539
Interest receivable 17,014
--------------
TOTAL ASSETS 4,199,042,665
--------------
LIABILITIES
Payable for securities purchased 20,910,288
Accrued expenses 2,033,738
Payable for fund shares redeemed 1,011,577
--------------
TOTAL LIABILITIES 23,955,603
--------------
NET ASSETS $4,175,087,062
==============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 75,636
Additional paid-in capital 2,493,737,808
Undistributed net investment income 241,325
Accumulated net realized gain on investments 158,236,901
Net unrealized appreciation of investments 1,522,795,392
--------------
NET ASSETS $4,175,087,062
==============
Shares Outstanding -- $0.001 par value 75,636,078
--------------
NET ASSET VALUE PER SHARE $ 55.20
==============
STATEMENT OF OPERATIONS
YEAR ENDED
December 31, 1999
Investment Income:
Dividends $ 28,519,376
Interest 6,828,171
Less: Foreign tax withheld (22,075)
--------------
Total Income 35,325,472
--------------
Expenses:
Investment advisory fees -- Note B 18,271,084
Custodian fees 369,188
Printing expense 210,430
Legal fees 61,999
Registration fees 27,850
Audit fees 19,232
Directors' fees -- Note B 12,500
Insurance expense 9,378
Other 700
--------------
Total Expenses 18,982,361
--------------
Net Investment Income 16,343,111
--------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized gain on investments 635,478,868
Net change in unrealized appreciation
of investments 367,759,722
Net Realized and Unrealized Gain
on Investments 1,003,238,590
--------------
Net Increase in Net Assets
from Operations $1,019,581,701
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 16,343,111 $ 32,273,803
Net realized gain on investments 635,478,868 372,509,200
Net change in unrealized appreciation of investments 367,759,722 212,338,243
--------------- ---------------
Net Increase in Net Assets from Operations 1,019,581,701 617,121,246
--------------- ---------------
Dividends and Distributions to Shareholders from:
Net investment income (16,388,132) (32,287,254)
Net realized gain on investments (563,140,777) (380,510,130)
--------------- ---------------
Total Dividends and Distributions to Shareholders (579,528,909) (412,797,384)
--------------- ---------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note G 69,838,389 238,685,174
--------------- ---------------
Net Increase in Net Assets 509,891,181 443,009,036
Net Assets:
Beginning of year 3,665,195,881 3,222,186,845
--------------- ---------------
End of year* $ 4,175,087,062 $ 3,665,195,881
=============== ===============
* Includes undistributed net investment income of: $ 241,325 $ 286,405
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
41
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund
- -----------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ............................... $49.08 $46.05 $38.59 $34.72 $27.33
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income ........................................ 0.24 0.47 0.52 0.53 0.44
Net realized and
unrealized gain on investments ................ 14.49 8.56 12.97 8.62 9.01
------ ------ ------ ------ ------
Net increase from
investment operations ......................... 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
year .......................................... $55.20 $49.08 $46.05 $38.59 $34.72
------ ------ ------ ------ ------
Total return* ...................................... 31.17% 19.86% 35.58% 26.90% 34.65%
------ ------ ------ ------ ------
Ratios/supplemental data:
Net assets, end of year
(000's omitted) ............................... $4,175,087 $3,665,196 $3,222,187 $2,226,728 $1,615,271
Ratio of expenses to
average net assets ............................ 0.52% 0.52% 0.52% 0.53% 0.53%
Ratio of net investment
income to average net assets .................. 0.45% 0.95% 1.17% 1.50% 1.39%
Portfolio turnover
rate .......................................... 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.
See notes to financial statements.
- --------------------------------------------------------------------------------
42
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
43
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- --------------------
ASSET BACKED -- 8.5%
- --------------------
Principal
Amount Value
- ---------------------------------------------------------------------------
$ 2,700,000 Amresco 1997-1 M1F
7.42% due 3/25/27 $ 2,644,326
4,300,000 Arcadia Automobile Rec. Tr.
1999-A A5
6.12% due 12/15/06 4,171,258
3,600,000 Contimortgage Home Equity Loan Tr.
1999-1 A3
6.17% due 5/25/21 3,457,260
3,200,000 Green Tree Finl. Corp.
1998-4 A5
6.18% due 12/1/17 3,109,088
3,600,000 Green Tree Finl. Corp.
1999-5 A3
6.97% due 4/1/31 3,567,456
4,300,000 Peco Energy Transition Tr.
1999-A A6
6.05% due 3/1/09 4,016,114
2,900,000 Pemex Finance Ltd.
6.125% due 11/15/03+ 2,828,718
3,500,000 PP & L Transition Bond Co.
1999-1 A4
6.72% due 12/26/05 3,458,245
4,798,000 Premier Auto Tr. 1997-2B
6.53% due 12/6/03 4,752,131
-------------
TOTAL ASSET BACKED
(Cost $32,906,690) 32,004,596
-------------
- ----------------------------------
COMMERCIAL MORTGAGE BACKED -- 2.7%
- ----------------------------------
$ 3,700,000 Chase Coml. Mtg. Secs. Corp.
1998-1 A2
6.56% due 5/18/08 $ 3,506,567
3,700,000 First Union Coml. Mtg. Tr.
1999-Cl A2
6.07% due 10/15/35 3,382,230
3,474,993 TIAA Retail Com'l. Mortgage Tr.
1999-A
7.17% due 10/15/07 3,422,521
-------------
TOTAL COMMERCIAL MORTGAGE BACKED
(Cost $11,050,805) 10,311,318
-------------
- ------------------------
CORPORATE BONDS -- 33.4%
- ------------------------
Banks -- 2.9%
$ 3,800,000 Bank of New York, Inc.
7.30% due 12/1/09 $ 3,722,959
3,600,000 Capital One Bank
6.48% due 1/28/02 3,527,172
3,900,000 Chase Manhattan Corp.
7.00% due 11/15/09 3,748,399
-------------
10,998,530
-------------
Chemicals-Major -- 0.9%
3,500,000 ICI Wilmington, Inc.
6.75% due 9/15/02 3,450,023
-------------
Energy -- 1.9%
3,000,000 Occidental Petroleum Corp.
7.65% due 2/15/06 2,986,158
3,900,000 Occidental Petroleum Corp.
8.45% due 2/15/29 4,047,939
-------------
7,034,097
-------------
Entertainment-Cable-Media -- 5.1%
2,500,000 Cox Comm., Inc.
7.875% due 8/15/09 2,531,880
3,600,000 Joseph E. Seagram & Sons, Inc.
6.25% due 12/15/01 3,524,785
3,500,000 Joseph E. Seagram & Sons, Inc.
6.40% due 12/15/03 3,371,253
3,605,000 Joseph E. Seagram & Sons, Inc.
7.60% due 12/15/28 3,396,696
7,300,000 Time Warner, Inc.
6.625% due 5/15/29 6,212,928
-------------
19,037,542
-------------
Financial -- 3.9%
4,500,000 Comdisco, Inc.
6.13% due 8/1/01 4,390,146
3,500,000 Lehman Brothers Hldgs., Inc.
6.00% due 2/26/01 3,456,470
3,600,000 Lehman Brothers Hldgs., Inc.
6.625% due 4/1/04 3,487,511
3,500,000 Paine Webber Group, Inc.
6.45% due 12/1/03 3,356,108
-------------
14,690,235
-------------
Food and Beverage -- 0.9%
3,500,000 Aramark Svcs., Inc.
6.75% due 8/1/04 3,342,482
-------------
Hospital-Supplies -- 0.9%
3,500,000 Mallinckrodt, Inc.+
6.30% due 3/15/11 3,454,944
-------------
Industrial-Pipelines -- 1.0%
3,875,000 Williams Cos., Inc.
7.625% due 7/15/19 3,719,768
-------------
Insurance -- 0.9%
3,500,000 Conseco, Inc.
6.40% due 6/15/01 3,413,046
-------------
See notes to financial statements.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
44
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount Value
- ---------------------------------------------------------------------------
Merchandising-Department Stores-- 2.8%
$ 3,750,000 Federated Department Stores, Inc.
6.125% due 9/1/01 $ 3,673,200
3,600,000 Saks, Inc.
7.00% due 7/15/04 3,407,022
3,600,000 Saks, Inc.
7.25% due 12/1/04 3,427,013
-------------
10,507,235
-------------
Merchandising-Discounters -- 0.9%
3,400,000 Wal Mart Stores, Inc.
8.75% due 12/29/06 3,463,682
-------------
Merchandising-Drugs -- 1.3%
5,700,000 Rite Aid Corp.
6.70% due 12/15/01 4,788,000
-------------
Merchandising-Supermarkets -- 2.8%
3,600,000 Kroger Co.
6.80% due 12/15/18 3,138,682
3,500,000 Fred Meyer, Inc.
7.45% due 3/1/08 3,399,784
3,900,000 Safeway, Inc.
7.00% due 9/15/02 3,875,617
-------------
10,414,083
-------------
Miscellaneous-Capital Goods -- 1.3%
5,000,000 Ikon Capital, Inc.
6.73% due 6/15/01 4,892,965
-------------
Railroads -- 2.6%
3,600,000 CSX Corp.
7.25% due 5/1/04 3,564,774
3,500,000 Union Pacific Corp.
5.78% due 10/15/01 3,423,420
3,500,000 Union Pacific Corp.
6.625% due 2/1/29 2,956,223
-------------
9,944,417
-------------
Utilities -- 2.4%
2,500,000 Cinergy Corp.
6.125% due 4/15/04 2,348,935
2,829,000 Marlin Water Trust/Cap.+
7.09% due 12/15/01 2,777,102
4,000,000 Southern Union Co.
8.25% due 11/15/29 3,997,928
-------------
9,123,965
-------------
Waste Services -- 0.9%
3,500,000 USA Waste Svcs., Inc.
6.125% due 7/15/01 3,335,248
-------------
TOTAL CORPORATE BONDS
(Cost $131,343,952) 125,610,262
-------------
- ------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATION -- 1.4%
- ------------------------------------------
$ 5,698,638 GE Capital Mortgage Svcs., Inc.
1996-3A7 7.00% due 3/25/26
(Cost $5,706,406) $ 5,373,828
-------------
- -------------------------------
MORTGAGE PASS-THROUGHS -- 30.5%
- -------------------------------
FHLMC
$ 4,000,000 6.50%, (30 yr. TBA)(a) $ 3,772,500
12,100,000 7.00%, (30 yr. TBA)(a) 11,710,525
6,500,000 7.50%, (30 yr. TBA)(a) 6,437,028
15,189,910 6.50%, 2029 14,330,769
670,152 7.00%, 8/1/08 667,063
FNMA
1,000,000 6.50%, (15 yr. TBA)(a) 970,312
24,900,000 7.00%, (30 yr. TBA)(a) 24,075,187
30,950,000 7.50%, (30 yr. TBA)(a) 30,611,469
12,500,000 8.00%, (30 yr. TBA)(a) 12,597,650
4,283,022 6.50%, 11/1/28 4,045,058
569,122 8.00%, 6/1/08 578,803
4,886 8.25%, 1/1/09 5,054
252,553 8.50%, 8/1/09 259,648
GNMA
700,000 6.50%, (15 yr. TBA)(a) 657,343
4,448,037 6.50%, 2029 4,178,352
689 11.50%, 7/20/00 694
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $117,242,562) 114,897,455
-------------
- ------------------------
U.S. GOVERNMENT -- 21.7%
- ------------------------
U.S. Treasury Bonds
$ 12,970,000 5.25%, 2/15/29 $ 10,728,628
4,000,000 6.00%, 2/15/26 3,658,752
6,500,000 6.625%, 2/15/27 6,437,034
4,000,000 9.25%, 2/15/16 4,940,000
U.S. Treasury Notes
17,100,000 5.375%, 6/30/03 16,576,313
2,000,000 5.50%, 1/31/03 1,952,500
2,350,000 5.50%, 5/15/09 2,189,173
6,000,000 5.625%, 5/15/08 5,643,750
9,675,000 6.00%, 8/15/04 9,523,828
6,300,000 6.00%, 8/15/09 6,103,125
4,200,000 6.125%, 8/15/07 4,093,690
9,875,000 6.50%, 10/15/06 9,847,232
-------------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $83,189,142) 81,694,025
-------------
See notes to financial statements.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
45
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
- -------------------------
COMMERCIAL PAPER -- 23.4%
- -------------------------
Principal
Amount Value
- ---------------------------------------------------------------------------
Automotive -- 1.4%
$ 5,300,000 General Motors Acceptance Corp.
5.88% due 1/19/00(a) $ 5,284,418
-------------
Banks -- 6.5%
9,652,000 Dresdner US Finance
5.93% due 1/19/00(a) 9,623,382
15,000,000 Nordenbanken North America, Inc.
6.05% due 1/19/00(a) 14,954,625
-------------
24,578,007
-------------
Conglomerates -- 5.7%
6,500,000 General Electric Cap. Corp.
5.81% due 1/19/00(a) 6,481,117
15,000,000 Invensys PLC
6.17% due 1/19/00(a) 14,953,725
-------------
21,434,842
-------------
Financial -- 9.8%
13,000,000 Duke Capital Corp.
6.14% due 1/19/00(a) 12,960,090
10,000,000 Household Finl. Corp.
6.05% due 1/19/00(a) 9,969,750
14,000,000 Morgan Stanley Dean Witter & Co.
6.00% due 1/19/00(a) 13,958,000
-------------
36,887,840
-------------
TOTAL COMMERCIAL PAPER
(Cost $88,185,107) 88,185,107
-------------
- ----------------------------
REPURCHASE AGREEMENT -- 2.1%
- ----------------------------
Principal
Amount Value
- ---------------------------------------------------------------------------
$ 7,679,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/99, maturity
value $7,681,080 at 3.25%,
due 1/3/00(b) $ 7,679,000
-------------
TOTAL REPURCHASE AGREEMENT
(Cost $7,679,000) 7,679,000
-------------
TOTAL INVESTMENTS -- 123.7%
(Cost $477,303,664) 465,755,591
PAYABLES FOR MORTGAGE PASS-THROUGHS
DELAYED DELIVERY
SECURITIES(a) -- (26.5%) (99,693,995)
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 2.8% 10,369,158
-------------
- ---------------------------------------------------------------------------
NET ASSETS -- 100.0% $ 376,430,754
=============
- ---------------------------------------------------------------------------
(a) Commercial paper and repurchase agreement are segregated to cover forward
mortgage purchases.
(b) 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
December 31, 1999
ASSETS
Investments, at market (cost $477,303,664) $ 465,755,591
Cash 170
Receivable for investments sold 7,250,637
Interest receivable 4,704,315
Receivable for fund shares sold 5,056
-------------
TOTAL ASSETS 477,715,769
-------------
LIABILITIES
Payable for forward mortgage securities
purchased 99,693,995
Payable for fund shares redeemed 1,392,611
Accrued expenses 198,409
-------------
TOTAL LIABILITIES 101,285,015
-------------
NET ASSETS $ 376,430,754
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 3,297,887
Additional paid-in capital 393,081,515
Undistributed net investment income 185,244
Accumulated net realized loss on investments (8,585,819)
Net unrealized depreciation of investments (11,548,073)
-------------
NET ASSETS $ 376,430,754
=============
Shares Outstanding -- $0.10 par value 32,978,867
NET ASSET VALUE PER SHARE $ 11.41
=============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1999
Investment Income:
Interest $ 23,128,029
------------
Expenses:
Investment advisory fees -- Note B 1,822,590
Custodian fees 106,051
Interest expense -- reverse repurchase agreements 84,079
Printing expense 21,132
Audit fees 19,232
Directors' fees -- Note B 12,500
Legal fees 5,200
Registration fees 2,653
Insurance expense 976
Other 700
------------
Total Expenses 2,075,113
------------
Net Investment Income 21,052,916
------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized loss on investments (8,373,543)
Net change in unrealized appreciation/
(depreciation) of investments (15,282,158)
------------
Net Realized and Unrealized Loss
on Investments (23,655,701)
------------
Net Decrease in Net Assets
from Operations $ (2,602,785)
============
See notes to financial statements.
- --------------------------------------------------------------------------------
47
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 21,052,916 $ 20,326,792
Net realized gain/(loss) on investments (8,373,543) 7,360,219
Net change in unrealized appreciation of investments (15,282,158) 676,254
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations (2,602,785) 28,363,265
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income (21,062,469) (20,238,880)
Net realized gain on investments (965,082) (4,804,462)
------------- -------------
Total Dividends and Distributions to Shareholders (22,027,551) (25,043,342)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions-- Note G 19,673,995 22,655,261
------------- -------------
Net Increase/(Decrease) in Net Assets (4,956,341) 25,975,184
Net Assets:
Beginning of year 381,387,095 355,411,911
------------- -------------
End of year* $ 376,430,754 $ 381,387,095
============= =============
* Includes undistributed net investment income of: $ 185,244 $ 183,322
</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>
Year Ended December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ............................ $12.23 $12.11 $11.83 $12.25 $11.08
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .................................... 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 ................ (0.11) 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
year ......................................... $11.41 $12.23 $12.11 $11.83 $12.25
------ ------ ------ ------ ------
Total return* ................................... (0.84)% 8.10% 8.99% 2.88% 17.59%
------ ------ ------ ------ ------
Ratios/supplemental data:
Net assets, end of year
(000's omitted) ........................... $376,431 $381,387 $355,412 $354,433 $374,462
Ratio of expenses to
average net assets ........................ 0.57% 0.67% 0.59% 0.54% 0.54%
Ratio of expenses (excluding interest expense)
to average net assets ..................... 0.55% 0.55% 0.55% N/A N/A
Ratio of net investment
income to average net assets .............. 5.78% 5.51% 6.15% 6.12% 6.43%
Portfolio turnover rate ...................... 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.
See notes to financial statements.
- --------------------------------------------------------------------------------
49
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- -------------------------
COMMERCIAL PAPER -- 95.9%
- -------------------------
Principal
Amount Value
- ---------------------------------------------------------------------------
FINANCIAL -- 49.8%
Data Processing -- 4.7%
$ 23,000,000 First Data Corp.
6.00% due 1/18/00 $ 22,934,833
------------
Finance Companies -- 16.7%
22,000,000 Associates First Capital
5.90% due 2/1/00 21,888,228
2,000,000 Associates First Capital
5.90% due 2/3/00 1,989,183
20,000,000 Bear Stearns Cos., Inc.
5.76% due 1/11/00 19,968,000
15,000,000 Goldman Sachs Group LP
6.40% due 1/31/00 14,920,000
22,000,000 Merrill Lynch & Co., Inc.
6.12% due 1/28/00 21,899,020
------------
80,664,431
------------
Financial-Other -- 2.1%
10,000,000 Govco, Inc.
6.15% due 1/28/00 9,953,875
------------
Foods -- 4.1%
20,000,000 Cargill Global Funding PLC
6.95% due 1/14/00 19,949,806
------------
Insurance -- 4.5%
22,000,000 American General Finl. Corp.
5.96% due 2/2/00 21,883,449
------------
Other Major Banks -- 14.4%
20,000,000 Bank of America Corp.
5.93% due 1/12/00 19,963,761
10,000,000 Dresdner U.S. Finl.
6.34% due 1/3/00 9,996,478
20,000,000 HVB Finl. (Delaware), Inc.
5.85% due 1/14/00 19,957,750
20,000,000 UBS Finl. (Delaware), Inc.
5.00% due 1/3/00 19,994,444
------------
69,912,433
------------
Utilities-Electric -- 3.3%
16,000,000 Nat'l. Rural Utils. Coop. Finl.
Corp. 5.85% due 3/6/00 15,831,000
------------
Total Financial 241,129,827
------------
INDUSTRIAL -- 46.1%
Automotive -- 9.0%
21,500,000 BMW U.S. Capital Corp.
4.00% due 1/4/00 21,492,833
22,000,000 General Motors Acceptance Corp.
5.96% due 2/7/00 21,865,238
------------
43,358,071
------------
Conglomerates -- 8.2%
20,000,000 General Electric Capital Corp.
6.01% due 1/25/00 19,919,867
10,000,000 Invensys PLC
6.10% due 1/13/00 9,979,667
10,000,000 Invensys PLC
5.80% due 1/19/00 9,971,000
------------
39,870,534
------------
Food and Beverages -- 4.1%
20,000,000 Diageo Capital PLC
5.75% due 1/20/00 19,939,306
------------
Household Products -- 3.1%
15,000,000 Procter & Gamble Co.
5.82% due 1/10/00 14,978,175
------------
Machinery and Equipment -- 1.2%
6,000,000 John Deere Capital
5.88% due 1/24/00 5,977,460
------------
Metals -- 4.1%
20,000,000 Rio Tinto America, Inc.
5.97% due 1/7/00 19,980,100
------------
Oil and Gas Services -- 4.4%
21,500,000 Baker Hughes, Inc.
4.75% due 1/3/00 21,494,326
------------
Oil-Integrated-International -- 2.5%
12,000,000 Texaco, Inc.
5.73% due 1/18/00 11,967,530
------------
Telecommunications -- 4.7%
23,000,000 SBC Comm., Inc.
5.85% due 1/27/00 22,902,825
------------
Utilities-Electric -- 4.8%
23,000,000 Electricite de France
5.82% due 1/11/00 22,962,816
------------
Total Industrial 223,431,143
------------
TOTAL COMMERCIAL PAPER
(Cost $464,560,970) 464,560,970
------------
See notes to financial statements.
- --------------------------------------------------------------------------------
50
<PAGE>
- --------------------------------------------------------------------------------
- ----------------------------
REPURCHASE AGREEMENT -- 4.2%
- ----------------------------
Principal
Amount Value
- ---------------------------------------------------------------------------
$ 20,195,000 State Street Bank & Trust Co.
repurchase agreement, dated
12/31/99, maturity value
$20,200,469 at 3.25% due 1/3/00(1) $ 20,195,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $20,195,000) 20,195,000
------------
TOTAL INVESTMENTS -- 100.1%
(Cost $484,755,970) 484,755,970
LIABILITIES IN EXCESS OF CASH,
RECEIVABLES AND OTHER
ASSETS -- (0.1)% (627,551)
------------
- ---------------------------------------------------------------------------
NET ASSETS -- 100.0% $484,128,419
============
- ---------------------------------------------------------------------------
(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.
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1999
ASSETS
Investments, at market (cost $484,755,970) $484,755,970
Cash 241
Receivable for fund shares sold 517,560
Interest receivable 1,823
------------
TOTAL ASSETS 485,275,594
------------
LIABILITIES
Payable for fund shares redeemed 892,918
Accrued expenses 254,257
------------
TOTAL LIABILITIES 1,147,175
------------
NET ASSETS $484,128,419
============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 4,841,283
Additional paid-in capital 479,287,136
------------
NET ASSETS $484,128,419
============
Shares Outstanding -- $0.10 par value 48,412,828
------------
NET ASSET VALUE PER SHARE $ 10.00
============
STATEMENT OF OPERATIONS
Year Ended
December 31, 1999
Investment Income:
Interest $23,729,035
-----------
Expenses:
Investment advisory fees -- Note B 2,275,164
Custodian fees 85,806
Printing expense 19,235
Audit fees 18,734
Directors' fees -- Note B 12,500
Legal fees 4,100
Other 3,772
-----------
Total Expenses 2,419,311
-----------
Net Investment Income,
Representing Net Increase in
Net Assets from Operations $21,309,724
===========
See notes to financial statements.
- --------------------------------------------------------------------------------
52
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 21,309,724 $ 20,633,220
------------- -------------
Net Increase in Net Assets from Operations 21,309,724 20,633,220
------------- -------------
Dividends to Shareholders from:
Net investment income (21,309,724) (20,633,220)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note G 64,645,765 51,360,205
------------- -------------
Net Increase in Net Assets 64,645,765 51,360,205
Net Assets:
Beginning of year 419,482,654 368,122,449
------------- -------------
End of year $ 484,128,419 $ 419,482,654
============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
53
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------
Income from investment operations:
Net investment
income ..................... 0.47 0.50 0.50 0.49 0.54
Dividends to Shareholders from:
Net investment income ......... (0.47) (0.50) (0.50) (0.49) (0.54)
------ ------ ------ ------ ------
Net asset value, end of year ..... $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------
Total return* .................... 4.77% 5.10% 5.14% 4.98% 5.52%
------ ------ ------ ------ ------
Ratios/supplemental data:
Net assets, end of year
(000's omitted) ............ $484,128 $419,483 $368,122 $378,322 $356,820
Ratio of expenses to
average net assets ......... 0.53% 0.53% 0.54% 0.54% 0.54%
Ratio of net investment
income to average net assets 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.
See notes to financial statements.
- --------------------------------------------------------------------------------
54
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
55
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Variable Contract Funds (The Guardian Stock Fund),
The Guardian Bond Fund, The Guardian Cash Fund
- ---------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ---------------------------------------------
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 December 31, 1999, 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.
- --------------------------------------------------------------------------------
56
<PAGE>
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (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.
At December 31, 1999, for federal income tax purposes, GBF had a net
capital loss carryforward of $7,464,775 which expires in 2007.
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.
- --------------------------------------------------------------------------------
57
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Variable Contract Funds (The Guardian Stock Fund),
The Guardian Bond Fund, The Guardian Cash Fund
- ---------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
During the year ended December 31, 1999, certain Portfolio Funds
reclassified amounts to paid-in capital from undistributed/(overdistributed) net
investment income and accumulated net realized gain/(loss) on investment and
foreign currency related transactions. Increases/(decreases) to the various
capital accounts were as follows:
Undistributed/ Accumulated
(overdistributed) net realized
net investment gain/(loss) on
income investments
---------------- --------------
GSF $ (59) $ 59
GBF 11,475 (11,475)
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
year ended December 31, 1999.
No compensation is paid by any of the Funds to a director who is deemed to
be an "interested person" (as defined in the 1940 Act) of a Fund. Each director
not deemed an "interested person" is paid an annual fee of $500 by each Fund,
and $350 for attendance at each meeting of each Fund.
- ------------------------------
Note C - Repurchase Agreements
- ------------------------------
Collateral underlying repurchase agreements takes the form of either cash
or fully negotiable U.S. government securities. Repurchase agreements are fully
collateralized (including the interest earned thereon) and such collateral is
marked-to-market daily while agreements remain in force. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Funds will require the seller to deposit additional collateral by
the next business day. If the request for additional collateral is not met, or
the seller defaults, the Funds maintain the right to sell the collateral and may
claim any resulting loss against the seller. Each Fund's Board of Directors has
established standards to evaluate creditworthiness of broker-dealers and banks
which engage in repurchase 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
- --------------------------------------------------------------------------------
58
<PAGE>
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
applicable. Reverse repurchase agreements involve the risk that the buyer of the
securities sold by GBF may be unable to deliver the securities when the Fund
seeks to repurchase them. Interest paid on reverse repurchase agreements for the
year ended December 31, 1999 amounted to $84,079.
Information regarding transactions by GBF under reverse repurchase
agreement is as follows:
Average amount outstanding
during the period ..................................... $ 4,566,668
Weighted average interest rate
during the period ..................................... 1.89%
- ---------------------------------
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. There
were no dollar roll transactions outstanding at December 31, 1999.
- --------------------------------
Note F - Investment Transactions
- --------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the year ended December 31, 1999 were as follows:
GSF GBF
--- ---
Purchases .................... $2,583,705,089 $ 941,626,977
Proceeds ..................... $3,057,671,562 $ 919,489,697
The cost of investments owned at December 31, 1999 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
December 31, 1999 for GSF and GBF were as follows:
GSF GBF
--- ---
Gross Appreciation ......................... $ 1,561,747,641 $ 131,629
Gross Depreciation ......................... (38,952,786) (11,679,702)
--------------- ---------------
Net Unrealized Appreciation/(Depreciation) $ 1,522,794,855 $ (11,548,073)
=============== ===============
- --------------------------------------------------------------------------------
59
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Variable Contract Funds (The Guardian Stock Fund),
The Guardian Bond Fund, The Guardian Cash Fund
- ---------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (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 December 31, 1999, no Class II shares of GSF
were sold. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
Shares Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian Stock Fund
Shares sold 3,895,845 7,866,954 $ 200,708,021 $ 380,142,286
Shares issued in reinvestment of
dividends and distributions 10,952,668 8,374,382 579,528,909 412,797,384
Shares repurchased (13,883,608) (11,538,716) (710,398,541) (554,254,496)
- ---------------------------------------------------------------------------------------------------
Net increase 964,905 4,702,620 $ 69,838,389 $ 238,685,174
- ---------------------------------------------------------------------------------------------------
o The Guardian Bond Fund, Inc.
Shares sold 8,170,108 6,974,815 $ 96,955,789 $ 87,077,087
Shares issued in reinvestment of
dividends and distributions 1,912,437 2,050,219 22,027,550 25,043,342
Shares repurchased (8,296,810) (7,180,997) (99,309,344) (89,465,168)
- ---------------------------------------------------------------------------------------------------
Net increase 1,785,735 1,844,037 $ 19,673,995 $ 22,655,261
- ---------------------------------------------------------------------------------------------------
o The Guardian Cash Fund, Inc.
Shares sold 39,686,605 45,585,640 $ 396,866,179 $ 455,856,396
Shares issued in reinvestment of
dividends 2,130,972 2,063,322 21,309,724 20,633,220
Shares repurchased (35,353,014) (42,512,942) (353,530,138) (425,129,411)
- ---------------------------------------------------------------------------------------------------
Net increase 6,464,563 5,136,020 $ 64,645,765 $ 51,360,205
- ---------------------------------------------------------------------------------------------------
</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 year ended December 31, 1999,
none of the Funds borrowed against this line of credit.
- --------------------------------------------------------------------------------
60
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors and Shareholders
The Guardian Stock Fund
(a portfolio of The Guardian Variable Contract Funds, Inc.)
The Guardian Bond Fund, Inc.
The Guardian Cash Fund, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the The Guardian Stock Fund (one of
the portfolios constituting The Guardian Variable Contract Funds, Inc.), The
Guardian Bond Fund, Inc. and The Guardian Cash Fund, Inc. as of December 31,
1999 and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Guardian Stock Fund, The Guardian Bond Fund, Inc. and The Guardian Cash Fund,
Inc. at December 31, 1999, the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
61
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
- ----------------------
COMMON STOCKS -- 98.4%
- ----------------------
Shares Value
- -----------------------------------------------------------------
AUSTRALIA -- 2.2%
Banks -- 0.7%
221,600 Commonwealth Bank of Australia $ 3,815,951
157,600 National Australia Bank 2,410,721
Beverages -- 0.4%
1,370,800 Fosters Brewing Group 3,932,696
Business Services -- 0.4%
133,910 Brambles Industries Ltd. 3,703,114
Mining -- 0.5%
269,100 Broken Hill Ppty. 3,533,460
773,000 Pasminco Ltd.* 847,483
Telecommunications -- 0.2%
351,000 Telstra Corp. 1,907,973
------------
20,151,398
------------
FINLAND -- 6.2%
Telecommunications -- 6.2%
203,100 Nokia OYJ* 36,826,687
309,760 Sonera OYJ* 21,234,092
------------
58,060,779
------------
FRANCE -- 8.7%
Banks -- 1.0%
101,960 Banque Nationale de Paris* 9,408,178
Computer Software and Technology -- 0.8%
30,880 CAP Gemini* 7,838,953
Insurance -- 1.5%
100,950 AXA UAP* 14,074,165
Media and Entertainment -- 1.1%
19,820 Societe Television Francaise 1* 10,382,148
Oil and Gas -- 1.8%
125,900 Total Fina S.A.* 16,804,355
Retail-Food and Drugs -- 1.6%
78,880 Carrefour* 14,549,078
Telecommunications -- 0.9%
70,650 Equant NV* 8,020,775
------------
81,077,652
------------
GERMANY -- 10.6%
Automotive -- 0.5%
65,720 DaimlerChrysler AG* 5,110,873
Chemicals -- 1.3%
229,220 BASF AG* 11,776,139
Conglomerates -- 4.1%
159,370 Mannesmann AG* 38,449,644
Distributors -- 0.4%
99,440 GEHE AG* 3,856,578
Electronics and Electrical Equipment -- 1.6%
103,620 Epcos AG* 7,776,427
53,320 Siemens AG* 6,783,811
Software -- 1.4%
27,333 SAP AG* 13,464,071
Telecommunications -- 1.3%
165,990 Deutsche Telekom* $ 11,821,744
------------
99,039,287
------------
HONG KONG -- 3.3%
Banks -- 0.5%
1,552,600 Bank of East Asia Ltd.* 4,324,151
Computer Systems -- 0.4%
1,434,000 Legend Hldgs. Ltd.* 3,551,103
Conglomerates -- 1.3%
842,000 Hutchison Whampoa 12,239,789
Real Estate -- 0.8%
365,000 Cheung Kong Hldgs. 4,625,008
311,000 Sun Hung Kai Pptys. 3,240,625
Telecommunications -- 0.3%
631,500 SmarTone Telecom. Hldgs. Ltd. 3,046,408
------------
31,027,084
------------
IRELAND -- 1.9%
Banks -- 0.6%
529,600 Allied Irish Bank 6,039,133
Construction Materials -- 1.3%
555,000 CRH PLC 11,964,291
------------
18,003,424
------------
ITALY -- 2.3%
Banks -- 2.3%
148,400 Bipop-Carire SPA* 13,132,757
630,900 San Paolo IMI SPA* 8,573,392
------------
21,706,149
------------
JAPAN -- 28.9%
Automotive -- 1.8%
101,000 Honda Motor Co. 3,756,484
267,000 Toyota Motor Corp.* 12,935,794
Chemicals -- 0.9%
1,697,000 Sumitomo Chemical* 7,972,595
Commercial Services -- 0.9%
33,800 Benesse Corp.* 8,138,201
Computer Software and Technology -- 1.1%
10,400 Softbank Corp.* 9,955,173
Computer Systems -- 2.9%
590,000 Fujitsu Ltd. 26,910,052
Drugs and Health Care -- 0.8%
373,000 Sankyo Co. 7,666,634
Electronics -- 5.3%
1,105,000 Hitachi 17,737,105
43,000 Rohm Co. 17,676,422
47,600 Sony Corp. 14,116,473
Engineering and Machineries -- 1.4%
57,300 SMC Corp. 12,680,366
See accompanying notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
62
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------
Financial Services -- 3.7%
841,000 Mitsubishi Trading & Brokerage $ 7,408,241
433,000 Nomura Securities Co. Ltd.* 7,819,174
142,000 Promise Co. 7,227,170
729,000,000 Sanwa Int'l. Financial 7,857,246
10,240 Shohkoh Fund & Co. 4,054,106
Household Products -- 1.2%
408,000 Kao Corp. 11,640,599
Merchandising-Mass -- 1.2%
56,500 Ryohin Keikaku Co. Ltd. 11,342,028
Retail Trade -- 0.9%
80,000 Ito Yokado Co. 8,691,397
Telecommunications -- 6.8%
5,400 Hikari Tsushin, Inc. 10,834,883
975 Nippon Tele. & Tel. Corp. 16,700,108
940 NTT Mobile Comm. Network, Inc. 36,157,385
------------
269,277,636
------------
MALAYSIA -- 0.2%
Banks -- 0.2%
637,000 Malayan Banking Berhad 2,263,026
------------
NETHERLANDS -- 4.6%
Banks -- 0.6%
218,580 ABN AMRO Hldgs. NV 5,460,625
Broadcasting and Publishing -- 1.6%
283,230 Ver Ned Uitgevers 14,887,561
Computer Services -- 0.7%
93,170 CMG PLC 6,935,867
Computer Systems -- 0.9%
75,200 ASM Lithography Hldg. NV* 8,355,522
Insurance -- 0.8%
77,860 Aegon NV* 7,521,652
------------
43,161,227
------------
NEW ZEALAND -- 0.3%
Telecommunications -- 0.3%
528,512 Telecom. Corp. of New Zealand 2,485,327
------------
PORTUGAL -- 0.3%
Transportation -- 0.3%
352,150 Brisa (Auto Estrada)* 2,703,105
------------
SINGAPORE -- 0.9%
Banks -- 0.3%
270,900 Overseas Chinese Bank 2,488,604
Publishing -- 0.6%
259,846 Singapore Press Hldgs.* 5,632,207
------------
8,120,811
------------
SOUTH KOREA -- 0.5%
Utilities-Electric -- 0.5%
284,940 Korea Electric Power Corp. ADR 4,772,745
------------
SPAIN -- 4.5%
Banks -- 1.3%
1,109,160 Banco Santander Central Hispano S.A. $ 12,558,586
Construction and Housing -- 1.1%
181,080 Acciona S.A. 10,215,009
Gas Distribution -- 0.7%
274,200 Gas Natural SDG 6,317,043
Telecommunications -- 1.4%
511,660 Telefonica S.A.* 12,782,429
------------
41,873,067
------------
SWEDEN -- 4.1%
Construction and Mining Equipment -- 0.8%
264,217 Atlas Copco AB* 7,514,457
Retail-General -- 1.3%
364,800 Hennes & Mauritz* 12,218,592
Telecommunications -- 2.0%
288,050 LM Ericsson * 18,517,258
------------
38,250,307
------------
SWITZERLAND -- 3.3%
Business Services -- 1.5%
18,309 Adecco S.A.* 14,258,092
Insurance -- 0.9%
13,990 Zurich Allied AG* 7,977,718
Pharmaceuticals -- 0.9%
748 Roche Hldgs. AG* 8,878,478
------------
31,114,288
------------
UNITED KINGDOM -- 15.6%
Banks -- 3.8%
252,000 Barclays 7,241,520
300,625 Halifax PLC 3,282,653
654,000 HSBC Hldgs. 9,063,966
670,000 Lloyds TSB Group PLC 8,322,511
341,000 National Westminster Bank Co. PLC 7,325,871
Computer Software and Technology -- 0.5%
393,380 Sage Group* 4,816,535
Conglomerates -- 0.4%
278,000 Smiths Industries PLC 4,153,744
Construction -- 0.7%
787,000 Hanson PLC 6,597,742
Drugs and Health Care -- 1.8%
390,000 Glaxo Wellcome 11,049,622
438,000 Smithkline Beecham 5,553,886
Electronics -- 0.4%
373,000 Electrocomponents 4,127,173
Financial Services -- 0.4%
258,000 CGU PLC 4,163,307
Food, Beverage and Tobacco -- 1.0%
961,900 Imperial Tobacco 7,924,162
145,702 Whitbread 1,468,599
Insurance -- 0.4%
186,000 Prudential Corp. 3,629,386
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
63
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
Shares Value
- -----------------------------------------------------------------
Leisure Products -- 0.3%
240,000 Granada Group $ 2,422,950
Oil-International -- 1.6%
1,437,936 BP Amoco PLC 14,515,006
Oil and Gas -- 0.6%
617,000 Shell Transport & Trading 5,127,714
Telecommunications -- 3.7%
547,000 British Telecom. 13,253,537
279,991 Cable & Wireless Co.* 4,003,083
58,000 Energis PLC* 2,787,200
2,855,000 Vodafone Airtouch PLC 14,231,189
------------
145,061,356
------------
TOTAL COMMON STOCKS
(Cost $558,425,531) 918,148,668
------------
- ----------------------------
REPURCHASE AGREEMENT -- 1.5%
- ----------------------------
Principal
Amount Value
- -----------------------------------------------------------------
$ 14,428,000 State Street Bank & Trust Co.
repurchase agreement, dated
12/31/99, maturity value
$14,431,006 at 2.50% due 1/3/00(1) $ 14,428,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $14,428,000) 14,428,000
------------
TOTAL INVESTMENTS -- 99.9%
(Cost $572,853,531) 932,576,668
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 0.1% 967,274
------------
- -----------------------------------------------------------------
NET ASSETS -- 100.0% $933,543,942
============
- -----------------------------------------------------------------
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
(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.
- --------------------------------------------------------------------------------
64
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1999
ASSETS
Investments, at market (cost $572,853,531) $ 932,576,668
Cash 959
Foreign currency (cost $1,122,612) 997,318
Dividends receivable 535,441
Dividend reclaims receivable 504,138
Receivable for fund shares sold 255,318
Interest receivable 1,002
-------------
TOTAL ASSETS 934,870,844
-------------
LIABILITIES
Accrued expenses 850,356
Payable for fund shares redeemed 476,546
-------------
TOTAL LIABILITIES 1,326,902
-------------
NET ASSETS $ 933,543,942
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 3,486,592
Additional paid-in capital 554,286,035
Distributions in excess of net investment income (2,497,259)
Accumulated net realized gain on investments
and foreign currency related transactions 18,694,823
Net unrealized appreciation of investments
and translation of other assets and
liabilities denominated in foreign currencies 359,573,751
-------------
NET ASSETS $ 933,543,942
=============
Shares Outstanding -- $0.10 par value 34,865,924
-------------
NET ASSET VALUE PER SHARE $ 26.78
=============
STATEMENT OF OPERATIONS
YEAR ENDED
December 31, 1999
Investment Income:
Dividends $ 10,776,920
Interest 286,590
Less: Foreign tax withheld (1,174,321)
-------------
Total Income 9,889,189
-------------
Expenses:
Investment advisory fees -- Note B 5,801,374
Custodian fees 968,997
Printing expense 140,000
Audit fees 22,734
Directors' fees -- Note B 12,500
Legal fees 8,000
Insurance expense 1,741
Registration fees 916
Other 700
-------------
Total Expenses 6,956,962
-------------
Net Investment Income 2,932,227
-------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized gain on investments -- Note A(1) 79,577,048
Net realized loss on foreign currency
related transactions -- Note A (3,505,893)
Net change in unrealized appreciation of
investments -- Note C 183,360,997
Net change in unrealized depreciation from
translation of assets and liabilities
denominated in foreign currencies -- Note C (33,985)
-------------
Net Realized and Unrealized Gain on
Investments and Foreign Currencies 259,398,167
-------------
Net Increase in Net Assets
from Operations $ 262,330,394
=============
(1) Net of accrued capital gains tax of $4,398.
See notes to financial statements.
- --------------------------------------------------------------------------------
65
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 2,932,227 $ 3,351,082
Net realized gain on investments and foreign currency related transactions 76,071,155 40,487,438
Net change in unrealized appreciation/(depreciation) on investments and
translation of other assets and liabilities denominated in foreign currencies 183,327,012 71,008,066
------------- -------------
Net Increase in Net Assets from Operations 262,330,394 114,846,586
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income (2,932,227) (3,351,082)
Distributions in excess of net investment income (349,444) (409,367)
Net realized gain on investments (64,946,896) (33,666,022)
------------- -------------
Total Dividends and Distributions to Shareholders (68,228,567) (37,426,471)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note E 59,152,053 68,158,477
------------- -------------
Net Increase in Net Assets 253,253,880 145,578,592
Net Assets:
Beginning of year 680,290,062 534,711,470
------------- -------------
End of year* $ 933,543,942 $ 680,290,062
============= =============
* Includes distributions in excess of net investment income of: $ (2,497,259) $ (2,558,540)
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
66
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ............... $ 20.92 $ 18.27 $ 17.26 $ 15.37 $ 14.69
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ........... 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 .............. 7.86 3.73 1.91 2.21 1.49
----------- ----------- ----------- ----------- -----------
Net increase from
investment operations ............ 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 year ....... $ 26.78 $ 20.92 $ 18.27 $ 17.26 $ 15.37
----------- ----------- ----------- ----------- -----------
Total return* ...................... 39.11% 21.17% 11.93% 15.41% 11.23%
----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of year
(000's omitted) .................. $ 933,544 $ 680,290 $ 534,711 $ 456,203 $ 317,287
Ratio of expenses to average
net assets ....................... 0.96% 0.98% 0.97% 0.98% 0.99%
Ratio of net investment income
to average net assets ............ 0.40% 0.55% 0.74% 0.94% 0.97%
Portfolio turnover
rate ............................. 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.
See notes to financial statements.
- --------------------------------------------------------------------------------
67
<PAGE>
- --------------------------------------------------------------------------------
GIAC Funds, Inc. (Baillie Gifford International Fund)
- -----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- ----------------------------------------------
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 denomi-
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
nated in a particular currency. A forward exchange currency contract is a
commitment to purchase or sell a foreign currency at a future date at a
negotiated forward rate. Fluctuations in the value of forward foreign currency
exchange contracts are recorded for book purposes as unrealized gains or losses
on foreign currency related transactions by the Fund. When forward contracts are
closed, the Fund records realized gains or losses equal to the difference
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 ulti-
- --------------------------------------------------------------------------------
69
<PAGE>
- --------------------------------------------------------------------------------
GIAC Funds, Inc. (Baillie Gifford International Fund)
- -----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (Continued)
mate treatment for federal income tax purposes. These differences primarily are
caused by differences in the timing of the recognition of certain components of
income or capital gain and the recharacterization of foreign exchange gains or
losses to either ordinary income or realized capital gains for federal income
tax purposes. Where such differences are permanent in nature, they are
reclassified in the components of net assets based on their ultimate
characterization for federal income tax purposes. Any such reclassifications
will have no effect on net assets, results of operations, or net asset value per
share of the Fund.
During the year ended December 31, 1999, certain Portfolio Funds
reclassified amounts to paid-in capital from undistributed/(overdistributed) net
investment income and accumulated net realized gain/(loss) on investment and
foreign currency related transactions. Increases/(decreases) to the various
capital accounts were as follows:
Undistributed/ Accumulated
(overdistributed) net realized
net investment gain/(loss) on
income investments
----------------- --------------
BGIF $410,725 $(410,725)
- ------------------------------------------
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 year ended December 31, 1999 were as follows:
Purchases ..................................................... $377,007,524
Proceeds ...................................................... $380,460,269
The cost of investments owned at December 31, 1999 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 December 31, 1999 were as follows:
Gross Appreciation ............................................ $ 374,776,118
Gross Depreciation ............................................ (15,052,981)
-------------
Net Unrealized Appreciation ................................ $ 359,723,137
=============
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.
- --------------------------------------------------------------------------------
70
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (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>
Year Ended December 31, Year Ended December 31,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
Shares Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,523,096 6,525,306 $ 100,665,748 $ 133,897,400
Shares issued in reinvestment of
dividends and distributions 2,779,331 1,785,599 68,228,567 37,426,471
Shares repurchased (4,948,683) (5,068,012) (109,742,262) (103,165,394)
- ---------------------------------------------------------------------------------------------------
Net increase 2,353,744 3,242,893 $ 59,152,053 $ 68,158,477
- ---------------------------------------------------------------------------------------------------
</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 year ended December 31, 1999, the Fund did
not borrow against this line of credit.
- --------------------------------------------------------------------------------
71
<PAGE>
- --------------------------------------------------------------------------------
GIAC Funds, Inc. (Baillie Gifford International Fund)
- -----------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors and Shareholders
Baillie Gifford International Fund
(a portfolio of the GIAC Funds, Inc.)
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Baillie Gifford International Fund
(one of the portfolios constituting the GIAC Funds, Inc.), as of December 31,
1999, and the related statement of operations for the year then ended, and the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Baillie Gifford International Fund at December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
72
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
73
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
----------------------
COMMON STOCKS -- 98.6%
----------------------
Shares Value
- -----------------------------------------------------------------
Advertising -- 1.9%
180,000 Omnicom Group, Inc. $ 18,000,000
-------------
Bank -- 4.8%
200,000 Chase Manhattan Corp. 15,537,500
200,000 Mellon Financial Corp. 6,812,500
225,000 State Street Corp. 16,439,062
140,000 Zions Bancorporation 8,286,250
-------------
47,075,312
-------------
Bank-Midwest -- 1.5%
200,000 Fifth Third Bancorp 14,675,000
-------------
Computer & Peripherals -- 9.3%
200,000 Cisco Systems, Inc.* 21,425,000
330,000 Dell Computer Corp.* 16,830,000
200,000 EMC Corp.* 21,850,000
135,000 International Business Machines Corp. 14,580,000
200,000 Sun Microsystems, Inc.* 15,487,500
-------------
90,172,500
-------------
Computer Software & Services -- 5.8%
200,000 Adobe Systems, Inc. 13,450,000
240,000 BMC Software, Inc.* 19,185,000
200,000 Microsoft Corp.* 23,350,000
-------------
55,985,000
-------------
Diversified Companies -- 3.7%
200,000 Honeywell International Inc. 11,537,500
400,000 Tyco International, Ltd. 15,550,000
135,000 United Technologies Corp. 8,775,000
-------------
35,862,500
-------------
Drug -- 8.8%
100,000 Amgen Inc.* 6,006,250
100,000 Biogen, Inc.* 8,450,000
150,000 Immunex Corp.* 16,425,000
125,000 Lilly (Eli) & Co. 8,312,500
75,000 MedImmune, Inc.* 12,440,625
180,000 Merck & Co., Inc. 12,071,250
300,000 Pfizer, Inc. 9,731,250
275,000 Schering-Plough Corp. 11,601,563
-------------
85,038,438
-------------
Drugstore -- 0.8%
200,000 CVS Corp. 7,987,500
-------------
Electric Utility - Central -- 1.5%
200,000 AES Corp.* 14,950,000
-------------
Electrical Equipment -- 2.0%
125,000 General Electric Co. 19,343,750
-------------
Entertainment -- 3.4%
200,000 Clear Channel Communications, Inc.* 17,850,000
215,000 Time Warner, Inc. 15,574,063
-------------
33,424,063
-------------
Financial Services - Diversified -- 5.2%
100,000 American Express Co. $ 16,625,000
156,250 American International Group, Inc. 16,894,531
300,000 Citigroup Inc. 16,668,750
-------------
50,188,281
-------------
Grocery -- 1.3%
360,000 Safeway Inc.* 12,802,500
-------------
Hotel/Gaming -- 2.7%
400,000 Harrah's Entertainment, Inc.* 10,575,000
800,000 Mandalay Resort Group* 16,100,000
-------------
26,675,000
-------------
Household Products -- 1.3%
100,000 Colgate-Palmolive Co. 6,500,000
260,000 Dial Corp. (The) 6,321,250
-------------
12,821,250
-------------
Insurance-Life -- 1.1%
320,000 AXA Financial, Inc. 10,840,000
-------------
Internet -- 2.3%
300,000 America Online, Inc.* 22,631,250
-------------
Medical Supplies -- 4.9%
150,000 Cardinal Health, Inc. 7,181,250
120,000 Johnson & Johnson 11,175,000
300,000 Medtronic, Inc. 10,931,250
350,000 VISX, Inc.* 18,112,500
-------------
47,400,000
-------------
Office Equipment & Supplies -- 1.1%
500,000 Staples, Inc.* 10,375,000
-------------
Retail Building Supply -- 2.5%
165,000 Home Depot, Inc. (The) 11,312,812
220,000 Lowe's Companies, Inc. 13,145,000
-------------
24,457,812
-------------
Retail-Special Lines -- 8.3%
200,000 Abercrombie & Fitch Co. Class "A"* 5,337,500
400,000 Bed Bath & Beyond Inc.* 13,900,000
200,000 Best Buy Co., Inc.* 10,037,500
350,000 Circuit City Stores-Circuit City Group 15,771,875
202,500 Gap, Inc. (The) 9,315,000
225,000 Intimate Brands Inc. Class "A" 9,703,125
200,000 Tandy Corp. 9,837,500
70,000 Tiffany & Co. 6,247,500
-------------
80,150,000
-------------
Retail Store -- 6.6%
150,000 Costco Wholesale Corp.* 13,687,500
250,000 Dayton Hudson Corp. 18,359,375
200,000 Kohl's Corp.* 14,437,500
250,000 Wal-Mart Stores, Inc. 17,281,250
-------------
63,765,625
-------------
See notes to financial statements.
- --------------------------------------------------------------------------------
74
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------
Securities Brokerage -- 2.2%
200,000 Donaldson, Lufkin &
Jenrette, Inc. - DLJ $ 9,675,000
300,000 Schwab (Charles) Corp. 11,512,500
-------------
21,187,500
-------------
Semiconductor -- 4.4%
200,000 Intel Corp. 16,462,500
100,000 PMC-Sierra, Inc.* 16,031,250
200,000 Vitesse Semiconductor Corp.* 10,487,500
-------------
42,981,250
-------------
Semiconductor Capital Equipment -- 2.1%
250,000 Altera Corp.* 12,390,625
65,000 Applied Materials, Inc.* 8,234,687
-------------
20,625,312
-------------
Shoe -- 1.3%
250,000 Nike, Inc. Class "B" 12,390,625
-------------
Telecommunications Equipment -- 6.0%
200,000 Lucent Technologies Inc. 14,962,500
140,000 QUALCOMM Inc.* 24,657,500
100,000 Scientific-Atlanta, Inc. 5,562,500
200,000 Tellabs, Inc.* 12,837,500
-------------
58,020,000
-------------
Thrift -- 1.8%
220,400 Federal Home Loan Mortgage Corp. 10,372,575
115,000 Federal National Mortgage Association 7,180,313
-------------
17,552,888
-------------
TOTAL COMMON STOCKS AND
TOTAL INVESTMENT SECURITIES -- 98.6%
(Cost $579,389,743) 957,378,356
-------------
Principal
Amount Value
- -----------------------------------------------------------------
- ---------------------------
REPURCHASE AGREEMENT-- 2.6%
- ---------------------------
(including accrued interest)
$ 25,200,000 Collateralized by $19,695,000
U.S. Treasury Bonds 12 3/4%,
due 11/15/10, with a value of
$25,723,882 (with Morgan
Stanley & Co., Incorporated 2.47%,
dated 12/31/99, due 1/3/00,
delivery value $25,205,187) $ 25,201,729
-------------
EXCESS OF LIABILITIES OVER
CASH AND OTHER ASSETS -- (-1.2%) (11,208,076)
=============
- -----------------------------------------------------------------
NET ASSETS -- 100.0% $ 971,372,009
=============
- -----------------------------------------------------------------
NET ASSET VALUE
PER OUTSTANDING SHARE
($971,372,009 / 26,917,271
shares of capital stock outstanding) $ 36.09
=============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
75
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1999
ASSETS:
Investment securities, at value
(cost $579,389,743) $957,378,356
Repurchase agreement (cost $25,201,729) 25,201,729
Cash 1,517
Dividends receivable 317,325
Receivable for capital shares sold 85,193
Prepaid insurance expense 14,558
------------
TOTAL ASSETS 982,998,678
------------
LIABILITIES:
Payable for securities purchased 10,633,120
Payable for capital shares repurchased 397,310
Accrued expenses:
Advisory fee 397,539
GIAC administrative service fee 165,000
Other 33,700
------------
TOTAL LIABILITIES 11,626,669
------------
NET ASSETS $971,372,009
------------
NET ASSETS consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000, outstanding
26,917,271 shares) $ 26,917,271
Additional paid-in capital 438,513,995
Undistributed net investment income 560,984
Undistributed net realized gain on investments 127,391,146
Net unrealized appreciation of investments 377,988,613
------------
NET ASSETS $971,372,009
============
NET ASSET VALUE PER
OUTSTANDING SHARE
($971,372,009 / 26,917,271
shares outstanding) $ 36.09
============
STATEMENT OF OPERATIONS
YEAR ENDED
December 31, 1999
Investment Income:
Dividends $ 4,447,173
Interest 1,327,692
-------------
Total Income 5,774,865
-------------
Expenses:
Investment advisory fee 4,313,362
GIAC administrative service fee 598,640
Custodian fees 83,323
Auditing and legal fees 38,543
Insurance 18,447
Directors' fees and expenses 14,023
Printing 11,982
Taxes and other 2,146
-------------
Total Expenses Before Custody Credits 5,080,466
Less:Custody Credits (5,718)
-------------
Net Expenses 5,074,748
-------------
Net Investment Income 700,117
-------------
Net Realized and Unrealized Gain
on Investments:
Net realized gain 128,491,663
Change in net unrealized appreciation 89,602,937
-------------
Net Realized Gain and Change in Net
Unrealized Appreciation on Investments 218,094,600
-------------
Net Increase in Net Assets from Operations $ 218,794,717
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
76
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Operations:
Net investment income $ 700,117 $ 2,239,792
Net realized gain on investments 128,491,663 62,454,321
Change in net unrealized appreciation 89,602,937 117,641,538
------------- -------------
Net increase in net assets from operations 218,794,717 182,335,651
------------- -------------
Distributions to Shareholders:
Net investment income (2,362,927) (2,335,121)
Net realized gain from investment transactions (63,536,476) (45,405,144)
------------- -------------
Total distributions (65,899,403) (47,740,265)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares 112,347,438 66,666,181
Proceeds from reinvestment of dividends and distributions to shareholder 65,899,403 47,740,265
Cost of shares repurchased (174,977,296) (153,885,228)
------------- -------------
Net increase (decrease) from capital share transactions 3,269,545 (39,478,782)
------------- -------------
Total Increase in Net Assets 156,164,859 95,116,604
Net Assets:
Beginning of year 815,207,150 720,090,546
------------- -------------
End of year $ 971,372,009 $ 815,207,150
============= =============
Undistributed Net Investment Income, at End of Year $ 560,984 $ 2,223,794
============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
77
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
------------------------------------
1 -- Significant Accounting Policies
------------------------------------
Value Line Centurion Fund, Inc. (the "Fund") is an open-end diversified
management investment company registered under the Investment Company Act of
1940, as amended, whose primary investment objective is long-term growth of
capital. The Fund's portfolio will usually consist of common stocks ranked 1 or
2 for year-ahead performance by The Value Line Investment Survey, one of the
nation's major investment advisory services.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
(A) Security Valuation
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities and for securities traded in the
over-the-counter market, the security is valued at the midpoint between the
latest available and representative asked and bid prices. Short-term instruments
with maturities of 60 days or less are valued at amortized cost, which
approximates market value. Short-term instruments with maturities greater than
60 days, at the date of purchase, are valued at the midpoint between the latest
available and representative asked and bid prices, and commencing 60 days prior
to maturity such securities are valued at amortized cost. Other assets and
securities for which market valuations are not readily available are valued at
fair value as the Board of Directors may determine in good faith.
(B) Repurchase Agreements
In connection with transactions in repurchase agreements, the Fund's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the Fund has the right to liquidate the collateral and
apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
(C) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders. Therefore, no federal income tax is
required.
(D) Dividends and Distributions
It is the Fund's policy to distribute to its shareholders, as dividends
and as capital gains distributions, all the net investment income for the year
and all net capital gains realized by the Fund, if any. Such distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. All dividends or distributions will be
payable in shares of the Fund at the net asset value on the ex-dividend date.
This policy is, however, subject to change at any time by the Board of
Directors.
(E) Amortization
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income on investments adjusted for amortization of dis-
- --------------------------------------------------------------------------------
78
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (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 Distribution
------------------------------------------
Shares of the Fund are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance and Annuity Company, Inc.
(GIAC). Transactions in capital stock were as follows:
Year Ended Year Ended
December 31, December 31,
1999 1998
---------- ----------
Shares sold 3,485,591 2,514,811
Shares issued in reinvestment
of dividends and distributions 2,140,286 1,781,353
---------- ----------
5,625,877 4,296,164
Shares repurchased 5,492,925 5,730,080
---------- ----------
Net increase (decrease) 132,952 (1,433,916)
========== ==========
Dividends per share from net
investment income $ .09 $ .09
========== ==========
Distributions per share from
net realized gains $ 2.42 $ 1.75
========== ==========
--------------------------------------
3 -- Purchases and Sales of Securities
--------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Year Ended
December 31,
1999
--------------
PURCHASES:
Investment Securities $ 537,377,918
=============
SALES:
Investment Securities $ 604,806,009
=============
At December 31, 1999, the aggregate cost of investment securities and
repurchase agreement for federal income tax purposes was $604,604,092. The
aggregate appreciation and depreciation of investments for the year ended
December 31, 1999, based on a comparison of investment values and their costs
for federal income tax purposes was $385,006,612 and $7,030,619 respectively,
resulting in a net appreciation of $377,975,993.
--------------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Interested Parties
--------------------------------------------------
An advisory fee of $4,313,362 was paid or payable to Value Line, Inc., the
Fund's investment adviser (the "Adviser"), for the year ended December 31, 1999.
This was computed at an annual rate of 1/2 of 1% of the average daily net assets
of the Fund during the year and paid monthly. The Adviser provides research,
investment programs, supervision of the investment portfolio and pays costs of
administrative services, office space, equipment and compensation of
administrative, bookkeeping, and clerical personnel necessary for managing the
affairs of the Fund. The Adviser also provides persons, satisfactory to the
Fund's Board of Directors, to act as officers and employees of the Fund and pays
their salaries and wages. The Fund bears all other costs and expenses.
Certain officers and directors of the Adviser and Value Line Securities,
Inc., (the Fund's distributor and a registered broker/dealer) are also officers
and directors of the Fund. During the year ended December 31, 1999, the Fund
paid brokerage commissions totaling $487,568 to Value Line Securities, Inc., a
wholly owned subsidiary of the Adviser, which clears its transactions through
unaffiliated brokers.
The Fund has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contract-owner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the year ended December 31, 1999, the Fund
incurred expenses of $598,640 in connection with such services rendered by GIAC.
- --------------------------------------------------------------------------------
79
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...... $ 30.44 $ 25.52 $ 24.83 $ 24.25 $ 17.83
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ................ .03 .09 .09 .08 .12
Net gains on securities (both realized
and unrealized) .................... 8.13 6.67 5.30 3.71 6.96
----------- ----------- ----------- ----------- -----------
Total from investment operations ..... 8.16 6.76 5.39 3.79 7.08
----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment income (.09) (.09) (.09) (.12) (.10)
Distributions from net realized gains (2.42) (1.75) (4.61) (3.09) (.56)
----------- ----------- ----------- ----------- -----------
Total distributions ................. (2.51) (1.84) (4.70) (3.21) (.66)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ............ $ 36.09 $ 30.44 $ 25.52 $ 24.83 $ 24.25
=========== =========== =========== =========== ===========
Total return** .......................... 28.23% 27.47% 21.39% 17.34% 40.08%
=========== =========== =========== =========== ===========
Ratios/Supplemental Data:
Net assets, end of year (in thousands) .. $ 971,372 $ 815,207 $ 720,091 $ 639,341 $ 525,449
Ratio of expenses to average
net assets ............................ .59%(1) .59%(1) .60%(1) .59%(1) .62%
Ratio of net investment income to average
net assets ............................ .08% .31% .35% .36% .60%
Portfolio turnover rate ................. 64% 112% 85% 141% 114%
</TABLE>
** 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.
- --------------------------------------------------------------------------------
80
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
Value Line Centurion Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Value Line Centurion Fund, Inc.
(the "Fund") at December 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit incudes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
81
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999
---------------------
COMMON STOCKS-- 44.1%
---------------------
Shares Value
- -----------------------------------------------------------------
Advertising -- 1.2%
36,000 Interpublic Group of Companies, Inc. $ 2,076,750
177,000 Omnicom Group, Inc. 17,700,000
------------
19,776,750
------------
Aerospace/Defense -- 0.7%
193,000 General Dynamics Corp. 10,180,750
36,000 Litton Industries, Inc.* 1,795,500
------------
11,976,250
------------
Apparel -- 0.1%
102,000 Tommy Hilfiger Corp.* 2,377,875
------------
Bank-Midwest -- 0.6%
68,000 Fifth Third Bancorp 4,989,500
121,000 First Tennessee National Corp. 3,448,500
35,700 Old Kent Financial Corp. 1,262,887
------------
9,700,887
------------
Beverage-Alcoholic -- 0.2%
62,000 Coors (Adolph) Co. Class "B" 3,255,000
------------
Building Materials -- 0.0%
6,000 USG Corp. 282,750
------------
Cable TV -- 1.9%
116,000 Cablevision Systems Corp. Class "A"* 8,758,000
190,000 Comcast Corp. Class "A"* 9,606,875
132,000 EchoStar Communications Corp.
Class "A"* 12,870,000
------------
31,234,875
------------
Chemical-Specialty -- 0.1%
20,000 Avery Dennison Corp. 1,457,500
------------
Computer & Peripherals -- 1.9%
115,000 Adaptec, Inc.* 5,735,625
195,422 Cisco Systems, Inc.* 20,934,582
91,000 Dell Computer Corp.* 4,641,000
------------
31,311,207
------------
Computer Software & Services -- 5.4%
100,000 Adobe Systems, Inc. 6,725,000
83,000 Citrix Systems, Inc.* 10,209,000
79,000 Comverse Technology, Inc.* 11,435,250
101,000 Electronics For Imaging, Inc.* 5,870,625
174,000 Mercury Interactive Corp.* 18,781,125
81,000 Microsoft Corp.* 9,456,750
229,500 Paychex, Inc. 9,180,000
174,000 Siebel Systems, Inc.* 14,616,000
------------
86,273,750
------------
Diversified Companies -- 0.9%
28,000 Textron, Inc. 2,147,250
228,000 Tyco International, Ltd. 8,863,500
62,000 United Technologies Corp. 4,030,000
------------
15,040,750
------------
Drug -- 3.7%
106,000 Amgen Inc.* 6,366,625
170,000 Biogen, Inc.* 14,365,000
42,000 Bristol-Myers Squibb Co. 2,695,875
110,000 Forest Laboratories, Inc.* 6,758,125
110,000 MedImmune, Inc.* 18,246,250
86,000 Millennium Pharmaceuticals, Inc. * 10,492,000
------------
58,923,875
------------
Electric Utility-Central -- 0.7%
153,000 AES Corp.* 11,436,750
------------
Electrical Equipment -- 0.3%
108,000 Semtech Corp.* 5,629,500
------------
Electronics -- 2.8%
202,000 Gemstar International Group, Ltd.* 14,392,500
98,000 JDS Uniphase Corp.* 15,808,625
233,125 Symbol Technologies, Inc. 14,818,008
------------
45,019,133
------------
Entertainment -- 1.9%
39,000 AMFM Inc.* 3,051,750
168,000 CBS Corp.* 10,741,500
86,315 Clear Channel Communications, Inc.* 7,703,614
75,000 Time Warner, Inc. 5,432,812
58,000 USA Networks, Inc.* 3,204,500
------------
30,134,176
------------
Financial Services-Diversified -- 0.2%
65,000 Citigroup Inc. 3,611,562
------------
Food Processing -- 0.5%
127,000 Quaker Oats Co. (The) 8,334,375
------------
Foreign Telecommunication -- 1.4%
106,000 Nortel Networks Corp. 10,706,000
30,000 Telefonos de Mexico S.A. (ADR) 3,375,000
182,500 Vodafone AirTouch PLC (ADR) 9,033,750
------------
23,114,750
------------
Furniture/Home Furnishings -- 0.2%
90,000 Ethan Allen Interiors, Inc. 2,885,625
------------
Grocery -- 0.2%
209,800 Kroger Co.* 3,959,975
------------
Hotel/Gaming -- 0.1%
57,000 Mandalay Resort Group* 1,147,125
------------
Household Products -- 0.2%
53,000 Kimberly-Clark Corp. 3,458,250
------------
Internet -- 0.6%
70,000 America Online, Inc.* 5,280,625
66,000 Macromedia, Inc.* 4,826,250
------------
10,106,875
------------
See notes to financial statements.
- --------------------------------------------------------------------------------
82
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------
Machinery -- 0.3%
74,000 Briggs & Stratton Corp. $ 3,968,250
------------
Medical Services -- 0.1%
28,000 PacifiCare Health Systems, Inc.* 1,484,000
------------
Medical Supplies -- 1.3%
214,000 Allergan, Inc. 10,646,500
58,000 Johnson & Johnson 5,401,250
97,000 VISX, Inc.* 5,019,750
------------
21,067,500
------------
Natural Gas-Diversified -- 0.8%
282,000 Enron Corp. 12,513,750
------------
Office Equipment & Supplies -- 0.7%
108,000 Pitney Bowes, Inc. 5,217,750
271,655 Staples, Inc.* 5,636,841
------------
10,854,591
------------
Precision Instrument -- 0.3%
104,000 Waters Corp.* 5,512,000
------------
Publishing -- 0.1%
26,000 Reader's Digest Association, Inc.
Class "A" 760,500
------------
Recreation -- 1.0%
111,000 Harley-Davidson, Inc. 7,110,938
174,000 Royal Caribbean Cruises, Ltd. 8,580,375
------------
15,691,313
------------
Restaurant -- 0.2%
145,000 Brinker International, Inc.* 3,480,000
------------
Retail Building Supply -- 1.4%
225,000 Home Depot, Inc. (The) 15,426,563
115,000 Lowe's Companies, Inc. 6,871,250
------------
22,297,813
------------
Retail-Special Lines -- 3.2%
141,040 Abercrombie & Fitch Co. Class "A"* 3,764,005
104,000 AnnTaylor Stores Corp.* 3,581,500
181,000 Bed Bath & Beyond Inc.* 6,289,750
61,000 Best Buy Co., Inc.* 3,061,437
164,000 Circuit City Stores-Circuit City Group 7,390,250
100,500 Dollar Tree Stores, Inc.* 4,867,969
100,250 Gap, Inc. (The) 4,611,500
6,405 Intimate Brands, Inc. Class "A" 276,216
56,000 Ross Stores, Inc. 1,004,500
160,000 TJX Companies, Inc. (The) 3,270,000
20,000 Tandy Corp. 983,750
131,800 Tiffany & Co. 11,763,150
------------
50,864,027
------------
Retail Store -- 1.7%
94,000 Dayton Hudson Corp. 6,903,125
98,000 Kohl's Corp.* 7,074,375
196,000 Wal-Mart Stores, Inc. 13,548,500
------------
27,526,000
------------
Semiconductor -- 2.9%
78,000 Linear Technology Corp. 5,581,875
95,000 PMC-Sierra, Inc.* 15,229,687
80,000 QLogic Corp.* 12,790,000
110,000 RF Micro Devices, Inc.* 7,528,125
67,500 TranSwitch Corp.* 4,897,969
------------
46,027,656
------------
Telecommunications Equipment -- 2.2%
60,000 General Instrument Corp.* 5,100,000
116,000 QUALCOMM Inc.* 20,430,500
89,000 Scientific-Atlanta, Inc. 4,950,625
74,000 Tellabs, Inc.* 4,749,875
------------
35,231,000
------------
Telecommunication Services -- 1.8%
43,000 ALLTEL Corp. 3,555,563
245,000 CenturyTel, Inc. 11,606,875
76,000 MediaOne Group, Inc.* 5,837,750
170,000 SBC Communications Inc. 8,287,500
------------
29,287,688
------------
Toiletries/Cosmetics -- 0.3%
86,000 Estee Lauder Companies Inc. (The)
Class "A" 4,337,625
------------
TOTAL COMMON STOCKS
(Cost $306,391,714) 711,353,278
------------
See notes to financial statements.
- --------------------------------------------------------------------------------
83
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
Principal
Amount Value
- -----------------------------------------------------------------
----------------------------------
U.S. TREASURY OBLIGATIONS -- 16.8%
----------------------------------
$45,000,000 U.S. Treasury Notes
4.000%, due 10/31/00 $ 44,255,448
29,000,000 U.S. Treasury Notes
5.250%, due 5/31/01 28,628,597
30,000,000 U.S. Treasury Notes
5.750%, due 6/30/01 29,810,223
15,000,000 U.S. Treasury Notes
6.250%, due 8/31/02 14,980,347
14,250,000 U.S. Treasury Notes
5.875%, due 11/15/05 13,831,285
14,250,000 U.S. Treasury Notes
5.625%, due 2/15/06 13,632,565
33,000,000 U.S. Treasury Notes
6.500%, due 10/15/06 32,903,587
15,000,000 U.S. Treasury Notes
6.125%, due 8/15/07 14,629,165
15,383,250 U.S. Treasury Inflation Indexed Notes
3.875%, due 1/15/09 14,865,864
59,500,000 U.S. Treasury Bonds
7.250%, due 8/15/22 62,738,835
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $276,893,532) 270,275,916
------------
-------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 21.6%
-------------------------------------------
17,000,000 Federal Home Loan Mortgage Corp.
5.750%, due 6/15/01 16,839,364
16,000,000 Federal Home Loan Banks
6.000%, due 11/15/01 15,849,334
15,000,000 Federal Home Loan Banks
5.125%, due 2/26/02 14,571,136
27,000,000 Federal Home Loan Mortgage Corp.
5.500%, due 5/15/02 26,356,614
21,000,000 Federal Home Loan Banks
6.000%, due 8/15/02 20,689,990
13,000,000 Federal National Mortgage Association
6.250%, due 11/15/02 12,874,966
13,500,000 Federal National Mortgage Association
4.750%, due 11/14/03 12,576,587
59,000,000 Federal Home Loan Mortgage Corp.
5.000%, due 1/15/04 55,267,035
5,500,000 Federal National Mortgage Association
5.125%, due 2/13/04 5,172,084
29,000,000 Federal National Mortgage Association
5.625%, due 5/14/04 27,718,551
17,000,000 Federal Home Loan Mortgage Corp.
6.250%, due 7/15/04 16,626,969
23,000,000 Federal National Mortgage Association
5.750%, due 6/15/05 21,874,237
10,000,000 Federal National Mortgage Association
Pool 380188, 6.45%, due 4/1/08 9,428,130
14,000,000 Federal Home Loan Mortgage Corp.
5.750%, due 4/15/08 12,895,702
10,000,000 Federal National Mortgage Association
5.250%, due 1/15/09 8,818,051
13,045,000 Federal National Mortgage Association
6.375%, due 6/15/09 12,452,940
45,000,000 Federal National Mortgage Association
6.625%, due 9/15/09 43,758,396
15,000,000 Federal Home Loan Mortgage Corp.
6.625%, due 9/15/09 14,575,890
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $359,458,445) 348,345,976
------------
-------------------------------
CORPORATE BONDS & NOTES -- 1.1%
-------------------------------
Chemical-Diversified -- 0.3%
5,000,000 Goodrich (B.F.) Co. (The) Notes
6.450%, due 4/15/08 4,572,137
Telecommunication Services -- 0.8%
5,000,000 AirTouch Communications Inc. Notes
6.650%,due 5/1/08 4,691,887
5,000,000 MCI WorldCom, Inc. Sr. Notes
6.400%, due 8/15/05 4,797,534
4,000,000 MCI WorldCom, Inc. Sr. Notes
6.500%, due 4/15/10 3,711,724
------------
13,201,145
------------
TOTAL CORPORATE BONDS & NOTES
(Cost $18,967,354) 17,773,282
------------
TOTAL INVESTMENT SECURITIES -- 83.6%
(Cost $961,711,045) 1,347,748,452
-------------
------------------------------
SHORT-TERM INVESTMENTS -- 15.8%
------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 8.0%
29,047,000 Federal Home Loan Mortgage Corp.
Discount Notes, 5.470%, 1/5/00 29,029,346
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes, 5.600%, 1/11/00 29,953,333
40,000,000 Federal Home Loan Mortgage Corp.
Discount Notes, 5.560%, 1/14/00 39,919,689
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes, 5.620%, 1/19/00 29,915,700
------------
128,818,068
------------
See notes to financial statements.
- --------------------------------------------------------------------------------
84
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount Value
- -----------------------------------------------------------------
REPURCHASE AGREEMENTS -- 7.8%
(including accrued interest)
$62,000,000 Collateralized by $45,090,000
U.S. Treasury Bonds 10 5/8%,
due 8/15/15, with a value of
$63,118,951 (with Morgan Stanley &
Co., Inc., 2.47%, dated 12/31/99, due
1/3/00, delivery value of
$62,012,762) $ 62,004,254
63,000,000 Collateralized by $31,360,000
U.S. Treasury Notes 6 1/2%,
due 8/31/01 and $31,567,000 U.S.
Treasury Notes 6 3/8%, due 3/31/01
with a total value of $64,296,606
(with Banc One Capital Markets, Inc.,
2.65%, dated 12/31/99, due 1/3/00,
delivery value $63,013,912) 63,004,637
------------
125,008,891
------------
TOTAL SHORT-TERM SECURITIES
(Cost $253,826,959) 253,826,959
------------
CASH AND OTHER ASSETS
IN EXCESS OF LIABILITIES -- 0.6% 10,305,388
------------
- -----------------------------------------------------------------
NET ASSETS -- 100.0% $1,611,880,799
==============
- -----------------------------------------------------------------
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,611,880,799 / 54,850,620
shares of beneficial interest outstanding) $ 29.39
==============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
85
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
December 31, 1999 (Continued)
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1999
ASSETS:
Investment securities, at value
(cost $961,711,045) $1,347,748,452
Short-term investments (cost $253,826,959) 253,826,959
Cash 150,207
Interest and dividends receivable 9,964,094
Receivable for securities sold 2,693,035
Receivable for capital shares sold 97,472
Prepaid insurance expense 24,826
--------------
TOTAL ASSETS 1,614,505,045
--------------
LIABILITIES
Payable for capital shares repurchased 1,642,035
Accrued expenses:
Advisory fee 667,997
GIAC administrative service fee 265,843
Other 48,371
TOTAL LIABILITIES 2,624,246
--------------
NET ASSETS $1,611,880,799
==============
NET ASSETS CONSIST OF:
Shares of beneficial interest, at $0.01 par value
(authorized unlimited, outstanding
54,850,620 shares) 548,506
Additional paid-in capital 883,244,575
Undistributed net investment income 31,635,575
Undistributed net realized gain on investments 310,414,736
Net unrealized appreciation of investments 386,037,407
--------------
NET ASSETS $1,611,880,799
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,611,880,799 / 54,850,620
shares outstanding) $ 29.39
==============
STATEMENT OF OPERATIONS
YEAR ENDED
December 31, 1999
Investment Income:
Interest $ 36,700,944
Dividends (Net of foreign withholding
tax of $5,837) 3,636,934
-------------
Total Income 40,337,878
-------------
Expenses:
Investment advisory fee 7,451,342
GIAC administrative service fee 925,843
Custodian fees 149,285
Audit and legal fees 38,541
Insurance 35,264
Trustees' fees and expenses 14,023
Printing 12,925
Taxes and other 2,056
-------------
Total Expenses Before Custody Credits 8,629,279
Less: Custody Credits (3,639)
-------------
Net Expenses 8,625,640
-------------
Net Investment Income 31,712,238
-------------
Net Realized and Unrealized Gain (Loss)
On Investments:
Net realized gain 310,691,129
Net change in unrealized
appreciation (14,402,998)
-------------
Net Realized Gain and Change in
Unrealized Appreciation
on Investments 296,288,131
-------------
Net Increase in Net Assets
from Operations $ 328,000,369
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
86
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Operations
Net investment income $ 31,712,238 $ 15,682,392
Net realized gain on investments 310,691,129 79,864,542
Change in net unrealized appreciation (14,402,998) 215,856,062
--------------- ---------------
Net increase in net assets from operations 328,000,369 311,402,996
--------------- ---------------
Distributions to Shareholders:
Net investment income (15,437,565) (35,369,549)
Net realized gain from investment transactions (79,625,333) (101,947,527)
--------------- ---------------
Total distributions (95,062,898) (137,317,076)
--------------- ---------------
Trust Share Transactions:
Proceeds from sale of shares 109,656,703 98,680,308
Proceeds from reinvestment of dividends and distributions to shareholder 95,062,898 137,317,076
Cost of shares repurchased (240,059,970) (192,389,054)
--------------- ---------------
Net (decrease) increase from Trust share transactions (35,340,369) 43,608,330
--------------- ---------------
Total Increase In Net Assets 197,597,102 217,694,250
Net Assets:
Beginning of year 1,414,283,697 1,196,589,447
--------------- ---------------
End of year $ 1,611,880,799 $ 1,414,283,697
=============== ===============
Undistributed Net Investment Income, at End of Year $ 31,635,575 $ 15,360,902
=============== ===============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
87
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
------------------------------------
1 -- Significant Accounting Policies
------------------------------------
Value Line Strategic Asset Management Trust (the "Trust") is an open-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended, which seeks to achieve a high total investment
return consistent with reasonable risk by investing primarily in a broad range
of common stocks, bonds and money market instruments. The Trust will attempt to
acheive its objective by following an asset allocation strategy based on data
derived from computer models for the stock and bond markets that shifts the
assets of the Trust among equity, debt and money market securities as the models
indicate and its investment adviser, Value Line, Inc. (the "Adviser"), deems
appropriate.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Trust in the preparation of its financial statements.
(A) Security Valuation.
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities traded in the over-the-counter market,
the security is valued at the midpoint between the latest available and
representative asked bid and 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
- --------------------------------------------------------------------------------
88
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (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:
Year Ended Year Ended
December 31, December 31,
1999 1998
---------- -----------
Shares sold 4,104,143 4,261,820
Shares issued in reinvestment
of dividends and distributions 3,617,310 6,157,716
------------ -----------
7,721,453 10,419,536
Shares repurchased 8,941,008 8,418,685
------------ -----------
Net (decrease) increase 1,219,555 2,000,851
============ ===========
Dividends per share from net
investment income $ .285 $ .68
============ ===========
Distributions per share from
net realized gains $ 1.47 $ 1.96
============ ===========
--------------------------------------
3 -- Purchases and Sales of Securities
--------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Year Ended
December 31,
1999
----------------
PURCHASES:
U.S. Treasury and Government
Agency Obligations $ 725,937,484
Other Investment Securities 170,135,232
--------------
$ 896,072,716
--------------
SALES & MATURITIES:
U.S. Treasury and Government
Agency Obligations $ 191,104,011
Other Investment Securities 995,248,742
--------------
$1,186,352,753
--------------
At December 31, 1999, the aggregate cost of investment securities and
short-term securities for federal income tax purposes is $1,215,538,004. The
aggregate appreciation and depreciation of investments at December 31, 1999,
based on a comparison of investment values and their costs for federal income
tax purposes is $410,144,859 and $24,107,452, respectively, resulting in a net
appreciation of $386,037,407.
---------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Affiliates
---------------------------------------------
An advisory fee of $7,451,342 was paid or payable to the Adviser, for the
year ended December 31, 1999. This was computed at the annual 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.
- --------------------------------------------------------------------------------
89
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
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 year ended December 31, 1999, the Trust
paid brokerage commissions totaling $465,623 to Value Line Securities, Inc., a
wholly owned subsidiary of the Adviser, which clears its transactions through
unaffiliated brokers.
The Trust has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contract-owner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the year ended December 31, 1999, the Trust
incurred expenses of $925,843 in connection with such services rendered by GIAC.
- --------------------------------------------------------------------------------
90
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of stock outstanding throughout each year:
<TABLE>
<CAPTION>
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .............. $ 25.22 $ 22.13 $ 21.90 $ 20.27 $ 16.13
---------- ---------- ---------- ---------- -----------
Income from investment operations:
Net investment income ........................ .59 .30 .65 .53 .39
Net gains on securities (both realized
and unrealized) ............................. 5.34 5.43 2.65 2.56 4.17
---------- ---------- ---------- ---------- -----------
Total from investment operations ............. 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 year .................... $ 29.39 $ 25.22 $ 22.13 $ 21.90 $ 20.27
---------- ---------- ---------- ---------- -----------
Total return** .................................. 24.32% 27.45% 15.66% 15.87% 28.54%
---------- ---------- ---------- ---------- -----------
Ratios/Supplemental Data:
Net assets, end of year (in thousands) .......... $1,611,881 $1,414,284 $1,196,589 $1,072,785 $ 876,509
Ratio of expenses to average net assets ......... .58%(1) .58%(1) .59%(1) .58%(1) .60%
Ratio of net investment income to average
net assets .................................... 2.13% 1.25% 3.08% 2.70% 2.18%
Portfolio turnover rate ......................... 70% 106% 58% 71% 63%
</TABLE>
** 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.
- --------------------------------------------------------------------------------
91
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees of
Value Line Strategic Asset Management Trust
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Value Line Strategic Asset
Management Trust (the "Fund") at December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit incudes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 11, 2000
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93
<PAGE>
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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
<TABLE>
<CAPTION>
December 31, 1999
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
========== ========== ==========
<CAPTION>
December 31, 1998
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.
- --------------------------------------------------------------------------------
94
<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.
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95
<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.
- --------------------------------------------------------------------------------
96
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Sponsor and Holders of
The Shearson Lehman Brothers Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A - 2004 Trust:
We have audited the accompanying statements of assets and liabilities of
The Shearson Lehman Brothers Fund of Stripped ("Zero") U.S. Treasury Securities,
Series A - 2004 Trust, including the schedules of portfolio investments, as of
December 31, 1999 and 1998, and the related statements of operations and changes
in net assets for each of the years in the three-year period ended December 31,
1999. These financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation with the custodian of securities owned as of December 31, 1999. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the financial position of The Shearson Lehman Brothers
Fund of Stripped ("Zero") U.S. Treasury Securities, Series A - 2004 Trust, as of
December 31, 1999 and 1998, and the results of its operations and changes in its
net assets for each of the years in the three-year period ended December 31,
1999, in conformity with generally accepted accounting principles.
KPMG LLP
February 21, 2000
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97
<PAGE>
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