As filed with the Securities and Exchange Commission on February 13, 1998
Registration Nos. 33-23966
811-5641
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
POST-EFFECTIVE AMENDMENT No. 17 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
AMENDMENT No. 21 |X|
(Check appropriate box or boxes)
------------------------
THE PARK AVENUE PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
201 Park Avenue South, New York, New York 10003
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (212) 598-8359
------------------------
RICHARD T. POTTER, JR., ESQ. Copy to:
c/o The Guardian Life Insurance CATHY G. O'KELLY, ESQ.
Company of America Vedder, Price, Kaufman & Kammholz
201 Park Avenue South 222 North LaSalle Street
New York, New York 10003 Chicago, Illinois 60601
(Name and Address of Agent for Service)
------------------------
It is proposed that this filing will become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b)
|_| on (date) pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|X| on May 1, 1998 pursuant to paragraph (a)(2)
------------------------
The Registrant has registered an indefinite number of its securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. The notice required by such rule for the Registrant's most recent
fiscal year will be filed on or before March 31, 1998.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 495 under the Securities Act of 1933)
Form N-1A Item No. Location
Part A
Item 1. Cover Page............................ Cover
Item 2. Synopsis.............................. Prospectus Summary;
Transaction Costs and Fund
Expenses
Item 3. Condensed Financial Information....... Financial Highlights
Item 4. General Description of Registrant..... Cover Page; Investment
Objectives and Policies; Risk
Considerations; Special
Investment Techniques; Voting
Rights and Liabilities;
Shareholder Services
Item 5. Management of the Fund................ Management
Item 5a. Management's Discussion of Fund
Performance......................... Performance Results
Item 6. Capital Stock and Other Securities.... Dividends and Distributions;
Taxes; Voting Rights and
Liabilities
Item 7. Purchase of Securities Being Offered.. How to Purchase Shares; How
to Redeem Shares; Special
Purchase and Redemption
Plans; Exchanges; Calculation
of Net Asset Values
Item 8. Redemption and Repurchase............. How to Redeem Shares; Special
Purchase and Redemption
Plans; Exchanges
Item 9. Pending Legal Proceedings............. Not Applicable
Part B
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Table of Contents
Item 12. General Information and History....... Not Applicable
Item 13. Investment Objectives and Policies.... Investment Restrictions;
Special Investment Techniques
Item 14. Management of the Registrant.......... Portfolio Management
Item 15. Control Persons and Principal Holders
of Securities....................... Portfolio Affiliates and
Principal Holders of Fund
Shares
Item 16. Investment Advisory and Other Services Investment Advisers and
Distributor; Custodian;
Transfer Agent; Independent
Auditors
Item 17. Brokerage Allocation.................. Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities.... Shareholder Voting Rights
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered ........... Redemption of Shares
Item 20. Tax Status............................ Taxes
Item 21. Underwriters.......................... Investment Advisers and
Distributor
Item 22. Calculation of Performance Data....... Performance Results
Item 23. Financial Statements.................. Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
The Guardian Park Avenue Small Cap Fund
Supplement dated August 29, 1997
to Prospectus dated May 1, 1997
Financial Highlights
The following table provides information about the financial history of The
Guardian Park Avenue Small Cap Fund (the "Small Cap Fund"). It is based on a
single share of Class A and a single share of Class B outstanding for the
periods ended June 30, 1997. The table is part of the Fund's financial
statements, which are included in the Semi-Annual Report for The Park Avenue
Portfolio for the six months ended June 30, 1997, and which is incorporated by
reference into the Statement of Additional Information. The information in the
table is unaudited.
Class A Class B
------------- -------------
April 2, May 5,
1997+ to 1997+ to
June 30, 1997 June 30, 1997
- ------------------------------------------------------------------
Net asset value, beginning
of period $ 10.00 $ 10.57
- ------------------------------------------------------------------
Income from investment
operations
Net investment income/(loss) 0.01 (0.03)
Net realized and
unrealized gain/(loss)
on investments 1.75 1.20
- ------------------------------------------------------------------
Net increase/(decrease)
from investment
operations 1.76 1.17
- ------------------------------------------------------------------
Distributions to
shareholders
Dividends from net
investment income -- --
Distributions in excess
of net investment
income -- --
Distributions from net
realized gain on
investments -- --
- ------------------------------------------------------------------
Total distributions -- --
- ------------------------------------------------------------------
Net asset value,
end of period $ 11.76 $ 11.74
- ------------------------------------------------------------------
Total return* 17.60% 11.07%
==================================================================
Ratios/supplemental data:
Net assets, end of period
(000's omitted) $32,928 $ 3,548
Ratio of expenses to
average net assets 1.35%(a) 2.15%(a)
Ratio of net investment
income to average
net assets 0.58%(a) (1.29%)(a)
Portfolio turnover 1% 1%
Average rate of
commissions paid $ 0.042 $ 0.042
- ----------
+ Commencement of operations.
* Excludes the effect of sales loads.
(a) Annualized.
<PAGE>
The Guardian Baillie Gifford Emerging Markets Fund
Supplement dated August 29, 1997
to Prospectus dated May 1, 1997
Financial Highlights
The following table provides information about the financial history of The
Guardian Baillie Gifford Emerging Markets Fund (the "Emerging Markets Fund"). It
is based on a single share of Class A and a single share of Class B outstanding
for the periods ended June 30, 1997. The table is part of the Emerging Markets
Fund's financial statements, which are included in the Semi-Annual Report for
The Park Avenue Portfolio for the six months ended June 30, 1997, and which is
incorporated by reference into the Statement of Additional Information. The
information in the table is unaudited.
Class A Class B
------------- -------------
April 2, May 5,
1997+ to 1997+ to
June 30, 1997 June 30, 1997
- ------------------------------------------------------------------
Net asset value, beginning
of period $ 10.00 $ 10.28
- ------------------------------------------------------------------
Income from investment
operations
Net investment income/(loss) 0.07 0.01
Net realized and
unrealized gain/(loss)
on investments 1.07 0.83
- ------------------------------------------------------------------
Net increase/(decrease)
from investment
operations 1.14 0.84
- ------------------------------------------------------------------
Distributions to
shareholders
Dividends from net
investment income -- --
Distributions in excess
of net investment
income -- --
Distributions from net
realized gain on
investments -- --
- ------------------------------------------------------------------
Total distributions -- --
- ------------------------------------------------------------------
Net asset value,
end of period $ 11.14 $ 11.12
- ------------------------------------------------------------------
Total return* 11.40% 8.17%
==================================================================
Ratios/supplemental data:
Net assets, end of period
(000's omitted) $22,812 $ 1,696
Ratio of expenses to
average net assets 2.24%(a) 3.59%(a)
Ratio of net investment
income to average
net assets 2.31%(a) 0.41%(a)
Portfolio turnover 6% 6%
Average rate of
commissions paid $ 0.115 $ 0.115
- ----------
+ Commencement of operations.
* Excludes the effect of sales loads.
(a) Annualized.
<PAGE>
Supplement dated June 3, 1997
to Prospectus dated May 1, 1997
The Park Avenue Portfolio
The Guardian Investment Quality Bond Fund
This Supplement should be retained with the Prospectus for future
reference.
The following supplements the fourth paragraph of the section entitled
"Portfolio Managers" appearing on page 30 of the Prospectus:
Effective June 2, 1997, Thomas G. Sorell assumed sole responsibility
for the portfolio management of The Guardian Investment Quality Bond Fund
(the "Bond Fund"). Mr. Sorell has been co-portfolio manager of the Bond
Fund since January 15, 1997. Frank J. Jones, Ph.D., President of the
Portfolio, will continue to have overall responsibility for the allocation
of the Bond Fund's assets among the various sectors of debt securities
managed by Mr. Sorell. Mr. Sorell has concurrently assumed sole
responsibility for the portfolio management of The Guardian Bond Fund,
Inc.
<PAGE>
- --------------------------------------------------------------------------------
Prospectus
- --------------------------------------------------------------------------------
THE
PARK AVENUE
PORTFOLIO(R)
-----------------
Prospectus
May 1, 1998
-----------------
o The Guardian
Park Avenue Fund
o The Guardian
Park Avenue
Small Cap Fund
o The Guardian
Park Avenue
Tax-Efficient 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
Baillie Gifford Emerging
Markets Fund
o The Guardian
Investment Quality
Bond Fund
o The Guardian High Yield
Bond Fund
o The Guardian
Tax-Exempt Fund
o The Guardian Cash
Management Fund
[LOGO]
-------
Guardian Investor
Services Corporation(R)
<PAGE>
Prospectus May 1, 1998
o The Park Avenue Portfolio(R)
This Prospectus sets forth important information which a prospective
investor should know before investing in The Park Avenue Portfolio(R) (the
"Portfolio"), a diversified open-end management investment company. Shares of
the Portfolio are currently offered in ten series. Each series is called a
"Portfolio Fund." Each of the Portfolio Funds offers Class A shares. Eight of
the Portfolio Funds offer a second class of shares, Class B shares. Seven of the
Portfolio Funds offer a third class of shares, Institutional Class shares.
Portfolio Funds are:
o The Guardian Park Avenue Fund(R) (Class A, Class B and Institutional
Class) which invests in U.S. equity securities;
o The Guardian Park Avenue Small Cap Fund(SM) (Class A, Class B and
Institutional Class) which invests in equity securities of companies with small
market capitalization;
o The Guardian Park Avenue Tax-Efficient Fund(SM) (Class A and Class B)
which invests in equity securities;
o The Guardian Asset Allocation Fund(SM) (Class A, Class B and
Institutional Class) which actively allocates its investments among three broad
categories: equity securities, debt obligations and money market instruments;
o The Guardian Baillie Gifford International Fund(SM) (Class A, Class B
and Institutional Class) which invests in equity securities issued by foreign
companies;
o The Guardian Baillie Gifford Emerging Markets Fund(SM) (Class A, Class B
and Institutional Class) which invests in equity securities issued by emerging
market companies;
o The Guardian Investment Quality Bond Fund(SM) (Class A and Institutional
Class) which invests in investment grade debt obligations and U.S. government
securities;
o The Guardian High Yield Bond Fund(SM) (Class A, Class B and
Institutional Class) which invests in high yield, debt securities, commonly
known as junk bonds. These lower rated securities are speculative and involve
greater risks, including default, than higher rated securities;
o The Guardian Tax-Exempt Fund(SM) (Class A only) which invests in
investment grade obligations issued by state and local authorities; and
o The Guardian Cash Management Fund(SM) (Class A and Class B) which
invests in money market instruments.
Each class of shares within a Portfolio Fund has the same investment
objective and policies, but is sold at an offering price that reflects differing
sales charges and expense levels. The Class A shares are sold subject to an
initial sales charge or "load" and the Class B shares are sold subject to a
contingent deferred sales load. The Institutional Class shares are sold without
a sales load, but require a minimum initial investment of $3 million. Each class
has distinct advantages and disadvantages, and investors should choose the class
that best suits their individual needs and circumstances.
A Statement of Additional Information for the Portfolio, dated May 1,
1998, has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated into this Prospectus by reference. A free copy of the Statement of
Additional Information may be obtained and further inquiries can be made by
writing Guardian Investor Services Corporation, 201 Park Avenue South, New York,
New York 10003 or by calling 1-800-221-3253.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, and the shares are not federally insured
by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency. Investment in a Portfolio Fund involves investment risk, including
possible loss of the principal amount invested. Investments in shares of the
Cash Fund are neither insured nor guaranteed by the U.S. government. While the
Cash Fund seeks to maintain a stable price of $1.00 per share, there is no
assurance that it will be able to do so.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
1
<PAGE>
Contents
o Prospectus Summary 3
o Transaction Costs and Fund Expenses 10
o Financial Highlights
o Investment Objectives and Policies 15
o Risk Considerations 27
o Special Investment Techniques 29
o Management 34
o How to Purchase Shares 39
o How to Redeem Shares 42
o Special Purchase and Redemption Plans 44
o Exchanges 46
o Calculation of Net Asset Values 47
o Performance Results 48
o Dividends and Distributions 49
o Taxes 49
o Voting Rights and Liabilities 51
o Shareholder Services 51
2
<PAGE>
Prospectus Summary
Important information about investing in the Portfolio Funds is summarized
below. This summary is qualified in its entirety by the more detailed
information contained within this Prospectus. Cross-references in this summary
are to headings in the body of the Prospectus.
o The Portfolio Funds
Shares of the Portfolio are currently offered in ten series or "Portfolio
Funds". Each of the Portfolio Funds offers Class A shares. Eight of the
Portfolio Funds offer Class B shares. Seven of the Portfolio Funds offer
Institutional Class Shares. Portfolio Funds that offer two or more classes of
shares are referred to as the "Multiple Class Funds". All classes are described
in this Prospectus. In general, the Class A shares are sold subject to an
initial sales load and lower operating expenses and the Class B shares are sold
subject to a contingent deferred sales load and higher operating expenses. The
Class A shares of The Guardian Cash Management Fund are offered without an
initial sales load. Institutional Class shares are sold without any sales load
and are generally subject to lower operating expenses than Class A or Class B
shares, but have a minimum initial investment of $3 million. Shares of one class
of Portfolio Funds may only be exchanged for shares of the same class of another
Portfolio Fund.
o Investment Objectives of the Portfolio Funds
Each Portfolio Fund has a separate and distinct investment objective (see
below). Each Portfolio Fund is managed separately, so the risks and
opportunities of each Portfolio Fund should be examined separately. A Portfolio
Fund's investment objective may not be changed without shareholder approval.
The Guardian Park Avenue Fund(R)
(Class A, Class B and Institutional Class).
The "Park Avenue Fund" seeks long-term growth of capital. Current income
is of lesser importance to the Park Avenue Fund; however, it is expected that
growth of capital will be accompanied by growth in income. The Park Avenue Fund
normally invests at least 80% of its assets in U.S. common stocks or convertible
securities.
The Guardian Park Avenue Small Cap Fund(SM)
(Class A, Class B and Institutional Class).
The "Small Cap Fund" seeks long-term growth of capital. Current income is
of lesser importance to the Fund; however, it is expected that growth of capital
will be accompanied by growth of income. The Small Cap Fund normally invests at
least 85% of its assets in a diversified portfolio of common stocks and
convertible securities issued by companies with small market capitalization.
These are companies whose total market capitalization places them within the
range of issuers included in the Russell 2000 Index, which is described below
under "Investment Objectives and Policies". As of December 31, 1997, the market
capitalization of the companies included in the Russell 2000 Index ranged from
$20 million to $2.97 billion.
The Guardian Asset Allocation Fund(SM)
(Class A, Class B and Institutional Class).
The "Asset Allocation Fund" seeks long-term total investment return
consistent with moderate risk. The Asset Allocation Fund uses theoretical models
to allocate its assets among the following asset classes: equity securities,
debt obligations and money market instruments. The Asset Allocation Fund
normally invests in each asset class by purchasing shares of the Park Avenue
Fund, the Bond Fund and the Cash Fund.
The Guardian Park Avenue Tax-Efficient Fund(SM)
(Class A and Class B).
The "Tax-Efficient Fund" seeks long-term growth of capital. In seeking to
achieve its objective, the Tax-Efficient Fund will endeavor to manage the
portfolio so as to minimize and defer the taxes incurred by shareholders in
connection with the Fund's investment income and realized capital gains.
3
<PAGE>
The Guardian Baillie Gifford International Fund(SM)
(Class A, Class B and Institutional Class).
The "International Fund" seeks long-term growth of capital. Income is not
a specific objective, although it is anticipated that growth of capital will be
accompanied by dividend income. The International Fund ordinarily invests at
least 80% of its net assets in common stocks issued by companies domiciled
outside of the United States and in convertible securities which carry the right
to buy such common stocks.
The Guardian Baillie Gifford Emerging Markets Fund(SM)
(Class A, Class B and Institutional Class) .
The "Emerging Markets Fund" seeks long-term capital appreciation. Income
is not a specific objective, although it is anticipated that growth of capital
will be accompanied by dividend income. The Emerging Markets Fund, under normal
conditions, invests at least 65% of its total assets in common stocks issued by
emerging market companies and in securities that are convertible into such
common stocks. The Fund defines an emerging market company as an entity (i)
organized under the laws of, and with a principal office in, an emerging market
country (as defined in "Investment Objectives and Policies" below); (ii) that
derives 50% or more of its total revenues from either goods or services produced
or performed in, or from sales made in emerging market countries (and which may
be located in a "gateway" country, as defined in "Investment Objectives and
Policies"); or (iii) for which the principal securities market is located in an
emerging market country.
The Guardian Investment Quality Bond Fund(SM)
(Class A and Institutional Class).
The "Bond Fund" seeks a high level of current income and capital
appreciation without undue risk to principal. The Bond Fund normally invests at
least 80% of the value of its assets in (i) corporate bonds and other debt
obligations rated in one of the four highest rating categories established by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") (commonly referred to as investment grade bonds); and (ii) U.S.
government securities and obligations of U.S. government agencies and
instrumentalities. The Bond Fund's assets typically include mortgage-backed
securities and asset-backed securities.
The Guardian High Yield Bond Fund(SM)
(Class A, Class B and Institutional Class).
The "High Yield Fund" seeks current income. Capital appreciation is a
secondary objective. The High Yield Fund normally invests at least 75% of the
value of its assets in corporate bonds and other debt obligations, rated below
investment grade (below Baa by Moody's or below BBB by S&P), commonly known as
"junk bonds." Investments in these types of securities are subject to a greater
risk of loss of principal and interest than investments in higher rated
securities.
The Guardian Tax-Exempt Fund(SM)
(Class A only).
The "Tax-Exempt Fund" seeks to maximize current income exempt from federal
income taxes, consistent with preservation of capital. The Tax-Exempt Fund
invests at least 80% of its net assets in intermediate-term and long-term
investment grade municipal obligations. These are debt securities that are
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia, and their political subdivisions, agencies,
authorities and instrumentalities, the interest on which is, in the opinion of
bond counsel to the issuer, exempt from federal income tax ("Municipal
Obligations").
The Guardian Cash Management Fund(SM)
(Class A and Class B) which invests in money market instruments.
The "Cash Fund" seeks as high a level of current income as is consistent
with liquidity and preservation of capital. The Cash Fund primarily invests in
short-term money market instruments such as commercial paper, certificates of
deposit, bankers acceptances, U.S. government securities, repurchase agreements
and other corporate obligations. Although not guaranteed, the Cash Fund is
expected to maintain a stable price of $1.00 per share.
4
<PAGE>
See "Investment Objectives and Policies" for information about each
Portfolio Fund's investment program. There can be no assurance that a particular
Portfolio Fund will achieve its investment objective.
o Who Should Invest; Risk Factors
An investor should select the Portfolio Funds which reflect his or her
financial goals, time horizon and risk tolerance. No single Portfolio Fund is
intended to provide a complete or balanced investment program, but each can
serve as one component of an investor's program to accumulate assets for
retirement, college tuition or other major goals.
By investing in a Portfolio Fund, an investor assumes the risks of
investing in the types of securities acquired by that Portfolio Fund. Investing
in securities involves varying degrees of market risk, credit or financial risk,
and prepayment risk. Foreign securities present additional special risks. For
example, political, social and economic developments abroad might adversely
affect foreign investments. Often, there is less information publicly available
about foreign issuers, so it can be more challenging to assess the viability and
prospects of foreign companies. The value of investments that are denominated in
foreign currencies may be adversely affected by fluctuations in foreign currency
values. In addition, given the particular risks associated with investing in
developing countries, an investment in the Emerging Markets Fund should be
considered speculative.
There are also special risks associated with investment in high yield debt
securities. These bonds, which are commonly known as "junk bonds" may provide
higher yields, but present a higher risk of loss of interest and principal, as
well as a greater risk of default. These securities may also be more susceptible
to changes in economic or market conditions than investment grade bonds,
resulting in greater price volatility. At times, the markets in which these
securities are traded may be less liquid than the markets for higher rated
securities. Lower liquidity may adversely affect the price at which a particular
security may be sold. Accordingly, an investment in the High Yield Fund should
also be considered speculative.
Each Portfolio Fund's net asset value per share (i.e., share price) will
fluctuate to reflect changes in the value of the securities in its portfolio.
The value a shareholder receives upon redemption of a Portfolio Fund's shares
may be higher or lower than the amount of the original investment.
An investor considering the purchase of shares of a Multiple Class Fund
should choose the class that best suits their needs and circumstances. An
investor should keep in mind that Class B shares have higher overall operating
expenses than Class A shares, a difference that will be reflected in the net
asset value and investment experience of each class. Also, it should be noted
that investors in Class B shares will have the full amount of their purchase
initially invested since there is no initial sales load, while the initial
investment made by investors in Class A shares will reflect the deduction of an
initial sales load. At redemption, Class B shares may be subject to a contingent
deferred sales load, while no such charge is imposed on Class A shares.
Investors who are able to meet the $3 million minimum initial investment
requirement of the Institutional Class should consider purchasing such shares
since there is no sales load and this class will generally have lower operating
expenses than either Class A or Class B shares.
The table on the following page summarizes certain characteristics of each
Portfolio Fund. However, there can be no assurance that a Portfolio Fund will
show these characteristics at all times. In addition, see "Risk Considerations,"
"Investment Objectives and Policies" and "Special Investment Techniques."
5
<PAGE>
===============================================================================
The Park Avenue Portfolio -- Characteristics of the Funds
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Risk of Share
Fund Growth Potential Income Potential Price Change Typical Investments
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Park Avenue High Low High U.S. common stocks and convertible securities
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap High Low Very High U.S. common stocks and convertible securities
of companies with small market capitalization
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Efficient High Low High Common stocks and other equity securities
- -----------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Moderate Moderate Moderate U.S. common stocks and convertible securities;
investment grade debt obligations, including
mortgage-backed and asset-backed securities,
and U.S. government securities; money market
instruments through investments in Park Avenue
Fund, Bond Fund and Cash Fund
- -----------------------------------------------------------------------------------------------------------------------------------
International High Low High Common stocks and convertible securities issued
by foreign companies
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets High Low Very High Common stocks and convertible securities issued
by companies in emerging market countries
- -----------------------------------------------------------------------------------------------------------------------------------
Bond Low High Moderate Investment grade debt obligations, including
mortgage-backed and asset-backed securities, and
U.S. government securities
- -----------------------------------------------------------------------------------------------------------------------------------
High Yield Low High Very High Lower rated, high yield debt obligations commonly
known as "junk bonds", including convertible securities.
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Low High Moderate Investment grade debt obligations issued by state and
local authorities
- -----------------------------------------------------------------------------------------------------------------------------------
Cash N/A Low-Moderate Low Money market instruments
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
o Investment Advisers and Distributor
Guardian Investor Services Corporation ("GISC") and Guardian Baillie
Gifford Limited ("GBG") are the Portfolio Funds' investment advisers. GISC is
wholly owned by The Guardian Insurance & Annuity Company, Inc. ("GIAC") which,
in turn, is wholly owned by The Guardian Life Insurance Company of America
("Guardian Life"). GBG was formed by GIAC and the Scottish investment management
firm of Baillie Gifford Overseas Limited ("BG Overseas"). BG Overseas, which
serves as the sub-investment adviser for the International Fund and the Emerging
Markets Fund, is wholly owned by Baillie Gifford & Co., a Scottish firm which
provides investment management services to institutional investors. GISC also
acts as principal underwriter and distributor of all of the Portfolio Funds'
shares, provides services to the Funds pursuant to an administrative services
agreement and provides additional distribution-related services to the Class B
shares of the Multiple Class Funds under a 12b-1 plan. See "Management." The
investment advisory and administrative services fees paid by all of the Funds
and the 12b-1 fees paid by the Multiple Class Funds are set forth in the
"Transaction Costs and Fund Expenses" table.
o Purchases
Shares of a Portfolio Fund may be purchased at the "public offering price"
which is a Fund's net asset value per share ("NAV"), plus any applicable sales
load. Each Portfolio Fund's NAV is calculated as of the close of business on
each day that the New York Stock Exchange ("NYSE") is open. All Investors may
select either Class A shares of any Portfolio Fund or Class B shares of the
Multiple Class Funds. Eligible investors may select Institutional Class shares
of the Multiple Class Funds. Investors who are considering whether to purchase
Class A or Class B shares of the Multiple Class Funds should evaluate factors
such as the amount of their investment and the length of time it is expected
that the shares will be held. See "How to Purchase Shares."
o Minimum Initial Investment
For purchases of either Class A or Class B shares of a Portfolio Fund, the
minimum initial investment is $1,000 per Portfolio Fund. Additional payments
6
<PAGE>
must be at least $100. The minimum for both initial and additional payments
through payroll deduction plans is $50. The minimum initial investment for
Institutional Class shares of a Portfolio Fund is $3,000,000. See "Calculation
of Net Asset Values" and "How to Purchase Shares".
o Class A Shares
Class A shares of the Portfolio Funds, other than the Cash Fund, are
offered at net asset value plus any applicable initial sales load. The maximum
load is 4.50% of the NAV as of the close of business on the date of purchase (or
4.71% of the amount invested). Class A shares of the Cash Fund are offered at
NAV without a sales load. There is no initial load on purchases of Class A
shares of $1,000,000 or more; however, such shares are subject to a contingent
deferred sales load of 1% if the shares are redeemed within eighteen months of
the anniversary date of purchase. Class A shares may be more beneficial to
larger investors who do not qualify for Institutional Class shares, but will be
able to qualify for the lower sales loads that are applicable to larger Class A
share investments. See "Class A Shares -- Initial Sales Load Alternative".
o Class B Shares
Class B shares of the Multiple Class Funds are offered at NAV, without any
initial sales load. Class B shares are, however, sold subject to a contingent
deferred sales load ("CDSL") which is imposed if the shares are redeemed within
the first six years of the anniversary date of purchase. The maximum CDSL
imposed is 3.0% in the first year. The CDSL declines to 0% after the sixth
anniversary of purchase. The CDSL does not apply to increases in net asset value
of the Class B shares following the date of purchase. Class B shares acquired
pursuant to dividend reimbursement or distribution will not be subject to a CDSL
upon their redemption. Class B shares automatically convert into Class A shares
(which pay lower ongoing operating expenses) after the eighth anniversary of
purchase. The maximum investment which will be accepted for the purchase of
Class B shares of a Portfolio Fund is $250,000. See "Class B Shares --
Contingent Deferred Sales Load Alternative".
o Institutional Class Shares
Institutional Class shares of the Multiple Class Funds are offered at NAV,
without any initial or contingent sales load. The minimum initial investment is
$3 million. There is no subsequent minimum investment amount.
o Redemptions
Shares of a Portfolio Fund may be redeemed at the NAV next determined
after the transfer agent receives a proper redemption request. A CDSL may be
imposed on redemptions of Class B shares and certain Class A shares. Redemption
requests may be made in writing, by telephone (if such privilege has been
previously requested), or, for Class A shares of the Cash Fund only, by check.
Shares of the Portfolio Funds may also be redeemed through selected
broker-dealer firms. Such broker-dealers may charge fees for their services in
addition to any other currently applicable sales loads. See "How to Redeem
Shares".
o Special Purchase and Redemption Plans
The Portfolio Funds offer the following special purchase and redemption
programs: Automatic Investment Plan, Rights of Accumulation, Investment by
Letter of Intent, Automatic Withdrawal Plan and Checkwriting from the Class A
shares of Cash Fund. See "Special Purchase and Redemption Plans".
o Dividends
Net investment income is normally distributed semi-annually by the Park
Avenue, Small Cap, Tax-Efficient Asset Allocation, International and Emerging
Markets Funds, and monthly by the Bond, High Yield, and Tax-Exempt Funds. Net
realized short-term and long-term capital gains for these Portfolio Funds are
distributed at least annually. The Cash Fund declares dividends of net
investment income and net realized capital gains daily, and such dividends are
distributed monthly.
Income and capital gains dividends can be automatically reinvested in
additional shares of the distributing Portfolio Fund without a sales load. See
"Dividends and Distributions" and "Shareholder Services".
7
<PAGE>
o Exchanges
Shares of one class of a Portfolio Fund may generally be exchanged for
shares of the same class of another Portfolio Fund without the imposition of an
initial sales load or CDSL. Shares of one class of a Portfolio Fund may not be
exchanged for shares of another class of any Portfolio Fund. Shares are
exchanged at their relative NAV's as next determined after the transfer agent
receives a proper exchange request, except that a sales load may be imposed upon
certain exchanges from the Class A shares of the Cash Fund to the shares of the
other Class A Portfolio Funds. Any applicable CDSL payable upon the redemption
of Class A or Class B shares following an exchange will be calculated from the
date of the initial purchase of Class A or Class B shares, not from the date of
the exchange. The Portfolio Funds also offer Dollar Cost Averaging, an automatic
exchange program. See "Exchanges" and "Taxes".
8
<PAGE>
9
<PAGE>
The Park Avenue Portfolio
Transaction Costs and Fund Expenses
================================================================================
This table is intended to assist investors in understanding the expenses
associated with investing in Class A or Class B shares of the Portfolio Funds.
The table shows the percentages of annual expenses incurred for the year ended
December 31, 1997. Information presented in the table is just an example, and
actual expenses can be higher or lower than those shown. The percentages for the
High Yield Fund and the Tax-Efficient Fund are based on estimated expenses for
their first year of operations. The "Examples" assume a 5% annual rate of return
and are based on the expenses shown in the table. This hypothetical rate of
return does not represent the past or future performance of any Portfolio Fund
or class thereof.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Park Avenue Small Cap Asset Allocation International
Fund* Fund Fund++ Fund
------------------------ ------------------------ ------------------------ -----------------------
Class A Class B Inst'l Class A Class B Inst'l Class A Class B Inst'l Class A Class B Inst'l
Class A Class B Class Class A Class B Class Class A Class B Class Class A Class B Class
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Load
Imposed on Purchases
(as a percentage of
NAV) 4.50% None None 4.50% None None 4.50% None None 4.50% None None
Maximum Sales Load
Imposed on Reinvested
Dividends None None None None None None None None None None None None
Deferred Sales Load
(as a percentage of
redemption proceeds) None 4.00% None None 4.00% None None 4.00% None None 4.00% None
Exchange Fee None None None None None None None None None None None None
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Portfolio Fund
Operating Expenses
(as a percentage of
average net assets)
Management Fees
(after waiver) .50% .50% .75% .75% .50% .50% .80% .80%
12b-1 Fees .00% .75% .00% .75% .00% .75% .00% .75%
Other Expenses
(after waiver)+
Total Fund Operating
Expenses (after expense
reimbursements)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This table does not reflect deductions for expenses which relate to owning
Class A Park Avenue Fund shares through a Value Guard variable annuity
contract. The Value Guard prospectus provides information about such
expenses.
** A sales load may be imposed upon certain exchanges from the Class A Cash Fund
to the other Class A Portfolio Funds. See "Exchanges."
*** The fees and expenses shown for the Class A Bond and Tax-Exempt Funds and
the Class A and Class B shares of the Cash Fund reflect GISC's assumption of
some or all of these Funds' "Other Expenses." If these Funds paid all of
their expenses, "Other Expenses" would be . % for the Bond Fund, . % for the
Tax-Exempt Fund, and . % and . %, respectively, for the Class A and Class B
shares of the Cash Fund. "Total Operating Expenses" would be % for the Bond
Fund, %for the Tax-Exempt Fund and % and %, respectively, for the Class A
and Class B shares of the Cash Fund, based on actual results for the year
ended December 31, 1997.
+ Includes Administrative Service Fee.
++ The fees and expenses shown for the Asset Allocation Fund reflect management
fee waivers by GISC that reduce the effective annual rate of the "Management
Fees" to .50%. See "Investment Advisers and Distributor". Absent such
waivers, the "Management Fees" would be . % for both classes of shares and
"Total Operating Expenses" would be % for Class A shares and % for Class B
shares.
10
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Tax-
Markets Exempt Bond Tax-Efficient High Yield
Fund Cash Fund*** Fund*** Fund*** Fund Fund
---------------------- --------------- ------- --------------- ---------------- -----------------------
Inst'l Inst'l Inst'l
Class A Class B Class Class A Class B Class A Class A Class Class A Class B Class A Class B Class
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Load
Imposed on Purchases
(as a percentage of
NAV) 4.50% None None None None 4.50% 4.50% None
Maximum Sales Load
Imposed on Reinvested
Dividends None None None None None None None None
Deferred Sales Load
(as a percentage of
redemption proceeds) None 4.00% None None 4.00% None None None
Exchange Fee None None None None** None None None None
- ---------------------------------------------------------------------------------------------------------------------------
Annual Portfolio Fund
Operating Expenses
(as a percentage of
average net assets)
Management Fees
(after waiver) 1.00% 1.00% None .50% .50% .50% .50% None
12b-1 Fees .00% .75% None .00% .75% .00% .00% None
Other Expenses
(after waiver)+
Total Fund Operating
Expenses (after expense
reimbursements)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This table does not reflect deductions for expenses which relate to owning
Class A Park Avenue Fund shares through a Value Guard variable annuity
contract. The Value Guard prospectus provides information about such
expenses.
** A sales load may be imposed upon certain exchanges from the Class A Cash Fund
to the other Class A Portfolio Funds. See "Exchanges."
*** The fees and expenses shown for the Class A Bond and Tax-Exempt Funds and
the Class A and Class B shares of the Cash Fund reflect GISC's assumption of
some or all of these Funds' "Other Expenses." If these Funds paid all of
their expenses, "Other Expenses" would be . % for the Bond Fund, . % for the
Tax-Exempt Fund, and . % and . %, respectively, for the Class A and Class B
shares of the Cash Fund. "Total Operating Expenses" would be % for the Bond
Fund, % for the Tax-Exempt Fund and % and %, respectively, for the Class A
and Class B shares of the Cash Fund, based on actual results for the year
ended December 31, 1997.
+ Includes Administrative Service Fee.
++ The fees and expenses shown for the Asset Allocation Fund reflect management
fee waivers by GISC that reduce the effective annual rate of the "Management
Fees" to .50%. See "Investment Advisers and Distributor". Absent such
waivers, the "Management Fees" would be . % for both classes of shares and
"Total Operating Expenses" would be % for Class A shares and % for Class B
shares.
11
<PAGE>
Examples of Fund Expenses
You would pay the following expenses on a hypothetical $1,000 investment
in each Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
1 Year 3 Years 5 Years 10 Years*
- ------------------------------------------------------------------------------
Park Avenue Fund
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
Small Cap Fund
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
Tax-Efficient Fund**
Class A
Class B
- ------------------------------------------------------------------------------
Asset Allocation Fund
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
International Fund
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
Emerging Markets Fund
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
Cash Fund
Class A
Class B
- ------------------------------------------------------------------------------
Tax-Exempt Fund
Class A
- ------------------------------------------------------------------------------
Bond Fund
Class A
Institutional Class
- ------------------------------------------------------------------------------
High Yield Fund**
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
* Ten-year figures reflect the conversion of Class B shares to Class A shares
after the eighth anniversary of purchase.
** Because they are new Funds, these expenses are estimated for the
Tax-Efficient and High Yield Funds, and information is presented only for the
one- and three-year periods.
12
<PAGE>
- --------------------------------------------------------------------------------
You would pay the following expenses on a hypothetical $1,000 investment
in each Fund, assuming (1) a 5% annual return and (2) no redemption at the end
of each time period:
1 Year 3 Years 5 Years 10 Years*
- ------------------------------------------------------------------------------
Park Avenue Fund
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
Small Cap Fund**
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
Tax-Efficient Fund**
Class A
Class B
- ------------------------------------------------------------------------------
Asset Allocation Fund
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
International Fund
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
Emerging Markets Fund
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
Cash Fund
Class A
Class B
- ------------------------------------------------------------------------------
Tax-Exempt Fund
Class A
- ------------------------------------------------------------------------------
Bond Fund
Class A
Institutional Class
- ------------------------------------------------------------------------------
High Yield Fund**
Class A
Class B
Institutional Class
- ------------------------------------------------------------------------------
* Ten-year figures reflect the conversion of Class B shares to Class A shares
after the eighth anniversary of purchase.
** Because they are new Funds, these expenses are estimated for the
Tax-Efficient and High Yield Funds, and information is presented only for the
one- and three-year periods.
13
<PAGE>
o The Guardian Cash Management Fund
Selected data for a Class A and Class B share of beneficial interest
outstanding throughout the periods indicated:
<TABLE>
<CAPTION>
====================================================================================================
Class A
------------------------------------------------------------------------------
Six Months
Ended
June 30,
1997 Year Ended December 31,
(unaudited) 1996 1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value, begin-
ning of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
- ----------------------------------------------------------------------------------------------------
Income from
investment
operations
Net investment
income 0.023 0.045 0.051 0.034 0.021 0.030 0.053 0.076
- ----------------------------------------------------------------------------------------------------
Distributions to
shareholders
Dividends from
net invest-
ment income (0.023) (0.045) (0.051) (0.034) (0.021) (0.030) (0.053) (0.076)
- ----------------------------------------------------------------------------------------------------
Net asset value,
end of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
- ----------------------------------------------------------------------------------------------------
Total return 2.32% 4.62% 5.22% 3.48% 2.15% 3.06% 5.70% 7.91%
====================================================================================================
Ratios/Supple-
mental Data:
Net assets, end
of period
(000's
omitted) $103,406 $88,217 $69,913 $56,730 $34,731 $37,780 $44,054 $47,143
Ratio of
expenses to
average
net assets 0.85%** 0.90% 0.85% 0.87% 1.02% 0.70% 0.67% 0.65%
Ratio of
expenses
subsidized
by GISC 0.32%** 0.30% 0.37% 0.50% 0.42% 0.44% 0.35% 0.41%
Ratio of net
investment
income
to average
net assets 4.64% 4.62% 5.10% 3.54% 2.13% 3.01% 5.30% 7.57%
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
----------------------------------- ----------------------
Three Six Months
Months Year Ended May 1,
Ended Ended June 30, 1996* to
Dec. 31, September 30, 1997 Dec. 31,
1989 1989 1988 1987 (unaudited) 1996
===============================================================================
<S> <C> <C> <C> <C> <C> <C>
Net asset
value, begin-
ning of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
- -------------------------------------------------------------------------------
Income from
investment
operations
Net investment
income 0.086 0.024 0.066 0.053 0.023 0.028
- -------------------------------------------------------------------------------
Distributions to
shareholders
Dividends from
net invest-
ment income (0.086) (0.024) (0.066) (0.053) (0.023) (0.028)
- -------------------------------------------------------------------------------
Net asset value,
end of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
- -------------------------------------------------------------------------------
Total return 8.60%*** 2.40% 6.60% 5.30% 2.32% 2.81%***
===============================================================================
Ratios/Supple-
mental Data:
Net assets, end
of period
(000's
omitted) $33,821 $21,961 $20,603 $19,618 $4,239 $2,583
Ratio of
expenses to
average
net assets 0.65%** 1.00% 1.00% 1.00% 0.85%** 1.16%**
Ratio of
expenses
subsidized
by GISC 0.52%** 0.38% 0.28% 0.35% 1.13%** 0.59%**
Ratio of net
investment
income
to average
net assets 8.56%** 7.63% 6.32% 5.34% 4.64%** 4.43%**
===============================================================================
</TABLE>
* Commencement of operations of Class Bshares.
** Ratios are annualized.
*** Not annualized.
14
<PAGE>
Investment Objectives and Policies
Each Portfolio Fund has its own investment objective and policies. A
Portfolio Fund's investment objective is a fundamental policy which may not be
changed without shareholder approval. Certain investment restrictions are also
fundamental policies that may not be changed without shareholder approval.
Non-fundamental investment techniques, policies and restrictions may be changed
by the Portfolio's Board of Trustees without shareholder approval.
Each Portfolio Fund's investment program is highlighted below. The
Portfolio Funds' investment restrictions, additional investment techniques and
certain other features are described under "Special Investment Techniques" and
in the Statement of Additional Information.
o The Guardian Park Avenue Fund
The Park Avenue Fund seeks long-term growth of capital. Income is not a
specific objective, although it is anticipated that long-term growth of capital
will be accompanied by growth of income.
The Park Avenue Fund attempts to achieve its objective by normally
investing at least 80% of the value of its total assets in a diversified
portfolio of U.S. common stocks and convertible securities. The Park Avenue Fund
intends to be fully invested in such securities unless circumstances dictate
otherwise.
GISC employs quantitative investment models, both proprietary and
non-proprietary, to analyze and evaluate each security which may be purchased,
held or sold by the Park Avenue Fund. These models are used to identify those
securities that represent good relative value in the marketplace and have
reasonable prospects for superior relative price performance. GISC uses
information from numerous sources and value, momentum and other market factors
to modify and refine the quantitative models over time. GISC can also change the
proportion of the Park Avenue Fund's assets which are invested in particular
companies and industries based on its evaluation of the outlook for specific
industries, companies and the economy.
Convertible securities are bonds or preferred stock issues which may be
converted at a specified time and price into shares of common stock of the same
or different issuers. Convertible securities are typically senior to common
stock in a corporation's capital structure, so they may entail less risk than
common stocks. Convertible securities purchased by the Park Avenue Fund will
primarily be rated in one of the top four rating categories established by
nationally recognized statistical rating organizations, making them investment
grade. However, the Fund may acquire convertible securities without regard to
their ratings. See the Statement of Additional Information.
From time to time, the Park Avenue Fund may invest up to 5% of its net
assets in securities of U.S. or foreign companies which are issued and settled
overseas. The Park Avenue Fund may enter into forward foreign currency exchange
contracts in connection with its investments in foreign securities. The Park
Avenue Fund may also invest in repurchase agreements. See "Risk Considerations"
and "Special Investment Techniques."
If adverse market conditions necessitate a defensive posture, the Park
Avenue Fund may temporarily invest some or all of its assets in debt
obligations, including U.S. government securities, investment grade corporate
bonds, commercial paper rated Prime-2 or higher by Moody's or A-2 or higher by
S&P, repurchase agreements, cash and cash equivalents.
o The Guardian Park Avenue Small Cap Fund
The Small Cap Fund seeks long-term growth of capital. Income is not a
specific objective, although it is anticipated that long-term growth of capital
will be accompanied by growth of income.
The Small Cap Fund attempts to achieve its objective by normally investing
at least 85% of its total assets in a diversified portfolio of common stocks and
convertible securities issued by companies with small market capitalization.
These are companies whose total market capitalization places them within the
range of issuers included in the Russell 2000 Index. The Russell Indexes are
formulated to serve as a comprehensive representation of the investable domestic
equity market. These indexes, which are comprised solely of common stocks issued
by companies domiciled in the U.S. or
15
<PAGE>
its territories, are value weighted. The Russell 2000 Index is a subset of the
larger, Russell 3000 Index, which measures the performance of the 3,000 largest
domestic companies, based on total market capitalization. The Russell 2000 Index
measures the performance of the 2,000 smallest companies in the Russell 3000
Index. As of December 31, 1997, the market capitalization of the companies
included in the Russell 2000 Index ranged from $20 million to $2.97 billion.
Some of the small companies in which the Fund may invest may be unseasoned. The
Small Cap Fund may invest up to 15% of total assets in the securities of issuers
which have less than three years of continuous operations. See "Risk
Considerations" for a detailed discussion of the risks associated with investing
in smaller companies.
In selecting investments for the Small Cap Fund, GISC will consider the
investment fundamentals and the risk/reward prospects for each security. These
evaluations are supplemented through the use of various quantitative investment
models, both proprietary and non-proprietary, to identify those securities that
represent good relative value in the marketplace and have reasonable prospects
for superior relative price performance. GISC believes that this multi-faceted
process will enhance investment performance and will improve the consistency of
portfolio results over time. GISC can change the proportion of the Fund's assets
that are invested in particular companies and industries based on its evaluation
of the outlook for specific industries and companies and the economy.
From time to time, the Small Cap Fund may invest up to 10% of its net
assets in securities of U.S. or foreign companies which are issued or settled
overseas in the form of American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or other similar securities. An ADR is a
dollar-denominated security issued by a U.S. bank or trust company which
represents, and may be converted into, a foreign security. An EDR is similar,
but is issued by a European bank. ADRs and EDRs may not be denominated in the
same currency as the securities into which they may be converted. Typically,
ADRs, in registered form, are designed for issuance in U.S. securities markets
and EDRs, in bearer form, are designed for issuance in European securities
markets. All such investments will be U.S. dollar-denominated. In addition, the
Small Cap Fund may invest up to 5% of its net assets in foreign securities and
foreign currency exchange contracts. Further information about foreign
securities is contained in "Risk Considerations" and the Statement of Additional
Information.
The Small Cap Fund typically invests its available cash in repurchase
agreements. See "Special Investment Techniques". If adverse market conditions
necessitate a defensive posture, the Fund may temporarily invest some or all of
its assets in debt obligations, including U.S. government securities, investment
grade corporate bonds, commercial paper, repurchase agreements and cash
equivalents.
o The Guardian Park Avenue Tax-Efficient Fund
The Tax-Efficient Fund seeks long-term growth of capital.
The Tax-Efficient Fund seeks to achieve its objective by normally
investing at least 80% of the value of its total assets in a diversified
portfolio of common stocks and other equity securities. It is intended that in
managing this portfolio, GISC will, to the fullest extent practicable, endeavor
to manage the portfolio so as to minimize and defer the taxes incurred by
shareholders in connection with the Fund's investment income and realized
capital gains.
Taxes have a major effect on a fund's performance and the net return
received by shareholders. Taxable dividends and net realized short-term capital
gains (i.e., those received from securities held in a portfolio less than 12
months) distributed to individuals by mutual funds are taxed as ordinary income
and may be subject to the current federal income tax rate of up to 39.6%.
Mid-term capital gains (i.e., those received from securities held in a portfolio
between 12-18 months) may be taxed to individual investors at the present
federal income tax level of 28%. Long term capital gains (i.e., those received
from securities held in a portfolio longer than 18 months) may be taxed to
individual investors at the present federal income tax level of 20%. After
tax-returns received by investors may be further eroded by the effect of state
taxes on distributions as well.
GISC employs quantitative models and fundamental analysis to evaluate each
security considered
16
<PAGE>
for purchase or sale by the Tax-Efficient Fund. These models are used to
identify those securities which represent good relative value in the marketplace
and have the best prospects for superior long-term capital appreciation. In
choosing portfolio securities for the Tax-Efficient Fund, GISC will seek lower
yielding securities and may minimize investment in income producing issues. The
Fund will attempt to minimize taxes on realized capital gains by maintaining
relatively low portfolio turnover and by generally avoiding realized short-term
and mid-term gains.
GISC may also use certain investment techniques designed to reduce (but
not eliminate) the payment by the Tax-Efficient Fund of taxable distributions to
shareholders, thereby reducing the impact of taxes on shareholder returns. When
a decision is made to sell a particular appreciated security, the Fund will
generally select for sale those securities with holding periods sufficient to
qualify for long-term capital gains treatment and, among those, the securities
with the highest cost basis. The Fund may, when prudent, sell securities to
realize capital losses that can be used to offset realized capital gains.
The Tax-Efficient Fund may use financial futures contracts, options on
securities or securities indices and warrants as tax-advantaged hedging
techniques. GISC believes that engaging in these transactions may protect
against price declines in securities holdings that have developed large
accumulated capital gains (as opposed to selling the holdings and realizing the
capital gains). The Tax-Efficient Fund may also engage in transactions involving
warrants and long-term options such as LEAPS. LEAPS are long-term options on
individual stocks that provide the owner the right to purchase or sell shares of
a stock at a specified price on or before a given date up to two years in the
future. The risks associated with engaging in futures and options transactions
are described under "Special Investment Techniques".
The Tax-Efficient Fund may engage in short sales "against the box" in
order to hedge against possible market declines in the value of particular
securities owned. A short sale "against the box" is one in which, at the time of
the short sale, the Fund owns or has the right to obtain securities equivalent
in kind and amount without further consideration being paid. The Tax-Efficient
Fund may enter into a short sale against the box to hedge against a possible
market decline in the value of the security owned. To effect a short sale
against the box, the Fund borrows from a broker the securities which are sold in
the short sale, and the broker holds the proceeds until the borrowed securities
are replaced. If the value of the security sold short against the box increases,
the Fund would suffer a loss when it purchases or delivers to the selling broker
the security sold short. If a broker with which the Fund has open short sales
were to become bankrupt, the Fund could experience losses or delays in
recovering gains on short sales.
From time to time, the Tax-Efficient Fund may invest up to 25% of its net
assets in foreign securities, which may include securities of U.S. or foreign
companies which are issued or settled overseas in the form of ADRs, EDRs or
other similar securities. ADRs and EDRs are described above under "The Guardian
Park Avenue Small Cap Fund." Further information about foreign securities is
contained in "Risk Considerations" and the Statement of Additional Information.
The Tax-Efficient Fund typically invests its available cash in repurchase
agreements. See "Special Investment Techniques." If adverse market conditions
necessitate a defensive posture, the Fund may temporarily invest some or all of
its assets in debt obligations, including U.S. government securities, investment
grade corporate bonds, commercial paper, repurchase agreements and cash
equivalents. When the Fund invests in these instruments, the Tax-Efficient Fund
may generate higher taxable distributions.
o The Guardian Baillie Gifford
International Fund
The International Fund seeks long-term growth of capital. Income is not a
specific objective, although it is anticipated that growth of capital will be
accompanied by dividend income, which may vary depending on the location of the
investments.
The International Fund attempts to achieve its objective by ordinarily
investing at least 80% of its total assets in a diversified portfolio of common
stocks issued by companies that are domiciled out-
17
<PAGE>
side of the United States and in securities which are convertible into such
common stocks.
The International Fund does not normally concentrate its investments in
any particular industry or country. Under normal circumstances, at least 65% of
the International Fund's total assets will be invested in companies which are
domiciled in at least three different countries outside of the United States.
However, there are no limitations on the percentage of portfolio assets which
may be invested in securities of issuers from any one country at any given time.
By investing in several countries, the International Fund should, in theory,
decrease the degree to which events in any one country can affect its entire
portfolio. It is anticipated that a significant portion of the International
Fund's investments will normally be divided among four main geographic areas --
Continental Europe, the United Kingdom, Japan and the markets of the Far East
(including Australia and New Zealand).
The International Fund varies its geographic scope based on continuous
evaluations of economic, market and political trends worldwide. To determine how
portfolio assets will be geographically allocated, the International Fund's
advisers consider the conditions and growth potential of various economies and
securities markets, currency exchange rates, technological developments in
various countries, and other pertinent financial, social, national and political
information. The International Fund attempts to distribute its assets among
securities issued by companies at different stages of development, ranging from
large, well-established companies to smaller and newer companies. Securities
issued by smaller companies may be less liquid and subject to greater market
volatility and credit risk than those issued by larger companies.
The International Fund may invest in foreign issuers through sponsored
ADRs and EDRs, or similar investment vehicles. ADRs and EDRs are described above
under "The Guardian Park Avenue Small Cap Fund".
The International Fund may significantly alter its portfolio as a
temporary defensive measure if its advisers believe that investments in
international equity securities are at risk because of current or anticipated
political or economic conditions. In such event, the International Fund may,
without any percentage limit, acquire investment grade non-convertible preferred
stock, debt obligations, foreign or U.S. government securities, and domestic or
foreign money market instruments.
The International Fund's operating expenses are typically higher than the
expenses incurred by mutual funds that invest exclusively in U.S. equity
securities. Brokerage commissions and custodial fees related to foreign
investments are often higher than those associated with investments in U.S.
securities.
If the U.S. government restricts any type of foreign investment which may
be made by or through the International Fund, the Portfolio's Board of Trustees
will promptly take steps to determine whether significant changes in the Fund's
portfolio are appropriate.
o The Guardian Baillie Gifford Emerging Markets Fund
The Emerging Markets Fund seeks long-term capital appreciation. Income is
not a specific objective, although it is anticipated that growth of capital will
be accompanied by dividend income, which may vary depending on the location of
the investments.
The Emerging Markets Fund, under normal conditions, invests at least 65%
of its total assets in common stocks issued by emerging market companies and in
securities that are convertible into such common stocks. The Fund defines an
emerging market company as an entity (i) organized under the laws of, and with a
principal office in, an emerging market country (as defined below); (ii) that
derives 50% or more of its total revenue from either goods or services produced
or performed in, or from sales made in emerging market countries (and which may
be located in a "gateway" country, as described below); or (iii) for which the
principal securities market is located in an emerging market country. Investing
in emerging markets involves greater risk than investing in more developed
markets. Thus, an investment in the Emerging Markets Fund should be considered
speculative. See "Risk Considerations".
As defined by the Emerging Markets Fund, an emerging market country
includes any country whose economy or markets are considered to be emerging or
developing by the International Finance Corpo-
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ration and the World Bank, as well as countries which are classified by the
United Nations as developing. The adviser determines the potential universe of
emerging market countries for investment. The Fund currently expects to invest
in issuers located in some or all of the following emerging market countries:
Argentina, Brazil, Chile, China, Colombia, the Czech Republic, Greece, Hungary,
India, Indonesia, Israel, Jordan, Malaysia, Mexico, Pakistan, Peru, Philippines,
Poland, Portugal, the Slovak Republic, South Africa, South Korea, Sri Lanka,
Taiwan, Thailand, Turkey, Venezuela, and Zimbabwe. The list of countries in
which the Emerging Markets Fund will potentially invest will vary from time to
time, based upon the investment adviser's assessment of a particular country's
present suitability for investment. The Fund may also invest in issuers located
in countries which may be deemed by the adviser to be "gateways" into emerging
market countries, such as Austria (which serves as a gateway to Eastern European
countries such as Hungary and the Czech Republic).
In addition, the Emerging Markets Fund may ordinarily invest up to 35% of
its net assets in a combination of (i) debt securities of government or
corporate issuers in emerging market countries; (ii) debt and equity securities
of issuers in developed markets; and (iii) cash and money market instruments.
Emerging market debt securities are often rated below investment grade, or
may not be rated by rating agencies in the United States. Normally, the Emerging
Markets Fund will not invest more than 10% of its total assets in debt
securities that are not rated at least investment grade, or if unrated,
determined to be of comparable quality by the investment adviser. The Emerging
Markets Fund is not required to sell automatically when the ratings assigned to
any of its holdings are reduced below investment grade. Investment in
non-investment grade debt securities (commonly known as "junk bonds") are
considered predominantly speculative with regard to the payment of interest and
principal and therefore carry greater risk, including the possibility of issuer
default or bankruptcy. See "Risk Considerations".
Certain emerging market countries prohibit direct foreign investment in
their capital markets and limit investors in those markets, such as the Emerging
Markets Fund, to government-authorized investment companies. In accordance with
the Investment Company Act of 1940 (the "1940 Act"), the Emerging Markets Fund
may invest up to 10% of its total assets in securities of other investment
companies. Shares of these investment companies may at times be acquired at
market prices representing a premium over the actual net asset value of their
portfolio securities. If shares of another investment company are acquired,
shareholders of the Emerging Markets Fund would bear both their proportionate
share of the expenses of the Fund and, indirectly, a proportionate share of the
expenses of the other investment company as well.
For liquidity purposes, the Emerging Markets Fund may hold cash in U.S.
dollars and foreign currencies, or invest in short-term securities, including
repurchase agreements and domestic and foreign money market instruments. In
addition, the Emerging Markets Fund may enter into forward foreign currency
transactions, or acquire other currency instruments to attempt to minimize the
effects of changes in foreign exchange rates. The Fund may use options or
financial futures to hedge against market or currency risks. See "Special
Investment Techniques".
The Emerging Markets Fund may significantly alter its portfolio as a
temporary defensive measure if its advisers believe that investments in
international equity securities are at risk because of current or anticipated
political or economic conditions. In such event, the Emerging Markets Fund may,
without any percentage limit, acquire investment grade non-convertible preferred
stock, debt obligations, foreign or U.S. government securities, and domestic or
foreign money market instruments.
The Emerging Markets Fund's operating expenses are typically higher than
the expenses incurred by mutual funds that invest exclusively in U.S. equity
securities. Brokerage commissions and custodial fees related to foreign
investments are often higher than those associated with investments in U.S.
securities.
If the U.S. government restricts any type of foreign investment which may
be made by or through the Emerging Markets Fund, the Portfolio's Board
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of Trustees will promptly take steps to determine whether significant changes in
the Fund's portfolio are appropriate.
o The Guardian Investment Quality Bond Fund
The Bond Fund seeks a high level of current income and capital
appreciation without undue risk to principal.
The Bond Fund normally invests at least 80% of the value of its total
assets in (i) investment grade corporate bonds and other debt obligations and
(ii) U.S. government securities and obligations of U.S. government agencies and
instrumentalities. The Bond Fund's assets typically include mortgage-backed and
asset-backed securities. Under normal conditions, at least 65% of the Bond
Fund's total assets will be invested in debt obligations. A debt obligation is a
certificate or evidence of debt. The issuer of a debt obligation promises to pay
interest for a specified period and to repay the debt on a specified date.
Investment grade bonds are secured and unsecured debt obligations which
are either assigned ratings within the four highest rating categories
established by nationally recognized statistical ratings organizations
("NRSROs"), such as Moody's or S&P, or which are deemed by GISC to be comparable
to such securities. Obligations rated Baa by Moody's or BBB by S&P are deemed to
be investment grade, but such obligations are considered more speculative than
obligations that receive higher ratings. Changes in economic conditions or other
circumstances could lessen the ability of the issuers of securities rated Baa or
BBB to make principal and interest payments.
A portion of the Bond Fund's assets may be rated lower than investment
grade, typically when ratings assigned to investment grade debt obligations
acquired by the Fund are downgraded. Low-quality debt is considered to be
predominantly speculative with respect to the issuer's ability to make principal
and interest payments. (See "Risk Considerations.") The Bond Fund is not
required to sell a security automatically when its rating is downgraded below
investment grade. Normally, less than 10% of the Bond Fund's assets will be
invested in such low-quality debt.
The Bond Fund may invest in mortgage-backed securities, such as mortgage
pass-throughs and collateralized mortgage obligations ("CMOs"). A mortgage
pass-through is collateralized by a pool of mortgages that have a common coupon
rate (i.e., interest rate) and maturity. The holders of a particular mortgage
pass-through share the rights to receive interest and principal payments from
the underlying pool of mortgages, net of servicing fees, as payment for debt
service on the pass-through. CMOs are collateralized by pooled mortgage loans
that may not share coupon rate and maturity characteristics, and are sold as
multi-class bonds. CMO classes have different interests in the stream of
interest and principal payments from the underlying pool of mortgages. Hence,
the classes are typically paid sequentially according to the payment structure
of the CMO. CMOs may be issued or guaranteed by the U.S. government and its
agencies or instrumentalities, or by private entities.
Mortgage-backed securities issued by the Government National Mortgage
Association ("GNMA") are backed by the full faith and credit of the U.S.
government. Privately owned, government sponsored agencies like the Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC") issue their own guarantees for interest and principal
payments on the mortgage-backed securities and other obligations they issue.
These guarantees are supported only by the issuer's credit or the issuer's right
to borrow from the U.S. Treasury. Accordingly, such investments may involve a
greater risk of loss of principal and interest than other U.S. government
securities since the Bond Fund must look principally or solely to the issuing or
guaranteeing agency or instrumentality for repayment.
Privately issued mortgage-backed securities purchased by the Bond Fund
must be fully collateralized by GNMA certificates, other government
mortgage-backed securities, or by whole loans. Whole loans are securitized
mortgage pools backed by fixed or adjustable rate mortgages originated by
private institutions.
Mortgage-backed securities may be more sensitive to interest rate changes
than conventional bonds which can result in greater price volatility. Because
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the collateral underlying mortgage-backed securities may be
prepaid at any time, mortgage-backed securities are also subject to greater
prepayment risks than conventional bonds. Accelerated prepayments of
mortgage-backed securities purchased at a premium impose a risk of loss of
principal because the premium may not have been fully amortized when the
principal is repaid. Prepayments tend to accelerate when interest rates decline,
so prepaid mortgage-backed security proceeds are then likely to be reinvested at
lower interest rates. The Statement of Additional Information contains more
information about mortgage-backed securities, including securities known as
"interest only" and "principal only" stripped mortgage securities.
The Bond Fund may also invest in asset-backed securities. Asset-backed
securities, which are structured similarly to mortgage-backed securities, are
collateralized by interests in pools of loans, receivables or other obligations
originated by single or multiple lenders and may use similar credit
enhancements. The underlying assets, which include motor vehicle installment
purchase contracts, home equity loans, credit card receivables and other credit
arrangements, are securitized in pass-through structures similar to mortgage
pass-throughs or in pay-through structures similar to CMO's. The Bond Fund may
invest in these and other types of asset-backed securities that may be developed
in the future.
One of the principal characteristics which distinguishes asset-backed
securities from mortgage-backed securities is that asset-backed securities
generally do not have the benefit of first lien security interests in the
related collateral. Certain receivables such as credit card receivables are
generally unsecured, and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, certain of which may hinder the right
to receive full payment. Also, the security interests in the underlying
collateral may not be properly transferred when the pool is created, resulting
in the possibility that the collateral may be resold. Some asset-backed
securities may also have prepayment risk due to refinancing of their
receivables. Generally, these types of loans are of shorter average life than
mortgages, but may have average lives of up to 10 years. These securities, all
of which are issued by non-governmental entities, carry no direct or indirect
governmental guarantees.
In addition, the Bond Fund may invest in trust-preferred (or "capital")
securities. These securities, which are issued by entities such as special
purpose bank subsidiaries, currently are permitted to treat the interest
payments as a tax-deductible cost. Capital securities, which have no voting
rights, have a final stated maturity date and a fixed schedule for periodic
payments. In addition, capital securities have provisions which afford
preference over common and preferred stock upon liquidation, although the
securities are subordinated to other, more senior debt securities of the same
issuer. The issuers of these securities retain the right to defer interest
payments for a period of up to five years, although interest continues to accrue
cumulatively. The deferral of payments may not exceed the stated maturity date
of the securities themselves. The non-payment of deferred interest at the end of
the permissible period will be treated as an incidence of default.
At the present time, the Internal Revenue Service treats capital
securities as debt. Proposed legislation may cause this tax treatment to be
modified in the future. In the event that the tax treatment of interest payments
of these types of securities is modified, the Bond Fund will reconsider the
appropriateness of continued investment in these securities.
Some of the Bond Fund's investments may have variable interest rates. When
an instrument provides for periodic adjustments to its interest rate,
fluctuations in principal value may be minimized. However, changes in the coupon
rate can lag behind changes in market rates, which may adversely affect the Bond
Fund's performance.
The Bond Fund also invests in Treasury bills, Treasury notes and Treasury
bonds, all of which are backed by the full faith and credit of the U.S.
government. From time to time, the Bond Fund may also invest up to 10% of its
total net assets in securities of U.S. or foreign companies which are issued and
settled overseas. All such investments will be U.S. dollar-denominated. (See
"Risk Considerations.") The Bond Fund may invest in so-called "Yankee
Securities", which are securities issued by non-U.S. issuers, denominated in
U.S. dollars, and which trade and are capable of settlement in U.S. markets.
Issuers of Yankee Securities may be corpo-
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rate or government entities.
The Bond Fund may engage in dollar roll and reverse repurchase agreement
transactions when the adviser believes it would be advantageous to do so. (See
"Special Investment Techniques" for a fuller description).
The Bond Fund may invest its available cash in repurchase agreements;
commercial paper which is issued in reliance on the "private placement"
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 ("Section 4(2) paper"); and commercial paper which satisfies the Cash
Fund's credit quality requirements. (See "The Guardian Cash Management Fund.")
Additional investment techniques used by the Bond Fund are described under
"Special Investment Techniques."
o The Guardian High Yield Bond Fund
The High Yield Fund seeks current income. Capital appreciation is a
secondary objective.
The High Yield Fund normally invests at least 75% of the value of its
total assets in corporate bond and other debt securities that at the time of
purchase are rated below investment grade (lower than Baa by Moody's or lower
than BBB by S&P) or are unrated, but deemed by GISC to be of comparable quality.
These securities are commonly as known as "junk bonds". The fixed income
securities in which the Fund may invest include, but are not limited to,
domestic and foreign debt obligations such as debentures, notes, bonds,
equipment lease certificates and equipment trust certificates, as well as
preferred stocks and convertible bonds. The interest rates of these securities
may be fixed, contingent, floating or variable. Whenever GISC believes it would
be advantageous to the Fund, the High Yield Fund's assets will also include any
investment grade rated security.
The debt obligations in which the High Yield Fund invests are generally
rated in the lower rating categories or are unrated, but deemed by GISC to be of
comparable quality. There is no minimally acceptable lower limit as to rating
categories for securities in which the High Yield Fund may invest and certain of
the securities purchased and held by the Fund may be in default and thus, rated
in the lowest rating category. While lower rated securities typically provide
higher yields than higher rated securities, there is frequently additional risk
associated with such investments. The price and liquidity of lower rated or junk
securities tend to be more directly affected by short-term market and credit
developments than investment grade securities which react primarily to
fluctuations in the general level of interest rates. A downturn in the economic
cycle may result in a more direct adverse effect on the value of certain lower
rated bonds, particularly those representing the debt of highly leveraged
issuers. Accordingly, these securities tend to have more price volatility and
represent more risk to principal and income than investment grade rated
securities. In addition, the liquidity of these securities may be affected,
thereby making it difficult to either price or dispose of a particular portfolio
security. Because of the unique investment characteristics of high yield
securities, GISC will perform its own credit analysis of a particular security
in addition to considering its rating by an NRSRO.
The High Yield Fund may invest a portion of its assets in corporate bonds
issued in connection with highly leveraged transactions such as mergers,
leveraged buy-outs, recapitalizations and acquisitions. These bonds, while high
yielding, may be subject to particularly high credit risk of issuer bankruptcy
or default. The ability of such issuers to meet their repayment and debt service
obligations may be impaired in periods of economic uncertainty. The Fund may
also invest in the debt securities for which payments of interest and principal
are currently in arrears at the time the securities are acquired or whose
issuers are in bankruptcy or undergoing reorganization. These securities may be
among the lowest rated obligations (C by Moody's or D by S&P), or alternatively,
may be unrated.
The High Yield Fund may also purchase zero coupon bonds, or pay-in-kind
bonds. Zero coupon bonds, which are issued at a significant discount from face
value, do not make periodic interest payments and the obligation becomes due
only upon maturity. Pay-in-kind securities ("PIK bonds") make periodic interest
payments either in cash or in the form of additional securities. The value of
both zero coupon bonds and PIK's may be more sensitive to fluctuations in
interest rates than other bonds.
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Federal tax law requires that the interest on these securities be accrued as
income to the Fund regardless of the fact that the Fund will not receive cash
until such securities mature. Since the income must be distributed to
shareholders, the Fund may be forced to liquidate other securities in order to
make the required distribution.
The High Yield Fund may also invest in loan participation interests, which
are interests in loans made to corporate, governmental or other borrowers. These
interests take the form of interests in, or assignments of loans, and are
acquired from banks, insurance companies or other financial institutions that
have either made the loans or participated in the loan syndicate. These
interests, which may be of any credit quality, involve the risk of insolvency or
default by the borrower. In addition, participation interests carry the risk of
insolvency of the lender from which the interest was acquired.
Like the Bond Fund, a portion of the High Yield Fund's assets may be
invested in securitized instruments, including mortgage-backed and asset-backed
securities. (See "The Guardian Investment Quality Bond Fund" for a fuller
description).
The High Yield Fund may also invest in common stocks, warrants to purchase
common stocks, bonds or preferred stock convertible into common stock or other
equity securities. The total investment in convertible and equity securities
will normally not exceed 25% of the Fund's net assets. Convertible securities
are bonds or preferred stock issues which may be converted at a specified time
or price into shares of common stock of the same or different issuers.
Convertible securities may also include units consisting of bonds and warrants
or securities which provide a specified or capped return to the holder.
Convertible security holders are entitled to receive interest until the security
either matures or is converted. The yields available on convertible securities
are higher than those on common stock, but are lower than the yields on straight
debt securities. Since convertible securities have certain fixed income
characteristics, they may provide the benefit of a lesser degree of fluctuation
in value than the underlying stock, but may also provide the potential for
capital appreciation if the market price of the underlying stock increases. It
is intended that the Fund's primary equity investments will be the result of
convertible conversions of equity securities attached to fixed income securities
or received in debt workout or restructures. Those convertible securities in
which the High Yield Fund may invest are likely to be either rated below
investment grade or unrated at the time of purchase. Accordingly, these
securities may be subject to the same credit considerations and risks as junk
bonds.
The Fund may also invest in Treasury bills, Treasury notes and Treasury
bonds, all of which are backed by the full faith and credit of the U.S.
government. From time to time, the High Yield Fund may invest up to 25% of its
total net assets in the dollar denominated securities of U.S. or foreign
companies which are issued and settled overseas. (See "Risk Considerations").
Like the Bond Fund, the High Yield Fund may also invest in so-called "Yankee
Securities". (See "The Guardian Investment Quality Bond Fund" for a fuller
description of these instruments). The Fund may enter into forward foreign
currency transactions, or acquire other currency instruments to attempt to
minimize the effects of changes in foreign exchange rates.
The High Yield Fund may use certain investments such as financial futures
contracts, options on futures contracts, options on securities or securities
indicies to hedge against market, interest rate or currency risks. Additionally,
the High Yield Fund may invest in other derivative instruments that are
developed over time if their use is consistent with the Fund's investment
objective and policies. The purchase and sale of these derivative securities may
permit the Fund to gain rapid exposure to markets in response to changes in
investment policy, inflows of investable capital or when the purchase of these
instruments may be more cost effective to the Fund than the direct purchase of
the underlying securities. For further information concerning the use of these
techniques, see "Special Investment Techniques".
The High Yield Fund may also invest in a form of derivatives known as
structured securities. This type of instrument involves the depost with, or
purchase by an entity, such as a corporation or trust, of specified securities
or loans and the issuance by that entiry of single or multiple classes of
securities which are either backed by, or represent interests in,
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the underlying securities. The cash flow on the underlying pool of instruments
may be apportioned among the various classes with the goal of creating
securities with differing maturities, payment priorities and interest rate
provisions. The value of the principal or interest on certain other structured
securities may be positively or negatively linked to currencies, interest rates,
commodities, indices or other financial indicators ("reference instruments").
The interest rate or principal amounts payable at the time of maturity or
redemption may vary depending on changes in the value of the reference
instruments. While in general, an investor in these securities will bear the
market risk of the underlying instruments, the credit risk of certain classes of
the security may be lessened by credit enhancements offered by the issuer.
Certain classes may have higher yields than others and thus, may involve greater
risk than others. These securities may be deemed to be investment companies, as
defined by the 1940 Act, and investment by the High Yield Fund may, accordingly,
be limited by the SEC rules.
Like the Bond Fund, the High Yield Fund is permitted to engage in
dollar rolls and reverse repurchase agreements when GISC believes it would be
advantageous to do so. (See "Special Investment Techniques" for a fuller
description of these instruments). The High Yield Fund may also invest its
available cash in repurchase agreements and Section 4(2) commercial paper and
commercial paper which satisfies the Cash Fund's credit quality requirements
(See "The Guardian Cash Management Fund"). Additional investment techniques used
by the High Yield Fund are described under "Special Investment Techniques".
o The Guardian Tax-Exempt Fund
The Tax-Exempt Fund seeks to maximize current income exempt from
federal income taxes, consistent with preservation of capital. The Tax-Exempt
Fund has adopted a fundamental investment policy to invest at least 80% of its
net assets in a diversified portfolio of investment-grade Municipal Obligations.
Municipal Obligations are securities which are issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies, authorities and
instrumentalities, the interest on which is, in the opinion of bond counsel to
the issuer, exempt from federal income tax. GISC relies on such opinions without
independent verification.
Municipal Obligations are generally issued to obtain funds for
public purposes, such as the construction of highways, bridges, schools,
hospitals and roads. They may also be issued to refinance outstanding
obligations, to obtain funds for general operating expenses, or to provide funds
to other public institutions and facilities. Certain industrial development
bonds issued by or on behalf of public authorities to build or operate sports
arenas, airports, and pollution control sites are also Municipal Obligations.
Municipal Obligations are classified as general or specific
obligation bonds, revenue bonds and notes. General obligation bonds are secured
by the issuer's full faith, credit and taxing power. Specific obligation bonds
and revenue bonds are payable from the proceeds of a special excise tax or other
specific revenue source. Tax-exempt industrial development bonds are typically
revenue bonds that are guaranteed solely by the corporate entity on whose behalf
they are issued. Notes are short-term obligations which are sold by
municipalities in anticipation of a bond sale, collection of taxes or receipt of
revenues. Notes are issued to meet short-term funding requirements. The
Tax-Exempt Fund is not limited with respect to which category of Municipal
Obligations it may purchase, though it will limit its investments in industrial
development bonds to 20% of its net assets.
The Tax-Exempt Fund primarily invests its assets in
intermediate-term Municipal Obligations, which have an average weighted maturity
of 7 to 12 years, and in long-term Municipal Obligations, which have an average
weighted maturity of 15 to 25 years. The Tax-Exempt Fund does not have
percentage limitations on the amount of its assets to be allocated to each term
category. Thus, substantially all of the Tax-Exempt Fund's assets may be
invested in either intermediate-term or long-term Municipal Obligations at any
one time.
Bonds and short-term Municipal Obligations purchased by the Tax-Exempt Fund
must be investment grade when acquired. Municipal Obligations
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which carry the lowest investment-grade rating may have some speculative
characteristics. Changes in economic conditions or other circumstances could
lessen the ability of an issuer of such bonds to make principal and interest
payments. The Tax-Exempt Fund's portfolio may include securities that are
downgraded after acquisition. The Tax-Exempt Fund is not required to sell a
security automatically when its rating is reduced below investment grade.
Normally, less than 10% of the Tax-Exempt Fund's assets will be invested in such
low-quality debt. See "Risk Considerations."
The Tax-Exempt Fund may invest more than 25% of the value of its total
assets in Municipal Obligations which pay interest from similar revenue sources
or securities which are offered within a single state. When Municipal
Obligations are related in these ways, an economic, business or political
development which affects one security could also affect the other related
securities. This investment practice may subject the Tax-Exempt Fund to greater
risks than a fund which does not concentrate its assets in this manner.
From time to time, the Tax-Exempt Fund may invest up to 20% of its net
assets in obligations which pay interest that is subject to regular federal
income tax, or in private activity bonds. The interest on private activity bonds
is a tax preference item for the purpose of the federal alternative minimum tax
("AMT"). The AMT is a special tax that applies only to certain taxpayers. If the
Tax-Exempt Fund receives interest which is treated as a tax preference item, a
proportionate share of any exempt-interest dividend which it pays to its
shareholders may be treated as a preference item for those shareholders who are
subject to the AMT. See "Taxes."
The Tax-Exempt Fund may also purchase tax- exempt floating and variable
rate demand notes and bonds. Variable rate demand notes include master demand
notes. Master demand notes are frequently secured by letters of credit or other
credit supports, which are not expected to adversely affect the tax- exempt
status of these obligations. Master demand notes are redeemable at face value,
but there is no established secondary market for them. Accordingly, when these
obligations are not secured, the Tax-Exempt Fund's right to redeem depends on
the borrower's ability to pay principal and interest on demand. GISC
continuously considers the creditworthiness of the issuers of any floating and
variable rate demand obligations in the Tax-Exempt Fund's portfolio to attempt
to minimize this risk. Master demand notes with a demand feature extending for
more than seven days are treated as illiquid securities. See "Special Investment
Techniques."
The Tax-Exempt Fund may also invest in zero coupon securities ("Zeros").
Zeros are issued or sold at a steep discount from their face value, and do not
pay interest prior to maturity or a specified redemption date. The market prices
of zero coupon securities generally are more volatile than the market prices of
interest-bearing securities. Accordingly, Zeros are more likely to respond to
interest rate changes than interest-bearing securities having similar maturities
and credit qualities.
The Tax-Exempt Fund may acquire "stand-by commitments" with respect to
Municipal Obligations to facilitate liquidity in its portfolio. The Tax-Exempt
Fund may also purchase tender option bonds and similar securities. (See the
Statement of Additional Information.) Additional investment techniques used by
the Tax-Exempt Fund are described under "Special Investment Techniques."
o The Guardian Cash Management Fund
The Cash Fund seeks as high a level of current income as is consistent
with liquidity and preservation of capital.
To attempt to achieve this objective, the Cash Fund invests in U.S.
dollar-denominated money market instruments which satisfy the credit quality
requirements described below and mature in 13 months or less or which have a
variable rate of interest that is readjusted no less frequently than every 13
months. Such money market instruments include U.S. government securities (such
as agency obligations and U.S. Treasury notes, bills or bonds), commercial
paper, certificates of deposit or bankers acceptances issued by banks or savings
and loan associations, repurchase agreements and other corporate obligations.
The Cash Fund may also invest in unregistered commercial paper which is issued
in reliance on the "private placement" exemption
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afforded by Section 4(2) of the Securities Act of 1933 ("Section 4(2) paper").
The Cash Fund may not invest more than 5% of its total assets in the securities
of any one issuer except U.S. government securities. The Cash Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less.
The Cash Fund may invest up to 25% of its net assets in certificates
of deposit issued by foreign branches of U.S. banks (known as "Euro CDs") and by
U.S. branches of foreign banks (known as "Yankee CDs"), provided that each
issuing bank's net worth is at least $100,000,000. Such investments present
additional and different risks than U.S. obligations, and correspondingly expose
the Cash Fund to risks which are not faced by money market mutual funds which
invest only in domestic obligations. See "Risk Considerations."
In addition, the Cash Fund may invest in other instruments which are
fully secured or collateralized by the types of obligations described above.
Such instruments will generally be limited to repurchase agreements with
domestic branches of domestic banks.
The Cash Fund's investments consist only of obligations that GISC
determines to present minimal credit risks. GISC follows guidelines adopted by
the Portfolio's Board of Trustees to make such determinations, and the Board
receives reports about GISC's adherence to such guidelines. The guidelines
prescribe that the instruments acquired by the Cash Fund be rated within the two
highest short-term ratings categories assigned by the requisite number of
NRSROs, or, if unrated, be deemed by GISC to be of comparable quality.
Instruments or issuers that have received the highest short-term ratings from at
least two NRSROs, or which have received the highest rating from the single
NRSRO assigning a rating, are considered to be "First Tier Securities" under
Rule 2a-7 of the 1940 Act. Such investments may not yield as high a level of
current income as longer term or lower grade investments, which are generally
less liquid and fluctuate more in value.
The Cash Fund intends to invest primarily in First Tier Securities.
However, it may from time to time buy securities that are rated within the two
highest short-term ratings categories, but which are not First Tier Securities.
Such "Second Tier" investments will be limited to no more than 5% of the Cash
Fund's total assets, based on amortized cost, with investments relating to any
one issuer limited to the greater of 1% of total assets or $1,000,000.
The Cash Fund's rate of return will vary with the returns on its
portfolio investments. Although the Cash Fund seeks to maintain a stable NAV of
$1.00 per share, the prices of its portfolio investments typically vary with
interest rate movements. A national credit crisis or the insolvency of an issuer
of an instrument held by the Cash Fund could precipitate sufficient price
declines to cause the Fund to fail to maintain its stable NAV.
o The Guardian Asset Allocation Fund
The Asset Allocation Fund seeks long-term total investment return
consistent with moderate investment risk. Total investment return consists of
income and changes in the market value of the Asset Allocation Fund's
investments.
The Asset Allocation Fund uses theoretical models to allocate its assets
among the following types of securities: U.S. common stocks and convertible
securities; investment grade corporate debt securities and U.S. government
securities, including mortgage-backed and asset-backed securities; and money
market instruments. GISC may use theoretical models developed and maintained by
a third party, or may use its own models.
The Asset Allocation Fund attempts to achieve its objective by investing
its assets in accordance with its theoretical models. Ordinarily, the Asset
Allocation Fund invests the equity portion of its assets in the Park Avenue
Fund, the debt portion of its assets in the Bond Fund and the cash portion in
the Cash Fund. This is known as a "fund of funds" arrangement. The Asset
Allocation Fund invests in these other Funds by purchasing Class A shares of
those Funds, with a waiver of the sales load. By investing in these other
Portfolio Funds rather than in individual securities, the Asset Allocation Fund
is better able to diversify its holdings. The Asset Allocation Fund may also
invest in individual securities, including, but not limited to, money market
instruments and certain options and futures used in shifting the Asset
Allocation Fund's investments among different sectors, when the investment
adviser believes it is
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advisable to do so. By investing in the Park Avenue Fund, the Bond Fund and the
Cash Fund, the Asset Allocation Fund is subject to the same risks associated
with direct investment in those Funds.
The distribution of the Asset Allocation Fund's assets among asset classes
fluctuates from a "neutral position" of 60% allocated to the equity class and
40% allocated to the debt class. Shifts are expected to be modest in magnitude
and gradual in occurrence, but there is no limit on the portions of the Asset
Allocation Fund's assets which may be shifted at any one time. Nor does the Fund
have percentage limitations on the amount to be allocated to any asset class.
Accordingly, from time to time, substantially all of the Asset Allocation Fund's
assets may be invested in equity securities, or debt obligations, or money
market instruments. Generally, however, the models provide for the following
ranges: 20% to 80% equity securities; 20% to 70% debt obligations; and 0% to 60%
money market instruments.
The theoretical models evaluate information about the economy, the markets
and other financial and technical factors on a daily basis to provide "signals"
about portfolio allocations. There can be no assurance that allocations among
asset classes made by GISC in response to the signals will result in the most
favorable return to investors. However, by allocating assets among different
classes and adjusting the mix to reflect the models' perceptions of economic and
market trends, it is anticipated that the Asset Allocation Fund's performance
will be less volatile than that of mutual funds which concentrate their
investments in one asset class.
The Asset Allocation Fund may use financial futures contracts and options
on securities or securities indices to reallocate its assets among asset
classes. GISC believes that engaging in these transactions may generally provide
a hedge against changes in market conditions while minimizing the transaction
costs which the Fund can incur when its portfolio is reallocated. For example,
if the Asset Allocation Fund reallocates 10% of its assets from equities to
debt, it might sell stock index financial futures and purchase bond futures.
Because the transaction costs associated with options and futures tend to be
lower than the costs of buying and selling securities, it is expected that using
options and futures may reduce the Asset Allocation Fund's total transaction
costs. The risks associated with engaging in options and futures transactions
and other investment techniques used by the Asset Allocation Fund are described
under "Special Investment Techniques."
Risk Considerations
The levels and types of risks associated with investing in a Portfolio
Fund generally correspond to the risks associated with the types of investments
it makes. Those risks are generally described throughout this Prospectus and the
Statement of Additional Information. In addition, investors should consider the
risks described below.
Market risk is the chance that an equity security's price will be
influenced by stock market trends, and the risk that a debt obligation's price
will fall as interest rates rise and rise as interest rates fall. Generally, the
prices of bonds with longer maturities fluctuate more than shorter-term bonds
when interest rates change. U.S. government securities, Municipal Obligations
and mortgage-backed and asset-backed securities, like other debt obligations,
are subject to market risk.
Financial or credit risk relates to an issuer's financial condition. In
general, equity securities issued by weakening companies have declining prices,
and there is a higher likelihood that such issuers will fail to make principal
and interest payments under their debt obligations. NRSROs may downgrade the
ratings assigned for such issuers, highlighting their higher credit risk. U.S.
government securities are substantially protected from financial or credit risk.
However, certain agency obligations, while of the highest credit quality, do not
have a direct U.S. government guarantee.
Prepayment risk is the possibility that a debt security will be prepaid
(or "called") prior to its expected maturity date, and that the proceeds could
be invested at lower interest rates. Intermediate-term and long-term bonds
commonly provide call protection, but mortgage-backed and asset-backed
securities can be prepaid whenever their underlying collateral is prepaid. When
a security is called early, the potential for additional appreciation is lost.
If a premium was paid to acquire a called security, there may even be principal
losses. Prepayments occur
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more frequently when interest rates decline.
Small companies may present greater opportunities for investment return,
but may also involve greater risks. They may have limited product lines,
markets, or financial resources, or may depend on a limited management group.
While the markets in securities of small companies have grown rapidly in recent
years, such securities may trade less frequently and in smaller volume than more
widely-held securities. The values of these securities may fluctuate more
sharply than those of other securities, and a Fund may experience some
difficulty in establishing or closing out positions in these securities at
prevailing market prices. There may be less publicly-available information about
the issuers of these securities or less market interest in such securities than
in the case of larger companies, and it may take a longer period of time for the
prices of such securities to reflect the full value of their issuers' underlying
earnings potential or assets.
A security that is rated lower than investment grade may be somewhat or
predominantly speculative with respect to its issuer's ability to make principal
and interest payments. While lower rated obligations generally offer higher
current yields than higher grade issues, they also involve higher market and
credit risks. Low quality debt can be particularly sensitive to adverse changes
in general economic conditions, the financial condition of its issuer, or
stresses in its issuer's industry. In the event that an issuer of these
securities defaults, a Portfolio Fund which holds these securities may incur
additional expenses to seek recovery. In periods of economic uncertainty, the
market values of these securities could become more volatile than higher rated
securities, which may adversely affect a Portfolio Fund's net asset value. Since
the markets for these securities may be less liquid, it may be more difficult
for a Portfolio Fund to dispose of particular instruments on a timely basis.
Securities issued or settled overseas present additional and different
risks to the Portfolio Funds which invest in them. Foreign securities may be
affected by political, social and economic developments abroad. Foreign
companies and foreign financial institutions may not be subject to accounting
standards or governmental supervision comparable to their U.S. counterparts, and
there may be less public information about their operations. Foreign markets may
be less liquid or more volatile than U.S. markets and may offer less protection
to investors. Foreign countries may impose withholding taxes on interest income
from investments in securities issued there, or may enact confiscatory taxation
provisions targeted to certain investors. The time period for settling
transactions in foreign securities may be longer than the time period permitted
for the settlement of domestic securities transactions and there may be
increased risks associated with holding assets in custody abroad. In addition,
as described in the Statement of Additional Information, the market prices for
foreign securities are not determined at the same time of day as the NAVs for
the Funds that hold such securities. It may be difficult to obtain and enforce
judgments against foreign entities, and the expenses of litigation are likely to
exceed those which would be incurred in the United States. Investments in
foreign securities that are not denominated in U.S. dollars may be subject to
special risks, such as governmental regulation of foreign exchange transactions
and changes in currency exchange rates. Exchange rates can affect the value of
securities and the interest or earnings thereon irrespective of the performance
of such securities.
Investing in emerging markets, while offering the potential of more rapid
share price appreciation and long-term growth than may be available from
investments in more developed markets, also presents a corresponding higher
degree of risk. Emerging markets may be more likely to be subject to political
unrest and economic instability. The result could be nationalization,
expropriation or confiscation of assets, or repatriation of investment capital.
In the event of such governmental actions, a Fund that invests in such markets
could lose the entire value of a particular investment or group of investments
made in a particular market.
Certain emerging market countries have experienced substantial and, in some
cases, rapidly fluctuating rates of inflation for a number of years. Inflation
has, and may continue to have, a debilitating effect on the underlying economies
of these countries. Many emerging market countries are heavily dependent on
international trade and are
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particularly adversely affected by the imposition of trade barriers and other
protectionist measures, as well as the depreciation or devaluation of their
currencies, relative to the U.S. dollar. Certain currencies are not free
floating against the U.S. dollar, may not be internationally traded, or may not
be freely converted into other currencies. A devaluation or restriction in the
currencies in which a Fund's portfolio securities investments are made could
have an adverse impact on the Fund.
The securities markets in emerging countries may be less developed, and
offer less liquidity and more volatility than the markets of more developed
countries. Such markets have different clearance and settlement procedures and
there may be occasions where settlements are unable to keep pace with the volume
of securities transactions, making it difficult to complete such transactions.
The inability of a Fund to dispose of a particular portfolio security due to
settlement problems may result in the loss of other attractive investment
opportunities or, alternatively, in losses to the Fund due to subsequent
declines in the value of the portfolio security. If a Fund has entered into a
contract to sell the security, settlement problems could result in potential
Fund liability to the purchaser of that security.
The political or economic turmoil within a particular country or market
could also give rise to the possibility that trading of securities within a
particular market could be terminated or severely curtailed, thereby preventing
a Fund from either pricing or transacting in certain portfolio securities. The
1940 Act permits registered investment companies such as the Portfolio, on
behalf of a Fund, to request that the U.S. Securities and Exchange Commission
(the "SEC") make the determination that an emergency exists, thereby permitting
the Fund to suspend redemptions of its shares during the emergency period. In
the event that such circumstances should arise, the Fund would consider applying
to the SEC for a determination that an emergency exists within the meaning of
the 1940 Act. Prior to the receipt of the SEC's determination, portfolio
securities in the affected markets would be priced at fair value as determined
in good faith by or under the direction of the Trustees.
Future federal tax law changes may adversely affect the tax-exempt status
of interest on Municipal Obligations acquired by the Tax-Exempt Fund or of the
exempt-interest dividends paid by that Fund to its shareholders. Opinions
relating to the validity and tax-exempt status of Municipal Obligations are
rendered by the issuer's bond counsel when the obligations are issued. GISC
relies on such opinions without independent verification or update.
Leverage may be involved when more than 100% of a Portfolio Fund's assets
are invested. This can occur when a Fund enters into when-issued or
delayed-delivery transactions. The Portfolio Funds' investment advisers believe
that these transactions do not present the risks associated with other types of
leverage because, as required by SEC rules, the Funds segregate cash or liquid
high-grade debt securities with the Portfolio's custodian when using these
investment techniques. See "Special Investment Techniques".
Portfolio turnover rates for the Portfolio Funds are likely to vary from
year to year. Historical portfolio turnover rates for each of the Portfolio
Funds are set forth under "Financial Highlights". A higher portfolio turnover
rate can result in correspondingly greater transaction costs to a Portfolio
Fund, and increase its short-term capital gains or losses. A Portfolio Fund's
turnover rate will not be a limiting factor when its adviser wants to make
portfolio changes, but it will be considered by GISC in the management of the
Tax-Efficient Fund.
For the year ended December 31, 1997, the Bond Fund, and the Tax-Exempt
each experienced a portfolio turnover rate in excess of 100%. The Bond Fund's
higher portfolio turnover was primarily attributable to GISC's ongoing and
active asset allocation between various sectors of the bond markets. Corporate
bonds held in the portfolio at the beginning of the fiscal year were replaced by
treasury securities at fiscal year end. The Tax-Exempt Fund's higher portfolio
turnover rate was attributable to the ongoing replacement of short-term
commercial paper, and to purchases of larger blocks of Municipal Obligations in
place of smaller blocks of such securities.
Special Investment Techniques
This section describes various investment tech-
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niques which may be used to manage some or all of the Funds' portfolios of
investments. The Statement of Additional Information contains more detailed
information about the Portfolio Funds' investment practices.
o Repurchase Agreements (All Portfolio Funds)
In a repurchase agreement transaction, a Portfolio Fund purchases a debt
security and obtains a simultaneous commitment from the seller (i.e., a bank or
securities dealer) to repurchase that debt security at an agreed time and price,
reflecting a market rate of interest. The repurchase agreement's yield may be
unrelated to the coupon rate or maturity of the underlying security. Repurchase
agreements are fully collateralized (including the interest earned thereon) by
U.S. government securities, bank obligations, cash or cash equivalents, and are
marked-to-market daily during their respective terms. Deposits of additional
collateral may be required from the seller if the market value of a security
that is subject to a repurchase agreement falls below the resale price set forth
in the repurchase agreement. Costs, delays or losses could result if the seller
becomes bankrupt or is otherwise unable to repurchase a security that is subject
to a repurchase agreement. To minimize this risk, the investment adviser
evaluates the creditworthiness of potential repurchase agreement counterparties
pursuant to guidelines adopted by the Portfolio's Board of Trustees, and the
Board periodically receives and reviews information about the creditworthiness
of securities dealers and banks which enter into repurchase agreements with the
Portfolio Funds. No Portfolio Fund will enter into a repurchase agreement which
matures in more than seven days, if, as a result, more than the applicable
portion of its net assets would be invested in illiquid securities. See
"Illiquid Securities and Exempt Commercial Paper".
o Financial Futures Transactions
(Tax-Efficient, International, Emerging Markets, Bond, High Yield,
Tax-Exempt and Asset Allocation Funds)
These Portfolio Funds may purchase or sell interest rate futures contracts
and securities index futures contracts (collectively, "financial futures
contracts") in order to attempt to hedge against fluctuations in interest rates
or securities prices. Hedging occurs when these techniques are used with the
goal of managing or reducing risk to the portfolio. Interest rate futures
contracts obligate the long or short holder to take or make delivery of a
specified quantity of a financial instrument during a specified future period at
a specified price. Securities index futures contracts are similar in economic
effect, but they are based on a specific index of securities (rather than on
specified securities) and are settled in cash. These Portfolio Funds may also
purchase and write put and call options on financial futures contracts as an
attempt to hedge against market risks.
The Portfolio Funds may also invest in financial futures contracts when
the purchase of these instruments may provide more liquidity than the direct
investment in the underlying securities. The use of these instruments may permit
a Portfolio Fund to gain rapid exposure to the markets following a large inflow
of investable cash or in response to changes in investment strategy. The
purchase of a financial futures contract may also provide a Portfolio Fund with
a price advantage over the direct purchase of the underlying securities, either
based on a differential between the securities and the futures markets or
because of the lower transaction costs that are associated with these types of
instruments.
There are special risks associated with entering into financial futures
contracts. There may be an imperfect correlation between the price movements of
financial futures contracts and the price movements of the securities in which a
Portfolio Fund invests. There is also a risk that a Portfolio Fund will be
unable to close a futures position when desired because there is no liquid
secondary market for it.
The skills needed to use financial futures contracts effectively are
different from those needed to select a Portfolio Fund's investments. If a
Portfolio Fund's investment adviser misjudges the general direction of interest
rates or markets, the Fund's overall performance may be poorer than it would
have been if the Fund had not entered into financial futures contracts. It is
possible that a Portfolio Fund could lose money on a financial futures contract
and also on the price of related securities, adversely affecting the Portfolio
Fund's performance.
The risk of loss in trading financial futures con-
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tracts can be substantial due to the low margin deposits required and the
extremely high degree of leverage involved in futures pricing. A relatively
small price movement in a financial futures contract could have an immediate and
substantial impact, which may be favorable or unfavorable to a contractholder.
It is possible for a price-related loss to exceed the amount of a Portfolio
Fund's margin deposit.
The Bond Fund and the Tax-Exempt Fund may only engage in financial futures
transactions on commodities exchanges or boards of trade. A Portfolio Fund will
have the Portfolio's custodian segregate either cash or liquid high-grade debt
securities that are marked-to-market daily to the extent required to comply with
the 1940 Act whenever it engages in futures transactions. Segregating assets may
limit a Portfolio Fund's ability to pursue other investment opportunities.
None of the Portfolio Funds named above will enter into financial futures
contracts for speculative purposes.
o Options Transactions (Tax-Efficient, International, Emerging Markets,
Bond, High Yield, Tax-Exempt and Asset Allocation Funds)
These Portfolio Funds may purchase or write (sell) options on individual
securities, securities indices and financial futures contracts to attempt to:
(1) reduce the overall risk of their investments; (2) manage foreign currency
exposure (International and Emerging Markets Funds only); (3) protect unrealized
gains; (4) produce additional revenue; or (5) facilitate the sale of portfolio
securities for investment purposes. The Portfolio Funds engage in options
transactions as a hedging technique, and not for speculative purposes. Using
options as a successful hedge depends on the ability of the Funds' investment
advisers to predict pertinent market movements. Incorrect predictions may make
engaging in such transactions riskier to the Portfolio Funds than trading in the
securities which each Portfolio Fund is authorized to buy and sell.
No Portfolio Fund intends to write covered call options on more than 25%
of its net assets; nor write secured put options on more than 25% of its net
assets; nor purchase put and call options if more than 5% of its total assets
are invested in premiums on such options.
Basically, there are two types of options: call options and put options.
The purchaser of a call option acquires the right to buy a security at a fixed
price during a specified period. The writer (seller) of such an option is then
obligated to sell the security if the option is exercised, and bears the risk
that the security's market price will increase over the purchase price set by
the option. The purchaser of a put option acquires the right to sell a security
at a fixed price during a specified period. The writer of such an option is then
obligated to buy the security if the option is exercised, and bears the risk
that the security's market price will decline from the purchase price set by the
option. Options are typically purchased subject to a premium which can reduce
the risks retained by the option writer.
As the writer of a covered call option or the purchaser of a secured put
option, a Portfolio Fund must own securities that can be used to cover or secure
any such outstanding options. Also, when a Portfolio Fund writes a put option,
it must segregate with the Portfolio's custodian either cash or liquid,
high-grade debt securities that are marked-to-market daily. The value of such
segregated assets must at least equal the exercise price of the put option.
Segregating assets may limit the Fund's ability to pursue other investment
opportunities while options are outstanding. The cover for a call option that is
related to a foreign currency can be short-term debt securities having a value
equal to the option's face that are denominated in the same currency as the
call.
Options transactions can be voluntarily terminated before the exercise or
expiration of the options only by entering into closing transactions. The
ability to close out an option depends, in part, upon the liquidity of the
option market. If a Portfolio Fund cannot close an option when it wants, it may
miss alternative investment opportunities.
Options trade on U.S. or foreign securities exchanges and in the
over-the-counter ("OTC") market. Exchange listed options are three-party
contracts issued by a clearing corporation. They generally have standardized
prices, expiration dates and performance mechanics. In contrast, all the
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terms of an OTC option, including price and expiration date, are set by
negotiation between the buyer and seller (e.g., a Portfolio Fund and a
securities dealer or other financial institution). A Portfolio Fund could lose
any premium it paid for an OTC option, as well as any anticipated benefits of
the transaction, if its counterparty fails to perform under the option's terms.
To minimize this risk, the Portfolio Funds' investment advisers consider the
creditworthiness of any counterparties with whom the Funds may engage in OTC
options transactions. However, there can be no assurance that a counterparty
will remain financially stable while an OTC option is outstanding.
Generally, the staff of the SEC currently requires OTC options and any
assets used to cover such options to be treated as illiquid assets because OTC
options may not be actively traded. Until the SEC staff revises this position,
no Portfolio Fund will engage in OTC option transactions if, as a result, more
than the permitted portion of its net assets is invested in illiquid securities.
(See the Statement of Additional Information.)
o Privatizations
(International and Emerging Markets Funds)
Certain foreign governments have begun programs intended to privatize all
or part of their interests in government owned or controlled enterprises
("privatizations"). Investment in these enterprises may represent significant
opportunities for capital appreciation and, as such, may be attractive
investments under appropriate circumstances. Participation in privatizations by
foreign investors such as a Portfolio Fund may be limited by local law or
pursuant to terms which may be less advantageous than those offered to local
investors. There can be no assurance that foreign governments will continue to
sell enterprises currently owned or controlled or that privatization programs
will be successful.
o Dollar Roll and Reverse Repurchase Transactions
(Bond and High Yield Funds)
In a dollar roll transaction, a Portfolio Fund sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
purchase substantially similar securities on a specified future date from the
same party. In a dollar roll, the securities that are to be purchased will be of
the same type and have the same interest rate as the sold securities, but will
be supported by different pools of mortgages. A fund that engages in a dollar
roll forgoes principal and interest paid on the sold securities during the roll
period, but is compensated by the difference between the current sales price and
the lower forward price for the future purchase. In addition, the Funds earn
interest by investing the transaction proceeds during the roll period.
In a reverse repurchase agreement transaction, a Portfolio Fund sells
securities to a bank or securities dealer and agrees to repurchase them at an
agreed time and price. During the period between the sale and the forward
purchase, the Fund will continue to receive principal and interest payments on
the securities sold. A Portfolio Fund may also receive interest income similar
to that received in the case of dollar rolls.
A Portfolio Fund will normally use the proceeds of dollar roll and reverse
repurchase agreement transactions to maintain offsetting positions in securities
or repurchase agreements that mature on or before the settlement date for the
related dollar roll or reverse repurchase agreement. The market value of
securities sold under a reverse repurchase agreement or dollar roll is typically
greater than the amount to be paid for the related forward commitment. Reverse
repurchase agreements and dollar rolls involve the risk that the buyer of the
sold securities might be unable to deliver them when a Portfolio Fund seeks to
repurchase the securities. If the buyer files for bankruptcy or becomes
insolvent, such buyer or its representative may ask for and receive an extension
of time to decide whether to enforce the Fund's repurchase obligation. A
Portfolio Fund's use of the transaction proceeds may be restricted pending such
decision.
Whenever a Portfolio Fund enters into a dollar roll or reverse repurchase
agreement transaction, it will maintain cash, U.S. Government securities or
liquid, unencumbered securities that are marked to market daily in a segregated
account with the Fund's custodian. The value of such segregated assets must be
at least equal to the value of the forward commitment or repurchase obligation
(principal plus accrued interest), as applicable. Segregating assets may limit a
Portfolio Fund's ability to pursue other investment opportunities.
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Since a Portfolio Fund will receive interest on the securities or
repurchase agreements in which it invests the transaction proceeds, dollar rolls
and reverse repurchase agreements may involve leverage. However, since the
acquired securities or repurchase agreements must satisfy a Portfolio Fund's
credit quality requirements and mature on or before the settlement date for the
related dollar roll or reverse repurchase agreement, and because the Fund will
segregate assets as described above, GISC believes that these transactions do
not present the risks associated with other types of leverage. The Portfolio
Funds do not intend to enter into dollar roll or reverse repurchase agreement
transactions other than as described above, or for temporary or emergency
purposes. In addition, the staff of the Securities and Exchange Commission has
taken the position that dollar roll and reverse repurchase agreement
transactions are deemed to be borrowings within the meaning of the 1940 Act.
Although the Portfolio Funds intend to engage in such transactions only in the
limited circumstances described above, the use of such transactions will be
subject to a Fund's investment limitation on borrowings, set forth in the
Statement of Additional Information, which limits the aggregate borrowings of a
Portfolio Fund to no more than 331 1/43% of the value of the Fund's total
assets.
o When-Issued or Delayed-Delivery Transactions
(Small Cap, International, Emerging Markets, Bond, High Yield, Tax-Exempt and
Asset Allocation Funds)
In when-issued or delayed-delivery transactions, a Portfolio Fund commits
to purchase or sell particular securities, with payment and delivery to take
place at a future date. Although a Portfolio Fund does not pay for the
securities or start earning interest on them until they are delivered, it
immediately assumes the risks of ownership, including the risk of price
fluctuation. If a Fund's counterparty fails to deliver a security purchased on a
when-issued or delayed-delivery basis, there may be a loss, and the Fund may
have missed an opportunity to make an alternative investment.
Any Portfolio Fund which purchases securities on a when-issued or
delayed-delivery basis must segregate cash or liquid high-grade debt securities
that are marked-to-market daily with the Portfolio's custodian. The value of
such segregated assets must at least equal the Fund's forward commitments. If a
Portfolio Fund sells securities on a delayed-delivery basis, it must hold the
subject securities in a segregated account while the commitment is outstanding.
Segregating cash or securities can limit a Portfolio Fund's ability to pursue
other investment opportunities.
A Portfolio Fund engages in these transactions to acquire securities that
are appropriate for its portfolio while securing prices or yields that appear
attractive when the transactions occur. The Portfolio Funds do not engage in
these transactions to speculate on interest rate changes. However, each Fund
reserves the right to sell securities acquired on a when-issued or
delayed-delivery basis before settlement.
o Lending of Portfolio Securities (Small Cap, Bond, High Yield, Tax-Exempt and
Asset Allocation Funds)
These Portfolio Funds may lend their portfolio securities to securities
dealers, banks or other institutional investors to earn additional income. Such
loans must be continuously secured by collateral, and the loaned securities must
be marked-to-market daily. The Portfolio Funds will generally continue to be
entitled to all interest earned or dividends paid on the loaned securities,
though lending fees may be paid to the borrower from such interest or dividends.
The Portfolio Funds can increase their income through securities lending by
investing the cash collateral deposited by the borrower in short-term
interest-bearing obligations that meet the Funds' credit quality requirements
and investment policies. As with any extension of credit, however, there are
risks of delay in recovery of the loaned securities and collateral should a
borrower fail financially.
No Portfolio Fund will continue to lend securities if, as a result, the
aggregate value of securities then on loan would exceed 331 1/43% of that Fund's
total net assets. A significant portion of a Portfolio Fund's loan transactions
may be with only one or a few institutions at any given time. This practice can
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increase the risk to the Fund should a borrower fail.
Apart from lending their securities and acquiring debt securities, the
Portfolio Funds will not make loans to other persons.
o Forward Foreign Currency Transactions
(Park Avenue, International, Emerging Markets, High Yield and Small Cap Funds)
Forward foreign currency exchange contracts are used to try to manage the
risks associated with changes in exchange rates. A forward foreign currency
exchange contract is an agreement to exchange a specified amount of U.S. dollars
for a specified amount of foreign currencies at a specified future date. GISC or
GBG, as appropriate, generally uses currency exchange contracts to fix definite
prices for securities it has agreed to buy or sell for a Portfolio Fund. These
contracts are also used to hedge a Portfolio Fund's investments against adverse
exchange rate changes. The profitable use of forward foreign currency
transactions depends on the investment adviser's ability to predict changes in
exchange rates between the U.S. dollar and foreign currencies. A Fund may incur
either a gain or loss on these transactions, which require skills that are
different from those needed to select the Fund's investments. While forward
foreign currency transactions may help reduce losses on securities denominated
in foreign currencies, they may also reduce gains on such securities depending
on the actual changes in the subject currencies. No Portfolio Fund will enter
into forward foreign currency transactions for speculative purposes.
o Illiquid Securities and Exempt Commercial Paper (All Portfolio Funds)
Illiquid securities are securities which are not readily marketable at
their approximate value within seven days, or which are not registered under the
Securities Act of 1933 (the "1933 Act") (except as noted below), or which are
otherwise viewed as illiquid by the SEC staff. As noted above, repurchase
agreements which mature in more than seven days, certain variable rate master
demand notes and OTC options are treated as illiquid securities.
The absence of a trading market can make it difficult to ascertain the
value or dispose of illiquid securities, which, in turn, can adversely affect a
Portfolio Fund's ability to calculate its NAV or manage its portfolio. In
addition, if a significant portion of the Cash Fund's assets are or become
illiquid, that Fund may be unable to maintain a stable NAV of $1.00 per share.
The Statement of Additional Information sets forth each Portfolio Fund's upper
limit for investments in illiquid securities.
Securities which qualify under the exemption from registration for resales
to institutional investors provided by Rule 144A under the 1933 Act may be
treated by the Portfolio Funds as liquid, and purchased without regard to the
illiquidity limits set forth in the Statement of Additional Information,
provided that the Fund's adviser determines that such paper is liquid under
guidelines adopted by the Board of Trustees. Similarly, the Portfolio Funds
typically treat commercial paper which is issued in reliance on the "private
placement" exemption from registration provided by Section 4(2) of the 1933 Act
as liquid. If the institutional markets for such securities decline when a
Portfolio Fund has invested in them, the Fund could exceed its illiquidity
limit.
o Borrowing (All Portfolio Funds)
The Statement of Additional Information sets forth the restrictions on
borrowing adopted for each of the Portfolio Funds.
o Other (All Portfolio Funds)
New financial products and risk management techniques continue to be
developed. Each Portfolio Fund may use these instruments and techniques to the
extent and when consistent with its investment objectives or regulatory and
federal tax considerations.
Management
o The Board of Trustees
The Portfolio's Board of Trustees (the "Board") meets regularly to review
each Portfolio Fund's investments, performance, expenses, and other business
affairs. The Board elects the Portfolio's officers. The Board has nine members.
Five Trustees are not "interested persons" of the Portfolio, as that term is
defined in the 1940 Act. The names and business experience of the Trustees and
officers of the Portfolio are set forth in the Statement of Additional
Information.
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o Investment Advisers and Distributor
Guardian Investor Services Corporation
GISC serves as investment adviser and provides certain administrative
services and facilities necessary to conduct the ongoing business of the Park
Avenue, Small Cap, Tax-Efficient, Bond, High Yield, Tax-Exempt, Cash and Asset
Allocation Funds. GISC selects, buys and sells securities for these Portfolio
Funds; chooses brokers and dealers to effect the transactions; and negotiates
any brokerage commissions. Each of these Portfolio Funds pays GISC an investment
management fee for the services GISC provides. All payments are due on a
quarterly basis. The Portfolio Funds managed by GISC pay investment management
fees at an annual rate of 0.50% of their respective average daily net assets,
other than the Small Cap Fund, the Asset Allocation Fund, the High Yield Fund
and the Tax-Exempt Fund. The High Yield Fund and Tax-Efficient Fund each pay
GISC an annual advisory fee of 0.60% of their respective average daily net
assets.
The Small Cap Fund pays GISC an annual advisory fee of 0.75% of average
daily net assets. This management fee is greater than those paid by most mutual
funds. However, the Portfolio's Trustees believe that this fee is reasonable in
light of the nature of the services to be provided for the Fund. Additionally,
the Trustees believe this fee is appropriate in light of the fees charged by
other mutual funds that have investment objectives and policies similar to that
of the Small Cap Fund.
The Asset Allocation Fund is authorized to pay to GISC an annual advisory
fee of 0.65% of average daily net assets. However, as a "fund of funds",
described above under "Investment Objective and Policies", the effective annual
advisory fee paid by shareholders for advisory services is 0.50% of average
daily net assets, as a result of certain undertakings by GISC.
As a fund of funds, the structure of the advisory fee is as follows:
First, the portion of the Asset Allocation Fund's assets invested in other
mutual funds is subject to a proportionate share of the advisory fee paid by
each mutual fund in which the Fund invests. Since the Fund currently may invest
in the Park Avenue Fund, the Bond Fund and the Cash Fund, each of which pays an
annual advisory fee of 0.50% of average daily net assets, shareholders of the
Asset Allocation Fund bear an effective annual fee of 0.50% for assets invested
in those Portfolio Funds. The Fund does not impose any additional advisory fees
for the portion of its assets invested in other mutual funds. In addition, the
Asset Allocation Fund pays GISC a fee of 0.50% annually for the portion of the
Fund's assets that are invested in individual securities. In total, the Asset
Allocation Fund's shareholders are subject to advisory fees at an overall annual
rate of 0.50%. This fee structure is made possible because GISC has agreed,
while the Asset Allocation Fund operates as a fund of funds, to waive 0.15% of
the annual advisory fee which it is authorized to charge the Fund. GISC may only
discontinue this waiver with the approval of the Portfolio's Trustees.
GISC is located at 201 Park Avenue South, New York, New York 10003. GISC
is wholly owned by GIAC, which is, in turn, wholly owned by Guardian Life, a
mutual life insurance company organized in the State of New York in 1860. GISC
is the investment adviser to three other open-end management investment
companies and one series fund of another open-end management investment company
and is the manager of another open-end investment company. GISC is also the
principal underwriter and distributor of all of the Portfolio Funds' shares and
of variable annuity and variable life insurance contracts issued by GIAC. (See
the Statement of Additional Information.)
Guardian Baillie Gifford Limited and Baillie Gifford Overseas Limited
GBG is responsible for the overall investment management of the portfolios
of the International Fund and the Emerging Markets Fund, and furnishes the Board
with reports and recommendations about the Funds' investment programs. The
International Fund and the Emerging Markets Fund pay GBG annual investment
management fees of 0.80% and 1.00%, respectively, of average daily net assets of
those Portfolio Funds. These management fees are greater than those paid by most
mutual funds. However, the Portfolio's Trustees believe that these fees are
justified by the international scope of the Funds' activities. Additionally, the
Trustees
35
<PAGE>
believe these fees are appropriate in light of the fees charged by other mutual
funds that have investment objectives and policies similar to those of the
International and Emerging Markets Funds.
GBG has appointed BG Overseas to be the sub-investment adviser for the
International Fund and the Emerging Markets Fund. One half of the fee paid by
each of those Portfolio Funds to GBG is payable by GBG to BG Overseas as
compensation for the services of BG Overseas as sub-investment adviser to the
Funds. It is important to note that the sub-investment management fees are not
separately or additionally paid by the Portfolio Funds.
GBG is a Scottish investment management company. It was incorporated in
November 1990 by GIAC and BG Overseas. GIAC owns 51% of GBG's voting stock. BG
Overseas owns the remaining 49% of such voting stock. BG Overseas is wholly
owned by Baillie Gifford & Co., and was incorporated in Scotland to manage money
for institutional clients situated outside of the United Kingdom. Baillie
Gifford & Co., which was founded in 1909, manages money for institutional
clients primarily within the United Kingdom. Baillie Gifford & Co. is a Scottish
partnership. Presently, it is one of the largest independently owned investment
management firms in the United Kingdom.
GBG, BG Overseas and Baillie Gifford & Co. are located at 1 Rutland Court,
Edinburgh, EH3 8EY, Scotland. GBG and BG Overseas provide investment management
and advisory services in the manner described above to two series funds within
one other open-end management investment company.
o Portfolio Managers
Charles E. Albers, CFA, Executive Vice President of the Portfolio, has
managed the Park Avenue Fund since its inception in June 1972. Mr. Albers has
served as co-manager of the Small Cap Fund since its inception in May 1997. Mr.
Albers also manages The Guardian Stock Fund, Inc. and the equity assets of
Guardian Life, and is co-portfolio manager of The Guardian Small Cap Stock Fund,
a series of GIAC Funds, Inc. Mr. Albers is a Senior Vice President of Guardian
Life.
Larry Luxenberg, CFA, Vice President of the Portfolio, has shared
portfolio management responsibility for the Small Cap Fund with Mr. Albers since
its inception in May 1997. Mr. Luxenberg has been a securities analyst for
Guardian Life for the last 12 years. Mr. Luxenberg, who is an Assistant Vice
President, Equity Securities for Guardian Life, has not managed a registered
management investment company prior to serving as co-manager for the Small Cap
Fund. Mr. Luxenberg is also a co-manager of The Guardian Small Cap Stock Fund.
Nikolaos D. Monoyios, CFA, is the portfolio manager of the Tax-Efficient
Fund. Mr. Monoyios is a Vice President of Guardian Life and manages the common
stock assets of The Guardian. He has also been the portfolio manager for the
common stock portion of The Guardian Life Employees Incentive Savings Plan since
1995 and and The Guardian Life Pension Trust since its inception in 1989. Mr.
Monoyios has not previously managed a mutual fund.
R. Robin Menzies, Vice President of the Portfolio, has been primarily
responsible for the geographical diversification of the International Fund's
assets since its inception in February 1993. Investment teams at BG Overseas
make the securities selections for the International Fund. Mr. Menzies provides
similar services to Baillie Gifford International Fund, one of three series
funds included in GIAC Funds, Inc. Mr. Menzies is a Director of BG Overseas and
a Partner of Baillie Gifford & Co.
Thomas G. Sorell, CFA, Vice President of the Portfolio, and Howard W.
Chin, Vice President of the Portfolio, are responsible for the portfolio
management of the Bond Fund effective January 1998. Frank J. Jones, Ph.D.,
President of the Portfolio, has overall responsibility for the allocation of the
Bond Fund's assets between the various sectors of fixed income securities
selected by Mr. Sorell and Mr. Chin. Mr. Sorell has had sole or shared
responsibilities for the management of the Bond Fund's assets since January
1997. Mr. Sorell has been a Vice President of Guardian Life since July 1994 and
manages a portion of the fixed income assets of Guardian Life and its
subsidiary, GIAC. Mr. Sorell also manages the fixed income assets of Guardian
Asset Management Corporation, a Guardian Life subsidiary. From December 1993
through July 1994, Mr. Sorell was Director of Fixed
36
<PAGE>
Income for White River Corporation. From April 1993 to December 1993, he served
as Director of Fixed Income for Fund America Enterprises. Prior thereto, Mr.
Sorell served as a Portfolio Manager for AIG Investment Advisors. Mr. Chin has
been a Vice President of Guardian Life since September 1997 and manages a
portion of the fixed income assets of Guardian Life and GIAC. Mr. Chin has not
previously managed a mutual fund. From May 1993 until September 1997, Mr. Chin
was Vice President and Senior Mortgage Strategist at Goldman Sachs & Co. Prior
thereto, he was head of Fixed Income Strategies at Prudential Securities
Incorporated.
Alexander M. Grant, Jr., Vice President of the Portfolio, has managed the
Tax-Exempt Fund since December 1993, and the Cash Fund since October 1986. Mr.
Grant also manages The Guardian Cash Fund, Inc. Since February 1993, Mr. Grant
has also been responsible for managing Guardian Life's tax-exempt assets. Mr.
Grant has been a Second Vice President of Guardian Life since January 1997 and
from September 1993 to December 1996 was an Assistant Vice President. Prior to
September 1993 he was an Investment Officer.
Edward H. Hocknell, Vice President of the Portfolio, is primarily
responsible for allocation decisions regarding geographical diversification of
the Emerging Markets Fund's assets. The decisions to buy and sell securities for
the Emerging Markets Fund are made with the help of several investment teams at
BG Overseas which have expertise in specific overseas securities markets. Mr.
Hocknell provides similar services to Baillie Gifford Emerging Markets Fund, a
series of GIAC Funds, Inc., another open-end management investment company. Mr.
Hocknell has served as a Director of BG Overseas since October 1992.
Frank J. Jones, Ph.D., President of the Portfolio, has had overall
responsibility for the allocation of the Bond Fund's assets since January 1997.
Mr. Jones has served as Executive Vice President and Chief Investment Officer of
Guardian Life since January 1994. Prior thereto, he was Senior Vice President
and Chief Investment Officer of Guardian Life.
Jonathan C. Jankus, CFA, Vice President of the Portfolio, is responsible
for the allocation of the assets of the Asset Allocation Fund. Until January
1997, Mr. Jankus shared this responsibility with Mr. Jones. Mr. Jankus has been
a Second Vice President of Guardian Life since March 1995. From January 1994 to
March 1995, Mr. Jankus was Chief Investment Strategist for Global Bonds for
Barclays Investments. Prior thereto, he was a Senior Vice President at Kidder
Peabody & Co.
The High Yield Fund is managed by a team under the joint direction of
Frank J. Jones and Thomas G. Sorell. Dr. Jones and Mr. Sorell have overall
responsibility for the allocation of the High Yield Fund's assets between the
various sectors of bond, fixed income, convertible and equity securities
selected by members of the team.
o Administrative Services Agreement
Pursuant to the Administrative Services Agreement adopted by the Portfolio
Funds on behalf of the Class A and Class B shares, GISC provides information and
administrative services for the benefit of the Portfolio and its shareholders.
These services include providing office space, equipment and personnel,
maintenance of shareholder account records, responding to routine shareholder
inquiries regarding the Portfolio and assisting in the processing of shareholder
transactions and any other services which the Portfolio may reasonably request.
GISC may also enter into related agreements with other broker-dealers or other
financial services firms that provide such services and facilities for their
customers who are shareholders of the Portfolio.
Each of the Portfolio Funds pays GISC an administrative services fee for
the services that GISC provides. The Park Avenue Fund pays this fee at an annual
rate of 0.25% of the average daily net assets of those Class A and Class B fund
assets for which a "dealer of record" has been designated. The other Portfolio
Funds pay an administrative services fee at an annual rate of 0.25% of their
respective average daily net assets in Class and Class B shares. All payments
are due on a monthly basis. As a fund of funds, the Asset Allocation Fund's
administrative services fee is assessed by charging the portion of assets
invested in other Portfolio Funds a propor-
37
<PAGE>
tionate share of those Funds' fees, and charging the Asset Allocation Fund
directly for the portion of its assets invested in individual securities. The
overall annual rate of the fee payable by Asset Allocation Fund shareholders is
0.25%.
o Distribution Plan and Agreement
Under a Distribution Plan adopted by the Portfolio pursuant to Rule 12b-1
under the 1940 Act (the "12b-1 Plan"), each Portfolio Fund with Class B shares
is authorized to pay a monthly 12b-1 fee at an annual rate of up to 0.75% 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.
The 12b-1 fees may be paid by such Portfolio Funds to third parties,
including GISC, which enter into Distribution Agreements with the Portfolio.
Under the 12b-1 Plan, distribution fees may be used to compensate brokers and
dealers who engage in or support the distribution of the Class B shares. The
12b-1 fees may also be used to pay other distribution-related shareholder
servicing expenses incurred, such as communications equipment charges, the costs
of printing sales literature and advertising and other overhead. The 12b-1 Plan,
in conjunction with the CDSL, permits an investor to purchase Class B shares
through a distributor without the imposition of an initial sales load.
The 12b-1 Plan is not intended to reimburse any third parties which enter
into Distribution Agreements with the Portfolio (including GISC) for specific
expenses incurred in the distribution of the Class B shares. Thus, if a
distributor's expenses exceed the amount of 12b-1 fees collected, the Portfolio
Funds are not obligated to pay more. Conversely, if the expenses are less than
the amount of 12b-1 fees collected from a Portfolio Fund, the distributor is
entitled to retain the difference.
In order to effect the 12b-1 Plan, the Portfolio, on behalf of the
applicable Portfolio Funds, has entered into a Distribution Agreement with GISC.
GISC intends to use these fees to pay for distribution-related shareholder
servicing expenses, and payments to registered representatives for the sale of
Class B shares. GISC also intends to use the 12b-1 fees to advance payments of
up to 3.0% of the proceeds of sales of Class B shares to its registered
representatives and other authorized broker-dealers.
The Board receives quarterly reports about the operation of the 12b-1 Plan
and annually considers whether the 12b-1 Plan should be renewed for each
applicable Portfolio Fund. The 12b-1 Plan may not be amended to increase
materially the amount of the 12b-1 fees to be paid by a Portfolio Fund without
the approval by a majority of the affected Fund's outstanding Class B shares.
The Portfolio has also entered into a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act with GISC on behalf of the Class A shares. At present,
this Plan has been made dormant and no 12b-1 fees are authorized to be paid in
connection with sales of Class A shares. Under this Plan, each Portfolio Fund
would be subject to a fee at the annual rate of up to 0.25% of the average daily
net assets of that Fund's Class A shares to pay for distribution-related
services provided to Class A shares.
o Expenses of the Portfolio Funds
Each Portfolio Fund pays investment advisory and administrative fees,
brokerage commissions, transfer taxes and other fees related to selecting,
buying and selling its investments. Each Portfolio Fund also pays its
proportionate share of the fees and expenses of Trustees who are not "interested
persons" of the Portfolio; auditing and legal fees and expenses; the costs of
printing and mailing reports and other materials to shareholders; bank
transaction charges and custodian's fees; any unreimbursed proxy solicitors'
fees and expenses; SEC filing fees; any applicable taxes; fidelity bond
insurance premiums; costs of shareholder and Trustees' meetings; and any other
extraordinary expenses which may be incurred.
The fees and expenses incurred by the Portfolio Funds and classes within
Funds, where applicable, are set forth as a percentage of each such Portfolio
Fund's average daily net assets in the "Transaction Costs and Fund Expenses"
table.
From time to time and at their discretion, GISC or GBG may voluntarily
assume some or all of the ordinary operating expenses of the Portfolio Funds
which they manage. GISC is assuming expenses that exceed 0.75% of the Bond and
Tax-Exempt Funds' respective average daily net assets, and expenses that exceed
0.85% of the Cash Fund's average daily net assets, through December 31, 1998.
When GISC ceases to
38
<PAGE>
subsidize these Portfolio Funds' expenses, the expenses actually paid by the
Funds will increase and returns to shareholders will correspondingly decrease.
GISC is currently waiving, on an annual basis, 0.15% of the total advisory
fee which it is authorized to charge to the Asset Allocation Fund. This waiver
is intended to remain in effect during any period in which the Asset Allocation
Fund is operating as a "fund of funds" as described under "Investment Objective
and Policies". Termination of this waiver by GISC is subject to approval of the
Portfolio's Trustees.
GISC paid organizational expenses of $16,400 per Portfolio Fund for each
of the International, Bond, Tax-Exempt and Asset Allocation Funds. GISC paid
organizational expenses of $5,500 per Portfolio Fund for the Small Cap and
Emerging Markets Funds. These expenses are now being amortized over a five year
period to end in 1998 for the International, Bond, Tax-Exempt and Asset
Allocation Funds and in 2002 for the Small Cap and Emerging Markets Funds. See
"Portfolio Affiliates and Principal Holders of Fund Shares" in the Statement of
Additional Information.
How to Purchase Shares
All of the Portfolio Funds offer Class A shares. Eight of the ten series
of the Portfolio offer Class B shares. Seven of the series of the Portfolio
offer Institutional Class shares. All three classes represent interests in the
same portfolio of Fund investments, have the same rights and are otherwise
identical, except that each class bears its own distribution costs and may bear
certain transfer agency and other costs attributable to its sales arrangements
or unique to its class. The Class B shares have an active 12b-1 Plan described
under "Distribution Plan and Agreement" above and have exclusive voting rights
with respect to the 12b-1 Plan.
Class A shares are sold with an initial sales load and have lower total
operating expenses than Class B shares. However, because an initial sales load
is deducted at the time of purchase, not all funds will be initially invested.
Class A shares may also qualify for either a reduction or waiver of the initial
sales load. Investors who purchase $1,000,000 or more of Class A shares will pay
no initial sales load, but may be subject to a contingent deferred sales load if
these shares are redeemed within 12 months from the anniversary of their
purchase. Investors who qualify for reduced or waived initial sales loads should
consider the purchase of Class A shares.
Class B shares are sold subject to a contingent deferred sales load and
have higher total operating expenses. Investors who prefer to have all of their
funds initially invested should consider the purchase of Class B shares.
Institutional Class Shares are sold at Net Asset Value. However, the
minimum initial purchase order accepted for Institutional Class shares is
$3,000,000.
The Portfolio will not accept a purchase order in excess of $250,000 for
Class B shares, and will recommend that such investors purchase Class A shares
of the same Portfolio Fund. Class B shares may not be purchased through payroll
deduction accounts.
Shares of the Portfolio Funds are available through (1) Guardian Life
agents who are registered representatives of GISC and (2) registered
representatives of other selected broker-dealer firms. The "public offering
prices" of the shares of the Portfolio Funds are calculated on each day the NYSE
is open, as of the earlier of 4:00 p.m. Eastern time or the close of trading on
the NYSE (the "Close of Business"). The public offering price per share on any
day is the current NAV plus any applicable sales load. See "Calculation of Net
Asset Values".
GISC may from time to time provide, at its expense, promotional incentives
either to its own registered representatives or to certain dealers whose
registered representatives have sold, or are expected to sell, significant
amounts of the Portfolio Funds.
o Minimums
The minimum initial investment for Class A or Class B shares of each
Portfolio Fund (including any applicable sales load) is $1,000, and the minimum
for additional purchases is $100. For each payroll deduction plan account, the
minimum for initial and subsequent purchases is $50. The minimum initial
investment for Institutional Class shares of each Multiple A Class Fund is
$3,000,000. These minimums may be changed at any time at GISC's discretion.
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<PAGE>
o Purchase Orders
A purchase order consists of the purchase payment and investment
instructions. An initial purchase order must include a properly completed Park
Avenue Portfolio application. (See "Shareholder Services.") Initial purchases
must be made through a registered representative. Subsequent purchase orders may
be sent directly to NFDS, the Portfolio's transfer agent. Checks must be made
payable to the Portfolio. Third party checks endorsed to the Portfolio and money
orders will not be accepted. The purchase price will be the public offering
price next determined after the purchase order is received. Purchase orders that
are received before the Close of Business will be confirmed at the public
offering price determined that day. Registered representatives of GISC and
broker-dealer firms that have entered into selling agreements with GISC are
obligated to transmit orders promptly. Broker-dealer firms other than GISC may
impose a charge for assisting investors in placing purchase orders. Any such
charge would be in addition to the sales load described below. Each Portfolio
Fund and GISC reserve the right to reject any purchase order and to suspend the
offering of a Fund's shares.
o Purchases by Wire
Purchase payments may be wired in federal funds after an investor has
opened an account with a Portfolio Fund. The minimum wire purchase is $1,000.
The wire address is:
State Street Bank and Trust Company
ABA Routing Number 0110-000-28
Boston, Massachusetts 02101;
Attention: Guardian A/C 9904-713-6
[Name of Portfolio Fund];
Account of [Name of Shareholder and
Shareholder Account Number].
The price per share for a wired order will be the public offering price
next determined after the wired funds are received. Information about wiring
federal funds is available at any bank which is a member of the Automated
Clearing House. Each Portfolio Fund reserves the right to charge the investor's
account a fee for this service. The investor's bank may also charge a fee for
wiring federal funds.
o Purchases by Telephone
Purchases may be made by telephone by calling 1-(800)-343-0817 between
9:00 a.m. and 3:00 p.m., Eastern time, on any Business Day. The telephone
purchase order may be made by the investor or the investor's registered
representative, provided that the investor has completed the appropriate item on
the Park Avenue Portfolio application or Shareholder Privilege form, and the
investor's bank is a member of the Automated Clearing House. An investor may
also establish the telephone purchase privilege by sending a written request
with a signature guarantee, together with a voided check for the investor's bank
account. The funds for the telephone purchase will be automatically deducted
from the investor's bank account designated on the application or form. The
price per share for a telephone purchase order will be the public offering price
next determined after the funds are received by GISC, which normally occurs
within two Business Days after the telephone purchase order.
o Class A Shares -- Initial Sales Load Alternative
Class A shares of all of the Portfolio Funds (except the Cash Fund) are
offered at the public offering price, which is NAV per share, plus an initial
sales load. Class A shares of the Cash Fund are offered at NAV.
The sales load on purchases varies with the size of the purchase as shown
in the following table.
Initial Sales Load on Purchases
of Class A Shares of the Portfolio Funds*
===============================================================================
Sales Sales Concession
Load as Load as to Dealers
Percentage Percentage as Percentage
Amount of of Offering of Amount of Offering
Purchase Payment Price Invested Price**
- -------------------------------------------------------------------------------
Less than $100,000 4.50% 4.71% 4.50%
- -------------------------------------------------------------------------------
$100,000 but less
than $250,000 3.75% 3.90% 3.50%
- -------------------------------------------------------------------------------
$250,000 but less
than $500,000 2.75% 2.83% 2.50%
- -------------------------------------------------------------------------------
$500,000 but less
than $1,000,000 2.00% 2.04% 1.80%
- -------------------------------------------------------------------------------
$1,000,000 or more None None
===============================================================================
* There is no sales load on purchases of Class A shares of the Cash Fund.
** GISC may reallow up to 100% of the applicable sales load to certain dealers.
Any dealer who receives 90% or more of the sales load may be deemed to be an
"underwriter" under the 1933 Act.
+ Purchases of $1,000,000 or more may be subject to a CDSC if such shares are
redeemed within 18 months of purchase.
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o Waiver of Initial Sales Load (Purchases at NAV)
Class A shares of the Portfolio Funds may be purchased without an initial
sales load by: (1) Guardian Life, its subsidiaries or any separate account
thereof; (2) present and retired directors, officers, employees, general agents
and field representatives of Guardian Life or its subsidiaries; (3) directors or
trustees and officers of any open-end management investment company within the
Guardian Fund Complex (as defined in the Statement of Additional Information);
(4) the spouses, parents, siblings, children and grandchildren of the
individuals in (2) or (3) above; (5) present and retired directors, trustees,
officers, partners and employees of broker-dealer firms that have written sales
agreements with GISC, and the spouses, parents, siblings, children and
grandchildren of such individuals; (6) trustees or custodians of any employee
benefit plan, IRA, Keogh plan or trust established for the benefit of persons in
(2) or (3) above; (7) employee benefit plans that either (a) invest at least
$1,000,000 in the Portfolio Funds over a period of 13 months, or (b) cover at
least 200 eligible participants; (8) any trust company or bank trust department
which may exercise discretionary investment authority and holds unallocated
accounts in a fiduciary, agency, custodial or similar capacity; (9)
broker-dealers, financial institutions and registered investment advisers which
have entered into an agreement with GISC providing for the sale of Portfolio
Fund Class A shares to the clients of such entities participating in a "wrap
account" or similar program under which clients pay an account management fee or
transaction fee to such entity; and (10) the Asset Allocation Fund, when the
Fund makes purchases of other Portfolio Funds during periods when it operates as
a "fund of funds", as described in this Prospectus.
Generally, sales commissions are not paid when shares are purchased
without a sales load. However, GISC may pay a sales concession to a
broker-dealer firm or GISC registered representative in an amount not to exceed
0.50% of the amount invested for the sale of Portfolio Fund Class A shares
(except Cash Fund shares) which are purchased at net asset value by employee
benefit plans which fall within category (7) above.
No sales charge will be payable at the time of purchase of Class A shares
on investments of $1,000,000 or more. A contingent deferred sales load ("CDSL")
of may be imposed if such shares are redeemed within 18 months of he anniversary
of purchase at a rate of 1% on the lesser of the value of the Class A shares
redeemed or the total cost of such shares. In determining whether a CDSL is
applicable, and if so, the amount of the charge, it is assumed that shares are
not subject to such fee or charge are the first redeemed.
GISC requires anyone who may be eligible to purchase Class A shares
without a sales load to complete an NAV purchase certification form. This form
is available through registered representatives, or by calling 1-800-221-3253.
Shares purchased under this privilege can only be resold through redemption by
the issuing Portfolio Fund. This privilege may be modified or withdrawn at any
time and without notice.
o Class B Shares -- Contingent Deferred Sales Load Alternative
Class B shares of the Multiple Class Funds are offered at the next
determined NAV, and no initial sales load is imposed. However, a contingent
deferred sales load or "CDSL", may be imposed upon the redemption of Class B
shares held for six years or less. When redeeming Class B shares, a shareholder
authorizes the Portfolio's Transfer Agent to redeem an additional amount of
shares sufficient to cover the CDSL. The CDSL will be imposed on the lesser of
(1) the original purchase price of the shares or (2) the current value of the
shares being redeemed. Amounts representing an increase in value of Class B
shares since the date of purchase, and Class B shares acquired through the
reinvestment of dividends or capital gains distributions, are not subject to a
CDSL. The CDSL on redemptions of Class B shares decreases over time as shown in
the following table.
Contingent Deferred Sales Load on Class B
Shares of the Portfolio Funds
===============================================================================
Year Since CDSL as a Percentage of Amount
Purchase Redeemed Subject to Charge
- -------------------------------------------------------------------------------
First Year 3.0%
Second Year 3.0%
Third Year 2.0%
Fourth Year 2.0%
Fifth Year 1.0%
Sixth Year 1.0%
Thereafter None
===============================================================================
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If the redemption request plus any applicable CDSL exceeds the
shareholder's current Class B share account balance, it will be treated as a
redemption in full, thereby reducing the amount of the net proceeds payable to
the shareholder. In determining the CDSL applicable to a redemption, it will be
assumed that the redemption is made first of shares acquired pursuant to
dividend reinvestments and distributions and then of shares held by the
shareholder for the longest period of time. This will result in the imposition
of a CDSL at the lowest possible rate. For federal tax purposes, the amount of
the CDSL will reduce the gain or increase the loss, as the case may be, realized
on the redemption.
o CDSL Waivers
The CDSL will be waived for exchanges into the Class B shares of the other
Multiple Class Funds, including exchanges into Class B shares of the Cash Fund.
In addition, the CDSL on Class B shaares will be waived for a total or partial
redemption made within one year of the death of the shareholder. The CDSL waiver
is available when the decedent is either the sole shareholder or owns the shares
with his or her spouse as a joint tenant with the right of survivorship. This
waiver is applicable only to redemptions of shares held at the time of death.
Institutional Class Shares (Large Order Alternative)
Institutional Class shares of Multiple Class Funds are offered at the next
determined NAV, and no initial or contingent deferred sales load is imposed. The
minimum initial investment required for the purchase of institutional Class
Shares is $3,000,000. There is no subsequent minimum investment required.
How to Redeem Shares
o General Information
Shares of any of the Portfolio Funds may be redeemed at the NAV next
calculated after a proper redemption request has been received. For Class B
shares (and certain Class A shares), a CDSL may be imposed at the time of such
redemption, if applicable. Such requests may be made in writing, by telephone
or, for the Class A shares of the Cash Fund only, by check. However, shares held
in certificate form or qualified retirement plan accounts may only be redeemed
by written request. Redemption proceeds will normally be paid within three
business days of the receipt of a redemption request. The Portfolio Funds may
delay sending redemption proceeds for shares purchased by check until such check
has been cleared for payment. This may take up to 15 days. Also, a Portfolio
Fund may postpone payments or suspend redemptions: when the NYSE is closed
(besides weekends and holidays); when trading on the NYSE is restricted; when an
emergency makes it not reasonably practicable for the Fund to sell assets or
calculate its NAV; or as permitted by the SEC. As and when permitted under SEC
rules, a Portfolio Fund may, for example, postpone payments or suspend
redemptions when significant portions of its assets could be affected by
simultaneous redemption and/or exchange requests. At such times, a Portfolio
Fund may restrict or refuse redemption or exchange requests. See "Exchanges".
A Portfolio Fund's NAV can fluctuate from day to day, so the redemption
price may be higher or lower than original cost.
o Redemption by Wire
Redemption proceeds may be wired to a predesignated bank account if the
shareholder has completed the authorization on the Park Avenue Portfolio
application or Shareholder Privilege form. The minimum amount that may be
redeemed by wire is $1,000 or, if less, the entire Portfolio Fund's account
balance. (See "Shareholder Services.") The receiving bank must be a member of
the Automated Clearing House. Each Portfolio Fund reserves the right to charge
shareholders for wire redemptions. NFDS will deduct any charges that it may
assess for wire redemptions from the account from which shares are redeemed.
Applicable taxes are withheld from redemption proceeds, as and when required.
See "Taxes".
o Written Redemption Requests
Written redemption requests sent by regular U.S. mail should be addressed
to:
NFDS [Name of Portfolio Fund]
P.O. Box 419611
Kansas City, MO 64141-6611.
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Registered, certified or express mail should be sent to:
NFDS [Name of Portfolio Fund]
1004 Baltimore Avenue, Floor DW-05
Kansas City, MO 64105-2112.
Certificates for any shares being redeemed must be properly endorsed and
delivered with the written redemption request.
o Signature Guarantee Requirements
Shareholder signatures on written redemption requests must be guaranteed
when: (1) the request is for $50,000 or more; (2) the request is made by a
shareholder who is not a natural person; or (3) the proceeds are to be made
payable or mailed to a payee or address that is not reflected on the account
records. Signature guarantees can be obtained from most banks, broker-dealer
firms, credit unions or other financial institutions, but not from a notary
public. Signature guarantees are not typically required for redemptions by check
from the Cash Fund or pursuant to an automatic withdrawal plan. See "Redemption
by Check" and "Automatic Withdrawal Plan".
o Telephone Redemption Requests
Shares of a Portfolio Fund which are worth at least $1,000 may be redeemed
by calling NFDS at 1-800-343-0817 before the Close of Business as defined in
"How to Purchase Shares", above. NFDS will not accept telephone redemption
requests after the Close of Business.
Redemption by telephone is available only if the shareholder has elected
this privilege and an appropriate authorization is on file at NFDS. New
investors may authorize the telephone redemption privilege on the Park Avenue
Portfolio application. Current shareholders can complete the applicable item on
the Shareholder Privilege form and submit the form directly to NFDS. Signatures
on the Shareholder Privilege form must be guaranteed by an eligible guarantor
institution to authorize the telephone redemption privilege. Redemption by
telephone is not available for qualified retirement plan accounts or for shares
for which certificates have been issued.
Callers are asked to provide precise information about the account from
which shares will be redeemed and other identifying information. The $1,000
minimum redemption requirement will be waived for shareholders who close out
accounts via telephone. Telephone redemption instructions may be accepted from
any caller who can provide the requested information. Shareholders risk possible
loss of principal, interest and capital appreciation in the event of
unauthorized or fraudulent telephone redemption instructions.
The Portfolio Funds, GISC, GBG, BG Overseas, NFDS and State Street Bank
and Trust Company shall not be liable for any loss, damage, cost or expense
resulting from following the foregoing procedures to implement telephone
redemption instructions which any of them reasonably believed to be genuine. If
the procedures are not followed, however, one or more of such parties may be
liable for losses related to following fraudulent instructions. Telephone
redemption requests are typically recorded, and such recording may be made
without prior disclosure to the caller.
During periods of drastic economic or market changes, it may be difficult
to contact NFDS to request a telephone redemption. If this occurs, written
redemption requests can be sent to NFDS by regular or express mail or through a
broker-dealer firm.
The telephone redemption privilege may be suspended, modified, withdrawn
or made subject to a charge at any time following at least 7 days' notice to
shareholders.
o Redemption by Check (Cash Fund only)
Class A shareholders of the Cash Fund may redeem shares by writing checks
against their Cash Fund accounts. The minimum payable amount is $250 per check.
Shares are redeemed to pay a check on the day that the check is presented for
payment. A shareholder will continue to receive dividends on such shares until
then. The Cash Fund will not honor checks which are payable in amounts that
exceed a Cash Fund shareholder's account balance. Such checks will be returned
without payment, and marked "Insufficient Funds." Any check written for less
than the $250 minimum will also be returned to the shareholder as unpayable,
regardless of the value of the shareholder's Cash Fund account.
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Currently, there is no fee for writing checks. Since the value of a
shareholder's Cash Fund account changes daily and may not be determined in
advance, a shareholder should not attempt to close a Cash Fund account by
writing checks.
Checkwriting privileges are not available to Cash Fund shareholders who
purchase shares for qualified retirement plan accounts.
The Cash Fund, GISC and State Street Bank reserve the right to modify or
withdraw the checkwriting privilege at any time, or to impose a service charge
for this privilege.
o Repurchase by Broker-Dealer Firms on Behalf of Shareholders
Shareholders may communicate repurchase requests through GISC or
broker-dealer firms that have entered into selling agreements with GISC. GISC
does not charge a fee for repurchases, but other broker-dealer firms may charge
for this service. Broker-dealer firms are obligated to transmit orders promptly.
The repurchase price will be the NAV next determined after receipt of the
request. Repurchase requests received before the Close of Business will be
priced at the NAV computed that day. The offer to repurchase may be suspended or
discontinued at any time. Repurchases are subject to the same general
requirements set forth in this Prospectus for other redemptions.
o Minimum Account Balance
A Portfolio Fund may close a shareholder's account if the account balance
falls below $1,000 for any reason other than market factors. Exchanges among
Portfolio Funds may cause an account balance in a Fund to fall below $1,000, as
shares of one Fund are redeemed to purchase shares of another. (See
"Exchanges.") A shareholder will be notified and given at least 30 days to
increase an account balance to at least $1,000 before the account is closed. A
shareholder account opened in connection with an Automatic Investment Plan,
Dollar Cost Averaging program, qualified retirement plan or payroll deduction
plan is not subject to the minimum account balance requirement.
o Reinstatement Privilege
A shareholder who has redeemed shares may reinvest as much as the
redemption amount at NAV. Shareholders who wish to reinstate Class B shares will
receive pro rata credit for any CDSL paid in connection with the redemption of
the Class B shares. This privilege can be used by a shareholder only once, and
the reinvestment must be effected within 30 days of the redemption date. NFDS
must be notified in order to take advantage of this privilege. Reinstatement
will be at the NAV next calculated after receipt.
The federal income tax status of a gain realized on a redemption will not
be affected through the reinstatement privilege, although the effects of a loss
may be lessened or nullified by reinvestment in the same series.
Special Purchase and Redemption Plans
The Portfolio Funds offer four special purchase and redemption plans. The
Portfolio Funds may modify or withdraw any of these plans at any time and
without notice, or charge participating shareholders fees to cover
administrative costs. These special plans are not available to anyone who owns
Park Avenue Fund shares through a Value Guard variable annuity contract. For
further information on any of these plans, call the Portfolio's transfer agent
toll free at 1-800-343-0817.
o Automatic Investment Plan
Under an Automatic Investment Plan, money is withdrawn each month from a
shareholder's predesignated bank account for investment in the Portfolio Funds.
The minimum investment is $100 per Portfolio Fund. A shareholder must make an
initial investment of at least $50 in each receiving Portfolio Fund and invest
at least $1,000 in each such Fund during each 12-month period that his or her
automatic investment plan is in effect. By investing the same dollar amount each
month, a shareholder will purchase more shares when a Portfolio Fund's NAV is
low and fewer shares when the NAV is high. This means that the shareholder's
average purchase price per share can be lower than if he or she purchased the
same total number of shares in a single transaction. While periodic investing
can help build significant savings over time, it does not assure a profit or
protect against loss in a declining market.
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An investor must complete the appropriate item on the Park Avenue
Portfolio application or Shareholder Privilege form to establish an automatic
investment plan, and his or her bank must be a member of the Automated Clearing
House. The shareholder may revoke the plan at any time, but it may take up to 15
days from the date notice is received to terminate the plan. Any purchases of
Portfolio Fund shares made during this period shall be considered authorized. If
an automatic withdrawal cannot be made from the shareholder's predesignated bank
account to provide funds for automatic share purchases, the shareholder's plan
will be terminated.
o Rights of Accumulation
A shareholder can aggregate proposed purchases of Portfolio Fund shares
with current holdings to reduce the initial sales load that would otherwise
apply to the new purchases. Shares held in the name(s) of the shareholder's
spouse or minor children can be included in the aggregated amount, as may any
shares acquired for which a sales load may be applicable (e.g., Class B shares).
Shares acquired without a sales load (e.g., shares acquired through the
reinvestment of dividends or distributions or Cash Fund purchases) are not
includible. To exercise accumulation rights, a shareholder must notify NFDS or
GISC that a purchase will qualify for a reduced initial sales load, and provide
the names and account numbers of any family members whose holdings are to be
aggregated for this purpose.
o Investment by Letter of Intent
An investor who intends to invest $100,000 or more over a period of 13
months can reduce the initial sales load on each of his or her intended
purchases by completing the letter of intent item on the Park Avenue Portfolio
application or Shareholder Privilege form. The sales load charged for each
purchase will be at the reduced rate which would apply to a single investment in
the intended aggregate amount. Current holdings of both classes of shares and
shares held in the name(s) of the shareholder's spouse or minor children can be
used as an accumulation credit towards the completion of a letter of intent, but
shares not otherwise subject to a sales load (e.g., shares acquired through the
reinvestment of dividends or distributions or purchases of Class A shares of the
Cash Fund) are not eligible for accumulation credit. If an investor executes a
letter of intent within 90 days of a prior purchase of one of the Portfolio
Funds (other than The Guardian Cash Management Fund), the prior purchase may be
included under the letter of intent and an appropriate adjustment, if any, with
respect to the sales charges paid by the investor in connection with the prior
purchase will be made, based on the then-current net asset value(s) of the
relevant Fund(s).
A letter of intent does not bind the shareholder to purchase the entire
intended amount, but the shareholder must complete his or her intended
investment to remain eligible for the reduced sales load. NFDS will escrow
shares valued at 5% of the intended investment to assure payment of additional
sales loads if the intended purchases are not made and the shareholder fails to
pay the additional sales load within 20 days after NFDS requests payment.
Escrowed shares that are not needed to pay additional sales loads will be
released from escrow.
o Automatic Withdrawal Plan
A shareholder who owns shares of a Portfolio Fund which are worth at least
$10,000 may arrange for monthly, quarterly, semi-annual or annual redemptions of
a predesignated amount from his or her account. The minimum withdrawal amount is
$100. Payment may be made to the shareholder, a predesignated bank account or to
another payee. Under this plan, sufficient shares are redeemed from the
shareholder's Portfolio Fund account(s) in time to either send a check in the
amount requested on or about the first day of a month, or to be wired to a
predesignated bank account. If the wire option is chosen, the receiving bank
must be a member of the Automatic Clearing House. No CDSL with respect to Class
B shares of a Multiple Class Fund will be imposed on withdrawals made under the
plan, provided that the amounts withdrawn do not exceed on an annual basis 10%
of the account value at the time the shareholder establishes an automatic
withdrawal plan. Redemptions under the automatic withdrawal plan will reduce and
may ultimately exhaust the value of the designated Portfolio Fund account(s).
Taxable gains or losses may be realized when shares are
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redeemed under the automatic withdrawal plan.
Purchasing additional shares concurrently with automatic withdrawals is
likely to be disadvantageous to the shareholder because of tax liabilities and
sales loads. Consequently, the Portfolio Funds will not normally accept
additional purchase payments in single amounts of less than $5,000 from a
shareholder who has this plan in effect. Any charges made by NFDS to operate an
automatic withdrawal plan will be assessed against the shareholder's account(s)
when each withdrawal is effected.
An investor must complete the applicable item on the Park Avenue Portfolio
application or Shareholder Privilege form to establish an automatic withdrawal
plan. Forms must be properly completed and received at least 30 days before the
first payment date. An automatic withdrawal plan may be terminated at any time,
by notice from the shareholder, GISC, NFDS or the Portfolio Funds.
Exchanges
These privileges are not available to anyone who owns Park Avenue Fund
shares through a Value Guard variable annuity contract.
o General Information and Procedures
Shares of each Portfolio Fund may be exchanged for shares of the
corresponding class of any other Portfolio Fund. Exchanges are effected by
redeeming shares of one Portfolio Fund and purchasing shares of another
designated Portfolio Fund with the redemption proceeds. No sales load is imposed
on the shares to be acquired if a load was paid when the exchanged shares were
originally purchased, or if the exchanged shares were acquired through the
reinvestment of dividends or distributions declared by a Portfolio Fund. For
federal income tax purposes, an exchange involves a sale upon which taxable
gains or losses may be realized.
While no CDSL is imposed on the shares being redeemed as part of an
exchange, a CDSL may apply at the time the shares acquired as part of an
exchange are redeemed. Any applicable CDSL payable upon the redemption (without
an exchange) of the Class B shares received as part of the exchange will be
calculated from the date Class B shares are originally purchased, rather than
from the date such shares are exchanged for shares of another Fund. Shares
purchased without a sales load (e.g., Class A Cash Fund shares) may be exchanged
for shares of other Class A Funds, but any applicable sales load must be paid to
acquire shares of another Portfolio Fund through the exchange. All exchanges are
subject to the conditions and considerations described under "How to Purchase
Shares" and "How to Redeem Shares".
Class B shares of the Multiple Class Funds will automatically convert to
Class A shares of the same Fund approximately eight years after the anniversary
of purchase, together with any additional Class B shares representing dividend
reinvestments and distributions. Following their conversion, the shares will be
subject to the lower expenses borne by Class A shares.
Exchanges are effected at the relative NAVs for each Portfolio Fund next
determined after the exchange request is received. Shares may not be exchanged
until after the settlement date for their purchase. Neither GISC nor the
Portfolio Funds presently assess fees or charges in connection with exchanges,
but nominal exchange fees may be charged in the future.
Shareholders may request exchanges in writing or by telephone. A
shareholder may also initiate an exchange by contacting his or her registered
representative. Broker-dealer firms other than GISC may charge for their
assistance in effecting exchange transactions. Any share certificates held by
the shareholder must be properly endorsed and deposited before an exchange will
be effected.
Telephone exchange privileges can be elected by completing the applicable
item on the Park Avenue Portfolio application or Shareholder Privileges form or
by contacting NFDS. NFDS will not honor telephone exchange requests unless an
authorization is on file.
Callers who request exchanges by telephone are asked to provide precise
information about the account from which shares will be exchanged and other
identifying information. Telephone exchange requests may be accepted from any
caller who can provide the requested information. Shareholders risk possible
loss of principal, interest and capital appreciation in the event of
unauthorized or fraudulent telephone exchange requests.
The Portfolio Funds, GISC, GBG, BG Overseas,
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NFDS and State Street Bank and Trust Company shall not be liable for any loss,
damage, cost or expense resulting from following the foregoing procedures to
implement telephone exchange instructions which any of them reasonably believed
to be genuine. If the procedures are not followed, however, one or more of such
parties may be liable for losses related to following fraudulent instructions.
Telephone exchange requests are typically recorded, and such recording may be
made without prior disclosure to the caller.
During periods of drastic economic or market changes, it may be difficult
to contact NFDS to request a telephone exchange. If this occurs, written
exchange requests can be sent to NFDS by regular or express mail.
This Prospectus describes the respective investment objectives and
policies of the Portfolio Funds and should be carefully reviewed prior to
instituting an exchange.
Exchange privileges may be modified or withdrawn at any time, upon at
least 60 days' notice when such notice is required by SEC rules.
o Right to Reject Purchase Orders and Exchange Requests
Purchases and exchanges of Portfolio Fund shares should be made for
investment purposes only. The Portfolio Funds and GISC each reserve the right to
reject or restrict any specific purchase order or exchange request. In the event
that a Fund or GISC rejects an exchange request, neither the redemption nor the
purchase side of the exchange will be processed. The Funds are not designed for
professional market timing or for use by entities using programmed or frequent
exchanges. Such exchange activity can have a disruptive effect on the operations
of a Fund to the detriment of shareholders generally. In addition to the rights
reserved above, the Portfolio Funds and GISC each reserves the right to impose
specific limitations with respect to any shareholder or market timer (whether an
individual or organization acting on behalf of one or more individuals),
including (1) limiting the number of exchanges permitted within a specified
period of time and (2) specifically rejecting or otherwise restricting purchase
orders or exchange requests.
o Dollar Cost Averaging
A shareholder may have predesignated dollar amounts of $100 or more
automatically exchanged (or transferred) among Portfolio Funds of the
corresponding class on a monthly or quarterly basis. Before automatic exchanges
begin, a shareholder must either have: (1) a balance of at least $1,000 in both
the originating and the receiving Portfolio Funds; or (2) a balance of at least
$5,000 in the originating Portfolio Fund.
By regularly transferring the same dollar amount, a shareholder will
acquire more shares when a receiving Portfolio Fund's NAV is low and fewer
shares when that Fund's NAV is high. This means that the shareholder's average
price per share can be lower than if he or she acquired the same number of
shares of the receiving Portfolio Fund in a single exchange transaction.
However, periodic investing through automatic exchanges does not assure a profit
or protect against loss in a declining market.
The other general rules and considerations governing exchanges also apply
to automatic exchanges effected under the Dollar Cost Averaging program,
including tax considerations.
Calculation of Net Asset Values
A Portfolio Fund's NAV is determined as of the Close of Business by
subtracting the Fund's liabilities, including expenses which are accrued daily,
from its total assets and dividing the result by the total number of shares
outstanding.
Each Portfolio Fund values its assets at their current market value when
market quotations are readily available. If a market value cannot be
established, assets are valued at fair value as determined in good faith by or
under the direction of the Portfolio's Board of Trustees. Short-term securities
which mature in 60 days or less and all of the assets of the Cash Fund are
valued by using the amortized cost method, unless the Board determines that this
does not represent fair value. All investments by the International Fund and the
Emerging Markets Fund, and any investments by the Park Avenue and Small Cap
Funds in foreign non-dollar denominated securities, are valued daily in U.S.
dollars based on the then prevailing exchange rate. Specific information about
how the Portfolio Funds value certain assets
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is set forth in the Statement of Additional Information.
Performance Results
From time to time, the Portfolio Funds may provide performance information
in advertisements, sales literature or materials furnished to existing or
prospective shareholders. All such information is based upon historical earnings
and is not necessarily representative of future performance. More detailed
information about the calculation of each Portfolio Fund's performance appears
in the Statement of Additional Information.
o Total Returns
Both average annual total return and total return reflect the change in
the value of an investment in a Portfolio Fund over a specified period, assuming
the reinvestment of all income dividends and capital gains distributions.
Average annual total returns show the average change in value for each annual
period within a specified period. Total returns, which are not annualized, show
the total percentage change in value over a specified period.
Promotional materials relating to a Portfolio Fund's investment
performance will always at least provide the average annual total returns for
short (1 to 4 years), medium (5 to 9 years) and long periods (10 years or more),
or the life of such Portfolio Fund, if shorter. Such required average annual
total returns will reflect the effects of all recurring and non-recurring
charges, as well as the maximum initial sales load paid when shares are
purchased. However, the Portfolio Funds may also show average annual total
returns and total returns which do not reflect the effects of the sales load.
o Yields
Yields may be quoted for the Bond, High Yield, Tax-Exempt and Cash Funds.
Current yield is a measure of the net investment income earned on a hypothetical
investment over a specified base period of seven days for the Cash Fund and 30
days (or one month) for the other Funds which may advertise yields. Yield is
expressed as a percentage of the value of a share at the beginning of the base
period. Yields are annualized, which means that they assume that a Portfolio
Fund will generate the same level of net investment income over a one year
period. However, yields actually fluctuate daily.
The Tax-Exempt Fund may quote its tax equivalent yield, which will be
based on the maximum federal income tax rate then in effect.
The Cash Fund may also quote its "effective yield," which assumes that the
net income earned during a base period will be earned and reinvested for a year.
The effective yield will be slightly higher than the Cash Fund's current yield
due to the compounding effect created by assuming reinvestment of the Fund's net
income.
o Distribution Rates
On occasion, the Bond, High Yield, and Tax-Exempt Funds may quote
historical or annualized distribution rates. A distribution rate is simply a
measure of the level of income dividends and short-term capital gains
distributed for a specified period. A distribution rate is not a complete
measure of performance, and may be higher than yield for certain periods.
o Comparative and Other Information
Advertisements and sales literature for the Portfolio Funds may compare
the Funds' performance to that of other investment vehicles or other mutual
funds having similar investment objectives or programs. Promotional materials
may also compare a Portfolio Fund's performance to one or more indices of the
types of securities which the Fund buys and sells for its portfolio, and be
illustrated by tables, graphs or charts. Promotional materials may additionally
contain references to types and characteristics of certain securities; features
of a Portfolio Fund's portfolio; financial markets; or historical, current or
perceived economic trends within the United States or overseas. Topics of
general investor interest, such as personal financial planning, may also be
discussed.
In addition, advertisements and sales literature may refer to or reprint
all or portions of articles, reports, statistical information, or independent
rankings or ratings which relate to the Portfolio Funds specifically, or to
other comparable mutual funds or investment vehicles. None of the contents of
such materials will be used to indicate future performance.
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Further information about each Portfolio Fund's performance is contained
in the Portfolio's Annual Report, which may be obtained from GISC free of
charge.
Dividends and Distributions
Each Portfolio Fund distributes substantially all of its net realized
capital gains and net investment income to its shareholders. A capital gain or
loss is the difference between the purchase and sale prices of a security. The
Portfolio Funds will have net capital gains if their capital gains exceed their
capital losses, which cannot be assured. Net investment income is determined by
subtracting expenses from any interest and dividend income earned by a Portfolio
Fund. When computing interest income, the Portfolio Funds do not amortize
premiums or accrue discounts on long-term debt securities, except as required
for federal income tax purposes.
All of the Portfolio Funds (except the Cash Fund) distribute any net
realized short and long-term capital gains at least annually. The Cash Fund
distributes any short-term gains monthly. It is not expected that the Cash Fund
will realize any long-term capital gains.
The Park Avenue, Small Cap, Tax-Efficient, International, Emerging Markets
and Asset Allocation Funds distribute any net investment income to their
shareholders twice a year. The Bond, High Yield, Tax-Exempt and Cash Funds
declare dividends daily and distribute any net investment income to their
shareholders monthly.
Each Portfolio Fund pays its dividends and other distributions in
additional Fund shares at NAV unless the shareholder requests cash payments.
Shareholders who wish to receive dividends and/or other distributions in cash
should contact their registered representatives or complete the applicable item
on the Park Avenue Portfolio application or Shareholder Privilege form.
Dividends and/or other distributions in amounts of less than $10 will
automatically be reinvested in additional shares of the Portfolio Fund.
Taxes
Each Portfolio Fund is separate for investment and accounting purposes and
will be treated as a separate entity for federal income tax purposes. Each
Portfolio Fund intends to continue to qualify as a regulated investment company
under the Internal Revenue Code so that it will not be subject to federal income
taxes on net investment income and net capital gains distributed to its
shareholders.
o Taxes on Redemptions
When shares of any of the Portfolio Funds are redeemed, including by
exchange into another Portfolio Fund, a shareholder may realize a taxable gain
or a loss. The gain or loss is measured by the difference between the redemption
proceeds and the shareholder's adjusted basis for the redeemed shares.
o Taxes on Portfolio Fund Distributions
The following summary does not apply to accounts that are opened for
qualified retirement plans or by tax-exempt investors. Taxes on Portfolio Fund
distributions to qualified retirement plan accounts are deferred until money is
withdrawn from those accounts. This summary also does not apply to
exempt-interest distributions from the Tax-Exempt Fund. Information about
exempt-interest distributions from the Tax-Exempt Fund appears separately below.
Dividends and capital gains distributions from the Portfolio Funds are
taxable whether received in cash or additional Fund shares. If such dividends
and distributions are declared in October, November or December, they are
taxable for the year in which they were declared, if paid by February 1 of the
following calendar year. Net investment income dividends and short-term capital
gains distributions are taxable as ordinary income. Long-term capital gains
distributions are taxable at a maximum federal income tax rate of 20% or 28% for
individual shareholders, depending on how long the asset was held by a Portfolio
Fund. A capital gains distribution is short-term or long-term depending on how
long the Portfolio Fund held the securities that produced it, not how long the
shareholder held his or her shares in the Portfolio Fund. Dividends paid by
Portfolio Funds that are attributable to the Funds' investments in U.S.
government securities may be exempt from state and local income taxes.
Among other things, a Portfolio Fund's NAV
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reflects undistributed income and capital gains. When such income and gains are
distributed, the NAV is reduced. An investor who acquires shares near or on the
record date for distributions is entitled to receive these distributions. The
distributions are taxable as income, even though, in effect, the investor has
received a return of capital.
o Distributions from the Tax-Exempt Fund
Net investment income dividends declared and paid by the Tax-Exempt Fund
are, for the most part, "exempt-interest" dividends, whether received in cash or
additional shares of the Fund. Exempt-interest dividends are not subject to
federal income tax, but they may affect the tax liabilities of taxpayers who are
subject to the alternative minimum tax ("AMT"). Exempt-interest dividends are
also includible in the modified income of shareholders who receive Social
Security benefits for purposes of determining the extent to which such benefits
may be taxed. Generally, exempt-interest dividends are not exempt from state or
local taxes. However, a state or locality may provide tax exemptions for its
residents who receive exempt-interest dividends that relate to Municipal
Obligations issued within that state or locality.
Net investment income dividends derived from taxable obligations held in
the Tax-Exempt Fund's portfolio and any capital gains distributions by the Fund
are normally taxable as ordinary income, whether received in cash or additional
shares of the Fund. Gains attributable to market discount on Municipal
Obligations acquired after April 30, 1993 are also treated as ordinary income.
GISC intends to manage the Tax-Exempt Fund to minimize taxable distributions to
the Fund's shareholders. However, there can be no assurance that the Fund will
never make such distributions.
Certain individuals and corporations may be subject to the AMT. For them,
exempt-interest dividends derived from private activity bonds are treated as a
tax preference item. In addition, for corporate shareholders only, all other
exempt-interest dividends are a component of the adjusted current earnings
preference item for purposes of the AMT.
Corporations and Social Security beneficiaries should consult their tax
advisers about the possible consequences to them of investing in the Tax-Exempt
Fund.
o Withholding
The Portfolio Funds are currently required to withhold 31% of all taxable
distributions and redemption proceeds payable to any shareholder who has not
provided a correct taxpayer identification number, or who is otherwise subject
to backup withholding. Corporate and governmental entities are generally exempt
from withholding requirements.
o Tax Information for Shareholders
Following the end of each calendar year, each Portfolio Fund notifies its
shareholders of the amount of dividends and capital gains distributions paid (or
deemed paid) during that year, and shows the portion of those dividends that
qualifies for the corporate dividends-received deduction. The Funds identify
amounts taxable as ordinary income and amounts taxable as capital gains, and
indicate whether any portion of such income is possibly exempt from state or
local taxes. The Tax-Exempt Fund provides its shareholders with information
about the exempt-interest dividends paid to them (since they must disclose it on
their federal income tax returns), and reports the amount that relates to
private activity bonds which could be subject to the AMT. Under certain
circumstances, notices provided to shareholders of the Park Avenue Fund, the
Small Cap Fund, the International Fund and the Emerging Markets Fund also
specify their respective shares of any foreign taxes paid by those Funds. Park
Avenue Fund, Small Cap Fund, International Fund and Emerging Markets Fund
shareholders are required to include their pro-rata share of those taxes in
gross income, but may be entitled to claim a credit or deduction for them.
o A Special Note
The foregoing is only a summary of some important federal income tax law
provisions that can affect the Portfolio Funds and their shareholders. There may
be other federal, state or local tax law provisions which affect some or all
investors. Prospective investors and current shareholders are urged to consult
their tax advisers about their individual circumstances.
50
<PAGE>
Voting Rights and Liabilities
The Portfolio is registered with the SEC as an open-end management
investment company and organized as a Massachusetts business trust. It may issue
an unlimited number of shares of beneficial interest in one or more series, and
classes within such series. Presently, the Portfolio offers shares of ten
series. The following series currently offer three classes of shares, designated
Class A, Class B and Institutional Class: The Park Avenue Fund, The Small Cap
Fund, the International Fund, The Emerging Markets Fund, The Asset Allocation
Fund and The High Yield Fund. The Tax-Efficient Fund and The Cash Fund each
offer two classes of shares designated Class A and Class B. The Bond Fund also
offers two classes of shares, designated Class A and Institutional Class, and
The Tax-Exempt Fund offers only Class A shares.
Neither the Portfolio nor its Portfolio Funds are required to hold annual
meetings of shareholders, but special meetings may be called to elect or remove
Trustees, change fundamental policies or the 12b-1 Plan applicable to a class of
shares, or to approve an investment advisory agreement. Shareholders holding at
least 10% of the Portfolio's outstanding shares may call a special meeting for
the purpose of voting to remove any Trustee(s), and the Trustees shall
facilitate communications among shareholders as provided under Section 16(c) of
the 1940 Act. All shares of the Portfolio have equal voting rights. Shares are
voted in the aggregate, unless voting by series or class is required by law, or
when an issue affects the series or class separately. Shares of each Portfolio
Fund are fully paid and nonassessable when issued, are transferrable without
restriction and have no preemptive or conversion rights.
Under Massachusetts law, shareholders of the Portfolio could be held
personally liable for the Portfolio's obligations. However, the Declaration of
Trust expressly disclaims shareholder liability for acts or obligations of the
Portfolio, and requires each instrument entered into or executed by the
Portfolio to provide notice of this disclaimer. The Portfolio's property may
also be used to indemnify any shareholder who is held personally liable for any
obligation of the Portfolio. Thus, the risk of an individual being personally
liable for obligations of the Portfolio or of incurring financial loss because
of shareholder liability is limited to the unlikely circumstance in which both
inadequate insurance existed and the Portfolio was unable to meet its
obligations.
Shareholder Services
o Important Addresses and Telephone Numbers
For Prospective Investors:
Guardian Investor Services Corporation
(GISC) 1-800-221-3253
Executive Office:
201 Park Avenue South
New York, New York 10003
Administrative Office:
P.O. Box 26205
Lehigh Valley, Pennsylvania 18002-6205
For Existing Shareholders:
National Financial Data Services (NFDS)
1-800-343-0817
First class mail:
P.O. Box 419611,
Kansas City, Missouri 64141-6611.
Express, registered and certified mail:
1004 Baltimore Avenue, Floor DW-05
Kansas City, Missouri 64105-2112
o Applications and Shareholder Privilege Forms
A copy of the Park Avenue Portfolio application accompanies this
Prospectus. The application is also available from registered representatives of
GISC and broker-dealer firms that have entered into selling agreements with
GISC. NFDS will open one or more shareholder accounts for a prospective investor
upon receipt and acceptance of the application and payment for his or her
initial investment. Copies of the Shareholder Privilege form are available
directly from GISC. Shareholders can use this form to add or change privileges
for their shareholder accounts.
o Account and Confirmation Statements
Shareholders receive confirmations of purchases and redemptions of shares
of the Portfolio Funds, and quarterly statements that show all transactions
during the preceding quarter. Information for tax filing needs is also provided
following the end of each
51
<PAGE>
calendar year. (See "Taxes".) Audited annual financial statements and unaudited
semi-annual financial statements for the Portfolio are mailed to shareholders by
the end of February and August of each year.
o Retirement Plans
The Portfolio Funds are suitable for IRAs, SEP-IRAs, Keoghs (profit
sharing or money purchase pension plans), and 401(k) and 403(b) retirement
plans. GISC can provide forms and information about the fees and procedures for
establishing retirement plan accounts. GISC does not serve as either trustee or
custodian for retirement plans that acquire shares of the Portfolio Funds.
o Custodian
State Street Bank and Trust Company, Custody Division, 1776 Heritage
Drive, North Quincy, Massachusetts 02171, is the custodian of each Portfolio
Fund's assets. State Street employs foreign sub-custodians to provide custody of
the Portfolio Funds' foreign assets.
o Transfer and Dividend Paying Agent
National Financial Data Services ("NFDS") is the Portfolio Funds' transfer
and dividend paying agent. NFDS is an affiliate of State Street Bank and Trust
Company.
52
<PAGE>
The Park Avenue Portfolio(R)
--------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
--------------------------------------------------------------
This Statement of Additional Information contains information about the ten
series funds that comprise The Park Avenue Portfolio(R) series trust (the
"Portfolio"). The 10 series are: The Guardian Park Avenue Fund (R) (the "Park
Avenue Fund"), The Guardian Park Avenue Small Cap Fund(SM) (the "Small Cap
Fund"), The Guardian Park Avenue Tax-Efficient Fund (the "The Tax-Efficient
Fund"), Guardian Asset Allocation Fund(SM) (the "Asset Allocation Fund"), The
Guardian Baillie Gifford International Fund(SM) (the "International Fund"), The
Guardian Baillie Gifford Emerging Markets Fund(SM) (the "Emerging Markets
Fund"), The Guardian Investment Quality Bond Fund(SM) (the "Bond Fund"), The
Guardian High Yield Bond Fund (the "High Yield Fund"), The Guardian Tax-Exempt
Fund(SM) (the "Tax-Exempt Fund") and The Guardian Cash Management Fund(SM) (the
"Cash Fund"). The series funds are referred to in this Statement of Additional
Information as the "Funds" and each separately as a "Fund." This Statement of
Additional Information is not a prospectus, but should be read in conjunction
with the Prospectus for the Portfolio dated May 1, 1998. Much of the information
contained herein expands upon subjects discussed in the Prospectus. No
investment in shares of any of the Funds should be made without first reading
the Prospectus. A free copy of the Prospectus may be obtained by writing to
Guardian Investor Services Corporation, 201 Park Avenue South, New York, New
York 10003 or by telephoning 1-800-221-3253. This Statement of Additional
Information has been incorporated by reference into the Prospectus. Please
retain this document for future reference.
The terms used in this Statement of Additional Information are the same as
defined in the Prospectus for the Portfolio.
Table of Contents
Page
----
Investment Restrictions .....................................
The Park Avenue Fund ......................................
The Small Cap Fund ........................................
The Tax-Efficient Fund ....................................
The International Fund ....................................
The Emerging Markets Fund .................................
The Bond Fund .............................................
The High Yield Fund .......................................
The Tax-Exempt Fund .......................................
The Cash Fund .............................................
The Asset Allocation Fund .................................
Additional Investment Restrictions ........................
Investment Objectives and Policies ..........................
Special Investment Techniques ...............................
Investment Advisers and Distributor .........................
Portfolio Transactions and Brokerage ........................
Redemption of Shares ........................................
Performance Results .........................................
Net Asset Value .............................................
Portfolio Management ........................................
Portfolio Affiliates and Principal Holders of Fund Shares ...
Taxes .......................................................
Shareholder Voting Rights ...................................
Trustee Liability ...........................................
Custodian ...................................................
Transfer Agent ..............................................
Financial Statements ........................................
Legal Opinions ..............................................
Independent Auditors ........................................
Appendix ....................................................
The Guardian, Guardian Investor Services Corporation, The Park Avenue Portfolio,
The Guardian Park Avenue Fund, The Guardian Tax-Exempt Fund, The Guardian Asset
Allocation Fund, The Guardian Investment Quality Bond Fund, The Guardian High
Yield Bond Fund, The Guardian Park Avenue Small Cap Fund, The Guardian Park
Avenue Tax-Efficient Fund, The Guardian Baillie Gifford International Fund, The
Guardian Cash Management Fund and The Guardian Baillie Gifford Emerging Markets
Fund are servicemarks owned by The Guardian Life Insurance Company of America.
<PAGE>
INVESTMENT RESTRICTIONS
In addition to the restrictions described in the section of the Prospectus
entitled "Special Investment Techniques," the Park Avenue Fund and the Cash Fund
have each adopted the following fundamental investment restrictions. These
restrictions cannot be changed without the approval of the holders of a majority
of the outstanding shares of the affected Fund. Under the Investment Company Act
of 1940, as amended (the "1940 Act"), the vote of a majority of the outstanding
voting securities of a Fund means the lesser of the vote of: (1) 67% of the
shares of the Fund at a meeting where more than 50% of the outstanding voting
shares are present in person or by proxy; or (2) more than 50% of the
outstanding voting shares of the Fund. Under the 1940 Act, certain investment
restrictions for each of the International Fund, the Bond Fund, the Tax-Exempt
Fund and the Asset Allocation Fund can only be changed with the approval of the
holders of a majority of the outstanding shares of the affected Fund. Others are
non-fundamental operating policies which can be changed with the approval of a
majority of the Board of Trustees, and without shareholder approval.
The investment restrictions for the Emerging Markets Fund, the
Tax-Efficient Fund, the High Yield Fund and the Small Cap Fund are divided into
fundamental and non-fundamental categories. Those restrictions deemed to be
fundamental under the Investment Company Act of 1940 may be changed only upon
the approval of shareholders. The remaining restrictions are non-fundamental and
may be amended by the Board of Trustees without a shareholder vote.
If a percentage restriction is adhered to at the time of investment, a
later violation of the specified limit that results from a change in the value
of the investment or a change in the Fund's net assets will not constitute a
violation of the applicable investment restriction.
The Park Avenue Fund
The following investment restrictions provide that the Park Avenue Fund may
not:
1. Make any purchase which would result in more than 5% of the value of
its total assets being invested in the securities of any one issuer
except U.S. government securities.
2. Purchase the securities of any issuer if such purchase would result in
more than 10% of the voting securities, or the securities of any class
of such issuer, being held by the Fund.
3. Borrow money, except as a temporary measure for emergency purposes, in
an aggregate amount exceeding 5% of the total assets of the Fund.
4. Purchase any security other than those discussed under "Investment
Objectives and Policies," as set forth in the Prospectus.
5. Invest more than 5% of the value of its total assets in companies
(including predecessors) having a record of less than 3 years
continuous operation.
6. Invest in the securities of any company for the purpose of exercising
control or management.
7. Purchase a security if as a result thereof more than 25% of its total
assets will be invested in a particular industry.
8. Purchase the securities of any other investment company.
9. Purchase any put, call, straddle, spread or any combination thereof.
10. Purchase any interest in oil, gas or other mineral exploration or
development programs.
11. Engage in the purchase or sale of real estate or interests therein or
interests in real estate investment trusts, commodities or commodity
contracts.
12. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, officers or trustees of the Fund or of the Fund's
investment adviser who own individually more than one-half of 1% of
the securities of such issuer together own more than 5% of such
securities.
13. Act as a securities underwriter except to the extent that it may be
regarded as an underwriter upon disposition of any of its securities
which are subject to legal or contractual restrictions on re-sale or
are otherwise not readily saleable.
14. Invest more than 15% of the value of its net assets in securities
which are not readily marketable or which are restricted as to resale
under federal securities laws, excluding any such securities that have
been
B-2
<PAGE>
determined by the Trustees (or the person(s) designated by them to
make such determinations) to be readily marketable.
15. Purchase securities on margin or make any short sales of securities.
16. Make loans of money or other assets except through the purchase of
privately issued notes, bonds, debentures or other debt securities
either from the issuer or others. Purchases of a portion of an issue
of publicly distributed debt securities and repurchase agreements are
not deemed to be loans for purposes of this limitation. Under a
repurchase agreement, the Fund may purchase and simultaneously resell
for later delivery (normally within seven days) obligations issued or
guaranteed as to principal and interest by the U.S. government, its
agencies or instrumentalities.
17. Pledge, mortgage or hypothecate its assets to an extent greater than
10% of the Fund's total asset value. However, in order to comply with
certain state statutes or investment restrictions, the Fund will not
as a matter of operating policy, pledge, mortgage or hypothecate its
assets to the extent that at any time the percentage of pledged assets
plus the sales load will exceed 10% of the offering price of the
Fund's shares.
Since shares of the Park Avenue Fund are available as an underlying
investment for certain variable annuity contracts issued by The Guardian
Insurance & Annuity Company, Inc. ("GIAC"), the Fund's investments may be
subject to additional restrictions imposed by the insurance laws and regulations
of the states where GIAC offers such contracts.
The Small Cap Fund
The following fundamental investment restrictions provide that the Small
Cap Fund may not:
1. As to 75% of the Fund's total assets, purchase any security (other
than obligations of the U.S. Government, its agencies or
instrumentalities and investment companies) if as a result, more than
5% of the Fund's total assets (taken at current value) would then be
invested in the securities of a single issuer.
2. Purchase more than 10% of any class of securities of any issuer. All
debt securities and all preferred stocks are each considered as one
class.
3. Borrow money, except that the Fund may (i) borrow up to 5% of the
value of its total assets (not including the amount borrowed) for
temporary or emergency needs; and (ii) engage in reverse repurchase
agreements or other transactions which may involve a borrowing from
banks or other persons, provided that the aggregate amount involved in
all such transactions shall not exceed 33% of the value of the Fund's
total assets (including the amount borrowed) less liabilities (other
than borrowings) or such other percentage permitted by law.
4. Mortgage, pledge or hypothecate more than 5% of the value of its total
assets and then only to secure borrowings effected within the above
restriction.
5. Make loans to other persons except for loans of portfolio securities
and except through the purchase of debt obligations and repurchase
agreements in which the Fund may invest, consistent with its
investment objectives and policies, provided that repurchase
agreements maturing in more than seven days, when taken together and
at current value, may not exceed 15% of the Fund's net assets.
6. Purchase any securities other than the obligations of the U.S.
Government, or its agencies or instrumentalities, if, immediately
after such purchase, more than 25% of the value of the Fund's total
assets would be invested in the securities of issuers in the same
industry (there is no limitation as to investments in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities).
7. Engage in the underwriting of the securities of other issuers, except
to the extent that the Fund may be deemed to be an underwriter under
the Securities Act of 1933 in connection with the sale of portfolio
securities.
8. Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations as well as readily
marketable interests such as real estate investment trusts and readily
marketable securities of companies which invest in real estate).
9. Write, purchase or sell puts, calls, or combination thereof.
B-3
<PAGE>
10. Purchase or sell commodities or commodity contracts.
11. Issue any senior securities except as permitted under the 1940 Act.
The following non-fundamental investment restrictions may be changed by the
Board of Trustees without a shareholder vote. Under these restrictions, the Fund
may not:
12. Invest more than 5% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the New
York or American Stock Exchanges, except that warrants attached to
other securities are not subject to these limitations.
13. Purchase securities restricted as to resale if, as a result, (i) more
than 10% of the Fund's total assets would be invested in such
securities, or (ii) more than 5% of the Fund's total assets (excluding
any securities eligible for resale under Rule 144A under the
Securities Act of 1933) would be invested in such securities.
14. Invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities restricted as to resale, and (c)
repurchase agreements maturing in more than seven days, if, as a
result, more than 15% of the Fund's net assets (taken at current
value) would then be invested in the aggregate in securities described
in (a), (b), and (c) above.
15. Invest in securities of other registered investment companies.
16. Purchase securities on margin or sell securities short, or participate
on a joint or a joint and several basis in any trading account in
securities.
17. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may
invest in the securities of companies which invest in or sponsor such
programs.
18. Purchase or retain the securities of any issuer, if, to the knowledge
of the Fund, the officers, directors and employees of the Fund or of
the Adviser who individually own more than 1/2 of 1% of the
outstanding securities of such issuer together own more than 5% of the
securities of such issuer.
19. Purchase securities for the purpose of exercising control over another
company.
The Tax-Efficient Fund
The following fundamental investment restrictions provide that the Fund may
not:
1. Make any investment inconsistent with the Fund's classification as a
diversified company under the Investment Company Act of 1940;
2. Borrow money or pledge its assets, except that the Fund may (i)
borrow for temporary or emergency needs, and engage in reverse
repurchase agreements, mortgage dollar rolls or other transactions
which may involve a borrowing from banks or other persons, provided
that the aggregate amount involved in all such transactions shall
not exceed 33 1/3% of the value of the Fund's total assets (including
the amount borrowed) less liabilities (other than borrowings) or
such other percentage permitted by law; (ii) obtain such short-term
credit as may be necessary for the clearance of transactions in
portfolio securities; and (iii) purchase securities on margin to the
extent permitted by applicable law;
3. Make loans to other persons except (i) loans of portfolio securities
and entry into repurchase agreements to the extent permitted under
applicable law, and (ii) to the extent that the purchase of debt
obligations in which the Fund may invest, consistent with its
investment objectives and policies, may be deemed to be loans;
4. Purchase any securities other than the obligations of the U.S.
Government, or its agencies or instrumentalities, if, immediately
after such purchase, 25% or more of the value of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in the same industry or group of
industries;
5. Engage in the underwriting of the securities of other issuers, except
to the extent that the Fund may be deemed to be an underwriter under
the Securities Act of 1933 in connection with the sale of portfolio
securities;
6. Purchase or sell commodities or commodity contracts, except to the
extent permitted under applicable law without registration as a
commodity pool operator under the Commodity Exchange Act (or any
comparable registration under successor legislation);
7. Purchase, hold, sell or deal in real estate, although the Fund may (i)
purchase and sell securities that are secured by real estate or
interests therein, (ii) purchase and sell securities of issuers that
engage in real estate operations, as well as real estate investment
trusts and mortgage-related securities, and (iii) hold and sell real
estate acquired by the Fund as a result of the ownership of
securities; and
8. Issue any senior securities to the extent such issuance would violate
applicable law
The following non-fundamental restrictions, which could be changed by the
Board of Directors without shareholder approval, provide that the Fund may not:
1. invest in (i) securities which at the time of such investment are not
readily marketable, (ii) securities restricted as to resale or other
disposition, or (iii) repurchase agreements maturing in more than
seven days, if, as a result, more than 15% of the Fund's net assets
(taken at current value), or such other percentage provided by
applicable law, would then be invested in the aggregate in securities
described in (i), (ii), and (iii) above. This restriction shall not
apply to securities which the Board of Directors of the Fund has
determined to be liquid pursuant to applicable law;
2. Make short sales of securities or maintain a short position, except to
the extent permitted by applicable law; and
3. Purchase securities for the purpose of exercising control over another
company.
The International Fund
The following investment restrictions provide that the International Fund
may not:
1. Borrow money, except that the Fund may borrow from banks up to 20% of
the value of its total assets as a temporary measure for extraordinary
or emergency needs, for example, to enable the Fund to meet redemption
requests or to settle transactions on different stock markets where
different settlement dates apply which might otherwise require the
sale of portfolio securities at a time when it would not be in the
Fund's best interests to do so. Up to 5% of the Fund's total assets
may be borrowed from non-banking institutions. The Fund may not,
however, borrow money for investment purposes.
2. Mortgage, pledge or hypothecate more than 5% of the value of its total
assets, and then only to secure borrowings effected within the above
restriction. For purposes of this restriction, collateral arrangements
with respect to options, financial futures contracts, options on
futures contracts, when-issued or delayed delivery securities, forward
contracts, or similar collateral arrangements which may be required in
connection with securities transactions by the 1940 Act are not
considered a pledge of assets.
3. Make loans of money or portfolio securities, except through the
purchase of debt obligations or repurchase agreements in which the
Fund may invest consistent with its investment objective and policies.
4. Purchase any securities if, immediately after such purchase, more than
25% of the value of the Fund's total assets would be invested in the
securities of issuers in the same industry. For purposes of this
restriction, the obligations of each foreign government are deemed to
constitute an industry.
5. Invest more than 5% of the value of its total assets in the securities
of any one issuer or purchase more than 10% of the outstanding voting
securities, or any class of securities, of any one issuer. For
purposes of this restriction, all outstanding debt securities of an
issuer are considered as one class, and all preferred
B-4
<PAGE>
stock of an issuer is considered as one class. (This restriction does
not apply to obligations issued or guaranteed by the U.S. or foreign
governments, or their respective agencies or instrumentalities.)
6. Invest more than 10% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the New
York Stock Exchange, American Stock Exchange, or one of the major
foreign stock exchanges, except that warrants attached to other
securities in which the Fund invests are not subject to these
limitations.
7. Invest more than 15% of the value of its net assets in securities
which are not readily marketable or which are restricted as to resale
under the U.S. federal securities laws, excluding any such securities
that have been determined by the Trustees (or the person(s) designated
by them to make such determinations) to be readily marketable.
8. Engage in the underwriting of the securities of other issuers, except
to the extent that the Fund may be deemed to be an underwriter under
the Securities Act of 1933 in selling its portfolio securities.
9. Invest in securities of other U.S. or foreign investment companies,
except that: (a) the Fund may purchase such securities in the open
market, without regard to section (b) below, provided that immediately
thereafter (i) not more than 10% of the Fund's total assets would be
invested in such securities, (ii) not more than 5% of the Fund's total
assets would be invested in securities of any one investment company,
and (iii) not more than 3% of the total outstanding voting stock of
any one investment company would be owned by the Fund; or (b) the Fund
may acquire such securities as part of a merger, consolidation,
reorganization, acquisition of assets, offer of exchange or as a
dividend.
10. Purchase securities on margin, sell securities short, maintain a short
position or participate on a joint or a joint and several basis in any
trading account in securities, except that the Fund may (i) obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities; (ii) purchase or sell futures
contracts; and (iii) deposit or pay initial or variation margin in
connection with financial futures contracts or related options
transactions.
11. Purchase or sell put options, call options, or combinations thereof,
except that the Fund may (i) write covered call and secured put
options and enter into closing purchase transactions with respect to
such options, (ii) purchase put and call options, provided that the
premiums on all outstanding options do not exceed 5% of its total
assets, and enter into closing sale transactions with respect to such
options; and (iii) engage in financial futures contracts and related
options transactions to seek to hedge against either a decline in the
value of securities included in the Fund's portfolio or an increase in
the price of securities which the Fund plans to purchase in the
future.
12. Purchase or sell commodities or commodity contracts, except that the
Fund may enter into financial futures contracts, options contracts,
options on futures contracts and forward foreign currency exchange
contracts as described in the Prospectus and Statement of Additional
Information.
13. Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations, securities that are
secured by interests in real estate, or securities that represent
interests in real estate, including real estate investment trusts).
14. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may
invest in the securities of companies which invest in or sponsor such
programs.
15. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, the officers, trustees and employees of the Fund or of
the Fund's investment adviser or sub-investment adviser who
individually own more than one half of 1% of the outstanding
securities of such issuer together own more than 5% of the securities
of such issuer.
16. Purchase securities for the purpose of exercising control over another
company.
17. Issue any "senior securities" as defined in the 1940 Act (except for
engaging in futures and options transactions as well as any other
investment techniques set forth in the Prospectus or Statement of
Additional Information, and except for borrowing subject to the
restrictions set forth under Investment Restriction 1, above).
B-5
<PAGE>
The Emerging Markets Fund
The following fundamental investment restrictions provide that the Emerging
Markets Fund may not:
1. Borrow money, except that the Fund may borrow from banks up to 20% of
the value of its total assets as a temporary measure for extraordinary
or emergency needs, for example, to enable the Fund to meet redemption
requests or to settle transactions on different stock markets where
different settlement dates apply which might otherwise require the
sale of portfolio securities at a time when it would not be in the
Fund's best interests to do so. Up to 5% of the Fund's total assets
may be borrowed from non-banking institutions. The Fund may not,
however, borrow money for investment purposes.
2. Mortgage, pledge or hypothecate more than 5% of the value of the
Fund's total assets, and then only to secure borrowings effected
within the above restriction. Neither the deposit in escrow of
underlying securities in connection with the writing of call options,
nor the deposit in escrow of U.S. Treasury bills in connection with
the writing of put options, nor the deposit of cash and cash
equivalents in a segregated account with the Fund's custodian or in a
margin account with a broker in connection with futures transactions,
options transactions, nor the writing of call and put options in
spread transactions, is deemed to be a pledge.
3. Make loans to other persons except for loans of portfolio securities
and except through the purchase of debt obligations and repurchase
agreements in which the Fund may invest, consistent with its
investment objectives and policies, provided that repurchase
agreements maturing in more than seven days, when taken together and
at current value, may not exceed 15% of the Fund's net assets.
4. Purchase any securities if, immediately after such purchase, more than
25% of the value of a Fund's total assets would be invested in the
securities of issuers in the same industry. There is no limitation as
to the Fund's investments in obligations issued by U.S. branches of
domestic banks or issued or guaranteed by the U.S. government, its
agencies or instrumentalities. For purposes of this restriction, the
obligations of each foreign government are deemed to constitute an
industry.
5. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities and investment companies) if as a
result, more than 5% of the Fund's total assets (taken at current
value) would then be invested in the securities of any one issuer, or
purchase more than 10% of the outstanding voting securities, or any
class of securities, of any one issuer. For purposes of this
restriction, all outstanding debt securities of an issuer are
considered as one class, and all preferred stock of an issuer is
considered as one class. (This restriction does not apply to
obligations issued or guaranteed by the U.S. or foreign governments,
or their respective agencies or instrumentalities.)
6. Engage in the underwriting of the securities of other issuers, except
to the extent that the Fund may be deemed to be an underwriter under
the Securities Act of 1933 in selling its portfolio securities.
7. Purchase or sell commodities or commodity contracts, except that the
Fund may enter into financial futures contracts, options contracts,
options on futures contracts and forward foreign currency exchange
contracts as described in the Prospectus and Statement of Additional
Information.
8. Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations, securities that are
secured by interests in real estate, or securities that represent
interests in real estate, including real estate investment trusts).
9. Issue any "senior securities" as defined in the 1940 Act (except for
engaging in futures and options transactions as well as any other
investment techniques described in the Prospectus or Statement of
Additional Information, and except for borrowing subject to the
restrictions set forth under Investment Restriction 1, above).
The following non-fundamental investment restrictions may be changed by
vote of the Board of Trustees, without a vote of shareholders. Under these
restrictions, the Fund may not:
10. Purchase securities for the purpose of exercising control over another
company.
11. Purchase or sell put options, call options, or combinations thereof,
except that the Fund may (i) write covered call and secured put
options and enter into closing purchase transactions with respect to
such options, (ii) purchase put and call options, provided that the
premiums on all outstanding options do not exceed 5%
B-6
<PAGE>
of its total assets, and enter into closing sale transactions with
respect to such options; and (iii) engage in financial futures
contracts and related options transactions to seek to hedge against
either a decline in the value of securities included in the Fund's
portfolio or an increase in the price of securities which the Fund
plans to purchase in the future, or to increase the current return of
its portfolio by writing covered call or covered put options, as each
is described in the Prospectus and Statement of Additional
Information.
12. Invest more than 10% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the New
York Stock Exchange, American Stock Exchange, or one of the major
foreign stock exchanges, except that warrants attached to other
securities in which the Fund invests are not subject to these
limitations.
13. Invest more than 15% of the value of its net assets in securities that
are not readily marketable or which are restricted as to disposition
under the U.S. securities laws or otherwise. This restriction shall
not apply to securities purchased or sold pursuant to Rule 144A under
the Securities Act of 1933. This restriction will apply to repurchase
agreements maturing in more than seven days. This restriction will
also apply to securities received as a result of a corporate
reorganization or similar transaction affecting readily marketable
securities already held in the Fund's portfolio. To the extent that
securities received under these circumstances, together with other
securities considered illiquid by the staff of the Securities and
Exchange Commission ("SEC") or by the Portfolio's Board of Trustees,
exceed the applicable percentage of the value of the Fund's total
assets, the Fund will attempt to dispose of them in an orderly fashion
in order to reduce its holdings in such securities to less than the
applicable threshold.
14. Purchase securities of other U.S. or foreign investment companies,
except that the Fund may make such a purchase (a) in the open market
provided that immediately thereafter (i) not more than 10% of the
Fund's total assets would be invested in such securities; (ii) not
more than 5% of the Fund's total assets would be invested in
securities of any one investment company; and (iii) not more than 3%
of the total outstanding voting stock of any one investment company
would be owned by the Fund, or (b) as part of an offer of exchange,
reorganization or as a dividend.
15. Purchase securities on margin, sell securities short, maintain a short
position or participate on a joint or a joint and several basis in any
trading account in securities, except that the Fund may (i) obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities; (ii) purchase or sell futures
contracts; and (iii) deposit or pay initial or variation margin in
connection with financial futures contracts or related options
transactions.
16. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Funds may
invest in the securities of companies which invest in or sponsor such
programs.
17. Purchase or retain the securities of any issuer if, to the knowledge
of the Portfolio, the officers, trustees and employees of the
Portfolio or of the Portfolio's investment manager or sub-investment
manager who individually own more than one half of 1% of the
outstanding securities of such issuer together own more than 5% of the
securities of such issuer.
The Bond Fund
The following investment restrictions provide that the Bond Fund may not:
1. Purchase any security other than those discussed under "Investment
Objectives and Policies," as set forth in the Prospectus.
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than
three years of continuous operation. This restriction does not apply
to any obligation issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
3. Borrow money, except that the Fund may borrow up to 10% of the value
of its total assets as a temporary measure for extraordinary or
emergency needs, such as enabling the Fund to meet redemption requests
which might otherwise require the sale of portfolio securities at a
time when it is not in the Fund's best interests. The Fund may not,
however, borrow money for investment purposes.
B-7
<PAGE>
4. Mortgage, pledge or hypothecate more than 5% of the value of its total
assets, and then only to secure borrowings effected within the above
restriction. For purposes of this restriction, collateral arrangements
with respect to options, financial futures contracts, options on
futures contracts, when-issued or delayed delivery securities, forward
contracts, or similar collateral arrangements which may be required in
connection with securities transactions by the 1940 Act are not
considered a pledge of assets.
5. Make loans to others, except through the purchase of debt obligations
or repurchase agreements, or by lending the Fund's portfolio
securities, consistent with its investment objectives, policies and
techniques as set forth in the Prospectus or Statement of Additional
Information.
6. Purchase any securities other than the obligations of U.S. branches of
domestic banks or of the U.S. government, or its agencies or
instrumentalities, if, immediately after such purchase, more than 25%
of the value of the Fund's total assets would be invested in the
securities of issuers in the same industry. For the purpose of this
restriction, gas, electric, water and telephone utilities will each be
treated as a separate industry.
7. Invest more than 5% of the value of its total assets in the securities
of any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer. For
purposes of this restriction, all outstanding debt securities of an
issuer are considered as one class, and all preferred stock of an
issuer is considered as one class. This restriction does not apply to
obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities.
8. Invest more than 5% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the New
York or American Stock Exchanges, except that warrants attached to
other securities in which the Fund invests are not subject to these
limitations.
9. Invest more than 15% of the value of its net assets in securities
which are not readily marketable or which are restricted as to resale
under federal securities laws, excluding any such securities that have
been determined by the Trustees (or the person(s) designated by them
to make such determinations) to be readily marketable.
10. Engage in the underwriting of the securities of other issuers, except
to the extent that the Fund may be deemed to be an underwriter under
the Securities Act of 1933 in selling portfolio securities.
11. Purchase securities on margin or sell securities short, or participate
on a joint or a joint and several basis in any trading account in
securities, except that the Fund may (i) obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities; (ii) purchase or sell futures contracts; and (iii)
deposit or pay initial or variation margin in connection with
financial futures contracts or related options transactions.
12. Purchase or sell commodities or commodity contracts, except that the
Fund may invest in financial futures contracts, options and options on
financial futures contracts as described in the Prospectus and
Statement of Additional Information.
13. Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations), securities that are
secured by interests in real estate, or securities that represent
interests in real estate, including real estate investment trusts.
14. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may
invest in the securities of companies which invest in or sponsor such
programs.
15. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, the officers, trustees and employees of the Fund or of
the Adviser who individually own more than one-half of 1% of the
outstanding securities of such issuer together own more than 5% of the
securities of such issuer.
16. Purchase securities for the purpose of exercising control over another
company.
17. Issue any "senior securities" as defined in the 1940 Act, except for
engaging in futures and options transactions as well as any other
investment techniques set forth in the Prospectus or the Statement of
Additional Information, and except for borrowing subject to the
restrictions set forth under Investment Restriction 3, above.
B-8
<PAGE>
18. Purchase or sell put options, call options, or combinations thereof,
except that the Fund may (i) write covered call and secured put
options and enter into closing purchase transactions with respect to
such options, (ii) purchase put and call options, provided that the
premiums on all outstanding options do not exceed 5% of its total
assets, and enter into closing sale transactions with respect to such
options; and (iii) engage in financial futures contracts and related
options transactions to seek to hedge against either a decline in the
value of securities included in the Fund's portfolio or an increase in
the price of securities which the Fund plans to purchase in the
future.
19. Invest in securities of other investment companies, except that: (a)
the Fund may purchase such securities in the open market, without
regard to section (b), below, provided that immediately thereafter (i)
not more than 10% of the Fund's total assets would be invested in such
securities, (ii) not more than 5% of the Fund's total assets would be
invested in securities of any one investment company, and (iii) not
more than 3% of the total outstanding voting stock of any one
investment company would be owned by the Fund; or (b) the Fund may
acquire such securities as part of a merger, consolidation,
reorganization, acquisition of assets, offer of exchange or as a
dividend.
The High Yield Fund
The following fundamental investment restrictions provide that the Fund may
not:
1. Make any investment inconsistent with the Fund's classification as a
diversified company under the Investment Company Act of 1940;
2. Borrow money or pledge its assets, except that the Fund may (i) borrow
for temporary or emergency needs, and engage in reverse repurchase
agreements, mortgage dollar rolls or other transactions which may
involve a borrowing from banks or other persons, provided that the
aggregate amount involved in all such transactions shall not exceed 33
1/3% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law; (ii) obtain such short-term credit as may
be necessary for the clearance of transactions in portfolio
securities; and (iii) purchase securities on margin to the extent
permitted by applicable law;
3. Make loans to other persons except (i) loans of portfolio securities
and entry into repurchase agreements to the extent permitted under
applicable law, and (ii) to the extent that the purchase of debt
obligations in which the Fund may invest, consistent with its
investment objectives and policies, may be deemed to be loans;
4. Purchase any securities other than the obligations of the U.S.
Government, or its agencies or instrumentalities, if, immediately
after such purchase, 25% or more of the value of the Fund's total
assets would be invested in the securities of issuers conducting their
principal business activities in the same industry or group of
industries;
5 Engage in the underwriting of the securities of other issuers, except
to the extent that the Fund may be deemed to be an underwriter under
the Securities Act of 1933 in connection with the sale of portfolio
securities;
6. Purchase or sell commodities or commodity contracts, except to the
extent permitted under applicable law without registration as a
commodity pool operator under the Commodity Exchange Act (or any
comparable registration under successor legislation);
7. Purchase, hold, sell or deal in real estate, although the Fund may (i)
purchase and sell securities that are secured by real estate or
interests therein, (ii) purchase and sell securities of issuers that
engage in real estate operations, as well as real estate investment
trusts and mortgage-related securities, and (iii) hold and sell real
estate acquired by the Fund as a result of the ownership of
securities; and
8. Issue any senior securities to the extent such issuance would violate
applicable law.
The following non-fundamental restrictions, which could be changed by the
Board of Directors without shareholder approval, provide that the Fund may not:
1. invest in (i) securities which at the time of such investment are not
readily marketable, (ii) securities restricted as to resale or other
disposition, or (iii) repurchase agreements maturing in more than
seven days, if as a result, more than 15% of the Fund's net assets
(taken at current value), or such other percentage provided by
applicable law, would then be invested in the aggregate in securities
described in (i), (ii), and (iii) above. This restriction shall not
apply to securities which the Board of Directors of the Fund has
determined to be liquid pursuant to applicable law;
2. Make short sales of securities or maintain a short position, except to
the extent permitted by applicable law; and
3. Purchase securities for the purpose of exercising control over another
company.
The Tax-Exempt Fund
The following investment restrictions provide that the Tax-Exempt Fund may
not:
1. Purchase securities other than Municipal Obligations (as that term is
defined in the Prospectus) and certain taxable obligations as set
forth in the Prospectus and Statement of Additional Information.
2. Borrow money, except that the Fund may borrow up to 10% of the value
of its total assets as a temporary measure for extraordinary or
emergency needs, such as enabling the Fund to meet redemption requests
which might otherwise require the sale of portfolio securities at a
time when it is not in the Fund's best interests. The Fund may not,
however, borrow money for investment purposes.
3. Mortgage, pledge or hypothecate more than 5% of the value of its total
assets, and then only to secure borrowings effected within the above
restriction. For purposes of this restriction, collateral arrangements
with respect to options, financial futures contracts, options on
futures contracts, when-issued or delayed delivery securities, forward
contracts, or similar collateral arrangements which may be required in
connection with securities transactions by the 1940 Act are not
considered a pledge of assets.
4. Purchase securities on margin, sell securities short or participate on
a joint or a joint and several basis in any trading account in
securities, except that the Fund may (i) obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities; (ii) purchase or sell futures contracts; and (iii)
deposit or pay initial or variation margin in connection with
financial futures contracts or related options transactions.
5. Underwrite the securities of other issuers, except to the extent that
the Fund may be deemed to be an underwriter under the Securities Act
of 1933 in selling portfolio securities and except that the Fund may
bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take
advantage of the lowest purchase price available.
6. Invest more than 15% of the value of its net assets in securities
which are not readily marketable or which are restricted as to resale
under federal securities laws, excluding any such securities that have
been determined by the Trustees (or the person(s) designated by them
to make such determinations) to be readily marketable.
7. Purchase or sell real estate or real estate limited partnerships, but
this shall not prevent the Fund from investing in Municipal
Obligations secured by real estate or interests therein.
8. Purchase or sell commodities or commodity contracts, except that the
Fund may enter into financial futures contracts, options contracts and
options on futures contracts as described in the Prospectus and
Statement of Additional Information.
9. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may
invest in the securities of issuers which invest in or sponsor such
programs.
B-9
<PAGE>
10. Make loans to others, except through the purchase of debt obligations
or repurchase agreements or by lending the Fund's portfolio securities
consistent with its investment objectives, policies and techniques as
set forth in the Prospectus or Statement of Additional Information.
11. Invest more than 5% of its assets in the obligations of any issuer,
except that up to 25% of the value of the Fund's total assets may be
invested, and securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities may be purchased, without regard
to any such limitations. For purposes of this Investment Restriction,
identification of the "issuer" will be based on a determination of the
source of assets and revenues committed to meeting interest and
principal payments of each security.
12. Invest more than 25% of its assets in the securities of issuers in any
single industry; provided that there shall be no limitation on the
purchase of Municipal Obligations. For purposes of this Investment
Restriction, industrial development bonds, where the payment of
principal and interest is the ultimate responsibility of companies
within the same industry, are grouped together as an "industry."
13. Purchase more than 10% of the voting securities of any issuer or
invest in companies for the purpose of exercising control.
14. Invest in securities of other investment companies, except that: (a)
the Fund may purchase such securities in the open market, without
regard to section (b), below, provided that immediately thereafter (i)
not more than 10% of the Fund's total assets would be invested in such
securities, (ii) not more than 5% of the Fund's total assets would be
invested in securities of any one investment company, and (iii) not
more than 3% of the total outstanding voting stock of any one
investment company would be owned by the Fund; or (b) the Fund may
acquire such securities as part of a merger, consolidation,
reorganization, acquisition of assets, offer of exchange or as a
dividend.
15. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, the officers, trustees and employees of the Fund or of
the Fund's investment adviser who individually own more than one-half
of 1% of the outstanding securities of such issuer together own more
than 5% of the securities of such issuer.
16. Issue any "senior securities" as defined in the 1940 Act, except for
engaging in futures and options transactions as well as any other
investment techniques set forth in the Prospectus or Statement of
Additional Information, and except for borrowing subject to the
restrictions set forth under Investment Restriction 2, above.
17. Purchase or sell put options, call options, or combinations thereof,
except that the Fund may (i) write covered call and secured put
options and enter into closing purchase transactions with respect to
such options, (ii) purchase put and call options, provided that the
premiums on all outstanding options do not exceed 5% of its total
assets, and enter into closing sale transactions with respect to such
options; and (iii) engage in financial futures contracts and related
options transactions to seek to hedge against either a decline in the
value of securities included in the Fund's portfolio or an increase in
the price of securities which the Fund plans to purchase in the
future.
The Cash Fund
The following investment restrictions provide that the Cash Fund may not:
1. Purchase the securities of any issuer if, immediately after such
purchase, more than 5% of the Fund's total assets, taken at market
value, would be invested in such securities.
2. Purchase any securities, other than obligations of the U.S. government
or its agencies or instrumentalities, if, immediately after such
purchase, more than 10% of the outstanding voting securities of one
issuer would be owned by the Fund.
3. Purchase any securities, other than obligations of U.S. branches of
domestic banks or of the U.S. government, or its agencies or
instrumentalities, if, immediately after such purchase, more than 25%
of the value of the Fund's total assets would be invested in the
securities of issuers in the same industry.
4. Make loans to others, except through the purchase of debt obligations
and repurchase agreements in which the Fund may invest, consistent
with its investment objective and policies.
B-10
<PAGE>
5. Purchase or retain the securities of any issuer if any officer or
trustee of the Fund is an officer or director of such issuer and owns
beneficially more than one-half of 1% of the securities of such issuer
and all of the officers and trustees of the Fund and its investment
adviser together own more than 5% of the securities of such issuer.
6. Purchase or sell real estate; however, the Fund may purchase
marketable securities issued by the companies which invest in real
estate or interests therein.
7. Purchase securities on margin or sell short.
8. Purchase or sell commodities or commodity futures contracts, or oil,
gas or mineral exploration or development programs.
9. Underwrite securities of other issuers.
10. Purchase warrants, or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof.
11. Participate on a joint or joint-and-several basis in any securities
trading account.
12. Purchase the securities of any other investment company.
13. Purchase securities of any issuer for the purpose of exercising
control or management.
14. Borrow money, except from banks for temporary or emergency purposes or
to meet redemption requests which might otherwise require the untimely
disposition of securities (not for leveraging), provided that
borrowing in the aggregate may not exceed 10% of the value of the
Fund's total assets, including the amount borrowed, at the time of
such borrowing.
15. Mortgage, pledge or hypothecate any assets except in connection with
any borrowing and in amounts not in excess of 10% of the value of the
Fund's total assets at the time of such borrowing or make additional
investments during any period that borrowings exceed 5% of the value
of the Fund's total assets.
16. Issue any senior securities (except for borrowing subject to the
restrictions set forth in the Prospectus).
17. Invest more than 10% of the value of its net assets in securities
which are not readily marketable or which are restricted as to resale
under federal securities laws, excluding any such securities that have
been determined by the trustees (or the person(s) designated by them
to make such determinations) to be readily marketable.
18. Underwrite securities of other issuers, except to the extent that the
Fund or its investment adviser may be deemed to be an underwriter
under the Securities Act of 1933 in selling portfolio securities.
The Asset Allocation Fund
The following investment restrictions provide that the Asset Allocation
Fund may not:
1. Purchase or sell put options, call options, or combinations thereof,
except that the Fund may (i) write covered call and secured put
options and enter into closing purchase transactions with respect to
such options, (ii) purchase put and call options, provided that the
premiums on all outstanding options do not exceed 5% of its total
assets, and enter into closing sale transactions with respect to such
options; and (iii) engage in financial futures contracts and related
options transactions to seek to hedge against either a decline in the
value of securities included in the Fund's portfolio or an increase in
the price of securities which the Fund plans to purchase in the
future.
2. Borrow money, except that the Fund may borrow up to 10% of the value
of its total assets as a temporary measure for extraordinary or
emergency needs, such as enabling the Fund to meet redemption requests
which might otherwise require the sale of portfolio securities at a
time when it is not in the Fund's best interests. The Fund may not,
however, borrow money for investment purposes.
3. Mortgage, pledge or hypothecate more than 5% of the value of its total
assets, and then only to secure borrowings effected within the above
restriction. For purposes of this restriction, collateral arrangements
with respect to options, financial futures contracts, options on
futures contracts, when-issued or delayed delivery securities, forward
contracts, or similar collateral arrangements which may be required in
connection with securities transactions by the 1940 Act are not
considered a pledge of assets.
B-11
<PAGE>
4. Engage in the underwriting of securities, except to the extent that
the Fund may be deemed an underwriter under the Securities Act of 1933
in selling portfolio securities.
5. Invest in real estate, real estate limited partnership interests,
securities that are secured by interests in real estate, or securities
that represent interests in real estate, including real estate
investment trusts, although the Fund may purchase securities of
issuers which engage in real estate operations.
6. Invest in commodities or commodity contracts, except that it may
invest in financial futures contracts, options and options on
financial futures contracts as described in the Prospectus or
Statement of Additional Information.
7. Make loans to others, except through the purchase of debt obligations
or repurchase agreements, or by lending the Fund's portfolio
securities consistent with its investment objectives, policies and
techniques as set forth in the Prospectus or Statement of Additional
Information.
8. Invest more than 5% of the value of its total assets in the securities
of any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer. For
purposes of this 10% restriction, all outstanding debt securities of
an issuer are considered as one class, and all preferred stock of an
issuer is considered as one class. This restriction does not apply to
obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities or to any security issued by any investment
company or series thereof.
9. Invest 25% or more of its assets in securities of issuers in any one
industry. For the purpose of this restriction, gas, electric, water
and telephone utilities will each be treated as a separate industry.
10. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than
three years of continuous operation. The restriction does not apply to
any obligation issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
11. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, those officers and trustees of the Fund or of the Fund's
investment adviser who individually own more than one-half of 1% of
the outstanding securities of such issuer together own more than 5% of
such securities.
12. Issue any "senior securities" as defined in the 1940 Act, except for
engaging in futures and options transactions as well as any other
investment techniques set forth in the Prospectus or Statement of
Additional Information, and except for borrowing subject to the
restrictions set forth under Investment Restriction 2, above.
13. Purchase securities for the purpose of exercising control over another
company.
14. Purchase securities on margin or sell securities short or participate
on a joint or a joint and several basis in any trading account in
securities, except that the Fund may (i) obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities, (ii) purchase or sell futures contracts; and (iii)
deposit or pay initial or variation margin in connection with
financial futures contracts or related options transactions.
15. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may
invest in the securities of companies which invest in or sponsor such
programs.
16. Invest in the securities of other investment companies, except that
(a) during any period in which the Fund operates as a "fund of funds"
in accordance with the Prospectus and applicable law, and
notwithstanding (b) and (c) below, the Fund may purchase, without
limit, shares of The Guardian Park Avenue Fund, The Guardian
Investment Quality Bond Fund and The Guardian Cash Management Fund,
and any other mutual fund currently existing or hereafter created
whose investment adviser is the Fund's adviser or an affiliate
thereof, or the respective successors in interest of any such mutual
fund or adviser; (b) during any period in which the Fund does not
operate as a "fund of funds" in accordance with the Prospectus, the
Fund may purchase securities of other investment companies in the open
market, without regard to section (c) below, provided that immediately
thereafter (i) not more than 10% of the Fund's total assets would be
invested in such securities, (ii) not more than 5% of the Fund's total
assets would be invested in securities of any one investment company,
and (iii) not more than 3% of the total outstanding voting stock of
any one investment company would be owned by the Fund; or (c) the Fund
B-12
<PAGE>
may acquire securities of other investment companies as part of a
merger, consolidation, reorganization, acquisition of assets, offer of
exchange or as a dividend.
17. Invest more than 10% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the New
York or American Stock Exchanges, except that warrants attached to
other securities in which the Fund invests are not subject to these
limitations.
18. Invest more than 15% of the value of its net assets in securities
which are not readily marketable or which are restricted as to resale
under federal securities laws, excluding any such securities that have
been determined by the Trustees (or the person(s) designated by them
to make such determinations) to be readily marketable.
Additional Investment Restrictions
The Park Avenue Fund will not issue any "senior securities" as defined in
the 1940 Act, except for any investment technique set forth in the Prospectus or
Statement of Additional Information which may be treated as a senior security,
or except for borrowing subject to the Fund's Investment Restriction Number 3.
Notwithstanding the reservation of right provided by its Investment
Restriction No. 6, the Bond Fund will not purchase any securities of U.S.
branches of domestic banks if, immediately after such purchase, more than 25% of
the Fund's total assets would be invested in such securities.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the information contained in the
Prospectus section entitled "Investment Objectives and Policies."
The International Fund and the Emerging Markets Fund
Several foreign governments permit investments by non-residents only
through participation in certain specifically organized investment companies.
Subject to the provisions of the 1940 Act, the International Fund and the
Emerging Markets Fund may invest in the shares of other investment companies. In
addition, pursuant to exemptive relief granted to those Funds under the 1940
Act, a portion of the equity and convertible securities which may be acquired by
the Funds may be issued by foreign companies that, in each of their most recent
fiscal years, derived more than 15% of their gross revenues from their
activities as brokers, dealers, underwriters or investment advisers.
The International Fund may also invest a portion of its assets in unit
trusts organized in the United Kingdom (which are analogous to United States
mutual funds) and which invest in smaller foreign markets than those in which
the International Fund would ordinarily invest directly. GBG and BG Overseas,
the International Fund's investment advisers, believe that investments in such
unit trusts will enhance the geographical diversification of the Fund's assets
while reducing the risks associated with investing in certain smaller foreign
markets. Investments by the International Fund in such unit trusts are likely to
provide increased liquidity and lower transaction costs than are normally
associated with direct investments in such markets. At the present time, the
International Fund intends to limit its investments in unit trusts, together
with its investments in other investment companies, to no more than 5% of its
total assets.
The Park Avenue Fund, The Small Cap Fund, The Bond Fund, The High Yield Fund,
The Tax-Exempt Fund and The Asset Allocation Fund
As described in the Prospectus, the Park Avenue Fund, the Small Cap Fund,
the International Fund, the Emerging Markets Fund, the High Yield Fund, and the
Asset Allocation Fund are permitted to invest in convertible securities.
Convertible securities are fixed-income securities, such as bonds or
preferred stock, which may be converted at a stated price within a specified
period of time into a specific number of shares of common stock of the same or a
different issuer. Convertible securities also have characteristics similar to
non-convertible debt securities in that they ordinarily provide income with
generally higher yields than those of common stock of the same or a similar
issuer. However, convertible securities are usually subordinated to
non-convertible debt securities. Convertible securities carry the potential for
capital appreciation should the value of the underlying common stock increase,
but they are subject to a lesser risk of a decline in value, relative to the
underlying common stock, due to their fixed-income nature. Due to the conversion
feature, however, the interest rate or dividend rate on a convertible security
is generally less than would be the case if the securities were not convertible.
In evaluating a convertible security the investment advisers look primarily
at the attractiveness of the underlying common stock and at the fundamental
business strengths of the issuer. Other factors considered by the investment
advisers include the yield of the convertible security in relation to the yield
of the underlying common stock, the premium over investment value and the degree
of call protection.
Convertible securities purchased by the Park Avenue Fund, the Small Cap
Fund and the Asset Allocation Fund, and debt securities purchased by the Bond
Fund and the Tax-Exempt Fund will primarily be "investment grade," i.e., rated
in one of the top four rating categories established by nationally recognized
statistical rating organizations like Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Group ("Standard & Poor's"). Under
normal conditions, less than 5% of the assets of the Park Avenue Fund, the Small
Cap Fund and the Asset Allocation Fund, and less than 10% of the other named
Funds' assets, will consist of securities rated lower than "investment grade."
Such holdings will typically result from reductions in the ratings of securities
after such securities were acquired by the Funds as "investment grade"
securities, though the Park Avenue Fund, the
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Small Cap Fund, the High Yield Fund and the Asset Allocation Fund may acquire
convertible securities without regard to their ratings.
Lower rated securities may be subject to certain risks not typically
associated with "investment grade" securities, such as the following: (1) the
market for lower rated securities, which expanded rapidly during a period of
economic expansion, has only been tested during one period of economic downturn;
(2) reliable and objective information about the value of lower rated
obligations may be difficult to obtain because the market for such securities
may be thinner and less active than that for investment grade obligations; (3)
adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower than investment grade
obligations, and, in turn, adversely affect their market; (4) companies that
issue lower rated obligations may be in the growth stage of their development,
or may be financially troubled or highly leveraged, so they may not have more
traditional methods of financing available to them; (5) when other institutional
investors dispose of their holdings of lower rated debt securities, the general
market and the prices for such securities could be adversely affected; and (6)
the market for lower rated securities could be impaired if legislative proposals
to limit their use in connection with corporate reorganizations or to limit
their tax and other advantages are enacted.
The Bond Fund, the High Yield Fund and The Asset Allocation Fund
The Bond Fund, the High Yield Fund and the Asset Allocation Fund may
purchase mortgage-backed securities, such as collateralized mortgage obligations
("CMOs") and mortgage pass-throughs.
Payments of principal and interest on the mortgage obligations underlying
CMOs are not passed through directly to the holders. Rather, they are made to an
independent trustee created specifically for the allocation of such interest and
principal payments because CMOs are frequently issued in a variety of classes or
series which are designed to be retired sequentially as the underlying mortgages
are repaid. In the event of prepayment on such mortgages, the class of
obligations next scheduled to mature generally will be paid down first. Thus,
even if the issuer does not supply additional collateral, there will be
sufficient collateral to secure the obligations which remain outstanding. A
mortgage pass-through, on the other hand, is secured by a pool of mortgages with
common characteristics, so it will not have the class structure associated with
CMOs. For this reason, payments of principal and interest on the underlying
mortgages can be passed-through to all holders of the mortgage pass-through.
And, all such holders will share the same pre-payment risk.
Many factors affect the frequency of unscheduled prepayments or
refinancings of the underlying mortgages, including interest rate changes,
economic conditions, the ages of the mortgages and locations of the mortgaged
properties. Prepayments on mortgage obligations tend to occur more frequently
after interest rates generally have declined. The return provided to the Funds
will be lower if the proceeds of prepaid mortgage-backed securities are
reinvested in securities that provide lower coupons. In addition, the Funds may
suffer losses on prepaid obligations which were acquired at a premium.
When interest rates are rising, mortgage-backed securities may suffer price
declines, particularly if their durations extend because mortgage prepayments or
refinancings slow down. Securities that have lost value will have an adverse
impact on a Fund's total return.
Stripped mortgage securities are another type of mortgage-backed security.
Stripped mortgage securities are created by separating the interest and
principal payments generated by a pool of mortgage-backed bonds to create two
classes of securities. Generally, one class receives only interest payments
(IOs) and one principal payments (POs). IOs and POs are acutely sensitive to
interest rate changes and to the rate of principal prepayments. They are very
volatile in price and may have lower liquidity than most mortgage-backed
securities. Certain CMOs may also exhibit these qualities, especially those
which pay variable rates of interest which adjust inversely with and more
rapidly than short-term interest rates. The Portfolio's Board of Trustees has
adopted procedures for use by GISC, the investment adviser to these Funds, to
ascertain the liquidity and fair value of their investments, including their
mortgage-backed securities holdings. There is no guarantee that the Funds'
investments in CMOs, IOs or POs will be successful, and the Funds' total return
could be adversely affected as a result.
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The Tax-Exempt Fund
Diversification. For the purpose of diversification under the 1940 Act, the
identification of the issuer of Municipal Obligations depends on the terms and
conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and revenues of the subdivision, such subdivision would be deemed
to be the sole issuer. Similarly, in the case of an industrial development bond,
if that bond is backed only by the assets and revenues of the non-governmental
issuer, then such non-governmental issuer would be deemed to be the sole issuer.
If, however, in either case, the creating government or some other entity
guarantees a security, such a guaranty would be considered a separate security
and will be treated as an issue of such government or other entity.
Municipal Lease/Purchase Agreements. The Tax-Exempt Fund may invest in
Municipal Lease/Purchase Agreements which are similar to installment purchase
contracts for property or equipment. These obligations typically are not fully
backed by the issuing municipality's credit and their interest may become
taxable if the lease is assigned. If the governmental issuer does not
appropriate sufficient funds for the following year's lease payments, the lease
will terminate, with the possibility of default on the lease obligation, which
may result in loss to the Fund.
Stand-by Commitments. The Tax-Exempt Fund may acquire stand-by commitments
from brokers, dealers or banks to facilitate its portfolio liquidity. Under a
stand-by commitment, the obligor must repurchase, at the Fund's option,
specified securities held in the Fund's portfolio at a specified price. Thus,
stand-by commitments are comparable to put options. The exercise of a stand-by
commitment is subject to the ability of the seller to make payment on demand.
The Tax-Exempt Fund does not intend to exercise its rights under stand-by
commitments for trading purposes. The Tax-Exempt Fund may pay for stand-by
commitments if such action is deemed necessary, thus increasing to a degree the
cost of the underlying Municipal Obligation and similarly decreasing such
security's yield. Gains realized in connection with stand-by commitments will be
taxable.
Tender Option Bonds. The Tax-Exempt Fund may invest in tender option bonds,
which generally are long-term Municipal Obligations which are coupled with
options to tender the underlying Municipal Obligations to third-party financial
institutions at periodic intervals. Holders of tender option bonds pay periodic
fees to the financial institution(s) that provide(s) the option(s). Such fees
are typically equal to the difference between the Municipal Obligation's fixed
coupon rate and the rate at or near the commencement of the option period that
would cause the securities, coupled with the tender option, to trade at par on
the date that a remarketing or similar agent would make the relevant rate
determinations. Thus, the holder effectively holds a demand obligation that
bears interest at the prevailing short-term tax-exempt rate. In certain
instances and for certain tender option bonds, the option may be terminable in
the event of a default in payment of principal or interest on the underlying
Municipal Obligation and for other reasons. Accordingly, GISC will consider, on
an ongoing basis, the creditworthiness of: (1) the issuers of Municipal
Obligations which are coupled with tender options; (2) any custodian; and (3)
the provider of the tender option.
The Fund will purchase tender option bonds only when it is satisfied that
any custodial arrangements and the
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tender option arrangements, including the fee payment arrangements, will not
adversely affect the tax-exempt status of the underlying Municipal Obligations
and that payment of any tender fees will not have the effect of creating taxable
income for the Fund. Based on the tender option bond agreement, the Fund expects
to be able to value the tender option bond at par; however, the value of the
instrument will be monitored to assure that it is valued at fair value.
Other. The Tax-Exempt Fund may also invest in Municipal Obligations with
embedded derivatives. Such securities increase their interest rate payments to
the holder if rates go up and prices correspondingly decline. As the price of a
security goes down, the income goes up, offsetting the price decline.
Ratings of Municipal Obligations. Subsequent to its purchase by the Fund,
an issue of rated Municipal Obligations may cease to be rated or its rating may
be reduced below the minimum required for purchase by the Fund. Neither event
will require the sale of such Municipal Obligations by the Fund, but GISC will
consider such event in determining whether the Fund should continue to hold the
Municipal Obligations. To the extent that the ratings given by Moody's or
Standard & Poor's for Municipal Obligations may change as a result of changes in
such organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for its investments in accordance with the
investment policies contained in the Prospectus and this Statement of Additional
Information. See the Appendix to this Statement of Additional Information for a
more detailed discussion of securities ratings.
SPECIAL INVESTMENT TECHNIQUES
Each Fund has an investment objective which it pursues through its stated
investment policies and special investment techniques. There can be no assurance
that the objective of a Fund will be achieved. The following is a description of
certain of the special investment techniques which may be used by the investment
advisers on behalf of the Funds to the extent permitted by the Funds' investment
restrictions. This section supplements the description of "Special Investment
Techniques" contained in the Prospectus.
Options on Securities
General. Each of the International Fund, the Emerging Markets Fund, the
Bond Fund, the High Yield Fund, the Tax-Exempt Fund and the Asset Allocation
Fund may purchase put and call options and write (sell) covered call options and
secured put options. As a covered call option writer, a Fund must own securities
which are acceptable for the purpose of covering any outstanding options. So
long as the Fund is obligated as a writer of a put option, it will invest an
amount not less than the exercise price of the put option in eligible securities
(i.e., cash or cash equivalents). These duties reduce a Fund's flexibility to
pursue other investment opportunities while options are outstanding.
During the option period, the covered call writer gives up the potential
for capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the writer
having to deliver the underlying security to the holder of the option at the
exercise price, which will likely be lower than the security's value. For the
secured put writer, substantial depreciation in the value of the underlying
security would result in the exercise of the option by the holder, thereby
obligating the writer to purchase the underlying securities at the exercise
price, which will likely exceed the security's value. If a covered call option
expires unexercised, the writer realizes a gain and the buyer a loss in the
amount of the premium. If the covered call option writer has to sell the
underlying security because of the exercise of the call option, the writer
realizes a gain or loss from the sale of the underlying security, with the
proceeds being increased by the amount of the premium. If a secured put option
expires unexercised, the writer realizes a gain and the buyer a loss in the
amount of the premium. If the secured put writer has to buy the underlying
security because of the exercise of the put option, the secured put writer
incurs an unrealized loss to the extent that the current market value of the
underlying security is less than the exercise price of the put option. However,
this would be offset in whole or in part by gain from the premium received and
any interest income earned on the investment of the premium.
The exercise price of an option may be below, equal to or above the current
market value of the underlying security at the time the option is written. The
buyer of a put who also owns the related security is protected by
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ownership of a put option against any decline in that security's price below the
exercise price less the amount paid for the option. The ability to purchase put
options allows a Fund to protect capital gains in an appreciated security which
is already owned, without being required to actually sell that security. At
times a Fund may seek to establish a position in securities upon which call
options are available. By purchasing a call option a Fund is able to fix the
cost of acquiring the security, this being the cost of the call plus the
exercise price of the option. This procedure also provides some protection from
an unexpected downturn in the market, because a Fund is only at risk for the
amount of the premium paid for the call option which it can, if it chooses,
permit to expire.
The Funds named above may also write or purchase spread options, which are
options for which the exercise price may be a fixed monetary spread or yield
spread between the security underlying the option and another security that is
used as a benchmark. Spread options involve the same risks as are associated
with purchasing and selling options on securities generally, as described above.
The writer (seller) of a spread option which expires unexercised realizes a gain
in the amount of the premium and any interest earned on the investment of the
premium. However, if the spread option is exercised, the writer will forego the
potential for capital appreciation or incur an unrealized loss to the extent the
market value of the underlying security exceeds or is less than the exercise
price of such spread option. The purchaser of a spread option incurs costs equal
to the amount of the premium paid for such option if the spread option expires
unexercised, or the associated transaction costs if the purchaser closes out the
spread option position.
A Fund which is authorized to buy and sell options may purchase a put
option and a call option, each with the same expiration date, on the same
underlying security. The Fund will profit from the combination position if an
increase or decrease in the value of the underlying security is sufficient for
the Fund to profit from exercise of either the call option or the put option.
Combined option positions involve higher transaction costs (because of the
multiple positions taken) and may be more difficult to open and close out than
other option positions.
Options on Securities Indices. The Funds named above may write or purchase
options on securities indices, subject to their general investment restrictions
regarding options transactions. Index options offer the Funds the opportunity to
achieve many of the same objectives sought through the use of options on
individual securities. Options on securities indices are similar to options on a
security except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. This amount of cash is equal to such difference between the
closing price of the index and the exercise price of the option. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount. Unlike security options, all settlements are in cash and gain or
loss depends on price movements in the market generally (or in a particular
industry or segment of the market) rather than price movements in individual
securities.
Price movements in securities which the Funds own or intend to purchase
probably will not correlate perfectly with movements in the level of a
securities index and, therefore, the Funds bear the risk of a loss on a
securities index option which is not completely offset by movements in the price
of such securities. Because securities index options are settled in cash, a call
writer cannot determine the amount of its settlement obligations in advance and,
unlike call writing on a specific security, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding underlying
securities. The Funds may, however, cover call options written on a securities
index by holding a mix of securities which substantially replicate the movement
of the index or by holding a call option on the securities index with an
exercise price no higher than the call option sold.
When a Fund writes an option on a securities index, it will be required to
cover the option or to segregate assets equal in value to 100% of the exercise
price in the case of a put, or the contract value in the case of a call. In
addition, where a Fund writes a call option on a securities index at a time when
the exercise price exceeds the contract value, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess.
Options on securities indices involve risks similar to those risks relating
to transactions in financial futures contracts described below. Also, a
purchased option may expire worthless, in which case the premium which was paid
for it is lost.
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Financial Futures Transactions.
General. The International Fund, the Emerging Markets Fund, the Bond Fund,
the High Yield Fund, the Tax-Exempt Fund and the Asset Allocation Fund may enter
into interest rate futures contracts and securities index futures contracts
(collectively referred to as "financial futures contracts") primarily to hedge
(protect) against anticipated future changes in interest rates or equity market
conditions which otherwise might affect adversely the value of securities which
these Funds hold or intend to purchase. In addition, the Asset Allocation Fund
may also enter into financial futures to reallocate assets among the Fund's
equity, fixed- income and money market asset categories while minimizing
transaction costs or generally as a hedge against changes in market conditions.
A "sale" of a financial futures contract means the undertaking of a contractual
obligation to deliver the securities or the cash value called for by the
contract at a specified price during a specified delivery period. A "purchase"
of a financial futures contract means the undertaking of a contractual
obligation to acquire the securities at a specified price during a specified
delivery period.
When a Fund enters into a financial futures contract, it is required to
deposit with its custodian, on behalf of the broker, a specified amount of cash
or eligible securities called "initial margin." The initial margin required for
a financial futures contract is set by the exchange on which the contract is
traded. Subsequent payments, called "variation margin," to and from the broker
are made on a daily basis as the market price of the financial futures contract
fluctuates. At the time of delivery, pursuant to the contract, adjustments are
made to recognize differences in value arising from the delivery of securities
with a different interest rate than that specified in the contract. With respect
to securities index futures contracts, settlement is made by means of a cash
payment based on any fluctuation in the contract value since the last adjustment
in the variation margin was made.
If a Fund owned long-term bonds and interest rates were expected to rise,
it could sell interest rate futures contracts. If interest rates did increase,
the value of the bonds in such Fund's portfolio would decline, but this decline
should be offset in whole or in part by an increase in the value of the Fund's
interest rate futures contracts. If, on the other hand, long-term interest rates
were expected to decline, a Fund could hold short-term debt securities and
benefit from the income earned by holding such securities, while at the same
time purchasing interest rate futures contracts on long-term bonds. Thus, a Fund
could take advantage of the anticipated rise in the value of long-term bonds
without actually buying them. The interest rate futures contracts and short-term
debt securities could then be liquidated and the cash proceeds used to buy
long-term bonds.
Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contractual
commitment is closed out before delivery of the security. The offsetting of a
contractual obligation is accomplished by purchasing (or selling as the case may
be) on a commodities or futures exchange an identical financial futures contract
calling for delivery in the same month. Such a transaction, if effected through
a member of an exchange, cancels the obligation to make or take delivery of the
securities. All transactions in the futures market are made, offset or fulfilled
through a clearing house associated with the exchange on which the contracts are
traded. A Fund will incur brokerage fees when it purchases or sells financial
futures contracts, and will be required to maintain margin deposits. If a liquid
secondary market does not exist when a Fund wishes to close out a financial
futures contract, it will not be able to do so and will continue to be required
to make daily cash payments of variation margin in the event of adverse price
movements.
Special Considerations Relating to Financial Futures Contracts. Financial
futures contracts entail risks. If the investment adviser's judgment about the
general direction of interest rates or markets is wrong, the overall performance
may be poorer than if no financial futures contracts had been entered into. For
example, in some cases, securities called for by a financial futures contract
may not have been issued at the time the contract was written. There may also be
an imperfect correlation between movements in prices of financial futures
contracts and portfolio securities being hedged. The degree of difference in
price movement between financial futures contracts and the securities being
hedged depends upon such things as differences between the securities being
hedged and the securities underlying the financial futures contracts, and
variations in speculative market demand for financial futures contracts and
securities. In addition, the market prices of financial futures contracts may be
affected by certain factors. If participants in the futures market elect to
close out their contracts through offsetting transactions rather than meet
margin requirements, distortions in the normal relationship between the
securities and financial futures markets could result. Price distortions could
also result if investors in financial futures contracts decide to make or take
delivery of underlying securities rather than engage in closing transactions,
which would reduce the liquidity of the futures market. In addition, because the
margin requirements in the futures
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markets are less onerous than margin requirements in the cash market, increased
participation by the speculators in the futures market could cause temporary
price distortions. Due to the possibility of price distortions in the futures
market and because there may be an imperfect correlation between movements in
the prices of securities and movements in the prices of financial futures
contracts, a correct forecast of market trends by the investment adviser may
still not result in a successful hedging transaction. If this should occur, the
Funds could lose money on the financial futures contracts and also on the value
of their portfolio securities.
Options on Financial Futures Contracts.
The International Fund, the Emerging Markets Fund, the Bond Fund, the High
Yield Fund, the Tax-Exempt Fund and the Asset Allocation Fund may purchase and
write call and put options on financial futures contracts. An option on a
financial futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a financial futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise, the writer of the option delivers the financial futures contract to
the holder at the exercise price. A Fund would be required to deposit with its
custodian initial margin and variation margin with respect to put and call
options on a financial futures contract as written by it.
When-Issued or Delayed-Delivery Transactions.
The Small Cap Fund, the International Fund, the Emerging Markets Fund, the
Bond Fund, the High Yield Fund, the Tax-Exempt Fund and the Asset Allocation
Fund may enter into when-issued or delayed delivery transactions. Prior to
settlement of these transactions, the value of the subject securities will
fluctuate, reflecting interest rate changes. Accordingly, when a Fund commits to
buy particular securities and make payment in the future, it must set aside, in
a segregated account with the custodian, cash or liquid high grade securities at
least equal in value to its commitments. In the case of a sale of securities on
a delayed-delivery basis, a Fund will instruct the custodian to hold the subject
portfolio securities in a segregated account while the commitment is
outstanding. These obligations to segregate cash or securities will limit the
investment advisers' ability to manage each Fund's investments.
Lending of Portfolio Securities.
The Small Cap Fund, the Bond Fund, the High Yield Fund, the Tax-Exempt
Fund and the Asset Allocation Fund may lend their portfolio securities to
broker-dealers, banks and other institutional investors.
These Funds will typically receive commitment fees from the borrowers which
are normally payable upon the expiration of the loan transactions. However, if a
Fund calls the loaned securities prior to the expiration date of a loan, the
Fund may not be entitled to receive the entire commitment fee. The Funds do not
expect to call loaned securities prior to the applicable loan expiration date
unless the current market value of the loaned securities exceeds the expected
return of the loan, including commitment fee income, on the expiration date.
These loan transactions may be structured to permit similar, but not necessarily
identical, securities to be returned to the Funds upon the expiration of a loan.
Since there are risks of delays in recovery or even loss of rights in the
collateral related to all types of secured credit, the loans will be made only
to borrowers deemed by GISC to be creditworthy and will not be made unless, in
GISC's judgment, the income which can be earned justifies the risk. Any such
loans entered into by the Funds will create leverage for the Funds, as lender.
This leverage results from the expectation that the income and gains on the
securities acquired by the Funds with the loan collateral provided by the
borrower will exceed the cost of the loan transaction. Accordingly, each Fund
will only enter into a loan transaction if its earnings or net asset value are
expected to increase faster than otherwise would be the case. However, should
the income and gains earned on the securities acquired with the loan collateral
fail to exceed the cost of the loan, the Fund's earnings or net asset value will
decline faster than otherwise would be the case.
In the event the borrower is unable to complete a loan transaction, or in
the event of any default or insolvency of the borrower, each Fund will retain
the collateral it received in connection with the loan transaction. If this
collateral is insufficient to fully satisfy its rights under the loan agreement,
the affected Fund will take whatever steps it deems advisable to satisfy its
claim.
The Funds may pay reasonable custodian and administrative fees in
connection with the loans.
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Foreign Currency Futures and Options on Foreign Currency Futures.
The International Fund, the Emerging Markets Fund and the High Yield Fund
may purchase and sell futures contracts on foreign currencies, related options
thereon and options on foreign currencies as a hedge against possible variation
in foreign exchange rates. A futures contract on a foreign currency is an
agreement between two parties to buy and sell a specified amount of a particular
currency for a particular price on a future date. An option on a foreign
currency futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a foreign currency futures contract at a
specified price at any time during the period of the option. An option
transaction on a foreign currency provides the holder with ability to buy or
sell a particular currency at a fixed price on a future date, and is used to
hedge the currency exchange rate risk on non-U.S. dollar-denominated securities
owned by a Fund, anticipated to be purchased by the Fund, or sold by the Fund
but not yet delivered. Options on foreign currencies may be traded on U.S. and
foreign exchanges or in the over-the-counter market.
Foreign currency futures contracts and options on foreign currency futures
contracts are traded on boards of trade and futures exchanges. Buyers and
sellers of foreign currency futures contracts are subject to the same risks
which apply to the use of future contracts generally. In addition, there are
risks associated with foreign currency futures contracts similar to those
associated with options on foreign currencies, described above. Moreover, the
ability to close out positions in such options is subject to the maintenance of
a liquid secondary market. In order to reduce this risk, a Fund will not
purchase or sell options on foreign currency options unless, in the opinion of
the Fund's investment adviser, a sufficiently liquid secondary market exists so
that the risks connected to such options transactions are not greater than the
risks associated with the underlying foreign currency futures contract.
A Fund will only write covered options on foreign currency or foreign
currency futures contracts. A put on a foreign currency or foreign currency
futures contract written by the Fund will be considered covered if the Fund
segregates cash, U.S. government securities or other liquid high-grade debt
securities, equal to the average exercise price of the put. A call on a foreign
currency or on a foreign currency futures contract written by the Fund will be
considered covered if the Fund owns short-term debt securities with a value
equal to the face amount of the option contract denominated in the currency upon
which the call is written.
A Fund will purchase an option on foreign currency as a hedge against
fluctuations in exchange rates. However, should exchange rates move adversely to
the Fund's position, the Fund may forfeit both the entire price of the option
plus the related transaction costs.
Engaging in foreign futures and foreign options transactions involves the
execution and clearing of trades on or subject to the rules of a foreign board
of trade. Neither the National Futures Association ("NFA") nor any domestic
(U.S.) exchange regulates activities of any foreign boards of trade, including
the execution, delivery and clearing of transactions, or has the power to compel
enforcement of the rules of a foreign board of trade or any applicable foreign
law. This is true even if the exchange is formally linked to a domestic market
so that a position taken on the exchange may be liquidated by a transaction on
the appropriate domestic market. Moreover, applicable laws or regulations will
vary depending on the foreign country in which the foreign futures or foreign
options transaction occurs. Therefore, entities (such as the Funds) which trade
foreign futures or foreign options contracts may not be afforded certain of the
protective measures provided by the Commodity Exchange Act, Commodity Futures
Trading Commission ("CFTC") regulations, the rules of the NFA or those of a
domestic (U.S.) exchange. In particular, monies received from customers for
foreign futures or foreign options transactions may not be provided the same
protections as monies received in connection with transactions on U.S. futures
exchanges. In addition, the price of any foreign futures or foreign options
contract and, therefore, the potential profit and loss thereon, may be affected
by any variance in the foreign exchange rate between the time the order for the
futures contract or option is placed and the time it is liquidated, offset or
exercised.
Forward Foreign Currency Transactions.
The foreign securities held by the International and Emerging Markets Funds
will usually be denominated in foreign currencies and the Funds may temporarily
hold foreign currency in connection with such investments. As a result, the
value of the assets held by a Fund may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations. The
Funds may enter into forward foreign currency exchange contracts ("forward
currency contracts") in an effort to control some of the uncertainties of
foreign currency exchange rate fluctuations. A forward currency contract is an
agreement to purchase or sell a specific currency at a specified future date and
price agreed to by the parties at the time of entering into the contract. The
Funds will not engage in forward currency contracts for speculation, but only as
an attempt to hedge against
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changes in currency exchange rates affecting the values of securities which a
Fund holds or intends to purchase. Thus, a Fund will not enter into a forward
currency contract if such contract would obligate the Fund to deliver an amount
of foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency.
A Fund will normally be expected to use forward currency contracts to fix
the value of certain securities it has agreed to buy or sell. For example, when
a Fund enters into a contract to purchase or sell securities denominated in a
particular foreign currency, the Fund could effectively fix the maximum cost of
those securities by purchasing or selling a foreign currency contract, for a
fixed value of another currency, in the amount of foreign currency involved in
the underlying transaction. In this way, the Fund can protect the value of
securities in the underlying transaction from an adverse change in the exchange
rate between the currency of the underlying securities in the transaction and
the currency denominated in the foreign currency contract, during the period
between the date the security is purchased or sold and the date on which payment
is made or received.
The Funds may also use forward currency contracts to hedge the value, in
U.S. dollars, of securities it currently owns. For example, if a Fund holds
securities denominated in a foreign currency and anticipates a substantial
decline (or increase) in the value of that currency against the U.S. dollar, the
Fund may enter into a foreign currency contract to sell (or purchase), for a
fixed amount of U.S. dollars, the amount of foreign currency approximating the
value of all or a portion of the securities held which are denominated in such
foreign currency.
Upon the maturity of a forward currency transaction, the Funds may either
accept or make delivery of the currency specified in the contract or, at any
time prior to maturity, enter into a closing transaction which involves the
purchase or sale of an offsetting contract. An offsetting contract terminates a
Fund's contractual obligation to deliver the foreign currency pursuant to the
terms of the forward currency contract by obligating the Fund to purchase the
same amount of the foreign currency, on the same maturity date and with the same
currency trader, as specified in the forward currency contract. The Fund will
realize a gain or loss as a result of entering into such an offsetting contract
to the extent the exchange rate between the currencies involved moved between
the time of the execution of the original forward currency contract and the
offsetting contract.
The use of forward currency contracts to protect the value of securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities a Fund owns or intends to acquire, but
it does fix a future rate of exchange. Although such contracts minimize the risk
of loss resulting from a decline in the value of the hedged currency, they also
limit the potential for gain resulting from an increase in the value of the
hedged currency. The benefits of forward currency contracts to the Funds will
depend on the ability of the Funds' investment advisers to accurately predict
future currency exchange rates.
Regulatory Restrictions.
To the extent required to comply with the 1940 Act and rules and
interpretations thereunder, a Fund may not maintain open short positions in
financial futures contracts, call options written on financial futures contracts
or call options written on indexes if, in the aggregate, the market value of all
such open positions exceeds the current value of the securities in its
portfolio, plus or minus unrealized gains and losses on the open positions,
adjusted for the historical relative volatility of the relationship between the
portfolio and the positions. When purchasing a financial futures contract or
writing a put option on a financial futures contract, the Fund must segregate
cash, cash-equivalents (including any margin) or liquid high-grade debt
obligations equal to the market value of such contract. These cover and
segregation requirements may limit the Fund's ability to pursue other investment
opportunities.
In order to comply with the Commodity Futures Trading Commission Regulation
4.5 and thereby avoid being deemed a "commodity pool operator," a Fund will use
commodity futures or commodity options contracts solely for bona fide hedging
purposes within the meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts that do not come
with the meaning and intent of Regulation 1.3(z), the aggregate initial margin
and premiums required to establish such positions will not exceed 5% of the fair
market value of the assets of the Fund, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into. In the
case of an option that is in-the-money at the time of purchase, the in-the-money
amount (as defined in Section 190.01(x) of the CFTC Regulations) may be excluded
in computing such 5%.
B-21
<PAGE>
INVESTMENT ADVISERS AND DISTRIBUTOR
Guardian Investor Services Corporation ("GISC"). GISC is the investment
adviser for each of the Funds (except the International Fund and the Emerging
Markets Fund). GISC and the Portfolio have entered into a written investment
advisory agreement which provides that GISC shall act as the applicable Funds'
investment adviser, manage their investments and provide them with various
services and facilities. The investment advisory agreement will continue in full
force and effect from year to year with respect to each Fund so long as its
continuance is approved at least annually by vote of a majority of the
outstanding voting securities of that Fund, or by vote of the Board of Trustees
of the Portfolio, including a majority of the Trustees who are not parties to
the agreement or "interested persons" of the Portfolio or of GISC, cast in
person at a meeting called for that purpose. The agreement will terminate
automatically upon its assignment and may be terminated with respect to any Fund
without penalty at any time by either party upon 60 days' written notice.
Under the terms of the investment advisory agreement, GISC provides or pays
for certain of the Funds' administrative costs. Among the services and
facilities provided or paid for by GISC are: office space; clerical staff and
recordkeeping; and the services of all Fund personnel, including any fees and
expenses of the Trustees who are affiliated with The Guardian Life Insurance
Company of America ("Guardian Life"). All other costs and expenses are to be
paid by the Funds that GISC advises.
The investment advisory agreement provides that neither GISC, nor any of
its personnel shall be liable for any error of judgment or mistake of law or for
any loss suffered by GISC or the Funds in connection with the matters to which
the investment advisory agreement relates, except for loss resulting from
willful misfeasance or misconduct, willful default, bad faith, or gross
negligence in the performance of its or his/her duties on behalf of GISC or the
Funds or from reckless disregard by GISC or any such person of the duties of
GISC under the investment advisory agreement.
Guardian Life has registered and maintains the exclusive ownership interest
of the following trademarks or service marks, as the case may be: "The Guardian
Park Avenue Fund," "The Guardian Park Avenue Small Cap Fund," "The Guardian Park
Avenue Tax-Efficient Fund," "The Guardian Investment Quality Bond Fund," "The
Guardian High Yield Bond Fund," "The Guardian Tax-Exempt Fund," "The Guardian
Cash Management Fund," "The Guardian Asset Allocation Fund", "The Guardian
Baillie Gifford International Fund" and "The Guardian Baillie Gifford Emerging
Markets Fund." If the investment advisory agreement is terminated with respect
to any or all of the Funds and it is not replaced by an agreement with another
affiliate of Guardian Life, any affected Fund's continued use of its name is
subject to the approval of Guardian Life.
The investment advisory agreement includes a provision that if any 1940 Act
requirement is relaxed by rule, regulation or order of the SEC, then any
provision of the agreement which reflects such 1940 Act requirement shall be
deemed to incorporate the effect of such rule, regulation or order.
A service agreement between GISC and Guardian Life provides that the latter
will furnish the office space, clerical staff, services and facilities which
GISC needs to perform its duties under the investment advisory agreement. GISC's
officers and other personnel are salaried employees of Guardian Life; they
receive no compensation from GISC. GISC reimburses Guardian Life for its
expenses under the separate agreement.
The following chart details the investment management fees paid to GISC by
the Funds named during the periods noted. The Tax-Efficient Fund and the High
Yield Fund did not commence operations until after December 31, 1997, and
therefore no information is provided for the Tax-Efficient Fund and the High
Yield Fund.
- --------------------------------------------------------------------------------
Fund Name Year ended Year ended Year ended
12/31/95 12/31/96 12/31/97
- --------------------------------------------------------------------------------
Park Avenue $4,093,163 $5,851,464 $
Tax-Efficient $ $ $
Cash $ 332,665 $ 388,947 $
Bond $ 255,331 $ 259,454 $
High Yield $ $ $
Tax-Exempt $ 83,564 $ 105,144 $
Asset Allocation $ 404,836 $ 510,556 $
- --------------------------------------------------------------------------------
Guardian Baillie Gifford Limited ("GBG"). GBG is the investment adviser to
the International Fund and the Emerging Markets Fund pursuant to an investment
advisory agreement between GBG and the Portfolio. GBG
B-22
<PAGE>
was formed in November 1990 through a joint venture between GIAC, a wholly owned
subsidiary of Guardian Life and Baillie Gifford Overseas Limited ("BG
Overseas"), which is wholly owned by Baillie Gifford & Co.
The agreement provides that GBG is responsible for the overall investment
management of the investment portfolios of the International Fund and the
Emerging Markets Fund. Under the terms of the agreement, GBG is responsible for
all decisions to buy and sell securities for the Funds, furnishes the Board with
recommendations with respect to the Funds' investment policies, provides the
Board with regular reports pertaining to the implementation and performance of
such policies, and maintains certain books and records as required by the 1940
Act and by any other applicable laws and regulations. GBG has, in turn, entered
into a sub-investment advisory agreement with BG Overseas appointing the latter
as sub-investment adviser and delegating to BG Overseas much of the day-to-day
management responsibilities for the Funds' portfolios (see "Baillie Gifford
Overseas Limited" below).
The agreement between GBG and the Portfolio will continue in full force and
effect with respect to each Fund from year to year, provided its continuance is
specifically approved at least annually by vote of a majority of the outstanding
securities of the respective Funds, or by vote of the Board of Trustees of the
Portfolio, including a majority of the Trustees who are not parties to the
agreement or "interested persons" of the Portfolio or of GBG, cast in person at
a meeting called for the purpose of voting on such continuance.
The agreement provides that neither GBG, nor any of its officers,
directors, or employees shall be liable for any error of judgment or mistake of
law or for any loss suffered by either Fund in connection with the matters to
which the agreement relates, except for loss resulting from willful misfeasance
or misconduct, willful default, bad faith, or gross negligence in the
performance of its or his/her duties on behalf of a Fund or from reckless
disregard by GBG or any such person of the duties of GBG under the agreement.
The agreement includes a provision that if any 1940 Act requirement is
relaxed by rule, regulation or order of the SEC, then any provision of the
agreement which reflects such 1940 Act requirement shall be deemed to
incorporate the effect of such rule, regulation or order.
The agreement may be terminated with respect to a Fund, without penalty, at
any time by either party upon 60 days' written notice and will terminate
automatically upon its assignment. In addition, either party may terminate the
agreement immediately in any of the following situations: (1) the other party
commits any material breach of its obligations under the agreement which, if
curable, is not remedied within 30 days; (2) the dissolution of the other party;
or (3) the termination or expiration of the joint venture agreement between GIAC
and BG Overseas. Termination of the investment advisory agreement with respect
to one Fund will not affect its validity with respect to the other Fund.
In the event that the agreement is terminated and unless it is replaced by
another agreement between GIAC and BG Overseas or their affiliates, the
continued use of the names "The Guardian Baillie Gifford International Fund" and
"The Guardian Baillie Gifford Emerging Markets Fund" is subject to the approval
of both GIAC and BG Overseas.
The management fees paid by the International Fund to GBG for the years
ended December 31, 1997, December 31, 1996, and December 31, 1995 were $_______,
$423,523, and $331,752, respectively. The management fee paid by the Emerging
Markets Fund, which commenced operations on April 2, 1997, to GBG for the year
ended December 31, 1997 was $_______.
Baillie Gifford Overseas Limited. BG Overseas is the sub-investment adviser
for the International and Emerging Markets Funds pursuant to a sub-investment
advisory agreement with GBG. Pursuant to this sub-investment advisory agreement,
BG Overseas manages the day-to-day operations of each Fund's portfolio. In so
doing, BG Overseas has full discretion to purchase and sell portfolio
securities, to select brokers for the execution of such purchases, sales, and to
negotiate brokerage commissions, if any, subject to monitoring by GBG. GBG
continually monitors and evaluates the performance of BG Overseas.
The sub-investment advisory agreement will continue in full force and
effect with respect to each Fund from year to year, provided its continuance is
specifically approved at least annually (1) by the Board of Directors of GBG and
(2) by either (a) a majority of the outstanding securities of the respective
Funds or (b) the Board of Trustees of the Portfolio, including approval by a
vote of the majority of the Trustees who are not parties to the sub-investment
advisory agreement or "interested persons" of the Portfolio or of GBG, cast in
person at a meeting called for the purpose of voting on such continuance.
B-23
<PAGE>
The sub-investment advisory agreement provides that neither BG Overseas,
nor any of its officers, directors or employees shall be liable for any error of
judgment or mistake of law or for any loss suffered by GBG or either Fund in
connection with the matters to which the sub-investment advisory agreement
relates, except for any loss resulting from willful misfeasance or misconduct,
willful default, bad faith, or gross negligence in the performance of its or
his/her duties on behalf of GBG or the Funds or from reckless disregard by BG
Overseas or any such person of the duties of BG Overseas under the
sub-investment advisory agreement.
The sub-investment advisory agreement includes a provision that if any 1940
Act requirement is relaxed by rule, regulation or order of the SEC, then any
provision of the sub-investment advisory agreement which reflects such 1940 Act
requirement shall be deemed to incorporate the effect of such rule, regulation
or order.
The sub-investment advisory agreement may be terminated, without penalty,
at any time by either party upon 60 days' written notice and will terminate
automatically upon its assignment. In addition, either party may terminate the
sub-investment advisory agreement immediately in any of the following
situations: (1) the other party commits any material breach of its obligations
under the agreement which, if curable, is not remedied within 30 days; (2) the
dissolution of the other party; or (3) the termination or expiration of the
joint venture agreement between GIAC and BG Overseas. Termination of the
sub-investment advisory agreement with respect to one Fund will not affect its
validity with respect to the other Fund.
Of the management fees that it receives under its investment advisory
agreement with the International and Emerging Markets Funds, GBG pays 0.40% of
the average daily net assets of the International Fund and 0.50% of the average
daily net assets of the Emerging Markets Fund to BG Overseas as compensation for
BG Overseas' services as the Funds' sub-investment adviser. For the years ended
December 31, 1997, December 31, 1996 and December 31, 1995, BG Overseas received
$_______, $211,761 and $165,876, respectively, from GBG as compensation for its
services to the International Fund. For the year ended December 31, 1997, BG
Oversea received $_______ from GBG as compensation for its services to the
Emerging Markets Fund, which commenced operations on April 2, 1997.
(See the Prospectus section entitled "Management" for more information
about the Portfolio's investment advisory agreements.)
The Administrative Services Agreement. GISC and the Portfolio have also
entered into an Administrative Services Agreement on behalf of both classes of
shares pursuant to which GISC will provide information and administrative
services for the benefit of the Portfolio and its shareholders. These services
include providing office space, equipment and personnel, maintenance of
shareholder account records, responding to routine shareholder inquiries
regarding the Portfolio and assisting in the processing of shareholder
transactions and any other services which the Portfolio may reasonably request.
GISC may also enter into related agreements with other broker-dealers or other
financial services firms that provide such services and facilities for their
customers who are shareholders of the Portfolio. The Administrative Services
Agreement may be terminated at any time by either party upon 60 days' written
notice. The Agreement may not be assigned without the consent of the Portfolio.
Any material amendments to the Agreement, including an increase in the amount of
fees, must be approved by the Board of Trustees of the Portfolio. For the period
from May 1, 1996 (effectiveness of the Administrative Services Agreement) to
December 31, 1996 and January 1, 1997 to December 31, 1997, the Funds paid fees
under the Administrative Services Agreement to GISC in the amounts set forth in
the following table. Since the Tax-Efficient Fund and the High Yield Fund did
not commence operations until after December 31, 1997, no information is
provided with respect to those Funds.
- --------------------------------------------------------------------------------
Administrative Service Fees Paid by the Funds for the period
from May 1, 1996 to December 31, 1996
and January 1, 1997 to December 31, 1997
- --------------------------------------------------------------------------------
Name of Fund Class A Shares Class B Shares*
- --------------------------------------------------------------------------------
Park Avenue $1,087,354 $19,018
Small Cap $ $
Asset Allocation $ 176,899 $ 4,608
International $ 88,088 $ 3,257
Emerging Markets $ $
Bond $ 86,597 --
Tax-Exempt $ 40,748 --
Cash $ 121,068 $ 3,340
- --------------------------------------------------------------------------------
* The Bond Fund and the Tax-Exempt Fund do not offer Class B shares.
B-24
<PAGE>
Underwriting Agreement. The Portfolio has also entered into an underwriting
agreement with GISC which, together with a distribution plan and agreement
pursuant to Rule 12b-1 under the 1940 Act (see below), governs the sale and
distribution of Fund shares and payment of commissions to GISC. Shares are
offered continuously; however, the Portfolio reserves the right to cease the
offer of any Fund's shares at any time, subject to applicable laws, rules and
regulations. The underwriting agreement shall remain in full force and effect
from year to year so long as its continuance is approved at least annually by
the Board of Trustees of the Portfolio, including a majority of Trustees who are
not parties to the agreement or interested persons of any such party. It will
terminate upon assignment and may be terminated with respect to any or all of
the Funds at any time by either party on not less than 30 nor more than 60 days'
written notice. Termination of the underwriting agreement with respect to one
Fund will not affect its validity with respect to any other Fund. The agreement
also provides that the Portfolio shall indemnify GISC and persons in control of
GISC with respect to certain liabilities, including liabilities arising under
the Securities Act of 1933. Shares of each Fund may be purchased through
Guardian Life agents who are registered representatives and licensed by GISC to
sell Fund shares, and through registered representatives of selected
broker-dealers which are members of the National Association of Securities
Dealers, Inc. and which have entered into selling agreements with GISC. GISC may
reallow up to 100% of any sales charge on shares sold by dealers with whom it
has sales agreements.
Contingent Deferred Sales Load -- Class B Shares. As discussed in the
Prospectus, Class B shares redeemed within six years of purchase generally are
subject to a contingent deferred sales load ("CDSL") subject to waivers
described in the Prospectus. For the period January 1, 1997 to December 31,
1997, GISC received the following CDSLs with respect to redemptions of Class B
shares of the Multiple Class Funds. Since the Tax-Efficient Fund and the High
Yield Fund had not commenced operations as of December 31, 1997, no information
is provided for those Funds.
- --------------------------------------------------------------------------------
CDSLs Received for the
Fund Period Ended December 31, 1997
---- ------------------------------
Park Avenue $
Small Cap $
Asset Allocation $
International $
Emerging Markets $
Cash $
- --------------------------------------------------------------------------------
Distribution Plan Pursuant to Rule 12b-1 and Distribution Agreement. Under
a Distribution Plan adopted by the Portfolio pursuant to Rule 12b-1 under the
1940 Act (the "12b-1 Plan"), each Portfolio Fund which issues Class B shares
(the "Multiple Class Funds") is authorized to pay a monthly 12b-1 fee at an
annual rate of up to 0.75% 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.
The 12b-1 fees may be paid by the Portfolio Funds to third parties,
including GISC, which enter into Distribution Agreements with the Portfolio.
Under the 12b-1 Plan, distribution fees may be used to compensate brokers and
dealers who engage in or support the distribution of the Class B shares of the
Multiple Class Funds. The 12b-1 fees may also be used to pay other
distribution-related expenses incurred, such as communications equipment
charges, printing prospectuses, statements of additional information and reports
for prospective investors, the costs of printing sales literature and
advertising materials, training and educating sales personnel and other
overhead. The 12b-1 Plan, in conjunction with the CDSL, permits an investor to
purchase Class B shares through a distributor without the imposition of an
initial sales load.
In order to effect the 12b-1 Plan, the Portfolio, on behalf of the Multiple
Class Funds, has entered into a Distribution Agreement with GISC. GISC is
compensated by the fees it receives under the 12b-1 Plan and is not paid any
additional amounts under the Distribution Agreement. GISC intends to use these
fees to pay for distribution-related expenses for Class B shareholders and
payments to registered representatives for the sale of Class B shares. GISC also
intends to use the 12b-1 fees to advance payments of up to 3.0% of the proceeds
of sales of Class B shares to its registered representatives and other
authorized broker-dealers.
GISC absorbs its distribution and service expenses which exceed the amount
of 12b-1 fees collected. No Fund is obligated to reimburse GISC for such excess
expenses, and GISC will not carry one year's deficiency to a subsequent year in
order to recover such deficiency from the subsequent year's fee. Similarly, if
the 12b-1 Plan or Underwriting Agreement, as either pertains to a Fund, is
terminated or not renewed, any expenses incurred by
B-25
<PAGE>
GISC on behalf of such Fund which are in excess of fees which GISC has received
or accrued shall be absorbed by GISC. Conversely, if GISC's expenditures for a
Fund under the 12b-1 Plan are less than the amount collected, GISC is entitled
to retain the excess. However, the Trustees are authorized to negotiate changes
to the 12b-1 Plan, such as a fee reduction or increased services, if the fee
paid by a Fund in a particular year exceeds the covered expenses. Alternatively,
the Trustees may find such excess justifiable under the circumstances.
The 12b-1 Plan specifically provides that while it is in effect, the
selection and nomination of the Trustees who are not "interested persons" of the
Portfolio, as that term is defined in the 1940 Act, shall be made solely at the
discretion of the Trustees who are not interested persons of the Portfolio.
The fees to be paid by a Fund under the 12b-1 Plan may not be amended in a
material way without approval by vote of: (1) a majority of the Trustees; (2) a
majority of the Trustees who are not "interested persons" of the Portfolio and
have no direct or indirect financial interest in the operation of the 12b-1 Plan
or related agreements ("Independent Trustees"); and (3) a majority of such
Fund's outstanding voting securities, as defined by the 1940 Act.
The 12b-1 Plan will continue from year-to-year for each Fund if such
continuance is specifically approved by vote of the Board, and by vote of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on the 12b-1 Plan.
The 12b-1 Plan may be terminated with respect to the Portfolio or a Fund
(1) at any time by vote of a majority of the Trustees, a majority of the
Independent Trustees, or a majority of that Fund's outstanding voting
securities, or (2) by GISC on 60 days' notice in writing to the Portfolio.
For the period from January 1, 1997 to December 31, 1997, the Class B
shares of the Multiple Class Funds paid fees under the Rule 12b-1 Plan to GISC
as set forth in the following table. The table details the amount that the Class
B shares of each Fund paid to GISC and how GISC used that money to promote sales
and provide customer service during this period. Since the Tax-Efficient Fund
and the High Yield Fund did not commence operations until after December 31,
1997, no information is provided with respect to those Funds.
- --------------------------------------------------------------------------------
Rule 12b-1 Fees Paid by Class B shares of the Funds
and Expenditures by GISC from January 1, 1997 to December 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
GISC's Expenditures to Print
Fund -- Name and 12b-1 GISC's Marketing and and Mail Prospectuses Distribution Trail Amounts Retained
Fees Paid to GISC Advertising Expenditures for Prospective Investors Expenses Commissions by GISC
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Park Avenue
$56,796 $69,633 $85,977 $905,172 $48,417 $0
- -------------------------------------------------------------------------------------------------------------------------------
Small Cap
$ $ $ $ $ $
- -------------------------------------------------------------------------------------------------------------------------------
Asset Allocation
$13,822 $16,068 $15,417 $ 86,838 $ 6,577 $0
- -------------------------------------------------------------------------------------------------------------------------------
International
$ 7,028 $12,618 $10,271 $ 44,796 $ 4,233 $0
- -------------------------------------------------------------------------------------------------------------------------------
Emerging Markets
$ $ $ $ $ $
- -------------------------------------------------------------------------------------------------------------------------------
Cash
$ 3,708 $ 9,228 $ 7,974 $ 53,968 $ 3,329 $0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Portfolio has also entered into a Distribution Plan with GISC on behalf
of the Class A shares. This Plan was made dormant by the Board as of May 1, 1996
and no 12b-1 fees are currently authorized to be paid in connection with sales
of Class A shares.
B-26
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
GISC currently serves as investment adviser to several Guardian-sponsored
mutual funds, serves as manager of one other mutual fund and is the co-adviser
of a separate account established by its corporate parent, GIAC. GBG and BG
Overseas currently serve as investment adviser and sub-investment adviser,
respectively, to two series of one other Guardian-sponsored mutual fund. In the
future, each of GISC, GBG or BG Overseas (collectively, the "Advisers") may act
as investment advisers to other Guardian-sponsored mutual funds or GIAC separate
accounts. At times, investment decisions may be made to purchase or sell the
same investment security for one or more of the other clients advised by the
Advisers. It is each Adviser's practice to allocate purchase and sale
transactions among the Funds and other clients whose assets they manage in such
manner as is deemed equitable, which may or may not be beneficial to the Funds.
The Advisers have no formula for the distribution of brokerage business
when placing orders for the purchase and sale of portfolio securities. For
over-the-counter transactions, the Advisers attempt to deal with a primary
market maker unless they believe better prices and execution are available
elsewhere. In allocating portfolio transactions among brokers, the Advisers give
consideration to brokers whom they believe can obtain the best price and
execution of orders and to brokers who furnish statistical data, research and
other factual information. The Advisers are authorized to pay a commission in
excess of that which another broker may charge for effecting the same
transaction if they consider that such commissions they pay for brokerage,
research services and other statistical data are appropriate and reasonable for
the services rendered. The research services and statistical data which the
Advisers receive in connection with the Funds' portfolio transactions may be
used by the Advisers to benefit other clients and will not necessarily be used
in connection with the Funds. The Advisers do not participate in commissions
paid by the Funds to other brokers or dealers and do not knowingly receive any
reciprocal business directly or indirectly as a result of such commissions.
While the Advisers will be primarily responsible for the placement of each
Fund's business, the policies and practices will be subject to review by the
Board of Trustees. The following chart details brokerage commissions paid by the
Funds during the years ended December 31, 1995, 1996 and 1997.
B-27
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Brokerage Commissions
Paid by the Funds Comprising
The Park Avenue Portfolio
- ------------------------------------------------------------------------------------------------
Commissions Paid Commissions Paid Commissions Paid
During the Year Ended During the Year Ended During the Year Ended
Fund December 31, 1995 December 31, 1996 December 31, 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Park Avenue Fund $1,477,817 $1,655,483 $
- ------------------------------------------------------------------------------------------------
Small Cap Fund $ $ $
- ------------------------------------------------------------------------------------------------
Asset Allocation Fund $ 126,876 $ 107,020 $
- ------------------------------------------------------------------------------------------------
International Fund $ 114,727 $ 104,968 $
- ------------------------------------------------------------------------------------------------
Emerging Markets Fund $ $ $
- ------------------------------------------------------------------------------------------------
</TABLE>
The Cash Fund, Bond Fund and Tax-Exempt Fund primarily purchase securities in
principal transactions at net prices. None of these Funds paid separate
brokerage commissions during the time periods covered by the foregoing chart.
Since the Tax-Efficient Fund and the High Yield Fund had not commenced
operations prior to December 31, 1997, no information is provided for those
Funds.
- --------------------------------------------------------------------------------
In any particular year, market conditions could necessitate portfolio
activity which results in high or low turnover rates. Portfolio turnover is
calculated by dividing the lesser of purchases or sales of a Fund's securities
during a fiscal year by the average monthly value of the Fund's securities
during such fiscal year. In determining the portfolio turnover rate, all
securities whose maturities or expiration dates at the time of acquisition were
one year or less are excluded. Turnover rates may be affected by factors such as
purchase and redemption requirements and market volatility, and may vary greatly
from time to time. The portfolio turnover rate of a Fund may be higher during
its early history. Increased portfolio turnover will not necessarily indicate a
variation from a Fund's stated investment policies, but may result in greater
brokerage commissions and, consequently, higher expenses. The following chart
shows each Fund's portfolio turnover rate during the time periods noted.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Portfolio
Turnover Rates
- ------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate Portfolio Turnover Rate Portfolio Turnover Rate
for the Year Ended for the Year Ended for the Year Ended
Fund* December 31, 1995 December 31, 1996 December 31, 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Park Avenue Fund 78% 81% %
- ------------------------------------------------------------------------------------------------------
Small Cap Fund % % %
- ------------------------------------------------------------------------------------------------------
International Fund 51% 39% %
- ------------------------------------------------------------------------------------------------------
Emerging Markets Fund % % %
- ------------------------------------------------------------------------------------------------------
Bond Fund 401% 257% %
- ------------------------------------------------------------------------------------------------------
Tax-Exempt Fund 194% 240% %
- ------------------------------------------------------------------------------------------------------
Asset Allocation Fund 219% 122% %
- ------------------------------------------------------------------------------------------------------
</TABLE>
* The Cash Fund's Portfolio turnover rate is not meaningful since, by its
nature, a money market mutual fund that invests in short-term instruments
will turn its portfolio over several times during the course of a year.
Since the Tax-Efficient Fund and the High Yield Fund did not commence
operations until after December 31, 1997, no information is provided for
those Funds.
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
National Financial Data Services, the Portfolio's shareholder servicing
agent, will typically pay redemption proceeds within three business days after
it receives a proper redemption request. Redemptions will generally be made in
cash but may be made wholly or partly in readily marketable securities or other
non-cash assets if the Board of Trustees should determine that orderly
liquidation of a Fund's securities is impracticable or that payment wholly in
cash would have a material adverse effect on the remaining shareholders. The
redemption will be made at the NAV next determined after the redemption request
is received in proper form. Shares that are purchased by check cannot be
redeemed until the check has cleared. This may take up to 15 calendar days.
Shareholders are not permitted to elect whether the redemption will be made in
cash or securities. The Portfolio has elected to be governed by Rule 18f-1 under
the 1940 Act, so it is committed to pay cash redemptions to each shareholder
during any 90-day period up to the lesser of $250,000 or 1% of the net asset
value of a Fund at the beginning of such period. Any portfolio securities paid
or distributed in kind will be valued as described under "Net Asset Value"
B-28
<PAGE>
below. A subsequent sale of such securities would ordinarily require payment of
brokerage commissions by the redeeming shareholders.
The right to redeem a Fund's shares may be suspended, or the payment date
postponed, for any period during which: (1) the New York Stock Exchange ("NYSE")
is closed (other than customary weekend and holiday closings); (2) trading on
the NYSE is restricted for any reason; (3) an emergency exists, as a result of
which disposal by a Fund of securities owned by it is not reasonably
practicable, or it is not reasonably practicable for a Fund fairly to determine
the value of its net assets, as determined by the SEC under its rules and
regulations; or (4) the SEC, by order, so permits suspension for the protection
of shareholders of a Fund.
PERFORMANCE RESULTS
As described in the Prospectus, a Fund may state its yield, average annual
total return and total return in advertisements, sales materials and investor
communications. These various measures of performance are described and
illustrated below.
Performance figures are based upon historic results and do not represent
future performance. With the exception of the Cash Fund, Class A shares are sold
at NAV plus a maximum sales load of 4.50% of the NAV. Class B shares of the
Multiple Class Funds are sold at NAV, subject to a maximum contingent deferred
sales load of 4.0%. Returns will fluctuate and may be different for Class A and
Class B shares of the same Portfolio Fund, since Class B shares bear higher
overall expenses than Class A shares. Factors affecting Fund performance include
general market conditions, the level of overall operating expenses, investment
management fees, and, with respect to the International and Emerging Markets
Funds, exchange rates. Any additional fees charged by a broker, dealer or other
financial services firm will further reduce the returns described in this
section. Class A shares of the Funds are redeemable at NAV. Class B shares of
the Funds are redeemable subject to a CDSL. Redemption proceeds may be more or
less than the original cost.
NOTE: Performance illustrations provided for the Class A Park Avenue Fund
and the Class A Cash Fund for periods ending prior to January 1, 1993 do not
reflect the imposition of charges under the Portfolio's Class A 12b-1 Plan which
went into effect on January 1, 1993. No 12b-1 fees are currently being imposed
on the Class A shares of any Fund. Restating these Funds' performance results to
include the effect of such charges would reduce the performance results.
Yield is a measure of the net investment income per share earned over a
specific time period (one month or 30 days in the case of the Bond Fund and the
Tax-Exempt Fund, and seven days in the case of the Cash Fund) expressed as a
percentage of the maximum offering price of the Fund's shares.
Yield is computed in accordance with the following SEC standardized method.
YIELD = 2 [(((a-b)/cd) + 1 )^6 - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
This standardized methodology is not necessarily consistent with generally
accepted accounting principle
The Bond Fund's yield for the 30-day period ended December 31, 1997 was
____%, and the Tax-Exempt Fund's yield was ____% for the same period. The
Tax-Exempt Fund's tax equivalent yield is computed by dividing that portion of
the yield (as calculated above) which is tax-exempt by one minus the maximum
federal income tax rate and adding the product to that portion, if any, of the
Fund's yield that is not tax-exempt. Using this formula, the tax equivalent
yield of the Tax-Exempt Fund for the 30-day period ended December 31, 1997 was
____%.
The Cash Fund provides current yield and effective yield quotations, which
are calculated in accordance with SEC standards and are based upon changes in
account value during a recent seven-day base period. Current yield
B-29
<PAGE>
quotations are computed by annualizing (on a 365-day basis) the "base period
return." The "base period return" is computed by determining the net change,
exclusive of capital changes, in the value of one Cash Fund share and dividing
that amount by the value of one Fund share at the beginning of the base period.
Effective yield is computed by compounding the "base period return." The Cash
Fund's current yield for the seven days ended December 31, 1997 was 5.04% for
Class A shares and ____% for Class B shares. Its effective yield for the same
period was ____% for Class A shares and ____% for Class B shares.
Yields are affected by market conditions, portfolio quality, portfolio
maturity, type of instruments held and operating expenses.
A Fund's average annual total return is computed in accordance with the
following SEC standardized method.
P(1 + T)^n = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which the
maximum sales load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Total return is calculated in a similar manner, except that the results are
not annualized. Each calculation assumes that all dividends and distribution are
reinvested at NAV on the reinvestment dates during the period, but do not take
into account income taxes due on Fund distributions. Any statements of total
return or other performance data of a Fund will be accompanied by the Fund's
average annual total returns for the one-year, five-year and ten-year periods as
of the end of the most recent calendar quarter, if applicable. A Fund may also
advertise total return and average annual total return information for different
periods of time.
Recent returns for Class A shares of all of the Funds except the Cash Fund
are presented below.
<TABLE>
<CAPTION>
Emerging Asset
Park Avenue Small Cap International Markets Bond Tax-Exempt Allocation
Average Annual Total Return Fund Fund Fund Fund Fund Fund Fund
--------------------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended December 31, 1997 ...... % % % % % % %
5 years ended December 31, 1997 ..... % N/A N/A N/A N/A N/A N/A
10 years (or life of Fund if less)
ended December 31, 1997 ........... % % % % % % %
</TABLE>
The following example shows the average annual total return performance of
Class A shares of each Fund except for the Cash Fund. The example shows the
average annual percentage change for each period and the ending redeemable
value, or ERV, of a hypothetical $1,000 investment. The example takes into
account all expenses of Class A shares, including sales charges, and assumes
reinvestment of all capital gains distributions and income dividends.
Average Annual Total Returns - Class A shares
<TABLE>
<CAPTION>
Park Avenue Small Cap Asset Allocation International Emerging Markets
Period Fund Fund Fund Fund Fund
- ------ ---- ---- ---- ---- ----
% Return ERV % Return ERV % Return ERV % Return ERV % Return ERV
-------- --- -------- --- -------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year ended
December 31, 1997 ............. % $ % $ % $ % $ % $
3 years ended
December 31, 1997 ............. % $ % $ % $ % $ % $
5 years (or life of Fund if less)
ended December 31, 1997 ....... % $ % $ % $ % $ % $
10 years ended
December 31, 1997 ............. % $ -- -- -- -- -- -- -- --
</TABLE>
Bond Tax-Exempt
Period Fund Fund
- ------ ---- ----
% Return ERV % Return ERV
-------- --- -------- ---
1 year ended
December 31, 1997 ............. % $ % $
3 years ended
December 31, 1997 ............. % $ % $
5 years (or life of Fund if less)
ended December 31, 1997 ....... % $ % $
10 years ended
December 31, 1997 ............. -- -- -- --
The table below shows the total cumulative return and average annual total
return for Class A shares of the Park Avenue Fund for the one-year, five-year
and ten-year periods, as well as the life of the Fund, through December 31,
1997.
B-30
<PAGE>
================================================================================
Period Ended The Guardian The Guardian
December 31, 1997 Park Avenue Fund* Park Avenue Fund++
- --------------------------------------------------------------------------------
Lifetime Cumulative Total Return+ % %
- --------------------------------------------------------------------------------
Lifetime Average Annual Total Return+ % %
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ten Year Cumulative Total Return % %
- --------------------------------------------------------------------------------
Ten Year Average Annual Total Return % %
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Five Year Cumulative Total Return % %
- --------------------------------------------------------------------------------
Five Year Average Annual Total Return % %
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
One Year Average Annual Total Return % %
================================================================================
- --------------------------------------------------------------------------------
* Shows performance without deduction of sales load.
+ Period beginning June 1, 1972.
++ Reflects deduction of current maximum sales load of 4.5% at beginning of
period. Prior to August 25, 1988, shares of the Park Avenue Fund were
offered with a higher sales load, so actual returns would have been
somewhat lower.
================================================================================
Actual total return information for Class B shares of the Multiple Class
Funds (other than the Cash Fund) for the period January 1, 1997 to December 31,
1997 are set forth below. No performance information is available for the
Tax-Efficient Fund and the High Yield Fund since they had not commenced
operations prior to December 31, 1997.
Actual Total Returns
Class B Shares
--------------
Park Avenue Asset Allocation International
Period Fund Fund Fund
- ------ --------------- --------------- ---------------
% Return ERV % Return ERV % Return ERV
-------- --- -------- --- -------- ---
January 1, 1997 to
December 31, 1997 % $ % $1,080 % $
As noted in the Prospectus, each Fund may compare its performance to
certain indices, similar mutual funds and other investment vehicles.
Additionally, a Fund may quote information from industry and financial
publications in its promotional materials. In particular:
(1) the Park Avenue Fund may compare its performance to that of the S&P
500, Dow Jones Industrials, Russell 3000, or the New York Stock Exchange
Composite Index;
(2) the Small Cap Fund may compare its performance to that of the Russell
2000 Index;
(3) the International Fund may compare its performance to the Morgan
Stanley Capital International's Europe, Australia and the Far East ("EAFE")
Index;
(4) the Emerging Markets Fund may compare its performance to that of the
Morgan Stanley Capital International Emerging Markets Free Index;
(5) the Bond Fund may compare its performance to the Salomon Brothers
Government and High Grade Bond Indices, the Shearson-Lehman Government Bond or
Government/Corporate Bond Indices, the Merrill Lynch Government Master or
Government/Corporate Master Indices, and the Lehman Mortgage-Backed Securities
or the Lehman Aggregate Bond Indices;
(6) The Tax-Exempt Fund may compare its performance to the Lehman Brothers
Municipal Bond Index;
(7) The Cash Fund may compare its performance to the Consumer Price Index
or the Bank Rate Monitor; and
(8) The Asset Allocation Fund may compare its performance to the S&P 500
and the Lehman Aggregate Bond Index.
Performance calculations contained in reports by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Morningstar, the WM Company
or industry or financial publications of general interest such
B-31
<PAGE>
as Business Week, Financial World, Forbes, Financial Times, The Wall Street
Journal, The New York Times, Barron's and Money which may be quoted by the Funds
are often based upon changes in NAV with all dividends reinvested and may not
reflect the imposition of any sales loads.
NET ASSET VALUE
Each Fund's NAV is determined as of the earlier of 4:00 p.m. Eastern time
or the close of trading on the NYSE on each day on which the NYSE is open for
business. The NAV is calculated by adding the value of all securities, cash or
other assets, subtracting liabilities, dividing the remainder by the number of
shares outstanding and adjusting the results to the nearest full cent per share.
The Cash Fund. Securities held by the Cash Fund are valued at their
amortized cost. Amortized cost is acquisition cost as adjusted for amortization
of any discount or premium at a constant daily rate to maturity. This method
provides certainty in valuation, but may result in valuations that are higher or
lower than the price which would be received if an instrument was sold prior to
its maturity because neither unrealized gains nor unrealized losses are
accounted for.
The Cash Fund's use of amortized cost and the maintenance of the Cash
Fund's net asset value at $1.00 per share is based on its election to value its
portfolio in accordance with the provisions of Rule 2a-7 under the 1940 Act. As
a condition of operating under that rule, the Cash Fund must: maintain a
dollar-weighted average portfolio maturity of 90 days or less; purchase U.S.
dollar-denominated instruments having remaining maturities of thirteen months or
less; and invest only in securities that are determined to present minimal
credit risks and that are eligible for investment under the rule. Eligible
securities are securities rated within the two highest rating categories
assigned by the requisite number of nationally recognized statistical rating
organizations ("NRSROs") or, if unrated, deemed to be of comparable quality by
GISC, the Cash Fund's investment adviser in accordance with guidelines adopted
by the Board of Trustees.
The aforementioned guidelines were adopted by the Board of Trustees and are
designed to stabilize the Cash Fund's NAV at $1.00, taking into account current
market conditions and the Fund's investment objective. These guidelines mandate
periodic review, as the Board deems appropriate and at such intervals as are
reasonable in light of current market conditions, of the relationship between
the amortized cost value per share and a NAV based upon available indications of
market value. In such review, investments for which market quotations are
readily available are valued at the most recent bid price or quoted yield
equivalent for such securities or for securities of comparable maturity, quality
and type as obtained from one or more of the major market makers for the
securities to be valued. Other investments and assets are valued at fair value,
as determined in good faith by or under the direction of the Portfolio's Board
of Trustees.
In the event of a deviation of over 11/42 of 1% between the Cash Fund's NAV
based upon available market quotations or market equivalents and $1.00 per share
based on amortized cost, the Board will promptly consider what action, if any,
should be taken. Action will also be taken to reduce, to the extent reasonably
practicable, any material dilution or other unfair results which might arise
from differences between the Cash Fund's NAV based upon market values and
amortized cost. Such action may include redemption in kind, selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
the average portfolio maturity, withholding or paying dividends or
distributions, or using a market value NAV.
The Board will also take such action as it deems appropriate if securities
held by the Cash Fund are downgraded, go into default, become ineligible for
investment under Rule 2a-7, or come to present greater than minimal credit
risks. In the event that securities accounting for 11/42 of 1% or more of the
Cash Fund's total assets default in a material way that is related to the
issuer's financial condition, the SEC will be notified and advised of the
actions to be taken in response to the situation.
Since dividends from net investment income and from net realized and
unrealized gains will be accrued daily and paid monthly, the net asset value per
share will ordinarily remain at $1.00, but the Cash Fund's daily dividends will
vary in amount, and there may be days when there will be no dividend. If net
realized or unrealized losses on any day exceeds interest income, less expenses,
the net asset value per share on that day might decline.
The International Fund and the Emerging Markets Fund. The calculation of
the NAV of the International Fund and the Emerging Markets Fund may not occur
contemporaneously with the determination of the value of those Funds' portfolios
because trading on foreign exchanges may not take place every day the NYSE is
open and
B-32
<PAGE>
the NYSE may be closed when foreign exchanges are open for business. Hence, it
is possible that the value of the Funds' assets may change significantly on days
when the Funds' shares are not valued. The foregoing also applies to any
holdings of foreign securities by the other Funds which are authorized to make
such investments.
Securities Valuations. Securities that are listed or traded on any U.S. or
foreign securities exchange or on the NASDAQ National Market System are valued
at the last sale price or, if there have been no sales during the day, at the
mean of the closing bid and asked prices. Investments in U.S. government
securities (other than short-term securities) are valued at the average of the
quoted bid and asked price in the over-the-counter market. Certain debt
securities may be valued each business day by an independent pricing service
("Service"). The use of a Service to ascertain values has been approved by the
Portfolio's Board of Trustees. Debt securities for which quoted bid prices, in
the judgment of a Service, are readily available and are 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 from dealers in such securities). Other debt
securities that are valued by the Service are carried at estimated market value
as determined by the Service, based on methods which include consideration of:
yields or prices of government securities of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. Securities for which market quotations are not readily available,
including certain mortgage-backed and asset-backed securities, and illiquid
securities and certain other debt securities, are valued at fair value as
determined in good faith by or under the direction of the Portfolio's Board of
Trustees. Repurchase agreements are carried at cost which approximates market
value. Options are valued at the last sale price unless the bid price is higher
or the asked price is lower, in which event such bid or asked price is used.
Financial futures contracts are valued at the settlement prices established each
day by the boards of trade or exchanges on which they are traded. Foreign
securities are valued in the currencies of the markets where they trade.
Conversions to U.S. dollar values occur in connection with each calculation of
the International and Emerging Markets Funds' net asset value per share.
PORTFOLIO MANAGEMENT
The trustees and officers of the Portfolio are named below. Information
about their principal occupations and certain other affiliations during the past
five years is also provided. The business address of each trustee and officer is
201 Park Avenue South, New York, New York 10003 unless otherwise noted. The
"Guardian Fund Complex" referred to in this biographical information is
comprised of (1) the Portfolio, (2) The Guardian Cash Fund, Inc., (3) The
Guardian Stock Fund, Inc., (4) The Guardian Bond Fund, Inc. and (5) GIAC Funds,
Inc. (a series fund that issues its shares in three series).
Name and Address Title Business History
---------------- ----- ----------------
CHARLES E. ALBERS (57) Executive Vice Senior Vice President, The
President Guardian Life Insurance Company
of America 1/91 to present; Vice
President, Equity Securities, The
Guardian Insurance & Annuity
Company, Inc. Executive Vice
President, Guardian Asset
Management Corporation and
Guardian Investor Services
Corporation. Officer of various
mutual funds within the Guardian
Fund Complex. Director, Guardian
Baillie Gifford Limited.
JOHN C. ANGLE (74)* Trustee Retired. Former Chairman of the
3800 South 42nd Street Board and Chief Executive
Lincoln, Nebraska 68516 Officer, The Guardian Life
Insurance Company of America;
Director 1/78-present. Director
(Trustee) of The Guardian
Insurance & Annuity Company,
Inc., Guardian Investor Services
Corporation 6/82-2/96. Director
(Trustee) of various mutual funds
within the Guardian Fund Complex.
- ----------
* Trustee who is an "interested person" under the 1940 Act.
B-33
<PAGE>
Name and Address Title Business History
---------------- ----- ----------------
JOSEPH A. CARUSO (46) Secretary Second Vice President and
Corporate Secretary, The Guardian
Life Insurance Company of
America, 1/95-present; Corporate
Secretary, 10/92-12/94; Assistant
Secretary prior thereto.
Secretary, The Guardian Insurance
& Annuity Company, Inc., Guardian
Investor Services Corporation,
Guardian Asset Management
Corporation, Guardian Baillie
Gifford Limited, and various
mutual funds within the Guardian
Fund Complex.
FRANK J. FABOZZI (49) Trustee Adjunct Professor of Finance,
858 Tower View Circle School of Management -- Yale
New Hope, Pennsylvania University, 2/94-present;
18938 Visiting Professor of Finance and
Accounting, Sloan School of
Management -- Massachusetts
Institute of Technology prior
thereto. Editor, Journal of
Portfolio Management. Director
(Trustee) of various mutual funds
within the Guardian Fund Complex.
Director (Trustee) of various
closed-end investment companies
sponsored by Blackstone Financial
Management.
ARTHUR V. FERRARA (67)* Trustee Retired. Chairman of the Board
70 Baldwin Farms South and Chief Executive Officer, The
Greenwich, Connecticut Guardian Life Insurance Company
06831 of America 1/93-12/95; President,
Director and Chief Executive
Officer prior thereto. Director
(Trustee) of The Guardian
Insurance & Annuity Company,
Inc., Guardian Investor Services
Corporation and various mutual
funds within the Guardian Fund
Complex.
LEO R. FUTIA (78)* Trustee Retired. Former Chairman of The
18 Interlaken Road Board and Chief Executive
Greenwich, Connecticut 06830 Officer, The Guardian Life
Insurance Company of America;
Director 5/70-present. Director
(Trustee) of The Guardian
Insurance & Annuity Company,
Inc., Guardian Investor Services
Corporation and various mutual
funds within the Guardian Fund
Complex. Director (Trustee) of
various mutual funds sponsored by
Value Line, Inc.
ALEXANDER M. GRANT, JR. (48) Second Vice Second Vice President,
President Investments, The Guardian Life
Insurance Company of America,
1/97 to present; Assistant Vice
President 9/93 to 12/96;
Investment Officer prior thereto.
Officer of various mutual funds
within the Guardian Fund Complex.
WILLIAM W. HEWITT, JR. (69) Trustee Retired. Former Executive Vice
P.O. Box 2359 President, Shearson Lehman
Princeton, New Jersey 08543 Brothers, Inc. Director (Trustee)
of various mutual funds within
the Guardian Fund Complex.
Director (Trustee) of various
mutual funds sponsored by
Mitchell Hutchins Asset
Management, Inc. and Paine
Webber, Inc.
THOMAS R. HICKEY, JR. (45) Vice Vice President, Equity
President Operations, The Guardian Life
Insurance Company of America.
Vice President, Administration,
The Guardian Insurance & Annuity
Company, Inc. Senior Vice
President, Guardian Investor
Services Corporation and Vice
President various mutual funds
within the Guardian Fund Complex.
- ----------
* Trustee who is an "interested person" under the 1940 Act.
B-34
<PAGE>
Name and Address Title Business History
---------------- ----- ----------------
EDWARD H. HOCKNELL (37) Vice President Director, Baillie Gifford
c/o Baillie Gifford Overseas Overseas Limited 10/92-present;
Limited Portfolio Manager, Baillie
1 Rutland Court Gifford & Co. prior thereto.
Edinburgh, EH3 8EY, Officer of various mutual funds
Scotland within the Guardian Fund Complex.
JONATHAN C. JANKUS (51) Vice President Second Vice President,
Investments, The Guardian Life
Insurance Company of America
3/95-present; Chief Investment
Strategist-Global Bonds, Barclays
Investments 1/94-3/95; Senior
Vice President, Kidder Peabody &
Co. prior thereto. Vice
President, Guardian Asset
Management Corporation.
FRANK J. JONES (59) President Executive Vice President and
Chief Investment Officer, The
Guardian Life Insurance Company
of America 1/94-present; Senior
Vice President and Chief
Investment Officer prior thereto.
Senior Vice President and Chief
Investment Officer and Director,
The Guardian Insurance & Annuity
Company, Inc. Director, Guardian
Investor Services Corporation and
Guardian Baillie Gifford Limited.
Officer of various mutual funds
within the Guardian Fund Complex.
ANN T. KEARNEY (46) Controller Second Vice President, Group
Pensions, The Guardian Life
Insurance Company of America
1/95-present; Assistant Vice
President and Equity Controller
6/94-12/94; Assistant Controller
prior thereto. Second Vice
President of The Guardian
Insurance & Annuity Company, Inc.
and Guardian Investor Services
Corporation. Controller of
various mutual funds within the
Guardian Fund Complex.
SIDNEY I. LIRTZMAN (66) Director Professor of Management
38 West 26th Street 9/67-present and Acting Dean of
New York, New York 10010 the School of Business Management
2/95-present, City University of
New York-Baruch College.
President, Fairfield Consulting
Associates, Inc. Director
(Trustee) of various mutual funds
within the Guardian Fund Complex.
R. ROBIN MENZIES (45) Vice President Partner, Baillie Gifford & Co.
c/o Baillie Gifford Overseas 4/81-present. Director, Baillie
Limited Gifford Overseas Limited
1 Rutland Court 11/90-present. Director, Guardian
Edinburgh, EH3 8EY, Baillie Gifford Limited
Scotland 11/90-present.
NIKOLAOS S. MONOYIOS (48) Vice President Vice President, Equity
Securities, The Guardian Life
Insurance Company of America.
Vice President, Guardian Asset
Management Corporation, Guardian
Investor Services Corporation.
Officer of various mutual funds
within the Guardian Fund Complex.
JOHN B. MURPHY (53) Second Vice Second Vice President, Equity
President Securities, The Guardian Life
Insurance Company of America.
Officer of various mutual funds
within the Guardian Fund Complex.
B-35
<PAGE>
Name and Address Title Business History
---------------- ----- ----------------
FRANK L. PEPE (55) Treasurer Vice President and Equity
Controller, The Guardian Life
Insurance Company of America
since 1/96; Second Vice President
and Equity Controller prior
thereto. Vice President and
Controller, The Guardian
Insurance & Annuity Company, Inc.
and Guardian Investor Services
Corporation. Controller, Guardian
Asset Management Corporation.
Officer of various mutual funds
within the Guardian Fund Complex.
RICHARD T. POTTER, JR. (43) Counsel Vice President and Equity
Counsel, The Guardian Life
Insurance Company of America
1/96-present; Second Vice
President and Equity Counsel
1/93-12/95; Counsel prior
thereto. Counsel, The Guardian
Insurance & Annuity Company,
Inc., Guardian Investor Services
Corporation, Guardian Asset
Management Corporation and
various mutual funds within the
Guardian Fund Complex.
JOSEPH D. SARGENT* (60) Trustee President, Chief Executive
Officer and Director, The
Guardian Life Insurance Company
of America, since 1/96; President
and Director 1/93 to 12/95;
Executive Vice President prior
thereto. Director (Trustee) of
The Guardian Insurance & Annuity
Company, Inc., Guardian Investor
Services Corporation and various
mutual funds within the Guardian
Fund Complex.
CARL W. SCHAFER (62) Trustee President, Atlantic Foundation
P.O. Box 1164 (charitable foundation supporting
Princeton, New Jersey 08542 mainly oceanographic exploration
and research). Director of
Roadway Express (trucking), Evans
Systems, Inc. (a motor fuels,
convenience store and diversified
company), Hidden Lake Gold Mines
Ltd. (gold mining), Electronic
Clearing House, Inc. (financial
transactions processing), Wainoco
Oil Corporation and NutraCeutrics
Inc. (biotechnology). Chairman of
the Investment Advisory Committee
of the Howard Hughes Medical
Institute 1985-1992. Director
(Trustee) of various mutual funds
within the Guardian Fund Complex.
Director (Trustee) of various
mutual funds sponsored by
Mitchell Hutchins Asset
Management, Inc. and Paine
Webber, Inc.
ROBERT G. SMITH (65) Trustee President, Smith Affiliated
132 East 72nd Street Capital Corp. 4/82-present.
New York, New York 10021 Director (Trustee) of various
mutual funds within the Guardian
Fund Complex.
- ----------
*Trustee who is an "interested person" under the 1940 Act.
The Portfolio pays the Trustees who are not "interested persons" of the
Portfolio an annual retainer fee of $1,000 per Fund and a per meeting fee of
$500 per Fund. Trustees who are "interested persons" of the Portfolio, except
Mr. Sargent, receive the same fees, but they are paid by GISC. Mr. Sargent
receives no compensation for his trusteeship. The officers of the Portfolio are
employees of Guardian Life; they receive no compensation from the Portfolio.
Each Trustee is also a director of The Guardian Stock Fund, Inc., The
Guardian Bond Fund, Inc., The Guardian Cash Fund, Inc. and GIAC Funds, Inc., a
series fund consisting of Baillie Gifford International Fund, Baillie Gifford
Emerging Markets Fund and The Guardian Small-Cap Stock Fund. The Portfolio and
the other funds named in this paragraph are a "Fund Complex" for purposes of the
federal securities laws. The following table provides information about the
compensation paid by the Portfolio and the Fund Complex to the Portfolio's
Trustees during the year ended December 31, 1997.
B-36
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Compensation Table*
- --------------------------------------------------------------------------------------------------------------------
Aggregate Accrued Pension or Estimated Annual Total Compensation from the
Compensation Retirement Benefits Benefits Upon Portfolio and Other Members
Name and Title from the Portfolio** Paid by the Portfolio Retirement of the Fund Complex**
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank J. Fabozzi, $ N/A N/A $
Trustee
- --------------------------------------------------------------------------------------------------------------------
William W. Hewitt, Jr. $ N/A N/A $
Trustee
- --------------------------------------------------------------------------------------------------------------------
Sidney I. Lirtzman $ N/A N/A $
Trustee
- --------------------------------------------------------------------------------------------------------------------
Carl W. Schafer $ N/A N/A $
Trustee
- --------------------------------------------------------------------------------------------------------------------
Robert G. Smith $ N/A N/A $
Trustee
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Trustees who are "interested persons" of the Portfolio are not compensated
by the Portfolio, so information about their compensation is not included
in this table.
** Includes compensation paid to attend meetings of the Board's Audit
Committee.
- --------------------------------------------------------------------------------
As of April 1, 1998, the number of shares of each Fund owned by all
officers and trustees of the Portfolio in the aggregate totalled less than __%
of the outstanding shares of each Fund.
B-37
<PAGE>
PORTFOLIO AFFILIATES AND PRINCIPAL HOLDERS OF FUND SHARES
Guardian Entities. Guardian Life, 201 Park Avenue South, New York, New York
10003, is the parent company and sole stockholder of GIAC. GIAC, also located at
201 Park Avenue South, New York, New York 10003, is the parent and sole
stockholder of GISC.
Until May 1, 1998, the date of commencement of their respective operations,
Guardian Life owned 100% of the outstanding shares of the Tax-Efficient Fund and
the High Yield Fund.
The Park Avenue Fund. As of March 31, 1998, The Guardian/Value Line
Separate Account, established by GIAC, held _________, or ____%, of the Park
Avenue Fund's Class A shares.
Owners of variable annuity contracts issued by GIAC have the beneficial
interest in these Park Avenue Fund shares. At any shareholders meetings where
shareholders of the Park Avenue Fund are entitled to vote, GIAC, as the owner of
record, votes the Park Avenue Fund shares which are attributable to variable
annuity contracts in accordance with voting instructions received from
contractowners.
The Cash Fund. As of March 31, 1998, GIAC and GISC each owned shares of the
Cash Fund for their own accounts as follows: GIAC -- _________ Class A shares
(___%); GISC -- _________ (___%) Class A shares and _________ (____%) Class B
shares. At any shareholders meeting(s), GIAC and GISC are expected to vote their
respective shares of the Portfolio Funds FOR proposals presented by Management.
As of March 31, 1998, Separate Account L, a separate account established by
GIAC, owned _________, or ___%, of the Class A shares of the Cash Fund.
The International, Bond, Tax-Exempt and Asset Allocation Funds. As of March
31, 1998, Guardian Life was in control of the Bond Fund and the Tax-Exempt Fund,
and owned more than __% of the outstanding Class A shares issued by the
International Fund and the Asset Allocation Fund. Guardian Life invested in
these Funds in 1993 to provide them with sufficient capital to commence their
operations and acquire securities. Guardian Life's positions in these Funds as
of March 31, 1998 were:
Number Percentage
of of Class A Shares
Fund Shares Outstanding
---- ------ -----------
International Fund .................... %
Bond Fund ............................. %
Tax-Exempt Fund ....................... %
Asset Allocation Fund ................. %
At any shareholders meeting where shareholders of these Funds are entitled
to vote, Guardian Life will vote its shares FOR proposals presented by
Management.
In addition, GISC owned _______, or ___%, of the Class A shares of the Bond
Fund, _______, or ____%, of the Class B shares of the Asset Allocation Fund, and
_______, or ____%, of the Class B shares of the International Fund on March 31,
1998.
Except as disclosed above, Management of the Portfolio does not know of any
other person who owned beneficially __% or more of the shares of any of the
Portfolio Funds as of March 31, 1998.
The International Fund, Bond Fund, Tax-Exempt Fund, Asset Allocation Fund,
Small Cap Fund and Emerging Markets Fund incurred expenses in connection with
their organization in the amounts of $______, $______, $______, $______, $_____
and $_____, respectively. GISC advanced these expenses to the Funds; they
included legal and auditing fees, registration fees and preparation and printing
costs for the registration statement and other documents. Each of these
Portfolio Funds has reimbursed GISC for its organizational expenses, which are
being amortized on a straight-line basis over a five-year period.
TAXES
For federal income tax purposes, each Fund is treated as a separate entity.
Each Fund intends to qualify and to continue to qualify to be taxed as a
regulated investment company under the U.S. Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a regulated investment company, a Fund must
derive less than 30%
B-38
<PAGE>
of its gross income in each taxable year from gains (without deduction for
losses) arising from the sale or other disposition of securities held for less
than three months. In order to meet this 30% requirement, a Fund may be required
to defer disposing of certain securities beyond the time when it might otherwise
be advantageous to do so and may be restricted in its options, futures and
foreign currency transactions. So long as a Fund qualifies as a regulated
investment company and complies with the provisions of the Code pertaining to
regulated investment companies which distribute substantially all of their net
income (both net ordinary income and net capital gains) to their shareholders,
the Fund will not incur a tax liability on that portion of its net ordinary
income and net realized capital gains which have been distributed to its
shareholders. The Code imposes a 4% nondeductible excise tax on each regulated
investment company with regard to the amount, if any, by which such investment
company does not meet the distribution requirements specified in the Code.
Accordingly, each Fund intends to distribute all or substantially all of its net
investment income and net capital gains.
Options, forward contracts, financial futures contracts and foreign
currency transactions entered into by a Fund are subject to special tax rules.
These rules may accelerate income to the Fund, defer Fund losses, cause
adjustments in the holding periods of Fund securities, convert capital gain into
ordinary income and convert short-term capital losses into long-term capital
losses. As a result, these rules could affect the amount, timing and character
of Fund distributions.
Income received by a Fund from sources within various foreign countries
will generally be subject to foreign income taxes withheld at the source. If the
United States has entered into a tax treaty with the country in which the payor
is a resident, foreign tax withholding from dividends and interest is typically
set at a rate between 10% and 15%. If the United States has not entered into a
tax treaty with the country in which the payor is a resident, such withholding
may be as high as 30% to 35%. Taxes paid to foreign governments will reduce a
Fund's return on its investments. A shareholder's pro rata share of foreign
income taxes paid by a Fund is treated as taxable income to that shareholder.
Accordingly, the Portfolio, on behalf of the International Fund and the Emerging
Markets Fund, has made an election under Section 853 of the Code so that those
Funds' shareholders can claim a credit (subject to certain limits contained in
the Code) or deduction on their income tax returns for their pro rata portions
of the Funds' foreign income taxes, assuming these Funds continue to meet the
eligibility requirements for such treatment. Under the Code, no deduction for
foreign taxes may be claimed by individual shareholders who do not elect to
itemize deductions on their federal income tax returns.
Shareholders of a Fund may exchange their shares for shares of another Fund
within the Portfolio (the "reinvested shares"). If a shareholder (other than a
tax-exempt entity) makes such exchanges, the shareholder will recognize a
capital gain or loss for federal income tax purposes measured by the difference
between the value of the reinvested shares and the basis of the exchanged
shares. Upon the exchange of shares which were purchased subject to a sales
charge after October 3, 1989 and held less than 91 days, the lesser of (1) the
sales charge incurred on the exchanged shares or (2) the sales charge waived on
the reinvested shares is included in the basis of the reinvested shares and is
not included in the basis of the exchanged shares. If a shareholder realizes a
loss on the redemption of Fund shares and reinvests in shares of the same Fund
within the period beginning 30 days before and ending 30 days after the
redemption, the transactions may be subject to the wash sale rules resulting in
a disallowance of such loss for federal income tax purposes. Any loss recognized
on the disposition of Fund shares held for six months or less will be treated as
long-term capital loss to the extent that the shareholder has received any
long-term capital gain distributions on such shares. In addition, if a
shareholder sells shares that have been held for six months or less at a loss,
the loss will be disallowed to the extent of any exempt-interest dividends
received by the shareholder on such shares.
Interest on indebtedness that is incurred to purchase or carry shares of a
mutual fund which distributes exempt-interest dividends during the year is not
deductible for federal income tax purposes. Further, the Tax- Exempt Fund may
not be an appropriate investment for persons who are "substantial users" of
facilities financed by industrial development bonds held by the Fund or who are
"related persons" to such users; such persons should consult their tax advisers
before investing in the Tax-Exempt Fund.
B-39
<PAGE>
If the Portfolio establishes additional series funds, each such series will
be treated as a separate entity for federal income tax purposes.
The discussions of "Taxes" in the Prospectus and this Statement of
Additional Information are general and abbreviated. Interpretations of the
Code's provisions and U.S. Treasury regulations can change at any time.
Additionally, no attempt has been made to describe any state, local or foreign
tax consequences of purchasing, owning and redeeming shares of the Portfolio
Funds.
SHAREHOLDER VOTING RIGHTS
The Portfolio generally is not required to hold shareholder meetings. Under
the Portfolio's Amended and Restated Declaration of Trust, however, shareholder
meetings will be held for all shareholders or just the shareholders of affected
Funds, as the case may be, in connection with the following matters: (1) the
election or removal of trustees if a meeting is called for such purpose; (2) the
adoption of any contract for which shareholder approval is required by the 1940
Act; (3) termination of the Portfolio or any Fund to the extent and as provided
in the Amended and Restated Declaration of Trust; (4) the amendment of the
Amended and Restated Declaration of Trust to the extent and as provided in the
Amended and Restated Declaration of Trust; (5) to determine whether a court
action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Portfolio or any Fund or the
shareholders, to the same extent as the shareholders of a Massachusetts business
corporation; and (6) such additional matters as may be required by law, the
Amended and Restated Declaration of Trust, the By-Laws of the Portfolio, any
registration of the Portfolio with the SEC or any state, or as the trustees may
consider necessary or desirable. Shareholders also would be entitled to vote
upon changes in fundamental investment objectives, policies or restrictions
which pertain to any Fund(s) in which they have a voting interest.
Each trustee serves until the earlier of: (1) the next meeting of
shareholders, if any, called for the purpose of electing trustees and until the
election and qualification of his or her successor; or (2) such trustee's death,
resignation, retirement or removal by a two-thirds vote of the trustees or by a
majority vote of the outstanding shares of the Portfolio. In accordance with the
1940 Act: (1) the Portfolio will hold a shareholders meeting for the election of
trustees at such time as less than a majority of the trustees have been elected
by shareholders; and (2) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the trustees have been elected by shareholders. In that
event, the vacancy will be filled only by a vote of shareholders.
A special meeting of the shareholders shall be called by the trustees for
the purpose of removing a trustee upon the written request of shareholders
owning at least 10% of the outstanding shares entitled to vote at the meeting.
Whenever ten or more persons who have been shareholders of record for at least
six months preceding the date of application, and who hold in the aggregate
either shares having a net asset value of at least $25,000 or at least one
percent of the outstanding shares, whichever is less, wish to communicate with
other shareholders for the purpose of obtaining signatures to request a meeting,
the trustees shall either afford the applicants access to a list of the names
and addresses of all shareholders of record or mail the communication to the
Portfolio shareholders at the applicants' cost.
TRUSTEE LIABILITY
The Amended and Restated Declaration of Trust provides that the trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
nothing in the Amended and Restated Declaration of Trust protects a trustee
against any liability to which the trustee would otherwise be subject by reason
of willful malfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his or her office. The By-laws of the
Portfolio provide for indemnification by the Portfolio of the trustees and the
officers of the Portfolio except with respect to any matter as to which any such
person did not act in good faith in the belief that his or her action was in, or
not opposed to, the best interests of the Portfolio. Such person may not be
indemnified against any liability to the Portfolio or the Portfolio's
shareholders to which he or she would otherwise be subject by reason of willful
malfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
B-40
<PAGE>
CUSTODIAN
State Street Bank and Trust Company ("State Street Bank"), Custody
Division, 1776 Heritage Drive, North Quincy, Massachusetts 02171, is the
custodian of the Portfolio's assets.
Portfolio securities purchased for a Fund outside of the U.S. are cleared
through foreign depositories and are maintained in the custody of foreign banks
and trust companies which are members of State Street Bank's Global Custody
Network. State Street Bank and each of the foreign custodial institutions
holding portfolio securities of a Fund have been approved by the Board in
accordance with regulations under the 1940 Act.
The Board reviews, at least annually, whether it is in the best interest of
a Fund and its shareholders to maintain Fund assets in each custodial
institution. However, with respect to foreign custodians, there can be no
assurance that a Fund, and the value of its shares, will not be adversely
affected by acts of foreign governments, financial or operational difficulties
of the foreign custodians, difficulties and costs of obtaining jurisdiction
over, or enforcing judgment against, the foreign custodians, or application of
foreign law to a Fund's foreign custodial arrangements. Accordingly, an investor
should recognize that the noninvestment risks associated with holding assets
abroad may be greater than those associated with investing in the U.S.
State Street Bank plays no part in formulating the investment policies of
the Funds or in determining which portfolio securities are to be purchased or
sold by the Funds.
TRANSFER AGENT
National Financial Data Services ("NFDS"), P.O. Box 419611, Kansas City,
Missouri 64141-6611, is the Portfolio's transfer agent and dividend paying
agent. NFDS issues and redeems shares of each Fund and distributes dividends to
each Fund's shareholder accounts.
NFDS plays no part in formulating the investment policies of the Funds or
in determining which portfolio securities are to be purchased or sold by the
Funds.
FINANCIAL STATEMENTS
The Portfolio's financial statements appear in the 1997 Annual Report to
Park Avenue Portfolio shareholders. The report of Ernst & Young LLP, independent
auditors of the Portfolio, on such financial statements also appears in the 1997
Annual Report. The Report to Park Avenue Portfolio shareholders is incorporated
by reference into this Statement of Additional Information. Free copies of the
Annual Report is available upon request.
LEGAL OPINIONS
The legality of the shares described in the Prospectus has been passed upon
by Richard T. Potter, Jr., Counsel of the Portfolio. Federal securities law
matters relating to the Portfolio have been passed upon by the law firm of
Vedder, Price, Kaufman & Kammholz of Chicago, Illinois.
INDEPENDENT AUDITORS
The Portfolio's independent auditors are Ernst & Young LLP, 787 Seventh
Avenue, New York, New York 10019. Ernst & Young LLP audits and reports on the
annual financial statements of the Portfolio which appear in the Annual Report
to Shareholders for the year ended December 31, 1997. That Annual Report is
incorporated by reference into this Statement of Additional Information.
B-41
<PAGE>
APPENDIX
DESCRIPTIONS OF TYPES OF DEBT OBLIGATIONS
U.S. Government Agency and Instrumentality Securities: U.S. government
agency securities are debt obligations issued by agencies or authorities
controlled by and acting as instrumentalities of the U.S. government established
under authority granted by Congress. U.S. government agency obligations include,
but are not limited to, those issued by the Bank for Co-operatives, Federal Home
Loan Banks, Federal Intermediate Credit Banks, and the Federal National Mortgage
Association. U.S. government instrumentality obligations include, but are not
limited to, those issued by the Export-Import Bank and Farmers Home
Administration. Some obligations issued or guaranteed by U.S. government
agencies and instrumentalities are supported by the full faith and credit of the
U.S. Treasury; others, by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; and others only by the credit of
the agency or instrumentality. No assurance can be given that the U.S.
government will provide financial support to such U.S. government sponsored
agencies or instrumentalities in the future, since it is not obligated to do so
by law.
U.S. Treasury Securities: U.S. Treasury securities consist of Treasury
Bills, Treasury Notes and Treasury Bonds. These securities are each backed by
the full faith and credit of the U.S. government and differ in their interest
rates, maturities, and dates of issuance. U.S. Treasury Bills are issued with
maturities of up to one year. U.S. Treasury Notes may be issued with an original
maturity of not less than one year and not more than 10 years. U.S. Treasury
Bonds may be issued with any maturity, but generally have original maturities of
over 10 years.
Certificates of Deposit: Certificates of deposit are negotiable receipts
issued by a bank or savings and loan association in exchange for the deposit of
funds. A certificate of deposit earns a specified rate of return over a definite
period of time. Normally a certificate can be traded in a secondary market prior
to maturity. Eurodollar certificates of deposit are U.S. dollar-denominated
deposits in banks outside the U.S. The bank may be a foreign branch of a U.S.
bank. Eurodollar deposits in foreign branches of U.S. banks are the legal
equivalent of domestic deposits, but are not covered by FDIC insurance. Yankee
certificates of deposit are U.S. dollar-denominated deposits issued and payable
by U.S. branches of foreign banks.
Commercial Paper: Commercial paper is generally defined as unsecured
short-term notes issued in bearer form by large, well-known corporations and
finance companies. Maturities on commercial paper range from a few days to nine
months. Commercial paper is also sold on a discount basis.
Bankers Acceptances: Bankers acceptances generally arise from short-term
credit arrangements designed to enable businesses to obtain funds in order to
finance commercial transactions. Generally, an acceptance is a time draft drawn
on a bank by an exporter or an importer to obtain a stated amount of funds to
pay for specific merchandise. The draft is then "accepted" by a bank that, in
effect, unconditionally guarantees to pay the face value of the instrument on
its maturity date.
Repurchase Agreements: Repurchase agreements are instruments by which a
Fund purchases a security and obtains a simultaneous commitment from the seller
(a domestic bank or broker-dealer) to repurchase the security at an agreed upon
price and date. The resale price is in excess of the purchase price and reflects
an agreed upon market rate unrelated to the coupon rate on the purchased
security. Such transactions afford an opportunity for a Fund to invest
temporarily available cash and earn a return that is insulated from market
fluctuations during the term of the agreement. The risk to a Fund is limited to
the risk that the seller will be unable to pay the agreed upon sum upon the
delivery date. Repurchase agreements are collateralized by cash or the
securities purchased in connection with the agreement. In the event a selling
party to an agreement is unable to repurchase the securities pursuant to that
agreement, a Fund will liquidate the collateral held and thus recover the
proceeds loaned under the agreement. The loss to a Fund will be the difference
between the proceeds from the sale and the repurchase price. Investments in
repurchase agreements will be limited to transactions with financial
institutions believed by the Board of Trustees of the Portfolio to present
minimal credit risks.
Corporate Obligations: Such instruments include bonds and notes issued by
U.S. and foreign corporations in order to finance longer term credit needs.
B-42
<PAGE>
DESCRIPTION OF LONG TERM DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa. Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risk appear somewhat greater than the "Aaa"
securities.
A. Bonds which are rated "A" possess many favorable investment attributes
and are considered as upper- medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa. Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B. Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa. Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or there may be present elements of danger respect to principal or
interest.
Ca. Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospectus of ever
attaining real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from "Aa" through "B" in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS GROUP ("STANDARD & POOR'S")
AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated "AA" has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A. Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
With respect to Municipal Obligations, debt rated "A" differs from the two
higher ratings because:
General Obligation Bonds -- There is some weakness in the local economic
base, debt burden, balance between revenues and expenditures, or quality of
management. Under certain adverse circumstances, any one such weakness might
impair the ability of the issuer to meet debt obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
B-43
<PAGE>
General Obligation Bonds -- Under certain adverse conditions, weakness in
the local economic base, debt burden, balance between revenues and expenditures,
or quality of management could contribute to a lesser capacity for payment of
debt service. The difference between "A" and "BBB" rating is that the latter
shows more than one fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the factors
considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
Obligations rated "BB", "B", "CCC", "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations are likely to have some
quality and protective characteristics, nevertheless, these may be outweighed by
uncertainties or major exposure to adverse conditions.
BB. Debt rated "BB" is regarded as less vulnerable to nonpayment than other
speculative issues. The obligor faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet its financial commitments on the debt.
B. Debt rated "B" is regarded as more vulnerable to nonpayment than debt rated
"BB", but the obligor currently has the capacity to meet its obligations on the
debt. Adverse business, financial or economic conditions will likely impair the
obligor's capacity or willingness to meet its financial commitments on the debt.
CCC. Debt rated "CCC" is regarded as currently vulnerable to nonpayment and is
dependent upon favorable business, financial and economic conditions in order
for the obligor to meet its financial obligations on the debt. In the event of
adverse business, financial or economic conditions, the obligor is unlikely to
be able to meet its financial commitments on the debt.
CC. Debt rated "CC" is regarded as currently vulnerable to nonpayment.
C. Debt rated "C" is may represent an obligation in which a bankruptcy petition
has already been filed or other similar actions taken, but in which payments on
the obligation are still be made.
D. Debt rated "D" is in payment default..
Note: Standard & Poor's ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S
P-1 (Prime-1). Issuers (or supporting institutions) rated P-1 have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation;
well-established access to a range of financial markets and assured sources of
alternate liquidity.
P-2 (Prime-2). Issuers (or supporting institutions) rated P-2 have a strong
ability for repayment of senior short-term obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD & POOR'S
A-1. Issues in the A-1 category, which is the highest category, have a very
strong degree of safety regarding timely payment. Those issues determined to
possess extremely strong safety characteristics are denoted with a plus (+) sign
designation.
A-2. Capacity for timely payment on issues rated A-2 is strong. However,
the relative degree of safety is not as high as for issues designated `A-1'.
DUFF & PHELPS, INC.
Duff 1+ Issues rated Duff 1+ have the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or ready access
to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
Duff 1 Issues rated Duff 1 have very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff 1- Issues rated Duff 1- have high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Duff 2 Issues rated Duff 2 have good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
B-44
<PAGE>
FITCH INVESTORS SERVICES, INC.
F-1+ Issues rated F-1+ have exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 Issues rated F-1 have very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated `F-1+'.
F-2 Issues rated F-2 have good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payments, but the margin of
safety is not as great as the `F-1+' and `F-1' ratings.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
MOODY'S
Moody's ratings for state municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand feature.
Such ratings will be designated as VMIG or, if the demand feature is not rated,
as NR. Short-term ratings on issues with demand features are differentiated by
the use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand, rather than fixed maturity dates, and payment relying on
external liquidity. Additionally, investors should be alert to the fact that the
source of payment may be limited to the external liquidity with no or limited
legal recourse to the issuer in the event the demand is not met. MIG and VMIG
ratings indicate that the rated securities are investment grade.
MIG 1/VMIG 1. This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2. This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG 3/VMIG 3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
MIG 4/VMIG 4. This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
STANDARD & POOR'S
SP-1. The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.
SP-2. The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
USING THE RATINGS
Ratings represent each rating organization's opinion as to the quality of
the securities that they undertake to rate. It should be emphasized that ratings
are relative and subjective, and are not absolute standards of quality.
Consequently, securities with the same maturity, interest rate and rating may
have different market prices or yields. Subsequent to its purchase by a Fund, an
issue of securities may cease to be rated or its rating may be reduced. The
investment adviser will consider such an event in determining whether a Fund
should continue to hold the security. Although ratings may be an initial
criterion for selection of portfolio investments, the investment adviser also
performs its own credit analysis with respect to the securities it purchases and
holds for a Fund.
B-45
<PAGE>
THE PARK AVENUE PORTFOLIO
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (incorporated by reference in Part B):
Schedule of Investments as of December 31, 1996 (Audited)
Statement of Assets and Liabilities as of December 31, 1996 (Audited)
Statement of Operations for the Year Ended December 31, 1996 (Audited)
Statement of Changes in Net Assets for the Years Ended December 31, 1996
and 1995 (Audited)
Financial Highlights for the years noted therein (Audited)
Notes to Financial Statements as of December 31, 1996 (Audited)
Report of Ernst & Young LLP, Independent Auditors dated February 7, 1997
Schedules of Investments as of June 30, 1997 (unaudited) for The Guardian
Park Avenue Small Cap Fund ("Small Cap Fund")
Statement of Assets and Liabilities as of June 30, 1997 (unaudited) for the
Small Cap Fund
Statement of Operations for the period ended June 30, 1997 (unaudited) for
the Small Cap Fund
Statement of Changes in Net Assets for the period ended June 30, 1997
(unaudited) for the Small Cap Fund
Financial Highlights for the period ended June 30, 1997 (unaudited) for the
Small Cap Fund
Schedule of Investments as of June 30, 1997 (unaudited) for The Guardian
Baillie Gifford Emerging Markets Fund (the "Emerging Markets Fund")
Statement of Assets and Liabilities as of June 30, 1997 (unaudited) for the
Emerging Markets Fund
Statement of Operations for the period ended June 30, 1997 (unaudited) for
the Emerging Markets Fund
Statement of Changes in Net Assets for the period ended June 30, 1997
(unaudited) for the Emerging Markets Fund
Financial Highlights for the period ended June 30, 1997 (unaudited) for the
Emerging Markets Fund
Notes to Financial Statements as of June 30, 1997 (Unaudited)
(b) Exhibits
Number Description
1 Form of Amended and Restated Declaration of Trust
2 Trust By-Laws
3 Not applicable
4 Form of Specimen Security(5)
5(a) -- Form of Investment Advisory Agreement between The Park Avenue
Portfolio and Guardian Investor Services Corporation
5(b) -- Form of Investment Advisory Agreement between The Park Avenue
Portfolio and Guardian Baillie Gifford Limited
5(c) -- Form of Sub-Investment Advisory Agreement
between Guardian Baillie Gifford Limited and Baillie Gifford
Overseas Limited
6(a) -- Form of Underwriting Agreement
6(b) -- Form of Selling Group Agreement
7 -- Not applicable
8 -- Form of Custodian Contract
9(a) -- Form of Transfer Agency Agreement
9(b) -- Form of Administrative Services Agreement
10(a) -- Opinion and Consent of Counsel*
10(b) -- Consent of Counsel*
11(a) -- Consent of Ernst & Young LLP*
11(b) -- Consent of Vedder, Price, Kaufman & Kammholz*
C-1
<PAGE>
12 -- Not applicable
13 -- Letter from Guardian Investor Services Corporation with respect
to providing the initial capital for Trust(3)
14 -- Individual Retirement Account Custodial Agreement
15(a) -- Form of Distribution Plan and Agreement Pursuant to
Rule 12b-1 under the Investment Company Act of 1940
15(b) -- Form of Distribution Plan Pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Class B shares(6)
15(c) -- Form of Distribution Agreement for Class B shares(6)
16(a) -- Schedule for Computation of Performance Quotations
16(b) -- Supplemental Schedule for Computation of Performance Quotations
17(a) -- Powers of Attorney executed by a majority of the Board of
Trustees and certain principal officers of the Trust*
17(b) -- Power of Attorney executed by Frank J. Jones, President(5)
17(c) -- Powers of Attorney executed by Frank J. Fabozzi,
Joseph D. Sargent and Carl W. Schafer(7)
27 -- Financial Data Schedules*
- ----------
1. Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A (Reg. No. 33-23966) as filed on
November 20, 1992.
2. Incorporated by reference to the Registration Statement on Form N-1A
(Reg. No. 33-23966),as filed on August 22, 1988.
3. Incorporated by reference to Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-1A (Reg. No. 33-23966), as filed on
February 8, 1989.
4. Incorporated by reference to Post-Effective Amendment No. 33 to the
Registration Statement of The Guardian Park Ave. Fund on Form N-1A
(Reg. No. 2-38246).
5. Incorporated by reference to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A (Reg. No. 33-23966) as filed on
April 28, 1993.
6. Incorporated by reference to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A (Reg. No. 33-23966) as filed on March
1, 1996.
7. Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A (Reg. No. 33-23966) as filed on
February 14, 1997.
C-2
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
The following list sets forth the persons directly controlled by The
Guardian Life Insurance Company of America ("Guardian Life") as of December 31,
1997:
Percentage of
State of Incorporation Voting Securities
Name of Entity or Organization Owned
-------------- ---------------------- -----------------
The Guardian Insurance & Delaware 100%
Annuity Company, Inc.
Guardian Asset Management Delaware 100%
Corporation
Guardian Reinsurance Connecticut 100%
Services Inc.
Managed Dental Care, Inc. California 100%
Physicians Health Services Inc. Delaware 14%
Private Healthcare Systems, Inc. Delaware 14%
The Guardian Investment Massachusetts 52%
Quality Bond Fund
The Guardian Tax-Exempt Fund Massachusetts 86%
The Guardian Baillie Gifford Massachusetts 30%
International Fund
The Guardian Asset Allocation Massachusetts 17%
Fund
The Guardian Park Avenue Small
Cap Fund Massachusetts 57%
The Guardian Baillie Gifford
Emerging Markets Fund Massachusetts 94%
Baillie Gifford Emerging Markets Fund Maryland 23%
Baillie Gifford International Fund Maryland 15%
The following list sets forth the persons directly controlled by affiliates
of Guardian Life, and thereby indirectly controlled by Guardian Life, as of
December 31, 1997:
Approximate
Percentage of Voting
Securities Owned
Place of Incorporation by Guardian Life
Name of Entity or Organization Affiliates
-------------- ---------------------- --------------------
Guardian Investor Services New York 100%
Corporation
Guardian Baillie Gifford Limited Scotland 51%
The Guardian Cash Fund, Inc. Maryland 100%
The Guardian Bond Fund, Inc. Maryland 100%
The Guardian Stock Fund, Inc. Maryland 100%
The Guardian Park Avenue Fund Massachusetts 25%
GIAC Funds, Inc. Maryland 100%
C-3
<PAGE>
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of December 31, 1997
-------------- ------------------------
The Guardian Park Avenue Fund ......................... 83,424
The Guardian Baillie Gifford International Fund ....... 5,360
The Guardian Investment Quality Bond Fund ............. 2,178
The Guardian Tax-Exempt Fund .......................... 310
The Guardian Cash Management Fund ..................... 6,447
The Guardian Asset Allocation Fund .................... 6,545
The Guardian Park Avenue Small Cap Fund ............... 6,179
The Guardian Baillie Gifford Emerging Markets Fund .... 608
Item 27. Indemnification
Reference is made to Registrant's Amended and Restated Declaration of Trust
which has been filed as Exhibit Number 1 to the Registration Statement and is
incorporated herein by reference.
Item 28. Business and Other Connections of Investment Advisers and
Sub-Investment Adviser
Guardian Investor Services Corporation
Guardian Investor Services Corporation ("GISC") acts as the sole
investment adviser for The Guardian Stock Fund, Inc., The Guardian Cash Fund,
Inc., The Guardian Bond Fund, Inc., and eight of the ten series funds which
comprise The Park Avenue Portfolio, namely: The Guardian Park Avenue Fund, The
Guardian Park Avenue Small Cap Fund, The Guardian Park Avenue Tax-Efficient
Fund, The Guardian Investment Quality Bond Fund, The Guardian High Yield Bond
Fund, The Guardian Tax-Exempt Fund, The Guardian Cash Management Fund, and The
Guardian Asset Allocation Fund. GISC serves as the manager of The Gabelli
Capital Asset Fund. GISC is also the co-investment adviser for The Guardian Real
Estate Account. GISC's principal business address is 201 Park Avenue South, New
York, New York 10003. In addition, GISC is the distributor of variable annuities
and variable life insurance policies offered by The Guardian Insurance & Annuity
Company, Inc. ("GIAC") through its separate accounts. These separate accounts,
The Guardian/Value Line Separate Account, The Guardian Separate Account A, The
Guardian Separate Account B, The Guardian Separate Account C, The Guardian
Separate Account D, Guardian Separate Account K and Separate Account M which
are all unit investment trusts registered under the Investment Company Act of
1940, as amended.
A list of GISC's officers and directors is set forth below, indicating the
business, profession, vocation or employment of a substantial nature in which
each person has been engaged during the past two fiscal years for his or her own
account or in the capacity of director, officer, partner, or trustee, aside from
any affiliation with the Registrant. Except where otherwise noted, the principal
business address of each company is 201 Park Avenue South, New York, New York
10003.
C-4
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Charles E. Albers Executive Vice Senior Vice President, Equity
President Securities: The Guardian Life
Insurance Company of America. Vice
President, Equity Securities: The
Guardian Insurance & Annuity
Company, Inc. Executive Vice
President: Guardian Asset
Management Corporation. Officer of
various Guardian-sponsored mutual
funds. Director: Guardian Baillie
Gifford Limited.*
Joseph A. Caruso Secretary Vice President and Secretary,
The Guardian Life Insurance
Company of America 1/96 to
present; Second Vice President
and Secretary, 1/95 to 1/96;
Secretary prior thereto.
Secretary: The Guardian
Insurance & Annuity Company,
Inc., Guardian Investor Services
Corporation, Guardian Asset
Management Corporation, various
Guardian-sponsored mutual funds.
- ----------
* Principal business address: 1 Rutland Court, Edinburgh EH3 8EY, Scotland.
C-5
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Philip H. Dutter Director Independent Consultant (self-
employed). Director: The Guardian
Life Insurance Company of America.
Director: The Guardian Insurance &
Annuity Company, Inc.
Arthur V. Ferrara Director Retired. Chairman of the Board &
Chief Executive Officer: The
Guardian Life Insurance Company of
America 1/93 - 12/95; President,
Chief Executive Officer & Director
prior thereto. Director (Trustee)
of The Guardian Insurance & Annuity
Company, Inc., Guardian Asset
Management Corporation, and various
Guardian-sponsored mutual funds.
Leo R. Futia Director Director: The Guardian Life
Insurance Company of America.
Director: The Guardian Insurance &
Annuity Company, Inc.
Director/Trustee of various
Guardian-sponsored mutual funds and
mutual funds sponsored by Value
Line, Inc.*
Earl C. Harry Treasurer Treasurer: The Guardian Life
Insurance Company of America
11/96 - present; Assistant
Treasurer prior thereto.
Treasurer: The Guardian Insurance
& Annuity Company, Inc., and
Guardian Asset Management
Corporation.
- ----------
* Principal business address: 711 Third Avenue, New York, New York 10017.
C-6
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Thomas R. Hickey, Jr. Senior Vice Vice President, Equity Operations:
President, The Guardian Life Insurance Company
Operations of America. Vice President,
Operations: The Guardian
Insurance & Annuity Company, Inc.
Officer of various Guardian-
sponsored mutual funds.
Peter L. Hutchings Director Executive Vice President and Chief
Financial Officer: The Guardian
Life Insurance Company of America.
Director: Guardian Asset Management
Corporation. Director: The Guardian
Insurance & Annuity Company, Inc.
Ryan W. Johnson Vice President & Second Vice President, Equity
National Sales Sales: The Guardian Life Insurance
Director Company of America since 3/95;
Regional Sales Director, Western
Division, for Equity Products prior
thereto. Vice President, Equity
Sales, The Guardian Insurance &
Annuity Company, Inc.
Frank J. Jones Director Executive Vice President and Chief
Investment Officer: The Guardian
Life Insurance Company of America.
Director, Executive Vice President
and Chief Investment Officer: The
Guardian Insurance & Annuity
Company, Inc. Director: Guardian
Asset Management Corporation and
Guardian Baillie Gifford
Limited*.Officer of various
Guardian-sponsored mutual funds.
- ----------
*Principal business address: 1 Rutland Court, Edinburgh EH3 8EY, Scotland.
C-7
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Nikolaos D. Monoyios Vice President Vice President, Equity Securities:
The Guardian Life Insurance Company
of America. Vice President:
Guardian Asset Management
Corporation. Officer of various
Guardian-sponsored mutual funds.
Frank L. Pepe Vice President & Vice President and Controller,
Controller Equity Products: The Guardian Life
Insurance Company of America since
1/96. Second Vice President and
Controller prior thereto. Vice
President and Controller: The
Guardian Insurance & Annuity
Company, Inc. Controller: Guardian
Asset Management Corporation.
Officer of various Guardian-
sponsored mutual funds.
C-8
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Richard T. Potter, Jr. Vice President Vice President and Equity Counsel:
and Counsel The Guardian Life Insurance Company
of America since 1/96; Second Vice
President and Equity Counsel prior
thereto. Counsel: The Guardian
Insurance & Annuity Company, Inc.
and Guardian Asset Management
Corporation; Counsel of various
Guardian-sponsored mutual funds.
Joseph D. Sargent Director President, Chief Executive Officer
and Director: The Guardian Life
Insurance Company of America since
1/96; President and Director prior
thereto. President and Director:
The Guardian Insurance & Annuity
Company, Inc. Director (Trustee)
Guardian Asset Management
Corporation, Guardian Baillie
Gifford, Ltd.*, various Guardian-
sponsored mutual funds.
John M. Smith President & Executive Vice President: The
Director Guardian Life Insurance Company of
America 1/95 to present; Senior
Vice President prior thereto.
Executive Vice President and
Director: The Guardian Insurance &
Annuity Company, Inc. Director:
Guardian Baillie Gifford Ltd.*
President and Director: Guardian
Asset Management Corporation.
President: GIAC Funds, Inc.
William C. Warren Director Retired.
Director: The Guardian Life
Insurance Company of America.
Director: The Guardian Insurance &
Annuity Company, Inc.
- ----------
*Principal business address: 1 Rutland Court, Edinburgh EH3 8EY, Scotland.
C-9
<PAGE>
Guardian Baillie Gifford Limited
Guardian Baillie Gifford Limited ("GBG") is exclusively engaged in the
business of acting as the investment adviser to Baillie Gifford International
Fund and Baillie Gifford Emerging Markets Fund, two series of GIAC Funds, Inc.,
and The Guardian Baillie Gifford International Fund and The Guardian Baillie
Gifford Emerging Markets Fund, two series of the Registrant. GBG's principal
business address is 1 Rutland Court, Edinburgh, EH3 8EY, Scotland. A list of
GBG's executive officers and directors is set forth below, indicating the
business, profession, vocation or employment of a substantial nature in which
each person has been engaged during the past two fiscal years for his or her own
account or in the capacity of director, officer, partner, or trustee, aside from
any affiliation with the Registrant.
Position Other Substantial
Name with GBG Business Affiliations
---- -------- ---------------------
Charles Edgar Albers Director Senior Vice President, Equity
Securities: The Guardian Life
Insurance Company of America.**
Vice President, Equity Securities:
The Guardian Insurance & Annuity
Company, Inc.;** Guardian Investor
Services Corporation;** Guardian
Asset Management Corporation.**
Officer of various
Guardian-sponsored mutual funds.**
Gavin John Norman Gemmell Director Senior Partner: Baillie Gifford &
Co.* Director: Baillie Gifford
Overseas Limited* Director: Toyo
Trust Baillie Gifford*
Edward H. Hocknell Director Director: Baillie Gifford Overseas
Limited*
Rowan Robin Menzies Director Partner: Baillie Gifford & Co.*
Director: Baillie Gifford Overseas
Limited*
Joseph Dudley Sargent Director President, Chief Executive Officer
and Director: The Guardian Life
Insurance Company of America**
since 1/96; President and Director
prior thereto. President and
Director: The Guardian Insurance &
Annuity Company, Inc.** Director
(Trustee) Guardian Asset Management
Corporation.** Chairman of the
Board of: various Guardian-
sponsored mutual funds.**
- ----------
* Principal business address is 1 Rutland Court, Edinburgh, EH3 8EY, Scotland.
** Principal business address is 201 Park Avenue South, New York, New York
10003.
C-10
<PAGE>
Position Other Substantial
Name with GBG Business Affiliations
---- -------- ---------------------
John Matthew Smith Director Executive Vice President, Equity
Products: The Guardian Life
Insurance Company of America**
since 1/95; Senior Vice President
prior thereto Executive Vice
President and Director: The
Guardian Insurance & Annuity
Company, Inc.** President and
Director of: Guardian Investor
Services Corporation** Guardian
Asset Management Corporation**
President: GIAC Funds, Inc.
Maxwell C.B. Ward Director Partner: Baillie Gifford & Co.
Chairman: Baillie Gifford Overseas
Limited
- ----------
**Principal business address is 201 Park Avenue South, New York, New York 10003.
C-11
<PAGE>
Baillie Gifford Overseas Limited
Baillie Gifford Overseas Limited ("BGO") acts as the sub-investment adviser for
Baillie Gifford International Fund and Baillie Gifford Emerging Markets Fund,
two series of GIAC Funds, Inc. and The Guardian Baillie Gifford International
Fund and The Guardian Baillie Gifford Emerging Markets Fund, two series of the
Registrant. BGO also provides investment management services to institutional
clients outside of the United Kingdom. BGO is wholly owned by Baillie Gifford &
Co. which is an investment management firm providing independent investment
management services to investment trusts, unit trusts, pension funds, charitable
funds and other institutional clients primarily located in the United Kingdom.
A list of BGO's directors is set forth below, indicating the business,
profession, vocation or employment of a substantial nature in which each person
has been engaged during the past two fiscal years for his or her own account or
in the capacity of director, officer, partner, or trustee, aside from any
affiliation with the Registrant. Except where otherwise noted, the principal
business address of each individual in his capacity as director of BGO is 1
Rutland Court, Edinburgh, EH3 8EY, Scotland.
Position Other Substantial
Name with BGO Business Affiliations**
---- -------- -----------------------
James K. Anderson Director Partner: Baillie Gifford & Co.
Director: Baillie Gifford & Co.Limited
Gavin J. N. Gemmell* Director Senior Partner: Baillie Gifford & Co.
Edward H. Hocknell* Director None
Gareth A. Howlett Director Director: Toyo Trust Baillie Gifford
Limited
J. Ross Lidstone Director Partner: Baillie Gifford & Co.
Gill E. Meekison Director Director: Baillie Gifford Savings
Management Limited
R. Robin Menzies* Director Partner: Baillie Gifford & Co.
Maxwell C. B. Ward Chairman Partner: Baillie Gifford & Co.
Item 29. Principal Underwriters
(a) GISC is the principal underwriter and distributor of the eight series
funds comprising The Park Avenue Portfolio, namely: The Guardian Park Avenue
Fund, The Guardian Park Avenue Small Cap Fund, The Guardian Cash Management
Fund, The Guardian Investment Quality Bond Fund, The Guardian Tax-Exempt Fund,
The Guardian Baillie Gifford International Fund, The Guardian Baillie Gifford
Emerging Markets Fund and The Guardian Asset Allocation Fund. In addition, GISC
is the distributor of variable annuities and variable life insurance policies
offered by GIAC through GIAC's separate accounts: The Guardian Real Estate
Account, which is not registered as an investment company, and The
Guardian/Value Line
- ----------
*Director of GBG
** Principal business address of each entity is 1 Rutland Court, Edinburgh, EH3
8EY, Scotland
C-12
<PAGE>
Separate Account, The Guardian Separate Account A, The Guardian Separate Account
B, The Guardian Separate Account C, The Guardian Separate Account D, The
Separate Account K and The Guardian Separate Account M, which are all registered
as unit investment trusts under the Investment Company Act of 1940, as amended.
These latter separate accounts buy and sell shares of The Guardian Stock Fund,
Inc., The Guardian Bond Fund, Inc., The Guardian Cash Fund, Inc. and GIAC Funds,
Inc. on behalf of GIAC's variable contractowners.
(b) The principal business address of the officers and directors of GISC
listed below is 201 Park Avenue South, New York, New York 10003.
Position(s) Position(s)
Name with Underwriter with Registrant
---- ---------------- ---------------
John M. Smith President & Director None
Arthur V. Ferrara Director Director
Leo R. Futia Director Director
Peter L. Hutchings Director None
Philip H. Dutter Director None
William C. Warren Director None
Joseph D. Sargent Director None
Frank J. Jones Director President
Charles E. Albers Executive Vice President Vice President
Ryan W. Johnson Vice President and None
National Sales Director
Frank L. Pepe Vice President & Controller Vice President
Nikolaos D. Monoyios Vice President Vice President
Thomas R. Hickey, Jr. Vice President Vice President
Richard T. Potter, Jr. Vice President and Counsel Counsel
Donald P. Sullivan, Jr. Vice President None
Alexander M. Grant, Jr. Second Vice President None
Kevin S. Alter Second Vice President None
Ann T. Kearney Second Vice President Controller
Earl C. Harry Treasurer None
Joseph A. Caruso Secretary Secretary
(c) Not Applicable.
C-13
<PAGE>
Item 30. Location of Accounts and Records
Most of the Registrant's accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are maintained by the custodian for the Registrant, the
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy,
Massachusetts 02171, and by the transfer agent for the Funds, National Financial
Data Services, 1100 Main Street, Kansas City, Missouri 64105-2123. The
Registrant's corporate records are maintained by the Registrant at 201 Park
Avenue South, New York, New York 10003.
Item 31. Management Services
None.
Item 32. Undertakings
Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that Section.
Registrant hereby undertakes to furnish, upon request and without charge, a
copy of the Registrant's latest Annual Report to Shareholders to each person to
whom a copy of the Registrant's prospectus is delivered.
C-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the Investment
Company Act of 1940, the Registrant, The Park Avenue Portfolio has duly
caused this Post-Effective Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York and the State of New York on the 13th day of February, 1998.
THE PARK AVENUE PORTFOLIO
By /s/ THOMAS R. HICKEY, JR.
-----------------------------
Thomas R. Hickey, Jr.
Senior Vice President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
/s/ FRANK J. JONES* President
- -------------------------------- (Principal Executive Officer)
Frank J. Jones
/s/ FRANK L. PEPE* Treasurer
- -------------------------------- (Principal Financial and
Frank L. Pepe Accounting Officer)
/s/ JOHN C. ANGLE* Trustee
- --------------------------------
John C. Angle
/s/ FRANK J. FABOZZI* Trustee
- --------------------------------
Frank J. Fabozzi
/s/ ARTHUR V. FERRARA* Trustee
- --------------------------------
Arthur V. Ferrara
/s/ LEO R. FUTIA* Trustee
- --------------------------------
Leo R. Futia
/s/ WILLIAM W. HEWITT, JR.* Trustee
- --------------------------------
William W. Hewitt, Jr.
/s/ SIDNEY I. LIRTZMAN* Trustee
- --------------------------------
Sidney I. Lirtzman
/s/ JOSEPH D. SARGENT* Trustee
- --------------------------------
Joseph D. Sargent
/s/ CARL W. SCHAFER* Trustee
- --------------------------------
Carl W. Schafer
/s/ ROBERT G. SMITH* Trustee
- --------------------------------
Robert G. Smith
*By /s/THOMAS R. HICKEY, JR. Date: February 13, 1998
- --------------------------------
Thomas R. Hickey, Jr.
Vice President
Pursuant to a Power of Attorney
<PAGE>
THE PARK AVENUE PORTFOLIO
Exhibit Index
Number Description Page No.
------ ----------- --------
1 Form of Amended and Restated Declaration of
Trust
2 Trust By-Laws
3 Not Applicable
5(a) -- Form of Investment Advisory Agreement between The
Park Avenue Portfolio and Guardian Investor
Services Corporation
5(b) -- Form of Investment Advisory Agreement between The
Park Avenue Portfolio and Guardian Baillie Gifford
Limited
5(c) -- Form of Sub-Investment Advisory Agreement between
Guardian Baillie Gifford Limited and Baillie Gifford
Overseas Limited
6(a) -- Form of Underwriting Agreement
6(b) -- Form of Selling Group Agreement
8 -- Form of Custodian Contract
9(a) -- Form of Transfer Agency Agreement
14 -- Individual Retirement Account Custodial Agreement
15(a) -- Form of Distribution Plan and Agreement Pursuant to
Rule 12b-1 under the Investment Company Act of 1940
16(a) Schedule for Computation of Performance Quotations
16(b) Supplemental Schedule for Computation of Performance
Quotations
Exhibit 99.1
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
THE PARK AVENUE PORTFOLIO
AMENDED AND RESTATED DECLARATION OF TRUST, made this 8th day of January,
1993 by John C. Angle, George T. Conklin, Jr., Frank J. Fabozzi, Arthur V.
Ferraro, Leo R. Futia, William W. Hewitt, Jr., Sidney I. Lirtzman, Gerard E.
Mills and Robert G. Smith, the ("Trustees").
WHEREAS, the Trust is established as an unincorporated voluntary
association commonly known as a business trust, as described in the provisions
of Chapter 182 of the General Laws of Massachusetts, for the principal purpose
of the investment and reinvestment of funds contributed thereto; and
WHEREAS, there was originally filed with the Secretary of State of the
Commonwealth of Massachusetts and the Clerk of the City of Boston a Declaration
of Trust, dated as of August 11, 1988, creating the Trust, which was then named
"The Guardian U.S. Government Trust;" and
WHEREAS, on October 14, 1992, there was filed with the Secretary of State
of the Commonwealth of Massachusetts and the Clerk of the City of Boston an
Amendment to the Declaration of Trust changing the name of the Trust to "The
Park Avenue Portfolio;" and
WHEREAS, the beneficial interest in the Trust's assets is divided into
transferable shares of beneficial interest as hereinafter provided; and
WHEREAS, the Trustees and holders of the shares of beneficial interest
issued hereunder have resolved to amend and restate the Declaration of Trust,
dated August 11, 1988, as amended, and to file such amended and restated
Declaration of Trust with the Secretary of State of the Commonwealth of
Massachusetts and with the Clerk of the City of Boston;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held in trust and managed under
this Amended and Restated Declaration of Trust for the benefit of the holders of
the shares of beneficial interest issued hereunder as herein set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1. Name. This Trust shall be known as "The Park Avenue Portfolio"
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
Section 2. Definitions. Wherever used herein, unless otherwise required by
the context or specifically provided:
(a) The terms "Affiliated Person," "Assignment," "Commissions,"
"Interested Person," "Investment Adviser," "Principal Underwriter" and
"vote of a majority of the outstanding voting securities" shall have the
meanings given them in the 1940 Act, as amended from time to time.
(b) The "Trust" refers to The Park Avenue Portfolio and reference to
the Trust, when applicable to one or more Series of the Trust, shall refer
to any such Series.
(c) The "Trustees" refers to the individual Trustees in their
capacity as Trustees of the Trust named herein and their respective
successor or successors, each for the time period in which such individual
is in office as such Trustee.
(d) "Net Asset Value" means the net asset value of each Series of
the Trust determined in the manner provided in Article X, Section 3.
(e) "Shareholder" means a record owner of Shares of the Trust.
(f) "Shares," as the context may require, means the equal
proportionate transferable units of interest, or fractions thereof, into
which the beneficial interest in each Series of the Trust, or Class
thereof, shall be divided from time to time.
(g) "Series" refers to series of Shares of the Trust established in
accordance with the provisions of Article Ill.
(h) "Class" refers to the class of Shares of a Series of the Trust
established in accordance with the provisions of Article III.
(i) "Security" or "Securities" shall mean any: stock; shares; voting
trust certificates; bonds; debentures; notes; or other evidences of
indebtedness, whether secured or unsecured, convertible, subordinated or
otherwise; or, in gen-
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eral, any instruments commonly known as "securities;" or any certificates
of interest, shares or participations in temporary or interim certificates
for, guarantees of, or any right to subscribe to, purchase or acquire any
of the foregoing.
(j) The "1940 Act" refers to the Investment Company Act of 1940 and
the rules and regulations thereunder, as amended from time to time.
(k) "Bylaws" means the Bylaws of the Trust, as amended from time to
time.
(l) "Commission" means the Securities and Exchange Commission or any
succeeding governmental authority.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a continuous source of
managed investment in securities.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial interest in the
Trust shall be divided into such transferable Shares of one or more separate and
distinct Series or Classes thereof as the Trustees shall from time to time
create and establish. The number of Shares is unlimited and each Share shall
have no par value. Upon issuance in accordance with the terms hereof, the Shares
shall be fully paid and nonassessable. The Trustees shall have full power and
authority, in their sole discretion and without obtaining any prior
authorization or vote of the Shareholders of the Trust, to create and establish
(and to change in any manner) Shares with such preferences, terms of conversion,
voting powers, rights, privileges and eligibility requirements as the Trustees
may from time to time determine, to divide or combine the Shares into a greater
or lesser number, to classify or reclassify any unissued Shares into one or more
Series or Classes of Shares, to abolish any one or more Series or Classes of
Shares, and to take such other action with respect to the Shares as the Trustees
may deem desirable. The Trustees, in their discretion without a vote of the
Shareholders, may divide the Shares of any Series into Classes. In such event,
each Class of a Series shall represent interests in the assets of that Series
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that expenses allocated to a Class of a Series may
be borne solely by such Class as shall be determined by the Trustees and a Class
of a Series may have exclusive voting rights with respect to matters affecting
only that Class.
Section 2. Establishment of Series or Class. The establishment of any
Series or Class shall be effective upon the adoption of a resolution by a
majority of the then Trustees setting forth such establishment and designation
and the relative rights and preferences of the Shares of such Series or Class
thereof. At any time that there are no Shares outstanding of any particular
Series previously established and designated, the Trustees may by a majority
vote abolish that Series and the establishment and designation thereof. At any
time that there are no shares outstanding of any particular Class of a Series,
the Trustees may by a majority vote abolish that Class and the establishment and
designation thereof. The Trustees by a majority vote may change the name of any
Series or Class. If Shares of a Series or Class are outstanding, such Series or
Class may be terminated only in the manner provided in Section 4 of Article XII.
Section 3. Ownership of Shares. The ownership of Shares shall be recorded
in the books of the Trust. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, if any, the transfer of
Shares and similar matters. The record books of the Trust shall be conclusive as
to who are the holders of Shares and as to the number of Shares held from time
to time by each.
Section 4. Investment in the Trust. The Trustees shall accept investments
in the Trust from such persons and on such terms as they may from time to time
authorize. The Trust by action of its Trustees shall have the right to refuse to
accept any investment at any time without any cause or reason therefor
whatsoever. Investments in the Trust may be in the form of cash or the
securities in which the applicable Series of the Trust is authorized to invest,
valued as provided in Article X, Section 3. Subject to any requirements of law,
the Trustees may also issue Shares of the Trust for consideration which may
consist of cash or tangible or intangible property or a combination thereof, as
they may from time to time authorize. After the date of the initial contribution
for capital, the number of Shares to represent the initial contribution may in
the Trustees' discretion be considered as outstanding and the amount received by
the Trustees on account of the contribution shall be treated as an asset of the
Trust or a Series thereof, as appropriate. Subsequent investments in the Trust
shall be credited to the each Shareholder's account in the form of full and
fractional Shares at the Net Asset Value per Share next determined after the
investment is received; provided, however, that the Trustees may, in their sole
discretion, impose a sales charge upon investments in the Trust or Series to the
extent and in any manner permitted by applicable law. The Trustees shall have
the right to refuse to accept investments in the Trust or any Series or Class at
any time without any cause or reason therefor whatsoever and to change or
eliminate any eligibility requirements for investment in Shares of any Series or
Class, including,
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without limitation, the power to provide for the issue of Shares in connection
with any merger or consolidation of the Trust with another trust or company or
any acquisition by the Trust of part or all of the assets of another trust or
company.
Section 5. Preemptive Rights. Shareholders shall have no preemptive or
other right to receive, purchase or subscribe to any additional Shares or other
securities issued by the Trust or the Trustees.
Section 6. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder, by virtue of having become a Shareholder, shall
be held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. Neither the Trustees nor any officer, employee or agent
of the Trust, shall have any power to bind any Shareholder personally or to call
upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay by way of subscription for any Shares or otherwise. Every note, bond,
contract or other undertaking issued by or on behalf of the Trust or the
Trustees relating to the Trust shall include a recitation limiting the
obligation represented thereby to the Trust and its assets (but the omission of
such a recitation shall not operate to bind any Shareholder).
Section 7. Relative Rights and Preferences of Shares. Shares of each
Series or, if applicable, each Class shall have the following relative rights
and preferences:
(a) Assets Belonging to Series. All consideration received by the
Trust for the issue or sale of Shares of a particular Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that Series for all purposes, subject
only to the rights of creditors, and shall be so recorded upon the books
of account of the Trust. Such consideration, assets, income, earnings,
profits and proceeds thereof, from whatever source derived, including,
without limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be, are
herein referred to as "assets belonging to" that Series. In the event that
there are any assets, income, earnings, profits and proceeds thereof,
funds or payments which are not readily identifiable as belonging to any
particular Series (collectively "General Assets"), the Trustees shall
allocate such General Assets to, between or among any one or more of the
Series established and designated from time to time in such manner and on
such basis as they, in their sole discretion, deem fair and equitable, and
any General Asset so allocated to a particular Series shall belong to that
Series. Each such allocation by the Trustees shall be conclusive and
binding upon the Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged solely with the liabilities of the
Trust in respect to that Series, expenses, costs, charges and reserves
attributable to that Series, and any general liabilities of the Trust
which are not readily identifiable as belonging to any particular Series
but which are allocated and charged by the Trustees to and among any one
or more of the Series established and designated from time to time in a
manner and on such basis as the Trustees in their sole discretion deem
fair and equitable. The liabilities, expenses, costs, charges, and
reserves so charged to a Series are herein referred to as "liabilities
belonging to" that Series. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be conclusive and
binding upon the holders of all Series for all purposes, except that
liabilities, expenses, costs, charges and reserves allocated solely to a
particular Class shall be borne by that Class. Any creditor of any Series
may look only to the assets of that Series to satisfy such creditor's
debt.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provision of this Declaration of Trust,
including, without limitation, Article X, no dividend or distribution
(including, without limitation, any distribution paid upon termination of
the Trust or of any Series or of any Class of a Series) with respect to,
nor any redemption or repurchase of, the Shares of any Series or of any
Class of a Series shall be effected by the Trust other than from the
assets belonging to the applicable Series, nor shall any Shareholder of
any particular Series otherwise have any right or claim against the assets
belonging to any other Series except to the extent that such Shareholder
has such a right or claim hereunder as a Shareholder of such other Series.
(d) Voting. Notwithstanding any of the other provisions of this
Declaration of Trust, including, without limitation, Section 1 of Article
VIII, when the Trustees have determined that the matter affects only the
interests of one or more Series or Classes, then only Shareholders of such
Series or Class shall be entitled to vote thereon. On any matter submitted
to a vote of Shareholders, all Shares of the Trust then entitled to vote
shall be voted in the aggregate, unless otherwise required by the 1940 Act
or other applicable law.
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(e) Fractions. Any fractional Share shall carry proportionately all
the rights and obligations of a whole Share of the same Series or Class,
including rights with respect to voting, receipt of dividends and
distributions, redemption of Shares and termination of the trust or of the
applicable Series or Class.
(f) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series or Class shall have the
right to exchange said Shares for Shares of one or more other Series or
Classes of Shares in accordance with such requirements and procedures as
may be established by the Trustees.
(g) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series unless otherwise
required by applicable law, to combine the assets and liabilities
belonging to any two or more Series into assets and liabilities belonging
to a single Series.
ARTICLE IV
TRUSTEES
Section 1. Management of the Trust. The business and affairs of the Trust
shall be managed by the Trustees, and they shall have all powers necessary and
desirable to carry out that responsibility. The Trustees, as such, shall be
entitled to reasonable compensation from the Trust if the rate thereof is
prescribed by such Trustees. A Trustee shall not be required to be a Shareholder
of the Trust.
Section 2. Term of Office and Election. Each Trustee shall hold office
during the lifetime of this Trust, until the next meeting of Shareholders, if
any, called for the purpose of considering the election or re-election of such
Trustee or of a successor to such Trustee, and until the election and
qualification of his successor, if any, elected at such meeting; except that (a)
any Trustee may resign by written instrument signed by him and delivered to the
other Trustees, which shall take effect upon such delivery or upon such later
date as is specified therein; (b) any Trustee may be removed at any time by
written instrument, signed by at least two-thirds of the number of Trustees
prior to such removal, specifying the date when such removal shall become
effective; (c) any Trustee who has become incapacitated by illness or injury may
be retired by written instrument signed by a majority of the other Trustees,
specifying the date of his retirement; and (d) a Trustee may be removed at any
Special Meeting of the Trust by a vote of more than fifty percent (50%) of the
outstanding Shares.
Section 3. Vacancies. In case of the decline, death, resignation,
retirement, removal or incapacity of any Trustee, or in case a vacancy shall, by
reason of an increase in the number of Trustees, or for any other reason, exist,
the remaining Trustees may fill such vacancy by appointing such other person as
they in their discretion shall see fit. Such appointment shall be evidenced by a
written instrument signed by a majority of the Trustees in office or by
recording the appointment in the records of the Trust, whereupon the appointment
shall take effect. An appointment of a Trustee may be made by the Trustees then
in office in anticipation of a vacancy to occur by reason of retirement,
resignation or increase in number of Trustees effective at a later date,
provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees. As soon as any Trustee so appointed shall have accepted this Trust,
the trust estate shall vest in the new Trustee, together with the continuing
Trustees, without any further act or conveyance, and he shall be deemed a
Trustee hereunder. The power of appointment is subject to the provisions of
Section 16(a) of the 1940 Act.
Section 4. Temporary Absence. Any Trustee may, by power of attorney,
delegate his power for a period not exceeding six (6) months at any one time to
any other Trustee or Trustees, provided that in no case shall less than three
(3) Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.
Section 5. Number of Trustees. The number of Trustees serving hereunder at
any time shall be determined by the Trustees themselves, but shall not be less
than five (5) nor more than eleven (11). No decrease in the number of Trustees
shall have the effect of removing any Trustee from office prior to expiration of
his term, except that the number of Trustees may be decreased in conjunction
with the removal of a Trustee pursuant to Section 2 of this Article IV.
Whenever a vacancy in the Board of Trustees shall occur and such vacancy
remains unfilled, or while any Trustee is absent from the Commonwealth of
Massachusetts or, if not a domiciliary of Massachusetts, is absent from his
state of domicile, or is physically or mentally incapacitated by reason of
disease or otherwise, the other Trustees shall have all the powers hereunder and
the certificate of the other Trustees of such vacancy, absence or incapacity
shall be conclusive.
Section 6. Effect of Vacancy. The death, decline, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall not operate to
annul the Trust or to revoke any existing agency created pursuant to the terms
of this Trust.
Section 7. Ownership of Assets of the Trust. The assets of the Trust shall
be held separate and apart from any assets now or hereafter held in any capacity
other than as Trustee hereunder by the Trustees or any successor Trustees. Title
to
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all of the assets of the Trust shall at all times be considered as vested in the
Trustees. No Shareholder shall be deemed to have title in or to the whole or any
part of the Trust property, or any right of partition, division, accounting or
possession thereof, but each Shareholder shall have the proportionate undivided
beneficial interest in the Trust represented by such Shareholder's Shares.
Section 8. No Accounting. Except under circumstances which would justify
his removal for cause, no person ceasing to be a Trustee as a result of his
death, resignation or retirement, removal or incapacity (nor the estate of any
such person) shall be required to make an accounting to the Shareholders or
remaining Trustees upon such cessation.
ARTICLE V
POWERS OF THE TRUSTEES
Section 1. Powers. The Trustees in all instances shall act as principals,
and are and shall be free from the control of the Shareholders. The Trustees
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may consider necessary
or appropriate in connection with the management of the Trust. The Trustees
shall not in any way be bound or limited by present or future laws or customs in
regard to trust investments, but shall have full authority and power to make any
and all investments which they, in their uncontrolled discretion, shall deem
proper to accomplish the purpose of this Trust. Subject to any applicable
limitation in this Amended and Restated Declaration of Trust or the Bylaws, the
Trustees shall have power and authority:
(a) To invest and reinvest cash and other property, and to hold cash
or property uninvested; to invest in Securities or interests of all kinds
including, but not limited to, common stock, securities or instruments
which are convertible into common stock, preferred stock, bonds,
debentures, warrants and rights to purchase or sell securities,
certificates of beneficial interest, and notes or other evidences of
indebtedness issued by corporations, trusts or associations, domestic or
foreign, or issued or guaranteed by the United States of America or any
agency or instrumentality thereof, or issued or guaranteed by the
government of any foreign country, or obligations issued by or on behalf
of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, or by any political subdivision, agency or
instrumentality of any foreign country; to lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets of the
Trust; to purchase or sell (or write) options on securities, currencies,
indices, futures contracts and other financial instruments and enter into
closing transactions in connection therewith; to enter into all types of
commodities contracts, including, without limitation, the purchase and
sale of futures contracts and forward contracts on securities, indices,
currencies, and other financial instruments; to engage in forward
commitments, "when-issued" and delayed-delivery transactions; to enter
into repurchase agreements and reverse repurchase agreements; and to
employ all kinds of hedging techniques and investment management
strategies.
(b) To adopt Bylaws not inconsistent with this Amended and Restated
Declaration of Trust providing for the conduct of the business of the
Trust and to amend and repeal such Bylaws.
(c) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate.
(d) To employ a bank, trust company or other entity so permitted by
the 1940 Act and the rules thereunder, as amended from time to time, or
the Commission, to serve as custodian of any assets of the Trust subject
to any conditions set forth in this Amended and Restated Declaration of
Trust or in the Bylaws.
(e) To retain a transfer agent and shareholder servicing agent, or
both.
(f) To provide for the distribution of interests of the Trust either
through a Principal Underwriter or distributor, or in the manner
hereinafter provided for or by the Trust itself, or both.
(g) To set record dates in the manner hereinafter provided for.
(h) To delegate such authority as they consider desirable to any
committee of Trustees, officers of the Trust, an advisory board (the
members of which shall not be Trustees and need not be Shareholders) or to
any agent, independent contractor, custodian or underwriter.
(i) To sell or exchange any or all of the assets of the Trust,
subject to the provisions of Article XII, Section 4 hereof.
(j) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other Securities or property; and to execute and
deliver powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion
with relation to Securities or property as the Trustees shall deem proper.
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(k) To exercise all powers and rights, including rights of
subscription, which in any manner arise out of ownership of Securities.
(l) To hold any Security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either
in its own name or in the name of a custodian or a nominee or nominees,
subject in either case to proper safeguards according to the usual
practice of trust companies or investment companies.
(m) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any Security of
which is held in the Trust; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or concern, and to pay
calls or subscriptions with respect to any Security held in the Trust; and
to enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(n) To compromise, arbitrate or otherwise adjust claims in favor of
or against the Trust or any matter in controversy including, but not
limited to, claims for taxes.
(o) To make distributions to Shareholders in the manner hereinafter
provided for.
(p) To borrow funds or property, to the extent permitted by
applicable law.
(q) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any
Shareholders whose Investment is less than such minimum upon giving notice
to such Shareholder.
(r) To join with other Security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection
to deposit any Security with, or transfer any Security to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any Security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and
to pay, such portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper.
(s) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge
the Trust property or any part thereof to secure any or all such
obligations;
(t) To purchase and pay for entirely out of Trust property such
insurance as the Trustees may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and
principal on its portfolio investments, and insurance policies insuring
the Shareholders, Trustees, officers, employees, agents, Investment
Advisers, Principal Underwriters, or independent contractors of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such
person as Shareholder, Trustee, officer, employee, agent, Investment
Adviser, Principal Underwriter, or independent contractor, including any
action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person
against liability.
(u) At the Trustees' discretion, to indemnify out of the assets of
the Trust any person who is or has been an employee or agent of the Trust
or who has served at the request of the Trust as an employee or agent of
another organization in which the Trust has an interest as a shareholder,
creditor or otherwise, who is not a Covered Person as that term is defined
in Article XI, Section 2(a)(i) herein, against any liability and all
expenses reasonably incurred or paid by such person in connection with any
claim, action, suit or proceeding in which he becomes involved as a party
or otherwise by virtue of such employment or agency and against amounts
paid or incurred by him in the settlement thereof.
(v) To pay pensions as deemed appropriate by the Trustees and to
adopt, establish and carry out pension, profit sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and benefit
plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents
of the Trust.
(w) To establish separate and distinct Series with separately
defined investment objectives and policies and distinct investment
purposes in accordance with the provisions of Article III and to establish
separate Classes thereof.
(x) To allocate assets, liabilities and expenses of the Trust to a
particular Series and liabilities and expenses to a particular Class
thereof or to apportion the same between or among two or more Series or
Classes, provided that any liabilities or expenses incurred by a
particular Series or Class shall be payable solely out of the assets
belonging to that Series or Class as provided for in Article III.
(y) To do any other act that the Trustees are permitted by law to
do.
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No one dealing with the Trustees shall be under any obligation to make any
inquiry concerning the authority of the Trustees, or to see to the application
of any payments made or property transferred to the Trustees or upon their
order.
Section 2. Trustees and Officers as Shareholders. Any Trustee, officer,
other agent or independent contractor of the Trust may acquire, own and dispose
of Shares to the same extent as if he were not a Trustee, officer, agent or
independent contractor; and the Trustees may issue and sell or cause to be
issued and sold Shares to and buy such Shares from any such person or any firm
or company in which he is interested, subject only to the general limitations
herein contained as to the sale and purchase of such Shares; and all subject to
any restrictions which may be contained in the Bylaws.
Section 3. Action by the Trustees. Except where a larger percentage is
specified herein or from time to time in the Bylaws, the Trustees shall act by
majority vote at a meeting duly called, including any meeting held by means of a
conference telephone or other medium, provided that a quorum is present, or by
unanimous written consent without a meeting, unless the 1940 Act requires that a
particular action be taken only at a meeting at which the Trustees are present
in person. At any meeting of the Trustees, a majority of the Trustees shall
constitute a quorum. Meetings of the Trustees may be called orally or in writing
by the Chairman of the Board of Trustees, by any two (2) other Trustees, or by
the President of the Trust, if he also a Trustee. Notice of the time, date and
place of all meetings of the Trustees shall be given by the party calling the
meeting to each Trustee by telephone or telegram sent to his home or business
address at least twenty-four (24) hours in advance of the meeting or by written
notice mailed to his home or business address at least seventy-two (72) hours in
advance of the meeting. Notice need not be given to any Trustee who attends the
meeting without objecting to the lack of notice or who executes a written waiver
of notice with respect to the meeting. Subject to the requirements of the 1940
Act, the Trustees by majority vote may delegate to any one of their number their
authority to approve particular matters or take particular actions on behalf of
the Trust.
Section 4. Chairman. The Trustees may appoint one of their number to be
Chairman of the Board of Trustees. The Chairman shall preside at all meetings of
the Trustees, shall be responsible for the execution of policies established by
the Trustees and the administration of the Trust, and may also be any officer of
the Trust.
ARTICLE VI
EXPENSES OF THE TRUST
Section 1. Trustee Reimbursement. The Trustees shall be reimbursed from
the Trust estate or the assets belonging to the appropriate Series for their
expenses and disbursements, including, without limitation, fees and expenses of
Trustees who are not Interested Persons of the Trust or its Investment Adviser
or Principal Underwriter; interest expense; taxes; fees and commissions of every
kind; expenses of pricing Trust portfolio securities; expenses of issue,
repurchase, redemption and distribution of Shares and providing services to
Shareholders, including expenses attributable to a program of periodic
repurchases or redemptions; expenses of registering and qualifying the Trust and
its Shares under Federal and State laws and regulations; charges of custodians,
transfer agents and registrars; expenses of preparing and setting up in type
prospectuses and statements of additional information; expenses of printing and
distributing prospectuses and statements of additional information sent to
existing Shareholders; auditing and legal expenses; reports to Shareholders;
expenses of meetings of Shareholders and proxy solicitations therefor; insurance
expense; association membership dues; and such nonrecurring items as may arise,
including litigation to which the Trust is a party and for all losses and
liabilities by them incurred in administering the Trust. Reimbursement for
expenses directly attributable to a Series or Class shall be made from such
Series or Class. The Trustees shall have a lien on the assets belonging to the
appropriate Series or the Trust estate prior to any rights or interests of the
Shareholders thereto for the payment of such expenses, disbursements, losses and
liabilities. This section shall not preclude the Trust from directly paying any
of the aforementioned fees and expenses from the assets of the appropriate
Series or the Trust estate.
ARTICLE VII
INVESTMENT ADVISERS, DISTRIBUTION, AND TRANSFER AGENT
Section 1. Investment Adviser(s). Subject to a vote of a majority of the
outstanding voting securities of all affected Series, the Trustees in their
discretion may, from time to time, enter into one or more investment advisory or
management contract(s) whereby the other party(ies) to such contract(s) shall
undertake to furnish the Trustees such management, investment advisory,
statistical and research facilities and services, and such other facilities and
services, if any, and all upon such terms and conditions as the Trustees may in
their discretion determine. Notwithstanding any provisions of this Declaration
of Trust, the Trustees may authorize the Investment Adviser(s) (subject to such
general or specific instructions as the Trustees may from time to time adopt) to
effect purchases, sales or exchanges of portfolio Securities and other
investment instruments of the Series of the Trust on behalf of the Trustees or
may authorize any officer, agent or Trustee to effect such pur-
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chases, sales or exchanges pursuant to recommendations of the Investment
Adviser(s) (and all without further action by the Trustees). Any such purchases,
sales and exchanges shall be deemed to have been authorized by all of the
Trustees.
The Trustees may, subject to applicable requirements of the 1940 Act,
including those relating to Shareholder approval, authorize an Investment
Adviser to employ one or more sub-advisers from time to time to perform such of
the acts and services of the Investment Adviser, and upon such terms and
conditions, as may be agreed upon between the Investment Adviser and
sub-adviser.
Section 2. Distribution. The Trustees may in their discretion, from time
to time, enter into one or more contract(s) to provide for the distribution of
the Shares through one or more exclusive or non-exclusive distributors,
principal underwriters or otherwise. The contract(s) shall be on such terms and
conditions as the Trustees may in their discretion determine not inconsistent
with the provisions of the 1940 Act and the rules thereunder, as amended from
time to time, of this Article VII, or of the Bylaws.
Section 3. Transfer Agent. The Trustees may in their discretion, from time
to time, enter into a transfer agency and Shareholder service contract whereby
the other party shall undertake to furnish the Trustees and Trust with transfer
agency and Shareholder services including clerical and accounting services. The
contract shall be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Amended and
Restated Declaration of Trust or of the Bylaws, and may provide for the
computation of the Net Asset Value of the Series in accordance herewith. Such
services may be provided by one or more entities.
Section 4. Parties to Contract. Any contract of the character described in
Sections 1, 2 and 3 of this Article VII or in Article IX hereof may be entered
Into with any corporation, firm, partnership, trust, bank or association,
notwithstanding the fact that one or more of the Trustees or officers of the
Trust may be an officer, director, trustee, shareholder, partner, employee,
manager, agent or member of such other party to the contract, and no such
contract shall be invalidated or rendered voidable by reason of the existence of
any such or similar relationship, nor shall any person holding such relationship
be liable merely by reason of such relationship for any loss or expense to the
Trust under or by reason of said contract or accountable for any profit realized
directly or indirectly therefrom. The same person (including a firm,
corporation, partnership, trust, bank or association) may be the other party to
contracts entered into pursuant to Sections 1, 2 and 3 above or Article IX, and
any individual may be financially interested or otherwise affiliated with
persons who are parties to any or all of the contracts mentioned in this Section
4.
Section 5. Provisions and Amendments. Any contract entered into pursuant
to Sections 1 and 2 of this Article VII shall be consistent with and subject to
the requirements of Sections 12 and 15 of the 1940 Act (including any amendments
thereof or other applicable Act of Congress hereafter enacted) with respect to
its continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal thereof. Any contract, entered into
pursuant to Section 1 or Section 2 of this Article VII may be amended as
provided therein and in accordance with applicable law.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have power to vote only
(a) for the election of Trustees as provided in Article IV, Section 2; (b) for
the removal of Trustees as provided in Article IV, Section 2(d); (c) with
respect to any investment advisory or management contract as provided in Article
VII, Section 1; (d) with respect to the amendment of this Declaration of Trust
as provided in Article XII, Section 7; (e) to the same extent as the
shareholders of a Massachusetts business corporation, as to whether or not a
court action, proceeding or claim should be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders; (f) with
respect to any termination or reorganization of the Trust or any Series, to the
extent and as provided in Article XII, Section 4; and (g) with respect to such
additional matters relating to the Trust or its Series as may be required or
authorized by law, by this Amended and Restated Declaration of Trust, by the
Bylaws or by any registration of the Trust or its Shares with the Commission or
any state, or as the Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall be
voted by individual Series or Classes, except (a) when required by the 1940 Act,
Shares shall be voted in the aggregate and not by individual Series or Classes;
and (b) when the Trustees have determined that the matter affects only the
interests of one or more Series or one or more Classes, then only the
Shareholders of such Series or Classes shall be entitled to vote thereon. Each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote, and each fractional Share shall be entitled to a proportionate
fractional vote. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy. Until Shares are issued,
the Trustees may exercise all rights of Shareholders and may take any action
required or permitted by law, this Amended and Restated Declaration of Trust or
the Bylaws, to be taken by Shareholders.
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Section 2. Meetings. Special meetings of the Shareholders or any Series or
Class thereof may be called by the Trustees in their discretion and shall be
called by the Trustees or the President of the Trust upon the written request of
Shareholders owning at least twenty-five percent (25%) (or ten percent (10%) if
the purpose of the meeting is to determine if a Trustee is to be removed from
office) of the outstanding Shares entitled to vote at such meeting. Whenever ten
or more Shareholders meeting the qualifications set forth in Section 16(c) of
the 1940 Act, as the same may be amended from time to time, seek the opportunity
of furnishing materials to the other Shareholders with a view to obtaining
signatures on such a request for a meeting, the Trustees shall comply with the
provisions of said Section 16(c) and any rules or orders thereunder with respect
to providing such Shareholders access to the list of the Shareholders of record
or the mailing of such materials to the Shareholders of record. Shareholders
shall be entitled to at least fifteen (15) days' notice of any meeting.
Section 3. Quorum and Required Vote. Except when a larger quorum is
required by law, by the Bylaws or by this Amended and Restated Declaration of
Trust, a majority of the Shares entitled to vote shall constitute a quorum at a
Shareholders' meeting. When any one or more Series or Class(es) is to vote
separately from the Shares of any other Series or Class, a majority of the
Shares of each such Series or Class entitled to vote shall constitute a quorum
at a Shareholders meeting of that Series or Class. Any meeting of Shareholders
may be adjourned from time to time by a majority of the votes properly cast upon
the question, whether or not a quorum is present, and the meeting may be held as
adjourned within a reasonable time after the date set for the original meeting
without further notice. Except when a larger vote is required by any provision
of this Amended and Restated Declaration of Trust, the Bylaws or by law, when a
quorum is present at any meeting, a majority of the Shares of each Series or
Class voting on the matter shall decide that matter insofar as that Series or
Class is concerned, provided that where any provision of law or of this Amended
and Restated Declaration of Trust permits or requires that the holders of Shares
vote in the aggregate and not as a Series or Class, then a majority of the
Shares voting on any such matter shall decide such matter and a plurality shall
elect a Trustee.
Section 4. Action by Written Consent. Any action taken by Shareholders may
be taken without a meeting if all the Shareholders of the appropriate Series or
Class entitled to vote, or where any provision of law or this Amended and
Restated Declaration of Trust permits or requires that the holders of Shares
vote in the aggregate and not as a Series or Class, if all the Shareholders
entitled to vote thereon, consent to the action in writing and such written
consents are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
ARTICLE IX
CUSTODIAN
Section 1. Appointment and Duties. The Trustees shall at all times employ
an entity having qualifications prescribed by the Commission or by Section 17 of
the 1940 Act and the rules thereunder, as amended from time to time, as
custodian with authority as its agent, but subject to such restrictions,
limitations and other requirements, if any, as may be contained in the Bylaws of
the Trust:
(a) To hold the Securities owned by the Trust and deliver the same
upon written order;
(b) To receive and account for any funds due to the Trust and
deposit the same in its own banking department or elsewhere as the
Trustees may direct; and
(c) To disburse such funds upon orders or vouchers. The Trust may
also employ such custodian as its agent:
(i) to keep the books and accounts of the Trust and furnish
clerical and accounting services; and
(ii) to compute, if authorized to do so by the Trustees, the
Net Asset Value of any Series or Class in accordance with the
provisions hereof.
The Trustees and the custodian shall set the custodian's compensation for its
services to the Trust. If so directed by a vote of a majority of the outstanding
voting securities, the custodian shall deliver and pay over all property of the
Trust held by it as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that any
such sub-custodian shall also be an entity having the qualifications prescribed
by the Commission or by Section 17 of the 1940 Act and the rules thereunder, as
amended from time to time.
Section 2. Central Certificate System. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the Securities owned by the Trust in a system for the
central handling of Securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or
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otherwise in accordance with the 1940 Act, and the rules thereunder, as from
time to time amended, pursuant to which system all Securities of any particular
class or series of any issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping entry without physical
delivery of such Securities provided that all such deposits shall be subject to
withdrawal only upon the order of the Trust.
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions.
(a) The Trustees shall have power, to the fullest extent permitted
by the laws of Massachusetts, at any time, or from time to time, to
declare and cause to be paid to the Shareholders of each Series, from the
assets of their respective Series, dividends or distributions in such
amounts as the Trustees may determine, which dividends or distributions,
at the election of the Trustees, may be payable in Shares of such Series
or Class thereof, in cash, or in cash or Shares at the election of each
Shareholder. All dividends and distributions on Shares of a particular
Series shall be distributed pro rata to the holders of that Series in
proportion to the number of Shares of that Series held by such holders at
the date and time of record established for the payment of such dividends
or distributions, except that such dividends and distributions shall
appropriately reflect expenses allocated to a particular Class of such
Series.
(b) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute pro rata among the
shareholders of each Series, or of a Class thereof, a "stock dividend."
(c) The record date for the determination of Shareholders entitled
to dividends or distributions declared pursuant to (a) and (b) above shall
be fixed by the Trustees as provided in Article XII, Section 3 hereof.
Section 2. Redemptions. In case any Shareholder of record desires to
dispose of his Shares, he may deposit at the office of the transfer agent or
other authorized agent a written request or such other form of request as the
Trustees may from time to time authorize together with the Share certificates,
if any, requesting that the Shares be purchased in accordance with this Section
2; and the Shareholder so requesting shall be entitled to require the Trust, on
behalf of the applicable Series, to purchase, and the Trust or the Principal
Underwriter shall purchase his said Shares, but only at their Net Asset Value
(as described in Section 3 hereof) next determined after the request is deemed
to be received by the Trust, minus any applicable sales charge or redemption or
repurchase fee. Payment for such Shares shall be made in accordance with the
instructions of such Shareholder within seven (7) days after the date upon which
the request is received in proper form, unless otherwise delayed as permitted by
law or order of the Commission. The Trust may require Shareholders to pay a
sales charge to the Trust, the Principal Underwriter or any other person
designated by the Trustees upon redemption or repurchase of Shares of any Series
or Class thereof, in such amount as shall be determined from time to time by the
Trustees. The amount of such sales charge may but need not vary depending on
various factors, including, without limitation, the holding period of the
redeemed or repurchased Shares. The Trustees may also charge a redemption or
repurchase fee in such amount as may be determined from time to time by the
Trustees.
Section 3. Determination of Net Asset Value and Valuation of Portfolio
Assets. The term "Net Asset Value" of a Series of the Trust shall mean that
amount by which the assets of the Series exceed its liabilities, all as
determined by or under the direction of the Trustees. Net Asset Value per Share
shall be determined separately for each Series or Class as frequently as
required under the 1940 Act or other applicable law and at such time or times
during a valuation period as the Trustees may determine, and the value so
determined shall become effective at such time. Such determination shall be made
on a Series-by-Series or Class-by-Class basis, as appropriate (a) by appraising
Securities in the portfolio of the Series at market value, or in the absence of
readily available market quotations, at fair value, both as determined by and
pursuant to methods presented or approved by the Trustees; (b) by appraising all
other assets at their fair value in the best judgment of the Trustees: (c) by
deducting any actual and accrued liabilities or expenses allocated to the Series
or a Class thereof determined in accordance with good accounting practice; and
(d) by dividing the sum by the number of Shares then outstanding; provided,
however, that the Trustees, without Shareholder approval, may alter the method
of appraising portfolio Securities insofar as permitted under the 1940 Act and
the rules, regulations and interpretations thereof promulgated or issued by the
Commission, or insofar as permitted by any order of the Commission applicable to
the Trust or its Series. The Trustees may delegate any of their powers and
duties under this Section 3 with respect to appraisal of assets and liabilities.
Section 4. Suspension of the Right of Redemption. Notwithstanding Section
2 of this Article, the Trustees may declare a suspension of the right of
redemption or postpone the date of payment with respect to Shares of any Series
or Class for the whole or any part of any period (a) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings; (b)
during which trading on the New York Stock Exchange is restricted; (c) during
which an emergency exists as a result of which disposal by the Series of
securities owned by it is not reasonably practicable or it is
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not reasonably practicable for the Series or Class fairly to determine the value
of its net assets; or (d) during any other period when the Commission may for
the protection of Shareholders by order permit suspension of the right of
redemption or postponement of the date of payment on redemption; provided that
applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (b), (c) or (d) exist. Such suspension shall take
effect at such time as the Trustees shall specify, but not later than the close
of business on the business day next following the declaration of suspension,
and thereafter there shall be no right of redemption or payment until the
Trustees shall declare the suspension at an end, except that the suspension
shall terminate in any event on the first business day of the Trust on which
said stock exchange shall have reopened or the period specified in (b) or (c)
shall have expired (as to which in the absence of an official ruling by said
Commission, the determination of the Trustees shall be conclusive). In the case
of a suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the Net Asset Value next
existing after the termination of the suspension.
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Liability.
(a) Except as provided herein or as otherwise required by law, the
Trustees and officers of the Trust shall not be responsible or liable for
any act or omission by them or any other Trustee, or any officer, agent,
employee, Investment Adviser, manager, Principal Underwriter, independent
contractor or custodian of the Trust. Nothing contained herein shall
protect any Trustee or officer against any liability to which he would
otherwise be subject by reason of his willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office.
(b) All persons extending credit to, contracting with or having any
claim against the Trust or a particular Series shall look only to the
assets of the Trust or such Series, as the case may be, for payment under
such credit, contract or claim; and neither the Shareholders nor the
Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, nor any other Series shall be personally liable
therefor.
(c) Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever executed or done by or
on behalf of the Trust, any Series, or the Trustees or any of them in
connection with the Trust shall be conclusively deemed to have been
executed or done only in or with respect to their or his capacity as
Trustees or Trustee, and neither such Trustees or Trustee nor the
Shareholders shall be personally liable thereon. Every note, bond,
contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers or officer shall give notice that the same was
executed or made by them on behalf of the Trust or by them as Trustees or
Trustee or as officers or officer and not individually, and that the
obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and
property of the Trust or the particular Series in question, as the case
may be, but the omission thereof shall not operate to bind any Trustees or
Trustee or officers or officer or Shareholders or Shareholder
individually.
Section 2. Indemnification.
(a) Subject to the exceptions and limitations contained in
subsection (b) below:
(i) every person who is, or has been, a Trustee or officer of
the Trust (including any person who has served at the request of the
Trust as a director, officer or trustee of another organization in
which the Trust has an interest as a shareholder, creditor or
otherwise), hereinafter referred to as a "Covered Person," shall be
indemnified by the Trust or the appropriate Series to the fullest
extent permitted by law against liability and against all expenses
reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party
or otherwise by virtue of such trusteeship, officership,
directorship or employment, and against amounts paid or incurred by
him in the settlement thereof;
(ii) the words "claim," "action," "suit" or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal
or other, including appeals), actual or threatened while in office
or thereafter, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been finally adjudicated by a court or body
before which the proceeding was brought:
(A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
his office; or
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(B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust;
or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office:
(A) by the court or other body approving the settlement;
or
(B) by at least a majority of those Trustees who are
neither interested Persons of the Trust nor are parties to the
matter based upon a review of readily available facts (as
opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to
a full trial-type inquiry);
provided, however, that any Shareholder may, by appropriate legal proceedings,
challenge any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person may now or hereafter
be entitled, shall continue as to a person who has ceased to be a Covered Person
and shall inure to the benefit of the heirs, executors and administrators of
such a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Trustees and officers, and
other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
subsection (a) of this Section 2 may be paid by the applicable Series from time
to time prior to final disposition thereof upon receipt of an undertaking by or
on behalf of such Covered Person that such amount will be paid over by him to
the applicable Series if it is ultimately determined that he is not entitled to
indemnification under this Section 2 provided, however, that either:
(i) such Covered Person shall have provided appropriate security for
such undertaking;
(ii) the Trust is insured against losses arising out of any such
advance payments; or
(iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review
of readily available facts (as opposed to a full trial-type inquiry), that
there is reason to believe that such Covered Person will be found entitled
to indemnification under this Section 2.
Section 3. Shareholders. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his being or having
been a Shareholder and not because of his acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representative or, in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability; however,
there shall be no liability or obligation of the Trust or the Series arising
hereunder to reimburse any Shareholder for taxes paid by reason of such
Shareholder's ownership of Shares or for losses suffered by reason of any
changes in value of any Trust or Series assets. The Series shall, upon request
by the Shareholder, assume the defense of any claim made against the Shareholder
for any act or obligation of the Series and satisfy any judgment thereon.
ARTICLE XII
MISCELLANEOUS
Section 1. Trust Not A Partnership. It is hereby expressly declared that a
trust and not a partnership, joint venture, corporation or joint stock company
is created hereby. No Trustee hereunder shall have any power to bind personally
either the Trust's officers or any Shareholder.
Section 2. Trustees' Good Faith Action, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretion hereunder in good
faith and with reasonable care under the circumstances then prevailing, shall be
binding upon everyone interested. In construing the provisions of this Amended
and Restated Declaration of Trust, there shall be a presumption in favor of the
grant of power and authority to the Trustees. Subject to the provisions of
Article XI, the Trustees shall not be liable for errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Amended and Restated Declaration of
Trust, and, subject to the provisions
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of Article XI, shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. The Trustees shall not be
required to give any bond as such, nor any surety if a bond is obtained.
Section 3. Establishment of Record Dates. The Trustees may close the stock
transfer books of the Trust for a period not exceeding ninety (90) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividends or distributions, or the date for the allotment of rights, or
the date when any change or conversion or exchange of Shares shall go into
effect; or in lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding ninety (90) days preceding the
date of any meeting of Shareholders, or the date for payment of any dividend or
distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any such dividend
or distribution, or to any such allotment of rights, or to exercise the rights
in respect of any such change, conversion or exchange of Shares, and in such
case such Shareholders and only such Shareholders as shall be Shareholders of
record on the date so fixed shall be entitled to such notice of, and to vote at,
such meeting, or to receive payment of such dividend or distribution, or to
receive such allotment or rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any Shares on the books of the Trust after
any such record date fixed as aforesaid.
Section 4. Termination of Trust or Series.
(a) This Trust shall continue without limitation of time, but
subject to the provisions of subsections (b) and (c) of this Section 4.
(b) In accordance with all applicable law and upon the vote of a
majority of the outstanding voting securities of each Series affected by
the matter or, if applicable, the vote of a majority of the outstanding
voting securities of the Trust:
(i) The Trustees may cause the Trust or a Series to be merged
or consolidated with another Series or a trust, partnership,
association or corporation organized under the laws of any state of
the United States, or political subdivision thereof, for an adequate
consideration which may include the assumption of all outstanding
obligations, taxes and other liabilities, accrued or contingent, of
the Trust or any affected Series; and which may include shares of
beneficial interest or stock of such Series, trust, partnership,
association or corporation. Upon making provision for the payment of
all such liabilities, by such assumption or otherwise, the Trustees
shall distribute the remaining proceeds ratably among the holders of
the Shares of the affected Series then outstanding.
(ii) The Trust or any Series or Class may be terminated;
except that the Trustees may terminate the Trust or any Series or
Class by written notice to the affected Shareholders. Upon a
determination to terminate the Trust or any Series or Class, the
Trustees shall, after paying or otherwise providing for all charges,
taxes, expenses and liabilities belonging to the affected Series or
Class (whether due or accrued or anticipated as may be determined by
the Trustees), reduce the remaining assets belonging to the affected
Series or Class to distributable form in cash or shares or other
securities, or any combination thereof, and distribute the proceeds
to the Shareholders ratably according to the number of Shares held
by the several Shareholders on the date of termination. However, the
payment to any particular Class within a Series may be reduced by
any fees, expenses or charges allocated to that Class.
(c) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in subsection (b), the Trust or any
affected Series shall terminate and the Trustees shall be discharged of
any and all further liabilities and duties with respect thereto and the
right, title and interest of all parties therein shall be cancelled and
discharged.
Section 5. Filing of Copies, References, Headings. The original or a copy
of this Amended and Restated Declaration of Trust and of each amendment hereto
shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this Amended and Restated Declaration of Trust and of
each amendment hereto shall be filed by the Trustees with the Secretary of the
Commonwealth of Massachusetts and the Boston City Clerk, as well as any other
governmental office where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an of officer or Trustee of
the Trust as to whether or not any such amendments have been made and as to any
matters in connection with the Trust hereunder, and with the same effect as if
it were the original, may rely on a copy certified by an officer or Trustee of
the Trust to be a copy of this Amended and Restated Declaration of Trust or of
any such amendments. In this Amended and Restated Declaration of Trust or in any
such amendments, references to this instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer to this instrument,
as amended from time to time.
The masculine gender shall include the feminine and neuter genders.
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Headings are placed herein for convenience of reference only and in case
of any conflict, the text of this instrument, rather than the headings, shall
control.
This Amended and Restated Declaration of Trust may be executed in any
number of counterparts, each of which shall be deemed an original.
Section 6. Applicable Law. The Trust set forth in this instrument is
created under and is to be governed by and construed and administered according
to the laws of the Commonwealth of Massachusetts. The Trust shall be of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 7. Amendments. If authorized by vote of the Trustees and a vote of
a majority of the outstanding voting securities, or by any larger vote which may
be required by applicable law or this Amended and Restated Declaration of Trust
in any particular case (the "Required Majority"), the Trustees shall amend or
otherwise supplement this instrument; provided, however, that an amendment that
shall affect the Shareholders of one or more Series (or one or more Classes),
but not the Shareholders of all outstanding Series (or Classes), shall be
authorized by vote of the Required Majority of each such Series (or Class), and
no vote of a Series (or Class) not affected shall be required. Copies of any
amendments to this Amended and Restated Declaration of Trust shall be filed as
specified in Section 5 of this Article XII. Amendments having the purpose of
changing the name of the Trust or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any provision which is
defective or inconsistent with the 1940 Act or with the requirements of the
Internal Revenue Code, as amended (and the regulations thereunder), with respect
to obtaining the most favorable treatment thereunder available to regulated
investment companies shall not require authorization by Shareholder vote.
A restatement of this instrument, integrating into a single instrument all
of the provisions which are then in effect and operative may be executed from
time to time by a majority of the Trustees and shall be effective upon filing as
specified in such Section 5.
Section 8. Registered Agent. The Registered Agent of the Trust within the
Commonwealth of Massachusetts for service of process, and the principal place of
business of the Trust within the Commonwealth of Massachusetts, shall be CT
Corporation System, 2 Oliver Street, Boston, Massachusetts 02109.
Section 9. Fiscal Year. The fiscal year of the Trust shall be the calendar
year, provided, however, that the Trustees may, without Shareholder approval,
change the fiscal year of the Trust.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have executed this instrument this 8th day of January, 1993.
/s/ John C. Angle
- --------------------------------
John C. Angle
/s/ George T. Conklin, Jr.,
- --------------------------------
George T. Conklin, Jr.
/s/ Frank J. Fabozzi
- --------------------------------
Frank J. Fabozzi
/s/ Arthur V. Ferrara
- --------------------------------
Arthur V. Ferrara
/s/ Leo R. Futia
- --------------------------------
Leo R. Futia
/s/ William W. Hewitt, Jr.
- --------------------------------
William W. Hewitt, Jr.
/s/ Sidney I. Litzman
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Sidney I. Litzman
/s/ Gerald E. Mills
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Gerald E. Mills
/s/ Robert G. Smith
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Robert G. Smith
14
BYLAWS
OF
THE PARK AVENUE PORTFOLIO
These Bylaws are made and adopted pursuant to the Amended and Restated
Declaration of Trust establishing THE PARK AVENUE PORTFOLIO (the "Trust"), as
from time to time amended, restated or modified (the "Declaration") and at all
times subject thereto.
ARTICLE I
Shareholders Meetings
1. All meetings of the shareholders shall be held at such place within, or
without, the Commonwealth of Massachusetts as may be determined by the Board of
Trustees and designated in the notice of said meeting.
2. Special meetings of shareholders: (a) may be called by the Trustees in
their discretion and (b) shall be called by the President or by the Trustees
upon the written request of shareholders owning at least twenty-five percent
(25%) (or ten percent (10%) if the purpose of the meeting is to determine if a
Trustee is to be removed from office) of the outstanding shares entitled to
vote. Shareholders shall be entitled to at least fifteen (15) days' notice of
any meeting.
3. Written notice of every meeting of the shareholders, stating the time,
place and purpose or purposes for which the meeting is called, shall be given or
caused to be given by the Secretary to each shareholder entitled to vote thereat
and to any shareholder entitled by law to such notice. Such notice shall be
given to each shareholder by mailing the same, postage prepaid, to the address
of the shareholder as it appears on the books of the Trust not less than fifteen
(15) nor more than ninety (90) days before the timed fixed for such meeting. A
certificate or affidavit by the Secretary or an Assistant Secretary or a
transfer agent shall be prima facie evidence of the giving of any notice
required by the Declaration.
4. When a quorum, as stated in the Declaration, is present at any meeting,
the vote of holders of a majority of the shares having the right to vote
thereat, present in person or represented by proxy, shall determine any question
brought before such meeting unless the question is one upon which by express
provision of the statutes, the Declaration or these Bylaws, a different vote is
required in which case such express provision shall control.
<PAGE>
5. At any meeting of the shareholders every shareholder having the right
to vote shall be entitled to vote in person or by proxy appointed by an
instrument in writing, subscribed by such shareholder and bearing a date not
more than eleven (11) months prior to said meeting, which instrument shall be
filed with the Secretary of the meeting before being voted. Each shareholder
shall have one vote or fraction thereof for each share or fraction thereof held.
Unless otherwise specifically limited by their terms, such proxies shall entitle
the holders thereof to vote at any adjournment of such meeting. A proxy with
respect to shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to the exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them.
At all meetings of shareholders, unless the voting is conducted by inspectors,
all questions relating to the qualifications of voters, the validity of proxies
and the acceptance or rejection of votes shall be decided by the chairman of the
meeting.
6. The Board of Trustees may fix a record date not more than ninety (90)
nor less than fifteen (15) days prior to the date for which a meeting is called,
as of which the shareholders entitled to vote at such meeting, or any
adjournment thereof, shall be determined, notwithstanding any transfer or the
issuance of any share occurring after such record date.
ARTICLE II
Trustees Meetings
1. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be adjourned without further notice.
2. Meetings of the Trustees may be called orally or in writing by the
Chairman of the Board of Trustees, by any two (2) other Trustees, or by the
President of the Trust, if he is a Trustee.
3. Notice of the time, date and place of all meetings of the Trustees
shall be given by the party calling the meeting to each Trustee by telephone or
telegram at least twenty-four (24) hours in advance of the meeting or by written
notice mailed to his home or business address at least seventy-two (72) hours in
advance of the meeting. Notice of the meeting need not be given to any Trustee
if a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him.
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<PAGE>
4. Subject to the requirements of the Investment Company Act of 1940, as
amended (the "1940 Act"), the Trustees by majority vote may delegate to any one
of their number the authority to approve particular matters or to take
particular actions on behalf of the Trust.
ARTICLE III
Committees
The Board of Trustees may, by resolution or resolutions passed by a
majority of the entire Board, organize one or more committees or any advisory
boards, to consist of not less than two (2) nor more than five (5) members, and
to delegate to such committees and boards such authorities and duties as the
Trustees deem desirable and as is consistent with the Declaration, these Bylaws
and applicable law. The committees and boards shall keep regular minutes of
their proceedings and report the same to the Board of Trustees when required.
The members of the committees and boards shall be compensated in such manner as
the Trustees may determine.
ARTICLE IV
Officers
1. The officers of the Trust shall be elected by the Board of Trustees at
the first meeting of each newly elected Board. The Board of Trustees may elect
one of its own members as Chairman of the Board, and shall elect a President,
Secretary and Treasurer. The Board of Trustees may also elect one or more Vice
Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers. Two or more offices, when consistent, may be held by the same
person, except that any person holding the office of President shall not hold
the office of Vice President. The President of the Trust need not be a Trustee.
All other officers may be, but need not be, Trustees of the Trust.
2. The Board of Trustees may elect other officers and appoint agents and
representatives of the Trust as shall be deemed necessary, with such powers, for
such terms and to perform such acts and duties on behalf of the Trust as the
Board of Trustees may see fit to the extent authorized or permitted by law, the
Declaration and these Bylaws.
3. The Chairman of the Board, if one shall be elected, shall preside at
all meetings of the shareholders and of the Board of Trustees, and shall perform
such other duties as the Board of Trustees may from time to time prescribe.
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<PAGE>
4. The President, in the absence of the Chairman of the Board, or if a
Chairman is not elected, shall preside at all meetings of the Shareholders and
the Board of Trustees. The President shall have power to sign all certificates
for shares of stock, if any. The President shall perform such other duties as
the Board of Trustees shall from time to time prescribe.
5. The Vice President(s), in the order of seniority or as designated by
the Board of Trustees, shall, in the absence or disability of the President,
perform the duties and exercise the powers of the President, and shall perform
such other duties as the Board of Trustees may from time to time prescribe.
6. The Secretary shall record all votes and proceedings of meetings of the
shareholders and of the Board of Trustees in the Trust records. He shall give,
or cause to be given, notice of all meetings of the shareholders and meetings of
the Board of Trustees when notice thereof is required. The Secretary may preside
at any meeting of the shareholders at which the Chairman of the Board of
Trustees, the President and Vice President(s) are absent, or if such authority
has been delegated to the Secretary by such persons. The Secretary shall have
custody of the seal of the Trust and may affix the same to any instrument
requiring the seal of the Trust and attest to the same with his signature. He
shall have power to sign all certificates for shares of stock and shall perform
such other duties as the Board of Trustees may from time to time prescribe.
7. The Assistant Secretary(s) in order of seniority or as directed by the
Board of Trustees shall, in the absence or disability of the Secretary, perform
the duties and exercise the powers of the Secretary and shall perform such other
duties as the Board of Trustees may prescribe.
8. The Treasurer shall deliver all funds and securities of the Trust which
may come into his hands to such bank or trust company as the Board of Trustees
may designate as custodian. He shall keep such record of the financial
transactions of the Trust as the Board of Trustees shall prescribe. The
Treasurer shall have power to sign all certificates for shares of stock and
shall perform such other duties as the Board of Trustees may from time to time
prescribe.
9. The Assistant Treasurer(s) in order of seniority or as directed by the
Board of Trustees, shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer and shall perform such other
duties as the Board of Trustees may prescribe.
10. The officers of the Trust shall hold office until their successors are
elected and qualified. Any officer may resign at any time by written instrument
signed by him and delivered to
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<PAGE>
such President or the Secretary or to a meeting of the Trustees. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time. Any officer elected or appointed by the Board of Trustees may
be removed at any time with or without cause by the Board of Trustees. If the
office of any officer shall become vacant for any reason, the vacancy may be
filled by the Board of Trustees.
11. Subject to the other provisions of these Bylaws, each officer shall
have, in addition to the duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly incident to the office
occupied by him as if the Trust were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate.
ARTICLE V
Stock Certificate
1. No certificates certifying the ownership of shares shall be issued
except as the Trustees may authorize. In the event that the Trustees authorize
the issuance of share certificates, such certificates of stock of the Trust
shall be in the form prescribed by the Board of Trustees and shall be signed by
the President, or a Vice President and the Secretary or Treasurer or an
Assistant Secretary or an Assistant Treasurer. If the Board of Trustees shall
require all certificates for shares of stock to be signed (1) by a transfer
agent or an assistant transfer agent, or (2) by a transfer clerk, acting on
behalf of the Trust, the signature of any officer of the Trust thereon and the
seal of the Trust thereon may be facsimiles. In lieu of issuing certificates for
shares, the Trustees or the transfer or shareholder services agent may either
issue receipts therefor or may keep accounts upon the books of the Trust for the
record holders of such shares, who shall in either case be deemed, for all
purposes hereunder, to be the holders of certificates for such shares as if they
had accepted such certificates and shall be held to have expressly assented and
agreed to the terms hereof.
2. In the event any officer of the Trust authorized to sign certificates
for shares of stock of the Trust shall die or cease to hold office before such
certificate is issued, the Board of Trustees may, by resolution, adopt and
permit to be issued, when duly counter-signed, certificates bearing the
signature, either real or facsimile, of such officer.
3. The Board of Trustees may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
Trust alleged to have been lost, mutilated or destroyed upon such terms and upon
such conditions as it may prescribe.
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<PAGE>
4. The Trustees may at any time discontinue the issuance of share
certificates and may, by written notice to each shareholder, require the
surrender of share certificates to the Trust for cancellation. Such surrender
and cancellation shall not affect the ownership of shares in the Trust.
ARTICLE VI
Insurance
The Trust may purchase and maintain insurance on behalf of any person who
is or was a Trustee, officer, employee or agent of the Trust, or is or was
serving at the request of the Trust as a Trustee, officer, employee or agent of
another corporation, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him, in any such capacity or
arising out of his status as such, whether or not the Trust would have the power
to indemnify him against such liability.
ARTICLE VII
Reports to Shareholders
The Trustees shall at least semiannually submit to the shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE VIII
Miscellaneous
1. Independent Public Accountant. An independent public accountant shall
be selected annually, pursuant to the 1940 Act.
2. Fiscal Year. The fiscal year of the Trust shall be the calendar year,
provided, however, that the Board of Trustees may, without Shareholder approval,
change the fiscal year of the Trust.
3. Seal. The seal of the Trust shall, subject to alteration by the Board
of Trustees, consist of a flat-faced circular die, upon which shall be engraved
or cut the word "Massachusetts," together with the name of the Trust and the
year of its organization, but unless otherwise required by the Trustees, the
seal shall not be necessary to be placed on, and its absence shall not impair
the validity of, any document, instrument, or other paper executed and delivered
by or on behalf of the Trust.
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<PAGE>
4. Depositories. The assets of the Trust shall be deposited in such
depositories as the Trustees shall designate in accordance with the provisions
of the Declaration, and shall be drawn out on checks, drafts or other orders
signed by such officers(s) or agent(s) (including the Adviser), as the Trustees
may from time to time authorize.
5. Execution of Papers. All contracts and other instruments shall be
executed on behalf of the Trust by such officer(s) or agent(s), as provided in
the Declaration or these Bylaws or as the Trustees may from time to time by
resolution provide.
6. Reports. The Trustees and officers shall render reports at the time and
in the manner required by the Declaration of Trust or any applicable law.
Officers shall render such additional reports as they may deem desirable or as
may from time to time be required by the Trustees.
7. Definitions. The terms used herein have the same definitions as
specified in the Declaration.
ARTICLE IX
Amendments
In accordance with the Declaration, the Trustees have the power to alter,
amend or repeal the Bylaws or adopt new Bylaws at any time. Action by the
Trustees with respect to the Bylaws shall be taken by an affirmative vote of a
majority of the Trustees. The Trustees shall in no event adopt Bylaws which are
in conflict with the Declaration, and any apparent inconsistency shall be
construed in favor of the related provisions in the Declaration.
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Exhibit 99.5(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of January, 1993 by and between THE PARK
AVENUE PORTFOLIO, a Massachusetts business trust (the "Trust"), and GUARDIAN
INVESTOR SERVICES CORPORATION (the "Adviser"), a New York corporation and wholly
owned subsidiary of The Guardian Insurance & Annuity Company, Inc., which is, in
turn, a wholly owned subsidiary of The Guardian Life Insurance Company of
America ("Guardian Life").
WHEREAS, the Trust is engaged in business as an open-end, diversified,
management investment company and is registered as such under the investment
Company Act of 1940, as amended (the "Investment Company Act"); and
WHEREAS, the Trust offers for public sale separate series of shares of
beneficial interest which correspond to distinct portfolios of investments; and
WHEREAS, the Adviser is engaged, among other things, in the business of
providing investment advice to investment companies and is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Trust desires to retain the Adviser to render investment
advisory and management services to the Trust and those of its series which are
named in the appendices to this Investment Advisory Agreement, as described
herein (the "Series) in the manner and pursuant to the terms and conditions
hereinafter set forth; and
WHEREAS, the Adviser desires to be retained to perform services on said
terms and conditions.
NOW, THEREFORE, the parties agree as follows:
1. The Trust hereby employs the Adviser to furnish investment research and
advice to the Trust and to manage the investment and reinvestment of the assets
of each Series, and to perform the other services set forth herein subject to
the supervision of the Board of Trustees of the Trust for the period and on the
terms set forth herein. The Adviser hereby accepts such employment and agrees
during such period, at its own expense, to render the services and to assume the
obligations set forth herein for the compensation set forth in the appendices
which are attached hereto and made a part of this Investment Advisory Agreement
(the "Fee Appendices").
2. Any investment program undertaken by the Adviser pursuant to this
Agreement and any other activities undertaken by the Adviser on behalf of the
Trust and each Series shall at all times be subject to the directives of the
Board of Trustees of the Trust, and any duly constituted committee thereof or
any officer of the Trust acting pursuant to like authority.
3. In carrying out its obligations to manage the investment and
reinvestment of the assets of each Series, the Adviser shall:
<PAGE>
a. Obtain and evaluate pertinent economic, statistical and financial
data and other information relevant to the investment polices of each
Series, including information about the economy generally and individual
companies or industries, as the Adviser deems necessary or useful to
discharge its duties hereunder.
b. Manage the assets of each Series in a manner consistent with the
investment objectives, policies and restrictions of such Series;
c. Regularly furnish to the Board of Trustees of the Trust
recommendations with respect to an overall investment program for each
Series which may be approved, modified or rejected by the Board; take such
steps as necessary to implement the investment programs approved by the
Board; and regularly report to the Board on the implementation of said
investment programs and the Adviser's activities in connection with the
administration of the Trust and each Series, including preparing
statistical and other reports as the Board may request from time to time;
d. Determine the securities to be purchased, sold or otherwise
disposed of by each Series and the timing of such purchases, sales and
dispositions; and take such further action, including the placing of
purchase and sale orders on behalf of each Series, as the Adviser shall
deem necessary or appropriate; and
e. Maintain the records and books of account with respect to
transactions relating to the Trust and each Series (other than those
maintained by the Trust's transfer agent, registrar, custodian or other
agents); preserve such records and books as required by the Investment
Company Act and the Investment Advisers Act of 1940; and supervise the
furnishing of services to the Trust and each Series.
4. The Adviser shall advance the costs of organizing each Series, and bear
the costs of rendering the investment management and supervisory services to be
performed by it under this Agreement.
5. The Adviser shall, at its own expense, maintain such staff and employ
or retain such personnel and consult with such other persons as it shall from
time to time determine to be necessary or useful to the performance of its
obligations under this Agreement. The Adviser may delegate some or all of its
responsibilities hereunder to sub-advisers as permitted and in the manner
prescribed by the Trust's Amended and Restated Declaration of Trust. The Adviser
shall, at its own expense pay the fees and expenses, if any, of the Trustees of
the Trust who are deemed to be interested persons of the Trust but not those of
the Trustees who are also officers or employees of Guardian Life or any of its
subsidiaries.
6. The Adviser shall furnish, at its own expenses, such office space,
facilities and equipment and such clerical help, administrative and bookkeeping
services as the Trust and each Series shall reasonably require in the conduct of
its business.
<PAGE>
7. For the services to be rendered, the facilities furnished and the
expenses assumed by the Adviser with respect to each Series, the Trust shall pay
to the Adviser from the assets of each such Series a fee in an amount stated in
the Fee Appendix which names such Series. Each Fee Appendix is made a part of
this investment Advisory Agreement.
Compensation under this Agreement, as stated in the Fee Appendices for all
Series, shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid quarterly, or at such other intervals agreed to by the
parties. If this Agreement becomes effective with respect to a Series subsequent
to the first day of a quarter or shall terminate before the last day of a
quarter, compensation for that part of the quarter during which this Agreement
is in effect shall be prorated in a manner consistent with the calculation of
the fees as set forth in the Fee Appendix for such Series. Payment of the
Advisers compensation for services to a Series shall be made as promptly as
possible after completion of the computations contemplated by Paragraph 9
hereof.
8. Each Series shall pay all expenses not expressly assumed by the Adviser
which may be incurred in connection with such Series' operations and the
offering of its shares. Such expenses will include, but are not limited to, the
following (or each Series' proportionate share of the following):
a. Charges and expenses of any custodian, sub-custodian, or
depository appointed by the Trust for the safekeeping of the cash,
portfolio securities and other property of the Trust and each Series and
for keeping any books of account;
b. Charges and expenses of any shareholder servicing agent, transfer
or dividend disbursing agent, any registrar or any agent appointed by the
Trust for its Series, and any outside service used for the pricing of any
assets held by any Series or the calculation of net asset value of the
shares of any Series;
c. Brokerage commissions and dealer markups and other costs in
connection with the purchase or sale of securities;
d. Taxes, including securities issuance and transfer taxes, and any
other fees payable to federal, state or other governmental agencies;
e. Insurance premiums on property and personnel (including officers
and Trustees) of the Trust which Inure to its benefit;
f. Compensation and expenses of Trustees or members of any advisory
board or committee of the Board of Trustees who are not deemed to be
interested persons of the Trust;
g. Legal fees, disbursements and filing fees in connection with the
registration or qualification of the Trust and of the shares of beneficial
interest issued by the Trust with respect to each Series under federal and
state securities laws;
<PAGE>
h. All expenses associated with preparing registration statements
and preparing, printing and mailing prospectuses, shareholder reports,
proxy statements and other shareholder communications to current
shareholders;
i. All expenses of meetings of shareholders of the Trust or any
Series called by the Board of Trustees;
j. All expenses of regular or special meetings of the Board of
Trustees or of any advisory board or committee of the Board of Trustees;
k. Interest payable on borrowings by any Series;
l. All expenses incident to the payment of any dividend,
distribution, withdrawal or redemption in connection with the Trust or any
Series;
m. Fees and expenses of independent accountants to the Trust;
n. Charges and expenses of legal counsel, including counsel, if any,
to the Trustees of the Trust who are not interested persons of the Trust;
o. All expenses attributable to underwriting and distributing shares
of beneficial interest issued by the Trust with respect to each Series;
p. Dues or other fees in connection with membership in the
investment Company institute or other similar organizations;
q. Any extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification
related thereto); and
r. All other charges and expenses relating to the operation of the
Trust or any of its Series unless otherwise explicitly provided herein.
9. In the event the operating expenses of the Trust or any Series
(including amounts payable to the Adviser pursuant to Paragraph 7 hereof), for
any fiscal year ending on a date on which this Investment Advisory Agreement is
in effect, exceed the expense limitations imposed by state securities laws or
regulations thereunder, the Adviser shall reduce the management fee payable by
such Series to the extent of such excess, and, if required pursuant to any such
laws or regulations, also reimburse such Series or the Trust for annual
operating expenses which are paid or payable and which exceed any expense
limitation that may be applicable. Excluded from such annual operating expenses
shall be the amount of any interest, taxes, brokerage commissions, distribution
fees, extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto) and
any other expenses which may be excluded under the applicable state securities
law. Such reduction, if any, shall be computed and accrued daily, shall be
settled on a quarterly basis, and shall be based upon the expense limitations
applicable as of the end of the last business day of the quarter. Should two or
more expense limitations be applicable as of the end of the last business day of
the quarter, the expense limitation which results in the largest reduction in
the Advisers fee shall be considered operative for purposes of this Paragraph 9.
<PAGE>
10. The Adviser will use its best efforts in the supervision and
management of the investment activities of each Series, and shall not be liable
to the Trust, any Series, or any investor: for any error of judgment or mistake
of law; for any act or omission by the Adviser; or for any losses sustained by
the Trust, any Series or any investor, unless said error, mistake, act or
omission by the Adviser is the result of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations hereunder.
11. This Agreement shall take effect on the date written above, provided
that, with respect to any Series, this Agreement shall not take effect unless it
has first been approved (a) by a vote of a majority of the Trustees, including a
majority of those Trustees who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by vote of a majority of that Series'
outstanding voting securities. Unless sooner terminated as provided herein, this
Agreement shall continue in effect until December 31, 1994. Thereafter, if not
terminated, this Agreement shall continue from year to year, provided that such
continuance is approved at least annually by a vote of a majority of the
Trustees, including a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval, or, with respect to any given
Series, by vote of a majority of the outstanding voting securities of such
Series.
12. Termination of this Agreement, as detailed in sections (a) and (b) of
this Paragraph 12 with respect to any given Series, shall in no way affect the
continued validity of this Agreement or the performance thereunder with respect
to any other Series.
a. The Trust, or any Series, may, at any time and without the
payment of any penalty, terminate this Agreement with respect to such
Series upon sixty (60) days written notice to the Adviser, either by
majority vote of the Board of Trustees of the Trust or by the vote of a
majority of the outstanding voting securities of the affected Series.
b. The Adviser may terminate this Agreement with respect to the
Trust or any Series without payment of penalty upon sixty (60) days
written notice to the Trust or the affected Series.
c. This Agreement shall immediately terminate in the event of its
assignment unless such automatic termination shall be prevented by an
exemptive order or rule of the Securities and Exchange Commission.
13. This Agreement may be amended by mutual consent, but no amendment
shall be effective as to any given Series until it is approved by vote of a
majority of such Series' outstanding voting securities, and by the vote of a
majority of the members of the Board of Trustees, including a majority of the
Trustees who are not deemed to be interested persons of the Trust
<PAGE>
14. Nothing contained in this Agreement shall prevent the Adviser or any
affiliated person of the Adviser from rendering investment advisory and
corporate administrative services to other investment companies, or from acting
as investment adviser or manager to other persons, firms or corporations, or
from engaging in other business activities.
15. The Adviser and the Trust each agree that the words "The Guardian,"
which may comprise a component of a Series' name, is a property right of
Guardian Life. In this regard, the Trust on behalf of itself and each Series
agrees and consents to the following: (a) the words "The Guardian" will only be
used as a component of a name and for no other purpose; (b) the Trust will not
purport to grant to any third party the right to use the words "The Guardian"
for any purpose; (c) Guardian Life, the Adviser or any other duly authorized
affiliate of Guardian Life may use or grant to others the right to use the words
"The Guardian," or any combination or abbreviation thereof, as all or a portion
of a corporate or business name or for any commercial purpose, including a grant
of such right to any other investment company; and (d) upon the termination of
any investment advisory agreement into which the Adviser and the Trust may
enter, or upon the termination of any such investment advisory agreement with
respect to a Series of the Trust, or upon termination of the affiliation of the
Adviser with Guardian Life, the Trust and any affected Series of the Trust shall
upon request by the Adviser or Guardian Life, cease to use the words "The
Guardian" as a name component and shall not use such words or any combination
thereof, as part of a name or for any other commercial purpose, and shall take
any and all actions which the Adviser or Guardian Life may request to effect the
foregoing and to reconvey to the Adviser or Guardian Life any and all rights to
the words "The Guardian."
16. All persons extending credit to, contracting with or having any claim
against the Trust, its Series, or the Trustees shall look only to the assets of
the Trust or the Series, as the case may be, for payment under such credit,
contract or claim. Neither the shareholders nor the Trustees, nor any of their
agents, whether past, present or future, shall be personally liable for payment
of any such credit, contract or claim. The obligations of the Trust and each
Series hereunder may be satisfied only by resort to the assets of the Trust as
divided among the Series.
17. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Investment Company Act,
except as to Paragraph 16 which shall be construed in accordance with the laws
of the Commonwealth of Massachusetts. To the extent the applicable law of the
State of New York or the Commonwealth of Massachusetts, or any of the provisions
herein, conflict with the applicable provisions of the Investment Company Act,
the latter shall control.
18. If any provisions of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors. As
used in this Agreement, the terms majority of the outstanding voting
securities," "interested person," "assign-"
<PAGE>
ment," "broker," "dealer," "investment adviser," "net assets," "prospectus,"
"sale," "sell" and "security" shall have the same meaning as such terms have in
the Investment Company Act, subject to such exemptions as may be granted by the
Securities and Exchange Commission by any rule, regulation or order. Where the
effect of a requirement of the Investment Company Act which is reflected in any
provision of this Agreement is relaxed by a rule, regulation or order of the
Securities and Exchange Commission, whether of special or general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postage prepaid, to the other party. Until
further notice, the address of both parties is 201 Park Avenue South, New York,
New York 10003.
IN WITNESS WHEREOF, the Trust and the Adviser have caused this Agreement
to be executed on their behalf by and through their duly authorized officers in
the City and State of New York as of the date first written above.
THE PARK AVENUE PORTFOLIO
Attest:
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- --------------------- ---------------------
Secretary President
GUARDIAN INVESTOR
SERVICES CORPORATION
Attest:
/s/ [ILLEGIBLE] By /s/ John M. Smith
- --------------------- ---------------------
Secretary President
<PAGE>
FEE APPENDIX
TO THE
INVESTMENT ADVISORY AGREEMENT
Between
THE PARK AVENUE PORTFOLIO ("Trust")
and
GUARDIAN INVESTOR SERVICES CORPORATION ("GISC")
which is Dated as of January 1, 1993
1. For the services provided and the expenses assumed pursuant to the
captioned Investment Advisory Agreement, The Guardian Park Avenue Fund series of
the Trust (the "Fund") will pay to GISC a fee, computed daily and paid quarterly
(or at such other intervals as the parties may from time to time agree), at the
annual rate of 0.50% of the Fund's average daily net assets. For this purpose,
the value of the Fund's average daily net assets shall be computed in the manner
specified in the Trust's Amended and Restated Declaration of Trust.
2. The captioned Investment Advisory Agreement as supplemented by this Fee
Appendix, shall not take effect with respect to the Fund unless it has first
been approved (i) by a vote of the Trustees of the Trust, including a majority
of those Trustees of the Trust who are not parties to the Investment Advisory
Agreement or interested persons of any such persons, cast in person at a meeting
called for the purpose of such approval and (ii) by vote of a majority of the
Fund's outstanding voting securities.
3. This Fee Appendix shall be attached to and made a part of the captioned
Investment Advisory Agreement and is subject to all of its terms and conditions.
IN WITNESS WHEREOF, the parties hereto have caused this Fee Appendix to be
executed by their designated officers as of February 1, 1993.
THE PARK PORTFOLIO on behalf of
THE GUARDIAN PARK AVENUE FUND
By: /s/ [ILLEGIBLE]
----------------------------------
GUARDIAN INVESTOR SERVICES CORPORATION
By: /s/ John M. Smith
----------------------------------
<PAGE>
FEE APPENDIX
TO THE
INVESTMENT ADVISORY AGREEMENT
Between
THE PARK AVENUE PORTFOLIO ("Trust")
and
GUARDIAN INVESTOR SERVICES CORPORATION ("GISC")
which is Dated as of January 1, 1993
1. For the services provided and the expenses assumed pursuant to the
captioned Investment Advisory Agreement, The Guardian U.S. Government Securities
Fund series of the Trust (the "Fund") will pay to GISC a fee, computed daily and
paid quarterly (or at such other intervals as the parties may from time to time
agree), at the annual rate of 0.50% of the Fund's average daily net assets. For
this purpose, the value of the Fund's average daily net assets shall be computed
in the manner specified in the Trust's Amended and Restated Declaration of
Trust.
2. The captioned Investment Advisory Agreement as supplemented by this Fee
Appendix, shall not take effect with respect to the Fund unless it has first
been approved (i) by a vote of the Trustees of the Trust, including a majority
of those Trustees of the Trust who are not parties to the Investment Advisory
Agreement or interested persons of any such persons, cast in person at a meeting
called for the purpose of such approval and (ii) by vote of a majority of the
Fund's outstanding voting securities.
3. This Fee Appendix shall be attached to and made a part of the captioned
Investment Advisory Agreement and is subject to all of its terms and conditions.
IN WITNESS WHEREOF, the parties hereto have caused this Fee Appendix to be
executed by their designated officers as of January 1, 1993.
THE PARK PORTFOLIO on behalf of
THE GUARDIAN U.S. GOVERNMENT SECURITIES FUND
By: /s/ [ILLEGIBLE]
----------------------------------
GUARDIAN INVESTOR SERVICES CORPORATION
By: /s/ John M. Smith
----------------------------------
<PAGE>
FEE APPENDIX
TO THE
INVESTMENT ADVISORY AGREEMENT
Between
THE PARK AVENUE PORTFOLIO ("Trust")
and
GUARDIAN INVESTOR SERVICES CORPORATION ("GISC")
which is Dated as of January 1, 1993
1. For the services provided and the expenses assumed pursuant to the
captioned Investment Advisory Agreement, The Guardian Cash Management Fund
series of the Trust (the "Fund") will pay to GISC a fee, computed daily and paid
quarterly (or at such other intervals as the parties may from time to time
agree), at the annual rate of 0.50% of the Fund's average daily net assets. For
this purpose, the value of the Fund's average daily net assets shall be computed
in the manner specified in the Trust's Amended and Restated Declaration of
Trust.
2. The captioned Investment Advisory Agreement as supplemented by this Fee
Appendix, shall not take effect with respect to the Fund unless it has first
been approved (i) by a vote of the Trustees of the Trust, including a majority
of those Trustees of the Trust who are not parties to the Investment Advisory
Agreement or interested persons of any such persons, cast in person at a meeting
called for the purpose of such approval and (ii) by vote of a majority of the
Fund's outstanding voting securities.
3. This Fee Appendix shall be attached to and made a part of the captioned
Investment Advisory Agreement and is subject to all of its terms and conditions.
IN WITNESS WHEREOF, the parties hereto have caused this Fee Appendix to be
executed by their designated officers as of February 1, 1993.
THE PARK PORTFOLIO on behalf of
THE GUARDIAN CASH MANAGEMENT FUND
By: /s/ [ILLEGIBLE]
----------------------------------
GUARDIAN INVESTOR SERVICES CORPORATION
By: /s/ John M. Smith
----------------------------------
<PAGE>
FEE APPENDIX
TO THE
INVESTMENT ADVISORY AGREEMENT
Between
THE PARK AVENUE PORTFOLIO ("Trust")
and
GUARDIAN INVESTOR SERVICES CORPORATION ("GISC")
which is Dated as of January 1, 1993
1. For the services provided and the expenses assumed pursuant to the
captioned Investment Advisory Agreement, The Guardian Investment Quality Bond
Fund series of the Trust (the "Fund") will pay to GISC a fee, computed daily and
paid quarterly (or at such other intervals as the parties may from time to time
agree), at the annual rate of 0.50% of the Fund's average daily net assets. For
this purpose, the value of the Fund's average daily net assets shall be computed
in the manner specified in the Trust's Amended and Restated Declaration of
Trust.
2. The captioned Investment Advisory Agreement as supplemented by this Fee
Appendix, shall not take effect with respect to the Fund unless it has first
been approved (i) by a vote of the Trustees of the Trust, including a majority
of those Trustees of the Trust who are not parties to the Investment Advisory
Agreement or interested persons of any such persons, cast in person at a meeting
called for the purpose of such approval and (ii) by vote of a majority of the
Fund's outstanding voting securities.
3. This Fee Appendix shall be attached to and made a part of the captioned
Investment Advisory Agreement and is subject to all of its terms and conditions.
IN WITNESS WHEREOF, the parties hereto have caused this Fee Appendix to be
executed by their designated officers as of February 1, 1993.
THE PARK PORTFOLIO on behalf of
THE GUARDIAN INVESTMENT QUALITY BOND FUND
By: /s/ [ILLEGIBLE]
----------------------------------
GUARDIAN INVESTOR SERVICES CORPORATION
By: /s/ John M. Smith
----------------------------------
<PAGE>
FEE APPENDIX
TO THE
INVESTMENT ADVISORY AGREEMENT
Between
THE PARK AVENUE PORTFOLIO ("Trust")
and
GUARDIAN INVESTOR SERVICES CORPORATION ("GISC")
which is Dated as of January 1, 1993
1. For the services provided and the expenses assumed pursuant to the
captioned Investment Advisory Agreement, The Guardian Tax-Exempt Fund series of
the Trust (the "Fund") will pay to GISC a fee, computed daily and paid quarterly
(or at such other intervals as the parties may from time to time agree), at the
annual rate of 0.50% of the Fund's average daily net assets. For this purpose,
the value of the Fund's average daily net assets shall be computed in the manner
specified in the Trust's Amended and Restated Declaration of Trust.
2. The captioned Investment Advisory Agreement as supplemented by this Fee
Appendix, shall not take effect with respect to the Fund unless it has first
been approved (i) by a vote of the Trustees of the Trust, including a majority
of those Trustees of the Trust who are not parties to the Investment Advisory
Agreement or interested persons of any such persons, cast in person at a meeting
called for the purpose of such approval and (ii) by vote of a majority of the
Fund's outstanding voting securities.
3. This Fee Appendix shall be attached to and made a part of the captioned
Investment Advisory Agreement and is subject to all of its terms and conditions.
IN WITNESS WHEREOF, the parties hereto have caused this Fee Appendix to be
executed by their designated officers as of February 1, 1993.
THE PARK PORTFOLIO on behalf of
THE GUARDIAN TAX-EXEMPT FUND
By: /s/ [ILLEGIBLE]
----------------------------------
GUARDIAN INVESTOR SERVICES CORPORATION
By: /s/ John M. Smith
----------------------------------
<PAGE>
FEE APPENDIX
TO THE
INVESTMENT ADVISORY AGREEMENT
Between
THE PARK AVENUE PORTFOLIO ("Trust")
and
GUARDIAN INVESTOR SERVICES CORPORATION ("GISC")
which is Dated as of January 1, 1993
1. For the services provided and the expenses assumed pursuant to the
captioned Investment Advisory Agreement, The Guardian Asset Allocation Fund
series of the Trust (the "Fund") will pay to GISC a fee, computed daily and paid
quarterly (or at such other intervals as the parties may from time to time
agree), at the annual rate of 0.50% of the Fund's average daily net assets. For
this purpose, the value of the Fund's average daily net assets shall be computed
in the manner specified in the Trust's Amended and Restated Declaration of
Trust.
2. The captioned Investment Advisory Agreement as supplemented by this Fee
Appendix, shall not take effect with respect to the Fund unless it has first
been approved (i) by a vote of the Trustees of the Trust, including a majority
of those Trustees of the Trust who are not parties to the Investment Advisory
Agreement or interested persons of any such persons, cast in person at a meeting
called for the purpose of such approval and (ii) by vote of a majority of the
Fund's outstanding voting securities.
3. This Fee Appendix shall be attached to and made a part of the captioned
Investment Advisory Agreement and is subject to all of its terms and conditions.
IN WITNESS WHEREOF, the parties hereto have caused this Fee Appendix to be
executed by their designated officers as of February 1, 1993.
THE PARK PORTFOLIO on behalf of
THE GUARDIAN ASSET ALLOCATION FUND
By: /s/ [ILLEGIBLE]
----------------------------------
GUARDIAN INVESTOR SERVICES CORPORATION
By: /s/ John M. Smith
----------------------------------
INVESTMENT ADVISORY AGREEMENT
between
The PARK AVENUE PORTFOLIO, a Massachusetts business trust, having its principal
place of business at 201 Park Avenue South, New York, New York 10003, U.S.A.
(hereinafter called "the Company") OF THE ONE PART
and
GUARDIAN BAILLIE GIFFORD LIMITED, a company incorporated under the Companies
Acts and having its registered office at 1 Rutland Court, Edinburgh EH3 8EY,
Scotland (hereinafter called "the Manager") OF THE OTHER PART
WHEREAS:
(A) The Company is engaged in business as an open-end management
investment company and is registered as such under the U.S. Investment Company
Act of 1940, as amended.
(B) The Company is authorised to issue shares of beneficial interest in
one or more series, the shares of which will represent and correspond to
interests in one or more separate portfolios of securities and other assets held
by the Company.
(C) The Manager is engaged principally in the business of rendering
investment management services and is registered as an investment adviser under
the U.S. Investment Advisers Act of 1940, as amended, and is a member of, and
regulated in the conduct of its investment business by, the Investment
Management Regulatory Organisation Limited.
(D) The Company desires the Manager to render investment management
services to the Company and to those of its Series which are named in written
Fee Appendices as described herein in the manner and on the terms and conditions
hereinafter set forth.
NOW IT IS HEREBY AGREED as follows:
1. Interpretation
1.1 In this Agreement the following words and expressions shall
where not inconsistent with the context have the following meanings
respectively:
(a) "Associate" means and includes any corporation which in
relation to the person concerned (being a corporation) is a Holding
Company or a Subsidiary or a Subsidiary of any such Holding Company
or a corporation (or a Subsidiary of a corporation) at least
one-third of the issued share capital of which is beneficially owned
by the person concerned or an Associate thereof under the preceding
part of this definition and includes any firm the partners of which
or any one or more of them are beneficially entitled whether
directly or indirectly or through the medium of a corporation or
corporations to at least three-quarters of the issued equity share
capital of the person concerned (being a corporation) and includes
any partner in any such firm. Where the person concerned is an
individual, firm or other unincorporated body the expression
"Associate" means and includes
1
<PAGE>
any corporation directly or indirectly or through the medium of a
corporation or corporations controlled by such person and any
partner in any such firm;
(b) "Baillie Gifford Overseas Limited" means Baillie Gifford
Overseas Limited, a company incorporated under the Companies Acts
and having its registered office at 1 Rutland Court, Edinburgh EH3
8EY, Scotland.
(c) "Business Day" means a day on which the New York Stock
Exchange is open for business;
(d) "Commencement Date" means 11 January 1993 or, if later,
the date on which a copy of this Agreement signed by or on behalf of
the Manager has been signed by or on behalf of the Company and
returned to the Manager;
(e) "Custodian" means State Street Bank and Trust Company,
Boston, Massachusetts, U.S.A. and its agents and subcustodian banks
or such other bank or banks as may in the future serve as custodian
of the investments;
(f) "Fee Appendix" means the Investment Advisory Fee Appendix
entered into by the Manager and the Company on behalf of a Series,
which sets forth the compensation to be paid by the Series to the
Manager for services rendered hereunder. Each Fee Appendix shall be
subject to the terms and conditions of this Agreement;
(g) "Holding Company" means a holding company as defined in
Section 736 of the Companies Act 1985;
(h) "IMRO" means Investment Management Regulatory Organisation
Limited;
(i) "Investments" means the assets and rights from time to
time of each series comprised in the Portfolio of such Series;
(j) "Investment Policy" means the investment objective,
policies and restrictions of a Series which are set out in the
current Registration Statement on Form N-1A as filed with the SEC
and as amended from time to time following written notice given by
the Company to the Manager;
(k) "Portfolio" means the investments and cash which may from
time to time comprise the assets of a Series;
(l) "Rules" means the rules (including any regulations) made
by the board of IMRO, as altered, amended, added to or cancelled
from time to time whether by the board of IMRO or pursuant to the
Financial Services Act 1986, together with the Statutory Rules;
(m) "SEC" means the U.S. Securities and Exchange Commission;
(n) "Series" means a separate portfolio of assets of the
Company which has been named in a written Fee Appendix;
(o) "Statutory Rules" means rules or regulations made under
Chapter V of the Financial Services Act 1986 which are binding on
the Manager;
(p) "Sub-Investment Advisory Agreement" means the
sub-investment advisory agreement between the Manager and Baillie
Gifford Overseas Limited of even date herewith;
2
<PAGE>
(q) "Subsidiary" means a subsidiary as defined in Section 736
of the Companies Act 1985;
(r) "Trustees" means the Board of Trustees of the Company from
time to time including any duly appointed committee thereof;
(s) "U.S." means the United States of America;
(t) "1940 Act" means the U.S. Investment Company Act of 1940,
as amended;
(u) any reference to the Company, a Series or the Manager
includes a reference to its or their duly authorised agents or
delegates;
(v) words importing the singular number shall be deemed to
include the plural number and vice versa;
(w) words importing the masculine gender only shall include
the feminine gender and vice versa;
(x) words importing persons shall include companies or
associations or bodies of persons, whether corporate or not; and
(y) any reference to this Agreement shall be deemed to be a
reference to this Agreement as it may from time to time be
supplemented by a Fee Appendix.
1.2 The headings to the Clauses of this Agreement are for
convenience only and shall not affect the construction or interpretation
thereof.
1.3 References herein to statutory provisions shall be construed as
references to those provisions as respectively amended or re-enacted from
time to time and shall include any provision of which they are
re-enactments (whether with or without modification).
2. Appointment and Functions of the Manager
2.1 With effect from the Commencement Date the Company hereby
appoints the Manager to be the investment manager of the Portfolio of each
Series, all upon the terms contained herein and the Manager hereby accepts
such appointment and agrees to assume the obligations set forth herein.
2.2 In exercising its functions under this Agreement the Manager
shall at all relevant times consider advice given to it by Baillie
Gifford Overseas Limited under the Sub-Investment Advisory Agreement.
2.3 Notwithstanding Clause 2.2 above, any investment activity
undertaken by the Manager pursuant to this Agreement and any other
activities undertaken by the Manager on behalf of the Company or any
series shall at all times be subject to any written directives of the
Trustees, any duly constituted committee thereof or any officer of the
Company acting pursuant to written directives of the Trustees.
3. Investment Management Functions of the Manager
3.1 During the continuance of its appointment as investment manager
of the Portfolio of each Series and without prejudice to the generality of
Clauses 2.1 and 2.3 above the Manager shall:
3
<PAGE>
(a) manage the investment and re-investment of the Portfolio
of such Series on a discretionary basis with a view to achieving the
investment objective contained in the Investment Policy;
(b) provide valuations of the Investments of the Series in
accordance with the provisions of Clause 11;
(c) as and when requested by the Company supply the Company
with such information in connection with the Company and each Series
as may be in the possession of the Manager or may reasonably be
obtained from or provided by them;
3.2 The Manager shall subject to Clause 4.1 take such steps as
necessary to implement the Investment Policy of each Series and regularly
report to the Trustees on the implementation of said Investment Policy and
the Manager's activities in accordance with Cause 11 below in connection
with the administration of each Series.
3.3 The Manager shall keep or cause to be kept on behalf of each
Series such books, records and statements to give a complete record of all
transactions carried out by the Manager on behalf of each Series in
relation to the investment and reinvestment of the Portfolio of such
Series and such other books, records and statements as may be required by
law and as may be necessary to give a complete record of all other
transactions carried out by the Manager on behalf of each Series and shall
permit the Company and each Series and their employees and agents and the
auditors for the time being of the Company and each Series to inspect such
books, records and statements at all reasonable times.
3.4 All records required to be maintained and preserved by the
Manager on behalf of each Series or the Portfolio of such Series pursuant
to the provisions of rules or regulations of the SEC under Section 31(a)
of the 1940 Act are the property of the Company and will be surrendered by
the Manager promptly on request by the Company.
3.5 The Manager hereby warrants that it holds and undertakes that it
will continue to hold, all licences, permissions, authorisations and
consents necessary to enable it to carry out its duties hereunder in the
ordinary course of business and that all such licences, permissions,
authorisations and consents are and will remain in full force and effect
during the continuance of this Agreement.
3.6 The services to be provided under this Agreement shall be so
provided on the basis that the Company is a "Non-Private Customer" as
defined in the Rules.
4. Manager's Specific Powers and Obligations in Relation to Investment
Management
4.1 Consistent with the Investment Policy and subject to any written
directions (in accordance with Clause 2.3 above) communicated to the
Manager, the Manager shall have and is hereby granted the authority, power
and right for the Portfolio of each Series and in the name of the Company
and each Series to supervise and direct the investments of each Series in
its discretion and without prior consultation with the Company:
(a) to issue orders and instructions with respect of the
disposition of Investments, moneys and other assets of the Portfolio
of each Series;
(b) to purchase (or otherwise acquire), sell (or otherwise
dispose of) and invest in investments, moneys and other assets for
the account of each Series and effect foreign exchange transactions
on
4
<PAGE>
behalf of each Series and for the account of each Series in
connection with any such purchase, other acquisition, sale or other
disposal;
(c) to enter into, make and perform all contracts, agreements
and other undertakings as may in the opinion of the Manager be
necessary or advisable or incidental to the carrying out of the
objectives of this Agreement;
(d) subject to the Rules, to aggregate transactions for the
Portfolio of each Series with those of other clients and Associates
without prior reference to the Company or any Series or such other
clients. Aggregation may operate on some occasions to the advantage
of a Series and on other occasions to the disadvantage of a Series.
Also the Manager may act as agent for the Company and each Series in
relation to transactions in which it is also acting as agent for its
Associates;
(e) to purchase and sell Investments on any Recognised or
Designated Investment Exchange as defined in the Rules (including
for this purpose over the counter markets) or through such other
intermediary as the Manager may in its discretion consider;
(f) to purchase or subscribe for Investments Not Readily
Realisable (as defined in the Rules). However, such investments
carry a high risk of not being readily realisable, market-makers may
not be prepared to deal in them and proper information for
determining their current value may not be available. The purchase
of such investments is subject to such restrictions as may be set
out in this Agreement not inconsistent with the Investment Policy;
(g) to accept offers of new issues, or rights issues and
offers of paper and/or cash alternatives in takeover bids on behalf
of each Series;
(h) to invest in Contingent Liability Transactions and Options
(as defined in the Rules) effected otherwise than under the rules of
a Recognised or Designated Investment Exchange (as defined in the
Rules) or in a contract traded thereon;
(i) for the purposes of carrying out transactions in futures
and options only, to deposit or pledge investments comprised in the
Portfolio of each Series and such other documents of title and
certificates evidencing title to such investments and other property
as may be required in order to satisfy the counterparty's margin or
collateral requirements. In all other circumstances and except (a)
with the written consent of and on terms agreed with the Company or
(b) if appropriate, as may be provided in the Company's current
Registration Statement filed with the SEC (as amended from time to
time) investments comprised in the Portfolio of a Series and
documents of title and certificates evidencing title to such
investments and other property acquired under this Agreement may not
be lent to a third party nor may money be borrowed on the Company's
or a Series' behalf against the security of such investments,
documents and property.
4.2 As Investments may be denominated in different currencies, a
movement of exchange rates may have a separate effect, unfavourable as
well as favourable, on the gain or loss otherwise experienced in the
Investments.
4.3 The Company understands that markets involving Contingent
Liability Transactions can be highly
5
<PAGE>
volatile and that such instruments carry a high risk of loss and that a
relatively small adverse market movement may result not only in loss of
the original investment but also an unquantifiable further loss exceeding
any margin deposited. The Company further understands that it may be
required to pay on behalf of a Series a deposit or margin in support of a
transaction or to supplement that payment after the transaction has been
effected and that the consequence of non-payment may result in the loss of
deposit or margin.
4.4 The Company acknowledges receipt of the Risk Disclosure
Statements set out in Schedule 1 hereto.
4.5 The Manager shall observe and comply with all resolutions of the
Trustees of which it has written notice and other lawful orders and
directions given in writing to it from time to time by the Trustees and
all activities engaged in by the Manager hereunder pursuant to Clause 3
above shall at all times be subject to the control of and review by the
Trustees and without limiting the generality of the foregoing the Trustees
may from time to time:
(a) prohibit the Manager from investing the Portfolio of any
Series in any investment or in any currency or country or in or with
any person;
(b) require the Manager to sell any investment or (subject to
the availability of funds) to purchase, on behalf of a Series, any
investment;
(c) amend the Investment Policy of any Series and notify the
Manager of this in writing;
and the Manager shall and shall procure that any person, firm or company
to whom it delegates any of its function hereunder shall give effect to
all such decisions.
5. Payments Due on Investments
The Company shall be responsible on behalf of each Series for any
unpaid calls or other sums which may become payable upon any of the
Investments or any rates, taxes or other imposts or similar liabilities
levied or arising on or in respect of any of the Investments.
6. Cold Calls
The Company and the Manager are free under this Agreement to
telephone, visit or otherwise communicate with each other without express
invitation to discuss the Portfolio of any Series, its composition and
investment policy or changes therein, or any individual investment current
or proposed. This may constitute a "Cold Call" in terms of the Rules.
7. Custody Arrangements
7.1 The Company on behalf of each Series will at the written request
of the Manager arrange for the opening of bank accounts in the name of
each Series with the Custodian. All sums belonging to a Series including
proceeds of sales and income received on investments shall be credited
directly to such accounts. The Manager will hold no moneys on behalf of a
Series, and accepts no liability for any default by the Custodian. These
bank accounts and moneys are not Client Bank Accounts or Clients' Money
(as defined in the Rules).
6
<PAGE>
7.2 Securities forming part of the Portfolio of each Series will be
registered in the name of the Custodian or held to its order. The Manager
accepts no liability for any default by the Custodian or sub-custodian
banks.
8. Settlement
The Manager will attend to the settlement and delivery of all
purchases and sales of Investments of each Series and deal with issues,
rights entitlements and any other matters affecting such investments. The
Manager will also be entitled to instruct the Custodian to make delivery
of documents of title or certificates evidencing title when settling
transactions.
9. Voting
Any rights conferred by Investments of a Series shall be exercised
in such manner as the Manager may determine after having considered the
advice of Baillie Gifford Overseas Limited, (subject to the rights of the
Trustees to give instruction to the Manager regarding the exercise of
such rights) and subject as aforesaid the Manager may in its discretion
refrain from the exercise of such rights. The Company, on behalf of each
Series, shall from time to time, upon request from the Manager, execute
and deliver or cause to be executed and delivered to the Manager or its
nominee(s) such powers of attorney or proxies as may reasonably be
required authorising such attorneys or proxies to exercise any rights or
otherwise act in respect of all or any part of the Investments. Without
prejudice to the generality of the foregoing the Manager will be entitled
to give voting instructions to the Custodian in respect of the exercise of
any voting or other rights attached to any Investment at the discretion of
the Manager or as the Company may instruct from time to time.
10. Lending and Borrowing
10.1 Subject to the Investment Policy of a Series and as provided in
this Clause 10, investments comprised in the Portfolio of a Series and
documents of title and certificates evidencing title to such investments
and other property acquired under this Agreement may not be lent to a
third party nor may money be borrowed on the Company's or a Series' behalf
against the security of such investments, documents and property.
10.2 Subject to the Investment Policy of a Series, an overdraft
facility or line of credit may be established on behalf of each Series and
may be used as a temporary measure for the extraordinary or emergency
needs of each Series.
10.3 Subject to the Investment Policy of a Series and to the
temporary borrowing facility provided for in 10.2 above, the Manager may
not commit the Company or a Series to supplement the monies in the
Portfolio of the Series either by borrowing on its behalf or by committing
it to a contract the performance of which may require them to supplement
the Portfolio of such Series.
11. Reporting
11.1 The Manager shall arrange to notify the Company by fax of
transactions in each Series on a daily basis and will instruct brokers to
send the original contract note to the Custodian and copies to the Company
and the Manager.
7
<PAGE>
11.2 The Manager shall supply quarterly, on a Series by Series
basis, to the Company the following:
(a) reports incorporating inter alia investment policy, which
will be sent within twenty-five working days of the end of the
quarter to which the report relates:
(b) a Portfolio valuation prepared by Datastream or some other
mutually agreed and reputable supplier of valuation services. Such
valuations will show the number of units of each investment or other
asset held, the book cost and the aggregate value of each as at the
valuation date and will normally use middle market prices for listed
investments. In the event of any change in this method the Manager
will notify the Company accordingly;
(c) a statement of any income received on the investments
held;
(d) a schedule detailing the performance of each Series broken
down into major sectors and comparing the return of the relevant
index against the return of each Series. The returns will be
compiled by the WM Company using information supplied by the
Manager; and
(e) schedules showing transactions undertaken during the
period under review.
11.3 The Manager shall attend meetings with the Company from time to
time as required by the Trustees. Instructions as to the management of the
Portfolio of each Series given orally to the Manager at such meetings will
be confirmed in writing to the Manager as provided for in Clause 23.
12. Material Interests
12.1 Except as provided in Clause 4.1(d) of this Agreement, the
Manager may not effect transactions for the Portfolio of a Series in which
it has directly or indirectly a material interest or any relationship with
another party which may involve a conflict of the Manager's duty to the
Company and each Series without prior reference to the Company, other than
transactions in units in unit trusts managed by Baillie Gifford & Co.
Limited, an Associate of the Manager, in accordance with the provisions of
sub-clause 12.2 of this Agreement.
12.2 For the purposes of sub-clause 12.1 of this Agreement the
Manager may not effect transactions for the Portfolio in units in unit
trusts managed by Baillie Gifford & Co. Limited unless the Manager shall
first have been issued with an order of exemption by the SEC in accordance
with sub-section 17(a)(1)(b) of the 1940 Act.
13. Relevant Arrangements
The Manager may not effect transactions for the Portfolio of any
Series with or through the agency of a person who provides services under
any arrangement where that person will from time to time provide to or
procure for the Manager services or other benefits which result, or are
designed to result, in an improvement in the services which the Manager
provides to its clients and for which it may make no direct payment but
may undertake to place business with that person.
8
<PAGE>
14. Fees
In consideration for the services to be provided by the Manager
under this Agreement each Series shall, during the continuance of this
Agreement, pay to the Manager fees calculated by reference to the value of
the Portfolio of each Series all in accordance with the provisions set
forth in the applicable Fee Appendix. All such Fee Appendices shall
provide that they are subject to all terms and conditions of this
Investment Advisory Agreement.
Compensation under this Agreement and the related Fee Appendices for
all Series shall be calculated and accrued daily and the amounts of the
daily accruals shall be paid quarterly, or at such other intervals agreed
to by the parties. If this Agreement becomes effective with respect to a
Series subsequent to the first day of a quarter or shall terminate before
the last day of a quarter, compensation for that part of the quarter
during which this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth in the applicable
Fee Appendix.
15. Taxation
Bank statements and vouchers for each Series will be sent by the
Custodian to the Company to enable the Company to reclaim any credits in
respect of or tax deducted from the income of the Portfolio of such
Series.
16. Term and Termination of the Agreement
16.1 The term of this Agreement shall begin on 11 January 1993,
provided that, with respect to any Series, this Agreement shall not take
effect unless it has first been approved by the Trustees, including a
majority of the Trustees who are not "interested persons" (as defined in
the 1940 Act) and by a majority of the outstanding voting securities of
that Series (as defined in the 1940 Act) and unless sooner terminated as
hereinafter provided, this Agreement shall remain in effect until 1
January 1995. Thereafter, this Agreement shall continue in effect from
year to year with respect to a Series, subject to the termination
provisions and all other terms and conditions hereof, provided such
continuance is approved at least annually by the vote of holders of a
majority of the outstanding voting securities of such Series (as defined
in the 1940 Act) or by the Trustees, provided that in either event, such
continuance is also approved annually by the vote of a majority of the
Trustees who are not parties to this Agreement and are not "interested
persons" (as defined in the 1940 Act) of any party, which vote must be
cast in person at a meeting called for the purpose of voting on such
approval. The Manager shall furnish to the Company, on behalf of each
Series, promptly upon its request, such information as may reasonably be
necessary to evaluate the terms of this Agreement or any extension,
renewal or amendment hereof.
16.2 Subject to Clauses 16.3 and 16.4 below, the Company may, at any
time and without the payment of any penalty, terminate this Agreement on
behalf of a Series upon sixty (60) days written notice to the Manager,
either by majority vote of the Trustees or by the vote of a majority of
the outstanding voting securities of such Series (as defined in the 1940
Act).
16.3 The Company, on behalf of each Series, shall also be entitled
to terminate forthwith the appointment of the Manager hereunder
notwithstanding any period remaining in accordance with this Clause or, no
notice having been given:
9
<PAGE>
i) if the Manager shall commit any material breach of its
obligations under this Agreement and (if such breach shall be
capable of remedy) shall fail within thirty days of receipt of
notice in writing served by the Company requiring it so to do to
make good such breach;
ii) if an order is made or a resolution passed to wind up the
Manager or if a receiver is appointed to the whole or any part of
the property and undertaking of the Manager;
iii) if the Shareholders Agreement between The Guardian
Insurance & Annuity Company, Inc., Baillie Gifford Overseas Limited
and the Manager dated 7 November 1990 is terminated.
16.4 The Manager may terminate this Agreement with respect to a
Series without payment of penalty upon sixty days written notice to the
Company.
16.5 The Manager shall also be entitled to terminate forthwith this
Agreement with respect to a Series, notwithstanding any period remaining
in accordance with this Clause or, no notice having been given, if (i) the
said Shareholders Agreement between The Guardian Insurance & Annuity
Company, Inc., Baillie Gifford Overseas Limited and the Manager is
terminated or expires by effluxion of time, or (ii) an order is made or
resolution passed to wind up the Company or such Series, or (iii) if the
Company shall commit any material breach of its obligations under this
Agreement and (if such breach shall be capable of remedy) shall fail
within 30 days of receipt of notice in writing served by the firm
requiring it so to do to make good such breach.
16.6 Termination of this Agreement as detailed in this Clause with
respect to any Series shall in no way affect the continued validity of
this Agreement or the performance thereunder with respect to any other
Series.
16.7 This Agreement shall immediately terminate in the event of its
assignation or assignment (as that term is defined in the 1940 Act) by
either party unless such automatic termination shall be prevented by an
exemptive order or rule of the SEC.
16.8 On the termination of the appointment of the Manager under the
provisions of this Clause the Manager shall be entitled to receive all
fees accrued due up to the date of such termination but shall not, in the
case of termination under any sub-clauses 16.2, 16.3 or 16.4 above, be
entitled to compensation in respect of such termination.
16.9 On termination of the appointment of the Manager under the
provisions of this Clause the Manager shall deliver to the Company, or as
it shall direct, all books of account, records, registers, correspondence,
documents and assets in relation to the affairs of or belonging to the
Company or any Series in possession of or under the control of the Manager
as investment manager and take all necessary steps to vest in each Series
any assets previously held in the name of or to the order of the Manager
as investment manager on behalf of each Series.
16.10 Termination of the appointment of the Manager hereunder shall
be without prejudice to transactions already initiated, which transactions
shall be completed.
16.11 The Company and the Manager will co-operate with each other to
ensure that transactions in progress at the date of termination of the
Manager's appointment hereunder shall be completed by the Company in
accordance with the terms of such transactions and, to this end, the
Manager shall provide the Company with all necessary information and
documentation to secure implementation thereof.
10
<PAGE>
17. Continuation and Exercise of Manager's Powers
The authorities herein contained are continuing ones and shall
remain in full force and effect until revoked by termination of this
Agreement as hereinbefore provided but such revocation shall not affect
any liability in any way resulting from transactions initiated prior to
such revocation.
18. Non-Exclusivity
18.1 The services of the Manager hereunder are not to be deemed
exclusive and the Manager or any Associate thereof shall be free to render
investment management services, investment advisory services and corporate
administrative services to other parties (including without prejudice to
the generality of the foregoing other investment companies) on such terms
as the Manager or such Associate may arrange so long as its services under
this Agreement are not thereby impaired and to retain for its own use and
benefit fees or other moneys payable thereby. The Manager shall not be
deemed to be affected with notice of or to be under any duty to disclose
to the Company any fact or thing which may come to the notice of it or any
servant or agent of it in the course of the Manager rendering the said
services to others or in the course of its business in any other capacity
or in any manner whatsoever otherwise than in the course of carrying out
its duties under this Agreement.
18.2 The Manager agrees to permit individuals who are directors or
officers of the Manager to serve as trustees or officers of the Company.
19. Indemnity
19.1 Neither the Manager nor any of its officers, directors, or
employees, nor any person performing executive, administrative, trading,
or other functions for the Company or any Series (at the direction or
request of the Manager) or the Manager in connection with the Manager's
discharge of its obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any error of judgment or mistake of
law or for any loss suffered by the Company or any Series in connection
with the matters to which this Agreement relates, except for loss
resulting from wilful misfeasance or misconduct, wilful default, bad
faith, or gross negligence in the performance of its or his/her duties on
behalf of the Company or any Series or from reckless disregard by the
Manager or any such person of the duties of the Manager under this
Agreement.
19.2 The Manager shall not be liable for the consequences of any
investment decision made hereunder or in respect of any other fund managed
by the Manager or any of its Associates which is a permitted investment
hereunder. The Manager acts only as agent for the Company and each Series
and the Company hereby undertakes to indemnify the Manager against all
actions, proceedings, claims, demands, costs and expenses which may be
brought against, suffered or incurred by the Manager by reason of its
performance of such duties, including all legal, professional and other
expenses incurred.
19.3 Notwithstanding the provisions of Clause 19.2 the Manager will
indemnify the Company and each
11
<PAGE>
Series in respect of any loss incurred as a result of negligence or fraud
by the Manager or any of its Associates or their respective employees in
their performance of the duties under the terms of this Agreement.
20. Complaints
20.1 The Manager has established procedures in accordance with the
requirements of IMRO for the effective consideration of complaints by the
Company.
20.2 Should the Company wish to make a complaint to the Manager
about any aspect of the Manager's carrying out of its duties under this
Agreement or otherwise, it shall, in the first instance, do so by letter
addressed to the director or directors of the Manager responsible for the
management of the Portfolio of the Series in question. If no satisfactory
resolution of the complaint is achieved within five days, the Company may
reiterate the complaint by letter addressed to the Chairman of the
Manager. If no satisfactory resolution is achieved within ten days of the
original complaint, the Company shall then make its complaint to IMRO.
Notwithstanding the above provisions the Company has a right of complaint
direct to IMRO at any time.
20.3 A booklet setting out the Company's right to investor's
compensation under the Securities and Investments Board's Scheme is
available on request from the Manager.
21. Delegation
The Manager is authorised to delegate any or all of the obligations
incumbent upon it in terms of this Agreement to Baillie Gifford Overseas
Limited provided that such delegation is effected by way of a
sub-investment advisory agreement in the form or as near as in the form of
Schedule 2 annexed hereto.
22. Confidentiality
Neither of the parties hereto shall during the continuance of this
Agreement or after its termination disclose to any person, firm or fund
whatsoever (except with the authority of the relevant party or unless
ordered to do so by a court of competent jurisdiction or any regulatory
body) any information relating to the business, investments, finances or
other matters of a confidential nature of the other party of which it may
in the course of its duties hereunder or otherwise become possessed and
each party shall use all reasonable endeavours to prevent any such
disclosure as aforesaid.
23. Reliance on Documents
Whenever pursuant to any provision of this Agreement any notice,
instruction or other communication is to be given by, or on behalf of, the
Company (or its Trustees) to the Manager, the Manager may accept as
sufficient evidence thereof:
i) a document signed or purporting to be signed on behalf of
the issuing party by such person or persons whose signature the
Manager is for the time being authorised by such issuing party to
accept; or
ii) a message by tested telexcopier, facsimile machine or
cable transmitted by, or on behalf of, the Company (or its Trustees)
by such person or persons whose messages the Manager is for the time
being authorised by the Company or its Trustees to accept, and the
Manager shall not be
12
<PAGE>
obliged to accept any document or message signed or transmitted or
purporting to be signed or transmitted by any other person.
24. Severability
If any of the provisions of this Agreement is found by an arbiter,
court or other competent authority to be void or unenforceable, such
provision shall be deemed to be deleted from this Agreement and the
remaining provisions of this Agreement shall continue in full force and
effect.
Notwithstanding the foregoing the parties shall thereon negotiate in
good faith in order to agree to the terms of a mutually satisfactory
provision to be substituted for the provision so found to be void or
unenforceable.
25. Amendments
This Agreement may be amended by mutual consent, but no amendment
shall be effective as to any given Series until it is approved by vote of
a majority of such Series' outstanding voting securities, and by the vote
of a majority of the members of the Board of Trustees, including a
majority of the Trustees who are not deemed to be "interested persons" (as
defined by the 1940 Act). Notwithstanding the foregoing, where the effect
of a requirement of the 1940 Act which is reflected in any provision of
this Agreement is relaxed by a rule, regulation or order of the SEC,
whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
26. Notices
Any notice required to be given under this Agreement shall be in
writing, delivered personally or sent by first class prepaid letter or
transmitted by telex or facsimile and shall be deemed duly served if left
at or sent or (as appropriate) transmitted to the following addresses (or
to the most recent of any other address of which a party hereto shall have
given notice to the other party pursuant to this Clause):
(a) if to the Company at:
201 Park Avenue South
New York 10003
U.S.A.
For the attention of: J.M. Smith
Facsimile number: 212-353-1845
(b) if to the Manager at:
1 Rutland Court
Edinburgh EH3 8EY
Scotland
For the attention of: G. Gemmell
Facsimile number: 031-222-4099
Notices sent by first class air mail prepaid letter shall be deemed
to be served seven business days after posting. Evidence that the Notice
was properly addressed, stamped and put into post shall be conclusive
evidence of posting. A notice sent by facsimile transmission shall be
deemed to have been served at the time
13
<PAGE>
when a complete and legible copy is received by the addressee. In this
Clause "business day" means a day on which normal banking business is
carried on in Edinburgh and New York City.
27. Arbitration
If any dispute shall arise between the parties as to the true intent
or meaning or the implementation or termination of this Agreement or any
part thereof in any manner of way, such dispute shall be referred to a
single Arbiter to be nominated by the President for the time being of the
Law Society of Scotland on the application of either party hereto and all
decisions and awards of such arbiter both interim and final shall be
binding upon all parties who hereby respectively undertake to implement
and fulfil the same. Section 3(3) of the Administration of Justice
(Scotland) Act 1972 shall not apply to this Agreement.
28. Miscellaneous
28.1 The Manager and the Company each agree that the words "The
Guardian," which may comprise a component of a Series' name, is a property
right of The Guardian Life Insurance Company of America ("Guardian Life").
In this regard, the Company, on behalf of itself and each Series, agrees
and consents to the following: (a) the words "The Guardian" will only be
used as a component of a name and for no other purpose; (b) the Company
will not purport to grant to any third party the right to use the "The
Guardian" for any purpose; (c) Guardian Life, the Manager or any other
duly authorized affiliate of Guardian Life may use or grant to others the
right to use the words "The Guardian," or any combination or abbreviation
thereof, as all or a portion of a corporate or business name or for any
commercial purpose, including a grant of such right to any other
investment company; and (d) upon the termination of any investment
advisory agreement into which the Manager and the Company may enter, or
upon the termination of any such investment advisory agreement with
respect to a Series of the Company, or upon termination of the affiliation
of the Manager with Guardian Life, the Company and any affected Series of
the Company shall, upon request by the Manager or Guardian Life, cease to
use the words "The Guardian" as a name component, and shall not use such
words or any combination thereof, as part of a name or for any other
commercial purpose, and shall take any and all actions which the Manager
or Guardian Life may request to effect the foregoing and to reconvey to
Guardian Life any and all rights to the words "The Guardian."
28.2 All persons extending credit to, contracting with or having any
claim against the Company, its Series or the Trustees shall look only to
the assets of the Company or the Series, as the case may be, for payment
under such credit, contract or claim. Neither the shareholders nor the
Trustees, nor any of their agents, whether past, present or future, shall
be personally liable for payment of any such credit, contract or claim.
The obligations of the Company and each Series hereunder may be satisfied
only by resort to the assets of the Company as divided among the Series.
29. Governing Law
Notwithstanding any conflict of laws, principles or provisions which
may otherwise apply, this Agreement and the rights and obligations of the
parties shall be governed by and are to be construed in accordance with
the law of Scotland and, to the extent applicable, in accordance with the
1940 Act: IN WITNESS
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<PAGE>
WHEREOF these presents typewritten on this and the preceding
pages are, together with the Schedules, executed in triplicate as follows:
they are subscribed for and on behalf of Guardian Baillie Gifford Limited
by, one of its , at Edinburgh, Scotland on January 1993
before these witnesses, , of , Edinburgh and of ,
Edinburgh; and they are subscribed for and on behalf of The Park
Avenue Portfolio by Frank J. Jones, one of its officers at New York,
United States of America on January 1993 before these witnesses,
Richard T. Potter, Jr., and Vickie Riccardo both of 201 Park Avenue South,
New York, New York.
For The Park Avenue Portfolio:
/s/ Frank J. Jones
-----------------------------
/s/ Richard T Potter Jr. Witness
- ------------------------
/s/ Vickie Riccardo Witness
- ------------------------
For Guardian Baillie Gifford Limited:
__________________________Witness __________________________
__________________________Witness
15
<PAGE>
INVESTMENT ADVISORY AGREEMENT FEE APPENDIX
Fee Appendix made as of January 11, 1993, between THE PARK AVENUE
PORTFOLIO, a Massachusetts business trust (the "Company"), on behalf of The
Guardian Baillie Gifford International Fund ("Series"), a series of shares of
beneficial interest of the Company, and GUARDIAN BAILLIE GIFFORD LIMITED (the
"Manager"), a company incorporated under the Companies Act and registered as an
investment adviser under the U.S. Investment Advisers Act of 1940, as amended.
WHEREAS the Company has appointed the Manager as investment adviser and
administrator for each series of shares of beneficial interest of the Company
for which it may enter into a Fee Appendix pursuant to the Investment Advisory
Agreement dated January 11, 1993 between the Company and the Manager
("Investment Advisory Agreement"); and
WHEREAS the Series has been established as a series of shares of the
Company; NOW, THEREFORE, the parties agree as follows:
1. The Investment Advisory Agreement is hereby adopted for the Series. The
Series shall be one of the "Series" referred to in the Investment Advisory
Agreement. Certain capitalized terms used without definition in this Fee
Appendix have the meaning specified in the Investment Advisory Agreement.
2. For the services provided and the expenses assumed pursuant to the
Investment Advisory Agreement with respect to the Series, and subject to
paragraph 3 hereof, the Series will pay to the Manager a fee (exclusive of Value
Added Tax), computed daily and paid quarterly (or at such other intervals as the
parties may from time to time agree), at the monthly rate of one fifteenth of
one percent of:
A where:
----
B
"A" means the aggregate of the Values of the Portfolio as at the close of
business on each Business Day falling in that quarter; and
"B" means the number of Business Days falling in that quarter.
3. From the fee calculated above there shall be deducted sums representing
a pro rata share of the management charge arising on any unit trust managed by
Baillie Gifford & Co. Limited in which the Series may be invested from time to
time. Each such deduction shall be calculated as follows:
M x C x D
------
365
<PAGE>
Where M is the average daily market value of a holding in a unit trust
managed by Baillie Gifford & Co. Limited included in the valuation on
which the calculation of the fee is based.
C is the factor described as a percentage and applied to the value of
assets of the unit trust managed by Baillie Gifford & Co. Limited in
calculating its annual management fee.
D is the number of days in which the holding in the Series has been held
during the period to which the fee relates.
No initial charge will be made for any investment in such unit trust.
4. The Manager shall procure that a sum equal to each deduction under
paragraph 3 above shall be paid by Baillie Gifford & Co. Limited to the Manager.
Said sum payable to the Manager shall be invoiced by the Manager to Baillie
Gifford & Co. Limited following the end of each quarter and shall be due and
payable within ten days of the relevant invoice.
5. Said fees due to the Manager shall be invoiced by the Manager to the
Series following the end of each quarter and shall be due and payable within ten
days of the relevant invoice. The Series shall be entitled to make such payments
on account as it may in its absolute discretion determine.
6. For the purposes of paragraph 2 above:
(i) the "Value of the Portfolio" means the aggregate of the values of the
assets of the Portfolio of the Series at the close of business on a Business
Day. The aggregate of the values of the assets shall be calculated by taking the
value of securities held in the Portfolio of the Series, plus any cash or other
assets (including dividends payable and declared but not collected) less all
liabilities (including accrued expenses, but excluding capital and surplus);
(ii) the "value of an asset" shall be taken:
(1) in the case of an investment quoted on a Stock Exchange where
market price is the recognised basis of quotation, at the price of such
investment at the close of business of the appropriate exchange on the
relevant Valuation Date or, if there have been no sales during the day, at
the mean of the closing bid and asked prices;
(2) in the case of an investment traded only on the
over-the-counter market, at the mean between the bid and asked prices;
<PAGE>
(3) in the case of unquoted investments and other investments for
which market quotations are not readily available, at the value
ascertained in accordance with such manner as the Trustees have deemed
appropriate to reflect the fair value thereof;
(iii) when any asset is held or liability is outstanding in a currency
other than U.S. dollars, such asset or liability shall be notionally converted
into the U.S. dollar equivalents at the prevailing market rates quoted by the
Custodian at the close of business on the Business Day, on the relevant
Valuation Date or, if such Valuation Date is not a Business Day, on the
immediately preceding Business Day.
7. The Manager shall procure that Baillie Gifford & Co. shall be
responsible for furnishing such office space, facilities and equipment and such
clerical help, administrative and bookkeeping services in Edinburgh as the
Series shall reasonably require in the conduct of its business in accordance
with the Administrative and Secretarial Agreement between Baillie Gifford & Co.
and the Manager.
8. The Series shall bear all expenses of its organization, operations and
business not specifically assumed or agreed to be paid by the Manager as
provided in this Fee Appendix. In particular, but without limiting the
generality of the foregoing, the Series shall pay all of the expenses relating
to the following expense categories: custody and accounting services;
shareholder servicing agent; transfer and dividend disbursing agent; shareholder
communications; shareholder meetings; prospectuses; calculation of net asset
value; legal fees and expenses; accounting fees and expenses; trustees' fees and
expenses; federal and state registration fees; bonding and insurance; brokerage
commissions; taxes; trade association fees; nonrecurring and extraordinary
expenses (including but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
relating to the operation of the Series unless otherwise specifically provided
herein. All such expenses shall be paid out of the assets of the Series.
9. This Fee Appendix shall be subject to all terms and conditions of the
Investment Advisory Agreement.
10. This Fee Appendix shall become effective upon the date hereabove
written, provided that it shall not take effect unless it has first been
approved (i) by a vote of the Trustees of the Company, including a majority of
those Trustees of the Company who are not parties to this Fee Appendix or the
Investment Advisory Agreement or
<PAGE>
interested persons of any such persons at a meeting called for the purpose of
such approval and (ii) by vote of a majority of the Series' outstanding voting
securities.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the day and year first above
written.
FOR THE PARK AVENUE PORTFOLIO on behalf of
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND:
[ILLEGIBLE]
------------------------------------------------
/s/ Richard T. Potter Witness
- ----------------------
/s/ Vickie Riccardo Witness
- ---------------------
FOR GUARDIAN BAILLIE GIFFORD LIMITED:
_____________________________________
__________________________Witness
__________________________Witness
Exhibit 99.5(c)
SUB-INVESTMENT ADVISORY AGREEMENT
between
GUARDIAN BAILLIE GIFFORD LIMITED, incorporated under the Companies Acts and
having its Registered Office at 1 Rutland Cowl, Edinburgh EH3 8EY (hereinafter
called "the Company") OF THE ONE PART
and
BAILLIE GIFFORD OVERSEAS LIMITED, a company incorporated under the Companies
Acts and having its Registered Office at 1 Rutland Court, Edinburgh, EH3 8EY
(hereinafter called "the Manager") OF THE OTHER PART
--------
WHEREAS:
(A) The Park Avenue Portfolio (hereinafter called the "Client") is engaged
in business as an open-end management investment company and is registered as
such under the U.S. Investment Company Act of 1940, as amended.
(B) The Client is authorised to issue shares of beneficial interest in one
or more series, the shares of which will represent and correspond to interests
in one or more separate portfolios of securities and other assets held by the
Client.
(C) The Company is engaged principally in the business of rendering
investment management services and is registered as an investment adviser under
the U.S. Investment Advisers Act of 1940, as amended, and is a member of, and
regulated in the conduct of its investment business by, the Investment
Management Regulatory Organisation Limited.
(D) The Manager is engaged principally in the business of rendering
investment management services and is registered as an investment adviser under
the U.S. Investment Advisers Act of 1940, as amended, and is a member of, and
regulated in the conduct of its investment business by, the Investment
Management Regulatory Organisation Limited.
(E) The Client desires the Company to render investment management
services to the Client and to those of its Series which are named in written Fee
Appendices as described herein in the manner set forth and in the terms and
conditions set forth in a separate Investment Management Agreement of even date
herewith.
(F) The Company, in turn, desires the Manager to render sub-investment
management services to the Client and to those of its Series which are named in
written Fee Appendices as described herein in the manner and on the terms and
conditions hereinafter set forth.
IT IS HEREBY AGREED AND DECLARED as follows:
1. Definitions
1.1 In this Agreement the following words and expressions shall
where not inconsistent with the context have the following meanings
respectively:
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(a) "Articles" means the Articles of Association of the
Company as amended from time to time;
(b) "Associate" means and includes any corporation which in
relation to the person concerned (being a corporation) is a Holding
Company or a Subsidiary or a Subsidiary of any such Holding Company
or a corporation (or a Subsidiary of a corporation) at least
one-third of the issued share capital of which is beneficially owned
by the person concerned or an Associate thereof under the preceding
part of this definition and includes any firm the partners of which
or any one or more of them are beneficially entitled whether
directly or indirectly or through the medium of a corporation or
corporations to at least three-quarters of the issued equity share
capital of the person concerned (being a corporation) and includes
any partner in any such firm. Where the person concerned is an
individual, firm or other unincorporated body the expression
"Associate" means and includes any corporation directly or
indirectly or through the medium of a corporation or corporations
controlled by such person and any partner in any such firm;
(c) "Business Day" means a day on which the New York Stock
Exchange is open for business;
(d) "Commencement Date" means 11 January 1993 or, if later,
the date on which a copy of this Agreement signed by or on behalf of
the Manager has been signed by or on behalf of the Company and
returned to the Manager;
(e) "Custodian" means State Street Bank & Trust Company,
Boston, Massachusetts, U.S.A. and its agents and sub-custodian banks
or such other bank or banks as may in the future serve as custodian
of the Investments;
(f) "Directors" means the Board of Directors of the Company
from time to time including any duly appointed committee thereof;
(g) "Fee Appendix" means the Sub-Investment Advisory Fee
Appendix entered into by the Manager and the Company which sets
forth the compensation to be paid by the Company to the Manager for
services rendered hereunder with respect to any Series. Each Fee
Appendix shall be subject to the terms and conditions of this
agreement;
(h) "Holding Company" means a holding company as defined in
Section 736 of the Companies Act 1985;
(i) "IMRO" means Investment Management Regulatory Organisation
limited;
(j) "Investments" means the assets and rights from time to
time of each Series comprised in the Portfolio of such Series;
(k) "Investment Policy" means the investment objective,
policies and restrictions of a Series which are set out in the
current Registration Statement on Form N-1A as filed on behalf of
the Client with the SEC and as amended from time to time following
written notice given by the Company to the Manager;
(l) "Investment Management Agreement" means the investment
advisory agreement between the Company and the Client of even date
herewith.
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(m) "Portfolio" means the investments and cash which may from
time to time comprise the assets of a Series which are the subject
of the Investment Management Agreement;
(n) "Rules" means the rules (including any regulations) made
by the board of IMRO, as altered, amended, added to or cancelled
from time to time whether by the board of IMRO or pursuant to the
Financial Services Act 1986, together with the Statutory Rules;
(o) "SEC" means the U.S. Securities and Exchange Commission;
(p) "Series" means a separate portfolio of assets of the
Client which has been named in a written Fee Appendix;
(q) "Statutory Rules" means rules or regulations made under
Chapter V of the Financial Services Act 1986 which an binding on the
Manager;
(r) "Subsidiary" means a subsidiary as defined in Section 736
of the Companies Act 1985;
(s) "U.S." means the United States of America;
(t) "1940 Act" means the U.S. Investment Company Act of 1940,
as amended;
(u) any reference to the Company, Client, a Series or the
Manager includes a reference to its duly authorised agents or
delegates;
(v) words importing the singular number shall be deemed to
include the plural number and vice versa;
(w) words importing the masculine gender only shall include
the feminine gender and vice versa;
(x) words importing persons shall include companies or
associations or bodies of persons, whether corporate or not; and
(y) any reference to this Agreement shall be deemed to be a
reference to this Agreement as it may from time to time be
supplemented by a Fee Appendix.
1.2 Words and expressions contained in this Agreement (but not
defined herein) shall bear the same meanings as in the Articles.
1.3 The headings to the Clauses of this Agreement are for
convenience only and shall not affect the construction & interpretation
thereof.
1.4 References herein to statutory provisions shall be construed as
references to those provisions as respectively amended or re-enacted from
time to time and shall include any provision of which they an reenactments
(whether with or without modification).
2. Appointment
2.1 The Company HEREBY APPOINTS the Manager as Sub-Investment
Manager in relation to the Portfolio of each Series and the Manager
accepts such appointment on the terms and conditions of this Agreement.
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2.2 The appointment of the Manager as Sub-Investment Manager as
aforesaid shall take effect from the Commencement Date, and shall continue
in full force and effect with respect to each Series, provided it is
initially and continually approved in accordance with the 1940 Act, and
unless and until terminated in accordance with the provisions hereof.
3. Investment Management Functions of the Manager
3.1 During the continuance of its appointment as Sub-Investment
Manager of the Company, subject to Cause 3.2 below and without prejudice
to the generality of Clause 2.1 above the Manager shall (subject to the
overall supervision of the Directors):
(a) manage the investment and re-investment of the Portfolio
of each Series on a discretionary basis with a view to achieving the
investment objective contained in the Investment Policy;
(b) provide valuations of the Investments in accordance with
the provisions of Clause 11;
(c) as and when requested by the Company and/or the Client
supply the Company and/or the Client with such information in
connection with the Portfolio of each Series as may be in the
possession of the Manager or may reasonably be obtained from or
provided by them;
3.2 Any investment activity undertaken by the Manager pursuant to
this Agreement and any other activities undertaken by the Manager on
behalf of the Company or the Client or any Series shall at all times be
subject to any written directives of the Directors or of the Board of
Trustees of the Client, as the case may be, any duly constituted committee
of such Board, or any officer of the Company or of the Client acting
pursuant to the written directives of its respective Board.
3.3 The Manager shall keep or cause to be kept on behalf of each
Series such books, records and statements to give a complete record of all
transactions carried out by the Manager on behalf of each Series in
relation to the investment and reinvestment of the Portfolio of such
Series and such other books, records and statements as may be required by
law and as may be necessary to give a complete record of all other
transactions carried out by the Manager on behalf of each Series and shall
permit the Company and its employees and agents and the auditors for the
time being of the Company and/or the Client and each Series to inspect
such books, records and statements at all reasonable times.
3.4 All records required to be maintained and preserved by the
Manager on behalf of each Series or the Portfolio of such Series pursuant
to the provisions of rules or regulations of the SEC under Section 31(a)
of the 1940 Act are the property of the Client and will be surrendered by
the Manager promptly on request by the Client.
3.5 The Manager hereby warrants that it holds and undertakes that it
will continue to hold, all licences, permissions, authorisations and
consents necessary to enable it to carry out its duties hereunder in the
ordinary course of business and that all such licences, permissions,
authorisations and consents are and will remain in full force and effect
during the continuance of this Agreement.
3.6 The services to be provided under this Agreement shall be so
provided on the basis that the Company and the Client are "Non-Private
Customers" as defined in the Rules.
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4. Manager's Specific Powers and Obligations in Relation to Investment
Management
4.1 Consistent with the Investment Policy and subject to any written
directions (in accordance with Clause 3.2 above) communicated to the
Manager, the Manager shall have and is hereby granted the authority, power
and right for the Portfolio of each Series and in the name of the Client
and each Series to supervise and direct the investments of each Series in
its discretion and without prior consultation with the Client or the
Company:
(a) to issue orders and instructions with respect to the
disposition of Investments, moneys and other assets of the Portfolio
of each Series;
(b) to purchase (or otherwise acquire), sell (or otherwise
dispose of) and invest in investments, moneys and other assets for
the account of each Series and effect foreign exchange transactions
on behalf of each Series and for the account of each Series in
connection with any such purchase, other acquisition, sale or other
disposal;
(c) to enter into, make and perform all contracts, agreements
and other undertakings as may in the opinion of the Manager be
necessary or advisable or incidental to the carrying out of the
objectives of this Agreement;
(d) subject to the Rules, to aggregate transactions for the
Portfolio of each Series with those of other clients and Associates
without prior reference to the Company, the Client or any Series or
such other clients. Aggregation may operate on some occasions to the
advantage of a Series and on other occasions to the disadvantage of
a Series. Also the Manager may act as agent for the Client and each
Series in relation to transactions in which it is also acting as
agent for its Associates;
(e) to purchase and sell Investments on any Recognised or
Designated Investment Exchange as defined in the Rules (including
for this purpose over the counter markets) or through such other
intermediary as the Manager may in its discretion consider;
(f) to purchase or subscribe for Investments Not Readily
Realisable (as defined in the Rules). However, such investments
carry a high risk of not being readily realisable, market-makers may
not be prepared to deal in them and proper information for
determining their current value may not be available. The purchase
of such investments is subject to such restrictions as may be set
out in this Agreement not inconsistent with the Investment Policy;
(g) to accept offers of new issues, or rights issues and
offers of paper and/or cash alternatives in takeover bids on behalf
of each Series;
(h) to invest in Contingent Liabilities Transactions and
Options effected otherwise than under the rules of a Recognised or
Designated Investment Exchange (as defined in the Rules) or in a
contract traded thereon;
(i) for the purposes of carrying out transactions in futures
and options only, to deposit or pledge investments comprised in the
Portfolio of each Series and such other documents of title and
certificates evidencing tide to such investments and other property
as may be required in order to satisfy the counterparty's margin or
collateral requirements. In all other circumstances and except (a)
with the written consent of and on terms agreed with the Company and
the Client or (b) if appropriate, as may be provided in the Client's
current Registration Statement filed with the SEC (as
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amended from time to time) investments comprised in the Portfolio of
a Series and documents of title and certificates evidencing title to
such investments and other property acquired under this Agreement
may not be lent to a third party nor may money be borrowed on the
Client's or a Series' behalf against the security of such
investments, documents and property.
4.2 As Investments may be denominated in different currencies, a
movement of exchange rates may have a separate effect, unfavourable as
well as favourable, on the gain or loss otherwise experienced in the
Investments.
4.3 The Company understands, and has informed the Manager that the
Client understands, that markets involving Contingent Liability
Transactions can be highly volatile and that such instruments carry a high
risk of loss and that a relatively small adverse market movement may
result not only in loss of the original investment but also an
unquantifiable further loss exceeding any margin deposited. The Company
further understands, and has informed the Manager that the Client
understands, that the Client may be required to pay on behalf of a Series
a deposit or margin in support of a transaction or to supplement that
payment after the transaction has been effected and that the consequence
of non-payment may result in the loss of deposit or margin.
4.4 The Company confirms to the Manager that the Client has received
from the Company the appropriate risk disclosure statements required under
paragraph 12(a) of Schedule 4 of Chapter III of the Rules.
4.5 The Manager shall observe and comply with all resolutions of the
Directors of which it has written notice and other lawful orders and
directions given in writing to it from time to time by the Directors
including those orders and directions emanating from the Client and all
activities engaged in by the Manager hereunder pursuant to Clause 3 above
shall at all times be subject to the control of and review by the
Directors, acting on behalf of the Client, and without limiting the
generality of the foregoing the Directors may from time to time:
(a) prohibit the Manager from investing the Portfolio of any
Series in any investment or in any currency or country or in or with
any person;
(b) require the Manager to sell any investment or (subject to
the availability of funds) to purchase, on behalf of a Series, any
investment;
(c) notify the Manager, in writing, of any amendments to the
Investment Policy of any Series;
and the Manager shall and shall procure that any person, firm
or company to whom it delegates any of its functions hereunder shall
give effect to all such decisions.
5. Payment Due on Investments
The Company undertakes to the Manager that it shall be responsible
for any unpaid calls or other sums which may become payable upon any of
the Investments or any rates, taxes or other imposts or similar
liabilities levied or arising on or in respect of any of the Investments
but only to the extent that the Client, on behalf of a Series, has failed
to pay same.
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6. Cold Calls
The Company and the Manager are free under this Agreement at any
time to telephone or otherwise communicate with each other (which in the
case of the Manager, its directors, employees or representatives, may
constitute a "Cold Call" in terms of IMRO's Rules) to discuss the
Portfolio of any Series, its composition and investment policy or any
changes therein, or any individual investment, current or proposed.
7. Custody Arrangements
7.1 The Company will as the written request of the Manager arrange
with the Client, on behalf of a Series, for the opening of bank accounts
in the name of each Series with the Custodian. All sums belonging to a
Series including proceeds of sales and income received on investments
shall be credited directly to such accounts. The Manager will hold no
moneys on behalf of a Series, and accepts no liability for any default by
the Custodian. These bank accounts and moneys are not Client Bank Accounts
or Clients' Money (as defined in the Rules).
7.2 Securities forming part of the Portfolio of each Series will be
registered in the name of the Custodian or held to its order. The Manager
accepts no liability for any default by the Custodian or sub-custodian
banks.
8. Settlement
The Manager will attend to the settlement and delivery of all
purchases and sales of Investments and deal with issues, rights
entitlements and any other matters affecting such investments. The Manager
will also be entitled to instruct the Custodian to make delivery of
documents of title or certificates evidencing title when settling
transactions.
9. Voting
Any rights conferred by Investments of a Series shall be exercised
in such manner as the Manager may determine (subject to the rights of the
Directors to give instruction to the Manager regarding the exercise of
such rights) and subject as aforesaid the Manager may in its discretion
refrain from the exercise of such rights. The Company shall from time to
time, upon request from the Manager, procure that the Client, on behalf of
each Series, shall execute and deliver or cause to be executed and
delivered to the Manager or its nominee(s) such powers of attorney or
proxies as may reasonably be required authorising such attorneys or
proxies to exercise any rights or otherwise act in respect of all or any
part of the Investments. Without prejudice to the generality of the
foregoing the Manager will be entitled to give voting instructions to the
Custodian in respect of the exercise of any voting or other rights
attached to any Investment at the discretion of the Manager or as the
Company and/or the Client may instruct from time to time.
10. Lending and Borrowing
10.1 Subject to the Investment Policy of a Series and as provided in
this Clause 10, investments comprised in the Portfolio of a Series and
documents of title and certificates evidencing title to such investments
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and other property acquired under this Agreement may not be lent to a
third party nor may money be borrowed on the Client's or a Series' behalf
against the security of such investments, documents and property.
10.2 Subject to the Investment Policy of a Series, an overdraft
facility or line of credit may be established on behalf of each Series and
may be used as a temporary measure for the extraordinary or emergency
needs of each Series.
10.3 Subject to the Investment Policy of a Series and to the
temporary borrowing facility provided for in 10.2 above, the Manager may
not commit the Client or a Series to supplement the monies in the
Portfolio of a Series either by borrowing on its behalf or by committing
it to a contract the performance of which may require them to supplement
the Portfolio of such Series.
11. Reporting
11.1 The Manager shall arrange to notify the Company and the Client
(by fax) of transactions in each Series on a daily basis and will instruct
brokers to send the original contract note to the Custodian and copies to
the Company and the Client.
11.2 The Manager shall supply quarterly, on a Series by Series
basis, to the Company and the Client the following:
(a) reports incorporating inter alia investment policy, which
will be sent within twenty-five working days of the end of the
quarter to which the report relates;
(b) a Portfolio valuation prepared by Datastream or some other
mutually agreed and reputable supplier of valuation services. Such
valuations will show the number of units of each investment or other
asset held, the book cost and the aggregate value of each as at the
valuation date and will normally use middle market prices for listed
investments. In the event of any change in this method the Manager
will notify the Company and the Client accordingly;
(c) a statement of any income received on the investments
held;
(d) a schedule detailing the performance of each Series broken
down into major sectors and comparing the return of the relevant
index against the return of each Series. The returns will be
compiled by the WM Company using information supplied by the
Manager; and
(e) schedules showing transactions undertaken during the
period under review.
11.3 The Manager shall attend meetings with the Company and/or the
Client from time to time as required by the Directors. Instructions as to
the management of the Portfolio of a Series given orally to the Manager at
such meetings will be confirmed in writing to the Manager as provided for
in Clause 23.
12. Material Interests
12.1 Except as specified in Clause 4.1(d) of this Agreement, the
Manager may not effect transactions for the Portfolio of a Series in which
it has directly or indirectly a material interest or any relationship with
another party which may involve a conflict of the Manager's duty to the
Company and/or the Client or any Series without prior reference to the
Company, other than transactions in units in unit trusts managed by
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Baillie Gifford & Co. Limited, an Associate of the Manager, in accordance
with the provisions of sub-clause 12.2 of this Agreement.
12.2 For the purposes of sub-clause 12.1 of this Agreement the
Manager may not effect transactions for the Portfolio of a Series in units
in unit trusts managed by Baillie Gifford & Co. Limited unless the Manager
shall first have been issued with an order of exemption by the SEC in
accordance with sub-section 17(a)(1)(b) of the 1940 Act.
13. Relevant Arrangements
The Manager may not effect transactions for the Portfolio of a
Series with or through the agency of a person who provides services under
any arrangement where that person will from time to time provide to or
procure for the Manager services or other benefits which result, or are
designed to result, in an improvement in the services which the Manager
provides to its clients and for which it may make no direct payment but
may undertake to place business with that person.
14. Taxation
Bank statements and vouchers will be sent by the Custodian to the
Client to enable the Client, on behalf of each Series, to reclaim any
credits in respect of or tax deducted from the income of the Portfolio of
such Series.
15. Fees
In consideration for the services to be provided by the Manager as
Sub-Investment Manager under this Agreement the Company shall, during the
continuance of this Agreement, pay to the Manager, fees calculated by
reference to the value of the Portfolio of each Series all in accordance
with the provisions set forth in the applicable Fee Appendix. All such Fee
Appendices shall provide that they are subject to all terms and conditions
of this Sub-Investment Advisory Agreement.
Compensation under this Agreement and the related Fee Appendices for
all Series shall be calculated and accrued daily and the amounts of the
daily accruals shall be paid quarterly, or at such other intervals agreed
to by the parties. If this Agreement becomes effective with respect to a
Series subsequent to the First day of a quarter or shall terminate before
the last day of a quarter, compensation for that part of the quarter
during which this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth in the applicable
Fee Appendix.
16. Indemnity
16.1 Neither the Manager nor any of its officers, directors, or
employees, nor any person performing executive, administrative, trading,
or other functions for the Client or any Series and/or the Company (at the
direction or request of the Manager) or the Manager in connection with the
Manager's discharge of its obligations undertaken or reasonably assumed
with respect to this Agreement, shall be liable for any error of judgment
or mistake of law or for any loss suffered by the Client or any Series
and/or the Company in connection with the matters to which this Agreement
relates, except for loss resulting from wilful misfeasance or misconduct,
wilful default, bad faith, or gross negligence in the performance of its
or his/her duties on
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behalf of the Client or any Series and/or the Company or from reckless
disregard by the Manager or any such person of the duties of the Manager
under this Agreement.
16.2 The Manager shall not be liable for the consequences of any
investment decision made hereunder or in respect of any other fund managed
by the Manager or any of its Associates which is a permitted investment
hereunder. The Manager acts only as agent for the Client and each Series
and the Company hereby undertakes to indemnify the Manager against all
actions, proceedings, claims, demands, costs and expenses which may be
brought against, suffered or incurred by the Manager by reason of its
performance of such duties, including all legal, professional and other
expenses incurred.
16.3 Notwithstanding the provisions of Clause 16.2, the Manager will
indemnify the Company and/or the Client and each Series in respect of any
loss incurred as a result of negligence or fraud by the Manager or any of
its Associates or their respective employees in their performance of the
duties under the terms of this Agreement.
17. Term and Termination of Agreement
17.1 The term of this Agreement shall begin on 11 January 1993,
provided that, with respect to any Series, this Agreement shall not take
effect unless it has first been approved by the Board of Trustees of the
Client, including a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) and by a majority of the outstanding
voting securities of that Series (as defined in the 1940 Act) and, unless
sooner terminated as hereinafter provided, this Agreement shall remain in
effect until 1 January 1995. Thereafter, this Agreement shall continue in
effect from year to year, with respect to the Company and each Series,
subject to the termination provisions and all other terms and conditions
hereof, provided such continuance is approved at least annually by the
vote of holders of a majority of the outstanding voting securities of each
Series (as defined in the 1940 Act) or by the Board of Trustees of the
Client, provided, that in either event, such continuance is also approved
annually by the vote of a majority of the Board of Trustees of the Client
who are not parties to this Agreement and are not "interested persons" (as
defined in the 1940 Act) of any party, which vote must be cast in person
at a meeting called for the purpose of voting on such approval. The
Manager shall furnish to the Client, on behalf of each Series, promptly
upon its request, such information as may reasonably be necessary to
evaluate the terms of this Agreement or any extension, renewal or
amendment hereof.
17.2 The Manager acknowledges that this Agreement may be terminated
by the Company in accordance with the following provisions of this Clause
17.2. Subject to Clause 17.3 below, the Client may, with respect to a
Series, either by majority vote of its Board of Trustees or by the vote of
a majority of the outstanding voting securities of such Series (as defined
in the 1940 Act), at any time and without the payment of any penalty,
direct the Company to terminate this Agreement upon sixty days written
notice to the Manager.
17.3 The Manager acknowledges that this Agreement may also be
terminated in accordance with the following provisions of this Clause
17.3. The Client shall also be entitled forthwith to direct the Company to
terminate the appointment of the Manager as Sub-Investment Manager
hereunder with respect to a Series, notwithstanding any period remaining
in accordance with this Clause or, no notice having been given:
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(i) if the Manager shall commit any material breach of its
obligations under this Agreement and (if such breach shall be
capable of remedy) shall fail within thirty days of receipt of
notice in writing served by the Company requiring it so to do to
make good such breach;
(ii) if an order is made or a resolution passed to wind up the
Manager or if a receiver is appointed to the whole or any part of
the property and undertaking of the Manager;
(iii) if the Shareholders Agreement dated 7 November 1990
between the Guardian Insurance & Annuity Company, Inc., the Manager
and the Company is terminated or expires by effluxion of time.
17.4 The Manager may terminate this Agreement with respect to a
Series without payment of penalty upon sixty days written notice to the
Company.
17.5 The Manager shall also be entitled to terminate forthwith this
Agreement with respect to a Series, notwithstanding any period remaining
in accordance with this Clause or, no notice having been given, if (i) the
said Shareholders Agreement between The Guardian Insurance & Annuity
Company, Inc. and the Manager and the Company is terminated or expires by
effluxion of time, or (ii) an order is made or a resolution passed to wind
up the Company, or (iii) if the Company shall commit any material breach
of its obligations under this Agreement and (if such breach shall be
capable of remedy) shall fail within 30 days of receipt of notice in
writing served by the Manager requiring it so to do to make good such
breach, or (iv) a receiver is appointed to the whole or any part of the
property and undertaking of the Company.
17.6 Termination of this Agreement as detailed in this Clause with
respect to any Series shall in no way affect the continued validity of
this Agreement or the performance thereunder with respect to any other
Series.
17.7 This Agreement shall immediately terminate in the event of its
assignation or assignment (as that term is defined in the 1940 Act) by
either party unless such automatic termination shall be prevented by an
exemptive order or rule of the SEC.
17.8 On the termination of the appointment of the Manager under the
provisions of this Clause the Manager shall be entitled to receive all
fees accrued due and outlays incurred up to the date of such termination
but shall not in the case of termination under sub-clause 17.2., 17.3 or
17.4 above, be entitled to compensation in respect of such termination.
17.9 On termination of the appointment of the Manager under the
provisions of this Clause the Manager shall deliver to the Company, or as
it shall direct, all books of account, records, registers, correspondence,
documents and assets in relation to the affairs of or belonging to the
Company and/or the Client or any Series in the possession of or under the
control of the Manager as sub-investment manager, and take all necessary
steps to vest in the Company any assets previously held in the name of or
to the order of the Manager as sub-investment manager, on behalf of the
Company.
17.10 Termination of the appointment of the Manager hereunder shall
be without prejudice to transactions already initiated, which transactions
shall be completed.
17.11 The Company and the Manager will co-operate with each other to
ensure that transactions in progress at the date of termination of the
Manager's appointment hereunder shall be completed by the Company in
accordance with the terms of such transactions and, to this end, the
Manager shall provide the Company with all necessary information and
documentation to secure implementation thereof.
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18. Non-Exclusivity
18.1 The services of the Manager hereunder are not to be deemed
exclusive and the Manager or any Associate thereof shall be free to render
investment management services, investment advisory services and corporate
administrative services to other parties (including without prejudice to
the generality of the foregoing other investment companies) on such terms
as the Manager or such Associate may arrange so long as its services under
this Agreement are not thereby impaired and to retain for its own use and
benefit fees or other moneys payable thereby. The Manager shall not be
deemed to be affected with notice of or to be under any duty to disclose
to the Company any fact or thing which may come to the notice of it or any
servant or agent of it in the course of the Manager rendering the said
services to others or in the course of its business in any other capacity
or in any manner whatsoever otherwise than in the course of carrying out
its duties under this Agreement.
18.2 The Manager agrees to permit individuals who are directors or
officers of the Manager to serve as directors or officers of the Company
and/or the Client.
19. Confidentiality
Neither of the parties hereto shall during the continuance of this
Agreement or after its termination, disclose to any person, firm or fund
whatsoever (except in the case of the Manager, with the written authority
of the Company and/or the Client or unless ordered to do so by a court of
competent jurisdiction or any regulatory body) any information of a
confidential nature relating to the business investments finances or other
matters of a confidential nature of the other party (or of the Client or
any Series) of which it may have become possessed during the period of
this Agreement and each party shall use its reasonable endeavours to
prevent any such disclosure as aforesaid.
20. Complaints
20.1 The Manager has established procedures in accordance with the
requirements of IMRO for the effective consideration of complaints by the
Company.
20.2 Should the Company and/or the Client wish to make a complaint
to the Manager about any aspect of the Manager carrying out its duties
under this Agreement or otherwise it shall in the first instance do so by
letter addressed to the director or directors of the Manager responsible
for the performance of the Manager's duties hereunder; if no satisfactory
resolution of the complaint is achieved within five days the Company
and/or the Client may repeat the complaint by letter addressed to the
Chairman of the Manager. If no satisfactory resolution is achieved within
ten days of the original complaint the Company and/or the Client may then
make its complaint (insofar as such complaint relates to the Manager's
duties as sub-investment manager hereunder) to IMRO. Notwithstanding the
above provisions the Company and/or the Client has a right of complaint
direct to IMRO.
20.3 A booklet setting out the right to investors compensation under
the Securities and Investments Board's Scheme in the event of the
Manager's inability to meet any liabilities to the Company and/or the
Client is available on request from the Manager.
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21. Arbitration
Without prejudice to the rights of the Company in accordance with
Clause 20 hereof any matters of difference between the parties arising out
of or in connection with this Agreement shall be submitted to arbitration
to be determined under Scottish Law before a sole Arbiter to be agreed
between the parties and in default of agreement to be appointed by the
President of the Law Society of Scotland for the time being. No action
shall be brought upon by any issue between the parties arising out of or
in connection with this Agreement until the same has been submitted to
arbitration pursuant hereto and an award made. Section 3(3) of the
Administration of Justice (Scotland) Act 1972 shall not apply to this
Agreement.
22. Amendments
This Agreement may be amended by mutual consent, but no amendment
shall be effective as to any given Series until it is approved by vote of
a majority of such Series' outstanding voting securities, and by the vote
of a majority of the members of the Board of Trustees of the Client,
including a majority of the Trustees who are not deemed to be interested
persons" (as defined in the 1940 Act).
Notwithstanding the foregoing, where the effect of a requirement of
the 1940 Act which is reflected in any provision of this Agreement is
relaxed by a rule, regulation or order of the SEC, whether of special or
general application, such provision shall be deemed to incorporate the
effect of such rule, regulation or order.
23. Notices
Any notice required to be given under this Agreement shall be in
writing, delivered personally or sent by first class prepaid letter or
transmitted by telex or facsimile and shall be deemed duly served if left
at or sent or (as appropriate) transmitted to the following addresses (or
to the most recent of any other address of which a party hereto shall have
given notice to the other party pursuant to this Clause):
(a) if to the Company at:
1 Rutland Court
Edinburgh EH3 8EY
Scotland
For the attention of: G. Gemmell
Facsimile number: 031-222-4099
(b) if to the Manager at:
1 Rutland Court
Edinburgh EH3 8EY
Scotland
For the attention of: G. Gemmell
Facsimile number: 031-222-4099
(c) if to the Client at:
201 Park Avenue South
New York 10003
U.S.A.
For the attention of: J.M. Smith
Facsimile number: 212-353-1845
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Notices sent by first class prepaid letter shall be deemed to be
served seven business days after posting. Evidence that the Notice was
properly addressed, stamped and put into post shall be conclusive evidence
of posting. A notice sent by facsimile transmission shall be deemed to
have been served at the time when a complete and legible copy is received
by the addressee. In this Clause "business day" means a day on which
normal banking business is carried on in Edinburgh and New York City.
24. Reliance on documents
Wherever pursuant to any provision of this Agreement any notice,
instruction or other communication is to be given by, or on behalf of, the
Company (or its Directors) to the Manager as sub-investment manager and
the Manager may accept as sufficient evidence thereof:
(i) a document signed or purporting to be signed on behalf of
the issuing party by such person or persons whose signature the
Manager is for the time being authorized by such issuing party to
accept; or
(ii) a message by tested telex, telecopier, facsimile machine
or cable transmitted by, or on behalf of, the Company (or its
Directors) by such person or persons whose messages the Manager is
for the time being authorized by the Company or its Directors to
accept, and the Manager shall not be obliged to accept any document
or message signed or transmitted or purporting to be signed or
transmitted by any other person.
25. Client's Rights Under this Agreement
The Manager agrees that the Client, in any question with the Manager
in relation to its duties as sub-investment manager hereunder, may rely on
any of the provisions of this Agreement as if it were a party hereto. The
Company shall deliver a certified copy of this Agreement to the Client by
way of intimation of the Client's rights hereunder.
26. Invalidity
The invalidity or unenforceability of any part of this Agreement
shall not prejudice or affect the validity or enforceability of the
remainder.
27. Proper Law
Notwithstanding any conflict of laws, principles or provisions which
may otherwise apply, this Agreement and the rights and obligations of the
parties shall be governed by and are to be construed in accordance with
the law of Scotland and, to the extent applicable, in accordance with the
1940 Act: IN WITNESS WHEREOF these presents typewritten on this and the
preceding pages are executed as follows: they are subscribed
for and on behalf of Baillie Gifford Overseas Limited by ,
one of its Directors, at Edinburgh, Scotland on January 1993
before these witnesses, of , , and , of
, ; and they are subscribed for and on behalf of
14
<PAGE>
Guardian Baillie Gifford Limited by John M. Smith, one of its Directors at
New York, United States of America on January 1993 before these
witnesses, Thomas R. Hickey, Jr. and Richard T. Potter, Jr. both of 201
Park Avenue South, New York, New York.
For Guardian Baillie Gifford Limited:
/s/ Thomas R. Hickey, Jr. Witness /s/ John M. Smith
- ------------------------- -------------------------------------
/s/ Richard T. Potter, Jr. Witness
- --------------------------
For Baillie Gifford Overseas Limited:
Witness
- -------------------------- -------------------------------------
Witness
- -------------------------- -------------------------------------
15
<PAGE>
SUB-INVESTMENT ADVISORY AGREEMENT FEE APPENDIX
Fee Appendix made as of January 11, 1993, between GUARDIAN BAILLIE GIFFORD
LIMITED (the "Company"), a company incorporated under the Companies Act and
registered as an investment adviser under the U.S. Investment Advisers Act of
1940, as amended ("Adviser's Act") and BAILLIE GIFFORD OVERSEAS LIMITED (the
"Manager"), a company incorporated under the Companies Act and registered under
the Adviser's Act.
WHEREAS The Park Avenue Portfolio, a Massachusetts business trust (the
"Client") has appointed the Company as investment adviser and administrator for
each series of shares of beneficial interest of the Client for which it may
enter into an Investment Advisory Fee Agreement pursuant to the Investment
Advisory Agreement dated January 11, 1993 between the Client and the Company
("Investment Advisory Agreement"); and
WHEREAS the Company has appointed the Manager as sub-investment adviser
for each series of shares of beneficial interest of the Client for which it may
enter into a Fee Appendix to the Sub-Investment Advisory Agreement dated January
11, 1993 between the Company and the Manager ("Sub-Investment Advisory
Agreement"); and
WHEREAS The Guardian Baillie Gifford International Fund (the "Series") has
been established as a series of shares of the Client;
NOW, THEREFORE, the parties agree as follows:
1. The Sub-Investment Advisory Agreement is hereby adopted for the Series.
The Series shall be one of the "Series" referred to in the Sub-Investment
Advisory Agreement. Certain capitalized terms used without definition in this
Fee Appendix have the meaning specified in the Sub-Investment Advisory
Agreement.
2. For the services provided and the expenses assumed pursuant to the
Sub-Investment Advisory Agreement, the Company will pay to the Manager a fee
(exclusive of Value Added Tax), computed daily and paid quarterly (or at such
other intervals as the parties may from time to time agree), at the monthly rate
of one thirtieth of one percent of:
A where:
---
B
"A" means the aggregate of the Values of the Portfolio as at the close of
business on each Business Day falling in that quarter; and
"B" means the number of Business Days falling in that quarter.
<PAGE>
3. Said fees due to the Manager shall be invoiced by the Manager to the
Company following the end of each quarter and shall be due and payable within
ten days of the relevant invoice. The Company shall be entitled to make such
payments on account as it may in its absolute discretion determine.
4. For the purposes of paragraph 2 above:
(i) the "Value of the Portfolio" means the aggregate of the values of the
assets of the Portfolio of the Series at the close of business on a Business
Day. The aggregate of the values of the assets shall be calculated by taking the
value of securities held in the Portfolio of the Series, plus any cash or other
assets (including dividends payable and declared but not collected) less all
liabilities (including accrued expenses, but excluding capital and surplus);
(ii) the "value of an asset" shall be taken:
(1) in the case of an investment quoted on a Stock Exchange
where market price is the recognised basis of quotation,
at the price of such investment at the close of business
of the appropriate exchange on the relevant Valuation
Date or, if there have been no sales during the day, at
the mean of the closing bid and asked prices;
(2) in the case of an investment traded only on the
over-the-counter market, at the mean between the bid and
asked prices;
(3) in the case of unquoted investments and other
investments for which market quotations are not readily
available, at the value ascertained in accordance with
such manner as the Board of Trustees of the Client have
deemed appropriate to reflect the fair value thereof;
(iii) when any asset is held or liability is outstanding in a
currency other than U.S. dollars, such asset or liability shall be notionally
converted into the U.S. dollar equivalents at the prevailing market rates quoted
by the Custodian at the close of business on the Business Day, on the relevant
Valuation Date or, if such Valuation Date is not a Business Day, on the
immediately preceding Business Day.
5. The Company shall procure that Baillie Gifford & Co. shall be
responsible for furnishing such office space, facilities and equipment and such
clerical help, administrative and bookkeeping services in Edinburgh as the
Series shall reasonably require in the conduct of its business in accordance
with the Administrative and Secretarial Agreement between Baillie Gifford & Co.
and the Company.
<PAGE>
6. This Fee Appendix shall be subject to all terms and conditions of the
Sub-investment Advisory Agreement.
7. This Fee Appendix shall become effective upon the date hereabove
written, provided that it shall not take effect unless it has first been
approved (i) by a vote of the Board of Trustees of the Client, including a
majority of those Trustees of the Client who are not parties to this Fee
Appendix or the Sub-Investment Advisory Agreement or interested persons of any
such persons at a meeting called for the purpose of such approval and (ii) by
vote of a majority of the Series' outstanding voting securities.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the 11th day of January, 1993.
FOR GUARDIAN BAILLIE GIFFORD LIMITED:
/s/ Thomas R. Hickey, Jr. Witness /s/ John M. Smith
- -------------------------- -----------------------------------
/s/ Richard T. Potter, Jr. Witness
- --------------------------
For Baillie Gifford Overseas Limited:
/s/ [ILLEGIBLE]
-----------------------------------
/s/ [ILLEGIBLE] Witness
- --------------------------
/s/ [ILLEGIBLE] Witness
- --------------------------
UNDERWRITING AGREEMENT
BETWEEN
THE PARK AVENUE PORTFOLIO
AND
GUARDIAN INVESTOR SERVICES CORPORATION
AGREEMENT made this 1st day of January, 1993 between THE PARK AVENUE PORTFOLIO,
a Massachusetts business trust (the "Trust") which may offer for public sale
separate series of shares of beneficial interest (the "Shares"), and GUARDIAN
INVESTOR SERVICES CORPORATION (the "Underwriter"), a broker-dealer registered
under the Securities Exchange Act of 1934.
The Trust and the Underwriter agree as follows:
1. The Trust hereby appoints the Underwriter as its exclusive agent for
the distribution of its Shares of beneficial interest. Such Shares may be
distributed by the Underwriter in any state or jurisdiction where they may be
legally offered.
2. The Underwriter hereby accepts such appointment and agrees that it will
use its best efforts to sell the Shares. The Underwriter may offer Shares
through agents of The Guardian Life Insurance Company of America ("Guardian
Life"), or its subsidiaries, who are licensed to sell Shares, and through
registered representatives of selected broker-dealer firms which are members of
the National Association of Securities Dealers, Inc. and which have entered into
selling agreements with the Underwriter (the "Firms").
3. The Trust agrees to execute such documents and to furnish such
information as may be reasonably necessary to register or qualify the Shares for
sale in the states or jurisdictions which the Underwriter may reasonably request
(it being understood that the Trust shall not be required without its consent to
qualify to do business in any jurisdiction or to comply with any requirement
which in its opinion is unduly burdensome).
4. The Trust, on behalf of its series, will pay or cause to be paid: (a)
expenses of any registration or qualification of the Shares for sale under the
federal securities laws and the securities laws of any state or other
jurisdiction in which the Shares shall be sold; (b) the expenses of any reports
or acts required by law in connection with such registration or
-1-
<PAGE>
qualification; and (c) the expenses incidental to the issuance of the Shares,
such as the cost of stock certificates, issue taxes, and fees of the transfer
agent. In addition, the Trust, on behalf of its series, will pay or cause to be
paid, expenses incurred in connection with the preparation, printing and
distribution of any report or communication to Shareholders in their capacity as
such.
5. The Underwriter will pay all expenses related to its registration or
qualification as a broker-dealer under federal, state or other applicable law
and, except as set forth in Section 4 above, all expenses related to the
distribution of the Shares other than: (a) expenses which the series of the
Trust may bear pursuant to any Distribution Plan and Agreement Pursuant to Rule
12b-1 under the Investment Company Act of 1940 between the Underwriter and the
Trust; or (b) expenses which one or more of the Firms may bear pursuant to any
agreements between such Firms and the Underwriter.
6. Shares of any series offered for sale or sold by the Underwriter shall
be so offered or sold at a price per share determined in accordance with the
then current Prospectus relating to the sale of such Shares except as departure
from such prices shall be permitted by the rules and regulations of the
Securities and Exchange Commission ("SEC"); provided, however, that any public
offering price for the Shares shall be the net asset value per Share plus a
sales charge in the amount, if any, set forth in the then current Prospectus of
the Trust relating to such Shares. The net asset value per Share shall be
determined in the manner and at the times set forth in the then current
Prospectus of the Trust relating to such Shares.
The price the Trust shall receive for all Shares purchased from it
shall be the net asset value used in determining the public offering price
applicable to the sale of such Shares. The excess, if any, of the sales price
over the net asset value of the Shares sold by the Underwriter as agent shall be
retained by the Underwriter as a commission for its services hereunder. The
Underwriter may allow discounts, commissions, fees or other concessions to
Firms, and may allow them to others in its discretion, in such amounts as the
Underwriter shall determine from time to time. Except as may be otherwise
determined by the Underwriter and the Trust from time to time as provided in the
then current Prospectus, such discounts, commissions, fees or other concessions
shall be uniform to all Firms.
The Underwriter will require each Firm to conform to the provisions
hereof and the Registration Statement (and related Prospectus) at the time in
effect with respect to the public offering price of the Shares, and neither the
Underwriter nor any such Firms shall withhold the placing of purchase orders so
as to make a profit thereby.
-2-
<PAGE>
7 a. The Trust agrees, as long as the Shares of any series may legally be
issued, to fill all orders confirmed by the Underwriter in accordance with the
provisions of this Agreement. However, the Trust reserves the right to suspend
or withdraw the offering of Shares of any series of the Trust at any time in its
absolute discretion, subject to applicable laws, rules and regulations.
b. The Underwriter shall order Shares from the Trust only to the extent
that it shall have received purchase orders therefor. The Underwriter will not
make, or authorize any Firms or others to make, any short sales of the Shares.
c. The Underwriter, as agent of and for the account of the Trust, may
repurchase Shares at such prices and upon such terms and conditions as shall be
specified in the current Prospectus of the Trust.
d. The Underwriter shall comply with all applicable laws, rules and
regulations, and with the Trust's Declaration of Trust, Bylaws and Registration
Statement insofar as any of the foregoing relate to its activities hereunder.
e. The Trust and the Underwriter shall agree upon procedures relating
to the sale of Shares, payment therefor, delivery of confirmations and stock
certificates and other related matters.
8. Notwithstanding the Underwriter's appointment as exclusive agent for
distribution of the Shares, the Trust in its absolute discretion may: (a) issue
Shares in connection with the acquisition of assets or shares or securities of
another corporation or entity, or in connection with a merger or consolidation
with any other corporation or entity, as and to the extent permitted by the
Declaration of Trust and any applicable laws; (b) issue or sell Shares directly
to the shareholders of its series upon such terms and conditions and for such
consideration, if any, as it may determine, whether in connection with the
distribution of subscription or purchase rights, the payment or reinvestment of
dividends or distributions, or otherwise; or (c) issue or sell Shares at net
asset value to the shareholders of any other investment company, for which the
Underwriter shall act as a distributor, who wish to exchange all or a portion of
their investment in shares of such other investment company for Shares of any
series of the Trust.
9 a. The Trust agrees to file from time to time such registration
statements and amendments thereto as may be required under the federal
securities laws or by the rules and regulations of the SEC thereunder. Any such
registration
-3-
<PAGE>
statement, as from time to time amended, relating to the Trust which may be
declared effective by the SEC is herein referred to as the "Registration
Statement", and any prospectus and statement of additional information relating
to the Trust as a part of the Registration Statement are referred to as the
"Prospectus" and "SAI", respectively.
b. The Trust will furnish to the Underwriter from time to time its
current Prospectus, SAI and such other information with respect to the Trust,
its series or its Shares as the Underwriter may reasonably request for use in
connection with the sale of the Shares.
c. The Trust authorizes the Underwriter in connection with the sale or
arranging for the sale of the Shares to give only such information and to make
only such statements or representations as are contained in the Trust's current
Prospectus or SAI or in sales literature or advertisements furnished or approved
by the Trust. The Trust shall not be responsible in any way for any other
information, statements or representations given or made by the Underwriter, its
employees, agents or representatives, or any of the selected broker-dealer firms
which have entered into selling agreements with the Underwriter.
10 a. The Trust agrees to indemnify and hold harmless the Underwriter, and
any person who controls the Underwriter within the meaning of Section 15 of the
Securities Act of 1933 (the "1933 Act"), against any and all losses, claims,
damages and liabilities (including reasonable legal and other expenses of
defending any actions) arising out of: (i) any untrue or alleged untrue
statement of a material fact contained in its Registration Statement,
Prospectus, SAI or in any sales literature or advertisements furnished or
approved by the Trust, and utilized by the Underwriter; or (ii) any omission or
alleged omission to state in the foregoing documents the material facts required
to be stated or necessary to make the statements therein not misleading, unless
such untrue or alleged untrue statement or omission or alleged omission of fact
was made in conformity with information given to the Trust by the Underwriter
specifically for use in such documents.
b. The Underwriter agrees to indemnify and hold harmless the Trust and
any person who controls the Trust within the meaning of Section 15 of the 1933
Act and each officer and Trustee of the Trust to the same extent and in the same
manner as the Trust has agreed to indemnify the Underwriter as outlined in the
preceding paragraph, but only with respect to information given to the Trust by
the Underwriter specifically for use in the Trust's Registration Statement,
Prospectus, SAI,
-4-
<PAGE>
sales literature or advertising. The Underwriter also agrees to indemnify and
hold harmless the Trust against any and all losses, claims, damages and
liabilities (including reasonable legal and other expenses of defending any
actions) arising out of or based upon any acts or deeds of the Underwriter
(including any employee, agent or sales representative of the Underwriter) which
are outside the scope of the Underwriter's authority pursuant to this Agreement.
c. The indemnity agreements in this Section 10 shall remain operative
and in full force and effect regardless of the expiration or termination of this
Agreement but only with respect to statements made, omissions or actions
occurring prior to such expiration or termination.
d. Nothing contained herein shall relieve either party of any liability
to the other or to the Trust's shareholders to which they would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence, in the
performance of their duties or by reason of their reckless disregard of their
obligations and duties under this Agreement.
11. This Agreement, which supersedes and replaces any other agreement
between the parties regarding the subject matter hereof, shall become effective
on the day that it was made and shall remain in full force and effect until
December 31, 1994. It may be continued thereafter from year to year provided
that such continuance is specifically approved at least annually in a manner
consistent with the Investment Company Act of 1940, as amended from time to time
(the "1940 Act").
12 a. Either party may terminate this Agreement with respect to any or all
series of the Trust at any time, without the payment of any penalty, on not less
than 30 nor more than 60 days written notice to the other party. The Trust's
decision to terminate this Agreement may be reached by vote of a majority of the
Board of Trustees, including a majority of the Trustees who are not "interested
persons" of the Trust, as that term is defined by the 1940 Act, or by vote of a
"majority of the outstanding voting securities" of the affected series, as that
term is defined by the 1940 Act. In addition, without prejudice to any other
remedies of the Trust, the Trust may terminate this Agreement with respect to
any or all series of the Trust at any time in its absolute discretion
immediately upon any failure by the Underwriter to fulfill its obligations
hereunder.
b. Termination of this Agreement with respect to any series shall in no
way affect the continued validity of this Agreement or the performance
thereunder with respect to any other series.
c. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
-5-
<PAGE>
13 a. This Agreement may be amended by mutual consent of the parties.
b. Where the effect of a requirement of the 1940 Act which is reflected
in any provision of this Agreement is relaxed by a rule, regulation, order or
change of interpretive position by the SEC, whether of special or general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation, order or change of interpretive position.
14. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at the principal
office of such party. Until further notice to the other party, it is agreed that
the address of both the Trust and the Underwriter is 201 Park Avenue South, New
York, New York 10003.
15. Nothing contained in this Agreement shall prevent the Underwriter, or
any affiliated person of the Underwriter, from: rendering distribution services
to other investment companies; acting as distributor to other persons, firms or
corporations; or engaging in other business activities.
16. The Trustees of the Trust and the shareholders of each series shall
not be liable for any obligations of the Trust or any series under this
Agreement, and the Underwriter or any other person, in asserting rights or
claims under this Agreement, shall look only to the assets and property of the
Trust or such series in settlement of such right or claim, and not to such
Trustees or shareholders.
17. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the Trust and the Underwriter have executed this
Agreement in the City and State of New York on the date set forth above.
Attest: THE PARK AVENUE PORTFOLIO
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- ------------------------------ ------------------------------------
Secretary
Attest: GUARDIAN INVESTOR SERVICES CORPORATION
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- ------------------------------ ------------------------------------
Secretary
-6-
Exhibit 99.6(b)
[Logo]
Guardian Investor
The Park Avenue Portfolio(R) Selling Group Agreement Service Corporation
- --------------------------------------------------------------------------------
Dear Broker/Dealer:
Guardian Investor Services Corporation ("GISC") invites you to become a member
of the selling group which distributes of the shares of the series funds
comprising The Park Avenue Portfolio and any other funds introduced from time to
time for which GISC is the principal underwriter (collectively referred to as
the "Funds") in those states or jurisdictions where shares of the Funds may
legally be offered for sale. Our Agreement shall be on the following terms:
1 You are to offer and sell shares of the Funds to your customers only at their
respective public offering prices as determined in the manner described in the
currently effective Prospectus for the Fund(s), copies of which will be provided
to you by GISC. Within this Agreement, references to a "Prospectus" shall mean
the prospectus and statement of additional information for the applicable Fund
or Funds as in effect from time to time.
2 You agree to purchase shares of the Funds solely through GISC and only for the
purpose of covering purchase orders either already received from customers or
for your own bona fide investment. You agree not to purchase shares of the Funds
on behalf of any other securities dealer or broker and you further agree not to
withhold placing any customer's order for your own profit.
3 All purchase orders are subject to acceptance by the Fund which issues the
shares being purchased and to GISC's receipt of the shares from the issuing
Fund. GISC and the Funds reserve the right, each in its sole discretion and
without notice to you (although GISC will make reasonable efforts to give such
notice), to reject a purchase order or suspend sales or withdraw the offering of
shares entirely.
4 Any sales load charged with respect to a Fund and dealer concessions paid or
allowed to you for Fund purchase orders are detailed in the current Prospectus
for the Fund(s). You are advised that sales loads, dealer concessions,
discounts, commissions and all other forms of compensation described in this
Agreement are subject to change at any time by the Funds or GISC. No dealer
concession or commission is applicable to purchase orders for shares purchased
at net asset value or to shares which are acquired by exchange or dividend
reinvestment at net asset value unless otherwise provided by the Prospectus for
the Fund(s).
5 GISC is authorized to pay you continuing compensation in accordance with the
provisions and terms of the effective Distribution Plan and Agreement Pursuant
to Rule 12b-1 under the investment Company Act of 1940 ("Distribution Plan")
applicable to the Fund(s). The provisions and terms of the Distribution Plan are
described in the Prospectus for the Fund(s).
6 All dealer concessions, discounts, commissions or other forms of compensation
described in this Agreement shall be payable to you only to the extent that
funds to pay them are received by and in the possession of GISC. No interest
will accrue on amounts represented by uncashed checks relating to any such
payments.
7 Payment for shares ordered by you shall be in the amount of the applicable
public offering price, and shall be received by the transfer agent for the
issuing Fund within five (5) business days after your order has been accepted.
If such payment is not received by the transfer agent in a timely manner, GISC
reserves the right, without notice, either to cancel the sale immediately, or,
at GISC's option, to sell the shares ordered back to the applicable Fund
immediately. In either case, GISC may hold you responsible for any loss,
including loss of profit, suffered by GISC or by the applicable Fund, as a
result of your failure to make payment as set forth above. If any shares sold to
you under the terms of this Agreement are repurchased by the issuing Fund (or by
GISC as its agent) or are tendered for redemption within seven (7) business days
after the date of the confirmation of the original purchase order from you, it
is agreed that you shall forfeit your right to any dealer concession paid or
allowed to you on such shares.
8 Orders received by GISC prior to the close of GISC's business day or received
by the transfer agent prior to the earlier of 4:00 p.m. Eastern time or the
close of trading on the New York Stock Exchange ("NYSE"), are transacted at the
public offering price(s) of the applicable Fund(s) computed as of such time on
that day.
9 It is recommended that purchases be made through the use of book-entry
accounts maintained by the transfer agent, but certificates will be issued to
owners on request. Such certificates will only be issued after payment has been
received and will be forwarded to you for delivery to your customer.
Certificates will not be issued for shares of The Guardian Cash Management Fund
or any other "money market" fund to which this Agreement may apply.
10 The Funds will redeem their shares from shareholders and brokers on demand
only in accordance with the procedures described in the current Prospectus for
the Fund(s).
11 It is agreed and understood that GISC is the exclusive agent for the Funds
and that you act as principal for your own account. You shall have no authority
to act as agent for either the Funds or for GISC, and nothing in this Agreement
shall constitute a designation of the Funds or GISC as your agent.
12 Shares are offered pursuant to the current Prospectus for the Fund(s). No
person is authorized to make any representations concerning the Funds or their
shares, except those contained in: (a) the current Prospectus for the Fund(s);
and (b) such printed or machine readable information as may be authorized and
released by GISC or the Funds as supplemental to the Prospectus. Any
supplemental information regarding a hypothetical investment in any Fund which
is released in a machine readable format is authorized for use only in
one-on-one presentations to a customer. Additional copies of the current
Prospectus for the Fund(s) and any information supplementing the Prospectus will
be supplied to you in reasonable quantities upon request; provided, however,
that a fee may be charged for information which is released in a machine
readable format. All other materials relating to the Funds must be approved by
GISC in writing before distribution or display to the public.
13 Either party shall have the right to cancel this Agreement at any time upon
written or telegraphic notice given to the other party. GISC reserves the right
to amend this Agreement at any time, and you agree that a purchase order placed
by you after notice of any such amendment has been sent to you shall constitute
your acceptance of such amendment.
14 You and GISC agree to abide by all rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD"), including its Rules of Fair
Practice, all federal and state securities statutes, rules and regulations and
all other applicable laws, rules or regulations.
15 You certify that you are a member in good standing of the NASD.
Notwithstanding paragraph 13 above, you agree that this Agreement shall
terminate without notice upon your: (a) expulsion from the NASD; (b) filing of a
petition in bankruptcy or a petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
applicable law; or (c) seeking the appointment of any trustee, conservator,
receiver, custodian or liquidator for you or for all or substantially all of
your properties. Likewise, notwithstanding paragraph 13, you agree that this
Agreement shall terminate without notice: (a) if a proceeding is commenced
against you seeking relief or an appointment of a type described in the
immediately preceding sentence; or (b) if an application for a protective decree
under the provisions of the Securities Investor Protection Act of 1970 shall
have been filed against you; or (c) if you are a registered broker-dealer and
(i) the Securities and Exchange Commission ("SEC") shall revoke or suspend your
registration as a broker-dealer, (ii) any national securities exchange or
national
<PAGE>
securities association shall revoke or suspend your membership, or (iii) under
any applicable net capital rule of the SEC or of any national securities
exchange to which you are subject, your aggregate indebtedness shall exceed
1,000% of your net capital. You agree that you will immediately advise GISC of
any such proceeding, appointment, application, revocation, suspension or
indebtedness level.
16 The parties agree that all disputes between them, whether existing on the
date hereof or arising hereafter, shall be submitted to arbitration in
accordance with the Code of Arbitration Procedure of the NASD, or any similar
rules or code which is in effect when such dispute is submitted.
17 All communications to GISC or the Funds should be sent to the address set
forth below. This Agreement is not assignable and supersedes all previous
agreements and amendments between the parties concerning the distribution of
shares of any of the Funds for which GISC is the principal underwriter, except
any selling agreement in effect between you and GISC which provides for the
offering of variable contracts issued by The Guardian Insurance & Annuity
Company, Inc.
18 You agree that you shall indemnify and hold harmless GISC and the Funds, and
their affiliates, officers, trustees, directors, employees, shareholders and
agents against any claims, losses, costs or liabilities, including attorneys'
fees, that may be assessed against, or suffered or incurred by any of them,
howsoever they arise and as they are incurred, which relate in any way to: (a)
any use of supplemental hypothetical information authorized and released by GISC
in a machine readable format other than in one-on-one presentations, or any
misuse of or alteration to any form of supplemental information authorized and
released by GISC; provided, however, that the addition of the name of a customer
or other identifying or variable information within such supplemental
information is permitted if such supplemental information calls for such
addition; (b) any transactions or other activity processed through National
Securities Clearing Corporation programs, including the automated mutual fund
order entry, settlement and registration verification system known as Fund/Serv;
(c) the loss of favorable tax status by an IRA Plan or of an IRA contribution,
any revocation of an IRA by an individual, any failed trades for IRA Plans
hereunder, or any contribution accepted in violation of Internal Revenue Code
provisions regarding IRAs (the indemnification provided under this subparagraph
(c) also extends to the IRA Custodian or IRA Trustee); (d) improper compliance
with federal, state or local reporting or backup withholding requirements,
including losses resulting from omitted, incorrect or uncertified Tax
Identification Numbers; and (e) any breach of your representations or
warranties, or failure to comply with your obligations, all as set forth in this
Agreement.
You agree to notify us within a reasonable time of any claim against you or any
person controlling, controlled by or under common control with you within the
meaning of the Securities Act of 1933 with respect to this Agreement or
securities offered or sold pursuant to this Agreement.
Nothing in this paragraph 18 shall be deemed to preclude an indemnified party
from seeking monetary damages and/or injunctive relief in connection with such
claims, losses and liabilities.
19 The trustees and shareholders of any Fund which may be organized as (or
comprise a series of) a business trust under the laws of the Commonwealth of
Massachusetts shall not be liable for any obligations of such Fund or related
trust under this Agreement, and any person who asserts any rights or claims
against such Fund or related trust hereunder shall look only to the assets and
property thereof in settlement of such right or claim, and not to the trustees
or shareholders.
20 This Agreement shall be construed in accordance with applicable federal law
and the laws of the State of New York (except as to paragraph 19 which shall be
construed in accordance with the laws of the Commonwealth of Massachusetts).
Your signature below will signify your acceptance of all of the above terms of
this Agreement. Accepted and agreed to by:
Name of Firm (print or type) ___________________________________________________
Street Address _________________________________________________________________
City __________________________ State _______________ Zip ______________________
Date _____________________________ By: _________________________________________
Authorized Signature
_________________________________________
Full Name and Title
In order to service you efficiently, please provide the following information
about your Mutual Fund Operations Department:
Operations Manager: _________________________________ Phone: ___________________
Order Room Manager: _________________________________ Phone: ___________________
Operations Mailing Address: ____________________________________________________
Operations Fax: _____________________________________
Remember: Please return one signed copy of this Agreement to GISC and retain the
other copy.
Accepted on behalf of Guardian Investor Services Corporation:
Date By: /s/ John M. Smith, President
------------------------------------- ---------------------------------
Guardian Investor Services Corporation (R)
Member, National Association of Securities Dealers, Inc./Securities Investor
Protection Corporation
201 Park Avenue South, New York, NY 10003
Tollfree: 1-800-221-3253 Fax: (212) 353-1845 EB-97 2/93
Exhibit 99.8
CUSTODIAN CONTRACT
Between
THE PARK AVENUE PORTFOLIO
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
1. Employment of Custodian and Property to be Held By It ................. 2
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States ................ 3
2.1 Holding Securities .............................................. 3
2.2 Delivery of Securities .......................................... 3
2.3 Registration of Securities ...................................... 9
2.4 Bank Accounts ................................................... 9
2.5 Availability of Federal Funds ................................... 10
2.6 Collection of Income ............................................ 11
2.7 Payment of Fund Monies .......................................... 12
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased ................................. 15
2.9 Appointment of Agents ........................................... 15
2.10 Deposit of Fund Assets in Securities System ..................... 15
2.10A Fund Assets Held in the Custodian's Direct
Paper System .................................................... 18
2.11 Segregated Account ............................................... 20
2.12 Ownership Certificates for Tax Purposes .......................... 22
2.13 Proxies .......................................................... 22
2.14 Communications Relating to Portfolio
Securities ........................................................ 22
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States ............................ 23
3.1 Appointment of Foreign Sub-Custodians ............................ 23
3.2 Assets to be Held ................................................ 24
3.3 Foreign Securities Depositories .................................. 24
3.4 Segregation of Securities ........................................ 24
3.5 Agreements with Foreign Banking Institutions ..................... 25
3.6 Access of Independent Accountants of the Fund .................... 26
3.7 Reports by Custodian ............................................. 26
3.8 Transactions in Foreign Custody Account .......................... 26
3.9 Liability of Foreign Sub-Custodians .............................. 27
3.10 Liability of Custodian ........................................... 28
3.11 Reimbursement for Advances ....................................... 29
3.12 Monitoring Responsibilities ...................................... 30
3.13 Branches of U.S. Banks ........................................... 30
3.14 Tax Law .......................................................... 31
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund ................................................. 32
5. Proper Instructions ................................................... 33
6. Actions Permitted Without Express Authority ........................... 33
7. Evidence of Authority ................................................. 34
<PAGE>
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income ..................... 35
9. Records ............................................................... 35
10. Opinion of Fund's Independent Accountants ............................. 36
11. Reports to Fund by Independent Public Accountants ..................... 36
12. Compensation of Custodian ............................................. 37
13. Responsibility of Custodian ........................................... 37
14. Effective Period, Termination and Amendment ........................... 39
15. Successor Custodian ................................................... 41
16. Interpretive and Additional Provisions ................................ 42
17. Additional Funds ...................................................... 43
18. Massachusetts Law to Apply ............................................ 43
19. Severability .......................................................... 44
20. Limitations of Liability of the Trustees and the
Shareholders .......................................................... 44
21. Prior Contracts ....................................................... 44
<PAGE>
CUSTODIAN CONTRACT
This Contract between The Park Avenue Portfolio, a business trust
organized and existing under the laws of The Commonwealth of Massachusetts,
having its principal place of business at 201 Park Avenue South, New York, New
York 10003 hereinafter called the "Fund", and State Street Bank and Trust
Company, a Massachusetts trust company, having its principal place of business
at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in seven series, The
Guardian Park Avenue Fund, The Guardian Baillie Gifford International Fund, The
Guardian Investment Quality Bond Fund, The Guardian U.S. Government Fund, The
Guardian Tax-Exempt Fund, The Guardian Cash Management Fund and The Guardian
Asset Allocation Fund (such series together with all other series subsequently
established by the Fund and made subject to this Contract in accordance with
paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
<PAGE>
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such sub-
custodian has to the Custodian.
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The Custodian may employ as sub-custodian for the Fund's foreign securities on
behalf of the applicable Portfolio(s) the foreign banking institutions and
foreign securities depositories designated in Schedule A hereto but only in
accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System" and (b) commercial
paper of an issuer for which State Street Bank and Trust Company acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to Section
2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by each Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only upon
receipt of Proper Instructions from the Fund on behalf of
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<PAGE>
a Portfolio, which may be continuing instructions when deemed appropriate
by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name
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<PAGE>
of any sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new
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<PAGE>
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
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<PAGE>
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization
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<PAGE>
or organizations, regarding account deposits in connection
with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of Shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
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<PAGE>
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
applicable Portfolio or in the name of any nominee of the Fund on behalf
of such Portfolio or of any nominee of the Custodian which nominee shall
be assigned exclusively to such Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities of a Portfolio in "street name", the
Custodian shall utilize its best efforts only to timely collect income due
the Portfolio on such securities and to notify the Fund, on behalf of the
Portfolio, on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the
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<PAGE>
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of a Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such bank
or trust company and the funds to be deposited with each such bank or
trust company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Trustees of the Fund. Such funds shall
be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf of
a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks
-10-
<PAGE>
received in payment for Shares of such Portfolio which are deposited into
the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on the
date of payment by the issuer, such securities are held by the Custodian
or its agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2(10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of
the income to which the Portfolio is properly entitled.
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<PAGE>
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of each Portfolio, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out monies of a
Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth
in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth
-12-
<PAGE>
in Section 2.10A; (d) in the case of repurchase agreements
entered into between the Fund on behalf of the Portfolio and
the Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the Custodian
along with written evidence of the agreement by the Custodian
to repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund
as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
-13-
<PAGE>
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but Quiz upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
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<PAGE>
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of domestic securities for the account of
a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from
the Fund on behalf of such Portfolio to so pay in advance, the Custodian
shall be absolutely liable to the Fund for such securities.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain domestic securities owned by each Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein
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<PAGE>
as "Securities System" in accordance with applicable Federal Reserve Board
and Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep domestic securities of a Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of a
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for domestic securities purchased for
the account of a Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer
domestic securities sold for the account of a
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<PAGE>
Portfolio upon (i) receipt of advice from the Securities
System that payment for such securities has been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such transfer and payment for the
account of the Portfolio. Copies of all advices from the
Securities System of transfers of domestic securities for the
account of a Portfolio shall identify the Portfolio, be
maintained for the Portfolio by the Custodian and be provided
to the Fund, on behalf of the Portfolio, upon request. Upon
request, the Custodian shall furnish the Fund, on behalf of a
Portfolio, confirmation of each transfer to or from the
account of the Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of
the Portfolio;
4) The Custodian shall provide the Fund with any report regarding
any Portfolio obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
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<PAGE>
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of each
Portfolio for any loss or damage to a Portfolio resulting from
use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of
the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against
the Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if and to
the extent that the Fund or the applicable Portfolio has not
been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities
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<PAGE>
owned by a Portfolio in the Direct Paper System of the Custodian subject
to the following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the
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<PAGE>
records of the Custodian to reflect such transfer and receipt
of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of
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<PAGE>
the Portfolio, the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance with
the rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading Commission
or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or
written by the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of compliance
by the Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the Securities
and Exchange Commission relating to the maintenance of segregated accounts
by registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Trustees or of
the Executive Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated
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<PAGE>
account and declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal, state and
local tax purposes in connection with receipt of income or other payments
with respect to domestic securities held by the Custodian for each
Portfolio and in connection with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations of rights
in connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the applicable Portfolio and the maturity
of futures contracts purchased or sold by such
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Portfolio) received by the Custodian from issuers of the securities being
held for each such Portfolio. With respect to tender or exchange offers,
the Custodian shall transmit promptly to each Portfolio all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If a Portfolio desires to take action with
respect to any tender offer, exchange offer or any other similar
transaction, the Portfolio shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the securities and other assets maintained outside the
United States on behalf of the Portfolios designated on Schedule A hereto
the foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt
of "Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Fund's Board of Trustees, the
Custodian and the Fund may agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign
securities depositories
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to act as sub-custodians. Upon receipt of Proper Instructions, the Fund
may instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the applicable Portfolio's
assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to:
(a) "foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine to
be reasonably necessary to effect the Portfolio's foreign securities
transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to each applicable Portfolio of the Fund, the foreign securities
of each such Portfolio held by each foreign sub-custodian. Each agreement
pursuant to which the Custodian employs a foreign banking institution
shall require that such institution establish
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a custody account for the Custodian on behalf of the Fund for each
applicable Portfolio of the Fund and physically segregate in each account,
securities and other assets of each of the Portfolios, and, in the event
that such institution deposits the securities of one or more of the
Portfolios in a foreign securities depository, that it shall identify on
its books as belonging to the Custodian, as agent for each applicable
Portfolio, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agents, except a claim of payment for their safe custody
or administration; (b) beneficial ownership for the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the
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Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian or
its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such
foreign banking institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of each Portfolio held by foreign sub-custodians, including
but not limited to an identification of entities having possession of each
Portfolio's securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account maintained
by a foreign banking institution for the Custodian on behalf of each
applicable Portfolio indicating, as to securities acquired for a
Portfolio, the identity of the entity having physical possession of such
securities.
3.8 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section 3.8, the
provision of Sections 2.2 and 2.7 of
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this Contract shall apply, mutatis mutandis to the foreign securities of
the Fund held outside the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account
of each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities
to the purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold
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harmless, the Custodian, the Fund and the Fund's applicable Portfolios
from and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the institution's performance of such
obligations. At the election of the Fund, it and its applicable Portfolios
shall be entitled to be subrogated to the rights of the Custodian with
respect to any claims against a foreign banking institution as a
consequence of any such loss, damage, cost, expense, liability or claim if
and to the extent that the Fund and its applicable Portfolios have not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.13 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
paragraph 3.10, in delegating custody duties to State Street London Ltd.,
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the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of
such Portfolios assets to the extent necessary to obtain reimbursement.
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3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign sub-
custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the applicable
Portfolios of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange Commission
is notified by such foreign sub-custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below
$200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles).
3.13 Branches of U.S. Banks
(a) Except as otherwise set forth in this Contract, the provisions hereof
shall not apply where the custody of a Portfolio's assets are maintained
in a foreign branch of a banking institution which is a "bank" as defined
by Section 2(a)(5) of the Investment Company Act of 1940 meeting the
qualification set forth in Section 26(a) of
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said Act. The appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall
be maintained in an interest bearing account established for the Fund with
the Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law
The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or
any state or political subdivision thereof. It shall be the responsibility
of the Fund to notify the Custodian of the obligations imposed on the Fund
or the Custodian as custodian of the Fund by the tax law of jurisdictions
other than those mentioned in the above sentence, including responsibility
for withholding and other taxes, assessments or other governmental
charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law shall be to
use reasonable efforts to assist the Fund with respect to any claim for
exemption or refund under the tax law of jurisdictions for which the Fund
has provided such information.
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4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
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5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for each Portfolio's assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
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1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund on behalf of
the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Portfolio except as otherwise directed by the
Board of Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
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8. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per Share. If so directed, the Custodian
shall also calculate daily the net income of any Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio(s), and shall
advise the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of each Portfolio shall be made at the time or times described
from time to time in the Fund's currently effective prospectus related to each
such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a- 2 thereunder. All such records shall be the property of
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the Fund and shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by each Portfolio and shall, when requested to do
so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other reports to the Securities and Exchange Commission
and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall promptly provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System or the Direct Paper System, relating to the services
provided by the Custodian under
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this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall exercise the
standard of care observed by a professional Custodian engaged in the banking or
trust company industry who has professional expertise in financial and
securities processing transactions and custody, in carrying out' the provisions
of this Contract, but shall be kept indemnified by and shall be without
liability to the Fund for any action taken or omitted by it in good faith
without negligence.
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It shall be entitled to rely on and may act upon advice of Fund counsel on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund to
maintain custody or any securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
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If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's assets to
the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
14.1 This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary
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or an Assistant Secretary that the Board of Trustees of the Fund has approved
the initial use of a particular Securities System by such Portfolio and the
receipt of an annual certificate of the Secretary or an Assistant Secretary that
the Board of Trustees has reviewed the use by such Portfolio of such Securities
System, as required in each case by Rule 17f-4 under the Investment Company Act
of 1940, as amended and that the Custodian shall not with respect to a Portfolio
act under Section 2.10A hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has reviewed the use by such
Portfolio of the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration of Trust, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of its Board of Trustees (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
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Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
14.2 Termination of this Contract with respect to any given Portfolio
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Portfolio.
15. Successor Custodian
If a successor custodian for the Fund, or for one or more of the
Portfolios shall be appointed by the Board of Trustees of the Fund, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the
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Custodian shall have the right to deliver to a bank or trust company, which is a
"bank" as defined in the Investment Company Act of 1940, doing business in
Boston, Massachusetts, of its own selection, having an aggregate capital,
surplus, and undivided profits, as shown by its last published report, of not
less than $25,000,000, all securities, funds and other properties held by the
Custodian on behalf of each applicable Portfolio and all instruments held by the
Custodian relative thereto and all other property held by it under this Contract
on behalf of each applicable Portfolio and to transfer to an account of such
successor custodian all of the securities of each such Portfolio held in any
Securities System. Thereafter, such bank or trust company shall be the successor
of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may
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from time to time agree on such provisions interpretive of or in addition to the
provisions of this Contract as may in their joint opinion be consistent with the
general tenor of this Contract. Any such interpretive or additional provisions
shall be in a writing signed by both parties and shall be annexed hereto,
provided that no such interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the Declaration of
Trust of the Fund. No interpretive or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to The Guardian Park Avenue Fund, The Guardian Baillie Gifford
International Fund, The Guardian Investment Quality Bond Fund, The Guardian U.S.
Government Fund, The Guardian Tax-Exempt Fund, The Guardian Cash Management Fund
and The Guardian Asset Allocation Fund with respect to which it desires to have
the Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
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19. Severability
If any provision of this Contract shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Contract shall not
be affected thereby.
20. Limitations of Liability of the Trustees and Shareholders
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as Trustees
and not individually and that the obligations of this instrument are not binding
upon any of the Trustees or Shareholders individually but are binding only upon
the assets and property of the Fund.
21. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
-44-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 31st day of December, 1992.
ATTEST THE PARK AVENUE PORTFOLIO
/s/[SIGNATURE ILLEGIBLE] By /s/[SIGNATURE ILLEGIBLE]
- ----------------------------- -----------------------------
Secretary Vice President
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ Claire E. Rodowicz By /s/[SIGNATURE ILLEGIBLE]
- ----------------------------- -----------------------------
Assistant Secretary Senior Vice President
-45-
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of The Park Avenue
Portfolio for use as sub-custodians for the Portfolio Funds' securities and
other assets:
FOREIGN CUSTODIANS
Australia - Australia and New Zealand Banking Group Ltd.
Austria - GiroCredit Bank Aktiengesellschaft der Sparkassen
Belgium - Banque Bruxelles Lambert
Denmark - Den Danske Bank
Finland - Kansallis-Osake-Pankki
France - Credit Commercial de France
Germany - Berliner Handels-Und Frankfurter Bank
Hong Kong - Standard Chartered Bank
Ireland - Bank of Ireland
Italy - Credito Italiano
Japan - Sumitomo Trust and Banking Co. Ltd.
Malaysia - Standard Chartered Bank
Mexico - Citibank, N.A.
Netherlands - Bank Mees & Hope N.V.
New Zealand - Westpac Banking Corporation
Norway - Christiania Bank og Kreditkasse
Philippines - Standard Chartered Bank
Poland - Bank Polska Kasa Opieki, S.A.
Portugal - Banco Comercial Portugues
Singapore - The Development Bank of Singapore Ltd.
Spain - Banco Central Hispanoamericano, S.A.
<PAGE>
Sweden - Skandinaviska Enskilda Banken
Switzerland - Union Bank of Switzerland
Thailand - Standard Chartered Bank
United Kingdom - State Street London Ltd.
FOREIGN DEPOSITORIES
Australia - Austraclear Limited
Austria - Oesterreichische Kontrollbank AG
Belgium - Caisse Interprofessionelle de Depots et de
Virements de Titres S.A.
Euroclear
Denmark - Vaerdipapircentralen, The Danish Securities Center
France - Societe Interprofessionelle pour la
Compensation des Valeurs Mobilieres, SICOVAM
Germany - Deutscher Kassenverein AG, DKV
Italy - Monte Titoli, SpA
Luxembourg - Centrale de Livraison de Valeurs Mobilieres SA (Cedel)
Mexico - Instituto para el Deposito de Valores, INDEVAL
Netherlands - Nederlands Centreal Instituut voor Giraal
Effectenverkeer
Norway - Verdipapirsentralen, The Norwegian Registry
of Securities
Poland - Centrum Krajowego Depozytu
Papierow Wartosciowych
Portugal - Central de Valores Mobiliarios
Singapore - The Central Depository (Pte) Limited, CDP
Sweden - Vardepapperscentralen
Switzerland - Schweizerische Effekten-Giro A.G.
Certified: /s/Joseph A. Caruso Date: January 14, 1993
--------------------------- ------------------------
Joseph A. Caruso, Secretary
<PAGE>
EXHIBIT 1
CUSTODIAN AGREEMENT
TO:
Gentlemen:
The undersigned ("State Street") hereby requests that you (the "Bank")
establish a custody account and a cash account for each State Street client
whose account is identified to this Agreement. Each such custody or cash account
as applicable will be referred to herein as the "Account" and will be subject to
the following terms and conditions:
1. The Bank shall hold as agent for State Street and shall physically
segregate in the Account such cash, bullion, coin, stocks, shares, bonds,
debentures, notes and other securities and other property which is delivered to
the Bank for that State Street Account (the "Property").
2. (a) Without the prior approval of State Street it will not deposit
securities in any securities depository or utilize a clearing agency,
incorporated or organized under the laws of a country other than the United
States, unless such depository or clearing house operates the central system for
handling of securities or equivalent book-entries in that country or operates a
transnational system for the central handling of securities or equivalent book-
entries.
(b) When Securities held for an Account are deposited in a
securities depository or clearing agency by the Bank, the Bank shall identify on
its books as belonging to State Street as agent for such Account, the Securities
so deposited.
The Bank represents that either:
3. (a) It currently has stockholders' equity in excess of $200 million (US
dollars or the equivalent of US dollars computed in accordance with generally
accepted US accounting principles) and will promptly inform State Street in the
event that there appears to be a substantial likelihood that its stockholders'
equity will decline below $200 million, or in any event, at such time as its
stockholders' equity in fact declines below $200 million; or
(b) It is the subject of an exemptive order issued by the United
States Securities and Exchange Commission, which such order permits State Street
to employ the Bank as a subcustodian, notwithstanding the fact that the Bank's
stockholders' equity is currently below $200 million or may in the future
decline below $200 million due to currency fluctuation.
4. Upon the written instructions of State Street as permitted by Section
8, the Bank is authorized to pay out cash from the Account and to sell, assign,
transfer, deliver or exchange, or to purchase for the Account,
<PAGE>
any and all stocks, shares, bonds, debentures, notes and other securities
("Securities"), bullion, coin and other property, but only as provided in such
written instructions. The Bank shall not be held liable for any act or omission
to act on instructions given or purported to be given should there be any error
in such instructions.
5. Unless the Bank receives written instructions of State Street to the
contrary, the Bank is authorized:
a. To promptly receive and collect all income and principal with
respect to the Property and to credit cash receipts to the Account;
b. To promptly exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary Securities for those in definitive form and the exchange
of warrants, or other documents of entitlement to Securities, for
the Securities themselves);
c. To promptly surrender Securities at maturity or when called for
redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock
split is received for the Account and such rights entitlement or
fractional interest bears an expiration date, the Bank will endeavor
to obtain State Street's instructions, but should these not be
received in time for the Bank to take timely action, the Bank is
authorized to sell such rights entitlement or fractional interest
and to credit the Account;
e. To hold registered in the name of the nominee of the Bank or its
agents such Securities as are ordinarily held in registered form;
f. To execute in State Street's name for the Account, whenever the Bank
deems it appropriate, such ownership and other certificates as may
be required to obtain the payment of income from the Property; and
g. To pay or cause to be paid from the Account any and all taxes and
levies in the nature of taxes imposed on such assets by any
governmental authority, and shall use reasonable efforts to promptly
reclaim any foreign withholding tax relating to the Account.
6. If the Bank shall receive any proxies, notices, reports, or other
communications relative to any of the Securities of the Account in connection
with tender offers; reorganizations, mergers, consolidations, or similar events
which may have an impact upon the issuer thereof, the Bank shall promptly
transmit any such communication to State Street by means as will permit State
Street to take timely action with respect thereto.
7. The Bank is authorized in its discretion to appoint brokers and agents
in connection with the Bank's handling of transactions relating to the Property
provided that any such appointment shall not relieve the Bank of any of its
responsibilities or liabilities hereunder.
<PAGE>
8. Written instructions shall include (i) instructions in writing signed
by such persons as are designated in writing by State Street (ii) telex or
tested telex instructions of State Street, (iii) other forms of instruction in
computer readable form as shall be customarily utilized for the transmission of
like information and (iv) such other forms of communication as from time to time
shall be agreed upon by State Street and the Bank.
9. The Bank shall supply periodic reports with respect to the safekeeping
of assets held by it under this Agreement. The content of such reports shall
include but not be limited to any transfer to or from any Account held by the
Bank hereunder and such other information as State Street may reasonably
request.
10. In addition to its obligations under Section 2 hereof, the Bank shall
maintain such other records as may be necessary to identify the assets hereunder
as belonging to each State Street client identified to this Agreement from time
to time.
11. The Bank agrees that its books and records relating to its actions
under this Agreement shall be opened to the physical, on-premises inspection and
audit at reasonable times by officers of, auditors employed by or other
representatives of State Street (including to the extent permitted under
___________ law the independent public accountants for any entity whose Property
is being held hereunder) and shall be retained for such period as shall be
agreed by State Street and the Bank.
12. The Bank shall be entitled to reasonable compensation for its services
and expenses as custodian under this Agreement, as agreed upon from time to time
by the Bank and State Street.
13. The Bank shall exercise reasonable care in the performance of its
duties as are set forth or contemplated herein or contained in instructions
given to the Bank which are not contrary to this Agreement, and shall maintain
adequate insurance and agrees to indemnify and hold State Street and each
Account from and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the Bank's' performance of its obligations
hereunder.
14. The Bank agrees that (i) the Property is not subject to any right,
charge, security interest, lien or claim of any kind in favor of the Bank or any
of its agents or its creditors except a claim of payment for their safe custody
and administration and (ii) the beneficial ownership of the Property shall be
freely transferable without the payment of money or other value other than for
safe custody or administration.
15. This Agreement may be terminated by the Bank or State Street by at
least 60 days' written notice to the other, sent by registered mail or express
courier. The Bank, upon the date this Agreement terminates pursuant to notice
which has been given in a timely fashion, shall deliver the Property in
accordance with written instructions of State Street specifying the name(s) of
the person(s) to whom the Property shall be delivered.
<PAGE>
16. The Bank and State Street shall each use its best efforts to maintain
the confidentiality of the Property in each Account, subject, however, to the
provisions of any laws requiring the disclosure of the Property.
17. The Bank agrees to follow such Operating Requirements as State Street
may require from time to time. A copy of the current State Street Operating
Requirements is attached as an exhibit to this Agreement.
18. Unless otherwise specified in this Agreement, all notices with respect
to matters contemplated by this Agreement shall be deemed duly given when
received in writing or by tested telex by the Bank or State Street at their
respective addresses set forth below, or at such other address as specified in
each case in a notice similarly given:
To State Street: Global Custody Services Division
STATE STREET BANK AND TRUST
COMPANY
P.O. Box 470
Boston, Massachusetts 02102
To the Bank:
19. This Agreement shall be governed by and construed in accordance with
the laws of __________________.
Please acknowledge your agreement to the foregoing by executing a copy of
this letter.
Very truly yours,
STATE STREET BANK AND TRUST
COMPANY
By ________________________________
Agreed to by:
By _______________________________
Date _____________________________
scust/
<PAGE>
EXHIBIT 1
CUSTODIAN AGREEMENT
TO:
Gentlemen:
The undersigned ("State Street") hereby requests that you (the "Bank")
establish a custody account and a cash account for each State Street client
whose account is identified to this Agreement. Each such custody or cash account
as applicable will be referred to herein as the "Account" and will be subject to
the following terms and conditions:
1. The Bank shall hold as agent for State Street and shall physically
segregate in the Account such cash, bullion, coin, stocks, shares, bonds,
debentures, notes and other securities and other property which is delivered to
the Bank for that State Street Account (the "Property").
2. (a) Without the prior approval of State Street it will not deposit
securities in any securities depository or utilize a clearing agency,
incorporated or organized under the laws of a country other than the United
States, unless such depository or clearing house operates the central system for
handling of securities or equivalent book-entries in that country or operates a
transnational system for the central handling of securities or equivalent book-
entries.
(b) When Securities held for an Account are deposited in a
securities depository or clearing agency by the Bank, the Bank shall identify on
its books as belonging to State Street as agent for such Account, the Securities
so deposited.
The Bank represents that either:
3. (a) It currently has stockholders' equity in excess of $200 million (US
dollars or the equivalent of US dollars computed in accordance with generally
accepted US accounting principles) and will promptly inform State Street in the
event that there appears to be a substantial likelihood that its stockholders'
equity will decline below $200 million, or in any event, at such time as its
stockholders' equity in fact declines below $200 million; or
(b) It is the subject of an exemptive order issued by the United
States Securities and Exchange Commission, which such order permits State Street
to employ the Bank as a subcustodian, notwithstanding the fact that the Bank's
stockholders' equity is currently below $200 million or may in the future
decline below $200 million due to currency fluctuation.
4. Upon the written instructions of State Street as permitted by Section
8, the Bank is authorized to pay out cash from the Account and to sell, assign,
transfer, deliver or exchange, or to purchase for the Account,
<PAGE>
any and all stocks, shares, bonds, debentures, notes and other securities
("Securities"), bullion, coin and other property, but only as provided in such
written instructions. The Bank shall not be held liable for any act or omission
to act on instructions given or purported to be given should there be any error
in such instructions.
5. Unless the Bank receives written instructions of State Street to the
contrary, the Bank is authorized:
a. To promptly receive and collect all income and principal with
respect to the Property and to credit cash receipts to the Account;
b. To promptly exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary Securities for those in definitive form and the exchange
of warrants, or other documents of entitlement to Securities, for
the Securities themselves);
c. To promptly surrender Securities at maturity or when called for
redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock
split is received for the Account and such rights entitlement or
fractional interest bears an expiration date, the Bank will endeavor
to obtain State Street's instructions, but should these not be
received in time for the Bank to take timely action, the Bank is
authorized to sell such rights entitlement or fractional interest
and to credit the Account;
e. To hold registered in the name of the nominee of the Bank or its
agents such Securities as are ordinarily held in registered form;
f. To execute in State Street's name for the Account, whenever the Bank
deems it appropriate, such ownership and other certificates as may
be required to obtain the payment of income from the Property; and
g. To pay or cause to be paid from the Account any and all taxes and
levies in the nature of taxes imposed on such assets by any
governmental authority, and shall use reasonable efforts to promptly
reclaim any foreign withholding tax relating to the Account.
6. If the Bank shall receive any proxies, notices, reports, or other
communications relative to any of the Securities of the Account in connection
with tender offers; reorganizations, mergers, consolidations, or similar events
which may have an impact upon the issuer thereof, the Bank shall promptly
transmit any such communication to State Street by means as will permit State
Street to take timely action with respect thereto.
7. The Bank is authorized in its discretion to appoint brokers and agents
in connection with the Bank's handling of transactions relating to the Property
provided that any such appointment shall not relieve the Bank of any of its
responsibilities or liabilities hereunder.
<PAGE>
8. Written instructions shall include (i) instructions in writing signed
by such persons as are designated in writing by State Street (ii) telex or
tested telex instructions of State Street, (iii) other forms of instruction in
computer readable form as shall be customarily utilized for the transmission of
like information and (iv) such other forms of communication as from time to time
shall be agreed upon by State Street and the Bank.
9. The Bank shall supply periodic reports with respect to the safekeeping
of assets held by it under this Agreement. The content of such reports shall
include but not be limited to any transfer to or from any Account held by the
Bank hereunder and such other information as State Street may reasonably
request.
10. In addition to its obligations under Section 2 hereof, the Bank shall
maintain such other records as may be necessary to identify the assets hereunder
as belonging to each State Street client identified to this Agreement from time
to time.
11. The Bank agrees that its books and records relating to its actions
under this Agreement shall be opened to the physical, on-premises inspection and
audit at reasonable times by officers of, auditors employed by or other
representatives of State Street (including to the extent permitted under
___________ law the independent public accountants for any entity whose Property
is being held hereunder) and shall be retained for such period as shall be
agreed by State Street and the Bank.
12. The Bank shall be entitled to reasonable compensation for its services
and expenses as custodian under this Agreement, as agreed upon from time to time
by the Bank and State Street.
13. The Bank shall exercise reasonable care in the performance of its
duties as are set forth or contemplated herein or contained in instructions
given to the Bank which are not contrary to this Agreement, and shall maintain
adequate insurance and agrees to indemnify and hold State Street and each
Account from and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the Bank's performance of its obligations
hereunder.
14. The Bank agrees that (i) the Property is not subject to any right,
charge, security interest, lien or claim of any kind in favor of the Bank or any
of its agents or its creditors except a claim of payment for their safe custody
and administration and (ii) the beneficial ownership of the Property shall be
freely transferable without the payment of money or other value other than for
safe custody or administration.
15. This Agreement may be terminated by the Bank or State Street by at
least 60 days' written notice to the other, sent by registered mail or express
courier. The Bank, upon the date this Agreement terminates pursuant to notice
which has been given in a timely fashion, shall deliver the Property in
accordance with written instructions of State Street specifying the name(s) of
the person(s) to whom the Property shall be delivered.
<PAGE>
16. The Bank and State Street shall each use its best efforts to maintain
the confidentiality of the Property in each Account, subject, however, to the
provisions of any laws requiring the disclosure of the Property.
17. The Bank agrees to follow such Operating Requirements as State Street
may require from time to time. A copy of the current State Street Operating
Requirements is attached as an exhibit to this Agreement.
18. Unless otherwise specified in this Agreement, all notices with respect
to matters contemplated by this Agreement shall be deemed duly given when
received in writing or by tested telex by the Bank or State Street at their
respective addresses set forth below, or at such other address as specified in
each case in a notice similarly given:
To State Street: Global Custody Services Division
STATE STREET BANK AND TRUST
COMPANY
P.O. Box 470
Boston, Massachusetts 02102
To the Bank:
19. This Agreement shall be governed by and construed in accordance with
the laws of __________________.
Please acknowledge your agreement to the foregoing by executing a copy of
this letter.
Very truly yours,
STATE STREET BANK AND TRUST
COMPANY
By ________________________________
Agreed to by:
By _______________________________
Date _____________________________
scust/
TRANSFER AGENCY AND SERVICE AGREEMENT
between
THE PARK AVENUE PORTFOLIO
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
---
Article 1 Terms of Appointment; Duties of the Bank ..........................2
Article 2 Fees and Expenses .................................................6
Article 3 Representations and Warranties of the Bank ........................7
Article 4 Representations and Warranties of the Fund ........................7
Article 5 Data Access and Proprietary Information ...........................8
Article 6 Indemnification of the Bank ......................................10
Article 7 Indemnification of the Fund ......................................12
Article 8 Covenants of the Fund and the Bank ...............................13
Article 9 Termination of Agreement .........................................14
Article 10 Additional Funds .................................................15
Article 11 Assignment .......................................................15
Article 12 Amendment ........................................................16
Article 13 Massachusetts Law to Apply .......................................16
Article 14 Force Majeure ....................................................16
Article 15 Consequential Damages ............................................17
Article 16 Merger of Agreement ..............................................17
Article 17 Limitations of Liability of the Trustees and the Shareholders ....17
Article 18 Counterparts .....................................................17
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of , 1992, by and
between THE PARK AVENUE PORTFOLIO, a Massachusetts business trust, having its
principal office and place of business at 201 Park Avenue South, New York, New
York 10003 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in seven series, The
Guardian Park Avenue Fund, The Guardian Baillie Gifford International Fund, The
Guardian Investment Quality Bond Fund, The Guardian U.S. Government Fund, The
Guardian Tax-Exempt Fund, The Guardian Cash Management Fund and The Guardian
Asset Allocation Fund (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 8, being herein referred to as a "Portfolio", and
collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank
as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities, and the
Bank desires to accept such appointment;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund, on behalf of the Portfolios, hereby employs and appoints
the Bank to act as, and the Bank agrees to act as its transfer agent for the
authorized and issued shares of beneficial interest of the Fund representing
interests in each of the respective Portfolios ("Shares"), dividend disbursing
agent, custodian of certain retirement plans and agent in connection with any
accumulation, open-account or similar plans provided to the shareholders of
each of the respective Portfolios of the Fund ("Shareholders") and set out in
the currently effective prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable Portfolio, including
without limitation any periodic investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as applicable
and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof
to the Custodian of the Fund authorized pursuant to the
Declaration of Trust of the Fund (the "Custodian");
-2-
<PAGE>
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over
or cause to be paid over in the appropriate manner such monies
to the redeeming Shareholder(s) or other appropriately
designated payee(s);
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and
-3-
<PAGE>
protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of Shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of Shares which are authorized, based upon data provided to it
by the Fund, and issued and outstanding. The Bank shall also
provide the Fund on a regular basis with the total number of
Shares which are authorized and issued and outstanding and
shall have no obligation, when recording the issuance of
Shares, to monitor the issuance of such Shares or to take
cognizance of any laws relating to the issue or sale of such
Shares, which functions shall be the sole responsibility of
the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to: maintaining all
-4-
<PAGE>
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
mailing Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts, preparing
and filing U.S. Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing activity
statements for Shareholders, and providing Shareholder account information and
(ii) provide a system which will enable the Fund to monitor the total number of
Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the Fund on
behalf of each Portfolio and the Bank per the attached service responsibility
schedule. The Bank
-5-
<PAGE>
may at times perform only a portion of these services and the Fund or its agent
may perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing between the
Fund and the Bank.
Article 2 Fees and Expenses
2.01 For performance by the Bank pursuant to this Agreement, the
Fund agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the fee schedule
attached hereto. Such fees and out-of-pocket expenses and advances identified
under Section 2.02 below may be changed from time to time subject to mutual
written agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation production,
postage, forms, telephone, microfilm, microfiche, tabulating proxies, records
storage or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the Bank
at the request or with the consent of the Fund, will be reimbursed by the Fund
on behalf of the applicable Portfolio.
2.03 The Fund agrees on behalf of each of the Portfolios to pay all
fees and reimbursable expenses within five days following the mailing of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other
-6-
<PAGE>
mailings to all Shareholder accounts shall be advanced to the Bank by the Fund
at least seven (7) days prior to the mailing date of such materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
4.02 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
-7-
<PAGE>
4.04 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of the Fund being
offered for sale.
Article 5 Data Access and Proprietary Information
5.01 The Fund acknowledges that the data bases, computer programs,
screen format, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank on
data bases under the control and ownership of the Bank ("Data Access Services")
constitute copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to the Bank. The
Fund agrees to treat all Proprietary Information as proprietary to the Bank and
further agrees that it shall not divulge any Proprietary Information to any
person or organization except as may be provided hereunder. Without limiting the
foregoing, the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance
with the Bank's applicable user documentation;
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<PAGE>
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such
fact and dispose of such information in accordance with the
Bank's instructions;
(d) to refrain from causing or allowing third-party data required
hereunder from being retransmitted to any other computer
facility or other location, except with the prior written
consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal copyright
law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Article 5. The obligations of this Article shall
survive any earlier termination of this Agreement.
5.02 If the Fund notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services,
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<PAGE>
the Bank shall endeavor in a timely manner to correct such failure.
Organizations from which the Bank may obtain certain data included in the Data
Access Services are solely responsible for the contents of such data and the
Fund agrees to make no claim against the Bank arising out of the contents of
such third-party data, including, but not limited to, the accuracy thereof. DATA
ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK
EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Fund include the ability
to originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash of Shares or (ii) transmit Shareholder information
or other information (such transactions constituting a "COEFI"), then in such
event the Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as such
instruction is undertaken in conformity with security procedures established by
the Bank from time to time.
Article 6 Indemnification of the Bank
6.01 The Bank shall not be responsible for, and the Fund shall
indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
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<PAGE>
(a) All actions of the Bank or its agent or subcontractors required
to be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records and documents which (i) are received by
the Bank or its agents or subcontractors and furnished to it by or on behalf of
the Fund or the applicable Portfolio, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
6.02 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the
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<PAGE>
services to be performed by the Bank under this Agreement, and the Bank and its
agents or subcontractors shall not be liable and shall be indemnified by the
Fund for any action taken or omitted by it in reliance upon such instructions or
upon the opinion of such counsel. The Bank, its agents and subcontractors shall
be protected and indemnified in acting upon any paper or document furnished by
or on behalf of the Fund, reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction, information,
data, records or documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. The Bank, its
agents and subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
Article 7 Indemnification of the Fund
7.01 The Bank shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by the Bank as a result of the Bank's lack of good faith,
negligence or willful misconduct.
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<PAGE>
7.02 In order that the indemnification provisions contained in
Articles 6 and 7 hereof shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion, and
shall keep the other party advised with respect to all developments concerning
such claim. The party who may be required to indemnify shall have the option to
participate with the party seeking indemnification in the defense of such claim.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
Article 8 Covenants of the Fund and the Bank
8.01 The Fund shall on behalf of each of the Portfolios promptly
furnish to the Bank the following:
(a) A certified copy of the resolution of the Trustees of the Fund
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and
all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
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<PAGE>
8.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
8.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party as to all or
any of the Portfolios upon one hundred twenty (120) days written notice to the
other.
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<PAGE>
9.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund on behalf of the applicable Portfolio(s). Additionally, the
Bank reserves the right to charge for any other reasonable expenses associated
with such termination and/or a charge equivalent to the average of three (3)
months' fees.
9.03 Termination of this Agreement with respect to any given
Portfolio shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Portfolio.
Article 10 Additional Funds
10.01 In the event that the Fund establishes one or more series of
Shares in addition to The Guardian Park Avenue Fund, The Guardian Baillie
Gifford International Fund, The Guardian Investment Quality Bond Fund, The
Guardian U.S. Government Fund, The Guardian Tax-Exempt Fund, The Guardian Cash
Management Fund and The Guardian Asset Allocation Fund with respect to which it
desires to have the Bank render services as transfer agent under the terms
hereof, it shall so notify the Bank in writing, and if the Bank agrees in
writing to provide such services, such series of Shares shall become a Portfolio
hereunder.
Article 11 Assignment
11.01 Except as provided in Section 11.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
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<PAGE>
11.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
11.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
Article 12 Amendment
12.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Trustees of the Fund.
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 14 Force Majeure
14.01 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
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<PAGE>
other for any damages resulting from such failure to perform or otherwise from
such causes.
Article 15 Consequential Damages
15.01 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
Article 16 Merger of Agreement
16.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
Article 17 Limitations of Liability of the Trustees and Shareholders
17.01 A copy of the Declaration of Trust of the Trust is on file
with the Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or Shareholders individually but are
binding only upon the assets and property of the Fund.
Article 18 Counterparts
18.01 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
THE PARK AVENUE PORTFOLIO
BY /s/ [ILLEGIBLE]
--------------------------------------
Vice President
ATTEST:
/s/ [ILLEGIBLE]
- ----------------------------------
Secretary
STATE STREET BANK AND TRUST COMPANY
BY: /s/ [ILLEGIBLE]
--------------------------------------
Senior Vice President
ATTEST:
/s/ Claire E. Rodowicz
- ----------------------------------
Assistant Secretary
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EXHIBIT 99.14
<PAGE>
IRA Custodial Agreement
Form 5305-A
This Agreement is made between the individual who signs the Park Avenue
Portfolio IRA Application (the Depositor) and State Street Bank and Trust
Company (the Custodian), c/o National Financial Data Services, P.O. Box 419733,
Kansas City, MO 64141-6733. By executing the IRA Application, the Depositor
establishes an Individual Retirement Account as described in Section 408(a) of
the Internal Revenue Code of 1986 (the Code), in order to provide for his or her
retirement or to provide for income for his or her beneficiary after death.
The provisions of Articles I to VII of this Agreement are in the form
promulgated by the Internal Revenue Service in Form 5305-A for use in
establishing an Individual Retirement Custodial Account. Article VIII contains
additional provisions.
Article I.
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in Section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in Section 408(k). Rollover contributions
before January 1, 1993 include rollovers described in Section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code or an
employer contribution to a simplified employee pension plan as described in
Section 408(k).
Article II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance contacts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
Section 408(a)(5) of the Code).
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<PAGE>
2. No part of the custodial funds may be invested in collectibles (within the
meaning of Section 408(m) except as otherwise permitted by Section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state.
Article IV.
1. Notwithstanding any provisions of this Agreement to the contrary, the
distribution of the Depositors interest in the custodial account shall be made
in accordance with the following requirements and shall otherwise comply with
Section 408(a)(6) and Proposed Regulations Section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations Section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph 3, or to the surviving spouse under paragraph 4,
other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the Depositor
and the sun-wing spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or begin to
be, distributed by the Depositor's required beginning date, the April 1
following the calendar year end in which the Depositor reaches age 70 1/2. By
that date, the Depositor may elect, in a manner acceptable to the Custodian, to
have the balance in the custodial account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and Last
survivor lives of the Depositor and his or her designated
beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor
expectancy of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to him
or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in
accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election
of the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following
the year of the Depositor's death. If, however, the
beneficiary is the Depositor's surviving spouse, then this
distribution is not required to begin before December 31 of
the year in which the Depositor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of Section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on
the Depositor's required beginning date, even though payments may
actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions
may be accepted in the account.
5. In the case of distribution over life expectancy
12 & 13
<PAGE>
in equal or substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositors entire interest in the Custodial
account as of the close of business on December 31 of the preceding year by the
life expectancy of the Depositor (or the joint life and last survivor expectancy
of the Depositor and the Depositor's designated beneficiary, or the life
expectancy of the designated beneficiary, whichever applies.) In the case of
distributions under paragraph 3, determine the initial life expectancy (or joint
life and last survivor expectancy) using the attained ages of the Depositor and
designated beneficiary as of their birthdays in the year the Depositor reaches
age 70 1/2. In the case of a distribution in accordance with paragraph 4(b)(ii),
determine life expectancy using the attained age of the designated beneficiary
as of the beneficiary's birthday in the year distributions are required to
commence.
"6. The owner of two" or more individual retirement accounts may use the
alternative method described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
Article V.
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under Section 408(i) and
Regulations Sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other Articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with Section 408(a) and the related
regulations will be invalid.
Article VII.
This Agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear on the IRA Application Form.
Article VIII
1. The Custodian shall invest the amount of each contribution in shares of the
series fund(s) comprising The Park Avenue Portfolio which are designated In the
IRA Application Form filed by the Depositor with the Custodian and any later
written instructions from the Depositor at the price and in the manner in which
such shares are then being publicly offered in accordance with the then current
prospectus for The Park Avenue Portfolio, and shall credit such shares to the
custodial account. Investments shall be held in the name of the Custodian for
the benefit of the Depositor. The Depositor agrees that the choice of
investments made for the custodial account is in the sole discretion of the
Depositor, and that the Custodian does not undertake to render any investment
advice whatsoever to the Depositor. All dividends and capital gains
distributions received on the shares of any Portfolio Fund then held in the
custodial account shall be reinvested in such shares at net asset value in
accordance with the then current prospectus for The Park Avenue Portfolio, and
credited to the custodial account. If any distribution of a Portfolio Fund may
be received at the election of the stockholder in additional shares or in cash
or other property, the Custodian shall elect to receive is in additional shares.
A receipt for each contribution received and each reinvestment showing the
investment or reinvestment and current status of the custodial account
immediately thereafter shall be prepared by the Custodian and promptly delivered
to the Depositor. The Custodian shall not be liable for interest on any cash
balance in the custodial account. Any charges attributable to the acquisition of
shares shall be charged to the custodial account. With respect to a rollover
contribution described in Article I of the Agreement, the Custodian shall not
accept any such contribution unless it is made (i) in cash, or (ii) in shares of
a series of The Park Avenue Portfolio maintained as an investment hereunder.
2. The Custodian shall forward to the Depositor all notices, prospectuses,
financial statements, proxies and proxy soliciting material relating to the
shares of any Portfolio Fund held in the custodial account. The Custodian shall
not vote any of the shares of
14 & 15
<PAGE>
any Portfolio Fund held in the custodial account except in accordance with the
written instructions of the Depositor.
3. The Custodian shall, from time to time, on the instructions in writing of the
Depositor, and subject to the provisions of Articles IV and V as amended and
supplemented by this paragraph, make distributions our of the custodial account,
in such manner and amounts as may be specified in such instructions. All such
instructions shall be deemed to constitute a certification by the Depositor that
the distribution so directed is one that is permitted. A declaration of the
Depositor's intention as to the disposition of an amount distributed pursuant to
Article V hereof shall be in writing and given to the Custodian within such
period, not to exceed 30 days prior to such distribution, as the Custodian may
require.
4. By written notice to the Custodian, the Depositor may designate or change the
beneficiary or beneficiaries to receive any benefit payable by reason of the
Depositor's death or the death of his or her surviving spouse before the
Depositor's entire interest in the custodial account has been distributed. In
the absence of a designated beneficiary, the Depositor's estate shall be the
beneficiary.
5. The Depositor shall be charged by the Custodian for its services under this
Agreement in accordance with its current fee schedule. If the Custodian's fees
are nor otherwise paid to it, the Custodian may pay them to itself from the
custodial account by redeeming shares of the Portfolio Fund(s) held in the
custodial account having a value equal to such unpaid fees. The Custodian may
substitute a different fee schedule at any time upon 30 days written notice to
the Depositor.
6. Any income or other taxes of any kind whatsoever that may be levied or
assessed upon or in respect of the custodial account or the income thereof, any
transfer taxes incurred in connection with the investment and reinvestment of
the assets of the custodial account, and all other reasonable administrative
expenses incurred by the Custodian in the performance of its duties hereunder,
including fees for legal services rendered to the Custodian, may, in the
discretion of the Custodian, be charged against and paid from the custodial
account by redeeming shares of the Portfolio Fund(s) held in the custodial
account having a value equal to such taxes or expenses.
7. The Depositor at any time may remove the Custodian upon 30 days written
notice to that effect delivered to the Custodian, which notice shall also
designate a successor custodian. The successor custodian shall satisfy the
requirements of Section 408(h) of the Code, in that it shall be a bank (as
defined in Section 401(d) of the Code) or other person who demonstrates, to the
satisfaction of the Secretary of the Treasury or his delegate, that the manner
in which he or the will hold the assets of the custodial account will be
consistent with the requirements of Section 408 of the Code. Upon receipt by the
Custodian of written acceptance of such appointment by the successor custodian,
the removal of the Custodian shall be effective, and the Custodian shall
forthwith transfer and pay over to such successor custodian the assets of the
custodial account and all records pertaining thereto. The Custodian may, before
transferring the assets of the custodial account to a successor custodian,
withhold its unpaid compensation, fees or expenses and provide for the payment
of all other liabilities which are a charge on or against the assets of the
custodial account or on or against the Custodian. Where necessary, the Custodian
may reserve and redeem Portfolio Fund shares for these purposes. Any balance of
such reserve remaining after the payment of all such items shall be paid over to
the successor custodian.
8. The Custodian may at any time resign as Custodian under this Agreement, upon
30 days written notice to that effect delivered to the Depositor. Upon receiving
such notice of resignation, the Depositor shall forthwith appoint a successor
custodian which satisfies the requirements of Section 408(h) of the Code. Upon
receipt of the Custodian of written acceptance by the successor custodian of
such appointment, the Custodian is authorized to act in the same manner as
provided for in paragraph 7 of this Article as regards the transfer of assets to
the successor custodian and the payment of the items referred to therein. In the
event the Depositor fails to appoint a successor custodian which has accepted
its appointment within 30 days after the Custodian's notice of resignation the
Custodian shall appoint a successor custodian which satisfies the requirements
of Section 408(h) of the Code. Such appointment shall be made in good faith with
reasonable care and shall not make the Custodian liable for any acts or
omissions of its successor(s).
9. The provisions of this Agreement shall apply to
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<PAGE>
any successor custodian from the effective date of its appointment as such with
the same force and effect as if such successor was the initial custodian
hereunder.
10. The Depositor may at any time and from time to time modify or amend this
Agreement in whole or in part (including retroactive amendments) by delivering
to the Custodian a signed written copy of such modification or amendment. The
Depositor delegates to the Custodian the right to amend the Agreement from time
to time (including retroactive amendments) by written notice to the Depositor,
and the Depositor shall be deemed to have consented to any such amendment.
However, no amendment by the Depositor which increases the duties or obligations
of the Custodian shall be effective unless agreed to in writing by the
Custodian, no amendment by the Depositor or Custodian shall cause or permit any
part of the assets of the custodial account to be diverted to purposes other
than for the exclusive benefit of the Depositor or his or her beneficiaries, and
no such amendment shall be made which would disqualify this Agreement from
complying with Section 408 of the Code or be made except in accordance with any
applicable laws and regulations affecting this Agreement.
11. The Depositor may terminate the custodial account at any time, by delivering
to the Custodian, a signed notice of termination. Upon such termination, and
subject to a reservation of assets in the same manner as provided for in
paragraph 7 of this Article, any and all assets remaining in the custodial
account as of the date of termination shall be distributed to the Depositor, in
cash or in kind as directed by the Depositor (or in the absence of such
direction as determined by the Custodian). This Agreement shall be terminated
upon the complete distribution of the custodial account
12. If, because of an erroneous assumption as to earned income or for any other
reason, a contribution which is an excess contribution within the meaning of
Section 408(d)(4) of the Code is made on behalf of the Depositor for any year,
adjustment of such excess contribution shall be made by the distribution in cash
or in kind to the Depositor, upon written notice so the Custodian from the
Depositor which states the amount of such excess contribution and any net income
attributable thereto. The Custodian shall not be responsible for computing the
amount of any excess contribution and any net income attributable thereto.
13. The Custodian shall not be responsible for the purpose or propriety of any
distribution made pursuant hereto. The Custodian may conclusively rely upon, be
entitled to assume the truth of and be protected in acting upon any written
statement, order, direction, notice, instruction or other written instrument of
or received from the Depositor in connection with this Agreement and believed by
the Custodian so be genuine and to have been properly executed, and shall, so
long as it acts in good faith, have no liability in taking or omitting to sake
any action based thereon. The Custodian shall be under no duty or inquiry with
respect so any such writing, but in its discretion may request any tax waivers,
proof of signatures or other evidence which it reasonably deems necessary for
its protection. The Depositor and the successors of the Depositor, as
appropriate, including any executor or administrator of the Depositor, shall, to
the extent permitted by law, indemnify against and save harmless the Custodian
and its successors and assigns from any and all claims, actions or liabilities
of the Custodian to the Depositor or the successor of the Depositor whatsoever
(including all reasonable expenses incurred in defending against any of the
foregoing which may arise in connection herewith, except such as arise from the
Custodian's own bad faith, gross negligence or willful misconduct). The
Custodian shall not be under any duty to take any action other than as herein
specified wish respect hereto, unless the Depositor shall furnish it with
instructions in proper form and such instructions shall have been specifically
agreed to by the Custodian or to defend or engage in any suit with respect
hereto unless it shall have first agreed in writing to do so and shall have been
fully indemnified to its satisfaction.
14. No interest, right or claim in or to any part of the custodial account, nor
any assess held therein or benefits provided hereunder shall be subject to
alienation, assignment, transfer, sale, mortgage, pledge, hypothecation,
commutation, anticipation, garnishment, attachment, execution or levy of any
kind, and any attempt so cause any such interest right, claim, assess or benefit
to be so subjected shall not be recognized, except to the extent as may be
required by law.
15. The Custodian is authorized to hire an agent to perform certain of its
duties hereunder, which agent may be the transfer agent for The Park Avenue
Portfolio series fund shares authorized so be held hereunder.
18 & 19
<PAGE>
16. Any notice required or permitted to be given to the Custodian shall be
effective if mailed by registered or certified mail to the Custodian c/o
National Financial Data Services, 1004 Baltimore Avenue, Kansas City, MO
64105-2112, or such other address as the Custodian shall provide so the
Depositor from time to time. Any notice required or permitted to be given by the
Custodian shall be effective if mailed so the Depositor as the Depositor's last
address or record provided so the Custodian, or, as the case may be, to the
successor of the Depositor at the successor's last address of record provided to
the Custodian.
17. Words in the masculine include feminine, the singular includes the plural,
and vice versa, unless qualified by the context.
18. This Agreement and the custodial account shall be governed by and construed,
administered and enforced according to the laws of the State of Massachusetts.
RETAIN THIS ENTIRE BOOKLET
FOR YOUR RECORDS
20
<PAGE>
- ---------------------------------
The Park Avenue Portfolio
IRA APPLICATION
- ---------------------------------
Instructions: Use this form to open a new Park Avenue Portfolio IRA. You should
also complete an IRA TRANSFER FORM if you are transferring assets from your
current IRA to open your account. If you are opening more than one account,
complete a separate IRA APPLICATION for each. QUESTIONS? CALL 1-800-221-3253,
OPTION 5.
PLEASE
PRINT
CLEARLY
================================================================================
Mail this form to:
The Park Avenue Portfolio, National Financial Data Services, P.O. Box 419733,
Kansas City, MO 64141-6733
For certified, registered or over-night mail:
The Park Avenue Portfolio, National Financial Data Services, 1004 Baltimore
Avenue, Flr. DW-05, Kansas City, MO 64105-2112
GISC Registered Representatives only, mail to:
The Park Avenue Portfolio, Guardian Investor Services Corporation, 3900 Burgess
Place, Flr. 35, Bethlehem, PA 18017
================================================================================
=============================
1
Owner
Information
=============================
================================================================================
- -------------------------------------- ---------------------------------------
Name: First Middle Initial Last Social Security Number Date of Birth
- -------------------------------------- ---------------------------------------
Street Address or P.O. Box Daytime Phone Number
- --------------------------------------
City State Zip
================================================================================
=============================
2
Beneficiary
Designations
=============================
[ILLEGIBLE] beneficiary
[ILLEGIBLE] distributions
[ILLEGIBLE] if there is no
[ILLEGIBLE] Primary
[ILLEGIBLE].
================================================================================
|_| Primary Beneficiary |_| Secondary Beneficiary
- -------------------------------------- ---------------------------------------
Name: First Middle Initial Last Name: First Middle Initial Last
- -------------------------------------- ---------------------------------------
Relationship Relationship
- -------------------------------------- ---------------------------------------
Social Security Number Date of Birth Social Security Number Date of Birth
================================================================================
=============================
3
Type of IRA Account
=============================
[ILLEGIBLE] indicate
[ILLEGIBLE] type of account
[ILLEGIBLE] opening. Each
[ILLEGIBLE] explained in
[ILLEGIBLE] accompanying IRA
[ILLEGIBLE] Statement.
================================================================================
|_| REGULAR CONTRIBUTION
SPOUSAL IRA: Spouse's Name ______________ Social Security Number _______________
Date of Birth ______________
If you are opening a Regular Contribution IRA or Spousal IRA, enclose a check
payable to "The Park Avenue Portfolio."(R)
|_| TRANSFER IRA. Please also complete the separate IRA TRANSFER FORM.
|_| SEP-IRA |_| TRANSFER SEP-IRA. Please also complete the separate IRA
TRANSFER FORM.
|_| ROLLOVER IRA. Please indicate the source of your contribution:
|_| A distribution paid so me from: |_| My contribution is a:
1 |_| Another regular (or annual) 4 |_| Direct rollover of an
contribution IRA or Spousal eligible distribution from a
IRA tax-qualified retirement plan
2 |_| Another IRA where the 5 |_| Direct rollover of an
initial contribution was eligible distribution from a
from a tax-qualified tax-sheltered annuity
retirement plan
3 |_| A tax-qualified retirement
plan
If you checked boxes 1, 2 or 3, enclose a check payable to "The Park Avenue
Portfolio."(*)
If you checked boxes 4 or 5, the plan administrator or tax-sheltered annuity
sponsor should deliver your contribution to "The Park Avenue Portfolio."(*)
*The fee to open an account ($15.00) will be taken from your contribution if not
submitted separately.
================================================================================
=============================
4
Investment
Transactions
=============================
[ILLEGIBLE] indicate the
[ILLEGIBLE] of the
[ILLEGIBLE] Fund(s) in
[ILLEGIBLE] your IRA is to
[ILLEGIBLE]. Each Fund
[ILLEGIBLE] in the
[ILLEGIBLE] for The
[ILLEGIBLE] Avenue Portfolio.
================================================================================
The minimum investment to open an IRA account is $300 per Portfolio Fund. The
minimum subsequent investment is $50 per Portfolio Fund.
<TABLE>
<CAPTION>
Fund Name Tax Year Deductible Amounts Non-Deductible Amounts
<S> <C> <C> <C>
Guardian Park Avenue Fund ..... 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian Baillie Gifford
International Fund ........... 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian Asset Allocation Fund 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian Investment Quality
Bond Fund .................... 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian U.S. Government
Securities Fund .............. 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian Tax-Exempt Fund ...... 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian Cash Management Fund.. 19 $ or % $ or %
-------- ----- ---- ----- ----
</TABLE>
Please complete other side.
<PAGE>
=============================
5
Telephone
Exchanges
=============================
================================================================================
You will NOT receive the Telephone Exchange Privilege unless you check the box
below.
|_| YES. I want Telephone Exchange Privileges and understand that anyone who
supplies the required account information to NFDS can make telephone
exchanges on my behalf.
================================================================================
=============================
6
Letter
of Intent
=============================
I intend so make sufficient investments in the Portfolio Funds (except The
Guardian Cash Management Fund) over a period of 13 months to receive a reduced
sales load based on my aggregate investments. The applicable break-point for my
intended aggregate investment is:
|_| $100,000 |_| $250,000 |_| $500,000 |_| $1,000,000 |_| $2,500,000
|_| $5,000,000
|_| I am already investing under a Letter of Intent. Existing Account
Number __________________________________
================================================================================
=============================
7
Automatic Investment Plan
=============================
[ILLEGIBLE] Attach a
[ILLEGIBLE] check (for
[ILLEGIBLE] accounts)
[ILLEGIBLE] account
[ILLEGIBLE] slip. Your
[ILLEGIBLE] must be a
[ILLEGIBLE] of the
[ILLEGIBLE] Clearing
[ILLEGIBLE].
================================================================================
I want to establish an Automatic Investment Plan as described In the prospectus
for The Park Avenue Portfolio. I agree so reimburse State Street Bank and Trust
Company ("SSBTC") for any expenses or losses that SSBTC may incur in connection
with my plan, including any expenses or losses caused by my banks failure to act
as I have requested. SSBTC may cancel any purchase caused by erroneous payments
or for which it does not receive payment from my bank. Redemptions and/or
deductions may be made from my IRA account for that purpose. I understand that
the minimum debit to my bank account is $100 and payments over a period of 12
months must total as least $1000. This application must be received at least 30
days before the first payment date.
<TABLE>
<CAPTION>
(Check One)
Amount ------------------------------------------
Invested Monthly Quarterly Semiannually Annually
<S> <C> <C> <C> <C> <C>
Guardian Park Avenue Fund $ |_| |_| |_| |_|
-------
Guardian Baillie Gifford
International Fund $ |_| |_| |_| |_|
-------
Guardian Asses Allocation
Fund $ |_| |_| |_| |_|
-------
Guardian Investment Quality
Bond Fund $ |_| |_| |_| |_|
-------
Guardian U.S. Government
Securities Fund $ |_| |_| |_| |_|
-------
Guardian Tax-Exempt Fund $ |_| |_| |_| |_|
-------
Guardian Cash Management
Fund $ |_| |_| |_| |_|
-------
</TABLE>
First check to be drawn for payment due:
- --------------------------------------------------------------------------------
Month/Day (1 through 28 only)/Year
- --------------------------------------------------------------------------------
Name of Bank
- --------------------------------------------------------------------------------
Branch Name Branch Number Transit Number
- --------------------------------------------------------------------------------
Bank Address
- --------------------------------------------------------------------------------
City State Zip
- --------------------------------------------------------------------------------
Bank Account Number
- --------------------------------------------------------------------------------
Signature of Depositor Date
- --------------------------------------------------------------------------------
Signature of Depositor Date
(If joint bank account, both must sign.)
================================================================================
=============================
8
Signature
=============================
By signing this form you:
|_| Establish an IRA account in accordance wish all the terms of the IRA
Custodial Agreement on IRS Form 5305-A which has been provided to you and which
is incorporated herein by reference.
|_| Appoint SSBTC, or its successors, as Custodian of your IRA account.
|_| State that you have received and read an IRA Disclosure Statement, the IRA
Custodial Agreement on IRS Form 5305-A and the prospectus for The Park Avenue
Portfolio, and that you agree so be subject to their provisions as they may be
amended from time to time.
|_| Certify that you have the authority and legal capacity to select the
privileges requested herein and to purchase mutual fund shares, and that you are
solely responsible for your investment choices.
|_| Authorize The Park Avenue Portfolio, SSBTC and their affiliates or agents to
act on any instructions believed to be genuine to carry out any duties
authorized on this form or required by the IRA Custodial Agreement on IRS Form
5305-A, and agree that none of them will be liable for any resulting loss,
expense or consequential damages.
|_| Certify, under penalties of perjury, that the Social Security Number(s)
shown on this form is (are) true and correct, and that you have not been
notified by the IRS that you are subject to back-up withholding.
/s/ /s/
- --------------------------------- -----------------------------------------
Signature Date Spouse's Signature (Required in Date
Community Property State)
Your confirmation statement shall also serve as the acceptance by SSBTC of its
appointment as your Custodian.
================================================================================
=============================
9
Dealer Information
=============================
- ------------------------------------ -----------------------------------------
Firm Name Registered Representative's Name/Agency
Code/Reg. Rep. Code
- ------------------------------------ -----------------------------------------
Branch/Agency Address Dealer Code
- ------------------------------------ -----------------------------------------
City State Zip Authorized Dealer Signature
<PAGE>
=============================
The Park Avenue Portfolio(*)
IRA TRANSFER FORM
=============================
Instructions: Use this form so transfer IRA assets from your current custodian
to your Park Avenue Portfolio IRA. If you are transferring IRA assets from more
than one custodian, complete one IRA TRANSFER FORM for each custodian. There is
no limit to the number of transfers which you may authorize. You should also
complete an IRA APPLICATION if you are opening a new IRA with the transfer
described herein.
PLEASE
PRINT
CLEARLY
================================================================================
Mail this form to:
The Park Avenue Portfolio, National Financial Data Services, P.O Box 419733,
Kansas City, MO 64141-6733
For certified, registered or over-night mail:
The Park Avenue Portfolio, National Financial Data Services, 1001 Baltimore
Avenue, Flr. DW-05, Kansas City, MO 64105-2112
GISC Registered Representatives only, mail to:
The Park Avenue Portfolio, Guardian Investor Services Corporation, 3900 Burgess
Place, Flr. 3S, Bethlehem, PA 18017
================================================================================
=============================
1
Owner
Information
=============================
- -------------------------------------- ---------------------------------------
Name: First Middle Initial Last Social Security Number Date of Birth
- -------------------------------------- ---------------------------------------
Street Address or P.O. Box Daytime Phone Number
- --------------------------------------
City State Zip
================================================================================
=============================
2
=============================
Current IRA
Custodian/
Trustee and
Account
Information
=============================
- -------------------------------------- ---------------------------------------
Name: First Middle Initial Last Phone Number
- -------------------------------------- ---------------------------------------
Street Address or P.O. Box Account Number Maturity Date (for
a CD)
- -------------------------------------- ---------------------------------------
City State Zip Account Number Maturity Date (for
a CD)
================================================================================
=============================
3
=============================
Instructions
[ILLEGIBLE] Current IRA
Custodian/
Trustee
=============================
Please transfer
|_| all or |_| part ($____ or ____%) of my existing IRA account described above
|_| immediately or |_| at maturity (for a CD).
All assets should be transferred as cash on a fiduciary-to-fiduciary basis.
Include my account number and FBO information on a check made payable to "The
Park Avenue Portfolio."(*)
================================================================================
=============================
4
=============================
Type of IRA
=============================
What type of IRA do you have now?
|_| Individual Account (Regular Contribution IRA) |_| Spousal IRA
|_| SEP-IRA |_| Retirement Plan Rollover
(an IRA comprised of
|_| Annuity Rollover (an IRA comprised of distributions from a
distributions from a tax-sheltered annuity) tax-qualified retirement
plan)
|_| Other (Explain) _____________________________
================================================================================
=============================
5
=============================
Investment
Instructions
=============================
[ILLEGIBLE] Fund is described
[ILLEGIBLE] prospectus for
[ILLEGIBLE] Park Avenue
Portfolio.
================================================================================
Check one box and complete if necessary:
|_| Invest the transferred amount in accordance with the investment instructions
on my IRA APPLICATION.
|_| Invest the transferred amount as follows:
<TABLE>
<CAPTION>
Fund Name Tax Year Deductible Amounts Non-Deductible Amounts
<S> <C> <C> <C>
Guardian Park Avenue Fund ..... 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian Baillie Gifford
International Fund ........... 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian Asset Allocation Fund 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian Investment Quality
Bond Fund .................... 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian U.S. Government
Securities Fund .............. 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian Tax-Exempt Fund ...... 19 $ or % $ or %
-------- ----- ---- ----- ----
Guardian Cash Management Fund.. 19 $ or % $ or %
-------- ----- ---- ----- ----
</TABLE>
|_| I am effecting a transfer-in-kind of shares of the Portfolio Funds which
comprise The Park Avenue Portfolio from my current IRA Custodian/Trustee.
Please complete other side.
<PAGE>
=============================
6
=============================
Signature
=============================
================================================================================
By signing this form you:
|_| Acknowledge that you have received and read the prospectus for The Park
Avenue Portfolio, and that you are solely responsible for your investment
choices.
|_| Release The Park Avenue Portfolio and its affiliates or agents from, and
agree to indemnify and hold each and all of them harmless against, any
liability, loss, expense or cost caused by any refusal, failure or delay by a
financial institution to transmit the proceeds of a CD as contemplated herein;
or any delay or failure to provide a signature guarantee.
|_| Authorize the transfer of IRA assets described herein and certify that you
have established a Park Avenue Portfolio IRA.
/s/
- ----------------------------------------- -------------------------------------
Signature Date
Signature guarantee: Contact your current IRA Custodian/Trustee regarding its
requirements.
- -----------------------------------------
Name of Signature Guarantor
By
- ----------------------------------------- -------------------------------------
Signature of Officer Title
AFFIX SIGNATURE GUARANTEE STAMP
================================================================================
=============================
7
=============================
Dealer
Information
=============================
================================================================================
- ----------------------------------------- -------------------------------------
Firm Name Registered Representative's
Name/Agency Code/Reg. Rep. Code
- ----------------------------------------- -------------------------------------
Branch/Agency Address Dealer Code
- ----------------------------------------- -------------------------------------
City State Zip Authorized Dealer Signature
================================================================================
PLEASE DO NOT COMPLETE THIS SECTION FOR USE BY SUCCESSOR AND CURRENT CUSTODIANS
ONLY
To the Current Custodian: As agent for State Street Bank and Trust Company
(SSBTC), Custodian for the Depositor's Individual Retirement Account, we agree
to accept the transfer of plan assets on a fiduciary-to-fiduciary basis as
indicated above.
- ----------------------------------------- -------------------------------------
Authorized Signature Title Date
Instructions so Current Custodian for delivery so SSBTC: Make check payable to:
"The Park Avenue Portfolio"(*)
- ----------------------------------------- -------------------------------------
FBO Account Number(s)
NFDS
P.O. Box 419733
Kansas City, MO 64141-6733
EXHIBIT 99.16(a)
GUARDIAN PARK AVE. FUND
Schedule for Computation of Performance Quotation*
Total Return
The total return is equal to the change in value of an initial investment
amount, as measured from the time of payment to the end of the period,
divided by the initial investment amount.
Total Return For the 12 Months Ended December 30, 1988
(1,207.80 - 1,000.00)
---------------------
1,000.00
= 20.78%
initial investment amount at the beginning of
the period = $1,000.00
initial investment amount at the end of
the period = $1,207.80
Total Return For the Life of the Fund
(10,074.00 - 1,000.00)
----------------------
1,000.00
= 907.40%
initial investment amount at the beginning of
the period = $1,000.00
initial investment amount at the end of
the period = $10,074.00
life of the fund = 6/1/72 - 12/30/88
Average Annual Total Return
The average annual total return (AATR) is the annual interest rate
accruing on the initial investment amount, on a compounded interest basis,
as measured from the beginning of the period to the end of the period.
Average Annual Total Return For the Life of the Fund
1,000.00 x (1 + AATR) (16 + 7/12) = 10.074
AATR = 16.56%
initial investment amount at the beginning of
the period = $1,000.00
life of the fund = (16+7/12) years
initial investment amount at the end of the
period = $10,074.00
* All calculation assume immediate reinvestment of all dividends and fund
distributions.
EXHIBIT 99.16(b)
<PAGE>
THE GUARDIAN U.S. GOVERNMENT SECURITIES FUND
CALCULATION OF YIELD FOR THE 30-DAY PERIOD ENDED
DECEMBER 31, 1992
( (a - b )
Formula: Yield = 2 ( ----- + 1)^6 - 1 )
( ( cd ) )
( )
( ( 118,029.27 - 1,0387.40 ) )
( ( ---------------------- + 1 )^6 - 1 )
2 ( ( (1,846,538.41 X 10.81) ) )
( )
( )
2 ( (1.005,392,587)^6 - 1 )
( )
2 ( (.0,327,948) )
(.0655896) X 100 = 6.55896%
<PAGE>
THE GUARDIAN INVESTMENT QUALITY BOND FUND
CALCULATION OF YIELD FOR THE 30-DAY PERIOD ENDED
MARCH 31, 1993
( (a - b )
Formula: Yield = 2 ( ----- + 1)^6 - 1 )
( ( cd ) )
( )
( ( 53,222.61 - 22,283.40 ) )
( ( ----------------------- + 1 )^6 - 1 )
2 ( ( (1,263,065.922 X 10.54) ) )
( )
( )
2 ( (.00232403461 + 1)^6 - 1 )
( )
( )
2 ( (1.00232403461)^6 - 1 )
( )
2 ( (.014025472) )
(.0280510) X 100 = 2.80510%
<PAGE>
PRICING D 31-Mar-93
=========
TOTAL INCOME FOR PERIOD 53,222.6l
TOTAL EXPENSES FOR PERIOD 22,283.40
30 DAY YT 2.80510% AVG. SHARES OUTSTANDING 1,263,065.922
======== LAST PRICE DURING PERIOD 10.54
<TABLE>
<CAPTION>
PRICE EQUITY MORTGAGE PAYDOWN G/L ST FIXED VAR LONG TERM TOTAL DAILY DAILY DAILY
DATE INCOME INCOME ADJ ADJ INCOME INC INCOME INCOME EXPENSES SHARES PRICE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 02-Mar-93 0.00 0.00 0.00 0.00 142.54 1452.66 1,595.20 432.59 1,055,922.264 10.54
2 03-Mar-93 0.00 0.00 0.00 0.00 205.33 1452.86 1,658.19 438.36 1,105,449.525 10.58
3 04-Mar-93 0.00 0.00 0.00 0.00 26.63 1779.21 1,805.84 440.22 1,143,571.326 10.60
4 05-Mar-93 0.00 0.00 0.00 0.00 56.16 1794.58 1,850.14 450.19 1,149,236.695 10.54
5 06-Mar-93 0.00 0.00 0.00 0.00 56.16 1794.58 1,850.74 449.15 1,151,928.222 10.60
6 07-Mar-93 0.00 0.00 0.00 0.00 56.16 1794.58 1,850.74 449.15 1,151,928.222 10.60
7 08-Mar-93 0.00 0.00 0.00 0.00 669.58 630.86 1,300.44 449.15 1,151,928.220 10.60
8 09-Mar-93 0.00 0.00 0.00 0.00 658.03 633.84 1,291.87 451.61 1,157,121.025 10.59
9 10-Mar-93 0.00 0.00 0.00 0.00 661.76 635.79 1,297.55 452.07 1,170,407.338 10.58
10 11-Mar-93 0.00 0.00 0.00 0.00 79.76 1799.42 1,879.18 453.03 1,175,605.358 10.57
11 12-Mar-93 0.00 0.00 0.00 0.00 99.35 1823.71 1,923.06 453.13 1,202,129.859 10.48
12 13-Mar-93 0.00 0.00 0.00 0.00 99.36 1823.71 1,923.07 448.59 1,209,311.495 10.46
13 14-Mar-93 0.00 0.00 0.00 0.00 99.35 1823.71 1,923.06 448.59 1,209,311.495 10.46
14 15-Mar-93 0.00 0.00 0.00 0.00 117.36 1825.88 1,943.24 448.25 1,209,311.495 10.46
15 16-Mar-93 0.00 0.00 0.00 0.00 113.75 1820.10 1,933.85 449.39 1,216,484.113 10.50
16 17-Mar-93 0.00 0.00 0.00 0.00 115.98 1811.54 1,927.52 451.13 1,220,016.199 10.53
17 18-Mar-93 0.00 0.00 0.00 0.00 117.61 1793.72 1,911.33 466.12 1,238,609.824 10.60
18 19-Mar-93 0.00 0.00 0.00 0.00 371.44 1306.24 1,677.68 484.52 1,240,876.631 10.58
19 20-Mar-93 0.00 0.00 0.00 0.00 371.44 1306.24 1,677.68 484.90 1,369,217.084 10.58
20 21-Mar-93 0.00 0.00 0.00 0.00 371.44 1306.24 1,677.68 484.90 1,369,217.084 10.58
21 22-Mar-93 0.00 0.00 0.00 0.00 384.93 1309.21 1,694.14 1312.90 1,369,217.064 10.58
22 23-Mar-93 0.00 0.00 0 00 0.00 439.24 1300.85 1,740.09 1313.38 1,313,639.357 10.60
23 24-Mar-93 0.00 0.00 0.00 0.00 489.25 1306.04 1,795.29 1315.43 1,377,914.106 10.58
24 25-Mar-93 0.00 0.00 0.00 0.00 497.14 1309.79 1,806.93 1315.88 1,404,907.211 10.57
25 26-Mar-93 0.00 0.00 0.00 0.00 521.60 1323.63 1,845.23 1321.05 1,416,410.555 10.50
26 27-Mar-93 0.00 0.00 0.00 0.00 521.60 1323.63 1,845.23 1322.33 1,417,167.648 10.52
27 28-Mar-93 0.00 0.00 0.00 0.00 521.59 1323.63 1,845.22 1322.33 1,417,167.648 10.52
28 29-Mar-93 0.00 0.00 0.00 0.00 599.51 1320.69 1,920.20 1322.33 1,417,167.648 10.52
29 30-Mar-93 0.00 0.00 0.00 0.00 587.42 1314.83 1,902.25 1324.75 1,429,702.280 10.54
30 31-Mar-93 0.00 0.00 0.00 0.00 613.16 1316.21 1,929.37 1327.64 1,431,100.637 10.54
</TABLE>
<PAGE>
30 DAY 30 DAY 30 DAY
ACCUM. ACCUMULATED ACCUMULATED PRICE
INCOME EXPENSES SHARES DATE
1,595.20 432.59 1,055,922.26 02-Mar-93
3,253.39 870.95 2,161,371.79 03-Mar-93
5,059.23 1,311.17 3,304,943.12 04-Mar-93
6,909.97 1,761.36 4,454,179.81 05-Mar-93
8,760.71 2,210.51 5,606,108.03 06-Mar-93
10,611.45 2,659.66 6,758,036.25 07-Mar-93
11,911.89 3,108.81 7,909,964.47 08-Mar-93
13,203.76 3,560.42 9,067,085.50 09-Mar-93
14,501.31 4,012.49 10,237,492.84 10-Mar-93
16,380.49 4,465.52 11,413,098.20 11-Mar-93
18,303.55 4,918.65 12,615,228.05 12-Mar-93
20,226.62 5,367.24 13,824,539.55 13-Mar-93
22,149.68 5,815.83 15,033,851.04 14-Mar-93
24,092.92 6,264.42 16,243,162.54 15-Mar-93
26,026.77 6,713.81 17,459,646.65 16-Mar-93
27,954.29 7,164.94 18,679,662.85 17-Mar-93
29,865.62 7,631.06 19,918,272.68 18-Mar-93
31,543.30 8,115.58 21,159,549.31 19-Mar-93
33,220.98 8,600.48 22,528,366.39 20-Mar-93
34,898.66 9,085.38 23,897,583.47 21-Mar-93
36,592.80 10,398.28 25,266,800.56 22-Mar-93
38,332.89 11,711.66 26,580,439.92 23-Mar-93
40,128.18 13,027.09 27,958,354.02 24-Mar-93
41,935.11 14,342.97 29,363,261.23 25-Mar-93
43,780.34 15,664.02 30,779,671.79 26-Mar-93
45,625.57 16,986.35 32,196,839.44 27-Mar-93
47,470.79 18,308.68 33,614,007.08 28-Mar-93
49,390.99 19,631.01 35,031,174.73 29-Mar-93
51,293.24 20,955.76 36,460,877.01 30-Mar-93
53,222.61 22,283.40 37,891,977.65 31-Mar-93
<PAGE>
THE GUARDIAN TAX-EXEMPT FUND
CALCULATION OF YIELD FOR THE 30-DAY PERIOD ENDED
MARCH 31, 1993
( (a - b )
Formula: Yield = 2 ( ----- + 1)^6 - 1 )
( ( cd ) )
( )
( ( 55,437.70 - 24,423.52 ) )
( ( ----------------------- + 1 )^6 - 1 )
2 ( ( (1,409,211.364 X 10.39) ) )
( )
( ( 31,014.28 ) )
( ( ---------------- + 1 )^6 - 1 )
2 ( ( 14,641,706.702 ) )
( )
( )
2 ( (1.00211821)^6 - 1 )
( )
2 ( (.01277675) )
(.0255535) X 100 = 2.56%
<PAGE>
<TABLE>
<CAPTION>
PRICING DATE 31-Mar-93
========= TOTAL INCOME FOR PERIOD 55,437.70
TOTAL EXPENSES FOR PERIOD 24,423.52
30 DAY YTM 2.55535% AVERAGE SHARES OUTSTANDING 1,409,211.364
========= LAST PRICE DURING PERIOD 10.39
PRICE EQUITY MORTGAGE PAYDOWN GAIN/LOSS ST FIXED ST VAR LONG TERM TOTAL DAILY
DATE INCOME INCOME ADJ ADJ INCOME INCOME INCOME INCOME EXPENSES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 01-Mar-93 0.00 0.00 0.00 575.07 776.82 1,351.89 436.16
1 02-Mar-93 0.00 0.00 0.00 554.13 854.71 1,400.84 458.56
2 03-Mar-93 0.00 0.00 0.00 500.89 934.09 1,434.98 464.96
3 04-Mar-93 0.00 0.00 0.00 425.70 931.78 1,357.48 468.53
4 05-Mar-93 0.00 0.00 0.00 532.28 933.74 1,466.02 474.94
5 06-Mar-93 0.00 0.00 0.00 532.28 933.74 1,464.02 476.88
6 07-Mar-93 0.00 0.00 0.00 532.28 933.74 1,466.02 476.88
7 08-Mar-93 0.00 0.00 0.00 560.00 933.74 1,493.74 476.88
8 09-Mar-93 0.00 0.00 0.00 564.03 1,012.82 1,576.85 480.71
9 10-Mar-93 0.00 0.00 0.00 584.03 1,176.01 1,760.04 484.47
10 11-Mar-93 0.00 0.00 0.00 559.14 1,250.45 1,809.59 489.12
11 12-Mar-93 0.00 0.00 0.00 515.77 1,258.89 1,774.66 489.10
12 13-Mar-93 0.00 0.00 0.00 515.77 1,258.89 1,774.66 486.95
13 14-Mar-93 0.00 0.00 0.00 515.77 1,258.89 1,774.66 486.95
14 15-Mar-93 0.00 0.00 0.00 545.28 1,263.49 1,808.77 486.95
15 16-Mar-93 0.00 0.00 0.00 507.92 1,333.81 1,841.73 486.38
16 17-Mar-93 0.00 0.00 0.00 450.08 1,333.30 1,783.38 488.72
17 18-Mar-93 0.00 0.00 0.00 450.08 1,407.42 1,857.50 490.95
18 19-Mar-93 0.00 0.00 0.00 420.47 1,565.61 1,986.08 502.99
19 20-Mar-93 0.00 0.00 0.00 420.47 1,565.61 1,986.08 858.98
20 21-Mar-93 0.00 0.00 0.00 420.47 1,565.61 1,986.08 858.98
21 22-Mar-93 0.00 0.00 0.00 357.38 1,570.53 1,927.91 858.98
22 23-Mar-93 0.00 0.00 0.00 366.96 1,491.47 1,858.43 1,591.50
23 24-Mar-93 0.00 0.00 0.00 423.54 1,491.71 1,915.25 1,594.16
24 25-Mar-93 0.00 0.00 0.00 437.64 1,566.97 2,004.61 1,598.19
25 26-Mar-93 0.00 0.00 0.00 443.84 1,573.24 2,017.10 1,601.62
26 27-Mar-93 0.00 0.00 0.00 443.86 1,573.24 2,017.10 1,603.85
27 28-Mar-93 0.00 0.00 0.00 443.86 1,573.24 2,017.10 1,603.85
28 29-Mar-93 0.00 0.00 0.00 701.10 1,832.39 2,553.49 1,603.85
29 30-Mar-93 0.00 0.00 0.00 545.90 2,014.39 2,560.29 1,605.72
30 31-Mar-93 0.00 0.00 0.00 427.12 2,346.12 2,773.24 372.92
</TABLE>
<PAGE>
30 DAY 30 DAY 30 DAY
DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED PRICE
SHARES PRICE INCOME EXPENSES SHARES DATE
1,081,210.816 10.65 0.00 0.00 0.00 07-Dec-92
1,093,976.392 10.66 1,408.84 458.56 1,093,976.39 08-Dec-92
1,097,515.639 10.67 2,843.82 923.52 2,191,492.03 09-Dec-92
1,120,651.425 10.70 4,201.30 1,392.05 3,312,143.46 10-Dec-92
1,237,114.759 10.67 5,667.32 1,866.99 4,549,258.22 11-Dec-92
1,253,475.225 10.68 7,133.34 2,343.87 5,802,733.44 12-Dec-92
1,253,475.225 10.68 8,599.36 2,820.75 7,056,208.67 13-Dec-92
1,253,475.225 10.68 10,093.10 3,297.63 8,309,683.89 14-Dec-92
1,277,062.765 10.66 11,669.95 3,778.34 9,586,746.66 15-Dec-92
1,318,852.276 10.60 13,429.99 4,262.81 10,905,598.93 16-Dec-92
1,325,256.999 10.59 15,239.58 4,751.93 12,230,855.93 17-Dec-92
1,337,669.340 10.48 17,014.24 5,241.03 13,568,525.27 18-Dec-92
1,341,336.338 10.42 18,788.90 5,727.98 14,909,861.61 19-Dec-92
1,341,336.338 10.42 20,563.56 6,214.93 16,251,197.95 20-Dec-92
1,341,336.338 10.42 22,372.33 6,701.88 17,592,534.28 21-Dec-92
1,347,932.199 10.45 24,214.06 7,188.26 18,940,466.48 22-Dec-92
1,382,805.371 10.45 25,997.44 7,676.98 20,323,271.85 23-Dec-92
1,411,030.242 10.50 27,854.94 8,167.93 21,734,302.10 24-Dec-92
1,423,918.198 10.49 29,841.02 8,670.92 23,158,220.29 25-Dec-92
1,438,360.511 10.45 31,827.10 9,529.90 24,596,580.81 26-Dec-92
1,438,360.511 10.45 33,813.18 10,388.88 26,034,941.32 27-Dec-92
1,438,360.511 10.45 35,741.09 11,247.86 27,473,301.83 28-Dec-92
1,451,978.859 10.46 37,599.52 12,839.36 28,925,280.69 29-Dec-92
1,468,111.023 10.46 39,514.77 14,433.52 30,393,391.71 30-Dec-92
1,481,844.718 10.45 41,519.38 16,031.71 31,875,236.43 31-Dec-92
1,549,251.284 10.39 43,536.48 17,633.33 33,424,487.71 01-Jan-93
1,756,353.075 10.38 45,553.58 19,237.18 35,180.840.79 02-Jan-93
1,756,353.075 10.38 47,570.68 20,841.03 36,937,193.86 03-Jan-93
1,756,353.075 10.38 50,104.17 22,444.88 38,693,546.94 04-Jan-93
1,786,849.366 10.39 52,664.46 24,050.60 40,480,396.30 05-Jan-93
1,795,944.605 10.39 55,437.70 24,423.52 42,276,340.91 06-Jan-93
