- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
- -----------------
[GRAPHICAL REPRESENTATION OF GUARDIAN LIFE BUILDING]
WHERE WE'VE BEEN AND WHAT TO DO
[PHOTO]
THE 1996 U.S. ECONOMY AND MARKETS
The year ended December 31, 1996 was again very strong for U.S. stocks and
mediocre for bonds, while the underlying economy was quite volatile on a
quarterly basis, but moderate on an annual basis. The most commonly used phrases
to describe the 1996 economy were "soft landing" and "goldilocks economy," the
latter meaning "not too hot, not too cold." The real Gross Domestic Product
(GDP) growth for 1996 was 2.5%. The increase in the core Consumer Price Index
(excluding food and energy) of 2.6% as of year-end 1996 was the lowest since
1965, despite the lowest unemployment rate since 1989 of 5.3%. One could
conclude then that the soft landing had been achieved, and the Fed changed
policy only once during the year, a 25 basis point tightening of the Federal
Funds Rate on January 31, 1996.
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Overall during 1996, the bond market, as measured by the Lehman Aggregate
Bond Index, returned only 3.63%,(1) thus earning only approximately half its
coupon. The loss of principal was reflected by the fact that the 30-year
Treasury bond began in 1996 with a yield of 5.95% and ended the year at 6.64%,
an increase of 69 basis points.
Although the common stock market during 1996 was quite strong, returning
22.82% as measured by the S&P 500 Index,(2) it did not match the returns of
1995. This continued strength was due to extremely large and record cash inflows
into stock mutual funds (as addressed below) and reasonably strong corporate
profits, which offset the effect of the increase in yields. Within the stock
market, large capitalization stocks significantly outperformed small cap stocks
- -- the DJIA returned 28.90%, with the S&P 500 returning 22.82%, and the Russell
2000 returning 16.49%.(2) This difference was interpreted as the result of a
defensive strategy by investors who were reacting to a "rich" stock market by
investing in relatively "safer" and more liquid high-cap stocks rather than
"riskier" and less liquid small-cap stocks.
Mutual Fund Cash
Inflows (in billions)
Bond and
Year Equity Funds Income Funds Total
- -----------------------------------------------
1991 $ 38.40 $ 67.20 $105.60
1992 77.90 93.90 117.80
1993 129.55 113.73 243.28
1994 119.28 -43.47 75.78
1995 128.89 -4.11 124.79
1996 223Est. 13.9Est. 237Est.
1996 MUTUAL FUNDS
A major story in the mutual fund and the stock market worlds during 1996
was the large cash inflows into mutual funds in general, and stock mutual funds
in particular. The cash inflows into stock funds during 1996 was $223 billion,
obliterating the previous record during 1993 of $129.55 billion. But concluding
that the significant increase of cash inflows into equity mutual funds reflected
an increase into total mutual funds would, however, be erroneous, as indicated
by the table.
Certainly 1996's total mutual fund cash inflows were significantly larger
than during 1995 and 1994. But 1996's level was slightly below the 1993 record
cash inflow into mutual funds of $243.3 billion. The much more significant
change over the last four years has been the reallocation of mutual fund cash
inflows from bond and income funds to equity funds.
WHAT TO DO IN THE CURRENT MARKET
Portfolio management, for an individual or a professional, is a matter of
balancing return and safety (that is, the absence of risk), not only for
individual securities and asset classes (such as U.S. stocks), but also for the
portfolio as a whole. In general, if the average return of a security or asset
class is higher, its risk (that is, the variation in its return around the
long-term average return) is also higher. For example, stocks over the long term
have a higher average return than bonds, but stock returns are also more
volatile. Cash has an even lower average return and as well as lower risk than
bonds. However, stocks and bonds also have different return profiles over time.
And the return profiles of other asset classes, such as international stocks,
are even less similar.
Managing the risk of an overall investor portfolio has two components.
First, include some less risky assets, such as cash and bonds, in the portfolio.
But including a large portion of low-risk assets in a portfolio would be an
expensive way to reduce portfolio risk because these assets also have lower
portfolio returns. Second, include asset classes with different return profiles
in the portfolio. This is called portfolio diversification. In this regard, in
his recent book on investment risk, Against the Gods, Peter Bernstein explains
"why diversification is the nearest an investor can ever come to a free lunch."
The practical import of diversification is based on a very simple
principle. A bear market does not hurt unless you sell into it, either by choice
(as an investment decision) or by necessity (because the funds are needed for
other purposes).
Following conventional wisdom, if there is a bear market in one asset
class in your portfolio and you need funds, either sell the low-risk asset which
has a stable price or sell a higher-risk asset whose price has not declined at
that time. Try to avoid being in a position where you are forced to sell the
asset class which has
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temporarily declined in price. Risk management, including diversification, takes
care of not having to sell an asset when its price is low. That leaves only
choosing to sell an asset when its price is low as an investment decision.
DIVERSIFY AND HOLD
The final issue I wish to address is whether, due to the significant cash
inflows into equity mutual funds during the last three to four years, individual
portfolios have become unbalanced with respect to common stock exposure. Thus,
as a result of this lack of diversification, investors may be vulnerable to
stock market declines and will be forced or inclined to sell significant amounts
of common stock in response to an initial decline in the stock market. I think
not.
While there have been significant cash inflows into common stock mutual
funds relative to bond funds in the last three years, investors' exposure to
common stock is not necessarily currently extreme for at least two reasons.
First, during the last three years, as shown in data from the Federal Reserve
System, households have been liquidating common stock in significant amounts
while they have been buying common stock mutual funds. This shift from
personally managing their stock portfolio to having their stock portfolios
professionally managed seems prudent. Investors may wish to trade individual
stocks as a hobby around their core, professionally managed, stock holdings. But
they should realize that their hobby may cost them money, as most hobbies do.
The net offset of these two changes in common stock holdings is positive, but
not nearly as extreme as would be thought by focusing just on the cash inflows
in the common stock mutual funds would suggest.
Second, one would have to consider the composition of the household
portfolios at the beginning of this period to conclude that the position at the
end of the period was extreme. In this regard, the significant increase in the
participation of households into the common stock market did not begin until the
1990s. Prior to this, investors had smaller stock positions because stock
returns had not been very attractive.
However, the current bull market in stocks began in 1982, with major
setbacks only in 1987 and 1990. It is this fairly sustained rally that has
induced households to increase their common stock holdings. Thus, investors'
recent significant additions to their common stock portfolios have most likely
been the redressing of the previous disequilibrium of underweighting in common
stocks in response to the significant performance of the common stock market
over the last 15 years.
CONCLUSION
Will the stock market rally continue without significant setbacks? It is
unlikely that the approximate 60% return of 1995 and 1996 will be duplicated in
1997 and 1998. Will there be significant corrections? Perhaps and even very
likely. Will these corrections harm investors? Only if they are forced or choose
to sell into them. Can consumers or anyone else forecast these corrections?
Unlikely. The correct strategy is to diversify the portfolio, not only across
U.S. stocks, U.S. bonds and cash, but also foreign stocks and bonds, from both
developed and developing countries. Diversify and hold is the correct
prescription for the future.
Regards,
/s/ Frank J. Jones
Frank J. Jones, Ph.D.
President, The Park Avenue Portfolio
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(1) 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.
(2) The Dow Jones Industrial Average (DJIA) is an unmanaged average of 30
industrial stocks listed on the New York Stock Exchange that is generally
considered to be representative of U.S. stock market performance. The S&P
500 Index is an unmanaged index of 500 large-cap U.S. stocks that is
generally considered to be representative of U.S. stock market activity.
The Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The indices are not
available for direct investment.
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<PAGE>
THE PARK AVENUE PORTFOLIO
Table of Contents
PORTFOLIO SCHEDULE
MANAGER OF
INTERVIEW INVESTMENTS
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THE GUARDIAN PARK AVENUE FUND 2 15
- ------------------------------------------------ ---- ----
OBJECTIVE: Long-term growth of capital "WE BELIEVE THAT SOUNDLY-BASED
- ------------------------------------------------ QUANTITATIVE MODELS PROVIDE A
PORTFOLIO: At least 80% common stocks and VALUABLE TOOL TO THE EQUITY
securities convertible into PORTFOLIO MANAGER. AT THE SAME
common stocks TIME, FAST-BREAKING NEWS AND
- ------------------------------------------------ UNUSUAL INVESTMENT ISSUES
INCEPTION: June 1, 1972 REQUIRE THE BALANCED JUDGMENT
- ------------------------------------------------ OF A CAPABLE PORTFOLIO
NET ASSETS AT DECEMBER 31, 1996: $1,428,191,372 MANAGER. WE BELIEVE THE BEST
- ------------------------------------------------ PATH TO CONSISTENT RETURNS, IN
EXCESS OF THE INDEXES,
REQUIRES THE SYNERGISTIC
RESULTS OF COMBINING GOOD
QUANTITATIVE TOOLS WITH GOOD
MANAGER JUDGMENT."
-- Charles E. Albers, C.F.A.
Portfolio Manager
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THE GUARDIAN ASSET ALLOCATION FUND 6 19
- ------------------------------------------------ ---- ----
OBJECTIVE: Long-term total investment return "EARNINGS GROWTH EXPECTATIONS
consistent with moderate risk FROM WALL STREET STOCK
- ------------------------------------------------ ANALYSTS HAVE INCREASED,
PORTFOLIO: A mixture of: common stocks and MAINTAINING THE RELATIVE
convertible securities; investment APPEAL OF STOCKS.
grade debt obligations and U.S. INTERESTINGLY, THIS DOES
government securities; and money REPRESENT A DIVERGENCE FROM
market instruments THE DECLINING PROFIT
- ------------------------------------------------ EXPECTATIONS OF ECONOMISTS,
INCEPTION: February 16, 1993 AND WE WILL BE MONITORING THIS
- ------------------------------------------------ DIFFERENCE OF OPINION AS WELL
NET ASSETS AT DECEMBER 31, 1996: $93,265,888 AS THE INCREASING DIVERGENCE
- ------------------------------------------------ BETWEEN STOCKS AND BONDS VERY
CAREFULLY AS THE YEAR
UNFOLDS."
-- Jonathan C. Jankus, C.F.A.
Portfolio Manager
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THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND 8 21
- ------------------------------------------------ ---- ----
OBJECTIVE: Long-term growth of capital "GUARDIAN BAILLIE GIFFORD
- ------------------------------------------------ LIMITED CONTINUED TO EMPLOY
PORTFOLIO: At least 80% in a diversified ITS STRATEGY OF MANAGING A
portfolio of common stocks of DIVERSIFIED PORTFOLIO OF
companies domiciled outside of the INTERNATIONAL EQUITIES, PAYING
United States PARTICULAR ATTENTION TO THE
- ------------------------------------------------ FUNDAMENTAL ATTRACTIONS OF
INCEPTION: February 16, 1993 INDIVIDUAL COMPANIES IN TERMS
- ------------------------------------------------ OF THEIR PROFITABILITY,
NET ASSETS AT DECEMBER 31, 1996: $60,905,969 STRENGTH OF BALANCE SHEET, AND
- ------------------------------------------------ EARNINGS GROWTH PROSPECTS."
-- R. Robin Menzies
Portfolio Manager
<PAGE>
PORTFOLIO SCHEDULE
MANAGER OF
INTERVIEW INVESTMENTS
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THE GUARDIAN INVESTMENT QUALITY BOND FUND 10 26
- ------------------------------------------------ ---- ----
OBJECTIVE: A high level of current income and "NEW SECTORS IN WHICH WE HAVE
capital appreciation with undue CONCENTRATED OUR RESEARCH
risk EFFORTS IN THE FOURTH QUARTER
- ------------------------------------------------ ARE INSURANCE-ENHANCED
PORTFOLIO: At least 80% investment-grade bonds ASSET-BACKED SECURITIES AS
and U.S. government securities WELL AS "AA" AND "A" RATED
- ------------------------------------------------ ASSET-BACKED SECURITIES AND
INCEPTION: February 16, 1993 COMMERCIAL MORTGAGE-BACKED
- ------------------------------------------------ SECURITIES. THROUGH THE
NET ASSETS AT DECEMBER 31, 1996: $50,793,921 SELECTIVE PURCHASE OF
- ------------------------------------------------ CORPORATE CREDITS AND NEW BOND
SECTORS, WE BELIEVE THAT THE
FUND CAN ADD INCREMENTAL YIELD
AND TOTAL RETURN IN 1997."
-- Michele S. Babakian
Portfolio Manager
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THE GUARDIAN TAX-EXEMPT 12 28
- ------------------------------------------------ ---- ----
OBJECTIVE: Maximum current income exempt from "PART OF THE FUND'S STRATEGY
federal taxes IS TO PURCHASE BONDS WITH GOOD
- ------------------------------------------------ CURRENT INCOME, MEANING HIGH
PORTFOLIO: At least 80% investment-grade COUPONS THAT ARE ABOVE CURRENT
obligations issued by state and MARKET COUPONS."
local authorities
- ------------------------------------------------ -- Alexander M. Grant, Jr.
INCEPTION: February 16, 1993 Portfolio Manager
- ------------------------------------------------
NET ASSETS AT DECEMBER 31, 1996: $39,185,188
- ------------------------------------------------
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THE GUARDIAN CASH MANAGEMENT FUND 14 30
- ------------------------------------------------ ---- ----
OBJECTIVE: As high a level of current income "THE GUARDIAN CASH MANAGEMENT
as is consistent with liquidity and FUND IS A PLACE FOR OUR
preservation of capital INVESTORS TO PUT THEIR MONEY
- ------------------------------------------------ WHILE THEY DECIDE THEIR
PORTFOLIO: Short-term money market PREFERRED LONG-TERM INVESTMENT
instruments VEHICLE, BE IT STOCKS, BONDS
- ------------------------------------------------ OR TAX-EXEMPTS. ALSO, SOME OF
INCEPTION: November 3, 1982 OUR INVESTORS PREFER THE
- ------------------------------------------------ RELATIVE STABILITY OF THE
NET ASSETS AT DECEMBER 31, 1996: $90,799,801 MONEY MARKETS. TO BEST
- ------------------------------------------------ ACCOMMODATE ALL OUR INVESTORS,
WE WILL CONTINUE TO TRY TO
PROVIDE A STRONG 7-DAY YIELD,
WHILE OFFERING SAFETY AND
LIQUIDITY."
-- Alexander M. Grant, Jr.
Portfolio Manager
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FINANCIAL STATEMENTS 30
- ------------------------------------------------ ----
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NOTES TO FINANCIAL STATEMENTS 40
- ------------------------------------------------ ----
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FINANCIAL HIGHLIGHTS 50
- ------------------------------------------------ ----
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THE GUARDIAN PARK AVENUE FUND
- -----------------------------
[PHOTO]
Q. 1996 WAS ANOTHER OUTSTANDING YEAR FOR THE FUND. WHAT IS YOUR ASSESSMENT OF
HOW THE FUND PERFORMED?
A. The Fund had excellent performance in 1996, both in absolute and relative
terms. In absolute terms, the Fund produced a total return to shareholders of
26.5%, after expenses.(1) For the second year in a row, following 34.3% in 1995,
the Fund was able to produce excellent absolute returns. The Fund's 1996 return
of 26.5% also represented a solid return on a relative basis, when comparing the
Fund's returns to the average return of 19.2% shown by all Lipper U.S. Growth
Funds during the same period.(2) The Fund's performance ranked it solidly in the
top decile within Lipper's growth fund category, ranking number 63 out of 669
U.S. equity growth funds. The Fund also bettered the S&P 500 Composite Index,(5)
which returned 22.8%.
Of course, from the shareholders' viewpoint, it's really the long-term
results that count the most. Here too, the Fund has done well, placing it in the
top 5% of Lipper Growth Funds over the last 5 years, ranking number 12 out of
255 for the 5-year period ended December 31, 1996. The Fund ranked number 22 out
of 163 similar funds for the 10-year period and number 8 out of 111 for the
15-year period ended December 31, 1996.
According to Lipper,(3) the Fund has ranked in the top 10 of all U.S.
Equity funds over the 15-year period through year-end 1996 and has also earned a
spot on Barron's Magazine's "list of winners".(4) Clearly, our investment
methods have withstood the test of time.
Q. WHAT FACTORS AFFECTED FUND PERFORMANCE IN 1996?
A. Two factors deserve special mention here. First, for the second year in a
row, large-cap stocks outperformed small-cap stocks, as can be seen in the
following table:
TOTAL RETURN %
--------------
1995 1996
---- ----
Large-Cap (S&P 500) +37.4% +22.8%
Small-Cap (Russell 2000)(6) +28.4% +16.5%
---- ----
Difference +9.0% +6.3%
Fortunately, we perceived early in 1995 that a shift to large-caps would
be advantageous, and we tilted the GPAF portfolio accordingly, as shown in the
chart below. That shift had a very positive impact on investment performance in
both 1995 and 1996.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
WEIGHTED AVERAGE MARKET CAPITALIZATION
($ BILLIONS)
S&P GPAF
--- ----
12/31/94 22.0 6.0
6/30/95 26.2 14.9
12/31/95 30.6 24.6
6/30/96 34.4 34.7
12/31/96 39.3 37.7
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(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return represents total return for Class A shares--returns for Class B
shares would be lower to reflect higher operating expenses associated with
the B share class. Total return figures do not take into account the
current maximum sales charges except where noted. Returns represent past
performance and are not a guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost. Prior to
August 25, 1988, shares of the Fund were offered at a higher sales charge,
so actual returns would have been somewhat lower.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service and its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
(3) Lipper rankings were reported in Lipper's Mutual Funds Performance
Analysis Special Report 4th Quarter 1996. Lipper rankings are based on
total return and do not take into account any deductions for sales loads.
(4) As reported in Barron's Magazine, dated January 6, 1997.
(5) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P Index is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund. Likewise, return figures for the S&P 500 Index do not reflect
any sales charges that an investor may have to pay when purchasing or
redeeming shares of the Fund.
(6) The Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The returns for the
Russell 2000 do not reflect expenses which are deducted from the Fund's
return.
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2
<PAGE>
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The other factor which had a significant impact on 1996 results was our
proprietary stock scoring system. This system has historically provided us solid
guidance in stock selection, and this record continued into 1996. The predictive
power of this quantitative tool during 1996 can be seen in the table below.
1996 PRICE PERFORMANCE (%)
--------------------------
STOCK SCORING SYSTEM S&P 500 NEXT 1500
RANKING UNIVERSE STOCKS
- -------------------- ------- ---------
Top Quintile 19.4% 23.7%
Universe Average 16.9% 15.2%
Bottom Quintile 9.5% 6.3%
This table shows that, within the S&P 500 stock universe, the stock
scoring system's top-ranked quintile (20%) of stocks appreciated 19.4%,
approximately 10% better than the S&P 500 stocks in the system's bottom-ranked
quintile. Moreover, in the "next 1500" universe of smaller stocks, the spread
between the top and bottom quintiles was much greater at 17.4%. Generally, we
find that the predictive power of our models is greater within our universe for
smaller cap stocks.
Q. WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND DURING 1996?
A. There was no change in our strategic approach to managing the portfolio
during 1996. We believe that soundly-based quantitative models provide a
valuable tool to the equity portfolio manager. At the same time, fast-breaking
news and unusual investment issues require the balanced judgment of a capable
portfolio manager. We believe the best path to consistent returns, in excess of
the indexes, requires the synergistic results of combining good quantitative
tools with good manager judgment.
Our quantitative tools look at the portfolio two different ways:
"top-down" and "bottom-up." The "top-down" approach involves a cluster of
different predictive models that we use to identify which portfolio style has
the most attractive performance prospects. The "bottom-up" approach uses our
proprietary stock scoring system to identify specific attractive stocks within
our 2000 stock research universe. We believe that both the "top-down" and
"bottom-up" perspectives are important, and the best results can be achieved by
combining them both within one portfolio.
Q. WHAT HAVE BEEN THE PORTFOLIO'S WEIGHTS IN DIFFERENT ECONOMIC SECTORS, AND HOW
HAVE THESE WEIGHTINGS AFFECTED PERFORMANCE?
A. The attached table shows the Fund's portfolio weightings for all of the major
economic sectors for the year ended December 31, 1996. As you can see, our three
largest positions were in Financial (25.6%), Consumer Staples (19.3%) and Energy
(18.1%). During 1996, the portfolio's relative weightings in the different
sectors contributed positively to the Fund's good relative performance.
Specifically, the Fund's two most overweighted sectors at 12/31/96, relative to
the S&P 500, were in Financials and Energy. The Fund overweighted the Financial
sector by 10.6% and the Energy sector by 8.4%. Both of these sectors
outperformed the market during the year.
Q. LOOKING AHEAD TO 1997, HOW WILL YOU BE MANAGING THE FUND?
A. We continue to believe that well-established, large-cap companies have the
better prospects in 1997. This view is supported both by our quantitative "style
predictor" models and also by our fundamental investment judgment. The current
business cycle expansion is in its mature stage and competitive business
pressures are intensifying in many industries and, thus, overall profit growth
is slowing. We expect this to continue in 1997. In such an environment, we
believe it is the high-quality large-cap companies that are in the best position
to sustain growth of sales and profits. And, the logic is perfectly clear: the
stock prices of those high-quality companies should do fairly well, following
the relatively good fundamental company profits.
As always, we will stay attuned to the changing investment environment.
Our goal is to produce superior results for our shareholders on a consistent
basis.
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3
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THE GUARDIAN PARK AVENUE FUND PROFILE
AS OF DECEMBER 31, 1996
- -------------------------------------
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL]
CASH & CASH EQUIVALENTS 4%
COMMON STOCK 96%
PORTFOLIO COMPOSITION
The Guardian Park Avenue Fund portfolio holds 302 securities in a variety
of economic sectors. The portfolio manager's goal is to position the portfolio
for consistent performance in both "bull" and "bear" markets.
- ------------------------------------------
GUARDIAN PARK AVENUE FUND --
TOP 10 HOLDINGS AS OF 12/31/96
1 General Electric 2.99%
- ------------------------------------------
2 Citicorp 2.53%
- ------------------------------------------
3 Exxon Corporation 2.23%
- ------------------------------------------
4 Intel Corporation 2.23%
- ------------------------------------------
5 Merck & Co. 2.22%
- ------------------------------------------
6 McDonnell Douglas 2.21%
- ------------------------------------------
7 Johnson & Johnson 2.11%
- ------------------------------------------
8 Philip Morris 2.11%
- ------------------------------------------
9 DuPont De Nemours 1.85%
- ------------------------------------------
10 Bristol Myers Squibb 1.63%
- ------------------------------------------
COMPARISON OF COMMON STOCKS HELD BY THE FUND ON DECEMBER 31, 1995 AND 1996
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL]
CONGLOMERATES - 1.5%
CONSUMER SERVICES - 2.4%
OTHER - 10.4%
CONSUMER CYCLICAL - 3.2%
TECHNOLOGY - 23.3%
FINANCIAL - 18.2%
CONSUMER STAPLES - 17.9%
CAPITAL GOODS - 3.3%
ENERGY - 12.4%
BASIC INDUSTRY - 7.4%
1995
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL]
CONGLOMERATES - 1.8%
CONSUMER SERVICES - 1.7%
OTHER - 3.2%
CONSUMER CYCLICAL - 3.4%
TECHNOLOGY - 16.9%
FINANCIAL - 25.6%
CONSUMER STAPLES - 19.3%
CAPITAL GOODS - 5.3%
ENERGY - 18.1%
BASIC INDUSTRY - 4.8%
1996
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4
<PAGE>
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GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHARTS]
The Guardian Park Avenue Fund $382,268
S&P 500 Index $171,365
Lipper U.S. Equity Growth
Fund Average $150,775
Cost of Living $ 38,331
A hypothetical $10,000 investment in Class A shares made at the inception of The
Guardian Park Avenue Fund on June 1, 1972 has a starting point of $9,550, which
reflects the current maximum sales charge for Class A shares of 4.5%. This
investment would have grown to $382,268 on December 31, 1996. We compare our
performance to that of the S&P 500 Index, which is an unmanaged index that is
generally considered the performance benchmark of the U.S. stock market. While
you may not invest directly in the S&P 500 Index, a similar hypothetical
investment would now be worth $171,365. The Fund also fared well relative to
other U.S. growth funds. The average return of U.S. equity growth funds reported
by Lipper Analytical Services, Inc. measures the performance of other funds with
investment objectives and policies similar to those of The Guardian Park Avenue
Fund. The average of U.S. growth funds on the same $10,000 investment over the
same time period would have been $150,775. The Cost of Living, as measured by
the Consumer Price Index, which is generally representative of the level of U.S.
inflation, is also provided to lend a more complete understanding of the
investment's real worth.
AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED 12/31/96
Since Inception
1 Year 5 Years 10 Years (6/1/72)
- --------------------------------------------------------------------------------
At Net Asset Value(2)
(without sales charge) 26.49% 19.39% 16.03% 16.07%
- --------------------------------------------------------------------------------
Class A Shares(3)
(with sales charge) 20.80% 18.30% 15.50% 15.86%
- --------------------------------------------------------------------------------
S&P 500 Index 22.82% 15.14% 15.15% 12.26%
- --------------------------------------------------------------------------------
PERFORMANCE FOR CLASS B SHARES, WHICH BECAME EFFECTIVE ON MAY 1, 1996, WILL VARY
DUE TO DIFFERENCES IN EXPENSES CHARGED TO EACH SHARE CLASS.
(1) Total return figures shown are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures do not take into account the current maximum sales charge
of 4.5%, except where indicated. Prior to August 25, 1988 shares of the
Fund were offered at a higher sales charge, so actual returns would have
been somewhat lower. Returns represent past performance and are not a
guarantee of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more
or less than the original cost.
(2) Net Asset Value (NAV) assumes the reinvestment of all dividends and
distributions and does not reflect the payment of sales charges.
(3) Class A share performance assumes the current maximum front-end sales
charge of 4.5%.
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5
<PAGE>
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THE GUARDIAN ASSET ALLOCATION FUND
- ----------------------------------
[PHOTO] [PHOTO]
Frank J. Jones, Ph.D. Jonathan C. Jankus, C.F.A.
Co-Portfolio Manager Co-Portfolio Manager
Q. HOW DID THE FUND PERFORM IN 1996?
A. For the year ended December 31, 1996, the Fund's return was 18.74%,(1)
placing it well above the average 13.60% return of funds with similar objectives
and policies in Lipper's universe of flexible equity funds.(2) The Fund also
handily outperformed the average return of 12.43% produced by Morningstar's
universe of asset allocation funds.(3) Since its inception on February 16, 1993,
the Fund's total aggregate return of 62.28% (or 13.32% on an average annual
basis) is also ahead of the aggregate return of 59.34% (or 12.78% annually)
experienced by its passive composite benchmark (60% of the S&P 500 Index and 40%
of the Lehman Aggregate Bond Index).(4) This benchmark's return for 1996 was a
very respectable 14.89%.
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE IN 1996? WHAT STRATEGIES DID YOU
USE TO MANAGE THE FUND?
A. This was yet another year in which the investor was either long or wrong. If
you invested in equities and had a pulse, you made money. Unlike last year,
however, there was little to be gained by investing in bonds which returned a
meager 3.63% (as measured by the Lehman Aggregate Bond Index). We were correctly
overweighted in stocks relative to our benchmark, averaging about a 75% weight
versus our 60% benchmark. We also benefited from the excellent stock selection
capabilities of our equity group, headed by Chuck Albers. The allocation
decisions are based on theoretical models which integrate information about the
economy and the financial markets.
Q. WHAT ARE YOUR EXPECTATIONS FOR THE COMING YEAR?
A. Our investing will, of course, continue to be guided by our quantitative
model, which as of year-end, had us invested 76% in stocks, 20% in bonds, and 4%
in cash. We are thus continuing to emphasize stocks at the expense of bonds.
Economists' expectations for inflation over the next year are essentially
unchanged from a year ago at about 3%, currently making bonds a better buy,
since yields are higher than they were a year ago (6.42% on the 10-year treasury
bond at year-end versus 5.57% at the end of 1995). Earnings growth expectations
from Wall Street stock analysts have, however, increased as well, maintaining
the relative appeal of stocks. Interestingly, this does represent a divergence
from the declining profit expectations of economists, and we will be monitoring
this difference of opinion as well as the increasing divergence between stocks
and bonds very carefully as the year unfolds.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return represents total return for Class A shares--returns for Class B
shares would be lower to reflect higher operating associated with the B
share class. Total return figures do not take into account the current
maximum sales charges except where noted. Returns represent past
performance and are not a guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service and its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
(3) Morningstar is an independent mutual fund monitoring and rating service and
its database of performance information is based on historical total
returns, which assume the reinvestment of dividends and distributions, and
the deduction of all fund expenses. Morningstar returns do not reflect the
deduction of sales loads, and performance would be different if sales loads
were deducted.
(4) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market activity.
The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The S&P 500
and the Lehman Aggregate Bond Index are not available for direct investment
and the returns do not reflect the fees and expenses that have been
deducted from the Fund. Likewise, return figures for the S&P 500 and Lehman
Aggregate Bond Indexes do not reflect any sales charges that an investor
may have to pay when purchasing or redeeming shares of the Fund.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE GUARDIAN ASSET ALLOCATION FUND PROFILE
AS OF DECEMBER 31, 1996
- ------------------------------------------
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHART]
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
S&P 500 INDEX $18,375
THE GUARDIAN ASSET
ALLOCATION FUND $15,503
LEHMAN AGGREGATE BOND
FUND INDEX $12,775
To give you a comparison, the chart above shows the performance of a $10,000
investment made in The Guardian Asset Allocation Fund, the S&P 500 Index and the
Lehman Aggregate Bond Index.(4) The starting point of $9,550 for the Fund
reflects the maximum sales load of 4.5% which an investor may have to pay when
purchasing shares of the Fund. The Indexes begin at $10,000.
[GRAPHICAL REPRESENTATION OF A PIE CHART]
CASH & CASH EQUIVALENTS 4.0%
BONDS 20.0%
STOCKS 76.0%
The market exposure shown above provides an illustration of the Fund's
allocation to different market segments as of December 31, 1996. For a complete
listing of Fund holdings, please refer to the Schedule of Investments.
AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED 12/31/96
Since Inception
1 Year 3 Year (2/16/93)
- --------------------------------------------------------------------------------
At Net Asset Value(5)
(without sales charge) 18.74% 13.11% 13.30%
- --------------------------------------------------------------------------------
Class A Shares(6) (with
sales charge) 13.40% 11.38% 11.96%
- --------------------------------------------------------------------------------
PERFORMANCE FOR CLASS B SHARES, WHICH BECAME EFFECTIVE ON MAY 1, 1996, WILL VARY
DUE TO DIFFERENCES IN EXPENSES CHARGED TO EACH SHARE CLASS.
(5) Net Asset Value (NAV) assumes the reinvestment of all dividends and
distributions and does not reflect the payment of sales charge.
(6) Class A share performance assumes the current maximum front-end sales
charge of 4.5%.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
- -----------------------------------------------
[PHOTO]
R. Robin Menzies,
Portfolio Manager
Q. LAST YEAR, INVESTORS IN THE U.S. STOCK MARKETS GENERALLY DID QUITE WELL. HOW
DID INTERNATIONAL MARKETS PERFORM COMPARED WITH THE U.S., AS REFLECTED IN THE
FUND'S RESULTS?
A. The Fund performed well in 1996, with a total return of14.33%,(1) outpacing
the 6.4% return posted by the Morgan Stanley Capital International (MSCI)
Europe, Australia, and Far East (EAFE) Index.(2) International markets, such as
Japan and Europe, have performed quite differently, but both have great
potential for future gains. Starting in Japan, the MSCI Japan Index fell by
15.4% in 1996.(3) Nihon Bashi, the Japanese equivalent of Wall Street, is at
about half of its all-time peak of 1989. The Japanese have been very cautious
with their money, whereas they used to be great stock market players. They have
seen banks declare huge bad-loan write-offs, stock prices plunge, and, in a
country where life-time employment was the norm in large corporations, jobs have
been put at risk. But it seems as if the worst is over--the Japanese authorities
have been doing a good job at sorting out their big problems and getting the
economy on the move again. In addition, unemployment is falling, incomes are
rising, and thanks to the Yen's decline, exports are doing well.
A less extreme but equally fascinating area is Europe. This does not
include the U.K., which is like the United States in that its economic recovery
is well on and interest rates are expected to rise in early 1997. Europe is
moving closer to economic and monetary union through a common currency, the
"Euro," which should be introduced by 1999. Having a common currency across a
range of countries far more diverse, both economically and culturally, than the
states of the United States imposes big strains on all involved. Questions to be
answered are who should be let in and how is inflation going to be kept down? In
the meantime, fiscal austerity--to meet the monetary union rules--plus high
unemployment and low inflation mean that interest rates will be kept low for as
long as possible. Low rates and corporate restructuring are a potent combination
that should lead to decent profits growth and a great background for European
equity markets in 1997.
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THIS YEAR?
A. The Fund's solid performance relative to the MSCI EAFE Index was due in large
part to the Fund's underweighted investment in Japan as compared to the Index.
The Index generally has about a 40% weighting in Japan, while throughout the
year the Fund held approximately 32% on average in Japan. Japan was the weakest
of the major markets in 1996. Performance was also helped by the impressive
returns of the stocks held by the Fund in Continental Europe, which ended 1996
with a return of 33.9% for the year as compared with the 18.7% return of the
MSCI Europe Ex-U.K. Index(4) over the same period.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return represents total return for Class A shares--returns for Class B
shares would be lower to reflect higher operating expenses associated with
the B share class. Total return figures do not take into account the
current maximum sales charges except where noted. Returns represent past
performance and are not a guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost.
(2) The MSCI EAFE Index is an unmanaged index that is generally considered to
be representative of international stock market activity. The Index is
capitalization-weighted and carries a significantly higher weighting in
Japan than the Fund is normally likely to have because the Fund seeks to
diversify investments across all major international markets. The
performance of the Fund and the MSCI EAFE Index may not therefore always
correlate closely. The MSCI EAFE Index is not available for direct
investment and its returns do not reflect expenses which are deducted from
the Fund's return. Likewise, return figures for the MSCI EAFE Index do not
reflect any sales charges that an investor may have to pay when purchasing
or redeeming shares of the Fund.
(3) The MSCI Japan Index is an unmanaged index generally considered to be
representative of Japanese stock market activity. The returns for the
index do not reflect expenses which are deducted from the Fund's return.
(4) The MSCI Europe Ex-UK Index is an unmanaged index generally considered to
be representative of European stock market activity, excluding the United
Kingdom. The returns for the index do not reflect expenses which are
deducted from the Fund's return.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
Q. WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND?
A. Guardian Baillie Gifford Limited continued to employ its strategy of managing
a diversified portfolio of international equities, paying particular attention
to the fundamental attractions of individual companies in terms of their
profitability, strength of balance sheet, and earnings growth prospects.
- --------------------------------------------------------------------------------
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND PROFILE
AS OF DECEMBER 31, 1996
- -------------------------------------------------------
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHART]
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
The MSCI/EAFE Index $16,751
The Guardian Baillie
Gifford Int'l Fund $15,430
To give you a comparison, the chart above shows the performance of a $10,000
investment made in The Guardian Baillie Gifford International Fund and the
MSCI/EAFE Index.(2) The starting point of $9,550 for the Fund reflects the
maximum sales load of 4.5% which an investor may have to pay when purchasing
shares of the Fund. The Index begins at $10,000.
- ---------------------------------------------------------
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
Top 10 Holdings
Nature of
Company Country Company
- -----------------------------------------------------------
Novartis Switzerland Pharmaceuticals
- -----------------------------------------------------------
Canon Inc. Japan Electronic Equipment
- -----------------------------------------------------------
NTT Data Japan Computer Systems
- -----------------------------------------------------------
Rohm Japan General Industry
- -----------------------------------------------------------
ABN Amro Netherlands Banking
- -----------------------------------------------------------
BASF Germany Chemicals
- -----------------------------------------------------------
Jusco Japan Retailer
- -----------------------------------------------------------
Bridgestone Corp. Japan Tires
- -----------------------------------------------------------
Incentive B Sweden Industrial Conglomerate
- -----------------------------------------------------------
Hoechst Germany Chemicals
- -----------------------------------------------------------
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED 12/31/96
Since Inception
1 Year 3 Year (2/16/93)
- --------------------------------------------------------------------------------
At Net Asset Value(5)
(without sales charge) 14.33% 8.11% 13.54%
- --------------------------------------------------------------------------------
Class A Shares(6) (with
sales charge) 9.19% 6.46% 12.20%
- --------------------------------------------------------------------------------
PERFORMANCE FOR CLASS B SHARES, WHICH BECAME EFFECTIVE ON MAY 1, 1996, WILL VARY
DUE TO DIFFERENCES IN EXPENSES CHARGED TO EACH SHARE CLASS.
(5) Net Asset Value (NAV) assumes the reinvestment of all dividends and
distributions and does not reflect the payment of sales charge.
(6) Class A share performance assumes the current maximum front-end sales
charge of 4.5%.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN INVESTMENT QUALITY BOND FUND
- -----------------------------------------
[PHOTO]
Michele S. Babakian,
Portfolio Manager
Q. HOW DID THE FUND PERFORM IN 1996?
A. The Fund had a total return of 2.73%(1) for the year ended December 31, 1996.
By comparison, our Lipper(2) peer group, which consists of other open-ended
funds that invest primarily in bonds having investment grade ratings of "BBB" or
better, had a total return of 3.19% for the same period. Within this Lipper peer
group the Fund ranked 53 out of 102 funds.(3) A broad market benchmark we also
compare ourselves against, the Lehman Aggregate Bond Index,(4) had a total
return of 3.63% for the year ended 1996.
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING 1996?
A. Aside from the Federal Reserve lowering the Fed Funds rate in February, the
rest of 1996 can be characterized as a year in which investors expected the Fed
to raise rates which caused a bearish sentiment to permeate the market. As the
market turned bearish, the duration of the Fund's portfolio was positioned
slightly shorter than the duration of the Lehman Aggregate Bond Index. We
position this portfolio's duration slightly longer than the duration of the
Index if we conclude, based on our assessment of the economy's growth, inflation
pressures, and the effects of fiscal and monetary policy, that yields will
decrease, or slightly shorter than the Index if we determine that yields will
rise. As 1996 consisted of a bear market for bonds, with occasional bullish
fervor, the portfolio's duration was approximately 5% shorter than the Index's
duration. This positioning reduced the portfolio's exposure to price
depreciation, which added to its total return.
Another major factor which positively affected the Fund's performance was
the change of allocation in the corporate bond and mortgage-backed securities
(MBS) sectors. Throughout the year the Fund increased its investments in a more
diverse group of corporate bond sectors and MBS products. This new positioning
of assets was positive for the Fund as the yield spreads on all of the sectors
we chose narrowed, or moved closer toward Treasury yields.
Corporate bond yield spreads tightened to historical lows for the year due
to positive corporate earnings and increasing demand from a growing investor
base. The corporate bond sector in which we invested the most new assets in 1996
was the finance sector. This sector returned 3.75% for the year, the highest
returning of the four major sectors within the Lehman Corporate Index. However,
the industrial sector contained the highest returning subsectors which included
airlines, gaming and lodging. We were not invested in those subsectors.
MBS, with high option adjusted spreads, benefited from a market with low
volatility, which improves MBS values, and demand from new investors such as
foreign accounts and hedge fund managers. The big total return play was in
seasoned pass-throughs, especially the higher coupons. Although we did not
participate significantly in the seasoned pass-through market, the portfolio was
positioned with a 20% weight in current and premium pass-throughs. Also in the
portfolio were collateralized mortgage obligations (CMOs) which comprised about
9% of the portfolio. Together these securities provided a 29% portfolio
weighting in the Fund. The Lehman Mortgage-Backed Securities (MBS) Index(4)
returned 5.35% for 1996.
Q. WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND?
A. As 1996 consisted of a bear market with occasional bullish sentiment, we
managed the fund's duration to be approximately 5% shorter than the
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures do not take into account the current maximum sales charges
except where noted. Returns represent past performance and are not a
guarantee of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more
or less than the original cost.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service and its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
(3) Lipper rankings were reported by Lipper Mutual Funds Performance Analysis
Special Report 4th Quarter 1996.
(4) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The Lehman
Mortgage-Backed Securities Index is an unmanaged index that is generally
considered to be representative of U.S. mortgage pass-through market
activity. Neither Index is available for direct investment and the returns
do not reflect the fees and expenses that have been deducted from the
Fund. Likewise, return figures for the Lehman Aggregate Bond Index do not
reflect any sales charges that an investor may have to pay when purchasing
shares of the Fund.
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
duration of our benchmark, the Lehman Aggregate Bond Index. During those months
when the market yields were declining or holding steady, the Fund's duration was
brought up to a neutral position versus the Index.
With regard to asset allocation in this portfolio, our goal was to
allocate approximately 10% of the Fund's assets to Treasuries, 35-40% to
corporates, 30% to MBS, 15% to asset-backed securities (ABS) and the balance,
5%, to commercial mortgage-backed securities (CMBS). This allocation would keep
us invested in yield product, or securities with a yield spread over Treasuries.
Our corporate strategy in 1996 was to diversify the portfolio among
corporate bond sectors and to focus our investments more than before in the
higher- yielding, BBB sector. The largest sector in which we invested was the
finance sector and our positions in this sector included the industries of
banking, brokerage, insurance and real estate. Outside of finance, the
telecommunications, tobacco and yankee sectors were added to the portfolio's
holdings. Many of the securities which were purchased in these sectors were
"BBB" in quality, the investment quality group which had the best returns in
1996, according to the Lehman Index data.
New sectors in which we have concentrated our research efforts in the
fourth quarter are insurance-enhanced ABS, as well as "AA" and "A" rated ABS and
CMBS. Through the selective purchase of corporate credits and new bond sectors,
we believe that the Fund can add incremental yield and total return in 1997.
- --------------------------------------------------------------------------------
THE GUARDIAN INVESTMENT QUALITY BOND FUND PROFILE
AS OF DECEMBER 31, 1996
- -------------------------------------------------
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHART]
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
The Guardian Investment Quality Bond Fund $11,519
Lehman Aggregate Bond Index $12,777
To give you a comparison, the chart above shows the performance of a $10,000
investment made in The Guardian Investment Quality Bond Fund and in the Lehman
Aggregate Bond Index.(4) The starting point of $9,550 for the Fund reflects the
maximum sales load of 4.5%, which an investor may have to pay when purchasing
shares of the Fund. The Index begins at $10,000.
PORTFOLIO COMPOSITION BY ASSET CLASS
AS OF DECEMBER 31, 1996
[GRAPHICAL REPRESENTATION OF A PIE CHART]
AA 2.0%
A 15.7%
BBB 15.6%
BB 2.0%
REPURCHASE AGREEMENTS 3.5%
NOT RATED 3.8%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED 12/31/96
Since Inception
1 Year (2/16/93)
- --------------------------------------------------------------------------------
At Net Asset Value(5)
(without sales charge) 2.73% 4.95%
- --------------------------------------------------------------------------------
Class A Shares(6) (with
sales charge) -1.89% 3.71%
- --------------------------------------------------------------------------------
(5) Net Asset Value (NAV) assumes the reinvestment of all dividends and
distributions and does not reflect the payment of sales charge.
(6) Class A share performance assumes the current maximum front-end sales
charge of 4.5%.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN TAX-EXEMPT FUND
- ----------------------------
[PHOTO]
Alexander M. Grant, Jr.,
Portfolio Manager
Q. HOW DID THE GUARDIAN TAX-EXEMPT FUND PERFORM IN 1996?
A. The Fund produced a total return of 3.62%(1) for the year ended December 31,
1996 as compared to the Lehman Municipal Bond Index which produced a total
return of 4.43%.(2) For the six-months ended December 31, 1996, the Fund's total
return was 4.97%, slightly outperforming the Lehman Municipal Bond Index by 7
basis points (.07%).
Another important comparison that should be used when measuring the Fund's
performance is how it stacks up to its peers. Based on peer group comparisons
made by Lipper Analytical Services,(3) the Fund ranked 88 out of 225 funds with
the same objective, for the year ended December 31, 1996. The average return for
municipal bond funds in the Lipper universe for that period was 3.30%. The
Guardian Tax-Exempt Fund outperformed the average by 32 basis points (.32%). As
of December 31, 1996, the Fund's 30-day yield was 4.63%, which equals over a
7.00% taxable equivalent yield for a person in the highest federal income tax
bracket.
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE?
A. The months leading up to the presidential election took its toll on the
municipal market. Tax reform, including "flat tax" initiatives, was a
significant topic of discussion as the presidential election heated up. With
uncertainty in the air on tax reform, municipals experienced price volatility
during the early months of 1996. However, this price volatility created
opportunities as yields reached 6.00% and better. This increase in yields had
two results: (1) individual investors had an opportunity to get involved in
yields that were at an acceptable threshold; and (2) municipal issuers stopped
issuing bonds.
As the year progressed, tax reform was placed on the back burner of
political agendas and quickly forgotten. The combination of retail buyers, lack
of municipal supply, and the quiet death of tax reform caused the municipal bond
market to start to perform. As these forces started to jell the tax-exempt
municipal bond market began to outperform other fixed-income markets. This
performance continued into the third quarter.
As interest rates started to come down, the supply of municipal
opportunities increased. With the tax reform issue gone and presidential
elections at hand, institutional buying stepped up, causing the individual
investors to back away from the market. The new municipal supply, at lower
yields, was met with great demand by institutional investors, which in turn kept
the performance ball rolling for municipals. During the fourth quarter,
continued municipal supply was met with continued institutional demand. Demand
outstripped supply, which in turn caused the municipal market to continue its
positive performance.
On a less positive note, another factor that has affected the municipal
market (and other fixed-income markets as well), is the strong performance of
the U.S. equity markets. With the stock market returning over twenty percent for
1996, it is easy to understand why municipal mutual funds have not grown. It
appears that
- --------------------------------------------------------------------------------
(1) Total return figures shown are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures do not take into account the current maximum sales charge
of 4.5%, except where noted. Since June 1, 1994, the investment adviser
for the Fund has been assuming the operating expenses of the Fund to the
extent they exceed 0.75% of the Fund's average daily net assets. Without
these expense reimbursements, the performance figures would have been
lower. Returns represent past performance and are not a guarantee of
future results. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
the original cost.
(2) The Lehman Municipal Bond Index is an unmanaged index that is generally
considered to be representative of U.S. municipal bond market activity.
The Lehman Municipal Bond Index is not available for direct investment and
its return does not reflect the fees and expenses that have been deducted
from the Fund. Likewise, return figures for the Lehman Municipal Bond
Index do not reflect any sales charges that an investor may have to pay
when purchasing shares of the Fund.
(3) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service and its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
most new money heading into the mutual fund investment arena landed into an
equity fund. This in turn left the growth of most fixed-income mutual funds
flat.
Q. WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND DURING 1996?
A. Noncallable tax-exempt municipal bonds (bonds that cannot be redeemed prior
to maturity) became very expensive in 1996. The strategy of the Fund was to sell
noncallable bonds and buy municipal bonds that were out of favor and offering a
high yield because of the unwanted structure. Bonds that had a call that was
less than ten years (the market standard is ten-year call protection) or bonds
that traded around the coupon (par bonds) were among the bonds that were being
penalized by the market. These bonds would offer a higher yield because it was a
structure the seller did not want and potential buyers would expect to get
additional compensation for, i.e., more yield. It is for these reasons that we
were purchasers of these bonds, as they offered value and extra yield.
These bonds became attractive because the market was penalizing them to
the extent that on a relative value basis they presented good value. That is,
they offered higher yields with the same credit risk. Since the Fund is a
relative value buyer we perceived value in selling the noncallable structure at
very expensive prices and buying a similar credit risk at much cheaper spreads.
Part of the Fund's strategy is to purchase bonds with good current income,
that is to say, high coupons that are above current market coupons. These bonds,
because of the current yield, typically pay interest above the current market.
- ------------------------------------
THE GUARDIAN TAX-EXEMPT FUND PROFILE
AS OF DECEMBER 31, 1996
- ------------------------------------
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Lehman Municipal Bond Fund $12,765
The Guardian Tax-exempt Fund $11,048
To give you a comparison, the chart above shows the performance of a $10,000
investment made in The Guardian Tax-Exempt Fund and the Lehman Municipal Bond
Index.(2) The starting point of $9,550 for the Fund reflects the maximum sales
load of 4.5% which an investor may have to pay when purchasing shares of the
Fund. The Index begins at $10,000.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED 12/31/96
Since Inception
1 Year (2/16/93)
- --------------------------------------------------------------------------------
At Net Asset Value(4)
(without sales charge) 3.62% 3.96%
- --------------------------------------------------------------------------------
Class A Shares(5) (with
sales charge) -1.04% 2.73%
- --------------------------------------------------------------------------------
(4) Net Asset Value (NAV) assumes the reinvestment of all dividends and
distributions and does not reflect the payment of sales charge.
(5) Class A share performance assumes the current maximum front-end sales
charge of 4.5%.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN CASH MANAGEMENT FUND
- ---------------------------------
[PHOTO]
Alexander M. Grant, Jr.,
Portfolio Manager
Q. HOW DID THE GUARDIAN CASH MANAGEMENT FUND PERFORM IN 1996?
A. As of December 31, 1996, the effective 7-day annualized yield for the
Guardian Cash Management Fund was 5.16%.(1) The Fund produced a total return of
4.62% in 1996.(2) In contrast, the average Tier One money market fund, as
measured by IBC Financial Data, had an effective 7-day annualized yield of 4.94%
at December 31 and returned 4.90% in 1996. IBC Financial Data is a research firm
that tracks money market funds.
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE?
A. Money market funds are directly affected by the actions of the Federal
Reserve Board. On January 31, 1996, the Fed lowered the Federal Funds target
rate 25 basis points to 5.25%. Money market fund returns move with the Fed Funds
Rate. The Federal Funds Rate is the interest rate that member banks charge each
other when they lend money overnight. While the Federal Reserve Board does not
set this rate, it can establish a target rate and, through open market
operations, the Fed can move member banks in the direction of that target rate.
Uncertainty with the direction of the economy in 1996 and the strength of the
stock market contributed to large daily inflows and outflows of funds in the
Cash Management Fund. As the stock market rallied, cash was transferred by our
investors to equity funds. During those times when the stock market stalled, we
saw cash inflows. Another factor affecting performance was the portfolio's
average maturity--19 days as of December 31, 1996. The average money market fund
as measured by IBC Financial Data had an average maturity of 58 days.
Q. WHAT WAS YOUR INVESTMENT STRATEGY DURING 1996?
A. The Guardian Cash Management Fund is a place for our investors to put their
money while they decide their preferred long-term investment vehicle, be it
stocks, bonds or tax-exempts. Also, some of our investors prefer the relative
stability of the money markets. To best serve all our clients, we will continue
to try to provide a strong 7-day yield, while offering safety and liquidity. Our
investment strategy was to create a diversified portfolio of money market
instruments that presents minimal credit risks according to our criteria. During
1996, we only purchased securities from issuers that had received ratings in the
two highest credit quality categories established by nationally recognized
statistical ratings organizations like Moody's Investors Service Inc. and
Standard & Poor's Corporation for the Fund's portfolio. As of December 31, 1996,
most of the portfolio (96%) was invested in commercial paper; the balance (4%)
was invested in repurchase agreements.
- --------------------------------------------------------------------------------
Investments in the Fund are neither insured nor guaranteed by the U.S.
government. While the Fund seeks to maintain a stable price of $1.00 per share,
there is no assurance that it will be able to do so.
(1) Yields are annualized historical figures and will vary as interest rates
change. Effective yield assumes that income is reinvested. Past
performance is not a guarantee of future results. From January 1, 1996
through April 30, 1996 and from July 1, 1996 through December 31, 1996,
the investment adviser for the Fund assumed the operating expenses to the
extent that they exceeded 0.85% of the Fund's average daily net assets.
Without these expense assumptions, the Fund's performance and yields would
have been lower.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return represents total return for Class A shares--returns for Class B
shares would be lower to reflect higher operating associated with the B
share class. Total return figures do not take into account the current
maximum sales charges except where noted. Returns represent past
performance and are not a guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
15
<PAGE>
- -----------------------
SCHEDULE OF INVESTMENTS
- -----------------------
December 31, 1996
THE GUARDIAN PARK AVENUE FUND
- ------------------------------------------------------------
COMMON STOCKS -- 94.2%
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
AEROSPACE AND DEFENSE -- 4.9%
147,049 Boeing Co. $ 15,642,380
48,889 Lockheed Martin Corp. 4,473,343
187,600 Logicon, Inc. 6,847,400
462,000 McDonnell Douglas Corp. 29,568,000
93,950 Precision Castparts Corp. 4,662,269
60,700 Rockwell Int'l. Corp. 3,695,112
36,000 Sundstrand Corp. 1,530,000
8,600 Trinity Industries, Inc.* 323,885
50,000 United Technologies Corp. 3,300,000
------------
70,042,389
- ------------------------------------------------------------
AIR TRANSPORTATION -- 0.3%
44,800 AMR Corp. Del* 3,948,000
- ------------------------------------------------------------
APPLIANCE AND FURNITURE -- 0.1%
66,000 Furniture Brands Int'l., Inc.* 924,000
20,000 Herman Miller, Inc. 1,132,500
------------
2,056,500
- ------------------------------------------------------------
AUTOMOTIVE -- 0.6%
294,500 Ford Motor Co. DE* 9,387,187
- ------------------------------------------------------------
BIOTECHNOLOGY -- 0.2%
56,100 Amgen, Inc.* 3,050,438
- ------------------------------------------------------------
BUILDING MATERIALS AND HOMEBUILDERS -- 1.0%
12,000 Armstrong World Industries, Inc.* 834,000
24,700 Centex Corp.* 929,337
95,400 Coachmen Industries, Inc. 2,706,975
58,000 Fleetwood Enterprises, Inc. 1,595,000
38,000 Kaufman & Broad Home Corp.* 489,250
58,900 Lennar Corp.* 1,605,025
30,000 McGrath Rent Corp. 772,500
70,000 Oakwood Homes Corp.* 1,601,250
26,000 Pulte Corp.* 799,500
21,700 Sherwin-Williams Co.* 1,215,200
15,200 U.S. Home Corp.* 395,200
13,600 Vulcan Materials Co. 827,900
9,600 Webb (Del) Corp. 157,200
------------
13,928,337
- ------------------------------------------------------------
CAPITAL GOODS-MISCELLANEOUS TECHNOLOGY -- 0.9%
50,555 Martin Marietta Materials, Inc. 1,175,404
73,800 Minnesota Mining & Mfg. Co. 6,116,175
102,975 Paychex, Inc. 5,296,777
37,300 Rexel, Inc.* 592,137
30,200 Schuller Corp. 320,875
------------
13,501,368
- ------------------------------------------------------------
CAPITAL GOODS-TECHNOLOGY-TELECOMMUNICATIONS -- 0.1%
9,200 Harris Corp., DE 631,350
37,500 Network Equip. Technologies* 618,750
------------
1,250,100
- ------------------------------------------------------------
CHEMICALS -- 2.5%
40,000 Avery Dennison Corp. 1,415,000
116,700 Cambrex Corp. 3,821,925
269,400 E.I. Dupont De Nemours, Inc. 25,424,625
65,000 PPG Industries, Inc. 3,648,125
25,000 Rohm & Haas Co.* 2,040,625
------------
36,350,300
- ------------------------------------------------------------
COAL -- 0.0%
17,000 Eastern Enterprises 601,375
- ------------------------------------------------------------
COMPUTER SOFTWARE -- 3.5%
89,300 BMC Software, Inc.* 3,682,375
18,900 Cadence Design Systems, Inc.* 751,275
160,500 Computer Associates Int'l., Inc. 7,984,875
37,400 Compuware Corp.* 1,874,675
186,400 Electronic Data Systems Corp. 8,061,800
38,000 Fair Isaac & Co., Inc. 1,486,750
240,000 Microsoft Corp.* 19,830,000
34,000 OneWave, Inc.* 265,625
56,000 Parametric Technology Corp.* 2,877,000
59,000 Sterling Software, Inc.* 1,865,875
50,000 SunGuard Data Systems, Inc.* 1,975,000
------------
50,655,250
- ------------------------------------------------------------
COMPUTER SYSTEMS -- 3.2%
198,000 Cisco Systems, Inc.* 12,597,750
60,300 Compaq Computer Corp.* 4,477,275
75,000 Computervision Corp.* 693,750
21,600 Diebold, Inc. 1,358,100
51,000 Health Mgmt. Systems, Inc.* 714,000
52,000 Imitation Corp.* 1,462,500
61,000 Lexmark Int'l. Group, Inc.* 1,685,125
5,500 Mylex Corp.* 68,750
75,000 Pitney Bowes Inc.* 4,087,500
60,000 SCI Systems, Inc.* 2,677,500
290,000 Storage Technology Corp.* 13,811,250
65,200 Sun Microsystems, Inc.* 1,674,825
60,000 Tandem Computers, Inc.* 825,000
------------
46,133,325
- ------------------------------------------------------------
CONGLOMERATES -- 1.8%
65,300 Allied Signal, Inc. 4,375,100
90,000 Loews Corp. 8,482,500
47,300 Tenneco, Inc.* 2,134,412
95,000 Textron, Inc. 8,953,750
------------
23,945,762
- ------------------------------------------------------------
COSMETICS AND TOILETRIES -- 0.7%
8,000 Alberto-Culver Co.* 330,000
116,500 Gillette Co. 9,057,875
16,200 Helen of Troy Ltd.* 356,400
------------
9,744,275
- ------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
16
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
DRUGS AND HOSPITALS -- 11.8%
182,400 Abbott Laboratories $ 9,256,800
65,820 Allegiance Corp. 1,818,277
280,700 American Home Products Corp. 16,456,037
29,100 Baxter Int'l., Inc. 1,193,100
27,400 Becton Dickinson & Co. 1,188,475
205,500 Bristol-Myers Squibb Corp. 22,348,125
88,496 Eli Lilly & Co., Inc. 6,460,208
62,500 Genesis Health Ventures, Inc.* 1,945,312
97,377 Guidant Corp. 5,550,489
67,000 Integrated Health Services, Inc. 1,633,125
582,400 Johnson & Johnson 28,974,400
81,300 Kinetic Concepts, Inc. 995,925
38,900 Manor Care, Inc.* 1,050,300
82,200 Mariner Health Group, Inc.* 688,425
382,300 Merck & Co., Inc. 30,297,275
60,000 Old Republic Int'l. Corp.* 1,605,000
198,800 Pfizer, Inc. 16,475,550
141,200 Schering-Plough Corp. 9,142,700
33,500 Sun Healthcare Group, Inc.* 452,250
8,000 Unitrin, Inc. 446,000
230,000 Universal Health Services, Inc.* 6,583,750
47,500 Warner-Lambert Co. 3,562,500
------------
168,124,023
- ------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 3.4%
81,800 Emerson Electric Co. 7,914,150
414,400 General Electric Co. 40,973,800
------------
48,887,950
- ------------------------------------------------------------
ELECTRONICS AND INSTRUMENTS -- 0.4%
46,000 Analogic Corp. 1,541,000
7,700 Ascend Communications Inc.* 478,363
21,200 Dynatech Corp.* 938,100
29,500 Intergraph Corp.* 302,375
15,300 Sanmina Corp.* 864,450
21,300 Solectron Corp.* 1,136,887
------------
5,261,175
- ------------------------------------------------------------
ENERGY-MISCELLANEOUS -- 0.5%
129,500 Giant Industries, Inc. 1,813,000
167,104 Holly Corp. 4,470,032
86,500 Howell Corp. 1,292,094
------------
7,575,126
- ------------------------------------------------------------
ENTERTAINMENT -- 0.1%
131,000 Galoob Toys, Inc.* 1,834,000
- ------------------------------------------------------------
FINANCIAL-BANKS -- 10.8%
150,600 Banc One Corp. 6,475,800
22,000 Bancorp Hawaii, Inc. 924,000
177,300 BankAmerica Corp. 17,685,675
109,100 Bank of Boston Corp. 7,009,675
87,600 Barnett Banks, Inc. 3,602,550
23,000 Central & Southern Hldgs. Co. 270,250
188,060 Chase Manhattan Corp. 16,784,355
336,766 Citicorp 34,686,765
16,500 Comerica, Inc. 864,188
89,200 First Bank Systems Corp. 6,087,900
73,800 First Chicago NBD Corp. 3,966,750
12,400 First Empire State Corp. 3,571,200
20,000 First Merit Corp. 710,000
146,400 First Union Corp. 10,833,600
50,475 Hubco, Inc. 1,236,641
30,000 Mellon Bank Corp. 2,130,000
109,000 Nationsbank Corp. 10,654,750
82,748 Norwest Corp. 3,599,538
15,000 Provident Bancorp., Inc.* 510,000
22,500 Star Banc Corp. 2,067,188
40,000 State Street Boston Corp. 2,580,000
340,000 Travelers Group, Inc. 15,427,500
15,000 UnionBanCal Corp.* 795,000
12,400 Zions Bancorp. 1,289,600
------------
153,762,925
- ------------------------------------------------------------
FINANCIAL-OTHERS -- 6.8%
105,000 American Express Co. 5,932,500
16,400 Countrywide Credit Industries, Inc.* 469,450
10,000 Duff & Phelps Cr. Rating Co. 241,250
83,200 A.G. Edwards, Inc. 2,797,600
38,700 Federal Home Loan Mortgage Corp. 4,261,838
404,500 Federal National Mortgage Assn. 15,067,625
13,000 Financial Sec. Assur. Holdings, Ltd. 427,375
326,000 First USA, Inc. 11,287,750
62,000 Franklin Resources, Inc. 4,239,250
388,400 Green Tree Financial Corp. 15,001,950
100,000 Jefferies Group, Inc. 4,037,500
57,400 McDonald & Co. Investments, Inc. 1,994,650
151,200 Merrill Lynch & Co., Inc. 12,322,800
52,000 J.P. Morgan & Co., Inc. 5,076,500
167,850 Morgan Keegan, Inc. 2,874,431
26,100 Morgan Stanley Group., Inc. 1,490,963
67,300 Raymond James Financial, Inc. 2,027,412
83,300 Salomon, Inc.* 3,925,513
120,000 Charles Schwab Corp. 3,840,000
------------
97,316,357
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
17
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
FINANCIAL-THRIFT -- 3.1%
39,200 Astoria Financial Corp. $ 1,445,500
160,000 California Federal Bancorp, Inc.* 3,920,000
93,187 Charter One Financial, Inc. 3,913,854
5,500 CitFed Bancorp, Inc.* 181,500
47,000 Coastal Bancorp, Inc. 1,075,125
150,199 Collective Bancorp, Inc. 5,275,740
45,400 Commercial Federal Corp. 2,179,200
33,000 Greenpoint Financial Corp. 1,559,250
76,000 Long Island Bancorp, Inc. 2,660,000
27,060 MAF Bancorp, Inc. 940,335
20,960 Pacific Crest Capital, Inc.* 241,040
127,200 Progressive Bank, Inc. 2,893,800
365,243 Sovereign Bancorp, Inc. 4,793,814
78,000 Standard Fed. Bancorp. 4,436,250
187,964 TCF Financial Corp. 8,176,434
------------
43,691,842
- ------------------------------------------------------------
FOOD, BEVERAGE AND TOBACCO -- 4.6%
206,400 Anheuser Busch Cos., Inc. 8,256,000
85,000 Archer-Daniels-Midland Co. 1,870,000
70,000 Campbell Soup Co. 5,617,500
69,800 Coca Cola Co. 3,385,300
59,400 ConAgra, Inc. 2,955,150
4,128 Earthgrains Co. 215,688
50,000 Great Atlantic and Pacific Tea, Inc. 1,593,750
34,000 Hershey Foods Corp. 1,487,500
30,000 Interstate Bakeries Corp.* 1,473,750
255,400 Philip Morris Cos., Inc. 28,764,425
37,900 Ralston-Purina Group 2,780,913
12,000 Schweitzer-Mauduit Int'l., Inc.* 379,500
38,800 Unilever NV 6,799,700
------------
65,579,176
- ------------------------------------------------------------
FOOTWEAR -- 0.4%
88,200 Nike, Inc. 5,269,950
- ------------------------------------------------------------
HARDWARE AND TOOLS -- 0.2%
122,500 Black and Decker Corp.* 3,690,313
- ------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.1%
13,000 Clorox Co.* 1,304,875
69,040 Kimberly Clark Corp. 6,576,060
79,300 Procter and Gamble Co. 8,524,750
------------
16,405,685
- ------------------------------------------------------------
INSURANCE -- 3.5%
105,200 Allstate Corp. 6,088,450
27,000 AMBAC, Inc. 1,792,125
74,000 Amer. Bankers Ins. Group, Inc. 3,783,250
86,300 Amer. Int'l., Group, Inc. 9,341,975
40,000 CMAC Investment Corp. 1,470,000
12,000 Enhance Finl. Svcs. Group, Inc. 438,000
40,500 Executive Risk, Inc. 1,498,500
15,400 General Re Corp. 2,429,350
38,100 ITT Hartford Group, Inc. 2,571,750
35,000 Jefferson Pilot Corp. 1,981,875
42,080 Liberty Financial Cos., Inc. 1,635,860
67,000 MGIC Investment Corp. 5,092,000
30,800 Progressive Corp. of Ohio 2,075,150
28,000 ReliaStar Financial Group* 1,617,000
92,250 State Auto Financial Corp. 1,660,500
63,000 Sun America, Inc. 2,795,625
38,500 Travelers Aetna Ppty. Cas. Corp. 1,361,938
------------
47,633,348
- ------------------------------------------------------------
LODGING -- 0.2%
175,000 Prime Hospitality Corp.* 2,821,875
- ------------------------------------------------------------
MACHINERY AND EQUIPMENT -- 1.4%
94,800 Caterpillar, Inc. 7,133,700
88,400 Deere and Co. 3,591,250
51,200 Illinois Tool Works, Inc. 4,089,600
50,000 JLG Industries, Inc. 800,000
30,800 Robbins and Myers, Inc. 770,000
60,000 York Int'l., Corp. 3,352,500
------------
19,737,050
- ------------------------------------------------------------
MERCHANDISING-DEPARTMENT STORES -- 0.5%
65,000 Carson Pirie Scott & Co.* 1,641,250
40,000 Dollar General Corp. 1,280,000
330,200 K Mart Corp.* 3,425,825
16,000 MacFrugals Bargains Closeouts* 418,000
13,000 Mercantile Stores, Inc.* 641,875
------------
7,406,950
- ------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
18
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
MERCHANDISING-DRUGS -- 0.4%
52,000 DS Revco, Inc.* $ 1,924,000
56,200 Value Health, Inc.* 1,095,900
75,000 Walgreen Co. 3,000,000
------------
6,019,900
- ------------------------------------------------------------
MERCHANDISING-FOOD -- 0.8%
57,000 Kroger Co.* 2,650,500
44,000 Richfood Holdings, Inc. 1,067,000
87,500 Safeway, Inc.* 3,740,625
57,000 Supervalu, Inc.* 1,617,375
29,000 Vons Cos., Inc.* 1,736,375
------------
10,811,875
- ------------------------------------------------------------
MERCHANDISING-SPECIAL -- 0.3%
113,600 Claire's Stores, Inc. 1,476,800
23,900 Friedman's, Inc.* 352,525
83,560 Host Marriott Services Corp.* 762,485
35,000 Pier 1 Imports, Inc. 616,875
10,000 Ross Stores, Inc. 500,000
20,000 Tiffany & Co. 732,500
------------
4,441,185
- ------------------------------------------------------------
METALS AND MINING -- 0.5%
130,000 ASARCO, Inc.* 3,233,750
115,100 Bethlehem Steel Corp.* 1,035,900
62,900 Cyprus Amax Minerals Co.* 1,470,288
50,000 USX Steel Group* 1,568,750
------------
7,308,688
- ------------------------------------------------------------
MISCELLANEOUS-CONSUMER GROWTH STAPLES -- 0.4%
59,200 Cognizant Corp.* 1,953,600
24,000 Interpublic Group Cos., Inc.* 1,140,000
55,000 A.C. Nielson Corp.* 831,875
35,000 Omnicom Group 1,601,250
------------
5,526,725
- ------------------------------------------------------------
NATURAL GAS-DIVERSIFIED -- 0.9%
260,000 Enserch Corp. 5,980,000
158,300 Mitchell Energy & Dev. Corp. 3,502,387
60,000 PanEnergy Corp. 2,700,000
43,000 Western Gas Res., Inc. 827,750
------------
13,010,137
- ------------------------------------------------------------
OIL AND GAS PRODUCING -- 5.3%
200,000 Alberta Energy Ltd.* 4,800,000
194,400 Apache Corp. 6,876,900
121,900 Basin Exploration, Inc.* 761,875
207,100 Tom Brown, Inc.* 4,323,212
90,000 Cairn Energy USA, Inc.* 900,000
185,000 Chieftain Int'l., Inc.* 4,810,000
153,000 Devon Energy Corp. 5,316,750
50,200 Diamond Offshore Drilling, Inc.* 2,861,400
301,400 Enron Oil and Gas Co. 7,610,350
290,000 Enserch Exploration, Inc.* 3,407,500
38,100 Forcenergy Gas Exploration, Inc.* 1,381,125
54,700 Petroleum Sec. Australia Ltd.* 1,244,425
497,300 Petromet Resources Ltd.* 1,056,762
79,700 Pogo Producing Co. 3,765,825
770,000 Ranger Oil Ltd.* 7,603,750
245,000 Rigel Energy Corp.* 2,434,688
305,536 Seagull Energy Corp.* 6,721,792
127,600 St. Mary Land & Exploration Co. 3,174,050
39,300 Snyder Oil Corp. 682,838
54,966 Union Pacific Resources Group, Inc. 1,607,756
62,278 United Meridian Corp.* 3,222,887
13,400 Vintage Petroleum, Inc. 462,300
170,000 Wainoco Oil Ltd.* 531,250
------------
75,557,435
- ------------------------------------------------------------
OIL AND GAS SERVICES -- 3.1%
20,800 Cliffs Drilling Co.* 1,315,600
17,000 Cooper Cameron Corp.* 1,300,500
70,000 ENSCO Int'l., Inc.* 3,395,000
60,500 Halliburton Co. 3,645,125
179,200 Input/Output, Inc.* 3,315,200
329,400 Nabors Industries, Inc.* 6,340,950
130,000 Noble Drilling Corp.* 2,583,750
124,700 Offshore Logistics, Inc.* 2,416,063
60,000 Pride Petroleum Services, Inc.* 1,395,000
107,800 Schlumberger Ltd. 10,766,525
130,000 Smith Int'l., Inc.* 5,833,750
72,400 Varco Int'l., Inc.* 1,674,250
------------
43,981,713
- ------------------------------------------------------------
OIL-INTEGRATED-DOMESTIC -- 1.7%
74,800 Amoco Corp. 6,021,400
54,500 Atlantic Richfield Co. 7,221,250
120,000 Murphy Oil Corp. 6,675,000
284,000 Tesoro Petroleum, Inc.* 3,976,000
------------
23,893,650
- ------------------------------------------------------------
OIL-INTEGRATED-INTERNATIONAL -- 5.8%
168,800 Chevron Corp. 10,972,000
312,200 Exxon Corp. 30,595,600
70,900 Mobil Corp. 8,667,525
126,700 Royal Dutch Petroleum Co. 21,634,025
109,200 Texaco, Inc. 10,715,250
------------
82,584,400
- ------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
19
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 1.0%
50,000 Caraustar Industries, Inc. $ 1,662,500
331,500 Rayonier, Inc. 12,721,312
------------
14,383,812
- ------------------------------------------------------------
PHOTOGRAPHY -- 0.5%
86,100 Eastman Kodak Co. 6,909,525
- ------------------------------------------------------------
PUBLISHING-NEWS -- 0.2%
55,000 A.H. Belo Corp. 1,918,125
2,500 Washington Post Co. 837,813
------------
2,755,938
- ------------------------------------------------------------
RAILROADS -- 0.8%
40,301 Burlington Northern Santa Fe 3,480,999
45,800 Norfolk Southern Corp.* 4,007,500
64,900 Union Pacific Corp. 3,902,113
------------
11,390,612
- ------------------------------------------------------------
SEMICONDUCTOR -- 2.3%
58,500 Applied Magnetics Corp.* 1,747,687
233,900 Intel Corp.* 30,626,281
------------
32,373,968
- ------------------------------------------------------------
TEXTILE-APPAREL AND PRODUCTION -- 0.5%
72,200 Fruit of the Loom, Inc.* 2,734,575
46,100 Russell Corp. 1,371,475
43,000 V.F. Corp. 2,902,500
------------
7,008,550
- ------------------------------------------------------------
TRANSPORTATION-MISCELLANEOUS -- 0.0%
114,200 Maritrans, Inc. 699,475
- ------------------------------------------------------------
TRUCKERS -- 0.0%
18,000 FRP Pptys., Inc.* 459,000
- ------------------------------------------------------------
UTILITIES-COMMUNICATIONS -- 1.0%
76,600 Ameritech Corp. 4,643,875
106,100 Bellsouth Corp. 4,283,787
71,100 SBC Communications, Inc. 3,679,425
41,100 Sprint Corp. 1,638,862
24,000 360 Communications Co.* 555,000
------------
14,800,949
- ------------------------------------------------------------
UTILITIES-GAS AND PIPELINE -- 0.1%
45,000 KN Energy, Inc. 1,766,250
- ------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $997,724,343) $1,345,276,138
- ------------------------------------------------------------
- ------------------------------------------------------------
REPURCHASE AGREEMENT -- 5.5%
- ------------------------------------------------------------
- ------------------------------------------------------------
Principal Maturity
Amount Date Value
- ------------------------------------------------------------
$79,179,000 State Street Bank & Trust
repurchase agreement,
dated 12/31/96, maturity
value $79,216,940
5.75%, due 1/2/97
(collateralized by
$80,055,000 U.S. Treasury
Notes, 6.00% due
5/31/98) 1/2/97 $ 79,179,000
- ------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $79,179,000) 79,179,000
- ------------------------------------------------------------
TOTAL INVESTMENTS -- 99.7%
(COST $1,076,903,343) 1,424,455,138
CASH, RECEIVABLES AND OTHER ASSETS
LESS PAYABLES--0.3% 3,736,234
- ------------------------------------------------------------
NET ASSETS -- 100.0% $1,428,191,372
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
20
<PAGE>
o THE GUARDIAN ASSET ALLOCATION FUND
- ------------------------------------------------------------
COMMON STOCKS -- 62.8%
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
AEROSPACE AND DEFENSE--2.8%
10,000 Boeing Co. $ 1,063,750
2,215 Lockheed Martin Corp. 202,672
18,800 McDonnell Douglas Corp. 1,203,200
2,200 United Technologies Corp. 145,200
------------
2,614,822
- ------------------------------------------------------------
AIR TRANSPORTATION--0.2%
1,900 AMR Corp. Del* 167,437
- ------------------------------------------------------------
AUTOMOTIVE--0.5%
13,300 Ford Motor Co. DE* 423,937
- ------------------------------------------------------------
BIOTECHNOLOGY--0.1%
2,600 Amgen, Inc.* 141,375
- ------------------------------------------------------------
BUILDING MATERIALS--0.1%
1,000 Sherwin-Williams Co.* 56,000
- ------------------------------------------------------------
CAPITAL GOODS-MISCELLANEOUS TECHNOLOGY--0.4%
2,289 Martin Marietta Materials, Inc. 53,219
3,400 Minnesota Mining and Mfg. Co. 281,775
------------
334,994
- ------------------------------------------------------------
CHEMICALS--1.6%
12,000 E.I. Du Pont de Nemours & Co. 1,132,500
3,000 PPG Industries 168,375
2,000 Rohm & Haas Co.* 163,250
------------
1,464,125
- ------------------------------------------------------------
COMPUTER SOFTWARE--1.7%
3,200 BMC Software, Inc.* 132,400
2,700 Cadence Design Systems, Inc.* 107,325
1,000 Compuware Corp. 50,125
8,500 Electronic Data Systems Corp. 367,625
10,000 Microsoft Corp.* 826,250
3,000 Sterling Software, Inc.* 94,875
------------
1,578,600
- ------------------------------------------------------------
COMPUTER SYSTEMS--2.9%
20,000 Cisco Systems, Inc.* 1,272,500
2,700 Compaq Computer Corp.* 200,475
1,000 Diebold, Inc. 62,875
3,000 Lexmark Int'l. Group, Inc.* 82,875
3,000 Pitney Bowes, Inc.* 163,500
3,000 SCI Systems Inc.* 133,875
1,200 Solectron Corp.* 64,050
13,000 Storage Technology Corp.* 619,125
3,000 Sun Microsystems, Inc.* 77,062
------------
2,676,337
- ------------------------------------------------------------
CONGLOMERATES--2.1%
2,900 Allied Signal, Inc. 194,300
12,500 Loews Corp. 1,178,125
1,500 Tenneco, Inc.* 67,689
6,000 Textron, Inc. 565,500
------------
2,005,614
- ------------------------------------------------------------
COSMETICS AND TOILETRIES--0.4%
4,900 Gillette Co. 380,975
- ------------------------------------------------------------
DRUGS AND HOSPITALS--8.5%
8,300 Abbott Laboratories 421,225
5,000 Allegiance Corp. 138,125
15,000 American Home Products Corp. 879,375
2,600 Becton Dickinson & Co. 112,775
9,300 Bristol-Myers Squibb Corp. 1,011,375
3,000 Genesis Health Ventures, Inc.* 93,375
3,000 Integrated Health Services, Inc. 73,125
4,400 Eli Lilly & Co., Inc. 321,200
29,000 Johnson & Johnson 1,442,750
1,100 Manor Care, Inc.* 29,700
19,100 Merck & Co., Inc. 1,513,675
10,100 Pfizer, Inc. 837,037
8,200 Schering-Plough Corp. 530,950
12,000 Universal Health Services, Inc.* 343,500
2,000 Warner-Lambert Co. 150,000
------------
7,898,187
- ------------------------------------------------------------
ELECTRICAL EQUIPMENT--2.2%
3,600 Emerson Electric Co. 348,300
19,200 General Electric Co. 1,898,400
------------
2,246,700
- ------------------------------------------------------------
ENTERTAINMENT--0.1%
5,000 Galoob Toys, Inc.* 70,000
- ------------------------------------------------------------
FINANCIAL-BANKS--6.6%
4,500 Banc One Corp. 193,500
15,000 BankAmerica Corp. 1,496,250
4,900 Bank of Boston Corp. 314,825
4,000 Barnett Banks, Inc. 164,500
8,504 Chase Manhattan Corp. 758,982
15,000 Citicorp 1,545,000
700 Comerica, Inc. 36,663
3,900 First Bank System, Inc. 266,175
3,300 First Chicago NBD Corp. 177,375
5,400 First Union Corp. 399,600
5,100 Nationsbank Corp. 498,525
1,500 Star Banc Corp. 137,813
2,000 State Street Boston Corp. 129,000
600 Zions Bancorp. 62,400
------------
6,180,608
- ------------------------------------------------------------
FINANCIAL-OTHER--8.3%
1,000 Countrywide Credit Industries, Inc.* 28,625
20,000 A.G. Edwards, Inc. 672,500
1,800 Federal Home Loan Mortgage Corp. 198,225
32,000 Federal National Mortgage Assn. 1,192,000
18,000 First USA, Inc. 623,250
2,000 Franklin Resources, Inc. 136,750
17,900 Green Tree Financial Corp. 691,387
20,000 Merrill Lynch & Co., Inc. 1,630,000
2,100 J.P. Morgan & Co., Inc. 205,013
1,000 Morgan Stanley Group, Inc. 57,125
3,300 Salomon, Inc.* 155,512
40,000 Charles Schwab Corp. 1,280,000
20,000 Travelers Group, Inc. 907,500
------------
7,777,887
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
21
<PAGE>
THE GUARDIAN ASSET ALLOCATION FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
FINANCIAL-THRIFT--0.4%
5,600 Astoria Financial Corp. $ 206,500
700 Commercial Federal Corp. 33,600
2,000 Greenpoint Financial Corp. 94,500
------------
334,600
- ------------------------------------------------------------
FOOD, BEVERAGE AND TOBACCO--3.6%
20,000 Anheuser Busch Cos., Inc. 800,000
5,000 Archer-Daniels-Midland Co. 110,000
3,000 Campbell Soup Co. 240,750
3,000 Coca Cola Co. 145,500
2,700 ConAgra, Inc. 134,325
400 Earthgrains Co. 20,900
2,000 Interstate Bakeries Corp.* 98,250
12,100 Philip Morris Cos., Inc. 1,362,763
1,700 Ralston-Purina Group 124,737
1,700 Unilever N.V. 297,925
------------
3,335,150
- ------------------------------------------------------------
HARDWARE AND TOOLS--0.2%
5,400 Black and Decker Corp.* 162,675
- ------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.4%
600 Clorox Co.* 60,225
3,100 Procter & Gamble Co. 333,250
------------
393,475
- ------------------------------------------------------------
INSURANCE--1.7%
4,700 Allstate Corp. 272,013
3,900 American Int'l., Group, Inc. 422,175
700 General Re Corp. 110,425
5,000 Jefferson Pilot Corp. 283,125
1,000 Progressive Corp. of Ohio 67,375
9,000 Sun America, Inc. 399,375
2,000 Travelers/Aetna Property Cas. Ins. 70,750
------------
1,625,238
- ------------------------------------------------------------
MACHINERY AND EQUIPMENT--0.8%
4,200 Caterpillar, Inc. 316,050
2,600 Deere and Co. 105,625
3,500 Illinois Tool Works, Inc. 279,563
------------
701,238
- ------------------------------------------------------------
MERCHANDISING--DEPARTMENT STORES--0.2%
14,900 K Mart Corp.* 154,588
- ------------------------------------------------------------
MERCHANDISING-DRUGS--1.0%
3,000 DS Revco, Inc.* 111,000
20,000 Walgreen Co. 800,000
------------
911,000
- ------------------------------------------------------------
MERCHANDISING-FOOD--0.4%
7,500 Safeway, Inc.* 320,625
1,500 Vons Cos., Inc. 89,812
------------
410,437
- ------------------------------------------------------------
METALS AND MINING--0.2%
5,000 ASARCO, Inc.* 124,375
2,000 USX Steel Group, Inc.* 62,750
------------
187,125
- ------------------------------------------------------------
MISCELLANEOUS-CONSUMER GROWTH STAPLES--0.5%
2,700 Cognizant Corp.* 89,100
1,000 Interpublic Group Cos., Inc.* 47,500
7,000 Omnicom Group 320,250
------------
456,850
- ------------------------------------------------------------
NATURAL GAS-DIVERSIFIED--0.3%
12,000 Enserch Corp. 276,000
- ------------------------------------------------------------
OIL AND GAS PRODUCING--2.8%
9,000 Apache Corp. 318,375
9,000 Tom Brown, Inc.* 187,875
8,000 Chieftain Int'l., Inc.* 208,000
10,000 Devon Energy Corp. 347,500
2,200 Diamond Offshore Drilling, Inc.* 125,400
50,000 Enserch Exploration, Inc.* 587,500
50,000 Ranger Oil Ltd.* 493,750
14,696 Seagull Energy Corp.* 323,312
------------
2,591,712
- ------------------------------------------------------------
OIL AND GAS SERVICES--2.3%
6,000 ENSCO Int'l., Inc.* 291,000
2,700 Halliburton Co. 162,675
1,500 Input/Output, Inc. 138,750
40,000 Nabors Industries, Inc.* 770,000
15,000 Noble Drilling Corp.* 298,125
4,800 Schlumberger Ltd. 479,400
------------
2,139,950
- ------------------------------------------------------------
OIL-INTEGRATED-DOMESTIC--1.3%
5,000 Amoco Corp. 402,500
1,800 Atlantic Richfield Co. 238,500
5,000 Murphy Oil Corp. 278,125
16,700 Tesoro Petroleum Corp.* 233,800
------------
1,152,925
- ------------------------------------------------------------
OIL-INTEGRATED-INTERNATIONAL--3.4%
7,500 Chevron Corp. 487,500
14,200 Exxon Corp. 1,391,600
5,700 Royal Dutch Petroleum Co. 973,275
3,400 Texaco, Inc. 333,625
------------
3,186,000
- ------------------------------------------------------------
PAPER AND FOREST PRODUCTS--1.0%
25,000 Rayonier, Inc. 959,375
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
22
<PAGE>
THE GUARDIAN ASSET ALLOCATION FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
PHOTOGRAPHY--0.3%
4,000 Eastman Kodak Co. $ 321,000
- ------------------------------------------------------------
RAILROADS--0.9%
7,576 Burlington Northern Santa Fe 654,377
2,100 Norfolk Southern Corp.* 183,750
------------
838,127
- ------------------------------------------------------------
SEMICONDUCTOR--1.5%
2,000 Applied Magnetics Corp.* 59,750
10,500 Intel Corp.* 1,374,844
------------
1,434,594
- ------------------------------------------------------------
TEXTILE-APPAREL AND PRODUCTION--0.3%
2,300 Fruit of the Loom, Inc.* 87,113
2,100 Russell Corp. 62,475
2,000 V.F. Corp. 135,000
------------
284,588
- ------------------------------------------------------------
UTILITIES-COMMUNICATIONS--0.8%
3,800 Ameritech Corp. 230,375
5,100 Bellsouth Corp. 205,912
1,800 Sprint Corp. 71,775
3,200 SBC Communications, Inc. 165,600
2,000 360 Communications Co.* 46,250
------------
719,912
- ------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $46,089,213) 58,594,157
- ------------------------------------------------------------
- ------------------------------------------------------------
CORPORATE BONDS -- 2.1%
- ------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
$ 500,000 Burlington Northern Santa Fe Corp.
6.375% due 12/15/05 $ 479,075
500,000 Ford Motor Credit Mtn. Bk. Ent.
5.85% due 3/26/98 499,835
500,000 McDermott, Inc. Mtn. Bk. Ent.
6.57% due 4/20/98 500,050
500,000 Metropolitan Life Insurance Co.
6.30% due 11/1/03 483,130
- ------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $1,984,789) 1,962,090
- ------------------------------------------------------------
- ------------------------------------------------------------
U.S. GOVERNMENT SECURITIES -- 7.0%
- ------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
$3,500,000 U.S. Treasury Bills, 5.07%
due 3/6/97 $ 3,469,550
500,000 U.S. Treasury Notes, 5.625%
due 8/31/99 500,235
2,000,000 U.S. Treasury Notes, 6.875%
due 8/31/99 2,041,880
500,000 U.S. Treasury Notes, 5.875%
due 11/15/05 482,110
- ------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST $6,531,279) 6,493,775
- ------------------------------------------------------------
- ------------------------------------------------------------
MULTI CLASS MORTGAGE PASS-THROUGHS -- 2.1%
- ------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
$1,000,000 Federal Home Loan Mortgage
Corp., 7.00% due 3/15/21 $ 986,560
1,000,000 Federal National Mortgage
Assn., 6.25% due 7/25/07 988,750
- ------------------------------------------------------------
TOTAL MULTI CLASS MORTGAGE
PASS-THROUGHS
(COST $1,902,058) 1,975,310
- ------------------------------------------------------------
- ------------------------------------------------------------
OPTIONS -- 0.1%
- ------------------------------------------------------------
Number of
Contracts Value
- ------------------------------------------------------------
130 U.S. Treasury Note Future
6.875%, Expires March 1997,
Exercise price $111 $ 48,750
45 U.S. Treasury Bond Future
5.78%, Expires March 1997,
Exercise price $116 23,203
- ------------------------------------------------------------
TOTAL OPTIONS
(COST $225,109) 71,953
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
23
<PAGE>
THE GUARDIAN ASSET ALLOCATION FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
REPURCHASE AGREEMENT -- 25.9%
- ------------------------------------------------------------
Principal Maturity
Amount Date Value
- ------------------------------------------------------------
$24,190,000 State Street Bank & Trust
repurchase agreement,
dated 12/31/96, maturity
value $24,201,591, 5.75%,
due 1/2/97 (collateralized by
$24,460,000 U.S. Treasury
Notes, 6.00% due 5/31/98)
1/2/97 $ 24,190,000
- ------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $24,190,000) 24,190,000
- ------------------------------------------------------------
TOTAL INVESTMENTS--100.0%
(COST $80,922,448) 93,287,285
PAYABLES IN EXCESS OF CASH, RECEIVABLES
AND OTHER ASSETS--(0.0%) (21,397)
- ------------------------------------------------------------
NET ASSETS--100.0% $93,265,888
- ------------------------------------------------------------
- ------------------------------------------------------------
PURCHASED FUTURES CONTRACTS
- ------------------------------------------------------------
Unrealized
Contract Description Expiration Appreciation
- ------------------------------------------------------------
28 S&P 500 Stock March, 1997 $ 413,000
- ------------------------------------------------------------
At December 31, 1996 the Asset Allocation Fund had sufficient cash and/or
securities to cover margin requirements on open futures contracts and had set
aside $950,000 U.S. Treasury Bill due 3/6/97 as collateral.
- --------------------------------------------------------------------------------
See notes to financial statements.
24
<PAGE>
o THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
- ------------------------------------------------------------
COMMON STOCKS -- 98.6%
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
ARGENTINA--1.5%
BANK--0.3%
6,440 Banco Frances Del Rio la Plata $ 177,100
ELECTRIC UTILITIES--0.4%
13,900 Capex SA 231,087
OIL AND GAS--0.4%
37,900 Perez Companc SA 266,490
TELEPHONE--0.4%
8,800 Telefonica De Argentina SA 232,100
------------
906,777
- ------------------------------------------------------------
AUSTRALIA--4.3%
BANK--0.9%
86,000 Australia and NZ Bank Group 542,071
BUSINESS SERVICES--0.7%
22,400 Brambles Industries Ltd. 437,103
METALS AND MINING--0.4%
42,106 WMC 265,401
PETROLEUM SERVICES--1.7%
43,253 Broken Hill Proprietary 616,083
52,700 Woodside Petroleum 384,956
REAL ESTATE--0.6%
19,450 Lend Lease Corp. 377,220
------------
2,622,834
- ------------------------------------------------------------
AUSTRIA--0.1%
METALS AND MINING--0.1%
1,100 Boehler Uddeholm 78,727
- ------------------------------------------------------------
BRAZIL--1.3%
CONSUMER GOODS--0.2%
10,610 Companhia Cerveja Ria Brahma 114,057
METALS AND MINING--0.2%
3,985 Companhia Energetica De Minas 135,490
RETAIL-FOOD--0.2%
6,800 Companhia Brasileira De Distributor* 118,558
TELECOMMUNICATIONS--0.7%
5,200 Telecomunicacoes Brasileiras 397,800
------------
765,905
- ------------------------------------------------------------
CHILE--0.6%
ELECTRIC UTILITIES--0.6%
12,200 Enersis SA 338,550
- ------------------------------------------------------------
CZECH REPUBLIC--0.3%
BANK--0.3%
7,439 Komercni Banka 201,597
- ------------------------------------------------------------
FRANCE--5.5%
BANK--0.4%
2,100 Societe Generale 227,060
BROADCASTING--0.8%
2,330 Canal Plus* 514,634
BUILDING MATERIALS--0.4%
1,710 Cie De St Gobain 241,908
CONSUMER GOODS--0.5%
2,110 BIC 316,388
OIL-INTEGRATED--0.8%
5,550 Elf Aquitaine 505,207
RETAIL TRADE--2.6%
4,300 Castorama Dubois 740,079
1,500 Comptoirs Modernes 809,483
------------
3,354,759
- ------------------------------------------------------------
GERMANY--9.9%
AIR TRAVEL--0.7%
32,450 Lufthansa AG 442,845
AUTOMOBILE--1.1%
1,650 Volkswagen AG 686,249
BANKS--1.9%
22,800 Bayer Hypo Bank* 689,719
9,500 Deutsche Bank AG 443,885
CHEMICALS--3.0%
24,600 BASF AG 947,679
17,800 Hoechst AG 840,954
DRUGS AND HEALTH CARE--0.4%
4,100 GEHE AG 262,445
ENGINEERING AND TELECOMMUNICATIONS--1.5%
11,700 Deutsche Telekom* 246,728
1,570 Mannesmann AG 680,524
FOOTWEAR--1.0%
6,900 Adidas AG 596,374
SOFTWARE--0.3%
1,399 SAP AG 190,467
------------
6,027,869
- ------------------------------------------------------------
HONG KONG--5.7%
BANK--0.8%
42,000 Hang Seng Bank 510,440
CONGLOMERATES--2.5%
105,000 CITIC Pacific Ltd. 609,542
134,122 Hong Kong Land Holdings 372,859
64,000 Hutchison Whampoa* 502,683
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
25
<PAGE>
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
REAL ESTATE--1.8%
59,000 Henderson Land Development $ 594,996
71,000 New World Development Co. 479,637
TELEPHONE--0.6%
238,000 Hong Kong Telecommunications 383,102
------------
3,453,259
- ------------------------------------------------------------
HUNGARY--0.6%
FOOD AND BEVERAGE--0.3%
3,041 Pick Szeged RT* 179,978
PHARMACEUTICALS--0.3%
2,800 Richter Gedeon VEG. 162,400
------------
342,378
- ------------------------------------------------------------
IRELAND--0.3%
CONSTRUCTION MATERIALS--0.3%
19,500 CRH 202,237
- ------------------------------------------------------------
ITALY--4.4%
OIL-INTEGRATED--1.3%
156,000 Eni Spa* 800,567
TELEPHONE--2.1%
202,000 Telecom Italia 524,641
297,000 Telecom Italia MOB 750,821
TEXTILE-APPAREL AND PRODUCTION--1.1%
9,400 Gucci Group NV 631,567
------------
2,707,596
- ------------------------------------------------------------
JAPAN--27.8%
AUTOMOBILES--2.1%
4,200 Autobacs Seven Co. 297,021
43,000 Calsonic Corp. 239,116
26,000 Honda Motor Corp. 743,114
BUSINESS SERVICES--0.9%
9,000 Secom Co. 544,772
COMPUTER SYSTEMS--1.7%
36 NTT Data Comm. Systems 1,053,792
DRUGS AND HEALTH CARE--1.3%
19,000 Sankyo Co. 538,123
13,000 Santen Pharmaceutical Co. 269,407
ELECTRICAL EQUIPMENT--1.3%
42,000 Omron Corp. 790,605
ELECTRONICS--5.3%
55,000 Canon, Inc. 1,215,784
8,000 Kyocera Corp. 498,748
15,000 Rohm Co. 984,371
8,000 Sony Corp.* 524,307
FINANCIAL SERVICES--1.0%
12,600 Promise Co. 620,154
INDUSTRIAL MACHINERY--3.0%
78,000 Mitsubishi Heavy Ind. 619,636
93,000 NSK 563,734
9,400 SMC Corp. 632,294
INSURANCE--0.3%
19,000 Tokio Marine & Fire Ins. 178,827
LEISURE PRODUCTS--0.4%
1,900 Toho Co. 275,624
METALS-STEEL--0.8%
198,000 Sumitomo Metal Ind. 487,264
PHOTOGRAPHY--1.1%
20,000 Fuji Photo Film Co. 659,701
REAL ESTATE--1.0%
60,000 Mitsubishi Estate 616,527
RETAIL TRADE--3.8%
27,000 Jusco Co.* 916,242
32,000 Marui Co. 577,498
100,000 Mitsui & Co. 811,674
SECURITIES BROKER--1.1%
43,000 Nomura Securities Co. 646,058
TELECOMMUNICATIONS--1.2%
114 DDI Corp. 754,028
TIRES AND RUBBER--1.5%
47,000 Bridgestone Corp. 892,842
------------
16,951,263
- ------------------------------------------------------------
MALAYSIA--3.5%
BUILDING CONSTRUCTION--1.1%
72,000 United Engineers Berhad 650,010
CONGLOMERATES--0.9%
322,000 Renong Berhad 571,198
LEISURE TIME--0.7%
96,000 Resorts World Berhad 437,141
TELEPHONE--0.8%
54,000 Telekom Malaysia 481,093
------------
2,139,442
- ------------------------------------------------------------
MEXICO--0.9%
CONGLOMERATES--0.2%
28,100 Alfa SA* 129,755
FOOD, BEVERAGE AND TOBACCO--0.3%
3,800 Pan American Beverages, Inc. 178,125
TELECOMMUNICATIONS--0.4%
7,600 Telefonos de Mexico SA 250,800
------------
558,680
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
26
<PAGE>
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
NETHERLANDS--4.4%
BANK--1.6%
14,600 ABN Amro Holdings NV $ 950,501
BROADCASTING AND PUBLISHING--2.3%
38,500 Ver Ned Uitgevers 805,010
4,400 Wolters Kluwer NV 584,883
SEMI-CONDUCTOR EQUIPMENT--0.5%
6,850 ASM Lithography Hldg.* 342,401
------------
2,682,795
- ------------------------------------------------------------
NEW ZEALAND--0.8%
TELECOMMUNICATIONS--0.8%
97,000 Telecom Corp. of New Zealand 495,115
- ------------------------------------------------------------
POLAND -- 0.4%
CONGLOMERATE--0.4%
24,000 Elektrim 217,619
- ------------------------------------------------------------
SINGAPORE--1.9%
AIR TRAVEL--0.4%
28,000 Singapore Airlines 254,127
BANK--0.6%
27,617 Overseas Chinese Bank 343,412
CONGLOMERATE--0.4%
33,000 Keppel Corp. 257,057
PUBLISHING--0.5%
14,200 Singapore Press HD 280,083
------------
1,134,679
- ------------------------------------------------------------
SPAIN--1.2%
BANK--1.2%
11,000 Banco Santander SA 704,102
- ------------------------------------------------------------
SWEDEN--3.8%
BUSINESS SERVICES--1.1%
23,000 Securitas AB 669,438
CONGLOMERATE--1.4%
11,500 Incentive AB 834,690
CONSTRUCTION AND MINING EQUIPMENT--1.3%
33,200 Atlas Copco AB 808,106
------------
2,312,234
- ------------------------------------------------------------
SWITZERLAND--5.8%
BUSINESS SERVICES--0.9%
1,580 Adecco SA* 396,623
125 Danzas Holding 138,681
INDUSTRIAL MACHINERY--0.2%
90 Bobst AG 121,703
- ------------------------------------------------------------
INSURANCE--0.9%
960 Winterthur $ 555,129
PHARMACEUTICALS--3.8%
2,043 Novartis AG* 2,340,181
------------
3,552,317
- ------------------------------------------------------------
TAIWAN--0.4%
FINANCIAL--OTHER--0.3%
56,250 China Development 171,818
TRANSPORTATION--0.1%
57,780 Yang Ming Marine 76,480
------------
248,298
- ------------------------------------------------------------
UNITED KINGDOM--13.2%
BANK--0.5%
28,000 National Westminster Bk. Co. 329,073
CHEMICALS--0.2%
31,000 Allbright & Wilson 89,224
CONGLOMERATES--0.7%
90,051 BTR 434,663
DISTRIBUTOR--0.4%
20,000 Electrocomponents 157,958
29,000 Litho Supplies 109,800
DRUGS AND HEALTHCARE--1.5%
33,000 Glaxo Wellcome 537,091
13,700 Zeneca Group 386,097
ELECTRIC UTILITIES--0.3%
12,066 Yorkshire Electric Group 166,406
ELECTRONICS--0.3%
40,000 Rotork 176,460
ENGINEERING--0.7%
13,500 Siebe 250,711
5,800 Vosper Thorncroft 86,349
20,000 Weir Group 89,087
FINANCIAL SERVICES--0.2%
15,000 3i Group 125,150
FOOD, BEVERAGE AND TOBACCO--2.1%
30,000 Devro Int'l 138,256
46,000 Grand Metropolitan 360,939
20,000 Highland Distilleries 115,128
6,700 Iceland Group 9,757
50,800 Imperial Tobacco* 328,977
23,000 Whitbread 310,108
HOUSEHOLD PRODUCTS--0.5%
27,000 Life Sciences Int'l 40,706
19,950 Reckitt and Colman 247,111
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
27
<PAGE>
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
Shares Value
- ------------------------------------------------------------
INSURANCE--0.8%
10,000 Britannic Assurance $ 123,351
44,000 Prudential Corp. 370,875
LEISURE PRODUCTS--0.9%
27,000 Granada Group 399,195
14,000 Vendome Lux Group SA 127,360
NEWSPAPERS--0.5%
40,000 Mirror Group PLC 147,336
20,000 Southnews PLC 167,894
OIL-INTERNATIONAL--1.0%
50,000 British Petroleum 599,623
PAPER AND FOREST PRODUCTS--0.3%
18,000 De La Rue 177,317
RETAIL TRADE--0.8%
50,600 Dixons Group 470,718
SUPPORT SERVICES--0.1%
1,800 Dawson Holdings* 71,698
TELEPHONE--0.5%
77,000 Vodafone Group 325,835
TRANSPORTATION--0.9%
18,000 Associated British Ports 88,196
36,000 BAA 298,509
55,000 Firstbus 194,107
------------
8,051,065
- ------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $49,360,235) 60,050,097
- ------------------------------------------------------------
- ------------------------------------------------------------
CORPORATE BOND -- 0.7%
- ------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
$400,000 MBL Int'l. Finance, 3%
Exch. Guaranteed Nts.,
due 11/30/02 $425,000
- ------------------------------------------------------------
TOTAL CORPORATE BOND
(COST $400,000) 425,000
- ------------------------------------------------------------
- ------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.6%
- ------------------------------------------------------------
Principal Maturity
Amount Date Value
- ------------------------------------------------------------
$955,000 State Street Bank & Trust
repurchase agreement,
dated 12/31/96, maturity
value $955,378 at 4.75%, due
1/2/97 (collateralized by
$975,000 U.S. Treasury
Notes, 5.625% due
11/30/98) 1/2/97 $ 955,000
- ------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $955,000) 955,000
- ------------------------------------------------------------
TOTAL INVESTMENTS--100.9%
(COST $50,715,235) 61,430,097
PAYABLES IN EXCESS OF CASH, RECEIVABLES
AND OTHER ASSETS--(0.9%) (524,128)
- ------------------------------------------------------------
NET ASSETS--100.0% $60,905,969
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
28
<PAGE>
o THE GUARDIAN INVESTMENT QUALITY BOND FUND
- ------------------------------------------------------------
ASSET BACKED -- 24.0%
- ------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
$2,000,000 Advanta Cr. Card Mst. Tr.,
6.05% due 8/1/03 $ 1,974,360
1,000,000 Chemical Mst. Cr. Card Tr.,
5.55% due 9/15/03 970,930
1,000,000 Contimortgage Home Equity
Loan Tr., 6.85% due 4/15/44 1,007,180
1,000,000 Green Tree Financial Corp.,
6.35% due 11/15/26 999,680
1,500,000 Green Tree Financial Corp.,
5.85% due 3/15/27 1,449,840
1,274,252 Green Tree Financial Corp.,
6.10% due 4/15/27 1,268,276
500,000 Green Tree Financial Corp.,
6.90% due 4/15/27 495,780
1,500,000 Money Store Tr.,
6.98% due 8/15/10 1,511,100
500,000 Money Store Tr.,
7.25% due 7/15/13 507,500
1,000,000 Olympic Automobile Rec. Tr.,
5.95% due 11/15/99 1,000,000
1,000,000 UCFC Loan Tr.
7.18% due 1/15/25 997,900
- ------------------------------------------------------------
TOTAL ASSET BACKED
(COST $12,293,976) 12,182,546
- ------------------------------------------------------------
- ------------------------------------------------------------
COMMERCIAL MORTGAGE BACKED -- 2.0%
- ------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
$500,000 Donaldson, Lufkin, Jenrette
Mortgage Accep. Corp.,
7.67% due 2/12/06 $ 512,600
500,000 Mortgage Capital Funding, Inc.
7.90% due 2/15/06 521,250
- ------------------------------------------------------------
TOTAL COMMERCIAL MORTGAGE BACKED
(COST $1,008,274) 1,033,850
- ------------------------------------------------------------
- ------------------------------------------------------------
CORPORATE BONDS -- 31.7%
- ------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
CONTAINERS--2.0%
$1,000,000 Crown, Cork and Seal Fin. Plc.
7.00% due 12/15/06 $ 991,360
- ------------------------------------------------------------
DRUGS AND HOSPITAL--2.0%
1,000,000 Rhone Poulenc SA, 6.75%
due 10/15/99 1,008,110
- ------------------------------------------------------------
ELECTRONICS--2.0%
$1,000,000 Pioneer Std. Electronics, Inc.
8.50% due 8/1/06 1,013,100
- ------------------------------------------------------------
FINANCIAL-BANKS--5.9%
2,000,000 Comerica, Inc.,
7.25% due 8/1/07 2,012,720
1,000,000 First Union Instl.
8.04% due 12/1/26 997,250
------------
3,009,970
- ------------------------------------------------------------
FINANCIAL-MISCELLANEOUS--4.9%
500,000 Lehman Bros. Holdings, Inc.
7.25% due 10/15/03 501,060
500,000 Lehman Bros., Inc.
6.92% due 10/4/99 503,800
1,500,000 Salomon, Inc.,
6.75% due 2/15/03 1,469,115
------------
2,473,975
- ------------------------------------------------------------
INSURANCE--2.8%
1,500,000 Metropolitan Life Ins. Co.,
6.30% due 11/1/03 1,449,390
- ------------------------------------------------------------
MACHINERY AND INDUSTRIAL EQUIPMENT--1.0%
500,000 McDermott Int'l, Inc.,
6.57% due 4/20/98 500,050
- ------------------------------------------------------------
PAPER AND FOREST PRODUCTS--1.1%
500,000 Boise Cascade Corp.
9.85% due 6/15/02 565,435
- ------------------------------------------------------------
REAL ESTATE--2.9%
1,000,000 Post Apt. Homes
7.25% due 10/1/03 1,010,050
500,000 Simon DeBartolo Group
6.875% due 11/15/06 487,190
------------
1,497,240
- ------------------------------------------------------------
TELECOMMUNICATIONS--2.0%
1,000,000 TCI Communications,
7.25% due 6/15/99 1,002,820
- ------------------------------------------------------------
TOBACCO--1.0%
500,000 Bat Cap. Corp.
6.875% due 4/15/03 497,545
- ------------------------------------------------------------
UTILITIES--4.1%
2,000,000 Tenaga Nasional Berhad
7.875% due 6/15/04 2,103,620
- ------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $16,357,412) 16,112,615
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements.
29
<PAGE>
THE GUARDIAN INVESTMENT QUALITY BOND FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
MORTGAGE PASS-THROUGHS -- 19.7%
- ------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
$1,000,000 FNMA TBA
8.00% due 1/25/27 $ 1,009,843
492,844 FNMA Pool #250650
7.00% due 7/1/11 492,524
1,980,000 FNMA Pool #250799
7.50% due 12/1/26 1,979,624
459,872 FNMA Pool #311434
7.00% due 5/1/26 449,837
541,852 FNMA Pool #324501
7.00% due 5/1/26 530,028
1,842,223 FNMA Pool #337592
7.00% due 2/1/26 1,802,026
966,047 GNMA Pool #365459
7.50% due 10/15/25 967,747
977,092 GNMA Pool #398668
7.50% due 5/15/26 978,196
42,954 GNMA Pool #417608
7.50% due 12/15/26 43,002
264,873 GNMA Pool #419796
7.00% due 9/15/10 266,439
629,015 GNMA Pool #430152
7.50% due 12/15/26 629,726
505,000 GNMA Pool #431737
7.50% due 12/15/26 505,571
337,884 GNMA Pool #443174
7.50% due 12/15/26 336,891
- ------------------------------------------------------------
TOTAL MORTGAGE PASS-THROUGHS
(COST $10,080,541) 9,991,454
- ------------------------------------------------------------
- ------------------------------------------------------------
MULTI CLASS MORTGAGE PASS-THROUGHS -- 9.1%
- ------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
$ 335,624 Federal Home Loan Mortgage
Corp., 4.00% due 8/15/01 $ 333,838
1,000,000 Federal National Mortgage
Assn., 6.50% due 10/25/08 946,560
1,489,562 GE Capital Mortgage Svcs.,
Inc., 7.00% due 3/25/26 1,428,639
2,000,000 Securitized Asset Sales, Inc.,
7.41% due 4/25/24 1,936,000
- ------------------------------------------------------------
TOTAL MULTI CLASS
MORTGAGE PASS-THROUGHS
(COST $4,738,766) 4,645,037
- ------------------------------------------------------------
- ------------------------------------------------------------
U.S. GOVERNMENT -- 9.4%
- ------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
$1,000,000 U.S. Treasury Bonds, 6.875%
due 8/15/25 $ 1,019,690
2,000,000 U.S. Treasury Notes, 6.875%
due 8/31/99 2,041,880
1,200,000 U.S. Treasury Notes, 6.50%
due 10/15/06 1,206,564
500,000 U.S. Treasury Notes, 6.25%
due 10/31/01 500,470
- ------------------------------------------------------------
TOTAL U.S. GOVERNMENT
(COST $4,906,078) 4,768,604
- ------------------------------------------------------------
- ------------------------------------------------------------
YANKEE BONDS -- 2.0%
- ------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------
$1,000,000 Hydro Quebec Ser. "IU",
7.50% due 4/1/16 $ 1,010,710
- ------------------------------------------------------------
TOTAL YANKEE BOND
(COST $991,743) 1,010,710
- ------------------------------------------------------------
- ------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.5%
- ------------------------------------------------------------
Principal Maturity
Amount Date Value
- ------------------------------------------------------------
$1,784,000 State Street Bank & Trust
repurchase agreement,
dated 12/31/96, maturity
value $1,784,855, 5.75%, due
1/2/97 (collateralized by
$1,805,000 U.S. Treasury
Notes, 6.00% due
5/31/98) 1/2/97 $ 1,784,000
- ------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $1,784,000) 1,784,000
- ------------------------------------------------------------
TOTAL INVESTMENTS--101.4%
(COST $52,160,790) 51,528,816
PAYABLES IN EXCESS OF CASH, RECEIVABLES
AND OTHER ASSETS--(1.4%) (734,895)
- ------------------------------------------------------------
NET ASSETS--100.0% $ 50,793,921
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements.
30
<PAGE>
o THE GUARDIAN TAX-EXEMPT FUND
- ------------------------------------------------------------
MUNICIPAL BONDS -- 98.2%
- ------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- ------------------------------------------------------------
ARIZONA--4.5%
$1,000,000 Phoenix, AZ
Reference Ser. A
7.00%, due 7/1/10 Aa1/AA+ $ 1,174,660
530,000 Pima County, AZ
School District No. 16
Catalina Foothills,
6.50%, due 7/1/10 Aaa/AAA 598,725
------------
1,773,385
- ------------------------------------------------------------
CALIFORNIA--7.6%
595,000 California St. G.O.,
7.00%, due 10/1/10 A1/A 698,250
1,500,000 California St. Public
Works Lea Univ.
Projects Ser. A
5.50%, due 10/1/14 A/A 1,488,120
800,000 Los Angeles, CA
Variable Rate
Regional Airport Lease
4.15%, due 12/1/24 Aa2/NR 800,000
------------
2,986,370
- ------------------------------------------------------------
DELAWARE--4.3%
1,500,000 Wilmington, DE Hospital
Revenue, Variable Rate,
4.15%, due 7/1/11 Aa2/AA 1,500,000
200,000 Wilmington, DE Hospital
Revenue, Variable Rate,
Franciscan Health System
4.15%, due 7/1/11 Aa2/AA 200,000
------------
1,700,000
- ------------------------------------------------------------
FLORIDA--5.1%
465,000 Florida St. Board of
Educ. Cap. Outlay,
5.875%, due 6/1/12 Aa/AA 478,964
1,000,000 Florida St. Board of
Educ. Cap. Outlay,
5.55%, due 6/1/16 Aa/AA 1,001,910
500,000 Florida St. Division Board
of Fin. Dept. Series "A",
5.50%, due 7/1/12 Aaa/AAA 506,165
------------
1,987,039
- ------------------------------------------------------------
GEORGIA--3.3%
$1,300,000 Burke Cty., GA
Georgia Power Co.
Variable Rate
4.15%, due 7/1/24 A1/A+ 1,300,000
- ------------------------------------------------------------
ILLINOIS--2.8%
1,130,000 Springfield, IL Ser. C
5.375%, due 12/1/16 Aaa/AAA 1,089,806
- ------------------------------------------------------------
MASSACHUSETTS--5.3%
1,100,000 Massachusetts State
Ser. B, 4.00%,
due 12/1/97 Aa2/AA 1,100,000
1,000,000 Massachusetts
Water Res. Auth., Ser. A,
5.50%, due 11/1/16 Aaa/AAA 996,930
------------
2,096,930
- ------------------------------------------------------------
NEBRASKA--2.5%
1,000,000 Omaha, NE Pub. Pwr.
Dist. Elec. Rev.,
Series D, 5.25%,
due 2/1/13 Aa/AA 968,820
- ------------------------------------------------------------
NEW JERSEY--8.8%
1,200,000 NJ State Trans. System
Fd. Auth. Ser. B,
5.25%, due 6/15/15 Aa/A+ 1,166,136
500,000 NJ State Trans. System
Fd. Auth. Ser. A,
6.50%, due 6/15/05 Aaa/AAA 560,890
1,000,000 NJ State Tpk. Auth.
Tpk. Rev. Ser. C,
6.50%, due 1/1/16 Aaa/AAA 1,131,610
500,000 NJ Waste and Water
Treatment Ref. Ser. C,
7.00%, due 5/15/08 Aaa/AAA 582,825
------------
3,441,461
- ------------------------------------------------------------
NEW YORK--11.9%
1,500,000 New York City G.O.
Ser. E, 5.875%,
due 8/1/13 Baa1/BBB+ 1,475,745
750,000 New York City Mun.
Water Fin. Auth.,
Rev. Ser. A,
5.875%, due 6/15/13 Aaa/AAA 794,820
1,000,000 New York State G.O.
Ser. A, 5.30%
due 7/15/15 A/A- 969,570
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Unaudited
31
<PAGE>
THE GUARDIAN TAX-EXEMPT FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- ------------------------------------------------------------
NEW YORK--(CONTINUED)
$ 500,000 New York State G.O.
Ser. A, 5.875%
due 3/15/15 A/A- $ 512,680
850,000 Triborough Bridge &
Tunnel Auth. Rev.
Bond Ser. Y,
6.00% due 1/1/12 Aa/A+ 912,407
------------
4,665,222
- ------------------------------------------------------------
OHIO--9.3%
1,000,000 Cleveland, OH Pkg. Facs. Rev.
5.50% due 9/15/16 Aaa/AAA 998,120
500,000 Columbus, OH Water
System Rev., 6.10%
due 11/1/03 A1/AA- 541,475
1,000,000 Ohio St. Bldg. Auth.
Disalle Gov't Ctr.
Ser. A, 6.00%
due 10/1/05 Aa3/AA- 1,082,230
1,000,000 Ohio St. Tpk. Comm.
Tpk. Rev. Ser. A,
5.70%, due 2/15/17 Aaa/AAA 1,015,160
------------
3,636,985
- ------------------------------------------------------------
OKLAHOMA--3.4%
1,000,000 Grand River Dam
Auth. Rev., Ref.
Ambac Ters., 5.50%
due 6/1/11 Aaa/AAA 1,039,680
270,000 Grand River Dam
Auth. Rev., 6.25%
due 6/1/11 Aaa/AAA 297,772
------------
1,337,452
- ------------------------------------------------------------
PENNSYLVANIA--2.5%
$1,000,000 Pennsylvania St.
First Ser., 5.375%,
due 5/15/15 Aaa/AAA 989,580
- ------------------------------------------------------------
SOUTH CAROLINA--2.6%
1,000,000 Oconee Cty., SC
Pollution Ctrl., Rev.
5.80% due 4/1/14 Aa2/AA- 1,021,250
- ------------------------------------------------------------
TENNESSEE--1.3%
500,000 Sullivan Cty. Ind'l Dev't
Rev., Variable Rate
4.15% due 10/1/16 NR/AAA 500,000
- ------------------------------------------------------------
TEXAS--9.7%
1,050,000 Bryan, TX
Indpt. Sch. Dist.
5.50% due 2/15/17 Aaa/NR 1,041,726
500,000 Grapevine-Colleyville, TX
Indpt. Sch. Dist.
8.25% due 6/15/08 Aaa/AAA 634,105
1,490,000 Harris Cty., TX
Criminal Justice Ctr.
5.50% due 10/1/16 Aa/AA 1,488,972
555,000 Texas St. Water Dev't.
Ser. A, 6.50%
due 8/1/05 Aa/AA 622,993
------------
3,787,796
- ------------------------------------------------------------
UTAH--4.1%
1,500,000 Intermountain Power Agency
Utah Power Supply
7.75% due 7/15/20 Aa/A+ 1,596,780
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
* Unaudited See notes to financial statements.
32
<PAGE>
THE GUARDIAN TAX-EXEMPT FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- ------------------------------------------------------------
VIRGINIA--9.2%
$1,000,000 Fairfax Cty., VA
5.70% due 7/15/17 A1/AA $ 1,007,120
1,470,000 Virginia St.
Public Sch. Auth.
Ser. B, 5.125%
due 8/1/14 Aa/AA 1,423,431
1,225,000 Virginia St.
Transportation Board Rev.
Ser. A, 5.125%
due 5/15/16 Aa/AA 1,168,344
------------
3,598,895
- ------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $37,845,023) 38,477,771
- ------------------------------------------------------------
TOTAL INVESTMENTS--98.2%
(COST $37,845,023) 38,477,771
CASH, RECEIVABLES AND OTHER ASSETS
LESS PAYABLES 1.8% 707,417
- ------------------------------------------------------------
NET ASSETS--100.0% $ 39,185,188
- ------------------------------------------------------------
GLOSSARY:
G.O.--GENERAL OBLIGATION.
- --------------------------------------------------------------------------------
See notes to financial statements. * Unaudited
33
<PAGE>
O THE GUARDIAN CASH MANAGEMENT FUND
- ------------------------------------------------------------
COMMERCIAL PAPER -- 92.8%
- ------------------------------------------------------------
Principal Maturity
Amount Date Value
- ------------------------------------------------------------
FINANCIAL--34.6%
BANK HOLDING COMPANIES--7.7%
$3,500,000 J.P. Morgan & Co., Inc.,
5.39% 1/13/97 $ 3,493,712
3,500,000 Republic NY Corp.,
5.34% 1/23/97 3,488,578
------------
6,982,290
- ------------------------------------------------------------
FINANCE COMPANIES--11.5%
3,500,000 Associates Corp. of N.A.,
5.31% 1/15/97 3,492,772
3,500,000 National Rural Utils. Cooperative
Finance, 5.31% 2/6/97 3,481,415
3,500,000 U.S. Central Credit Union
5.30% 1/24/97 3,488,149
------------
10,462,336
- ------------------------------------------------------------
INSURANCE--MULTI LINE--3.9%
3,500,000 American General Corp.
5.31% 1/10/97 3,495,354
- ------------------------------------------------------------
OTHER MAJOR BANKS--11.5%
3,500,000 Commerzbank U.S. Fin.,
5.41% 1/6/97 3,497,370
3,500,000 Dresdner U.S. Finance
5.50% 1/27/97 3,486,097
3,500,000 UBS Finance Delaware, Inc.
6.25% 1/2/97 3,499,392
------------
10,482,859
- ------------------------------------------------------------
Total Financial 31,422,839
- ------------------------------------------------------------
INDUSTRIAL--58.2%
AEROSPACE AND DEFENSE--3.9%
3,500,000 Raytheon Co.,
5.34% 1/17/97 3,491,693
- ------------------------------------------------------------
AUTOMOTIVE--3.8%
3,500,000 Toyota Motor Credit
Co., 5.29% 2/3/97 3,483,028
- ------------------------------------------------------------
CHEMICALS--3.8%
3,500,000 Monsanto Co.,
5.38% 1/14/97 3,493,200
- ------------------------------------------------------------
CONGLOMERATES--3.9%
3,500,000 General Electric Cap.
Corp., 5.31% 1/8/97 3,496,386
- ------------------------------------------------------------
CONTAINERS--METALS AND PLASTIC--3.8%
3,500,000 Sonoco Products Co.
5.43% 1/21/97 3,489,442
- ------------------------------------------------------------
ELECTRIC UTILITIES--3.8%
$3,500,000 Alabama Power Co.
5.34% 2/13/97 $ 3,477,676
- ------------------------------------------------------------
FOOD AND BEVERAGE--7.7%
3,500,000 Campbell Soup Co.
5.35% 1/31/97 3,484,396
3,500,000 H.J. Heinz Co.,
5.37% 1/22/97 3,489,036
------------
6,973,432
- ------------------------------------------------------------
MACHINERY AND INDUSTRIAL EQUIPMENT--3.9%
3,500,000 John Deere Capital
Corp., 5.38% 1/9/97 3,495,816
- ------------------------------------------------------------
OIL SERVICES--3.8%
3,500,000 Colonial Pipeline
Co., 5.35% 2/19/97 3,474,513
- ------------------------------------------------------------
PAPER AND FOREST PRODUCTS--3.9%
3,500,000 Westvaco Corp.
5.35% 1/16/97 3,492,198
- ------------------------------------------------------------
PUBLISHING-NEWS--7.7%
3,500,000 Gannett, Inc.,
5.50% 1/29/97 3,485,028
3,500,000 Knight Ridder, Inc.
5.30% 1/13/97 3,493,817
------------
6,978,845
- ------------------------------------------------------------
TELECOMMUNICATIONS--8.2%
4,000,000 American Telephone and
Telegraph Co., 5.55% 1/3/97 3,998,768
3,500,000 Bell Atlantic Financial
Svcs., 5.53% 1/15/97 3,492,473
------------
7,491,241
- ------------------------------------------------------------
Total Industrial 52,837,470
- ------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(COST $84,260,309) $ 84,260,309
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements.
34
<PAGE>
THE GUARDIAN CASH MANAGEMENT FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.6%
- ------------------------------------------------------------
Principal Maturity
Amount Date Value
- ------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.6%
$3,308,000 State Street Bank & Trust
repurchase agreement,
dated 12/31/96, maturity
value $3,309,585, 5.75%, due
1/2/97 (collateralized by
$3,345,000 U.S. Treasury
Notes, 6.00% due
5/31/98) 1/2/97 $ 3,308,000
- ------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $3,308,000) 3,308,000
- ------------------------------------------------------------
TOTAL INVESTMENTS -- 96.4%
(COST $87,568,309) 87,568,309
CASH, RECEIVABLES AND OTHER ASSETS
LESS PAYABLES -- 3.6% 3,231,492
- ------------------------------------------------------------
NET ASSETS -- 100.0% $90,799,801
- ------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements.
35
<PAGE>
- --------------------
FINANCIAL STATEMENTS
- --------------------
O THE PARK AVENUE PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN
PARK AVENUE ASSET BAILLIE GIFFORD INVESTMENT TAX-EXEMPT CASH
FUND ALLOCATION INTERNATIONAL QUALITY FUND MANAGEMENT
FUND FUND BOND FUND FUND
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at identified cost* .... $1,076,903,343 $ 80,922,448 $ 50,715,235 $ 52,160,790 $ 37,845,023 $ 87,568,309
============================================================================================
Investments, at market .............. 1,345,276,138 69,097,285 60,475,097 49,744,816 38,477,771 84,260,309
Repurchase agreements ............... 79,179,000 24,190,000 955,000 1,784,000 -- 3,308,000
--------------------------------------------------------------------------------------------
TOTAL INVESTMENTS ................ 1,424,455,138 93,287,285 61,430,097 51,528,816 38,477,771 87,568,309
Cash ................................ 22 713 2,876 12,956 200,658 496,328
Foreign currency (Cost $898,718) .... -- -- 888,984 -- -- --
Receivable for securities sold ...... 32,066,379 1,781,107 -- -- -- --
Receivable for fund shares sold ..... 5,022,025 334,184 215,812 62,309 50 3,714,802
Dividends receivable ................ 1,705,117 70,971 60,683 -- -- --
Interest receivable ................. 17,758 89,732 1,159 470,375 556,635 529
Deferred organization
expenses-- Note 6.................. -- 4,262 4,462 4,261 4,261 --
Foreign tax receivable .............. -- 224 34,857 -- -- --
Other Receivable .................... -- -- -- -- 426 --
--------------------------------------------------------------------------------------------
TOTAL ASSETS ..................... 1,463,266,439 95,568,478 62,638,930 52,078,717 39,239,801 91,779,968
--------------------------------------------------------------------------------------------
LIABILITIES
Payable for securities purchased .... 21,011,921 673,264 422,532 1,022,733 -- --
Distributions payable ............... 4,769,564 121,405 24,182 17,513 8,560 14,684
Payable for fund shares redeemed .... 6,385,750 968,671 1,001,013 145,244 2,349 779,100
Margin variation payable ............ -- 204,400 -- -- -- --
Accrued expenses .................... 365,762 41,438 46,491 870 -- 47,169
Foreign tax withholding ............. -- -- 5,006 -- -- --
Due to affiliates ................... 2,542,070 293,412 233,737 98,436 43,704 139,214
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES ................ 35,075,067 2,302,590 1,732,961 1,284,796 54,613 980,167
--------------------------------------------------------------------------------------------
NET ASSETS ....................... $1,428,191,372 $ 93,265,888 $ 60,905,969 $ 50,793,921 $ 39,185,188 $ 90,799,801
============================================================================================
</TABLE>
* Includes repurchase agreements
See notes to financial statements.
36 & 37
<PAGE>
O THE PARK AVENUE PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN
PARK AVENUE ASSET BAILLIE GIFFORD INVESTMENT
FUND ALLOCATION INTERNATIONAL QUALITY
FUND FUND BOND FUND
-------------------------------------------------------------
<S> <C> <C> <C> <C>
COMPONENTS OF NET ASSETS
Shares of beneficial interest of $0.01
par value outstanding (unlimited number
of shares authorized);
Class A ..................................... $ 367,246 $ 68,053 $ 37,839 $ 52,355
Class B ..................................... 9,501 3,928 2,192 --
Paid-in capital ............................... 1,051,942,167 78,874,327 50,305,814 52,131,907
Undistributed/(overdistributed)
net investment income ........................ -- 7,985 (125,488) --
Accumulated net realized gain/(loss)
on investments and foreign currency
related transactions ......................... 28,320,663 1,011,396 (23,101) (758,367)
Net unrealized appreciation/(depreciation)
of investments and foreign currency
related transactions ......................... 347,551,795 13,300,199 10,708,713 (631,974)
-------------------------------------------------------------
NET ASSETS ................................. $1,428,191,372 $ 93,265,888 $ 60,905,969 $ 50,793,921
=============================================================
NET ASSETS:
Class A ...................................... $1,392,185,697 $ 88,190,480 $ 57,593,199 $ 50,793,921
Class B ...................................... $ 36,005,675 $ 5,075,408 $ 3,312,770 N/A
Shares of beneficial interest of $0.01
par value
Class A ...................................... 36,724,597 6,805,322 3,783,949 5,235,512
Class B ...................................... 950,095 392,750 219,163 N/A
NET ASSET VALUE PER SHARE
Class A ...................................... $37.91 $12.96 $15.22 $ 9.70
Class B ...................................... $37.90 $12.92 $15.12 N/A
MAXIMUM OFFERING PRICE PER SHARE
Class A Only (Net Asset Value x 104.71%)* .... $39.70 $13.57 $15.94 $10.16
</TABLE>
THE GUARDIAN THE GUARDIAN
TAX-EXEMPT CASH
FUND MANAGEMENT
FUND
--------------------------
COMPONENTS OF NET ASSETS
Shares of beneficial interest of $0.01
par value outstanding (unlimited number
of shares authorized);
Class A ..................................... $ 40,782 $ 882,172
Class B ..................................... -- 25,826
Paid-in capital ............................... 39,661,851 89,891,803
Undistributed/(overdistributed)
net investment income ........................ -- --
Accumulated net realized gain/(loss)
on investments and foreign currency
related transactions ......................... (1,150,193) --
Net unrealized appreciation/(depreciation)
of investments and foreign currency
related transactions ......................... 632,748 --
--------------------------
NET ASSETS ................................. $ 39,185,188 $ 90,799,801
==========================
NET ASSETS:
Class A ...................................... $ 39,185,188 $ 88,217,231
Class B ...................................... N/A $ 2,582,570
Shares of beneficial interest of $0.01
par value
Class A ...................................... 4,078,222 88,217,231
Class B ...................................... N/A 2,582,570
NET ASSET VALUE PER SHARE
Class A ...................................... $ 9.61 $ $1.00
Class B ...................................... N/A $ $1.00
MAXIMUM OFFERING PRICE PER SHARE
Class A Only (Net Asset Value x 104.71%)* .... $10.06 N/A**
* Based on sale of less than $100,000. On sales of $100,000 or more, the
offering price is reduced.
** No-load fund.
See notes to financial statements.
38 & 39
<PAGE>
O THE PARK AVENUE PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE GUARDIAN THE GUARDIAN HE GUARDIAN THE GUARDIAN
PARK AVENUE ASSET BAILLIE GIFFORD INVESTMENT
FUND ALLOCATION INTERNATIONAL QUALITY
FUND FUND BOND FUND
-----------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME:
Dividends ...................................... $ 19,019,449 $ 919,428 $ 1,053,816 $ --
Interest ....................................... 4,185,365 1,601,095 113,507 3,362,395
Other Income ................................... 46,889 -- -- --
-----------------------------------------------------------
23,251,703 2,520,523 1,167,323 3,362,395
Less: Foreign tax withheld ..................... 54,912 1,901 119,589 --
-----------------------------------------------------------
Total Income ................................ 23,196,791 2,518,622 1,047,734 3,362,395
-----------------------------------------------------------
EXPENSES:
Investment advisory fees -- Note 2 ............. 5,851,464 510,556 423,523 259,454
12b-1 fees -- Note 3 ........................... 570,546 74,431 46,063 44,517
Administrative fees ............................ 1,106,372 181,507 91,345 86,597
Transfer agent fees ............................ 1,278,475 119,847 115,075 76,264
Custodian fees ................................. 236,597 83,005 162,806 50,278
Printing expense ............................... 139,575 13,027 15,166 6,944
Registration fees .............................. 136,561 19,626 15,572 12,450
Audit fees ..................................... 20,500 17,000 21,000 17,500
Trustees fees -- Note 2 ........................ 18,300 18,300 18,300 18,300
Legal fees ..................................... 12,296 2,882 3,749 2,550
Insurance expense .............................. 9,028 657 415 512
Other .......................................... 705 705 705 705
Deferred organization expense -- Note 6 ........ -- 3,374 3,246 3,375
-----------------------------------------------------------
Total Expenses .............................. 9,380,419 1,044,917 916,965 579,446
Less: Expenses assumed by
investment adviser -- Note 2 ............ -- -- -- 187,900
-----------------------------------------------------------
Expenses Net of Reimbursement ............... 9,380,419 1,044,917 916,965 391,546
-----------------------------------------------------------
NET INVESTMENT INCOME ........................... 13,816,372 1,473,705 130,769 2,970,849
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS AND CURRENCIES -- NOTE 4
Net realized gain/(loss) on investments --
Note 1 ....................................... 140,062,592 4,725,802 1,063,178 (40,548)
Net realized loss on foreign currencies --
Note 1 ....................................... -- -- (50,000) --
Net change in unrealized appreciation/
(depreciation) of investments -- Note 4 ....... 128,623,359 8,063,867 6,065,662 (1,670,508)
Net change in unrealized appreciation
from translation of assets and liabilities
in foreign currencies -- Note 4 ............... -- -- (93,932) --
-----------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND CURRENCIES .................. 268,685,951 12,789,669 6,984,908 (1,711,056)
-----------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................... $282,502,323 $14,263,374 $7,115,677 $ 1,259,793
===========================================================
</TABLE>
THE GUARDIAN THE GUARDIAN
TAX-EXEMPT CASH
FUND MANAGEMENT
FUND
--------------------------
INVESTMENT INCOME
INCOME:
Dividends ...................................... $ -- $ --
Interest ....................................... 1,195,861 4,291,477
Other Income ................................... 2,755 --
--------------------------
1,198,616 4,291,477
Less: Foreign tax withheld ..................... -- --
--------------------------
Total Income ................................ 1,198,616 4,291,477
--------------------------
EXPENSES:
Investment advisory fees -- Note 2 ............. 105,144 388,947
12b-1 fees -- Note 3 ........................... 10,577 63,199
Administrative fees ............................ 40,748 124,408
Transfer agent fees ............................ 35,550 221,129
Custodian fees ................................. 29,783 61,347
Printing expense ............................... 1,861 13,027
Registration fees .............................. 19,139 22,713
Audit fees ..................................... 17,000 17,000
Trustees fees -- Note 2 ........................ 18,300 18,300
Legal fees ..................................... 2,342 2,782
Insurance expense .............................. 162 702
Other .......................................... 705 705
Deferred organization expense -- Note 6 ........ 3,375 --
--------------------------
Total Expenses .............................. 284,686 934,259
Less: Expenses assumed by
investment adviser -- Note 2 ............ 128,217 232,432
--------------------------
Expenses Net of Reimbursement ............... 156,469 701,827
--------------------------
NET INVESTMENT INCOME ........................... 1,042,147 3,589,650
--------------------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS AND CURRENCIES -- NOTE 4
Net realized gain/(loss) on investments --
Note 1 ....................................... 55,933 --
Net realized loss on foreign currencies --
Note 1 ....................................... -- --
Net change in unrealized appreciation/
(depreciation) of investments -- Note 4 ....... 95,313 --
Net change in unrealized appreciation
from translation of assets and liabilities
in foreign currencies -- Note 4 ............... -- --
--------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND CURRENCIES .................. 151,246 --
--------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................... $1,193,393 $3,589,650
==========================
See notes to financial statements.
40 & 41
<PAGE>
O THE PARK AVENUE PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE GUARDIAN THE GUARDIAN
PARK AVENUE ASSET
FUND ALLOCATION
FUND
-------------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income .......................... $ 13,816,372 $ 8,735,936 $ 1,473,705 $ 1,235,786
Net realized gain/(loss) on investments and
foreign currency related transactions ......... 140,062,592 84,973,348 4,725,802 7,181,242
Net change in unrealized appreciation/
(depreciation) of investments and foreign
currency related transactions ................. 128,623,359 138,277,500 8,063,867 4,938,809
-----------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... 282,502,323 231,986,784 14,263,374 13,355,837
-----------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS:
Net investment income:
Class A ....................................... (13,778,621) (8,718,311) (1,460,511) (1,226,150)
Class B ....................................... (37,751) -- (13,194) --
Distributions in excess of net investment income
Class A ....................................... (358,731) -- (11,667) --
Class B ....................................... (7,535) -- (889) --
Net realized gain on investments and
foreign currency related transactions:
Class A ....................................... (146,944,706) (48,212,589) (7,495,631) (1,870,130)
Class B ....................................... (2,841,272) -- (291,381) --
-----------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS .......... (163,968,616) (56,930,900) (9,273,273) (3,096,280)
-----------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net increase/(decrease) in net assets from
capital share transactions -- Note 7
Class A ....................................... 301,588,369 156,301,684 12,681,632 5,456,777
Class B ....................................... 35,794,701 -- 5,002,827 --
-----------------------------------------------------------------
337,383,070 156,301,684 17,684,459 5,456,777
-----------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS ........... 455,916,777 331,357,568 22,674,560 15,716,334
NET ASSETS:
Beginning of year ............................... 972,274,595 640,917,027 70,591,328 54,874,994
-----------------------------------------------------------------
End of year* .................................... $ 1,428,191,372 $ 972,274,595 $ 93,265,888 $ 70,591,328
=================================================================
* Includes undistributed/(overdistributed)
net investment income of ...................... $ -- $ -- $ 7,985 $ --
</TABLE>
<TABLE>
<CAPTION>
THE GUARDIAN THE GUARDIAN
BAILLIE GIFFORD INVESTMENT
INTERNATIONAL QUALITY
FUND BOND FUND
---------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income .......................... $ 130,769 $ 96,199 $ 2,970,849 $ 3,120,590
Net realized gain/(loss) on investments and
foreign currency related transactions ......... 1,013,178 2,029,619 (40,548) 1,517,768
Net change in unrealized appreciation/
(depreciation) of investments and foreign
currency related transactions ................. 5,971,730 2,580,019 (1,670,508) 3,094,239
------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... 7,115,677 4,705,837 1,259,793 7,732,597
------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS:
Net investment income:
Class A ....................................... (150,910) (96,199) (2,970,849) (3,120,590)
Class B ....................................... (7,962) -- -- --
Distributions in excess of net investment income
Class A ....................................... (208,284) (743,480) -- --
Class B ....................................... (28,103) -- -- --
Net realized gain on investments and
foreign currency related transactions:
Class A ....................................... (714,593) (1,895,322) -- --
Class B ....................................... (40,907) -- -- --
------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS .......... (1,150,759) (2,735,001) (2,970,849) (3,120,590)
------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net increase/(decrease) in net assets from
capital share transactions -- Note 7
Class A ....................................... 7,178,160 5,032,799 (1,201,353) 5,607,609
Class B ....................................... 3,217,127 -- -- --
------------------------------------------------------------
10,395,287 5,032,799 (1,201,353) 5,607,609
------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS ........... 16,360,205 7,003,635 (2,912,409) 10,219,616
NET ASSETS:
Beginning of year ............................... 44,545,764 37,542,129 53,706,330 43,486,714
------------------------------------------------------------
End of year* .................................... $ 60,905,969 $ 44,545,764 $ 50,793,921 $ 53,706,330
============================================================
* Includes undistributed/(overdistributed)
net investment income of ...................... $ (125,488) $ (134,884) $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
THE GUARDIAN THE GUARDIAN
TAX-EXEMPT CASH
FUND MANAGEMENT
FUND
---------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income .......................... $ 1,042,147 $ 778,854 $ 3,589,650 $ 3,395,963
Net realized gain/(loss) on investments and
foreign currency related transactions ......... 55,933 (208,582) -- --
Net change in unrealized appreciation/
(depreciation) of investments and foreign
currency related transactions ................. 95,313 1,687,682 -- --
---------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... 1,193,393 2,257,954 3,589,650 3,395,963
---------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS:
Net investment income:
Class A ....................................... (1,042,148) (778,854) (3,542,728) (3,395,963)
Class B ....................................... -- -- (46,922) --
Distributions in excess of net investment income
Class A ....................................... -- -- -- --
Class B ....................................... -- -- -- --
Net realized gain on investments and
foreign currency related transactions:
Class A ....................................... -- -- -- --
Class B ....................................... -- -- -- --
---------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS .......... (1,042,148) (778,854) (3,589,650) (3,395,963)
---------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net increase/(decrease) in net assets from
capital share transactions -- Note 7
Class A ....................................... 21,532,694 55,107 18,304,224 13,182,759
Class B ....................................... -- -- 2,582,569 --
---------------------------------------------------------
21,532,694 55,107 20,886,793 13,182,759
---------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS ........... 21,683,939 1,534,207 20,886,793 13,182,759
NET ASSETS:
Beginning of year ............................... 17,501,249 15,967,042 69,913,008 56,730,249
---------------------------------------------------------
End of year* .................................... $ 39,185,188 $ 17,501,249 $ 90,799,801 $ 69,913,008
=========================================================
* Includes undistributed/(overdistributed)
net investment income of ........................ $ -- $ -- $ -- $ --
</TABLE>
See notes to financial statements.
42 & 43
<PAGE>
- --------------------
NOTES TO
FINANCIAL STATEMENTS
- --------------------
December 31, 1996
THE PARK AVENUE PORTFOLIO
o THE GUARDIAN PARK AVENUE FUND
o THE GUARDIAN ASSET ALLOCATION FUND
o THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
o THE GUARDIAN INVESTMENT QUALITY BOND FUND
o THE GUARDIAN TAX-EXEMPT FUND
o THE GUARDIAN CASH MANAGEMENT FUND
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
The Park Avenue Portfolio (the Portfolio) is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended (the 1940 Act), which is organized as a business trust under
the laws of the Commonwealth of Massachusetts. Shares of the Portfolio are
offered in six series; namely: The Guardian Park Avenue Fund (GPAF); The
Guardian Asset Allocation Fund (GAAF); The Guardian Baillie Gifford
International Fund (GBGIF); The Guardian Investment Quality Bond Fund (GIQBF);
The Guardian Tax-Exempt Fund (GTEF); and The Guardian Cash Management Fund
(GCMF). The series are collectively referred to herein as the "Portfolio Funds".
GPAF, GAAF, GBGIF and GCMF (the Funds) offer two classes of shares. All
shares existing prior to May 1, 1996, were classified as Class A shares. Class A
shares are sold with an initial sales charge of up to 4.50% and a continuing
administrative fee of up to .25% on an annual basis. Class B shares are sold
without an initial sales charge but are subject to a distribution fee of .75%
and an administrative fee of up to .25% on an annual basis, and a contingent
deferred sales load (CDSL) of 4% imposed on certain redemptions. The two classes
of shares for each fund represent interests in the same portfolio of
investments, have the same rights and are generally identical in all respects
except that each class bears its separate distribution and certain class
expenses, and has exclusive voting rights with respect to any matter to which a
separate vote of any class is required.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Investment in foreign securities are vulnerable to the effects of
changes in the relative values of the local currency and the U.S. dollar and to
the effects of changes in each country's legal, political and economic
environment.
Investments
Equity and debt securities listed on domestic or foreign securities
exchanges are valued at the closing sales prices on such exchanges, or lacking
any sales, at the mean between closing bid and asked prices. Securities traded
in the over-the-counter market are valued using the last sales 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.
Certain debt securities may be valued each business day by an independent
pricing service (Service) approved by the Board of Trustees. Debt securities for
which quoted bid prices, in the judgment of the Service, are readily available
and representative of the bid side
44
<PAGE>
of the market, are valued at the mean between the quoted bid prices (as obtained
by the Service from dealers in such securities) and asked prices (as calculated
by the Service based upon its evaluation of the market for such securities).
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 Portfolio Funds' Board of Trustees.
Repurchase agreements are carried at cost which approximates market value
(see Note 5). Short-term securities held by the Portfolio Funds are valued on an
amortized cost basis which approximates market value but does not take into
account unrealized gains and losses. GCMF 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.
Investing outside of the U.S. may involve certain considerations and risks
not typically associated with domestic investments, including the possibility of
political and economic unrest and different levels of governmental supervision
and regulation of foreign securities markets.
Net realized gain or loss on sales of investments is determined on the
basis of identified cost. Interest income, including amortization of premium and
discount, is recorded when earned. Dividends are recorded on the ex-dividend
date.
All income, expenses (other than class-specific expenses) and realized and
unrealized gains or losses are allocated daily to each class of shares based
upon the relative value of shares of each class. Class-specific expenses which
include distribution and service fees and any other items that are specifically
attributed to a particular class, are charged directly to such class. For the
year ended December 31, 1996, distribution, administrative and transfer agent
fees were the only class-specific expenses.
Foreign Currency Translation
Only GBGIF is permitted to buy international securities that are not U.S.
dollar denominated. GBGIF's books and records are maintained in U.S. dollars as
follows:
(1) The foreign currency market value of investment securities and
other assets and liabilities stated in foreign currencies are translated
into U.S. dollars at the current rate of exchange.
(2) Purchases, sales, income and expenses are translated at the rate
of exchange prevailing on the respective dates of such transactions.
The resulting gains and losses are included in the Statement of
Operations.
Realized foreign exchange gains and losses, which result from changes in
foreign exchange rates between the date on which a Portfolio Fund earns
dividends and interest or pays foreign withholding taxes or other expenses and
the date on which U.S. dollar equivalent amounts are actually received or paid,
are included in net realized gain on foreign currencies. Realized foreign
exchange gains and losses which result from changes in foreign exchange rates
between the trade and settlement dates on security and currency transactions are
also included in net realized gain on foreign currencies. Net currency gains and
losses from valuing investments and other assets and liabilities denominated in
foreign currency as of December 31, 1996 are reflected in net change in
unrealized appreciation or depreciation from translation of assets and
liabilities in foreign currencies based on the applicable exchange rate in
effect at the end of the period.
Forward Foreign Currency Contracts
GBGIF 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 exchange currency contract is a
commitment
45
<PAGE>
to purchase or sell a foreign currency at a future date at a negotiated forward
exchange rate. Fluctuations in the value of forward foreign currency contracts
are recorded for book purposes as unrealized gains or losses from translation of
assets and liabilities in foreign currencies by GBGIF. When a forward contract
is closed, GBGIF records a realized gain or loss equal to the difference between
the value of the forward contract at the time it was opened and the value at the
time it was closed. Such amount is recorded in net realized gain or loss on
foreign currencies. GBGIF will not enter into a forward foreign currency
contract if such contract would obligate it to deliver an amount of foreign
currency in excess of the value of its portfolio securities or other assets
denominated in that currency.
Futures Contracts
The Fund may enter into financial futures contracts for the delayed
delivery of securities, currency or contracts based on financial indices at a
fixed price on a future date. In entering such contracts, the Fund is required
to deposit either in cash or securities an amount equal to a certain percentage
of the contract amount. Subsequent payments are made or received by the Fund
each day, depending on the daily fluctuations in the value of the underlying
security, and are recorded for financial statement purposes as unrealized gains
or losses by the Fund. The Fund's investment in financial futures contracts is
designed to hedge against anticipated future changes in interest or exchange
rates or securities prices (or for non-hedging purposes). Should interest or
exchange rates or securities prices move unexpectedly, the Fund may not achieve
the anticipated benefits of the financial futures contracts and may realize a
loss.
Distributions to Shareholders
Dividends from net investment income are declared and accrued daily and
are paid monthly for GIQBF and GTEF, and declared and paid semi-annually for
GPAF, GAAF and GBGIF. Net realized short-term and long-term capital gains for
these Portfolio Funds will be distributed at least annually. Dividends from
GCMF's net investment income, which includes any net realized capital gains or
losses, are declared and accrued daily and paid monthly on the last business day
of each month.
All dividends or distributions to the shareholders 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 generally accepted
accounting principles may cause temporary overdistributions of net realized
gains and net investment income.
Federal Income Taxes
Each Portfolio Fund qualifies and intends to remain qualified to be taxed
as a "regulated investment company" under the provisions of the Internal Revenue
Code of 1986, as amended (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.
At December 31, 1996, for federal income tax purposes, The Guardian
Investment Quality Bond Fund had a net capital loss carryforward of $649,117
which expires in 2002.
Reclassification of Capital Accounts
The treatment for financial statement purposes of distributions made
during the year from net investment income and net realized gains may differ
from their ultimate treatment for federal income tax purposes. These differences
primarily are caused by differences in the timing of the recognition of certain
components of income or capital gain; and the recharacterization of foreign
exchange gains or losses to either ordinary income or realized capital gains for
federal income tax purposes. Where such differences are permanent in nature,
they are reclassified in the components of net assets based on their ultimate
characterization for federal income tax purposes. Any such reclassifications
will have no effect on net assets, results of operations, or net asset value per
share of the Fund.
During the year ended December 31, 1996, certain Portfolio Funds
reclassified amounts to paid-in capital from undistributed/(overdistributed) net
investment income and accumulated net realized gain/(loss) on
46
<PAGE>
investment and foreign currency related transactions. Increases (decreases) to
the various capital accounts were as follows:
ACCUMULATED
NET REALIZED
GAIN/(LOSS) ON
UNDISTRIBUTED/ INVESTMENTS
(OVERDISTRIBUTED) AND FOREIGN
PAID-IN NET INVESTMENT CURRENCY RELATED
CAPITAL INCOME TRANSACTIONS
------- --------------- ----------------
GPAF ($683,284) $366,266 $ 317,018
GAAF (26,068) 20,541 5,527
GBGIF (35,216) 273,886 (238,670)
GIQBF 703,289 -- (703,289)
NOTE 2. INVESTMENT ADVISORY AGREEMENTS
AND PAYMENTS TO RELATED PARTIES
Guardian Investor Services Corporation (GISC) provides investment advisory
services to each of the Portfolio Funds (except GBGIF) under an investment
advisory agreement. Fees for investment advisory services are established under
the terms of separate fee appendices to the agreement at an annual rate of .50%
of the average daily net assets of each Portfolio Fund, except for GAAF which
pays GISC at an annual rate of .65% of its average daily net assets. For the
year ended December 31, 1996, GISC voluntarily assumed $187,900, $128,217 and
$232,432 of the ordinary operating expenses of GIQBF, GTEF and GCMF,
respectively.
GBGIF has an investment management agreement with Guardian Baillie Gifford
Ltd. (GBG), a Scottish corporation formed through a joint venture between The
Guardian Insurance & Annuity Company, Inc. (GIAC) and Baillie Gifford Overseas
Ltd. (BG Overseas). GBG is responsible for the overall investment management of
GBGIF's portfolio, subject to the supervision of the Portfolio's Board of
Trustees. GBG has entered into a sub-investment management agreement with BG
Overseas pursuant to which BG Overseas is responsible for the day-to-day
management of GBGIF. GBG continually monitors and evaluates the performance of
BG Overseas. As compensation for its services, GBG receives a management fee
computed at the rate of .80% of GBGIF's average daily net assets. One-half of
this fee (.40%) is payable by GBG to BG Overseas for its services. Payment of
the sub-management fee does not represent a separate or additional expense to
GBGIF.
Trustees who are not deemed to be "interested persons" (as defined in the
1940 Act) were paid $500 per Portfolio Fund's meeting of the Board of Trustees
for the year ended December 31, 1996. An annual fee of $1,000 per Portfolio Fund
(i.e., $6,000) was also paid to each such trustee during such period. The
aggregate remuneration paid by each of the Portfolio Funds to each of the
trustees who are not interested persons, amounted to $18,300 for the year ended
December 31, 1996. GISC pays compensation to the trustees who are interested
persons.
Certain officers and trustees of the Portfolio Funds are affiliated with
GISC.
Administrative Services Agreement
Pursuant to the Administrative Services Agreement adopted by the Portfolio
Funds on behalf of both classes of shares, each of the Portfolio Funds pays GISC
an administrative services fee up to an annual rate of .25% of the average daily
net assets. GPAF currently pays GISC up to .15% on an annual basis, of its
average daily net assets. For the year ended December 31, 1996, such fees
incurred under the Agreement based on the average daily net assets of Class A
and Class B shares, were as follows:
CLASS A CLASS B
------- -------
Park Avenue Fund ........... $1,087,354 $19,018
Asset Allocation Fund ...... 176,899 4,608
International Fund ......... 88,088 3,257
Investment Quality
Bond Fund ................. 86,597 --
Tax-Exempt Fund ............ 40,748 --
Cash Management Fund ....... 121,068 3,340
NOTE 3. UNDERWRITING AGREEMENT
AND DISTRIBUTION PLAN
The Portfolio has entered into an Underwriting Agreement with GISC
pursuant to which GISC serves as the principal underwriter for shares of the
Portfolio Funds.
For the year ended December 31, 1996, aggregate sales commissions for the
purchase of capital shares
47
<PAGE>
were paid to GISC as compensation for services rendered as follows:
FUND COMMISSIONS FUND COMMISSIONS
- ---- ----------- ---- -----------
GPAF .... $4,205,282 GIQBF .... $212,097
GAAF .... 507,842 GTEF ..... 54,484
GBGIF ... 274,381
Under a Distribution Plan adopted by the Portfolio pursuant to Rule 12b-1
under the 1940 Act (the "12b-1 Plan"), each Multiple Class Fund is authorized to
pay a monthly 12b-1 fee at an annual rate of up to .75% of average daily net
assets of the Fund's Class B shares as compensation for distribution-related
services provided to the Class B shares of those Funds.
For the year ended December 31, 1996, such charges were as follows:
CLASS A CLASS B
------- -------
Park Avenue Fund ............. $513,750 $56,796
Asset Allocation Fund ........ 60,609 13,822
International Fund ........... 39,035 7,028
Investment Quality
Bond Fund ................... 44,517 --
Tax-Exempt Fund .............. 10,577 --
Cash Management Fund ......... 59,491 3,708
The Portfolio has also entered into a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act with GISC on behalf of the Class A shares. Effective
May 1, 1996, the Plan has been made dormant and no 12b-1 fees are authorized to
be paid in connection with sales of Class A shares.
GISC is entitled to retain any CDSL imposed on certain redemptions. For
the year ended December 31, 1996, such charges were as follows:
CLASS B
-------
Park Avenue Fund ........................... $6,448
Asset Allocation Fund ...................... 1,360
International Fund ......................... 96
Cash Management Fund ....................... 2,044
NOTE 4. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities (excluding short-term
curities) were as follows:
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
GPAF GAAF GBGIF
---- ---- -----
PURCHASES
Stocks and debt
obligations $885,822,928 $56,891,780 $31,136,640
U.S. Government
and government
agency obligations -- 20,697,267 --
PROCEEDS
Stocks and debt
obligations 702,242,362 40,806,474 20,044,599
U.S. Government
and government
agency obligations -- 31,600,000 --
GIQBF GTEF
----- ----
PURCHASES
Stocks and debt
obligations $86,871,608 $78,778,896
U.S. Government
and government
agency obligations 44,002,918 --
PROCEEDS
Stocks and debt
obligations 57,425,688 57,981,207
U.S. Government
and government
agency obligations 71,606,530 --
The cost of investments owned at December 31, 1996 for federal income tax
purposes was the same as the cost for financial reporting purposes for the
Portfolio Funds except for GBGIF which was $50,733,007. The gross unrealized
appreciation and depreciation at December 31, 1996, were as follows:
GPAF GAAF GBGIF
---- ---- -----
Appreciation $356,005,274 $12,812,991 $12,330,581
(Depreciation) (8,453,479) (448,155) (1,617,416)
------------ ----------- -----------
Net Unrealized
Appreciation $347,551,795 $12,364,836 $10,713,165
============ =========== ===========
GIQBF GTEF
----- ----
Appreciation $ 146,150 $652,701
(Depreciation) (778,124) (19,953)
----------- -----------
Net Unrealized
Appreciation/
(Depreciation) $(631,974) $632,748
=========== ===========
Forward foreign currency contracts represent commitments to purchase or
sell a specified amount of foreign currency at a future date and at a future
price
48
<PAGE>
(Note 1). 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.
At December 31, 1996, GBGIF had no open forward foreign currency ntract.
NOTE 5. 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 Portfolio 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 Portfolio Fund maintains the
right to sell the collateral and may claim any resulting loss against the
seller. The Board of Trustees has established standards to evaluate the
creditworthiness of broker-dealers and banks which engage in repurchase
agreements with each Portfolio Fund. Repurchase agreements of more than seven
days' duration, together with investments in any other securities which are not
considered readily marketable by the Securities and Exchange Commission, are not
permitted if more than the applicable portion of a Portfolio Fund's net assets
(either 10% or 15% depending on the Portfolio Fund) would be so invested.
NOTE 6. DEFERRED ORGANIZATION
AND INITIAL OFFERING EXPENSES
GAAF, GIQBF and GTEF incurred expenses of $16,418 each in connection with
their organization and registration. Such expenses were advanced by GISC and
were repaid by each of these Portfolio Funds upon the completion of their first
year of operations or when net assets reached $50 million. GBGIF's expenses of
$15,218 in connection with its organization and registration were advanced by
GISC and were repaid when GBGIF completed one year of operations. Organization
and initial offering expenses have been deferred and are being amortized on a
straight-line method over a five year period, beginning with the commencement of
the Portfolio Funds' operations in February, 1993.
NOTE 7. TRANSACTIONS IN PORTFOLIO FUND SHARES
o THE GUARDIAN PARK AVENUE FUND
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
- --------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 64,654,097 $ 331,495,449 7,677,062 $ 248,191,463
Class B 893,821 33,652,331 -- --
Shares issued to shareholders
in reinvestment of dividends
from net investment income and
net realized gains:
Class A 4,095,860 154,626,271 1,609,384 54,438,335
Class B 73,790 2,826,851 -- --
- --------------------------------------------------------------------------------------------------
69,717,568 522,600,902 9,286,446 302,629,798
Less shares repurchased:
Class A (60,643,315) (184,533,351) (4,502,822) (146,328,114)
Class B (17,517) (684,481) -- --
- --------------------------------------------------------------------------------------------------
NET INCREASE 9,056,736 $ 337,383,070 4,783,624 $ 156,301,684
==================================================================================================
</TABLE>
49
<PAGE>
o THE GUARDIAN ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
- --------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 3,920,241 $ 16,989,447 895,730 $ 10,610,499
Class B 372,449 4,745,296 -- --
Shares issued to shareholders
in reinvestment of dividends
from net investment income and
net realized gains:
Class A 694,480 8,751,925 249,777 3,028,083
Class B 23,657 302,802 -- --
- --------------------------------------------------------------------------------------------------
5,010,827 30,789,470 1,145,507 13,638,582
Less shares repurchased:
Class A (3,602,476) (13,059,740) (716,332) (8,181,805)
Class B (3,356) (45,271) -- --
- --------------------------------------------------------------------------------------------------
NET INCREASE 1,404,995 $ 17,684,459 429,175 $ 5,456,777
==================================================================================================
</TABLE>
o THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
- --------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 2,612,878 $ 13,437,950 992,691 $ 12,765,871
Class B 216,878 3,182,994 -- --
Shares issued to shareholders
in reinvestment of dividends
from net investment income and
net realized gains:
Class A 71,249 1,078,788 199,863 2,694,682
Class B 3,182 47,852 -- --
- --------------------------------------------------------------------------------------------------
2,904,187 17,747,584 1,192,554 15,460,553
Less shares repurchased:
Class A (2,181,652) (7,338,578) (797,813) (10,427,754)
Class B (897) (13,719) -- --
- --------------------------------------------------------------------------------------------------
NET INCREASE 721,638 $ 10,395,287 394,741 $ 5,032,799
==================================================================================================
</TABLE>
o THE GUARDIAN INVESTMENT QUALITY BOND FUND
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
- --------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 809,831 $ 7,622,176 1,359,952 $ 12,911,461
Shares issued to shareholders
in reinvestment of dividends
from net investment income and
net realized gains 264,949 2,773,040 302,597 2,917,967
- --------------------------------------------------------------------------------------------------
1,074,780 10,395,216 1,662,549 15,829,428
Less shares repurchased (1,210,664) (11,596,569) (1,059,125) (10,221,819)
- --------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) (135,884) ($ 1,201,353) 603,424 $ 5,607,609
==================================================================================================
</TABLE>
50
<PAGE>
o THE GUARDIAN TAX-EXEMPT FUND
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
- --------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,339,544 $ 22,165,990 181,089 $ 1,707,367
Shares issued to shareholders
in reinvestment of dividends
from net investment income and
net realized gains 105,473 1,003,876 52,140 736,433
- --------------------------------------------------------------------------------------------------
2,445,017 23,169,866 233,229 2,443,800
Less shares repurchased (172,887) (1,637,172) (228,631) (2,388,693)
- --------------------------------------------------------------------------------------------------
NET INCREASE 2,272,130 $ 21,532,694 4,598 $ 55,107
==================================================================================================
</TABLE>
o THE GUARDIAN CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
- --------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 197,623,132 $ 197,623,132 155,096,061 $ 155,096,061
Class B 3,453,164 3,453,164 -- --
Shares issued to shareholders
in reinvestment of dividends
from net investment income and
net realized gains:
Class A 3,398,518 3,398,518 3,310,843 3,310,843
Class B 44,613 44,613 -- --
- --------------------------------------------------------------------------------------------------
204,519,427 204,519,427 158,406,904 158,406,904
Less shares repurchased:
Class A (182,717,426) (182,717,426) (145,224,145) (145,224,145)
Class B (915,208) (915,208) -- --
- --------------------------------------------------------------------------------------------------
NET INCREASE 20,886,793 $ 20,886,793 13,182,759 $ 13,182,759
==================================================================================================
</TABLE>
NOTE 8. LINE OF CREDIT
A $20,000,000 line of credit available to all of the Portfolio Funds and
the five Funds included in the related Guardian variable products has been
established with Morgan Guaranty Trust Company. The rate of interest charged on
any borrowing is based upon the prevailing Federal Funds rate at the time of the
loan plus .25% calculated on a 360 day basis per annum. For the year ended
December 31, 1996, none of the Portfolio Funds borrowed against this line of
credit.
51
<PAGE>
- --------------------
FINANCIAL HIGHLIGHTS
- --------------------
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED:
<TABLE>
<CAPTION>
Net Realized
& Unrealized
Gain/(Loss) on
Investments Increase/ Distributions Distributions
Net Asset Net and Foreign (Decrease) Dividends in Excess from
Value, Investment Currency from from Net of Net Net Realized
Beginning Income Related Investment Investment Investment Gain on
of Period (Loss) Transactions Operations Income Income Investments
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THE GUARDIAN PARK AVENUE FUND
CLASS A:
Year ended 12/31/96 $ 33.97 $ 0.42 $ 8.41 $ 8.83 $ (0.42) $(0.01) $ (4.46)
Year ended 12/31/95 26.89 0.33 8.87 9.20 (0.33) -- (1.79)
Year ended 12/31/94 28.63 0.31 (0.72) (0.41) (0.31) -- (1.02)
Year ended 12/31/93 25.17 0.50 4.56 5.06 (0.50) -- (1.10)
Year ended 12/31/92 22.23 0.45 4.05 4.50 (0.44) -- (1.12)
Year ended 12/31/91 18.26 0.65 5.71 6.36 (0.66) -- (1.73)
Year ended 12/31/90 21.56 0.68 (3.28) (2.60) (0.70) -- --
Year ended 12/31/89 20.46 0.92 3.88 4.80 (0.98) -- (2.72)
Year ended 12/31/88 18.63 0.60 3.23 3.83 (0.55) -- (1.45)
Year ended 12/31/87 20.74 0.47 0.20 0.67 (0.60) -- (2.18)
CLASS B:
Period from May 1, 1996+ to
12/31/96 36.26 0.05 6.10 6.15 (0.05) -- (4.46)
THE GUARDIAN CASH MANAGEMENT FUND
CLASS A:
Year ended 12/31/96 1.000 0.045 -- 0.045 (0.045) -- --
Year ended 12/31/95 1.000 0.051 -- 0.051 (0.051) -- --
Year ended 12/31/94 1.000 0.034 -- 0.034 (0.034) -- --
Year ended 12/31/93 1.000 0.021 -- 0.021 (0.021) -- --
Year ended 12/31/92 1.000 0.030 -- 0.030 (0.030) -- --
Year ended 12/31/91 1.000 0.053 -- 0.053 (0.053) -- --
Year ended 12/31/90 1.000 0.076 -- 0.076 (0.076) -- --
Three months ended 12/31/89 1.000 0.086 -- 0.086 (0.086) -- --
Year ended 9/30/89 1.000 0.024 -- 0.024 (0.024) -- --
Year ended 9/30/88 1.000 0.066 -- 0.066 (0.066) -- --
Year ended 9/30/87 1.000 0.053 -- 0.053 (0.053) -- --
CLASS B:
Period from May 1, 1996+ to
12/31/96 1.000 0.028 -- 0.028 (0.028) -- --
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
------------------------------------------------------------------------------
Net
Net Asset Net Assets, Investment Average
Value, End of Expenses Expenses Income/(Loss) Rate of
End of Total Period to Average Subsidized to Average Portfolio Commissions
Period Return* (000's Omitted) Net Assets by Gisc Net Assets Turnover Paid****
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE GUARDIAN PARK AVENUE FUND
CLASS A:
Year ended 12/31/96 $ 37.91 26.49% $1,392,186 0.79% -- 1.19% 81% $ 0.047
Year ended 12/31/95 33.97 34.28 972,275 0.81 -- 1.07 78 --
Year ended 12/31/94 26.89 (1.44) 640,917 0.84 -- 1.15 54 --
Year ended 12/31/93 28.63 20.28 560,193 0.81 -- 1.89 46 --
Year ended 12/31/92 25.17 20.48 335,660 0.68 -- 1.94 64 --
Year ended 12/31/91 22.23 35.16 270,095 0.67 -- 2.96 57 --
Year ended 12/31/90 18.26 (12.21) 216,457 0.69 -- 3.51 47 --
Year ended 12/31/89 21.56 23.66 228,190 0.70 -- 4.01 47 --
Year ended 12/31/88 20.46 20.78 176,000 0.69 -- 2.82 58 --
Year ended 12/31/87 18.63 2.95 157,045 0.68 -- 2.08 50 --
CLASS B:
Period from May 1, 1996+ to
12/31/96 37.90 17.35 36,006 1.77** -- 0.04** 81 0.047
THE GUARDIAN CASH MANAGEMENT FUND
CLASS A:
Year ended 12/31/96 1.000 4.62 88,217 0.90 0.30 4.62 -- --
Year ended 12/31/95 1.000 5.22 69,913 0.85 0.37 5.10 -- --
Year ended 12/31/94 1.000 3.48 56,730 0.87 0.50 3.54 -- --
Year ended 12/31/93 1.000 2.15 34,731 1.02 0.42 2.13 -- --
Year ended 12/31/92 1.000 3.06 37,780 0.70 0.44 3.01 -- --
Year ended 12/31/91 1.000 5.70 44,054 0.67 0.35 5.30 -- --
Year ended 12/31/90 1.000 7.91 47,153 0.65 0.41 7.57 -- --
Three months ended 12/31/89 1.000 8.60*** 33,821 0.65** 0.52** 8.56** -- --
Year ended 9/30/89 1.000 2.40 21,961 1.00 0.38 7.63 -- --
Year ended 9/30/88 1.000 6.60 20,603 1.00 0.28 6.32 -- --
Year ended 9/30/87 1.000 5.30 19,618 1.00 0.35 5.34 -- --
CLASS B:
Period from May 1, 1996+ to
12/31/96 1.000 2.81 2,583 1.16** 0.59 4.43** -- --
</TABLE>
+ Commencement of operations.
* Excludes the effect of sales load.
** Annualized.
*** Not annualized.
**** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
52 & 53
<PAGE>
- --------------------
FINANCIAL HIGHLIGHTS
- --------------------
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED:
<TABLE>
<CAPTION>
Net Realized
& Unrealized
Gain/(Loss) on
Investments Increase/ Distributions Distributions
Net Asset Net and Foreign (Decrease) Dividends in Excess from
Value, Investment Currency from from Net of Net Net Realized
Beginning Income Related Investment Investment Investment Gain on
of Period (Loss) Transactions Operations Income Income Investments
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THE GUARDIAN ASSET ALLOCATION FUND
CLASS A:
Year ended 12/31/96 $ 12.19 $ 0.23 $ 1.96 $ 2.19 $ (0.23) -- $ (1.19)
Year ended 12/31/95 10.23 0.23 2.29 2.52 (0.23) -- (0.33)
Year ended 12/31/94 10.98 0.28 (0.52) (0.24) (0.28) -- (0.23)
Period from 2/16/93+ to 12/31/93 10.00 0.19 1.02 1.21 (0.18) -- (0.05)
CLASS B:
Period from May 1, 1996+ to
12/31/96 12.61 0.04 1.50 1.54 (0.04) -- (1.19)
THE GUARDIAN BAILLIE GIFFORD
INTERNATIONAL FUND
CLASS A:
Year ended 12/31/96 13.57 0.05 1.89 1.94 (0.05) ($ 0.05) (0.19)
Year ended 12/31/95 13.01 0.04 1.40 1.44 (0.04) (0.23) (0.61)
Year ended 12/31/94 13.19 0.01 (0.09) (0.08) (0.01) -- (0.09)
Period from 2/16/93+ to 12/31/93 10.00 (0.02) 3.32 3.30 -- -- (0.11)
CLASS B:
Period from May 1, 1996+ to
12/31/96 14.71 (0.04) 0.76 0.72 (0.04) (0.08) (0.19)
THE GUARDIAN INVESTMENT QUALITY
BOND FUND
CLASS A:
Year ended 12/31/96 10.00 0.55 (0.30) 0.25 (0.55) -- --
Year ended 12/31/95 9.12 0.59 0.88 1.47 (0.59) -- --
Year ended 12/31/94 10.04 0.46 (0.90) (0.44) (0.46) -- (0.02)
Period from 2/16/93+ to 12/31/93 10.00 0.37 0.18 0.55 (0.37) -- (0.14)
THE GUARDIAN TAX-EXEMPT FUND
CLASS A:
Year ended 12/31/96 9.69 0.42 (0.08) 0.34 (0.42) -- --
Year ended 12/31/95 8.86 0.44 0.83 1.27 (0.44) -- --
Year ended 12/31/94 10.20 0.40 (1.30) (0.90) (0.40) -- (0.04)
Period from 2/16/93+ to 12/31/93 10.00 0.34 0.40 0.74 (0.34) -- (0.20)
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
------------------------------------------------------------------------------
Net
Net Asset Net Assets, Investment Average
Value, End of Expenses Expenses Income/(Loss) Rate of
End of Total Period to Average Subsidized to Average Portfolio Commissions
Period Return* (000's Omitted) Net Assets by GISC Net Assets Turnover Paid***
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE GUARDIAN ASSET ALLOCATION FUND
CLASS A:
Year ended 12/31/96 $ 12.96 18.74% $88,190 1.30% -- 1.91% 122% $ 0.053
Year ended 12/31/95 12.19 24.51 70,591 1.25 -- 1.98 219 --
Year ended 12/31/94 10.23 (2.13) 54,875 1.30 -- 2.72 216 --
Period from 2/16/93+ to 12/31/93 10.98 12.16 50,200 1.29** -- 2.07** 165 --
CLASS B:
Period from May 1, 1996+ to
12/31/96 12.92 12.07 5,075 2.39** -- 0.70** 122 0.053
THE GUARDIAN BAILLIE GIFFORD
INTERNATIONAL FUND
CLASS A:
Year ended 12/31/96 15.22 14.33 57,593 1.70 -- (0.29) 39 0.036
Year ended 12/31/95 13.57 11.14 44,546 1.74 -- 0.19 51 --
Year ended 12/31/94 13.01 (0.55) 37,542 1.91 -- 0.20 33 --
Period from 2/16/93+ to 12/31/93 13.19 32.98 20,809 2.35** -- (0.21)** 9 --
CLASS B:
Period from May 1, 1996+ to
12/31/96 15.12 4.34 3,313 3.05** -- (1.47)** 39 0.036
THE GUARDIAN INVESTMENT QUALITY
BOND FUND
CLASS A:
Year ended 12/31/96 9.70 2.73 50,794 0.75 0.37% 5.73 257 --
Year ended 12/31/95 10.00 16.64 53,706 0.75 0.39 6.11 401 --
Year ended 12/31/94 9.12 (4.50) 43,487 1.46 -- 4.94 186 --
Period from 2/16/93+ to 12/31/93 10.04 4.13 23,310 1.42** -- 3.68** 167 --
THE GUARDIAN TAX-EXEMPT FUND
CLASS A:
Year ended 12/31/96 9.61 3.62 39,185 0.75 0.60 4.96 240 --
Year ended 12/31/95 9.69 14.59 17,501 0.75 0.79 4.66 194 --
Year ended 12/31/94 8.86 (8.98) 15,967 1.09 0.47 4.26 107 --
Period from 2/16/93+ to 12/31/93 10.20 5.55 21,135 1.36** -- 3.35** 108 --
</TABLE>
+ Commencement of operations.
* Excludes the effect of sales loa
** Annualized.
*** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
54 & 55
<PAGE>
- ---------------------------
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
- ---------------------------
BOARD OF TRUSTEES AND SHAREHOLDERS
THE PARK AVENUE PORTFOLIO
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of The Park Avenue Portfolio
(comprising, respectively, The Guardian Park Avenue Fund, The Guardian Asset
Allocation Fund, The Guardian Baillie Gifford International Fund, The Guardian
Investment Quality Bond Fund, The Guardian Tax-Exempt Fund and The Guardian Cash
Management Fund) as of December 31, 1996, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective Funds constituting The Park Avenue Portfolio at December
31, 1996, the results of their operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended and
financial highlights for each of the indicated periods, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
February 7, 1997
56
<PAGE>
o INVESTMENT ADVISER & DISTRIBUTOR
Guardian Investor Services Corporation(R)
201 Park Avenue South
New York, New York 10003
o CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Custody Division
1776 Heritage Drive
North Quincy, Massachusetts 02171
o SHAREHOLDER SERVICING AGENT, TRANSFER AGENT &
DIVIDEND PAYING AGENT FOR STATE STREET BANK
AND TRUST COMPANY
National Financial Data Services
P.O. Box 419611
Kansas City, Missouri 64141-6611
o TRUSTEES
Joseph D. Sargent -- Chair
John C. Angle
Frank J. Fabozzi, Ph.D.
Arthur V. Ferrara, CLU
Leo R. Futia, CLU
William W. Hewitt, Jr.
Sidney I. Lirtzman, Ph.D.
Carl W. Schafer
Robert G. Smith, Ph.D.
o OFFICERS
Frank J. Jones -- President
Charles E. Albers
Kevin S. Alter
Michele S. Babakian
Joseph A. Caruso
Alexander M. Grant, Jr.
Thomas R. Hickey, Jr.
Jonathan Jankus
Ann T. Kearney
R. Robin Menzies
Nikolaos D. Monoyios
John B. Murphy
Frank L. Pepe
Richard T. Potter, Jr.
Donald P. Sullivan, Jr.
This report is authorized for distribution to the public only
when accompanied or preceded by a current prospectus for the
funds which comprise The Park Avenue Portfolio.
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORT TO SHAREHOLDERS
- -----------------------------
- --------------------------------------------------------------------------------
THE
PARK AVENUE
PORTFOLIO
---------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996
---------------------
o The Guardian
Park Avenue Fund
o The Guardian
Asset Allocation Fund
o The Guardian
Baillie Gifford
International Fund
o The Guardian
Investment Quality
Bond Fund
o The Guardian
Tax-Exempt Fund
o The Guardian Cash
Management Fund
[LOGO]
----------
Guardian Investor
Services Corporation(R)
[Logo] -----------------
- ---------- Bulk Rate Mail
Guardian Investor Services Corporation(R) U.S. Postage Paid
201 Park Avenue South Newark, NJ
New York, NY 10003 Permit No. 45
-----------------
[LOGO] EB-011566M 12/96
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE PARK AVENUE PORTOFLIO
This schedule contains financial information extracted from the
"Annual Report to Shareholders" dated December 31, 1996 and is qualified
in its entirety by reference to such financial statemens.
</LEGEND>
<CIK> 0000837910
<NAME> THE PARK AVENUE PORTFOLIO
<SERIES>
<NUMBER> 012
<NAME> THE GUARDIAN PARK AVENUE FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1076903
<INVESTMENTS-AT-VALUE> 1424455
<RECEIVABLES> 38811
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1463266
<PAYABLE-FOR-SECURITIES> 21012
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14063
<TOTAL-LIABILITIES> 35075
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1052625
<SHARES-COMMON-STOCK> 950<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (366)
<ACCUMULATED-NET-GAINS> 28004
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 347552
<NET-ASSETS> 36006<F1>
<DIVIDEND-INCOME> 18964
<INTEREST-INCOME> 4185
<OTHER-INCOME> 47
<EXPENSES-NET> 9380
<NET-INVESTMENT-INCOME> 13816
<REALIZED-GAINS-CURRENT> 140063
<APPREC-INCREASE-CURRENT> 128623
<NET-CHANGE-FROM-OPS> 282502
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (45)<F1>
<DISTRIBUTIONS-OF-GAINS> (2841)<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 894<F1>
<NUMBER-OF-SHARES-REDEEMED> (17)<F1>
<SHARES-REINVESTED> 74<F1>
<NET-CHANGE-IN-ASSETS> 455917
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 37727
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5851
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9380
<AVERAGE-NET-ASSETS> 1170293
<PER-SHARE-NAV-BEGIN> 36.26<F1>
<PER-SHARE-NII> 0.05<F1>
<PER-SHARE-GAIN-APPREC> 6.10<F1>
<PER-SHARE-DIVIDEND> (0.05)<F1>
<PER-SHARE-DISTRIBUTIONS> (4.46)<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 37.90<F1>
<EXPENSE-RATIO> 1.77<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B only. All other data are on a fund level.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE PARK AVENUE PORTFOLIO
This schdule contains financial information extracted from the
"Annual Report to Shareholders" dated December 31, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000837910
<NAME> THE PARDK AVENUE PORTFOLIO
<SERIES>
<NUMBER> 021
<NAME> THE GUARDIAN ASSET ALLOCATION FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 80922
<INVESTMENTS-AT-VALUE> 93287
<RECEIVABLES> 2277
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95568
<PAYABLE-FOR-SECURITIES> 673
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1629
<TOTAL-LIABILITIES> 2302
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78900
<SHARES-COMMON-STOCK> 6805<F1>
<SHARES-COMMON-PRIOR> 5793<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (13)
<ACCUMULATED-NET-GAINS> 1006
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13300
<NET-ASSETS> 88190<F1>
<DIVIDEND-INCOME> 917
<INTEREST-INCOME> 1601
<OTHER-INCOME> 0
<EXPENSES-NET> 1045
<NET-INVESTMENT-INCOME> 1473
<REALIZED-GAINS-CURRENT> 4726
<APPREC-INCREASE-CURRENT> 8064
<NET-CHANGE-FROM-OPS> 14263
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1472)<F1>
<DISTRIBUTIONS-OF-GAINS> (7496)<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3920<F1>
<NUMBER-OF-SHARES-REDEEMED> (3602)<F1>
<SHARES-REINVESTED> 694<F1>
<NET-CHANGE-IN-ASSETS> 22675
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4067
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 511
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1045
<AVERAGE-NET-ASSETS> 78547
<PER-SHARE-NAV-BEGIN> 12.19<F1>
<PER-SHARE-NII> .23<F1>
<PER-SHARE-GAIN-APPREC> 1.96<F1>
<PER-SHARE-DIVIDEND> (0.23)<F1>
<PER-SHARE-DISTRIBUTIONS> (1.19)<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.96<F1>
<EXPENSE-RATIO> 1.30<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A only. All other data are on a fund level.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE PARK AVENUE PORTFOLIO
This schedule contains financial information extracted from the
"Annual Report to SHareholders" dated December 31, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000837910
<NAME> THE PARK AVENUE PORTFOLIO
<SERIES>
<NUMBER> 022
<NAME> THE GUARDIAN ASSET ALLOCATION FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 80922
<INVESTMENTS-AT-VALUE> 93287
<RECEIVABLES> 2277
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95568
<PAYABLE-FOR-SECURITIES> 673
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1629
<TOTAL-LIABILITIES> 2302
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78900
<SHARES-COMMON-STOCK> 393<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (13)
<ACCUMULATED-NET-GAINS> 1006
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13300
<NET-ASSETS> 5075<F1>
<DIVIDEND-INCOME> 917
<INTEREST-INCOME> 1601
<OTHER-INCOME> 0
<EXPENSES-NET> 1045
<NET-INVESTMENT-INCOME> 1473
<REALIZED-GAINS-CURRENT> 4726
<APPREC-INCREASE-CURRENT> 8064
<NET-CHANGE-FROM-OPS> 14263
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14)<F1>
<DISTRIBUTIONS-OF-GAINS> (291)<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 372<F1>
<NUMBER-OF-SHARES-REDEEMED> (3)<F1>
<SHARES-REINVESTED> 24<F1>
<NET-CHANGE-IN-ASSETS> 22675
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4067
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 511
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1045
<AVERAGE-NET-ASSETS> 78547
<PER-SHARE-NAV-BEGIN> 12.61<F1>
<PER-SHARE-NII> 0.04<F1>
<PER-SHARE-GAIN-APPREC> 1.50<F1>
<PER-SHARE-DIVIDEND> (0.04)<F1>
<PER-SHARE-DISTRIBUTIONS> (1.19)<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.92<F1>
<EXPENSE-RATIO> 2.39<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B only. All other data are on a fund level.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE PARK AVENUE PORTFOLIO
This schedule contains financial information extracted from the
"Annual Report to Shareholders" dated December 31, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000837910
<NAME> THE PARK AVENUE PORTFOLIO
<SERIES>
<NUMBER> 031
<NAME> THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 50715
<INVESTMENTS-AT-VALUE> 61430
<RECEIVABLES> 320
<ASSETS-OTHER> 889
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 62639
<PAYABLE-FOR-SECURITIES> 423
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1310
<TOTAL-LIABILITIES> 1733
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50
<SHARES-COMMON-STOCK> 3784<F1>
<SHARES-COMMON-PRIOR> 3281<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (399)
<ACCUMULATED-NET-GAINS> 216
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10709
<NET-ASSETS> 60906
<DIVIDEND-INCOME> 934
<INTEREST-INCOME> 114
<OTHER-INCOME> 0
<EXPENSES-NET> 917
<NET-INVESTMENT-INCOME> 131
<REALIZED-GAINS-CURRENT> 1013
<APPREC-INCREASE-CURRENT> 5972
<NET-CHANGE-FROM-OPS> 7116
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (359)<F1>
<DISTRIBUTIONS-OF-GAINS> (715)<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2613<F1>
<NUMBER-OF-SHARES-REDEEMED> (2182)<F1>
<SHARES-REINVESTED> 71<F1>
<NET-CHANGE-IN-ASSETS> 16360
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (134)
<OVERDIST-NET-GAINS-PRIOR> (42)
<GROSS-ADVISORY-FEES> 424
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 917
<AVERAGE-NET-ASSETS> 52940
<PER-SHARE-NAV-BEGIN> 13.57<F1>
<PER-SHARE-NII> 0.05<F1>
<PER-SHARE-GAIN-APPREC> 1.89<F1>
<PER-SHARE-DIVIDEND> (0.10)<F1>
<PER-SHARE-DISTRIBUTIONS> (0.19)<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.22<F1>
<EXPENSE-RATIO> 1.70<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A only. All other data are on a fund level.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE PARK AVENUE PORTFOLIO
This schedule contains financial information extracted form the
"Annual Report to Sharehilders" dated December 31, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000837910
<NAME> THE PARK AVENUE PORTFOLIO
<SERIES>
<NUMBER> 032
<NAME> THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 50715
<INVESTMENTS-AT-VALUE> 61430
<RECEIVABLES> 320
<ASSETS-OTHER> 889
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 62639
<PAYABLE-FOR-SECURITIES> 423
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1310
<TOTAL-LIABILITIES> 1733
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50
<SHARES-COMMON-STOCK> 219<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> (399)
<OVERDISTRIBUTION-NII> 216
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10709
<NET-ASSETS> 50906
<DIVIDEND-INCOME> 934
<INTEREST-INCOME> 114
<OTHER-INCOME> 0
<EXPENSES-NET> 917
<NET-INVESTMENT-INCOME> 131
<REALIZED-GAINS-CURRENT> 1013
<APPREC-INCREASE-CURRENT> 5972
<NET-CHANGE-FROM-OPS> 7116
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (36)<F1>
<DISTRIBUTIONS-OF-GAINS> (41)<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 217<F1>
<NUMBER-OF-SHARES-REDEEMED> (1)<F1>
<SHARES-REINVESTED> 3<F1>
<NET-CHANGE-IN-ASSETS> 16360
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (134)
<OVERDIST-NET-GAINS-PRIOR> (42)
<GROSS-ADVISORY-FEES> 424
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 917
<AVERAGE-NET-ASSETS> 52940
<PER-SHARE-NAV-BEGIN> 14.71<F1>
<PER-SHARE-NII> (0.04)<F1>
<PER-SHARE-GAIN-APPREC> 0.76<F1>
<PER-SHARE-DIVIDEND> (0.12)<F1>
<PER-SHARE-DISTRIBUTIONS> (0.19)<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.12<F1>
<EXPENSE-RATIO> 3.05<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B only. All other data are on a fund level.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE PARK AVENUE PORTFOLIO
This schedule contains financial information extracted from the
"Annual Report to Shareholders" dated December 31, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000837910
<NAME> THE PARK AVENUE PORTFOLIO
<SERIES>
<NUMBER> 04
<NAME> THE GUARDIAN INVESTMENT QUALITY BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 52161
<INVESTMENTS-AT-VALUE> 51529
<RECEIVABLES> 548
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52079
<PAYABLE-FOR-SECURITIES> 1023
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 262
<TOTAL-LIABILITIES> 1285
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51414
<SHARES-COMMON-STOCK> 5236
<SHARES-COMMON-PRIOR> 5372
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (41)
<ACCUM-APPREC-OR-DEPREC> (632)
<NET-ASSETS> 50794
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3363
<OTHER-INCOME> 0
<EXPENSES-NET> 392
<NET-INVESTMENT-INCOME> 2971
<REALIZED-GAINS-CURRENT> (41)
<APPREC-INCREASE-CURRENT> (1671)
<NET-CHANGE-FROM-OPS> 2971
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2971)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 810
<NUMBER-OF-SHARES-REDEEMED> (1211)
<SHARES-REINVESTED> 265
<NET-CHANGE-IN-ASSETS> (2912)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 259
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 579
<AVERAGE-NET-ASSETS> 51891
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> (0.30)
<PER-SHARE-DIVIDEND> (0.55)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE PARK AVENUE PORTFOLIO
This schedule contains financial information extracted from the
"Annual Report to Shareholders" dated December 31, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000837910
<NAME> THE PARK AVENUE PORTFOLIO
<SERIES>
<NUMBER> 05
<NAME> THE GUARDIAN TAX-EXEMPT FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 37845
<INVESTMENTS-AT-VALUE> 38478
<RECEIVABLES> 758
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39240
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55
<TOTAL-LIABILITIES> 55
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39662
<SHARES-COMMON-STOCK> 4078
<SHARES-COMMON-PRIOR> 1806
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1150)
<ACCUM-APPREC-OR-DEPREC> 633
<NET-ASSETS> 39185
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1196
<OTHER-INCOME> 3
<EXPENSES-NET> 156
<NET-INVESTMENT-INCOME> 1042
<REALIZED-GAINS-CURRENT> 56
<APPREC-INCREASE-CURRENT> 95
<NET-CHANGE-FROM-OPS> 1193
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1042)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2340
<NUMBER-OF-SHARES-REDEEMED> (173)
<SHARES-REINVESTED> 105
<NET-CHANGE-IN-ASSETS> 21864
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1206)
<GROSS-ADVISORY-FEES> 105
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 285
<AVERAGE-NET-ASSETS> 21029
<PER-SHARE-NAV-BEGIN> 9.69
<PER-SHARE-NII> 0.42
<PER-SHARE-GAIN-APPREC> (0.08)
<PER-SHARE-DIVIDEND> (0.42)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.61
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE PARK AVENUE PORTFOLIO
This schedule contains financial information extracted from the
"Annual Report to Shareholders" dated December 31, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000837910
<NAME> THE PARK AVENUE PORTFOLIO
<SERIES>
<NUMBER> 061
<NAME> THE GUARDIAN CASH MANAGEMENT FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 87568
<INVESTMENTS-AT-VALUE> 87568
<RECEIVABLES> 4212
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91780
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 980
<TOTAL-LIABILITIES> 980
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89892
<SHARES-COMMON-STOCK> 88217<F1>
<SHARES-COMMON-PRIOR> 69913<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 88217<F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4291
<OTHER-INCOME> 0
<EXPENSES-NET> 702
<NET-INVESTMENT-INCOME> 3590
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3590
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3543)<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 197623<F1>
<NUMBER-OF-SHARES-REDEEMED> (182717)<F1>
<SHARES-REINVESTED> 3399<F1>
<NET-CHANGE-IN-ASSETS> 20887
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 389
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 934
<AVERAGE-NET-ASSETS> 77789
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.045<F1>
<PER-SHARE-GAIN-APPREC> 0<F1>
<PER-SHARE-DIVIDEND> (0.045)<F1>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .90<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A only. All other data are on a fund level.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE PARK AVENUE PORTFOLIO
This schedule contains financial information extracted from the
"Annual Report to Shareholders" dated December 31, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000837910
<NAME> THE PARK AVENUE POTFOLIO
<SERIES>
<NUMBER> 062
<NAME> THE GUARDIAN CASH MANAGEMENT FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 87568
<INVESTMENTS-AT-VALUE> 87568
<RECEIVABLES> 4212
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91780
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 980
<TOTAL-LIABILITIES> 980
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89892
<SHARES-COMMON-STOCK> 2583<F1>
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2583<F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4291
<OTHER-INCOME> 0
<EXPENSES-NET> 702
<NET-INVESTMENT-INCOME> 3590
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3590
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (47)<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 3453<F1>
<NUMBER-OF-SHARES-REDEEMED> (916)<F1>
<SHARES-REINVESTED> 45<F1>
<NET-CHANGE-IN-ASSETS> 20887
<ACCUMULATED-NII-PRIOR> 07789
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 389
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 934
<AVERAGE-NET-ASSETS> 77789
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> 0.028<F1>
<PER-SHARE-GAIN-APPREC> 0<F1>
<PER-SHARE-DIVIDEND> (0.028)<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> 1.16<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B only. All other data are on a fund level.
</FN>
</TABLE>
