N-CSRS 1 variable.txt SEMI-ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-03636 -------------------------------------------------------------------------------- The Guardian Variable Contract Funds, Inc. -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 7 Hanover Square New York, N.Y. 10004 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Frank L. Pepe Thomas G. Sorell The Guardian Variable Contract The Guardian Variable Contract Funds, Inc. Funds, Inc. 7 Hanover Square 7 Hanover Square New York, N.Y. 10004 New York, N.Y. 10004 -------------------------------------------------------------------------------- (Name and address of agents for service) Registrant's telephone number, including area code: (800) 221-3253 -------------------------------------------------------------------------------- Date of fiscal year end: December 31 -------------------------------------------------------------------------------- Date of reporting period: June 30, 2003 -------------------------------------------------------------------------------- ITEM 1. REPORTS TO STOCKHOLDERS. -------------------------------------------------------------------------------- The Guardian Stock Fund ------------------------------------- [PHOTO OMITTED] Richard Goldman Portfolio Manager Objective: Long-term growth of capital Portfolio: At least 80% common stocks and convertible securities Inception: April 13, 1983 Net Assets at June 30, 2003: $1,364,908,681 Q: What type of investors should consider The Guardian Stock Fund? A: The best way to answer that is to list the Fund's two distinct features, which certain types of investors may find attractive. - High Quality Companies: Our investment process is geared to finding companies that we believe have strong balance sheets, that generate high cash flows, and that are profitable. This is based on our philosophy that investing in market leaders with strong fundamentals has the potential to produce an attractive long-term performance and risk profile. - Commitment to our core objective: The Guardian Stock Fund is a core large cap fund, and we will use every effort to prevent the Fund from straying from its style. This is important for investors who are deploying asset allocation strategies and want a well-diversified large cap core equity portfolio. We believe too many mutual funds are willing to drift into areas outside their mandates in their efforts to outperform. We saw this happen in the late 1990s when many small cap and value funds were buying larger cap and growth stocks. Many investors thought their investments were diversified among different types of equity funds. Only after the bubble burst in 2000, when large cap and growth stocks had significantly decined, did they realize that these shifts had occurred. The result was an over-concentration in large cap and growth stocks, causing a greater decline in portfolio values than otherwise expected. Q: What happened in the equity markets during the first six months of 2003? ================================================================================ "We believe that higher quality companies should see their relative fortunes improve, as investors will eventually refocus on their fundamentals and attractive relative valuations." ================================================================================ A: In A Tale of Two Cities, Charles Dickens captured the equity market environment during the first half of 2003: "It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity..." The year began on a negative note as the equity market extended its 3-year slide, with the S&P 500 Index(1) down 3% in the first quarter. This was more than offset by the second quarter, in which the S&P 500 was up 15%, bringing its total return for the first half of 2003 to 11.76%. The nature of the rally (which began on March 11th and extended through the end of the second quarter) reveals a market environment somewhat reminiscent of the rally experienced in the late 1990s: the stocks that were up the most were companies with operating losses (including the internet and biotech sectors), companies with poor track records of earnings and dividend growth, and companies under federal investigation. We believe that the speculative nature of the rally is attributable to investors' increasing confidence that the economy will improve in the second half of 2003. While higher quality companies (those with positive earnings and strong balance sheets) were up during the first half of the year, they didn't rise as much as lower quality companies. We believe that higher quality companies should see their relative fortunes improve, as investors will eventually refocus on their fundamentals and attractive relative valuations. -------------------------------------------------------------------------------- (1) The S&P 500 Index is an unmanaged index of 500 primarily 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. -------------------------------------------------------------------------------- 8 -------------------------------------------------------------------------------- Q: How did the Fund perform during the first half of 2003? A: The Fund was up 8.72%(2) during the first half of 2003. Since the Fund's investment strategy focuses on investing in high quality companies, it was a difficult environment for it to outperform its S&P 500 benchmark due to the speculative nature of the recent rally, as described above. The Fund's performance was helped by its semiconductor holdings, which outperformed as investors became increasingly confident in the earnings visibility for these companies. This was offset by the strong performance of highly cyclical companies in the consumer discretionary and industrial sectors, two areas that significantly outperformed and in which the Fund was underrepresented. Q: What is the Fund's investment strategy, and will it change going forward? A: The Guardian Stock Fund is a core fund that invests mainly in large cap, high quality companies and is designed for investors who are looking for a foundation upon which they can build their portfolio. The Fund's investment strategy focuses on identifying companies that we believe have solid balance sheets and are generating strong financial results. The Fund's bias towards seeking high quality companies is shown in the table below: Earnings Revenue % Return 5 year 5 year Long-Term Equity Growth Growth Debt/Total 5 Year Rate(3) Rate(4) Capital(5) Average(6) -------- ------- ---------- ---------- The Guardian Stock Fund 13% 9% 23% 19% S&P 500 Index 6% 7% 35% 15% ---------- Note: Median data as of 06-30-03. Source: Baseline, Factset Although the recent market environment has not favored higher quality stocks, our investment strategy is based on our philosophy that investing in companies with strong fundamentals has the potential to produce attractive long-term performance. We are committed to adhering to this strategy and will not abandon our investment discipline to chase a short-term market phenomenon. We are taking advantage of the current market environment by opportunistically adding to the Fund's holdings that have become more attractively valued and trimming those positions that we believe have become too expensive. The Fund remains modestly overweight in the technology sector in which our sector specialist identified several high quality software and semiconductor companies. The Fund is underweight in cyclical consumer and industrial companies due to the lack of visibility in generating future revenue and earnings growth. -------------------------------------------------------------------------------- (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. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (3) Earnings 5-Year Growth Rate - The median earnings growth rate for the companies in the Fund and the S&P 500 Index for the past five years. A higher number indicates a greater rate of earnings growth. (4) Revenue 5-year Growth Rate - The median revenue growth rate for the companies in the Fund and the S&P 500 Index for the past five years. A higher number indicates a greater rate of revenue growth. (5) % Long Term Debt / Total Capital - The median long-term debt as a proportion of capital for the companies in the Fund and the S&P 500 Index as of 06/30/03. A lower number indicates a company's greater ability to pay off outstanding debt. (6) Return on Equity 5-Year Average - The median return on equity of the last five fiscal years for the companies in the Fund and the S&P 500 Index. Return on Equity is an indicator of profitability and a higher number indicates greater profitability. -------------------------------------------------------------------------------- The Guardian Stock Fund Profile -------------------------------------
---------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED JUNE 30, 2003 Since Fund 1 Year 3 Years 5 Years 10 Years Inception (4/13/83) ---------------------------------------------------------------------------------------------- The Guardian Stock Fund (1.55)% (18.87)% (5.22)% 7.74% 11.92% ----------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- (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. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. -------------------------------------------------------------------------------- 9 -------------------------------------------------------------------------------- The Guardian Stock Fund ------------------------------------- Sector Weightings of The Guardian Stock Fund as of June 30, 2003 [The following table was depicted as a pie chart in the printed material.] Health Care 16.90% Cash 1.96% Energy 7.33% Consumer Staples 10.67% Utilities 2.24% Industrials 6.81% Telecommunication Services 3.81% Financials 20.45% Consumer Discretionary 4.00% Information Technology 22.52% Materials 3.31% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Top Ten Holdings as of June 30, 2003 Percent of Company Total Net Assets -------------------------------------------------------------------------------- 1. Pfizer, Inc. 5.54% -------------------------------------------------------------------------------- 2. Verizon Comm. 3.81% -------------------------------------------------------------------------------- 3. General Electric Co. 3.24% -------------------------------------------------------------------------------- 4. American Int'l. Group, Inc. 3.15% -------------------------------------------------------------------------------- 5. Microsoft Corp. 3.04% -------------------------------------------------------------------------------- 6. Wal-Mart Stores, Inc. 2.86% -------------------------------------------------------------------------------- 7. Cisco Systems, Inc. 2.66% -------------------------------------------------------------------------------- 8. AmerisourceBergen Corp. 2.61% -------------------------------------------------------------------------------- 9. Lockheed Martin Corp. 2.58% -------------------------------------------------------------------------------- 10. Adobe Systems, Inc. 2.45% -------------------------------------------------------------------------------- 10 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Growth of a Hypothetical $10,000 Investment [The following table was depicted as a line chart in the printed material.] The Guardian Stock Fund S&P 500 Index Cost of Living ----------------------- ------------- -------------- 4/13/83 10000 10000 10000 10891 10844 10333 83 11028 10867 10336 10684 10328 10571 84 12218 11529 10754 14360 13501 10958 85 16130 15169 11162 20326 18307 11152 86 18889 17985 11295 22920 22898 11580 87 19241 18903 11794 23115 21283 12029 88 23160 21989 12314 26541 25595 12650 89 28613 28887 12885 28334 29749 13252 90 25224 27959 13680 29788 31938 13874 91 34293 36439 14088 34598 36196 14302 92 41178 39207 14516 46490 41100 14720 93 49396 43130 14913 47471 41667 15097 94 48767 43679 15311 58848 52468 15545 95 65667 59992 15668 72792 66015 15973 96 83330 73770 16176 110475 91429 16627 97 112983 94035 16627 128110 110637 17090 98 135440 120810 17287 138555 126826 17322 99 177629 163104 17232 177564 153710 17629 00 144965 142548 17813 123756 133028 18268 01 113879 125651 18017 99507 109114 18261 02 90111 99717 18470 6/2003 97971 111450 18700 A hypothetical $10,000 investment made at the inception of The Guardian Stock Fund on April 13, 1983 would have grown to $97,971 on June 30, 2003. We compare our performance to that of the S&P 500 Index, 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 $111,450. The Cost of Living, as measured by the Consumer Price Index, is generally representative of the level of U.S. inflation and is provided to lend a more complete understanding of the investment's real worth. -------------------------------------------------------------------------------- 11 -------------------------------------------------------------------------------- The Guardian VC 500 Index Fund ------------------------------------- [PHOTO OMITTED] Jonathan C. Jankus, C.F.A. Portfolio Manager Objective: Seeks to track the investment performance of the Standard & Poor's 500 Composite Stock Price Index ("the S&P 500 Index") Portfolio: Common stocks of companies included in the S&P 500 Index, which emphasizes securities issued by large U.S. companies Net Assets at June 30, 2003: $137,297,321 Q: This has been a volatile period for the financial markets. How has the Fund performed? A: In the first half of this year, the total return on stocks, as measured by the S&P 500 Index,(1) was 11.76%. The Fund's return over the period was 11.63%.(2) Q: What strategies were used by the Fund and how did they affect performance? A: As an index fund, the Fund's goal is to mimic the returns of the theoretical S&P 500 Index portfolio. We attempt to do so by holding nearly all 500 of the stocks in the index in approximately the same weights as they are represented in the index. We attempt to minimize trading costs and trade only when rebalancings are required by capitalization changes in the index or when dividends need to be reinvested. Q: What are your expectations for the future and how are you positioning the Fund to take advantage of those expectations? A: As passive investors, we do not attempt to engage in either market timing or active security selection decisions. Our only goal is to match the returns of the broad equity market (as measured by the S&P 500 Index) in the most efficient way. ================================================================================ "As an index fund, the Fund's goal is to mimic the returns of the theoretical S&P 500 Index portfolio. We attempt to do so by holding nearly all 500 of the stocks in the index in approximately the same weights as they are represented in the index." ================================================================================ -------------------------------------------------------------------------------- (1) "S&P," "S&P 500(R)," "Standard & Poor's 500" and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Guardian Investor Services LLC. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Fund. The S&P 500 Index is an unmanaged index of 500 primarily 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. Since January 1, 2000 the investment adviser for the Fund has assumed certain ordinary operating expenses for the Fund. Without this assumption of expenses, returns would have been lower. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. -------------------------------------------------------------------------------- 12 -------------------------------------------------------------------------------- The Guardian VC 500 Index Fund Profile -------------------------------------- -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED JUNE 30, 2003 -------------------------------------------------------------------------------- 1 Year ............................................................. (0.06)% 3 Year ............................................................. (11.21)% Since Inception (8/25/99) .......................................... (7.49)% -------------------------------------------------------------------------------- (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. Since January 1, 2000 the investment adviser for the Fund has assumed certain ordinary operating expenses for the Fund. Without this assumption of expenses, returns would have been lower. Past performance is not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Top Ten Holdings as of June 30, 2003 Percent of Total Company Net Assets -------------------------------------------------------------------------------- 1. General Electric Co. 3.10% -------------------------------------------------------------------------------- 2. Microsoft Corp. 2.97% -------------------------------------------------------------------------------- 3. Pfizer, Inc. 2.94% -------------------------------------------------------------------------------- 4. Exxon Mobil Corp. 2.66% -------------------------------------------------------------------------------- 5. Wal-Mart Stores, Inc. 2.55% -------------------------------------------------------------------------------- 6. Citigroup, Inc. 2.38% -------------------------------------------------------------------------------- 7. Johnson & Johnson 1.66% -------------------------------------------------------------------------------- 8. American Int'l. Group, Inc. 1.56% -------------------------------------------------------------------------------- 9. Int'l. Business Machines 1.52% -------------------------------------------------------------------------------- 10. Intel Corp. 1.48% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Sector Weightings held by The Guardian VC 500 Index Fund as of June 30, 2003 [The following table was depicted as a pie chart in the printed material.] Information Technology 16.11% Cash 0.36% Materials 2.63% Consumer Staples 11.64% Financials 20.37% Telecommunication Services 3.87% Consumer Discretionary 11.08% Health Care 14.80% Energy 5.76% Industrial 10.35% Utilities 3.03% -------------------------------------------------------------------------------- Sector Weightings for the S&P Index as of June 30, 2003 [The following table was depicted as a pie chart in the printed material.] Materials 2.66% Healthcare 14.83% Financials 20.46% Consumer Staples 11.66% Information Technology 16.18% Energy 5.79% Industrials 10.44% Consumer Discretionary 11.06% Utilities 3.03% Telecommunication Services 3.89% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 13 -------------------------------------------------------------------------------- The Guardian VC Asset Allocation Fund ------------------------------------- [PHOTO OMITTED] Jonathan C. Jankus, C.F.A. Portfolio Manager Objective: Long-term total in-vestment return consistent with moderate investment risk Portfolio: Generally purchases shares of The Guardian VC 500 Index, The Guardian Stock, The Guardian Bond, and/or The Guardian Cash Funds. Also invests in individual securities and uses futures to manage allocations among the equity, debt and money market asset classes. Inception: September 15, 1999 Net Assets at June 30, 2003: $38,367,598 Q: This has been a volatile period for the financial markets. How has the Fund performed? A: In the first half of this year, the total return on stocks, as measured by the S&P 500 Index,(1) was 11.76% and the total return on bonds, as measured by the Lehman Aggregate Bond Index(2) was 3.93%. Our theoretical benchmark, a model portfolio with 60% of its value in the S&P 500 Index and 40% in the Lehman Aggregate Bond Index (rebalanced monthly) would have returned 8.66%. We are pleased to say that, by comparison, the Fund's return over the period was 11.45%(3) with dividends reinvested. Q: What strategies were used by the Fund and how did they affect performance? A: As always, the Fund is managed using proprietary quantitative models that attempt to judge the relative risk-adjusted attractiveness of the stock, bond and cash markets. While interest rates are the operative variables in the fixed income markets, corporate profitability and growth are added to the mix for the equity markets. In general, a benign interest rate environment and an economy which appears to be recovering from a recession led us to hold an aggressive equity exposure relative to cash and bonds. Specifically, at year-end 2002, our stock/ bond/cash mix was approximately 100/0/0, and we have maintained that posture. These weightings should be compared to the completely neutral 60/40/0 mix that we would expect to own if the markets were all fairly valued relative to one another. Our models are driven by quantifiable economic variables dealing with corporate profitability and interest rates. For better or worse, over the past two years the markets have been driven by factors that are not amenable to quantification, such as corporate malfeasance, terrorism and war. These are important matters to be sure, but not captured in our models. Hopefully, as these concerns subside and are dealt with, our models will continue to deliver value to our investors. Q: What are your expectations for the future and how are you positioning the Fund to take advantage of those expectations? A: We continue to be very aggressively positioned, and we will maintain this stance until either interest rates increase sufficiently or corporate profitability collapses in spite of an accommodative Federal Reserve com- bined with a stimulative fiscal stance. Historically, this monetary/fiscal combination has proved to be a powerful positive force for the markets. From a pure relative valuation perspective, equities continue to look extremely attractive. ================================================================================ "As always, the Fund is managed using proprietary quantitative models which attempt to judge the relative risk-adjusted attractiveness of the stock, bond and cash markets." ================================================================================ -------------------------------------------------------------------------------- (1) The S&P 500 Index is an unmanaged index of 500 primarily 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) 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 its returns do not reflect the fees and expenses that have been deducted from the Fund. (3) 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. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. -------------------------------------------------------------------------------- 14 -------------------------------------------------------------------------------- The Guardian VC Asset Allocation Fund Profile --------------------------------------------- -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED JUNE 30, 2003 -------------------------------------------------------------------------------- 1 Year ............................................................. 0.62% 3 Year ............................................................. (7.14)% Since Inception (9/15/99) .......................................... (2.48)% -------------------------------------------------------------------------------- (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. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Portfolio Composition by Asset Class as of June 30, 2003 [The following table was depicted as a pie chart in the printed material.] Cash 1.79% Fixed Income 0.44% Common Stocks 97.77% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 15 -------------------------------------------------------------------------------- The Guardian VC High Yield Bond Fund ------------------------------------- [PHOTO OMITTED] Peter J. Liebst Portfolio Manager Objective: Seeks current income. Capital appreciation is a secondary objective. Portfolio: At least 80% is invested in corporate bonds and other debt securities that, at the time of purchase, are rated below investment grade or are unrated Inception: September 13, 1999 Net Assets at June 30, 2003: $50,829,741 Q: How did the Fund perform during the first half of 2003? A: The Guardian VC High Yield Bond Fund posted a 10.96%(1) return for the six months ended June 30, 2003. The Fund underperformed the overall high yield market by 7.53% as the Fund's benchmark, the Lehman Brothers Corporate High Yield Index,(2) posted an 18.49% return for the period. Q: What factor's affected the Fund's performance? A: The first six months of 2003 was a remarkable start for the year with the high yield market posting an 18.49% return, its best six-month performance since 1991. During this period the market saw an increase in demand, liquidity, new issuance, and a dramatic recovery in the secondary market. The result, investors significantly reduced the risk premium demanded in the high yield market. With the underlying risk free Treasury rate dropping during the period to lows not seen in 45 years, both institutional and individual investors increased their appetite for risk in search for higher yields. This was seen in high yield mutual funds as over $21.6 billion of net inflows came into funds during the first two quarters of 2003, more than twice the inflows experienced over the whole of 2002. Responding to this demand, new issuance surged and prices for securities in the secondary market rose sharply. The risk premium in the high yield market, as measured by the average premium yield over comparable Treasuries, dropped from 9.10% at the beginning of 2003, to 6.22% as of June 30th. The crucial component to understanding the performance of the high yield market over the first half of the year is to examine where within the market returns originated. The answer for the first half of 2003 was predominantly in issuers of a lower, more speculative credit quality, and further concentrated in sectors which experienced significant credit and earnings deterioration over the last three years. Segmenting the high yield market along the lines of credit quality (as defined by Moody's Investor Services rating classifications), the lower quality Caa category generated a six month return of 40.50%, significantly outperforming the higher quality Ba and single B categories which produced a 12.41% and 16.79% returns, respectively. Further concentration of returns were seen within industry sectors, with the underlying theme being 2002's troubled sectors were 2003's best performers. As an example, both electric utilities and telecommunications, each representing a significant weight within the high yield market, produced sizable negative returns during 2002 only to rebound in the first half of 2003 posting returns of 43.41% and 32.36%, respectively. ================================================================================ "The Fund's overall strategy was to maximize the total return of a diversified fixed-income portfolio principally composed of below investment grade securities." ================================================================================ The above market dynamics were the principal reasons for The Guardian VC High Yield Bond Fund's underperformance over the first half of 2003. The Fund's investment management style focuses on selecting securities of companies that we believe have fundamental financial integrity and sufficient earnings capacity to sustain the capital structure. This approach typically limits the Fund's exposure to the lower credit quality levels, which was the case during the first half of 2003. Additionally, due to financial uncertainties facing most of the issuers within the electric utilities sector, the Fund maintained a significant underweight throughout the period which proved detrimental to performance as this sector has the largest weight within the market, and produced the highest return over the period. -------------------------------------------------------------------------------- (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. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (2) The Lehman Brothers Corporate High Yield Index is an unmanaged index that is generally considered to be representative of corporate high yield bond market activity. The Index is not available for direct investment and its returns do not reflect the fees and expenses that have been deducted from the Fund. -------------------------------------------------------------------------------- 16 -------------------------------------------------------------------------------- Q: What was your investment strategy during the period and what is your outlook for the future? A: The Fund's overall strategy was to maximize the total return of a diversified fixed-income portfolio principally composed of below investment grade securities. In pursuing this strategy, the Fund examines not only the macro economic and industry environment, but priority is placed on our identification of individual investment opportunities that we believe exhibit an appropriate capital structure and a predictable earnings outlook. The pursuit of this investment style limited the Fund's total exposure during the first half of the year to lower quality issuers as well as some industries, which we judged to have risks making the outlook too speculative. While signs of a slowly improving U.S. economy have been reported recently, the Fund remains cautious with regard to the timing of notable improvement. The Fund will continue to follow its disciplined investment style emphasizing financial strength and outlook when selecting investments. -------------------------------------------------------------------------------- The Guardian VC High Yield Bond Fund Profile -------------------------------------------- -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED JUNE 30, 2003 -------------------------------------------------------------------------------- 1 Year ............................................................... 13.35% 3 Year ............................................................... 3.25% Since Inception (9/13/99) ............................................ 3.14% -------------------------------------------------------------------------------- (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. Returns represent past performance are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Credit Quality as of June 30, 2003 [The following table was depicted as a pie chart in the printed material.] AAA/US Govt. & Govt. Agency 10.88% BBB 6.68% B 49.59% BB 27.69% CCC 5.16% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Top Ten Holdings as of June 30, 2003 Percent of Total Company Net Assets -------------------------------------------------------------------------------- 1. Nextel Comm., Inc. 3.27% -------------------------------------------------------------------------------- 2. Allied Waste NA, Inc. 2.85% -------------------------------------------------------------------------------- 3. Qwest Corp. 2.27% -------------------------------------------------------------------------------- 4. XTO Energy, Inc. 1.88% -------------------------------------------------------------------------------- 5. Abitibi-Consolidated, Inc. 1.50% -------------------------------------------------------------------------------- 6. Qwest Capital Funding Inc. 1.32% -------------------------------------------------------------------------------- 7. Intrawest Corp. 1.27% -------------------------------------------------------------------------------- 8. Iron Mountain, Inc. 1.26% -------------------------------------------------------------------------------- 9. Williams Cos., Inc. 1.26% -------------------------------------------------------------------------------- 10. Sequa Corp. 1.23% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 17 -------------------------------------------------------------------------------- The Guardian UBS VC Large Cap Value Fund ---------------------------------------- -------------------------------------------------------------------------------- The Guardian UBS VC Large Cap Value Fund is managed by a team of investment professionals from the Fund's sub-adviser, UBS Global Asset Management (Americas) Inc., with many years of experience in large cap value investment management. -------------------------------------------------------------------------------- Objective: Seeks to maximize total return, consisting of capital appreciation and current income Portfolio: At least 80% in equity securities issued by companies with a large market capitalization at the time of purchase. Inception: February 3, 2003 Net Assets at June 30, 2003: $58,824,870 Q: How did the Fund perform during the reporting period? A: For the period from Fund inception on February 3, 2003 and ending June 30, 2003, The Guardian UBS VC Large Cap Value Fund had a total return of 13.90%(1) versus 13.71% for its benchmark, the Russell 1000 Value Index.(2) Q: What factors affected the Fund's performance? A: Our focus on finding stocks trading below our estimate of their intrinsic values served the Fund well amid the volatility that characterized the reporting period. Price to intrinsic value refers to the discrepancy between a stock's current price and its fair value. Our analysts thoroughly review a company's underlying fundamentals and employ forward-looking projections regarding its likely prospects in order to assess a company's intrinsic (fair) value. Our disciplined investment strategy led us to overweight select utilities, as well as the health care and pharmaceuticals and transportation sectors. Furthermore, our research concluded that underweighting utilities that had exposure to trading operations, in addition to underweighting media and insurance stocks, was warranted. As we moved through the second quarter 2003, we enjoyed strong results from the Fund's core holdings in the pharmaceutical, banking and utility sectors. On the other hand, retailing, food and beverage and computer hardware companies did not typically meet our intrinsic value criteria, so we reduced our positions in those areas. In general, we were also cautious about the technology sector, and from our perspective the sharp gains it posted in the second quarter 2003 do not appear warranted from a fundamental perspective. Q: What is your outlook going forward? ================================================================================ "Heading into the second half of 2003, we will continue emphasizing our "bottom-up" investment process, which focuses on a company's cash flow to identify intrinsic value that may lead to favorable risk-adjusted returns over an entire market cycle." ================================================================================ A: During the reporting period, market fundamentals were often not the driving forces behind stock prices. We have found that during periods of extreme optimism or pessimism, many investors lose sight of the critical factors that should dictate the fair value of a stock's price. It is during those times that our disciplined investment process can be especially valuable in helping us to identify compelling price to intrinsic value discrepancies in the marketplace. Heading into the second half of 2003, we will continue emphasizing our "bottom-up" investment process, which focuses on a company's cash flow to identify intrinsic value that may lead to favorable risk-adjusted returns over an entire market cycle. -------------------------------------------------------------------------------- (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. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (2) The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index. The Russell 1000 Index represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Russell 1000 Value Index and the Russell 1000 Index are unmanaged indices, they are not available for direct investment, and their returns do not reflect the fees and expenses that have been deducted from the Fund's returns. -------------------------------------------------------------------------------- 18 -------------------------------------------------------------------------------- The Guardian UBS VC Large Cap Value Fund Portfolio -------------------------------------------------- -------------------------------------------------------------------------------- TOTAL RETURNS(1) FOR PERIOD ENDED JUNE 30, 2003 -------------------------------------------------------------------------------- Since Inception (2/03/03) ........................................... 13.90% -------------------------------------------------------------------------------- (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. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Top Ten Holdings as of June 30, 2003 Percent of Total Company Net Assets -------------------------------------------------------------------------------- 1. Citigroup, Inc. 5.81% -------------------------------------------------------------------------------- 2. Nextel Comm., Inc. 4.96% -------------------------------------------------------------------------------- 3. J.P. Morgan Chase & Co. 4.40% -------------------------------------------------------------------------------- 4. Wells Fargo & Co. 4.19% -------------------------------------------------------------------------------- 5. GreenPoint Financial Corp. 3.46% -------------------------------------------------------------------------------- 6. UnitedHealth Group 3.14% -------------------------------------------------------------------------------- 7. Exxon Mobil Corp. 2.91% -------------------------------------------------------------------------------- 8. ConocoPhillips 2.86% -------------------------------------------------------------------------------- 9. Morgan Stanley 2.82% -------------------------------------------------------------------------------- 10. Exelon Corp. 2.53% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Sector Weightings held by the Fund on June 30, 2003 [The following table was depicted as a pie chart in the printed material.] Consumer Staples 2.80% Health Care 12.67% Industrials 10.22% Materials 7.48% Energy 6.02% Telecommunication Services 9.00% Utilities 9.47% Financials 33.49% Information Technology 4.89% Consumer Discretionary 3.96% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 19 -------------------------------------------------------------------------------- The Guardian UBS VC Small Cap Value Fund ---------------------------------------- -------------------------------------------------------------------------------- The Guardian UBS VC Small Cap Value Fund is managed by a team of investment professionals from the Fund's sub-adviser, UBS Global Asset Management (Americas) Inc. with many years of experience in small cap value investment management. -------------------------------------------------------------------------------- Objective: Seeks to maximize total return, consisting of capital appreciation and current income. Portfolio: At least 80% in equity securities issued by companies with a small market capitalization at the time of initial purchase. Inception: February 3, 2003 Net Assets at June 30, 2003: $ 12,925,383 Q: How did the Fund perform during the reporting period? A: Since its inception on February 3, 2003 through June 30, 2003, The Guardian UBS VC Small Cap Value Fund had a total return of 14.92%(1) versus 20.34% for its benchmark, the Russell 2000 Value Index.(2) Q: What factors affected the Fund's performance? A: The equity markets were weak during the first quarter of 2003, as concerns regarding the war in Iraq caused investors to shun stocks in favor of less risky investments. However, during the second quarter of 2003 the equity markets rallied strongly, as investors were encouraged by the quick end to the conflict in Iraq and the possibility of a sustainable economic rebound as the year progressed. In particular, investors were drawn to the most volatile sectors of the market, including technology and health care stocks. Low price stocks and those with negative earnings were strong performers in the small cap market. The Fund underperformed its benchmark since its inception due largely to its conservative position in terms of volatility. Fund performance was also affected by negative earnings reports by several portfolio holdings. Fund stock selection was negative for health care (due to an underweight in biotechnology), business services and motor vehicles. On the other hand, the Fund's stock selection for retail and consumer discretionary stocks enhanced results. An overweight in medical services stocks also aided Fund performance. ================================================================================ "The Fund continues to favor companies with high earnings yields (low P/E ratios), low earnings variation, and strong free cash flow generation." ================================================================================ Q: What is your strategy going forward? A: At the end of the reporting period, the Fund's largest sector overweights were in information technology and consumer discretionary, while its largest underweights were in financials and materials. The Fund continues to favor companies with high earnings yields (low P/E ratios), low earnings variation, and strong free cash flow generation. -------------------------------------------------------------------------------- (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. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (2) The Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index.The Russell 2000 Index represents approximately 8% of the total market capitalization of the Russell 3000 Index.The Russell 2000 Index and the Russell 2000 Value Index are unmanaged indices, they are not available for direct investment, and their returns do not reflect the fees and expenses that have been deducted from the Fund's returns. -------------------------------------------------------------------------------- 20 -------------------------------------------------------------------------------- The Guardian UBS VC Small Cap Value Fund Profile ------------------------------------------------ -------------------------------------------------------------------------------- TOTAL RETURNS(1) FOR PERIOD ENDED JUNE 30, 2003 Since Inception (2/03/03) ......................................... 14.92% -------------------------------------------------------------------------------- (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. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Top Ten Holdings as of June 30, 2003 Percent of Total Company Net Assets -------------------------------------------------------------------------------- 1. iShares Russell 2000 Value Index Fund 2.19% -------------------------------------------------------------------------------- 2. AmerUs Group Co. 2.16% -------------------------------------------------------------------------------- 3. Renal Care Group, Inc. 2.04% -------------------------------------------------------------------------------- 4. City National Corp. 2.03% -------------------------------------------------------------------------------- 5. IndyMac Bancorp, Inc. 1.97% -------------------------------------------------------------------------------- 6. Polaris Industries, Inc. 1.90% -------------------------------------------------------------------------------- 7. Parkway Pptys., Inc. 1.76% -------------------------------------------------------------------------------- 8. Trustmark Corp. 1.73% -------------------------------------------------------------------------------- 9. John H. Harland Co. 1.72% -------------------------------------------------------------------------------- 10. Department 56, Inc. 1.72% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECTOR WEIGHTINGS HELD BY THE FUND ON JUNE 30, 2003 [The following table was depicted as a pie chart in the printed material.] Telecommunication Services 0.04% Consumer Discretionary 19.28% Information Technology 14.43% Health Care 9.32% Utilities 3.97% Energy 4.45% Industrials 12.00% Consumer Staples 3.99% Materials 7.79% Financials 24.73% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 21 -------------------------------------------------------------------------------- The Guardian Stock Fund ------------------------------- Schedule of Investments June 30, 2003 (Unaudited) -------------------------------------------------------------------------------- Common Stocks -- 98.1% -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- Aerospace and Defense -- 2.6% -------------------------------------------------------------------------------- 741,600 Lockheed Martin Corp. $ 35,277,912 -------------------------------------------------------------------------------- Beverages -- 3.0% 133,700 Anheuser-Busch Cos., Inc. 6,856,952 418,900 Coca-Cola Co. 19,441,149 312,300 PepsiCo., Inc. 13,897,350 -------------- 40,195,451 -------------------------------------------------------------------------------- Biotechnology -- 1.5% 317,100 Amgen, Inc. * 21,068,124 -------------------------------------------------------------------------------- Capital Markets -- 3.8% 153,400 Goldman Sachs Group, Inc. 12,847,250 216,932 Legg Mason, Inc. 14,089,733 118,700 Lehman Brothers Hldgs., Inc. 7,891,176 168,100 Merrill Lynch & Co., Inc. 7,846,908 242,400 State Street Corp. 9,550,560 -------------- 52,225,627 -------------------------------------------------------------------------------- Chemicals -- 1.9% 630,000 E.I. Du Pont de Nemours & Co. 26,233,200 -------------------------------------------------------------------------------- Commercial Banks -- 6.1% 341,000 Bank of America Corp. 26,949,230 161,840 Charter One Financial, Inc. 5,046,171 153,300 M & T Bank Corp. 12,910,926 429,400 North Fork Bancorporation, Inc. 14,625,364 468,800 Wells Fargo & Co. 23,627,520 -------------- 83,159,211 -------------------------------------------------------------------------------- Communications Equipment -- 2.7% 2,175,200 Cisco Systems, Inc. * 36,304,088 -------------------------------------------------------------------------------- Computers and Peripherals -- 3.6% 440,300 Dell Computer Corp. * 14,071,988 764,900 Hewlett Packard Co. 16,292,370 721,800 Storage Technology Corp. * 18,579,132 -------------- 48,943,490 -------------------------------------------------------------------------------- Diversified Financial Services -- 2.4% 774,666 Citigroup, Inc. 33,155,705 -------------------------------------------------------------------------------- Diversified Telecommunication Services -- 3.8% 1,317,900 Verizon Comm. 51,991,155 -------------------------------------------------------------------------------- Electric Utilities -- 1.5% 305,300 FPL Group, Inc. 20,409,305 -------------------------------------------------------------------------------- Electronic Equipment and Instruments -- 2.0% 330,700 CDW Corp. * 15,146,060 550,500 Jabil Circuit, Inc. * 12,166,050 -------------- 27,312,110 -------------------------------------------------------------------------------- Energy Equipment and Services -- 1.1% 170,300 Nabors Industries, Inc. * 6,735,365 246,100 Noble Corp. * 8,441,230 -------------- 15,176,595 -------------------------------------------------------------------------------- Food and Staples Retailing -- 2.9% 728,100 Wal-Mart Stores, Inc. 39,077,127 -------------------------------------------------------------------------------- Food Products -- 1.6% 123,100 Hershey Foods Corp. 8,575,146 385,400 Kraft Foods, Inc. 12,544,770 -------------- 21,119,916 -------------------------------------------------------------------------------- Gas Utilities -- 0.7% 533,500 NiSource, Inc. 10,136,500 -------------------------------------------------------------------------------- Health Care Equipment and Supplies -- 2.3% 151,600 Boston Scientific Corp. * 9,262,760 98,200 C.R. Bard, Inc. 7,002,642 319,000 Medtronic, Inc. 15,302,430 -------------- 31,567,832 -------------------------------------------------------------------------------- Health Care Providers and Services -- 4.1% 513,900 AmerisourceBergen Corp. 35,638,965 407,000 HCA, Inc. 13,040,280 239,700 Laboratory Corp. of America Hldgs. * 7,226,955 -------------- 55,906,200 -------------------------------------------------------------------------------- Household Durables -- 1.0% 474,300 Newell Rubbermaid, Inc. 13,280,400 -------------------------------------------------------------------------------- Household Products -- 2.0% 115,000 Colgate-Palmolive Co. 6,664,250 232,900 Procter & Gamble Co. 20,770,022 -------------- 27,434,272 -------------------------------------------------------------------------------- Industrial Conglomerates -- 3.2% 1,543,000 General Electric Co. 44,253,240 -------------------------------------------------------------------------------- Information Technology Services -- 2.0% 721,900 Concord EFS, Inc. * 10,626,368 476,900 Fiserv, Inc. * 16,982,409 -------------- 27,608,777 -------------------------------------------------------------------------------- Insurance -- 7.3% 121,200 Ambac Financial Group, Inc. 8,029,500 778,300 American Int'l. Group, Inc. 42,946,594 454,900 Chubb Corp. 27,294,000 425,700 Marsh & McLennan Cos., Inc. 21,740,499 -------------- 100,010,593 -------------------------------------------------------------------------------- Media -- 3.0% 213,200 New York Times Co. 9,700,600 725,900 Viacom, Inc. * 31,692,794 -------------- 41,393,394 -------------------------------------------------------------------------------- Metals and Mining -- 1.4% 744,300 Alcoa, Inc. 18,979,650 -------------------------------------------------------------------------------- Oil and Gas -- 6.2% 379,900 ChevronTexaco Corp. 27,428,780 742,500 Exxon Mobil Corp. 26,663,175 920,800 Occidental Petroleum Corp. 30,892,840 -------------- 84,984,795 -------------------------------------------------------------------------------- Personal Products -- 0.6% 137,500 Avon Products, Inc. 8,552,500 -------------------------------------------------------------------------------- See notes to financial statements. -------------------------------------------------------------------------------- 32 -------------------------------------------------------------------------------- Shares Value ------------------------------------------------------------------------------- Pharmaceuticals -- 9.0% 251,000 Abbott Laboratories $ 10,983,760 244,000 Johnson & Johnson 12,614,800 382,500 Merck & Co., Inc. 23,160,375 2,215,180 Pfizer, Inc. 75,648,397 -------------- 122,407,332 -------------------------------------------------------------------------------- Semiconductors and Semiconductor Equipment-- 4.6% 414,500 Analog Devices, Inc. * 14,432,890 905,100 Applied Materials, Inc. * 14,354,886 1,098,500 Intel Corp. 22,831,224 224,400 KLA-Tencor Corp. * 10,432,356 -------------- 62,051,356 -------------------------------------------------------------------------------- Software -- 7.7% 1,041,200 Adobe Systems, Inc. 33,391,284 1,617,900 Microsoft Corp. 41,434,419 1,645,700 Oracle Corp. * 19,781,314 602,100 PeopleSoft, Inc. * 10,590,939 -------------- 105,197,956 -------------------------------------------------------------------------------- Thrifts and Mortgage Finance -- 0.8% 159,400 Federal National Mortgage Assn. 10,749,936 -------------------------------------------------------------------------------- Tobacco -- 0.7% 205,900 Altria Group, Inc. 9,356,096 -------------------------------------------------------------------------------- Trading Companies and Distributors -- 1.0% 289,900 W.W. Grainger, Inc. 13,555,724 -------------------------------------------------------------------------------- Total Common Stocks (Cost $1,305,969,024) 1,339,075,569 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Repurchase Agreement -- 1.0% -------------------------------------------------------------------------------- Principal Amount Value -------------------------------------------------------------------------------- $ 13,109,000 State Street Bank and Trust Co. repurchase agreement, dated 6/30/2003, maturity value $13,109,401 at 1.10%, due 7/1/2003 (1) (Cost $13,109,000) $ 13,109,000 -------------------------------------------------------------------------------- Total Investments -- 99.1% (Cost $1,319,078,024) 1,352,184,569 Cash, Receivables and Other Assets Less Liabilities -- 0.9% 12,724,112 -------------------------------------------------------------------------------- Net Assets -- 100% $1,364,908,681 -------------------------------------------------------------------------------- * Non-income producing security. (1) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. See notes to financial statements. -------------------------------------------------------------------------------- 33 -------------------------------------------------------------------------------- The Guardian Stock Fund ------------------------------- Statement of Assets and Liabilities June 30, 2003 (Unaudited) ASSETS Investments, at market (cost $1,319,078,024) $ 1,352,184,569 Cash 822 Receivable for securities sold 29,638,383 Dividends receivable 1,371,807 Receivable for fund shares sold 642,249 Interest receivable 400 Other assets 7,359 --------------- Total Assets 1,383,845,589 --------------- LIABILITIES Payable for securities purchased 16,407,682 Payable for fund shares redeemed 1,695,404 Accrued expenses 241,718 Due to affiliates 592,104 --------------- Total Liabilities 18,936,908 --------------- Net Assets $ 1,364,908,681 =============== COMPONENTS OF NET ASSETS Capital stock, at par $ 55,851 Additional paid-in capital 2,023,632,145 Undistributed net investment income 1,197,740 Accumulated net realized loss on investments (693,083,600) Net unrealized appreciation of investments 33,106,545 --------------- Net Assets $ 1,364,908,681 =============== Shares Outstanding -- $0.001 par value 55,850,989 =============== Net Asset Value Per Share $ 24.44 =============== Statement of Operations Six Months Ended June 30, 2003 (Unaudited) INVESTMENT INCOME Dividends $ 10,000,974 Interest 196,213 --------------- Total Income 10,197,187 --------------- Expenses: Investment advisory fees -- Note B 3,284,597 Printing expense 112,149 Directors' fees -- Note B 42,737 Other 140,737 --------------- Total Expenses 3,580,220 --------------- Net Investment Income 6,616,967 --------------- REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS -- NOTE C Net realized loss on investments (89,503,715) Net change in unrealized depreciation of investments 192,013,247 --------------- Net Realized and Unrealized Gain on Investments 102,509,532 --------------- NET INCREASE IN NET ASSETS FROM OPERATIONS $ 109,126,499 =============== See notes to financial statements. -------------------------------------------------------------------------------- 34 -------------------------------------------------------------------------------- Statement of Changes in Net Assets
Six Months Year Ended Ended December 31, June 30, 2003 2002 (Unaudited) (Audited) --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS From Operations: Net investment income $ 6,616,967 $ 14,240,716 Net realized loss on investments (89,503,715) (259,369,196) Net change in unrealized depreciation of investments 192,013,247 (157,897,298) --------------- --------------- Net Increase/(Decrease) in Net Assets from Operations 109,126,499 (403,025,778) --------------- --------------- Dividends to Shareholders from: Net investment income (14,282,918) (14,289,601) --------------- --------------- From Capital Share Transactions: Net decrease in net assets from capital share transactions -- Note G (95,263,161) (277,807,789) --------------- --------------- Net Decrease in Net Assets (419,580) (695,123,168) NET ASSETS: Beginning of period 1,365,328,261 2,060,451,429 --------------- --------------- End of period * $ 1,364,908,681 $ 1,365,328,261 =============== =============== * Includes undistributed net investment income of: $ 1,197,740 $ 8,863,691
See notes to financial statements. -------------------------------------------------------------------------------- 35 -------------------------------------------------------------------------------- The Guardian Stock Fund ------------------------------- Financial Highlights Selected data for a share of capital stock outstanding throughout the periods indicated:
Six Months Ended Year Ended December 31, (Audited) June 30, 2003 ---------------------------------------------------------------------- (Unaudited) 2002 2001 2000 1999 1998 --------------------------------------------------------------------------------------- Net asset value, beginning of period ................. $ 22.71 $ 28.94 $ 37.21 $ 55.20 $ 49.08 $ 46.05 ---------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income ............... 0.13 0.24 0.20 0.04 0.24 0.47 Net realized and unrealized gain/ (loss) on investments ............. 1.86 (6.25) (8.16) (9.77) 14.49 8.56 ---------- ---------- ---------- ---------- ---------- ---------- Net increase/(decrease) from investment operations ............. 1.99 (6.01) (7.96) (9.73) 14.73 9.03 ---------- ---------- ---------- ---------- ---------- ---------- Dividends and Distributions to Shareholders from: Net investment income ............... (0.26) (0.22) (0.08) (0.04) (0.24) (0.47) Net realized gain on investments .... -- -- (0.23) (8.22) (8.37) (5.53) ---------- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions ... (0.26) (0.22) (0.31) (8.26) (8.61) (6.00) ---------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period ......... $ 24.44 $ 22.71 $ 28.94 $ 37.21 $ 55.20 $ 49.08 ---------- ---------- ---------- ---------- ---------- ---------- Total return* .......................... 8.72%(a) (20.88)% (21.44)% (18.39)% 31.17% 19.86% ---------- ---------- ---------- ---------- ---------- ---------- Ratios/supplemental data: Net assets, end of period (000's omitted) ................... $1,364,909 $1,365,328 $2,060,451 $3,172,625 $4,175,087 $3,665,196 Ratio of expenses to average net assets ................ 0.54%(b) 0.54% 0.53% 0.52% 0.52% 0.52% Ratio of net investment income to average net assets ...... 1.01%(b) 0.85% 0.59% 0.08% 0.45% 0.95% Portfolio turnover rate ............. 36% 65% 137% 106% 74% 56%
* 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) Not annualized. (b) Annualized. See notes to financial statements. -------------------------------------------------------------------------------- 36 -------------------------------------------------------------------------------- The Guardian VC 500 Index Fund ------------------------------- Schedule of Investments June 30, 2003 (Unaudited) ------------------------------------------------------------------------------- Common Stocks -- 97.3% -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- Aerospace and Defense -- 1.7% 11,815 Boeing Co. $ 405,491 3,021 General Dynamics Corp. 219,022 115 Goodrich Corp. 2,415 13,250 Honeywell Int'l., Inc. 355,762 6,803 Lockheed Martin Corp. 323,619 2,719 Northrop Grumman Corp. 234,622 6,025 Raytheon Co. 197,861 2,736 Rockwell Collins, Inc. 67,388 7,055 United Technologies Corp. 499,706 ------------- 2,305,886 -------------------------------------------------------------------------------- Air Freight and Logistics -- 1.0% 4,451 FedEx Corp. 276,096 930 Ryder Systems, Inc. 23,827 16,422 United Parcel Svcs., Inc. 1,046,081 ------------- 1,346,004 -------------------------------------------------------------------------------- Airlines -- 0.2% 1,843 Delta Airlines, Inc. 27,055 11,559 Southwest Airlines Co. 198,815 ------------- 225,870 -------------------------------------------------------------------------------- Auto Components -- 0.2% 1,100 Cooper Tire & Rubber Co. 19,349 2,222 Dana Corp. 25,686 8,367 Delphi Automotive Systems Corp. 72,207 2,622 Goodyear Tire & Rubber Co. 13,766 1,328 Johnson Controls, Inc. 113,677 1,955 Visteon Corp. 13,431 ------------- 258,116 -------------------------------------------------------------------------------- Automobiles -- 0.6% 30,645 Ford Motor Co. 336,789 8,380 General Motors Corp. 301,680 4,521 Harley-Davidson, Inc. 180,207 ------------- 818,676 -------------------------------------------------------------------------------- Beverages -- 2.8% 541 Adolph Coors Co. 26,498 12,990 Anheuser-Busch Cos., Inc. 663,140 1,023 Brown-Forman Corp. 80,428 37,130 Coca-Cola Co. 1,723,203 6,705 Coca-Cola Enterprises, Inc. 121,696 24,908 PepsiCo., Inc. 1,108,406 4,264 The Pepsi Bottling Group, Inc. 85,365 ------------- 3,808,736 -------------------------------------------------------------------------------- Biotechnology -- 1.3% 19,112 Amgen, Inc. * 1,269,801 2,221 Biogen, Inc. * 84,398 2,826 Chiron Corp. * 123,553 3,205 Genzyme Corp. * 133,969 3,749 MedImmune, Inc. * 136,351 ------------- 1,748,072 -------------------------------------------------------------------------------- Building Products -- 0.2% 1,074 American Standard Cos., Inc. * 79,401 7,420 Masco Corp. 176,967 ------------- 256,368 -------------------------------------------------------------------------------- Capital Markets -- 3.4% 12,370 Bank of New York, Inc. 355,638 1,476 Bear Stearns Cos., Inc. 106,892 20,412 Charles Schwab Corp. 205,957 1,739 Federated Investors, Inc. 47,683 3,887 Franklin Resources, Inc. 151,865 7,202 Goldman Sachs Group, Inc. 603,168 29,211 J.P. Morgan Chase & Co. 998,432 3,326 Janus Capital Group, Inc. 54,547 3,642 Lehman Brothers Hldgs., Inc. 242,120 6,508 Mellon Financial Corp. 180,597 13,849 Merrill Lynch & Co., Inc. 646,471 15,988 Morgan Stanley 683,487 3,315 Northern Trust Corp. 138,534 4,275 State Street Corp. 168,435 1,831 T. Rowe Price Group, Inc. 69,120 ------------- 4,652,946 -------------------------------------------------------------------------------- Chemicals -- 1.4% 3,398 Air Products & Chemicals, Inc. 141,357 12,886 Dow Chemical Co. 398,951 13,918 E.I. Du Pont de Nemours & Co. 579,546 1,156 Eastman Chemical Co. 36,611 3,868 Ecolab, Inc. 99,021 1,924 Engelhard Corp. 47,657 751 Great Lakes Chemical Corp. 15,320 1,633 Hercules, Inc. * 16,167 1,417 Int'l. Flavors & Fragrances, Inc. 45,245 3,907 Monsanto Co. 84,547 2,533 PPG Industries, Inc. 128,524 2,414 Praxair, Inc. 145,081 3,306 Rohm & Haas Co. 102,585 1,351 Sigma-Aldrich 73,197 ------------- 1,913,809 -------------------------------------------------------------------------------- Commercial Banks -- 6.1% 5,364 AmSouth Bancorporation 117,150 22,405 Bank of America Corp. 1,770,667 17,136 Bank One Corp. 637,116 7,231 BB&T Corp. 248,023 3,433 Charter One Financial, Inc. 107,041 2,615 Comerica, Inc. 121,597 7,938 Fifth Third Bancorp 455,165 1,892 First Tennessee Nat'l. Corp. 83,078 15,669 FleetBoston Financial Corp. 465,526 3,598 Huntington Bancshares, Inc. 70,233 6,379 KeyCorp 161,197 3,144 Marshall & Ilsley Corp. 96,144 7,690 National City Corp. 251,540 See notes to financial statements. -------------------------------------------------------------------------------- 38 -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- 2,444 North Fork Bancorporation, Inc. $ 83,243 4,247 PNC Financial Svcs. Group 207,296 3,308 Regions Financial Corp. 111,744 5,186 SouthTrust Corp. 141,059 4,262 SunTrust Banks, Inc. 252,907 4,433 Synovus Financial Corp. 95,310 29,155 U.S. Bancorp 714,297 2,990 Union Planters Corp. 92,780 19,529 Wachovia Corp. 780,379 25,655 Wells Fargo & Co. 1,293,012 1,372 Zions Bancorporation 69,437 ------------- 8,425,941 -------------------------------------------------------------------------------- Commercial Services and Supplies -- 1.0% 2,948 Allied Waste Industries, Inc. * 29,627 2,595 Apollo Group, Inc. * 160,267 1,643 Avery Dennison Corp. 82,479 15,556 Cendant Corp. * 284,986 2,541 Cintas Corp. 90,053 935 Deluxe Corp. 41,888 2,150 Equifax, Inc. 55,900 2,702 H & R Block, Inc. 116,862 1,670 Monster Worldwide, Inc. * 32,949 3,565 Pitney Bowes, Inc. 136,932 1,695 R.R. Donnelley & Sons Co. 44,307 2,619 Robert Half Int'l., Inc. * 49,604 9,148 Waste Management, Inc. 220,375 ------------- 1,346,229 -------------------------------------------------------------------------------- Communications Equipment -- 2.2% 11,911 ADC Telecomm., Inc. * 27,729 1,467 Andrew Corp. * 13,496 5,413 Avaya, Inc. * 34,968 6,455 CIENA Corp. * 33,501 105,064 Cisco Systems, Inc. * 1,753,518 2,797 Comverse Technology, Inc. * 42,039 17,169 Corning, Inc. * 126,879 20,363 JDS Uniphase Corp. * 71,474 64,171 Lucent Technologies, Inc. * 130,267 1 McDATA Corp. * 15 32,816 Motorola, Inc. 309,455 12,550 QUALCOMM, Inc. 448,663 2,342 Scientific Atlanta, Inc. 55,833 6,153 Tellabs, Inc. * 40,425 ------------- 3,088,262 -------------------------------------------------------------------------------- Computers and Peripherals -- 3.8% 5,367 Apple Computer, Inc. * 102,617 38,099 Dell Computer Corp. * 1,217,644 35,897 EMC Corp. * 375,842 4,846 Gateway, Inc. * 17,688 43,786 Hewlett Packard Co. 932,642 25,320 Int'l. Business Machines 2,088,900 1,886 Lexmark Int'l. Group, Inc. * 133,472 1,466 NCR Corp. * 37,559 5,033 Network Appliance, Inc. * 81,585 48,549 Sun Microsystems, Inc. * 223,325 ------------- 5,211,274 -------------------------------------------------------------------------------- Construction and Engineering -- 0.0% 1,206 Fluor Corp. 40,570 947 McDermott Int'l., Inc. * 5,994 ------------- 46,564 -------------------------------------------------------------------------------- Construction Materials -- 0.0% 1,518 Vulcan Materials Co. 56,272 -------------------------------------------------------------------------------- Consumer Finance -- 1.2% 18,759 American Express Co. 784,314 3,314 Capital One Financial Corp. 162,982 20,505 MBNA Corp. 427,324 4,322 Providian Financial Corp. * 40,022 6,939 SLM Corp. 271,801 ------------- 1,686,443 -------------------------------------------------------------------------------- Containers and Packaging -- 0.1% 849 Ball Corp. 38,638 792 Bemis Co., Inc. 37,065 2,370 Pactiv Corp. * 46,713 1,255 Sealed Air Corp. * 59,813 802 Temple-Inland, Inc. 34,414 ------------- 216,643 -------------------------------------------------------------------------------- Distributors -- 0.1% 2,613 Genuine Parts Co. 83,642 -------------------------------------------------------------------------------- Diversified Financial Services -- 2.6% 76,400 Citigroup, Inc. 3,269,920 2,324 Moody's Corp. 122,498 5,188 Principal Financial Group, Inc. 167,313 ------------- 3,559,731 -------------------------------------------------------------------------------- Diversified Telecommunication Services -- 3.3% 4,651 ALLTEL Corp. 224,271 11,501 AT & T Corp. 221,394 26,462 BellSouth Corp. 704,683 2,122 CenturyTel, Inc. 73,952 4,221 Citizens Comm. Co. * 54,408 31,224 Qwest Comm. Int'l., Inc. * 149,251 49,205 SBC Comm., Inc. 1,257,188 13,352 Sprint Corp. (FON Group) 192,269 40,607 Verizon Comm. 1,601,946 ------------- 4,479,362 -------------------------------------------------------------------------------- Electric Utilities -- 2.3% 1,880 Allegheny Energy, Inc. 15,886 2,168 Ameren Corp. 95,609 5,459 American Electric Power, Inc. 162,842 4,548 CenterPoint Energy, Inc. 37,066 2,507 CiNergy Corp. 92,233 2,152 CMS Energy Corp. 17,431 3,188 Consolidated Edison, Inc. 137,977 2,458 Constellation Energy Group, Inc. 84,309 See notes to financial statements. -------------------------------------------------------------------------------- 39 -------------------------------------------------------------------------------- The Guardian VC 500 Index Fund ------------------------------- Schedule of Investments June 30, 2003 (Unaudited) (Continued) Shares Value -------------------------------------------------------------------------------- 4,557 Dominion Resources, Inc. $ 292,878 2,505 DTE Energy Co. 96,793 4,873 Edison Int'l. * 80,063 3,350 Entergy Corp. 176,813 4,816 Exelon Corp. 288,045 4,451 FirstEnergy Corp. 171,141 2,724 FPL Group, Inc. 182,099 5,880 PG&E Corp. * 124,362 2,429 Pinnacle West Capital Corp. 90,966 2,422 PPL Corp. 104,146 3,529 Progress Energy, Inc. 154,923 3,315 Public Svc. Enterprise Group, Inc. 140,059 10,598 Southern Co. 330,234 2,588 TECO Energy, Inc. 31,030 4,619 TXU Corp. 103,697 5,953 Xcel Energy, Inc. 89,533 ------------- 3,100,135 -------------------------------------------------------------------------------- Electrical Equipment -- 0.4% 2,932 American Power Conversion Corp. * 45,710 1,394 Cooper Industries Ltd. 57,572 6,297 Emerson Electric Co. 321,777 1,194 Power-One, Inc. * 8,537 2,779 Rockwell Automation, Inc. 66,251 872 Thomas & Betts Corp. * 12,601 ------------- 512,448 -------------------------------------------------------------------------------- Electronic Equipment and Instruments -- 0.4% 6,943 Agilent Technologies, Inc. * 135,736 2,956 Jabil Circuit, Inc. * 65,328 2,894 Molex, Inc. 78,109 1,870 PerkinElmer, Inc. 25,825 7,846 Sanmina-SCI Corp. * 49,508 12,321 Solectron Corp. * 46,080 3,432 Symbol Technologies, Inc. 44,650 1,335 Tektronix, Inc. * 28,836 2,490 Thermo Electron Corp. * 52,340 1,962 Waters Corp. * 57,153 ------------- 583,565 -------------------------------------------------------------------------------- Energy Equipment and Services -- 0.8% 2,344 B.J. Svcs. Co. * 87,572 5,046 Baker Hughes, Inc. 169,394 6,526 Halliburton Co. 150,098 2,160 Nabors Industries, Inc. * 85,428 2,007 Noble Corp. * 68,840 1,402 Rowan Cos., Inc. 31,405 8,636 Schlumberger Ltd. 410,814 4,343 Transocean, Inc. * 95,416 ------------- 1,098,967 -------------------------------------------------------------------------------- Food and Staples Retailing -- 3.8% 6,087 Albertson's, Inc. 116,870 6,801 Costco Wholesale Corp. * 248,916 5,871 CVS Corp. 164,564 11,796 Kroger Co. * 196,757 6,597 Safeway, Inc. * 134,975 2,000 Supervalu, Inc. 42,640 9,921 Sysco Corp. 298,027 65,225 Wal-Mart Stores, Inc. 3,500,626 14,538 Walgreen Co. 437,594 2,103 Winn-Dixie Stores, Inc. 25,888 ------------- 5,166,857 -------------------------------------------------------------------------------- Food Products -- 1.2% 9,744 Archer-Daniels-Midland Co. 125,405 6,135 Campbell Soup Co. 150,308 8,033 ConAgra, Inc. 189,579 5,058 General Mills, Inc. 239,800 3,959 H.J. Heinz Co. 130,568 2,043 Hershey Foods Corp. 142,315 6,133 Kellogg Co. 210,791 2,128 McCormick & Co., Inc. 57,882 11,732 Sara Lee Corp. 220,679 3,371 W.M. Wrigley Jr. Co. 189,551 ------------- 1,656,878 -------------------------------------------------------------------------------- Gas Utilities -- 0.3% 2,115 KeySpan Corp. 74,977 1,822 Kinder Morgan, Inc. 99,572 1,793 NICOR, Inc. 66,538 3,643 NiSource, Inc. 69,217 1,505 Peoples Energy Corp. 64,550 3,063 Sempra Energy 87,387 ------------- 462,241 -------------------------------------------------------------------------------- Health Care Equipment and Supplies -- 1.9% 3,176 Applera Corp.-Applied Biosystems Group 60,439 806 Bausch & Lomb, Inc. 30,225 9,019 Baxter Int'l., Inc. 234,494 3,839 Becton Dickinson & Co., Inc. 149,145 3,938 Biomet, Inc. 112,863 5,906 Boston Scientific Corp. * 360,857 771 C.R. Bard, Inc. 54,980 4,572 Guidant Corp. 202,951 17,391 Medtronic, Inc. 834,246 723 Millipore Corp. * 32,080 2,645 St. Jude Medical, Inc. * 152,087 2,956 Stryker Corp. 205,058 2,913 Zimmer Hldgs., Inc. * 131,231 ------------- 2,560,656 -------------------------------------------------------------------------------- Health Care Providers and Services -- 1.7% 2,248 Aetna, Inc. 135,330 1,584 AmerisourceBergen Corp. 109,850 2,108 Anthem, Inc. * 162,632 6,406 Cardinal Health, Inc. 411,906 2,096 Cigna Corp. 98,386 7,753 HCA, Inc. 248,406 See notes to financial statements. -------------------------------------------------------------------------------- 40 -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- 3,565 Health Management Associates, Inc. $ 65,774 2,535 Humana, Inc. * 38,279 4,244 IMS Health, Inc. 76,350 1,471 Manor Care, Inc. * 36,790 4,338 McKesson Corp. 155,040 1,500 Quest Diagnostics, Inc. * 95,700 1,759 Quintiles Transnational Corp. * 24,960 7,310 Tenet Healthcare Corp. * 85,161 9,080 UnitedHealth Group 456,270 2,179 Wellpoint Health Networks, Inc. * 183,690 ------------- 2,384,524 -------------------------------------------------------------------------------- Hotels, Restaurants and Leisure -- 1.1% 9,330 Carnival Corp. 303,318 2,562 Darden Restaurants, Inc. 48,627 1,671 Harrah's Entertainment, Inc. * 67,241 5,624 Hilton Hotels Corp. 71,931 1,296 Int'l. Game Technology 132,620 3,616 Marriott Int'l., Inc. 138,927 18,917 McDonald's Corp. 417,309 5,808 Starbucks Corp. * 142,412 2,983 Starwood Hotels & Resorts Worldwide, Inc. 85,284 1,730 Wendy's Int'l., Inc. 50,118 4,441 Yum! Brands, Inc. * 131,276 ------------- 1,589,063 -------------------------------------------------------------------------------- Household Durables -- 0.5% 984 American Greetings Corp. * 19,326 1,205 Black & Decker Corp. 52,357 921 Centex Corp. 71,644 2,245 Fortune Brands, Inc. 117,189 745 KB Home 46,175 2,928 Leggett & Platt, Inc. 60,024 1,166 Maytag Corp. 28,474 3,996 Newell Rubbermaid, Inc. 111,888 915 Pulte Homes, Inc. 56,419 873 Snap-On, Inc. 25,343 1,281 Stanley Works 35,356 872 Tupperware Corp. 12,522 1,020 Whirlpool Corp. 64,974 ------------- 701,691 -------------------------------------------------------------------------------- Household Products -- 2.0% 3,445 Clorox Co. 146,929 7,286 Colgate-Palmolive Co. 422,224 7,729 Kimberly-Clark Corp. 402,990 19,344 Procter & Gamble Co. 1,725,098 ------------- 2,697,241 -------------------------------------------------------------------------------- Industrial Conglomerates -- 4.1% 5,695 3M Co. 734,541 148,225 General Electric Co. 4,251,093 2,066 Textron, Inc. 80,615 28,681 Tyco Int'l. Ltd. 544,366 ------------- 5,610,615 -------------------------------------------------------------------------------- Information Technology Services -- 1.2% 9,274 Automatic Data Processing, Inc. 314,018 2,566 Computer Sciences Corp. * 97,816 7,673 Concord EFS, Inc. * 112,946 2,590 Convergys Corp. * 41,440 7,183 Electronic Data Systems Corp. 154,075 11,268 First Data Corp. 466,946 2,875 Fiserv, Inc. * 102,379 5,622 Paychex, Inc. 164,781 2,167 Sabre Hldgs. Corp. 53,416 4,226 SunGard Data Systems, Inc. * 109,496 4,833 Unisys Corp. * 59,349 ------------- 1,676,662 -------------------------------------------------------------------------------- Insurance -- 4.4% 3,924 ACE Ltd. 134,554 7,735 AFLAC, Inc. 237,851 10,553 Allstate Corp. 376,214 1,584 Ambac Financial Group, Inc. 104,940 38,866 American Int'l. Group, Inc. 2,144,626 4,558 Aon Corp. 109,757 2,569 Chubb Corp. 154,140 2,422 Cincinnati Financial Corp. 89,832 3,715 Hartford Financial Svcs. Group, Inc. 187,087 2,210 Jefferson-Pilot Corp. 91,627 4,342 John Hancock Financial Svcs., Inc. 133,430 2,755 Lincoln Nat'l. Corp. 98,161 2,783 Loews Corp. 131,608 8,012 Marsh & McLennan Cos., Inc. 409,173 2,200 MBIA, Inc. 107,250 10,068 MetLife, Inc. 285,126 3,256 Progressive Corp. 238,014 8,677 Prudential Financial, Inc. 291,981 2,047 SAFECO Corp. 72,218 3,385 St. Paul Cos., Inc. 123,586 1,782 Torchmark Corp. 66,379 13,613 Travelers Ppty. Casualty Corp. 214,677 3,610 UnumProvident Corp. 48,410 2,031 XL Capital Ltd. 168,573 ------------- 6,019,214 -------------------------------------------------------------------------------- Internet and Catalog Retail -- 0.3% 4,599 eBay, Inc. * 479,124 -------------------------------------------------------------------------------- Internet Software and Services -- 0.2% 8,982 Yahoo! Inc. * 294,250 -------------------------------------------------------------------------------- Leisure Equipment and Products -- 0.2% 1,348 Brunswick Corp. 33,727 -------------------------------------------------------------------------------- See notes to financial statements. -------------------------------------------------------------------------------- 41 -------------------------------------------------------------------------------- The Guardian VC 500 Index Fund ------------------------------- Schedule of Investments June 30, 2003 (Unaudited) (Continued) Shares Value -------------------------------------------------------------------------------- 4,363 Eastman Kodak Co. $ 119,328 2,589 Hasbro, Inc. 45,282 6,533 Mattel, Inc. 123,604 ------------- 321,941 -------------------------------------------------------------------------------- Machinery -- 1.2% 5,147 Caterpillar, Inc. 286,482 895 Crane Co. 20,254 618 Cummins, Inc. 22,180 2,261 Danaher Corp. 153,861 3,566 Deere & Co. 162,966 3,032 Dover Corp. 90,839 1,054 Eaton Corp. 82,855 4,582 Illinois Tool Works, Inc. 301,725 2,530 Ingersoll-Rand Co. 119,720 1,371 ITT Industries, Inc. 89,746 904 Navistar Int'l. Corp. * 29,497 1,733 PACCAR, Inc. 117,081 2,232 Pall Corp. 50,220 1,765 Parker-Hannifin Corp. 74,112 ------------- 1,601,538 -------------------------------------------------------------------------------- Media -- 4.0% 66,176 AOL Time Warner, Inc. * 1,064,772 8,636 Clear Channel Comm., Inc. * 366,080 33,468 Comcast Corp. - Class A * 1,010,064 1,257 Dow Jones & Co., Inc. 54,089 3,865 Gannett Co., Inc. 296,871 5,739 Interpublic Group Cos., Inc. 76,788 1,128 Knight-Ridder, Inc. 77,753 2,901 McGraw-Hill Cos., Inc. 179,862 742 Meredith Corp. 32,648 2,267 New York Times Co. 103,148 2,811 Omnicom Group, Inc. 201,549 4,518 Tribune Co. 218,219 3,426 Univision Comm., Inc. * 104,150 26,060 Viacom, Inc. * 1,137,780 31,068 Walt Disney Co. 613,593 ------------- 5,537,366 -------------------------------------------------------------------------------- Metals and Mining -- 0.5% 12,625 Alcoa, Inc. 321,937 1,206 Allegheny Technologies, Inc. 7,960 2,167 Freeport-McMoran Copper & Gold, Inc. 53,091 6,004 Newmont Mining Corp. 194,890 1,169 Nucor Corp. 57,106 1,330 Phelps Dodge Corp. * 50,992 1,523 United States Steel Corp. 24,932 1,280 Worthington Industries, Inc. 17,152 ------------- 728,060 -------------------------------------------------------------------------------- Multiline Retail -- 1.1% 1,734 Big Lots, Inc. * 26,080 1,262 Dillards, Inc. 16,999 4,984 Dollar General Corp. 91,008 2,592 Family Dollar Stores, Inc. 98,885 3,013 Federated Department Stores, Inc. 111,029 3,998 J.C. Penney Co., Inc. 67,366 5,713 Kohl's Corp. * 293,534 4,309 May Department Stores Co. 95,918 2,020 Nordstrom, Inc. 39,431 4,725 SearsRoebuck & Co. 158,949 13,273 Target Corp. 502,250 ------------- 1,501,449 -------------------------------------------------------------------------------- Multi-Utilities and Unregulated Power -- 0.4% 8,117 AES Corp. * 51,543 5,634 Calpine Corp. * 37,184 11,956 Duke Energy Corp. 238,522 5,523 Dynegy, Inc. * 23,197 8,747 El Paso Corp. 70,676 6,012 Mirant Corp. * 17,435 7,725 Williams Cos., Inc. 61,027 ------------- 499,584 -------------------------------------------------------------------------------- Office Electronics -- 0.1% 10,920 Xerox Corp. * 115,643 -------------------------------------------------------------------------------- Oil and Gas -- 4.8% 1,335 Amerada Hess Corp. 65,655 3,893 Anadarko Petroleum Corp. 173,122 2,448 Apache Corp. 159,267 1,031 Ashland, Inc. 31,631 3,011 Burlington Resources, Inc. 162,805 15,358 ChevronTexaco Corp. 1,108,848 10,119 ConocoPhillips 554,521 2,862 Devon Energy Corp. 152,831 1,737 EOG Resources, Inc. 72,676 101,678 Exxon Mobil Corp. 3,651,257 651 Kerr-McGee Corp. 29,165 4,633 Marathon Oil Corp. 122,079 5,629 Occidental Petroleum Corp. 188,853 1,141 Sunoco, Inc. 43,061 3,857 Unocal Corp. 110,657 ------------- 6,626,428 -------------------------------------------------------------------------------- Paper and Forest Products -- 0.4% 872 Boise Cascade Corp. 20,841 3,444 Georgia-Pacific Corp. 65,264 7,205 Int'l. Paper Co. 257,434 1,564 Louisiana-Pacific Corp. * 16,954 2,990 MeadWestvaco Corp. 73,853 3,274 Weyerhaeuser Co. 176,796 ------------- 611,142 -------------------------------------------------------------------------------- See notes to financial statements. -------------------------------------------------------------------------------- 42 -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- Personal Products -- 0.6% 869 Alberto-Culver Co. $ 44,406 3,529 Avon Products, Inc. 219,504 15,819 Gillette Co. 503,993 ------------- 767,903 -------------------------------------------------------------------------------- Pharmaceuticals -- 9.6% 23,379 Abbott Laboratories 1,023,065 1,933 Allergan, Inc. 149,034 28,424 Bristol-Myers Squibb Corp. 771,712 16,506 Eli Lilly & Co. 1,138,419 6,079 Forest Laboratories, Inc. * 332,825 44,174 Johnson & Johnson 2,283,796 3,645 King Pharmaceuticals, Inc. * 53,800 33,362 Merck & Co., Inc. 2,020,069 118,025 Pfizer, Inc. 4,030,554 20,745 Schering-Plough Corp. 385,857 1,598 Watson Pharmaceuticals, Inc. * 64,511 19,820 Wyeth 902,801 ------------- 13,156,443 -------------------------------------------------------------------------------- Real Estate -- 0.4% 1,463 Apartment Investment & Management Co. 50,620 6,263 Equity Office Pptys. Trust 169,163 4,121 Equity Residential 106,940 2,562 Plum Creek Timber Co., Inc. 66,484 2,826 Simon Ppty. Group, Inc. 110,299 ------------- 503,506 -------------------------------------------------------------------------------- Road and Rail -- 0.4% 5,691 Burlington Northern Santa Fe 161,852 3,184 CSX Corp. 95,807 5,809 Norfolk Southern Corp. 111,533 3,369 Union Pacific Corp. 195,469 ------------- 564,661 -------------------------------------------------------------------------------- Semiconductors and Semiconductor Equipment -- 3.2% 5,120 Advanced Micro Devices, Inc. * 32,819 5,712 Altera Corp. 93,677 5,469 Analog Devices, Inc. * 190,431 24,619 Applied Materials, Inc. * 390,457 4,503 Applied Micro Circuits Corp. * 27,243 4,097 Broadcom Corp. * 102,056 97,850 Intel Corp. 2,033,714 2,828 KLA-Tencor Corp. * 131,474 4,747 Linear Technology Corp. 152,901 5,561 LSI Logic Corp. * 39,372 4,829 Maxim Integrated Products, Inc. 165,103 9,028 Micron Technology, Inc. * 104,996 2,704 National Semiconductor Corp. * 53,323 2,170 Novellus Systems, Inc. * 79,468 2,289 NVIDIA Corp. * 52,670 2,501 PMC-Sierra, Inc. * 29,337 1,397 QLogic Corp. * 67,517 2,738 Teradyne, Inc. * 47,395 25,139 Texas Instruments, Inc. 442,446 5,048 Xilinx, Inc. * 127,765 ------------- 4,364,164 -------------------------------------------------------------------------------- Software -- 4.6% 3,590 Adobe Systems, Inc. 115,131 1,715 Autodesk, Inc. 27,714 3,606 BMC Software, Inc. * 58,886 2,616 Citrix Systems, Inc. * 53,262 8,640 Computer Associates Int'l., Inc. 192,499 5,622 Compuware Corp. * 32,439 2,082 Electronic Arts, Inc. * 154,047 3,165 Intuit, Inc. * 140,938 1,257 Mercury Interactive Corp. * 48,533 159,080 Microsoft Corp. 4,074,039 5,448 Novell, Inc. * 16,780 77,339 Oracle Corp. * 929,615 3,906 Parametric Technology Corp. * 11,913 4,669 PeopleSoft, Inc. * 82,128 7,147 Siebel Systems, Inc. * 68,182 2,276 Symantec Corp. * 99,825 6,139 VERITAS Software Corp. * 176,005 ------------- 6,281,936 -------------------------------------------------------------------------------- Specialty Retail -- 2.3% 4,700 AutoNation, Inc. * 73,884 1,474 AutoZone, Inc. * 111,980 4,368 Bed, Bath & Beyond, Inc. * 169,522 4,806 Best Buy Co., Inc. * 211,080 3,140 Circuit City Stores, Inc. 27,632 34,393 Home Depot, Inc. 1,139,096 11,699 Lowe's Cos., Inc. 502,472 4,624 Office Depot, Inc. * 67,094 2,565 RadioShack Corp. 67,485 2,251 Sherwin-Williams Co. 60,507 6,992 Staples, Inc. * 128,303 11,937 The Gap, Inc. 223,938 7,795 The Limited, Inc. 120,823 2,179 Tiffany & Co. 71,210 8,072 TJX Cos., Inc. 152,076 3,176 Toys R Us, Inc. * 38,493 ------------- 3,165,595 -------------------------------------------------------------------------------- Textiles, Apparel and Luxury Goods -- 0.3% 1,927 Jones Apparel Group, Inc. * 56,384 1,595 Liz Claiborne, Inc. 56,224 3,991 NIKE, Inc. 213,478 893 Reebok Int'l. Ltd. * 30,032 1,636 V.F. Corp. 55,575 ------------- 411,693 -------------------------------------------------------------------------------- Thrifts and Mortgage Finance -- 1.8% 1,878 Countrywide Financial Corp. 130,653 9,704 Federal Home Loan Mortgage Corp. 492,672 See notes to financial statements. -------------------------------------------------------------------------------- 43 -------------------------------------------------------------------------------- The Guardian VC 500 Index Fund ------------------------------- Schedule of Investments June 30, 2003 (Unaudited) (Continued) Shares Value -------------------------------------------------------------------------------- 14,909 Federal National Mortgage Assn. $ 1,005,463 2,311 Golden West Financial Corp. 184,903 1,536 MGIC Investment Corp. 71,639 14,468 Washington Mutual, Inc. 597,528 ------------- 2,482,858 -------------------------------------------------------------------------------- Tobacco -- 1.1% 30,273 Altria Group, Inc. 1,375,605 1,339 R.J. Reynolds Tobacco Hldgs., Inc. 49,824 2,531 UST, Inc. 88,661 ------------- 1,514,090 -------------------------------------------------------------------------------- Trading Companies and Distributors -- 0.0% 1,392 W.W. Grainger, Inc. 65,090 -------------------------------------------------------------------------------- Wireless Telecommunication Services -- 0.5% 44,360 AT & T Wireless Svcs., Inc. * 364,196 14,500 Nextel Comm., Inc. * 262,160 14,911 Sprint Corp. (PCS Group) * 85,738 ------------- 712,094 -------------------------------------------------------------------------------- Total Common Stocks (Cost $144,967,319) 133,662,161 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- U.S. Government -- 0.4% -------------------------------------------------------------------------------- Principal Amount Value -------------------------------------------------------------------------------- $ 500,000 U.S. Treasury Bill 1.04% due 8/14/2003 (1) (Cost $499,365) $ 499,365 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Repurchase Agreement -- 2.2% -------------------------------------------------------------------------------- Principal Amount Value -------------------------------------------------------------------------------- $ 3,017,000 State Street Bank and Trust Co. repurchase agreement, dated 6/30/2003, maturity value $3,017,092 at 1.10%, due 7/1/2003 (2) (Cost $3,017,000) $ 3,017,000 -------------------------------------------------------------------------------- Total Investments -- 99.9% (Cost $148,483,684) 137,178,526 Cash, Receivables and Other Assets Less Liabilities -- 0.1% 118,795 -------------------------------------------------------------------------------- Net Assets -- 100% $ 137,297,321 -------------------------------------------------------------------------------- * Non-income producing security. (1) The U.S. Treasury Bill is segregated as collateral to cover margin requirements on open futures contracts. (2) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. Purchased Futures Contracts -------------------------------------------------------------------------------- Unrealized Contracts Description Expiration Depreciation -------------------------------------------------------------------------------- 13 S&P 500 Index 9/2003 $ (70,229) See notes to financial statements. -------------------------------------------------------------------------------- 44 Statement of Assets and Liabilities June 30, 2003 (Unaudited) ASSETS Investments, at market (cost $148,483,684) $ 137,178,526 Cash 45,016 Dividends receivable 173,122 Receivable for fund shares sold 6,160 Interest receivable 92 Other assets 1,664 ------------- Total Assets 137,404,580 ------------- LIABILITIES Accrued expenses 43,353 Payable for fund shares redeemed 33,207 Due to affiliates 30,699 ------------- Total Liabilities 107,259 ------------- Net Assets $ 137,297,321 ============= COMPONENTS OF NET ASSETS Capital stock, at par $ 19,225 Additional paid-in capital 281,708,053 Undistributed net investment income 170,071 Accumulated net realized loss on investments (133,224,641) Net unrealized depreciation on investments (11,375,387) ------------- Net Assets $ 137,297,321 ============= Shares Outstanding -- $0.001 par value 19,225,307 ============= Net Asset Value Per Share $ 7.14 ============= Statement of Operations Six Months Ended June 30, 2003 (Unaudited) INVESTMENT INCOME Dividends $ 1,154,123 Interest 19,065 ------------- Total Income 1,173,188 ------------- Expenses: Investment advisory fees -- Note B 163,907 Custodian fees 57,082 Printing expense 22,175 Registration fees 13,814 Audit fees 10,503 Directors' fees -- Note B 4,263 Other 7,749 ------------- Total expenses before reimbursement 279,493 Less: Expenses assumed by investment adviser -- Note B (95,917) ------------- Net Expenses 183,576 ------------- Net Investment Income 989,612 ------------- REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS -- NOTE C Net realized loss on investments (2,323,829) Net change in unrealized depreciation of investments 16,780,223 ------------- Net Realized and Unrealized Gain on Investments 14,456,394 ------------- NET INCREASE IN NET ASSETS FROM OPERATIONS $ 15,446,006 ============= See notes to financial statements. -------------------------------------------------------------------------------- 45 -------------------------------------------------------------------------------- The Guardian VC 500 Index Fund ------------------------------- Statement of Changes in Net Assets
Six Months Year Ended Ended December 31, June 30, 2003 2002 (Unaudited) (Audited) ------------- ------------- INCREASE/(DECREASE) IN NET ASSETS From Operations: Net investment income $ 989,612 $ 3,704,339 Net realized loss on investments (2,323,829) (129,451,490) Net change in unrealized depreciation of investments 16,780,223 34,772,090 ------------- ------------- Net Increase/(Decrease) in Net Assets from Operations 15,446,006 (90,975,061) ------------- ------------- Dividends to Shareholders from: Net investment income (943,234) (3,699,725) ------------- ------------- From Capital Share Transactions: Net decrease in net assets from capital share transactions -- Note G (5,189,331) (143,885,196) ------------- ------------- Net Increase/(Decrease) in Net Assets 9,313,441 (238,559,982) NET ASSETS: Beginning of period 127,983,880 366,543,862 ------------- ------------- End of period * $ 137,297,321 $ 127,983,880 ============= ============= * Includes undistributed net investment income of: $ 170,071 $ 123,693
See notes to financial statements. -------------------------------------------------------------------------------- 46 -------------------------------------------------------------------------------- Financial Highlights Selected data for a share of capital stock outstanding throughout the periods indicated:
Six Months Period From Ended Year Ended December 31, (Audited) August 25, 1999+ to June 30, 2003 ----------------------------------------------- December 31, 1999 Unaudited 2002 2001 2000 (Audited) ----------------------------------------------------------------------------------- Net asset value, beginning of period ...................... $ 6.44 $ 8.47 $ 9.72 $ 10.75 $ 10.14 ----------- ----------- ----------- ----------- ----------- Income from investment operations: Net investment income .................... 0.05 0.14 0.09 0.09 0.03 Net realized and unrealized gain/ (loss) on investments .................. 0.70 (2.03) (1.25) (1.01) 0.61 ----------- ----------- ----------- ----------- ----------- Net increase/(decrease) from investment operations ............................. 0.75 (1.89) (1.16) (0.92) 0.64 ----------- ----------- ----------- ----------- ----------- Dividends and Distributions to Shareholders from: Net investment income .................... (0.05) (0.14) (0.09) (0.09) (0.03) Net realized gain on investments ......... -- -- (0.00)(a) (0.02) -- ----------- ----------- ----------- ----------- ----------- Total dividends and distributions ........ (0.05) (0.14) (0.09) (0.11) (0.03) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period .............. $ 7.14 $ 6.44 $ 8.47 $ 9.72 $ 10.75 ----------- ----------- ----------- ----------- ----------- Total return* ............................... 11.63%(b) (22.42)% (11.92)% (8.66)% 6.38%(b) ----------- ----------- ----------- ----------- ----------- Ratios/supplemental data: Net assets, end of period (000's omitted) ........................ $ 137,297 $ 127,984 $ 366,544 $ 294,600 $ 217,804 Ratio of expenses to average net assets ..................... 0.28%(c) 0.28% 0.28% 0.28% 0.36%(c) Ratio of expenses after custody credits to average net assets ..................... N/A N/A N/A N/A 0.29%(c) Ratio of expenses, excluding waivers, to average net assets .................. 0.43%(c) 0.34% 0.33% 0.34% 0.36%(c) Ratio of net investment income to average net assets ........... 1.51%(c) 1.29% 1.14% 0.93% 0.99%(c) Portfolio turnover rate .................. 6% 17% 1% 1% 1%
+ Commencement of operations. * Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC's variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. (a) Rounds to less than $0.01. (b) Not annualized. (c) Annualized. See notes to financial statements. -------------------------------------------------------------------------------- 47 -------------------------------------------------------------------------------- The Guardian VC Asset Allocation Fund ---------------------------------------------- Schedule of Investments June 30, 2003 (Unaudited) ------------------------------------------------------------------------------- Mutual Funds -- 78.7% ------------------------------------------------------------------------------- Shares Value ------------------------------------------------------------------------------- Equity -- 62.9% -------------------------------------------------------------------------------- 3,380,940 The Guardian VC 500 Index Fund * $ 24,139,912 -------------------------------------------------------------------------------- Fixed Income -- 15.8% 470,055 The Guardian Bond Fund, Inc. 6,040,202 -------------------------------------------------------------------------------- Total Mutual Funds (Cost $36,150,852) 30,180,114 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- U.S. Government -- 3.9% -------------------------------------------------------------------------------- Principal Amount Value -------------------------------------------------------------------------------- U.S. Treasury Bill $ 1,500,000 0.785%, 9/18/2003 (1) (Cost $1,497,416) $ 1,497,416 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Repurchase Agreements -- 17.5% -------------------------------------------------------------------------------- $ 3,000,000 Lehman Brothers repurchase agreement, dated 6/30/2003, maturity value $3,000,090 at 1.08%, due 7/1/2003 (2) $ 3,000,000 -------------------------------------------------------------------------------- Principal Amount Value -------------------------------------------------------------------------------- $ 3,734,000 State Street Bank and Trust Co. repurchase agreement, dated 6/30/2003, maturity value $3,734,114 at 1.10%, due 7/1/2003 (2) $ 3,734,000 -------------------------------------------------------------------------------- Total Repurchase Agreements (Cost $6,734,000) 6,734,000 -------------------------------------------------------------------------------- Total Investments -- 100.1% (Cost $44,382,268) 38,411,530 Liabilities in Excess of Cash, Receivables and Other Assets -- (0.1)% (43,932) -------------------------------------------------------------------------------- Net Assets -- 100% $ 38,367,598 -------------------------------------------------------------------------------- * Affiliated issuer, as defined in the 1940 Act which includes issuers in which the Fund held 5% or more of the outstanding voting securities. (1) The U.S. Treasury Bill is segregated as collateral to cover margin requirements on open futures contracts. (2) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. Purchased (P)/Sold (S) Futures Contracts -------------------------------------------------------------------------------- Unrealized Appreciation Contracts Type Description Expiration (Depreciation) -------------------------------------------------------------------------------- 51 S U.S. Treasury Notes, 5 Year 9/2003 $ 13,137 55 P S&P 500 Index 9/2003 (268,567) -------------------------------------------------------------------------------- $ (255,430) -------------------------------------------------------------------------------- See notes to financial statements. -------------------------------------------------------------------------------- 48 -------------------------------------------------------------------------------- Statement of Assets and Liabilities June 30, 2003 (Unaudited) ASSETS Unaffiliated issuers, at identified cost* $ 13,749,900 Affiliated issuer, at identified cost 30,632,368 ------------ Total Cost 44,382,268 ============ Unaffiliated issuers, at market $ 7,537,618 Affiliated issuer, at market 24,139,912 Repurchase agreements 6,734,000 ------------ Total Investments 38,411,530 Cash 158 Receivable for fund shares sold 3,898 Interest receivable 204 Other assets 378 ------------ Total Assets 38,416,168 ------------ LIABILITIES Accrued expenses 17,491 Payable for variation margin 13,547 Payable for fund shares redeemed 13,368 Due to affiliates 4,164 ------------ Total Liabilities 48,570 ------------ Net Assets $ 38,367,598 ============ COMPONENTS OF NET ASSETS Capital stock, at par $ 5,171 Additional paid-in capital 51,950,431 Undistributed net investment income 248,907 Accumulated net realized loss on investments (7,610,743) Net unrealized depreciation of investments (6,226,168) ------------ Net Assets $ 38,367,598 ============ Shares Outstanding -- $0.001 par value 5,170,410 ============ Net Asset Value Per Share $ 7.42 ============ * Includes repurchase agreement Statement of Operations Six Months Ended June 30, 2003 (Unaudited) INVESTMENT INCOME Dividends (including $154,421 received from affiliated issuer) $ 249,607 Interest 51,343 ------------ Total Income 300,950 ------------ Expenses: Investment advisory fees -- Note B 87,003 Custodian fees 15,477 Audit fees 9,975 Directors' fees -- Note B 1,028 Other 4,231 ------------ Total Expenses before reimbursement 117,714 Less: Expenses assumed by investment adviser(1) (65,791) ------------ Net Expenses 51,923 ------------ Net Investment Income 249,027 ------------ REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS-- NOTE C Net realized gain on investments 1,099,832 Net realized gains received from underlying funds 7,568 Net change in unrealized depreciation of investments 2,491,364 ------------ Net Realized and Unrealized Gain on Investments 3,598,764 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $ 3,847,791 ============ (1) The fund does not impose any additional advisory fees for the portion of the fund's assets invested in other Guardian Funds. See notes to financial statements. -------------------------------------------------------------------------------- 49 -------------------------------------------------------------------------------- The Guardian VC Asset Allocation Fund ---------------------------------------------- Statement of Changes in Net Assets
Six Months Year Ended Ended December 31, June 30, 2003 2002 (Unaudited) (Audited) ------------- ------------ INCREASE/(DECREASE) IN NET ASSETS From Operations: Net investment income $ 249,027 $ 745,822 Net realized gain/(loss) on investments 1,107,400 (2,958,522) Net change in unrealized depreciation of investments 2,491,364 (6,799,007) ------------ ------------ Net Increase/(Decrease) in Net Assets from Operations 3,847,791 (9,011,707) ------------ ------------ Dividends to Shareholders from: Net investment income (705,132) (763,200) ------------ ------------ From Capital Share Transactions: Net increase/(decrease) in net assets from capital share transactions -- Note G 652,564 (420,706) ------------ ------------ Net Increase/(Decrease) in Net Assets 3,795,223 (10,195,613) NET ASSETS: Beginning of period 34,572,375 44,767,988 ------------ ------------ End of period * $ 38,367,598 $ 34,572,375 ============ ============ * Includes undistributed net investment income of: $ 248,907 $ 705,012
See notes to financial statements. -------------------------------------------------------------------------------- 50 -------------------------------------------------------------------------------- Financial Highlights Selected data for a share of capital stock outstanding throughout the periods indicated:
Six Months Period From Ended Year Ended December 31, (Audited) September 15, 1999+ to June 30, 2003 -------------------------------------------- December 31, 1999 (Unaudited) 2002 2001 2000 (Audited) ------------------------------------------------------------------------------------ Net asset value, beginning of period ................... $ 6.78 $ 8.62 $ 9.83 $ 10.68 $ 9.94 -------- -------- -------- -------- -------- Income from investment operations: Net investment income ................. 0.05 0.14 0.24 0.37 0.12 Net realized and unrealized gain/ (loss) on investments ............... 0.73 (1.83) (1.12) (0.05) 0.74 -------- -------- -------- -------- -------- Net increase/(decrease) from investment operations .......................... 0.78 (1.69) (0.88) 0.32 0.86 -------- -------- -------- -------- -------- Dividends and Distributions to Shareholders from: Net investment income ................. (0.14) (0.15) (0.10) (0.36) (0.12) Net realized gain on investments ...... -- -- (0.23) (0.81) -- -------- -------- -------- -------- -------- Total dividends and distributions ..... (0.14) (0.15) (0.33) (1.17) (0.12) -------- -------- -------- -------- -------- Net asset value, end of period ........... $ 7.42 $ 6.78 $ 8.62 $ 9.83 $ 10.68 -------- -------- -------- -------- -------- Total return* ............................ 11.45%(a) (19.88)% (9.03)% 3.00% 8.67%(a) -------- -------- -------- -------- -------- Ratios/supplemental data: Net assets, end of period (000's omitted) ..................... $ 38,368 $ 34,572 $ 44,768 $ 38,627 $ 27,750 Ratio of expenses to average net assets .................. 0.30%(b)(c) 0.31%(c) 0.39%(c) 0.48%(c) 0.67%(b)(c) Gross expense ratio ................... 0.56%(b)(d) 0.56%(d) 0.56%(d) 0.73%(d) 0.98%(b)(d) Ratio of net investment income to average net assets ........ 1.43%(b) 1.89% 2.87% 3.83% 4.09%(b) Portfolio turnover rate ............... 0% 0% 29% 12% 0%
+ Commencement of investment operations. * Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC's variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. (a) Not annualized. (b) Annualized. (c) Amounts do not include expenses of the underlying funds. (d) Amounts include expenses of the underlying funds. See notes to financial statements. -------------------------------------------------------------------------------- 51 -------------------------------------------------------------------------------- The Guardian VC High Yield Bond Fund ------------------------------------ Schedule of Investments June 30, 2003 (Unaudited) -------------------------------------------------------------------------------- Corporate Bonds -- 87.4% -------------------------------------------------------------------------------- Rating Principal Moody's/ Amount S&P* Value -------------------------------------------------------------------------------- Aerospace and Defense -- 2.8% -------------------------------------------------------------------------------- Alliant Techsystems, Inc. $ 335,000 Sr. Sub. Nt. 8.50% due 5/15/2011 B2/B $ 371,850 BE Aerospace, Inc. 155,000 Sr. Sub. Nt. 9.50% due 11/1/2008 Caa2/B- 124,775 K & F Ind., Inc. 250,000 Sr. Sub. Nt. Ser. B 9.625% due 12/15/2010 B3/B 277,500 Sequa Corp. 600,000 Sr. Nt. 8.875% due 4/1/2008 B1/BB- 627,000 ------------ 1,401,125 -------------------------------------------------------------------------------- Automotive -- 1.7% Rexnord Corp. 20,000 Sr. Sub. Nt. 10.125% due 12/15/2012 B3/B- 22,000 Tenneco Automotive, Inc. 200,000 Sr. Sec. Nt. + 10.25% due 7/15/2013 B2/CCC+ 202,500 TRW Automotive, Inc. 167,000 Sr. Nt. + 9.375% due 2/15/2013 B1/B+ 181,195 United Components, Inc. 445,000 Sr. Sub. Nt. + 9.375% due 6/15/2013 B3/B 461,688 ------------ 867,383 -------------------------------------------------------------------------------- Banking -- 0.4% Western Financial Bank 200,000 Sub. Cap. Debt. 9.625% due 5/15/2012 B1/BB- 216,000 -------------------------------------------------------------------------------- Building Materials -- 0.4% Associated Materials, Inc. 160,000 Sr. Sub. Nt. 9.75% due 4/15/2012 B3/B 174,600 Collins & Aikman Floor Cover 39,000 Sr. Sub. Nt. 9.75% due 2/15/2010 B2/B 40,755 ------------ 215,355 -------------------------------------------------------------------------------- Chemicals -- 2.1% Compass Minerals Group, Inc. 140,000 Sr. Sub. Nt. 10.00% due 8/15/2011 B3/B- 156,800 FMC Corp. 160,000 Sr. Sec. Nt. 10.25% due 11/1/2009 Ba2/BB+ 180,000 Huntsman Advanced Materials 200,000 Sr. Sec. Nt. + 11.00% due 7/15/2010 B2/B 208,000 Huntsman Int'l. LLC 40,000 Sr. Nt. 9.875% due 3/1/2009 B3/B 41,600 Lyondell Chemical Co. 155,000 Nt. Ser. A 9.625% due 5/1/2007 Ba3/BB 151,900 Millennium America, Inc. 330,000 Sr. Nt. 7.00% due 11/15/2006 Ba1/BB+ 333,300 ------------ 1,071,600 -------------------------------------------------------------------------------- Construction Machinery -- 1.9% Joy Global, Inc. 80,000 Sr. Sub. Nt. 8.75% due 3/15/2012 B2/B+ 87,600 NMHG Hldg. Co. 80,000 Sr. Nt. 10.00% due 5/15/2009 B3/B+ 88,000 Terex Corp. 155,000 Sr. Sub. Nt. 9.25% due 7/15/2011 B3/B 166,625 255,000 Sr. Sub. Nt. 10.375% due 4/1/2011 B3/B 281,775 United Rentals NA, Inc. 160,000 Sr. Nt. 10.75% due 4/15/2008 B1/BB 174,800 United Rentals, Inc. 160,000 Sr. Sub. Nt. Ser. B 8.80% due 8/15/2008 B2/B+ 155,200 ------------ 954,000 -------------------------------------------------------------------------------- Consumer Cyclical Services -- 1.8% Coinmach Corp. 250,000 Sr. Nt. 9.00% due 2/1/2010 B2/B 267,500 Iron Mountain, Inc. 600,000 Sr. Sub. Nt. 8.625% due 4/1/2013 B2/B 642,000 ------------ 909,500 -------------------------------------------------------------------------------- Consumer Products -- 3.0% Elizabeth Arden, Inc. 330,000 Sr. Sec. Nt. Ser. B 11.75% due 2/1/2011 B1/B 367,950 Playtex Products, Inc. 410,000 Sr. Sub. Nt. 9.375% due 6/1/2011 B3/B- 410,000 See notes to financial statements. -------------------------------------------------------------------------------- 52 -------------------------------------------------------------------------------- Rating Principal Moody's/ Amount S&P* Value -------------------------------------------------------------------------------- Sealy Mattress Co. $ 154,000 Sr. Sub. Nt. Ser. B 9.875% due 12/15/2007 B3/B- $ 153,230 Simmons Co. 300,000 Sr. Sub. Nt. Ser. B 10.25% due 3/15/2009 B2/B- 321,000 St. John Knits Int'l., Inc. 250,000 Sr. Sub. Nt. 12.50% due 7/1/2009 B3/B- 272,500 ------------ 1,524,680 -------------------------------------------------------------------------------- Diversified Manufacturing -- 1.7% Jacuzzi Brands, Inc. 200,000 Sr. Sec. Nt. + 9.625% due 7/1/2010 B3/B 200,000 Resolution Performance Product 100,000 Sr. Sec. Nt. 9.50% due 4/15/2010 B2/B+ 104,000 Tyco Int'l. Group S.A. 500,000 Nt. 6.375% due 10/15/2011 Ba2/BBB- 527,500 ------------ 831,500 -------------------------------------------------------------------------------- Electric -- 2.2% Calpine Canada Energy 320,000 Sr. Nt. 8.50% due 5/1/2008 B1/CCC+ 249,600 PSEG Energy Hldgs., Inc. 400,000 Sr. Nt. 8.50% due 6/15/2011 Baa3/BBB- 430,000 Southern California Edison Co. 455,000 1st Ref. Mtg. Ser. 93C 7.25% due 3/1/2026 Ba2/BB 463,531 ------------ 1,143,131 -------------------------------------------------------------------------------- Energy -- 6.7% Dresser, Inc. 160,000 Sr. Nt. 9.375% due 4/15/2011 B2/B 164,800 Newfield Exploration Co. 160,000 Sr. Sub. Nt. 8.375% due 8/15/2012 Ba3/BB- 180,200 Newpark Resources, Inc. 300,000 Sr. Sub. Nt. Ser. B 8.625% due 12/15/2007 B2/B+ 307,500 Offshore Logistics 400,000 Sr. Nt. + 6.125% due 6/15/2013 Ba2/BB+ 401,000 Pride Int'l., Inc. 275,000 Sr. Nt. 10.00% due 6/1/2009 Ba2/BB 301,125 Tesoro Petroleum Corp. 450,000 Sec. Nt. + 8.00% due 4/15/2008 Ba3/BB 461,250 Western Oil Sands, Inc. 320,000 Sr. Sec. Nt. 8.375% due 5/1/2012 Ba2/BB+ 356,800 Westport Resources Corp. 240,000 Sr. Sub. Nt. 8.25% due 11/1/2011 Ba3/B+ 262,800 XTO Energy, Inc. 900,000 Sr. Nt. + 6.25% due 4/15/2013 Ba2/BB 956,250 ------------ 3,391,725 -------------------------------------------------------------------------------- Entertainment -- 3.1% Intrawest Corp. 480,000 Sr. Nt. 9.75% due 8/15/2008 B1/B+ 501,000 135,000 Sr. Nt. 10.50% due 2/1/2010 B1/B+ 145,125 Premier Parks, Inc. 333,000 Sr. Nt. 9.75% due 6/15/2007 B2/B 329,670 Regal Cinemas, Inc. 167,000 Sr. Sub. Nt. Ser. B 9.375% due 2/1/2012 B2/B 184,118 Speedway Motorsports, Inc. 400,000 Sr. Sub. Nt. + 6.75% due 6/1/2013 Ba2/B+ 414,000 ------------ 1,573,913 -------------------------------------------------------------------------------- Environmental -- 3.6% Allied Waste NA, Inc. 800,000 Sr. Nt. 7.875% due 4/15/2013 Ba3/BB- 837,000 578,000 Sr. Sub. Nt. 10.00% due 8/1/2009 B2/B+ 614,125 Waste Management, Inc. 300,000 Sr. Nt. 7.375% due 5/15/2029 Baa3/BBB 354,263 ------------ 1,805,388 -------------------------------------------------------------------------------- Food and Beverage -- 4.2% American Seafood Group LLC 320,000 Sr. Sub. Nt. 10.125% due 4/15/2010 B3/B 363,200 B & G Foods, Inc. 250,000 Sr. Sub. Nt. Ser. D 9.625% due 8/1/2007 B3/B- 257,500 Constellation Brands, Inc. See notes to financial statements. -------------------------------------------------------------------------------- 53 -------------------------------------------------------------------------------- The Guardian VC High Yield Bond Fund ------------------------------------ Schedule of Investments June 30, 2003 (Unaudited) (Continued) Rating Principal Moody's/ Amount S&P* Value -------------------------------------------------------------------------------- $ 39,000 Sr. Sub. Nt. 8.125% due 1/15/2012 Ba3/B+ $ 42,120 103,000 Sr. Sub. Nt. 8.50% due 3/1/2009 Ba3/B+ 108,150 Del Monte Corp. 450,000 Sr. Sub. Nt. 9.25% due 5/15/2011 B2/B 481,500 Merisant Co. 200,000 Sr. Sub. Nt. + 9.50% due 7/15/2013 B2/B 207,000 Michael Foods, Inc. 400,000 Sr. Sub. Nt. Ser. B 11.75% due 4/1/2011 B2/B- 460,000 Premium Standard Farms, Inc. 222,000 Sr. Nt. 9.25% due 6/15/2011 B1/BB 209,790 ------------ 2,129,260 -------------------------------------------------------------------------------- Gaming -- 1.7% Mandalay Resort Group 160,000 Sr. Sub. Nt. Ser. B 10.25% due 8/1/2007 Ba3/BB- 180,800 MGM Mirage, Inc. 225,000 Sr. Sub. Nt. 8.375% due 2/1/2011 Ba2/BB+ 255,937 Mohegan Tribal Gaming 100,000 Sr. Sub. Nt. 8.00% due 4/1/2012 Ba3/BB- 108,000 Park Place Entertainment Corp. 154,000 Sr. Nt. 7.50% due 9/1/2009 Ba1/BBB- 168,630 Sun Int'l. Hotels Ltd. 155,000 Sr. Sub. Nt. 8.875% due 8/15/2011 B2/B+ 167,788 ------------ 881,155 -------------------------------------------------------------------------------- Gas Distributors -- 0.8% AmeriGas Partners LP 103,000 Sr. Nt. 8.875% due 5/20/2011 B2/BB- 112,270 103,000 Sr. Nt. 10.00% due 4/15/2006 B2/BB- 112,270 Gazprom OAO 172,000 Nt. + 9.625% due 3/1/2013 NA/B+ 189,630 ------------ 414,170 -------------------------------------------------------------------------------- Health Care -- 4.1% Fisher Scientific Int'l., Inc. 250,000 Sr. Sub. Nt. + 8.125% due 5/1/2012 B2/B+ 267,500 Fresenius Medical Care 310,000 Capital Tr. 7.875% due 6/15/2011 Ba2/BB- 327,050 HCA, Inc. 167,000 Nt. 6.25% due 2/15/2013 Ba1/BBB- 170,247 Insight Health Svcs. Corp. 205,000 Sr. Sub. Nt. Ser. B 9.875% due 11/1/2011 B3/B- 215,250 PerkinElmer, Inc. 320,000 Sr. Sub. Nt. 8.875% due 1/15/2013 Ba3/BB- 347,200 Tenet Healthcare Corp. 600,000 Nt. 7.375% due 2/1/2013 Ba3/BBB- 579,000 Triad Hospitals, Inc. 167,000 Sr. Nt. Ser. B 8.75% due 5/1/2009 B1/B- 177,646 ------------ 2,083,893 -------------------------------------------------------------------------------- Home Construction -- 1.4% Beazer Homes USA, Inc. 160,000 Sr. Nt. 8.375% due 4/15/2012 Ba2/BB 177,200 Meritage Corp. 154,000 Sr. Nt. 9.75% due 6/1/2011 Ba3/B 170,170 Standard Pacific Corp. 160,000 Sr. Sub. Nt. 9.25% due 4/15/2012 Ba3/B+ 179,600 WCI Communities, Inc. 160,000 Sr. Sub. Nt. 9.125% due 5/1/2012 Ba3/B 170,400 ------------ 697,370 -------------------------------------------------------------------------------- Industrial - Other -- 0.8% Briggs & Stratton Corp. 355,000 Sr. Nt. 8.875% due 3/15/2011 Ba1/BB+ 410,025 -------------------------------------------------------------------------------- Lodging -- 1.3% Hilton Hotels Corp. 160,000 Nt. 7.625% due 12/1/2012 Ba1/BBB- 175,200 HMH Pptys., Inc. 160,000 Sr. Nt. Ser. C 8.45% due 12/1/2008 Ba3/B+ 165,200 See notes to financial statements. -------------------------------------------------------------------------------- 54 -------------------------------------------------------------------------------- Rating Principal Moody's/ Amount S&P* Value -------------------------------------------------------------------------------- John Q. Hammons Hotels LP $ 160,000 1st Mtg. Nt. Ser. B 8.875% due 5/15/2012 B2/B $ 168,000 Starwood Hotels & Resorts 160,000 Sr. Nt. 7.875% due 5/1/2012 Ba1/BB+ 175,200 ------------ 683,600 -------------------------------------------------------------------------------- Media - Cable-- 3.0% Charter Comm. Hldgs. 160,000 Sr. Disc. Nt. (1) 0/11.75% due 1/15/2010 Ca/B+ 94,400 480,000 Sr. Disc. Nt. (1) 0/11.75% due 5/15/2011 Ca/CCC- 242,400 CSC Hldgs., Inc. 480,000 Sr. Debt. Ser. B 8.125% due 8/15/2009 B1/BB- 496,800 Insight Midwest LP 250,000 Sr. Nt. 10.50% due 11/1/2010 B2/B+ 274,375 Mediacom LLC 400,000 Sr. Nt. 9.50% due 1/15/2013 B2/B+ 423,000 ------------ 1,530,975 -------------------------------------------------------------------------------- Media - NonCable-- 5.2% Allbritton Comm. Co. 125,000 Sr. Sub. Nt. + 7.75% due 12/15/2012 B3/B- 129,063 American Media Operations, Inc. 330,000 Sr. Sub. Nt. Ser. B 10.25% due 5/1/2009 B2/B- 356,400 Corus Entertainment, Inc. 155,000 Sr. Sub. Nt. 8.75% due 3/1/2012 B1/B+ 166,625 Dex Media East LLC 189,000 Sr. Nt. 9.875% due 11/15/2009 B2/B 210,735 189,000 Sr. Sub. Nt. 12.125% due 11/15/2012 B3/B 223,492 DirecTV Hldgs. 168,000 Sr. Nt. + 8.375% due 3/15/2013 B1/B 187,320 Echostar DBS Corp. 160,000 Sr. Nt. 9.125% due 1/15/2009 Ba3/BB- 178,800 84,000 Sr. Nt. 10.375% due 10/1/2007 Ba3/BB- 93,030 Emmis Comm. Corp. 154,000 Sr. Sub. Nt. 8.125% due 3/15/2009 B2/B- 161,315 Entravision Comm. Corp. 160,000 Sr. Sub. Nt. 8.125% due 3/15/2009 B3/B- 166,400 Houghton Mifflin Co. 335,000 Sr. Nt. + 9.875% due 2/1/2013 B3/B 363,475 R.H. Donnelley Fin. Corp. I 90,000 Sr. Nt. + 8.875% due 12/15/2010 B1/B+ 99,450 285,000 Sr. Sub. Nt. + 10.875% due 12/15/2012 B2/B+ 332,025 ------------ 2,668,130 -------------------------------------------------------------------------------- Metals and Mining -- 1.8% AK Steel Corp. 160,000 Sr. Nt. 7.75% due 6/15/2012 B1/BB- 132,800 Arch Western Finance LLC 400,000 Sr. Nt. + 6.75% due 7/1/2013 Ba2/BB+ 410,000 Luscar Coal Ltd. 154,000 Sr. Nt. 9.75% due 10/15/2011 Ba3/BB 175,945 Oregon Steel Mills, Inc. 160,000 1st Mtg. Nt. 10.00% due 7/15/2009 B1/B+ 144,000 Steel Dynamics, Inc. 40,000 Sr. Nt. 9.50% due 3/15/2009 B2/B 41,900 ------------ 904,645 -------------------------------------------------------------------------------- Natural Gas - Pipelines -- 4.8% El Paso Partners 335,000 Sr. Sub. Nt. Ser. B 8.50% due 6/1/2011 B1/BB- 358,450 El Paso Production Hldg. Co. 445,000 Sr. Nt. + 7.75% due 6/1/2013 B2/B+ 443,887 Gulfterra Energy Partners 65,000 Sr. Sub. Nt. + 8.50% due 6/1/2010 B1/BB- 69,550 Northwest Pipeline Corp. 126,000 Sr. Nt. 8.125% due 3/1/2010 B1/B+ 135,450 Southern Natural Gas Co. 377,000 Nt. 7.35% due 2/15/2031 B1/B+ 383,598 See notes to financial statements. -------------------------------------------------------------------------------- 55 -------------------------------------------------------------------------------- The Guardian VC High Yield Bond Fund ------------------------------------ Schedule of Investments June 30, 2003 (Unaudited) (Continued) Rating Principal Moody's/ Amount S&P* Value -------------------------------------------------------------------------------- Transcontinental Gas Pipeline Corp. $ 375,000 Nt. Ser. B 7.00% due 8/15/2011 B1/B+ $ 384,375 Williams Cos., Inc. 138,000 Nt. 8.125% due 3/15/2012 B3/B+ 141,450 477,000 Sr. Nt. 8.625% due 6/1/2010 B3/B+ 498,465 ------------ 2,415,225 -------------------------------------------------------------------------------- Packaging -- 2.5% Ball Corp. 400,000 Sr. Nt. 6.875% due 12/15/2012 Ba3/BB 424,000 Crown European Hldgs. S.A. 202,000 Sr. Sec. + 9.50% due 3/1/2011 B1/B+ 218,160 Kappa Beheer BV 330,000 Sr. Sub. Nt. 10.625% due 7/15/2009 B2/B 353,512 Owens-Brockway Glass Container 89,000 Sr. Sec. Nt. + 7.75% due 5/15/2011 B1/BB 94,118 89,000 Sr. Nt. + 8.25% due 5/15/2013 B2/B+ 93,005 Silgan Hldgs., Inc. 80,000 Sr. Sub. Debt. 9.00% due 6/1/2009 B1/B+ 82,800 ------------ 1,265,595 -------------------------------------------------------------------------------- Paper and Forest Products -- 3.9% Abitibi-Consolidated, Inc. 120,000 Nt. 6.00% due 6/20/2013 Ba1/BB+ 114,211 610,000 Debt. 8.85% due 8/1/2030 Ba1/BB+ 648,148 Cascades, Inc. 167,000 Sr. Nt. + 7.25% due 2/15/2013 Ba1/BB+ 175,768 Jefferson Smurfit Corp. US 285,000 Sr. Nt. + 7.50% due 6/1/2013 B2/B 290,700 Norske Skog Canada Ltd. 80,000 Sr. Nt. 8.625% due 6/15/2011 Ba2/BB 83,600 Packaging Corp. of America 165,000 Sr. Sub. Nt. 9.625% due 4/1/2009 Ba2/BB+ 181,706 Stone Container Corp. 430,000 Sr. Nt. 9.75% due 2/1/2011 B2/B 470,850 ------------ 1,964,983 -------------------------------------------------------------------------------- Restaurants -- 0.7% Jack in the Box, Inc. 335,000 Sr. Sub. Nt. 8.375% due 4/15/2008 Ba3/BB- 346,725 -------------------------------------------------------------------------------- Retailers -- 3.8% Cole National Group, Inc. 160,000 Sr. Sub. Nt. 8.875% due 5/15/2012 B2/B 154,000 Hollywood Entertainment Corp. 240,000 Sr. Sub. Nt. 9.625% due 3/15/2011 B3/B- 262,500 J.C. Penney Co., Inc. 492,000 Nt. 9.00% due 8/1/2012 Ba3/BB+ 533,820 Jafra Cosmetics 200,000 Sr. Sub. Nt. + 10.75% due 5/15/2011 B3/B- 209,000 Petco Animal Supplies, Inc. 155,000 Sr. Sub. Nt. 10.75% due 11/1/2011 B2/B 176,700 Rent-A-Center, Inc. 133,000 Sr. Sub. Nt. + 7.50% due 5/1/2010 B1/B+ 139,650 78,000 Sr. Sub. Nt. Ser. D 11.00% due 8/15/2008 B1/B+ 82,973 Rite Aid Corp. 168,000 Sr. Nt. 11.25% due 7/1/2008 Caa2/B- 180,600 United Auto Group, Inc. 160,000 Sr. Sub. Nt. 9.625% due 3/15/2012 B3/B 171,200 ------------ 1,910,443 -------------------------------------------------------------------------------- Supermarkets -- 0.3% Pathmark Stores, Inc. 156,000 Sr. Sub. Nt. 8.75% due 2/1/2012 B2/B 161,460 -------------------------------------------------------------------------------- Technology -- 2.3% AMI Semiconductor, Inc. 335,000 Sr. Sub. Nt. + 10.75% due 2/1/2013 B3/B 378,550 Flextronics Int'l. Ltd. 400,000 Sr. Sub. Nt. 9.875% due 7/1/2010 Ba2/BB- 438,000 See notes to financial statements. -------------------------------------------------------------------------------- 56 -------------------------------------------------------------------------------- Rating Principal Moody's/ Amount S&P* Value -------------------------------------------------------------------------------- Seagate Technology $ 320,000 Sr. Nt. 8.00% due 5/15/2009 Ba2/BB+ $ 346,400 ------------ 1,162,950 -------------------------------------------------------------------------------- Textile -- 1.6% Oxford Industries, Inc. 200,000 Sr. Nt. + 8.875% due 6/1/2011 B2/B 210,000 Russell Corp. 205,000 Sr. Nt. 9.25% due 5/1/2010 B1/BB 223,450 William Carter Co. 350,000 Sr. Sub. Nt. Ser. B 10.875% due 8/15/2011 B3/B 395,500 ------------ 828,950 -------------------------------------------------------------------------------- Transportation -- 0.3% Teekay Shipping Corp. 160,000 Sr. Nt. 8.875% due 7/15/2011 Ba2/BB- 175,400 -------------------------------------------------------------------------------- Wireless Communications -- 6.4% Centennial Cell 500,000 Sr. Nt. + 10.125% due 6/15/2013 Caa1/CCC 495,000 Crown Castle Int'l. Corp. 205,000 Sr. Nt. 10.75% due 8/1/2011 B3/CCC 223,450 Nextel Comm., Inc. 175,000 Sr. Disc. Nt. 9.75% due 10/31/2007 B3/B 181,125 736,000 Sr. Disc. Nt. 9.95% due 2/15/2008 B3/B 769,120 689,000 Sr. Disc. Nt. 10.65% due 9/15/2007 B3/B 711,392 Nextel Partners, Inc. 260,000 Sr. Nt. + 8.125% due 7/1/2011 Caa1/CCC+ 259,350 Telecorp PCS, Inc. 315,000 Sr. Sub. Nt. 10.625% due 7/15/2010 Baa2/BBB 380,363 Triton PCS, Inc. 240,000 Sr. Sub. Disc. Nt. 11.00% due 5/1/2008 B3/B- 254,400 ------------ 3,274,200 -------------------------------------------------------------------------------- Wireline Communications -- 5.1% Qwest Capital Funding, Inc. 700,000 Nt. 5.875% due 8/3/2004 Caa2/CCC+ 670,250 Qwest Corp. 740,000 Debt. 7.20% due 11/10/2026 Ba3/B- 693,750 440,000 Debt. 8.875% due 6/1/2031 Ba3/B- 462,000 Qwest Services Corp. 203,200 Nt. + 13.50% due 12/15/2010 NR/CCC+ 229,61 Sprint Capital Corp. 250,000 Nt. 8.375% due 3/15/2012 Baa3/BBB- 299,329 Telus Corp. 200,000 Nt. 8.00% due 6/1/2011 Ba1/BBB 231,000 ------------ 2,585,945 -------------------------------------------------------------------------------- Total Corporate Bonds (Cost $41,718,358) 44,400,399 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- U.S. Government -- 6.6% -------------------------------------------------------------------------------- U.S. Treasury Bonds and Notes -- 6.6% U.S. Treasury Bonds $ 3,000,000 5.375% due 2/15/2031 Aaa/AAA (Cost $3,493,857) $ 3,378,165 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Warrants -- 0.0% -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- GT Group Telecomm., Inc. 900 exp. 2/1/2010 + $ 337 Hayes Lemmerz Int'l., Inc. 209 exp. 6/3/2006 462 Horizon PCS, Inc. 330 exp. 10/1/2010 + 17 Leap Wireless Int'l., Inc. 500 exp. 4/15/2010 + 125 330 exp. 4/15/2010 + 83 Ubiquitel Operating Co. 200 exp. 4/15/2010 + 2 XM Satellite Radio, Inc. 170 exp. 3/15/2010 + 935 -------------------------------------------------------------------------------- Total Warrants (Cost $182,740) 1,961 -------------------------------------------------------------------------------- See notes to financial statements. -------------------------------------------------------------------------------- 57 -------------------------------------------------------------------------------- The Guardian VC High Yield Bond Fund ------------------------------------ Schedule of Investments June 30, 2003 (Unaudited) (Continued) -------------------------------------------------------------------------------- Repurchase Agreement -- 4.1% -------------------------------------------------------------------------------- Principal Amount Value -------------------------------------------------------------------------------- $ 2,063,000 State Street Bank and Trust Co. repurchase agreement, dated 6/30/2003, maturity value $2,063,063 at 1.10% due 7/1/2003 (2) (Cost $2,063,000) $ 2,063,000 -------------------------------------------------------------------------------- Total Investments -- 98.1% (Cost $47,457,955) 49,843,525 Cash, Receivables and Other Assets Less Liabilities -- 1.9% 986,216 -------------------------------------------------------------------------------- Net Assets -- 100% $ 50,829,741 -------------------------------------------------------------------------------- + Rule 144A restricted security. (1) Step-up bond. (2) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. * Unaudited. See notes to financial statements. -------------------------------------------------------------------------------- 58 -------------------------------------------------------------------------------- Statement of Assets and Liabilities June 30, 2003 (Unaudited) ASSETS Investments, at market (cost $47,457,955) $ 49,843,525 Cash 163 Receivable for securities sold 2,777,405 Interest receivable 941,585 Receivable for fund shares sold 731 Other assets 454 ------------ Total Assets 53,563,863 ------------ LIABILITIES Payable for securities purchased 2,229,368 Payable for fund shares redeemed 457,669 Accrued expenses 20,928 Due to affiliates 26,157 ------------ Total Liabilities 2,734,122 ------------ Net Assets $ 50,829,741 ============ COMPONENTS OF NET ASSETS Capital stock, at par $ 6,169 Additional paid-in capital 55,938,049 Undistributed net investment income 294,574 Accumulated net realized loss on investments (7,794,621) Net unrealized appreciation of investments 2,385,570 ------------ Net Assets $ 50,829,741 ============ Shares Outstanding -- $0.001 par value 6,168,989 ============= Net Asset Value Per Share $ 8.24 ============ Statement of Operations Six Months Ended June 30, 2003 (Unaudited) INVESTMENT INCOME Interest $ 1,710,931 ------------ Expenses: Investment advisory fees -- Note B 125,118 Custodian fees 25,644 Audit fees 12,695 Directors' fees -- Note B 978 Other 6,078 ------------ Total Expenses 170,513 ------------ Net Investment Income 1,540,418 ------------ REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS-- NOTE C Net realized gain on investments 702,157 Net change in unrealized appreciation of investments 2,143,379 ------------ Net Realized and Unrealized Gain on Investments 2,845,536 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $ 4,385,954 ============ -------------------------------------------------------------------------------- 59 -------------------------------------------------------------------------------- The Guardian VC High Yield Bond Fund ------------------------------------ Statement of Changes in Net Assets
Six Months Year Ended Ended December 31, June 30, 2003 2002 (Unaudited) (Audited) ------------- ------------ INCREASE/(DECREASE) IN NET ASSETS From Operations: Net investment income $ 1,540,418 $ 2,624,105 Net realized gain/(loss) on investments 702,157 (2,930,271) Net change in unrealized appreciation/(depreciation) of investments 2,143,379 655,605 ------------ ------------ Net Increase in Net Assets from Operations 4,385,954 349,439 ------------ ------------ Dividends to Shareholders from: Net investment income (1,261,710) (2,608,239) ------------ ------------ From Capital Share Transactions: Net increase in net assets from capital share transactions -- Note G 12,022,778 5,731,565 ------------ ------------ Net Increase in Net Assets 15,147,022 3,472,765 ------------ ------------ NET ASSETS: Beginning of period 35,682,719 32,209,954 ------------ ------------ End of period* $ 50,829,741 $ 35,682,719 ============ ============ * Includes undistributed net investment income of: $ 294,574 $ 15,866
See notes to financial statements. -------------------------------------------------------------------------------- 60 -------------------------------------------------------------------------------- Financial Highlights Selected data for a share of capital stock outstanding throughout the periods indicated:
Six Months Period From Ended Year Ended December 31, (Audited) September 13, 1999+ to June 30, 2003 ------------------------------------------ December 31, 1999 (Unaudited) 2002 2001 2000 (Audited) -------------------------------------------------------------------------------------- Net asset value, beginning of period ................... $ 7.61 $ 8.13 $ 8.61 $ 10.04 $ 9.99 ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income ................. 0.25 0.63 0.77 0.85 0.23 Net realized and unrealized gain/ (loss) on investments ............... 0.59 (0.53) (0.47) (1.44) 0.05 ---------- ---------- ---------- ---------- ---------- Net increase/(decrease) from investment operations .......................... 0.84 0.10 0.30 (0.59) 0.28 ---------- ---------- ---------- ---------- ---------- Dividends to Shareholders from: Net investment income ................. (0.21) (0.62) (0.78) (0.84) (0.23) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period ........... $ 8.24 $ 7.61 $ 8.13 $ 8.61 $ 10.04 ---------- ---------- ---------- ---------- ---------- Total return* ............................ 10.96%(a) 1.29% 3.56% (6.07)% 2.78%(a) ---------- ---------- ---------- ---------- ---------- Ratios/supplemental data: Net assets, end of period (000's omitted) ..................... $ 50,830 $ 35,683 $ 32,210 $ 26,834 $ 25,888 Ratio of expenses to average net assets .................. 0.82%(b) 0.87% 0.90% 0.90% 1.14%(b) Ratio of expenses after custody credits to average net assets ....... N/A N/A N/A N/A 0.99%(b) Ratio of net investment income to average net assets ........ 7.39%(b) 7.88% 8.96% 9.11% 7.66%(b) Portfolio turnover rate ............... 78% 66% 140% 155% 43%
+ Commencement of operations. * Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC's variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. (a) Not annualized. (b) Annualized. See notes to financial statements. -------------------------------------------------------------------------------- 61 -------------------------------------------------------------------------------- The Guardian UBS VC Large Cap Value Fund ---------------------------------------- Schedule of Investments June 30, 2003 (Unaudited) -------------------------------------------------------------------------------- Common Stocks -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- Aerospace and Defense -- 2.3% 18,600 United Technologies Corp. $ 1,317,438 -------------------------------------------------------------------------------- Auto Components -- 1.0% 7,000 Johnson Controls, Inc. 599,200 -------------------------------------------------------------------------------- Biotechnology -- 1.0% 14,700 Cephalon, Inc. * 605,052 -------------------------------------------------------------------------------- Building Products -- 2.0% 50,300 Masco Corp. 1,199,655 -------------------------------------------------------------------------------- Capital Markets -- 8.6% 75,700 J.P. Morgan Chase & Co. 2,587,426 28,600 Mellon Financial Corp. 793,650 38,800 Morgan Stanley 1,658,700 -------------- 5,039,776 -------------------------------------------------------------------------------- Chemicals -- 2.3% 43,100 Dow Chemical Co. 1,334,376 -------------------------------------------------------------------------------- Commercial Banks -- 8.8% 7,400 Bank of America Corp. 584,822 35,100 FleetBoston Financial Corp. 1,042,821 22,400 PNC Financial Svcs. Group 1,093,344 48,900 Wells Fargo & Co. 2,464,560 -------------- 5,185,547 -------------------------------------------------------------------------------- Communications Equipment -- 0.9% 56,400 Motorola, Inc. 531,852 -------------------------------------------------------------------------------- Computers and Peripherals -- 2.0% 54,000 Hewlett Packard Co. 1,150,200 -------------------------------------------------------------------------------- Construction Materials -- 1.6% 28,100 Martin Marietta Materials, Inc. 944,441 -------------------------------------------------------------------------------- Diversified Financial Services -- 5.8% 79,900 Citigroup, Inc. 3,419,720 -------------------------------------------------------------------------------- Diversified Telecommunication Services -- 4.1% 34,900 BellSouth Corp. 929,387 57,400 SBC Comm., Inc. 1,466,570 -------------- 2,395,957 -------------------------------------------------------------------------------- Electric Utilities -- 8.6% 36,400 CMS Energy Corp. 294,840 19,200 DTE Energy Co. 741,888 24,900 Exelon Corp. 1,489,269 37,100 FirstEnergy Corp. 1,426,495 25,500 Progress Energy, Inc. 1,119,450 -------------- 5,071,942 -------------------------------------------------------------------------------- Gas Utilities -- 1.5% 31,500 Sempra Energy 898,695 -------------------------------------------------------------------------------- Health Care Equipment and Supplies -- 0.6% 13,900 Baxter Int'l., Inc. 361,400 -------------------------------------------------------------------------------- Health Care Providers and Services -- 4.1% 7,400 Anthem, Inc. 570,910 36,800 UnitedHealth Group 1,849,200 -------------- 2,420,110 -------------------------------------------------------------------------------- Household Durables -- 1.3% 27,900 Newell Rubbermaid, Inc. 781,200 -------------------------------------------------------------------------------- Household Products -- 1.2% 13,300 Kimberly-Clark Corp. 693,462 -------------------------------------------------------------------------------- Information Technology Services -- 1.7% 23,900 First Data Corp. 990,416 -------------------------------------------------------------------------------- Insurance -- 3.3% 19,400 American Int'l. Group, Inc. 1,070,492 17,700 Hartford Financial Svcs. Group, Inc. 891,372 -------------- 1,961,864 -------------------------------------------------------------------------------- Machinery -- 3.8% 22,600 Illinois Tool Works, Inc. 1,488,210 19,600 Pentair, Inc. 765,576 -------------- 2,253,786 -------------------------------------------------------------------------------- Media -- 2.5% 20,000 Viacom, Inc. 873,200 28,700 Walt Disney Co. 566,825 -------------- 1,440,025 -------------------------------------------------------------------------------- Oil and Gas -- 5.8% 30,700 ConocoPhillips 1,682,360 47,600 Exxon Mobil Corp. 1,709,316 -------------- 3,391,676 -------------------------------------------------------------------------------- Pharmaceuticals -- 7.0% 43,600 Bristol-Myers Squibb Corp. 1,183,740 22,000 Johnson & Johnson 1,137,400 24,300 SICOR, Inc. * 494,262 28,300 Wyeth 1,289,065 -------------- 4,104,467 -------------------------------------------------------------------------------- Road and Rail -- 3.7% 36,700 Burlington Northern Santa Fe 1,043,748 59,400 Norfolk Southern Corp. 1,140,480 -------------- 2,184,228 -------------------------------------------------------------------------------- See notes to financial statements. -------------------------------------------------------------------------------- 62 -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- Thrifts and Mortgage Finance -- 5.7% 26,200 Federal Home Loan Mortgage Corp. $ 1,330,174 39,900 GreenPoint Financial Corp. 2,032,506 -------------- 3,362,680 -------------------------------------------------------------------------------- Wireless Telecommunication Services -- 5.0% 161,300 Nextel Comm., Inc. 2,916,304 -------------------------------------------------------------------------------- Total Common Stocks (Cost $49,161,706) 56,555,469 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Exchange - Traded Fund -- 1.5% -------------------------------------------------------------------------------- 9,000 S&P Depositary Receipts Trust Series 1 exp. 12/31/2099 (Cost $890,932) $ 878,670 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Repurchase Agreement -- 3.8% -------------------------------------------------------------------------------- Principal Amount Value -------------------------------------------------------------------------------- $ 2,257,000 State Street Bank and Trust Co. repurchase agreement, dated 6/30/2003, maturity value $2,257,069 at 1.10%, due 7/1/2003 (1) (Cost $2,257,000) $ 2,257,000 -------------------------------------------------------------------------------- Total Investments -- 101.5% (Cost $52,309,638) 59,691,139 Liabilities in Excess of Cash, Receivables and Other Assets -- (1.5)% (866,269) -------------------------------------------------------------------------------- Net Assets -- 100% $ 58,824,870 -------------------------------------------------------------------------------- * Non-income producing security. (1) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. See notes to financial statements. -------------------------------------------------------------------------------- 63 -------------------------------------------------------------------------------- The Guardian UBS VC Large Cap Value Fund ---------------------------------------- Statement of Assets and Liabilities June 30, 2003 (Unaudited) ASSETS Investments, at market (cost $52,309,638) $59,691,139 Cash 980 Dividends receivable 70,444 Receivable for fund shares sold 7,649 Interest receivable 69 Other assets 541 ----------- Total Assets 59,770,822 ----------- LIABILITIES Payable for securities purchased 890,932 Accrued expenses 35,045 Due to affiliates 19,975 ----------- Total Liabilities 945,952 ----------- Net Assets $58,824,870 =========== COMPONENTS OF NET ASSETS Capital stock, at par $ 5,187 Additional paid-in capital 51,297,617 Undistributed net investment income 8,375 Accumulated net realized gain on investments 132,190 Net unrealized appreciation of investments 7,381,501 ----------- Net Assets $58,824,870 =========== Shares Outstanding -- $0.001 par value 5,187,031 =========== Net Asset Value Per Share $ 11.34 =========== Statement of Operations Period from February 3, 2003+ to June 30, 2003 (Unaudited) INVESTMENT INCOME Dividends $ 486,971 Interest 9,438 ----------- Total Income 496,409 ----------- Expenses: Investment advisory fees -- Note B 172,484 Legal fees 21,761 Custodian fees 15,322 Printing expense 6,373 Director's fees -- Note B 1,221 Other 10,343 ----------- Total Expenses 227,504 ----------- Net Investment Income 268,905 ----------- REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS-- NOTE C Net realized gain on investments 132,190 Net change in unrealized appreciation of investments 7,381,501 ----------- Net Realized and Unrealized Gain on Investments 7,513,691 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS $ 7,782,596 =========== + Commencement of operations. See notes to financial statements. -------------------------------------------------------------------------------- 64 -------------------------------------------------------------------------------- Statement of Changes in Net Assets
Period from February 3, 2003+ to June 30, 2003 (Unaudited) ----------------- INCREASE/(DECREASE) IN NET ASSETS From Operations: Net investment income $ 268,905 Net realized gain on investments 132,190 Net change in unrealized appreciation of investments 7,381,501 ------------ Net Increase in Net Assets from Operations 7,782,596 ------------ Dividends to Shareholders from: Net investment income (260,530) ------------ From Capital Share Transactions: Net increase in net assets from capital share transactions -- Note G 51,302,804 ------------ Net Increase in Net Assets 58,824,870 NET ASSETS: Beginning of period -- ------------ End of period * $ 58,824,870 ============ + Commencement of operations. * Includes undistributed net investment income of: $ 8,375
See notes to financial statements. -------------------------------------------------------------------------------- 65 -------------------------------------------------------------------------------- The Guardian UBS VC Large Cap Value Fund ---------------------------------------- Financial Highlights Selected data for a share of capital stock outstanding throughout the period indicated: Period From February 3, 2003+ to June 30, 2003 (Unaudited) -------------------- Net asset value, beginning of period ................................. $ 10.00 ---------- Income from investment operations: Net investment income ............................... 0.05 Net realized and unrealized gain on investments .................................... 1.34 ---------- Net increase from investment operations ........................................ 1.39 ---------- Dividends to Shareholders from: Net investment income ............................... (0.05) ---------- Net asset value, end of period ......................... $ 11.34 ---------- Total return* .......................................... 13.90%(a) ---------- Ratios/supplemental data: Net assets, end of period (000's omitted) ................................... $ 58,825 Ratio of expenses to average net assets ................................ 1.09%(b) Ratio of net investment income to average net assets ...................... 1.29%(b) Portfolio turnover rate ............................. 6% + Commencement of operations. * Total return does not reflect the effects of charges deducted pursuant to the terms of GIAC's variable contracts. Inclusion of such charges would reduce the total return for the period shown. (a) Not annualized. (b) Annualized. See notes to financial statements. -------------------------------------------------------------------------------- 66 -------------------------------------------------------------------------------- The Guardian UBS VC Small Cap Value Fund ---------------------------------------- Schedule of Investments June 30, 2003 (Unaudited) -------------------------------------------------------------------------------- Common Stocks -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- Aerospace and Defense -- 2.0% -------------------------------------------------------------------------------- 7,300 Esterline Technologies Corp. * $ 127,093 4,700 Triumph Group, Inc. * 132,399 -------------- 259,492 -------------------------------------------------------------------------------- Auto Components -- 1.0% 3,000 Superior Industries Int'l., Inc. 125,100 -------------------------------------------------------------------------------- Biotechnology -- 1.2% 11,600 Serologicals Corp. * 158,108 -------------------------------------------------------------------------------- Building Products -- 0.9% 13,300 Apogee Enterprises, Inc. 119,966 -------------------------------------------------------------------------------- Capital Markets -- 1.2% 6,800 Allied Capital Corp. 157,080 -------------------------------------------------------------------------------- Chemicals -- 2.7% 9,100 A. Schulman, Inc. 146,146 6,500 Lubrizol Corp. 201,435 -------------- 347,581 -------------------------------------------------------------------------------- Commercial Banks -- 8.1% 5,900 City National Corp. 262,904 15,200 Colonial BancGroup, Inc. 210,824 2,500 Cullen/Frost Bankers, Inc. 80,250 7,105 F. N. B. Corp. 214,997 2,900 Greater Bay Bancorp 59,218 8,800 Trustmark Corp. 224,136 -------------- 1,052,329 -------------------------------------------------------------------------------- Commercial Services and Supplies -- 6.3% 8,500 John H. Harland Co. 222,360 6,800 McGrath Rentcorp 181,832 3,000 Mobile Mini, Inc. * 48,990 4,100 New England Business Svc., Inc. 123,000 8,800 Right Management Consultants, Inc. * 111,320 1,900 School Specialty, Inc. 54,074 4,100 Standard Register Co. 67,568 -------------- 809,144 -------------------------------------------------------------------------------- Communications Equipment -- 1.4% 7,600 3Com Corp. * 35,568 800 Black Box Corp. 28,960 4,000 Harris Corp. 120,200 -------------- 184,728 -------------------------------------------------------------------------------- Computers and Peripherals -- 1.1% 33,700 Quantum Corp. * 136,485 -------------------------------------------------------------------------------- Construction and Engineering -- 1.0% 2,600 EMCOR Group, Inc. 128,336 -------------------------------------------------------------------------------- Electric Utilities -- 3.3% 5,900 ALLETE, Inc. 156,645 6,700 DQE, Inc. 100,969 3,600 Hawaiian Electric Industries, Inc. 165,060 -------------- 422,674 -------------------------------------------------------------------------------- Electrical Equipment -- 2.3% 9,700 Regal-Beloit Corp. $ 185,270 3,000 Roper Industries, Inc. 111,600 -------------- 296,870 -------------------------------------------------------------------------------- Electronic Equipment and Instruments -- 1.9% 2,100 CTS Corp. 21,945 7,400 Methode Electronics, Inc. 79,550 7,400 Park Electrochemical Corp. 147,630 -------------- 249,125 -------------------------------------------------------------------------------- Energy Equipment and Services -- 2.4% 13,400 Newpark Resources, Inc. * 73,432 1,300 Oceaneering Int'l., Inc. * 33,215 9,600 Offshore Logistics, Inc. 208,800 -------------- 315,447 -------------------------------------------------------------------------------- Food Products -- 3.5% 5,200 Int'l. Multifoods Corp. * 119,132 13,800 Interstate Bakeries Corp. 175,260 4,100 Lancaster Colony Corp. 158,506 -------------- 452,898 -------------------------------------------------------------------------------- Gas Utilities -- 2.2% 7,200 AGL Resources, Inc. 183,168 3,900 Atmos Energy Corp. 96,720 -------------- 279,888 -------------------------------------------------------------------------------- Health Care Equipment and Supplies -- 3.1% 3,000 Cooper Cos., Inc. 104,310 6,000 ICU Medical, Inc. * 186,900 5,500 Ocular Sciences, Inc. * 109,175 -------------- 400,385 -------------------------------------------------------------------------------- Health Care Providers and Services -- 5.2% 2,500 Coventry Health Care, Inc. * 115,400 7,500 RehabCare Group, Inc. * 109,875 7,500 Renal Care Group, Inc. * 264,075 10,400 Stewart Enterprises, Inc. * 44,720 6,200 Sunrise Senior Living, Inc. * 138,756 -------------- 672,826 -------------------------------------------------------------------------------- Hotels, Restaurants and Leisure -- 0.8% 1,400 CBRL Group, Inc. 54,404 5,700 Dover Downs Gaming & Entertainment, Inc. 52,725 -------------- 107,129 -------------------------------------------------------------------------------- Household Durables -- 4.0% 14,500 Department 56, Inc. * 222,285 3,700 Furniture Brands Int'l., Inc. * 96,570 3,100 Libbey, Inc. 70,370 4,600 Stanley Furniture Co., Inc. 126,086 -------------- 515,311 -------------------------------------------------------------------------------- See notes to financial statements. -------------------------------------------------------------------------------- 68 -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- Information Technology Services -- 3.2% 10,700 American Management Systems, Inc. * $ 152,796 20,600 BearingPoint, Inc. * 198,790 20,400 Computer Task Group, Inc. * 57,936 -------------- 409,522 -------------------------------------------------------------------------------- Insurance -- 2.6% 9,900 AmerUs Group Co. 279,081 1,875 Fidelity National Financial, Inc. 57,675 -------------- 336,756 -------------------------------------------------------------------------------- Leisure Equipment and Products -- 3.3% 9,200 JAKKS Pacific, Inc. 122,268 5,000 Nautilus Group, Inc. 62,000 4,000 Polaris Industries, Inc. 245,600 -------------- 429,868 -------------------------------------------------------------------------------- Machinery -- 2.3% 10,100 Federal Signal Corp. 177,457 3,400 Harsco Corp. 122,570 -------------- 300,027 -------------------------------------------------------------------------------- Media -- 0.9% 5,800 Saga Comm., Inc. * 112,810 -------------------------------------------------------------------------------- Metals and Mining -- 1.5% 6,700 Quanex Corp. 199,124 -------------------------------------------------------------------------------- Multi - Utilities and Unregulated Power -- 1.3% 4,200 Equitable Resources, Inc. 171,108 -------------------------------------------------------------------------------- Oil and Gas -- 2.4% 6,000 Cimarex Energy Co. * 142,500 6,200 Spinnaker Exploration Co. 162,440 -------------- 304,940 -------------------------------------------------------------------------------- Real Estate -- 7.9% 6,500 EastGroup Pptys., Inc. 175,500 17,800 Equity Inns, Inc. 122,820 14,100 Innkeepers USA Trust 95,880 6,400 Kilroy Realty Corp. 176,000 5,400 Parkway Pptys., Inc. 227,070 12,500 ResortQuest Int'l., Inc. * 55,125 4,700 SL Green Realty Corp. 163,983 -------------- 1,016,378 -------------------------------------------------------------------------------- Road and Rail -- 1.6% 9,900 Genesee & Wyoming, Inc. * 203,643 -------------------------------------------------------------------------------- Semiconductors and Semiconductor Equipment -- 0.5% 9,900 Integrated Silicon Solution, Inc. * 68,706 -------------------------------------------------------------------------------- Software -- 2.0% 5,600 Mentor Graphics Corp. * 81,088 6,200 Reynolds & Reynolds Co. 177,072 -------------- 258,160 -------------------------------------------------------------------------------- Specialty Retail -- 4.7% 4,800 Genesco, Inc. 84,960 4,100 Linens 'n Things, Inc. * 96,801 4,900 Michaels Stores, Inc. 186,494 8,000 Party City Corp. * 82,160 2,100 Rent-A-Center, Inc. * 159,201 -------------- 609,616 -------------------------------------------------------------------------------- Textiles, Apparel and Luxury Goods -- 0.3% 1,600 Movado Group, Inc. 34,800 -------------------------------------------------------------------------------- Thrifts and Mortgage Finance -- 2.8% 10,000 IndyMac Bancorp, Inc. 254,200 4,900 Roslyn Bancorp, Inc. 105,301 -------------- 359,501 -------------------------------------------------------------------------------- Total Common Stocks (Cost $10,575,727) 12,005,861 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Exchange - Traded Fund -- 2.2% -------------------------------------------------------------------------------- 2,200 iShares Russell 2000 Value Index Fund (Cost $233,697) $ 282,920 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Repurchase Agreement -- 8.4% -------------------------------------------------------------------------------- Principal Amount Value -------------------------------------------------------------------------------- $ 1,085,000 State Street Bank and Trust Co. repurchase agreement, dated 6/30/2003, maturity value $1,085,033 at 1.10%, due 7/1/2003 (1) (Cost $1,085,000) $1,085,000 -------------------------------------------------------------------------------- Total Investments -- 103.5% (Cost $11,894,424) 13,373,781 Liabilities in Excess of Cash, Receivables and Other Assets -- (3.5)% (448,398) -------------------------------------------------------------------------------- Net Assets -- 100% $ 12,925,383 -------------------------------------------------------------------------------- * Non-income producing security. (1) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. See notes to financial statements. -------------------------------------------------------------------------------- 69 -------------------------------------------------------------------------------- The Guardian UBS VC Small Cap Value Fund ---------------------------------------- Statement of Assets and Liabilities June 30, 2003 (Unaudited) ASSETS Investments, at market (cost $11,894,424) $ 13,373,781 Cash 516 Receivable for securities sold 189,828 Dividends receivable 13,233 Receivable for fund shares sold 798 Interest receivable 33 Other assets 343 ------------- Total Assets 13,578,532 ------------- LIABILITIES Payable for securities purchased 541,867 Payable for fund shares redeemed 86,459 Accrued expenses 20,546 Due to affiliates 4,277 ------------- Total Liabilities 653,149 ------------- Net Assets $ 12,925,383 ============= COMPONENTS OF NET ASSETS Capital stock, at par $ 1,125 Additional paid-in capital 11,221,087 Undistributed net investment income 5,776 Accumulated net realized gain on investments 218,038 Net unrealized appreciation of investments 1,479,357 ------------- Net Assets $ 12,925,383 ============= Shares Outstanding -- $0.001 par value 1,125,469 ============= Net Asset Value Per Share $ 11.48 ============= Statement of Operations Period from February 3, 2003+ to June 30, 2003 (Unaudited) INVESTMENT INCOME Dividends $ 91,778 Interest 3,732 ------------- Total Income 95,510 ------------- Expenses: Investment advisory fees -- Note B 42,060 Custodian fees 16,876 Audit fees 9,415 Legal fees 4,441 Director's fees -- Note B 253 Other 3,201 ------------- Total Expenses 76,246 ------------- Net Investment Income 19,264 ------------- REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS -- NOTE C Net realized gain on investments 218,038 Net change in unrealized appreciation of investments 1,479,357 ------------- Net Realized and Unrealized Gain on Investments 1,697,395 ------------- NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,716,659 ============= + Commencement of operations. See notes to financial statements. -------------------------------------------------------------------------------- 70 -------------------------------------------------------------------------------- Statement of Changes in Net Assets
Period from February 3, 2003+ to June 30, 2003 (Unaudited) ----------------- INCREASE/(DECREASE) IN NET ASSETS From Operations: Net investment income $ 19,264 Net realized gain on investments 218,038 Net change in unrealized appreciation of investments 1,479,357 ------------ Net Increase in Net Assets from Operations 1,716,659 ------------ Dividends to Shareholders from: Net investment income (13,488) ------------ From Capital Share Transactions: Net increase in net assets from capital share transactions -- Note G 11,222,212 ------------ Net Increase in Net Assets 12,925,383 NET ASSETS: Beginning of period -- ------------ End of period * $ 12,925,383 ============ + Commencement of operations * Includes undistributed net investment income of: $ 5,776
See notes to financial statements. -------------------------------------------------------------------------------- 71 -------------------------------------------------------------------------------- The Guardian UBS VC Small Cap Value Fund ---------------------------------------- Financial Highlights Selected data for a share of capital stock outstanding throughout the period indicated: Period From February 3, 2003+ to June 30, 2003 (Unaudited) -------------------------------------------------------------------------------- Net asset value, beginning of period ................................. $ 10.00 ---------- Income from investment operations: Net investment income ............................... 0.02 Net realized and unrealized gain on investments .................................... 1.47 ---------- Net increase from investment operations ........................................ 1.49 ---------- Dividends to Shareholders from: Net investment income ............................... (0.01) ---------- Net asset value, end of period ......................... $ 11.48 ---------- Total return* .......................................... 14.92%(a) ---------- Ratios/supplemental data: Net assets, end of period (000's omitted) ................................... $ 12,925 Ratio of expenses to average net assets ................................ 1.81%(b) Ratio of net investment income to average net assets ...................... 0.46%(b) Portfolio turnover rate ............................. 32% + Commencement of operations. * Total return does not reflect the effects of charges deducted pursuant to the terms of GIAC's variable contracts. Inclusion of such charges would reduce the total return for the period shown. (a) Not annualized. (b) Annualized. See notes to financial statements. -------------------------------------------------------------------------------- 72 -------------------------------------------------------------------------------- The Guardian Variable Contract Funds, The Guardian Bond Fund, The Guardian Cash Fund ------------------------------------------------ Combined Notes to Financial Statements June 30, 2003 (Unaudited) -------------------------------------------------------------------------------- Note A -- Organization and Accounting Policies -------------------------------------------------------------------------------- The Guardian Variable Contract Funds, Inc. (GVCF) was organized in March 1983 and was formerly known as "The Guardian Stock Fund, Inc." Shares are offered in six series: The Guardian Stock Fund (GSF), The Guardian VC 500 Index Fund (GVC500IF), The Guardian VC Asset Allocation Fund (GVCAAF), The Guardian VC High Yield Bond Fund (GVCHYBF), The Guardian UBS VC Large Cap Value Fund (GLCVF) and The Guardian UBS VC Small Cap Value Fund (GSCVF). GVCF has added a new series, effective July 30, 2003: The Guardian VC Low Duration Bond Fund (GLDBF). GLDBF had not commenced operations as of June 30, 2003. On February 3, 2003 GLCVF and GSCVF commenced operations. GLCVF and GSCVF sold 937,500 and 437,500 shares to The Guardian Life Insurance Company of America (Guardian Life) for $9,375,000 and $4,375,000, respectively. GVCF, The Guardian Bond Fund, Inc. (GBF) and The Guardian Cash Fund, Inc. (GCF) 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). Each series of GVCF and GBF and GCF are referred to collectively as the "Funds" and individually as a "Fund." GSF offers two classes of shares: Class I and Class II. The Class I shares of GSF, and shares of GVC500IF, GVCAAF, GVCHYBF, GLCVF, GSCVF, 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 Guardian Life. GSF's Class II shares are available only through the ownership of annuity and insurance products offered by other insurance companies. The two classes of shares for GSF represent interests in the same portfolio of investments, have the same rights and are generally identical in all respects except that each class bears certain class expenses, and has exclusive voting rights with respect to any matter to which a separate vote of any class is required. As of June 30, 2003, no Class II shares have been issued. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) 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 at the last sales price on these exchanges, or if no sale occurred, at the mean of the bid and asked prices. Securities traded on the NASDAQ National Securities Market are valued at the NASDAQ Official Closing Price. Securities traded in the over-the-counter market are valued using the last sale price, when available. Otherwise, over-the-counter securities are valued at the mean between the bid and asked prices or yield equivalents as obtained from one or more dealers that make a market in the securities. In GVCAAF, investments in the underlying Funds are valued at the closing net asset value of each underlying Fund on the day of valuation. 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. Other securities, including securities for which market quotations are not readily available (such as certain mortgage-backed securities and restricted securities) are valued at fair value as determined in good faith by or under the direction of the Funds' Board of Directors. -------------------------------------------------------------------------------- 90 -------------------------------------------------------------------------------- Combined Notes to Financial Statements June 30, 2003 (Unaudited) (Continued) Repurchase agreements are carried at cost which approximates market value (see Note D). Short-term securities held by the Funds are valued on an amortized cost basis which approximates market value but does not take into account unrealized gains and losses. GCF values its investments based on amortized cost in accordance with Rule 2a-7 under the 1940 Act. Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily. Dividend income is recorded on the ex-dividend date. Foreign Currency Translation GSF, GVC500IF, GVCHYBF, GLCVF and GSCVF are permitted to buy international securities that are not U.S. dollar denominated. Their books and records are maintained in U.S. dollars as follows: (1) The foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated into U.S. dollars at the current rate of exchange. (2) Security purchases and 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 pays foreign withholding taxes or other expenses and the date on which U.S. dollar equivalent amounts are actually received or paid, are included in net realized gains or losses on foreign currency related transactions. Realized foreign exchange gains and losses which result from changes in foreign exchange rates between the trade and settlement dates on security and currency transactions are also included in net realized gains and losses on foreign currency related transactions. Net currency gains or losses from valuing other assets and liabilities denominated in foreign currency at the period end exchange rate are reflected in net change in unrealized appreciation or depreciation from translation of other assets and liabilities denominated in foreign currencies. Forward Foreign Currency Contracts GSF, GVC500IF, GVCHYBF, GLCVF and GSCVF 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 its investments that are denominated in a particular currency. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. 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. Fluctuations in the value of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by the Fund. When forward contracts are closed, the Fund will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. The Funds will not enter into a forward foreign currency contract if such contract would obligate the applicable Fund to deliver an amount of foreign currency in excess of the value of the Funds' portfolio securities or other assets denominated in that currency. Futures Contracts GSF, GVC500IF, GVCAAF, GVCHYBF, GLCVF and GSCVF may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, the Funds are required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Funds each day, -------------------------------------------------------------------------------- 91 -------------------------------------------------------------------------------- The Guardian Variable Contract Funds, The Guardian Bond Fund, The Guardian Cash Fund ------------------------------------------------ Combined Notes to Financial Statements June 30, 2003 (Unaudited) (Continued) depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by the Funds. The daily changes in the variation margin are recognized as unrealized gains or losses by the Funds. The Funds' investments in financial futures contracts are designed to hedge against anticipated future changes in interest or exchange rates or securities prices. In addition, the Funds may enter into financial futures contracts for non-hedging purposes. Should interest or exchange rates or securities prices or prices of futures contracts move unexpectedly, the Funds may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. Dividend Distributions Dividends from net investment income are declared and paid semi-annually for GSF, GVC500IF, GVCAAF, GVCHYBF, GBF, GLCVF and GSCVF. Net realized short-term and long-term capital gains for these Funds will be distributed at least annually. Most of the dividends or distributions are credited in the form of additional shares of the applicable Fund at such Fund's net asset value on the ex-dividend date. GCF earns interest on its investments and declares 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 declared as a dividend on the next business day. All dividends and distributions are credited in the form of additional shares of GCF at GCF's net asset value on the payable date. All dividends and distributions are recorded 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 GAAP may cause temporary overdistributions of net realized gains and net investment income. Taxes Each Fund has qualified and intends to remain qualified to be taxed as a "regulated investment company" under the provisions of the U.S. Internal Revenue Code (Code), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required. Reclassification of Capital Accounts The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations, or net asset value per share of the Fund. -------------------------------------------------------------------------------- Note B -- Investment Advisory Agreements and Payments to or from Related Parties -------------------------------------------------------------------------------- Guardian Investor Services LLC (GIS), a wholly-owned subsidiary of GIAC, provides investment advisory services to each of the Funds. GSF, GVCAAF, GBF and GCF pay investment advisory fees at an annual rate of .50% of the average daily net assets of each Fund. GVC500IF and GVCHYBF pay investment advisory fees at an annual rate of .25% and .60%, respectively, of their average daily net assets. GIS voluntarily assumes a portion of the ordinary operating expenses (excluding interest expense associated with securities lending) that exceeds .28% of the average daily net assets of -------------------------------------------------------------------------------- 92 -------------------------------------------------------------------------------- Combined Notes to Financial Statements June 30, 2003 (Unaudited) (Continued) GVC500IF. GIS subsidized .15% of the ordinary operating expenses of GVC500IF or $95,917 for the six months ended June 30, 2003. There are no duplicative advisory fees charged to GVCAAF on assets invested in other Guardian Funds. Under an SEC exemptive order, advisory fees are paid at the underlying Fund level. GLCVF pays investment advisory fees to GIS at an annual rate of .83% of its average daily net assets. GSCVF pays investment advisory fees to GIS at an annual rate of 1.00% of its average daily net assets for the first $50 million and an annual rate of .95% of its average daily net assets in excess of $50 million. GIS has entered into a sub-investment advisory agreement with UBS Global Asset Management (Americas), Inc. (UBS Global AM). UBS Global AM is responsible for the day-to-day management of GLCVF and GSCVF. GIS continually monitors and evaluates the performance of UBS Global AM. As compensation for its services, GIS pays UBS Global AM at an annual rate of .43% of GLCVF's average daily net assets and at an annual rate of .60% for the first $50 million and at an annual rate of .55% in excess of $50 million of GSCVF's average daily net assets. Payment of sub-investment advisory fees does not represent a separate or additional expense to GLCVF and GSCVF. The Guardian Fund Complex pays directors who are not "interested persons" (as defined in the 1940 Act) fees consisting of a $5,000 per meeting and an annual retainer of $30,500, allocated among all funds in the Guardian Fund Complex based on relative average daily net assets. Board committee members also receive a fee of $2,000 per committee meeting, which also is allocated among all funds in the Guardian Fund Complex based on relative average daily net assets. GIS pays compensation to certain directors who are interested persons. Certain officers and directors of the Funds are affiliated with GIS. -------------------------------------------------------------------------------- Note C -- Investment Transactions -------------------------------------------------------------------------------- Purchases and proceeds from sales of securities (excluding short-term securities) for the six months ended June 30, 2003 were as follows: GSF GVC500IF --- -------- Purchases ....................... $457,953,911 $ 8,230,042 Proceeds ........................ $531,013,626 $12,613,136 GVCAAF GVCHYBF ------ ------- Purchases ....................... $ 2,000,000 $43,362,677 Proceeds ........................ $ -- $30,115,912 GLCVF GSCVF ----- ----- Purchases ....................... $ 52,641,231 $13,627,585 Proceeds ........................ $ 2,720,783 $ 3,036,199 GBF --- Purchases ....................... $506,693,980 Proceeds ........................ $463,486,804 -------------------------------------------------------------------------------- 93 -------------------------------------------------------------------------------- The Guardian Variable Contract Funds, The Guardian Bond Fund, The Guardian Cash Fund ------------------------------------------------ Combined Notes to Financial Statements June 30, 2003 (Unaudited) (Continued) The cost of investments owned at June 30, 2003 for federal income tax purposes was substantially the same as the cost for financial reporting purposes for the Funds. The gross unrealized appreciation and depreciation of investments excluding foreign currency and futures at June 30, 2003 were as follows:
GSF GVC500IF --- -------- Appreciation $ 99,861,132 $ 13,533,521 Depreciation (66,754,587) (24,838,679) ------------- ------------ Net Unrealized Appreciation/(Depreciation) $ 33,106,545 $(11,305,158) ============= ============ GVCAAF GVCHYBF ------ ------- Appreciation $ 521,718 $ 2,890,702 Depreciation (6,492,456) (505,132) ------------- ------------ Net Unrealized Appreciation/(Depreciation) $ (5,970,738) $ 2,385,570 ============= ============ GLCVF GSCVF ----- ----- Appreciation $ 7,767,349 $ 1,548,379 Depreciation (385,848) (69,022) ------------- ------------ Net Unrealized Appreciation $ 7,381,501 $ 1,479,357 ============= ============ GBF --- Appreciation $ 18,394,469 Depreciation (213,402) ------------- Net Unrealized Appreciation $ 18,181,067 =============
-------------------------------------------------------------------------------- Note D -- Repurchase Agreements -------------------------------------------------------------------------------- The collateral for repurchase agreements is 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 collateral falls below the value of the repurchase price plus accrued interest, the applicable Fund will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the applicable Fund maintains the right to sell the collateral and may claim any resulting loss against the seller. -------------------------------------------------------------------------------- Note E -- Reverse Repurchase Agreements -------------------------------------------------------------------------------- GVCAAF, GVCHYBF and GBF may enter into reverse repurchase agreements with banks or third-party broker-dealers to borrow short-term funds. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time GVCAAF, GVCHYBF and GBF enter into a reverse repurchase agreement, the Funds establish and segregate cash, U.S. government securities or liquid, unencumbered securities that are marked-to-market daily. The value of such segregated assets must be at least equal to the value of the repurchase -------------------------------------------------------------------------------- 94 -------------------------------------------------------------------------------- Combined Notes to Financial Statements June 30, 2003 (Unaudited) (Continued) obligation (principal plus accrued interest), as applicable. Reverse repurchase agreements involve the risk that the buyer of the securities sold by GVCAAF, GVCHYBF and GBF may be unable to deliver the securities when the Funds seek to repurchase them. -------------------------------------------------------------------------------- Note F -- Dollar Roll Transactions -------------------------------------------------------------------------------- GVCAAF, GVCHYBF and 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 they hold with an agreement by the Fund to repurchase similar securities at an agreed upon price and date. The securities repurchased will bear the same interest as those sold, but generally will be collateralized at time of delivery by different pools of mortgages with different prepayment histories than those securities sold. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. Dollar roll transactions involve the risk that the buyer of the securities sold by GVCAAF, GVCHYBF and GBF may be unable to deliver the securities when the Funds seek to repurchase them. -------------------------------------------------------------------------------- Note G -- Transactions in Capital Stock -------------------------------------------------------------------------------- There are 1,000,000,000 shares of $0.001 par value capital stock authorized for GVCF divided into two classes, designated Class I and Class II shares. GSF Class I consists of 300,000,000 shares; GVC500IF Class I consists of 200,000,000 shares; GVCAAF Class I, GVCHYBF Class I, GLCVF Class I and GSCVF Class I each consist of 100,000,000 shares; and GSF Class II consists of 100,000,000 shares. There are 100,000,000 shares of $0.10 par value capital stock authorized for each of GBF and GCF. Through June 30, 2003, no Class II shares of GSF were issued. Transactions in capital stock were as follows:
Six Months Ended Year Ended Six Months Ended Year Ended June 30, December 31, June 30, December 31, 2003 2002 2003 2002 (Unaudited) (Audited) (Unaudited) (Audited) ------------------------------------------------------------------------------------------------------------------------------- Shares Amount ------------------------------------------------------------------------------------------------------------------------------- o The Guardian Stock Fund Shares sold 1,222,250 4,673,210 $ 28,525,032 $ 113,023,863 Shares issued in reinvestment of dividends 572,232 544,573 14,282,918 14,289,601 Shares repurchased (6,060,127) (16,305,105) (138,071,111) (405,121,253) ------------------------------------------------------------------------------------------------------------------------------- Net decrease (4,265,645) (11,087,322) $ (95,263,161) $(277,807,789) ------------------------------------------------------------------------------------------------------------------------------- o The Guardian VC 500 Index Fund Shares sold 2,702,892 4,629,458 $ 18,379,373 $ 33,546,602 Shares issued in reinvestment of dividends 108,205 466,126 788,813 3,272,431 Shares repurchased (3,446,795) (28,535,396) (24,357,517) (180,704,229) ------------------------------------------------------------------------------------------------------------------------------- Net decrease (635,698) (23,439,812) $ (5,189,331) $(143,885,196) -------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 95 -------------------------------------------------------------------------------- The Guardian Variable Contract Funds, The Guardian Bond Fund, The Guardian Cash Fund ------------------------------------------------ Combined Notes to Financial Statements June 30, 2003 (Unaudited) (Continued)
Six Months Ended Year Ended Six Months Ended Year Ended June 30, December 31, June 30, December 31, 2003 2002 2003 2002 (Unaudited) (Audited) (Unaudited) (Audited) ------------------------------------------------------------------------------------------------------------------------------- Shares Amount ------------------------------------------------------------------------------------------------------------------------------- o The Guardian VC Asset Allocation Fund Shares sold 372,369 483,905 $ 2,652,998 $ 3,738,324 Shares issued in reinvestment of dividends 93,148 97,846 705,132 763,200 Shares repurchased (392,737) (676,754) (2,705,566) (4,922,230) ------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) 72,780 (95,003) $ 652,564 $ (420,706) ------------------------------------------------------------------------------------------------------------------------------- o The Guardian VC High Yield Bond Fund Shares sold 3,709,950 1,545,453 $ 30,173,785 $12,303,195 Shares issued in reinvestment of dividends 152,197 336,975 1,261,710 2,608,239 Shares repurchased (2,381,410) (1,157,087) (19,412,717) (9,179,869) ------------------------------------------------------------------------------------------------------------------------------- Net increase 1,480,737 725,341 $ 12,022,778 $ 5,731,565 ------------------------------------------------------------------------------------------------------------------------------- Period from Period from February 3, 2003+ February 3, 2003+ to June 30, 2003 to June 30, 2003 (Unaudited) (Unaudited) ------------------------------------------------------------------------------------------------------------------------------- Shares Amount ------------------------------------------------------------------------------------------------------------------------------- o The Guardian UBS VC Large Cap Value Fund Shares sold 5,189,549 $ 51,325,578 Shares issued in reinvestment of dividends 22,576 260,531 Shares repurchased (25,094) (283,305) ------------------------------------------------------------------------------------------------------------------------------- Net increase 5,187,031 $ 51,302,804 ------------------------------------------------------------------------------------------------------------------------------- o The Guardian UBS VC Small Cap Value Fund Shares sold 1,166,858 $ 11,690,347 Shares issued in reinvestment of dividends 1,169 13,488 Shares repurchased (42,558) (481,623) ------------------------------------------------------------------------------------------------------------------------------- Net increase 1,125,469 $ 11,222,212 -------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations. -------------------------------------------------------------------------------- 96 -------------------------------------------------------------------------------- Combined Notes to Financial Statements June 30, 2003 (Unaudited) (Continued)
Six Months Ended Year Ended Six Months Ended Year Ended June 30, December 31, June 30, December 31, 2003 2002 2003 2002 (Unaudited) (Audited) (Unaudited) (Audited) ------------------------------------------------------------------------------------------------------------------------------- Shares Amount ------------------------------------------------------------------------------------------------------------------------------- o The Guardian Bond Fund Shares sold 3,383,750 8,874,148 $ 43,052,747 $ 109,477,341 Shares issued in reinvestment of dividends and distributions 582,418 1,512,712 7,519,017 18,657,670 Shares repurchased (3,640,973) (5,493,407) (46,671,264) (67,753,956) ------------------------------------------------------------------------------------------------------------------------------- Net increase 325,195 4,893,453 $ 3,900,500 $ 60,381,055 ------------------------------------------------------------------------------------------------------------------------------- o The Guardian Cash Fund Shares sold 23,050,841 66,681,009 $ 230,508,416 $ 666,810,091 Shares issued in reinvestment of dividends 185,663 605,287 1,856,627 6,052,868 Shares repurchased (28,421,721) (69,537,300) (284,217,207) (695,373,004) ------------------------------------------------------------------------------------------------------------------------------- Net decrease (5,185,217) (2,251,004) $ (51,852,164) $ (22,510,045) -------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Note H -- Line of Credit -------------------------------------------------------------------------------- A $100,000,000 line of credit available to all of the Funds and other related Guardian Funds has been established with State Street Bank and Trust Company and Bank of Montreal. The rate of interest charged on any borrowing is based upon the prevailing Federal Funds rate at the time of the loan plus .50% calculated on a 360 day basis per annum. For the six months ended June 30, 2003, none of the Funds borrowed against this line of credit. The Funds are obligated to pay State Street Bank and Trust Company and Bank of Montreal a commitment fee computed at a rate of .08% per annum on the average daily unused portion of the revolving credit. -------------------------------------------------------------------------------- Note I -- Investments in Affiliates1 -------------------------------------------------------------------------------- A summary of GVCAAF transactions in affiliated security during the six months ended June 30, 2003 is set forth below:
Balance of Gross Balance of Dividends Shares Purchases Gross Shares Value Included in Net Realized December 31, and Sales and June 30, June 30, Dividend Gain/(Loss) Name of Issuer 2002 Additions Reductions 2003 2003 Income on Sales ---------------------------------------------------------------------------------------------------------------------------------- The Guardian VC 500 Index Fund 3,100,828 280,112 -- 3,380,940 $24,139,912 $154,421 $ --
(1) Affiliated issuers, as defined in the 1940 Act, include issuers in which the Fund held 5% or more of the outstanding voting securities. -------------------------------------------------------------------------------- 97 ITEM 2. CODE OF ETHICS. Not required at this time. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT Not required at this time. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not required at this time. ITEM 5-6 [RESERVED] Not required at this time. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) The registrant's certifying officers have evaluated the registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The registrant's certifying officers are aware of no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. (a)(1) Not required at this time. (a)(2) Separate certifications by the registrant's certifying officers, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached. (b) A certification by the registrant's certifying officers, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Guardian Variable Contract Funds, Inc. By: /s/ THOMAS G. SORELL ------------------------------------------ Thomas G. Sorell President of The Guardian Variable Contract Funds, Inc. Date: September 4, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ THOMAS G. SORELL ------------------------------------------ Thomas G. Sorell President of The Guardian Variable Contract Funds, Inc. Date: September 4, 2003 By: /s/ FRANK L. PEPE ------------------------------------------ Frank L. Pepe Vice President and Treasurer of The Guardian Variable Contract Funds, Inc. Date: September 4, 2003