[LOGO]
GUARDIAN(SM)
PARK AVENUE LIFE
June 30, 1999
Semiannual Report To Policyowners
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THE GUARDIAN SEPARATE ACCOUNT K
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The Guardian Stock Fund, Inc.
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The Guardian Bond Fund, Inc.
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The Guardian Cash Fund, Inc.
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Gabelli Capital Asset Fund
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Baillie Gifford International Fund
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Baillie Gifford Emerging Markets Fund
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The Guardian Small Cap Stock Fund
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Value Line Centurion Fund, Inc.
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Value Line Strategic Asset Management Trust
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MFS Growth with Income Series
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MFS Emerging Growth Series
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MFS Total Return Series
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MFS Bond Series
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American Century VP International Fund
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American Century VP Value Fund
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Fidelity VIP III Growth Opportunities Portfolio
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Fidelity VIP Equity-Income Portfolio
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Fidelity VIP High Income Portfolio
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Fidelity VIP II Index 500 Portfolio
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AIM V.I. Capital Appreciation Fund
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AIM V.I. Value Fund
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Executive Office
7 Hanover Square
New York, New York 10004
Customer Service Office
7 Hanover Square
Specialty Life -- 215 B
New York, New York 10004
1-800-935-4128
Issued by:
The Guardian Insurance &
Annuity Company, Inc.
A wholly owned subsidiary of
The Guardian Life Insurance Company of America
Distributed by:
Guardian Investor Services Corporation
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Fixed-Rate Option
The annual rate of interest for amounts deposited or renewed (on a
contract anniversary) in the Fixed Rate Option during the first six-months of
1999 were:
January ............... 5.25%
February .............. 5.25%
March ................. 5.25%
April ................. 5.25%
May ................... 5.25%
June .................. 5.25%
Rates paid by the Fixed-Rate Option are subject to change at any time, and
may be higher or lower for new deposits or renewals, but are guaranteed from the
date of deposit or renewal to the next contract anniversary.
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Dear Policyowner:
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[PHOTO OMITTED]
Joseph D. Sargent, CLU
President & CEO
Dear Policyowner:
As President and Chief Executive Officer of The Guardian Insurance &
Annuity Company, Inc. (GIAC), and its parent, The Guardian Life Insurance
Company of America, I am proud to present this Semi-Annual Report on the
performance of your policy's separate account and its underlying variable
investment options during the first six months of 1999. I hope you will enjoy
learning more about investments as well as the economic outlook for the rest of
the year.
GIAC continues to enjoy exemplary ratings from four of the nation's
leading insurance company evaluators; Moody's, Standard & Poor's, A.M. Best and
Duff & Phelps. GIAC's solid ratings reflect its ability to meet its
insurance-related obligations and the guaranteed return of your policy's
Fixed-Rate Option. However, these ratings do not apply to the variable
investment options available under your Park Avenue Life Policy, which are
subject to the risks of investing in securities. We are very proud of our
ratings because they reflect the strength of GIAC, which stands behind the
policy's guarantees.
We at GIAC have a strong commitment to our policyowners. We strive to keep
you informed about your investments and the current economic environment, in
order to help you make the best possible decisions for your future.
To this end, we have included a letter from Frank J. Jones, Ph.D., Chief
Investment Officer of GIAC, and interviews with the managers of your policy's
underlying variable investment options. I invite you to read these materials to
learn more about the strategies used to manage your variable investment options
during the first half of 1999.
Thank you for continuing to invest for your future through GIAC.
Sincerely,
/s/ Joseph D. Sargent
Joseph D. Sargent, CLU
President and Chief Executive Officer
The Guardian Insurance & Annuity Company, Inc.
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SEMIANNUAL REPORT FOR
Park Avenue Life
Park Avenue Variable Universal Life
Table of Contents
Portfolio Schedule
Manager of
Interview Investments
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Economic Report 4
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The Guardian Stock Fund 6 50
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The Guardian Bond Fund 10 58
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The Guardian Cash Fund 24 64
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Gabelli Capital Asset Fund 12 72
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Baillie Gifford International Fund 14 80
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Baillie Gifford Emerging Markets Fund 16 86
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The Guardian Small Cap Stock Fund 18 92
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Value Line Centurion Fund 20 102
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Value Line Strategic Asset Management Trust 22 110
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MFS Growth with Income Series 121
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MFS Emerging Growth Series 141
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MFS Total Return Series 165
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MFS Bond Series 191
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American Century VP International Fund 213
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American Century VP Value Fund 237
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Fidelity VIP III Growth Opportunities Portfolio 259
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Fidelity VIP Equity-Income Portfolio 277
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Fidelity VIP High Income Portfolio 297
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Fidelity VIP II Index 500 Portfolio 319
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AIM V.I. Capital Appreciation Fund 339
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AIM V.I. Value Fund 4
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The Guardian Separate Account K 26
For Park Avenue Life Contractowners
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The Guardian Separate Account M 38
For Park Avenue Variable Universal Life
Contractowners
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Investments offered through The Guardian Insurance & Annuity Company, Inc. are
not deposits or obligations of, or guaranteed or endorsed by, any bank or
depository institution, nor are they federally insured by the Federal Deposit
Insurance Corporation, The Federal Reserve Board, or any other agency. They
involve investment risk, including possible loss of principal amount invested.
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Economic Report
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[PHOTO OMITTED]
Frank J. Jones, Ph.D.,
Chief Investment Officer,
Co-Portfolio Manager,
The Guardian Stock Fund
Myopia vs. The Big Picture
The major peril in writing a comment such as this is that during the time
between my writing it and your reading it, the message becomes dated or even
obsolete. This author has frequently been a victim to this peril. Perhaps
uncharacteristically, this comment attempts to focus on the big picture
underlying the economy and the bond and stock markets, and not myopically on the
ephemeral data hitting the tape each minute of the hour and day.
To begin with some perspective, the current economic expansion began
during April 1991, making it the longest peacetime expansion since World War II.
The current bull market in stocks began, by some measures, during September
1990. Obviously, on an historical basis the end of either would not be
premature.
First, the background for this discussion. The Federal Reserve Board (Fed)
eased interest rates three times by a total of 0.75% during late 1998 due to
concerns about credit stress in the U.S. and international economic weakness.
During 1999, the economy has been unexpectedly strong, the bond markets
unexpectedly weak (higher yields), and the stock market mixed (the Dow (DJIA)(1)
and NASDAQ(2) have been strong, small cap stocks weak and the Standard & Poor's
500 (S&P 500) Index(3) somewhere in between). The Fed, in general, and Alan
Greenspan, in particular, have been concerned about the effect of strong
economic growth on labor costs and inflation, even though neither of these have
evidenced themselves yet.
In this vein, the Fed "took back" one of the three previous easings by
raising rates by 0.25% on June 30. During August - the time of this writing -
bond yields had increased to their highest levels since November 1997 and the
S&P 500 had declined by approximately 8% from its high of 1419 on July 16.
During late July/early August, there were announcements of lower productivity
and higher wage increases during the second quarter of 1999, adding to the Fed
concerns. The former was particularly troublesome because Greenspan has
rationalized the length and strength of the non-inflationary expansion on the
basis of the high productivity resulting from innovations in technology and
communications.
Considering the big picture, what factors typically end expansions? The
most common cause is developing or actual inflation which prompts the Fed to
tighten, or raise rates, often precipitously. Often excesses of some type,
frequently inventory excesses, accompany the inflationary forces. Currently
there are no significant excesses and Greenspan and the Fed appear to be
prepared to act pre-emptively and gradually to obviate the need for a later
draconian tightening that could jeopardize the expansion. This is clear from
Greenspan's comments to Congress on July 22, as indicated in the excerpts below.
"If new data suggest it is likely that the pace of cost and price
increases will be picking up, the Federal Reserve will have to act promptly and
forcefully so as to preclude imbalances from arising that would only require a
more disruptive adjustment later - one that could impair the expansion and bring
into question whether the many gains already made can be sustained...."
"When we can be pre-emptive we should, because moderate pre-emptive
actions can obviate more drastic actions at a later date that can destabilize
the economy."
It appears that the Treasury market has already priced in one or two Fed
tightenings. If inflation becomes significant and requires more Fed tightening,
an outcome we do not think likely, yields could increase further. If, on the
other hand, the economy slows somewhat during late 1999, which seems likely,
yields could decline.
Other factors which could also abort the expansion are higher taxes (taxes
are, in fact, likely to be decreased), tighter regulation, and protectionism.
None seem probable.
The economy could slow, but it is not likely to contract. That is, a
recession is not on the "radar screen". Economic growth will continue to proceed
in various paces, but will not end.
The "big picture" of the stock market involves three variables, namely
corporate profits, interest rates, and current valuations. Stock prices increase
when profits increase and when bond yields decrease. In addition, stock prices
are more likely to increase when current val-
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(1) The Dow Jones Industrial Average (DJIA) is an unmanaged index of 30
industrial stocks listed on the New York Stock Exchange that is generally
considered to be representative of U.S. stock market activity.
(2) The NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ National Market stocks.
(3) The S&P 500 Index is an unmanaged index of 500 large cap stocks that is
generally considered to be representative of U.S. stock market
performance.
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uations (such as the price-to-earnings ratio) are lower than they have been. How
is the stock market currently positioned with respect to these three variables?
As indicated, economic growth is likely to remain solid. Thus, corporate
profits should continue to increase. With respect to bond yields, unless the Fed
fails and inflation increases, bond yields should not increase much more and
could decrease if economic growth eases somewhat. The case relative to
valuations is more difficult. On the one hand, and well noted in the press, many
stocks have very high or even extreme valuations, particularly large cap growth
stocks and technology and internet stocks. On the other hand, small cap and
cyclical stocks have lower valuations. The stock market seems to be begging for
rotation whereby the valuations of the various sectors of the stock market would
converge.
To be philosophical about the last four years of stock market returns in
excess of 20% and the prospects for the future, consider the counsel of the
Nobel Prize winning economist Paul Samuelson: "Economists have no theory of how
long a bubble will last." So, his advice is to "develop a philosophical
attitude. Any prosperity in a speculative market is lent to you by the Fates and
may have a string on it, and may be taken away."
Consider one other characteristic of the current stock market which
affects stock market volatility. Prior to 1959, the dividend yield on stocks was
higher than the bond yield. For example, during 1955, the dividend yield on the
S&P 500 was 4.6% and the ten-year Treasury yield was 2.8%. The rationale for
this relationship was twofold. First, stocks were considered to be more risky
than bonds and, thus, it was deemed, should have higher yields (just as
non-investment grade or high yield bonds have higher yields than investment
grade bonds). Second, capital gains were expected to be low and so most of the
return on common stocks had to be dividends. After 1958, while dividend yields
were lower than bond yields, dividends continued to increase and reached 5.7%
during 1980. Since then, the S&P 500 dividend yields decreased to 1.7% during
1998 and 1.2% during the second quarter of 1999. In fact, many technology stocks
pay no dividends. Obviously now, dividends represent a nearly inconsequential
component of total return.
What is the effect of the recent lower dividends? In general, the dividend
stream is much more stable than capital gains. Hence stocks, due to their
present low dividend yield, are currently much more volatile than they were
previously.
Overall, while volatility will continue to be an unfavorable
characteristic of the stock market, and there could be a moderate decline in the
stock market, I cannot become a stock market bear, and could even be bullish on
some sectors.
Regards,
/s/ Frank J. Jones
Frank J. Jones, Ph.D.
Chief Investment Officer
The Guardian Insurance & Annuity Company, Inc.
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The Guardian Stock Fund
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Larry Luxenberg, C.F.A.
Co-Portfolio Manager
[PHOTO OMITTED]
John B. Murphy, C.F.A.
Co-Portfolio Manager
Objective: Long-term growth of capital
Portfolio: At least 80% common stocks and securities convertible into common
stocks
Inception: April 13, 1983
Net Assets at June 30, 1999: $3,736,297,042
Q. How has the Fund performed during the first six months of 1999?
A. During most of the last two years, a narrow group of stocks has powered the
advance of the Standard & Poor's 500 Index (S&P 500),(1) and in the first half
of 1999, the Index had a total return of 12.38%. Starting in April, this advance
has broadened as the worldwide financial crisis environment has dissipated. In
the face of continuing great volatility, The Guardian Stock Fund returned
8.44%.(2)
Q. What was your investment strategy during this time?
A. For most of the last five years, we have been favoring large cap, high
quality growth stocks. These stocks have done particularly well since the
financial crisis began in Thailand in July 1997. More recently, the series of
central bank interest rate easings has strengthened economies around the world.
As a consequence, the stock market returns have broadened. We have, therefore,
adopted a more neutral stance, gradually adding to mid- cap and small-cap
positions and to some economically sensitive names. We believe that many
large-cap growth stocks will continue to prosper but, in addition, many
previously overlooked companies will join the advance. As has been our
historical practice, we are making a gradual shift and continue to closely
monitor economic developments both domestically and abroad.
At mid-year, the U.S. economy continues to be buoyant. While the economy
is growing rapidly, inflation remains subdued. The Federal Reserve raised
interest rates once, but signs of bottlenecks or dislocations in the economy are
difficult to detect. Moreover, foreign economies have begun to bounce back from
a scary two-year period of rolling financial crises that showed how closely
linked the global economy has become.
Q. Which sectors are you emphasizing?
A. Our biggest commitment this year has been to technology stocks. We had 32% of
the Fund in technology stocks -- broadly defined -- at mid-year. By our
reckoning the S&P weighting in technology was 24%. We believe that this is a
dramatic period of technological advances powered by the rapid maturation of the
Internet. The portfolio is positioned to benefit from the companies that provide
the structure making these advances in communications and other areas possible.
Prominent among our holdings are Microsoft, IBM, Intel, Sun Microsystems, MCI
Worldcom, Lucent, Cisco and Oracle. The growth in the areas these companies
serve will continue to be tremendous for years.
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We believe that this is a dramatic period of technological advances
powered by the rapid maturation of the Internet. The portfolio is
positioned to benefit from the companies that provide the structure making
these advances in communications and other areas possible.
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We also continue to overweight consumer cyclical stocks. U.S. consumers
have been the big beneficiaries of this period of prosperity.
(1) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
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Q. What do you foresee for the market over the remainder of the year?
A. If the last few years have taught us anything, it is to be cautious in
forecasting. As the millenium approaches, concern about the Year 2000 bug has
declined, and economies around the world have begun to improve. In the U.S. the
major debate is now what to do with a projected extra $1 trillion budget surplus
over the next 15 years. A mere seven years ago, Washington had no memory of a
time of surplus and in fact despaired of ever bringing the budget into balance.
Corporations are better managed than they have been in at least a generation.
Creativity is spurring incredible advances in such areas as the life sciences
and communications. While stock market valuations as measured by the S&P 500 are
high, the broad market is not expensive by historical measures.
More volatility in the market will not surprise us, especially as we move
into the normally treacherous fall period. But given the current benign economic
backdrop, it is hard to be too negative on the long-term outlook for equities.
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The Guardian Stock Fund Profile
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Top Ten Holdings as of June 30, 1999
Percent
Company of Net Assets
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1. Microsoft Corp. 5.11%
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2. Int'l. Business Machines 4.53%
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3. MCI WorldCom, Inc. 2.32%
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4. Pfizer, Inc. 2.19%
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5. Intel Corp. 1.99%
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6. General Electric Co. 1.97%
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7. Lucent Technologies, Inc. 1.93%
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8. Wal-Mart Stores, Inc. 1.84%
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9. Ford Motor Co. 1.47%
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10. Hewlett Packard Co. 1.45%
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AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED JUNE 30, 1999
Life of Fund
1 Year 5 Years 10 Years (since 4/13/83)
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The Guardian Stock Fund 14.64% 25.34% 18.66% 17.99%
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S&P 500 Index 22.76% 27.86% 18.76% 17.56%
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(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
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Sector Weightings of Common Stocks
as of June 30, 1999
[The following table was depicted as a pie chart in the printed material]
Basic Industries 1.48%
Energy 5.22%
Financial 15.93%
Capital Goods/ Technology 33.78%
Transportation 1.60%
Utilities 8.43%
Conglomerates 1.39%
Credit Cyclicals 0.52%
Capital Goods 2.56%
Consumer Services 6.03%
Consumer Staples 12.51%
Consumer Cyclical 10.55%
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Growth of a Hypothetical $10,000 Investment
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A hypothetical $10,000 investment made at the inception of The Guardian Stock
Fund on April 13, 1983 would have grown to $146,868 on June 30, 1999. We compare
our performance to that of the S&P 500 Index, which is an unmanaged index that
is generally considered the performance benchmark of the U.S. stock market.
While you cannot invest directly in the S&P 500 Index, a similar hypothetical
investment would now be worth $135,742. The Cost of Living, as measured by the
Consumer Price Index, which is generally representative of the level of U.S.
inflation, is also provided to lend a more complete understanding of the
investment's real worth.
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The Guardian Bond Fund
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[PHOTO OMITTED]
Thomas G. Sorell, C.F.A.
Co-Portfolio Manager
[PHOTO OMITTED]
Howard W. Chin,
Co-Portfolio Manager
Q. How did the Fund perform during the first half of 1999?
A. The Fund had a total return of -1.41%(1) for the six months ended June 30,
1999, while the average fund in our Lipper Intermediate Investment Grade(2) peer
group returned -1.21% for the same period. The group consists of variable
annuity subaccounts that invest primarily in investment-grade debt with average
maturities of 5-10 years. Another commonly used benchmark, the Lehman Aggregate
Bond Index,(3) returned -1.37% for the first half of 1999.
Q. What factors affected the Fund's performance?
A. During the first half of 1999, interest rates rose approximately 1.00%.
Investors abandoned the safe haven sought in U.S. Treasury securities during
1998's fourth quarter financial crisis and recognized that the U.S. economy
remained impervious to these events as Gross Domestic Product grew 4.3% in
1999's first quarter following a 6% increase in 1998's fourth quarter. Although
inflation remained low during the second quarter of 1999, investors became
increasingly concerned that an emerging recovery in Asia, rising commodity
prices, and a low U.S. unemployment rate would increase inflationary risks.
These concerns led market participants late in the quarter to expect that the
Federal Reserve (Fed) would soon adopt a tightening bias(4) in monetary policy.
In May, the Fed adopted a tightening bias and on June 30th raised the Fed Funds
rate 25 basis points (0.25%) to 5%, its first increase in the target Fed Funds
rate since March 1997.
Q. What was your investment strategy during this period?
A. During the first quarter, the Fund continued to increase its exposure to
spread assets (corporate bonds, mortgage and asset-backed securities) especially
corporate and asset-backed securities which remained attractively priced on a
relative valuation basis. The Fund benefited from this increased allocation to
spread sectors during this quarter as yield spreads narrowed, and spread sector
bonds significantly outperformed equivalent duration Treasuries, effectively
cushioning the Fund's performance from the full effect of rising interest rates.
Both corporate and mortgage-backed securities, which are the two largest spread
sectors represented in the Fund, performed exceptionally well over this period.
For example, according to the Lehman Aggregate Bond Index, corporate bonds
outperformed Treasuries by 132 basis points (1.32%) in the first quarter of 1999
while mortgage-backed securities outperformed Treasuries by 48 basis points
(0.48%).
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The Fund's overall strategy is to maximize the total return of a
diversified fixed income portfolio of investment-grade corporate,
mortgage-backed, asset-backed, and U. S. government securities.
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During April, spread sector bonds continued to outperform Treasuries and
began to exhibit less attractive risk/return profiles at which point, the Fund
started reducing its holdings in corporate bonds. This strategy was both
appropriate and successful as spread assets
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(1) Total return figures are historical and assume the reinvestment of
dividends and distributions, and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment for the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
(3) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The Lehman
Aggregate Bond Index is not available for direct investment, and the
returns do not reflect the fees and expenses that have been deducted from
the Fund.
(4) The Federal Reserve Board (Fed) announces a bias after their Federal
Reserve Open Market Committee (FOMC) meetings. The bias reflects the
consensus of the Fed and indicates the more likely direction that the Fed
may take in changing interest rates. There can be a tightening, easing, or
neutral bias announced. In this case, a tightening bias was announced,
meaning that the Fed was more likely to raise interest rates than lower
them in the future. The bias is in place until the next FOMC meeting,
where the Fed may announce a change in bias, or reaffirm their current
bias.
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reacted poorly to the Fed's policy change in May, widening significantly in
yield spread and underperforming Treasuries.
As the first half of 1999 came to a close, yields on spread assets had
widened sufficiently that the Fund again found them to be attractive on a
relative valuation basis. Prior to the second quarter's close, the Fund moved to
its most overweighted position in spread assets in several years. While the
potential benefits of this strategy did not contribute positively to our
performance during June as liquidity began to suffer and volatility increased,
we believe that continued strength in the U.S. economy, increasing corporate
profitability, and relatively stable financial markets will support enhanced
performance of these asset classes.
Q. What is your outlook for the remainder of the year?
A. The Fund's overall strategy is to maximize the total return of a diversified
fixed income portfolio of investment-grade corporate, mortgage-backed,
asset-backed, and U. S. government securities. We currently believe that the
spread sectors remain fundamentally attractive relative to their recent
historical value but may suffer intermittently from short-term concerns of
reduced market liquidity as investors monitor future Fed activity and focus on
potential dislocations associated with Year 2000 concerns. Nevertheless, in our
opinion, asset valuations have already sufficiently discounted these risks.
As 1999 progresses, our strategy will continue to focus on monitoring and
balancing these risks by actively adjusting our asset allocations to reflect
changes in sector valuations and continuing to identify attractive investment
opportunities within these sectors.
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The Guardian Bond Fund Profile
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AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
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1 Year ..................................................... 2.51%
5 Years .................................................... 7.11%
10 Years ................................................... 7.71%
Since Inception (5/1/83) ................................... 8.89%
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Recent Asset Allocation Strategy
(% Market Values)
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Gabelli Capital Asset Fund
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[PHOTO OMITTED]
Mario J. Gabelli, C.F.A.
Portfolio Manager
Objective: Growth of capital. Current income is a secondary objective
Portfolio: Primarily common and preferred stocks and other securities
representing the right to acquire common stocks
Inception: May 1, 1995
Net Assets at June 30, 1999: $173,580,237
Q. How did the Fund perform for the first six months of 1999?
A. For the six months ended June 30, 1999, the Gabelli Capital Asset Fund's
total return was 13.77%(1). The Standard & Poor's 500 Index(2) (S&P 500) and
Russell 2000(3) Index had returns of 12.38% and 9.24%, respectively, over the
same period.
Value stocks excelled in the second quarter of 1999. Cyclical stocks
ignited the rally, with the stronger than anticipated economy bolstering the
earnings outlook for economically sensitive companies. Other value sectors
caught the spark as investors began rotating out of richly valued growth stocks
into more reasonably priced companies in a wide range of industries. The
Internet balloon did not burst, but enough hot air escaped to bring the ".com"
companies closer to earth.
Also, small cap stocks finally emerged from what has been a long and
painful bear market. For the first time in seven quarters, the Russell 2000
outpaced the S&P 500 on its way to posting double digit returns for the quarter.
Q. What factors affected the Fund's performance?
A. In general, investors' focus on value stocks and smaller cap stocks provided
a tailwind for the portfolio. More specifically, our cyclical holdings performed
quite well, as investors rotated into fundamentally attractive industrial
companies benefiting from the strong economy. The positions in energy stocks
buoyed returns, as oil prices rose from severely depressed levels. The Fund's
telecommunications investments also contributed to returns, with technological
advances, new services, deregulation and consolidation continuing to drive the
group. The cable and media holdings drifted. We still see great value in this
sector, but suspect this group was due for a rest following several years of
exceptional performance.
Q. What is your outlook for the remainder of the year?
A. In general, first quarter earnings met consensus estimates and second quarter
earnings should be stronger than anticipated, with particularly good comparisons
to 1998's second quarter, when General Motor's strike and the plunge in energy
prices crimped reported results. However, interest rates are higher, and until
we see convincing evidence that inflation is firmly under control, rates are not
likely to trend much lower. With the S&P 500's gains already approximating 1999
earnings growth forecasts, we see an inadequate "margin of safety" in the stock
market. Money flowing into the markets, particularly from deal activity, is the
fuel powering a market that still favors stocks. However, money is no longer
pouring into equity mutual funds at the rates we have seen in previous years.
All this conjecture leads us to the opinion that stock selectivity remains
crucial over the next twelve months.
================================================================================
In general, first quarter earnings met consensus estimates and second
quarter earnings should be stronger than anticipated, with particularly
good comparisons to 1998's second quarter, when General Motor's strike and
the plunge in energy prices crimped reported results.
================================================================================
We believe value and smaller cap stocks should continue to outperform the
large cap growth sector in the quarters ahead. Growth has outperformed value for
five years and large cap stocks have outperformed small caps
(1) Total return figures are historical and assume the reinvestment of dividends
and distributions and the deductions 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 will
fluctuate so that the value of your investment, when redeemed, may be worth
more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that is
generally considered to be representative of U.S. stock market activity. The
S&P 500 is not available for direct investment and its returns do not
reflect the fees and expenses that have been deducted from the Fund.
(3) The Russell 2000 Index is an unmanaged index of 2,000 small cap U.S. stocks
that is generally considered to be representative of small-capitalization
issues in the U.S. stock market. The Russell 2000 Index is not available for
direct investment and its returns do not reflect the fees and expenses that
have been deducted from the Fund.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
for nearly as long. This is not unusual. Style and capitalization sectors
generally take lengthy turns leading the market. Does the ascent of value and
small cap stocks this quarter signify a major change in market leadership? One
quarter of outperformance does not a trend make. But, fundamentals favor value
stocks and small cap equities going forward. Despite the strong second quarter
rally, based on historical measurements, value stocks remain inexpensive and
growth stocks are still overvalued. Small cap stocks offer the dual advantages
of generally better earnings growth prospects than large caps and materially
lower price/earnings and price/cash flow multiples.
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund Profile
- -------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
================================================================================
1 Year ..................................................... 11.78%
3 Years .................................................... 21.80%
Since Inception (5/1/95) ................................... 20.58%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 1999
- --------------------------------------------------------------------------------
1. Telephone & Data Systems Inc.
- --------------------------------------------------------------------------------
2. Liberty Media Group Cl. A
- --------------------------------------------------------------------------------
3. Cablevision Systems Corp. Cl. A
- --------------------------------------------------------------------------------
4. Viacom Inc. Cl. A
- --------------------------------------------------------------------------------
5. MediaOne Group Inc.
- --------------------------------------------------------------------------------
6. Media General Inc. Cl. A
- --------------------------------------------------------------------------------
7. American Bankers Insur. Group
- --------------------------------------------------------------------------------
8. Rollins Inc.
- --------------------------------------------------------------------------------
9. USA Networks Inc.
- --------------------------------------------------------------------------------
10. Gaylord Entertainment Co. New
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Bailie Gifford International Fund
- --------------------------------------------
[PHOTO OMITTED]
R. Robin Menzies,
Portfolio Manager
Objective: Long-term capital appreciation
Portfolio: At least 80% in a diversified portfolio of common stocks of companies
domiciled outside of the United States
Inception: February 8, 1991
Net Assets at June 30, 1999: $702,813,100
Q. How did the Fund perform in the first six months of 1999?
A. For the six months ended June 30, 1999, the Fund produced a total return of
3.63%.(1) This compares with the total return of 4.11% for the Morgan Stanley
Capital International (MSCI) Europe, Australia, and Far East (EAFE) Index.(2)
The international markets' behavior during the period can be characterized
as strong in Asia and dull in Europe. The MSCI Pacific ex-Japan Index(3) showed
a total return of 26.23% and MSCI Japan(4) Index showed a total return of
20.82%, while MSCI UK(5) Index was up by only 2.62%, and MSCI Europe ex-UK(6)
Index fell by 4.40%. Part of the weakness was attributable to currency factors.
The total return of the MSCI Europe ex-UK Index was a positive 8.20% in local
currency terms, but those currencies, predominantly the Euro, were weak against
the Dollar.
Q. What factors contributed to the Fund's performance?
A. The reason that the Fund's performance during the past six months was
slightly behind that of the MSCI EAFE Index was that the Fund had, on average,
less of its portfolio invested in Asia than the weight within the EAFE Index. By
the end of the second quarter, there was little difference in the Asian
proportions of the Fund and the Index. The Fund's performance was helped by the
fact that the stocks that the Fund held in Japan rose by significantly more than
the MSCI Japan Index.
During the past six months, it became clear that the countries of the
Pacific ex-Japan region were recovering quicker than previously had been
expected from the recessions they had suffered due to the depreciation of many
of their currencies and the accompanying high interest rates. Also, as a result
of very high levels of government spending, the Japanese economy recovered, too.
Japan's Gross Domestic Product grew by 7.9% in the first quarter. In contrast,
economic activity in Continental Europe was patchy. While France expanded, both
the German and Italian economies did not do as well as expected.
The changes in activity in the various international economies led to
changes in our evaluation of the prospects for the companies in the different
regions, and, in consequence, we increased the Fund's exposure to Asia and
reduced that in Europe.
Q. What is your outlook for the rest of the year?
A. Our investment strategy continues to be one of identifying individually
attractive companies domiciled in developed markets outside North America. Our
analysts conduct disciplined research on the universe of stocks available for
investment, looking at the prospects of the industries in which the companies
operate, the companies' competitive positions, profitability, and management
strategies. This involves many meetings and much travel from our offices in
Edinburgh.
================================================================================
"The international markets' behavior during the period can be
characterized as strong in Asia and dull in Europe."
================================================================================
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends
and distributions, and the deduction of all Fund expenses. The actual total
returns for owners of the variable annuity contracts or variable life
insurance policies that provide for investment in the Fund will be lower to
reflect separate account and contract/policy charges. Past performance is
not a guarantee of future results. Investment return and principal value
will fluctuate so that the value of your investment, when redeemed, may be
worth more or less than the original cost.
(2) The Morgan Stanley Capital International (MSCI) Europe, Australia and Far
East (EAFE) is an unmanaged index that is generally considered to be
representative of international stock market activity. The MSCI EAFE Index
is not available for direct investment and the returns do not reflect the
fees and expenses that have been deducted from the Fund's return.
(3) The MSCI Pacific Ex-Japan Index is an unmanaged index generally considered
to be representative of the stock market activity of Australia, Singapore,
Hong Kong and New Zealand. The returns for the index do not reflect expenses
that are deducted from the Fund's return.
(4) The MSCI Japan Index is an unmanaged index generally considered to be
representative of Japanese stock market activity. The returns for the index
do not reflect expenses that are deducted from the Fund's return.
(5) The MSCI UK Index is an unmanaged index generally considered to be
representative of stock market activity in the United Kingdom. The returns
for the index do not reflect expenses that are deducted from the Fund's
return.
(6) The MSCI Europe Ex-UK Index is an unmanaged index generally considered to be
representative of European stock market activity, excluding the United
Kingdom. The returns for the index do not reflect expenses that are deducted
from the Fund's return.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
Looking forward, we expect growth to remain strong in Asia and believe
that the weakness of the Euro should improve the competitive position of
companies exporting from Europe, and eventually lead to a recovery in the
region. We will continue to follow our strategy of investing in fundamentally
attractive businesses, wherever they are based internationally.
- --------------------------------------------------------------------------------
Baillie Gifford International Fund Profile
- ----------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
================================================================================
1 Year ..................................................... 5.34%
3 Years .................................................... 13.91%
5 Years .................................................... 12.41%
Since Inception (2/8/91) ................................... 13.01%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition by Geographical
Location as of June 30, 1999
[The following table was depicted as a pie chart in the printed material]
United Kingdom 21.47%
Europe 45.31%
Japan 24.15%
Pacific 7.96%
Cash 1.02%
Latin America 0.09%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 1999
Percent
Company of Net Assets Nature of Company Country
- --------------------------------------------------------------------------------
1. Mannesmann AG 3.49% Industrial Machinery Germany
- --------------------------------------------------------------------------------
2. Glaxo Wellcome 2.50% Drugs & Health Care United Kingdom
- --------------------------------------------------------------------------------
3. Elf Aquitaine 2.41% Oil-Integrated France
- --------------------------------------------------------------------------------
4. BP Amoco PLC 2.21% Oil-International United Kingdom
- --------------------------------------------------------------------------------
5. Banco Santander
Central Hispano S.A. 1.97% Banks Spain
- --------------------------------------------------------------------------------
6. DaimlerChrysler AG 1.85% Automotive Germany
- --------------------------------------------------------------------------------
7. Nokia OYJ 1.85% Telecommunications Finland
- --------------------------------------------------------------------------------
8. Acciona S.A. 1.83% Construction & Housing Spain
- --------------------------------------------------------------------------------
9. Vodafone Group 1.79% Telecommunications United Kingdom
- --------------------------------------------------------------------------------
10. Fujitsu Ltd. 1.69% Computer Systems Japan
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- ------------------------------------------
[PHOTO OMITTED]
Edward H. Hocknell,
Portfolio Manager
Objective: Long-term capital appreciation
Portfolio: At least 65% in a portfolio of common stocks issued by emerging
market companies
Inception: October 17, 1994
Net Assets at June 30, 1999: $66,740,760
Q. How did the Fund perform in the last six months?
A. The Baillie Gifford Emerging Markets Fund returned 29.36%(1) in the first
half of 1999. This compares with a total return of 39.87% in the Morgan Stanley
Capital International (MSCI) Emerging Markets Free Index (EMF)(2) in US Dollar
terms.
The strongest performance came from Asia, with a return of 55.40%; the
Chinese and Indonesian markets doubled. Despite Russia more than doubling --
which still left it lower than a year before -- Europe only managed a return of
29.41%. Latin America came between the two, returning 31.03%.
Q. What factors affected the Fund's performance?
A. The Fund's relative performance was hurt by an excessively cautious approach.
We had (and still have) very little exposure to Russia or Indonesia; we started
the year with a high cash position and a heavy exposure to the more defensive
European markets. We also weighted too low in Asia and too much in Latin
America. This relatively cautious approach has helped our performance in the
longer term but was harmful in the first half of 1999.
During the first half of the year, we made several major changes in policy
to reflect the more benign conditions in the emerging markets, especially in
Asia. The Asian exposure has risen from about a quarter to over half of the
Fund's investments, there have been declines in the exposure to Latin America
and Europe, and the Fund reduced its cash position.
Q. What is the outlook for emerging markets for the rest of the year?
A. The general outlook for the emerging markets has improved markedly. The
financial crises that hit Asia in 1997, Russia in 1998 and Brazil in the early
part of this year have proved far less damaging than was thought at the time. It
is true that local banks have been severely weakened, but many businesses, which
depend on international demand, have emerged virtually unharmed. Companies that
depend on the local consumer have been hit very hard, but the strong exporters
are pulling through.
The crucial factor is that the international background has remained
favorable. Growth has remained strong, interest rates low, and commodity prices
have bottomed. This has meant that the earnings prospects of many emerging
companies have improved, while the high interest rates, which were the legacy of
their financial crises, fell. This has proved to be a very stimulating
combination for emerging stock markets.
================================================================================
During the first half of the year, we made several major changes in policy
to reflect the more benign conditions in the emerging markets, especially
in Asia.
================================================================================
In general, the markets with the deepest problems have staged the
strongest recoveries. We have been most impressed by the fundamentals in Korea
and Taiwan, where the improvement is sustainable. Mexico is also pulling ahead
of its Latin American peers, particularly Argentina, and central Europe is
benefiting from a recovery in Russia.
We shall continue to concentrate on companies with good fundamental
prospects. Our experience and the long-term performance of the Fund in these
volatile markets strongly support this approach. We believe that the outlook for
the emerging markets is good, particularly in Asia.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends
and distributions and the deduction of all Fund expenses. The actual total
returns for owners of the variable annuity contracts or variable life
insurance policies that provide for investment in the Fund will be lower to
reflect separate account and contract/policy charges. Past performance is
not a guarantee of future results. Investment return and principal value
will fluctuate so that the value of your investment, when redeemed, may be
worth more or less than the original cost.
(2) The Morgan Stanley Capital International (MSCI) Emerging Markets Free Index
(EMF) is an unmanaged index that is generally considered to be
representative of the stock market activity of emerging markets. The Index
is a market capitalization weighted index composed of companies
representative of the market structure of 22 emerging market countries in
Europe, Latin America, and the Pacific Basin. The MSCI EMF Index excludes
closed markets and those shares in otherwise free markets that may not be
purchased by foreigners. The MSCI EMF 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.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund Profile
- ---------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
================================================================================
1 Year ..................................................... 15.74%
3 Years .................................................... 0.74%
Since Inception (10/17/94) ................................ 1.11%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition by Geographical
Location as of June 30, 1999
[The following table was depicted as a pie chart in the printed material]
Asia 43.44%
Latin America 29.51%
Europe 12.43%
South Africa 6.01%
Cash 4.48%
Israel 4.13%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 1999
<TABLE>
<CAPTION>
Percent
Company of Net Assets Nature of Company Country
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. SK Telecom Ltd. ADR 3.54% Telecommunications South Korea
- -----------------------------------------------------------------------------------------
2. Infosys Technology Ltd. 3.08% Computer Software India
- -----------------------------------------------------------------------------------------
3. NIIT Ltd. 2.74% Computer Software India
- -----------------------------------------------------------------------------------------
4. LG Information & Comm. 2.33% Telecommunications South Korea
- -----------------------------------------------------------------------------------------
5. Samsung Co. 2.22% Conglomerates South Korea
- -----------------------------------------------------------------------------------------
6. Sam Hwa Electronics Co. 2.11% Electronic Equipment South Korea
- -----------------------------------------------------------------------------------------
7. Telefonos de Mexico S.A. ADR 2.02% Telecommunications Mexico
- -----------------------------------------------------------------------------------------
8. PT Telekomunikasi Indonesia 1.86% Telecommunications Indonesia
- -----------------------------------------------------------------------------------------
9. Younggone Corp. 1.69% Retail Apparel South Korea
- -----------------------------------------------------------------------------------------
10. Corp. Interam. Entretenimiento 1.62% Media & Entertainment Mexico
- -----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- --------------------------------------
[PHOTO OMITTED]
Larry Luxenberg, C.F.A.
Co-Portfolio Manager
[PHOTO OMITTED]
Catherine McRae,
Co-Portfolio Manager
Objective: Long-term growth of capital
Portfolio: At least 85% in a diversified portfolio of common stocks and
convertible securities issued by companies with small market
capitalization
Inception: July 16, 1997
Net Assets at June 30, 1999: $191,814,959
Q. How did the Fund perform during the first six months of 1999?
A. For the first six months of 1999, The Guardian Small Cap Stock Fund's return
was -0.28%(1), as compared to 9.24% for the Russell 2000 Index(2). Although the
Fund significantly underperformed the Russell 2000 during the first half of
1999, the gap began to close during the second quarter. The Fund lagged during
April when investors moved quickly into cyclical stocks based on an improving
outlook for Asia. In May, the Fund basically matched the Russell 2000
performance as sector selection broadened and basic industries/commodities were
no longer the market darlings. The Fund closed the quarter and six-month period
on an upswing, outperforming the index in June by 70 basis points (0.70%). This
improvement reflected the fact that the Federal Reserve (Fed) tightening bias(3)
announced in May was removed on June 30th, the same day interest rates were
raised 25 basis points (0.25%) to 5%. The removal of the bias lifted higher
multiple growth stocks. This upswing was also due to a slight shifting in the
Fund's weighting toward sectors that we believe will outperform in the second
half.
Q. How has the investment strategy changed?
A. Since its inception two years ago, the Fund has been skewed toward growth.
This bias held during the first half of 1999, as we focused our quantitative
techniques on the technology sector and made selected investments in the
Internet. The latter was prompted by the profound secular changes underway: the
Internet is changing the way businesses sell products and services, consumers
purchase goods, and information is exchanged globally. Although valuation is
often problematic, the sector is ripe for investment. To maintain balance, we
began moving into value, albeit "quality value," which enjoys good earnings
visibility and reasonable valuations. This positioning should reap rewards in
the second half, where a solid profit outlook and benign inflation should lift
small cap stocks. We also pay attention to liquidity and scale our positions
accordingly. This naturally diversifies risk and facilitates trading.
================================================================================
We will continue to invest in technology including the Internet, as well
as telecommunications carriers and suppliers to the industry, financial
companies, and consumer services.
================================================================================
Q. What sectors do you find particularly attractive?
A. We have invested in radio, where market consolidation is leading to higher
advertising rates and activity levels will be helped by the Millennium, the
Olympics, and the 2000 Presidential election. In addition, the radio business
internally generates a substantial cash flow. Cable is another attractive area.
Over the next 5 years, cable
- --------------------------------------------------------------------------------
(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 Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The returns for the
Russell 2000 do not reflect expenses that are deducted from the Fund's
return.
(3) 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.
- --------------------------------------------------------------------------------
The portfolio management team for The Guardian Small Cap Stock Fund has been
expanded. Please refer to the back of this Semiannual Report for a supplement
dated July 15, 1999 to the Prospectus dated May 1, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
stands to benefit from the rollout of new services such as digital television,
high-speed data, and advances in telecommunications. We will continue to invest
in technology including the Internet, as well as telecommunications carriers and
suppliers to the industry, financial companies, and consumer services.
Q. What do you expect for the balance of 1999?
A. We expect solid profit growth and stable interest rates. The combination of
continued expansion and low inflation could set the stage for a sustained rally
in small cap stocks. We see many opportunities in our universe to generate
above-average performance and are focused on building positions that will
capitalize on those ideas.
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund Profile
- --------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
================================================================================
1 Year ..................................................... -12.62%
Since Inception (7/16/97) .................................. 12.42%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sector Weightings of Common Stocks
as of June 30, 1999
[The following table was depicted as a pie chart in the printed material]
Transportation 0.25%
Utilities 3.12%
Credit Cyclicals 8.19%
Consumer Services 9.39%
Consumer Cyclicals 20.40%
Financial 21.21%
Basic Industries 1.92%
Energy 2.37%
Capital Goods/ Technology 24.96%
Consumer Staples 6.66%
Capital Goods 1.53%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 1999
Percent of
Company Net Assets
- --------------------------------------------------------------------------------
1. Nielsen Media Research, Inc. 2.06%
- --------------------------------------------------------------------------------
2. Adelphia Communications Corp. 1.99%
- --------------------------------------------------------------------------------
3. Monaco Coach Corp. 1.98%
- --------------------------------------------------------------------------------
4. Valassis Communications, Inc. 1.82%
- --------------------------------------------------------------------------------
5. Ethan Allen Interiors, Inc. 1.71%
- --------------------------------------------------------------------------------
6. Avis Rent A Car, Inc. 1.52%
- --------------------------------------------------------------------------------
7. BJ's Wholesale Club, Inc. 1.51%
- --------------------------------------------------------------------------------
8. Zale Corp. 1.47%
- --------------------------------------------------------------------------------
9. Ames Department Stores, Inc. 1.33%
- --------------------------------------------------------------------------------
10. U.S. Trust Corp. 1.28%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund
- -------------------------------------
[PHOTO OMITTED]
Left to Right; Alan N. Hoffman, CFA, Senior Portfolio Manager, Philip
J. Orlando, CFA, Chief Investment Officer & Centurion Team Leader and Nancy L.
Bendig, Senior Portfolio Manager
Objective: Long-term growth of capital
Portfolio: At least 90% common stocks
Inception: November 15, 1983
Net Assets at June 30, 1999: $885,486,767
Q. For the six months ended June 30, 1999, how did the Value Line Centurion Fund
perform?
A. For the six months ended June 30, 1999, the Centurion Fund produced a total
return of 10.74%(1), compared with total returns of 12.38% for the Standard &
Poor's 500 Index(2) (S&P 500) and 9.24% for the Russell 2000 Index(3).
Q. What factors affected the Fund's performance and what was your investment
strategy during this time period?
A. From the beginning of the year through April 9th, growth stocks were king,
value was an afterthought, and cash was trash. As a result, Centurion's
fully-invested portfolio emphasis on technology, healthcare, retail, and
financial-service stocks paid off handsomely, as Centurion surged by 12.2%, the
S&P 500 rose 10.1%, and the Russell 2000 actually declined by -3.7%.
At this point in time, however, investor psychology changed dramatically,
as investors perceived that nascent economic recoveries in Brazil, Germany and
Japan were sustainable. Consequently, investors commenced a brutally volatile
and extreme sector rotation out of the growth stocks and into the beaten-down
cyclicals - that is, companies whose economically-sensitive earnings would
respond powerfully to a global economic resurgence.
During the two-month period from April 9th through June 15th, Centurion's
performance was -10.9%. Centurion underperformed the S&P 500 by 7.4%, as the
Index returned -3.5% for the same two months. Centurion also underperformed by
nearly 18% the Russell 2000, which returned 7.1% over that two-month time frame.
By mid-June, however, investors began to recognize that it was premature
to anticipate robust global growth. Despite encouraging, yet precarious, first
steps out of recession by Brazil, Germany and Japan, the regional economies of
Latin America, Europe and the Pacific Rim are not completely out of the woods.
The markets concluded that cyclical stocks simply will not get, as yet, the
global economic juice needed to power earnings and sustain their second-quarter
rally.
As a result, the investor pendulum swung out of cyclicals and back into
growth, clearly benefiting Centurion. For the fortnight that closed the second
quarter, Centurion soared from 1.3% to 10.7%, compared with the S&P 500's move
from 6.5% to 12.4% and the Russell 2000's increase from 3.4% to 9.1%.
================================================================================
We believe that inflation will remain benign, which could spark a rally in the
bond market, with lower interest rates perhaps approaching 5.50%.
================================================================================
Q. What is your outlook for the remainder of the year?
A. For the rest of 1999, we believe that the Federal Reserve is on hold.
Chairman Alan Greenspan surpris-
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends
and distributions and the deduction of all Fund expenses. The actual total
returns for owners of the variable annuity contracts or variable life
insurance policies that provide for investment in the Fund will be lower to
reflect to reflect separate account and contract/policy charges. Past
performance is not a guarantee of future results. Investment return and
principal value will fluctuate so that the value of your investment, when
redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that is
generally considered to be representative of U.S. stock market activity. The
S&P 500 Index is not available for direct investment and its returns do not
reflect the fees and expenses that have been deducted from the Fund.
(3) The Russell 2000 Index is an unmanaged index that is generally considered to
be representative of small capitalization issues in the U.S. stock market.
The returns for the Russell 2000 Index do not reflect expenses that are
deducted from the Fund's returns.
(4) The Federal Reserve Board (Fed) announces a bias after their Open Market
Committee (FOMC) meetings or after raising or lowering interest rates. The
bias reflects the consensus of the Fed and indicates the more likely
direction that the Fed may take in changing interest rates. There can be a
tightening, easing, or neutral bias announced. In this case, a neutral bias
was announced, meaning that the Fed was more likely to keep interest rates
the same than change them in the future.
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
ingly shifted the Fed's monetary policy bias to neutral(4), after preemptively
increasing the federal funds rate by 25 basis points (0.25%) to 5.00% (the Fed's
first such move in more than two years) at its recent June 30th Open Market
Committee (FOMC) meeting. The long bond's yield increase from 4.70% last October
to 6.20% in June has contributed to a sequential deceleration in Gross Domestic
Product (GDP) growth in the U.S., from 6.0% in the fourth quarter of 1998, to
4.3% in the first quarter of 1999, to 2.3% in the second quarter of 1999.
We believe that inflation will remain benign, which could spark a rally in
the bond market, with lower interest rates perhaps approaching 5.50%. We expect
solid double-digit corporate profit gains, which points to a continued
longer-term positive bias for the equity markets. We remain cautious, however,
due to the possibility of some profit taking during the seasonally weak months
of September and October, because of conservative corporate earnings guidance
relating to Year 2000 concerns.
- --------------------------------------------------------------------------------
Value Line Centurion Fund Profile
- -------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
================================================================================
1 Year ...................................................... 22.08%
5 Years ..................................................... 25.64%
10 Years .................................................... 19.04%
Since Inception (11/15/83) .................................. 15.21%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 1999
1. Cisco Systems Inc.
- --------------------------------------------------------------------------------
2. Tellabs Inc.
- --------------------------------------------------------------------------------
3. Medtronic Inc.
- --------------------------------------------------------------------------------
4. IBM Corp.
- --------------------------------------------------------------------------------
5. State Street Corp.
- --------------------------------------------------------------------------------
6. Clear Channel Comm. Inc.
- --------------------------------------------------------------------------------
7. Amgen Inc.
- --------------------------------------------------------------------------------
8. American Express Co.
- --------------------------------------------------------------------------------
9. Microsoft Corp.
- --------------------------------------------------------------------------------
10. Fifth Third Bancorp
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
[The following table was depicted as a pie chart in the printed material]
Consumer Cyclical 0.75%
Energy 1.19%
Technology 22.04%
Financial 19.01%
Transportation 1.82%
Utilities 3.25%
Capital Goods 6.69%
Consumer Goods (Non-Durables) 18.44%
Consumer Growth 23.51%
Cash 3.31%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Allocation as of June 30, 1999
[The following table was depicted as a pie chart in the printed material]
Cash 3.31%
Stock 96.69%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- --------------------------------------------------
[PHOTO OMITTED]
Standing Left to Right: Nancy L. Bendig, Senior Portfolio Manager,
Stephen E. Grant, Senior Portfolio Manager & SAM Team Leader, and Bruce H.
Alston, CFA, Director of Fixed Income
Objective: High total return consistent with reasonable risk
Portfolio: Stocks, bonds and money market instruments
Inception: October 1, 1987
Net Assets at June 30, 1999: $1,519,651,498
Q. How did the SAM Trust perform in the first half of 1999?
A. The Trust performed very well relative to both its benchmark and its peers.
Its six-month total return was 10.82%(1). This compared with a total return of
12.38% for the Standard & Poor's 500 Index(2) (S&P 500) and a total return of
- -2.60% for the Lehman Government/Corporate Bond Index(3). SAM has nearly kept
pace with the S&P 500 over the years, while advancing well ahead of the Lehman
Bond Index.
Among its peer group, the Trust ranked 3 out of the 92 flexible variable
annuity underlying funds followed by Lipper Analytical Services(4) for the
six-month period ended June 30. For the past 12 months, it ranked 3 out of 92
funds; for five years, 4 out of 60 funds; and for ten years, 4 out of 38 funds.
Q. What factors affected performance in the six-month period?
A. Excellent stock selection was key to SAM's returns in the year's first half.
As in 1998, the stock portion of the portfolio outperformed the S&P 500, helped
in part by a moderate overweighting in the technology sector. About one-third of
our stockholdings are in small- and mid-capitalization equities, an area that
continued to lag the S&P 500, but we overcame this through good specific stock
selection.
A secondary factor affecting performance was asset allocation. The Trust
started 1999 with about 85% of assets in stocks, 10% in bonds, and 5% in cash
equivalents. By the end of January, we had reduced the stock position to 70% of
assets. In the remaining months of the year's first half, stock exposure was
gradually reduced even further to only 50% of assets. The proceeds were
redirected mainly into bonds, which were raised to 20% of assets by the end of
January and then gradually to 35% by the end of June. Cash rose to about 15% of
total assets in the period. The move out of stocks and into bonds proved to be
premature (at best), since stocks ended the first half with a strong gain to new
highs, while bonds continued falling in price until a moderate rally in late
June.
================================================================================
Excellent stock selection was key to SAM's returns in the year's first
half. As in 1998, the stock portion of the portfolio outperformed the S&P
500, helped in part by a moderate overweighting in the technology sector.
================================================================================
Q. How do you select individual stocks and bonds?
A. For stock selection, we rely on the Value Line Timeliness Ranking System, a
proprietary tool that has been in use for nearly 35 years. This system favors
stocks with strong earnings momentum and strong price momentum. These tend to be
fast-growing companies whose stock price can be more volatile than that of the
average company. To reduce risk, we maintain a diversi-
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends
and distributions and the deduction of all Fund expenses. The actual total
returns for owners of the variable annuity contracts or variable life
insurance policies which provide for investment in the Fund will be lower to
reflect separate account and contract/policy charges. Past performance is
not a guarantee of future results. Investment return and principal value
will fluctuate so that the value of an investment, when redeemed, may be
worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that is
generally considered to be representative of U.S. stock market activity. The
S&P 500 Index is not available for direct investment and its returns do not
reflect the fees and expenses that have been deducted from the Fund.
Likewise, return figures for the S&P 500 Index do not reflect any sales
charges that an investor may have to pay when purchasing or redeeming shares
of the Fund.
(3) The Lehman Government/Corporate Bond Index is an unmanaged index that is
generally considered to be representative of U.S. government and corporate
bond market activity. The Lehman Government/Corporate Bond Index is not
available for direct investment, and the returns do not reflect the fees and
expenses that have been deducted from the Fund.
(4) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
fied portfolio that does not stray too far from the industry weightings of the
S&P 500.
In bond selection, we stay with high-quality holdings. The mix varies
among Treasury securities, U.S. agencies, and corporate bonds depending upon
available yields, and our economic outlook. We continue to emphasize Treasuries
and agencies at this time.
Q. What is your outlook for the rest of the year?
A. Keep in mind that the Trust's central tendency, or neutral position, is to be
weighted 55% in stocks, 35% in bonds, and 10% in cash. Thus, our recent changes
have essentially brought us back to a neutral allocation. To determine asset
allocation, we rely on Value Line's proprietary models, which use a number of
economic and financial data. We heavily overweighted the portfolio toward stocks
in the third quarter of last year to take advantage of a sharp market drop at
that time. This year, as the stock market rallied to new highs, and as interest
rates rose, our models told us to begin moving out of stocks and back into
bonds. If current trends continue, we may reduce SAM's stock exposure still
further.
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust Profile
- ---------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 1999
================================================================================
1 Year ..................................................... 22.44%
5 Years .................................................... 20.63%
10 Years ................................................... 17.05%
Since Inception (10/1/87) .................................. 15.48%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 1999
1. VISX Inc.
- --------------------------------------------------------------------------------
2. Omnicom Group Inc.
- --------------------------------------------------------------------------------
3. Cisco Systems Inc.
- --------------------------------------------------------------------------------
4. Tyco International Ltd.
- --------------------------------------------------------------------------------
5. Allergan Inc.
- --------------------------------------------------------------------------------
6. Wal Mart Stores Inc.
- --------------------------------------------------------------------------------
7. Enron Corp.
- --------------------------------------------------------------------------------
8. Airtouch Comm. Inc.
- --------------------------------------------------------------------------------
9. Biogen Inc.
- --------------------------------------------------------------------------------
10. Symbol Technologies Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
[The following table was depicted as a pie chart in the printed material]
Stocks 49.98%
Bonds 34.65%
Cash 15.38%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund
- -------------------------------------
[PHOTO OMITTED]
Alexander M. Grant, Jr.,
Portfolio Manager
Objective: As high a level of current income as is consistent with preservation
of capital and liquidity
Portfolio: Short-term money market instruments
Inception: November 1, 1981
Net Assets at June 30, 1999: $442,622,986
Q. How has The Guardian Cash Fund performed during the first half of 1999?
A. As of June 30, 1999, the effective 7-day annualized yield for The Guardian
Cash Fund was 4.45%(1). The Fund produced an annualized total return of 4.42%(2)
for the half-year ended June 30, 1999. In contrast, the effective 7-day
annualized yield of Tier One money market funds as measured by IBC Financial
Data was 4.26%; total annualized return for the same category was 4.27%. IBC
Financial Data is a research firm that tracks money market funds.
Q. What was your investment strategy during this period?
A. The Guardian Cash Fund is a place for our investors to put their money while
they decide their preferred long-term investment vehicle, be it stocks or bonds.
Also, some of our investors prefer the relative stability of the money markets.
To best accommodate all our investors, we will continue to try to provide a
strong 7-day yield while offering safety and liquidity. Our investment strategy
was to create a diversified portfolio of money market instruments that presents
minimal credit risks according to our criteria. As always, we only purchased
securities from issuers that received ratings in the two highest credit quality
categories established by nationally recognized statistical ratings
organizations like Moody's Investors Service Inc. and Standard & Poor's Ratings
Group for the Fund's portfolio. Most of the portfolio (98.01%) was invested in
commercial paper; the balance (1.99%) was invested in repurchase agreements.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARaNTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $10.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE FUND.
- --------------------------------------------------------------------------------
Q. What factors affected the Fund's performance?
A. Money market funds are directly affected by the actions of the Federal
Reserve Board (Fed). The Fed's policy-making open market committee (FOMC) raised
the Fed funds target rate on June 30, 1999 by 25 basis points (0.25%) to 5.00%.
The Fed Funds target is the rate at which banks can borrow from each other
overnight. While the Federal Reserve Board does not set this rate, it can
establish a target rate, and through open market operations, the Fed can move
member banks in the direction of that target rate. The Discount Rate is the rate
at which banks can borrow directly from the Federal Reserve. Another factor
affecting performance was the portfolio's average maturity - 22 days as of June
30, 1999. The average Tier One money market fund as measured by IBC Financial
Data had an average maturity of 51 days.
================================================================================
The Guardian Cash Fund is a place for our investors to put their money
while they decide their preferred long-term investment vehicle, be it
stocks or bonds. Also, some of our investors prefer the relative stability
of the money markets.
================================================================================
Q. What is your outlook for the remainder of the year?
A. Uncertainty with the direction of the stock market contributes to large daily
inflows and outflows of funds in the Cash Fund. As the stock market rallies, our
investors typically transferred cash to equity funds. During those times when
the stock market stalls, we see cash inflows.
- --------------------------------------------------------------------------------
(1) Yields are annualized historical figures and will vary as interest rates
change. Effective yield assumes that income is reinvested. Past performance
is not a guarantee of future results.
(2) Total return figures are historical and assume the reinvestment of dividends
and distributions, and the deduction of all Fund expenses. The actual total
returns for owners of the variable annuity contracts or variable life
insurance policies that provide for investment in the Fund will be lower to
reflect separate account and contract/policy charges. Investment return and
principal value will fluctuate so that the value of your investment, when
redeemed, may be worth more or less than the original cost
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
-------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ............................ 1,485,062 83,125 228,864
Net asset value per share (NAV) ...................................... 51.83 11.74 10.00
------------- ------------ ------------
Total Assets (Shares x NAV) ...................................... $ 76,970,740 $ 975,882 $ 2,288,637
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. .............. 120,865 2,491 4,056
------------- ------------ ------------
Net Assets -- Note 4 ............................................. $ 76,849,875 $ 973,391 $ 2,284,581
============= ============ ============
Number of units outstanding ............................................ 3,457,451.379 79,645.393 194,276.700
Unit value ............................................................. 22.23 12.22 11.76
FIFO Cost .............................................................. $ 70,822,117 $ 1,025,972 $ 2,288,636
<CAPTION>
Baillie
Gabelli Baillie Gifford
Capital Gifford Emerging
Asset International Markets
------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ............................ 31,289 223,332 8,591
Net asset value per share (NAV) ...................................... 18.43 21.38 9.56
------------ ------------ ------------
Total Assets (Shares x NAV) ...................................... $ 576,660 $ 4,774,849 $ 82,127
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. .............. 1,955 7,186 212
------------ ------------ ------------
Net Assets -- Note 4 ............................................. $ 574,705 $ 4,767,663 $ 81,915
============= ============ ============
Number of units outstanding ............................................ 46,586.032 284,829.560 8,299.591
Unit value ............................................................. 12.34 16.74 9.87
FIFO Cost .............................................................. $ 517,556 $ 4,507,291 $ 66,026
<CAPTION>
Value Line
Guardian Strategic
Small Cap Value Line Asset MFS Growth
Stock Centurion Management with Income
---------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ............................ 176,064 226,287 229,515 69,851
Net asset value per share (NAV) ...................................... 12.70 33.71 27.95 21.14
------------ ------------ ------------ ------------
Total Assets (Shares x NAV) ...................................... $ 2,236,010 $ 7,628,140 $ 6,414,948 $ 1,476,657
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. .............. 4,015 13,219 10,617 2,661
------------ ------------ ------------ ------------
Net Assets -- Note 4 ............................................. $ 2,231,995 $ 7,614,921 $ 6,404,331 $ 1,473,996
============ ============ ============ ============
Number of units outstanding ............................................ 233,960.695 387,093.018 333,106.537 107,730.238
Unit value ............................................................. 9.54 19.67 19.23 13.68
FIFO Cost .............................................................. $ 2,209,944 $ 6,208,815 $ 5,336,172 $ 1,356,128
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- ---------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
-------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................................................ $ 181,281 $ 22,931 $ 48,447
Expenses -- Note 3:
Mortality and expense risk charges .................................. 210,849 2,661 6,757
------------- ------------ ------------
Net investment income/(expense) ...................................... (29,568) 20,270 41,690
------------- ------------ ------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ................... 616,957 (506) --
Reinvested realized gain distributions .............................. 1,764,926 2,663 --
------------- ------------ ------------
Net realized gain/(loss) on investments .............................. 2,381,883 2,157 --
Net change in unrealized appreciation/(depreciation) of investments .. 3,266,668 (38,880) --
------------- ------------ ------------
Net realized and unrealized gain/(loss) from investments ............... 5,648,551 (36,723) --
------------- ------------ ------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations .................................................... $ 5,618,983 $ (16,453) $ 41,690
============= ============ ============
<CAPTION>
Baillie
Gabelli Baillie Gifford
Capital Gifford Emerging
Asset International Markets
------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................................................ $ -- $ 11,858 $ --
Expenses -- Note 3:
Mortality and expense risk charges .................................. 1,352 12,625 180
------------ ------------ ------------
Net investment income/(expense) ...................................... (1,352) (767) (180)
------------ ------------ ------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ................... 1,596 93,203 1,555
Reinvested realized gain distributions .............................. -- 54,341 --
------------ ------------ ------------
Net realized gain/(loss) on investments .............................. 1,596 147,544 1,555
Net change in unrealized appreciation/(depreciation) of investments .. 52,654 5,319 15,095
------------ ------------ ------------
Net realized and unrealized gain/(loss) from investments ............... 54,250 152,863 16,650
------------ ------------ ------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations .................................................... $ 52,898 $ 152,096 $ 16,470
============ ============ ============
<CAPTION>
Value Line
Guardian Strategic
Small Cap Value Line Asset MFS Growth
Stock Centurion Management with Income
---------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................................................ $ 772 $ -- $ -- $ 3,764
Expenses -- Note 3:
Mortality and expense risk charges .................................. 5,147 22,330 18,237 3,383
------------ ------------ ------------ ------------
Net investment income/(expense) ...................................... (4,375) (22,330) (18,237) 381
------------ ------------ ------------ ------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ................... (77,892) 69,450 54,724 16,070
Reinvested realized gain distributions .............................. -- -- -- 4,518
------------ ------------ ------------ ------------
Net realized gain/(loss) on investments .............................. (77,892) 69,450 54,724 20,588
Net change in unrealized appreciation/(depreciation) of investments .. 97,469 634,248 545,819 48,276
------------ ------------ ------------ ------------
Net realized and unrealized gain/(loss) from investments ............... 19,577 703,698 600,543 68,864
------------ ------------ ------------ ------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations .................................................... $ 15,202 $ 681,368 $ 582,306 $ 69,245
============ ============ ============ ============
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
26 & 27
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
MFS American
Emerging MFS MFS Century VP
Growth Total Return Bond Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................. 19,686 4,471 3,636 17,479
Net asset value per share (NAV) ........................... 24.22 18.10 10.97 6.79
------------ ------------ ------------ ------------
Total Assets (Shares x NAV) ........................... $ 476,800 $ 80,924 $ 39,891 $ 118,680
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ... 1,465 282 150 297
------------ ------------ ------------ ------------
Net Assets -- Note 4 ................................... $ 475,335 $ 80,642 $ 39,741 $ 118,383
============ ============ ============ ============
Number of units outstanding ................................. 34,223.012 7,011.142 3,822.366 11,005.489
Unit value .................................................. 13.89 11.50 10.40 10.76
FIFO Cost ................................................... $ 432,472 $ 80,702 $ 40,751 $ 115,018
<CAPTION>
Fidelity
American VIP III Fidelity Fidelity
Century VP Growth VIP Equity- VIP High
International Opportunities Income Income
-------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................. 31,285 33,472 7,264 11,095
Net asset value per share (NAV) ........................... 8.18 23.64 27.25 11.29
------------ ------------ ------------ ------------
Total Assets (Shares x NAV) ........................... $ 255,908 $ 791,269 $ 197,939 $ 125,261
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ... 690 2,033 715 670
------------ ------------ ------------ ------------
Net Assets -- Note 4 ................................... $ 255,218 $ 789,236 $ 197,224 $ 124,591
============ ============ ============ ============
Number of units outstanding ................................. 22,716.436 62,005.196 16,252.134 12,495.289
Unit value .................................................. 11.23 12.73 12.14 9.97
FIFO Cost ................................................... $ 247,489 $ 742,226 $ 177,806 $ 128,082
<CAPTION>
Fidelity AIM V.I.
VIP II Capital AIM V.I.
Index 500 Appreciation Value
-----------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................. 11,939 8,428 43,634
Net asset value per share (NAV) ........................... 155.65 27.60 30.04
------------ ------------ ------------
Total Assets (Shares x NAV) ........................... $ 1,858,253 $ 232,623 $ 1,310,765
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ... 3,461 896 2,034
------------ ------------ ------------
Net Assets -- Note 4 ................................... $ 1,854,792 $ 231,727 $ 1,308,731
============ ============ ============
Number of units outstanding ................................. 135,864.831 18,295.416 90,027.256
Unit value .................................................. 13.65 12.67 14.54
FIFO Cost ................................................... $ 1,732,156 $ 200,861 $ 1,218,927
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- ----------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
MFS American
Emerging MFS MFS Century VP
Growth Total Return Bond Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................... $ -- $ 1,578 $ 850 $ 913
Expenses -- Note 3:
Mortality and expense risk charges ....................... 1,018 232 106 56
------------ ------------ ------------ ------------
Net investment income/(expense) ........................... (1,018) 1,346 744 857
------------ ------------ ------------ ------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........ 23,871 1,073 51 (2,007)
Reinvested realized gain distributions ................... -- 2,927 64 8,647
------------ ------------ ------------ ------------
Net realized gain/(loss) on investments ................... 23,871 4,000 115 6,640
Net change in unrealized appreciation/(depreciation)
of investments ......................................... 15,219 (1,249) (1,282) 5,004
------------ ------------ ------------ ------------
Net realized and unrealized gain/(loss) from investments .... 39,090 2,751 (1,167) 11,644
------------ ------------ ------------ ------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations ......................................... $ 38,072 $ 4,097 $ (423) $ 12,501
============ ============ ============ ============
<CAPTION>
Fidelity
American VIP III Fidelity Fidelity
Century VP Growth VIP Equity- VIP High
International Opportunities Income Income
-------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................... $ -- $ 3,410 $ 1,840 $ 10,494
Expenses -- Note 3:
Mortality and expense risk charges ....................... 614 1,603 515 365
------------ ------------ ------------ ------------
Net investment income/(expense) ........................... (614) 1,807 1,325 10,129
------------ ------------ ------------ ------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........ 3,036 7,878 796 (6,504)
Reinvested realized gain distributions ................... -- 6,375 4,067 392
------------ ------------ ------------ ------------
Net realized gain/(loss) on investments ................... 3,036 14,253 4,863 (6,112)
Net change in unrealized appreciation/(depreciation)
of investments ......................................... 5,126 24,799 13,093 3,284
------------ ------------ ------------ ------------
Net realized and unrealized gain/(loss) from investments .... 8,162 39,052 17,956 (2,828)
------------ ------------ ------------ ------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations ......................................... $ 7,548 $ 40,859 $ 19,281 $ 7,301
============ ============ ============ ============
<CAPTION>
Fidelity AIM V.I.
VIP II Capital AIM V.I.
Index 500 Appreciation Value
-----------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................... $ 4,912 $ -- $ --
Expenses -- Note 3:
Mortality and expense risk charges ....................... 2,832 599 1,768
------------ ------------ ------------
Net investment income/(expense) ........................... 2,080 (599) (1,768)
------------ ------------ ------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........ 14,960 694 8,282
Reinvested realized gain distributions ................... 3,333 -- --
------------ ------------ ------------
Net realized gain/(loss) on investments ................... 18,293 694 8,282
Net change in unrealized appreciation/(depreciation)
of investments ......................................... 89,077 19,181 79,788
------------ ------------ ------------
Net realized and unrealized gain/(loss) from investments .... 107,370 19,875 88,070
------------ ------------ ------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations ......................................... $ 109,450 $ 19,276 $ 86,302
============ ============ ============
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
28 & 29
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1998 (Audited) and
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
--------------------------------------------
<S> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ 186,840 $ 34,045 $ 80,427
Net realized gain/(loss) from sale of investments .................... 536,650 4,699 --
Reinvested realized gain distributions ............................... 5,820,263 9,949 --
Net change in unrealized appreciation/(depreciation) of investments .. 1,589,925 (9,988) --
------------ ------------ ------------
Net increase/(decrease) resulting from operations .................... 8,133,678 38,705 80,427
------------ ------------ ------------
1998 Policy Transactions
Net policy purchase payments ......................................... 34,613,795 538,047 2,776,530
Transfer on account of other terminations ............................ (1,312,799) (10,800) (32,049)
Transfer of policy loans ............................................. (855,181) (19,668) (183,277)
Transfer of cost of insurance and policy fees -- Note 3 .............. (7,973,104) (102,944) (222,295)
Transfer between investment divisions ................................ (105,592) 82,476 (1,223,730)
Transfers -- other ................................................... 43,938 (172) 537
------------ ------------ ------------
Net increase/(decrease) from policy transactions ..................... 24,411,057 486,939 1,115,716
------------ ------------ ------------
Total Increase/(Decrease) in Net Assets .................................. 32,544,735 525,644 1,196,143
Net Assets at December 31, 1997 ...................................... 27,668,711 291,269 1,065,699
------------ ------------ ------------
Net Assets at December 31, 1998 ...................................... $ 60,213,446 $ 816,913 $ 2,261,842
============ ============ ============
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ (29,568) $ 20,270 $ 41,690
Net realized gain/(loss) from sale of investments .................... 616,957 (506) --
Reinvested realized gain distributions ............................... 1,764,926 2,663 --
Net change in unrealized appreciation/(depreciation) of investments .. 3,266,668 (38,880) --
------------ ------------ ------------
Net increase/(decrease) resulting from operations .................... 5,618,983 (16,453) 41,690
------------ ------------ ------------
1999 Policy Transactions
Net policy purchase payments ......................................... 20,094,464 295,256 784,367
Transfer on account of other terminations ............................ (1,196,727) (13,472) (28,675)
Transfer of policy loans ............................................. (1,500,386) (6,625) (7,509)
Transfer of cost of insurance and policy fees -- Note 3 .............. (4,977,836) (65,286) (137,450)
Transfer between investment divisions ................................ (1,386,374) (37,359) (629,211)
Transfers -- other ................................................... (15,695) 417 (473)
------------ ------------ ------------
Net increase/(decrease) from policy transactions ..................... 11,017,446 172,931 (18,951)
------------ ------------ ------------
Total Increase/(Decrease) in Net Assets .................................. 16,636,429 156,478 22,739
Net Assets at December 31, 1998 ...................................... 60,213,446 816,913 2,261,842
------------ ------------ ------------
Net Assets at June 30, 1999 -- Note 4 ................................ $ 76,849,875 $ 973,391 $ 2,284,581
============ ============ ============
<CAPTION>
Baillie
Gabelli Baillie Gifford
Capital Gifford Emerging
Asset International Markets
--------------------------------------------
<S> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ (155) $ 615 $ (6)
Net realized gain/(loss) from sale of investments .................... (5,571) 88,794 581
Reinvested realized gain distributions ............................... 13,612 206,536 --
Net change in unrealized appreciation/(depreciation) of investments .. 6,450 267,513 1,007
------------ ------------ ------------
Net increase/(decrease) resulting from operations .................... 14,336 563,458 1,582
------------ ------------ ------------
1998 Policy Transactions
Net policy purchase payments ......................................... 258,656 2,143,109 27,595
Transfer on account of other terminations ............................ (229) (124,051) --
Transfer of policy loans ............................................. (54,075) (49,072) (15,106)
Transfer of cost of insurance and policy fees -- Note 3 .............. (36,899) (495,103) (1,203)
Transfer between investment divisions ................................ 100,671 105,839 6,275
Transfers -- other ................................................... 2,837 8,014 (333)
------------ ------------ ------------
Net increase/(decrease) from policy transactions ..................... 270,961 1,588,736 17,228
------------ ------------ ------------
Total Increase/(Decrease) in Net Assets .................................. 285,297 2,152,194 18,810
Net Assets at December 31, 1997 ...................................... -- 2,132,879 --
------------ ------------ ------------
Net Assets at December 31, 1998 ...................................... $ 285,297 $ 4,285,073 $ 18,810
============ ============ ============
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ (1,352) $ (767) $ (180)
Net realized gain/(loss) from sale of investments .................... 1,596 93,203 1,555
Reinvested realized gain distributions ............................... -- 54,341 --
Net change in unrealized appreciation/(depreciation) of investments .. 52,654 5,319 15,095
------------ ------------ ------------
Net increase/(decrease) resulting from operations .................... 52,898 152,096 16,470
------------ ------------ ------------
1999 Policy Transactions
Net policy purchase payments ......................................... 227,809 1,174,819 44,830
Transfer on account of other terminations ............................ (1,882) (249,067) (77)
Transfer of policy loans ............................................. (10,822) (78,246) (865)
Transfer of cost of insurance and policy fees -- Note 3 .............. (52,044) (274,539) (4,755)
Transfer between investment divisions ................................ 74,219 (239,711) 7,273
Transfers -- other ................................................... (770) (2,762) 229
------------ ------------ ------------
Net increase/(decrease) from policy transactions ..................... 236,510 330,494 46,635
------------ ------------ ------------
Total Increase/(Decrease) in Net Assets .................................. 289,408 482,590 63,105
Net Assets at December 31, 1998 ...................................... 285,297 4,285,073 18,810
------------ ------------ ------------
Net Assets at June 30, 1999 -- Note 4 ................................ $ 574,705 $ 4,767,663 $ 81,915
============ ============ ============
<CAPTION>
Value Line
Guardian Strategic
Small Cap Value Line Asset MFS Growth
Stock Centurion Management with Income
--------------------------------------------------------
<S> <C> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ (4,060) $ (15,517) $ 77,238 $ (2,240)
Net realized gain/(loss) from sale of investments .................... (14,581) 44,526 34,594 18,898
Reinvested realized gain distributions ............................... 7,863 285,700 292,034 --
Net change in unrealized appreciation/(depreciation) of investments .. (69,553) 818,004 516,114 72,163
------------ ------------ ------------ -----------
Net increase/(decrease) resulting from operations .................... (80,331) 1,132,713 919,980 88,821
------------ ------------ ------------ -----------
1998 Policy Transactions
Net policy purchase payments ......................................... 1,490,969 2,588,770 2,416,789 612,543
Transfer on account of other terminations ............................ (4,832) (159,004) (128,388) (354)
Transfer of policy loans ............................................. (4,262) (166,387) (75,052) (2,197)
Transfer of cost of insurance and policy fees -- Note 3 .............. (253,132) (625,378) (541,143) (97,445)
Transfer between investment divisions ................................ 407,408 14,975 (147,784) 135,765
Transfers -- other ................................................... 12,028 13,570 4,187 5,742
------------ ------------ ------------ -----------
Net increase/(decrease) from policy transactions ..................... 1,648,179 1,666,546 1,528,609 654,054
------------ ------------ ------------ -----------
Total Increase/(Decrease) in Net Assets .................................. 1,567,848 2,799,259 2,448,589 742,875
Net Assets at December 31, 1997 ...................................... 224,488 3,165,728 2,541,939 45,558
------------ ------------ ------------ -----------
Net Assets at December 31, 1998 ...................................... $ 1,792,336 $ 5,964,987 $ 4,990,528 $ 788,433
============ ============ ============ ===========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ (4,375) $ (22,330) $ (18,237) $ 381
Net realized gain/(loss) from sale of investments .................... (77,892) 69,450 54,724 16,070
Reinvested realized gain distributions ............................... -- -- -- 4,518
Net change in unrealized appreciation/(depreciation) of investments .. 97,469 634,248 545,819 48,276
------------ ------------ ------------ -----------
Net increase/(decrease) resulting from operations .................... 15,202 681,368 582,306 69,245
------------ ------------ ------------ -----------
1999 Policy Transactions
Net policy purchase payments ......................................... 835,014 1,390,380 1,337,174 634,057
Transfer on account of other terminations ............................ (133,680) (107,593) (68,318) (8,648)
Transfer of policy loans ............................................. (3,630) (120,164) (55,949) (6,650)
Transfer of cost of insurance and policy fees -- Note 3 .............. (179,490) (362,804) (343,495) (129,990)
Transfer between investment divisions ................................ (94,810) 164,366 (35,681) 127,034
Transfers -- other ................................................... 1,053 4,381 (2,234) 515
------------ ------------ ------------ -----------
Net increase/(decrease) from policy transactions ..................... 424,457 968,566 831,497 616,318
------------ ------------ ------------ -----------
Total Increase/(Decrease) in Net Assets .................................. 439,659 1,649,934 1,413,803 685,563
Net Assets at December 31, 1998 ...................................... 1,792,336 5,964,987 4,990,528 788,433
------------ ------------ ------------ -----------
Net Assets at June 30, 1999 -- Note 4 ................................ $ 2,231,995 $ 7,614,921 $ 6,404,331 $ 1,473,996
============ ============ ============ ===========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
30 & 31
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1998 (Audited) and
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
MFS American
Emerging MFS MFS Century VP
Growth Total Return Bond Value
-----------------------------------------------------
<S> <C> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ (448) $ (49) $ (44) $ (240)
Net realized gain/(loss) from sale of investments .................... (6,069) 104 14 (299)
Reinvested realized gain distributions ............................... 285 -- -- --
Net change in unrealized appreciation/(depreciation) of investments .. 29,110 1,471 422 (1,343)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations .................... 22,878 1,526 392 (1,882)
----------- ----------- ----------- -----------
1998 Policy Transactions
Net policy purchase payments ......................................... 73,952 26,474 17,904 19,991
Transfer on account of other terminations ............................ (3,396) -- -- --
Transfer of policy loans ............................................. (81) -- -- --
Transfer of cost of insurance and policy fees -- Note 3 .............. (13,871) (3,575) (2,913) (3,222)
Transfer between investment divisions ................................ 108,559 20,407 6,895 61,095
Transfers -- other ................................................... (491) (64) 184 96
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ..................... 164,672 43,242 22,070 77,960
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................................. 187,550 44,768 22,462 76,078
Net Assets at December 31, 1997 ...................................... -- -- -- --
----------- ----------- ----------- -----------
Net Assets at December 31, 1998 ...................................... $ 187,550 $ 44,768 $ 22,462 $ 76,078
=========== =========== =========== ===========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ (1,018) $ 1,346 $ 744 $ 857
Net realized gain/(loss) from sale of investments .................... 23,871 1,073 51 (2,007)
Reinvested realized gain distributions ............................... -- 2,927 64 8,647
Net change in unrealized appreciation/(depreciation) of investments .. 15,219 (1,249) (1,282) 5,004
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations .................... 38,072 4,097 (423) 12,501
----------- ----------- ----------- -----------
1999 Policy Transactions
Net policy purchase payments ......................................... 192,635 43,500 20,776 31,569
Transfer on account of other terminations ............................ (1,115) (203) (962) --
Transfer of policy loans ............................................. (80) (962) -- --
Transfer of cost of insurance and policy fees -- Note 3 .............. (37,222) (9,192) (2,239) (4,425)
Transfer between investment divisions ................................ 95,042 (1,341) 142 3,396
Transfers -- other.................................................... 453 (25) (15) (736)
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ..................... 249,713 31,777 17,702 29,804
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................................. 287,785 35,874 17,279 42,305
Net Assets at December 31, 1998 ...................................... 187,550 44,768 22,462 76,078
----------- ----------- ----------- -----------
Net Assets at June 30, 1999 -- Note 4 ................................ $ 475,335 $ 80,642 $ 39,741 $ 118,383
=========== =========== =========== ===========
<CAPTION>
Fidelity
American VIP III Fidelity Fidelity
Century VP Growth VIP Equity- VIP High
International Opportunities Income Income
-------------------------------------------------------
<S> <C> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ (76) $ (430) $ (199) $ (305)
Net realized gain/(loss) from sale of investments .................... (79) 502 (214) (857)
Reinvested realized gain distributions ............................... -- -- -- --
Net change in unrealized appreciation/(depreciation) of investments .. 3,294 24,244 7,040 (6,105)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations .................... 3,139 24,316 6,627 (7,267)
----------- ----------- ----------- -----------
1998 Policy Transactions
Net policy purchase payments ......................................... 64,812 165,731 109,160 75,300
Transfer on account of other terminations ............................ (5) -- -- --
Transfer of policy loans ............................................. (21,697) -- (310) --
Transfer of cost of insurance and policy fees -- Note 3 .............. (4,600) (23,212) (9,674) (8,144)
Transfer between investment divisions ................................ 13,788 148,154 9,125 49,168
Transfers -- other ................................................... 632 1,297 (453) 212
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ..................... 52,930 291,970 107,848 116,536
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................................. 56,069 316,286 114,475 109,269
Net Assets at December 31, 1997 ...................................... -- -- -- --
----------- ----------- ----------- -----------
Net Assets at December 31, 1998 ...................................... $ 56,069 $ 316,286 $ 114,475 $ 109,269
=========== =========== =========== ===========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ (614) $ 1,807 $ 1,324 $ 10,129
Net realized gain/(loss) from sale of investments .................... 3,036 7,878 797 (6,504)
Reinvested realized gain distributions ............................... -- 6,375 4,067 392
Net change in unrealized appreciation/(depreciation) of investments .. 5,126 24,799 13,093 3,284
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations .................... 7,548 40,859 19,281 7,301
----------- ----------- ----------- -----------
1999 Policy Transactions
Net policy purchase payments ......................................... 67,385 426,419 76,437 43,926
Transfer on account of other terminations ............................ -- (312) (1,869) (564)
Transfer of policy loans ............................................. (62) (1,461) (219) (1,557)
Transfer of cost of insurance and policy fees -- Note 3 .............. (12,807) (78,326) (15,040) (8,716)
Transfer between investment divisions ................................ 136,713 83,743 4,105 (25,401)
Transfers -- other ................................................... 372 2,028 54 333
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ..................... 191,601 432,091 63,468 8,021
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................................. 199,149 472,950 82,749 15,322
Net Assets at December 31, 1998 ...................................... 56,069 316,286 114,475 109,269
----------- ----------- ----------- -----------
Net Assets at June 30, 1999 -- Note 4 ................................ $ 255,218 $ 789,236 $ 197,224 $ 124,591
=========== =========== =========== ===========
<CAPTION>
Fidelity AIM V.I.
VIP II Capital AIM V.I.
Index 500 Appreciation Value
-----------------------------------------
<S> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ (628) $ (106) $ 308
Net realized gain/(loss) from sale of investments .................... 1,314 (506) 688
Reinvested realized gain distributions ............................... -- 3,390 5,068
Net change in unrealized appreciation/(depreciation) of investments .. 37,019 12,582 12,049
----------- ----------- -----------
Net increase/(decrease) resulting from operations .................... 37,705 15,360 18,113
----------- ----------- -----------
1998 Policy Transactions
Net policy purchase payments ......................................... 194,140 118,325 115,212
Transfer on account of other terminations ............................ (747) (6) (214)
Transfer of policy loans ............................................. (16,813) -- (80)
Transfer of cost of insurance and policy fees -- Note 3 .............. (33,332) (5,794) (16,662)
Transfer between investment divisions ................................ 166,538 11,414 14,597
Transfers -- other ................................................... 4,672 (255) (1,155)
----------- ----------- -----------
Net increase/(decrease) from policy transactions ..................... 314,458 123,684 111,698
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................................. 352,163 139,044 129,811
Net Assets at December 31, 1997 ...................................... -- -- --
----------- ----------- -----------
Net Assets at December 31, 1998 ...................................... $ 352,163 $ 139,044 $ 129,811
=========== =========== ===========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ...................................... $ 2,080 $ (599) $ (1,768)
Net realized gain/(loss) from sale of investments .................... 14,960 694 8,282
Reinvested realized gain distributions ............................... 3,333 -- --
Net change in unrealized appreciation/(depreciation) of investments .. 89,077 19,181 79,788
----------- ----------- -----------
Net increase/(decrease) resulting from operations .................... 109,450 19,276 86,302
----------- ----------- -----------
1999 Policy Transactions
Net policy purchase payments ......................................... 672,724 73,278 309,709
Transfer on account of other terminations ............................ (2,247) (357) (1,701)
Transfer of policy loans ............................................. (992) -- (986)
Transfer of cost of insurance and policy fees -- Note 3 .............. (119,456) (9,161) (54,748)
Transfer between investment divisions ................................ 840,099 9,572 841,583
Transfers -- other ................................................... 3,051 75 (1,239)
----------- ----------- -----------
Net increase/(decrease) from policy transactions ..................... 1,393,179 73,407 1,092,618
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .................................. 1,502,629 92,683 1,178,920
Net Assets at December 31, 1998 ...................................... 352,163 139,044 129,811
----------- ----------- -----------
Net Assets at June 30, 1999 -- Note 4 ................................ $ 1,854,792 $ 231,727 $ 1,308,731
=========== =========== ===========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
32 & 33
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- -------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- ----------------------
Note 1 -- Organization
- ----------------------
The Guardian Separate Account K (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 September 1, 1995
and commenced operations on October 1, 1995. 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, or to the Fixed Rate Option (FRO), as selected
by the policyowner. Amounts allocated to the FRO are maintained by GIAC in its
general account. The policyowner also has the ability to transfer his or her
policy value among the investment divisions within the Account.
The Account currently comprises twenty-one investment divisions which
invest in shares of the following mutual funds: The Guardian Stock Fund, Inc.
(GSF), The Guardian Bond Fund, Inc. (GBF), The Guardian Cash Fund, Inc. (GCF),
Gabelli Capital Asset Fund, Baillie Gifford International Fund (BGIF), Baillie
Gifford Emerging Markets Fund (BGEMF), The Guardian Small Cap Stock Fund (GSCF),
Value Line Centurion Fund, Inc., Value Line Strategic Asset Management Trust,
MFS Growth with Income Series, MFS Emerging Growth Series, MFS Total Return
Series, MFS Bond Series, American Century VP Value Fund, American Century VP
International Fund, Fidelity VIP III Growth Opportunities Portfolio, Fidelity
VIP Equity-Income Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP II
Index 500 Portfolio, AIM V.I. Capital Appreciation Fund, and AIM V.I. Value Fund
(collectively, the Funds and individually, a Fund). However, a policyowner may
only invest in up to seven investment divisions, including the FRO.
GSF, GBF, GCF and GSCF each has an investment advisory agreement with
Guardian Investor Services Corporation, a wholly owned subsidiary of GIAC. BGIF
and BGEMF are 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 changes 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 GMAC'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.
- --------------------------------------------------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
- ---------------------------------------------------------------
Note 3 -- Administrative and Mortality and Expense Risk Charges
- ---------------------------------------------------------------
GIAC assumes mortality and expense risk related to the operations of the
Account. To cover these risks, GIAC deducts a daily charge from the net assets
of the contract holder's account which, on an annual basis, is equal to a rate
of .60% of the policy account value. For the six months ended June 30, 1999 this
amount was $293,230.
Under the terms of the policy, GIAC also deducts certain charges from the
policy account value. These other contractual charges are deducted by redeeming
units of the investment divisions and consist of:
a) a monthly charge for the cost of life insurance, based on the face
value of the policyowner's insurance inforce, as compensation for the
anticipated cost of paying death benefits. For the six months ended June 30,
1999 and the year ended December 31, 1998, deductions for cost of life insurance
amounted to $4,575,957 and $6,920,312, respectively.
b) policy and administrative fees which vary with the face amount, age of
the insured or the duration of the contract. For the six months ended June 30,
1999 and year ended December 31, 1998 these fees amounted to $2,303,065 and
$3,553,333, respectively.
c) an annual state premium tax charge as a percentage of the basic
premium. This rate varies by state of jurisdiction. The annual state premium tax
charge for the six months ended June 30, 1999 was $796,937.
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 -- Net Assets, June 30, 1999
- -----------------------------------
At June 30, 1999, net assets of the Account were as follows:
Accumulation of
Variable Life Insurance
Policyowners' Accounts $ 75,130,976
Owned by GIAC 33,602,018
-------------
$ 108,732,994
=============
The amount retained by GIAC in the Account is comprised of amounts
accruing to GIAC from the operations of the Account and retained therein.
Amounts retained by GIAC in the Account may be transferred by GIAC to its
general account.
- --------------------------------------------------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account K
- -------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)(Continued)
- -----------------------------
Note 5 -- Purchases and Sales
- -----------------------------
During the six months ended June 30, 1999 and year ended December 31,
1998, purchases and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
Purchases Purchases Sales Sales
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. .................. $ 15,155,907 $ 32,802,820 $ 2,516,253 $ 2,176,893
The Guardian Bond Fund, Inc. ................... 287,211 665,277 92,685 130,957
The Guardian Cash Fund, Inc. ................... 1,201,772 3,391,687 1,185,277 2,187,271
Gabelli Capital Asset Fund ..................... 308,372 380,959 71,862 95,937
Baillie Gifford International Fund ............. 888,783 2,354,699 515,091 543,283
Baillie Gifford Emerging Markets Fund .......... 54,081 41,680 7,445 24,426
The Guardian Small Cap Stock Fund .............. 708,069 1,954,094 289,840 296,386
Value Line Centurion Fund, Inc. ................ 1,245,183 2,479,523 311,616 520,585
Value Line Strategic Asset
Management Trust ............................. 1,123,633 2,338,163 320,137 423,202
MFS Growth with Income Series .................. 767,245 857,518 145,645 203,463
MFS Emerging Growth Series ..................... 364,417 220,378 114,704 55,421
MFS Total Return Series ........................ 62,745 50,152 26,462 6,910
MFS Bond Series ................................ 20,775 22,992 2,159 922
American Century VP Value Fund ................. 53,384 80,227 14,021 2,267
American Century VP International Fund ......... 216,121 88,448 24,519 35,518
Fidelity VIP III Growth Opportunities
Portfolio .................................... 519,527 308,523 77,653 16,553
Fidelity VIP Equity-Income Portfolio ........... 93,890 119,735 24,515 11,887
Fidelity VIP High Income Portfolio ............. 58,054 123,681 39,146 7,146
Fidelity VIP II Index 500 Portfolio ............ 1,501,940 366,042 100,515 51,584
AIM V.I. Capital Appreciation Fund ............. 85,864 142,957 12,457 15,691
AIM V.I. Value Fund ............................ 1,145,216 131,546 52,598 14,207
------------ ------------ ------------ ------------
Total ........................................ $ 25,862,189 $ 48,921,101 $ 5,944,600 $ 6,820,509
============ ============ =========== ===========
</TABLE>
In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
----------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .................................... 45,217 6,732 30,213
Net asset value per share (NAV) .............................................. 51.83 11.74 10.00
---------- ---------- ----------
Total Assets (Shares x NAV) .............................................. $2,343,595 $ 79,038 $ 302,133
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ...................... 6,194 321 3,144
---------- ---------- ----------
Net Assets -- Note 4 ...................................................... $2,337,401 $ 78,717 $ 298,989
========== ========== ==========
Number of units outstanding .................................................... 185,704.142 7,566.108 28,328.053
Unit value ..................................................................... 12.59 10.40 10.55
FIFO Cost ...................................................................... $2,230,052 $ 82,070 $ 302,133
<CAPTION>
Baillie
Gabelli Baillie Gifford
Capital Gifford Emerging
Asset International Markets
---------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .................................... 8,483 7,174 1,550
Net asset value per share (NAV) .............................................. 18.43 21.38 9.56
---------- ---------- ----------
Total Assets (Shares x NAV) .............................................. $ 156,333 $ 153,388 $ 14,818
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ...................... 610 555 45
---------- ---------- ----------
Net Assets -- Note 4 ...................................................... $ 155,723 $ 152,833 $ 14,773
========== ========== ==========
Number of units outstanding .................................................... 12,676.360 13,054.201 1,503.076
Unit value ..................................................................... 12.28 11.71 9.83
FIFO Cost ...................................................................... $ 142,723 $ 149,298 $ 12,848
<CAPTION>
Value Line
Guardian Strategic
Small Cap Value Line Asset MFS Growth
Stock Centurion Management with Income
------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .................................... 13,695 3,844 10,775 12,573
Net asset value per share (NAV) .............................................. 12.70 33.71 27.95 21.14
---------- ---------- ---------- ----------
Total Assets (Shares x NAV) .............................................. $ 173,930 $ 129,577 $ 301,174 $ 265,784
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. ...................... 1,053 553 1,049 1,010
---------- ---------- ---------- ----------
Net Assets -- Note 4 ...................................................... $ 172,877 $ 129,024 $ 300,125 $ 264,774
========== ========== ========== ==========
Number of units outstanding .................................................... 19,284.037 9,553.479 22,265.769 21,453.094
Unit value ..................................................................... 8.96 13.51 13.48 12.34
FIFO Cost ...................................................................... $ 162,318 $ 115,528 $ 276,087 $ 249,548
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M
- --------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
--------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ 5,514 $ 1,869 $ 9,391
Expenses -- Note 3:
Mortality and expense risk charges ....................................... 8,203 282 1,959
---------- ---------- ----------
Net investment income/(expense) .............................................. (2,689) 1,587 7,432
---------- ---------- ----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 24,787 (737) --
Reinvested realized gain distributions ................................... 53,680 217 --
---------- ---------- ----------
Net realized gain/(loss) on investments .................................... 78,467 (520) --
Net change in unrealized appreciation/(depreciation) of investments ........ 84,601 (2,077) --
---------- ---------- ----------
Net realized and unrealized gain/(loss) from investments ....................... 163,068 (2,597) --
---------- ---------- ----------
Net Increase/(Decrease) in Net Assets Resulting
from Operations ............................................................ $ 160,379 $ (1,010) $ 7,432
========== ========== ==========
<CAPTION>
Baillie
Gabelli Baillie Gifford
Capital Gifford Emerging
Asset International Markets
--------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ -- $ 380 $ --
Expenses-- Note 3:
Mortality and expense risk charges ....................................... 522 483 38
---------- ---------- ----------
Net investment income/(expense) .............................................. (522) (103) (38)
---------- ---------- ----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 870 481 291
Reinvested realized gain distributions ................................... -- 1,743 --
---------- ---------- ----------
Net realized gain/(loss) on investments .................................... 870 2,224 291
Net change in unrealized appreciation/(depreciation) of investments ........ 13,296 3,418 1,940
---------- ---------- ----------
Net realized and unrealized gain/(loss) from investments ....................... 14,166 5,642 2,231
---------- ---------- ----------
Net Increase/(Decrease) in Net Assets Resulting
from Operations ............................................................ $ 13,644 $ 5,539 $ 2,193
========== ========== ==========
<CAPTION>
Value Line
Guardian Strategic
Small Cap Value Line Asset MFS Growth
Stock Centurion Management with Income
-----------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................................................. $ 60 $ -- $ -- $ 690
Expenses -- Note 3:
Mortality and expense risk charges ................................... 643 466 911 881
---------- ---------- ---------- ----------
Net investment income/(expense) .......................................... (583) (466) (911) (191)
---------- ---------- ---------- ----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments .................... (1,683) 3,513 5,974 2,429
Reinvested realized gain distributions ............................... -- -- -- 829
---------- ---------- ---------- ----------
Net realized gain/(loss) on investments ................................ (1,683) 3,513 5,974 3,258
Net change in unrealized appreciation/(depreciation) of investments .... 5,063 7,002 16,406 10,440
---------- ---------- ---------- ----------
Net realized and unrealized gain/(loss) from investments ................... 3,380 10,515 22,380 13,698
---------- ---------- ---------- ----------
Net Increase/(Decrease) in Net Assets Resulting
from Operations ........................................................ $ 2,797 $ 10,049 $ 21,469 $ 13,507
========== ========== ========== ==========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
38 & 39
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
MFS American
Emerging MFS MFS Century VP
Growth Total Return Bond Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ........... 5,317 1,748 220 4,298
Net asset value per share (NAV) ..................... 24.22 18.10 10.97 6.79
--------------- --------------- --------------- ---------------
Total Assets (Shares x NAV) ....................... $ 128,780 $ 31,643 $ 2,410 $ 29,184
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. 439 89 7 88
--------------- --------------- --------------- ---------------
Net Assets -- Note 4 ............................... $ 128,341 $ 31,554 $ 2,403 $ 29,096
=============== =============== =============== ===============
Number of units outstanding ............................. 9,279.245 2,754.910 232.133 2,716.351
Unit value .............................................. 13.83 11.45 10.35 10.71
FIFO cost ............................................... $ 117,563 $ 31,660 $ 2,481 $ 28,108
<CAPTION>
Fidelity
American VIP III Fidelity Fidelity
Century VP Growth VIP Equity- VIP High
International Opportunities Income Income
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ........... 6,235 7,528 1,383 2,453
Net asset value per share (NAV) ..................... 8.18 23.64 27.25 11.29
--------------- --------------- --------------- ---------------
Total Assets (Shares x NAV) ....................... $ 51,005 $ 177,958 $ 37,683 $ 27,699
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. 216 501 175 73
--------------- --------------- --------------- ---------------
Net Assets -- Note 4 ................................ $ 50,789 $ 177,457 $ 37,508 $ 27,626
=============== =============== =============== ===============
Number of units outstanding ............................. 4,539.669 14,000.466 3,103.893 2,782.309
Unit value .............................................. 11.19 12.68 12.08 9.93
FIFO cost ............................................... $ 48,209 $ 170,408 $ 34,864 $ 27,391
<CAPTION>
Fidelity AIM V.I.
VIP II Capital AIM V.I.
Index 500 Appreciation Value
---------------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ........... 5,168 2,682 6,303
Net asset value per share (NAV) ..................... 155.65 27.60 30.04
--------------- --------------- ---------------
Total Assets (Shares x NAV) ....................... $ 804,428 $ 74,032 $ 189,342
Liabilities:
Due to The Guardian Insurance & Annuity Company, Inc. 2,290 337 570
--------------- --------------- ---------------
Net Assets -- Note 4 ............................... $ 802,138 $ 73,695 $ 188,772
=============== =============== ===============
Number of units outstanding ............................. 59,005.123 5,842.959 13,040.371
Unit value .............................................. 13.59 12.61 14.48
FIFO cost ............................................... $ 750,654 $ 65,612 $ 174,990
</TABLE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M
- --------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
MFS American
Emerging MFS MFS Century VP
Growth Total Return Bond Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................. $ -- $ 423 $ 48 $ 158
Expenses -- Note 3:
Mortality and expense risk charges ............... 410 76 7 64
--------------- --------------- --------------- ---------------
Net investment income/(expense) .................... (410) 347 41 94
--------------- --------------- --------------- ---------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments 2,694 128 (8) 34
Reinvested realized gain distributions ........... -- 785 4 1,495
--------------- --------------- --------------- ---------------
Net realized gain/(loss) on investments ............ 2,694 913 (4) 1,529
Net change in unrealized appreciation/(depreciation)
of investments ................................... 8,613 (368) (71) 993
--------------- --------------- --------------- ---------------
Net realized and unrealized gain/(loss) from investments 11,307 545 (75) 2,522
--------------- --------------- --------------- ---------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations .................................... $ 10,897 $ 892 $ (34) $ 2,616
=============== =============== =============== ===============
<CAPTION>
Fidelity
American VIP III Fidelity Fidelity
Century VP Growth VIP Equity- VIP High
International Opportunities Income Income
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................. $ -- $ 529 $ 386 $ 417
Expenses -- Note 3:
Mortality and expense risk charges ............... 206 448 150 59
--------------- --------------- --------------- ---------------
Net investment income/(expense) .................... (206) 81 236 358
--------------- --------------- --------------- ---------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments 732 1,680 752 (90)
Reinvested realized gain distributions ........... -- 988 854 16
--------------- --------------- --------------- ---------------
Net realized gain/(loss) on investments ............ 732 2,668 1,606 (74)
Net change in unrealized appreciation/(depreciation)
of investments ................................... 2,242 4,839 1,746 215
--------------- --------------- --------------- ---------------
Net realized and unrealized gain/(loss) from investments 2,974 7,507 3,352 141
--------------- --------------- --------------- ---------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations .................................... $ 2,768 $ 7,588 $ 3,588 $ 499
=============== =============== =============== ===============
<CAPTION>
Fidelity AIM V.I.
VIP II Capital AIM V.I.
Index 500 Appreciation Value
-----------------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ............................. $ 1,721 $ -- $ --
Expenses -- Note 3:
Mortality and expense risk charges ............... 2,064 302 485
--------------- --------------- ---------------
Net investment income/(expense) .................... (343) (302) (485)
--------------- --------------- ---------------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments 7,587 990 3,686
Reinvested realized gain distributions ........... 1,168 -- --
--------------- --------------- ---------------
Net realized gain/(loss) on investments ............ 8,755 990 3,686
Net change in unrealized appreciation/(depreciation)
of investments ................................... 41,207 5,740 10,350
--------------- --------------- ---------------
Net realized and unrealized gain/(loss) from investments 49,962 6,730 14,036
--------------- --------------- ---------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations .................................... $ 49,619 $ 6,428 $ 13,551
=============== =============== ===============
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
40 & 41
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1998 (Audited) and
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Guardian Guardian Guardian
Stock Bond Cash
-----------------------------------------
<S> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ 3,277 $ 772 $ 5,123
Net realized gain/(loss) from sale of investments ................. (9,204) 108 --
Reinvested realized gain distributions ............................ 96,129 346 --
Change in unrealized appreciation/(depreciation) of investments.... 28,942 (954) --
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 119,144 272 5,123
----------- ----------- -----------
1998 Policy Transactions
Net policy purchase payments ...................................... 1,436,958 43,732 733,372
Transfer on account of other terminations ......................... (209) -- --
Transfer of policy loans .......................................... (10,000) -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (192,811) (5,140) (66,868)
Transfer between investment divisions ............................. (83,905) (11,601) (125,550)
Transfers -- other ................................................ (5,786) (60) 204
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 1,144,247 26,931 541,158
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ............................... 1,263,391 27,203 546,281
Net Assets at December 31, 1997 ................................... -- -- --
----------- ----------- -----------
Net Assets at December 31, 1998 ................................... $ 1,263,391 $ 27,203 $ 546,281
=========== =========== ===========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ (2,689) $ 1,587 $ 7,432
Net realized gain/(loss) from sale of investments ................. 24,787 (737) --
Reinvested realized gain distributions ............................ 53,680 217
Change in unrealized appreciation/(depreciation) of investments.... 84,601 (2,077)
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 160,379 (1,010) 7,432
----------- ----------- -----------
1999 Policy Transactions
Net policy purchase payments ...................................... 1,322,128 127,395 210,819
Transfer on account of other terminations ......................... (8,102) (218) --
Transfer of policy loans .......................................... (5,000) -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (356,288) (8,197) (52,891)
Transfer between investment divisions ............................. (44,639) (66,066) (410,839)
Transfers -- other ................................................ 5,532 (390) (1,813)
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 913,631 52,524 (254,724)
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ............................... 1,074,010 51,514 (247,292)
Net Assets at December 31, 1998 ................................... 1,263,391 27,203 546,281
----------- ----------- -----------
Net Assets at June 30, 1999 -- Note 4 ............................. $ 2,337,401 $ 78,717 $ 298,989
=========== =========== ===========
<CAPTION>
Baillie
Gabelli Baillie Gifford
Capital Gifford Emerging
Asset International Markets
------------------------------------
<S> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ 34 $ 27 $ (8)
Net realized gain/(loss) from sale of investments ................. (289) 873 (14)
Reinvested realized gain distributions ............................ 3,683 2,197 --
Change in unrealized appreciation/(depreciation) of investments.... 313 673 31
--------- --------- ---------
Net increase/(decrease) resulting from operations ................. 3,741 3,770 9
--------- --------- ---------
1998 Policy Transactions
Net policy purchase payments ...................................... 78,911 52,569 1,770
Transfer on account of other terminations ......................... -- -- --
Transfer of policy loans .......................................... -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (9,285) (7,591) (287)
Transfer between investment divisions ............................. 485 3,203 1,639
Transfers -- other ................................................ 582 (237) (8)
--------- --------- ---------
Net increase/(decrease) from policy transactions .................. 70,693 47,944 3,114
--------- --------- ---------
Total Increase/(Decrease) in Net Assets ............................... 74,434 51,714 3,123
Net Assets at December 31, 1997 ................................... -- -- --
--------- --------- ---------
Net Assets at December 31, 1998 ................................... $ 74,434 $ 51,714 $ 3,123
========= ========= =========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ (522) $ (103) $ (38)
Net realized gain/(loss) from sale of investments ................. 870 481 291
Reinvested realized gain distributions ............................ -- 1,743 --
Change in unrealized appreciation/(depreciation) of investments.... 13,296 3,418 1,940
--------- --------- ---------
Net increase/(decrease) resulting from operations ................. 13,644 5,539 2,193
--------- --------- ---------
1999 Policy Transactions
Net policy purchase payments ...................................... 67,062 87,668 10,747
Transfer on account of other terminations ......................... -- (80) --
Transfer of policy loans .......................................... -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (18,667) (20,611) (1,376)
Transfer between investment divisions ............................. 18,850 26,980 (299)
Transfers -- other ................................................ 400 1,623 385
--------- --------- ---------
Net increase/(decrease) from policy transactions .................. 67,645 95,580 9,457
--------- --------- ---------
Total Increase/(Decrease) in Net Assets ............................... 81,289 101,119 11,650
Net Assets at December 31, 1998 ................................... 74,434 51,714 3,123
--------- --------- ---------
Net Assets at June 30, 1999 -- Note 4 ............................. $ 155,723 $ 152,833 $ 14,773
========= ========= =========
<CAPTION>
Value Line
Guardian Strategic
Small Cap Value Line Asset MFS Growth
Stock Centurion Management with Income
-------------------------------------------------
<S> <C> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ (315) $ (86) $ (51) $ (129)
Net realized gain/(loss) from sale of investments ................. (10,314) 1,739 3,383 776
Reinvested realized gain distributions ............................ 310 24 252 --
Change in unrealized appreciation/(depreciation) of investments.... 6,550 7,047 8,681 5,797
--------- --------- --------- ---------
Net increase/(decrease) resulting from operations ................. (3,769) 8,724 12,265 6,444
--------- --------- --------- ---------
1998 Policy Transactions
Net policy purchase payments ...................................... 136,122 50,783 127,748 82,155
Transfer on account of other terminations ......................... (75) -- -- (160)
Transfer of policy loans .......................................... -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (28,776) (6,570) (12,956) (11,738)
Transfer between investment divisions ............................. 13,651 8,525 12,142 15,099
Transfers -- other ................................................ (978) 636 576 390
--------- --------- --------- ---------
Net increase/(decrease) from policy transactions .................. 119,944 53,374 127,510 85,746
--------- --------- --------- ---------
Total Increase/(Decrease) in Net Assets ............................... 116,175 62,098 139,775 92,190
Net Assets at December 31, 1997 ................................... -- -- -- --
--------- --------- --------- ---------
Net Assets at December 31, 1998 ................................... $ 116,175 $ 62,098 $ 139,775 $ 92,190
========= ========= ========= =========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ................................... $ (583) $ (466) $ (911) $ (191)
Net realized gain/(loss) from sale of investments ................. (1,683) 3,513 5,974 2,429
Reinvested realized gain distributions ............................ -- -- -- 829
Change in unrealized appreciation/(depreciation) of investments.... 5,063 7,002 16,406 10,440
--------- --------- --------- ---------
Net increase/(decrease) resulting from operations ................. 2,797 10,049 21,469 13,507
--------- --------- --------- ---------
1999 Policy Transactions
Net policy purchase payments ...................................... 118,977 67,851 152,171 135,526
Transfer on account of other terminations ......................... (328) -- -- (262)
Transfer of policy loans .......................................... -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ........... (28,822) (17,438) (35,375) (35,399)
Transfer between investment divisions ............................. (36,123) 6,881 23,250 56,502
Transfers -- other ................................................ 201 (417) (1,165) 2,710
--------- --------- --------- ---------
Net increase/(decrease) from policy transactions .................. 53,905 56,877 138,881 159,077
--------- --------- --------- ---------
Total Increase/(Decrease) in Net Assets ............................... 56,702 66,926 160,350 172,584
Net Assets at December 31, 1998 ................................... 116,175 62,098 139,775 92,190
--------- --------- --------- ---------
Net Assets at June 30, 1999 -- Note 4 ............................. $ 172,877 $ 129,024 $ 300,125 $ 264,774
========= ========= ========= =========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
42 & 43
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1998 (Audited) and
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
MFS American American
Emerging MFS MFS Century VP Century VP
Growth Total Return Bond Value International
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ....................... $ (29) $ (12) -- $ (24) $ (11)
Net realized gain/(loss) from sale of investments ..... (28) 38 -- 26 13
Reinvested realized gain distributions ................ -- -- -- -- --
Change in unrealized appreciation/(depreciation)
of investments ...................................... 2,604 350 -- 83 554
--------- --------- --------- --------- ---------
Net increase/(decrease) resulting from operations ..... 2,547 376 -- 85 556
--------- --------- --------- --------- ---------
1998 Policy Transactions
Net policy purchase payments .......................... 45,426 9,837 45 10,883 40,265
Transfer on account of other terminations ............. -- -- -- -- --
Transfer of policy loans .............................. -- -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (2,806) (1,099) (32) (997) (1,071)
Transfer between investment divisions ................. 1,639 -- -- 4,899 --
Transfers -- other .................................... 249 7 -- 324 27
--------- --------- --------- --------- ---------
Net increase/(decrease) from policy transactions ...... 44,508 8,745 13 15,109 39,221
--------- --------- --------- --------- ---------
Total Increase/(Decrease) in Net Assets ................... 47,055 9,121 13 15,194 39,777
Net Assets at December 31, 1997 ....................... -- -- -- -- --
--------- --------- --------- --------- ---------
Net Assets at December 31, 1998 ....................... $ 47,055 $ 9,121 $ 13 $ 15,194 $ 39,777
========= ========= ========= ========= =========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ....................... $ (410) $ 347 $ 41 $ 94 $ (206)
Net realized gain/(loss) from sale of investments ..... 2,694 128 (8) 34 732
Reinvested realized gain distributions ................ -- 785 4 1,495 --
Change in unrealized appreciation/(depreciation
of investments ...................................... 8,613 (368) (71) 993 2,242
--------- --------- --------- --------- ---------
Net increase/(decrease) resulting from operations ..... 10,897 892 (34) 2,616 2,768
--------- --------- --------- --------- ---------
1999 Policy Transactions
Net policy purchase payments .......................... 58,628 10,988 1,706 14,906 15,924
Transfer on account of other terminations ............. -- -- -- -- --
Transfer of policy loans .............................. -- -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (11,965) (2,973) (752) (3,581) (4,210)
Transfer between investment divisions ................. 23,801 13,268 1,470 -- (3,649)
Transfers -- other .................................... (75) 258 -- (39) 179
--------- --------- --------- --------- ---------
Net increase/(decrease) from policy transactions ...... 70,389 21,541 2,424 11,286 8,244
--------- --------- --------- --------- ---------
Total Increase/(Decrease) in Net Assets ................... 81,286 22,433 2,390 13,902 11,012
Net Assets at December 31, 1998 ....................... 47,055 9,121 13 15,194 39,777
--------- --------- --------- --------- ---------
Net Assets at June 30, 1999 -- Note 4 ................. $ 128,341 $ 31,554 $ 2,403 $ 29,096 $ 50,789
========= ========= ========= ========= =========
<CAPTION>
Fidelity
VIP III Fidelity Fidelity Fidelity
Growth VIP Equity- VIP High VIP II
Opportunities Income Income Index 500
---------------------------------------------------
<S> <C> <C> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ....................... $ (54) $ (24) $ (15) $ (225)
Net realized gain/(loss) from sale of investments ..... 71 (41) (34) 863
Reinvested realized gain distributions ................ -- -- -- --
Change in unrealized appreciation/(depreciation)
of investments ...................................... 2,712 1,073 94 12,566
--------- --------- --------- ---------
Net increase/(decrease) resulting from operations ..... 2,729 1,008 45 13,204
--------- --------- --------- ---------
1998 Policy Transactions
Net policy purchase payments .......................... 35,356 22,483 4,695 117,173
Transfer on account of other terminations ............. -- -- -- (64)
Transfer of policy loans .............................. -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (7,278) (4,679) (396) (14,226)
Transfer between investment divisions ................. -- (37) -- 45,095
Transfers -- other .................................... 168 90 3 3,862
--------- --------- --------- ---------
Net increase/(decrease) from policy transactions ...... 28,246 17,857 4,302 151,840
--------- --------- --------- ---------
Total Increase/(Decrease) in Net Assets ................... 30,975 18,865 4,347 165,044
Net Assets at December 31, 1997 ....................... -- -- -- --
--------- --------- --------- ---------
Net Assets at December 31, 1998 ....................... $ 30,975 $ 18,865 $ 4,347 $ 165,044
========= ========= ========= =========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ....................... $ 81 $ 236 $ 358 $ (343)
Net realized gain/(loss) from sale of investments ..... 1,680 752 (90) 7,587
Reinvested realized gain distributions ................ 988 854 16 1,168
Change in unrealized appreciation/(depreciation
of investments ...................................... 4,839 1,746 215 41,207
--------- --------- --------- ---------
Net increase/(decrease) resulting from operations ..... 7,588 3,588 499 49,619
--------- --------- --------- ---------
1999 Policy Transactions
Net policy purchase payments .......................... 144,492 20,666 11,648 331,107
Transfer on account of other terminations ............. -- -- -- --
Transfer of policy loans .............................. -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (24,775) (7,639) (2,482) (82,366)
Transfer between investment divisions ................. 18,348 2,015 13,269 334,770
Transfers -- other .................................... 829 13 345 3,964
--------- --------- --------- ---------
Net increase/(decrease) from policy transactions ...... 138,894 15,055 22,780 587,475
--------- --------- --------- ---------
Total Increase/(Decrease) in Net Assets ................... 146,482 18,643 23,279 637,094
Net Assets at December 31, 1998 ....................... 30,975 18,865 4,347 165,044
--------- --------- --------- ---------
Net Assets at June 30, 1999 -- Note 4 ................. $ 177,457 $ 37,508 $ 27,626 $ 802,138
========= ========= ========= =========
<CAPTION>
AIM V.I.
Capital AIM V.I.
Appreciation Value
------------------------
<S> <C> <C>
1998 Increase/(Decrease) from Operations
Net investment income/(expense) ....................... $ 5 $ 136
Net realized gain/(loss) from sale of investments ..... 414 769
Reinvested realized gain distributions ................ 697 1,946
Change in unrealized appreciation/(depreciation)
of investments ...................................... 2,679 4,002
--------- ---------
Net increase/(decrease) resulting from operations ..... 3,795 6,853
--------- ---------
1998 Policy Transactions
Net policy purchase payments .......................... 43,683 57,521
Transfer on account of other terminations ............. -- --
Transfer of policy loans .............................. -- --
Transfer of cost of insurance and policy fees -- Note 3 (1,644) (6,161)
Transfer between investment divisions ................. 8,524 8,524
Transfers -- other .................................... (33) (124)
--------- ---------
Net increase/(decrease) from policy transactions ...... 50,530 59,760
--------- ---------
Total Increase/(Decrease) in Net Assets ................... 54,325 66,613
Net Assets at December 31, 1997 ....................... -- --
--------- ---------
Net Assets at December 31, 1998 ....................... $ 54,325 $ 66,613
========= =========
1999 Increase/(Decrease) from Operations
Net investment income/(expense) ....................... $ (302) $ (485)
Net realized gain/(loss) from sale of investments ..... 990 3,686
Reinvested realized gain distributions ................ -- --
Change in unrealized appreciation/(depreciation
of investments ...................................... 5,740 10,350
--------- ---------
Net increase/(decrease) resulting from operations ..... 6,428 13,551
--------- ---------
1999 Policy Transactions
Net policy purchase payments .......................... 13,318 110,539
Transfer on account of other terminations ............. -- --
Transfer of policy loans .............................. -- --
Transfer of cost of insurance and policy fees -- Note 3 (5,392) (18,734)
Transfer between investment divisions ................. 5,152 17,075
Transfers -- other .................................... (136) (272)
--------- ---------
Net increase/(decrease) from policy transactions ...... 12,942 108,608
--------- ---------
Total Increase/(Decrease) in Net Assets ................... 19,370 122,159
Net Assets at December 31, 1998 ....................... 54,325 66,613
--------- ---------
Net Assets at June 30, 1999 -- Note 4 ................. $ 73,695 $ 188,772
========= =========
</TABLE>
See notes to financial statements
- --------------------------------------------------------------------------------
44 & 45
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M
- -------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ----------------------
Note 1 -- Organization
- ----------------------
The Guardian Separate Account M (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 January 29, 1998 and
commenced operations on February 6, 1998. GIAC is a wholly owned subsidiary of
The Guardian Life Insurance Company of America (Guardian). GIAC issues the
flexible premium variable universal 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, or to the Fixed Rate Option (FRO), as
selected by the policyowner. Amounts allocated to the FRO are maintained by GIAC
in its general account. The policyowner also has the ability to transfer his or
her policy value among the investment divisions within the Account.
The Account currently comprises twenty-one investment divisions which
invest in shares of the following mutual funds: The Guardian Stock Fund, Inc.
(GSF), The Guardian Bond Fund, Inc. (GBF), The Guardian Cash Fund, Inc. (GCF),
Gabelli Capital Asset Fund, Baillie Gifford International Fund (BGIF), Baillie
Gifford Emerging Markets Fund (BGEMF), The Guardian Small Cap Stock Fund (GSCF),
Value Line Centurion Fund, Inc., Value Line Strategic Asset Management Trust,
MFS Growth with Income Series, MFS Emerging Growth Series, MFS Total Return
Series, MFS Bond Series, American Century VP Value Fund, American Century VP
International Fund, Fidelity VIP III Growth Opportunities Portfolio, Fidelity
VIP Equity-Income Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP II
Index 500 Portfolio, AIM V.I. Capital Appreciation Fund, and AIM V.I. Value Fund
(collectively, the Funds and individually, a Fund). However, a policyowner may
only invest in up to seven investment divisions, including the FRO.
GSF, GBF, GCF and GSCF each has an investment advisory agreement with
Guardian Investor Services Corporation, a wholly owned subsidiary of GIAC. BGIF
and BGEMF are 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 changes 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 flexible premium variable universal 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.
- --------------------------------------------------------------------------------
46
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)(Continued)
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
- --------------------------------------
Note 3 -- Administrative and Mortality
and Expense Risk Charges
- --------------------------------------
GIAC assumes mortality and expense risk related to the operations of the
Account. To cover these risks, GIAC deducts a daily charge from the net assets
of the contract holder's account which, on an annual basis, is equal to a rate
of .90% of the policy account value. This charge is reduced to .60% of the
policy account value after the twentieth policy anniversary. For the six months
ended June 30, 1999 mortality and expense risk deductions amounted to $18,660.
Under the terms of the policy, GIAC also deducts certain charges from the
policy account value. These other contractual charges are deducted by redeeming
units of the investment divisions and consist of:
a) a monthly charge for the cost of life insurance, based on the face
value of the policyowner's insurance inforce, as compensation for the
anticipated cost of paying death benefits. For the six months ended June 30,
1999 and the year ended December 31, 1998, deductions for cost of life insurance
amounted to $366,584 and $214,586, respectively.
b) policy and administrative fees which vary with the face amount, age of
the insured or the duration of the contract. For the six months ended June 30,
1999 and the year ended December 31, 1998, these fees amounted to $373,352 and
$191,687, respectively.
c) an annual state premium tax charge as a percentage of the basic
premium. This rate varies by state of jurisdiction. The annual state premium tax
charge for the period ended June 30, 1999 was $284,193.
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 -- Net Assets, June 30, 1999
- -----------------------------------
Accumulation of
Variable Life Insurance
Policyowners' Accounts $ 1,931,392
Owned by GIAC 3,523,223
-----------
$ 5,454,615
===========
The amount retained by GIAC in the Account is comprised of amounts
accruing to GIAC from the operations of the Account and retained therein.
Amounts retained by GIAC in the Account may be transferred by GIAC to its
general account.
- --------------------------------------------------------------------------------
47
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Separate Account M
- -------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)(Continued)
- -----------------------------
Note 5 -- Purchases and Sales
- -----------------------------
During the six months ended June 30, 1999 and year ended December 31,
1998, purchases and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
Purchases Purchases Sales Sales
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. .......... $ 1,317,290 $ 1,545,772 $ 349,465 $ 299,129
The Guardian Bond Fund, Inc. ........... 132,864 65,669 78,254 37,580
The Guardian Cash Fund, Inc. ........... 486,640 848,249 731,972 300,783
Gabelli Capital Asset Fund ............. 78,182 78,882 10,537 4,384
Baillie Gifford International Fund ..... 117,745 67,965 20,042 17,724
Baillie Gifford Emerging Markets Fund .. 16,081 3,420 6,624 306
The Guardian Small Cap Stock Fund ...... 115,953 150,394 61,988 30,044
Value Line Centurion Fund, Inc. ........ 75,300 81,511 18,423 28,112
Value Line Strategic Asset
Management Trust ..................... 181,232 193,630 42,351 65,780
MFS Growth with Income Series .......... 181,360 99,728 20,763 13,982
MFS Emerging Growth Series ............. 80,137 48,857 9,748 4,349
MFS Total Return Series ................ 25,590 9,451 2,840 706
MFS Bond Series ........................ 3,219 23 743 11
American Century VP Value Fund ......... 16,047 15,897 3,108 788
American Century VP International Fund . 20,280 40,356 12,037 1,135
Fidelity VIP III Growth
Opportunities Portfolio .............. 156,304 30,623 15,895 2,376
Fidelity VIP Equity-Income Portfolio ... 23,821 19,924 7,526 2,067
Fidelity VIP High Income Portfolio ..... 24,087 4,638 874 336
Fidelity VIP II Index 500 Portfolio .... 632,680 174,718 42,315 22,878
AIM V.I. Capital Appreciation Fund ..... 22,381 60,558 9,439 9,292
AIM V.I. Value Fund .................... 133,982 72,356 25,373 10,430
----------- ----------- ----------- ----------
Total ................................ $ 3,841,175 $ 3,612,621 $ 1,470,317 $ 852,192
=========== =========== =========== ==========
</TABLE>
In some instances the calculation of total assets may not agree due to
rounding.
- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
49
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- ----------------------
COMMON STOCKS -- 95.3%
- ----------------------
Shares Value
- ---------------------------------------------------------------------------
Aerospace and Defense -- 0.8%
58,100 Alliant Techsystems, Inc.* $ 5,025,650
365,774 United Technologies Corp. 26,221,424
--------------
31,247,074
--------------
Air Transportation -- 0.4%
151,000 Continental Airlines, Inc.* 5,681,375
141,000 Delta Airlines, Inc. 8,125,125
--------------
13,806,500
--------------
Appliance and Furniture -- 0.3%
309,000 Ethan Allen Interiors, Inc. 11,664,750
61,400 Furniture Brands Int'l., Inc.* 1,711,525
--------------
13,376,275
--------------
Automotive -- 1.9%
975,000 Ford Motor Co. 55,026,562
230,000 General Motors Corp. 15,180,000
--------------
70,206,562
--------------
Automotive Parts -- 0.1%
160,753 Delphi Automotive Systems Corp. 2,983,978
--------------
Biotechnology -- 1.3%
241,000 Amgen, Inc.* 14,670,875
170,000 Biogen, Inc.* 10,933,125
62,900 MedImmune, Inc.* 4,261,475
210,500 Sepracor, Inc.* 17,103,125
--------------
46,968,600
--------------
Broadcasting -- 3.2%
212,400 Adelphia Comm. Corp.* 13,513,950
625,400 CBS Corp. 27,165,813
80,100 Chancellor Media Corp.* 4,415,512
190,000 Clear Channel Comm., Inc.* 13,098,125
330,000 Comcast Corp. 12,684,375
739,200 Infinity Broadcasting Corp.* 21,991,200
376,100 MediaOne Group, Inc.* 27,972,438
--------------
120,841,413
--------------
Building Materials and Homebuilders -- 0.8%
16,500 Crossman Communities, Inc.* 479,531
150,000 D.R. Horton, Inc. 2,493,750
145,000 Lennar Corp. 3,480,000
157,800 Lone Star Industries, Inc. 5,927,362
79,650 Martin Marietta Materials, Inc. 4,699,350
102,620 Southdown, Inc. 6,593,335
137,100 Vulcan Materials Co. 6,615,075
--------------
30,288,403
--------------
Capital Goods-Miscellaneous Technology -- 1.1%
43,000 AFC Cable Systems, Inc.* 1,518,437
110,232 At Home Corp.* 5,945,638
38,600 Critical Path, Inc. 2,135,062
59,600 Doubleclick, Inc.* 5,468,300
59,200 E Bay, Inc.* 8,961,400
138,000 MindSpring Enterprises, Inc.* 6,115,125
63,000 Yahoo, Inc.* 10,851,750
--------------
40,995,712
--------------
Chemicals -- 0.0%
112,100 Cambrex Corp. 2,942,625
--------------
Computer Software -- 8.6%
376,900 America Online, Inc.* 41,647,450
200,000 BMC Software, Inc.* 10,800,000
220,000 Computer Associates Int'l., Inc. 12,100,000
27,000 DST Systems, Inc.* 1,697,625
2,118,800 Microsoft Corp.* 191,089,275
928,300 Novell, Inc.* 24,599,950
742,500 Oracle Corp.* 27,565,313
348,300 SunGuard Data Systems, Inc.* 12,016,350
--------------
321,515,963
--------------
Computer Systems -- 11.0%
246,600 Apple Computer, Inc.* 11,420,662
809,800 EMC Corp.* 44,539,000
538,000 Hewlett Packard Co. 54,069,000
1,309,000 Int'l. Business Machines 169,188,250
656,400 Lexmark Int'l. Group, Inc.* 43,363,425
230,000 Pitney Bowes, Inc. 14,777,500
192,200 Seagate Technology* 4,925,125
206,000 Solectron Corp.* 13,737,625
735,600 Sun Microsystems, Inc.* 50,664,450
105,000 Xerox Corp. 6,201,563
--------------
412,886,600
--------------
Conglomerates -- 1.3%
310,000 Textron, Inc. 25,516,875
265,400 Tyco Int'l. Ltd. 25,146,650
--------------
50,663,525
--------------
Drugs and Hospitals -- 7.7%
735,600 Bristol-Myers Squibb Corp. 51,813,825
171,000 Johnson & Johnson 16,758,000
359,164 Medtronic, Inc. 27,969,896
719,800 Merck & Co., Inc. 53,265,200
186,000 Monsanto Corp. 7,335,375
27,000 Patterson Dental Co.* 938,250
746,600 Pfizer, Inc. 81,939,350
531,800 Schering-Plough Corp. 28,185,400
263,000 Warner-Lambert Co.* 18,245,625
--------------
286,450,921
--------------
Electrical Equipment -- 2.0%
651,200 General Electric Co. 73,585,600
--------------
Entertainment and Leisure -- 0.9%
400,000 Carnival Corp. 19,400,000
316,000 Viacom, Inc.* 13,904,000
--------------
33,304,000
--------------
Financial-Banks -- 6.7%
314,000 Bank of America Corp. 23,020,125
565,000 Banc One Corp. 33,652,813
260,000 Bank of New York, Inc. 9,538,750
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
50
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- ---------------------------------------------------------------------------
488,100 Chase Manhattan Corp.* $ 42,281,662
706,500 Citigroup, Inc. 33,558,750
140,000 Fifth Third Bancorp 9,318,750
324,000 Firstar Corp. 9,072,000
60,000 FirstMerit Corp. 1,683,750
305,000 Fleet Financial Group, Inc. 13,534,375
84,379 Hudson United Bancorp 2,584,107
22,627 M & T Bank Corp. 12,444,850
394,000 Mellon Bank Corp. 14,331,750
427,200 North Fork Bancorp 9,104,700
75,000 Premier Bancshares, Inc., GA 1,373,437
247,332 Premier National Bancorp, Inc. 4,853,890
174,000 SunTrust Banks, Inc. 12,082,125
148,500 Union BanCal Corp. 5,364,563
23,000 U.S. Trust Corp. 2,127,500
43,000 Webster Financial Corp. 1,166,375
147,000 Zions Bancorp 9,334,500
--------------
250,428,772
--------------
Financial-Other -- 5.3%
294,400 American Express Co. 38,308,800
210,300 Charles Schwab Corp. 23,106,713
258,400 Federal Home Loan Mortgage Corp. 14,987,200
156,600 Federal National Mortgage Assn. 10,707,525
29,100 Goldman Sachs Group, Inc.* 2,102,475
135,000 Hambrecht & Quist Group, Inc.* 5,011,875
338,000 Investment Technology Group, Inc. 10,942,750
338,000 Jefferies Group, Inc. 10,140,000
87,332 Legg Mason, Inc. 3,362,282
158,600 Lehman Brothers Hldgs., Inc.* 9,872,850
124,000 Merrill Lynch & Co., Inc. 9,912,250
148,800 J. P. Morgan & Co., Inc. 20,906,400
384,075 Morgan Keegan, Inc. 7,273,420
199,000 Morgan Stanley Dean Witter & Co. 20,397,500
203,400 Paine Webber Group, Inc. 9,508,950
31,000 Ragen MacKenzie Group, Inc.* 368,125
--------------
196,909,115
--------------
Financial-Thrift -- 1.0%
209,800 Astoria Financial Corp. 9,218,087
142,700 BankAtlantic Bancorp, Inc. 1,159,438
244,550 BankAtlantic Bancorp, Inc. Class A 1,772,987
27,040 California Federal Bancorp, Inc.* 32,110
179,277 Charter One Financial, Inc. 4,986,142
216,500 Coastal Bancorp, Inc. 8,660,000
20,000 Coast Federal Litigation Trust* 21,250
220,000 Dime Bancorp, Inc. 4,427,500
40,000 Golden State Bancorp, Inc.* 52,500
478,200 Sovereign Bancorp, Inc. 5,798,175
--------------
36,128,189
--------------
Food, Beverage and Tobacco -- 0.6%
276,200 Anheuser-Busch Cos., Inc. $ 19,592,938
72,788 Earthgrains Co. 1,878,840
41,070 Tootsie Roll Industries, Inc. 1,586,329
--------------
23,058,107
--------------
Household Products -- 0.4%
365,200 Dial Corp. 13,580,875
--------------
Insurance -- 2.1%
134,400 American Gen. Hospitality Corp. 10,130,400
215,000 American Int'l. Group, Inc. 25,168,438
6,961 Berkshire Hathaway, Inc.* 15,592,640
86,200 Chicago Title Corp. 3,076,262
54,000 Jefferson-Pilot Corp. 3,574,125
103,270 Liberty Financial Cos., Inc. 3,007,739
100,500 Reinsurance Group of America 3,366,750
216,000 State Auto Financial Corp. 2,916,000
160,000 Transamerica Corp. 12,000,000
--------------
78,832,354
--------------
Merchandising-Department Stores -- 2.8%
272,900 Dayton Hudson Corp. 17,738,500
238,500 Saks, Inc.* 6,886,687
376,800 TJX Cos., Inc. 12,552,150
1,427,000 Wal-Mart Stores, Inc. 68,852,750
--------------
106,030,087
--------------
Merchandising-Drugs -- 0.5%
251,472 CVS Corp. 12,762,204
220,000 Walgreen Co. 6,462,500
--------------
19,224,704
--------------
Merchandising-Food -- 1.3%
130,000 Albertson's, Inc. 6,703,125
730,000 Kroger Co.* 20,394,375
430,390 Safeway, Inc.* 21,304,305
--------------
48,401,805
--------------
Merchandising-Special -- 4.0%
160,000 Abercrombie & Fitch Co.* 7,680,000
247,800 Best Buy, Inc.* 16,726,500
344,900 BJ's Wholesale Club, Inc.* 10,368,556
140,000 Costco Cos., Inc.* 11,208,750
487,500 GAP, Inc. 24,557,813
562,000 Home Depot, Inc. 36,213,875
190,400 Lowes Cos., Inc. 10,793,300
159,000 Ross Stores, Inc. 8,009,625
500,000 Tandy Corp. 24,437,500
--------------
149,995,919
--------------
Miscellaneous-Consumer Growth Cyclical -- 0.1%
30,000 Avis Rent A Car, Inc.* 873,750
59,366 Nielsen Media Research, Inc.* 1,736,456
--------------
2,610,206
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited) (Continued)
Shares Value
- ---------------------------------------------------------------------------
Miscellaneous-Consumer Growth Staples -- 0.4%
110,000 A.C. Nielsen Corp.* $ 3,327,500
285,000 Valassis Communications, Inc.* 10,438,125
--------------
13,765,625
--------------
Oil and Gas Producing -- 1.3%
251,900 Anadarko Petroleum Corp. 9,273,069
233,600 Apache Corp. 9,110,400
205,000 Basin Exploration, Inc.* 4,112,812
234,800 Burlington Resources, Inc. 10,155,100
8,800 Callon Petroleum Co.* 90,750
143,300 Devon Energy Corp. 5,122,975
74,200 Newfield Exploration Co.* 2,110,063
152,100 Vastar Resources, Inc. 7,975,744
--------------
47,950,913
--------------
Oil and Gas Services -- 1.1%
386,000 Halliburton Co. 17,466,500
254,000 Schlumberger Ltd. 16,176,625
312,000 Transocean Offshore, Inc. 8,190,000
--------------
41,833,125
--------------
Oil-Integrated-Domestic -- 0.2%
236,000 Conoco, Inc. 6,578,500
--------------
Oil-Integrated-International -- 2.3%
230,000 Chevron Corp. 21,893,125
489,800 Exxon Corp. 37,775,825
403,000 Texaco, Inc. 25,187,500
--------------
84,856,450
--------------
Paper and Forest Products -- 0.7%
183,800 Georgia Pacific Corp.* 8,707,525
341,100 International Paper Co. 17,225,550
--------------
25,933,075
--------------
Publishing and Print -- 1.6%
376,300 Dun & Bradstreet Corp. 13,335,131
628,200 Time Warner, Inc. 46,172,700
--------------
59,507,831
--------------
Railroads -- 0.8%
319,400 Kansas City Southern Inds., Inc. 20,381,713
188,000 Union Pacific Corp. 10,962,750
--------------
31,344,463
--------------
Restaurants -- 0.3%
141,700 Outback Steakhouse, Inc.* 5,570,581
233,400 Wendy's Int'l., Inc.* 6,608,138
--------------
12,178,719
--------------
Semiconductors -- 5.8%
252,200 Adaptec, Inc.* 8,905,812
672,000 Advanced Micro Devices, Inc.* 12,138,000
181,000 Applied Materials, Inc.* 13,371,375
1,250,300 Intel Corp. 74,392,850
550,000 Micron Technology, Inc.* 22,171,875
410,000 Motorola, Inc. 38,847,500
132,000 Texas Instruments 19,140,000
470,000 Xilinx, Inc.* 26,907,500
--------------
215,874,912
--------------
Textile-Apparel and Production -- 0.2%
196,000 Jones Apparel Group, Inc.* 6,725,250
--------------
Transportation-Miscellaneous -- 0.4%
181,400 FDX Corp.* 9,840,950
334,200 Maritrans, Inc. 1,879,875
45,000 Sea Containers Ltd. 1,510,312
--------------
13,231,137
--------------
Truckers -- 0.2%
168,600 Navistar Int'l. Corp., Inc.* 8,430,000
--------------
Utilities-Electric -- 1.5%
153,000 Consolidated Edison, Inc. 6,923,250
158,000 DQE 6,339,750
146,740 Duke Energy Co. 7,978,988
159,600 Energy East Corp. 4,149,600
313,000 IPALCO Enterprises 6,631,687
185,300 Montana Power Co. 13,063,650
64,500 New Century Energies, Inc. 2,503,406
58,000 Nisource, Inc. 1,497,125
170,000 Texas Utilities Co. 7,012,500
--------------
56,099,956
--------------
Utilities-Telecommunications -- 12.3%
702,800 Ameritech Corp. 51,655,800
850,453 AT & T Corp. 47,465,908
310,000 Bell Atlantic Corp. 20,266,250
672,000 Cisco Systems, Inc.* 43,302,000
495,000 GTE Corp. 37,496,250
1,066,900 Lucent Technologies, Inc. 71,949,069
1,005,608 MCI WorldCom, Inc.* 86,545,139
349,000 Nortel Networks Corp. 30,297,563
85,000 QUALCOMM, Inc.* 12,197,500
125,600 SBC Communications, Inc. 7,284,800
422,000 Sprint Corp. 22,286,875
105,500 Sprint PCS* 6,026,687
115,000 Vodafone Airtouch PLC 22,655,000
--------------
459,428,841
--------------
TOTAL COMMON STOCKS
(Cost $2,409,580,271) 3,561,002,681
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
52
<PAGE>
- ------------------------------
SHORT-TERM INVESTMENTS -- 2.0%
- ------------------------------
Principal
Amount Value
- ---------------------------------------------------------------------------
$ 25,000,000 BTR Dunlop Finance, Inc.
5.75%, due 7/1/99 $ 25,000,000
24,000,000 Rio Tinto America, Inc.
5.75%, due 7/1/99 24,000,000
25,000,000 Sonoco Products Co.
5.80%, due 7/1/99 25,000,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $74,000,000) 74,000,000
--------------
- ----------------------------
REPURCHASE AGREEMENT -- 2.5%
- ----------------------------
$ 94,119,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/99, maturity value
$94,131,732 at 4.87%, due
7/1/99 (collateralized by
$2,165,000 Federal Farm Credit
Bank Notes, 4.62%, due 8/2/99,
by $23,465,000 Federal Home
Loan Mortgage Corp. Notes,
4.87%, due 7/12/99, by
$23,465,000 Federal National
Mortgage Assn. Notes, 5.25%,
due 1/15/03, by $23,465,000
Federal National Mortgage
Assn. Notes, 5.62%, due
3/15/01, and by $23,465,000
Federal National Mortgage
Assn. Notes, 6.59%, due
5/21/02)
$ 94,119,000
--------------
TOTAL REPURCHASE AGREEMENT
(Cost $94,119,000) 94,119,000
--------------
TOTAL INVESTMENTS -- 99.8%
(Cost $2,577,699,271) 3,729,121,681
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 0.2% 7,175,361
--------------
NET ASSETS -- 100.0% $ 3,736,297,042
==============
See notes to financial statements.
- --------------------------------------------------------------------------------
53
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investments, at market (cost $2,577,699,271) $ 3,729,121,681
Cash 988
Receivable for securities sold 24,560,629
Dividends receivable 2,339,301
Receivable for fund shares sold 367,293
Interest receivable 12,732
---------------
TOTAL ASSETS 3,756,402,624
---------------
LIABILITIES
Payable for securities purchased 10,369,293
Payable for fund shares redeemed 4,668,382
Accrued expenses 336,900
Due to affiliates 4,731,007
---------------
TOTAL LIABILITIES 20,105,582
---------------
NET ASSETS $ 3,736,297,042
===============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 72,088
Additional paid-in capital 2,295,077,577
Undistributed net investment income 1,352,119
Accumulated net realized gain on investments 288,372,848
Net unrealized appreciation of investments 1,151,422,410
---------------
NET ASSETS $ 3,736,297,042
===============
Shares Outstanding -- $0.001 par value 72,088,129
---------------
NET ASSET VALUE PER SHARE $ 51.83
===============
STATEMENT OF OPERATIONS
SIX MONTHS ENDED
June 30, 1999 (Unaudited)
Investment Income:
Dividends $ 16,203,295
Interest 3,038,560
Less: Foreign tax withheld (7,852)
---------------
Total Income 19,234,003
---------------
Expenses:
Investment advisory fees -- Note B 9,020,458
Custodian fees 186,324
Printing expense 87,305
Legal fees 21,750
Registration fees 13,925
Audit fees 8,750
Directors' fees -- Note B 6,250
Other 350
---------------
Total Expenses 9,345,112
---------------
Net Investment Income 9,888,891
---------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized gain on investments 288,375,087
Net change in unrealized appreciation
of investments (3,613,260)
---------------
Net Realized and Unrealized Gain
on Investments 284,761,827
---------------
Net Increase in Net Assets
from Operations $ 294,650,718
===============
See notes to financial statements.
- --------------------------------------------------------------------------------
54
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
(Unaudited) (Audited)
--------------- --------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 9,888,891 $ 32,273,803
Net realized gain on investments 288,375,087 372,509,200
Net change in unrealized appreciation of investments (3,613,260) 212,338,243
--------------- ---------------
Net Increase in Net Assets from Operations 294,650,718 617,121,246
--------------- ---------------
Dividends and Distributions to Shareholders from:
Net investment income (8,823,177) (32,287,254)
Net realized gain on investments (85,900,990) (380,510,130)
--------------- ---------------
Total Dividends and Distributions to Shareholders (94,724,167) (412,797,384)
--------------- ---------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from capital share transactions--Note G (128,825,390) 238,685,174
--------------- ---------------
Net Increase in Net Assets 71,101,161 443,009,036
Net Assets:
Beginning of period 3,665,195,881 3,222,186,845
--------------- ---------------
End of period* $ 3,736,297,042 $ 3,665,195,881
=============== ===============
* Includes undistributed net investment income of: $ 1,352,119 $ 286,405
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
55
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1999 ------------------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........ $ 49.08 $ 46.05 $ 38.59 $ 34.72 $ 27.33 $ 29.00
------------- ---------- ---------- ---------- ----------- -----------
Income from investment
operations:
Net investment
income ................... 0.14 0.47 0.52 0.53 0.44 0.40
Net realized and
unrealized gain/
(loss) on investments .... 3.96 8.56 12.97 8.62 9.01 (0.77)
------------- ---------- ---------- ---------- ----------- -----------
Net increase/(decrease)
from investment
operations ............... 4.10 9.03 13.49 9.15 9.45 (0.37)
------------- ---------- ---------- ---------- ----------- -----------
Dividends and Distributions
to Shareholders from:
Net investment income ...... (0.13) (0.47) (0.52) (0.54) (0.44) (0.40)
Net realized gain .......... (1.22) (5.53) (5.51) (4.74) (1.62) (0.90)
------------- ---------- ---------- ---------- ----------- -----------
Total dividends and
distributions ............ (1.35) (6.00) (6.03) (5.28) (2.06) (1.30)
------------- ---------- ---------- ---------- ----------- -----------
Net asset value, end of
period ................... $ 51.83 $ 49.08 $ 46.05 $ 38.59 $ 34.72 $ 27.33
------------- ---------- ---------- ---------- ----------- -----------
Total return* ................ 8.44% 19.86% 35.58% 26.90% 34.65% (1.27)%
------------- ---------- ---------- ---------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) .......... $ 3,736,297 $3,665,196 $3,222,187 $2,226,728 $ 1,615,271 $ 1,038,991
Ratio of expenses to
average net assets ....... 0.52%(a) 0.52% 0.52% 0.53% 0.53% 0.53%
Ratio of net investment
income to average net assets 0.55%(a) 0.95% 1.17% 1.50% 1.39% 1.49%
Portfolio turnover
rate ..................... 33% 56% 51% 66% 78% 53%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
56
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
57
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- --------------------
ASSET BACKED -- 8.8%
- --------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 2,700,000 Amresco 1997-1 M1F
7.42% due 3/25/27 $ 2,687,769
4,300,000 Arcadia Automobile Rec. Tr.
1999-A A5
6.12% due 12/15/06 4,258,806
5,500,000 Comed Transitional Funding Tr.
1998 A3
5.34% due 3/25/04 5,395,555
3,600,000 Contimortgage Home Equity Loan Tr.
1999-1 A3
6.17% due 5/25/21 3,548,016
3,200,000 Green Tree Finl. Corp.
1998-4 A5
6.18% due 12/1/17 3,151,680
4,300,000 Peco Energy Transition Tr.
1999-A A6
6.05% due 3/1/09 4,117,594
2,900,000 Pemex Finance Ltd.
6.125% due 11/15/03+ 2,903,799
4,798,000 Premier Auto Tr. 1997-2B
6.53% due 12/6/03 4,822,902
------------
TOTAL ASSET BACKED
(Cost $31,307,116) 30,886,121
------------
- ----------------------------------
COMMERCIAL MORTGAGE BACKED -- 4.9%
- ----------------------------------
$ 3,700,000 Chase Coml. Mtg. Secs. Corp.
1998-1 A2
6.56% due 5/18/08 $ 3,617,120
3,441,905 Comm 1999-1 A1
6.145% due 2/15/08 3,373,033
3,700,000 First Union Coml. Mtg. Tr.
1999-Cl A2
6.07% due 10/15/35 3,485,844
3,305,391 First Union Lehman Brothers
1998-Cl A1
6.28% due 6/18/07 3,251,150
3,483,540 Heller Finl. Coml. Mtg. Asset Co.
1999-PH1 A1
6.50% due 2/15/08 3,451,770
------------
TOTAL COMMERCIAL MORTGAGE BACKED
(Cost $17,663,848) 17,178,917
------------
- ------------------------
CORPORATE BONDS -- 43.2%
- ------------------------
Automotive -- 1.9%
$ 3,500,000 Ford Motor Co.
6.375% due 2/1/29 $ 3,040,951
3,700,000 Ford Motor Credit Co.
5.75% due 2/23/04 3,564,650
------------
6,605,601
------------
Banks -- 3.0%
3,600,000 Capital One Bank
6.48% due 1/28/02 3,568,612
3,500,000 Citicorp
6.375% due 11/15/08 3,324,839
3,600,000 Korea Dev. Bank
7.125% due 9/7/01 3,589,729
------------
10,483,180
------------
Building Products -- 0.4%
1,700,000 Lafarge Corp.
6.375% due 7/15/05 1,656,177
------------
Chemicals-Major -- 2.0%
3,500,000 ICI Wilmington,Inc.
6.75% due 9/15/02 3,496,903
3,500,000 Rohm & Haas
7.85% due 7/15/29 3,497,445
------------
6,994,348
------------
Entertainment -- 2.7%
3,500,000 Time Warner,Inc.
6.95% due 1/15/28 3,235,824
7,100,000 Time Warner,Inc.
6.625% due 5/15/29 6,254,319
------------
9,490,143
------------
Fertilizer -- 1.0%
3,600,000 IMC Global
7.40% due 11/1/02 3,653,240
------------
Financial-Other -- 4.9%
3,500,000 Donaldson Lufkin & Jenrette
Sec. Corp.
6.11% due 5/15/01 3,481,937
3,600,000 Lehman Brothers Hldgs.,Inc.
6.625% due 4/1/04 3,512,545
7,000,000 Lehman Brothers Hldgs.,Inc.
6.00% due 2/26/01 6,915,958
3,500,000 Paine Webber Group,Inc.
6.45% due 12/1/03 3,425,012
------------
17,335,452
------------
Food and Beverage -- 7.6%
3,500,000 Kroger Co.
6.80% due 12/15/18 3,189,309
3,500,000 Fred Meyer,Inc.
7.45% due 3/1/08 3,522,176
3,500,000 Pepsi Bottling Group,Inc.
7.00% due 3/1/29 3,271,754
3,250,000 Safeway,Inc.
5.875% due 11/15/01 3,200,324
3,200,000 Joseph E. Seagram & Sons,Inc.
7.60% due 12/15/28 3,086,522
3,500,000 Joseph E. Seagram & Sons,Inc.
6.40% due 12/15/03 3,444,147
See notes to financial statements.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
58
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 7,200,000 Joseph E. Seagram & Sons,Inc.
6.25% due 12/15/01 $ 7,145,402
------------
26,859,634
------------
Homebuilders -- 1.0%
3,500,000 Marlin Water Trust/Cap.+
7.09% due 12/15/01 3,514,518
------------
Hospital-Supplies -- 1.0%
3,500,000 Mallinckrodt,Inc.+
6.30% due 3/15/11 3,456,555
------------
Insurance -- 1.0%
3,500,000 Conseco,Inc.
6.40% due 6/15/01 3,420,165
------------
Merchandising-Department Stores -- 2.1%
3,750,000 Federated Department
Stores,Inc.
6.125% due 9/1/01 3,724,552
3,600,000 Saks,Inc.
7.25% due 12/1/04 3,607,571
------------
7,332,123
------------
Merchandising-Drugs -- 1.0%
3,500,000 Rite Aid Corp.
6.70% due 12/15/01 3,484,876
------------
Merchandising-Mass -- 1.9%
2,500,000 Aramark Svcs.,Inc.
6.75% due 8/1/04 3,395,837
3,400,000 Wal Mart Stores,Inc.
8.75% due 12/29/06 3,464,940
------------
6,860,777
------------
Miscellaneous-Capital Goods -- 1.4%
5,000,000 Ikon Capital,Inc.
6.73% due 6/15/01 4,954,290
------------
Miscellaneous-Financial -- 1.0%
3,500,000 Comdisco,Inc.
6.13% due 8/1/01 3,469,599
------------
Oil-Integrated Domestic -- 2.9%
3,600,000 Occidental Petroleum Corp.
8.45% due 2/15/29 3,751,189
3,000,000 Occidental Petroleum Corp.
7.65% due 2/15/06 3,018,984
3,500,000 Occidental Petroleum Corp.
7.375% due 11/15/08 3,446,471
------------
10,216,644
------------
Pollution Controls -- 1.0%
3,500,000 USA Waste Svcs.,Inc.
6.125% due 7/15/01 3,476,518
------------
Railroads -- 1.9%
3,600,000 CSX Corp.
7.25% due 5/1/04 3,651,070
3,500,000 Union Pacific Corp.
6.625% due 2/1/29 3,066,059
------------
6,717,129
------------
Telecommunications -- 1.8%
3,500,000 AT & T Corp.
6.50% due 3/15/29 3,147,851
3,500,000 Lucent Technologies,Inc.
6.45% due 3/15/29 3,198,132
------------
6,345,983
------------
Utilities-Electric -- 1.7%
2,500,000 Cinergy Corp.
6.125% due 4/15/04 2,429,572
3,600,000 Niagara Mohawk Power Corp.
6.875% due 3/1/01 3,629,621
------------
6,059,193
------------
TOTAL CORPORATE BONDS
(Cost $156,451,951) 152,386,145
------------
- ------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATION -- 1.6%
- ------------------------------------------
$ 5,749,319 GE Capital Mortgage Svcs.,Inc.
1996-3A7 7.00% due 3/25/26
(Cost $5,757,306) $ 5,695,109
------------
- -------------------------------
MORTGAGE PASS-THROUGHS -- 24.1%
- -------------------------------
FHLMC
$ 15,300,000 6.50%,(30 yr. TBA)(a) $ 14,797,976
753,473 7.00%,8/1/08 758,438
FNMA
13,000,000 6.50%,(30 yr. TBA)(a) 12,565,306
24,900,000 7.00%,(30 yr. TBA)(a) 24,635,438
10,000,000 7.50%,(30 yr. TBA)(a) 10,100,000
6,227,838 6.00%,1/1/29 5,864,319
704,310 6.50%,9/1/12 694,936
6,241,554 6.50%,2013 6,157,417
4,426,921 6.50%,11/1/28 4,284,861
647,537 8.00%,6/1/08 666,186
5,241 8.25%,1/1/09 5,517
284,520 8.50%,8/1/09 297,625
GNMA
4,490,857 6.50%,2029 4,329,052
1,980 11.50%,7/20/00 2,017
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $86,915,360) 85,159,088
------------
- ------------------------
U.S. GOVERNMENT -- 15.4%
- ------------------------
U.S. Treasury Bonds
$ 7,500,000 5.25%,11/15/28 $ 6,637,500
2,500,000 6.625%,2/15/27 2,632,032
U.S. Treasury Notes
6,550,000 5.25%,5/15/04 6,435,375
7,250,000 5.50%,5/15/09 7,080,082
3,000,000 5.625%,5/15/08 2,938,125
See notes to financial statements.
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
59
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
June 30,1999 (Unaudited)(Continued)
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 7,650,000 6.00%,7/31/02 $ 7,726,500
5,500,000 6.125%,8/15/07 5,560,159
1,500,000 6.25%,6/30/02 1,523,907
10,000,000 6.50%,8/15/05 10,309,380
3,400,000 6.625%,4/30/02 3,485,000
------------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $54,813,071) 54,328,060
------------
- -------------------------
COMMERCIAL PAPER -- 19.4%
- -------------------------
Automotive -- 2.9%
$ 10,119,000 General Motors Acceptance Corp.
5.10% due 8/16/99(a) $ 10,071,694
------------
Banks -- 1.5%
5,190,000 Dresdner US Finance
4.86% due 7/14/99(a) 5,180,892
------------
Conglomerates -- 1.4%
5,000,000 BTR Dunlop Finance,Inc.
4.86% due 7/14/99(a) 4,991,225
------------
Financial -- 4.3%
6,498,000 Associates Corp. of North America
4.83% due 7/14/99(a) 6,486,666
4,647,000 Goldman Sachs Group LP
4.82% due 7/14/99(a) 4,638,912
4,000,000 Lehman Brothers Hldgs.,Inc.
4.90% due 7/14/99(a) 3,992,922
------------
15,118,500
------------
Food and Beverage -- 2.5%
8,827,000 Cadbury Schweppes Money Mgt. PLC
5.80% due 7/1/99(b) 8,827,000
------------
Mining -- 3.5%
12,565,000 Rio Tinto America,Inc.
5.00% due 7/14/99(a) 12,542,313
------------
Telecommunications -- 3.3%
11,800,000 Lucent Technologies,Inc.
4.81% due 7/14/99(a) 11,779,504
------------
TOTAL COMMERCIAL PAPER
(Cost $68,511,128) 68,511,128
------------
- ----------------------------
REPURCHASE AGREEMENT -- 4.9%
- ----------------------------
$ 17,222,000 State Street Bank & Trust Co.
repurchase agreement,
dated 6/30/99,maturity
value $17,224,330 at 4.87%,
due 7/1/99 (collateralized by
$3,290,000 Federal Home Loan
Bank Notes,5.125%,due 10/15/03,
by $9,185,000 Federal National
Mortgage Assn. Notes,6.08%,due
5/10/04,and by $5,105,000
Federal Home Loan Bank Notes,
6.13%,due 5/10/04 $ 17,222,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $17,222,000) 17,222,000
------------
TOTAL INVESTMENTS -- 122.3%
(Cost $438,641,780) 431,366,568
------------
PAYABLES FOR REVERSE REPURCHASE
AGREEMENTS(b) -- (2.5%) (8,825,000)
PAYABLES FOR MORTGAGE PASS-THROUGHS
DELAYED DELIVERY
SECURITIES(a) -- (17.6%) (62,098,720)
LIABLITIES IN EXCESS OF CASH,RECEIVABLES
AND OTHER ASSETS -- (2.2%) (7,881,576)
------------
NET ASSETS -- 100.0% $352,561,272
============
(a) Commercial paper with the total amount of $59,684,128 is segregated to
cover forward mortgage purchases.
(b) Commercial paper in the amount of $8,827,000 is segregated to cover
reverse repurchase agreements.
See notes to financial statements.
- --------------------------------------------------------------------------------
60
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investments, at market (cost $438,641,780) $ 431,366,568
Cash 1,342
Receivable for securities sold 18,776,095
Interest receivable 3,698,679
Receivable for fund shares sold 770
-------------
TOTAL ASSETS 453,843,454
=============
LIABILITIES
Payable for forward mortgage
securities -- Note E 62,098,720
Payable for securities purchased 29,611,861
Payable for reverse repurchase
agreements -- Note D 8,825,000
Payable for fund shares redeemed 211,984
Accrued expenses 43,471
Due to affiliates 491,146
-------------
TOTAL LIABILITIES 101,282,182
-------------
NET ASSETS $ 352,561,272
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 3,001,702
Additional paid-in capital 359,046,897
Undistributed net investment income 1,797,106
Accumulated net realized loss on investments (4,009,221)
Net unrealized depreciation of investments (7,275,212)
-------------
NET ASSETS $ 352,561,272
=============
Shares Outstanding -- $0.10 par value 30,017,017
-------------
NET ASSET VALUE PER SHARE $ 11.75
=============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Interest $ 10,944,672
-------------
Expenses:
Investment advisory fees -- Note B 912,934
Custodian fees 51,926
Printing expense 22,131
Interest expense -- reverse repurchase
agreements 15,471
Audit fees 8,750
Directors' fees -- Note B 6,250
Legal fees 1,492
Registration fees 1,326
Other 350
-------------
Total Expenses 1,020,630
-------------
Net Investment Income 9,924,042
=============
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized loss on investments (3,808,421)
Net change in unrealized appreciation
of investments (11,009,297)
-------------
Net Realized and Unrealized Loss
on Investments (14,817,718)
-------------
Net Decrease in Net Assets
from Operations $ (4,893,676)
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
61
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 9,924,042 $ 20,326,792
Net realized gain/(loss) on investments (3,808,421) 7,360,219
Net change in unrealized appreciation of investments (11,009,297) 676,254
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations (4,893,676) 28,363,265
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income (8,310,258) (20,238,880)
Net realized gain on investments (965,081) (4,804,462)
------------- -------------
Total Dividends and Distributions to Shareholders (9,275,339) (25,043,342)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from
capital share transactions -- Note G (14,656,808) 22,655,261
------------- -------------
Net Increase/(Decrease) in Net Assets (28,825,823) 25,975,184
Net Assets:
Beginning of period 381,387,095 355,411,911
------------- -------------
End of period* $ 352,561,272 $ 381,387,095
============= =============
* Includes undistributed net investment income of: $ 1,797,106 $ 183,322
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
62
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1999 -------------------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........... $ 12.23 $ 12.11 $ 11.83 $ 12.25 $ 11.08 $ 12.24
----------- ----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment
income ...................... 0.34 0.69 0.75 0.76 0.76 0.40
Net realized and unrealized
gain/(loss)
on investments .............. (0.51) 0.28 0.29 (0.42) 1.17 (0.82)
----------- ----------- ----------- ----------- ----------- -----------
Net increase/(decrease)
from investment operations .. (0.17) 0.97 1.04 0.34 1.93 (0.42)
----------- ----------- ----------- ----------- ----------- -----------
Dividends and Distributions
to Shareholders from:
Net investment income ......... (0.28) (0.69) (0.76) (0.76) (0.76) (0.68)
Net realized gain ............. (0.03) (0.16) -- -- -- (0.06)
----------- ----------- ----------- ----------- ----------- -----------
Total dividends and
distributions ............... (0.31) (0.85) (0.76) (0.76) (0.76) (0.74)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
period ........................ $ 11.75 $ 12.23 $ 12.11 $ 11.83 $ 12.25 $ 11.08
----------- ----------- ----------- ----------- ----------- -----------
Total return* ................... (1.41)% 8.10% 8.99% 2.88% 17.59% (3.45)%
----------- ----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............. $ 352,561 $ 381,387 $ 355,412 $ 354,433 $ 374,462 $ 308,978
Ratio of expenses to
average net assets .......... 0.56%(a) 0.67% 0.59% 0.54% 0.54% 0.54%
Ratio of expenses (excluding
interest expense)
to average net assets ....... 0.55%(a) 0.55% 0.55% N/A N/A N/A
Ratio of net investment
income to average net assets 5.44%(a) 5.51% 6.15% 6.12% 6.43% 5.69%
Portfolio turnover rate ....... 150% 287% 340% 188% 298% 311%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
63
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
COMMERCIAL PAPER -- 98.9%
- -------------------------
Principal
Amount Value
- --------------------------------------------------------------------------
FINANCIAL -- 19.7%
Bank Holding Companies -- 4.5%
$ 20,000,000 J.P. Morgan & Co., Inc.
4.91% due 9/15/99 $ 19,792,689
-------------
Finance Companies -- 15.2%
20,000,000 Associates First Capital
4.84% due 7/22/99 19,943,533
21,000,000 Bear Stearns Cos., Inc.
4.83% due 7/12/99 20,969,008
6,500,000 Lehman Brothers Hldgs., Inc.
5.587% due 7/29/99 6,500,000
20,000,000 USAA Capital Corp.
5.00% due 7/26/99 19,930,557
-------------
67,343,098
-------------
Total Financial 87,135,787
-------------
INDUSTRIAL -- 79.2%
Automotive -- 13.8%
20,000,000 DaimlerChrysler N.A. Hldgs. Corp.
4.90% due 7/23/99 19,940,111
20,000,000 Ford Motor Credit Co.
4.83% due 7/9/99 19,978,533
21,000,000 General Motors Acceptance Corp.
4.80% due 7/13/99 20,966,400
-------------
60,885,044
-------------
Beverages -- 4.1%
18,000,000 Coca Cola Co.
4.76% due 7/2/99 17,997,620
-------------
Computer Systems -- 4.5%
20,000,000 IBM Credit Corp.
4.83% due 7/19/99 19,951,700
-------------
Conglomerates -- 9.0%
20,000,000 BTR Dunlop Fin., Inc.
4.81% due 7/8/99 19,981,294
20,000,000 General Electric Cap. Corp.
4.86% due 8/2/99 19,913,600
-------------
39,894,894
-------------
Containers-Metals and Plastics -- 5.0%
22,000,000 Sonoco Products Co.
5.80% due 7/1/99 22,000,000
-------------
Drugs -- 4.5%
20,000,000 Pfizer, Inc.
4.88% due 7/15/99 19,962,045
-------------
Machinery and Equipment -- 5.9%
5,000,000 John Deere Capital
5.02% due 7/23/99 4,984,661
8,000,000 John Deere Credit Group PLC
4.82% due 7/6/99 7,994,644
13,360,000 Xerox Capital Europe PLC
5.00% due 7/27/99 13,311,756
-------------
26,291,061
-------------
Metals -- 8.8%
$ 18,000,000 Alcoa, Inc.
4.84% due 8/4/99 17,917,720
21,000,000 Rio Tinto America, Inc.
4.81% due 7/14/99 20,963,524
-------------
38,881,244
-------------
Oil and Gas Services -- 1.6%
7,500,000 Motiva Enterprises
5.04% due 8/5/99 7,463,250
-------------
Oil-Integrated-International -- 4.5%
20,000,000 Shell Oil Co.
4.85% due 8/3/99 19,911,083
-------------
Telecommunications -- 8.7%
20,500,000 Ameritech Capital Fdg. Corp.
4.97% due 7/21/99 20,443,397
18,000,000 Telstra Corp. Ltd.
5.05% due 8/19/99 17,876,275
-------------
38,319,672
-------------
Utilities-Electric -- 8.8%
20,000,000 FPL Group Capital, Inc.
5.00% due 7/6/99 19,986,111
19,000,000 Virginia Electric & Power Co.
4.84% due 7/7/99 18,984,673
-------------
38,970,784
-------------
Total Industrial 350,528,397
-------------
TOTAL COMMERCIAL PAPER
(Cost $437,664,184) 437,664,184
-------------
- ----------------------------
REPURCHASE AGREEMENT -- 2.0%
- ----------------------------
$ 8,924,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/99, maturity value
$8,925,207 at 4.87% due
7/1/99 (collateralized by
$9,105,000 Federal Home Loan
Bank Notes, 6.13% due 5/10/04) $ 8,924,000
-------------
TOTAL REPURCHASE AGREEMENT
(Cost $8,924,000) 8,924,000
-------------
TOTAL INVESTMENTS -- 100.9%
(Cost $446,588,184) 446,588,184
LIABILITIES IN EXCESS OF CASH,
RECEIVABLES AND OTHER
ASSETS -- (0.9%) (3,965,198)
-------------
NET ASSETS -- 100.0% $ 442,622,986
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
64
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investments, at market (cost $446,588,184) $446,588,184
Cash 174
Receivable for fund shares sold 87,040
Interest receivable 3,225
------------
TOTAL ASSETS 446,678,623
------------
LIABILITIES
Payable for fund shares redeemed 3,408,711
Accrued expenses 59,521
Due to affiliates 587,405
------------
TOTAL LIABILITIES 4,055,637
------------
NET ASSETS $442,622,986
============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 4,426,230
Additional paid-in capital 438,196,756
------------
NET ASSETS $442,622,986
============
Shares Outstanding -- $0.10 par value 44,262,299
------------
NET ASSET VALUE PER SHARE $ 10.00
============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Interest $ 10,709,749
------------
Expenses:
Investment advisory fees -- Note B 1,080,809
Custodian fees 42,750
Printing expense 10,182
Audit fees 8,500
Directors' fees -- Note B 6,250
Legal fees 2,050
Registration fees 1,000
Other 350
------------
Total Expenses 1,151,891
------------
Net Investment Income,
Representing Net Increase in
Net Assets from Operations $ 9,557,858
============
See notes to financial statements.
- --------------------------------------------------------------------------------
65
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
- ----------------------------
STATEMENT OF CHANGES IN NET ASSETS
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
(Unaudited) (Audited)
------------- -------------
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 9,557,858 $ 20,633,220
------------- -------------
Net Increase in Net Assets from Operations 9,557,858 20,633,220
------------- -------------
Dividends to Shareholders from:
Net investment income (9,557,858) (20,633,220)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from
capital share transactions -- Note G 23,140,332 51,360,205
------------- -------------
Net Increase in Net Assets 23,140,332 51,360,205
Net Assets:
Beginning of period 419,482,654 368,122,449
------------- -------------
End of period $ 442,622,986 $ 419,482,654
============= =============
See notes to financial statements.
- --------------------------------------------------------------------------------
66
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1999 -------------------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .......... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment
income ..................... 0.22 0.50 0.50 0.49 0.54 0.38
Dividends to
Shareholders from:
Net investment income ........ (0.22) (0.50) (0.50) (0.49) (0.54) (0.38)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
period ....................... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------- ----------- ----------- -----------
Total return* .................. 2.21% 5.10% 5.14% 4.98% 5.52% 3.82%
----------- ----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............ $ 442,623 $ 419,483 $ 368,122 $ 378,322 $ 356,820 $ 386,986
Ratio of expenses to
average net assets 0.53%(a) 0.53% 0.54% 0.54% 0.54% 0.54%
Ratio of net investment
income to average net assets 4.42%(a) 4.99% 5.02% 4.86% 5.39% 3.81%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
67
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ---------------------------------------------
Note A - Organization and Accounting Policies
- ---------------------------------------------
The Guardian Stock Fund, Inc. (GSF), The Guardian Bond Fund, Inc. (GBF)
and The Guardian Cash Fund, Inc. (GCF) (collectively, the Funds and
individually, a Fund), are each incorporated in the state of Maryland and are
diversified open-end management investment companies registered under the
Investment Company Act of 1940, as amended (1940 Act).
GSF offers two classes of shares: Class I and Class II. The Class I shares
of GSF, and shares of GBF and GCF, are only sold to certain separate accounts of
The Guardian Insurance & Annuity Company, Inc. (GIAC). GIAC is a wholly-owned
subsidiary of The Guardian Life Insurance Company of America (Guardian Life).
GSF's Class II shares are offered through the ownership of variable annuities
and variable life insurance policies issued by other insurance companies that
offer GSF as an investment option through their separate accounts. The two
classes of shares for GSF represent interests in the same portfolio of
investments, have the same rights and are generally identical in all respects
except that each class bears certain class expenses, and has exclusive voting
rights with respect to any matter to which a separate vote of any class is
required.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Significant accounting policies of the Funds are as follows:
Investments
Securities listed on national securities exchanges are valued based upon
closing prices on these exchanges. Securities traded in the over-the-counter
market and listed securities for which there have been no trades for the day are
valued at the mean of the bid and asked prices.
Pursuant to valuation procedures approved by the Board of Directors,
certain debt securities may be valued each business day by an independent
pricing service (Service). Debt securities for which quoted bid prices are
readily available and representative of the bid side of the market, in the
judgement of the Service, are valued at the bid price. Other debt securities
that are valued by the Service are carried at fair value as determined by the
Service, based on methods which include consideration of: yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions.
Securities for which market quotations are not readily available,
including certain mortgage-backed securities and restricted securities, are
valued by using methods that each Fund's Board of Directors, in good faith,
believes will accurately reflect their fair value.
The valuation of securities held by GCF is based upon their amortized cost
which approximates market value, in accordance with Rule 2a-7 under the 1940
Act. Amortized cost valuations do not take into account unrealized gains and
losses.
Investment securities transactions are recorded on the date of purchase or
sale. Repurchase agreements are carried at cost, which approximates value (see
Note C).
Net realized gain or loss on sales of investments is determined on an
identified cost basis. Interest income, including amortization of premium and
discount, is recorded when earned. Dividends are recorded on the ex-dividend
date.
Federal Income Taxes
Each Fund qualifies and intends to remain qualified to be taxed as a
"regulated investment company" under the provisions of the Internal Revenue Code
(Code), and as such will not be subject to federal income tax on investment
income (including any realized capital gains) which is distributed to its
shareholders in accordance with the applicable provisions of the Code.
Therefore, no federal income tax provision is required.
Reclassifications of Capital Accounts
The treatment for financial statement purposes of distributions made
during the year from net investment income and net realized gains may differ
from their ultimate treatment for federal income tax purposes. These
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
differences primarily are caused by differences in the timing of the recognition
of certain components of income or capital gain, and the recharacterization of
foreign exchange gains or losses to either ordinary income or realized capital
gains for federal income tax purposes. Where such differences are permanent in
nature, they are reclassified in the components of net assets based on their
ultimate characterization for federal income tax purposes. Any such
reclassifications will have no effect on net assets, results of operations, or
net asset value per share of the Fund.
Dividend Distributions
GSF and GBF intend to distribute each year, as dividends or capital gain
distributions, substantially all net investment income and net capital gains
realized. All such dividends or distributions are credited in the form of
additional shares of the applicable Fund at net asset value on the ex-dividend
date. Such distributions are determined in conformity with federal income tax
regulations. Differences between the recognition of income on an income tax
basis and recognition of income based on generally accepted accounting
principles may cause temporary overdistributions of net realized gains and net
investment income. Currently, the policy of GSF and GBF is to distribute net
investment income approximately every six months and net capital gains annually.
This policy is, however, subject to change at any time by each Fund's Board of
Directors.
GCF earns interest on its investments daily and distributes all of its net
investment income, increased or decreased by realized gains or losses, each day
GCF is open for business. Earnings for Saturdays, Sundays and holidays are paid
as a dividend on the next business day.
All dividends and distributions are credited in the form of additional
shares of GCF at net asset value on the payable date.
- -----------------------------------------
Note B -- Investment Advisory Agreements
and Payments to Related Parties
- -----------------------------------------
Each Fund has an investment advisory agreement with Guardian Investor
Services Corporation (GISC), a wholly-owned subsidiary of GIAC. GISC receives a
management fee from each Fund computed at the rate of .50% of the daily average
net assets during the fiscal year, payable quarterly. If total expenses of any
Fund (excluding taxes, interest and brokerage commissions, but including the
investment advisory fee) exceed 1% per annum of the average daily net assets of
the Fund, GISC has agreed to assume any such expenses. None of the Funds
exceeded this limit during the six months ended June 30, 1999.
No compensation is paid by any of the Funds to a director who is deemed to
be an "interested person" (as defined in the 1940 Act) of a Fund. Each director
not deemed an "interested person" is paid an annual fee of $500 by each Fund,
and $350 for attendance at each meeting of each Fund.
- ------------------------------
Note C - Repurchase Agreements
- ------------------------------
Collateral underlying repurchase agreements takes the form of either cash
or fully negotiable U.S. government securities. Repurchase agreements are fully
collateralized (including the interest earned thereon) and such collateral is
marked-to-market daily while agreements remain in force. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Funds will require the seller to deposit additional collateral by
the next business day. If the request for additional collateral is not met, or
the seller defaults, the Funds maintain the right to sell the collateral and may
claim any resulting loss against the seller. Each Fund's Board of Directors has
established standards to evaluate creditworthiness of broker-dealers and banks
which engage in repurchase agremeents with each Fund.
- --------------------------------------
Note D - Reverse Repurchase Agreements
- --------------------------------------
GBF may enter into reverse repurchase agreements with banks or third-party
broker-dealers to borrow short-term funds. Interest on the value of reverse
repurchase agreements is based upon competitive market rates at the time of
issuance. At the time GBF enters into a reverse repurchase agreement, it
establishes and maintains cash, U.S. government securities or liquid,
unencumbered securities that are marked-to-market daily in a segregated account
with the Fund's custodian. The value of such segregated assets must be at least
equal to the value of the repurchase obligation (principal plus accrued
interest), as
- --------------------------------------------------------------------------------
69
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, The Guardian Bond Fund,
The Guardian Cash Fund
- ------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
applicable. Reverse repurchase agreements involve the risk that the buyer of the
securities sold by GBF may be unable to deliver the securities when the Fund
seeks to repurchase them. Interest paid on reverse repurchase agreements for the
six months ended June 30, 1999 amounted to $15,471.
Information regarding transactions by GBF under reverse repurchase
agreement is as follows:
Face Market
Value Value
----- -----
$8,825,000 Reverse Repurchase Agreement with Lehman Brothers,
Inc., 5.80% dated 6/30/99, to be repurchased at
$8,826,054 on 7/1/99 .............................. $ 8,825,000
Average amount outstanding during the period ...... $ 2,766,901
Weighted average interest rate during the period .. 1.18%
- ----------------------------------
Note E -- Dollar Roll Transactions
- ----------------------------------
GBF may enter into dollar roll transactions with financial institutions to
take advantage of opportunities in the mortgage market. A dollar roll
transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase similar securities at an agreed upon price
and date. The securities repurchased will bear the same interest as those sold,
but generally will be collateralized at time of de livery by different pools of
mortgages with different prepayment histories than those securities sold. Dur
ing the period between the sale and repurchase, the Fund will not be entitled to
receive interest and prin cipal payments on the securities sold. Dollar roll
trans actions involve the risk that the buyer of the securities sold by GBF may
be unable to deliver the securities when GBF seeks to repurchase them.
- --------------------------------
Note F - Investment Transactions
- --------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the six months ended June 30, 1999 were as follows:
GSF GBF
--- ---
Purchases ................................ $1,164,620,505 $ 541,265,586
Proceeds ................................. $1,367,976,179 $ 533,387,965
The cost of investments owned at June 30, 1999 for federal income tax
purposes was the same as for financial reporting purposes. The gross unrealized
appreciation and depreciation of investments at June 30, 1999 for GSF and GBF
were as follows:
GSF GBF
--- ---
Gross Appreciation........................ $1,195,799,924 $ 282,828
Gross Depreciation........................ (44,377,514) (7,558,040)
-------------- -------------
Net Unrealized Appreciation/(Depreciation) $1,151,422,410 $ (7,275,212)
============== =============
- --------------------------------------------------------------------------------
70
<PAGE>
- --------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
- --------------------------------------
Note G - Transactions in Capital Stock
- --------------------------------------
There are 400,000,000 shares of $0.001 par value capital stock authorized
for GSF, divided into two classes, designated Class I and Class II shares. GSF
Class I consists of 300,000,000 shares and Class II consists of 100,000,000
shares. There are 100,000,000 shares of $0.10 par value capital stock authorized
for GBF and GCF. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
(Unaudited) (Audited) (Unaudited) (Audited)
- --------------------------------------------------------------------------------------------------------
Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian Stock Fund, Inc.
Shares sold 2,237,910 7,866,954 $ 112,581,066 $ 380,142,286
Shares issued in reinvestment of
dividends and distributions 1,892,590 8,374,382 94,724,167 412,797,384
Shares repurchased (6,713,544) (11,538,716) (336,130,623) (554,254,496)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) (2,583,044) 4,702,620 $(128,825,390) $ 238,685,174
- --------------------------------------------------------------------------------------------------------
o The Guardian Bond Fund, Inc.
Shares sold 2,403,044 6,974,815 $ 29,259,135 $ 87,077,087
Shares issued in reinvestment of
dividends and distributions 794,802 2,050,219 9,275,339 25,043,342
Shares repurchased (4,373,961) (7,180,997) (53,191,282) (89,465,168)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) (1,176,115) 1,844,037 $ (14,656,808) $ 22,655,261
- --------------------------------------------------------------------------------------------------------
o The Guardian Cash Fund, Inc.
Shares sold 18,094,877 45,585,640 $ 180,948,763 $ 455,856,396
Shares issued in reinvestment of
dividends 955,786 2,063,322 9,557,858 20,633,220
Shares repurchased (16,736,629) (42,512,942) (167,366,289) (425,129,411)
- --------------------------------------------------------------------------------------------------------
Net increase 2,314,034 5,136,020 $ 23,140,332 $ 51,360,205
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
71
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- ----------------------
COMMON STOCKS -- 93.1%
- ----------------------
<TABLE>
<CAPTION>
Market
Shares Cost Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Agriculture -- 1.2%
88,550 Archer-Daniels-Midland Co. $ 1,559,531 $ 1,366,991
20,000 Pioneer Hi-Bred International Inc. 745,656 778,750
------------ ------------
2,305,187 2,145,741
------------ ------------
Automotive: Parts and Accessories -- 4.6%
25,000 Dana Corp. 973,523 1,151,562
60,000 GenCorp Inc. 1,000,144 1,515,000
65,000 Modine Manufacturing Co. 2,227,786 2,116,562
58,600 Standard Motor Products Inc. 1,292,143 1,435,700
20,000 Superior Industries International Inc. 509,781 546,250
22,000 TransPro Inc. 182,531 115,500
60,000 Wynn's International Inc. 719,079 1,106,250
------------ ------------
6,904,987 7,986,824
------------ ------------
Aviation: Parts and Services -- 2.2%
18,000 AAR Corp. 250,688 408,375
5,000 Aviall Inc. 75,250 94,063
38,000 Barnes Group Inc. 962,421 826,500
16,000 Curtiss-Wright Corp. 470,869 622,000
75,000 Fairchild Corp., Cl. A 1,499,850 956,250
7,500 Hi-Shear Industries Inc. 21,717 19,336
22,000 Kaman Corp., Cl. A 315,843 345,125
15,000 Moog Inc., Cl. A + 404,750 515,625
------------ ------------
4,001,388 3,787,274
------------ ------------
Broadcasting -- 5.5%
70,000 Ackerley Communications Inc. 598,717 1,273,125
50,482 Chris-Craft Industries Inc. 2,107,887 2,378,964
18,000 Gray Communications Systems Inc. 326,825 360,000
80,000 Gray Communications Systems Inc., Cl. B 1,015,412 1,130,000
15,000 Hearst-Argyle Television Inc.+ 285,505 360,000
41,000 Liberty Corp. 2,035,802 2,234,500
17,500 United Television Inc. 1,496,314 1,835,312
------------ ------------
7,866,462 9,571,901
------------ ------------
Building and Construction -- 0.6%
35,500 Nortek Inc. 1,035,180 1,111,594
------------ ------------
Business Services -- 1.5%
35,000 Cendant Corp. + 498,400 717,500
37,000 Nashua Corp. + 526,796 365,375
50,000 Rental Service Corp. + 1,430,625 1,431,250
------------ ------------
2,455,821 2,514,125
------------ ------------
Cable -- 6.9%
102,000 Cablevision Systems Corp., Cl. A + 954,257 7,140,000
60,000 MediaOne Group Inc. 1,847,623 4,462,500
5,000 United International Holdings Inc., Cl. A+ 72,961 338,125
------------ ------------
2,874,841 11,940,625
------------ ------------
Computer Software and Services -- 0.1%
20,000 Tyler Technologies Inc. 43,700 137,500
------------ ------------
Consumer Products -- 3.1%
103,000 Carter-Wallace Inc. 1,656,703 1,873,313
40,000 Gallaher Group plc 831,545 977,500
93,000 General Cigar Holdings Inc. + 908,460 726,563
18,000 General Cigar
Holdings Inc., Cl. B (a) 164,173 140,625
35,000 General Housewares Corp. 365,088 680,313
25,000 National Presto Industries Inc. 964,266 956,250
------------ ------------
4,890,235 5,354,564
------------ ------------
Consumer Services -- 1.8%
200,000 Rollins Inc. 3,862,912 3,187,500
------------ ------------
Diversified Industrial -- 2.3%
40,000 Ampco-Pittsburgh Corp. 639,125 512,500
7,000 Crane Co. 108,711 220,063
40,000 GATX Corp. 1,147,578 1,522,500
58,000 Katy Industries Inc. 848,600 754,000
26,000 Tenneco Inc. 781,403 620,750
60,000 WHX Corp. 704,419 393,750
------------ ------------
4,229,836 4,023,563
------------ ------------
Energy and Utilities -- 3.9%
4,000 Cilcorp Inc. 241,950 250,000
200,000 Citizens Utilities Co., Cl. B 1,985,251 2,225,000
30,000 Eastern Enterprises 1,123,188 1,192,500
20,000 El Paso Electric Co. + 167,375 178,750
7,400 Florida Public Utilities Co. 118,270 139,675
90,000 Kaneb Services Inc. + 274,500 382,500
7,000 New England Electric System 337,864 350,875
65,000 PennzEnergy Co. + 1,140,013 1,084,688
20,000 Southwest Gas Corp. 522,646 572,500
3,000 TNP Enterprises Inc. 114,206 108,750
12,000 Wicor Inc. 337,425 335,250
------------ ------------
6,362,688 6,820,488
------------ ------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
72
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Cost Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Entertainment -- 12.8%
80,000 Ascent Entertainment Group Inc.+ $ 887,965 $ 1,130,000
25,000 Fisher Companies Inc. 1,691,606 1,575,000
20,000 Florida Panthers Holdings Inc. + 186,626 213,750
40,000 GC Companies Inc. + 1,588,242 1,430,000
200,000 Liberty Media Group, Cl. A + 1,309,226 7,350,000
38,000 Time Warner Inc. 773,919 2,793,000
75,000 USA Networks Inc. + 1,063,546 3,009,375
108,000 Viacom Inc., Cl. A + 1,786,631 4,765,500
------------ ------------
9,287,761 22,266,625
------------ ------------
Environmental Services -- 0.1%
51,000 EnviroSource Inc. + 353,095 108,375
------------ ------------
Equipment and Supplies -- 9.7%
35,000 AMETEK Inc. 633,686 805,000
21,000 Belden Inc. 400,562 502,687
5,000 Case Corp. 244,646 240,625
38,000 CLARCOR Inc. 723,141 729,125
4,000 CTS Corp. 59,850 280,000
12,000 Cuno Inc. + 206,114 229,500
4,500 Eastern Co. 74,750 80,437
115,500 Fedders Corp. 682,345 772,406
70,000 Flowserve Corp. 1,557,111 1,325,625
12,500 Franklin Electric Co. Inc. 409,386 812,500
20,000 Holophane Corp. 761,000 762,500
80,000 Hussmann International Inc. 1,092,125 1,325,000
42,000 IDEX Corp. 1,246,488 1,380,750
100,000 International Comfort Products Corp. 1,148,750 1,137,500
11,000 Kollmorgen Corp. 184,732 165,000
25,000 Mark IV Industries Inc. 363,787 528,125
21,000 Navistar International Corp. + 419,350 1,050,000
28,000 Pittway Corp. 527,107 932,750
30,000 Sequa Corp., Cl. A + 1,048,824 2,100,000
43,000 SPS Technologies Inc. + 1,898,851 1,612,500
------------ ------------
13,682,605 16,772,030
------------ ------------
Financial Services -- 5.9%
62,000 American Bankers Insurance Group Inc. 3,696,363 3,375,125
60,000 Argonaut Group Inc. 1,837,601 1,440,000
30,000 Block (H & R) Inc. 1,331,293 1,500,000
8,000 Citigroup Inc. 374,819 380,000
24,000 Mellon Bank Corp. 758,895 873,000
47,000 Midland Co. 706,479 1,192,625
55,000 Pioneer Group Inc. 1,307,463 948,750
7,000 Republic New York Corp. 475,975 477,313
------------ ------------
10,488,888 10,186,813
------------ ------------
Food and Beverage -- 7.9%
4,000 Bestfoods Inc. 193,171 198,000
90,000 Celestial Seasonings Inc. + 1,049,441 1,935,000
45,000 Corn Products International Inc. 1,411,372 1,369,687
22,000 General Mills Inc. 1,522,319 1,768,250
18,000 Heinz (H.J.) Co. 965,487 902,250
48,000 Kellogg Co. 1,810,789 1,584,000
50,000 PepsiCo Inc. 1,898,984 1,934,375
30,000 Seagram Co. 1,022,973 1,511,250
22,660 Tootsie Roll Industries Inc. 400,141 875,242
28,000 Twinlab Corp. 328,301 240,625
80,000 Whitman Corp. 1,266,773 1,440,000
------------ ------------
11,869,751 13,758,679
------------ ------------
Health Care -- 1.0%
120,000 IVAX Corp. + 1,171,880 1,695,000
------------ ------------
Hotels and Gaming -- 3.9%
150,000 Aztar Corp. + 1,088,984 1,378,125
100,000 Gaylord Entertainment Co., Cl. A 2,735,008 3,000,000
100,000 Hilton Hotels Corp. 1,668,074 1,418,750
100,000 Jackpot Enterprises Inc. 1,095,401 850,000
45,000 Trump Hotels & Casino Resorts Inc. + 365,938 205,313
------------ ------------
6,953,405 6,852,188
------------ ------------
Publishing -- 6.7%
17,000 Harcourt General Inc. 803,413 876,563
24,000 Lee Enterprises Inc. 591,706 732,000
20,500 McClatchy News-papers Inc., Cl. A 559,269 679,062
70,000 Media General Inc., Cl. A 2,869,296 3,570,000
13,000 Meredith Corp. 267,779 450,125
31,500 Penton Media Inc. 435,535 763,875
18,000 Pulitzer Publishing Co. 501,751 874,125
50,000 Reader's Digest Association Inc., Cl. B 1,230,094 1,875,000
82,000 Thomas Nelson Inc. 987,793 912,250
10,000 Times Mirror Co., Cl. A 587,563 592,500
3,000 Tribune Co. 164,400 261,375
------------ ------------
8,998,599 11,586,875
------------ ------------
Real Estate -- 1.3%
115,000 Catellus Development Corp. 1,897,776 1,782,500
35,000 Griffin Land & Nurseries Inc. 493,263 415,625
------------ ------------
2,391,039 2,198,125
------------ ------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
73
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- --------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited) (Continued)
<TABLE>
<CAPTION>
Market
Shares Cost Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail -- 1.5%
5,000 Aaron Rents Inc. $ 100,625 $ 111,250
10,000 Aaron Rents Inc., Cl. A 199,750 180,000
10,000 AutoNation Inc. + 161,313 178,125
40,000 Lillian Vernon Corp. 631,288 520,000
53,000 Neiman Marcus Group Inc. + 1,230,033 1,361,438
37,000 Scheib (Earl) Inc. 268,037 175,750
------------ ------------
2,591,046 2,526,563
------------ ------------
Satellite -- 0.8%
43,000 COMSAT Corp. 944,715 1,397,500
------------ ------------
Shipbuilding -- 0.3%
15,000 Avondale Industries Inc. + 572,813 585,000
------------ ------------
Specialty Chemicals -- 1.9%
18,500 Bush Boake Allen Inc. + 545,292 541,125
5,000 Dexter Corp. 161,500 204,062
28,000 Ferro Corp. 513,913 770,000
15,000 Nalco Chemical Co. 773,250 778,125
52,000 Sybron Chemicals Inc. 1,378,505 923,000
------------ ------------
3,372,460 3,216,312
------------ ------------
Telecommunications -- 0.6%
10,000 GST Telecommunications Inc. + 126,012 131,875
60,000 Rogers Communications Inc., Cl. B + 383,044 971,250
------------ ------------
509,056 1,103,125
------------ ------------
Wireless Communications -- 5.0%
65,000 Rogers Cantel Mobile
Communications Inc., Cl. B + 665,179 1,068,437
105,000 Telephone & Data Systems Inc. 4,492,674 7,671,563
------------ ------------
5,157,853 8,740,000
------------ ------------
TOTAL COMMON STOCKS 125,178,203 161,574,909
------------ ------------
<CAPTION>
Principal Market
Amount Cost Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 7.7%
$13,592,000 U.S. Treasury Bills,
4.35% to 4.78% ++,
due 07/01/99
to 10/07/99 $ 13,464,189 $ 13,462,221
------------ ------------
TOTAL
INVESTMENTS -- 100.8% $138,642,392* 175,037,130
============
OTHER ASSETS AND
LIABILITIES (Net) -- (0.8)% (1,456,893)
------------
NET ASSETS -- 100.0% $173,580,237
============
*For Federal tax purposes:
Aggregate cost $138,642,392
============
Gross unrealized appreciation $ 43,431,353
Gross unrealized depreciation (7,036,615)
-----------
Net unrealized appreciation $ 36,394,738
============
</TABLE>
(a) Security fair valued as determined by the Board of Directors.
+ Non-income producing security.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
74
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
Assets:
Investments, at value (Cost $138,642,392) $175,037,130
Cash 1,173
Dividends and interest receivable 74,227
Receivable for investments sold 1,185,000
Deferred organizational expenses 16,659
------------
Total Assets 176,314,189
------------
Liabilities:
Payable for investments purchased 2,541,300
Payable for investment advisory fees 139,231
Other accrued expenses 53,421
------------
Total Liabilities 2,733,952
------------
Net Assets applicable to 9,417,427 shares
outstanding $173,580,237
============
Net Assets consist of:
Capital stock, at par value $ 9,417
Additional paid-in capital 127,155,690
Accumulated net investment income 90,510
Accumulated net realized gain
on investments 9,929,882
Net unrealized appreciation on investments 36,394,738
------------
Total Net Assets $173,580,237
============
Net Asset Value, offering and redemption
price per share ($173,580,237 / 9,417,427
shares outstanding, 500,000,000 shares
authorized of $0.001 par value) $ 18.43
============
STATEMENT OF OPERATIONS
For the Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Dividends $ 813,587
Interest 149,744
------------
Total Investment Income 963,331
------------
Expenses:
Management fees 794,082
Custodian fees 21,792
Legal and audit fees 19,083
Directors' fees 11,723
Organizational expenses 9,917
Shareholder services fees 5,317
Miscellaneous expenses 10,853
------------
Total Expenses 872,821
------------
Net Investment Income 90,510
------------
Net Realized and Unrealized Gain on
Investments:
Net realized gain on investments 10,615,855
Net change in unrealized appreciation
on investments 10,076,076
------------
Net realized and unrealized gain
on investments 20,691,931
------------
Net increase in net assets resulting
from operations $ 20,782,441
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
75
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- ----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
------------- -------------
<S> <C> <C>
Operations:
Net investment income $ 90,510 $ 257,776
Net realized gain on investments 10,615,855 7,189,741
Net change in unrealized appreciation on investments 10,076,076 5,528,146
------------- -------------
Net increase in net assets resulting from operations 20,782,441 12,975,663
------------- -------------
Distributions to shareholders:
Net investment income -- (257,776)
Net realized gain on investments -- (7,198,434)
In excess of net realized gain on investments -- (626,865)
------------- -------------
Total distributions to shareholders -- (8,083,075)
------------- -------------
Capital share transactions:
Net increase/(decrease) in net assets from capital
share transactions (2,563,171) 45,118,114
------------- -------------
Net increase in net assets 18,219,270 50,010,702
Net Assets:
Beginning of period 155,360,967 105,350,265
------------- -------------
End of period $ 173,580,237 $ 155,360,967
============= =============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
76
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ---------------
1. Organization
- ---------------
The Gabelli Capital Asset Fund (the "Fund"), a series of Gabelli Capital
Series Funds, Inc. (the "Company"), was organized on April 8, 1993 as a Maryland
corporation. The Company is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund's primary objective is growth of capital. The Fund
commenced investment operations on May 1, 1995. Shares of the Fund are available
to the public only through the purchase of certain variable annuity and variable
life insurance contracts issued by The Guardian Insurance & Annuity Company,
Inc. ("Guardian").
- ----------------------------------
2. Significant Accounting Policies
- ----------------------------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. 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.
Security Valuation.
Portfolio securities listed or traded on a nationally recognized
securities exchange, quoted by the National Association of Securities Dealers
Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are valued
at the last sale price on that exchange as of the close of business on the day
the securities are being valued (if there were no sales that day, the security
is valued at the average of the closing bid and asked prices or, if there were
no asked prices quoted on that day, then the security is valued at the closing
bid price on that day). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, LLC
(the successor to Gabelli Funds, Inc. as investment adviser) (the "Adviser").
Securities and assets for which market quotations are not readily available are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Board of Directors.
Short term debt securities with remaining maturities of 60 days or less are
valued at amortized cost, unless the Directors determine such does not reflect
the securities' fair value, in which case these securities will be valued at
their fair value as determined by the Directors. Short term debt instruments
having a greater maturity are valued at the highest bid price obtained from a
dealer maintaining an active market in those securities. Options are valued at
the last sale price on the exchange on which they are listed. If no sales of
such options have taken place that day, they will be valued at the mean between
their closing bid and asked prices.
Securities Transactions and Investment Income.
Securities transactions are accounted for on the trade date with realized
gain or loss on the sale of investments determined by using the identified cost
method. Interest income (including amortization of premium and accretion of
discount) is recorded as earned. Dividend income is recorded on the ex-dividend
date.
Dividends and Distributions to Shareholders.
Dividends and distributions to shareholders are recorded on the
ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund.
Provision for Income Taxes.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. As a result, a Federal income tax provision is not required.
- --------------------------------------------------------------------------------
77
<PAGE>
- --------------------------------------------------------------------------------
Gabelli Capital Asset Fund
- ---------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
Organizational Expenses.
A total of $100,000 in expenses was incurred in connection with the
organization of the Fund. These costs were advanced by Guardian and will be
reimbursed by the Fund. These organizational costs were deferred and are being
amortized on a straight-line basis over a period of 60 months from the date the
Fund commenced investment operations.
- -------------------------------------
3. Agreements with Affiliated Parties
- -------------------------------------
Pursuant to a management agreement (the "Management Agreement"), the Fund
will pay Guardian Investor Services Corporation (the "Manager") a fee, computed
daily and paid monthly, at the annual rate of 1.00% of the value of the Fund's
average daily net assets. Pursuant to an Investment Advisory Agreement among the
Fund, the Manager and the Adviser, the Adviser, under the supervision of the
Company's Board of Directors and the Manager, manages the Fund's assets in
accordance with the Fund's investment objectives and policies, makes investment
decisions for the Fund, places purchase and sale orders on behalf of the Fund,
provides investment research and provides facilities and personnel required for
the Fund's administrative needs. The Adviser may delegate its administrative
role and currently has done so to First Data Investor Services Group, Inc., the
Fund's sub-administrator (the "Sub-Administrator"). The Adviser will supervise
the performance of administrative and professional services provided by others
and pays the compensation of the Sub-Administrator and all officers and
Directors of the Company who are its affiliates. As compensation for its
services and the related expenses borne by the Adviser, the Manager pays the
Adviser a fee, computed daily and paid monthly, at the annual rate of 0.75% of
the value of the Fund's average daily net assets.
- -----------------------
4. Portfolio Securities
- -----------------------
Purchases and proceeds from the sales of securities for the six months
ended June 30, 1999, other than short term securities, aggregated $39,607,071
and $54,178,606, respectively.
- -------------------------------
5. Transactions with Affiliates
- -------------------------------
During the six months ended June 30, 1999, the Fund paid brokerage
commissions of $84,921 to Gabelli & Company, Inc. and its affiliates.
- -----------------------------
6. Capital Stock Transactions
- -----------------------------
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
---------------- -----------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold 1,252,187 $ 21,640,008 4,460,537 $ 73,364,220
Shares issued upon re-
investment of dividends -- -- 512,885 8,083,075
Shares redeemed (1,426,904) (24,203,179) (2,262,453) (36,329,181)
------------ ------------ ------------ ------------
Net increase/(descrease) (174,717) $ (2,563,171) 2,710,969 $ 45,118,114
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
78
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1999 --------------------------------------------------------
(Unaudited) 1998 1997 1996 1995+
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period .......... $ 16.20 $ 15.31 $ 11.55 $ 10.70 $ 10.00
--------- --------- --------- --------- ---------
Net investment income ......................... 0.01 0.03 0.02 0.02 0.03(a)
Net realized and unrealized gain on investments 2.22 1.74 4.88 1.16 0.80
--------- --------- --------- --------- ---------
Total from investment operations .............. 2.23 1.77 4.90 1.18 0.83
--------- --------- --------- --------- ---------
Distributions to shareholders:
Net investment income ......................... -- (0.03) (0.02) (0.02) (0.03)
Net realized gain on investments .............. -- (0.78) (1.12) (0.31) (0.09)
In excess of net realized gain on investments . -- (0.07) (0.00)(b) -- (0.01)
--------- --------- --------- --------- ---------
Total distributions ........................... -- (0.88) (1.14) (0.33) (0.13)
--------- --------- --------- --------- ---------
Net asset value, end of period ................ $ 18.43 $ 16.20 $ 15.31 $ 11.55 $ 10.70
--------- --------- --------- --------- ---------
Total return++ ................................ 13.8% 11.7% 42.6% 11.0% 8.4%
--------- --------- --------- --------- ---------
Ratios to average net assets and supplemental data:
Net assets, end of period (in 000's) .............. $ 173,580 $ 155,361 $ 105,350 $ 51,462 $ 26,364
Ratio of net investment income to average
net assets ...................................... 0.11%(c) 0.19% 0.17% 0.21% 0.75%(c)
Ratio of operating expenses to average
net assets (d) .................................. 1.10%(c) 1.12% 1.17% 1.31% 1.78%(c)
Portfolio turnover rate ........................... 26% 43% 65% 53% 81%
</TABLE>
- ----------
+ From commencement of operations on May 1, 1995.
++ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period including reinvestment of dividends. Total return for the period of
less than one year is not annualized.
(a) Net investment income before expenses assumed by the Manager and Adviser
was $0.03.
(b) Amount represents less than $0.005 per share.
(c) Annualized.
(d) The ratio of operating expenses to average net assets before reimbursement
of expenses assumed by the Manager and Adviser would have been 1.92% for
the period ended December 31, 1995.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
79
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- --------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- ----------------------
COMMON STOCKS -- 98.8%
- ----------------------
Shares Value
- -----------------------------------------------------------------------
AUSTRALIA -- 2.9%
Banks -- 1.1%
221,600 Commonwealth Bank of Australia $ 3,523,053
243,700 National Australia Bank 4,027,447
Beverages -- 0.4%
1,163,700 Fosters Brewing Group 3,275,525
Business Services -- 0.5%
133,910 Brambles Industries Ltd. 3,523,144
Mining -- 0.6%
269,100 Broken Hill Ppty. 3,113,049
773,000 Pasminco Ltd.* 852,334
Telecommunications -- 0.3%
351,000 Telstra Corp. 2,008,671
------------
20,323,223
------------
CHILE -- 0.1%
Mining -- 0.1%
129,500 Antofagasta Hldgs. 594,002
------------
FINLAND -- 1.9%
Telecommunications -- 1.9%
148,600 Nokia OYJ 13,020,670
------------
FRANCE -- 8.1%
Banks -- 1.0%
38,910 Societe Generale 6,854,864
Computer Software and Technology -- 1.0%
45,040 CAP Gemini 7,075,855
Construction Materials -- 0.9%
66,000 Lafarge 6,272,930
Financial Services -- 1.5%
89,010 AXA UAP 10,854,733
Oil-Integrated -- 2.4%
115,310 Elf Aquitaine 16,914,823
Retail-Food and Drug -- 1.3%
62,100 Carrefour 9,122,252
------------
57,095,457
------------
GERMANY -- 10.3%
Automotive -- 1.9%
150,460 DaimlerChrysler AG 13,028,545
Banks -- 1.0%
112,500 Bayerische Vereinsbank AG 7,306,151
Chemicals -- 1.7%
266,000 BASF AG 11,749,734
Drugs and Health Care -- 0.6%
99,440 GEHE AG 4,571,846
Industrial Machineries -- 3.5%
163,930 Mannesmann AG 24,503,156
Software -- 1.4%
29,090 SAP AG 9,835,878
Telecommunications -- 0.2%
38,730 Deutsche Telekom* 1,624,941
------------
72,620,251
------------
HONG KONG -- 2.6%
Conglomerates -- 1.3%
991,000 Hutchison Whampoa 8,972,978
Real Estate -- 0.9%
409,000 Cheung Kong Hldgs. 3,637,383
311,000 Sun Hung Kai Pptys. 2,835,982
Telecommunications -- 0.4%
1,002,800 Hong Kong Telecom. 2,604,390
------------
18,050,733
------------
HUNGARY -- 0.3%
Pharmaceuticals -- 0.3%
51,700 Richter Gedeon VEG 2,247,315
------------
IRELAND -- 2.6%
Banks -- 1.2%
650,100 Allied Irish Bank 8,544,486
Construction Materials -- 1.4%
555,000 CRH PLC 9,840,496
------------
18,384,982
------------
ITALY -- 3.1%
Banks -- 2.3%
3,457,000 Banco di Roma 4,971,291
818,860 Sao Paolo IMI SPA 11,142,411
Oil and Gas -- 0.1%
189,600 Tecnost SPA* 467,124
Telecommunications -- 0.7%
2,032,600 Olivetti SPA* 4,882,063
2,032,600 Olivetti SPA (rights)* 273,437
------------
21,736,326
------------
JAPAN -- 24.2%
Automotive -- 0.6%
101,000 Honda Motor Co. 4,283,128
Automotive Parts -- 0.9%
295,000 Denso Corp. 5,999,008
Chemicals -- 2.7%
408,000 Kao Corp. 11,467,306
1,715,000 Sumitomo Chemical* 7,868,273
Computer Systems -- 1.7%
590,000 Fujitsu Ltd. 11,876,085
Drugs and Health Care -- 1.0%
284,000 Sankyo Co. 7,160,453
Electronics -- 4.3%
1,105,000 Hitachi 10,367,653
460,000 Matsushita Electric Works 4,441,432
43,000 Rohm Co. 6,735,967
47,600 Sony Corp. 5,134,992
41,000 TDK Corp. 3,751,922
Engineering and Machineries -- 0.9%
57,300 SMC Corp.* 6,418,244
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
80
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- -----------------------------------------------------------------------
Financial Services -- 4.7%
477,000 Mitsubishi Trading & Brokerage $ 4,637,117
433,000 Nomura Securities Co. Ltd. 5,072,010
134,100 Promise Co. 7,926,056
729,000,000 Sanwa Int'l. Financial 6,327,602
12,800 Shohkoh Fund & Co. 9,184,426
Leisure Products -- 0.4%
18,100 Toho Co. 2,648,342
Merchandising-Mass -- 1.2%
33,500 Ryohin Keikaku Co. Ltd. 8,432,462
Photography -- 0.6%
105,000 Fuji Photo Film Co. 3,975,366
Retail Trade -- 0.8%
80,000 Ito Yokado Co. 5,356,700
Telecommunications -- 3.7%
975 Nippon Tele. & Tel. Corp. 11,364,388
217 NTT Mobile Comm. Network, Inc. 2,941,886
868 NTT Mobile Comm.
Network, Inc. - New* 11,624,039
Tobacco -- 0.7%
434 Japan Tobacco, Inc.* 4,807,473
------------
169,802,330
------------
NETHERLANDS -- 3.6%
Banks -- 0.9%
288,100 ABN AMRO Hldgs. NV* 6,236,747
Broadcasting and Publishing -- 1.6%
274,400 Ver Ned Uitgevers 10,961,031
Computer Services -- 1.1%
304,300 CMG PLC 7,999,037
------------
25,196,815
------------
NEW ZEALAND -- 0.2%
Telecommunications -- 0.2%
389,412 Telecom. Corp. of New Zealand 1,670,011
------------
POLAND -- 0.9%
Electrical Equipments -- 0.9%
428,950 Elektrim* 6,063,091
------------
PORTUGAL -- 0.4%
Transportation -- 0.4%
70,430 Brisa (Auto Estrada) 2,904,111
------------
SINGAPORE -- 1.3%
Banks -- 0.3%
258,000 Overseas Chinese Bank 2,152,526
Publishing -- 1.0%
411,846 Singapore Press Hldgs. 7,017,353
------------
9,169,879
------------
SOUTH KOREA -- 0.9%
Telecommunications -- 0.5%
211,700 SK Telecom. Ltd. ADR* 3,598,900
Utilities-Electric -- 0.4%
152,340 Korea Electric Power Corp. ADR* 3,122,970
------------
6,721,870
------------
SPAIN -- 4.7%
Banks -- 2.0%
1,333,000 Banco Santander Central Hispano S.A. 13,878,646
Construction and Housing -- 1.8%
269,470 Acciona S.A. 12,841,918
Gas Distribution -- 0.9%
91,400 Gas Natural SDG* 6,642,490
------------
33,363,054
------------
SWEDEN -- 4.0%
Construction and Mining Equipment -- 1.0%
266,400 Atlas Copco AB 7,155,048
Retail-General -- 1.3%
364,800 Hennes & Mauritz 9,024,384
Telecommunications -- 1.7%
369,900 LM Ericsson 11,873,925
------------
28,053,357
------------
SWITZERLAND -- 5.2%
Business Services -- 1.4%
18,309 Adecco S.A. 9,807,342
Insurance -- 1.4%
17,156 Zurich Allied AG 9,752,366
Pharmaceuticals -- 1.2%
847 Roche Hldgs. AG 8,703,659
Telecommunications -- 1.2%
21,500 Swisscom AG 8,087,904
------------
36,351,271
------------
UNITED KINGDOM -- 21.5%
Banks -- 4.5%
252,000 Barclays 7,328,618
300,625 Halifax PLC 3,582,383
218,000 HSBC Hldgs.* 7,707,454
670,000 Lloyds TSB Group PLC 9,098,196
188,000 National Westminster Bank Co. PLC 3,985,707
Computer Software and Technology -- 0.2%
39,338 Sage Group 1,398,247
Conglomerates -- 2.0%
787,000 Hanson PLC 7,070,901
489,000 Rentokil Initial PLC 1,896,135
694,153 Williams Hldgs. 4,584,526
Data Services -- 0.5%
253,933 Reuters Group PLC 3,340,186
Drugs and Health Care -- 3.3%
633,000 Glaxo Wellcome 17,590,623
438,000 Smithkline Beecham 5,695,781
Electronics -- 0.4%
373,000 Electrocomponents 2,745,686
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
81
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ---------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited) (Continued)
CONVERTIBLE BOND -- 0.1%
Shares Value
- -----------------------------------------------------------------------
Financial Services -- 0.6%
316,000 CGU PLC $ 4,550,099
Food, Beverage and Tobacco -- 1.8%
961,900 Imperial Tobacco 10,545,137
145,702 Whitbread 2,257,586
Industrial Machineries -- 0.5%
278,000 Smiths Industries PLC 3,689,624
Insurance -- 0.4%
186,000 Prudential Corp. 2,741,257
Leisure Products -- 0.3%
120,000 Granada Group 2,222,513
Oil-International -- 2.2%
866,968 BP Amoco PLC 15,524,106
Oil and Gas -- 0.7%
617,000 Shell Transport & Trading 4,629,321
Telecommunications -- 3.6%
547,000 British Telecom. 9,156,659
343,991 Cable & Wireless Co.* 3,307,517
639,000 Vodafone Group 12,570,155
Transportation -- 0.5%
398,000 BAA PLC 3,834,976
------------
151,053,393
------------
TOTAL COMMON STOCKS
(Cost $540,246,152) 694,422,141
------------
- ------------------------
CONVERTIBLE BOND -- 0.1%
- ------------------------
Principal
Amount Value
- -----------------------------------------------------------------------
$ 916,400 Tecnost Int'l.
4.487% due 6/23/04
(Cost $970,363) $ 961,392
------------
- ----------------------------
REPURCHASE AGREEMENT -- 0.9%
- ----------------------------
$ 5,969,000 State Street Bank & Trust Co.
repurchased agreement, dated
6/30/99, maturity value
$5,969,663 at 4.00% due 7/1/99
(collateralized by U.S.
Treasury Notes $6,090,000
3.375% due 1/15/07) $ 5,969,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $5,969,000) 5,969,000
------------
TOTAL INVESTMENTS -- 99.8%
(Cost $547,185,515) 701,352,533
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 0.2% 1,460,567
------------
NET ASSETS -- 100.0% $702,813,100
============
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
82
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investments, at market (cost $547,185,515) $ 701,352,533
Cash 576
Foreign currency (cost $1,641,099) 1,486,473
Dividend reclaims receivable 984,854
Dividends receivable 707,428
Receivable for fund shares sold 477,564
Interest receivable 1,585
-------------
Total Assets 705,011,013
-------------
LIABILITIES
Accrued expenses 294,050
Payable for fund shares redeemed 142,714
Due to affiliates 1,761,149
-------------
Total Liabilities 2,197,913
-------------
Net Assets $ 702,813,100
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 3,287,331
Additional paid-in capital 503,284,440
Distributions in excess of net investment income (748,911)
Accumulated net realized gain on investments
and foreign currency related transactions 43,017,646
Net unrealized appreciation of investments
and translation of other assets and
liabilities denominated in foreign currencies 153,972,594
-------------
Net Assets $ 702,813,100
=============
Shares Outstanding -- $0.10 par value 32,873,314
-------------
Net Asset Value Per Share $ 21.38
=============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Dividends $ 7,506,060
Interest 203,981
Less: Foreign tax withheld (857,263)
-------------
Total Income 6,852,778
-------------
Expenses:
Investment advisory fees -- Note B 2,706,876
Custodian fees 484,512
Printing expense 89,821
Audit fees 10,500
Directors' fees -- Note B 6,250
Legal fees 3,050
Registration fees 458
Other 350
-------------
Total Expenses 3,301,817
-------------
Net Investment Income 3,550,961
-------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized gain on investments -- Note A 44,061,702
Net realized loss on foreign currency
related transactions -- Note A (1,045,051)
Net change in unrealized appreciation of
investments -- Note C (22,195,123)
Net change in unrealized appreciation from
translation of assets and liabilities
denominated in foreign currencies -- Note C (79,022)
-------------
Net Realized and Unrealized Gain on
Investments and Foreign Currencies 20,742,506
-------------
Net Increase in Net Assets
from Operations $ 24,293,467
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
83
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford International Fund
- ----------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 3,550,961 $ 3,351,082
Net realized gain on investments and foreign currency related transactions 43,016,651 40,487,438
Net change in unrealized appreciation/(depreciation) on investments and
translation of other assets and liabilities denominated in foreign currencies (22,274,145) 71,008,066
------------- -------------
Net Increase in Net Assets from Operations 24,293,467 114,846,586
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income (1,741,332) (3,351,082)
Distributions in excess of net investment income -- (409,367)
Net realized gain on investments (7,980,294) (33,666,022)
------------- -------------
Total Dividends and Distributions to Shareholders (9,721,626) (37,426,471)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note E 7,951,197 68,158,477
------------- -------------
Net Increase in Net Assets 22,523,038 145,578,592
Net Assets:
Beginning of period 680,290,062 534,711,470
------------- -------------
End of period* $ 702,813,100 $ 680,290,062
============= =============
* Includes distributions in excess of net investment income of: $ (748,911) $ (2,558,540)
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
84
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 1999 -----------------------------------------------------------------
Unaudited) 1998 1997 1996 1995 1994
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............. $ 20.92 $ 18.27 $ 17.26 $ 15.37 $ 14.69 $ 14.69
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income ........... 0.11 0.13 0.15 0.15 0.16 0.15
Net realized and unrealized
gain/(loss) on investments and
translation of other assets and
liabilities denominated
in foreign currencies ......... 0.65 3.73 1.91 2.21 1.49 (0.02)
--------- --------- --------- --------- --------- ---------
Net increase from
investment operations ......... 0.76 3.86 2.06 2.36 1.65 0.13
--------- --------- --------- --------- --------- ---------
Dividends and Distributions to
Shareholders from:
Net investment income ........... (0.05) (0.11) (0.15) (0.14) (0.15) (0.13)
Distributions in excess of net
investment income ............. -- (0.01) (0.15) (0.10) (0.12) --
Net realized gain on investments
and foreign currency related
transactions .................. (0.25) (1.09) (0.75) (0.23) (0.70) --
--------- --------- --------- --------- --------- ---------
Total dividends and distributions (0.30) (1.21) (1.05) (0.47) (0.97) (0.13)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period .... $ 21.38 $ 20.92 $ 18.27 $ 17.26 $ 15.37 $ 14.69
--------- --------- --------- --------- --------- ---------
Total return* ..................... 3.63% 21.17% 11.93% 15.41% 11.23% 0.87%
--------- --------- --------- --------- --------- ---------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............... $ 702,813 $ 680,290 $ 534,711 $ 456,203 $ 317,287 $ 303,050
Ratio of expenses to average
net assets .................... 0.98%(a) 0.98% 0.97% 0.98% 0.99% 1.03%
Ratio of net investment income
to average net assets ......... 0.26%(a) 0.55% 0.74% 0.94% 0.97% 1.11%
Portfolio turnover
rate .......................... 28% 47% 51% 38% 52% 27%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
85
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- ----------------------
COMMON STOCKS -- 93.4%
- ----------------------
Shares Value
- ---------------------------------------------------------------------
ARGENTINA -- 2.2%
Metals -- 0.3%
72,083 Siderar S.A.* $ 216,999
Real Estate -- 0.5%
9,700 IRSA Inversiones Y Represente GDR 299,487
Retail-Food -- 0.6%
56,500 Imp. Y Exp. Patagonia* 412,506
Telecommunications -- 0.8%
17,100 Telefonica de Argentina S.A. ADR* 536,512
-----------
1,465,504
-----------
BRAZIL -- 8.5%
Banks -- 0.8%
1,080,000 Banco Itau S.A. 555,097
Paper Products -- 0.5%
16,870 Aracruz Celulose S.A. ADR 371,140
Petroleum Services -- 1.5%
67,730 Petroleo Brasileiro S.A. ADR 1,007,484
Real Estate -- 0.3%
18,100 Brazil Realty S.A. GDR 224,908
Retail-Food -- 0.7%
23,720 Comp. Brasileiras de Dist. ADR 443,267
Telecommunications -- 3.0%
25,700 Embratel Participacoes S.A. ADR 356,587
9,618 Telecom. Centro Sul Participacoes ADR 367,332
5,030,000 Telecom. de Sao Paolo S.A. 417,628
26,600 Telecom. Norte Leste Participacoes ADR 493,762
66,177,000 Telecom. Sudeste Celular
Participacoes S.A. 375,650
Textile-Apparel and Production -- 0.4%
136,800 Confeccoes Guararapes S.A. 249,184
Tobacco -- 0.5%
46,200 Souza Cruz (Cia) 324,874
Utilities-Electric and Water -- 0.8%
25,000 Comp. Energetica de Minas ADR 515,625
-----------
5,702,538
-----------
CHILE -- 1.9%
Chemicals -- 0.3%
6,040 Sociedad Quimica Y Minera
de Chile S.A. ADR 213,665
Mining -- 0.8%
120,000 Antofagasta Hldgs. 550,427
Mutual Funds -- 0.4%
8,930 Genesis Chile Fund 281,295
Telecommunications -- 0.4%
10,200 Comp. de Telecom. de Chile ADR 252,450
-----------
1,297,837
-----------
COLOMBIA -- 1.1%
Gas Distribution -- 0.5%
80,776 Promigas S.A. 299,033
Retail-Food -- 0.6%
142,100 Almacenes Exito S.A. 399,020
-----------
698,053
-----------
CZECH REPUBLIC -- 0.4%
Telecommunications -- 0.4%
16,700 SPT Telecom. AS* 270,697
-----------
ESTONIA -- 0.5%
Telecommunications -- 0.5%
17,200 AS Eesti Telekom GDR 341,420
-----------
GREECE -- 1.0%
Banks -- 0.4%
4,387 Alpha Credit Bank 282,377
Telecommunications -- 0.6%
18,000 OTE - S.A. Telecom. Org. 385,250
-----------
667,627
-----------
HONG KONG -- 3.2%
Banks -- 0.6%
160,000 Guoco Group* 428,943
Electronic Equipment -- 0.9%
636,000 Legend Hldgs.* 610,703
Real Estate -- 1.3%
49,000 Cheung Kong Hldgs. 435,774
218,000 New World Infrastructure Ltd.* 410,229
Utilities -- 0.4%
1,116,000 Shandong Int'l. Power* 251,721
-----------
2,137,370
-----------
HUNGARY -- 3.5%
Banks -- 0.8%
12,700 OTP Bank 529,232
Lodging -- 1.0%
35,500 Danubius Hotel* 643,642
Pharmaceuticals -- 0.8%
12,000 Richter Gedeon VEG 521,621
Plastics -- 0.3%
12,900 Pannonplast 249,870
Telecommunications -- 0.6%
74,700 Matav RT* 403,534
-----------
2,347,899
-----------
INDIA -- 6.6%
Computer Software -- 6.6%
31,200 Aptech Ltd. 514,246
24,600 Infosys Technology Ltd. 2,056,436
39,000 NIIT Ltd. 1,827,732
-----------
4,398,414
-----------
INDONESIA -- 1.9%
Telecommunications -- 1.9%
2,154,600 PT Telekom. Indonesia 1,244,534
-----------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
86
<PAGE>
Shares Value
- ---------------------------------------------------------------------
ISRAEL -- 4.1%
Banks -- 0.9%
317,000 Bank Leumi Le - Israel* $ 598,896
Computer Software -- 0.9%
59,000 Sapiens Int'l. Corp. NV* 586,312
Conglomerates -- 1.2%
41,000 Clal Industries* 326,094
19,000 Koors Industries Ltd. ADR 444,125
Electronic Equipment -- 0.6%
11,700 ECI Telecom. Ltd. 388,294
Telecommunications -- 0.5%
37,000 Elbit Ltd.* 363,062
-----------
2,706,783
-----------
MALAYSIA -- 2.7%
Banks -- 1.6%
351,000 Malayan Bank Berhad* 1,053,000
Food, Beverage and Tobacco -- 0.2%
130,000 RJ Reynolds Berhad 136,705
Utilities -- 0.9%
271,000 Tenaga Nasional* 624,013
-----------
1,813,718
-----------
MEXICO -- 12.5%
Banks -- 0.3%
86,000 Grupo Financiero Banamex
Accival S.A. de C.V.* 218,853
Conglomerates -- 1.0%
8,300 Fomento Economico Mexicano ADR 330,962
36,300 Grupo Carso S.A. de C.V. ADR* 336,403
Financial Services -- 0.4%
201,400 Grupo Financiero Banorte* 294,700
Food, Beverage and Tobacco -- 1.6%
332,200 Grupo Continental 520,615
234,000 Grupo Industrial Bimbo S.A.* 521,048
Media and Entertainment -- 2.6%
332,600 Corp. Interamericana Entretenimiento* 1,082,687
14,683 Grupo Television S.A. de C.V. ADR* 657,982
Metals -- 0.8%
46,900 Tubos de Acero 507,242
Paper Products -- 1.0%
158,000 Kimberly Clark Mexico* 650,027
Real Estate -- 0.9%
144,483 Corp. Geo S.A. de C.V.* 612,800
Retail Trade -- 1.2%
40,300 Grupo Elektra S.A. de C.V. GDR 236,763
114,400 Organiz. Soriana* 537,368
Telecommunications -- 2.7%
74,100 Grupo Carso Global Telecom.* 469,067
16,700 Telefonos de Mexico S.A. ADR 1,349,569
-----------
8,326,086
-----------
PANAMA -- 0.6%
Banks -- 0.6%
13,800 Banco Latinoamericano de
Exportaciones S.A. 369,150
-----------
PEOPLE'S REPUBLIC OF CHINA -- 1.3%
Household Products -- 1.3%
770,000 Guandong Kelon Elec. Hldgs. 898,165
-----------
PERU -- 1.3%
Mining -- 0.5%
20,700 Comp. de Minas Buenaventura ADR 316,969
Telecommunications -- 0.8%
36,200 Telefonica del Peru S.A. ADR 547,525
-----------
864,494
-----------
PHILIPPINES -- 0.0%
Food and Beverage -- 0.0%
68,368 RFM Corp. 8,894
-----------
POLAND -- 5.6%
Banks -- 2.4%
60,000 Bank Handlowy Warsaw* 832,803
23,770 Bank Roswoju Eksport 747,637
Electrical Equipment -- 1.1%
53,900 Elektrim* 761,862
Media -- 0.6%
31,900 Agora S.A. GDR* 371,635
Metals -- 0.8%
86,000 KGHM Polska Miedz* 540,991
Telecommunications -- 0.7%
70,000 Telekomunikacja Polska GDR* 498,750
-----------
3,753,678
-----------
SOUTH AFRICA -- 5.9%
Consumer Goods -- 1.4%
237,000 Ellerine Hldgs. 942,658
Electronic Equipment -- 1.3%
32,000 MIH Ltd. Tortola* 848,000
Metals -- 0.6%
170,000 Gold Fields of South Africa* 326,815
139,800 Northam Platinum* 112,137
Miscellaneous-Financial -- 1.2%
16,500 Anglo American Corp.
of South Africa 771,130
Tobacco -- 1.4%
48,000 Compagnie Financiere Richemont AG* 932,317
-----------
3,933,057
-----------
SOUTH KOREA -- 16.4%
Banks -- 1.2%
38,000 Kookmin Bank GDR* 779,000
Conglomerates -- 2.2%
63,000 Samsung Co.* 1,480,432
Constructions -- 1.5%
17,000 Tae Young Corp.* 969,330
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
87
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited) (Continued)
Shares Value
- ---------------------------------------------------------------------
Electronic Equipment -- 3.1%
77,000 Comtec System* $ 681,857
78,750 Sam Hwa Electronics Co. 1,408,315
Financial Services -- 0.8%
30,000 Dongwon Securities 552,052
Retail-Apparel -- 1.7%
420,000 Younggone Corp. 1,124,838
Telecommunications -- 5.9%
21,000 LG Information & Comm.* 1,553,002
139,000 SK Telecom. Ltd. ADR* 2,363,000
-----------
10,911,826
-----------
TAIWAN -- 9.1%
Banks -- 0.9%
327,000 First Commercial Bank* 622,616
92 ICBC 119
Drugs and Health Care -- 0.6%
531,000 Test Rite Int'l.* 369,892
Electronics and Instruments -- 5.2%
230,000 Accton Technology Corp.* 523,375
105,000 Hon Hai Precision* 949,226
235,200 Taiwan Secom 506,080
194,340 Taiwan Semiconductor* 743,065
354,200 United Micro Electronic 762,133
Insurance -- 0.7%
134,000 Cathay Life Insurance Co. Ltd. 481,238
Miscellaneous-Cons. Growth Cyclical -- 0.5%
150,000 Lee Chi Enterprises Co. Ltd.* 336,687
Real Estate -- 1.2%
303,000 China Development* 755,155
-----------
6,049,586
-----------
THAILAND -- 2.1%
Banks -- 0.8%
267,000 Siam Commercial Bank* 329,451
267,000 Siam Commercial Bank (warrants)* 171,966
Real Estate -- 1.3%
1,523,300 Olden Land Ppty.* 898,489
-----------
1,399,906
-----------
TURKEY -- 0.6%
Banks -- 0.6%
79,171 Haci Omer Sabanci Hldgs. S.A. ADR 429,503
-----------
UNITED KINGDOM -- 0.4%
Mutual Funds -- 0.4%
13,000 East Europe Development Fund* 278,553
-----------
TOTAL COMMON STOCKS
(Cost $51,825,856) 62,315,292
-----------
- ------------------------
PREFERRED STOCKS -- 0.8%
- ------------------------
94,000 Confeccoes Guararapes S.A. $ 143,349
3,200,000 Telecom. de Sao Paolo S.A. 379,554
-----------
TOTAL PREFERRED STOCKS
(Cost $1,047,060) 522,903
-----------
- ----------------------------
REPURCHASE AGREEMENT -- 2.9%
- ----------------------------
Principal
Amount Value
- ---------------------------------------------------------------------
$1,965,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/99, maturity value
$1,965,218 at 4.00% due 7/1/99
(collateralized by $2,010,000
U.S. Treasury Notes, 5.50%
due 2/29/00) $ 1,965,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $1,965,000) 1,965,000
-----------
TOTAL INVESTMENTS -- 97.1%
(Cost $54,837,916) 64,803,195
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 2.9% 1,937,565
-----------
NET ASSETS -- 100.0% $66,740,760
===========
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
88
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investments, at market (cost $54,837,916) $ 64,803,195
Cash 17
Foreign currency (cost $1,699,050) 1,698,263
Receivable for fund shares sold 924,338
Dividends receivable 270,056
Interest receivable 218
Deferred organization expenses 149
------------
TOTAL ASSETS 67,696,236
------------
LIABILITIES
Payable for securities purchased 460,178
Accrued expenses 212,260
Payable for fund shares redeemed 53,210
Due to affiliates 229,828
------------
TOTAL LIABILITIES 955,476
------------
NET ASSETS $ 66,740,760
============
COMPONENTS OF NET ASSETS Capital stock, at par $ 698,469
Additional paid-in capital 70,736,439
Distributions in excess of net investment income (27,371)
Distributions in excess of net realized loss on
investments and foreign currency
related transactions (14,584,500)
Net unrealized appreciation of investments
and translation of other assets and
liabilities denominated in foreign currencies 9,917,723
------------
NET ASSETS $ 66,740,760
============
Shares Outstanding -- $0.10 par value 6,984,686
------------
NET ASSET VALUE PER SHARE $ 9.56
============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Dividends $ 674,201
Interest 51,106
Less: Foreign tax withheld (312,560)
------------
Total Income 412,747
------------
Expenses:
Investment advisory fees -- Note B 270,733
Custodian fees 101,963
Printing expense 13,386
Audit fees 10,500
Directors' fees -- Note B 6,250
Registration fees 3,500
Legal fees 509
Deferred organization expense 252
Other 350
------------
Total Expenses 407,443
------------
Net Investment Income 5,304
------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized gain on investments -- Note A 436,213
Net realized loss on foreign currency related
transactions -- Note A (164,511)
Net change in unrealized depreciation of
investments -- Note C 14,295,080
Net change in unrealized depreciation from
translation of other assets and liabilities
denominated in foreign currencies -- Note C (43,090)
------------
Net Realized and Unrealized Gain on
Investments and Foreign Currencies 14,523,692
------------
Net Increase in Net Assets
from Operations $ 14,528,996
============
See notes to financial statements.
- --------------------------------------------------------------------------------
89
<PAGE>
- --------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
- -------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 5,304 $ 754,935
Net realized gain/(loss) on investments and foreign
currency related transactions 271,702 (13,850,318)
Net change in unrealized appreciation/(depreciation)
on investments and translation of other assets and
liabilities denominated in foreign currencies 14,251,990 (7,925,022)
------------ ------------
Net Increase/(Decrease) in Net Assets from Operations 14,528,996 (21,020,405)
------------ ------------
Distributions to Shareholders from:
Tax return of capital -- (481,281)
------------ ------------
Total Distributions to Shareholders -- (481,281)
------------ ------------
From Capital Share Transactions:
Increase/(Decrease) in net assets from capital
share transactions -- Note E 1,548,203 (14,848,462)
------------ ------------
Net Increase/(Decrease) in Net Assets 16,077,199 (36,350,148)
Net Assets:
Beginning of period 50,663,561 87,013,709
------------ ------------
End of period* $ 66,740,760 $ 50,663,561
============ ============
* Includes distributions in excess of net investment
income of: $ (27,371) $ (32,675)
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
90
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
October 17,
Six Months 1994* to
Ended Year Ended December 31, (Audited) December 31,
June 30, 1999 ----------------------------------------------- 1994
(Unaudited) 1998 1997 1996 1995 (Audited)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........................... $ 7.39 $ 10.17 $ 10.54 $ 8.46 $ 8.68 $ 9.87
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income/(loss) .................. -- 0.09 0.09 0.07 0.07 (0.01)
Net realized and unrealized gain/(loss) on
investments and translation of other
assets and liabilities denominated in
foreign currency ............................ 2.17 (2.81) 0.12 2.01 (0.12) (1.17)
-------- -------- -------- -------- -------- --------
Net increase/(decrease) from investment
operations .................................. 2.17 (2.72) 0.21 2.08 (0.05) (1.18)
-------- -------- -------- -------- -------- --------
Dividends and Distributions to Shareholders from:
Net investment income ......................... -- -- (0.06) -- (0.07) (0.01)
Distributions in excess of
net investment income ....................... -- -- -- -- (0.10) --
Net realized gain on investments and
foreign currency related transactions ....... -- -- (0.33) -- --
In excess of net realized gain
on investments .............................. -- -- (0.19) -- -- --
Tax return of capital ......................... -- (0.06) -- -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions ............. -- (0.06) (0.58) -- (0.17) (0.01)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .................. $ 9.56 $ 7.39 $ 10.17 $ 10.54 $ 8.46 $ 8.68
-------- -------- -------- -------- -------- --------
Total return(a) ................................. 29.36% (26.77)% 1.97% 24.59% (0.60)% (11.97)%
-------- -------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of period (000's omitted) ..... $ 66,741 $ 50,664 $ 87,014 $ 67,062 $ 34,218 $ 24,069
Ratio of expenses to average net assets ....... 1.50%(b) 1.49% 1.40% 1.53% 1.67% 2.28%(b)
Ratio of net investment income to average
net assets .................................. 0.02%(b) 1.16% 0.76% 0.85% 0.89% 0.94%(b)
Portfolio turnover rate ....................... 61% 69% 64% 46% 52% --
</TABLE>
* Commencement of public offering of the Fund's shares.
(a) Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(b) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
91
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- ----------------------
COMMON STOCKS -- 92.1%
- ----------------------
Shares Value
- ---------------------------------------------------------------------
Aerospace and Defense -- 0.5%
11,200 Alliant Techsystems, Inc.* $ 968,800
------------
Appliance and Furniture -- 1.9%
86,850 Ethan Allen Interiors, Inc. 3,278,588
11,300 Furniture Brands Int'l., Inc.* 314,988
------------
3,593,576
------------
Biotechnology -- 2.2%
90,600 Biomatrix, Inc.* 1,959,225
80,000 The Liposome Co., Inc.* 1,530,000
10,000 Sepracor, Inc.* 812,500
------------
4,301,725
------------
Broadcasting -- 5.1%
60,000 Adelphia Communications Corp.* 3,817,500
62,800 Citadel Communications Corp.* 2,272,575
12,600 Entercom Communications Corp.* 538,650
34,200 Jones Intercable, Inc.* 1,675,800
25,100 TCA Cable TV, Inc. 1,393,050
------------
9,697,575
------------
Building Materials and Homebuilders -- 12.2%
35,000 Coachmen Industries, Inc. 813,750
58,000 Crossman Communities, Inc.* 1,685,625
73,000 D. R. Horton, Inc. 1,213,625
138,000 Engle Homes, Inc. 1,897,500
64,200 Juno Lighting, Inc. 1,574,906
58,000 Lafarge Corp. 2,055,375
38,500 Lennar Corp. 924,000
61,600 Lone Star Industries, Inc. 2,313,850
51,000 M.D.C. Hldgs., Inc.* 1,096,500
89,700 Monaco Coach Corp.* 3,795,431
47,550 National RV Hldgs., Inc.* 1,153,087
30,900 Southdown, Inc. 1,985,325
82,000 Thor Industries, Inc. 2,326,750
55,000 U.S. Concrete, Inc.* 522,500
------------
23,358,224
------------
Capital Goods-Miscellaneous Technology -- 10.4%
31,000 24/7 Media, Inc.* 1,193,500
26,000 Abovenet Communications, Inc.* 1,049,750
47,900 AFC Cable Systems, Inc.* 1,691,469
1,900 Ask Jeeves, Inc.* 26,600
18,336 At Home Corp.* 988,998
10,600 CMGI, Inc.* 1,209,063
6,200 CNET, Inc.* 357,275
17,200 Critical Path, Inc.* 951,375
11,000 Exodus Communications, Inc.* 1,319,312
2,500 Flycast Communicatons Corp.* 47,813
15,000 Infoseek Corp.* 719,063
10,700 Lycos, Inc.* 983,062
250 Media Metrix, Inc.* 13,313
18,000 MindSpring Enterprises, Inc.* 797,625
31,600 National Computer Systems, Inc. 1,066,500
14,000 Network Solutions, Inc.* 1,107,750
17,000 Profit Recovery Group Int'l., Inc.* 804,313
25,000 TheStreet.com, Inc.* 900,000
60,000 US Web Corp.* 1,331,250
66,800 Xircom, Inc.* 2,008,175
6,091 Yahoo, Inc.* 1,049,175
25,000 Ziplink, Inc.* 312,500
------------
19,927,881
------------
Chemicals -- 1.5%
28,500 MacDermid, Inc. 1,325,250
59,000 Myers Industries, Inc. 1,180,000
20,400 Tredegar Industries, Inc. 443,700
------------
2,948,950
------------
Computer Software -- 4.8%
7,500 Inktomi Corp.* 986,250
9,400 Intuit, Inc.* 847,175
38,000 Legato Systems, Inc.* 2,194,500
35,000 Macromedia, Inc.* 1,233,750
25,000 Network Appliance, Inc.* 1,396,875
21,700 Pervasive Software, Inc.* 539,787
8,000 RealNetworks, Inc.* 551,000
2,500 Silknet Software, Inc.* 101,250
14,400 VeriSign, Inc.* 1,242,000
------------
9,092,587
------------
Computer Systems -- 0.7%
9,500 Henry Jack & Associates, Inc. 372,875
65,000 The Intercept Group, Inc.* 1,007,500
------------
1,380,375
------------
Drugs and Hospitals -- 1.4%
6,000 Andrx Corp.* 462,750
32,000 King Pharmaceuticals, Inc.* 828,000
59,350 United Payors & United Prov., Inc.* 1,376,178
------------
2,666,928
------------
Electrical Equipment -- 0.6%
36,600 Plexus Corp.* 1,102,575
------------
Financial-Banks -- 7.1%
28,300 Cullen Frost Bankers, Inc.* 780,019
31,500 Gold Banc Corp., Inc.* 413,437
52,000 Hudson United Bancorp 1,592,500
3,700 M & T Bank Corp. 2,035,000
15,000 MECH Financial, Inc. 562,500
36,000 National Commerce Bancorp. 787,500
75,200 North Fork Bancorp 1,602,700
26,500 U.S. Trust Corp. 2,451,250
58,800 Valley National Bancorp 1,690,500
28,000 Zions Bancorp 1,778,000
------------
13,693,406
------------
Financial-Other -- 3.6%
24,000 Dain Rauscher Corp. 1,299,000
21,800 DLJ Direct* 643,100
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
92
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- ---------------------------------------------------------------------
35,000 Hambrecht & Quist Group, Inc.* $ 1,299,375
6,100 Investment Technology Group, Inc. 197,487
6,100 Jefferies Group, Inc. 183,000
34,000 Morgan Keegan, Inc. 643,875
22,700 Knight/Trimark Group, Inc.* 1,369,094
28,000 Ragen MacKenzie Group, Inc.* 332,500
14,000 Southwest Securities Group, Inc. 1,004,500
------------
6,971,931
------------
Financial-Thrift -- 1.7%
27,500 BankAtlantic Bancorp, Inc. 199,375
10,800 Coast Federal Litigation Trust* 11,475
105,348 Peoples Heritage Financial Group 1,981,859
40,000 Waddell & Reed Financial, Inc. 1,097,500
------------
3,290,209
------------
Food, Beverage and Tobacco -- 2.6%
31,300 Adolph Coors Co. 1,549,350
35,600 Earthgrains Co. 918,925
50,000 Pepsi Bottling Group, Inc. 1,153,125
15,000 Ralcorp Hldgs., Inc.* 240,937
37,600 Ruby Tuesday, Inc. 714,400
10,520 Tootsie Roll Industries, Inc. 406,335
------------
4,983,072
------------
Household Products -- 0.1%
30,400 Home Products Int'l., Inc.* 258,400
------------
Insurance -- 3.1%
19,500 Arthur J. Gallagher & Co. 965,250
18,000 Chicago Title Corp. 642,375
7,600 Financial Sec. Assur. Hldgs. Ltd. 395,200
7,000 Markel Corp.* 1,309,000
16,500 Reinsurance Group of America 552,750
46,000 State Auto Financial Corp. 621,000
66,600 Stewart Information Svcs. Corp. 1,406,925
------------
5,892,500
------------
Machinery and Equipment -- 1.4%
91,000 JLG Industries, Inc. 1,854,125
27,800 Terex Corp.* 846,163
------------
2,700,288
------------
Merchandising-Food -- 0.9%
152,600 Grand Union Co.* 1,649,987
------------
Merchandising-Special -- 7.1%
21,200 Abercrombie & Fitch Co.* 1,017,600
56,000 Ames Department Stores, Inc.* 2,555,000
20,000 Ann Taylor Stores Corp.* 900,000
25,000 Barnes & Noble, Inc.* 450,000
96,100 BJ's Wholesale Club, Inc.* 2,889,006
6,000 EToys, Inc.* 244,500
34,500 Insight Enterprises, Inc.* 853,875
15,700 JAKKS Pacific, Inc.* 468,056
20,000 Miami Computer Supplies* 377,500
56,700 PC Connection, Inc.* 683,944
33,000 Trans World Entertainment Corp.* 371,250
70,300 Zale Corp.* 2,812,000
------------
13,622,731
------------
Metals-Steel -- 0.2%
64,000 Armco, Inc.* 424,000
------------
Miscellaneous-Consumer Growth Cyclical -- 4.1%
100,000 Avis Rent A Car, Inc.* 2,912,500
15,100 Hertz Corp.* 936,200
135,000 Nielsen Media Research, Inc.* 3,948,750
------------
7,797,450
------------
Miscellaneous-Consumer Growth Staples -- 3.7%
68,000 A.C. Nielsen Corp.* 2,057,000
44,900 Innotrac Corp.* 909,225
65,000 Optimal Robotics Corp.* 645,937
95,100 Valassis Communications, Inc.* 3,483,037
------------
7,095,199
------------
Oil and Gas Producing -- 0.6%
31,600 Louis Dreyfus Natural Gas Corp.* 681,375
19,500 Newfield Exploration Co.* 554,531
------------
1,235,906
------------
Oil and Gas Services -- 1.5%
62,900 B.J. Svcs. Co.* 1,851,619
60,000 Veritas DGC, Inc.* 1,098,750
------------
2,950,369
------------
Real Estate Investment Trust -- 3.9%
48,000 Brandywine Realty Trust 951,000
35,000 Camden Ppty. Trust 971,250
47,000 Colonial Pptys. Trust, Inc. 1,327,750
40,000 Kilroy Realty Corp. 975,000
49,000 Mills Corp. 1,062,688
94,200 Mission West Pptys., Inc.* 777,150
45,000 Prison Realty Corp. 441,562
30,000 Weeks Corp.* 915,000
------------
7,421,400
------------
Semiconductors -- 3.0%
46,000 Advanced Micro Devices, Inc.* 830,875
16,400 KLA-Tencor Corp.* 1,063,950
14,000 QLogic Corp.* 1,848,000
36,000 Xilinx, Inc.* 2,061,000
------------
5,803,825
------------
Textile-Apparel and Production -- 1.7%
29,000 Mohawk Industries, Inc.* 880,875
65,000 Shaw Industries, Inc.* 1,072,500
40,000 Tropical Sportswear Int'l. Corp.* 1,275,000
------------
3,228,375
------------
Transportation-Miscellaneous -- 0.2%
13,200 Sea Containers Ltd. 443,025
------------
Utilities-Gas and Electric -- 2.4%
28,000 Calpine Corp.* 1,512,000
9,000 Central Hudson Gas & Elec. Corp. 378,000
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
93
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited) (Continued)
Shares Value
- ---------------------------------------------------------------------
35,800 IPALCO Enterprises $ 758,513
5,500 Otter Tail Power Co. 212,094
23,000 SIGCORP, Inc. 651,188
31,000 TNP Enterprises, Inc. 1,123,750
------------
4,635,545
------------
Utilities-Telecommunications -- 1.4%
44,000 Commscope, Inc.* 1,353,000
60,000 Primus Telecomm. Group, Inc.* 1,346,250
------------
2,699,250
------------
Utilities-Water -- 0.5%
19,000 E'Town Corp. 869,250
------------
TOTAL COMMON STOCKS
(Cost $152,302,652) 176,705,314
------------
- ----------------------------
REPURCHASE AGREEMENT -- 6.9%
- ----------------------------
Principal
Amount Value
- ---------------------------------------------------------------------
$ 13,263,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/99, maturity value
$13,264,794 at 4.87% due
7/1/99 (collateralized by
$13,535,000 Federal National
Mortgage Assn. Notes,
5.25% due 1/15/03) $ 13,263,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $13,263,000) 13,263,000
------------
TOTAL INVESTMENTS -- 99.0%
(Cost $165,565,652) 189,968,314
CASH, RECEIVABLES AND OTHER
ASSETS LESS LIABILITIES -- 1.0% 1,846,645
------------
NET ASSETS -- 100.0% $ 191,814,959
=============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
94
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investments, at market (cost $165,565,652) $ 189,968,314
Cash 417
Receivable for securities sold 4,087,846
Dividends receivable 113,488
Receivable for fund shares sold 48,354
Interest receivable 1,794
Other assets 468
-------------
TOTAL ASSETS 194,220,681
-------------
LIABILITIES
Payable for securities purchased 1,995,780
Accrued expenses 30,726
Payable for fund shares redeemed 2,600
Due to affiliates 376,616
-------------
TOTAL LIABILITIES 2,405,722
-------------
NET ASSETS $ 191,814,959
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 1,510,630
Additional paid-in capital 184,559,353
Undistributed net investment income 65,732
Accumulated net realized loss
on investments (18,723,418)
Net unrealized appreciation of investments 24,402,662
-------------
NET ASSETS $ 191,814,959
=============
Shares Outstanding -- $0.10 par value 15,106,302
-------------
NET ASSET VALUE PER SHARE $ 12.70
=============
STATEMENT OF OPERATIONS
SIX MONTHS ENDED
June 30, 1999 (Unaudited)
Investment Income:
Dividends $ 585,142
Interest 300,443
-------------
Total Income 885,585
-------------
Expenses:
Investment advisory fees -- Note B 677,667
Custodian fees 43,905
Printing expense 15,701
Audit fees 8,750
Directors' fees -- Note B 6,250
Legal fees 600
Other 350
Registration fees 200
Deferred organization expense 148
-------------
Total Expenses 753,571
-------------
Net Investment Income 132,014
-------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note C
Net realized loss on investments -- Note A (6,639,273)
Net change in unrealized appreciation of
investments -- Note C 5,614,122
-------------
Net Realized and Unrealized Loss
on Investments (1,025,151)
-------------
Net Decrease in Net Assets
from Operations $ (893,137)
=============
See notes to financial statements.
- --------------------------------------------------------------------------------
95
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
- ---------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 132,014 $ 182,802
Net realized loss on investments (6,639,273) (12,128,562)
Net change in unrealized appreciation of investments 5,614,122 11,582,495
------------- -------------
Net Decrease in Net Assets from Operations (893,137) (363,265)
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income (66,282) (181,463)
Net realized gain on investments -- (848,131)
------------- -------------
Total Dividends and Distributions to Shareholders (66,282) (1,029,594)
------------- -------------
From Capital Share Transactions:
Increase/(Decrease) in net assets from capital share transactions--Note E (818,523) 107,236,357
------------- -------------
Net Increase/(Decrease) in Net Assets (1,777,942) 105,843,498
Net Assets:
Beginning of period 193,592,901 87,749,403
------------- -------------
End of period* $ 191,814,959 $ 193,592,901
============= =============
* Includes undistributed net investment income of: $ 65,732 $ --
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
96
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Stock Fund, Inc.
- -----------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months Year Ended April 2, 1997*
Ended December 31, to December 31,
June 30, 1999 1998 1997
(Unaudited) (Audited) (Audited)
-------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period ........................... $ 12.74 $ 13.63 $ 10.00
----------- ----------- -----------
Income from investment
operations:
Net investment
income ...................................... 0.01 0.01 0.03
Net realized and
unrealized gain/
(loss) on investments ....................... (0.05) (0.79) 3.80
----------- ----------- -----------
Net increase/(decrease)
from investment operations .................. (0.04) (0.78) 3.83
----------- ----------- -----------
Dividends and Distributions to Shareholders from:
Net investment income ......................... -- (0.01) (0.03)
Net realized gain ............................. -- (0.10) (0.17)
----------- ----------- -----------
Total dividends and
distributions ............................... -- (0.11) (0.20)
----------- ----------- -----------
Net asset value, end of
period ........................................ $ 12.70 $ 12.74 $ 13.63
----------- ----------- -----------
Total return(a) ................................. (0.28)% (5.75)% 38.32%
----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............................. $ 191,815 $ 193,593 $ 87,749
Ratio of expenses to
average net assets .......................... 0.83%(b) 0.89% 0.96%(b)
Ratio of net investment
income to average net assets ................ 0.04%(b) 0.17% 0.48%(b)
Portfolio turnover rate ....................... 52% 59% 22%
</TABLE>
* Commencement of operations.
(a) Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(b) Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
97
<PAGE>
- --------------------------------------------------------------------------------
GIAC Funds, Inc. (including: Baillie Gifford
International Fund, Baillie Gifford Emerging Markets
Fund and The Guardian Small Cap Stock Fund)
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ---------------------------------------------
Note A - Organization and Accounting Policies
- ---------------------------------------------
GIAC Funds, Inc. (the Company) is a diversified open-end management
investment company registered under the Investment Company Act of 1940, as
amended (1940 Act), which was incorporated in Maryland on October 29, 1990.
Shares of the Company are offered in three series: Baillie Gifford International
Fund (BGIF), Baillie Gifford Emerging Markets Fund (BGEMF) and The Guardian
Small Cap Stock Fund (GSCSF). The series are collectively referred to herein as
the "Funds". Shares of the Funds are only sold to certain separate accounts of
The Guardian Insurance & Annuity Company, Inc. (GIAC). GIAC is a wholly-owned
subsidiary of The Guardian Life Insurance Company of America (Guardian Life).
The Funds are available for investment only through certain variable annuity and
variable life insurance contracts issued by GIAC.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Valuation of Investments
Securities listed on foreign exchanges and for which market quotations are
readily available are valued at the closing price on the exchange on which the
securities are traded at the close of the appropiate exchange 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 Funds 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 Funds earn dividends and
interest or pay 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 or losses on foreign
currency related transactions. Net currency gains and losses from valuing
investments and other assets and liabilities denominated in foreign currency at
the period end exchange rate are reflected in net change in unrealized
appreciation or depreciation from translation of other assets and liabilities
denominated in foreign currencies.
Forward Foreign Currency Contracts
The Funds 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
rate.
- --------------------------------------------------------------------------------
98
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
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 Funds. When forward contracts are closed, the Funds
record realized gains or losses equal to the differences between the values of
such forward contracts at the time each was opened and the value at the time
each was closed. Such amounts are recorded in net realized gain or loss on
foreign currency related transactions. None of the Funds will enter into a
forward foreign currency contract if such contract would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency.
Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Net realized gains
or losses on sales of investments are determined on an identified cost basis.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on an accrual basis. Dividends on foreign securities are recorded when
the Funds are informed of the dividend.
Taxes
Each Fund intends to continue to qualify 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 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 Funds' next fiscal year.
Investment income received from investments in foreign currencies may be
subject to foreign withholding tax. Whenever possible, the Funds 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 Funds intend 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 Funds 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 Funds' policy is
to distribute net investment income approximately every six months and net
capital gains once a year. This policy is, however, subject to change at any
time by the Company's Board of Directors.
Reclassifications of Capital Accounts
The treatment for financial statement purposes of distributions made
during the year from net investment income and net realized gains may differ
from their ultimate treatment for federal income tax purposes. These differences
primarily are caused by differences in the timing of the recognition of certain
components of income or capital gain; and the recharacterization of foreign
exchange gains or losses to either ordinary income or realized capital gains for
federal income tax purposes. Where such differences are permanent in nature,
they are reclassified in the components of net assets based on their ultimate
characterization for federal income tax purposes. Any such reclassifications
will have no effect on net assets, results of operations, or net asset value per
share of the Funds.
- ------------------------------------------
Note B -- Investment Management Agreements
and Payments to Related Parties
- ------------------------------------------
BGIF and BGEMF have 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 Funds' portfolios
subject to the supervision of the Company's Board of Directors. GBG has entered
into sub-investment management agreements with BG Overseas pursuant to which BG
Overseas is responsible for the day-to-day management of BGIF and BGEMF. GBG
continually monitors and evaluates the performance of BG Overseas.
- --------------------------------------------------------------------------------
99
<PAGE>
- --------------------------------------------------------------------------------
GIAC Funds, Inc. (including: Baillie Gifford
International Fund, Baillie Gifford Emerging Markets
Fund and The Guardian Small Cap Stock Fund)
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
As compensation for its services, GBG receives a management fee computed
at the annual rate of .80% of BGIF's average daily net assets and 1.00% of
BGEMF's average daily net assets. One-half of these fees (.40% relating to BGIF
and .50% relating to BGEMF) are payable by GBG to BG Overseas for its services.
Payment of the sub-investment management fees does not represent a separate or
additional expense to the Funds.
GSCSF has an investment advisory agreement with Guardian Investor Services
Corporation (GISC), a wholly-owned subsidiary of GIAC. GISC receives a
management fee from GSCSF at an annual rate of .75% of its average daily net
assets.
No compensation is paid by the Company to a director who is deemed to be
an "interested person" (as defined in the 1940 Act) of the Company. Each
director not deemed an "interested person" is paid an annual fee of $500 and
$350 for attendance at each meeting of the Company.
- --------------------------------
Note C - Investment Transactions
- --------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the six months ended June 30, 1999 were as follows:
BGIF BGEMF GSCSF
---- ----- -----
Purchases ............. $203,432,757 $ 32,862,139 $ 89,448,896
Proceeds .............. $188,610,501 $ 31,740,929 $ 90,268,852
The cost of investments owned at June 30, 1999 for federal income tax
purposes for BGIF, BGEMF and GSCSF are the same as for financial reporting
purposes. The gross unrealized appreciation and depreciation of investments
excluding foreign currency at June 30, 1999 were as follows:
BGIF BGEMF GSCSF
---- ----- -----
Gross Appreciation ........ $172,018,502 $ 13,400,853 $ 30,777,341
Gross Depreciation ........ (17,851,484) (3,435,574) (6,374,679)
------------ ------------ ------------
Net Unrealized
Appreciation $154,167,018 $ 9,965,279 $ 24,402,662
============ ============ ============
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 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. 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 Funds.
- --------------------------------------------------------------------------------
100
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
- --------------------------------------
Note E - Transactions in Capital Stock
- --------------------------------------
There are 1,000,000,000 shares of $0.10 par value capital stock authorized
for each of the Funds. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
(Unaudited) (Audited) (Unaudited) (Audited)
- ------------------------------------------------------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o Baillie Gifford International Fund
Shares sold 2,239,730 6,525,306 $ 47,032,992 $ 133,897,400
Shares issued in reinvestment of
dividends and distributions 453,011 1,785,599 9,721,626 37,426,471
Shares repurchased (2,331,607) (5,068,012) (48,803,421) (103,165,394)
- ------------------------------------------------------------------------------------------------------------
Net increase 361,134 3,242,893 $ 7,951,197 $ 68,158,477
- ------------------------------------------------------------------------------------------------------------
o Baillie Gifford Emerging Markets Fund
Shares sold 1,354,111 1,108,146 $ 11,555,406 $ 9,553,044
Shares issued in reinvestment of
distributions -- 58,765 -- 481,282
Shares repurchased (1,225,803) (2,863,295) (10,007,203) (24,882,788)
- ------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 128,308 (1,696,384) $ 1,548,203 $ (14,848,462)
- ------------------------------------------------------------------------------------------------------------
o The Guardian Small Cap Stock Fund
Shares sold 1,758,293 11,667,174 $ 21,117,800 $ 145,794,573
Shares issued in reinvestment of
dividends and distributions 5,371 73,035 66,282 1,029,594
Shares repurchased (1,849,271) (2,987,585) (22,002,605) (39,587,810)
- ------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (85,607) 8,752,624 $ (818,523) $ 107,236,357
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
101
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- -------------------
COMMON STOCKS-96.7%
- -------------------
Shares Value
- ---------------------------------------------------------------------------
Advertising -- 1.6%
180,000 Omnicom Group, Inc. $ 14,400,000
------------
Air Transport -- 1.3%
200,000 Delta Air Lines, Inc. 11,525,000
------------
Auto & Truck -- 0.7%
100,000 General Motors Corp. 6,600,000
------------
Bank -- 5.3%
50,000 Chase Manhattan Corp. 4,331,250
400,000 Mellon Bank Corp. 14,550,000
225,000 State Street Corp. 19,209,375
140,000 Zions Bancorporation 8,890,000
------------
46,980,625
------------
Bank-Midwest -- 2.0%
270,000 Fifth Third Bancorp 17,971,875
------------
Computer & Peripherals -- 9.1%
320,000 Cisco Systems, Inc.* 20,640,000
330,000 Dell Computer Corp.* 12,210,000
320,000 EMC Corp.* 17,600,000
150,000 International Business Machines Corp. 19,387,500
160,000 Sun Microsystems, Inc.* 11,020,000
------------
80,857,500
------------
Computer Software & Services -- 2.0%
200,000 Microsoft Corp.* 18,037,500
------------
Diversified Companies -- 3.3%
100,000 AlliedSignal Inc. 6,300,000
135,000 Tyco International, Ltd. 12,791,250
135,000 United Technologies Corp. 9,677,813
------------
28,769,063
------------
Drug -- 11.0%
300,000 Amgen Inc.* 18,262,500
150,000 Biogen, Inc.* 9,646,875
125,000 Lilly (Eli) & Co. 8,953,125
175,000 MedImmune, Inc.* 11,856,250
180,000 Merck & Co., Inc. 13,320,000
100,000 Pfizer, Inc. 10,975,000
275,000 Schering-Plough Corp. 14,575,000
140,000 Warner-Lambert Co. 9,712,500
------------
97,301,250
------------
Drugstore -- 1.1%
200,000 CVS Corp. 10,150,000
------------
Electrical Equipment -- 1.6%
125,000 General Electric Co. 14,125,000
------------
Entertainment -- 2.2%
276,000 Clear Channel Communications, Inc.* 19,026,750
------------
Financial Services -- 5.0%
140,000 American Express Co. 18,217,500
300,000 Citigroup Inc. 14,250,000
75,500 Concord EFS, Inc.* 3,194,594
160,000 FINOVA Group, Inc. (The) 8,420,000
------------
44,082,094
------------
Food Wholesalers -- 0.8%
170,500 USFoodservice* 7,267,562
------------
Foreign Telecommunication -- 1.7%
75,000 Vodafone AirTouch PLC (ADR) 14,775,000
------------
Grocery -- 1.0%
180,000 Safeway Inc.* 8,910,000
------------
Homebuilding -- 0.8%
200,000 Centex Corp. 7,512,500
------------
Hotel/Gaming -- 1.5%
300,000 Harrah's Entertainment, Inc.* 6,600,000
300,000 Mandalay Resort Group* 6,337,500
------------
12,937,500
------------
Household Products -- 3.0%
65,000 Clorox Company (The) 6,942,812
100,000 Colgate-Palmolive Co. 9,875,000
260,000 Dial Corp. (The) 9,668,750
------------
26,486,562
------------
Insurance-Diversified -- 1.7%
125,000 American International Group, Inc. 14,632,813
------------
Insurance-Life -- 1.2%
160,000 Equitable Companies, Inc. (The) 10,720,000
------------
Internet -- 1.9%
150,000 American Online, Inc.* 16,575,000
------------
Machinery -- 1.0%
135,000 Ingersoll-Rand Co. 8,724,375
------------
Medical Services -- 1.0%
100,000 Wellpoint Health Networks Inc.* 8,487,500
------------
Medical Supplies -- 4.6%
150,000 Cardinal Health, Inc. 9,618,750
120,000 Johnson & Johnson 11,760,000
250,000 Medtronic, Inc. 19,468,750
------------
40,847,500
------------
Office Equipment & Supplies -- 1.0%
300,000 Staples, Inc.* 9,281,250
------------
Oilfield Services/Equipment -- 1.2%
400,000 Transocean Offshore, Inc. 10,500,000
------------
Precision Instrument -- 0.8%
100,000 Eastman Kodak Co. 6,775,000
------------
Retail Building Supply -- 2.2%
110,000 Home Depot, Inc. (The) 7,088,125
220,000 Lowe's Companies, Inc. 12,471,250
------------
19,559,375
------------
Retail-Special Lines -- 4.7%
200,000 Bed Bath & Beyond Inc.* 7,700,000
200,000 Best Buy Co., Inc.* 13,500,000
202,500 Gap, Inc. 10,200,937
200,000 Tandy Corp. 9,775,000
------------
41,175,937
------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
102
<PAGE>
Shares Value
- ---------------------------------------------------------------------------
Retail Store -- 6.3%
150,000 Costco Companies, Inc.* $ 12,009,375
250,000 Dayton Hudson Corp. 16,250,000
200,000 Kohl's Corp.* 15,437,500
250,000 Wal-Mart Stores, Inc. 12,062,500
------------
55,759,375
------------
Securities Brokerage -- 1.9%
150,000 Schwab (Charles) Corp. 16,481,250
------------
Semiconductor -- 2.4%
250,000 Intel Corp. 14,875,000
100,000 Vitesse Semiconductor Corp.* 6,743,750
------------
21,618,750
------------
Telecommunications Equipment -- 5.4%
200,000 Lucent Technologies Inc. 13,487,500
100,000 QUALCOMM Incorporated* 14,350,000
300,000 Tellabs, Inc.* 20,268,750
------------
48,106,250
------------
Telecommunication Services -- 1.6%
250,000 AT&T Corp. 13,953,125
------------
Thrift -- 2.3%
220,400 Federal Home Loan Mortgage Corp. 12,783,200
115,000 Federal National Mortgage Association 7,863,125
------------
20,646,325
------------
Trucking/Transportation Leasing -- 0.5%
120,000 CNF Transportation Inc. 4,605,000
------------
TOTAL COMMON STOCKS AND
TOTAL INVESTMENT SECURITIES -- 96.7%
(Cost $536,843,345) 856,164,606
------------
Principal
Amount Value
- ---------------------------------------------------------------------------
- -----------------------------
REPURCHASE AGREEMENTS -- 4.2%
- -----------------------------
(including accrued interest)
$ 36,100,000 Collateralized by $25,650,000
U.S. Treasury Bonds 13 7/8%,
due 5/15/11, with a value of
$36,891,914 (With Morgan
Stanley & Co., Incorporated 4.85%,
dated 6/30/99, due 7/1/99,
delivery value $36,104,863) $ 36,104,863
1,400,000 Collateralized by $1,405,000
U.S. Treasury Notes 6 1/2%,
due 5/31/01, with a value of
$1,437,073 (With State Street
Bank & Trust Company
4.00%, dated 6/30/99, due 7/1/99,
delivery value $1,400,156) 1,400,156
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $37,505,019) 37,505,019
------------
EXCESS OF LIABILITIES OVER
CASH AND RECEIVABLES -- (-0.9%) (8,182,858)
============
NET ASSETS -- 100.0% $885,486,767
============
NET ASSET VALUE
PER OUTSTANDING SHARE
($885,486,767 / 26,265,766
shares outstanding) $ 33.71
============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
103
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS:
Investment securities, at value
(cost $536,843,345) $ 856,164,606
Repurchase agreements (cost $37,505,019) 37,505,019
Cash 44,309
Receivable for capital shares sold 516,155
Dividends and interest receivable 452,875
Prepaid insurance expenses 20,044
-------------
TOTAL ASSETS 894,703,008
-------------
LIABILITIES:
Payable for securities purchased 8,182,737
Payable for capital shares repurchased 491,416
Accrued expenses:
Advisory fee 344,624
GIAC administrative service fee 160,000
Other 37,464
-------------
TOTAL LIABILITIES 9,216,241
-------------
NET ASSETS $ 885,486,767
-------------
NET ASSETS CONSIST OF:
Capital stock, at $1.00 par value
(authorized 50,000,000, outstanding
26,265,766 shares) $ 26,265,766
Additional paid-in capital 420,206,085
Undistributed net investment income 2,706,632
Undistributed net realized gain on investments 116,987,023
Net unrealized appreciation of investments 319,321,261
-------------
NET ASSETS $ 885,486,767
=============
NET ASSET VALUE PER
OUTSTANDING SHARE
($885,486,767 / 26,265,766
shares outstanding) $ 33.71
=============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Dividends $ 2,417,286
Interest 529,351
------------
Total Income 2,946,637
------------
Expenses:
Investment advisory fee 2,089,446
GIAC administrative service fee 299,604
Custodian fees 40,537
Auditing and legal fees 16,465
Directors' fees and expenses 7,796
Insurance and dues 5,642
Taxes and other 5,612
Printing and stationery 905
------------
Total Expenses Before Custody Credits 2,466,007
Less: Custody Credits (2,208)
------------
Net Expenses 2,463,799
------------
Net Investment Income 482,838
------------
Net Realized and Unrealized Gain
on Investments:
Net realized gain 54,551,064
Change in net unrealized appreciation 30,935,585
------------
Net Realized Gain and Change in Net
Unrealized Appreciation on Investments 85,486,649
------------
Net Increase in Net Assets from Operations $ 85,969,487
============
See notes to financial statements.
- --------------------------------------------------------------------------------
104
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1999
(Unaudited) and for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
------------- -------------
<S> <C> <C>
Operations:
Net investment income $ 482,838 $ 2,239,792
Net realized gain on investments 54,551,064 62,454,321
Change in net unrealized appreciation 30,935,585 117,641,538
------------- -------------
Net increase in net assets from operations 85,969,487 182,335,651
------------- -------------
Distributions to Shareholders:
Net investment income -- (2,335,121)
Net realized gain from investment transactions -- (45,405,144)
------------- -------------
Total distributions -- (47,740,265)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares 59,499,899 66,666,181
Proceeds from reinvestment of distributions to shareholders -- 47,740,265
Cost of shares repurchased (75,189,769) (153,885,228)
------------- -------------
Net decrease from capital share transactions (15,689,870) (39,478,782)
------------- -------------
Total Increase in Net Assets 70,279,617 95,116,604
Net Assets:
Beginning of period 815,207,150 720,090,546
------------- -------------
End of period 885,486,767 $ 815,207,150
============= =============
Undistributed Net Investment Income, at End of Period 2,706,632 $ 2,223,794
============= =============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
105
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ------------------------------------
1 -- Significant Accounting Policies
- ------------------------------------
Value Line Centurion Fund, Inc. (the "Fund") is an open-end diversified
management investment company whose primary investment objective is long-term
growth of capital. The Fund's portfolio will usually consist of common stocks
ranked 1 or 2 for year-ahead performance by The Value Line Investment Survey,
one of the nation's major investment advisory services.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
(A) Security Valuation
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities and for securities traded in the
over-the-counter market, the security is valued at the midpoint between the
latest available and representative asked and bid prices. Short-term instruments
with maturities of 60 days or less are valued at amortized cost, which
approximates market value. Short-term instruments with maturities greater than
60 days, at the date of purchase, are valued at the midpoint between the latest
available and representative asked and bid prices, and commencing 60 days prior
to maturity such securities are valued at amortized cost. Other assets and
securities for which market valuations are not readily available are valued at
fair value as the Board of Directors may determine in good faith.
(B) Repurchase Agreements
In connection with transactions in repurchase agreements, the Fund's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the Fund has the right to liquidate the collateral and
apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
(C) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders. Therefore, no federal income tax is
required.
(D) Dividends and Distributions
It is the Fund's policy to distribute to its shareholders, as dividends
and as capital gains distributions, all the net investment income for the year
and all net capital gains realized by the Fund, if any. Such distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. All dividends or distributions will be
payable in shares of the Fund at the net asset value on the ex-dividend date.
This policy is, however, subject to change at any time by the Board of
Directors.
(E) Amortization
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income on investments adjusted for amortization of discount,
including original issue discount required for fed-
- --------------------------------------------------------------------------------
106
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
eral income tax purposes, is earned from settlement date and recognized on the
accrual basis. Dividend income is recorded on the ex-dividend date.
- ----------------------------------------
2 -- Trust Share Transactions, Dividends
and Distributions
- ----------------------------------------
Shares of the Fund are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance and Annuity Company, Inc.
(GIAC). Transactions in capital stock were as follows:
Six Months
Ended
June 30, Year Ended
1999 December 31,
(Unaudited) 1998
----------- ------------
Shares sold 1,849,031 2,514,811
Shares issued in reinvestment
of dividends and distributions -- 1,781,353
----------- -----------
1,849,031 4,296,164
Shares repurchased 2,367,584 5,730,080
----------- -----------
Net decrease (518,553) (1,433,916)
----------- -----------
Dividends per share from net
investment income $ -- $ .09
=========== ===========
Distributions per share from
net realized gains $ -- $ 1.75
=========== ===========
- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Six Months Ended
June 30, 1999
(Unaudited)
----------------
PURCHASES:
Investment Securities $ 255,141,534
=============
SALES:
Investment Securities $ 291,175,423
=============
At June 30, 1999, the aggregate cost of investment securities and
repurchase agreements for federal income tax purposes was $575,437,791. The
aggregate appreciation and depreciation of investments for the six months ended
June 30, 1999, based on a comparison of investment values and their costs for
federal income tax purposes was $322,912,837 and $4,681,003 respectively,
resulting in a net appreciation of $318,231,834.
- --------------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Interested Parties
- --------------------------------------------------
An advisory fee of $2,089,446 was paid or payable to Value Line, Inc. (the
Adviser), the Fund's investment adviser, for the six months ended June 30, 1999.
This was computed at the rate of 1/2 of 1% of the average daily net assets of
the Fund during the period and paid monthly. The Adviser provides research,
investment programs, supervision of the investment portfolio and pays costs of
administrative services, office space, equipment and compensation of
administrative, bookkeeping, and clerical personnel necessary for managing the
affairs of the Fund. The Adviser also provides persons, satisfactory to the
Fund's Board of Directors, to act as officers and employees of the Fund and pays
their salaries and wages. The Fund bears all other costs and expenses.
Certain officers and directors of the Adviser and Value Line Securities,
Inc., (the Fund's distributor and a registered broker/dealer) and of GIAC are
also officers and directors of the Fund. A former officer of GIAC who is also a
director of the Fund was paid a fee of $1,484 for the six months ended June 30,
1999. During the six months ended June 30, 1999, the Fund paid brokerage
commissions totalling $226,112 to Value Line Securities, Inc., a wholly owned
subsidiary of the Adviser, which clears its transactions through unaffiliated
brokers.
The Fund has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contract-owner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the six months ended June 30, 1999, the
Fund incurred expenses of $299,604 in connection with such services rendered by
GIAC.
- --------------------------------------------------------------------------------
107
<PAGE>
- --------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
- -------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the
periods indicated:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1999 -------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......... $ 30.44 $ 25.52 $ 24.83 $ 24.25 $ 17.83 $ 18.52
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income ...................... .02 .09 .09 .08 .12 .10
Net gains or losses on securities
(both realized and unrealized) ........... 3.25 6.67 5.30 3.71 6.96 (.51)
-------- -------- -------- -------- -------- --------
Total from investment operations ........... 3.27 6.76 5.39 3.79 7.08 (.41)
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ...... -- (.09) (.09) (.12) (.10) (.01)
Distributions from capital gains .......... -- (1.75) (4.61) (3.09) (.56) (.27)
-------- -------- -------- -------- -------- --------
Total distributions ....................... -- (1.84) (4.70) (3.21) (.66) (.28)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................ $ 33.71 $ 30.44 $ 25.52 $ 24.83 $ 24.25 $ 17.83
======== ======== ======== ======== ======== ========
Total return** ................................ 10.74+ 27.47% 21.39% 17.34% 40.08% (2.21)%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands) ...... $885,487 $815,207 $720,091 $639,341 $525,449 $352,745
Ratio of operating expenses to average
net assets .................................. .59%(1)* .59%(1) .60%(1) .59%(1) .62% .61%
Ratio of net investment income to average
net assets .................................. .11%* .31% .35% .36% .60% .57%
Portfolio turnover rate ....................... 31%+ 112% 85% 141% 114% 122%
</TABLE>
+ Not annualized
* Annualized
(1) Before offset of custody credits.
** Total returns do not reflect the effects of charges deducted under the
terms of GIAC's variable contracts. Including such charges would reduce
the total returns for all periods shown.
See notes to financial statements.
- --------------------------------------------------------------------------------
108
<PAGE>
- --------------------------------------------------------------------------------
Other Information (unaudited)
- ---------
Year 2000
- ---------
Like other mutual funds, the Fund could be adversely if the computer
systems used by the Adviser and other service providers do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly known as the "Year 2000 Problem." The Adviser is taking steps
that it believes are reasonably designed to address the Year 2000 Problem with
respect to the computer systems that it uses and to obtain satisfactory
assurances that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Fund.
The Year 2000 Problem is expected to impact corporations which may include
issuers of portfolio securities held by the Fund, to varying degrees based upon
various factors, including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Fund is unable to predict
what impact, if any, the Year 2000 Problem will have on issuers of the portfolio
securities held by the Fund.
- --------------------------------------------------------------------------------
109
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
- ----------------------
COMMON STOCKS -- 50.0%
- ----------------------
Shares Value
- ---------------------------------------------------------------------------
Advertising -- 1.2%
48,000 Interpublic Group of Companies, Inc. $ 4,158,000
177,000 Omnicom Group, Inc. 14,160,000
--------------
18,318,000
--------------
Aerospace/Defense -- 1.0%
104,000 General Dynamics Corp. 7,124,000
89,000 Gulfstream Aerospace Corp.* 6,013,062
36,000 Litton Industries, Inc.* 2,583,000
--------------
15,720,062
--------------
Air Transport -- 0.7%
180,000 Comair Holdings, Inc. 3,746,250
95,000 SkyWest, Inc. 2,369,062
136,500 Southwest Airlines Co. 4,248,563
--------------
10,363,875
--------------
Alternate Energy -- 0.6%
153,000 AES Corp.* 8,893,125
--------------
Apparel -- 0.2%
51,000 Tommy Hilfiger Corp.* 3,748,500
--------------
Bank -- 0.4%
179,000 AmSouth Bancorporation 4,150,562
57,000 SouthTrust Corp. 2,187,375
--------------
6,337,937
--------------
Bank-Midwest -- 1.1%
68,000 Fifth Third Bancorp 4,526,250
121,000 First Tennessee National Corp. 4,635,812
62,000 Northern Trust Corp. 6,014,000
35,700 Old Kent Financial Corp. 1,494,938
--------------
16,671,000
--------------
Beverage-Alcoholic -- 0.2%
62,000 Coors (Adolph) Co. Class "B" 3,069,000
--------------
Building Materials -- 0.0%
6,000 USG Corp. 336,000
--------------
Cable TV -- 1.5%
116,000 Cablevision Systems Corp. Class "A"* 8,120,000
190,000 Comcast Corp. Class "A"* 7,303,125
48,000 EchoStar Communications Corp.
Class "A"* 7,365,000
--------------
22,788,125
--------------
Chemical-Specialty -- 0.5%
72,000 Avery Dennison Corp. 4,347,000
70,000 Rohm and Haas Co. 3,001,250
--------------
7,348,250
--------------
Computer & Peripherals -- 2.4%
115,000 Adaptec, Inc.* 4,060,938
219,422 Cisco Systems, Inc.* 14,152,719
35,000 Hewlett-Packard Co. 3,517,500
54,000 International Business Machines Corp. 6,979,500
186,000 Unisys Corp.* 7,242,375
--------------
35,953,032
--------------
Computer Software & Services -- 3.5%
50,000 Adobe Systems, Inc. 4,107,812
123,000 American Management Systems, Inc.* 3,943,688
101,000 Citrix Systems, Inc.* 5,706,500
84,000 Comverse Technology, Inc.* 6,342,000
101,000 Electronics For Imaging, Inc.* 5,188,875
174,000 Mercury Interactive Corp.* 6,155,250
91,000 Microsoft Corp.* 8,207,063
229,500 Paychex, Inc. 7,315,312
98,000 Siebel Systems, Inc.* 6,504,750
--------------
53,471,250
--------------
Diversified Companies -- 1.5%
72,000 Danaher Corp. 4,185,000
3,000 Textron, Inc. 246,938
146,000 Tyco International, Ltd. 13,833,500
62,000 United Technologies Corp. 4,444,625
--------------
22,710,063
--------------
Drug -- 2.7%
88,000 Amgen Inc.* 5,357,000
179,000 Biogen, Inc.* 11,511,938
28,000 Bristol-Myers Squibb Co. 1,972,250
110,000 Forest Laboratories, Inc.* 5,087,500
26,000 Immunex Corp.* 3,313,375
110,000 MedImmune, Inc.* 7,452,500
86,000 Millennium Pharmaceuticals, Inc. * 3,096,000
40,000 Sepracor, Inc.* 3,250,000
--------------
41,040,563
--------------
Drugstore -- 0.4%
131,000 CVS Corp. 6,648,250
--------------
Electrical Equipment -- 0.2%
54,000 Semtech Corp.* 2,814,750
--------------
Electronics -- 2.3%
148,000 Gemstar International Group, Ltd.* 9,657,000
52,000 Gilat Satellite Networks Ltd.* 2,730,000
92,000 Lexmark International Group, Inc.
Class "A"* 6,077,750
303,125 Symbol Technologies, Inc. 11,177,734
33,000 Uniphase Corp.* 5,478,000
--------------
35,120,484
--------------
Entertainment -- 2.0%
168,000 CBS Corp.* 7,297,500
57,000 Chancellor Media Corp.* 3,142,125
143,315 Clear Channel Communications, Inc.* 9,879,778
97,000 Time Warner, Inc. 7,129,500
58,000 USA Networks, Inc.* 2,327,250
--------------
29,776,153
--------------
Food Processing -- 0.6%
127,000 Quaker Oats Co. (The) 8,429,625
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
110
<PAGE>
- --------------------------------------------------------------------------------
Shares Value
- ---------------------------------------------------------------------------
Foreign Telecommunication -- 1.1%
13,000 Nokia Corp. (ADR) Class "A" $ 1,190,313
53,000 Nortel Networks Corp. 4,601,062
53,500 Vodafone AirTouch PLC (ADR) 10,539,500
--------------
16,330,875
--------------
Furniture/Home Furnishings -- 0.2%
90,000 Ethan Allen Interiors, Inc. 3,397,500
--------------
Grocery -- 1.1%
351,800 Kroger Co.* 9,828,413
144,800 Safeway Inc.* 7,167,600
--------------
16,996,013
--------------
Home Appliance -- 0.3%
74,000 Maytag Corp. 5,156,875
--------------
Homebuilding -- 0.2%
18,000 Centex Corp. 676,125
75,000 Lennar Corp. 1,800,000
--------------
2,476,125
--------------
Hotel/Gaming -- 0.2%
121,000 Mandalay Resort Group* 2,556,125
--------------
Household Products -- 0.2%
53,000 Kimberly-Clark Corp. 3,021,000
--------------
Insurance-Diversified -- 0.6%
79,430 American International Group, Inc. 9,298,274
--------------
Insurance-Life -- 0.2%
64,000 AFLAC, Inc. 3,064,000
--------------
Internet -- 0.4%
38,000 America Online, Inc.* 4,199,000
66,000 Macromedia, Inc.* 2,326,500
--------------
6,525,500
--------------
Machinery -- 0.7%
74,000 Briggs & Stratton Corp. 4,273,500
93,000 Ingersoll - Rand Co. 6,010,125
--------------
10,283,625
--------------
Medical Services -- 0.6%
42,000 CIGNA Corp. 3,738,000
28,000 PacifiCare Health Systems, Inc.
Class "B"* 2,014,250
46,000 WellPoint Health Networks Inc.* 3,904,250
--------------
9,656,500
--------------
Medical Supplies -- 2.8%
107,000 Allergan, Inc. 11,877,000
74,000 AmeriSource Health Corp. Class "A"* 1,887,000
105,000 Boston Scientific Corp.* 4,613,438
58,000 Johnson & Johnson 5,684,000
42,000 Stryker Corp. 2,525,250
206,000 VISX, Inc.* 16,312,625
--------------
42,899,313
--------------
Natural Gas-Diversified -- 1.0%
141,000 Enron Corp. 11,526,750
69,000 Williams Companies, Inc. (The) 2,936,812
--------------
14,463,562
--------------
Newspaper -- 0.3%
111,000 News Corp., Ltd. (ADR) 3,919,687
--------------
Office Equipment & Supplies -- 1.1%
108,000 Pitney Bowes, Inc. 6,939,000
291,655 Staples, Inc.* 9,023,077
--------------
15,962,077
--------------
Precision Instrument -- 0.4%
104,000 Waters Corp.* 5,525,000
--------------
Publishing -- 0.2%
20,000 CMGI Inc.* 2,281,250
26,000 Reader's Digest Association, Inc.
Class "A" 1,033,500
--------------
3,314,750
--------------
Recreation -- 1.0%
40,000 Carnival Corp. 1,940,000
111,000 Harley-Davidson, Inc. 6,035,625
174,000 Royal Caribbean Cruises, Ltd. 7,612,500
--------------
15,588,125
--------------
Restaurant -- 0.3%
145,000 Brinker International, Inc.* 3,942,187
--------------
Retail Building Supply -- 1.1%
150,000 Home Depot, Inc. (The) 9,665,625
115,000 Lowe's Companies, Inc. 6,519,063
--------------
16,184,688
--------------
Retail-Special Lines -- 4.2%
141,040 Abercrombie & Fitch Co. Class "A"* 6,769,920
104,000 AnnTaylor Stores Corp.* 4,680,000
181,000 Bed Bath & Beyond Inc.* 6,968,500
153,000 Best Buy Co., Inc.* 10,327,500
82,000 Circuit City Stores-Circuit City Group 7,626,000
100,500 Dollar Tree Stores, Inc.* 4,422,000
140,250 Gap, Inc. 7,065,094
85,000 Hollywood Entertainment Corp.* 1,662,812
6,405 Intimate Brands, Inc. Class "A" 303,437
28,000 Ross Stores, Inc. 1,410,500
160,000 TJX Companies, Inc. (The) 5,330,000
20,000 Tandy Corp. 977,500
65,900 Tiffany & Co. 6,359,350
--------------
63,902,613
--------------
Retail Store -- 1.8%
126,000 Dayton Hudson Corp. 8,190,000
108,000 Kohl's Corp.* 8,336,250
240,000 Wal-Mart Stores, Inc. 11,580,000
--------------
28,106,250
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
111
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited) (Continued)
Shares on
Principal
Amount Value
- ---------------------------------------------------------------------------
Semiconductor -- 2.7%
78,000 Linear Technology Corp. $ 5,245,500
61,000 Motorola, Inc. 5,779,750
95,000 PMC-Sierra, Inc.* 5,599,063
55,000 QLogic Corp.* 7,260,000
60,000 RF Micro Devices, Inc.* 4,477,500
67,500 TranSwitch Corp.* 3,197,812
92,000 Vitesse Semiconductor Corp.* 6,204,250
60,000 Xilinx, Inc.* 3,435,000
--------------
41,198,875
--------------
Telecommunications Equipment -- 1.4%
170,000 General Instrument Corp.* 7,225,000
32,000 QUALCOMM Incorporated* 4,592,000
89,000 Scientific-Atlanta, Inc. 3,204,000
90,000 Tellabs, Inc.* 6,080,625
--------------
21,101,625
--------------
Telecommunication Services -- 2.5%
43,000 ALLTEL Corp. 3,074,500
255,000 CenturyTel, Inc. 10,136,250
41,000 Global TeleSystems Group, Inc.* 3,321,000
76,000 MediaOne Group, Inc.* 5,652,500
170,000 SBC Communications Inc. 9,860,000
128,000 WinStar Communications, Inc.* 6,240,000
--------------
38,284,250
--------------
Toiletries/Cosmetics -- 0.4%
44,000 Avon Products, Inc. 2,442,000
86,000 Lauder (Estee) Companies Inc. (The)
Class "A" 4,310,750
--------------
6,752,750
--------------
TOTAL COMMON STOCKS
(Cost $436,059,148) 759,466,208
--------------
- ----------------------------------
U.S. TREASURY OBLIGATIONS -- 18.8%
- ----------------------------------
$ 45,000,000 U.S. Treasury Notes
4.00%, due 10/31/00 $ 44,192,700
29,000,000 U.S. Treasury Notes
5.25%, due 5/31/01 28,857,900
30,000,000 U.S. Treasury Notes
5.75%, due 6/30/01 30,111,900
10,000,000 U.S. Treasury Notes
6.50%, due 5/31/02 10,230,300
36,500,000 U.S. Treasury Notes
4.75%, due 2/15/04 34,982,330
14,250,000 U.S. Treasury Notes
5.875%, due 11/15/05 14,206,252
14,250,000 U.S. Treasury Notes
5.625%, due 2/15/06 13,997,063
15,000,000 U.S. Treasury Notes
4.75%, due 11/15/08 13,761,150
59,500,000 U.S. Treasury Bonds
7.25%, due 8/15/22 66,603,705
30,000,000 U.S. Treasury Bonds
6.00%, due 2/15/26 $ 29,239,500
--------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $288,323,883) 286,182,800
--------------
- -------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 14.6%
- -------------------------------------------
$ 13,000,000 Federal Home Loan Bank Bonds
5.375%, due 3/2/01 $ 12,930,450
18,000,000 Federal Home Loan Mortgage
Corp. Debentures, 5.75%, due 6/15/01 17,976,420
15,000,000 Federal Home Loan Bonds
5.125%, due 2/26/02 14,710,050
21,000,000 Federal National Mortgage
Association Notes,
5.375%, due 3/15/02 20,710,620
12,000,000 Federal Home Loan
Mortgage Corp. Debentures,
5.500%, due 5/15/02 11,877,120
13,500,000 Federal National Mortgage
Association Notes,
4.750%, due 11/14/03 12,809,205
44,000,000 Federal Home Loan Mortgage
Corp. Debentures,
5.000%, due 1/15/04 42,071,480
5,500,000 Federal National Mortgage
Association Notes,
5.125%, due 2/13/04 5,286,655
29,000,000 Federal National Mortgage
Association Notes,
5.625%, due 5/14/04 28,424,930
10,000,000 Federal National Mortgage
Association Notes,
5.750%, due 6/15/05 9,822,200
13,000,000 Federal National Mortgage
Association Notes,
6.500%, due 7/16/07 13,048,490
10,000,000 Federal National Mortgage
Association Notes, Pool 380188,
6.450%, due 4/1/08 9,746,880
14,000,000 Federal Home Loan Mortgage
Corp. Debentures,
5.750%, due 4/15/08 13,393,940
10,000,000 Federal National Mortgage
Association Notes,
5.250%, due 1/15/09 9,168,000
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $226,515,882) 221,976,440
--------------
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
112
<PAGE>
- --------------------------------------------------------------------------------
Principal
Amount Value
- ---------------------------------------------------------------------------
- -------------------------------
CORPORATE BONDS & NOTES -- 1.2%
- -------------------------------
Chemical-Diversified -- 0.3%
$ 5,000,000 Goodrich (B.F.) Co. (The) Notes
6.45%, due 4/15/08 $ 4,761,550
--------------
Telecommunication Services -- 0.9%
5,000,000 AirTouch Communications Inc. Notes
6.65%,due 5/1/08 4,879,550
5,000,000 MCI WorldCom, Inc. Sr. Notes
6.40%, due 8/15/05 4,883,900
4,000,000 MCI WorldCom, Inc. Sr. Notes
6.50%, due 4/15/10 3,831,120
--------------
13,594,570
--------------
TOTAL CORPORATE BONDS & NOTES
(Cost $18,965,259) 18,356,120
--------------
TOTAL INVESTMENT SECURITIES -- 84.6%
(Cost $969,864,172) 1,285,981,568
--------------
- -------------------------------
SHORT-TERM INVESTMENTS -- 13.1%
- -------------------------------
REPURCHASE AGREEMENTS -- 3.2%
(including accrued interest)
$ 47,900,000 Collateralized by $39,840,000
U.S. Treasury Bonds 11.125%,
due 8/15/03, with a value of
$48,825,924 (with State Street
Bank & Trust Company,
4.70%, dated 6/30/99, due 7/1/99,
delivery value of $47,906,254) $ 47,906,254
900,000 Collateralized by $905,000
U.S. Treasury Notes 5.25%,
due 1/31/01, with a value of
$921,859, (with State Street
Bank & Trust Company,
4.00%, dated 6/30/99, due 7/1/99,
delivery value $900,100) 900,100
--------------
48,806,354
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 9.9%
$30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes 4.73%, due 7/1/99 $ 30,000,000
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes 4.830%, due 7/16/99 29,939,625
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes 4.810%, due 7/19/99 29,927,850
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes 4.910%, due 7/22/99 29,914,075
30,000,000 Federal Home Loan Mortgage Corp.
Discount Notes 4.840%, due 7/26/99 29,899,167
--------------
149,680,717
--------------
TOTAL SHORT-TERM SECURITIES
(Cost $198,487,071) 198,487,071
--------------
CASH AND RECEIVABLES
LESS LIABILITIES -- 2.3% 35,182,859
--------------
NET ASSETS -- 100.0% $1,519,651,498
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,519,651,498 / 54,373,946
shares outstanding) $ 27.95
==============
See notes to financial statements.
* Non-income producing security.
- --------------------------------------------------------------------------------
113
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investment in securities, at value
(cost $969,864,172) $1,285,981,568
Short-term investments (cost $198,487,071) 198,487,071
Cash 95,142
Receivable for securities sold 43,245,837
Interest and dividends receivable 7,945,329
Receivable for capital shares sold 307,932
Prepaid insurance expense 34,162
--------------
TOTAL ASSETS 1,536,097,041
--------------
LIABILITIES
Payable for securities purchased 15,009,375
Payable for capital shares repurchased 546,114
Accrued expenses:
Advisory fee 608,085
GIAC administrative service fee 235,000
Other 46,969
--------------
TOTAL LIABILITIES 16,445,543
--------------
NET ASSETS $1,519,651,498
==============
NET ASSETS CONSIST OF:
Capital stock, at $0.01 par value
(authorized unlimited, outstanding
54,373,946 shares) $ 543,740
Additional paid-in capital 873,609,810
Undistributed net investment income 25,323,729
Undistributed net realized gain on investments 304,056,823
Net unrealized appreciation of investments 316,117,396
--------------
NET ASSETS $1,519,651,498
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,519,651,498 / 54,373,946
shares outstanding) $ 27.95
==============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 1999 (Unaudited)
Investment Income:
Interest $ 11,646,777
Dividends (Net of foreign withholding
tax of $1,531) 2,491,158
------------
Total Income 14,137,935
------------
Expenses:
Investment advisory fee 3,605,108
GIAC administrative service fee 457,877
Custodian fees 74,601
Audit and legal fees 16,462
Insurance and dues 13,195
Trustees' fees and expenses 7,797
Printing and stationery 905
Taxes and other 793
------------
Total Expenses Before Custody Credits 4,176,738
Less: Custody Credits (1,630)
------------
Net Expenses 4,175,108
------------
Net Investment Income 9,962,827
------------
Net Realized and Unrealized Gain (Loss)
On Investments:
Net realized gain 224,707,883
Net change in unrealized appreciation
(depreciation) (84,323,009)
------------
Net Realized Gain and Change in
Unrealized Appreciation (Depreciation)
on Investments 140,384,874
------------
Net Increase in Net Assets from Operations $150,347,701
============
See notes to financial statements.
- --------------------------------------------------------------------------------
114
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1999
(Unaudited) and for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income $ 9,962,827 $ 15,682,392
Net realized gain on investments 224,707,883 79,864,542
Change in net unrealized appreciation (depreciation) (84,323,009) 215,856,062
--------------- ---------------
Net increase in net assets from operations 150,347,701 311,402,996
--------------- ---------------
Distributions to Shareholders:
Net investment income -- (35,369,549)
Net realized gain from investment transactions -- (101,947,527)
--------------- ---------------
Total distributions -- (137,317,076)
--------------- ---------------
Trust Share Transactions:
Proceeds from sale of shares 57,549,365 98,680,308
Proceeds from reinvestment of distributions to shareholders -- 137,317,076
Cost of shares repurchased (102,529,265) (192,389,054)
--------------- ---------------
Net (decrease) increase from Trust share transactions (44,979,900) 43,608,330
--------------- ---------------
Total Increase in Net Assets 105,367,801 217,694,250
Net Assets:
Beginning of period 1,414,283,697 1,196,589,447
--------------- ---------------
End of period $ 1,519,651,498 $ 1,414,283,697
=============== ===============
Undistributed Net Investment Income, at End of Period $ 25,323,729 $ 15,360,902
=============== ===============
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
115
<PAGE>
- --------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
- -------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- ------------------------------------
1 -- Significant Accounting Policies
- ------------------------------------
Value Line Strategic Asset Management Trust (the "Trust") is an open-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended, which seeks to achieve a high total investment
return consistent with reasonable risk by investing primarily in a broad range
of common stocks, bonds and money market instruments. The Trust will attempt to
acheive its objective by following an asset allocation strategy based on data
derived from computer models for the stock and bond markets that shifts the
asset of the Trust among equity, debt and money market securities as the models
indicate and its investment adviser, Value Line, Inc. (the "Adviser"), deems
appropriate.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Trust in the preparation of its financial statements.
(A) Security Valuation.
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities and for securities traded in the
over-the-counter market, the security is valued at the midpoint between the
latest available and representative bid and asked prices.
The Board of Trustees has determined that the value of bonds and other
fixed-income securities be calculated on the valuation date by reference to
valuations obtained from an independent pricing service which determines
valuations for normal institutional-size trading units of debt securities,
without exclusive reliance upon quoted prices. This service takes into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data in determining valuations.
Short-term instruments with maturities of 60 days or less are valued at
amortized cost which approximates market value. Short-term instruments with
maturities greater than 60 days at the date of purchase are valued at the
midpoint between the latest available and representative asked and bid prices,
and commencing 60 days prior to maturity such securities are valued at amortized
cost. Other assets and securities for which market valuations are not readily
available are valued at fair value as the Board of Trustees may determine in
good faith.
(B) Repurchase Agreements
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the Trust has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
(C) Federal Income Taxes
It is the Trust's policy to qualify under, and comply with, the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(D) Dividends and Distributions
It is the Trust's policy to distribute to its shareholders, as dividends
and as capital gains distributions, all the net investment income for the year
and all the net capital gains realized by the Trust, if any. Such distributions
are
- --------------------------------------------------------------------------------
116
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. All dividends or distributions will be
payable in shares of the Trust at the net asset value on the ex-dividend date.
This policy is, however, subject to change at any time by the Board of Trustees.
(E) Amortization.
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments.
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income, adjusted for amortization of discount, including
original issue discount required for federal income tax purposes, is earned from
settlement date and recognized on the accrual basis. Dividend income is recorded
on the ex-dividend date.
- ----------------------------------------
2 -- Trust Share Transactions, Dividends
and Distributions
- ----------------------------------------
Shares of the Trust are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance & Annuity Company, Inc.
(GIAC). Transactions in shares of beneficial interest in the Trust were as
follows:
Six Months
Ended
June 30, Year Ended
1999 December 31,
(unaudited) 1998
------------ ------------
Shares sold 2,191,039 4,261,820
Shares issued in reinvestment
of dividends and
distributions -- 6,157,716
------------ ------------
2,191,039 10,419,536
Shares repurchased 3,887,268 8,418,685
------------ ------------
Net (decrease) increase (1,696,229) 2,000,851
============ ============
Dividends per share from net
investment income $ -- $ .68
============ ============
Distributions per share from
net realized gains $ -- $ 1.96
============ ============
- --------------------------------------
3 -- Purchases and Sales of Securities
- --------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Six Months Ended
June 30, 1999
(unaudited)
----------------
PURCHASES:
U.S. Treasury and Government
Agency Obligations $ 435,024,097
Other Investment Securities 156,244,585
-------------
$ 591,268,682
=============
SALES & MATURITIES:
U.S. Treasury and Government
Agency Obligations $ 24,375,169
Other Investment Securities 762,444,468
-------------
$ 786,819,637
=============
At June 30, 1999, the aggregate cost of investment securities and
short-term securities for federal income tax purposes was $1,168,351,243. The
aggregate appreciation and depreciation of investments at June 30, 1999, based
on a comparison of investment values and their costs for federal income tax
purposes was $329,007,065 and $12,889,669, respectively, resulting in a net
appreciation of $316,117,396.
- ---------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Affiliates
- ---------------------------------------------
An advisory fee of $3,605,108 was paid or payable to the Adviser, for the
six months ended June 30, 1999. This was computed at the rate of 1/2 of 1% of
the average daily net assets of the Trust during the period and paid monthly.
The Adviser provides research, investment programs, supervision of the
investment portfolio and pays costs of administrative services, office space,
equipment and compensation of administrative, bookkeeping and clerical personnel
necessary for managing the affairs of the Trust. The Adviser also provides
persons, satisfactory to the Trust's Board of Trustees, to act as officers and
employees of the Trust and pays their salaries and wages. The Trust bears all
other costs and expenses.
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<PAGE>
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Value Line Strategic Asset Management Trust
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NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited) (Continued)
Certain officers and directors of the Adviser and Value Line Securities,
Inc. (the Trust's distributor and a registered broker/dealer), and of GIAC are
also officers and Trustees of the Trust. A former officer of GIAC who is also a
trustee of the Trust was paid a fee of $1,484 by the Trust for the six months
ended June 30, 1999. During the six months ended June 30, 1999, the Trust paid
brokerage commissions totalling $373,703 to Value Line Securities, Inc., a
wholly owned subsidiary of the Adviser, which clears its transactions through
unaffiliated brokers.
The Trust has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contract-owner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the six months ended June 30, 1999, the
Trust incurred expenses of $457,877 in connection with such services rendered by
GIAC.
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<PAGE>
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FINANCIAL HIGHLIGHTS
Selected data for a share of stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1999 ----------------------------------------------------
(Unaudited) 1998 1997 1996
------------- ----------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............... $ 25.22 $ 22.13 $ 21.90 $ 20.27
---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income ........................... .19 .30 .65 .53
Net gains or losses on securities (both realized
and unrealized) ................................ 2.54 5.43 2.65 2.56
---------- ---------- ---------- ----------
Total from investment operations ................ 2.73 5.73 3.30 3.09
---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income ........... -- (.68) (.55) (.37)
Distributions from capital gains ............... -- (1.96) (2.52) (1.09)
---------- ---------- ---------- ----------
Total distributions ............................ -- (2.64) (3.07) (1.46)
---------- ---------- ---------- ----------
Net asset value, end of period ..................... $ 27.95 $ 25.22 $ 22.13 $ 21.90
========== ========== ========== ==========
Total return** ..................................... 10.82%+ +27.45% +15.66% +15.87%
========== ========== ========== ==========
Ratios/Supplemental Data:
Net assets, end of period (in thousands) ........... $1,519,651 $1,414,284 $1,196,589 $1,072,785
Ratio of expenses to average net assets ............ .58%*(1) .58%(1) .59%(1) .58%(1)
Ratio of net investment income to average
net assets ....................................... 1.38%* 1.25% 3.08% 2.70%
Portfolio turnover rate ............................ 46%+ 106% 58% 71%
<CAPTION>
Years Ended December 31,
-----------------------
1995 1994
-----------------------
<S> <C> <C>
Net asset value, beginning of period ............... $ 16.13 $ 17.01
-------- --------
Income (loss) from investment operations:
Net investment income ........................... .39 .26
Net gains or losses on securities (both realized
and unrealized) ................................ 4.17 (1.09)
-------- --------
Total from investment operations ................ 4.56 (.83)
-------- --------
Less distributions:
Dividends from net investment income ........... (.26) (.01)
Distributions from capital gains ............... (.16) (.04)
-------- --------
Total distributions ............................ (.42) (.05)
-------- --------
Net asset value, end of period ..................... $ 20.27 $ 16.13
======== ========
Total return** ..................................... +28.54% -4.88%
======== ========
Ratios/Supplemental Data:
Net assets, end of period (in thousands) ........... $876,509 $662,721
Ratio of expenses to average net assets ............ .60% .60%
Ratio of net investment income to average
net assets ....................................... 2.18% 1.65%
Portfolio turnover rate ............................ 63% 100%
</TABLE>
+ Not annualized
* Annualized.
(1) Before offset of custody credits.
** Total returns do not reflect the effects of charges deducted under the
terms of GIAC's variable contracts. Including such charges would reduce
the total returns for all periods shown.
See notes to financial statements.
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<PAGE>
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Value Line Strategic Asset Management Trust
- -------------------------------------------
Other Information (unaudited)
- ---------
Year 2000
- ---------
Like other mutual funds, the Trust could be adversely if the computer
systems used by the Adviser and other service providers do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly known as the "Year 2000 Problem." The Adviser is taking steps
that it believes are reasonably designed to address the Year 2000 Problem with
respect to the computer systems that it uses and to obtain satisfactory
assurances that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Trust.
The Year 2000 Problem is expected to impact corporations which may include
issuers of portfolio securities held by the Trust, to varying degrees based upon
various factors, including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Trust is unable to
predict what impact, if any, the Year 2000 Problem will have on issuers of the
portfolio securities held by the Trust.
See notes to financial statements.
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