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DEAR SHAREHOLDER:
======================
[GRAPHICAL REPRESENTATION OF GUARDIAN LIFE BUILDING]
1997 IN THE ECONOMIC/FINANCIAL HALL OF FAME
---------------------
[PHOTO]
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Frank J. Jones, Ph.D.
Recently a new member has been elected into the Baseball Hall of Fame, the
Heisman Trophy winner has been selected, and the Number 1 college football
team(s) in the country has (have) been picked. In the spirit of the times, and
given the end of the year, I thought it would be interesting to consider various
calendar years for inclusion in the U.S. economic/financial Hall of Fame.
To begin with my conclusion, I believe that 1997 should be included in the
U.S. economic/financial Hall of Fame. And perhaps a statue of 1997 should even
be positioned in the Hall's entrance, just as a statue of Babe Ruth appears in
the entrance of the Baseball Hall of Fame in Cooperstown. The year 1997 may be
the best U.S. economic/financial year ever.
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<PAGE>
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Let me begin my case for 1997 in the Hall of Fame with some supporting
statistics. First, consider economic statistics:
o Strong economic growth: the real Gross Domestic Product growth for the
year was 3.8%, the highest since 1988;
o The unemployment rate decreased to 4.6% during November, the lowest
since October 1973;
o Capacity utilization increased to 83.4% at year end, the highest since
September 1995;
o Industrial production increased by 5% during 1997, the strongest year
since 1994;
o Labor productivity, specifically manufacturing productivity, increased
by 9.8% during the third quarter of 1997, the strongest growth in a
quarter since the second quarter of 1982;
o And, not surprisingly, consumer confidence is at a 28-year high.
These economic growth statistics are strong in isolation, but are even
stronger considering that the economy is ending its seventh year of expansion
(which started during March 1991), the second longest post-WWII expansion,
exceeded only by the 34 quarter expansion that began during 1960.
Given such strong growth seven years into an expansion, inflation would
have been expected to be a problem. Consider, however, the following:
o The Consumer Price Index (CPI) during 1997 increased by only 1.7%, the
lowest level since 1986 (1.1%), which was caused by declining oil
prices; core CPI (excluding food and energy) increased by 2.2%, the
lowest since 1965 (1.5%);
o The Producer Price Index (PPI) declined by 1.2% during 1997, following
a 2.8% increase in 1996; this decrease was the largest decrease since
a 3.3% decrease in 1986, due mainly to falling oil prices. The core
rate of PPI, which excludes food and energy, rose by only 0.1% during
1997, the smallest annual gain on record;
o Gold prices have fallen below $280 as of January 1998, the lowest
since June 1979--recall that in January 1980, gold prices hit $850 an
ounce. As a result, gold mutual funds were the worst performing mutual
funds during 1997;
o Despite the low unemployment, due mainly to strong productivity
increases, wages have increased to a level of moderate concern, but
not as much as might have been expected. Specifically, during 1997
hourly earnings increased by 3.7%, the highest year over year level
since 1989, and the unemployment cost index increased by 3.3%, the
highest since 1993.
With respect to monetary policy during 1997, there was only one Fed action,
a tightening from 5% to 5.25% on March 25, 1997. Although subsequent potential
Fed tightenings were widely discussed and, indeed, the Fed was on the fence
twice during the year, no such tightening occurred. And at the end of 1997, the
markets believed that a Fed ease was more likely than a tightening. The Fed,
however, seems unlikely to increase or decrease rates soon, and could remain on
the sidelines all year.
With respect to fiscal policy, the federal budget deficit, which was $290.4
billion during 1992, decreased to a deficit of only $22.6 billion during 1997,
essentially a rounding error in a $1.6 trillion budget. This is the lowest
deficit since 1974, and represented only 0.3% of GDP, which was the lowest since
1970. Many analysts, however, assert, with considerable justification, that the
decline in the budget was mainly due to the strong economy, which led to high
individual and business income tax receipts, and the strong stock market, which
led to large capital gains tax receipts, rather than government policy. Many
analysts are forecasting a budget surplus for 1998, the first since 1969.
This remarkable combination of strong growth and low unemployment, on one
hand, and declining inflation, on the other hand, has led to the assertion that
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<PAGE>
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"inflation is missing." To respond to this conundrum of the missing inflation, a
new paradigm has evolved. This paradigm's proponents state that, due mainly to
improvements in technology, productivity has increased significantly, but this
increase is not being captured in our current productivity measures. Thus, they
assert, potential GDP has now increased to 3% or more. They further assert that
inflation has not increased due to this increase in productivity and potential
real GDP growth.
Those espousing the traditional view, who would expect higher inflation,
given the current unemployment rate/capacity utilization/economic growth
environment, may cede that some fundamental changes may be occurring, but that
the major factors in explaining the current lack of inflation are temporary. The
temporary factors include the strong dollar, the reduction in the growth rate of
health care costs, declining computer prices and low energy and food costs.
As a result of stable Fed policy, low inflation, and the declining federal
budget deficit, the 30-year Treasury yield decreased to 5.69% on January 12,
1998, its lowest level since 30-year Treasuries have been auctioned beginning in
1977. And these low yields increased housing sales to eleven-year highs.
Overall, the U.S. economy of 1997 was not a bad economy! In fact, if
someone made us an offer today to "can" the 1997 economy and open the can again
at the end of 1998 and repeat it, I believe that we would quickly agree.
But to be in the Hall of Fame, in addition to having a good economy, the
stock and bond markets must also perform well. In a year of such ideal economic
conditions, the bond and stock markets would be expected to perform well. In
fact, both had strong years during 1997. Specifically, after reaching a high of
7.11% during April 1997, the 30-year Treasury bond yield declined to 5.92% by
the end of 1997. The Lehman Aggregate Bond Index returned 9.65% during 1997.(1)
Perhaps even more surprising, the stock market followed very strong
performances during 1995 and 1996 with another strong performance during 1997,
as summarized in the table below. This was the first time in history that the
DJIA has returned over 20% three years in a row.(2)
-----------------------------------------------------
DJIA S&P 500(3)
-----------------------------------------------------
1995 24.91% 37.38%
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1996 28.90% 22.83%
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1997 36.89% 33.28%
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10-year Average 19.23% 17.92%
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My case for inducting 1997 into the economic/financial Hall of Fame and
perhaps even putting a statue in the Hall entrance rests. Long live 1997.
BUT WHAT ARE THE PROSPECTS FOR 1998?
Economic and financial performance is often driven by unexpected economic
shocks. And despite the strong performance in the economy and the financial
markets during 1997, there was an unexpected shock, commonly called the "Asian
flu." The Asian flu began with the devaluation of the Thai baht on July 2, 1997
and continued with significant pressure on the Hong Kong markets, which prompted
the October 25th one-day decline in the DJIA by 554 points or 7.2%. In addition
to spreading from Thailand to Malaysia, Indonesia and the Philippines, the flu
spread immediately to Korea and continues to provide major concerns for Hong
Kong and Japan. Concerns for the economies in not only non-Japan Asia, but also
their impacts on Japan, Europe and the U.S., appear to be diverging rather than
converging.
The unexpected event of 1998 could be a continuation of the Asian flu. The
IMF "flu shots" might not be enough to cure the patients. The effect of the
Asian flu on the U.S. stock market is indicated by the fact that the DJIA
reached its 1997 high of 8259.31 on August 6 and closed the year at 7908.25,
4.3% below this record level.
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<PAGE>
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The moderating effects of the Asian flu on the U.S. economy, however, while
causing significant problems, may have obviated another problem. Had the Asian
flu not occurred, the Fed would have been faced with a strong economy and
growing wage rates and, despite the absence of actual inflation, may well have
made one or more preemptive tightenings during the second half of 1997. Even one
tightening may have had a significant effect on the U.S. stock and bond markets
through expectations of subsequent tightenings. The onset of the Asian flu
probably averted a Fed tightening for two reasons. First, the common view was
that the Asian situation would reduce real GDP in the U.S. by 0.5% or more, a
decline in economic growth which has been sufficient for the Fed to avoid
tightening. Second, the Fed was handcuffed from tightening because of the effect
it would have had on the world markets, which may have been much more severe
than its minimal effect on the U.S. economy.
What about 1998? First, do not expect another 1997 in terms of stock market
performance. The major uncertainty for 1998 continues to be the effect of the
Asian situation on U.S. economic growth and U.S. corporate profits. While the
Asian situation will certainly mitigate U.S. inflation, it will also certainly
reduce exports by the U.S. to Asia, not only the Flying Tigers, but also Korea
and very importantly Japan, and also reduce the pricing power of U.S.
corporations which export to these countries or compete with imports from those
countries. While the operating earnings growth of S&P 500 companies was 10.5%
during 1997, it is likely to be less than that, perhaps 5%-8%, during 1998. But
the stock market appears more attractive now than it did on August 6 when the
Dow was at 8,259.31. Other potential threats, however, include slow European
growth and the effects of the European Monetary Unit, the maturation of the U.S.
economic expansion and trade wars induced by developing protectionism and
isolationism.
Our expectations for 1998 are modest. However, modest expectations are not
negative expectations. We do not expect a recession during 1998 and in general
our expectations are ambivalent regarding whether the next Fed movement will be
an easing due to the inflationary effects of Asia or a tightening due to
increasing employment growth and wage increases. The balance is between a strong
domestic economy and an economic drag from Asia. The year 1998 could be a solid
performer, even if not a "Ruthian" look-alike or evena Hall of Fame candidate,
for both the economy and the markets.
Regards,
/s/ FRANK J. JONES
----------------------------------------
Frank J. Jones, Ph.D.
President, The Park Avenue Portfolio
- ----------
(1) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity.
(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.
(3) 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.
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<PAGE>
THE PARK AVENUE PORTFOLIO
TABLE OF CONTENTS
PORTFOLIO SCHEDULE
MANAGER OF
INTERVIEW INVESTMENTS
===================================================-----------------------------
THE GUARDIAN PARK AVENUE FUND | 2 | | 19 |
===================================================
OBJECTIVE: Long-term growth of capital
- ---------------------------------------------------
PORTFOLIO: At least 80% common stocks and
securities convertible into
common stocks
- ---------------------------------------------------
INCEPTION: June 1, 1972
- ---------------------------------------------------
NET ASSETS AT DECEMBER 31, 1997: $2,514,378,189
- ---------------------------------------------------
"WE BELIEVE THAT SOUNDLY-BASED QUANTITATIVE MODELS PROVIDE
A VALUABLE TOOL. AT THE SAME TIME, FAST-BREAKING NEWS AND
UNUSUAL INVESTMENT ISSUES REQUIRE THE BALANCED JUDGMENT OF
A CAPABLE PORTFOLIO MANAGER. WE BELIEVE THE SUREST PATH TO
CONSISTENTLY ABOVE-AVERAGE RETURNS REQUIRES THE
SYNERGISTIC RESULTS OF COMBINING GOOD QUANTITATIVE TOOLS
WITH GOOD MANAGER JUDGMENT."
--Charles E. Albers, C.F.A.
Portfolio Manager
===================================================-----------------------------
THE GUARDIAN PARK AVENUE SMALL CAP FUND | 6 | | 25 |
===================================================
OBJECTIVE: Long-term growth of capital
- ---------------------------------------------------
PORTFOLIO: At least 85% in a diversified
portfolio of common stocks and
convertible securities issued by
companies with small market
capitalization
- ---------------------------------------------------
INCEPTION: May 1, 1997
- ---------------------------------------------------
NET ASSETS AT DECEMBER 31, 1997: $119,263,775
- ---------------------------------------------------
"OUR BASIC APPROACH DURING 1997 AND INTO 1998 IS TO
COMBINE OUR QUANTITATIVE METHODOLOGIES WITH FUNDAMENTAL
JUDGMENTS FROM OUR PORTFOLIO MANAGERS AND ANALYSTS.
PARTICULARLY WHEN DEALING WITH SMALLER COMPANIES, MANY OF
WHICH HAVE SHORTER OPERATING HISTORIES, MORE VARIABLE
OPERATIONS AND LESS RESEARCH COVERAGE, OUR KNOWLEDGE OF
THE COMPANIES AND THEIR INDUSTRIES IS A USEFUL ADJUNCT TO
OUR QUANTITATIVE APPROACH."
--Charles E. Albers, C.F.A.
Co-Portfolio Manager
--Larry Luxenberg, C.F.A.
Co-Portfolio Manager
===================================================-----------------------------
THE GUARDIAN ASSET ALLOCATION FUND | 8 | | 28 |
===================================================
OBJECTIVE: Long-term total investment return
consistent with moderate risk
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PORTFOLIO: A mixture of equity securities, debt
obligations and money market
instruments; purchases shares of
The Guardian Park Avenue, Investment
Quality Bond and Cash Management Funds
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INCEPTION: February 16, 1993
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NET ASSETS AT DECEMBER 31, 1997: $151,014,330
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"WE ALSO BENEFITED FROM THE EXCELLENT STOCK SELECTION
CAPABILITIES OF OUR EQUITY GROUP, HEADED BY CHUCK ALBERS.
IMPORTANTLY, THIS YEAR THE FUND BEGAN TO DIRECTLY PURCHASE
SHARES OF THE GUARDIAN PARK AVENUE FUND RATHER THAN
INDIVIDUAL STOCKS. THIS WILL HAVE THE IMPORTANT BENEFIT OF
INCREASING THE FUND'S LEVEL OF DIVERSIFICATION."
--Jonathan C. Jankus, C.F.A.
Portfolio Manager
<PAGE>
THE PARK AVENUE PORTFOLIO
TABLE OF CONTENTS--(Continued)
PORTFOLIO SCHEDULE
MANAGER OF
INTERVIEW INVESTMENTS
===================================================-----------------------------
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND | 10 | | 31 |
===================================================
OBJECTIVE: Long-term growth of capital
- ---------------------------------------------------
PORTFOLIO: At least 80% in a diversified
portfolio of common stocks of
companies domiciled outside of the
United States
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INCEPTION: February 16, 1993
- ---------------------------------------------------
NET ASSETS AT DECEMBER 31, 1997: $73,267,467
- ---------------------------------------------------
"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."
--R. Robin Menzies
Portfolio Manager
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THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND | 12 | | 34 |
===================================================
OBJECTIVE: Long-term capital appreciation
- ---------------------------------------------------
PORTFOLIO: At least 65% in a portfolio of
common stocks issued by emerging
market companies
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INCEPTION: May 1, 1997
- ---------------------------------------------------
NET ASSETS AT DECEMBER 31, 1997: $23,481,048
- ---------------------------------------------------
"IT IS DIFFICULT TO PREDICT HOW LONG IT WILL TAKE FOR THE
FINANCIAL STORMS IN THE EMERGING MARKETS TO BLOW OVER; THE
SITUATION IS STILL VERY FLUID. WE BELIEVE THAT MANY
EMERGING MARKETS ARE NOW GOOD VALUE AS A RESULT, AND THAT
THEY WILL PERFORM WELL AS INVESTORS' CONFIDENCE RETURNS,
RATHER AS THE UNAFFECTED MARKETS RECOVERED IN THE WAKE OF
MEXICO'S PROBLEMS IN 1993. WE BELIEVE THAT THE FUND IS
WELL-POSITIONED TO TAKE ADVANTAGE OF SUCH A RECOVERY, AND
WE ARE CONFIDENT THAT THE COMPANIES AND COUNTRIES IN WHICH
WE HAVE INVESTED HAVE GOOD LONG-TERM PROSPECTS AND STAND
AT REASONABLE VALUATIONS."
--Edward H. Hocknell
Portfolio Manager
===================================================-----------------------------
THE GUARDIAN INVESTMENT QUALITY BOND FUND | 14 | | 37 |
==================================================
OBJECTIVE: A high level of current income and
capital appreciation without undue
risk to principal
- --------------------------------------------------
PORTFOLIO: At least 80% investment-grade debt
obligations and U.S. government
securities
- --------------------------------------------------
INCEPTION: February 16, 1993
- --------------------------------------------------
NET ASSETS AT DECEMBER 31, 1997: $98,934,712
- --------------------------------------------------
"THE FUND'S OVERALL STRATEGY WAS TO MAXIMIZE THE TOTAL
RETURN OF A DIVERSIFIED FIXED-INCOME PORTFOLIO OF
INVESTMENT GRADE CORPORATE, MORTGAGE-BACKED, ASSET-BACKED,
AND U.S. GOVERNMENT SECURITIES. SPECIFICALLY, WE SOUGHT TO
IDENTIFY ATTRACTIVE ASSET ALLOCATION WEIGHTINGS BASED ON
RELATIVE VALUATION ANALYSIS AND THEN INVEST IN SECURITIES
THAT HAD SUPERIOR RISK/RETURN PROFILES WHILE NOT
ENGAGING IN INTEREST RATE OR MARKET TIMING STRATEGIES."
--Thomas G. Sorell, C.F.A.
Co-Portfolio Manager
--Howard W. Chin
Co-Portfolio Manager
<PAGE>
THE PARK AVENUE PORTFOLIO
TABLE OF CONTENTS--(Continued)
PORTFOLIO SCHEDULE
MANAGER OF
INTERVIEW INVESTMENTS
===================================================-----------------------------
THE GUARDIAN TAX-EXEMPT FUND | 16 | | 40 |
===================================================
OBJECTIVE: Maximum current income exempt
from federal taxes consistent with
preservation of capital
- ---------------------------------------------------
PORTFOLIO: At least 80% investment-grade
debt obligations issued by state
and local authorities
- ---------------------------------------------------
INCEPTION: February 16, 1993
- ---------------------------------------------------
NET ASSETS AT DECEMBER 31, 1997: $47,360,315
- ---------------------------------------------------
"DURING 1997, THE FUND PURCHASED BONDS WITH THE PURPOSE
OF ENHANCING THE FUND'S GEOGRAPHIC AND SECTOR
DIVERSIFICATION. IT IS IMPORTANT TO HAVE DIVERSIFICATION
IN THE FUND TO TRY TO LIMIT THE FUND'S EXPOSURE TO ANY ONE
SECTOR OR REGION. DIVERSIFICATION CAN HELP PROTECT THE
FUND FROM SEVERE DECLINES IN THE EVENT THAT A PARTICULAR
REGION OR SECTOR EXPERIENCES AN ECONOMIC HARDSHIP."
--Alexander M. Grant, Jr.
Portfolio Manager
===================================================-----------------------------
THE GUARDIAN CASH MANAGEMENT FUND | 18 | | 42 |
===================================================
OBJECTIVE: As high a level of current income
as is consistent with liquidity and
preservation of capital
- ---------------------------------------------------
PORTFOLIO: Short-term money market instruments
- ---------------------------------------------------
INCEPTION: November 3, 1982
- ---------------------------------------------------
NET ASSETS AT DECEMBER 31, 1997: $138,387,686
- ---------------------------------------------------
"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 OR
BONDS. ALSO, SOME OF OUR INVESTORS PREFER THE RELATIVE
STABILITY OF THE MONEY MARKETS. TO BEST ACCOMMODATE ALL
OUR INVESTORS, WE WILL CONTINUE TO TRY TO PROVIDE A STRONG
7-DAY YIELD, WHILE OFFERING SAFETY AND LIQUIDITY."
--Alexander M. Grant, Jr.
Portfolio Manager
===================================================-----------------------------
FINANCIAL STATEMENTS | 44 |
===================================================
===================================================-----------------------------
NOTES TO FINANCIAL STATEMENTS | 52 |
===================================================
===================================================-----------------------------
FINANCIAL HIGHLIGHTS | 62 |
===================================================
===================================================-----------------------------
INDEPENDENT AUDITORS REPORT | 68 |
===================================================
<PAGE>
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THE GUARDIAN PARK AVENUE FUND
- -----------------------------
[PHOTO]
Charles E. Albers, C.F.A.
Portfolio Manager
Q. HOW DID THE FUND PERFORM IN 1997?
A. The year 1997 was terrific for most U.S. equity investors. Despite
challenging crosscurrents within the market, The Guardian Park Avenue Fund
performed very well, both absolutely and relative to our mutual fund peer group.
During 1997, the Fund provided a total return of 34.85% to its
shareholders.(1) That result bettered the 33.28% total return on the benchmark
S&P 500 Composite Index.(2) Also, the Fund's 1997 return substantially exceeded
the return of the average fund in our peer group, Lipper's U.S. Growth Funds,
which was 25.30% over the same period.(3)
Of course, from a shareholder's viewpoint, what matters most is the
long-term investment record. Here, too, the Fund looks good. For the 5-year
period ended December 31, 1997, the Fund ranked in the top 5.1% of the Lipper
peer group; for the period of the last 10 years, it ranked in the top 12.2% of
the peer group; and for the period of the last 15 years, it ranked in the top
5.1% (and #6 overall).(4) (See details in the following table.) We think these
statistics are pretty impressive!
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COMPARATIVE AVERAGE ANNUAL
TOTAL RETURNS FOR PERIODS RANKING INFORMATION FOR PERIODS
ENDED DECEMBER 31, 1997 ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
LIPPER U.S. GUARDIAN PARK GUARDIAN PARK
GUARDIAN PARK GROWTH FUNDS AVENUE FUND AVENUE FUND
AVENUE FUND AVERAGE LIPPER RANK PERCENT RANK
- --------------------------------------------------------------------------------
1 Year 34.85% 25.30% 63 (out of 820) 7.7%
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5 Year 22.11% 16.82% 16 (out of 311) 5.1%
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10 Year 19.21% 16.39% 22 (out of 181) 12.2%
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15 Year 19.00% 14.97% 6 (out of 116) 5.1%
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Q: WHAT FACTORS AFFECTED FUND PERFORMANCE IN 1997?
A: Looking back, three factors were critical.
First, we did a comparatively good job of addressing the important cap-size
issue. In 1997, for the third consecutive year, large cap stocks performed
better than small caps, as shown in this table:
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% TOTAL RETURN
----------------------
1995 1996 1997
---- ---- ----
Large Caps (S&P 500
Composite Index) +37.4 +22.8 +33.3
----------------------------------------------------
Small Caps (Russell 2000
Index)(5) +28.4 +16.5 +22.2
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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--return 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) The S&P 500 Composite Index is an unmanaged index of 500 large-cap U.S.
stocks that is generally considered to be representative of U.S. stock
market activity. The S&P 500 Index is not available for direct investment
and its returns do not reflect expenses, which are deducted from the Fund's
return. Likewise, return figures for the S&P 500 Index do not reflect any
sales charges that an investor may have to pay when purchasing or redeeming
shares of the Fund.
(3) 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.
(4) Lipper rankings were reported in Lipper's Mutual Funds Performance Analysis
Special Report 4th Quarter 1997. Lipper rankings are based on total returns
and do not take into account any deductions for sales loads.
(5) The Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market.
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2
<PAGE>
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Throughout this period, the Fund has correctly maintained a weighted
average cap size which was larger than our peer group of mutual funds, and this
has benefited the Fund's relative performance. We tilted the GPAF portfolio
slightly more towards small caps in the second quarter, which proved timely as
the small caps outperformed large caps during the second and third quarters.
Next, during the third quarter, we perceived the developing Asian contagion
a bit earlier than most U.S. money managers. In the fall of 1997, we reacted by
paring back positions in many companies with significant Asian exposure, while
re-deploying the proceeds into other companies with more domestically-oriented
businesses. That move undoubtedly benefited our results in the fourth quarter,
when the impact of the Asian financial collapse became widely discounted in U.S.
market prices.
And, finally, another factor which contributed to our relatively good
investment performance was our multi-factor quantitative stock scoring system.
This system has generally provided us solid guidance over the years in stock
selection, and this favorable record continued in 1997.
Q. WHAT STRATEGIES DO YOU USE TO MANAGE THE FUND?
A. There was no change in our strategic approach during this period. We believe
that soundly-based quantitative models provide a valuable tool. At the same
time, fast-breaking news and unusual investment issues require the balanced
judgment of a capable portfolio manager. We believe the surest path to
consistently above-average returns requires the synergistic results of combining
good quantitative tools with good manager judgment.
Our quantitative models 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 overall portfolio
style has the best performance prospects. The "bottom-up" approach uses our
multi-factor 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 both within one portfolio.
Q. HOW HAS THE PORTFOLIO BEEN POSITIONED IN DIFFERENT ECONOMIC SECTORS?
A. The portfolio's principal sector overweight during 1997 has been Financials,
which represented 30.3% of the portfolio at year-end, compared with 17.1% in the
S&P 500 Composite Index. This sector was a strong outperformer during the year,
benefiting from a decline in interest rates, the best asset quality in a
generation, industry consolidation and more efficient use of capital.
The portfolio at year-end also had major stakes in the Energy (15.9%) and
Capital Goods/Technology (14.4%) sectors. (See following pie chart for the
complete portfolio breakdown.) Importantly, the major sector with the worst
relative market performance in 1997 was Basic Industries, and the Fund was
underweighted there compared with the benchmark.
Q. HAVE YOU ANY COMMENTS ON THE OUTLOOK FOR 1998?
A. We are certainly not market timers. We are cautiously optimistic about market
prospects for 1998. As usual, we counsel investors to take a long-term view of
the equity investment process.
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3
<PAGE>
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THE GUARDIAN PARK AVENUE FUND PROFILE
AS OF DECEMBER 31, 1997
- --------------------------------------------
----------------------------------------
THE GUARDIAN PARK AVENUE FUND-- SECTOR WEIGHTINGS
TOP 10 HOLDINGS AS OF 12/31/97 COMMON STROCKS HELD
BY THE FUND ON DECEMBER 31, 1997
1. General Electric Co. 2.91%
----------------------------------------
2. Exxon Corp. 2.66% [GRAPHICAL REPRESENTATION
---------------------------------------- OF PIE CHART]
3. Int'l. Business Machines 2.50%
---------------------------------------- Credit Cyclicals--0.5%
4. Storage Technology Corp. 1.80% Utilities--4.3%
---------------------------------------- Consumer Cyclical--6.7%
5. Travelers Group, Inc. 1.69% Conglomerates--1.4%
---------------------------------------- Consumer Services--2.6%
6. Chase Manhattan Corp. 1.67% Transportation--2.9%
---------------------------------------- Consumer Staples--9.2%
7. Microsoft Corp. 1.40% Financial--30.4%
---------------------------------------- Capital Goods--7.1%
8. BankAmerica Corp. 1.37% Basic Industries--4.6%
---------------------------------------- Energy--15.9%
9. Ameritech Corp. 1.37% Capital Goods-
---------------------------------------- Technology--14.4%
10. Allstate Corp. 1.36%
----------------------------------------
For a complete list of portfolio holdings,
please see the schedule of investments.
- ---------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED 12/31/97
Inception Since
Date 1 Year 5 Years 10 Years Inception
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares (with sales charge) 6/1/72 28.76% 20.99% 18.66% 16.54%
At Net Asset Value (without sales charge) 34.85% 22.11% 19.21% 16.75
- ----------------------------------------------------------------------------------------------------------
Class B Shares (with sales charge) 5/1/96 29.53% N/A N/A 29.18%
At Net Asset Value (without sales charge) 33.53% N/A N/A 30.95%
- ----------------------------------------------------------------------------------------------------------
S&P 500 Index 33.28% 20.17% 17.92% 13.01%
(6/1/72)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(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 for Class A shares do not take into account the current
maximum sales charge of 4.5%, except where indicated. Prior to August 25,
1988, Class A shares of the Fund were offered at a higher sales charge, so
actual returns would have been somewhat lower. Total return figures for
Class B shares do not take into account the contingent deferred sales
charge applicable to such shares (maximum of 4%), 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.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHART]
The Guardian Lipper U.S.
Park Avenue Fund S&P 500 Equity Growth Cost of
(Class A) Index Fund Average Living
----------- ----------- ----------- ----------
6/1/72 1 9550 1 10000 1 10000 1 10000
1972 2 9352 2 9791 2 9746 2 10072
3 9495 3 10173 3 9548 3 10169
4 9919 4 10936 4 10002 4 10266
1973 5 8954 5 10404 5 8773 5 10483
6 7758 6 9802 6 7699 6 10676
7 9104 7 10271 7 8788 7 10918
8 8355 8 9320 8 7686 8 11184
1974 9 8898 9 9061 9 7492 9 11546
10 8095 10 8376 10 6661 10 11836
11 6816 11 6276 11 5224 11 12222
12 7016 12 6861 12 5701 12 12536
1975 13 9052 13 8434 13 7001 13 12754
14 10222 14 9724 14 8176 14 12923
15 9524 15 8662 15 7174 15 13188
16 10311 16 9410 16 7588 16 13430
1976 17 12315 17 10819 17 8924 17 13527
18 12926 18 11077 18 9084 18 13696
19 13570 19 11281 19 9043 19 13913
20 14714 20 11627 20 9483 20 14106
1977 21 14578 21 10762 21 8951 21 14396
22 15548 22 11107 22 9480 22 14614
23 15171 23 10794 23 9340 23 14807
24 15894 24 10765 24 9674 24 15048
1978 25 16186 25 10235 25 9527 25 15314
26 17952 26 11100 26 10724 26 15700
27 19593 27 12062 27 11821 27 16063
28 18195 28 11455 28 11002 28 16401
1979 29 19967 29 12263 29 11945 29 16884
30 20459 30 12583 30 12544 30 17440
31 22475 31 13535 31 13793 31 17971
32 23489 32 13539 32 14501 32 18575
1980 33 22448 33 12987 33 13536 33 19348
34 24637 34 14722 34 15484 34 19928
35 27183 35 16363 35 18053 35 20266
36 28544 36 17908 36 19852 36 20870
1981 37 30553 37 18146 37 20432 37 21401
38 30553 38 17726 38 20347 38 21860
39 28041 39 15910 39 17993 39 22488
40 30196 40 17010 40 19380 40 22729
1982 41 28244 41 15773 41 18074 41 22874
42 28221 42 15682 42 18100 42 23430
43 32078 43 17473 43 20123 43 23599
44 37863 44 20656 44 24326 44 23599
1983 45 42172 45 22720 45 27061 45 23696
46 49604 46 25228 46 30611 46 24010
47 48521 47 25185 47 29869 47 24251
48 48698 48 25281 48 29333 48 24493
1984 49 46645 49 24675 49 27414 49 24855
50 47823 50 24028 50 26721 50 25048
51 53052 51 26344 51 28574 51 25290
52 54864 52 26823 52 28930 52 25483
1985 53 61530 53 29283 53 31492 53 25797
54 65012 54 31410 54 33601 54 25966
55 60468 55 30132 55 32193 55 26111
56 72960 56 35290 56 37156 56 26449
1986 57 87231 57 40238 57 42720 57 26353
58 93553 58 42592 58 44999 58 26425
59 82542 59 39627 59 41062 59 26570
60 86371 60 41842 60 42571 60 26763
1987 61 106898 61 50759 61 51317 61 27126
62 104621 62 53272 62 52563 62 27440
63 111995 63 56777 63 55749 63 27729
64 88927 64 43977 64 44085 64 27947
1988 65 100335 65 46480 65 47392 65 28164
66 107311 66 49515 66 50056 66 28502
67 105853 67 49653 67 49730 67 28913
68 107404 68 51158 68 50482 68 29179
1989 69 117426 69 54775 69 54123 69 29656
70 124277 70 59546 70 58562 70 29976
71 135522 71 65881 71 64497 71 30169
72 133003 72 67206 72 63984 72 30531
1990 73 131154 73 65183 73 62581 73 31087
74 131990 74 69211 74 67101 74 31401
75 111333 75 59736 75 56465 75 32029
76 116611 76 65046 76 61087 76 32415
1991 77 138452 77 74504 77 71872 77 32633
78 136860 78 74303 78 71176 78 32874
79 149259 79 78263 79 76341 79 33116
80 157618 80 84775 80 83235 80 33382
1992 81 162078 81 82672 81 82319 81 33647
82 159469 82 84210 82 80113 82 33889
83 167044 83 86846 83 82496 83 34106
84 189879 84 91214 84 89848 84 34396
1993 85 208278 85 95200 85 92144 85 34686
86 215651 86 95619 86 92749 86 34879
87 234327 87 98067 87 97203 87 35048
88 228375 88 100342 88 99458 88 35338
1994 89 221843 89 96569 89 96044 89 35556
90 219203 90 96936 90 93504 90 35773
91 227686 91 101657 91 98580 91 36087
92 225091 92 101617 92 97271 92 36280
1995 93 245506 93 111514 93 104431 93 36546
94 271285 94 122063 94 114202 94 36836
95 298576 95 131706 95 123909 95 37005
96 302248 96 139569 96 126735 96 37126
1996 97 317905 97 147050 97 133553 97 37585
98 334627 98 153579 98 139376 98 37850
99 348213 99 158217 99 143418 99 38019
100 382268 100 171365 100 150775 100 38331
1997 101 386091 101 176009 101 148815 101 38712
102 452576 102 206652 102 172283 102 39010
103 502902 103 222048 103 190631 103 39400
104 515475 104 228376 104 188286 104 39873
PERFORMANCE FOR CLASS B SHARES, WHICH WERE FIRST OFFERED ON MAY 1, 1996, WILL
VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO SUCH SHARE
CLASS.
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 $515,475 on December 31, 1997. We compare our
performance to that of the S&P 500 Index, which is an unmanaged index that is
generally considered the performance benchmark of the U.S. stock market. While
you cannot invest directly in the S&P 500 Index, a similar hypothetical
investment would now be worth $228,376. 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 $188,286. 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 lenda more complete understanding of the
investment's real worth.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN PARK AVENUE SMALL CAP FUND
- -----------------------------------------
[PHOTO]
Charles E. Albers, C.F.A.
Co-Portfolio Manager
[PHOTO]
Larry Luxenberg, C.F.A.
Co-Portfolio Manager
Q. 1997 WAS A VOLATILE YEAR FOR THE STOCK MARKET. HOW DID THE FUND DO IN ITS
FIRST YEAR?
A. The Fund had an outstanding first year, both in absolute and relative terms.
From May 1, 1997, the date the Fund's shares were first offered to the public,
through year-end, the Fund had a total return of 36.30% (Class A shares).(1)
That result bettered the 28.70% total return of The Russell 2000 Index,(2) a
leading benchmark of small-cap performance for the same time period. In
addition, the Fund's 1997 return exceeded the return over the same period of the
average fund in our Lipper peer group of Small Cap Funds, which was 30.40%.(3)
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE YEAR?
A. Two factors that contributed to the Fund's performance in 1997 were our
quantitative stock selection models and our sector selection. Our time-tested
quantitative models have proven successful with The Guardian Park Avenue Fund,
and we have adapted those same techniques for use in selecting small cap stocks.
This disciplined and systematic approach proved particularly helpful during a
tumultuous year like the past one.
Throughout the year, our largest sector concentration was in financial
stocks, and we remained overweighted relative to the Russell 2000 throughout the
year. Financial stocks performed well, benefiting from a decline in interest
rates, the best asset quality in a generation, industry consolidation and more
efficient use of capital.
Q. WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND IN 1997?
A. Our basic approach during 1997 and into 1998 is to combine our quantitative
methodologies with fundamental judgments from our portfolio managers and
analysts. Particularly when dealing with smaller companies, many of which have
shorter operating histories, more variable operations and less research
coverage, our knowledge of the companies and their industries is a useful
adjunct to our quantitative approach.
Q. WHAT DO YOU ANTICIPATE FOR 1998?
A. Entering the new year, there is much to be optimistic about. The U.S. economy
by many measures is the best in 30 years. Inflation and interest rates are low,
while employment and corporate profits are high. But after three strong years
for the market, valuations are high by historic standards and overseas economies
are in turmoil. With this in mind we are approaching the market cautiously,
looking for companies that will benefit from low interest rates and are less
affected by the turbulence abroad.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures for Class A shares do not take into account the current
maximum sales charge of 4.5%, except where noted. Total return figures for
Class B shares do not take into account the contingent deferred sales
charge applicable to such shares (maximum of 4%) 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 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.
(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.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN PARK AVENUE SMALL CAP FUND PROFILE
AS OF DECEMBER 31, 1997
- -----------------------------------------------
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHART]
The Guardian The Guardian
Park Avenue Park Avenue
Small Cap Fund Russell 2000 Small Cap Fund
(Class A) Index (Class B)
-------------- ------------ --------------
1997 1 9550 1 10000 1 10000
2 10420 2 11112 2 10510
3 11000 3 11589 3 11086
4 11805 4 12128 4 11880
5 12048 5 12405 5 12116
6 13348 6 13313 6 13373
7 12890 7 12729 7 12938
8 12815 8 12646 8 12863
9 13018 9 12867 9 12647
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Class A and Class B shares of The Guardian Park Avenue Small
Cap Fund and the Russell 2000 Index. The starting point of $9,550 for Class A
shares reflects the maximum sales load of 4.5% that an investor may have to pay
when purchasing shares of the Fund. For Class B shares the contingent deferred
sales load of 4% was imposed at the end of the period. The Index and Class B
shares begin at $10,000.
----------------------------------------------
THE GUARDIAN PARK AVENUE SMALL CAP FUND--
TOP TEN HOLDINGS AS OF 12/31/97
----------------------------------------------
1. Fidelity Nat'l Financial, Inc. 2.69%
----------------------------------------------
2. AFC Cable Systems Inc. 2.48%
----------------------------------------------
3. Ethan Allen Interiors Inc. 2.13%
----------------------------------------------
4. Earthgrains Co. 1.61%
----------------------------------------------
5. U.S. Freightways Corp. 1.35%
----------------------------------------------
6. Robbins & Myers, Inc. 1.22%
----------------------------------------------
7. Brylane, Inc. 1.09%
----------------------------------------------
8. Mail-Well, Inc. 1.09%
----------------------------------------------
9. Airborne Freight Corp. 1.07%
----------------------------------------------
10. CitFed Bancorp, Inc. 1.05%
----------------------------------------------
For a complete list of portfolio holdings,
please see the schedule of investments.
----------------------------------------------
- ----------------------------------------------------------------------------
TOTAL RETURNS(1) FOR PERIODS FROM INCEPTION TO DECEMBER 31, 1997
Inception Since
Date Inception
- ----------------------------------------------------------------------------
Class A Shares (with sales charge) 5/1/97 30.18%
At Net Asset Value (without sales charge) 36.30%
- ----------------------------------------------------------------------------
Class B Shares (with sales charge) 5/6/97 26.47%
At Net Asset Value (without sales charge) 30.47%
- ----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN ASSET ALLOCATION FUND
- ----------------------------------
[PHOTO]
Jonathan C. Jankus, C.F.A.
Portfolio Manager
Q. HOW DID THE FUND PERFORM DURING 1997?
A. For the year ended December 31, 1997, the Fund's total return was 24.44%
(Class A shares),(1) placing it well above the average 18.51% return of funds
with similar objectives and policies in the Lipper universe.(2) The Fund also
handily outperformed the median return of 18.18% produced by Morningstar's
universe of asset allocation funds.(3) Since its inception on February 16, 1993,
the Fund's total aggregate return of 101.94% (or 15.50% on an average annual
basis) is also ahead of the aggregate return of 97.09% (14.94% annually)
experienced by the Fund's passive composite benchmark (60% of the S&P 500 Index
and 40% of the Lehman Aggregate Bond Index, rebalanced monthly).(4) This
benchmark's return for 1997 was an impressive 23.69%.
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE? 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, you made money. Unlike last year, however, the bond
market returned more than cash equivalents. We were correctly overweighted in
stocks relative to cash and bonds, averaging about a 65% weight versus our 60%
benchmark. We also benefited from the excellent stock selection capabilities of
our equity group, headed by Chuck Albers. Importantly, this year the Fund began
to directly purchase shares of The Guardian Park Avenue Fund rather than
individual stocks. This will have the important benefit of increasing the Fund's
level of diversification.
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, has us invested 57.8% in stocks, 21.5% in bonds and
20.7% in cash. At the time of this writing, the turmoil in the Asian economies
and markets continues to cast a pall over the outlook for our own economy. While
no one is suggesting a recession at this time, a decline in Gross Domestic
Product growth is expected and will likely put something of a damper on
corporate profits. This will likely be a year of heightened volatility driven by
foreign "stories," since, in addition to Asia, the final stages leading up to
European monetary union will be witnessed.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures for Class A shares do not take into account the current
maximum sales charge of 4.5%, except where noted. Total return figures for
Class B shares do not take into account the contingent deferred sales
charge applicable to such shares (maximum of 4%) 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.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN ASSET ALLOCATION FUND PROFILE
AS OF DECEMBER 31, 1997
- ------------------------------------------
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHART]
The Guardian
Asset Allocation Aggregate
Fund S&P 500 Bond Fund
(Class A) Index Index
------------ ------------ ------------
1993 1 9550 1 10000 1 10000
2 9674 2 9988 2 10129
3 9856 3 10197 3 10172
4 9798 4 9661 4 10243
5 9894 5 10211 5 10256
6 10180 6 10242 6 10442
7 10180 7 10211 7 10501
8 10753 8 10586 8 10685
9 10916 9 10504 9 10714
10 10877 10 10732 10 10753
11 10591 11 10619 11 10662
12 10715 12 10749 12 10720
1994 13 11116 13 11123 13 10864
14 10858 14 10814 14 10675
15 10505 15 10345 15 10412
16 10429 16 10491 16 10328
17 10362 17 10646 17 10327
18 10180 18 10386 18 10305
19 10362 19 10738 19 10510
20 10667 20 11167 20 10522
21 10457 21 10891 21 10368
22 10658 22 11146 22 10358
23 10285 23 10732 23 10335
24 10486 24 10889 24 10407
1995 25 10419 25 11180 25 10613
26 11021 26 11608 26 10865
27 11288 27 11950 27 10932
28 11365 28 12311 28 11085
29 11727 29 12784 29 11514
30 11985 30 13082 30 11598
31 12539 31 13525 31 11572
32 12549 32 13548 32 11712
33 12873 33 14116 33 11826
34 12759 34 14074 34 11980
35 13045 35 14677 35 12159
36 13055 36 14961 36 12330
1996 37 13355 37 15477 37 12411
38 13344 38 15613 38 12195
39 13430 39 15764 39 12110
40 13516 40 16006 40 12042
41 13763 41 16399 41 12018
42 13927 42 16465 42 12179
43 13449 43 15742 43 12212
44 13608 44 16068 44 12191
45 14269 45 16965 45 12403
46 14781 46 17438 46 12678
47 15726 47 18746 47 12895
48 15503 48 18375 48 12775
1997 49 16340 49 19517 49 12815
50 16304 50 19676 50 12847
51 15754 51 18857 51 12704
52 16424 52 19979 52 12895
53 17153 53 21204 53 13017
54 17714 54 22147 54 13172
55 18842 55 23923 54 13528
56 18315 56 22601 56 13413
57 18941 57 23823 57 13611
58 18818 58 23046 58 13809
59 19039 59 24112 59 13872
60 19039 60 24526 60 14012
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Class A and Class B shares of The Guardian Asset Allocation
Fund, the S&P 500 Index and the Lehman Aggregate Bond Index. The starting point
of $9,550 for Class A shares reflects the maximum sales load of 4.5% that an
investor may have to pay when purchasing Class A shares of the Fund. The Index
begins at $10,000.
TARGET ALLOCATION
[GRAPHICAL REPRESENTATION OF PIE CHART]
Cash & Cash Equivolents--20.7%
Bonds--21.5%
Stocks--57.8%
The market exposure shown above provides an illustration of the Fund's
allocation to different market segments as of December 31, 1997. For a complete
listing of Fund holdings, please refer to the Schedule of Investments.
PERFORMANCE FOR CLASS B SHARES, WHICH WERE FIRST OFFERED ON MAY 1, 1996, WILL
VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO SUCH SHARE
CLASS.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED 12/31/97
Inception Since
Date 1 Year 3 Years Inception
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares (with sales charge) 2/16/93 18.84% 20.67% 14.41%
At Net Asset Value (without sales charge) 24.44% 22.54% 15.50%
- -------------------------------------------------------------------------------------------------------
Class B Shares (with sales charge) 5/1/96 19.09% N/A 19.55%
At Net Asset Value (without sales charge) 23.09% N/A 21.41%
- -------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Baillie Gifford International Fund
- -------------------------------------------------
[PHOTO]
R. Robin Menzies,
Portfolio Manager
Q. HOW DID THE FUND PERFORM DURING 1997?
A. The Fund performed well in 1997, with a total return of 11.07% (Class A
shares)(1) compared to an increase of 2.1% in the Morgan Stanley Capital
International (MSCI) Europe, Australia, and Far East (EAFE) Index.(2) There were
marked divergences in the performance of individual international markets during
the year, with European markets generally strong, and Asian ones weak.
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE YEAR?
A. The Fund's good performance relative to the MSCI EAFE Index was due in part
to the Fund's underweighted investment in Japan as compared to the Index. The
Fund generally had some 10% less invested in Japan than did the Index over the
course of the year. At the end of the year, the Index weighting in Japan was
25.2%, compared to the Fund's 14.5%. In addition, the Japanese stocks held by
the Fund, in aggregate, performed significantly better than the Japanese
component of MSCI EAFE, as the Fund's exposure to Japanese banks, one of the
weakest areas of the Tokyo market, was negligible.
To put events in Asia into a European context, the first point to note is
that the region, including Japan, only accounts for around 10% of Europe's
exports. This leads us to believe that the direct impact of the Asian crisis on
European economic growth will be modest in the short term. Growth in the German
economy has exceeded expectations in 1997--a year ago we thought that it was
optimistic to forecast growth of 2% for 1997, but the consensus is now up to
2.5%--but continued strength in net exports has been entirely responsible for
this improvement. Growth in the French economy remains almost as polarised, with
Gross Domestic Product growth heavily dependent upon net trade.
Q. WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND AND WHAT ARE YOUR EXPECTATIONS
FOR THE FUTURE?
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.
Overall, the Japanese economy seems unlikely to grow this year, and may
only rise 1% or so next year. With the risk of further collapses in the
financial sector still present, a low Japanese weighting concentrated on
successful exporters still seems appropriate for the Fund. With so much
uncertainty in the general background, it is difficult to be too categorical
about the prospects for 1998. We expect that the interest rate background will
continue to be favorable, but that there will be many nasty surprises on the
profits front, as the consequences of the Asian upheavals show themselves in
various unexpected places. We think it will be necessary to be flexible as to
policy and alert to problems developing in individual companies.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures for Class A shares do not take into account the current
maximum sales charge of 4.5%, except where noted. Total return figures for
Class B shares do not take into account the contingent deferred sales
charge applicable to such shares (maximum of 4%) 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 MSCI EAFE
Index is not available for direct investment and its returns do not reflect
expenses that have been deducted from the Fund's return
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Baillie Gifford International Fund Profile
as of December 31, 1997
- --------------------------------------------------------
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHART]
The Guardian
Baillie Gifford
International Fund MSC/EAFE
(Class A) Index
------------- -------------
1993 1 9550 1 10000
2 12354 2 13065
1994 3 12286 3 14119
1995 4 13654 4 15749
1996 5 15611 5 16751
1997 6 17339 6 17096
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Class A and Class B shares of The Guardian Baillie Gifford
International Fund and the MSC/EAFE Index. The starting point of $9,550 for
Class A shares reflects the maximum sales load of 4.5% that an investor may have
to pay when purchasing shares of the Fund. The Index begins at $10,000.
- -------------------------------------------------------------------
TOP TEN HOLDINGS
COMPANY NATURE OF COMPANY COUNTRY
- -------------------------------------------------------------------
1. Novartis AG Pharmaceuticals Switzerland
- -------------------------------------------------------------------
2. ABN Amro Hldgs. NV Banking Netherlands
- -------------------------------------------------------------------
3. Glaxo Wellcome Pharmaceuticals UK
- -------------------------------------------------------------------
4. Zurich Insurance Insurance Switzerland
- -------------------------------------------------------------------
5. Banco Santander S.A. Banking Spain
- -------------------------------------------------------------------
6. Bayerische Vereinsbank Banking Germany
- -------------------------------------------------------------------
7. BMW Car Manufacturer Germany
- -------------------------------------------------------------------
8. Mannesmann AG Telecommunications Germany
- -------------------------------------------------------------------
9. Adidas AG Sports Apparel Germany
- -------------------------------------------------------------------
10. Telecom Italia MOB Telecommunications Italy
- -------------------------------------------------------------------
For a complete list of portfolio holdings,
please see the schedule of investments.
- -------------------------------------------------------------------
PERFORMANCE FOR CLASS B SHARES, WHICH WERE FIRST OFFERED ON MAY 1, 1996, WILL
VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO EACH SHARE
CLASS.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED 12/31/97
Inception Since
Date 1 Year 3 Years Inception
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares (with sales charge) 2/16/93 6.07% 10.46% 11.96%
At Net Asset Value (without sales charge) 11.07% 12.17% 13.02%
- ----------------------------------------------------------------------------------------------
Class B Shares (with sales charge) 5/1/96 5.37% N/A 6.24%
At Net Asset Value (witout sales charge) 9.37% N/A 8.25%
- ----------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Baillie Gifford Emerging Markets Fund
- --------------------------------------------------
[PHOTO]
Edward H. Hocknell
Portfolio Manager
Q. HOW DID THE FUND PERFORM IN 1997--DURING THE FIRST EIGHT MONTHS OF ITS
EXISTENCE?
A. The emerging markets have lived up to their reputation for volatility. From
May 1, 1997, the date the Fund's shares were first offered to the public,
through year end, the most commonly used benchmark for reflecting the movements
of the emerging markets as a whole, the Morgan Stanley Capital International
(MSCI) Emerging Markets Free (EMF) Index, declined by 19.7% in U.S. Dollar
terms.(1) Over the same period the Fund declined by 7.98% (Class A shares).(2)
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE?
A. The performance of the Fund was generally affected by the declines in
emerging markets worldwide in the fourth quarter. The declines in the Latin
American markets were relatively modest (-11.1%), considering how strong the
markets had been in the preceding months. Mexico was actually up by 51.6% in
1997 as a whole, despite the weakness at the end of the year, and Latin America
as a whole was up 28.3% in the year. The real problems have been in Asia, where
the largest emerging market, Malaysia, fell by over 38% in the fourth quarter of
1997, to a level 68.8% lower than it had been a year earlier. Similarly
precipitous declines were experienced in Thailand, the Philippines and
Indonesia. Within Europe, Hungary has performed well, as has Portugal, but
Poland andthe Czech Republic have mirrored the declines experienced elsewhere.
The origins of the markets' nervousness lie in Asia. We had become
concerned for quite some time that not only were the growth rates in some of the
Asian emerging economies unsustainably high, but also that the region's
new-found prosperity had encouraged an irresponsible, almost insouciant attitude
to lending on the part of the banks.
One of the main supports for this extravagance was the link between these
countries' currencies and the U.S. Dollar. This link emboldened them to borrow
at low American rates of interest in order to earn higher rates at home. It
eventually became apparent that their borrowings were such that their own
currencies were vulnerable. As local currencies fell, banks' and companies'
liabilities, which were often denominated in foreign currencies, appreciated,
undermining investors' confidence in their earnings, which in turn led to a
decline in share prices.
The final piece in this sombre jigsaw puzzle was the effect that these
events had on international investors' confidence. They made sales where they
could, and this spread the problems, so that countries which had not borrowed
excessively or invested unwisely were also involved in the declines.
Q. WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND AND WHAT IS YOUR OUTLOOK FOR
1998?
A. We were able to avoid the worst effects of the crisis because we had
anticipated the mounting financial problems of Asia. For example, we reduced the
Fund's Asian exposure from 31.9% to 23.6% during the fourth quarter of 1997. But
we were not able to avoid the Asian effect completely, because several major
markets whose fundamental prospects remain sound, such as
- --------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International (MSCI) Emerging Markets Free (EMF)
Index is an unmanaged index that is generally considered to be
representative of the stock market activity of emerging markets. The Index
is a market capitalization weighted index composed of companies
representative of the market structure of 22 emerging market countries in
Europe, Latin America, and the Pacific Basin. The MSCI EMF Index excludes
closed markets and those shares in otherwise free markets which may not be
purchased by foreigners. The MSCI EMF Index is not available for direct
investment and the returns do not reflect the expenses that have been
deducted from the Fund's return.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures for Class A shares do not take into account the current
maximum sales charge of 4.5%, except where noted. Total return figures for
Class B shares do not take into account the contingent deferred sales
charge applicable to such shares (maximum of 4%) 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.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Argentina, Mexico and some Eastern European markets also suffered. Our view now
is that the declines in these markets are likely to be reversed in the months to
come as their underlying qualities reassert themselves.
It is difficult to predict how long it will take for the financial storms
in the emerging markets to blow over; the situation is still very fluid. The
crisis has been indiscriminate; most markets that can be labelled "emerging"
have been hit, whether or not they share Asia's problems. We believe that many
emerging markets are now good value as a result, and that they will perform well
as investors' confidence returns, rather as the unaffected markets recovered in
the wake of Mexico's problems in 1993. We believe that the Fund is
well-positioned to take advantage of such a recovery, and we are confident that
the companies and countries in which we have invested have good long-term
prospects and stand at reasonable valuations.
The Fund's current investment strategy is to retain a heavy weighting in
Latin America; to be overweight compared to the MSCI EMF Index in Eastern
Europe, and to have a strong presence in Hong Kong. As 1998 begins, we have
little or nothing in the struggling markets of Southeast Asia--their
difficulties are likely to persist for some time--and we have a low exposure to
South Africa, where growth is faltering and share valuations are high.
- --------------------------------------------------------------------------------
THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
PROFILE AS OF DECEMBER 31, 1997
- -----------------------------------------------------------
- -----------------------------------------------------------
TOP 10 HOLDINGS
COMPANY NATURE OF COMPANY COUNTRY
---------------------------------------------------------
1. Telebras ON Telephone Utility Brazil
--------------------------------------------------------
2. Telmex ADR Telephone Utility Mexico
--------------------------------------------------------
3. Hub Power Co. GDR Energy Pakistan
--------------------------------------------------------
4. Telebras ADR Telephone Utility Brazil
--------------------------------------------------------
5. Petrobras ADR Energy Brazil
--------------------------------------------------------
6. Richter Gedeon Pharmaceuticals Hungary
--------------------------------------------------------
7. Banorte Banking Mexico
--------------------------------------------------------
8. Banco Itau S.A. Bamking Brazil
--------------------------------------------------------
9. CIE B Event Management Mexico
--------------------------------------------------------
10. Telesp ON Telephone Utility Brazil
--------------------------------------------------------
For a complete list of portfolio holdings, please see the Schedule of
Investments.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHART]
The Guardian The Guardian
Baillie Gifford Baillie Gifford
Emerging Markets Emerging Markets MSCI EMF
Fund (Class A) Fund (Class B) Index
------------------ ------------------ ------------------
5/1/97 9550 5/6/97 10000 5/1/97 10000
12/31/97 8789 12/31/97 8668 12/31/97 8136
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Class A and Class B shares of The Guardian Baillie Gifford
Emerging Markets Fund and the MSCI EMF Index. The starting point of $9,550 for
Class A shares reflects the maximum sales load of 4.5% that an investor may have
to pay when purchasing shares of the Fund. For Class B shares the contingent
deferred sales load of 4% was imposed at the end of the period. The Index and
Class B shares begin at $10,000.
---------------------------------------------------------------------
TOTAL RETURNS(2) FOR PERIOD FROM INCEPTION TO 12/31/97
Inception Since
Date Inception
---------------------------------------------------------------------
Class A Shares (with sales charge) 5/1/97 -12.12%
Net Asset Value (without sales charge) -7.98%
---------------------------------------------------------------------
Class B Shares (with sales charge 5/6/97 -13.32%
At Net Asset Value (without sales charge) -9.71%
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Investment Quality Bond Fund
- -----------------------------------------
[PHOTO]
Thomas G. Sorell, C.F.A.
Co-Portfolio Manager
[PHOTO]
Howard W. Chin
Co-Portfolio Manager
Q. HOW DID THE INVESTMENT QUALITY BOND FUND PERFORM DURING 1997?
A. The Fund had a total return of 8.43%(1) for the year ended December 31, 1997,
slightly less than the average fund in our Lipper Intermediate Investment Grade
peer group,(2) which returned 8.57% for the year. This group consists of other
mutual funds that invest primarily in investment grade debt with average
maturities of 5-10 years. Another commonly used benchmark, the Lehman Aggregate
Bond Index, which is not available for direct investment and does not incur fund
expenses, returned 9.65% in 1997.(3)
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE?
A. During the first quarter of 1997, the market feared that the Federal Reserve
would tighten monetary policy if the economy did not slow sufficiently to reduce
the risk of future increases in inflation. As the prospect for Fed tightening
became more apparent, interest rates rose and bonds performed poorly in the
first quarter. The Federal Reserve did in fact decide to increase the Fed Funds
rate by 25 basis points on March 25th.
Ironically, March 1997 represented the peak in interest rates for the year,
and the surprise was that even with a strong economy, there was little if any
evidence of incipient inflation. The Fed, by moving only once and exhibiting
extreme patience while the economy continued to advance, appeared to change its
modus operandi from taking preemptive policy action to a more complacent
perspective that considered the possibility of some new inflation paradigm.
As the market observed continued Fed inaction, interest rates began to
decline during the second and third quarters, and dropped decidedly further
during the October equity "correction" and the subsequent financial crisis in
Asia. As the year closed, 10 and 30 year Treasury rates had fallen by almost 120
basis points from the March 1997 high. Consequently, bonds performed very well
in 1997, returning 9.65%, as measured by the Lehman Aggregate Index.
As reported in our semiannual report to shareholders, the Fund outperformed
our benchmark, the Lehman Aggregate Bond Index during the first half of 1997,
principally due to the Fund's relative overweightin corporate, mortgage-backed
and asset-backed securities (spread sectors).
During the second quarter, as yield spreads narrowed and valuations became
expensive in many sectors of the fixed-income markets, the Fund became more
defensive and started reducing its exposure to spread sectors early in the third
quarter. However, we were still overweighted in spread products in October when
the U.S. equity market declined and the Asian financial crisis adversely
affected the performance of corporate bonds. In addition, yield spreads for
mortgage-backed and asset-backed products widened in sympathy with corporate
bonds, and although the portfolio's reallocation into Treasuries was already
underway, the Fund's remaining holdings in these three areas negatively affected
the Fund's performance during this period.
In October, corporate bonds had their worst performance in more than a
decade, underperforming Treasuries by 80 basis points on a duration-adjusted
basis.(4) Although the Fund returned 90 basis points in October, we
underperformed relative to our benchmark due to our still-significant exposure
to corporate and asset-backed securities. Even after October, we
- --------------------------------------------------------------------------------
(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. 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) 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) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity.
(4) Duration-adjusted, expressed in percentage terms, represents the excess
return over the weighted average return of a group of similar duration
Treasuries.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
remained concerned about widening corporate spreads, and with the decline in
interest rates, became increasingly concerned that mortgage prepayments would
adversely impact mortgage-backed returns. We continued to reduce our corporate
and mortgage-backed holdings in the fourth quarter, which served us well
through the balance of the year.
On an absolute basis, corporate bonds as measured by the Lehman Aggregate
Index returned 10.23% for 1997, largely due to the rally in the Treasury market.
However, on a duration-adjusted basis, the investment grade corporate bond
sector underperformed Treasuries by 29 basis points.
The Fund did benefit from its holdings in higher yielding triple-B
media/cable and tobacco securities that performed exceptionally well during
1997, providing 95 and 158 basis points, respectively, in excess return over
comparable Treasuries. Overall however, the benefit of owning corporate bonds
during the first half of 1997 was eliminated in the second half, and adversely
affected our relative performance.
In contrast, the mortgage-backed sector as measured by the Lehman Aggregate
Index had a return of 9.49% for 1997, less on a nominal basis than corporates,
but significantly better when measured on a duration-adjusted basis,
outperforming Treasuries by 121 basis points. Much of the outperformance was due
to the strong dollar roll market and the market's expectation of low prepayment
risk and interest rate volatility. The asset-backed sector earned a 7.41%
nominal return in 1997, but as a result of widening corporate spreads and new
issue supply, underperformed Treasuries on a duration-adjusted basis by 12 basis
points.
Q. WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND IN 1997 AND WHAT IS
YOUR OUTLOOK FOR 1998?
A. The Fund's overall strategy was to maximize the total return of a diversified
fixed-income portfolio of investment grade corporate, mortgage-backed,
asset-backed, and U.S. Government securities. Specifically, we sought to
identify attractive asset allocation weightings based on relative valuation
analysis and then invest in securities that had superior risk/return profiles
while not engaging in interest rate or market timing strategies. At year-end,
the Fund remains cautious on the relative value of mortgage-backed and corporate
securities, and will maintain an underweight relative to our benchmark until
these sectors become more attractive on a risk/return basis. At that time, we
would expect to increase our allocation to these asset classes and reduce our
holdings in U.S. Government securities.
- --------------------------------------------------------------------------------
THE GUARDIAN INVESTMENT QUALITY BOND FUND PROFILE
AS OF DECEMBER 31, 1997
- --------------------------------------------------
COMPARISON OF A $10,000 INVESTMENT
[GRAPHICAL REPRESENTATION OF MOUTAIN CHART]
The Guardian Lehman
Investment Quality Aggregate
Bond Fund Bond Index
-------------- --------------
1993 1 9550 1 10000
2 10065 2 10720
1994 3 9612 3 10407
1995 4 11212 4 12330
1996 5 11519 5 12777
1997 6 12495 6 14071
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 the Lehman
Aggregate Bond Index. The starting point of $9,550 for the Fund reflects the
maximum sales load of 4.5% that 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 12/31/97
Inception Since
Date 1 Year 3 Years Inception
- --------------------------------------------------------------------------------
Class A Shares (with sales charge) 2/16/93 3.55% 7.44% 4.66%
At Net Asset Value (without sales charge) 8.43% 9.10% 5.65%
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN TAX-EXEMPT FUND
- ----------------------------
[PHOTO]
Alexander M. Grant, Jr.
Portfolio Manager
Q. HOW DID THE FUND PERFORM DURING 1997?
A. The Fund produced a total return of 8.74% for the year ended December 31,
1997.(1) The Lehman Municipal Bond Index produced a total return of 9.19% for
the same period.(2)
Another important comparison that should be used when measuring the Fund's
performance is how does it stack up to its peers? Lipper, a service that ranks
general municipal bond funds by total rate of return, is a good source of this
information.(3) Based on peer group comparisons, the Fund ranked, for the year,
156 out of 235 funds with the same objective. The return of the average fund
from our Lipper peer group during 1997 was 9.11%.
As of December 31, 1997, the Fund's 30-day yield was 4.22%, which grosses
up to over 6.75% taxable equivalent yield for a person in the highest federal
income tax bracket (39.6%).
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE?
A. The two most significant factors that affected the Fund's performance were
the municipal supply issue and the year-end rally in the treasury market.
Supply, or lack of supply, along with high demand, affects the performance of
the Fund in a number of ways. In a period of low supply such as during 1997, new
issues entering the market are met with great demand from institutional
investors. Price sensitivity is not as keen to institutional investors as it is
to that of mutual fund investors. Having huge cash flows to invest,
institutional investors are generally more concerned with owning bonds than with
absolute price. Thus, they are more willing to pay a little more to own bonds.
This, in turn, drives prices up and yields down (which helped the municipal
market to perform).
The other factor that affected the Fund's performance was the rally in the
Treasury market towards the end of the fourth quarter. As the Asian crisis
became front page news and the flight to quality (U.S. Treasury bonds)
continued, municipal bonds experienced some of the performance that was felt in
the treasury market. As the Treasury market yields started to drop (while prices
increased), the municipal market, because of the relationship between treasuries
and municipals (municipals are expressed as a percentage of treasuries)
experienced some of the treasury performance.
Q. WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND?
A. Municipal supply for the year was low. Demand by investors, at times,
outstripped the supply. This in turn caused credit spreads to tighten. Municipal
bond insurers also added to the credit spread tightening as underlying Baa
credits and A credits became AAA credits with the enhancement of insurance. The
Fund's investment strategy during 1997 was to purchase municipal bonds that
offered value and liquidity. That is to say, the Fund purchased high-quality
bonds that were typically uninsured, at yields that reflected the rating. At
year-end, the average credit quality of the securities in the Fund was AA, with
30% of the Fund in insured bonds.
- --------------------------------------------------------------------------------
(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 expenses that have been deducted from the
Fund's return.
(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.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
In addition to the strategy outlined above, during 1997 the Fund purchased
bonds with the purpose of enhancing the Fund's geographic and sector
diversification. It is important to have diversification in the Fund to try to
limit the Fund's exposure to any one sector or region. Diversification can help
protect the Fund from severe declines in the event that a particular region or
sector experiences an economic hardship. At year-end, the Fund consisted of 28%
general obligation bonds, 30% insured bonds, 31% revenue bonds, 8% pre-refunded
bonds and 3% cash.
- --------------------------------------------------------------------------------
THE GUARDIAN TAX-EXEMPT FUND PROFILE
AS OF DECEMBER 31, 1997
- ------------------------------------
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
[GRAPHICAL REPRESENTATION OF MOUNTAIN CHART]
The Guardian Lehman
Tax-Exempt Municipal
Fund Bond Index
------------- -------------
1993 1 9550 1 10000
2 9690 2 10245
3 9475 3 10137
4 9571 4 10239
5 9609 5 10296
6 9830 6 10468
7 9767 7 10482
8 10053 8 10700
9 10231 9 10822
10 10153 10 10843
11 10002 11 10748
12 10223 12 10974
1994 13 10353 13 11100
14 9952 14 10812
15 9403 15 10372
16 9400 16 10460
17 9518 17 10551
18 9377 18 10486
19 9548 19 10678
20 9557 20 10715
21 9391 21 10558
22 9235 22 10371
23 9073 23 10183
24 9305 24 10407
1995 25 9586 25 10705
26 9813 26 11016
27 9889 27 11143
28 9885 28 11156
29 10174 29 11512
30 9978 30 11411
31 10115 31 11519
32 10205 32 11665
33 10245 33 11739
34 10391 34 11910
35 10557 35 12107
36 10663 36 12224
1996 37 10768 37 12316
38 10651 38 12233
39 10470 39 12077
40 10461 40 12042
41 10446 41 12038
42 10525 42 12169
43 10653 43 12279
44 10625 44 12276
45 10766 45 12448
46 10897 46 12588
47 11106 47 12819
48 11048 48 12765
1997 49 11030 49 12789
50 11118 50 12907
51 10977 51 12734
52 11057 52 12841
53 11222 53 13034
54 11354 54 13173
55 11656 55 13538
56 11515 56 13411
57 11666 57 13570
58 11739 58 13658
59 11809 59 13738
60 12005 60 13938
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. The starting point of $9,550 for the Fund reflects the maximum sales load
of 4.5% that an investor may have to pay when purchasing Class A shares of the
Fund. The Index begins at $10,000.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED 12/31/97
Inception Since
Date 1 Year 3 Years Inception
- --------------------------------------------------------------------------------
Class A Shares (with sales charge) 2/16/93 3.85% 7.22% 3.93%
At Net Asset Value (without sales charge) 8.74% 8.88% 4.92%
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
THE GUARDIAN CASH MANAGEMENT FUND
- -----------------------------------
[PHOTO]
Alexander M. Grant, Jr.
Portfolio Manager
Q. HOW DID THE FUND PERFORM DURING 1997?
A. As of December 30, 1997, the effective 7-day annualized yield for The
Guardian Cash Management Fund was 5.03%.(1) The Fund produced a total return of
4.81% in 1997.(2) In contrast, the effective 7-day annualized yield of the
Fund's peer group of Tier One money market funds, as measured by IBC Financial
Data, was 5.20% and the average total return for 1997 for such funds was 5.04%.
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 March 25, the Federal Reserve raised the Fed Funds target rate
from 5.25% to 5.50%. This move followed several months of strong economic data
particularly with respect to housing data, consumer consumption and payroll
data. The Discount Rate was left unchanged at 5.00%. The Fed Funds target rate
is the rate at which banks can borrow from each other overnight. While the
Federal Reserve Board does not set this rate, it can establish a target rate
and, through open market operations, the Fed can move member banks in the
direction of that target rate. The Discount Rate is the rate at which banks can
borrow directly from the Federal Reserve.
Uncertainty with the direction of the stock market contributed to large
daily inflows and outflows of funds in the Cash Management Fund during late
1997. As the stock market rallied, our investors transferred cash to equity
funds. During those times when the stock market stalled, we saw cash inflows.
Q. WHAT WAS YOUR INVESTMENT STRATEGY DURING THE YEAR?
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 or bonds. Also, some of our investors prefer the relative stability of
the money markets. To best accommodate all our investors, we will continue to
try to provide a strong 7-day yield, while offering safety and liquidity. Our
investment strategy was to create a diversified portfolio of money market
instruments that presents minimal credit risks according to our criteria. As
always, we only purchase for the Fund's portfolio, 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. Most of the portfolio (93.7%)
was invested in commercial paper; the balance (6.3%) 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. Yields will vary
as interest rates change. Past performance is not a guarantee of future
results. Throughout 1997, the investment adviser for the Fund assumed the
operating expenses of the Fund to the extent that they exceeded, on annual
basis, 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. Since
June 1, 1994, the investment adviser for the Fund has been assuming a
portion of the operating expenses of the Fund (both Class A and B shares)
to the extent they exceeed 0.85% of the Fund's average daily net assets.
Without these expense reimbursements, the performance figures would have
been lower. The total return and yield figures cited represent total return
and yield for both Class A and Class B shares. 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.
- --------------------------------------------------------------------------------
18
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1997
o The Guardian Park Avenue Fund
- --------------------------------------------------------------------------------
Common Stocks--93.8%
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 2.1%
24,000 Alliant Techsystems, Inc.* $ 1,338,000
34,400 General Dynamics Corp. 2,973,450
48,889 Lockheed Martin Corp. 4,815,566
115,580 Northrop Grumman Corp. 13,291,700
138,950 Precision Castparts Corp. 8,380,422
98,800 Rockwell Int'l. Corp. 5,162,300
25,000 Sundstrand Corp. 1,259,375
40,000 Thiokol Corp. 3,250,000
36,100 TRW, Inc. 1,926,837
128,200 United Technologies Corp. 9,334,562
-----------
51,732,212
- --------------------------------------------------------------------------------
AIR TRANSPORTATION -- 1.1%
63,000 Alaska Air Group, Inc.* 2,441,250
94,000 AMR Corp., DE* 12,079,000
43,000 Comair Hldgs., Inc.* 1,037,375
100,000 Continental Airlines, Inc.* 4,812,500
77,000 UAL Corp.* 7,122,500
-----------
27,492,625
- --------------------------------------------------------------------------------
APPLIANCE AND FURNITURE -- 0.8%
115,000 Ethan Allen Interiors, Inc. 4,434,688
141,000 Furniture Brands Int'l., Inc.* 2,890,500
50,000 Hon Industries, Inc. 2,950,000
80,000 Knoll Corp.* 2,570,000
30,000 Leggett & Platt, Inc. 1,256,250
90,000 Herman Miller, Inc. 4,910,625
-----------
19,012,063
- --------------------------------------------------------------------------------
AUTOMOTIVE PARTS -- 1.1%
38,000 Arvin Industries, Inc. 1,265,875
19,130 Autoliv, Inc. 626,508
37,500 Borg-Warner Automotive, Inc. 1,950,000
130,900 Cooper Tire & Rubber Co.* 3,190,688
73,000 Cummins Engines, Inc. 4,311,563
84,000 Goodyear Tire & Rubber Co. 5,344,500
45,000 Kaydon Corp. 1,468,125
222,933 Meritor Automotive, Inc. 4,695,526
24,000 Modine Manufacturing Co.* 819,000
112,000 Timken Co. 3,850,000
17,000 Tower Automotive, Inc.* 715,063
-----------
28,236,848
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 0.1%
56,100 Amgen, Inc. 3,036,413
- --------------------------------------------------------------------------------
BUILDING MATERIALS AND HOMEBUILDERS -- 1.1%
58,000 AK Steel Hldg. Corp. 1,025,875
12,000 Armstrong World Industries, Inc. 897,000
33,000 Centex Construction Products, Inc. 994,125
65,000 Fleetwood Enterprises, Inc. 2,758,437
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
92,500 Lafarge Corp. $ 2,734,531
63,000 Lennar Corp. 1,358,437
6,700 Lone Star Industries, Inc. 355,937
50,555 Martin Marietta Materials, Inc. 1,848,417
60,000 McGrath Rentcorp 1,470,000
18,000 Medusa Corp. 752,625
43,400 Sherwin-Williams Co. 1,204,350
62,000 Southdown, Inc. 3,658,000
65,000 USG Corp.* 3,185,000
24,000 U.S. Home Corp.* 942,000
6,300 Valspar Corp. 200,812
38,600 Vulcan Materials Co. 3,942,025
-----------
27,327,571
- --------------------------------------------------------------------------------
CHEMICALS -- 3.5%
68,000 Albemarle Corp. 1,623,500
116,700 Cambrex Corp. 5,368,200
49,000 Carlisle Cos., Inc. 2,094,750
115,000 Crompton & Knowles Corp.* 3,047,500
51,000 Dexter Corp. 2,202,563
110,000 Dow Chemical Co. 11,165,000
506,600 E.I. Dupont de Nemours, Inc. 30,427,663
81,100 Lubrizol Corp. 2,990,562
150,000 Millennium Chemicals, Inc.* 3,534,375
118,500 Minnesota Mng. & Mfg. Co. 9,724,406
146,100 Morton Int'l., Inc. 5,022,187
65,000 PPG Industries, Inc. 3,713,125
25,000 Rohm & Haas Co. 2,393,750
147,900 Solutia, Inc.* 3,947,081
43,700 Union Carbide Corp.* 1,890,462
-----------
89,145,124
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 2.2%
160,000 Adobe Systems, Inc. 6,600,000
145,000 Autodesk, Inc.* 5,365,000
8,000 ChoicePoint, Inc.* 382,000
27,000 DST Systems, Inc.* 1,152,563
7,500 J.D. Edwards* 221,250
272,900 Microsoft Corp.* 35,272,325
37,000 Sterling Software, Inc.* 1,517,000
100,000 SunGuard Data Systems, Inc.* 3,100,000
65,000 Symantec Corp.* 1,425,937
36,000 Wind River Systems, Inc.* 1,428,750
-----------
56,464,825
- --------------------------------------------------------------------------------
COMPUTER SYSTEMS -- 7.3%
257,500 Compaq Computer Corp. 14,532,656
32,400 Diebold, Inc. 1,640,250
10,100 DII Group, Inc.* 275,225
37,200 Honeywell, Inc. 2,548,200
602,100 Int'l. Business Machines 62,957,081
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
19
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
459,600 Lexmark Int'l. Group, Inc.* $ 17,464,800
203,200 Oracle Systems Corp.* 4,533,900
75,000 Pitney Bowes, Inc. 6,745,313
126,600 Quantum Corp.* 2,539,913
15,300 Sanmina Corp.* 1,036,575
120,000 SCI Systems, Inc.* 5,227,500
72,000 Smart Modular Technologies, Inc.* 1,656,000
732,800 Storage Technology Corp.* 45,387,800
91,000 Stratus Computer, Inc.* 3,440,938
240,200 Sun Microsystems, Inc.* 9,577,975
186,600 Western Digital Corp.* 2,997,263
-----------
182,561,389
- --------------------------------------------------------------------------------
CONGLOMERATES -- 1.0%
130,600 Allied Signal, Inc. 5,085,238
90,000 Loews Corp. 9,551,250
190,000 Textron, Inc. 11,875,000
-----------
26,511,488
- --------------------------------------------------------------------------------
CONTAINERS-METALS AND PLASTIC -- 0.1%
37,000 Aptargroup, Inc. 2,053,500
- --------------------------------------------------------------------------------
COSMETICS AND TOILETRIES -- 0.1%
14,400 Alberto-Culver Co. 388,800
32,400 Helen of Troy Ltd.* 522,450
43,000 Herbalife Int'l., Inc. 917,333
-----------
1,828,583
- --------------------------------------------------------------------------------
DRUGS AND HOSPITALS -- 5.3%
176,900 Abbott Laboratories 11,598,006
90,000 Acuson, Inc.* 1,490,625
65,820 Allegiance Corp. 2,332,496
25,000 C.R. Bard, Inc.* 782,813
27,400 Becton Dickinson & Co. 1,370,000
333,200 Bristol-Myers Squibb Corp. 31,529,050
35,400 Columbia Healthcare Corp.* 1,050,849
25,000 Health Care & Retirement Co.* 1,006,250
33,000 ICN Pharmaceuticals, Inc. 1,610,812
25,900 Integrated Health Svcs., Inc. 807,756
130,592 Eli Lilly & Co., Inc. 9,092,468
72,500 Lincare Hldgs., Inc.* 4,132,500
194,300 Merck & Co., Inc. 20,644,375
81,200 Mylan Labs, Inc. 1,700,125
18,000 Patterson Dental Co.* 814,500
101,200 Pfizer, Inc. 7,545,725
26,000 Safeskin Corp.* 1,475,500
302,400 Schering-Plough Corp. 18,786,600
8,000 Unitrin, Inc. 517,000
224,000 Universal Health Services, Inc.* 11,284,000
29,600 Warner-Lambert Co. 3,670,400
26,000 Wellpoint Health Networks, Inc.* 1,098,500
-----------
134,340,350
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 3.3%
73,300 Emerson Electric Co. $ 4,136,868
998,000 General Electric Co. 73,228,250
12,200 W.W. Grainger, Inc. 1,185,687
25,000 Hubbel, Inc. 1,232,812
13,000 Jabil Circuit, Inc.* 516,750
90,000 Raychem Corp. 3,875,625
-----------
84,175,992
- --------------------------------------------------------------------------------
ELECTRONICS AND INSTRUMENTS -- 0.4%
46,000 Analogic Corp. 1,748,000
61,200 Dynatech Corp.* 2,868,750
75,000 Fluke Corp. 1,954,687
60,000 Tektronix, Inc. 2,381,250
30,600 Texas Instruments, Inc.* 1,374,974
-----------
10,327,661
- --------------------------------------------------------------------------------
ENERGY-MISCELLANEOUS -- 0.3%
129,500 Giant Industries, Inc. 2,460,500
167,104 Holly Corp. 4,616,248
86,500 Howell Corp. 1,497,531
-----------
8,574,279
- --------------------------------------------------------------------------------
ENTERTAINMENT AND LEISURE -- 0.1%
16,500 Anchor Gaming* 919,875
34,000 Harley-Davidson, Inc. 930,750
-----------
1,850,625
- --------------------------------------------------------------------------------
FINANCIAL-BANKS -- 11.3%
20,000 Associated Bank Corp. 1,102,500
471,000 BankAmerica Corp. 34,383,000
109,745 Bank of Boston Corp. 10,309,171
130,000 Bank of New York, Inc. 7,515,625
87,600 Barnett Banks, Inc. 6,296,250
13,000 CCB Financial Corp. 1,397,500
384,260 Chase Manhattan Corp. 42,076,470
236,764 Citicorp 29,935,848
81,000 City National Corp. 2,991,938
62,700 Comerica, Inc. 5,658,675
26,250 Commerce Bankshares, Inc. 1,778,437
30,000 Compass Bancshares, Inc. 1,312,500
20,100 Cullen Frost Bankers, Inc. 1,219,819
205,200 First Chicago NBD Corp. 17,134,200
12,400 First Empire State Corp. 5,766,000
40,000 First Merit Corp. 1,135,000
482,200 First Union Corp. 24,712,750
185,000 Fleet Financial Group, Inc. 13,863,437
51,989 Hubco, Inc. 2,034,070
43,000 Imperial Bancorp* 2,120,437
46,100 KeyCorp 3,264,456
187,600 Mellon Bank Corp. 11,373,250
60,188 National City Corp. 3,957,361
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
20
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
218,000 Nationsbank Corp. $ 13,257,125
165,496 Norwest Corp. 6,392,283
23,000 Premier Bancshares, Inc., GA 618,125
55,000 Provident Financial Group, Inc. 2,667,500
67,500 Star Banc Corp. 3,872,812
80,000 State Street Corp. 4,655,000
201,642 Summit Bancorp 10,737,436
38,000 Union BanCal Corp.* 4,085,000
15,000 U.S. Trust Corp. 939,375
26,000 Webster Financial Corp. 1,729,000
12,000 Westamerica Bancorp 1,227,000
49,600 Zions Bancorp 2,250,600
-----------
283,769,950
- --------------------------------------------------------------------------------
FINANCIAL-OTHER -- 7.6%
302,400 American Express Co. 26,989,200
75,000 Bear Stearns Cos., Inc.* 3,562,500
11,000 Community First Bankshares 585,750
75,000 Countrywide Credit Industries, Inc. 3,215,625
11,500 Donaldson Lufkin & Jenrette* 914,250
10,000 Duff & Phelps Credit Rating Co. 406,250
124,800 A.G. Edwards, Inc. 4,960,800
154,800 Federal Home Loan Mortgage Corp. 6,491,925
299,500 Federal National Mortgage Assn. 17,090,219
33,000 Fidelity National Financial, Inc.* 1,027,125
93,000 Franklin Resources, Inc. 8,085,187
125,000 H & R Block, Inc. 5,601,563
200,000 Jefferies Group, Inc. 8,187,500
34,333 Legg Mason, Inc. 1,920,502
109,500 Lehman Brothers Hldgs., Inc. 5,584,500
114,800 McDonald & Co. Investments, Inc. 3,257,450
213,500 Merrill Lynch & Co., Inc. 15,572,156
251,775 Morgan Keegan, Inc. 6,373,055
163,300 Morgan Stanley Dean Witter 9,655,113
18,000 ONBANCorp, Inc. 1,269,000
20,960 Pacific Crest Capital, Inc.* 382,520
175,000 Paine Webber Group, Inc.* 6,048,438
100,950 Raymond James Financial, Inc. 4,006,453
50,000 SLM Hldg. Corp.* 6,956,250
787,500 Travelers Group, Inc. 42,426,563
-----------
190,569,894
- --------------------------------------------------------------------------------
FINANCIAL-THRIFT -- 2.0%
39,200 Astoria Financial Corp. 2,185,400
246,875 Bank Atlantic Bancorp, Inc. 4,075,273
16,000 California Federal Bancorp, Inc.* 456,000
97,846 Charter One Financial, Inc. 6,176,529
51,000 CitFed Bancorp, Inc. 1,989,000
47,000 Coastal Bancorp, Inc. 1,639,125
20,000 Coast Savings Financial, Inc.* 1,371,250
102,150 Commercial Federal Corp. 3,632,709
104,000 Dime Bancorp, Inc.* 3,146,000
46,400 Golden State Bancorp, Inc.* 1,734,200
54,000 Greenpoint Financial Corp. 3,918,375
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
76,000 Long Island Bancorp, Inc. $ 3,771,500
40,590 MAF Bancorp, Inc. 1,435,871
127,200 Progressive Bank, Inc. 4,865,400
438,291 Sovereign Bancorp, Inc. 9,094,538
-----------
49,491,170
- --------------------------------------------------------------------------------
FOOD, BEVERAGE AND TOBACCO -- 2.1%
140,000 Campbell Soup Co. 8,137,500
60,200 CKE Restaurants, Inc. 2,535,925
118,800 ConAgra, Inc. 3,898,125
71,000 Dean Foods Co. 4,224,500
48,256 Earthgrains Co. 2,268,032
89,000 Fortune Brands, Inc. 3,298,562
34,000 Hershey Foods Corp. 2,105,875
35,000 Hormel Foods Corp. 1,146,250
100,000 Interstate Bakeries Corp. 3,737,500
338,700 Philip Morris Cos., Inc. 15,347,344
12,400 Ralston-Purina Group 1,152,425
12,000 Scweitzer-Mauduit Int'l., Inc. 447,000
38,000 Smithfield Foods, Inc.* 1,254,000
55,700 Unilever NV 3,477,769
-----------
53,030,807
- --------------------------------------------------------------------------------
FOOTWEAR -- 0.4%
81,200 Footstar, Inc.* 2,182,250
49,000 Payless ShoeSource, Inc.* 3,289,125
144,200 Reebok Int'l. Ltd.* 4,154,763
64,000 Stride Rite Corp.* 768,000
-----------
10,394,138
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.8%
105,000 Dial Corp. 2,185,313
158,600 Procter & Gamble Co. 12,658,263
200,000 Tupperware Corp. 5,575,000
-----------
20,418,576
- --------------------------------------------------------------------------------
INSURANCE -- 7.6%
37,500 Allied Group, Inc. 1,073,438
377,800 Allstate Corp. 34,332,575
54,000 AMBAC Financial Group, Inc. 2,484,000
148,000 Amer. Bankers Ins. Group, Inc. 6,798,750
30,000 W.R. Berkley Corp.* 1,316,250
46,000 Chubb Corp. 3,478,750
51,000 Cigna Corp. 8,826,188
40,000 CMAC Investment Corp. 2,415,000
12,000 Enhance Financial Svcs. Group, Inc. 714,000
130,000 Equitable Cos., Inc.* 6,467,500
98,000 Everest Reinsurance Hldgs. 4,042,500
40,500 Executive Risk, Inc. 2,827,406
37,000 Financial Sec. Assur. Hldgs. Ltd. 1,785,250
38,400 Fremont General Corp. 2,102,400
78,000 Frontier Insurance Group, Inc. 1,784,250
74,000 General RE Corp. 15,688,000
90,100 Hartford Financial Svcs. Group, Inc. 8,429,981
150,000 Horace Mann Educators Corp. 4,265,625
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
21
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
36,000 Jefferson Pilot Corp. $ 2,803,500
63,120 Liberty Financial Cos., Inc. 2,382,780
118,000 Lincoln National Corp., Inc. 9,218,750
158,000 Marsh & McLennan Cos., Inc. 11,780,875
50,600 MBIA, Inc. 3,380,712
30,000 Mercury General Corp. 1,657,500
206,000 MGIC Investment Corp. 13,699,000
21,000 NAC RE Corp. 1,025,063
39,200 Ohio Casualty Corp. 1,749,300
88,000 Old Republic Int'l. Corp. 3,272,500
33,000 Orion Capital Corp. 1,532,438
56,247 ReliaStar Financial Group 2,316,673
77,900 St. Paul Cos., Inc.* 6,392,669
92,250 State Auto Financial Corp. 2,975,062
94,500 SunAmerica, Inc. 4,039,875
102,000 Torchmark, Inc. 4,290,375
38,500 Travelers Ppty. Casualty Corp. 1,694,000
225,000 USF&G Corp.* 4,964,063
35,000 Vesta Insurance Group, Inc.* 2,078,125
-----------
190,085,123
- --------------------------------------------------------------------------------
LODGING -- 0.1%
135,000 Prime Hospitality Corp.* 2,750,625
17,000 Promus Hotel Corp.* 714,000
-----------
3,464,625
- --------------------------------------------------------------------------------
MACHINERY AND EQUIPMENT -- 2.4%
67,000 AAR Corp. 2,596,250
25,000 Applied Power, Inc. 1,725,000
58,000 Case Corp. 3,505,375
189,600 Caterpillar, Inc. 9,207,450
88,400 Deere & Co. 5,154,825
250,000 Dover Corp. 9,031,250
93,000 Eaton Corp. 8,300,250
56,300 Illinois Tool Works, Inc. 3,385,038
53,000 Kennametal, Inc. 2,746,062
102,500 Parker Hannifin Corp.* 4,702,187
50,000 Robbins & Myers, Inc. 1,981,250
25,000 SPX Corp.* 1,725,000
54,000 Texas Industries, Inc. 2,430,000
63,000 Universal Corp., VA 2,590,875
65,000 US Industries, Inc. 1,958,125
-----------
61,038,937
- --------------------------------------------------------------------------------
MERCHANDISING-DEPARTMENT STORES -- 1.7%
65,000 Carson Pirie Scott & Co.* 3,258,125
60,200 Dayton Hudson Corp. 4,063,500
125,000 Federated Department Stores, Inc.* 5,382,812
215,000 Fred Meyer, Inc., DE* 7,820,625
36,000 MacFrugals Bargains Closeouts* 1,480,500
87,000 Shopko Stores, Inc.* 1,892,250
20,000 Stein Mart, Inc.* 535,000
138,400 TJX Cos., Inc. 4,757,500
326,900 Wal-Mart Stores, Inc. 12,892,119
-----------
42,082,431
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
MERCHANDISING-DRUGS -- 0.3%
50,250 Arbor Drugs, Inc. $ 929,625
50,000 Bergen Brunswig Corp. 2,106,250
37,000 General Nutrition Cos., Inc.* 1,258,000
75,000 Walgreen Co. 2,353,125
-----------
6,647,000
- --------------------------------------------------------------------------------
MERCHANDISING-FOOD -- 0.7%
60,000 Fleming Cos., Inc.* 806,250
188,825 Safeway, Inc.* 11,943,181
20,000 Suiza Foods Corp.* 1,191,250
113,000 Supervalu, Inc. 4,731,875
-----------
18,672,556
- --------------------------------------------------------------------------------
MERCHANDISING-MASS -- 0.1%
43,500 Brylane, Inc.* 2,142,375
20,000 Lands End, Inc.* 701,250
-----------
2,843,625
- --------------------------------------------------------------------------------
MERCHANDISING-SPECIAL -- 1.8%
34,000 Barnes & Noble, Inc.* 1,134,750
69,000 BJ's Wholesale Club, Inc.* 2,164,875
107,400 Burlington Coat Factory* 1,765,388
70,000 Claire's Stores, Inc. 1,360,625
45,978 CVS Corp. 2,945,466
71,000 The Dress Barn* 2,014,625
360,000 GAP, Inc. 12,757,500
35,000 Homebase, Inc.* 275,625
83,560 Host Marriott Services Corp.* 1,242,955
97,500 Pier 1 Imports, Inc. 2,205,938
30,000 Proffitts, Inc.* 853,125
159,000 Ross Stores, Inc. 5,783,625
250,000 Tandy Corp. 9,640,625
32,500 Tiffany & Co., Inc. 1,172,031
-----------
45,317,153
- --------------------------------------------------------------------------------
METALS-MISCELLANEOUS -- 0.2%
70,700 Alumax, Inc.* 2,403,800
19,500 Aluminum Co. of America* 1,373,260
54,000 Titanium Metals Corp.* 1,559,250
-----------
5,336,310
- --------------------------------------------------------------------------------
MISCELLANEOUS-CAPITAL GOODS -- 0.4%
69,000 Aeroquip-Vickers, Inc.* 3,385,313
100,000 Tidewater, Inc. 5,512,500
-----------
8,897,813
- --------------------------------------------------------------------------------
MISCELLANEOUS-CONSUMER GROWTH STAPLES -- 0.8%
70,000 American Greetings Corp. 2,738,750
59,200 Cognizant Corp. 2,638,100
97,900 Deluxe Corp.* 3,377,550
36,000 Interpublic Group Cos., Inc. 1,793,250
90,000 A.C. Nielsen Corp.* 2,193,750
190,000 Valassis Communications, Inc.* 7,030,000
-----------
19,771,400
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
22
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
NATURAL GAS-DIVERSIFIED -- 0.2%
158,300 Mitchell Energy & Dev. Corp. $ 4,610,487
- --------------------------------------------------------------------------------
OIL AND GAS PRODUCING -- 3.3%
194,400 Apache Corp. 6,816,150
98,000 Barrett Resources Corp.* 2,964,500
238,900 Basin Exploration, Inc.* 4,240,475
172,500 Tom Brown, Inc.* 3,320,625
64,300 Callon Petroleum Co.* 1,046,884
185,000 Chieftain Int'l., Inc.* 3,931,250
153,000 Devon Energy Corp. 5,890,500
100,400 Diamond Offshore Drilling, Inc. 4,831,750
177,171 EEX Corp.* 1,605,612
146,400 Enron Oil and Gas Co. 3,101,850
38,100 Forcenergy Gas Exploration, Inc.* 997,744
97,200 Meridian Resource Corp.* 929,475
497,300 Petromet Resources Ltd.* 1,087,844
46,000 Petsec Energy Ltd.* 632,500
79,700 Pogo Producing Co. 2,351,150
60,000 Pride Int'l., Inc.* 1,515,000
770,000 Ranger Oil Ltd. 5,293,750
495,000 Rigel Energy Corp.* 4,052,813
204,600 St. Mary Land & Exploration Co. 7,161,000
305,536 Seagull Energy Corp.* 6,301,680
91,300 Snyder Oil Corp. 1,666,225
100,000 USX Marathon Group 3,375,000
152,100 Vastar Resources, Inc.* 5,437,575
66,000 Vintage Petroleum, Inc. 1,254,000
495,300 Wainoco Oil Ltd.* 3,931,444
-----------
83,736,796
- --------------------------------------------------------------------------------
OIL AND GAS SERVICES -- 3.7%
75,000 BJ Services Co.* 5,395,313
85,960 Camco Int'l., Inc. 5,474,578
41,600 Cliffs Drilling Co.* 2,074,800
64,000 Cooper Cameron Corp.* 3,904,000
140,000 ENSCO Int'l., Inc. 4,690,000
121,000 Halliburton Co. 6,284,437
21,924 Halter Marine Group, Inc.* 633,055
190,500 Input/Output, Inc.* 5,655,469
55,000 Lone Star Technologies, Inc.* 1,560,625
329,400 Nabors Industries, Inc.* 10,355,513
250,000 Noble Drilling Corp.* 7,656,250
127,700 Offshore Logistics, Inc.* 2,729,587
215,600 Schlumberger Ltd. 17,355,800
80,000 Smith Int'l., Inc.* 4,910,000
52,000 Transocean Offshore, Inc. 2,505,750
144,800 Varco Int'l., Inc.* 3,104,150
30,000 Veritas DGC, Inc.* 1,185,000
118,000 Weatherford Enterra, Inc.* 5,162,500
170,000 Willbros Group, Inc.* 2,550,000
-----------
93,186,827
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
OIL-INTEGRATED-DOMESTIC -- 1.7%
199,800 Amoco Corp. $ 17,007,975
109,000 Atlantic Richfield Co. 8,733,625
120,000 Murphy Oil Corp. 6,502,500
142,000 Sun, Inc.* 5,972,875
284,000 Tesoro Petroleum, Inc.* 4,402,000
-----------
42,618,975
- --------------------------------------------------------------------------------
OIL-INTEGRATED-INTERNATIONAL -- 5.5%
168,800 Chevron Corp. 12,997,600
1,093,700 Exxon Corp. 66,920,769
346,600 Mobil Corp. 25,020,188
416,000 Royal Dutch Petroleum Co. 22,542,000
206,400 Texaco, Inc. 11,223,000
-----------
138,703,557
- --------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 0.6%
34,285 Deltic Timber Corp. 938,552
331,500 Rayonier, Inc. 14,109,469
-----------
15,048,021
- --------------------------------------------------------------------------------
PUBLISHING-NEWS -- 0.8%
45,000 Central Newspapers, Inc. 3,327,188
86,400 Gannett Co., Inc. 5,340,600
65,700 Harte-Hanks Communications 2,439,112
18,000 Houghton Mifflin Co. 690,750
80,000 New York Times Co. 5,290,000
5,700 Washington Post Co. 2,773,050
-----------
19,860,700
- --------------------------------------------------------------------------------
RAILROADS -- 0.6%
40,301 Burlington Northern Santa Fe 3,745,474
109,000 Kansas City Southern Inds., Inc. 3,460,750
137,400 Norfolk Southern Corp. 4,233,638
64,900 Union Pacific Corp. 4,052,194
-----------
15,492,056
- --------------------------------------------------------------------------------
REAL ESTATE -- 0.1%
63,000 LNR Property Corp. 1,488,375
- --------------------------------------------------------------------------------
SEMICONDUCTOR -- 0.4%
41,000 ADE Corp.* 717,500
80,000 Dallas Semiconductor Corp. 3,260,000
200,000 National Semiconductor Corp.* 5,187,500
42,000 Unitrode Corp.* 903,000
43,000 VLSI Technology, Inc.* 1,015,875
-----------
11,083,875
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
23
<PAGE>
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
TEXTILE-APPAREL AND PRODUCTION -- 0.9%
70,000 Burlington Industries, Inc.* $ 966,875
98,000 Jones Apparel Group, Inc.* 4,214,000
29,000 Kellwood Co.* 870,000
93,000 Liz Claiborne, Inc. 3,888,562
37,500 Nautica Enterprises, Inc.* 871,875
15,000 St. John Knits, Inc. 600,000
115,000 Unifi, Inc. 4,679,063
136,000 V.F. Corp. 6,247,500
26,500 Westpoint Stevens, Inc.* 1,252,125
-----------
23,590,000
- --------------------------------------------------------------------------------
TRANSPORTATION-MISCELLANEOUS -- 0.7%
96,000 Airborne Freight Corp. 5,964,000
33,000 Air Express Int'l. Corp.* 1,006,500
37,000 Alexander & Baldwin, Inc.* 1,010,563
22,000 Expeditors Int'l. Wash., Inc. 847,000
54,000 GATX Corp. 3,918,375
239,500 Maritrans, Inc. 2,335,125
42,000 Trinity Industries, Inc. 1,874,250
-----------
16,955,813
- --------------------------------------------------------------------------------
TRUCKERS -- 0.3%
25,000 Arnold Industries, Inc. 431,250
18,000 FRP Pptys., Inc.* 564,750
25,000 Roadway Express, Inc. 553,125
33,000 Rollins Truck Leasing Corp. 589,875
25,000 Swift Transportation, Inc.* 809,375
60,000 U.S. Freightways Corp. 1,950,000
45,000 Werner Enterprises, Inc. 922,500
105,000 Yellow Corp.* 2,638,125
-----------
8,459,000
- --------------------------------------------------------------------------------
UTILITIES-ELECTRIC -- 1.2%
22,600 Central LA Electric Co.* 731,675
59,464 Duke Energy Co. 3,292,819
135,000 Florida Progress Corp.* 5,298,750
160,000 FPL Group, Inc. 9,470,000
57,100 IPALCO Enterprises 2,394,631
26,000 KU Energy Corp. 1,020,500
21,500 Minnesota Power & Light Co.* 936,594
40,000 New Century Energies, Inc. 1,917,500
29,000 NIPSCO Industries, Inc. 1,433,687
58,500 Texas Utilities Co. 2,431,406
-----------
28,927,562
- --------------------------------------------------------------------------------
UTILITIES-GAS AND PIPELINE -- 0.3%
5,100 Indiana Energy, Inc.* 167,981
45,000 KN Energy, Inc. 2,430,000
85,600 New York State E&G Corp.* 3,038,800
33,700 NICOR, Inc. 1,421,719
-----------
7,058,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
UTILITIES-TELECOMMUNICATIONS -- 3.3%
29,000 Aliant Communications, Inc. $ 909,875
425,600 Ameritech Corp. 34,260,800
275,000 Bay Networks, Inc.* 7,029,688
64,716 Bell Atlantic Corp. 5,889,156
328,100 Bellsouth Corp. 18,476,131
18,400 Harris Corp., DE 844,100
148,100 SBC Communications, Inc. 10,848,325
130,000 WorldCom, Inc.* 3,932,890
-----------
82,190,965
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $1,715,670,652) 2,359,514,565
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 6.2%
Principal
Amount Value
- --------------------------------------------------------------------------------
$155,301,000 Goldman Sachs Group, LP
repurchase agreement,
dated 12/31/97, maturity
value $155,352,767 at 6.00%,
due 1/2/98 (collateralized
by $52,100,000 U.S. Treasury
Notes, 6.25%, due 1/31/02, by
$51,750,000 U.S. Treasury
Notes, 6.375%, due 9/30/01
and by $54,630,000 U.S.
Treasury Notes, 5.50%,
due 12/31/00) $ 155,301,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $155,301,000) 155,301,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(COST $1,870,971,652) 2,514,815,565
LIABILITIES IN EXCESS OF CASH, RECEIVABLES
AND OTHER ASSETS-- (0.0%) (437,376)
- --------------------------------------------------------------------------------
NET ASSETS-- 100.0% $2,514,378,189
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
24
<PAGE>
o THE GUARDIAN PARK AVENUE SMALL CAP FUND
- ------------------------------------------------------------------------------
COMMON STOCKS -- 93.5%
- ------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 0.1%
2,800 Alliant Techsystems, Inc.* $ 156,100
- ------------------------------------------------------------------------------
AIR TRANSPORTATION -- 0.4%
13,800 Alaska Air Group, Inc.* 534,750
- ------------------------------------------------------------------------------
APPLIANCE AND FURNITURE -- 3.3%
66,000 Ethan Allen Interiors, Inc. 2,545,125
42,000 Furniture Brands Int'l., Inc.* 861,000
15,000 Libbey, Inc.* 568,125
------------
3,974,250
- ------------------------------------------------------------------------------
AUTOMOTIVE PARTS -- 1.7%
8,700 Arvin Industries, Inc. 289,819
24,000 Kaydon Corp. 783,000
10,500 SPX Corp.* 724,500
8,250 Varlen Corp. 202,254
------------
1,999,573
- ------------------------------------------------------------------------------
BUILDING MATERIALS AND HOMEBUILDERS -- 3.8%
22,900 Cameron Ashley Building Products* 383,575
19,000 Centex Construction Products, Inc. 572,375
15,000 Crossman Communities, Inc.* 414,375
112,000 FM Ppty., Inc.* 581,000
62,400 Griffon Corp.* 912,600
17,800 Lone Star Industries, Inc. 945,625
11,400 Southdown, Inc. 672,600
------------
4,482,150
- ------------------------------------------------------------------------------
CAPITAL GOODS-MISCELLANEOUS TECHNOLOGY -- 2.7%
99,600 AFC Cable Systems, Inc.* 2,963,100
7,050 Analysts Int'l. Corp. 243,225
------------
3,206,325
- ------------------------------------------------------------------------------
CHEMICALS -- 2.6%
14,000 Cambrex Corp. 644,000
34,600 LeaRonal, Inc. 813,100
13,000 MacDermid, Inc. 1,103,375
21,600 McWhorter Technologies, Inc.* 556,200
------------
3,116,675
- ------------------------------------------------------------------------------
COAL -- 0.2%
15,300 Zeigler Coal Hldg. Co. 249,581
- ------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 1.5%
11,000 National Computer Systems, Inc. 387,750
8,200 Pervasive Software, Inc.* 59,450
11,400 Visio Corp.* 437,475
24,000 Wind River Systems, Inc.* 952,500
------------
1,837,175
- ------------------------------------------------------------------------------
COMPUTER SYSTEMS -- 3.1%
26,200 DII Group, Inc.* 713,950
60,000 EFTC Corp.* 975,000
3,000 Hadco Corp.* 135,750
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------
16,500 Jack Henry & Associates, Inc.* $ 449,625
2,300 Sanmina Corp.* 155,825
26,000 Smart Modular Technologies, Inc.* 598,000
19,000 Stratus Computer, Inc.* 718,437
------------
3,746,587
- ------------------------------------------------------------------------------
CONTAINERS-METALS AND PLASTIC -- 0.6%
13,200 Aptargroup, Inc. 732,600
- ------------------------------------------------------------------------------
DRUGS AND HOSPITALS -- 2.7%
5,600 Boron LePore & Associates, Inc.* 154,000
36,000 DepoTech, Inc.* 128,250
11,500 Genesis Health Ventures, Inc.* 303,313
11,500 Integrated Health Svcs., Inc. 358,656
17,000 Jones Medical Industries, Inc. 650,250
22,900 Life Technologies, Inc. 761,425
20,000 Respironics, Inc.* 447,500
17,000 Total Renal Care Hldgs., Inc.* 467,500
------------
3,270,894
- ------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.0%
11,300 Esterline Technologies Corp.* 406,800
22,000 Power One, Inc.* 302,500
12,200 Uniphase Corp.* 504,775
------------
1,214,075
- ------------------------------------------------------------------------------
ELECTRONICS AND INSTRUMENTS -- 1.0%
4,400 ANADIGICS, Inc.* 132,550
55,000 FARO Technologies, Inc.* 639,375
13,800 National Instruments Corp.* 400,200
------------
1,172,125
- ------------------------------------------------------------------------------
ENTERTAINMENT AND LEISURE -- 1.4%
51,700 American Coin Merchandising* 911,212
13,800 Anchor Gaming* 769,350
------------
1,680,562
- ------------------------------------------------------------------------------
FINANCIAL-BANKS -- 4.1%
31,800 CFX Corp. 969,900
19,400 Cullen Frost Bankers, Inc. 1,177,337
3,500 Prime Bancshares, Inc. 73,063
10,200 Silicon Valley Bancshares* 573,750
17,200 U.S. Bancorp, Inc. 1,255,600
7,700 Westamerica Bancorp 787,325
------------
4,836,975
- ------------------------------------------------------------------------------
FINANCIAL-OTHER -- 1.2%
15,000 Bowne & Co., Inc. 598,125
8,300 Jefferies Group, Inc.* 339,781
12,000 McDonald & Co. Investments, Inc.* 340,500
5,200 Morgan Keegan, Inc.* 131,625
------------
1,410,031
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
25
<PAGE>
THE GUARDIAN PARK AVENUE SMALL CAP FUND
Schedule of investments (Continued)
- ------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------
FINANCIAL-THRIFT -- 2.5%
5,500 Astoria Financial Corp. $ 306,625
33,000 Bank Atlantic Bancorp, Inc. 538,313
32,250 CitFed Bancorp, Inc. 1,257,750
10,500 Coast Savings Financial, Inc.* 719,906
4,800 Commercial Federal Corp. 170,700
------------
2,993,294
- ------------------------------------------------------------------------------
FOOD, BEVERAGE AND TOBACCO -- 2.7%
10,000 CKE Restaurants, Inc. 421,250
40,900 Earthgrains Co. 1,922,300
50,000 Hain Food Group, Inc.* 459,375
14,200 Smithfield Foods, Inc.* 468,600
------------
3,271,525
- ------------------------------------------------------------------------------
FOOTWEAR -- 0.1%
7,700 Wolverine World Wide, Inc. 174,212
- ------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.8%
14,400 Home Products Int'l., Inc.* 169,200
20,250 Oneida Ltd. 540,422
5,400 Williams-Sonoma, Inc.* 226,125
------------
935,747
- ------------------------------------------------------------------------------
INSURANCE -- 9.5%
22,800 American Heritage Life Investments 820,800
12,750 W.R. Berkley Corp. 559,406
12,300 CMAC Investment Corp. 742,612
19,600 Enhance Financial Svcs. Group, Inc . 1,166,200
9,000 Executive Risk, Inc. 628,312
102,960 Fidelity National Financial, Inc.* 3,204,630
12,000 Financial Sec. Assur. Hldgs. Ltd. 579,000
18,000 Frontier Insurance Group, Inc. 411,750
3,800 Markel Corp.* 593,275
50,400 Penn America Group, Inc. 1,033,200
23,000 State Auto Financial Corp. 741,750
13,400 Vesta Insurance Group, Inc. 795,625
------------
11,276,560
- ------------------------------------------------------------------------------
LODGING -- 1.2%
15,100 Fairfield Communities, Inc.* 666,288
32,400 Signature Resorts, Inc.* 708,750
------------
1,375,038
- ------------------------------------------------------------------------------
MACHINERY AND EQUIPMENT -- 4.0%
10,800 AAR Corp. 418,500
10,500 Applied Power, Inc. 724,500
23,300 Chart Industries, Inc. 531,531
10,000 IRI Int'l. Corp.* 140,000
11,000 Kennametal, Inc. 569,937
18,000 Manitowoc, Inc. 585,000
15,000 Northwest Pipe Co.* 360,000
36,600 Robbins & Myers, Inc. 1,450,275
------------
4,779,743
- ------------------------------------------------------------------------------
MERCHANDISING-DEPARTMENT STORES -- 1.6%
13,000 Carson Pirie Scott & Co.* $ 651,625
35,900 Shopko Stores, Inc.* 780,825
18,000 Stein Mart, Inc.* 481,500
------------
1,913,950
- ------------------------------------------------------------------------------
MERCHANDISING-MASS -- 1.5%
26,400 Brylane, Inc.* 1,300,200
13,800 Lands End, Inc.* 483,862
------------
1,784,062
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------
MERCHANDISING-SPECIAL -- 4.3%
52,800 Burlington Coat Factory* 867,900
49,000 Claire's Stores, Inc. 952,437
15,000 Daisytek Int'l. Corp.* 521,250
22,000 The Dress Barn* 624,250
70,000 The Good Guys, Inc.* 533,750
24,500 New England Business Svcs., Inc. 826,875
18,000 Pier 1 Imports, Inc. 407,250
30,000 SED Int'l. Hldgs., Inc.* 337,500
------------
5,071,212
- ------------------------------------------------------------------------------
METALS -- 1.5%
39,500 Quanex Corp. 1,110,937
24,500 Titanium Metals Corp.* 707,437
------------
1,818,374
- ------------------------------------------------------------------------------
MISCELLANEOUS-CONSUMER GROWTH STAPLES -- 2.8%
32,100 Mail-Well, Inc.* 1,300,050
51,500 Sotheby's Hldgs., Inc. 952,750
17,700 StaffMark, Inc.* 559,763
15,000 Valassis Communications, Inc.* 555,000
------------
3,367,563
- ------------------------------------------------------------------------------
OIL AND GAS PRODUCING -- 5.6%
53,000 Basin Exploration, Inc.* 940,750
175,800 Beau Canada Exploration* 356,755
40,000 Bellwether Exploration Co.* 440,000
30,500 Callon Petroleum Co.* 496,578
350,600 Canadian 88 Energy Corp.* 1,042,686
38,000 Chieftain Int'l., Inc.* 807,500
13,000 Forcenergy Gas Exploration, Inc.* 340,438
144,000 Petromet Resources Ltd.* 315,000
24,000 Rigel Energy Corp.* 196,500
7,800 St. Mary Land & Exploration Co. 273,000
19,000 Snyder Oil Corp.*. 346,750
135,000 Wainoco Oil Ltd.* 1,071,563
------------
6,627,520
- ------------------------------------------------------------------------------
OIL AND GAS SERVICES -- 2.7%
19,400 Bayard Drilling Technology, Inc.* 315,250
6,000 Friede Goldman Int'l., Inc.* 179,250
34,500 Halter Marine Group, Inc.* 996,188
15,000 Lone Star Technologies, Inc.* 425,625
26,600 Varco Int'l., Inc.* 570,238
51,000 Willbros Group, Inc.* 765,000
------------
3,251,551
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
* Non-income producing security See notes to financial statements.
26
<PAGE>
THE GUARDIAN PARK AVENUE SMALL CAP FUND
Schedule of Investments (Continued)
- ------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 1.3%
45,500 Deltic Timber Corp. $ 1,245,563
12,390 Wausau-Mosinee Paper Corp. 250,511
------------
1,496,074
- ------------------------------------------------------------------------------
POLLUTION CONTROL -- 0.6%
45,000 Imco Recycling, Inc. 722,813
- ------------------------------------------------------------------------------
PUBLISHING-NEWS -- 1.1%
2,500 CMP Media, Inc.* 43,125
16,000 Harte-Hanks Communications 594,000
12,300 McClatchy Newspapers, Inc. 334,406
6,000 Pulitzer Publishing, Inc. 376,875
------------
1,348,406
- ------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST -- 5.4%
16,000 Ambassador Apartments, Inc. 329,000
16,000 American Gen. Hospitality Corp. 428,000
18,000 Arden Realty, Inc. 553,500
18,000 Brandywine Realty Trust 452,250
15,400 Camden Ppty. Trust 477,400
13,000 CCA Prison Realty Trust 580,125
14,500 Commercial Net Lease Realty, Inc. 259,188
16,000 Glenborough Realty Trust, Inc. 474,000
30,000 Innkeepers USA Trust 465,000
8,000 JDN Realty Corp.* 259,000
24,000 Lexington Corp. Ppty., Inc. 370,500
11,000 National Golf Ppty., Inc. 360,938
7,500 Charles E. Smith Residential Realty 266,250
51,000 Sunstone Hotel Investors, Inc.* 879,750
9,600 Tower Realty Trust, Inc. 236,400
------------
6,391,301
- ------------------------------------------------------------------------------
SEMICONDUCTOR -- 2.4%
32,600 ADE Corp.* 570,500
20,100 Dallas Semiconductor Corp. 819,075
30,000 SanDisk Corp.* 609,375
41,000 Unitrode Corp.* 881,500
------------
2,880,450
- ------------------------------------------------------------------------------
TEXTILE-APPAREL AND PRODUCTION -- 1.1%
35,000 Big Dog Hldgs., Inc.* 196,875
13,000 Nautica Enterprises, Inc.* 302,250
27,375 Paxar Corp.* 405,492
9,300 St. John Knits, Inc. 372,000
------------
1,276,617
- ------------------------------------------------------------------------------
TRANSPORTATION-MISCELLANEOUS -- 5.1%
20,600 Airborne Freight Corp. 1,279,775
17,000 Air Express Int'l. Corp. 518,500
23,000 Budget Group, Inc.* 794,938
37,500 Dollar Thrifty Automotive Group, Inc.* 768,750
31,000 Eagle USA Airfreight, Inc.* 883,500
17,300 Expeditors Int'l. Wash., Inc. 666,050
10,000 Hub Group, Inc.* 297,500
25,700 Sea Containers Ltd.* 822,400
------------
6,031,413
- ------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------
TRUCKERS -- 3.6%
21,000 Arnold Industries, Inc. $ 362,250
38,000 Consolidated Freightways Corp.* 517,750
12,300 Roadway Express, Inc. 272,137
17,500 Rollins Truck Leasing Corp. 312,812
13,400 Swift Transportation, Inc.* 433,825
49,500 U.S. Freightways Corp. 1,608,750
13,000 Werner Enterprises, Inc. 266,500
20,000 Yellow Corp.* 502,500
------------
4,276,524
- ------------------------------------------------------------------------------
UTILITIES-ELECTRIC -- 0.3%
7,700 Central LA Electric Co.* 249,287
2,000 Minnesota Power & Light Co.* 87,125
------------
336,412
- ------------------------------------------------------------------------------
UTILITIES-GAS AND PIPELINE -- 0.1%
4,300 Indiana Energy, Inc.* 141,631
- ------------------------------------------------------------------------------
UTILITIES-TELECOMMUNICATIONS -- 0.3%
15,000 Startec Global Communications Corp.* 335,625
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $100,980,939 ) 111,498,045
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 6.5%
- ------------------------------------------------------------------------------
Principal
Amount Value
- ------------------------------------------------------------------------------
$7,738,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/97, maturity
value $7,740,515 at 5.85%,
due 1/2/98 (collateralized by
$7,895,000 U.S. Treasury
Notes, 5.875%, due 2/28/99) $7,738,000
- ------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $7,738,000) 7,738,000
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(COST $108,718,939) 119,236,045
CASH, RECEIVABLES AND OTHER ASSETS
LESS LIABILITIES -- 0.0% 27,730
- ------------------------------------------------------------------------------
NET ASSETS -- 100.0% $119,263,775
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
27
<PAGE>
o THE GUARDIAN ASSET ALLOCATION FUND
Common Stocks -- 32.5%
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 0.7%
2,215 Lockheed Martin Corp. $ 218,178
5,000 Precision Castparts Corp. 301,563
3,900 Rockwell Int'l. Corp. 203,775
1,400 TRW, Inc. 74,725
2,900 United Technologies Corp. 211,156
-----------
1,009,397
- --------------------------------------------------------------------------------
AIR TRANSPORTATION -- 0.5%
4,500 AMR Corp., DE* 578,250
4,000 Continental Airlines, Inc.* 192,500
-----------
770,750
- --------------------------------------------------------------------------------
AUTOMOTIVE PARTS -- 0.1%
750 Autoliv, Inc. 24,563
1,600 Goodyear Tire & Rubber Co. 101,800
1,299 Meritor Automotive, Inc. 27,360
-----------
153,723
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 0.1%
2,600 Amgen, Inc. 140,725
- --------------------------------------------------------------------------------
BUILDING MATERIALS AND HOMEBUILDERS -- 0.1%
2,289 Martin Marietta Materials, Inc. 83,692
2,000 Sherwin-Williams Co. 55,500
-----------
139,192
- --------------------------------------------------------------------------------
CHEMICALS -- 1.2%
21,600 E.I. Dupont de Nemours, Inc. 1,297,350
2,200 Morton Int'l., Inc. 75,625
3,000 PPG Industries, Inc. 171,375
2,000 Rohm & Haas Co. 191,500
-----------
1,735,850
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 0.9%
300 ChoicePoint, Inc.* 14,325
10,000 Microsoft Corp.* 1,292,500
-----------
1,306,825
- --------------------------------------------------------------------------------
COMPUTER SYSTEMS -- 1.7%
5,500 Compaq Computer Corp. 310,406
1,500 Diebold, Inc. 75,937
1,500 Honeywell, Inc. 102,750
12,500 Lexmark Int'l. Group, Inc.* 475,000
3,000 Pitney Bowes, Inc. 269,812
6,000 Quantum Corp.* 120,375
6,000 SCI Systems, Inc.* 261,375
13,000 Storage Technology Corp.* 805,187
3,000 Sun Microsystems, Inc.* 119,625
4,600 Western Digital Corp.* 73,887
-----------
2,614,354
- --------------------------------------------------------------------------------
CONGLOMERATES -- 1.5%
5,800 Allied Signal, Inc. 225,837
12,500 Loews Corp. 1,326,562
12,000 Textron, Inc. 750,000
-----------
2,302,399
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
DRUGS AND HOSPITALS -- 2.1%
5,000 Allegiance Corp. $ 177,187
2,600 Becton Dickinson & Co. 130,000
7,400 Bristol-Myers Squibb Corp. 700,225
1,100 Integrated Health Services, Inc. 34,306
6,000 Eli Lilly & Co., Inc. 417,750
3,400 Pfizer, Inc. 253,512
11,800 Schering-Plough Corp. 733,075
11,000 Universal Health Services, Inc.* 554,125
1,300 Warner-Lambert Co. 161,200
-----------
3,161,380
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 2.0%
40,200 General Electric Co. 2,949,675
- --------------------------------------------------------------------------------
ELECTRONICS AND INSTRUMENTS -- 0.2%
5,000 Dynatech Corp.* 234,375
- --------------------------------------------------------------------------------
FINANCIAL-BANKS -- 6.4%
30,000 BankAmerica Corp. 2,190,000
4,928 Bank of Boston Corp. 462,951
4,000 Barnett Banks, Inc. 287,500
11,404 Chase Manhattan Corp. 1,248,738
15,000 Citicorp 1,896,562
2,500 Comerica, Inc. 225,625
8,200 First Chicago NBD Corp. 684,700
14,200 First Union Corp. 727,750
1,700 KeyCorp 120,381
5,200 Mellon Bank Corp. 315,250
10,200 Nationsbank Corp. 620,287
3,000 Provident Financial Group, Inc. 145,500
4,500 Star Banc Corp. 258,187
4,000 State Street Corp. 232,750
1,500 Union BanCal Corp. 161,250
2,400 Zions Bancorp 108,900
-----------
9,686,331
- --------------------------------------------------------------------------------
FINANCIAL-OTHER -- 3.1%
3,000 Countrywide Credit Industries, Inc. 128,625
30,000 A.G. Edwards, Inc. 1,192,500
7,200 Federal Home Loan Mortgage Corp. 301,950
12,000 Federal National Mortgage Assn. 684,750
3,000 Franklin Resources, Inc. 260,813
6,000 Merrill Lynch & Co., Inc. 437,625
30,000 Travelers Group, Inc. 1,616,250
-----------
4,622,513
- --------------------------------------------------------------------------------
FINANCIAL-THRIFT -- 0.3%
5,600 Astoria Financial Corp. 312,200
1,575 Commercial Federal Corp. 56,011
2,000 Greenpoint Financial Corp. 145,125
-----------
513,336
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
28
<PAGE>
THE GUARDIAN ASSET ALLOCATION FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
FOOD, BEVERAGE AND TOBACCO -- 0.9%
6,000 Campbell Soup Co. $ 348,750
5,400 ConAgra, Inc. 177,187
800 Earthgrains Co. 37,600
3,000 Fortune Brands, Inc. 111,187
4,000 Interstate Bakeries Corp. 149,500
11,900 Philip Morris Cos., Inc. 539,219
-----------
1,363,443
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 0.3%
6,200 Procter & Gamble Co. 494,838
- --------------------------------------------------------------------------------
INSURANCE -- 1.5%
4,700 Allstate Corp. 427,112
1,000 Chubb Corp. 75,625
700 General RE Corp. 148,400
2,500 Hartford Financial Svcs. Group, Inc. 233,906
1,800 Marsh & McLennan Cos., Inc. 134,212
800 MBIA, Inc. 53,450
8,400 MGIC Investment Corp. 558,600
13,500 SunAmerica, Inc. 577,125
2,000 Travelers Ppty. Casualty Corp. 88,000
-----------
2,296,430
- --------------------------------------------------------------------------------
MACHINERY AND EQUIPMENT -- 0.4%
8,400 Caterpillar, Inc. 407,925
2,600 Deere & Co. 151,613
600 Eaton Corp. 53,550
-----------
613,088
- --------------------------------------------------------------------------------
MERCHANDISING-DEPARTMENT STORES -- 0.1%
2,400 Dayton Hudson Corp. 162,000
- --------------------------------------------------------------------------------
MERCHANDISING-FOOD -- 0.4%
9,637 Safeway, Inc.* 609,540
- --------------------------------------------------------------------------------
MERCHANDISING-SPECIAL -- 0.1%
2,652 CVS Corp. 169,894
- --------------------------------------------------------------------------------
MISCELLANEOUS-CONSUMER GROWTH STAPLES -- 0.1%
2,700 Cognizant Corp. 120,319
1,500 Interpublic Group Cos., Inc. 74,719
-----------
195,038
- --------------------------------------------------------------------------------
OIL AND GAS PRODUCING -- 1.3%
9,000 Apache Corp. 315,563
4,000 Barrett Resources Corp.* 121,000
7,000 Tom Brown, Inc.* 134,750
8,000 Chieftain Int'l., Inc.* 170,000
10,000 Devon Energy Corp. 385,000
4,400 Diamond Offshore Drilling, Inc. 211,750
50,000 Ranger Oil Ltd. 343,750
14,696 Seagull Energy Corp.* 303,105
-----------
1,984,918
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
OIL AND GAS SERVICES -- 1.3%
6,000 ENSCO Int'l., Inc. $ 201,000
5,400 Halliburton Co. 280,463
13,000 Nabors Industries, Inc.* 408,688
7,500 Noble Drilling Corp. 229,688
9,600 Schlumberger Ltd. 772,800
-----------
1,892,639
- --------------------------------------------------------------------------------
OIL-INTEGRATED-DOMESTIC -- 0.8%
5,000 Amoco Corp. 425,625
3,600 Atlantic Richfield Co. 288,450
5,000 Murphy Oil Corp. 270,938
16,700 Tesoro Petroleum, Inc. 258,850
-----------
1,243,863
- --------------------------------------------------------------------------------
OIL-INTEGRATED-INTERNATIONAL -- 2.8%
7,500 Chevron Corp. 577,500
28,400 Exxon Corp. 1,737,725
14,000 Mobil Corp. 1,010,625
15,600 Royal Dutch Petroleum Co. 845,325
-----------
4,171,175
- --------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 0.7%
1,428 Deltic Timber Corp. 39,092
25,000 Rayonier, Inc. 1,064,063
-----------
1,103,155
- --------------------------------------------------------------------------------
PUBLISHING-NEWS -- 0.1%
3,400 Gannett Co., Inc. 210,163
- --------------------------------------------------------------------------------
RAILROADS -- 0.3%
2,576 Burlington Northern Santa Fe 239,407
6,300 Norfolk Southern Corp. 194,119
-----------
433,526
- --------------------------------------------------------------------------------
TEXTILE-APPAREL AND PRODUCTION -- 0.1%
4,000 V.F. Corp. 183,750
- --------------------------------------------------------------------------------
UTILITIES-ELECTRIC -- 0.1%
2,700 Texas Utilities Co. 112,219
- --------------------------------------------------------------------------------
UTILITIES-TELECOMMUNICATIONS -- 0.3%
5,700 Ameritech Corp. 458,850
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $29,683,950) 49,039,354
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MUTUAL FUNDS -- 40.0%
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
EQUITY -- 25.3%
828,458 The Guardian Park Avenue
Fund, Class A $38,205,148
FIXED INCOME -- 14.7%
2,247,294 The Guardian Investment
Quality Bond Fund 22,263,224
- --------------------------------------------------------------------------------
TOTAL MUTUAL FUNDS
(COST $60,592,641) 60,468,372
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-producing security.
29
<PAGE>
THE GUARDIAN ASSET ALLOCATION FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
CORPORATE BONDS -- 2.0%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$2,500,000 Assoc. Corp. of North America
8.125% due 1/15/98 $ 2,501,325
500,000 McDermott Int'l., Inc.
6.57% due 4/20/98 500,065
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $3,002,032) 3,001,390
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. GOVERNMENT -- 4.5%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$7,000,000 U.S. Treasury Bills, 5.43%
due 7/11/98
(COST $6,836,272) $ 6,836,272
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OPTIONS -- 0.3%
- --------------------------------------------------------------------------------
Number of
Contracts Value
- --------------------------------------------------------------------------------
100 U.S. Treasury Bonds Future
Expires February, 1998
Exercise price $118 $ 314,063
120 U.S. Treasury Notes Future
Expires March, 1998
Exercise price $111 191,250
- --------------------------------------------------------------------------------
TOTAL OPTIONS
(COST $379,090) 505,313
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 11.9%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
COMMERCIAL PAPER -- 11.9%
$6,000,000 Monsanto Co.
6.50%, due 1/2/98 $ 5,998,917
4,000,000 PHH Corp.
5.75%, due 3/16/98 3,952,722
4,000,000 USAA Capital Corp.
5.72%, due 2/12/98 3,973,307
4,000,000 Union Camp Corp.
6.00%, due 1/28/98 3,982,000
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(COST $17,906,946) 17,906,946
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 8.8%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$13,227,000 State Street Bank & Trust Co.
repurchase agreement, dated
12/31/97, maturity value
$13,231,299 at 5.85%,
due 1/2/98 (collateralized by
$13,495,000 U.S. Treasury
Notes, 5.875%, due 2/28/99) $ 13,227,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $13,227,000) 13,227,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(COST $131,627,931) 150,984,647
CASH, RECEIVABLES AND OTHER ASSETS
LESS LIABILITIES--0.0% 29,683
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $151,014,330
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
30
<PAGE>
o THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.7%
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
ARGENTINA -- 0.9%
BANKS -- 0.4%
10,500 Banco de Galicia Y Buenos Aires S.A. ADR* $ 270,375
OIL AND GAS -- 0.4%
42,267 Perez Companc S.A. 301,844
UTILITIES-ELECTRIC -- 0.1%
3,800 Capex S.A. GDR 51,300
-----------
623,519
- --------------------------------------------------------------------------------
AUSTRALIA -- 2.0%
BANKS -- 0.6%
67,000 Australia & NZ Bank Group 442,786
BEVERAGE -- 0.5%
178,400 Fosters Brewing Group 339,515
BUSINESS SERVICES -- 0.6%
22,400 Brambles Industries Ltd. 444,546
REAL ESTATE -- 0.3%
13,350 Lend Lease Corp. 261,026
-----------
1,487,873
- --------------------------------------------------------------------------------
BRAZIL -- 2.2%
FOOD, BEVERAGE AND TOBACCO -- 0.3%
14,300 Comp. Cerveja Ria Brahma ADR 202,881
PETROLEUM SERVICES -- 0.3%
9,600 Petroleo Brasileiro S.A. ADR 220,800
RETAIL-FOOD -- 0.2%
8,800 Comp. Brasileira de Distribution GDR+ 170,500
TELECOMMUNICATIONS -- 1.0%
6,074 Telecom. Brasileiras ADR 707,241
UTILITIES-ELECTRIC --0.4%
2,000 Comp. Energetica de Minas 88,000
13,200 Comp. Paranaense de Energia ADR 180,675
-----------
1,570,097
- --------------------------------------------------------------------------------
CHILE -- 0.4%
MUTUAL FUND -- 0.2%
3,730 Genesis Chile Fund* 143,605
RETAIL-FOOD-- 0.2%
9,084 Distribucion Y Servicio S.A. ADR* 168,622
-----------
312,227
- --------------------------------------------------------------------------------
CZECH REPUBLIC -- 0.2%
BANKS -- 0.2%
10,312 Komercni Banka S.A. GDR 123,744
- --------------------------------------------------------------------------------
FRANCE-- 4.2%
ELECTRONICS-SEMICONDUCTOR -- 1.0%
11,380 SGS Thomson Microelectronics NV* 704,337
- --------------------------------------------------------------------------------
+Rule 144A restricted security.
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
OIL-INTEGRATED -- 2.0%
12,500 Elf Aquitaine $ 1,453,851
RETAIL TRADE -- 1.2%
1,790 Comptoirs Modernes 916,042
-----------
3,074,230
- --------------------------------------------------------------------------------
GERMANY -- 13.5%
AUTOMOBILE -- 2.3%
2,250 Bayerische Motoren Werke AG* 1,682,231
BANKS -- 2.4%
27,200 Bayerische Vereinsbank AG* 1,779,616
CHEMICALS -- 0.7%
15,140 BASF AG 536,521
DRUGS AND HEALTHCARE -- 0.9%
13,590 GEHE AG 679,897
FOOTWEAR -- 2.3%
12,500 Adidas AG 1,644,014
INDUSTRIAL MACHINERIES -- 2.3%
3,305 Mannesmann AG 1,669,999
INSURANCE -- 0.7%
1,290 Munchener Ruckvers* 486,184
SOFTWARE -- 1.9%
4,660 SAP AG 1,415,654
-----------
9,894,116
- --------------------------------------------------------------------------------
HONG KONG -- 2.9%
CONGLOMERATES -- 1.1%
78,000 CITIC Pacific Ltd. 310,027
84,000 Hutchison Whampoa 526,829
REAL ESTATE -- 1.8%
116,000 Henderson Land Development 546,393
134,122 Hong Kong Land Hldgs. 257,514
79,000 Hysan Development Co. 157,511
106,000 New World Development Co. 366,602
-----------
2,164,876
- --------------------------------------------------------------------------------
HUNGARY -- 1.0%
FOOD AND BEVERAGE -- 0.3%
3,041 Pick Szeged RT 242,690
PHARMACEUTICALS -- 0.7%
4,100 Richter Gedeon VEG 465,615
-----------
708,305
- --------------------------------------------------------------------------------
IRELAND -- 1.9%
BANKS -- 0.9%
70,000 Allied Irish Bank 677,490
CONSTRUCTION MATERIALS -- 1.0%
61,200 CRH PLC 712,681
-----------
1,390,171
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
31
<PAGE>
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
ITALY -- 5.4%
OIL-INTEGRATED -- 1.3%
169,000 Eni Spa $ 958,208
TELECOMMUNICATIONS -- 4.1%
222,000 Telecom. Italia SPA 1,418,089
342,000 Telecom. Italia MOB 1,578,536
-----------
3,954,833
- --------------------------------------------------------------------------------
JAPAN -- 14.5%
AUTOMOBILES -- 1.2%
24,000 Honda Motor Co. 880,447
CHEMICALS -- 0.7%
27,000 Shin Etsu Chemical Co. 514,896
COMPUTER SYSTEMS -- 1.1%
15 NTT Data Communication Systems 807,613
DRUGS AND HEALTH CARE -- 0.5%
19,000 Sankyo Co. 429,272
ELECTRONICS -- 3.5%
26,000 Canon, Inc. 605,346
10,000 Rohm Co. 1,018,611
10,800 Sony Corp. 959,485
FINANCIAL SERVICES -- 2.8%
32,200 Credit Saison Co. 794,087
13,860 Promise Co. 768,526
1,700 Shohkoh Fund & Co.* 518,189
INDUSTRIAL MACHINERIES -- 1.0%
8,000 SMC Corp. 704,603
LEISURE PRODUCTS -- 0.3%
2,090 Toho Co. 222,494
PHOTOGRAPHY -- 1.1%
20,000 Fuji Photo Film Co. 765,873
REAL ESTATE -- 0.9%
61,000 Mitsubishi Estate 663,399
RETAIL TRADE -- 0.4%
19,000 Jusco Co. 267,749
TELECOMMUNICATIONS -- 1.0%
28,000 Matsushita Communications 746,266
-----------
10,666,856
- --------------------------------------------------------------------------------
MEXICO -- 1.5%
CONGLOMERATES -- 0.2%
21,600 Alfa S.A. 146,400
MEDIA AND ENTERTAINMENT -- 0.6%
22,200 Corp. Interamericana Entretenimiento* 172,748
11,300 TV Azteca S.A. de C.V. ADR* 254,956
RETAIL TRADE -- 0.5%
5,900 Grupo Elektra S.A. de C.V. GDR* 207,606
40,000 Organiz Soriana* 175,949
TELECOMMUNICATIONS -- 0.2%
3,300 Telefonos de Mexico S.A. ADR 185,006
-----------
1,142,665
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
NETHERLANDS -- 5.7%
BANKS -- 2.7%
100,200 ABN Amro Hldgs. NV $ 1,951,964
BROADCASTING AND PUBLISHING -- 1.9%
49,600 Ver Ned Uitgevers 1,399,216
SEMICONDUCTOR-EQUIPMENT -- 1.1%
12,270 ASM Lithography Hldgs.* 804,828
-----------
4,156,008
- --------------------------------------------------------------------------------
NEW ZEALAND -- 0.5%
TELECOMMUNICATIONS -- 0.5%
82,000 Telecom. Corp. of New Zealand 397,571
- --------------------------------------------------------------------------------
NORWAY -- 0.8%
PUBLISHING -- 0.8%
35,750 Schibsted ASA* 612,307
- --------------------------------------------------------------------------------
POLAND -- 0.5%
ELECTRICAL EQUIPMENT -- 0.5%
36,350 Elektrim 351,641
- --------------------------------------------------------------------------------
SINGAPORE -- 0.3%
PUBLISHING -- 0.3%
20,200 Singapore Press Hldgs. 252,874
- --------------------------------------------------------------------------------
SPAIN -- 2.5%
BANK -- 2.5%
53,800 Banco Santander S.A. 1,797,453
- --------------------------------------------------------------------------------
SWEDEN -- 4.2%
CONGLOMERATES -- 1.2%
9,500 Incentive AB 857,882
CONSTRUCTION AND MINING EQUIPMENT -- 1.2%
29,050 Atlas Copco AB 865,291
TELECOMMUNICATIONS -- 1.8%
35,200 LM Ericsson* 1,323,342
-----------
3,046,515
- --------------------------------------------------------------------------------
SWITZERLAND -- 8.6%
BUSINESS SERVICES -- 1.0%
2,620 Adecco S.A. 759,355
INDUSTRIAL MACHINERIES -- 0.4%
175 Bobst AG 257,494
INSURANCE -- 2.6%
4,050 Zurich Versicherungs-Gesellschaft* 1,929,099
PHARMACEUTICALS -- 4.6%
2,075 Novartis AG 3,365,556
-----------
6,311,504
- --------------------------------------------------------------------------------
UNITED KINGDOM -- 24.0%
BANKS -- 5.7%
84,000 Abbey National 1,512,151
60,500 HSBC Hldgs. 1,492,556
59,861 Lloyds TSB Group PLC* 778,767
24,500 National Westminster Bank Co. PLC 407,241
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
32
<PAGE>
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
CONGLOMERATES -- 2.6%
233,051 Rentokil Initial PLC $ 1,026,699
150,000 Williams Hldgs. 832,747
CONTAINERS-PAPER AND PLASTIC -- 0.4%
80,000 Bunzl PLC 310,761
DISTRIBUTORS -- 0.2%
29,000 Litho Supplies 112,175
DRUGS AND HEALTH CARE -- 3.4%
81,000 Glaxo Wellcome 1,931,085
16,500 Zeneca Group 584,452
ELECTRONICS -- 0.8%
52,000 Electrocomponents 386,907
28,000 Premier Farnell 201,436
ENGINEERING -- 0.9%
34,000 Siebe 667,348
FOOD, BEVERAGE AND TOBACCO -- 2.6%
55,000 Devro Int'l. 340,572
132,800 Imperial Tobacco 835,415
46,929 Whitbread 689,103
INSURANCE -- 0.6%
12,000 Britannic Assurance 215,825
56,000 Cox Insurance Hldgs. PLC 217,993
LEISURE PRODUCTS -- 0.8%
39,000 Granada Group 595,735
NEWSPAPERS -- 0.2%
21,000 Southnews PLC 156,941
OIL-INTERNATIONAL -- 2.1%
117,862 British Petroleum 1,559,141
RETAIL TRADE -- 1.5%
46,000 Argos PLC 415,175
66,337 Dixons Group 665,737
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 1.8%
147,373 Cable & Wireless Co.* $ 639,039
95,000 Vodafone Group 686,565
TRANSPORTATION -- 0.4%
36,000 BAA PLC 294,467
-----------
17,556,033
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $58,396,792) 71,595,418
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.5%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$1,077,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/97, maturity
value $1,077,299 at 5.00%
due 1/2/98 (collateralized
by $1,105,000 U.S. Treasury
Notes, 9.25% due 8/15/98) $ 1,077,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $1,077,000) 1,077,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.2%
(COST $59,473,792) 72,672,418
CASH, RECEIVABLES AND OTHER ASSETS
LESS LIABILITIES -- 0.8% 595,049
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $73,267,467
- --------------------------------------------------------------------------------
GLOSSARY OF TERMS:
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
33
<PAGE>
o THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
COMMON STOCKS -- 89.4%
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
ARGENTINA -- 7.6%
BANKS -- 1.3%
12,200 Banco Galicia Y Buenos
Aires S.A. $ 314,150
BUILDING CONSTRUCTION -- 0.4%
21,200 Dycasa Dragados S.A. 92,238
OIL AND GAS -- 2.5%
44,000 Perez Companc S.A. 314,220
8,400 YPF Sociedad Anonima ADR 287,175
REAL ESTATE -- 1.2%
7,200 IRSA Inversiones Y Represente 270,900
RETAIL FOOD -- 1.2%
15,337 Imp. Y Exp. Patagonia 276,118
TELECOMMUNICATIONS -- 0.8%
5,000 Telefonica de Argentina S.A. ADR 186,250
UTILITIES-ELECTRIC -- 0.2%
3,660 Capex S.A. GDR 49,410
-----------
1,790,461
- --------------------------------------------------------------------------------
BRAZIL -- 21.4%
BANKS -- 1.8%
770,000 Banco Itau S.A. 413,960
490,000 Encorpar* 526
FOOD, BEVERAGE AND TOBACCO -- 2.3%
291,240 Comp. Cerv. Ria Brahma 347,632
5,200,000 Comp. Lorenz 186,372
INDUSTRIAL MACHINERIES -- 0.8%
15,300 Elevadores Atlas 185,072
PETROLEUM SERVICES -- 2.1%
269,300 Petroleo Brasileiro S.A. 502,365
REAL ESTATE -- 0.6%
6,500 Brazil Realty S.A. 133,952
RETAIL-FOOD -- 1.7%
4,600 Comp. S.A. Supermercados GDR+ 84,870
16,500 Comp. Brasileiras de Dist. GDR 319,688
TELECOMMUNICATIONS -- 7.2%
6,036,000 Ericsson Telecom S.A.* 193,619
6,100,000 Telecom. Brasileiras S.A. 620,358
4,250 Telecom. Brasileiras S.A. ADR 494,859
1,715,767 Telecom. de Sao Paolo S.A.* 393,315
TEXTILE-APPAREL AND PRODUCTION -- 0.5%
31,500 Confeccoes Guararapes S.A. 109,793
TOBACCO -- 0.5%
15,000 Comp. Souza Cruz 120,962
UTILITIES -- 0.7%
740,004 Comp. Saneam. Basico Est. de
Sao Paolo 175,710
- --------------------------------------------------------------------------------
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
UTILITIES-ELECTRIC -- 3.2%
263,600,000 Comp. de Elect. do Est. de
Rio de Janeiro* $ 170,057
2,700 Comp. Energetica de Minas ADR 118,800
8,109,500 Comp. Paranaense de Energia 239,986
735,673 Light Particapacoes 220,823
-----------
5,032,719
- --------------------------------------------------------------------------------
CHILE -- 4.9%
CHEMICALS -- 0.8%
4,200 Sociedad Quimica Y Minera
de Chile S.A.* 184,800
FOOD AND BEVERAGE -- 0.8%
10,000 Embotelladora Andina S.A. ADR 194,375
MINING -- 0.7%
30,420 Antofagasta Hldgs. 164,884
MUTUAL FUND -- 1.3%
8,000 Genesis Chile Fund 308,000
RETAIL-FOOD -- 1.3%
2,400 Disco S.A.* 107,850
10,714 Distribucion Y Servicio ADR* 198,879
-----------
1,158,788
- --------------------------------------------------------------------------------
COLOMBIA -- 0.9%
BANKS -- 0.9%
8,600 Banco Ganadero S.A. 206,400
CZECH REPUBLIC -- 2.8%
BANKS -- 1.1%
7,000 Komercni Banka* 138,741
9,620 Komercni Banka AS GDR 115,440
FINANCIAL SERVICES -- 0.3%
13,000 IKS KB Plus* 72,168
FOOD AND BEVERAGES -- 0.7%
1,155 Plzensky Prasdroj 104,860
17,700 Prazske Pivovary 67,553
TELECOMMUNICATIONS -- 0.7%
1,650 SPT Telecom AS* 173,893
-----------
672,655
- --------------------------------------------------------------------------------
HONG KONG -- 5.6%
AIR TRANSPORTATION -- 0.8%
606,000 China Travel Int'l., Inc. 191,599
CONGLOMERATES -- 1.7%
96,000 China Resources EN 214,324
46,000 CITIC Pacific Ltd. 182,837
REAL ESTATE -- 3.1%
736,000 China Overseas Land 225,577
1,073,600 Hon Kwok Land Inv. Ltd. 193,966
88,000 New World Development Co. 304,349
-----------
1,312,652
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
34
<PAGE>
THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
HUNGARY -- 8.4%
BUILDING CONSTRUCTION AND MATERIALS -- 1.0%
4,830 Zalakeramia $ 224,184
CONSUMER GOODS -- 1.2%
5,140 Graboplast Textile 271,791
FOOD, BEVERAGE AND TOBACCO -- 1.2%
3,455 Pick Szeged RT 275,730
LODGING -- 0.9%
7,330 Danubius Hotel* 222,507
PHARMACEUTICALS -- 1.9%
3,900 Richter Gedeon VEG 442,902
PLASTICS -- 1.2%
5,530 Pannonplast 291,087
TRANSPORTATIONS -- 1.0%
9,690 North American Bus* 237,215
-----------
1,965,416
- --------------------------------------------------------------------------------
INDIA -- 5.4%
BANKS -- 1.0%
13,000 State Bank of India 232,440
FINANCIAL SERVICES -- 1.2%
22,000 Industrial Credit & Invest. Corp.
of India* 286,000
MUTUAL FUND -- 1.2%
22,000 India I.T. Fund Ltd. 90,200
22,000 Indian Opportunity Fund 185,350
TELECOMMUNICATIONS -- 2.0%
17,000 Mahanagar Telephone
Nigam Ltd. GDR* 262,650
15,000 Videsh Sanchar Nigam Ltd.* 210,375
-----------
1,267,015
- --------------------------------------------------------------------------------
INDONESIA -- 0.2%
BANKS -- 0.0%
128,600 Bank Bira 7,599
FOOD AND BEVERAGE -- 0.2%
192,000 Davomas Abadi 34,909
124,800 Fiskar Agung Perkasa 17,018
-----------
59,526
- --------------------------------------------------------------------------------
MALAYSIA -- 0.2%
FOOD, BEVERAGE AND TOBACCO -- 0.2%
32,000 RJ Reynolds Berhad 52,243
- --------------------------------------------------------------------------------
MEXICO -- 14.9%
CONGLOMERATES -- 1.7%
22,000 Alfa S.A. 149,111
38,472 Grupo Carso S.A. de C.V.+ 257,418
FINANCIAL SERVICES -- 2.3%
245,509 Grupo Financiero Banorte* 427,713
28,000 Grupo Financiero Inbursa S.A. 114,491
FOOD, BEVERAGE AND TOBACCO -- 1.1%
33,750 Grupo Continental 120,020
4,500 Pan American Beverages, Inc. 146,813
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
MEDIA AND ENTERTAINMENT -- 3.1%
49,250 Corp. Interamericana
Entretenimiento* $ 383,235
15,000 TV Azteca S.A. de C.V.* 338,438
PAPER AND FOREST PRODUCTS -- 0.9%
44,400 Kimberly-Clark de Mexico 217,310
REAL ESTATE -- 0.9%
37,200 Corp. Geo S.A.* 228,164
RETAIL TRADE -- 2.4%
9,500 Grupo Elektra S.A. GDR* 334,281
46,000 Organiz. Soriana 202,342
TELECOMMUNICATIONS -- 2.5%
10,300 Telefonos de Mexico S.A. 577,444
-----------
3,496,780
- --------------------------------------------------------------------------------
PAKISTAN -- 4.5%
BANKS -- 0.8%
350,000 Faysal Bank* 190,485
CHEMICALS -- 1.5%
178,000 Fauji Fertilizer 340,783
UTILITIES-ELECTRIC -- 2.2%
17,000 Hub Power Co. GDR* 529,125
-----------
1,060,393
- --------------------------------------------------------------------------------
PEOPLE'S REPUBLIC OF CHINA -- 1.7%
HOUSEHOLD PRODUCTS -- 1.0%
236,000 Guandong Kelon Elec. Hldgs.* 242,122
UTILITIES-ELECTRIC -- 0.7%
354,000 Beijing Datang Power Gen. Co.* 162,176
-----------
404,298
- --------------------------------------------------------------------------------
PERU -- 0.8%
FOOD AND BEVERAGES -- 0.2%
56,484 Cerv. Backus Johnston & Co. 51,820
TELECOMMUNICATIONS -- 0.6%
27,000 Telefonica Del Peru 60,341
3,100 Telefonica Del Peru S.A. ADR 72,269
-----------
184,430
- --------------------------------------------------------------------------------
PHILIPPINES -- 0.4%
BUSINESS SERVICES -- 0.3%
600,000 Int'l. Container Terminal Svcs.* 74,074
REAL ESTATE -- 0.1%
574,000 MRC Allied Industries* 14,173
-----------
88,247
- --------------------------------------------------------------------------------
POLAND -- 2.5%
BANKS -- 1.7%
8,500 Bank Haldlowy Warsaw* 108,511
13,800 Bank Roswoju Eksport 285,787
ELECTRICAL EQUIPMENT -- 0.8%
18,750 Elektrim 181,383
-----------
575,681
- --------------------------------------------------------------------------------
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
35
<PAGE>
THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
SINGAPORE -- 0.3%
CONSTRUCTION -- 0.3%
48,000 Clipsal Industries Ltd. $ 61,440
- --------------------------------------------------------------------------------
SOUTH AFRICA -- 2.2%
BANKS -- 0.9%
23,000 First National Bank 204,408
CONGLOMERATES -- 0.9%
13,099 Barlow Ltd. 111,166
24,000 C.G. Smith 98,634
OIL-DOMESTIC -- 0.4%
10,000 Sasol 104,798
-----------
519,006
- --------------------------------------------------------------------------------
SRI LANKA -- 1.0%
BANKS -- 1.0%
60,000 National Development Bank* 223,239
- --------------------------------------------------------------------------------
TAIWAN -- 3.7%
COMPUTERS AND BUSINESS EQUIPMENT -- 1.4%
20,000 Asustek Computer, Inc. GDR* 332,500
FINANCIAL SERVICES -- 0.9%
74,480 China Development 212,311
INDUSTRIAL MACHINERIES -- 1.0%
151,000 Yungtay Engineering Co. Ltd.* 233,732
TEXTILE-APPAREL AND PRODUCTION -- 0.4%
80,000 Far East Textile 86,805
-----------
865,348
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $21,925,130) 20,996,737
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORPORATE BOND -- 0.8%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 260,000 Metro Pacific Capital,
2.50% due 4/11/03
(COST $294,104) $ 180,310
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 6.7%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$1,567,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/97, maturity
value $1,567,435 at 5.00%
due 1/2/98 (collateralized
by $1,605,000 U.S.
Treasury Notes, 9.25%
due 8/15/98) $ 1,567,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $1,567,000) 1,567,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS--96.9% 22,744,047
(COST $23,786,234)
CASH, RECEIVABLES AND OTHER ASSETS
LESS LIABILITIES-- 3.1% 737,001
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $23,481,048
- --------------------------------------------------------------------------------
GLOSSARY OF TERMS:
ADR -- American Depository Receipt.
GDR -- Global Depository Receipt.
* Non-income producing security. See notes to financial statements.
36
<PAGE>
o THE GUARDIAN INVESTMENT QUALITY BOND FUND
- --------------------------------------------------------------------------------
ASSET BACKED -- 13.4%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 500,000 Amresco 1997-1 M1F
7.42% due 3/25/27 $ 508,200
1,000,000 Bear Asset Trust 1997-1 A
6.682% due 2/15/06 1,002,500
1,000,000 California Infrastructure Dev.
PG & E 97-1 A7
6.42% due 9/25/08 1,009,700
1,000,000 California Infrastructure Dev.
SCE 97-1 A6
6.38% due 9/25/08 1,006,900
750,000 Deutsche Financial 1997-1 A2
6.55% due 9/15/27 751,650
1,000,000 Federal Home Loan Mtg. Corp. T-9 A4
6.78% due 3/25/17 1,000,700
2,000,000 Green Tree 1996-10 A5
6.83% due 11/15/28 2,006,240
1,400,000 Green Tree 1997-E HEM1
7.28% due 1/15/29 1,406,580
653,976 Green Tree Recreational 1997-B A1
6.55% due 7/15/28 656,461
1,100,000 Premier Auto Tr. 1997-2 B
6.53% due 12/6/03 1,106,182
1,740,000 UCFC Loan Tr. 1997-D A6
7.095% due 4/15/27 1,753,224
1,000,000 Vanderbilt Mtg. 1997-C 1A4
6.92% due 10/7/12 1,010,000
- --------------------------------------------------------------------------------
TOTAL ASSET BACKED
(COST $13,140,552) 13,218,337
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORPORATE BONDS -- 15.0%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
FINANCIAL-OTHER -- 4.3%
$ 500,000 Bear Stearns Cos., Inc.
6.625% due 10/1/04 $ 501,620
500,000 Lehman Brothers, Inc.
6.94% due 9/30/99 506,565
500,000 Lehman Brothers, Inc.
6.92% due 10/4/99 505,150
1,000,000 Salomon, Inc.
6.65% due 7/15/01 1,008,440
1,700,000 Salomon, Inc.
6.625% due 11/30/00 1,715,861
-----------
4,237,636
- --------------------------------------------------------------------------------
INSURANCE -- 1.0%
950,000 Zurich Capital Tr.+
8.376% due 6/1/37 1,035,234
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MACHINERY AND CONSTRUCTION -- 0.5%
$ 500,000 McDermott Int'l., Inc.
6.57% due 4/20/98 $ 500,065
- --------------------------------------------------------------------------------
MISCELLANEOUS-CAPITAL GOODS -- 1.3%
1,250,000 Ikon Capital, Inc.
6.73% due 6/15/01 1,265,938
- --------------------------------------------------------------------------------
OIL-INTEGRATED INTERNATIONAL -- 0.6%
800,000 LG Caltex Oil Corp.+
7.50% due 7/15/07 576,240
- --------------------------------------------------------------------------------
RAILROADS -- 2.0%
900,000 Burlington Northern Santa Fe
6.875% due 12/1/27 903,249
970,000 Norfolk Southern Corp.
7.80% due 5/15/27 1,090,319
-----------
1,993,568
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 2.6%
1,000,000 TCI Communications, Inc.
8.75% due 8/1/15 1,158,990
1,400,000 TCI Communications, Inc.
7.25% due 6/15/99 1,416,058
-----------
2,575,048
- --------------------------------------------------------------------------------
TOBACCO -- 1.1%
1,000,000 Philip Morris Cos., Inc.
7.50% due 4/1/04 1,047,270
- --------------------------------------------------------------------------------
UTILITIES-GAS AND PIPELINE -- 1.6%
750,000 Tennessee Gas Pipeline Co.
7.50% due 4/1/17 799,395
800,000 TransCanada Pipelines Ltd.
7.06% due 10/14/25 813,016
-----------
1,612,411
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $14,766,532) 14,843,410
- --------------------------------------------------------------------------------
MORTGAGE PASS-THROUGHS -- 7.7%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 510,000 FNMA TBA
7.00% due 7/15/12 $ 513,774
213,771 FHLMC Pool #E54124
7.00% due 8/1/08 218,416
91,359 FNMA Pool #050989
7.00% due 2/1/09 92,734
3,807 FNMA Pool #250650
7.00% due 7/1/11 3,870
36,299 FNMA Pool #250993
7.00% due 7/1/12 36,845
- --------------------------------------------------------------------------------
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
See notes to financial statements.
37
<PAGE>
THE GUARDIAN INVESTMENT QUALITY BOND FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 558 FNMA Pool #311434
7.00% due 5/1/26 $ 563
8,492 FNMA Pool #324501
7.00% due 5/1/26 8,572
333,803 FNMA Pool #331315
7.00% due 9/1/27 336,273
1,276 FNMA Pool #339760
7.50% due 5/1/27 1,306
428,830 FNMA Pool #366957
7.00% due 4/1/27 432,003
238,193 FNMA Pool #369103
7.00% due 4/1/27 239,955
287,503 FNMA Pool #379197
7.00% due 8/1/27 289,631
40,003 FNMA Pool #392283
7.00% due 6/1/12 40,605
503,667 FNMA Pool #394933
7.00% due 9/1/27 507,394
491,413 FNMA Pool #395044
7.00% due 12/1/12 498,851
606,157 FNMA Pool #395765
7.00% due 9/1/27 610,643
2,104,296 FNMA Pool #395781
7.00% due 10/1/27 2,119,868
241,304 FNMA Pool #397908
7.00% due 9/1/27 243,090
159,419 FNMA Pool #399523
7.00% due 9/1/27 160,598
685,704 FNMA Pool #406243
7.00% due 12/1/27 690,778
576,565 GNMA Pool #421990
7.00% due 3/15/26 581,489
- --------------------------------------------------------------------------------
TOTAL MORTGAGE PASS-THROUGHS
(COST $7,495,577) 7,627,258
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 3.5%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$1,000,000 Federal Home Loan Mtg. Corp
1998 EB 7.00% due 1/15/25 $1,003,800
1,000,000 Federal National Mortgage Assn.
1995-13C 6.50% due 10/25/08 995,000
1,471,863 GE Capital Mortgage Svcs., Inc.
1996-3A7 7.00% due 3/25/26 1,474,365
- --------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(COST $3,442,955) 3,473,165
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. GOVERNMENT -- 54.9%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$4,475,000 U.S. Treasury Bonds
6.625% due 2/15/27 $ 4,858,150
700,000 U.S. Treasury Bonds
6.50% due 11/15/26 747,250
2,330,000 U.S. Treasury Bonds
6.375% due 8/15/27 2,457,428
1,500,000 U.S. Treasury Notes
7.875% due 11/15/04 1,676,955
1,000,000 U.S. Treasury Notes
7.75% due 2/15/01 1,057,340
10,250,000 U.S. Treasury Notes
6.875% due 8/31/99 10,442,188
10,960,000 U.S. Treasury Notes
6.625% due 6/30/01 11,263,154
3,550,000 U.S. Treasury Notes
6.375% due 5/15/00 3,603,250
2,000,000 U.S. Treasury Notes
6.125% due 8/31/98 2,006,240
3,950,000 U.S. Treasury Notes
6.125% due 8/15/07 4,059,257
3,835,000 U.S. Treasury Notes
6.00% due 8/15/00 3,862,574
3,000,000 U.S. Treasury Notes
5.875% due 3/31/99 3,007,980
3,500,000 U.S. Treasury Notes
5.75% due 11/30/02 3,502,730
1,750,000 U.S. Treasury Notes
5.625% due 10/31/99 1,748,355
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT
(COST $53,788,924) 54,292,851
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YANKEE BONDS -- 1.8%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$1,000,000 Avon Energy Partners Hldgs.+
6.73% due 12/11/02 $1,006,900
800,000 People's Republic of China
7.375% due 7/3/01 791,440
- --------------------------------------------------------------------------------
TOTAL YANKEE BONDS
(COST $1,818,160) 1,798,340
- --------------------------------------------------------------------------------
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
See notes to financial statements.
38
<PAGE>
THE GUARDIAN INVESTMENT QUALITY BOND FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.7%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$2,718,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/97, maturity
value $2,718,883 at 5.85%
due 1/2/98 (collateralized
by U.S. Treasury Notes,
$2,775,000, 5.875% due
2/28/99) $ 2,718,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $2,718,000) 2,718,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS-- 99.0% 97,971,361
(COST $97,170,700)
CASH, RECEIVABLES AND OTHER ASSETS
LESS LIABILITIES -- 1.0% 963,351
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $98,934,712
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements.
39
<PAGE>
o THE GUARDIAN TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
MUNICIPAL BONDS -- 98.0%
- --------------------------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- --------------------------------------------------------------------------------
ARIZONA -- 3.9%
- --------------------------------------------------------------------------------
$1,000,000 Phoenix, AZ G.O. Ser. A,
7.00% due 7/1/10 Aa1/AA+ $ 1,233,240
530,000 Pima Cty., AZ
School District No. 16
Catalina Foothills G.O.,
6.50% due 7/1/10 Aaa/AAA 627,981
-----------
1,861,221
- --------------------------------------------------------------------------------
CALIFORNIA -- 7.5%
595,000 California St. G.O.,
7.00% due 10/1/10 A1/A+ 733,164
1,500,000 California St. Public
Works Lease G.O. Ser. A,
5.25% due 10/1/17 A2/A 1,502,475
1,300,000 Los Angeles, CA
Regional Airport Lease
G.O. Variable Rate,
5.00% due 12/1/25 Aa2/NR 1,300,000
-----------
3,535,639
- --------------------------------------------------------------------------------
FLORIDA -- 11.8%
1,000,000 Florida St. Board of Ed.
Cap. Outlay G.O.,
Refunded
6.70% due 6/1/22 Aaa/AAA 1,092,940
1,140,000 Jacksonville, Fl. Sales
Tax River City Ren. Proj.,
5.125% due 10/1/18 Aaa/AAA 1,134,858
1,500,000 Orange Cty. Fl. Tourist
Dev. Tax, G.O.,
5.00% due 10/1/15 Aaa/AAA 1,503,975
1,385,000 Orlando Fl. G.O. Utilities Comm.
Water & Elec. Rev.,
Refunded
6.50% due 10/1/20 Aaa/AAA 1,525,938
300,000 Orlando Fl. G.O. Utilities Comm.
Water & Elec. Rev.,
6.00% due 10/1/10 Aa1/AA 338,601
-----------
5,596,312
- --------------------------------------------------------------------------------
GEORGIA -- 5.8%
1,100,000 Fulton Cty., Georgia
Water & Sewer Rev.,
6.25% due 1/1/08 Aaa/AAA 1,262,734
1,500,000 Rockdale Cty., Georgia
Water & Sewer Auth.,
5.00% due 7/1/22 Aaa/AAA 1,475,025
-----------
2,737,759
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- --------------------------------------------------------------------------------
ILLINOIS -- 2.1%
$1,000,000 Illinois Hsg. Dev.,
Auth. Rev.,
5.45% due 8/1/17 Aa3/AA $ 1,014,090
- --------------------------------------------------------------------------------
MASSACHUSETTS -- 3.1%
1,500,000 Massachusetts St.
Spec. G.O. Rev. Ser. A,
5.00% due 6/1/17 Aa3/AA 1,481,580
- --------------------------------------------------------------------------------
MISSOURI -- 2.2%
1,000,000 Missouri St. G.O. Ser. A
Fourth State Bldg.,
5.75% due 8/1/18 Aaa/AAA 1,058,930
- --------------------------------------------------------------------------------
NEW JERSEY -- 6.5%
1,750,000 New Jersey St.
Hwy. Auth.,
6.25% due 1/1/14 A1/AA- 1,899,660
500,000 New Jersey St. Transit
Auth. G.O. Ser. A,
6.50% due 6/15/05 Aaa/AAA 569,895
500,000 New Jersey Waste &
Water Treat. Ser. C,
7.00% due 5/15/08 Aaa/AAA 607,205
-----------
3,076,760
- --------------------------------------------------------------------------------
NEW YORK -- 23.0%
1,500,000 New York City G.O. Ser. E,
5.875% due 8/1/13 Baa1/BBB+ 1,580,295
1,500,000 New York City Mun.
Water & Sewer Fin. Auth. Ser. A,
5.625% due 6/15/19 A2/A- 1,549,365
1,000,000 New York St. G.O. Dorm.
Auth. Rev. Ref. City Univ.
5.75% due 7/1/12 Aaa/AAA 1,106,160
1,500,000 New York St. G.O. Dorm.
Auth. Rev. St. Univ. Edl. Facs.,
5.00% due 5/15/15 A3/A- 1,480,215
1,000,000 New York St. G.O. Dorm.
Auth. Rev. St. Univ. Edl. Facs.,
5.00% due 5/15/17 A3/A- 979,890
500,000 New York St. G.O. Ser. A,
5.875% due 3/15/15 A2/A 529,035
1,500,000 New York St. G.O.,
5.00% due 10/15/13 A2/A 1,505,460
1,000,000 New York St. Thruway
Auth. Hwy. Ser. B,
6.25% due 4/1/12 Aaa/AAA 1,106,590
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Unaudited See notes to financial statements.
40
<PAGE>
THE GUARDIAN TAX-EXEMPT FUND
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- --------------------------------------------------------------------------------
NEW YORK -- (CONTINUED)
$1,000,000 New York St. Thruway
Auth. Svc. Contract,
5.75% due 4/1/16 Baa1/BBB+ $ 1,043,180
-----------
10,880,190
- --------------------------------------------------------------------------------
OHIO -- 7.8%
1,000,000 Cleveland, OH
Parking Fac. Rev.,
5.50% due 9/15/16 Aaa/AAA 1,044,860
500,000 Columbus, OH
Water System Rev.,
6.10% due 11/1/03 Aa3/AA- 542,050
1,000,000 Ohio St. Bldg. Auth. Disalle
Gov't. Center G.O. Ser. A,
6.00% due 10/1/05 Aa3/AA- 1,110,620
1,000,000 Ohio St. G.O. Water Dev.
Pollution Ctl.,
5.00% due 6/1/15 Aaa/AAA 1,000,490
-----------
3,698,020
- --------------------------------------------------------------------------------
OKLAHOMA -- 3.1%
1,270,000 Grand River Dam
Auth. OK G.O.,
6.25% due 6/1/11 Aaa/AAA 1,464,882
- --------------------------------------------------------------------------------
PENNSYLVANIA -- 3.1%
1,500,000 Pennsylvania St. G.O.
Second Ser.
5.00% due 10/15/17 Aa3/AA- 1,486,860
- --------------------------------------------------------------------------------
SOUTH CAROLINA -- 4.6%
1,000,000 South Carolina St.
Public Svcs. Auth. Ser. B,
Refunded
7.00% due 7/1/12 Aaa/AAA 1,112,230
1,080,000 South Carolina St.
Public Svcs. Auth. Ref. Ser. A,
5.00% due 1/1/17 Aaa/AAA 1,070,852
-----------
2,183,08
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- --------------------------------------------------------------------------------
TEXAS -- 7.1%
$1,050,000 Bryan, TX Indpt.
Sch. Dist. G.O.,
5.50% due 2/15/17 Aaa/NR $ 1,083,380
500,000 Grapevine-Colleyville, TX
Indpt. Sch. Dist. G.O.,
8.25% due 6/15/08 Aaa/AAA 659,085
555,000 Texas St. Water Dev't.
G.O. Ser. A,
6.50% due 8/1/05 Aa2/AA 635,131
1,000,000 Texas St. Water Dev't. Brd.
Rev. Revolving Fd. Sr. Lien B,
5.00% due 7/15/19 Aa1/AAA 990,870
-----------
3,368,466
- --------------------------------------------------------------------------------
VIRGINIA -- 3.2%
1,500,000 Virginia College Bldg.
Auth. Ser. A,
5.00% due 9/1/16 Aa2/AA 1,493,95
- --------------------------------------------------------------------------------
WASHINGTON -- 3.2%
1,500,000 Washington St. Public
Power Supply Ser. A,
5.25% due 7/1/15 Aa1/AA- 1,497,450
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $44,847,538) 46,435,196
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 98.0%
(COST $44,847,538) 46,435,196
CASH, RECEIVABLES AND OTHER ASSETS
LESS LIABILITIES-- 2.0% 925,119
- --------------------------------------------------------------------------------
NET ASSETS-- 100.0% $47,360,315
- --------------------------------------------------------------------------------
GLOSSARY:
G.O.--General Obligations
- --------------------------------------------------------------------------------
See notes to financial statement.s * Unaudited.
41
<PAGE>
o THE GUARDIAN CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
COMMERCIAL PAPER -- 91.2%
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date Value
- --------------------------------------------------------------------------------
FINANCIAL -- 25.2%
BANK HOLDING COMPANIES -- 3.6%
$ 5,000,000 J.P. Morgan & Co., Inc.
5.60% 1/6/98 $ 4,996,111
- --------------------------------------------------------------------------------
FINANCE COMPANIES -- 10.8%
5,000,000 Nat'l. Rural Utils. Coop.
Fin. Corp., 5.54% 1/8/98 4,994,614
5,000,000 Private Export Funding
Corp., 5.70% 2/4/98 4,973,083
5,000,000 USAA Capital Corp.
5.67% 1/26/98 4,980,313
------------
14,948,010
- --------------------------------------------------------------------------------
OTHER MAJOR BANKS -- 10.8%
5,000,000 Barclays U.S. Funding
Corp., 5.68% 1/21/98 4,984,222
5,000,000 Commerzbank U.S. Fin.
5.69% 1/14/98 4,989,726
5,000,000 Deutsche Bank Fin., Inc.
5.69% 1/16/98 4,988,146
------------
14,962,094
- --------------------------------------------------------------------------------
TOTAL FINANCIAL 34,906,215
- --------------------------------------------------------------------------------
INDUSTRIAL -- 66.0%
AUTOMOTIVE -- 7.2%
5,000,000 Ford Motor Credit Co.
5.71% 1/15/98 4,988,897
5,000,000 Toyota Motor Credit Co.
5.65% 1/28/98 4,978,813
------------
9,967,710
- --------------------------------------------------------------------------------
CHEMICALS -- 3.8%
5,200,000 Monsanto Co.
6.50% 1/2/98 5,199,061
- --------------------------------------------------------------------------------
CONGLOMERATES -- 3.6%
5,000,000 General Electric Cap.
Corp., 5.60% 1/20/98 4,985,222
- --------------------------------------------------------------------------------
CONTAINERS-METALS AND PLASTICS -- 3.6%
5,000,000 Sonoco Products Co.
5.82% 1/13/98 4,990,300
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 3.7%
5,200,000 Emerson Electric
5.73% 1/29/98 5,176,825
- --------------------------------------------------------------------------------
ELECTRONIC COMPONENTS -- 3.8%
5,200,000 Rockwell Int'l. Corp.
5.75% 2/3/98 5,172,592
- --------------------------------------------------------------------------------
FOOD AND BEVERAGE -- 11.2%
5,200,000 Cargill, Inc.
5.72% 2/18/98 5,160,341
5,200,000 Coca Cola Co.
5.73% 2/9/98 5,167,721
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date Value
- --------------------------------------------------------------------------------
$ 5,200,000 Kellogg Co.
5.70% 2/13/98 $ 5,164,597
------------
15,492,659
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 3.6%
5,000,000 Procter & Gamble Co.
5.57% 1/9/98 4,993,811
- --------------------------------------------------------------------------------
OIL-INTEGRATED INTERNATIONAL -- 3.6%
5,000,000 Texaco, Inc.
5.82% 1/8/98 4,994,342
- --------------------------------------------------------------------------------
PUBLISHING-NEWS -- 3.6%
5,000,000 Gannett, Inc.
5.65% 1/12/98 4,991,368
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 14.5%
5,000,000 American Telephone &
Telegraph Co., 5.53% 1/5/98 4,996,928
5,000,000 BellSouth Telecommunications
5.70% 2/4/98 4,973,083
5,000,000 British Telecommunications
PLC, 5.70% 2/5/98 4,972,292
5,210,000 Lucent Technologies, Inc.
5.68% 2/2/98 5,183,695
------------
20,125,998
- --------------------------------------------------------------------------------
UTILITIES-ELECTRIC -- 3.8%
5,200,000 Carolina Power & Light
Co., 5.82% 1/30/98 5,175,621
- --------------------------------------------------------------------------------
TOTAL INDUSTRIAL 91,265,509
- --------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(COST $126,171,724) 126,171,724
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 6.1%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 8,465,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/97, maturity
value $8,467,751 at 5.85%
due 1/2/98 (collateralized
by $8,635,000 U.S. Treasury
Notes, 5.875% due
2/28/99) $ 8,465,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $8,465,000) 8,465,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 97.3%
(COST $134,636,724) 134,636,724
- --------------------------------------------------------------------------------
CASH, RECEIVABLES AND OTHER ASSETS
LESS LIABILITIES -- 2.7% 3,750,962
- --------------------------------------------------------------------------------
NET ASSETS -- 100.0% $138,387,686
- --------------------------------------------------------------------------------
See notes to financial statements.
42
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
- --------------------------------------------------------------------------------
43
<PAGE>
<TABLE>
=====================
FINANCIAL STATEMENTS
====================
_
|_| THE PARK AVENUE PORTFOLIO
====================================================
STATEMENTS OF ASSETS AND LIABILITIES
====================================================
December 31, 1997
- ----------------------------------------------------
<CAPTION>
The Guardian The Guardian The Guardian The Guardian
Park Avenue Park Avenue Asset Baillie Gifford
Fund Small Cap Allocation International
Fund Fund Fund
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at identified cost* .................. $1,870,971,652 $108,718,939 $131,627,931 $59,473,792
=========================================================================
Investments, at market ............................ 2,359,514,565 111,498,045 137,757,647 71,595,418
Repurchase agreements ............................. 155,301,000 7,738,000 13,227,000 1,077,000
-------------------------------------------------------------------------
TOTAL INVESTMENTS .............................. 2,514,815,565 119,236,045 150,984,647 72,672,418
Cash .............................................. 447 978 527 875
Foreign currency (cost $521,764 GBGIF
and $882,169 GBGEMF, respectively) ............... -- -- -- 481,810
Receivable for securities sold .................... 19,823,124 464,115 376,352 350,336
Receivable for fund shares sold ................... 12,048,337 1,235,642 248,591 49,112
Dividends receivable .............................. 2,335,896 82,214 161,716 95,665
Interest receivable ............................... 25,909 1,257 100,010 150
Deferred organization expenses--Note 6 ............ -- 38,581 897 1,224
Dividend reclaim receivable ....................... -- -- -- 34,596
-------------------------------------------------------------------------
TOTAL ASSETS .................................. 2,549,049,278 121,058,832 151,872,740 73,686,186
-------------------------------------------------------------------------
LIABILITIES
Due to custodian .................................. -- -- -- --
Payable for securities purchased .................. 24,837,932 1,298,103 435,507 --
Distributions payable ............................. -- -- -- --
Payable for fund shares redeemed .................. 4,186,608 47,316 69,487 28,857
Accrued expenses .................................. 523,853 40,944 47,323 51,473
Due to affiliates ................................. 5,122,696 408,694 306,093 338,389
-------------------------------------------------------------------------
TOTAL LIABILITIES .............................. 34,671,089 1,795,057 858,410 418,719
-------------------------------------------------------------------------
NET ASSETS ..................................... $2,514,378,189 $119,263,775 $151,014,330 $73,267,467
=========================================================================
<CAPTION>
44
<PAGE>
The Guardian The Guardian The Guardian The Guardian
Baillie Gifford Investment Tax-Exempt Cash
Emerging Quality Fund Management
Markets Fund Bond Fund Fund
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at identified cost* .................. $23,786,234 $97,170,700 $44,847,538 $134,636,724
=========================================================================
Investments, at market ............................ 21,177,047 95,253,361 46,435,196 126,171,724
Repurchase agreements ............................. 1,567,000 2,718,000 -- 8,465,000
-------------------------------------------------------------------------
TOTAL INVESTMENTS .............................. 22,744,047 97,971,361 46,435,196 134,636,724
Cash .............................................. -- -- 289,961 16,200
Foreign currency (cost $521,764 GBGIF
and $882,169 GBGEMF, respectively) ............... 886,603 -- -- --
Receivable for securities sold .................... 20,567 9,323,628 -- --
Receivable for fund shares sold ................... 2,317 19,102 286 5,083,235
Dividends receivable .............................. 49,205 -- -- --
Interest receivable ............................... 4,938 1,261,378 729,811 1,376
Deferred organization expenses--Note 6 ............ 22,941 896 896 --
Dividend reclaim receivable ....................... 599 -- -- --
-------------------------------------------------------------------------
TOTAL ASSETS .................................. 23,731,217 108,576,365 47,456,150 139,737,535
-------------------------------------------------------------------------
LIABILITIES
Due to custodian .................................. 3,630 2,810 -- --
Payable for securities purchased .................. 26,543 9,403,387 -- --
Distributions payable ............................. -- 16,434 8,688 25,633
Payable for fund shares redeemed .................. -- 42,328 10 1,003,863
Accrued expenses .................................. 50,504 4,785 -- 52,780
Due to affiliates ................................. 169,492 171,909 87,137 267,573
-------------------------------------------------------------------------
TOTAL LIABILITIES .............................. 250,169 9,641,653 95,835 1,349,849
-------------------------------------------------------------------------
NET ASSETS ..................................... $23,481,048 $98,934,712 $47,360,315 $138,387,686
=========================================================================
* Includes repurchase agreements.
See notes to financial statements.
45
</TABLE>
<PAGE>
o THE PARK AVENUE PORTFOLIO
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
THE GUARDIAN THE GUARDIAN
PARK AVENUE PARK AVENUE
FUND SMALL CAP
FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMPONENTS OF NET ASSETS
Shares of beneficial interest, at par ......................................... $ 545,285 $ 86,707
Additional paid-in capital .................................................... 1,808,486,783 107,478,469
Undistributed/(overdistributed) net investment income ......................... 367,804 --
Accumulated net realized gain/(loss) on investments and foreign
currency related transactions ................................................ 61,134,404 1,181,493
Net unrealized appreciation/(depreciation) of investments
and foreign currency related transactions .................................... 643,843,913 10,517,106
---------------------------------
NET ASSETS ................................................................. $2,514,378,189 $119,263,775
=================================
NET ASSETS
Class A ...................................................................... $2,312,632,436 $101,016,215
Class B ...................................................................... $ 201,745,753 $ 18,247,560
SHARES OF BENEFICIAL INTEREST OUTSTANDING -- $0.01 PAR VALUE
Class A ...................................................................... 50,144,760 7,336,185
Class B ...................................................................... 4,383,698 1,334,545
NET ASSET VALUE PER SHARE
Class A ...................................................................... $46.12 $13.77
Class B ...................................................................... $46.02 $13.67
MAXIMUM OFFERING PRICE PER SHARE
Class A Only (Net Asset Value x 104.71%)* .................................... $48.29 $14.42
<CAPTION>
46
<PAGE>
THE GUARDIAN THE GUARDIAN THE GUARDIAN
ASSET BAILLIE GIFFORD BAILLIE GIFFORD
ALLOCATION INTERNATIONAL EMERGING
FUND FUND MARKETS FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPONENTS OF NET ASSETS
Shares of beneficial interest, at par ......................................... $ 107,486 $ 45,610 $ 25,047
Additional paid-in capital .................................................... 130,149,302 59,694,735 25,284,645
Undistributed/(overdistributed) net investment income ......................... -- (596,990) 6,300
Accumulated net realized gain/(loss) on investments and foreign
currency related transactions ................................................ 1,400,826 969,217 (797,045)
Net unrealized appreciation/(depreciation) of investments
and foreign currency related transactions .................................... 19,356,716 13,154,895 (1,037,899)
---------------------------------------------------
NET ASSETS ................................................................. $151,014,330 $73,267,467 $23,481,048
===================================================
NET ASSETS
Class A ...................................................................... $136,948,206 $66,999,392 $21,471,572
Class B ...................................................................... $ 14,066,124 $ 6,268,075 $ 2,009,476
SHARES OF BENEFICIAL INTEREST OUTSTANDING -- $0.01 PAR VALUE
Class A ...................................................................... 9,744,246 4,166,019 2,288,691
Class B ...................................................................... 1,004,369 394,939 215,979
NET ASSET VALUE PER SHARE
Class A ...................................................................... $14.05 $16.08 $9.38
Class B ...................................................................... $14.00 $15.87 $9.30
MAXIMUM OFFERING PRICE PER SHARE
Class A Only (Net Asset Value x 104.71%)* .................................... $14.71 $16.84 $9.82
<CAPTION>
THE GUARDIAN THE GUARDIAN THE GUARDIAN
INVESTMENT TAX-EXEMPT CASH
QUALITY FUND MANAGEMENT
BOND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPONENTS OF NET ASSETS
Shares of beneficial interest, at par ......................................... $ 99,867 $ 47,415 $ 1,383,877
Additional paid-in capital .................................................... 98,306,543 46,091,182 137,003,809
Undistributed/(overdistributed) net investment income ......................... -- -- --
Accumulated net realized gain/(loss) on investments and foreign
currency related transactions ................................................ (272,359 (365,940) --
Net unrealized appreciation/(depreciation) of investments
and foreign currency related transactions .................................... 800,661 1,587,658 --
---------------------------------------------------
NET ASSETS ................................................................. $98,934,712 $47,360,315 $138,387,686
===================================================
NET ASSETS
Class A ...................................................................... $98,934,712 $47,360,315 $132,523,429
Class B ...................................................................... N/A N/A $ 5,864,257
SHARES OF BENEFICIAL INTEREST OUTSTANDING -- $0.01 PAR VALUE
Class A ...................................................................... 9,986,654 4,741,543 132,523,429
Class B ...................................................................... N/A N/A 5,864,257
NET ASSET VALUE PER SHARE
Class A ...................................................................... $9.91 $9.99 $1.00
Class B ...................................................................... N/A N/A $1.00
MAXIMUM OFFERING PRICE PER SHARE
Class A Only (Net Asset Value x 104.71%)* .................................... $10.38 $10.46 N/A**
</TABLE>
* Based on sale of less than $100,000. On sale of $100,000 or more,
the offering price is reduced.
** No load is charged on Class A shares.
See notes to financial statements.
47
<PAGE>
<TABLE>
_
|_| THE PARK AVENUE PORTFOLIO
=============================================================
STATEMENTS OF OPERATIONS
=============================================================
Year Ended December 31, 1997
- -------------------------------------------------------------
<CAPTION>
THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN
PARK AVENUE PARK AVENUE ASSET BAILLIE GIFFORD
FUND SMALL CAP ALLOCATION INTERNATIONAL
FUND+ FUND FUND
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME:
Dividends ................................................. $ 26,759,009 $ 414,557 $ 1,962,554 $1,181,761
Interest .................................................. 7,343,161 229,257 2,193,370 114,693
Less: Foreign tax withheld ................................ (144,017) -- (6,636) (125,886
-------------------------------------------------------------------
Total Income ........................................... 33,958,153 643,814 4,149,288 1,170,568
-------------------------------------------------------------------
EXPENSES:
Investment advisory fees -- Note 2 ........................ 9,792,148 349,236 783,239 553,624
Administrative fees -- Class A -- Note 2 .................. 2,876,989 101,730 229,391 160,676
Administrative fees -- Class B -- Note 2 .................. 284,649 14,682 23,344 12,331
12b-1 fees -- Class B -- Note 3 ........................... 853,946 44,047 70,031 36,993
Transfer agent fees ....................................... 1,845,408 61,526 180,709 166,632
Custodian fees ............................................ 321,582 57,375 98,617 192,938
Printing expense .......................................... 262,000 9,500 15,750 9,300
Registration fees ......................................... 135,200 7,811 20,700 15,900
Audit fees ................................................ 20,500 17,500 17,500 21,000
Trustees' fees -- Note 2 .................................. 19,000 13,835 19,000 19,000
Legal fees ................................................ 12,500 -- 2,900 3,800
Insurance expense ......................................... 9,950 136 650 412
Other ..................................................... 700 700 700 700
Deferred organization expense -- Note 6 ................... -- 6,812 3,365 3,238
-------------------------------------------------------------------
Total Expenses ...................................... 16,434,572 684,890 1,465,896 1,196,544
Less: Expenses assumed by investment advisor -- Note 2 .... -- -- 230,708 --
-------------------------------------------------------------------
Expenses Net of Reimbursement ....................... 16,434,572 684,890 1,235,188 1,196,544
-------------------------------------------------------------------
NET INVESTMENT INCOME/(LOSS) ............................... 17,523,581 (41,076) 2,914,100 (25,976)
-------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES -- NOTE 4
Net realized gain/(loss) on investments -- Note 1 .......... 250,113,783 2,422,438 13,650,050 4,151,091
Net realized gains received from underlying funds .......... -- -- 2,582,324 --
Net realized gain/(loss) on foreign currencies -- Note 1 ... -- -- -- (79,942)
Net change in unrealized appreciation/(depreciation)
on investments -- Note 4 .................................. 296,292,118 10,517,106 6,056,517 2,483,764
Net change in unrealized depreciation from translation
of other assets and liabilities denominated in
foreign currencies -- Note 4 .............................. -- -- -- (37,582)
-------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES .................................... 546,405,901 12,939,544 22,288,891 6,517,331
-------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
FROM OPERATIONS ......................................... $563,929,482 $12,898,468 $25,202,991 $6,491,355
===================================================================
<CAPTION>
48
<PAGE>
THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN
BAILLIE GIFFORD INVESTMENT TAX-EXEMPT CASH
EMERGING QUALITY FUND MANAGEMENT
MARKETS FUND+ BOND FUND FUND
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME:
Dividends ................................................. $ 448,754 $ -- $ -- $ --
Interest .................................................. 115,837 4,749,004 2,228,171 6,226,858
Less: Foreign tax withheld ................................ (45,458) -- -- --
--------------------------------------------------------------------
Total Income ........................................... 519,133 4,749,004 2,228,171 6,226,858
--------------------------------------------------------------------
EXPENSES:
Investment advisory fees -- Note 2 ........................ 179,196 355,092 211,611 559,451
Administrative fees -- Class A -- Note 2 .................. 41,708 177,546 105,805 270,337
Administrative fees -- Class B -- Note 2 .................. 3,091 -- -- 9,388
12b-1 fees -- Class B -- Note 3 ........................... 9,275 -- -- 28,164
Transfer agent fees ....................................... 34,863 72,846 35,392 270,803
Custodian fees ............................................ 127,836 69,985 35,896 73,547
Printing expense .......................................... 2,000 9,100 5,600 14,700
Registration fees ......................................... 4,000 8,100 9,025 23,329
Audit fees ................................................ 17,500 17,500 17,000 17,000
Trustees' fees -- Note 2 .................................. 13,835 19,000 19,000 19,000
Legal fees ................................................ -- 2,550 2,400 2,900
Insurance expense ......................................... 136 354 270 631
Other ..................................................... 700 700 700 700
Deferred organization expense -- Note 6 ................... 4,050 3,365 3,365 --
--------------------------------------------------------------------
Total Expenses ...................................... 438,190 736,138 446,064 1,289,950
Less: Expenses assumed by investment advisor -- Note 2 .... -- 203,500 128,648 338,957
--------------------------------------------------------------------
Expenses Net of Reimbursement ....................... 438,190 532,638 317,416 950,993
--------------------------------------------------------------------
NET INVESTMENT INCOME/(LOSS) ............................... 80,943 4,216,366 1,910,755 5,275,865
--------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES -- NOTE 4
Net realized gain/(loss) on investments -- Note 1 .......... (689,908) 486,008 784,253 --
Net realized gains received from underlying funds .......... -- -- -- --
Net realized gain/(loss) on foreign currencies -- Note 1 ... (104,964) -- -- --
Net change in unrealized appreciation/(depreciation)
on investments -- Note 4 .................................. (1,042,187) 1,432,635 954,910 --
Net change in unrealized depreciation from translation
of other assets and liabilities denominated in
foreign currencies -- Note 4 .............................. 4,288 -- -- --
--------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES .................................... (1,832,771) 1,918,643 1,739,163 --
--------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
FROM OPERATIONS ......................................... $(1,751,828) $6,135,009 $3,649,918 $5,275,865
====================================================================
+ Period from April 2, 1997 (commencement of operations) to December 31, 1997.
See notes to financial statements.
49
</TABLE>
<PAGE>
<TABLE>
_
|_| THE PARK AVENUE PORTFOLIO
====================================================
STATEMENTS OF CHANGES IN NET ASSETS
====================================================
<CAPTION>
THE GUARDIAN
THE GUARDIAN PARK AVENUE THE GUARDIAN
PARK AVENUE FUND SMALL CAP FUND ASSET ALLOCATION FUND
-----------------------------------------------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER 31, APRIL 2, 1997+ TO YEAR ENDED DECEMBER 31,
1997 1996 DECEMBER 31, 1997 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE /(DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) ..................... $ 17,523,581 $ 13,816,372 $ (41,076) $ 2,914,100 $ 1,473,705
Net realized gain /(loss) on investments and
foreign currency related transactions ........... 250,113,783 140,062,592 2,422,438 16,232,374 4,725,802
Net change in unrealized appreciation /
(depreciation) of investments and foreign
currency related transactions ................... 296,292,118 128,623,359 10,517,106 6,056,517 8,063,867
-----------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................... 563,929,482 282,502,323 12,898,468 25,202,991 14,263,374
-----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A ......................................... (17,140,750) (13,778,621) -- (2,813,753) (1,460,511)
Class B ......................................... (15,027) (37,751) -- (140,422) (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 ......................................... (200,697,619) (146,944,706) (1,015,732) (14,369,551) (7,495,631)
Class B ......................................... (16,602,423) (2,841,272) (184,137) (1,441,303) (291,381)
-----------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS ............................... (234,455,819) (163,968,616) (1,199,869) (18,765,029) (9,273,273)
-----------------------------------------------------------------------------
From Capital Share Transactions:
Net increase /(decrease) in net assets from
capital share transactions--Note 7 .............. 756,713,154 337,383,070 107,565,176 51,310,480 17,684,459
-----------------------------------------------------------------------------
NET INCREASE /(DECREASE) IN NET ASSETS ............ 1,086,186,817 455,916,777 119,263,775 57,748,442 22,674,560
NET ASSETS:
Beginning of year ................................. 1,428,191,372 972,274,595 -- 93,265,888 70,591,328
-----------------------------------------------------------------------------
End of year* ...................................... $2,514,378,189 $1,428,191,372 $119,263,775 $151,014,330 $93,265,888
=============================================================================
+ Commencement of operations.
* Includes undistributed /(overdistributed)
net investment income of ........................ $ 367,804 $ -- $ -- $ -- $ 7,985
<CAPTION>
50
<PAGE>
THE GUARDIAN THE GUARDIAN THE GUARDIAN
BAILLIE GIFFORD BAILLE GIFFORD EMERGING INVESTMENT QUALITY
INTERNATIONAL FUND MARKETS FUND BOND FUND
-----------------------------------------------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER 31, APRIL 2, 1997+ TO YEAR ENDED DECEMBER 31,
1997 1996 DECEMBER 31, 1997 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE /(DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) ..................... $ (25,976) $ 130,769 $ 80,943 $ 4,216,366 $ 2,970,849
Net realized gain /(loss) on investments and
foreign currency related transactions ........... 4,071,149 1,013,178 (794,872) 486,008 (40,548)
Net change in unrealized appreciation /
(depreciation) of investments and foreign
currency related transactions ................... 2,446,182 5,971,730 (1,037,899) 1,432,635 (1,670,508)
-----------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................... 6,491,355 7,115,677 (1,751,828) 6,135,009 1,259,793
-----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A ......................................... -- (150,910) (76,816) (4,216,366) (2,970,849)
Class B ......................................... -- (7,962) -- -- --
Distributions in excess of net investment income
Class A ......................................... (630,995) (208,284) -- -- --
Class B ......................................... -- (28,103) -- -- --
Net realized gain on investments and foreign
currency related transactions
Class A ......................................... (2,642,377) (714,593) -- -- --
Class B ......................................... (250,985) (40,907) -- -- --
-----------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS ............................... (3,524,357) (1,150,759) (76,816) (4,216,366) (2,970,849)
-----------------------------------------------------------------------------
From Capital Share Transactions:
Net increase /(decrease) in net assets from
capital share transactions--Note 7 .............. 9,394,500 10,395,287 25,309,692 46,222,148 (1,201,353)
-----------------------------------------------------------------------------
NET INCREASE /(DECREASE) IN NET ASSETS ............ 12,361,498 16,360,205 23,481,048 48,140,791 (2,912,409)
NET ASSETS:
Beginning of year ................................. 60,905,969 44,545,764 -- 50,793,921 53,706,330
-----------------------------------------------------------------------------
End of year* ...................................... $73,267,467 $60,905,969 $23,481,048 $98,934,712 $50,793,921
=============================================================================
+ Commencement of operations.
* Includes undistributed /(overdistributed)
net investment income of ........................ $ (596,990) $ (125,488) $ 6,300 $ -- $ --
<CAPTION>
The Guardian The Guardian
Tax-Exempt Fund Cash Management Fund
------------------------------------------------------------
Year Ended December 31, Year Ended December 31,
1997 1996 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE /(DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) ..................... $ 1,910,755 $ 1,042,147 $ 5,275,865 $ 3,589,650
Net realized gain /(loss) on investments and
foreign currency related transactions ........... 784,253 55,933 -- --
Net change in unrealized appreciation /
(depreciation) of investments and foreign
currency related transactions ................... 954,910 95,313 -- --
------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................... 3,649,918 1,193,393 5,275,865 3,589,650
------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A ......................................... (1,910,755) (1,042,148) (5,094,586) (3,542,728)
Class B ......................................... -- -- (181,279) (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 DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS ............................... (1,910,755) (1,042,148) (5,275,865) (3,589,650)
------------------------------------------------------------
From Capital Share Transactions:
Net increase /(decrease) in net assets from
capital share transactions--Note 7 .............. 6,435,964 21,532,694 47,587,885 20,886,793
------------------------------------------------------------
NET INCREASE /(DECREASE) IN NET ASSETS ............ 8,175,127 21,683,939 47,587,885 20,886,793
NET ASSETS:
Beginning of year ................................. 39,185,188 17,501,249 90,799,801 69,913,008
------------------------------------------------------------
End of year* ...................................... $47,360,315 $39,185,188 $138,387,686 $90,799,801
=============================================================
+ Commencement of operations.
* Includes undistributed /(overdistributed)
net investment income of ........................ $ -- $ -- $ -- $ --
See notes to financial statements.
51
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1997
THE PARK AVENUE PORTFOLIO
o THE GUARDIAN PARK AVENUE FUND
o THE GUARDIAN PARK AVENUE SMALL CAP FUND
o THE GUARDIAN ASSET ALLOCATION FUND
o THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
o THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS 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 eight series, namely: The Guardian Park Avenue Fund (GPAF); The
Guardian Park Avenue Small Cap Fund (GPASCF); The Guardian Asset Allocation Fund
(GAAF); The Guardian Baillie Gifford International Fund (GBGIF); The Guardian
Baillie Gifford Emerging Markets Fund (GBGEMF); 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
"Funds".
On April 2, 1997 each of GPASCF and GBGEMF sold 2,000,000 shares of
beneficial interest to The Guardian Life Insurance Company of America for
$20,000,000 each, to facilitate the commencement of operations.
Prior to May 1, 1997, GAAF invested entirely in individual securities.
Beginning May 1, 1997, GAAF implemented a gradual conversion to a "fund of
funds" arrangement. As a fund of funds, GAAF invests the equity portion of its
assets in GPAF, the debt portion of its assets in GIQBF and the cash portion in
GCMF.
GPAF, GPASCF, GAAF, GBGIF, GBGEMF, and GCMF (the Multiple Class 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 load
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 load 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 up to 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
52
<PAGE>
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
Equity and debt securities listed on domestic or foreign securities
exchanges are valued at the last sales price of such exchanges, or if no sale
occurred, at the mean of the 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) selected pursuant to procedures 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 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 Funds' Board of Trustees.
Repurchase agreements are carried at cost which approximates market value
(see Note 5). Short-term securities held by the Funds are valued on an amortized
cost basis which approximates market value but does not take into account
unrealized gains and losses. 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.
Security gains or losses are determined on the identified cost basis.
Interest income, including amortization of premium and discount, is accrued
daily. Dividend income is 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, 1997, distribution, administrative and transfer agent
fees were the only class-specific expenses.
Foreign Currency Translation
As of December 31, 1997, only GBGIF, GBGEMF and GPASCF are permitted to buy
international securities that are not U.S. dollar denominated. GBGIF, GBGEMF and
GPASCF'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 Fund earns dividends and
interest or pays foreign withholding taxes or other expenses and
53
<PAGE>
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, 1997 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 and GBGEMF 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 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 other assets and liabilities denominated in foreign
currencies by GBGIF or GBGEMF. When a forward contract is closed, GBGIF or
GBGEMF will record 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. Neither Fund will 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
Certain Funds 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 Funds are required
to deposit either in cash or securities an amount equal to a certain percentage
of the contract amount. Subsequent payments are made or received by the Funds
each day, 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 Funds. The Funds' investments in financial futures contracts
are designed to hedge against anticipated future changes in interest or exchange
rates or securities prices (or for non hedging purposes). Should interest or
exchange rates or securities prices move unexpectedly, the Funds may not achieve
the anticipated benefits of the financial futures contracts and may realize a
loss.
Dividends and 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,
GPASCF, GAAF, GBGIF and GBGEMF. Net realized short-term and long-term capital
gains for these 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 accordance 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 Fund qualifies and intends to remain qualified to be taxed as a
"regulated investment company" under the provisions of the Internal Revenue Code
(Code), and as such will not be subject to federal income tax on taxable income
(including any realized capital gains) which is distributed in accordance with
the provisions
54
<PAGE>
of the Code. Therefore, no federal income tax provision is required.
At December 31, 1997, for federal income tax purposes, GIQBF had a net
capital loss carryforward of $256,282 (of which $201,657 expires in 2002 and
$54,625 expires in 2004). GTEF had a net capital loss carryforward of $365,939
(of which $157,357 expires in 2002 and $208,582 expires in 2003).
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, 1997, certain Portfolio Funds
reclassified amounts to paid-in capital from undistributed/(overdistributed) net
investment income and accumulated net realized gain/(loss) on investment and
foreign currency related transactions. Increases (decreases) to the various
capital accounts were as follows:
UNDISTRIBUTED/ ACCUMULATED
(OVERDISTRIBUTED) NET REALIZED
PAID-IN NET INVESTMENT GAIN/(LOSS) ON
CAPITAL INCOME INVESTMENTS
------- --------------- --------------
GPASCF -- $ 41,076 $( 41,076)
GAAF -- 32,090 (32,090)
GBGIF -- 185,469 (185,469)
GBGEMF -- 2,173 (2,173)
The GAAF redesignated $141,295 of ordinary dividends as long term capital
gain dividends.
NOTE 2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES
Guardian Investor Services Corporation (GISC) provides investment advisory
services to each of the Funds (except GBGIF and GBGEMF) 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 Fund, except for GAAF, which is subject
to a contractual annual fee of .65% of its average daily net assets, and GPASCF,
which pays GISC at an annual rate of .75% of its average daily net assets. GISC
has agreed to a waiver of .15% of GAAF's annual advisory fee when GAAF is
operated as a "fund of funds", so that GAAF's effective advisory fee is .50% of
its average daily net assets. GISC voluntarily assumes a portion of the
operating expenses that exceeds .75% of GIQBF and GTEF's respective average
daily net assets and operating expenses that exceed .85% of GCMF's average daily
net assets. For the year ended December 31, 1997, GISC voluntarily assumed
$203,500, $128,648 and $338,957 of the ordinary operating expenses of GIQBF,
GTEF and GCMF, respectively.
The Portfolio, on behalf of GBGIF and GBGEMF, 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 and GBGEMF'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 and GBGEMF. GBG
continually monitors and evaluates the performance of BG Overseas. As a
compensation for its services, GBGIF and GBGEMF pay GBG annual investment
management fees of .80% and 1.00%, respectively, of their respective average
daily net assets. One half of the fee for each of those Funds is
55
<PAGE>
payable by GBG to BG Overseas for its services. Payment of the sub-investment
management fee does not represent a separate or additional expense to GBGIF or
GBGEMF.
Trustees who are not deemed to be "interested persons" (as defined in the
1940 Act) are paid $500 per Fund for each meeting of the Board of Trustees. An
annual fee of $1,000 per Fund was also paid to each such Trustee during such
period. GISC pays compensation to the Trustees who are interested persons.
Certain officers and Trustees of the Funds are affiliated with GISC.
Dividend income in the GAAF includes $549,697 of dividends received from
other Guardian mutual funds.
Administrative Services Agreement
Pursuant to the Administrative Services Agreement adopted by the Funds on
behalf of both classes of shares, each of the Funds, except GPAF, pays GISC an
administrative services fee at an annual rate of .25% of its average daily net
assets. GPAF pays this fee at an annual rate of .25% of the average daily net
assets for which a "dealer of record" has been designated. For the year ended
December 31, 1997, GPAF Class A paid .16% of its average daily net assets.
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 Funds.
For the year ended December 31, 1997, aggregate sales commissions for the
purchase of capital shares were paid to GISC as compensation for services
rendered as follows:
FUND COMMISSIONS FUND COMMISSIONS
---- ----------- ---- -----------
GPAF $6,829,208 GBGEMF $ 56,709
GPASCF 799,501 GIQBF 154,467
GAAF 688,854 GTEF 22,539
GBGIF 209,911
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.
GISC is entitled to retain any CDSL imposed on certain Class B share
redemptions. For the year ended December 31, 1997, such charges were as follows:
FUND CLASS B
---- -------
GPAF .......................................... $101,089
GPASCF ........................................ 1,502
GAAF .......................................... 12,496
GBGIF ......................................... 4,448
GBGEMF ........................................ 173
GCMF .......................................... 2,723
NOTE 4. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities (excluding short-term
securities) for the year ended December 31, 1997 were as follows:
- --------------------------------------------------------------------------------
GPAF GPASCF
- --------------------------------------------------------------------------------
PURCHASES $1,369,683,747 $114,071,954
PROCEEDS 901,517,669 15,513,455
- --------------------------------------------------------------------------------
GAAF GBGIF
- --------------------------------------------------------------------------------
PURCHASES $75,321,072 $41,041,629
PROCEEDS 50,975,506 36,556,162
- --------------------------------------------------------------------------------
GBGEMF GIQBF
- --------------------------------------------------------------------------------
PURCHASES $30,707,114 $263,723,209
PROCEEDS 7,793,509 215,138,278
- --------------------------------------------------------------------------------
GTEF
- --------------------------------------------------------------------------------
PURCHASES $91,742,680
PROCEEDS 85,449,605
56
<PAGE>
The cost of investments owned at December 31, 1997 for federal income tax
purposes was the same as the cost for financial reporting purposes for the
Funds. The gross unrealized appreciation and depreciation at December 31, 1997,
were as follows:
GPAF GPASCF
---- ------
Appreciation $671,487,691 $16,476,111
(Depreciation) (27,643,778) (5,959,005)
------------ -----------
NET UNREALIZED
APPRECIATION $643,843,913 $10,517,106
============ ===========
GAAF GBGIF
---- ------
Appreciation $ 20,069,800 $15,850,528
(Depreciation) (713,084) (2,651,902)
------------ -----------
NET UNREALIZED
APPRECIATION $ 19,356,716 $13,198,626
============ ===========
GBGEMF GIQBF
------ -----
Appreciation $ 1,932,137 $ 1,068,623
(Depreciation) (2,974,324) (267,962)
------------ -----------
NET UNREALIZED
APPRECIATION/
(DEPRECIATION) $ (1,042,187) $ 800,661
============ ===========
GTEF
----
NET UNREALIZED
APPRECIATION $ 1,587,658
============
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 (See 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, 1997, GBGIF and GBGEMF had no open forward foreign currency
contracts.
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
Fund will require the seller to deposit additional collateral by the next
business day. If the request for additional collateral is not met, or the seller
defaults, the applicable Fund maintains the right to sell the collateral and may
claim any resulting loss against the seller. The Board of Trustees has
established standards to evaluate the creditworthiness of broker-dealers and
banks which engage in repurchase agreements with each Fund.
NOTE 6. DEFERRED ORGANIZATION AND INITIAL OFFERING EXPENSES
GPASCF and GBGEMF incurred $45,392 and $26,991, respectively, in connection
with their organization and registration. Such expenses were advanced by GISC
and were repaid by GPASCF and will be repaid by GBGEMF upon the completion of
the first year of operations or when its net assets reach $50 million.
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 operations of the Funds.
NOTE 7. SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $0.01 par value shares of beneficial
interest authorized, divided into two classes, designated as Class A and Class B
shares, except for GIQBF and GTEF, which only offer Class A shares. Transactions
in shares of beneficial interest were as follows:
57
<PAGE>
<TABLE>
<CAPTION>
o THE GUARDIAN PARK AVENUE FUND
Year Ended December 31, Year Ended December 31,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 17,883,364 64,654,097 $799,066,805 $331,495,449
Shares issued in reinvestment of
dividends and distributions 4,641,797 4,095,860 208,919,318 154,626,271
Shares repurchased (9,104,998) (60,643,315) (403,755,099) (184,533,351)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 13,420,163 8,106,642 $604,231,024 $301,588,369
==================================================================================================================================
CLASS B
Shares sold 3,236,995 893,821 $143,714,212 $ 33,652,331
Shares issued in reinvestment of
dividends and distributions 359,417 73,790 16,167,277 2,826,851
Shares repurchased (162,809) (17,517) (7,399,359) (684,481)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 3,433,603 950,094 $152,482,130 $ 35,794,701
==================================================================================================================================
o THE GUARDIAN PARK AVENUE SMALL CAP FUND
Period from April 2, 1997+
to December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A
Shares sold 7,627,273 $94,368,743
Shares issued in reinvestment of
dividends and distributions 74,820 1,001,090
Shares repurchased (365,908) (5,041,538)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 7,336,185 $90,328,295
=================================================================================================================================
CLASS B
Shares sold 1,358,653 $17,466,551
Shares issued in reinvestment of
dividends and distributions 13,670 181,544
Shares repurchased (37,778) (411,214)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 1,334,545 $17,236,881
==================================================================================================================================
+ Commencement of operations.
</TABLE>
58
<PAGE>
<TABLE>
o THE GUARDIAN ASSET ALLOCATION FUND
<CAPTION>
Year Ended December 31, Year Ended December 31,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 2,726,033 3,920,241 $ 40,059,487 $ 16,989,447
Shares issued in reinvestment of
dividends and distributions 1,201,442 694,480 16,793,107 8,751,925
Shares repurchased (988,551) (3,602,476) (14,336,286) (13,059,740)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 2,938,924 1,012,245 $ 42,516,308 $ 12,681,632
===============================================================================================================================
CLASS B
Shares sold 550,382 372,449 $ 7,896,309 $ 4,745,296
Shares issued in reinvestment of
dividends and distributions 109,733 23,657 1,525,775 302,802
Shares repurchased (48,496) (3,356) (627,912) (45,271)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 611,619 392,750 $ 8,794,172 $ 5,002,827
===============================================================================================================================
o THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
<CAPTION>
Year Ended December 31, Year Ended December 31,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 1,128,171 2,612,878 $ 18,720,231 $ 13,437,950
Shares issued in reinvestment of
dividends and distributions 199,985 71,249 3,205,710 1,078,788
Shares repurchased (946,086) (2,181,652) (15,383,791) (7,338,578)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 382,070 502,475 $ 6,542,150 $ 7,178,160
===============================================================================================================================
CLASS B
Shares sold 176,590 216,878 $ 2,867,170 $ 3,182,994
Shares issued in reinvestment of
dividends and distributions 15,633 3,182 246,383 47,852
Shares repurchased (16,447) (897) (261,203) (13,719)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 175,776 219,163 $ 2,852,350 $ 3,217,127
===============================================================================================================================
59
</TABLE>
<PAGE>
<TABLE>
o THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
<CAPTION>
Period from April 2, 1997+
to December 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A
Shares sold 2,336,844 $ 23,610,122
Shares issued in reinvestment of
dividends and distributions 8,288 76,167
Shares repurchased (56,441) (627,877)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 2,288,691 $ 23,058,412
===============================================================================================================================
CLASS B
Shares sold 222,415 $ 2,319,202
Shares repurchased (6,436) (67,922)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 215,979 $ 2,251,280
===============================================================================================================================
o THE GUARDIAN INVESTMENT QUALITY BOND FUND
<CAPTION>
Year Ended December 31, Year Ended December 31,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,848,887 809,831 $ 56,852,114 $ 7,622,176
Shares issued in reinvestment of
dividends and distributions 386,846 264,949 3,786,174 2,773,040
Shares repurchased (1,484,591) (1,210,664) (14,416,140) (11,596,569)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) 4,751,142 (135,884) $ 46,222,148 $ (1,201,353)
===============================================================================================================================
o THE GUARDIAN TAX-EXEMPT FUND
<CAPTION>
Year Ended December 31, Year Ended December 31,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 720,851 2,339,544 $ 6,983,816 $ 22,165,990
Shares issued in reinvestment of
dividends and distributions 191,773 105,473 1,862,173 1,003,876
Shares repurchased (249,303) (172,887) (2,410,025) (1,637,172)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 663,321 2,272,130 $ 6,435,964 $ 21,532,694
===============================================================================================================================
+ Commencement of operations
60
</TABLE>
<PAGE>
<TABLE>
o THE GUARDIAN CASH MANAGEMENT FUND
<CAPTION>
Year Ended December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
Shares/@ $1 per share
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A
Shares sold 435,510,421 197,623,132
Shares issued in reinvestment of
dividends and distributions 4,841,856 3,398,518
Shares repurchased (396,046,079) (182,717,426)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 44,306,198 18,304,224
===============================================================================================================================
CLASS B
Shares sold 9,032,391 3,453,164
Shares issued in reinvestment of
dividends and distributions 165,039 44,613
Shares repurchased (5,915,743) (915,208)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 3,281,687 2,582,569
===============================================================================================================================
</TABLE>
NOTE 8. LINE OF CREDIT
A $20,000,000 line of credit available to all of the Funds and other
related Guardian Funds 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, 1997, none of the Funds
borrowed against this line of credit.
NOTE 9. SHAREHOLDER MEETING (UNAUDITED)
On December 15, 1997, a special meeting of the shareholders of GIQBF was
held.
The shareholders of GIQBF approved amendments to two fundamental investment
restrictions in order to permit GIQBF to have greater flexibility in managing
its portfolio. The first amendment permits GAAF to invest a greater portion of
its assets in particular issuers. The shareholder votes to approve that
amendment were 7,094,256 FOR, 41,703 AGAINST and 88,137 ABSTAINING.
Shareholders also approved an amendment to its fundamental investment
restriction with respect to borrowing, to permit GIQBF to invest in reverse
repurchase agreements and mortgage dollar rolls. The shareholder votes were
7,063,518 FOR, 64,635 AGAINST and 95,943 ABSTAINING.
61
<PAGE>
<TABLE>
<CAPTION>
================================================================================
FINANCIAL HIGHLIGHTS
================================================================================
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIODS INDICATED:
NET REALIZED
& UNREALIZED
GAIN/(LOSS) ON
INVESTMENTS INCREASE/ DISTRIBUTIONS
NET ASSET NET AND FOREIGN (DECREASE) DIVIDENDS IN EXCESS
VALUE INVESTMENT CURRENCY FROM FROM NET OF NET
BEGINNING INCOME/ RELATED INVESTMENT INVESTMENT INVESTMENT
OF PERIOD (LOSS) TRANSACTIONS OPERATIONS INCOME INCOME
--------- ---------- -------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
THE GUARDIAN PARK AVENUE FUND
CLASS A:
Year ended 12/31/97 $37.91 $0.40 $12.61 $13.01 $(0.39) --
Year ended 12/31/96 33.97 0.42 8.41 8.83 (0.42) $(0.01)
Year ended 12/31/95 26.89 0.33 8.87 9.20 (0.33) --
Year ended 12/31/94 28.63 0.31 (0.72) (0.41) (0.31) --
Year ended 12/31/93 25.17 0.50 4.56 5.06 (0.50) --
Year ended 12/31/92 22.23 0.45 4.05 4.50 (0.44) --
Year ended 12/31/91 18.26 0.65 5.71 6.36 (0.66) --
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) --
Year ended 12/31/88 18.63 0.60 3.23 3.83 (0.55) --
CLASS B:
Year ended 12/31/97 37.90 0.00 12.54 12.54 (0.01) --
Period from 5/1/96+ to 12/31/96 36.26 0.05 6.10 6.15 (0.05) --
THE GUARDIAN PARK AVENUE
SMALL CAP FUND
CLASS A:
Period from 4/2/97+ to 12/31/97 10.00 0.00 3.91 3.91 -- --
CLASS B:
Period from 5/6/97+ to 12/31/97 10.57 (0.04) 3.28 3.24 -- --
THE GUARDIAN ASSET ALLOCATION FUND
CLASS A:
Year ended 12/31/97 12.96 0.34 2.77 3.11 (0.34) --
Year ended 12/31/96 12.19 0.23 1.96 2.19 (0.23) --
Year ended 12/31/95 10.23 0.23 2.29 2.52 (0.23) --
Year ended 12/31/94 10.98 0.28 (0.52) (0.24) (0.28) --
Period from 2/16/93+ to 12/31/93 10.00 0.19 1.02 1.21 (0.18) --
CLASS B:
Year ended 12/31/97 12.92 0.17 2.77 2.94 (0.18) --
Period from 5/1/96+ to 12/31/96 12.61 0.04 1.50 1.54 (0.04) --
+ Commencement of operations.
62
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------
DISTRIBUTIONS NET
FROM NET ASSET NET ASSETS, INVESTMENT
NET REALIZED VALUE, END OF EXPENSES EXPENSES INCOME/(LOSS)
GAIN ON END OF TOTAL PERIOD TO AVERAGE SUBSIDIZED TO AVERAGE
INVESTMENT PERIOD RETURN* (000'S OMITTED) NET ASSETS (b) BY GISC NET ASSETS
----------- --------- ------- --------------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
THE GUARDIAN PARK AVENUE FUND
CLASS A:
Year ended 12/31/97 $(4.41) $46.12 34.85% $2,312,632 0.79% -- 0.95%
Year ended 12/31/96 (4.46) 37.91 26.49 1,392,186 0.79 -- 1.19
Year ended 12/31/95 (1.79) 33.97 34.28 972,275 0.81 -- 1.07
Year ended 12/31/94 (1.02) 26.89 (1.44) 640,917 0.84 -- 1.15
Year ended 12/31/93 (1.10) 28.63 20.28 560,193 0.81 -- 1.89
Year ended 12/31/92 (1.12) 25.17 20.48 335,660 0.68 -- 1.94
Year ended 12/31/91 (1.73) 22.23 35.16 270,095 0.67 -- 2.96
Year ended 12/31/90 -- 18.26 (12.21) 216,457 0.69 -- 3.51
Year ended 12/31/89 (2.72) 21.56 23.66 228,190 0.70 -- 4.01
Year ended 12/31/88 (1.45) 20.46 20.78 176,000 0.69 -- 2.82
CLASS B:
Year ended 12/31/97 (4.41) 46.02 33.53 201,746 1.73 -- 0.00
Period from 5/1/96+ to 12/31/96 (4.46) 37.90 17.35 36,006 1.77 (a) -- 0.04(a)
THE GUARDIAN PARK AVENUE
SMALL CAP FUND
CLASS A:
Period from 4/2/97+ to 12/31/97 (0.14) 13.77 39.16 101,016 1.36 (a) -- 0.04(a)
CLASS B:
Period from 5/6/97+ to 12/31/97 (0.14) 13.67 30.47 18,248 2.26 (a) -- (1.01)(a
THE GUARDIAN ASSET ALLOCATION FUND
CLASS A:
Year ended 12/31/97 (1.68) 14.05 24.44 136,948 0.95 0.19% 2.50
Year ended 12/31/96 (1.19) 12.96 18.74 88,190 1.30 -- 1.91
Year ended 12/31/95 (0.33) 12.19 24.51 70,591 1.25 -- 1.98
Year ended 12/31/94 (0.23) 10.23 (2.13) 54,875 1.30 -- 2.72
Period from 2/16/93+ to 12/31/93 (0.05) 10.98 12.16 50,200 1.29 (a) -- 2.07(a)
CLASS B:
Year ended 12/31/97 (1.68) 14.00 23.09 14,066 2.04 0.19 1.50
Period from 5/1/96+ to 12/31/96 (1.19) 12.92 12.07 5,075 2.39 (a) -- 0.70(a)
AVERAGE
PORTFOLIO RATE OF
TURNOVER COMMISSIONS
RATE PAID (c)
------- -------------
<S> <C> <C>
THE GUARDIAN PARK AVENUE FUND
CLASS A:
Year ended 12/31/97 50% $0.0461
Year ended 12/31/96 81 0.0470
Year ended 12/31/95 78 --
Year ended 12/31/94 54 --
Year ended 12/31/93 46 --
Year ended 12/31/92 64 --
Year ended 12/31/91 57 --
Year ended 12/31/90 47 --
Year ended 12/31/89 47 --
Year ended 12/31/88 58 --
CLASS B:
Year ended 12/31/97 50 0.0461
Period from 5/1/96+ to 12/31/96 81 0.0470
THE GUARDIAN PARK AVENUE
SMALL CAP FUND
CLASS A:
Period from 4/2/97+ to 12/31/97 25 0.0296
CLASS B:
Period from 5/6/97+ to 12/31/97 a) 25 0.0296
THE GUARDIAN ASSET ALLOCATION FUND
CLASS A:
Year ended 12/31/97 58 0.0133
Year ended 12/31/96 122 0.0529
Year ended 12/31/95 219 --
Year ended 12/31/94 216 --
Period from 2/16/93+ to 12/31/93 165 --
CLASS B:
Year ended 12/31/97 58 0.0133
Period from 5/1/96+ to 12/31/96 122 0.0529
* Excludes the effect of sales load.
(a) Annualized.
(b) After expenses subsidized by GISC.
(c) 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.
</TABLE>
63
<PAGE>
<TABLE>
=========================
FINANCIAL HIGHLIGHTS
=========================
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIODS INDICATED:
<CAPTION>
NET REALIZED
& UNREALIZED
GAIN/(LOSS) ON
INVESTMENTS INCREASE/ DISTRIBUTIONS
NET ASSET NET AND FOREIGN (DECREASE) DIVIDENDS IN EXCESS
VALUE INVESTMENT CURRENCY FROM FROM NET OF NET
BEGINNING INCOME/ RELATED INVESTMENT INVESTMENT INVESTMENT
OF PERIOD (LOSS) TRANSACTIONS OPERATIONS INCOME INCOME
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THE GUARDIAN BAILLIE GIFFORD
INTERNATIONAL FUND
CLASS A:
Year ended 12/31/97 $15.22 $0.02 $1.66 $1.68 -- $(0.16)
Year ended 12/31/96 13.57 0.05 1.89 1.94 $(0.05) (0.05)
Year ended 12/31/95 13.01 0.04 1.40 1.44 (0.04) (0.23)
Year ended 12/31/94 13.19 0.01 (0.09) (0.08) (0.01) --
Period from 2/16/93+ to 12/31/93 10.00 (0.02) 3.32 3.30 -- --
CLASS B:
Year ended 12/31/97 15.12 (0.11) 1.52 1.41 -- --
Period from 5/1/96+ to 12/31/96 14.71 (0.04) 0.76 0.72 (0.04) (0.08)
THE GUARDIAN BAILLIE GIFFORD
EMERGING MARKETS FUND
CLASS A:
Period from 4/2/97+ to 12/31/97 10.00 0.04 (0.63) (0.59) (0.03) --
CLASS B:
Period from 5/6/97+ to 12/31/97 10.28 (0.09) (0.89) (0.98) -- --
THE GUARDIAN INVESTMENT QUALITY
BOND FUND
CLASS A:
Year ended 12/31/97 9.70 0.58 0.21 0.79 (0.58) --
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) --
Period from 2/16/93+ to 12/31/93 10.00 0.37 0.18 0.55 (0.37) --
THE GUARDIAN TAX EXEMPT FUND
CLASS A:
Year ended 12/31/97 9.61 0.44 0.38 0.82 (0.44) --
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) --
Period from 2/16/93+ to 12/31/93 10.00 0.34 0.40 0.74 (0.34) --
64
<PAGE>
<CAPTION>
DISTRIBUTIONS
FROM NET ASSET
NET REALIZED VALUE,
GAIN ON END OF
INVESTMENT PERIOD
--------------------------
<S> <C> <C>
THE GUARDIAN BAILLIE GIFFORD
INTERNATIONAL FUND
CLASS A:
Year ended 12/31/97 $(0.66) $16.08
Year ended 12/31/96 (0.19) 15.22
Year ended 12/31/95 (0.61) 13.57
Year ended 12/31/94 (0.09) 13.01
Period from 2/16/93+ to 12/31/93 (0.11) 13.19
CLASS B:
Year ended 12/31/97 (0.66) 15.87
Period from 5/1/96+ to 12/31/96 (0.19) 15.12
THE GUARDIAN BAILLIE GIFFORD
EMERGING MARKETS FUND
CLASS A:
Period from 4/2/97+ to 12/31/97 -- 9.38
CLASS B:
Period from 5/6/97+ to 12/31/97 -- 9.30
THE GUARDIAN INVESTMENT QUALITY
BOND FUND
CLASS A:
Year ended 12/31/97 -- 9.91
Year ended 12/31/96 -- 9.70
Year ended 12/31/95 -- 10.00
Year ended 12/31/94 (0.02) 9.12
Period from 2/16/93+ to 12/31/93 (0.14) 10.04
THE GUARDIAN TAX EXEMPT FUND
CLASS A:
Year ended 12/31/97 -- 9.99
Year ended 12/31/96 -- 9.61
Year ended 12/31/95 -- 9.69
Year ended 12/31/94 (0.04) 8.86
Period from 2/16/93+ to 12/31/93 (0.20) 10.20
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------
NET
NET ASSETS, INVESTMENT AVERAGE
END OF EXPENSES EXPENSES INCOME/(LOSS) PORTFOLIO RATE OF
TOTAL PERIOD TO AVERAGE SUBSIDIZED TO AVERAGE TURNOVER COMMISSIONS
RETURN* (000'S OMITTED) NET ASSETS (b) BY GISC NET ASSETS RATE PAID (c)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THE GUARDIAN BAILLIE GIFFORD
INTERNATIONAL FUND
CLASS A:
Year ended 12/31/97 11.07% $66,999 1.62% -- 0.07% 55% $0.0235
Year ended 12/31/96 14.33 57,593 1.70 -- 0.29 39 0.0364
Year ended 12/31/95 11.14 44,546 1.74 -- 0.19 51 --
Year ended 12/31/94 (0.55) 37,542 1.91 -- 0.20 33 --
Period from 2/16/93+ to 12/31/93 32.98 20,809 2.35(a) -- (0.21)(a) 9 --
CLASS B:
Year ended 12/31/97 9.37 6,268 2.91 -- (1.46) 55 0.0235
Period from 5/1/96+ to 12/31/96 4.34 3,313 3.05(a) -- (1.47)(a) 39 0.0364
THE GUARDIAN BAILLIE GIFFORD
EMERGING MARKETS FUND
CLASS A:
Period from 4/2/97+ to 12/31/97 (5.86) 21,472 2.31(a) -- 0.61 (a) 36 0.0004
CLASS B:
Period from 5/6/97+ to 12/31/97 (9.71) 2,009 4.24(a) -- (0.02)(a) 36 0.0004
THE GUARDIAN INVESTMENT QUALITY
BOND FUND
CLASS A:
Year ended 12/31/97 8.43 98,935 0.75 0.29% 5.94 313 --
Year ended 12/31/96 2.73 50,794 0.75 0.37 5.73 257 --
Year ended 12/31/95 16.64 53,706 0.75 0.39 6.11 401 --
Year ended 12/31/94 (4.50) 43,487 1.46 -- 4.94 186 --
Period from 2/16/93+ to 12/31/93 4.13 23,310 1.42(a) -- 3.68 (a) 167 --
THE GUARDIAN TAX EXEMPT FUND
CLASS A:
Year ended 12/31/97 8.74 47,360 0.75 0.31 4.51 202 --
Year ended 12/31/96 3.62 39,185 0.75 0.60 4.96 240 --
Year ended 12/31/95 14.59 17,501 0.75 0.79 4.66 194 --
Year ended 12/31/94 (8.98) 15,967 1.09 0.47 4.26 107 --
Period from 2/16/93+ to 12/31/93 5.55 21,135 1.36(a) -- 3.35 (a) 108 --
+ Commencement of operations.
* Excludes the effect of sales load.
(a) Annualized.
(b) After expenses subsidized by GISC.
(c) 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.
65
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------
FINANCIAL HIGHLIGHTS
- --------------------------
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIODS INDICATED:
NET ASSET NET DIVIDENDS
VALUE INVESTMENT FROM NET
BEGINNING INCOME/ INVESTMENT
OF PERIOD (LOSS) INCOME
--------- ---------- ----------
<S> <C> <C> <C>
THE GUARDIAN CASH MANAGEMENT FUND
CLASS A:
Year ended 12/31/97 $1.000 $0.047 $(0.047)
Year ended 12/31/96 1.000 0.045 (0.045)
Year ended 12/31/95 1.000 0.051 (0.051)
Year ended 12/31/94 1.000 0.034 (0.034)
Year ended 12/31/93 1.000 0.021 (0.021)
Year ended 12/31/92 1.000 0.030 (0.030)
Year ended 12/31/91 1.000 0.053 (0.053)
Year ended 12/31/90 1.000 0.076 (0.076)
Year ended 12/31/89 1.000 0.086 (0.086)
Three months ended 12/31/88 1.000 0.024 (0.024)
Year ended 9/30/88 1.000 0.066 (0.066)
CLASS B:
Year ended 12/31/97 1.000 0.047 (0.047)
Period from 5/1/96+ to 12/31/96 1.000 0.028 (0.028)
+ Commencement of operations.
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental DATA
--------------------------------------------------------------
NET
NET ASSET NET ASSETS, INVESTMENT
VALUE, END OF EXPENSES EXPENSES INCOME/(LOSS)
END OF TOTAL PERIOD TO AVERAGE SUBSIDIZED TO AVERAGE
PERIOD RETURN* (000'S OMITTED) NET ASSETS (C) BY GISC NET ASSETS
--------- ------- --------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
THE GUARDIAN CASH MANAGEMENT FUND
CLASS A:
Year ended 12/31/97 $1.000 4.81% $132,523 0.85% 0.28% 4.71%
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
Year ended 12/31/89 1.000 8.60 33,821 0.65 0.52 8.56
Three months ended 12/31/88 1.000 2.40 (b) 21,961 1.00 (a) 0.38 (a) 7.63 (a)
Year ended 9/30/88 1.000 6.60 20,603 1.00 0.28 6.32
CLASS B:
Year ended 12/31/97 1.000 4.81 5,864 0.85 1.10 4.71
Period from 5/1/96+ to 12/31/96 1.000 2.81 (b) 2,583 1.16 (a) 0.59 (a) 4.43 (a)
* Excludes the effect of sales load.
(a) Annualized.
(b) Not annualized.
(c) After expenses subsidized by GISC.
</TABLE>
67
<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 Park
Avenue Small Cap Fund, The Guardian Asset Allocation Fund, The Guardian Baillie
Gifford International Fund, The Guardian Baillie Gifford Emerging Markets Fund,
The Guardian Investment Quality Bond Fund, The Guardian Tax-Exempt Fund and The
Guardian Cash Management Fund) as of December 31, 1997, and the related
statements of operations, the statements of changes in net assets 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, 1997, 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, 1997, the results of their operations, the changes in their net assets and
the financial highlights for each of the indicated periods,in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 9, 1998
68
<PAGE>
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
Joseph A. Caruso
Howard W. Chin
Karen L. Dickinson
Alexander M. Grant, Jr.
Thomas R. Hickey, Jr.
Edward H. Hocknell
Jonathan C. Jankus
Ann T. Kearney
Larry A. Luxenberg
R. Robin Menzies
Nikolaos D. Monoyios
John B. Murphy
Frank L. Pepe
Richard T. Potter, Jr.
Marjorie A. Silverman
Thomas G. Sorell
Donald 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>
* INVESTMENT ADVISER & DISTRIBUTOR
Guardian Investor Services Corporation[R]
201 Park Avenue South
New York, New York 10003
* CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Custody Division
1776 Heritages Drive
North Quincy, Massachusetts 02171
* SHAREHOLDER SERVICING AGENT, TRANSFER AGENT &
DIVIDEND PAYING AGENT FOR STATE STREET BANK
AND TRUST COMPANY
National Financial Data Services
Post Office Box 419611
Kansas City, Missouri 64141-6611
* INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
[GUARDIAN LOGO]
Guardian Investor Services Corporation[R]
201 Park Avenue South
New York, NY 10003
(c)1997 Guardian Investor Services Corporation
EB-011566 12/97
ANNUAL REPORT TO SHAREHOLDERS
THE
PARK AVENUE
PORTFOLIO
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
* The Guardian Park
Avenue Fund
* The Guardian Park
Avenue Small Cap Fund
* The Guardian
Asset Allocation Fund
* The Guardian
Baillie Gifford
International Fund
* The Guardian
Baillie Gifford
Emerging Markets Fund
* The Guardian
Investment Quality
Bond Fund
* The Guardian
Tax-Exempt Fund
* The Guardian Cash
Management Fund
[GUARDIAN LOGO]
Guardian Investor
Services Corporation[R]
<PAGE>
* INVESTMENT ADVISER & DISTRIBUTOR
Guardian Investor Services Corporation[R]
201 Park Avenue South
New York, New York 10003
* CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Custody Division
1776 Heritages Drive
North Quincy, Massachusetts 02171
* SHAREHOLDER SERVICING AGENT, TRANSFER AGENT &
DIVIDEND PAYING AGENT FOR STATE STREET BANK
AND TRUST COMPANY
National Financial Data Services
Post Office Box 419611
Kansas City, Missouri 64141-6611
* INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
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
Joseph A. Caruso
Howard W. Chin
Karen L. Dickinson
Alexander M. Grant, Jr.
Thomas R. Hickey, Jr.
Edward H. Hocknell
Jonathan C. Jankus
Ann T. Kearney
Larry A. Luxenberg
R. Robin Menzies
Nikolaos D. Monoyios
John B. Murphy
Frank L. Pepe
Richard T. Potter, Jr.
Marjorie A. Silverman
Thomas G. Sorell
Donald 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>
[GUARDIAN LOGO]
Guardian Investor Services Corporation[R]
201 Park Avenue South
New York, NY 10003
EB-011566M 12/97
- ------------------
BULK RATE MAIL
U.S. POSTAGE PAID
NEWARK, NJ
PERMIT NO. 45
- ------------------
ANNUAL REPORT TO SHAREHOLDERS
THE
PARK AVENUE
PORTFOLIO
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
* The Guardian Park
Avenue Fund
* The Guardian Park
Avenue Small Cap Fund
* The Guardian
Asset Allocation Fund
* The Guardian
Baillie Gifford
International Fund
* The Guardian
Baillie Gifford
Emerging Markets Fund
* The Guardian
Investment Quality
Bond Fund
* The Guardian
Tax-Exempt Fund
* The Guardian Cash
Management Fund
[GUARDIAN LOGO]
Guardian Investor
Services Corporation[R]
