- --------------------------------------------------------------------------------
Dear Shareholder:
- ------------------------------
[GRAPHIC OMITTED]
The Bad, The Ugly, and The Surprisingly Good
[PHOTO OMITTED]
Frank J. Jones, Ph.D
Chief Investment Officer,
Co-Portfolio Manager
The Guardian Park
Avenue Fund
In retrospect, 1998 turned out to provide surprisingly strong investment returns
given the modest expectations going into the year and the various negative
events that occurred during the year. Prior to 1998, the U.S. economy had
expanded (i.e. had no recession) since April 1991, the third longest post-WWII
expansion. Preceding 1998, there were three consecutive years of exceptional
stock market performance, with returns on the S&P 500 Index(1) of 37.38%,
23.83%, and 33.28% during 1995, 1996 and 1997, respectively, continuing the bull
market which began in September 1990. The 30-year Treasury bond yield declined
to 5.93% at the end of 1997.
Given this preceding strength, few analysts would have been surprised if
1998 experienced the end of the economic expansion, the end of the stock bull
market, and a retraction in the bond market. And the
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
expectations for the economy, the stock market and the bond market for 1998
would have been even more negative if it had been known that during 1998 there
would be an impeachment, the first since 1868; a one-month 14% decline in the
S&P 500, the largest monthly decline since October 1987; a devaluation and a
default by Russia; a failure and near bankruptcy by the high-profile U.S. hedge
fund, Long-Term Capital Management (LTCM); extreme concern about events in Asia
and Latin America, particularly Brazil; and uncertainty about the introduction
of the Euro.
Nevertheless, 1998 proved to be another strong year for the economy, the
stock market, and the bond market. Specifically, real Gross Domestic Product
(GDP) grew by 3.9% during 1998 and continued the period of economic growth,
making this the longest post-WWII peacetime expansion. The S&P 500 increased by
28.58%, resulting in the fourth year in a row with a return over 20%. Finally,
the 30-year Treasury bond yield declined to 5.10% at the end of 1998, providing
a return of 16.55% on the 30-year Treasury bond and 8.69% on the Lehman
Aggregate Bond Index(2) during 1998.
But observing these economic, stock and bond market averages and
concluding that 1998 was simply another uniformly strong year would be akin to
concluding that it would be impossible for a man to drown in a lake that
averaged only two feet deep. In fact, 1998 was a tumultuous year, marked by
extreme volatility and deviations from market averages in individual stock and
bond market sectors.
With respect to the economy, early in the year the Fed was concerned about
the strong economy, tight job markets, and the threat of inflation. Late in the
year, however, the Fed was concerned about a weak economy, a credit crunch, and
deflation. The transition occurred after mid-year when the Fed made a change
from a tightening bias at its June 10 Federal Reserve Open Market Committee
(FOMC) meeting to a neutral position at its August 18 meeting and then actually
eased rates three times, first at the September 29 meeting and then again on
October 15, between FOMC meetings, and finally at the November 17 meeting. Most
of the rest of the western countries followed these Fed easings with easings of
their own. This shift in Fed policy has been credited with changing
economic/financial expectations and averting a more serious outcome for the
U.S., western developed countries, and Asia and Latin America.
Fiscal policy was also constructive during 1998, with a fiscal year 1998
budget surplus of $69 billion, the first federal budget surplus since 1969.
While the stock and bond markets performed quite well during 1998, there
is a question as to whether the "average" stock or bond actually existed. There
is a traditional question in the stock market: "Is it a stock market or a market
of stocks?" During 1998, it was certainly a market of stocks rather than a stock
market. For example, within the Dow Jones Industrial Average (DJIA)(3), Walmart
Stores returned 107.9% during 1998, while Boeing Co. returned -34.5%.
Data on various sectors of the stock market are in the table below.4 With
respect to size, while the S&P 500 returned 28.58%, the S&P 100 (the largest
stocks in the S&P 500) returned 33.22% and the S&P Small Cap 600 returned
- -1.33%. In addition, growth stocks outperformed value stocks by remarkable
margins. The stunning NASDAQ return was driven by the performance of technology
stocks. While technology stocks (particularly their internet subsector) and
industrial stocks did quite well, financial and, even more so, transportation
stocks performed badly. As a result, small changes in the composition of a
mutual fund portfolio could cause significant differences in performance.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Equities
S&P Indexes 1998 Return (%)
S&P 100 33.22
S&P 500 28.58
S&P Mid Cap 400 19.09
S&P Small Cap 600 -1.33
S&P Industrial 33.68
S&P Transportation -1.96
S&P Utilities 14.57
S&P Financial 10.97
Other Indexes
Dow Jones Industrial Average 18.13
NASDAQ Composite 40.20
Russell Indexes Overall Growth Value
Russell 3000 23.95 35.02 13.50
Russell Top 200 33.98 45.09 21.24
Russell 1000 26.77 38.71 15.63
Russell 2000 -2.24 1.23 -6.45
With respect to bonds, it was an "ugly year" for most bond sectors except
Treasuries. During October, all "spread products," that is, corporates,
mortgage-backed and asset-backed securities and municipals, weakened
significantly relative to Treasuries, as investors became extremely averse to
credit risk and illiquidity. Investment grade corporates under-performed
Treasuries of equivalent maturities by 2.66% during October alone, an event
which, before the fact, would have been regarded as virtually impossible. Such
spread widening was closely related to the problems experienced by LTCM
mentioned above. For 1998 as a whole, Treasuries, which comprise approximately
37% of the Lehman Aggregate Bond Index, were the strongest sector of the bond
market, as shown in the table below.
Fixed Income
1998 Curve
Adjusted
Return
(Relative to
1998 Return Treasuries)
----------- -----------
Lehman Aggregate Bond Index 8.69% -0.75%
Treasury Bond Index 10.03% --
Investment Grade Corporate
Bond Index 8.57% -2.20%
Mortgage-Backed Securities Index 6.96% -0.86%
Asset-Backed Securities Index 7.76% -0.83%
- ----------
Source: Lehman Bros.
In general, large cap stocks and risk-free Treasuries were the strong
performers of 1998, making it difficult for managed portfolios to keep up with
the market averages.
Lesson Learned
The market turbulence led mutual fund investors to withdraw $11.7 billion
from stock funds during August, in retrospect withdrawing near the stock market
lows. This withdrawal was contrary to the recent "buy on dips" strategy employed
by individual investors during market corrections. This conservatism with
respect to stock mutual funds continued during September and October ($6.3
billion and $2.5 billion inflows, respectively). However, the S&P 500 increased
by 21.30% during October, November and December, the strongest quarter for the
S&P 500 since the first quarter of 1987. It is entirely possible that these
outflows and modest inflows were simply a rebalancing of mutual fund portfolios
toward bonds and away from stocks due to the strong stock market of the last few
years. It is more likely, however, that these withdrawals reflected, for the
first time in more than a decade, fear among mutual fund investors of a
continuing decline in the stock market. If so, this attempt at market timing,
once again, was costly to mutual fund investors.
In particular, this conservatism controverted two axioms of investing.
First, with respect to the stock markets, "You have to stay in to win." Second,
with respect to the markets in general, "Don't fight the
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Fed." With respect to the market timing issue, if the Fed had such poor
forecasting that it changed from a tightening bias to an actual easing in two
months, how successful are the rest of us likely to be at forecasting?
These facts beg the question of how we should position our portfolios and
also our psyches for 1999.
First, be prepared for another volatile year. The volatility will be due
first to the economy. Most observers expect a weaker economy, although not a
recession, during the first half of 1999 and a strengthening economy, although
not at an inflationary level, in the last part of 1999. But the strength of late
1998 could continue into 1999. Corporate profits will continue to weaken from
1998 to 1999 as they did from 1997 to 1998, but are expected to be moderate.
Volatility will also continue in some specific sectors, mainly the technology
sector, due to their high valuations and the increasing number of investors
trading this sector online.
In the bond market, the spreads on corporates, mortgage-backed securities
and municipals, while somewhat tighter than their October highs, are still quite
wide, and seem to have achieved some stability. These spreads will most likely
tighten somewhat during 1999, thus providing additional returns to bond
investors, but will remain volatile and may at times widen.
Now for two investment principles, one for your portfolio and one for your
psyche. With respect to your portfolio, maintain diversification. The value of
diversification was illustrated by the LTCM episode. LTCM executed trades which
were highly likely to become profitable and in fact became profitable. However,
they were so non-diversified and leveraged that they were forced to sell when
the markets moved against them. A practical result of diversification is that
you are not forced to sell, that is, you do not have to sell unless you choose
to.
With respect to your psyche, avoid market timing, and particularly avoid
making short-term decisions based on fear when you have a long-term investment
horizon. I would submit that if Greenspan cannot time the economy and the
markets, then neither can we.
Thus, diversification protects you from being forced to sell when you do
not want to. And an aversion to market timing assures that you will not choose
to sell when it is not appropriate to do so. In combination, these two
principles will ensure that you will maintain your long-term investment
approach. Changes should, of course, be made due to changing personal
circumstances and changing asset class valuations. The overall approach is,
however, long-term and stable. For most investors, this was an effective
strategy during 1998 and we expect that it will continue to be so during 1999.
Regards,
/s/ Frank J. Jones
Frank J. Jones, Ph.D.
President, The Park Avenue Portfolio
- --------------------------------------------------------------------------------
(1) The Standard & Poor's 500 Index is an unmanaged index of 500 large-cap
U.S. stocks that is generally considered to be representative of U.S.
stock market activity.
(2) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity.
(3) The Dow Jones Industrial Average (DJIA) is an unmanaged average of 30
industrial stocks listed on the New York Stock Exchange that is generally
considered to be representative of U.S. stock market performance.
(4) This table provides information from several sources. The unmanaged S&P
100, S&P 500 and S&P Mid Cap 400 indices are compiled by Standard & Poor's
Corporation and are generally considered to be representative of the
returns of large cap and mid cap companies. The S&P Small Cap 600 is an
unmanaged index of small cap companies. The unmanaged S&P Industrial, S&P
Transportation, S&P Utilities and S&P Financial indices are generally
considered to represent the returns of companies within those sectors of
the equity markets. The NASDAQ Composite Index is a broad-based
capitalization-weighted index of all NASDAQ National Market stocks. The
Russell indexes are compiled by Frank Russell Co. and are formulated to
serve as a comprehensive representation of the investable U.S. stock
market. The sub-indices showing Growth and Value returns indicate
different styles of investment in the equity markets. "Growth investing"
emphasizes companies whose earnings are expected to grow substantially,
while "value investing" emphasizes companies whose stocks are believed to
be undervalued relative to their current market prices.
- --------------------------------------------------------------------------------
<PAGE>
THE PARK AVENUE PORTFOLIO
Table of Contents
Portfolio Schedule
Manager of
Interview Investments
- --------------------------------------------------------------------------------
The Guardian Park Avenue Fund 2 21
- -----------------------------------------------
Objective: Long-term growth of capital
- --------------------------------------------------------------------------------
Portfolio: At least 80% common stocks and
securities convertible into
common stocks
- --------------------------------------------------------------------------------
Inception: June 1, 1972
- --------------------------------------------------------------------------------
Net Assets at December 31, 1998: $3,380,256,722
- --------------------------------------------------------------------------------
"We believe that the best way to achieve consistently outstanding returns
is to combine tried and tested quantitative tools with good investment
judgments."
-- Larry Luxenberg, C.F.A.
Co-Portfolio Manager
-- John B. Murphy, C.F.A.
Co-Portfolio Manager
- --------------------------------------------------------------------------------
The Guardian Park Avenue Small Cap Fund 6 25
- -----------------------------------------------
Objective: Long-term growth of capital
- --------------------------------------------------------------------------------
Portfolio: At least 85% in a diversified portfolio
of common stocks and convertible
securities issued by companies with
small market capitalization
- --------------------------------------------------------------------------------
Inception: May 1, 1997
- --------------------------------------------------------------------------------
Net Assets at December 31, 1998: $149,647,136
- --------------------------------------------------------------------------------
"Fundamental knowledge of the companies is critical, particularly when
dealing with small companies, many of which have shorter operating histories,
more variable operations, and less research coverage."
-- Larry Luxenberg, C.F.A.
Portfolio Manager
- --------------------------------------------------------------------------------
The Guardian Asset Allocation Fund 8 28
- -----------------------------------------------
Objective: Long-term total investment return
consistent with moderate risk
- --------------------------------------------------------------------------------
Portfolio: A mixture of equity securities, debt
obligations and money market
instruments; purchases shares of
The Guardian Park Avenue, Investment
Quality Bond and Cash Management Funds
- --------------------------------------------------------------------------------
Inception: February 16, 1993
- --------------------------------------------------------------------------------
Net Assets at December 31, 1998: $222,372,226
- --------------------------------------------------------------------------------
"We manage the Fund using disciplined techniques which continue to focus
our attention on the variables which are critical to the markets."
-- Jonathan C. Jankus, C.F.A
Portfolio Manager
<PAGE>
THE PARK AVENUE PORTFOLIO
Table of Contents--(Continued)
Portfolio Schedule
Manager of
Interview Investments
- --------------------------------------------------------------------------------
The Guardian Baillie Gifford International Fund 10 30
- --------------------------------------------------
Objective: Long-term growth of capital
- --------------------------------------------------------------------------------
Portfolio: At least 80% in a diversified portfolio
of common stocks of companies
domiciled outside of the United States
- --------------------------------------------------------------------------------
Inception: February 16, 1993
- --------------------------------------------------------------------------------
Net Assets at December 31, 1998: $104,087,558
- --------------------------------------------------------------------------------
"We...focus our efforts on finding the best businesses to invest in for
your Fund, and let the availability of those attractive businesses be the main
guide to the countries in which we should and should not place your money."
-- R. Robin Menzies
Portfolio Manager
- --------------------------------------------------------------------------------
The Guardian Baillie Gifford Emerging Markets Fund 12 33
- --------------------------------------------------
Objective: Long-term capital appreciation
- --------------------------------------------------------------------------------
Portfolio: At least 65% in a portfolio of common
stocks issued by emerging market companies
- --------------------------------------------------------------------------------
Inception: May 1, 1997
- --------------------------------------------------------------------------------
Net Assets at December 31, 1998: $17,708,841
- --------------------------------------------------------------------------------
"The crucial element these markets need is confidence. We are encouraged
that the performance of these markets has begun to improve, but we feel a clear
resolution of Brazil's problem is necessary before we can become more bullish
about emerging markets as a whole."
-- Edward H. Hocknell
Portfolio Manager
- --------------------------------------------------------------------------------
The Guardian Investment Quality Bond Fund 14 36
- --------------------------------------------------
Objective: A high level of current income and
capital appreciation without
undue risk to principal
- --------------------------------------------------------------------------------
Portfolio: At least 80% investment-grade debt
securities and U.S. government securities
- --------------------------------------------------------------------------------
Inception: February 16, 1993
- --------------------------------------------------------------------------------
Net Assets at December 31, 1998: $142,198,634
- --------------------------------------------------------------------------------
"In 1998, clearly what distinguished one fund's performance from another
was owning a well-diversified fixed income portfolio that focused on relative
valuations and asset allocation."
-- Thomas G. Sorell, C.F.A.
Co-Portfolio Manager
-- Howard W. Chin
Co-Portfolio Manager
<PAGE>
Portfolio Schedule
Manager of
Interview Investments
- --------------------------------------------------------------------------------
The Guardian High Yield Bond Fund 16 39
- --------------------------------------------------
Objective: Significant risk-adjusted return
- --------------------------------------------------------------------------------
Portfolio: A diversified fixed-income principally
composed of below-investment grade
securities up to 25% invested in
convertible securities.
- --------------------------------------------------------------------------------
Inception: September 1, 1998
- --------------------------------------------------------------------------------
Net Assets at December 31, 1998: $53,770,601
- --------------------------------------------------------------------------------
"We sought to identify attractive asset allocation weightings based on
analysis of industry fundamentals, issuer credit-worthiness and risk/return
profile, and individual issue relative value."
-- Peter J. Liebst
Co-Portfolio Manager
-- Thomas G. Sorell, C.F.A.
Co-Portfolio Manager
- --------------------------------------------------------------------------------
The Guardian Tax-Exempt Fund 18 42
- --------------------------------------------------
Objective: Maximum current income exempt from
federal taxes consistent with
preservation of capital
- --------------------------------------------------------------------------------
Portfolio: At least 80% investments-grade debt
obligations issued by state and local
authorities
- --------------------------------------------------------------------------------
Inception: February 16, 1993
- --------------------------------------------------------------------------------
Net Assets at December 31, 1998: $70,720,128
- --------------------------------------------------------------------------------
"Based on peer group comparisons the Fund ranked, for the year, 33 out of
246 funds with the same objective."
-- Alexander M. Grant, Jr.
Portfolio Manager
- --------------------------------------------------------------------------------
The Guardian Cash Management Fund 20 44
- -------------------------------------------------
Objective: As high a level of current income
as is consistent with preservation of
capital and liquidity
- --------------------------------------------------------------------------------
Portfolio: Short-term money market instruments
- --------------------------------------------------------------------------------
Inception: November 3, 1982
- --------------------------------------------------------------------------------
Net Assets at December 31, 1998: $238,426,600
- --------------------------------------------------------------------------------
"The Guardian Cash Management Fund is a place for our investors to put
their money while they decide their preferred long-term investment vehicle, be
it stocks or bonds."
-- Alexander M. Grant, Jr.
Portfolio Manager
- --------------------------------------------------------------------------------
Financial Statements 46
- --------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Financial Statements 56
- --------------------------------------------------
- --------------------------------------------------------------------------------
Financial Highlights 68
- --------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Park Avenue Fund
- --------------------------------------------------
[PHOTO OMITTED] [PHOTO OMITTED]
Larry Luxenberg, C.F.A. John B. Murphy, C.F.A.
Co-Portfolio Manager Co-Portfolio Manager
Q. How did the Fund perform in 1998?
A. For an unprecedented fourth consecutive year, The Guardian Park Avenue Fund
had a return of more than 20%. The Fund earned a total return of 21.30%(1), as
compared with a total return of 28.58% for the S&P 500 Index(2). 1998 was a year
of political and economic turbulence, and investors were filled with optimism in
the beginning and at the end of the year. In between, there was also extreme
volatility and highly divergent returns among different types of stocks. In the
space of three months, most major market indices dropped close to 20% and then
rallied 20%. Those two moves were the quickest of that size in modern market
history.
The gains in the market occurred in an extremely narrow range of stocks.
According to a Salomon Smith Barney report,(3) only 12 stocks accounted for half
the gain in the S&P 500 Index, which is weighted by the market capitalization of
the companies included in the index. Similarly, while the S&P 500 returned
28.58%, the average stock in the index was up only 10.95%, according to a
Merrill Lynch research report.(4) Even more startling, in a year in which the
major averages set all time record highs, more than half of the New York Stock
Exchange and NASDAQ stocks ended the year down.
Q. What factors affected Fund performance in 1998?
A. The Fund generated a good absolute return and also did well compared to other
funds in its peer group. According to Lipper Analytical Services,(5) the
performance for the average U.S. equity mutual fund was 14.52%. However, the
Fund did underperform the S&P 500 by seven percentage points. We attribute the
slippage largely to the extreme concentration of returns among a handful of
stocks in the S&P 500.
Over the twenty-six year history of the Fund, we have always attempted to
produce consistent as well as outstanding returns. To do that, we run a
diversified Fund, which at year-end had in excess of 270 stocks.
Helping performance during the year was our quantitative work on specific
stocks as well as our internal assessment that 1998 would be another good year
for large-cap stocks, generally. At year-end 1998, the Fund's overall
investments reflected a weighted market capitalization two-thirds as large as
that of the S&P 500. We gradually increased the weighting all year, reaching
near parity with the S&P 500 by the end of September and keeping at that level
through year-end.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return represents total return for Class A shares -- returns for Class B
shares would be lower to reflect higher operating expenses associated with
the B share class. Total return figures do not take into account the
current maximum sales charge except where noted. Returns represent past
performance and are not a guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost. Prior to
August 25, 1988, shares of the Fund were offered at a higher sales charge,
so that actual returns would have been somewhat lower.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund. Likewise, return figures for the S&P 500 Index do not reflect
any sales charges that an investor may have to pay when purchasing or
redeeming shares of the Fund.
(3) "Equity Strategy," John L. Manley, December 23, 1998.
(4) "Performance Monitor," Richard Bernstein, January 1999.
(5) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales charges, and performance would be
different if sales charges were deducted.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Finally, we also remained committed to growth stocks all year and
continually pared our holdings in sectors exposed to commodity prices (such as
energy and metals), many of which plunged to quarter century lows.
Q. What strategies do you use to manage the Fund?
A. There was no change in our strategic approach during the year. We rely on a
combination of quantitative techniques and our own fundamental judgments. We
believe that the best way to achieve consistently outstanding returns is to
combine tried and tested quantitative tools with good investment judgments.
Our quantitative work combines a cluster of approaches. We look at the
portfolio from a top-down view as well as from the bottom up. Finally, we are
continually refining our tools to deal with the increasing risk and volatility
in the capital markets. Our top-down approach involves a number of different
predictive models that we use to identify which portfolio styles are most likely
to do well. The bottom-up approach uses a multi-factor stock scoring system to
identify specific attractive stocks within our 2200-stock research universe.
Q. What do you envision for the stock market in 1999?
A. As the year begins, we see continued conflicting forces. The valuation of the
market is high, by many measures the highest in modern stock market history.
Inflation remains low with even modest doses of deflation possible. The U.S.
economy remains strong, although corporate profits are weakening. But around the
world, many economies are still under great stress. In combination, we expect
these forces to produce continued high volatility for the market but we plan to
stick to the approach and methodologies that have served the Fund well in the
past. We believe these methodologies will help us to achieve superior
performance.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Guardian Park Avenue Fund Profile
as of December 31, 1998
- --------------------------------------------------
- ----------------------------------------------
Top 10 Holdings as of 12/31/98
- ----------------------------------------------
1. Microsoft Corp. 4.44%
- ----------------------------------------------
2. Int'l. Business Machines 3.29%
- ----------------------------------------------
3. Pfizer, Inc. 3.28%
- ----------------------------------------------
4. General Electric Co. 3.01%
- ----------------------------------------------
5. BellSouth Corp. 2.53%
- ----------------------------------------------
6. Wal-Mart Stores, Inc. 2.41%
- ----------------------------------------------
7. Bristol-Myers Squibb Corp. 2.39%
- ----------------------------------------------
8. Ford Motor Co. 2.14%
- ----------------------------------------------
9. MCI WorldCom, Inc. 1.92%
- ----------------------------------------------
10. Merck & Co., Inc. 1.91%
- ----------------------------------------------
For a complete list of portfolio holdings,
please seethe Schedule of Investments.
- ----------------------------------------------
Sector Weightings of
Common Stocks Held
by the Fund on December 31, 1998
[The following table was depicted as a pie chart in the printed materials.]
Basic Industries 0.55%
Credit Cyclicals 1.25%
Transportation 2.60%
Energy 3.37%
Capital Goods 4.00%
Capital Goods/Technology 24.23%
Consumer Services 6.38%
Utilities 14.44%
Consumer Staples 20.03%
Financial 10.32%
Consumer Cyclical 12.38%
Conglomerates 0.45%
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Average Annual Total Returns(1) for Periods ended 12/31/98
Inception Since
Date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares (with sales charge) 6/1/72 15.84% 21.20% 18.71% 16.72%
At Net Asset Value (without sales charge) 21.30% 22.32% 19.26% 16.92%
- ------------------------------------------------------------------------------------------------
Class B Shares (with sales charge) 5/1/96 17.18% N/A N/A 26.31%
At Net Asset Value (without sales charge) 20.16% N/A N/A 26.82%
- ------------------------------------------------------------------------------------------------
S&P 500 Index 28.58% 23.96% 19.10% 13.56%
- ------------------------------------------------------------------------------------------------
(6/1/72)
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures for Class A shares do not take into account the current
maximum sales charge of 4.5%, except where indicated. Prior to August 25,
1988, Class A shares of the Fund were offered at a higher sales charge, so
actual returns would have been somewhat lower. Total return figures for
Class B shares do not take into account the contingent deferred sales
charge applicable to such shares (maximum of 3%), except where noted.
Returns represent past performance and are not a guarantee of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the
original cost.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[GRAPHIC OMITTED]
[The following table was depicted as a line graph in the printed material.]
1998
The Guardian Park Avenue Fund (Class A) $625,222
S&P 500 Index $293,403
Lipper U.S. Equity Growth Fund AverAge $229,378
Cost of Living $ 40,964
Performance for Class B shares, which were first offered on May 1, 1996, will
vary due to differences in sales load and other expenses charged to such share
class.
A hypothetical $10,000 investment in Class A shares made at the inception of The
Guardian Park Avenue Fund on June 1, 1972 has a starting point of $9,550, which
reflects the current maximum sales charge for Class A shares of 4.5%. This
investment would have grown to $625,222 on December 31, 1998. We compare our
performance to that of the S&P 500 Index, which is an unmanaged index that is
generally considered the performance benchmark of the U.S. stock market. While
you cannot invest directly in the S&P 500 Index, a similar hypothetical
investment would now be worth $293,403. The Fund also fared well relative to
other U.S. growth funds. The average return of U.S. equity growth funds reported
by Lipper Analytical Services, Inc. measures the performance of other funds with
investment objectives and policies similar to those of The Guardian Park Avenue
Fund. The average of U.S. growth funds on the same $10,000 investment over the
same time period would have been $229,378. The Cost of Living, as measured by
the Consumer Price Index, which is generally representative of the level of U.S.
inflation, is also provided to lend a more complete understanding of the
investment's real worth.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Guardian Park Avenue Small Cap Fund
- --------------------------------------------------
[PHOTO OMITTED]
Larry Luxenberg, C.F.A.
Portfolio Manager
Q. How did the Fund do in 1998?
A. For small stocks in general, 1998 was a difficult year and The Guardian Park
Avenue Small Cap Fund was no exception. For the year ended December 31, the
Fund's return was - 6.35(1), as compared to -2.24% for the Russell 2000
Index(2), a leading index of small cap performance. The best news we can muster
about small cap stocks is that their relative performance was so bad it can only
get better. By various measures, small cap stocks underperformed large cap
stocks by the widest amount in at least a quarter century and by some accounts,
perhaps 60 years.
Q. What factors affected the Fund's performance during 1998?
A. Small cap stocks peaked in the fall of 1997 and remained strong until April
1998. From that point until the fall, small cap stocks were in a major bear
market. At year-end, when other major market indices were near all-time highs,
the Russell 2000 was still off by almost 14% from its April peak.
To the extent any small cap stocks were in favor, they were the fastest
growing and more speculative ones, particularly in technology, where we lacked a
sufficient weighting, assuming a more conservative posture in late summer and
early fall. But the Fund rallied strongly at year-end.
Q. What strategies did you use to manage the Fund in 1998?
A. Our basic approach is to combine quantitative methods with our fundamental
judgments about individual companies. Fundamental knowledge of the companies is
critical, particularly when dealing with small companies, many of which have
shorter operating histories, more variable operations, and less research
coverage.
Q. What do you anticipate for 1999?
A. A January 4, 1999 analysis by Claudia Mott of Prudential Securities showed
that the difference between small and large caps was the third largest since
1926 and the largest since 1937. She also found that after those periods when
small caps lagged severely, they tended to outperform strongly over the
subsequent three-year periods.
We would like to predict that small cap stocks will begin to make up the
lost ground. We cannot time when small stocks will again have good relative
performance. We can say, however, that relative valuations are quite cheap by
historic standards and we expect that small stocks are well-positioned to regain
favor.
- --------------------------------------------------------------------------------
(1) These returns reflect Class A shares without sales charges. Total return
figures are historical and assume the reinvestment of dividends and
distributions and the deduction of all Fund expenses. Total return figures
for Class A shares do not take into account the current maximum sales
charge of 4.5% except where noted. Total return figures for Class B shares
do not take into account the contingent deferred sales charge applicable
to such shares (maximum of 3% except where noted). Returns represent past
performance and are not a guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost.
(2) The Russell 2000 Index is an unmanaged index that is generally considered
to be representative of small-capitalization issues in the U.S. stock
market. The returns for the Russell 2000 do not reflect expenses which are
deducted from the Fund's returns. Likewise, return figures for the Russell
2000 index do not reflect any sales charges that an investor may have to
pay when purchasing or redeeming shares of the Fund.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Guardian Park Avenue Small Cap Fund Profile
as of December 31, 1998
- --------------------------------------------------
- -----------------------------------------------------
Top 10 Holdings as of 12/31/98
- -----------------------------------------------------
1. AFC Cable Systems, Inc. 3.07%
- -----------------------------------------------------
2. Earthgrains Co. 2.23%
- -----------------------------------------------------
3. Ethan Allen Interiors, Inc. 1.81%
- -----------------------------------------------------
4. Arterial Vascular Engineering, Inc. 1.54%
- -----------------------------------------------------
5. Wind River Systems, Inc. 1.38%
- -----------------------------------------------------
6. Tropical Sportswear Int'l. Corp. 1.32%
- -----------------------------------------------------
7. Zale Corp. 1.29%
- -----------------------------------------------------
8. Mohawk Industries, Inc. 1.24%
- -----------------------------------------------------
9. CKE Restaurants, Inc. 1.21%
- -----------------------------------------------------
10. JLG Industries, Inc. 1.19%
- -----------------------------------------------------
For a complete list of portfolio holdings, please see
the Schedule of Investments.
- -----------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[GRAPHIC OMITTED]
[The following table was depicted as a line chart in the printed material.]
12/98
Russell 2000 Index $12,618
The Guardian Park Avenue Small Cap Fund (Class A) $12,447
The Guardian Park Avenue Small Cap Fund (Class B) $11,826
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Class A and Class B shares of The Guardian Park Avenue Small
Cap Fund and the Russell 2000 Index. The starting point of $9,550 for Class A
shares reflects the maximum sales charge of 4.5% that an investor may have to
pay when purchasing shares of the Fund. For Class B shares the contingent
deferred sales charge of 3% was imposed at the end of the period. The Index and
Class B shares begin at $10,000.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Periods ended 12/31/98
Inception Since
Date 1 Year Inception
- --------------------------------------------------------------------------------
Class A Shares (with sales charge) 5/1/97 -10.56% 12.32%
At Net Asset Value (without sales charge) - 6.35% 15.46%
- --------------------------------------------------------------------------------
Class B Shares (with sales charge) 5/6/97 - 9.84% 10.10%
At Net Asset Value (without sales charge) - 7.05% 12.37%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Guardian Asset Allocation Fund
- --------------------------------------------------
[PHOTO OMITTED]
Jonathan C. Jankus, C.F.A.
Portfolio Manager
Q. How did the Fund perform this year?
A. For the year ended December 31, 1998, the Fund's return was 19.41%(1),
placing it well above the average 14.16% return of funds with similar objectives
and policies in the Lipper(2) universe. The Fund also handily outperformed the
median return of 12.09% produced by Morningstar's(3) universe of asset
allocation funds. Since its inception on February 16, 1993, the Fund's average
annual total return of 16.16% places it slightly ahead of the annualized return
of 15.95% experienced by its passive composite benchmark (60% of the S&P 500
Index(4) and 40% of the Lehman Aggregate Bond Index(5) rebalanced monthly) over
the same period. This long-term result has been accomplished in spite of the
fact that the Fund's return in 1998 was a bit beneath the benchmark's impressive
20.99% return for the same period.
Q. What factors affected Fund's performance?
A. This was yet another year in which the equity market did very well, at least
if you were in the right place at the right time. While the overall market, as
measured by the S&P 500, achieved a total return of 28.58% during 1998, this was
not accomplished in straight-line fashion. In August, the market's decline of
14.44% was the greatest monthly loss since the decline of 21.52% in October of
1987. That said, all was forgiven during the fourth quarter as the market
rebounded completely and then some. We were fortunate to have been overweighted
in stocks (relative to our neutral 60/40 position) early in the year, neutral
during the summer, and then back to overweight after the market's August
decline.
Our active stock selection was also a challenge during the year as
large-cap stocks outperformed small-cap stocks dramatically, and stocks related
to the Internet came into their own. As a "fund of funds," the Fund invests most
of the equity portion of its assets in The Guardian Park Avenue Fund. We
encourage the reader to read the information in this Annual Report about The
Guardian Park Avenue Fund for greater detail.
Q. What are your expectations for the coming year?
A. Our investing will, of course, continue to be guided by our quantitative
model which, as of year-end, had us invested 70% in stocks, 28% in bonds and 2%
in cash.
We manage the Fund using disciplined techniques which continue to focus
our attention on the variables which are critical to the markets. In particular,
interest rates are low, inflation is not yet on the horizon, and corporate
profits are holding up surprisingly well. It is these facts that lead us to
continue favoring stocks over bonds or cash in our portfolio.
- --------------------------------------------------------------------------------
(1) Total return figures are for Class A shares. Total return figures are
historical and assume the reinvestment of dividends and distributions and
the deduction of all Fund expenses. Total return figures for Class A
shares do not take into account the current maximum sales charge of 4.5%
except where marked. Total return figures for Class B shares do not take
into account the contingent deferred sales charge applicable to such
shares (maximum of 3% except where noted). Returns represent past
performance and are not a guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales charges, and performance would be
different if sales charges were deducted.
(3) Morningstar is an independent mutual fund monitoring and rating service
and its database of performance information is based on historical total
returns, which assume the reinvestment of dividends and distributions, and
the deduction of all fund expenses.
(4) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund. Likewise, return figures for the S&P 500 Index do not reflect
any sales charges that an investor may have to pay when purchasing or
redeeming shares of the Fund.
(5) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The Lehman
Aggregate Bond Index is not available for direct investment and the
returns do not reflect the fees and expenses that have been deducted from
the Fund. Likewise, return figures for the Lehman Aggregate Bond Index do
not reflect any sales charges that an investor may have to pay when
purchasing shares of the Fund.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Guardian Asset Allocation Fund Profile
as of December 31, 1998
- --------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[GRAPHIC OMITTED]
[The following table was depicted as a line chart in the printed material.]
12/98
S&P 500 Index $31,535
The Guardian Asset Allocation Fund (Class A) $23,014
Lehman Aggregate Bond Fund Index $15,230
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Class A shares of The Guardian Asset Allocation Fund, the S&P
500 Index and the Lehman Aggregate Bond Index. The starting point of $9,550 for
Class A shares reflects the maximum sales charge of 4.5% that an investor may
have to pay when purchasing Class A shares of the Fund. Each Index begins at
$10,000.
{GRAPHIC OMITTED}
[The following table was depicted as a pie chart in the printed material.]
Cash 2%
Bonds 28%
Stocks 70%
As of December 31, 1998
This market exposure shown provides an illustration of the Fund's allocation to
different market segments as of December 31, 1998. For a complete listing of
Fund holdings, please refer to the Schedule of Investments.
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Class A shares of The Guardian Asset Allocation Fund, the S&P
500 Index and the Lehman Aggregate Bond Index. The starting point of $9,550 for
Class A shares reflects the maximum sales charge of 4.5% that an investor may
have to pay when purchasing Class A shares of the Fund. Each Index begins at
$10,000.
Performance for Class B shares, which were first offered on May 1, 1996, will
vary due to differences in sales load and other expenses charged to such share
class.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Average Annual Total Returns(1) for Periods Ended 12/31/98
Inception Since
Date 1 Year 3 Years 5 Years Inception
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares (with sales charge) 2/16/93 14.04% 19.00% 15.48% 15.25%
At Net Asset Value (without sales charge) 19.41% 20.84% 16.55% 16.16%
- -------------------------------------------------------------------------------------------------------
Class B Shares (with sales charge) 5/1/96 15.32% N/A N/A 19.89%
At Net Asset Value (without sales charge) 18.32% N/A N/A 20.44%
- -------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Guardian Baillie Gifford International Fund
- --------------------------------------------------
[PHOTO OMITTED]
R. Robin Menzies,
Portfolio Manager
Q. How did the Fund perform during 1998?
A. 1998 was an excellent year for the Fund. For the year, the Fund returned
19.61%(1), compared with a total return of 20.33% for the MSCI EAFE Index.(2)
Q. What factors affected the Fund's performance?
A. A number of factors affected the Fund's performance. First, the U.S. dollar
was weak against most foreign currencies during the period, which made foreign
currency returns larger when translated into dollars. While the EAFE Index had a
total return of 20.33% when measured in dollars, in local currency terms the
total return was only 12.60%. The core Continental European currencies were
particularly strong in the run up to the start of the Euro on January 1, 1999.
For example, while the MSCI France Index(3) had a total return for the period of
31.91% when measured in French Francs, the weakness of the dollar made that
total return 42.06% when translated into dollars.
Second, European markets were buoyant. The MSCI Europe Ex-UK(4) Index had
a total return of 33.95% in dollar terms during the period. This was
attributable in part to an acceleration in economic activity in the first half
of the year, leading to increased investor optimism over corporate profits
growth. There was also a climate of falling interest rates, both long and short
term, as the interest rates of the currencies of all 11 putative members of the
Euro converged on the rates prevailing in Germany which happened to be among the
lowest in Europe. Finally, as long term interest rates (i.e. bond yields) fell,
savers chose to invest more of their money in mutual funds and common stocks at
the expense of bank deposits and bonds.
Third, and a negative factor, markets in Asia were weak during the period.
In yen terms, the MSCI Japan Index(5) showed a total return of -8.70%, which
became +5.25% when expressed in dollars, while the MSCI Pacific ex-Japan(6)
index had total returns of -1.91% and -6.22% expressed in local currency and
dollar terms, respectively. The weakness of these markets was attributable to
financial turmoil in the region, with Japan troubled by bad loans in its banking
system, and many other Asian countries finding it hard to repay debts in foreign
currencies following the devaluations of their own currencies.
Q. What was your investment strategy during the year?
A. We continued to apply our long term, fundamental investment approach of
seeking to identify and invest in well-run businesses with sound prospects and
good management. The application of this strategy led us to invest more in
Europe and less in Asia, because the business prospects of many Asian companies,
however good their management, were clouded by the appalling economic conditions
there. Within Europe, we focused on industries where revenue and/or profits were
expected to grow rapidly.
- --------------------------------------------------------------------------------
(1) Total return figures are for Class A shares. Total return figures are
historical and assume the reinvestment of dividends and distributions and
the deduction of all Fund expenses. Total return figures for Class A
shares do not take into account the current maximum sales charge of 4.5%.
Total return figures for Class B shares do not take into account the
contingent deferred sales charge applicable to such shares (maximum of
3%). Returns represent past performance and are not a guarantee of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the
original cost.
(2) The Morgan Stanley Capital International (MSCI) Europe, Australia and Far
East (EAFE) is an unmanaged index that is generally considered to be
representative of international stock market activity. The MSCI EAFE Index
is not available for direct investment and the returns do not reflect the
fees and expenses that have been deducted from the Fund's return.
(3) The MSCI France Index is an unmanaged index generally considered to be
representative of French stock market activity. The returns for the Index
do not reflect expenses that are deducted from the Fund's return.
(4) The MSCI Europe Ex-UK Index is an unmanaged index generally considered to
be representative of European stock market activity, excluding the United
Kingdom. The returns for the index do not reflect expenses that are
deducted from the Fund's return.
(5) The MSCI Japan Index is an unmanaged index generally considered to be
representative of Japanese stock market activity. The returns for the
index do not reflect expenses that are deducted from the Fund's return.
(6) The MSCI Pacific Ex-Japan Index is an unmanaged index generally considered
to be representative of the stock market activity of Australia, Singapore,
Hong Kong and New Zealand. The returns for the index do not reflect
expenses that are deducted from the Fund's return.
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
Q. What do you think will be the most important factors in 1999?
Every year we are encouraged to make projections of what is going to happen.
Sometimes we are right and manage to avoid pitfalls and sometimes we, together
with the majority of the investment community, are surprised, for example by the
recent strength of the yen. We will continue to focus our efforts on finding the
best businesses to invest in for your Fund, and let the availability of those
attractive businesses be the main guide to the countries in which we should and
should not place your money.
- --------------------------------------------------------------------------------
The Guardian Baillie Gifford International Fund Profile
as of December 31, 1998
- -------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Holdings as of 12/31/98
Company Nature of Company Country
- --------------------------------------------------------------------------------
1. Mannesmann AG Industrial Machineries Germany
- --------------------------------------------------------------------------------
2. Acciona S.A. Construction and Hous. Spain
- --------------------------------------------------------------------------------
3. Novartis AG Pharmaceuticals Switzerland
- --------------------------------------------------------------------------------
4. Glaxo Wellcome Drugs and Health Care United Kingdom
- --------------------------------------------------------------------------------
5. AXA UAP Financial Services France
- --------------------------------------------------------------------------------
6. Zurich Allied AG Insurance Switzerland
- --------------------------------------------------------------------------------
7. Sao Paolo IMI SPA Banks Italy
- --------------------------------------------------------------------------------
8. Olivetti SPA Telecommunications Italy
- --------------------------------------------------------------------------------
9. Lafarge Construction Materials France
- --------------------------------------------------------------------------------
10. Ver Ned Uitgevers Broadcasting and Publ. Netherlands
- --------------------------------------------------------------------------------
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[GRAPHIC OMITTED]
[The following table was depicted as a line chart in the printed material.]
12/31/98
MSCL/EAFE Index $20,572
The Guardian Baillie Gifford International Fund (Class A) $20,739
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Class A shares of The Guardian Baillie Gifford International
Fund and the MSCI/EAFE Index. The starting point of $9,550 for Class A shares
reflects the maximum sales charge of 4.5% that an investor may have to pay when
purchasing shares of the Fund. The Index begins at $10,000.
Performance for Class B shares, which were first offered on May 1, 1996, will
vary due to differences in sales load and other expenses charged to such share
class.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Average Annual Total Returns(1) for Periods Ended 12/31/98
Inception Since
Date 1 Year 3 Years 5 Years Inception
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares (with sales charge) 2/16/93 14.23% 13.20% 9.90% 13.23%
At Net Asset Value (without sales charge) 19.61% 14.95% 10.92% 14.12%
- -------------------------------------------------------------------------------------------------------
Class B Shares (with sales charge) 5/1/96 15.36% N/A N/A 11.33%
At Net Asset Value (without sales charge) 18.36% N/A N/A 11.95%
- -------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Baillie Gifford Emerging Markets Fund
- --------------------------------------------------
[PHOTO OMITTED]
Edward H. Hocknell
Portfolio Manager
Q. How did the Fund perform in 1998?
A. In 1998, the total return from the Morgan Stanley Capital International
(MSCI) Emerging Markets Free (EMF) Index(1) was -25.3%, as compared with the
Fund's -28.97%.(2)
Q. What factors affected the Fund's performance?
A. The emerging markets during 1998 were not the place for faint-hearted
investors. Asia, having performed poorly in the previous year, was down 12.4%
during 1998, while Latin America fell by over 38%. The European and Middle
Eastern markets fell by 27.4%.
The Fund's performance was affected more by overall conditions in the
emerging markets than it was by particular policy decisions.
The emerging markets got off to a robust start in 1998, but it soon became
apparent that the problems which the Asian crisis had revealed in 1997 were deep
seated, and the region's markets resumed their decline in March. The
deterioration of confidence began to spread to Latin America in the following
month, as investors sought to reduce their exposure to the emerging markets in
general. The financial collapse in Russia crystallized fears about the
conditions in many other countries which were dependent on foreign inflows and,
as credit spreads widened, the impending failure of Long-Term Capital Management
and other hedge funds seemed to imperil the financial system as a whole. The
reaction of investors has been characterized as a generalized "Flight to
Quality"; the emerging markets were the hardest hit by this development. Latin
America was hit especially hard in August and September due to its dependence on
foreign money which made it especially vulnerable to the general panic.
The emerging markets shared in the general recovery in the fourth
quarter--prices rose by 17.3% during the period--but this was not enough to
offset the precipitous declines earlier in the year. Asia performed better than
Latin America in the closing months of the year as interest rates there started
to fall and current account deficits were declining.
Q. What was your investment strategy?
A. Our policy throughout 1998 was a fairly cautious one. The cash holding
increased, and our exposure to Latin America and Asia declined. There was some
increase in the Central European weighting and a small increase in South Africa.
Compared to the Morgan Stanley Capital International (MSCI) Emerging Markets
Free (EMF) Index, we were underweight in Asia and South Africa, slightly
overweight in Latin America and more positive on Central Europe. For much of the
year, our biggest single bet was the size of our cash holding.
In the fourth quarter we increased our Asian weighting, principally by
adding to our Korean exposure. We added in Europe in Hungary and by investing in
Greece. We also started to invest in Israel. In Latin America, we increased our
Mexican exposure. Cash levels fell as a result.
Q. What is the outlook for investment in the emerging markets?
A. As usual, it is difficult to make any useful generalizations about the
emerging markets as a whole;
- --------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International (MSCI) Emerging Markets Free
(EMF) Index is an unmanaged index that is generally considered to be
representative of the stock market activity of emerging markets. The Index
is a market capitalization weighted index composed of companies
representative of the market structure of 22 emerging market countries in
Europe, Latin America, and the Pacific Basin. The MSCI EMF Index excludes
closed markets and those shares in otherwise free markets which may not be
purchased by foreigners. The MSCI EMF Index is not available for direct
investment and the returns do not reflect the fees and expenses that have
been deducted from the Fund's return.
(2) Total returns reflect Class A shares without sales charges. Total return
figures are historical and assume the reinvestment of dividends and
distributions and the deduction of all Fund expenses. Total return figures
for Class A shares do not take into account the current maximum sales
charge of 4.5% except where noted. Total return figures for Class B shares
do not take into account the contingent deferred sales charge applicable
to such shares (maximum of 3% except where noted.). Returns represent past
performance and are not a guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
our policy remains highly selective. Nevertheless there are several global
factors which are affecting these markets at the moment. Investors' aversion to
risk and the widening of credit spreads have hit all these markets, and the
collapse of commodity prices has harmed many of them. The continuing problems of
Japan mean that it remains a tough competitor, especially to its smaller Asian
rivals.
The crucial element that these markets need is confidence. This is
beginning to return to some Asian markets, but the financial problems of Brazil
are still hanging over Latin America. We are encouraged that the performance of
these markets has begun to improve, but we feel that a clear resolution of
Brazil's problems is necessary before we can become more bullish about emerging
markets as a whole.
- --------------------------------------------------------------------------------
The Guardian Baillie Gifford Emerging Markets Fund
Profile as of December 31, 1998
- --------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Holdings
Company Nature of Company Country
- --------------------------------------------------------------------------------
1. Pohang Iron & Steel
Co. Ltd. Metals and Steel So. Korea
- --------------------------------------------------------------------------------
2. Corp. Interamericana
Entretenimiento Media and Entertainm. Mexico
- --------------------------------------------------------------------------------
3. Siliconware Precision
Industries Industrials Taiwan
- --------------------------------------------------------------------------------
4. Orient Semiconductor
Elect. Ltd. Semiconductor Taiwan
- --------------------------------------------------------------------------------
5. Bank Roswoju Eksport Banks Poland
- --------------------------------------------------------------------------------
6. Elevadores Atlas Industrial Machineries Brazil
- --------------------------------------------------------------------------------
7. Comp. Brasileiras
de Dist. Retail-Food Brazil
- --------------------------------------------------------------------------------
8. Richter Gedeon VEG Pharmaceuticals Hungary
- --------------------------------------------------------------------------------
9. Elektrim Electrical Equipments Poland
- --------------------------------------------------------------------------------
10. Bank Handlowy
Warsaw Banks Poland
- --------------------------------------------------------------------------------
For a complete list of portfolio holdings, please see the Schedule of
Investments.
- --------------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[GRAPHIC OMITTED]
[The following table was depicted as a line chart in the printed material.]
12/31/98
The Guardian Baillie Gifford Emerging Markets Fund (Class B) $6,065
The Guardian Baillie Gifford Emerging Markets Fund (Class A) $6,242
MSCI EMF Index $6,074
To give you a comparison, the chart above shows the performance of a $10,000
investment made in Class A and Class B shares of The Guardian Baillie Gifford
Emerging Markets Fund and the MSCI EMF Index. The starting point of $9,550 for
Class A shares reflects the maximum sales charge of 4.5% that an investor may
have to pay when purchasing shares of the Fund. For Class B shares the
contingent deferred sales charge of 3% was imposed at the end of the period. The
Index and Class B shares begin at $10,000.
Average Annual Total Returns for Period from Inception to 12/31/98
- --------------------------------------------------------------------------------
Inception Since
Date 1 Year Inception
- --------------------------------------------------------------------------------
Class A Shares (with sales charge) 5/1/97 -32.17% -24.66%
At Net Asset Value (without sales charge) -28.97% -22.55%
- --------------------------------------------------------------------------------
Class B Shares (with sales charge) 5/6/97 -32.83% -26.10%
At Net Asset Value (without sales charge) -30.75% -24.73%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Investment Quality Bond Fund
- --------------------------------------------------
[PHOTO OMITTED]
Thomas G. Sorell, C.F.A.
Co-Portfolio Manager
[PHOTO OMITTED]
Howard W. Chin
Co-Portfolio Manager
Q. How did The Guardian Investment Quality Bond Fund perform during 1998?
A. The Fund had a total return of 7.89%(1) for the year ended December 31, 1998,
outperforming the average fund in our Lipper Intermediate Investment Grade peer
group(2) by 0.64%. The average fund in the Lipper group returned 7.25% for the
year. The group consists of other mutual funds that invest primarily in
investment grade debt with average maturities of 5-10 years. Another commonly
used benchmark, the Lehman Aggregate Bond Index(3), returned 8.69% in 1998.
Q. What factors affected the Fund's performance?
A. The year 1998 will long be remembered by fixed income investors as one of
incredible turbulence and excesses that eventually led to a significant and
costly re-pricing of risk in the market. Until August, interest rates had
remained fairly stable, declining approximately 0.30%, to what were then
historically low yields for 30-year Treasury bonds.
1998's financial crisis began in earnest in late August when Russia
effectively defaulted on its ruble-denominated debt. Immediately, rumors of
significant losses at a number of U.S. financial institutions led to fears that
several might actually need assistance or collapse. The result was a curtailment
of credit and the need for many financial institutions to reduce leverage. The
near failure of several prominent hedge funds and effective closure of the
credit markets led to a decision by the Fed to reduce the Fed Funds rate 75
basis points to 4.75% in a series of three quick 25 basis point cuts, that
effectively restored investor confidence and market stability.
As a result of the many unprecedented events in 1998, the investment
environment favored the fixed income sector as the credit crisis led to a
significant flight to quality and the safe haven of U.S. Treasuries. However,
all other spread assets (corporate bonds, mortgage and asset-backed securities
and agency debt) significantly underperformed Treasuries. Such a uniform
underperformance has never been observed in the 1990's. Prior to 1998,
underperforming spread sectors were often offset by another sector that
outperformed. However, the financial crisis in 1998 was so extreme that
investors would not tolerate risk of any sort, and Treasuries became the
investment of choice. Spread sector underperformance in 1998 is most clearly
seen on a duration adjusted basis(4) relative to equivalent duration Treasuries,
with corporates, mortgage- and asset-backed securities underperforming by 2.2%,
0.86% and 0.83%, respectively.
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures do not take into account the current maximum sales charges
except where noted. From June 1, 1994 to December 31, 1998, the investment
adviser for the Fund assumed ordinary operating expenses of the Fund to
the extent they exceeded 0.75% of the Fund's average daily net assets.
Without these expense reimbursements, the performance figures would have
been lower. Returns represent past performance and are not a guarantee of
future results. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
the original cost.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
(3) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The Lehman
Aggregate Bond Index is not available for direct investment and the
returns do not reflect the fees and expenses that have been deducted from
the Fund. Likewise, return figures for the Lehman Aggregate Bond Index do
not reflect any sales charges that an investor may have to pay when
purchasing shares of the Fund.
(4) Duration-adjusted, expressed in percentage terms, represents the excess
return over the weighted average return of a group of similar duration
Treasuries.
- --------------------------------------------------------------------------------
14
<PAGE>
Q. What was your investment strategy during the year?
A. The Fund was overweighted in U.S. Treasuries in the early part of the year,
which served the Fund well as Treasuries outperformed most spread products. As
the year progressed, the Fund began to increase its exposure to corporate bonds
and mortgage-backed securities as valuations indicated that these sectors were
fundamentally undervalued.
This strategy was well-reasoned, but did not insulate us from the
volatility which occurred in August and September. Poor market liquidity and
spread product underperformance became the overwhelming characteristic for both
September and October. During this period, the Fund did reduce its exposure to
mortgage-backed securities and avoided a significant portion of the subsequent
spread widening. As a result, the Fund was then better positioned during the
flight to quality, but as with any portfolio that retained some exposure to the
spread sectors, it was still subject to underperformance as the market retained
its preference for Treasuries for much of the post-August period.
In November, the Fund increased its allocation to spread assets when
valuations hit an extreme level of attractiveness. This decision was well timed
as corporate and mortgage securities recovered significantly in November,
regaining approximately half of the widening experienced.
In 1998, what distinguished one fund's performance from another was owning
a well-diversified fixed income portfolio that focused on relative valuations
and asset allocation. Historically, many funds have outperformed by
overweighting spread assets at the expense of Treasuries. This strategy was
unsuccessful in 1998 while our strategy of selectively underweighting spread
sectors when valuations were unattractive enhanced our performance. 1998
reinforced the fundamental need for a flexible investment strategy that responds
nimbly to the market's opportunities and misvaluation.
Q. What is your outlook for 1999?
A. The Fund's overall strategy is to maximize the total return of a
diversified fixed income portfolio of investment-grade corporate,
mortgage-backed, asset-backed, and U.S. Government securities. Our strategy in
1999 will continue to focus on monitoring and balancing these risks by actively
adjusting our asset allocations to reflect changes in sector valuations and
continuing to identify attractive investment opportunities within these sectors.
- --------------------------------------------------
The Guardian Investment Quality Bond Fund
Profile as of December 31, 1998
- --------------------------------------------------
Comparison of a $10,000 Investment
[GRAPHIC OMITTED]
[The following table was depicted as a line chart in the printed material.]
12/98
Lehman Aggregate Bond Index $15,226
The Guardian Investment Quality Bond Fund (Class A) $13,481
To give you a comparison, the chart above shows the performance of a $10,000
investment made in The Guardian Investment Quality Bond Fund and the Lehman
Aggregate Bond Index. The starting point of $9,550 for the Fund reflects the
maximum sales charge of 4.5% that an investor may have to pay when purchasing
shares of the Fund. The Index begins at $10,000.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Average Annual Total Returns(1) for Periods Ended 12/31/98
Inception Since
Date 1 Year 3 Years 5 Years Inception
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares (with sales charge) 2/16/93 3.03% 4.70% 5.02% 5.20%
At Net Asset Value (without sales charge) 7.89% 6.32% 5.99% 6.03%
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
The Guardian High Yield Bond Fund
- --------------------------------------------------
[PHOTO OMITTED]
Peter J. Liebst
Co-Portfolio Manager
[PHOTO OMITTED]
Thomas G. Sorell, C.F.A.
Co-Portfolio Manager
Q. How did the Fund perform during 1998?
A. The Guardian High Yield Bond Fund (GHYBF) was launched on September 1, 1998.
For the period of inception through December 31, 1998 the Fund returned
9.24%.(1) This compared to an average yield of 1.89% for the 279 High Current
Yield Funds tracked by Lipper Analytical Services(2) over the same period.
During this period, the Fund produced the highest return of the 279 funds within
the Lipper universe.
Q. What factors affected the Fund's performance?
A. In July 1998, the high yield market began to weaken as deteriorating foreign
markets induced instability in the global financial markets. This market reacted
to the concerns that the growing economic weakness abroad would negatively
impact U.S. economic growth, increasing both the probability of corporate
defaults and the likelihood of reduced market liquidity, and therefore requiring
a larger risk premium. The result was a rapid rise in the yield(3) on bonds
within the market, which as measured by the Donaldson, Lufkin & Jenrette (DLJ)
High Yield Index(4) averaged 11.05% as of August 31, 1998. This was a 1.50%
increase over the 9.55% average yield reported on June 30, a mere two months
earlier.
This trend continued through September and October as mutual funds were
forced to sell holdings in order to meet redemptions, and new issuance volume
came to a halt. By October 31, the average yield on high yield securities
reached 11.76%. It was not until the last two months of the year that the high
yield market began to show signs of recovery with a renewed inflow of
investments into high yield mutual funds and a return of new issuance into the
market. By December 31 the average yield on high yield bonds had returned to the
August 31 level with the average yield declining to 11.01%.
Throughout this period the differentiation between higher and lower credit
quality bonds grew more pronounced as investors became more defensive and sought
higher quality, more liquid investments. Therefore, as of December 31, the
difference in yield between higher quality double B rated(5) and lower quality
single B rated(6) bonds had widened to 2.41% compared to 1.36% at the end of the
second quarter of 1998. The result from a total return standpoint was that
- --------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures do not take into account the current maximum sales charge
of 4.5%. The investment adviser for the Fund has been assuming the
operating expenses of the Class A shares of the Fund to the extent they
exceed, on an annual basis, 0.75% of the Fund's average daily net assets.
Without these expense reimbursements, the performance figures would have
been lower. Returns represent past performance and are not a guarantee of
future results. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
the original cost.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales loads, and performance would be
different if sales loads were deducted.
(3) Yield refers to Yield-to-Worst call--the yield resulting from the most
adverse set of circumstances from an investor's point of view; the lowest
of all possible yields.
(4) The DLJ High Yield Index is an unmanaged index that is generally
considered to be representative of the investible universe of the
U.S.-dominated high yield debt market. The DLJ High Yield Index is not
available for direct investment, and the returns do not reflect the fees
that have been deducted from the Fund. Likewise, return figures for the
DLJ High Yield Index do not reflect any sales charges that an investor may
have to pay when purchasing shares of the Fund.
(5) Double B rated securities refer to Bonds rated BB+, BB, or BB- by Standard
& Poor's Ratings Group, or Ba1, Ba2, or Ba3 by Moody's Investors Service,
Inc.
(6) Single B rated securities refer to Bonds rated B+, B, or B- by Standard &
Poor's Ratings Group, or B1, B2, or B3 by Moody's Investors Service, Inc.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
over the period of August 31 to December 31, double B's outperformed single B's,
returning 6.28% compared to a return of 3.63% from single B's and 2.77% for the
overall high yield market. This outperformance of higher quality securities was
the principal reason for the higher return for the Fund compared to its peer
group. Throughout the period August 31 through December 31, the Fund was
overweighted in higher quality, more liquid issuers, which as a group during
this period outperformed the overall high yield market.
Q. What was your investment strategy during the year and what is your outlook
going forward?
A. The Fund's overall strategy was to maximize the total return of a diversified
fixed-income portfolio principally composed of below-investment grade
securities, with up to 25% invested in convertible securities. Specifically, we
sought to identify attractive asset allocation weightings based on analysis of
industry fundamentals, issuer credit-worthiness and risk/return profile, and
individual issue relative value. Throughout the Fund's existence in 1998,
stronger credit quality and liquid issues were overweighted with an
underweighting in issuers operating in cyclical industries.
At year-end the Fund remains cautious due to the recent volatility
experienced throughout the global financial markets. The strategy of
underweighting cyclical industries and the lowest credit quality issuers will
continue into 1999 until such time as perceived market volatility decreases and
various cyclical industries become more attractive on a risk/return basis.
- --------------------------------------------------------------------------------
The Guardian High Yield Bond Fund
Profile as of December 31, 1998
- --------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Holdings as of 12/31/98
Security Coupon (%) Maturity
- --------------------------------------------------------------------------------
1. Pillowtex Corp. 10.00 11/15/06
- --------------------------------------------------------------------------------
2. K&F Inds. Inc. 9.25 10/15/07
- --------------------------------------------------------------------------------
3. Regal Cinemas, Inc. 8.875 12/15/10
- --------------------------------------------------------------------------------
4. Argosy Gaming Co. 13.25 6/1/04
- --------------------------------------------------------------------------------
5. CSC Holdgings Inc. 9.875 2/15/13
- --------------------------------------------------------------------------------
6. Adelphia Comm. Corp. 9.875 3/1/07
- --------------------------------------------------------------------------------
7. Pierce Leahy Corp. 11.125 7/15/06
- --------------------------------------------------------------------------------
8. Hollywood Casino, Inc. 12.75 11/1/03
- --------------------------------------------------------------------------------
9. Chancellor Media Corp. 9.00 10/1/08
- --------------------------------------------------------------------------------
10. Hollinger Intl., Inc. 9.25 2/1/06
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Return for Period ended 12/31/98
Inception Since
Date Inception
- --------------------------------------------------------------------------------
Class A Shares (with sales charge) 9/1/98 5.10%
At Net Asset Value (without sales charge) 9.24%
- --------------------------------------------------------------------------------
Class B Shares (with sales charge) 9/1/98 6.42%
At Net Asset Value (without sales charge) 8.61%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Tax-Exempt Fund
- --------------------------------------------------
[PHOTO OMITTED]
Alexander M. Grant, Jr.
Portfolio Manager
Q. How did The Guardian Tax-Exempt Fund perform during 1998?
A. The Fund produced a total return of 6.11%(1) for the year ending December 31,
1998. In comparison, the Lehman Municipal Bond Index(2) produced a total return
of 6.48% for the same period.
Another important comparison that should be used when measuring the Fund's
performance is how it stacks up to its peers. Lipper Analytical, a service that
ranks general municipal bond funds by total rate of return, is a good source of
this information.(3) Based on peer group comparisons, the Fund ranked, for the
year, 33 out of 246 funds with the same objective. The average fund's return for
that period, according to Lipper, was 5.32%.
Q. What factors affected the Fund's performance?
A. The biggest factor affecting the Fund's performance was the overwhelming
supply that flooded the municipal market. As interest rates edged lower,
municipal supply increased. Both new money and refundings contributed to the
$282 billion of issuance. As issuance increased, the municipal sector began to
underperform Treasuries as supply out-stripped demand. Supply continued
throughout the year at record levels. While traditional demand from such buyers
as tax-exempt mutual funds, the individual and property and casualty insurance
companies continued, they could not keep up with the volume. This in turn caused
dealer inventories to increase. Each new issue was priced to move, which caused
municipal bonds to become cheaper relative to U.S. Treasury bonds.
As the percentages increased and surpassed historical levels, the
crossover buyer (a buyer who is traditionally a taxable buyer but will cross
over into the tax-exempt market when that sector is historically cheap) emerged.
Supply continued and, in some cases, tax-exempt yields eventually became higher
than Treasuries.
The constant supply made it difficult to find value within the various
sectors. As new issues moved out of dealer hands and into the tax-exempt market,
the difference in credits and various sectors became blurred. Bonds of
high-credit quality in low-risk sectors were priced the same, in some cases,
like bonds of low credit quality in risky sectors. Value within the municipal
market became more difficult to determine.
Q. What strategies did you use to manage the Fund?
A. Since new issue volume exceeded expectations, causing distinctions among
sector and credit spreads to blur, our mandate of looking for value in the
general marketplace proved to be successful. For example, New York state was a
large participant in the new issue market during the second half of the year.
(New York state in this context is all municipal debt issued in the state of New
York.) This issuance caused New York state debt to trade at very generic yields
or yields in line with national yield levels. Also, debt within New York state,
because of the high volume, tended to look the
- --------------------------------------------------------------------------------
(1) Total return figures shown are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. Total
return figures do not take into account the current maximum sales charge
of 4.5%, except where noted. From June 1, 1994 to December 31, 1998, the
investment adviser for the Fund assumed the operating expenses of the Fund
to the extent they exceeded 0.75% of the Fund's average daily net assets.
Without these expense reimbursements, the performance figures would have
been lower. Returns represent past performance and are not a guarantee of
future results. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
the original cost.
(3) The Lehman Municipal Bond Index is an unmanaged index that is generally
considered to be representative of U.S. municipal bond market activity.
The Lehman Municipal Bond Index is not available for direct investment and
its return does not reflect the expenses that have been deducted from the
Fund's return. Likewise, return figures for the Lehman Municipal Bond
Index do not reflect any sales charges that an investor may have to pay
when purchasing shares of the Fund.
(3) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses. Lipper returns do
not reflect the deduction of sales charges, and performance would be
different if sales charges were deducted.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
same in terms of price. New York State General Obligation bonds started to be
priced as if they were appropriated debt, which is of lower credit quality. This
anomaly created opportunities within the New York market. The same relative
value decisions would apply working down the credit ladder. Purchasing different
New York State debt at cheaper national levels proved to be a successful
strategy. In a "normal" market, New York debt would trade higher in price than a
national (generic) mutual bond. Once the tax-exempt market corrected, New York
debt began to be priced appropriately.
- --------------------------------------------------------------------------------
The Guardian Tax-Exempt Fund Profile
as of December 31, 1998
- --------------------------------------------------
Growth of a Hypothetical $10,000 Investment
[GRAPHIC OMITTED]
[The following table was depicted as a line chart in the printed material.]
12/98
Lehman Municipal Bond Index $14,841
The Guardian Tax-Exempt Fund (Class A) $12,761
To give you a comparison, the chart above shows the performance of a $10,000
investment made in The Guardian Tax-Exempt Fund and the Lehman Municipal Bond
Index. The starting point of $9,550 for the Fund reflects the maximum sales load
of 4.5% that an investor may have to pay when purchasing Class A shares of the
Fund. The Index begins at $10,000.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Average Annual Total Returns(1) for Periods Ended 12/31/98
Inception Since
Date 1 Year 3 Years 5 Years Inception
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares (with sales charge) 2/16/9 31.34% 4.52% 3.56% 4.31%
At Net Asset Value (without sales charge) 6.11% 6.14% 4.52% 5.13%
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
The Guardian Cash Management Fund
- --------------------------------------------------
[PHOTO OMITTED]
Alexander M. Grant, Jr.
Portfolio Manager
Q. How did The Guardian Cash Management Fund perform during 1998?
A. As of December 31, 1998, the effective 7-day annualized yield for The
Guardian Cash Management Fund was 4.42%.(1) The Fund produced a total return of
4.76%(2) for the year ended December 31, 1998. In contrast, the effective 7-day
annualized yield of Tier One money market funds as measured by IBC Financial
Data was 4.53%; total return for the same category was 4.87%. IBC Financial Data
is a research firm that tracks money market funds.
Q. What was your investment strategy during the year?
A. The Guardian Cash Management Fund is a place for our investors to put their
money while they decide their preferred long-term investment vehicle, be it
stocks or bonds. Also, some of our investors prefer the relative stability of
the money markets. To best accommodate all our investors, we will continue to
try to provide a strong 7-day yield, while offering safety and liquidity. Our
investment strategy was to create a diversified portfolio of money market
instruments that presents minimal credit risks according to our criteria. As
always, we only purchased securities from issuers that had received ratings in
the two highest credit quality categories established by nationally recognized
statistical ratings organizations like Moody's Investors Service, Inc. and
Standard & Poor's Corporation for the Fund's portfolio. Most of the portfolio
(78.1%) was invested in commercial paper; the balance (22.0%) was invested in
repurchase agreements.
Q. What factors affected the Fund's performance?
A. Money market funds are directly affected by the actions of the Federal
Reserve Board. The Fed's policy making Open Market Committee (FOMC) cut the Fed
Funds target rate on November 17, 1998 by 25 basis points, or 0.25%, to 4.75%;
this was the third cut in eight weeks. The FOMC left the rate unchanged after
the December meeting. The Fed Funds target is the rate at which banks can borrow
from each other overnight. While the Federal Reserve Board does not set this
rate, it can establish a target rate and, through open market operations, the
Fed can move member banks in the direction of that target rate. The Discount
Rate is the rate at which banks can borrow directly from the Federal Reserve.
Uncertainty with the direction of the stock market contributed to large daily
inflows and outflows of monies in the Fund. As the stock market rallied, our
investors transferred cash to equity funds. During those times when the stock
market stalled, we saw cash inflows. Another factor affecting performance was
the portfolio's average maturity -- 21 days as of December 31, 1998. The average
Tier One money market fund as measured by IBC Financial Data had an average
maturity of 48 days.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN THE FUND.
- --------------------------------------------------------------------------------
(1) Yields are annualized historical figures and will vary as interest rates
change. Effective yield assumes that income is reinvested. Past
performance is not a guarantee of future results.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. From
June 1, 1994 to December 31, 1998, the investment adviser for the Fund
assumed a portion of the operating expenses of the Fund (both Class A and
Class B shares) to the extent they exceeded 0.85% of the Fund's average
daily net assets. Without these expense reimbursements, the performance
figures would have been lower. The total return and yield figures cited
represent total return and yield for both Class A and Class B shares.
Total return figures do not take into account the current maximum sales
charge except where noted. Returns represent past performance and are not
a guarantee of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more
or less than the original cost.
- --------------------------------------------------------------------------------
20
<PAGE>
- ---------------------------
Schedule of Investments
- ---------------------------
December 31, 1998
o The Guardian Park Avenue Fund
- --------------------------------------------------------------------------------
Common Stocks -- 94.6%
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Aerospace and Defense -- 1.0%
58,500 Alliant Techsystems, Inc.* $ 4,822,594
80,000 Cordant Technologies, Inc. 3,000,000
68,800 General Dynamics Corp. 4,033,400
138,950 Precision Castparts Corp. 6,148,537
50,000 Sundstrand Corp. 2,593,750
128,200 United Technologies Corp. 13,941,750
------------
34,540,031
- --------------------------------------------------------------------------------
Air Transportation -- 1.9%
93,000 Alaska Air Group, Inc.* 4,115,250
348,000 AMR Corp., DE* 20,662,500
43,000 Comair Hldgs., Inc. 1,451,250
100,000 Continental Airlines, Inc.* 3,350,000
400,000 Delta Airlines, Inc. 20,800,000
37,000 UAL Corp.* 2,208,438
225,000 US Airways Group, Inc.* 11,700,000
------------
64,287,438
- --------------------------------------------------------------------------------
Appliance and Furniture -- 0.5%
176,000 Ethan Allen Interiors, Inc. 7,216,000
141,000 Furniture Brands Int'l., Inc.* 3,842,250
180,000 Herman Miller, Inc. 4,837,500
60,000 Leggett & Platt, Inc. 1,320,000
------------
17,215,750
- --------------------------------------------------------------------------------
Automotive -- 2.4%
93,525 DaimlerChrysler AG 8,984,245
1,230,000 Ford Motor Co. 72,185,625
------------
81,169,870
- --------------------------------------------------------------------------------
Automotive Parts -- 0.4%
38,000 Arvin Industries, Inc. 1,584,125
20,990 Danaher Corp. 1,140,019
104,500 Kaydon Corp. 4,186,531
282,933 Meritor Automotive, Inc. 5,994,643
------------
12,905,318
- --------------------------------------------------------------------------------
Biotechnology -- 1.1%
190,000 Amgen, Inc.* 19,866,875
118,500 Genentech, Inc.* 9,442,969
90,000 Sepracor, Inc.* 7,931,250
------------
37,241,094
- --------------------------------------------------------------------------------
Broadcasting -- 2.3%
579,100 CBS Corp.* 18,965,525
155,000 Comcast Corp. 9,096,562
676,900 Infinity Broadcasting Corp.* 18,530,137
310,000 MediaOne Group, Inc.* 14,570,000
300,000 Tele-Communications, Inc.* 16,593,750
------------
77,755,974
- --------------------------------------------------------------------------------
Building Materials and Homebuilders -- 1.1%
33,000 Centex Construction Products, Inc. 1,340,625
16,500 Crossman Communities, Inc.* 455,813
150,000 D.R. Horton, Inc. 3,450,000
182,500 Lafarge Corp. 7,391,250
163,000 Lennar Corp. 4,115,750
143,400 Lone Star Industries, Inc. 5,278,912
50,555 Martin Marietta Materials, Inc. 3,143,889
77,840 Southdown, Inc. 4,607,155
24,000 U.S. Home Corp.* 798,000
38,600 Vulcan Materials Co. 5,078,312
------------
35,659,706
- --------------------------------------------------------------------------------
Capital Goods-Miscellaneous Technology -- 0.0%
40,000 AFC Cable Systems, Inc.* 1,345,000
- --------------------------------------------------------------------------------
Chemicals -- 0.2%
233,400 Cambrex Corp. 5,601,600
- --------------------------------------------------------------------------------
Computer Software -- 6.2%
48,000 America Online, Inc.* 7,680,000
128,700 BMC Software, Inc.* 5,735,194
8,000 ChoicePoint, Inc.* 516,000
200,000 Computer Associates Int'l., Inc. 8,525,000
27,000 DST Systems, Inc.* 1,540,688
118,700 J.D. Edwards* 3,368,112
1,082,000 Microsoft Corp.* 150,059,875
318,400 Novell, Inc.* 5,771,000
455,000 Oracle Corp.* 19,621,875
74,000 Sterling Software, Inc.* 2,002,625
100,000 SunGuard Data Systems, Inc.* 3,968,750
36,000 Wind River Systems, Inc.* 1,692,000
------------
210,481,119
- --------------------------------------------------------------------------------
Computer Systems -- 11.8%
405,200 Apple Computer, Inc.* 16,587,875
910,300 Compaq Computer Corp. 38,175,706
180,900 EMC Corp.* 15,376,500
340,000 Hewlett Packard Co. 23,226,250
77,200 Honeywell, Inc. 5,814,125
602,100 Int'l. Business Machines 111,237,975
459,600 Lexmark Int'l. Group, Inc.* 46,189,800
150,000 Pitney Bowes, Inc. 9,909,375
57,300 SCI Systems, Inc.* 3,309,075
208,200 Seagate Technology* 6,298,050
1,765,600 Storage Technology Corp.* 62,789,150
370,200 Sun Microsystems, Inc.* 31,698,375
235,000 Xerox Corp. 27,730,000
------------
398,342,256
- --------------------------------------------------------------------------------
Conglomerates -- 0.4%
190,000 Textron, Inc. 14,428,125
- --------------------------------------------------------------------------------
Cosmetics and Toiletries -- 0.0%
14,400 Alberto-Culver Co. 363,600
- --------------------------------------------------------------------------------
Drugs and Hospitals -- 12.8%
515,000 Abbott Laboratories 25,235,000
261,640 Allegiance Corp. 12,198,965
218,000 Arterial Vascular Engineering, Inc.* 11,445,000
242,600 Biomet, Inc. 9,764,650
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
21
<PAGE>
The Guardian Park Avenue Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
603,200 Bristol-Myers Squibb Corp. $ 80,715,700
354,000 Johnson & Johnson 29,691,750
345,000 Medtronic, Inc. 25,616,250
437,200 Merck & Co., Inc. 64,568,975
490,000 Mylan Laboratories, Inc. 15,435,000
27,000 Patterson Dental Co.* 1,174,500
884,900 Pfizer, Inc. 110,999,644
27,000 Safeskin Corp.* 651,375
586,500 Schering-Plough Corp. 32,404,125
170,100 Warner-Lambert Co. 12,789,394
------------
432,690,328
- --------------------------------------------------------------------------------
Electrical Equipment -- 3.0%
998,000 General Electric Co. 101,858,375
- --------------------------------------------------------------------------------
Electronics and Instruments -- 0.1%
46,000 Analogic Corp. 1,730,750
30,600 Dynatech Corp.* 84,150
------------
1,814,900
- --------------------------------------------------------------------------------
Energy-Miscellaneous -- 0.1%
495,300 Frontier Oil Corp.* 2,445,544
114,100 Giant Industries, Inc. 1,069,688
------------
3,515,232
- --------------------------------------------------------------------------------
Entertainment and Leisure -- 0.9%
400,000 Carnival Corp. 19,200,000
147,000 Viacom, Inc.* 10,878,000
------------
30,078,000
- --------------------------------------------------------------------------------
Financial-Banks -- 3.2%
6 BankBoston Corp. 234
260,000 Bank of New York, Inc. 10,465,000
106,000 BB&T Corp. 4,273,125
26,000 CCB Financial Corp. 1,482,000
15,000 Centura Banks, Inc. 1,115,625
81,000 City National Corp. 3,371,625
94,050 Comerica, Inc. 6,413,034
71,269 Commerce Bankshares, Inc. 3,028,922
20,100 Cullen Frost Bankers, Inc. 1,102,988
67,500 Firstar Corp. 6,294,375
40,000 FirstMerit Corp. 1,075,000
470,000 Fleet Financial Group, Inc. 21,003,125
53,548 Hubco, Inc. 1,613,134
14,631 M & T Bank Corp. 7,592,575
187,600 Mellon Bank Corp. 12,897,500
61,965 National City Corp. 4,492,462
34,500 Premier Bancshares, Inc., GA 903,469
231,504 Premier National Bancorp, Inc. 4,297,293
114,000 Union Bancal Corp. 3,883,125
150,000 U.S. Bancorp, Inc. 5,325,000
15,000 U.S. Trust Corp. 1,140,000
52,000 Webster Financial Corp. 1,426,750
36,000 Westamerica Bancorp 1,323,000
49,600 Zions Bancorp 3,093,800
------------
107,613,161
- --------------------------------------------------------------------------------
Financial-Other -- 3.2%
124,800 A.G. Edwards, Inc. 4,648,800
302,400 American Express Co. 30,920,400
155,000 Countrywide Credit Industries, Inc. 7,779,062
40,000 Duff & Phelps Credit Rating Co. 2,192,500
154,800 Federal Home Loan Mortgage Corp. 9,974,925
396,500 Federal National Mortgage Assn. 29,341,000
200,000 Jefferies Group, Inc. 9,925,000
218,666 Legg Mason, Inc. 6,901,646
251,775 Morgan Keegan, Inc. 4,736,517
31,000 Ragen MacKenzie Group, Inc.* 370,063
18,525 Raymond James Financial, Inc. 391,341
------------
107,181,254
- --------------------------------------------------------------------------------
Financial-Thrift -- 0.9%
126,600 Astoria Financial Corp. 5,791,950
110,000 BankAtlantic Bancorp, Inc. 783,750
198,593 BankAtlantic Bancorp, Inc. Class A 1,278,442
16,000 California Federal Bancorp, Inc.* 194,000
227,106 Charter One Financial, Inc. 6,302,191
70,500 Coastal Bancorp, Inc. 1,233,750
20,000 Coast Federal Litigation Trust* 132,500
46,350 Commercial Federal Corp. 1,074,741
220,000 Dime Bancorp, Inc. 5,816,250
46,400 Golden State Bancorp, Inc.* 771,400
46,400 Golden State Bancorp, Inc.* (warrants) 211,700
13,560 Pacific Crest Capital, Inc. 200,010
525,949 Sovereign Bancorp, Inc. 7,494,773
------------
31,285,457
- --------------------------------------------------------------------------------
Food, Beverage and Tobacco -- 2.2%
170,000 Anheuser-Busch Cos., Inc. 11,156,250
72,842 CKE Restaurants, Inc. 2,144,286
96,512 Earthgrains Co. 2,985,840
125,000 Hershey Foods Corp. 7,773,437
53,200 Interstate Bakeries Corp. 1,406,475
885,000 Philip Morris Cos., Inc. 47,347,500
69,000 Tootsie Roll Industries, Inc. 2,699,625
------------
75,513,413
- --------------------------------------------------------------------------------
Footwear -- 0.1%
107,200 Footstar, Inc.* 2,680,000
- --------------------------------------------------------------------------------
Household Products -- 0.8%
336,700 Dial Corp. 9,722,212
173,600 Procter & Gamble Co. 15,851,850
------------
25,574,062
- --------------------------------------------------------------------------------
Insurance -- 3.0%
371,200 Allstate Corp. 14,337,600
50,000 Ambac Financial Group, Inc.* 3,009,375
148,000 American Bankers Insurance
Group, Inc. 7,159,500
7,770 Berkshire Hathaway, Inc.* 18,259,500
134,000 Chicago Title Corp. 6,289,625
99,000 Cigna Corp. 7,653,937
24,000 Enhance Financial Svcs. Group, Inc. 720,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
22
<PAGE>
The Guardian Park Avenue Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
36,300 Fidelity National Financial, Inc. $ 1,107,150
37,000 Financial Sec. Assur. Hldgs. Ltd. 2,007,250
180,200 Hartford Financial Svcs. Group, Inc. 9,888,475
150,000 Horace Mann Educators Corp. 4,275,000
54,000 Jefferson Pilot Corp. 4,050,000
63,120 Liberty Financial Cos., Inc. 1,704,240
50,800 Lincoln National Corp., Inc. 4,156,075
50,600 MBIA, Inc. 3,317,462
229,500 Old Republic Int'l. Corp. 5,163,750
134,000 Penn America Group, Inc. 1,214,375
58,000 Reinsurance Group of America 3,523,500
184,500 State Auto Financial Corp. 2,283,188
10,100 Transamerica Corp. 1,166,550
30,000 W.R. Berkley Corp. 1,021,875
------------
102,308,427
- --------------------------------------------------------------------------------
Lodging -- 0.0%
135,000 Prime Hospitality Corp.* 1,425,938
- --------------------------------------------------------------------------------
Machinery and Equipment -- 0.2%
100,500 AAR Corp. 2,399,438
100,000 Graco, Inc. 2,950,000
25,000 SPX Corp.* 1,675,000
------------
7,024,438
- --------------------------------------------------------------------------------
Merchandising-Department Stores -- 3.6%
120,400 Dayton Hudson Corp. 6,531,700
125,000 Federated Department Stores, Inc.* 5,445,312
215,000 Fred Meyer, Inc., DE* 12,953,750
143,750 Saks, Inc.* 4,537,109
27,300 Shopko Stores, Inc.* 907,725
376,800 TJX Cos., Inc. 10,927,200
1,001,900 Wal-Mart Stores, Inc. 81,592,231
------------
122,895,027
- --------------------------------------------------------------------------------
Merchandising-Drugs -- 0.7%
84,150 Cardinal Health, Inc. 6,384,881
261,956 CVS Corp. 14,407,580
75,000 Walgreen Co. 4,392,187
------------
25,184,648
- --------------------------------------------------------------------------------
Merchandising-Food -- 1.9%
240,000 Albertson's, Inc. 15,285,000
140,000 Kroger Co.* 8,470,000
428,050 Safeway, Inc.* 26,084,297
333,500 Supervalu, Inc. 9,338,000
200,000 Sysco Corp. 5,487,500
------------
64,664,797
- --------------------------------------------------------------------------------
Merchandising-Mass -- 0.1%
191,400 K Mart Corp.* 2,930,813
- --------------------------------------------------------------------------------
Merchandising-Special -- 3.9%
75,000 Abercrombie & Fitch Co.* 5,306,250
111,500 Best Buy, Inc.* 6,843,312
69,000 BJ's Wholesale Club, Inc.* 3,195,563
130,000 Costco Cos., Inc.* 9,384,375
540,000 GAP, Inc. 30,375,000
740,000 Home Depot, Inc. 45,278,750
261,600 Lowes Cos., Inc. 13,390,650
356,250 Pier 1 Imports, Inc. 3,451,172
159,000 Ross Stores, Inc. 6,260,625
250,000 Tandy Corp. 10,296,875
------------
133,782,572
- --------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Cyclical -- 0.1%
113,100 Avis Rent A Car, Inc.* 2,735,606
58,066 Nielsen Media Research, Inc. 1,045,188
------------
3,780,794
- --------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Staples -- 0.7%
90,000 A.C. Nielsen Corp.* 2,542,500
180,000 American Greetings Corp. 7,391,250
36,000 Interpublic Group Cos., Inc. 2,871,000
190,000 Valassis Communications, Inc.* 9,808,750
------------
22,613,500
- --------------------------------------------------------------------------------
Oil and Gas Producing -- 1.0%
280,000 Anadarko Petroleum Corp.* 8,645,000
238,900 Basin Exploration, Inc.* 3,001,181
64,300 Callon Petroleum Co.* 747,488
263,600 Chieftain Int'l., Inc.* 3,789,250
153,000 Devon Energy Corp. 4,695,187
100,300 Petromet Resources Ltd.* 181,794
196,500 Rigel Energy Corp.* 1,285,574
182,400 St. Mary Land & Exploration Co. 3,374,400
91,300 Snyder Oil Corp. 1,215,431
152,100 Vastar Resources, Inc. 6,568,819
------------
33,504,124
- --------------------------------------------------------------------------------
Oil and Gas Services -- 0.5%
260,000 Halliburton Co. 7,702,500
292,000 Transocean Offshore, Inc. 7,829,250
94,200 Willbros Group, Inc.* 523,988
------------
16,055,738
- --------------------------------------------------------------------------------
Oil-Integrated-Domestic -- 0.2%
110,000 Conoco, Inc.* 2,296,250
71,000 Sunoco, Inc. 2,560,438
284,000 Tesoro Petroleum, Inc.* 3,443,500
------------
8,300,188
- --------------------------------------------------------------------------------
Oil-Integrated-International -- 1.4%
168,800 Chevron Corp. 13,999,850
443,700 Exxon Corp. 32,445,562
------------
46,445,412
- --------------------------------------------------------------------------------
Paper and Forest Products -- 0.3%
215,000 Kimberly Clark Corp. 11,717,500
- --------------------------------------------------------------------------------
Publishing and Print -- 1.3%
210,000 Dun & Bradstreet Corp. 6,628,125
584,000 Time Warner, Inc. 36,244,500
------------
42,872,625
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
23
<PAGE>
The Guardian Park Avenue Fund
Schedule of Investments (Continued)
- -------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------
Publishing-News -- 1.2%
45,000 Central Newspapers, Inc. $ 3,214,688
86,400 Gannett Co., Inc. 5,572,800
191,400 Harte-Hanks Communications 5,454,900
160,000 Knight Ridder, Inc.* 8,180,000
304,000 New York Times Co. 10,545,000
50,000 Tribune Co. 3,300,000
5,700 Washington Post Co. 3,294,244
--------------
39,561,632
- -------------------------------------------------------------------------------
Railroads -- 0.3%
182,500 Kansas City Southern Inds., Inc. 8,976,719
- -------------------------------------------------------------------------------
Semiconductors -- 1.7%
432,000 Advanced Micro Devices, Inc.* 12,501,000
230,800 Intel Corp. 27,364,225
281,100 Motorola, Inc. 17,164,669
--------------
57,029,894
- -------------------------------------------------------------------------------
Textile-Apparel and Production -- 0.2%
196,000 Jones Apparel Group, Inc.* 4,324,250
53,000 Westpoint Stevens, Inc.* 1,672,813
--------------
5,997,063
- -------------------------------------------------------------------------------
Transportation-Miscellaneous -- 0.3%
108,000 GATX Corp. 4,090,500
239,500 Maritrans, Inc. 1,571,719
120,000 Sea Containers Ltd. 3,592,500
--------------
9,254,719
- -------------------------------------------------------------------------------
Truckers -- 0.0%
18,000 FRP Pptys., Inc.* 486,000
- -------------------------------------------------------------------------------
Utilities-Electric -- 3.1%
95,000 BEC Energy 3,912,813
95,000 Carolina Power and Light Co. 4,470,937
50,000 Cinergy Corp. 1,718,750
174,000 Consolidated Edison, Inc. 9,200,250
148,000 DQE 6,502,750
204,464 Duke Energy Co. 13,098,475
85,600 Energy East Corp. 4,836,400
185,000 Florida Progress Corp. 8,290,312
255,000 FPL Group, Inc. 15,714,375
152,100 IPALCO Enterprises 8,432,044
21,500 Minnesota Power & Light Co. 946,000
100,000 Montana Power Co.* 5,656,250
60,200 New Century Energies, Inc. 2,934,750
58,000 NIPSCO Industries, Inc. 1,765,375
155,000 Teco Energy, Inc. 4,369,062
160,000 Texas Utilities Co. 7,470,000
130,000 Utilicorp United, Inc.* 4,769,375
--------------
104,087,918
- -------------------------------------------------------------------------------
Utilities-Telecommunications -- 12.3%
206,000 Airtouch Communications, Inc.* 14,857,750
680,700 Ameritech Corp. 43,139,362
666,200 AT & T Corp. 50,131,550
650,000 Bell Atlantic Corp. 34,450,000
1,716,200 BellSouth Corp. 85,595,475
120,000 Ciena Corp.* 1,755,000
440,000 GTE Corp. 28,600,000
225,000 Lucent Technologies, Inc. 24,750,000
905,120 MCI WorldCom, Inc.* 64,942,360
586,200 SBC Communications, Inc. 31,434,975
191,000 Sprint Corp. 16,067,875
95,500 Sprint PCS* 2,208,438
285,000 U.S. West, Inc. 18,418,125
--------------
416,350,910
- -------------------------------------------------------------------------------
Total Common Stocks
(Cost $2,233,382,187) 3,198,392,459
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Repurchase Agreement -- 5.9%
- -------------------------------------------------------------------------------
Principal
Amount Value
- -------------------------------------------------------------------------------
$199,706,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/98, maturity
value $199,816,948 at 5.00%,
due 1/4/99 (collateralized by
$25,505,000 Federal Farm Credit
Bank Notes, 4.90%, due 11/16/00,
by $51,005,000 Federal Farm
Credit Bank Notes, 5.32%,
due 1/4/99, by $25,505,000
Federal Home Loan Bank Notes,
5.01%, due 10/29/99, by
$25,505,000 Federal Home
Loan Bank Notes, 5.60%,
due 8/24/00, by $50,705,000
Federal Home Loan Mortgage
Corp. Notes, 5.02%, due 11/05/99,
and by $25,505,000 Federal
National Mortgage Assn. Notes,
4.85%, due 11/20/00) $ 199,706,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $199,706,000) 199,706,000
- -------------------------------------------------------------------------------
Total Investments -- 100.5%
(Cost $2,433,088,187) 3,398,098,459
Liabilities in Excess of Cash, Receivables
and Other Assets-- (0.5%) (17,841,737)
- -------------------------------------------------------------------------------
Net Assets-- 100.0% $3,380,256,722
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
24
<PAGE>
o The Guardian Park Avenue Small Cap Fund
- --------------------------------------------------------------------------------
Common Stocks -- 97.3%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Aerospace and Defense -- 2.1%
15,000 Alliant Techsystems, Inc.* $ 1,236,562
68,500 Hawker Pacific Aerospace* 239,750
40,000 Kaman Corp. 642,500
11,500 LMI Aerospace, Inc.* 71,875
21,000 Precision Castparts Corp. 929,250
------------
3,119,937
- --------------------------------------------------------------------------------
Appliance and Furniture -- 3.1%
66,000 Ethan Allen Interiors, Inc. 2,706,000
42,000 Furniture Brands Int'l., Inc.* 1,144,500
45,000 LA-Z Boy, Inc. 801,563
------------
4,652,063
- --------------------------------------------------------------------------------
Automotive Parts -- 0.7%
8,700 Arvin Industries, Inc. 362,681
52,000 Automobile Protection Corp.* 611,000
------------
973,681
- --------------------------------------------------------------------------------
Building Materials and Homebuilders -- 11.6%
32,900 Centex Construction Products, Inc. 1,336,563
14,000 Coachmen Industries, Inc.* 367,500
34,000 Crossman Communities, Inc.* 939,250
43,000 D. R. Horton, Inc. 989,000
96,000 Engle Homes, Inc.* 1,470,000
54,500 Giant Cement Hldgs., Inc.* 1,348,875
53,000 Juno Lighting, Inc. 1,238,875
19,000 Lafarge Corp.* 769,500
49,600 Lennar Corp. 1,252,400
45,600 Lone Star Industries, Inc. 1,678,650
46,850 Monaco Coach Corp.* 1,241,525
61,500 National RV Hldgs., Inc.* 1,583,625
20,000 NCI Building Systems, Inc.* 562,500
21,400 Southdown, Inc. 1,266,612
52,000 Thor Industries, Inc. 1,326,000
------------
17,370,875
- --------------------------------------------------------------------------------
Capital Goods-Miscellaneous -- 0.8%
57,500 Dispatch Mgmt. Svcs. Corp.* 233,594
42,000 Dynamex, Inc.* 165,375
54,000 Hawk Corp.* 452,250
53,100 Western Staff Svcs., Inc.* 331,875
------------
1,183,094
- --------------------------------------------------------------------------------
Capital Goods-Miscellaneous Technology -- 6.1%
35,200 Acxiom Corp.* 1,091,200
136,600 AFC Cable Systems, Inc.* 4,593,175
24,000 Kaydon Corp. 961,500
35,500 National Computer Systems, Inc. 1,313,500
14,000 Profit Recovery Group Int'l., Inc.* 524,125
17,200 Xircom, Inc.* 584,800
------------
9,068,300
- --------------------------------------------------------------------------------
Chemicals -- 3.0%
44,000 Cambrex Corp. 1,056,000
39,000 MacDermid, Inc. 1,525,875
56,000 Myers Industries, Inc. 1,606,500
12,600 Tredegar Industries, Inc. 283,500
------------
4,471,875
- --------------------------------------------------------------------------------
Computer Software -- 5.2%
39,000 American Mgmt. Systems, Inc.* 1,560,000
113,000 Docucorp, Inc.* 685,063
25,000 Legato Systems, Inc.* 1,648,437
25,300 Pervasive Software, Inc.* 487,025
124,000 System Software Association, Inc.* 871,875
11,400 Visio Corp.* 416,813
44,000 Wind River Systems, Inc.* 2,068,000
------------
7,737,213
- --------------------------------------------------------------------------------
Computer Systems -- 0.9%
8,500 Henry Jack & Associates, Inc. 422,875
53,600 HTE, Inc.* 268,000
85,000 The Intercept Group, Inc.* 616,250
------------
1,307,125
- --------------------------------------------------------------------------------
Cosmetics and Toiletries -- 0.6%
22,000 Regis Corp. 880,000
- --------------------------------------------------------------------------------
Drugs and Hospitals -- 7.3%
44,000 Arterial Vascular Engineering, Inc.* 2,310,000
10,700 Biomatrix, Inc.* 623,275
45,200 Boron LePore & Associates, Inc.* 1,559,400
95,000 Genesis Health Ventures, Inc.* 831,250
118,000 Integrated Health Svcs., Inc. 1,666,750
38,000 King Pharmaceuticals, Inc.* 1,002,250
8,300 Maxxim Medical, Inc.* 246,925
185,000 NovaCare, Inc.* 462,500
54,000 Steris Corp.* 1,535,625
25,650 United Payors & United
Providers, Inc.* 731,025
------------
10,969,000
- --------------------------------------------------------------------------------
Electrical Equipment -- 1.9%
22,600 Esterline Technologies Corp.* 491,550
82,000 Integrated Process Equipment Corp.* 881,500
17,500 Kopin Corp.* 367,500
31,400 Plexus Corp.* 1,063,675
------------
2,804,225
- --------------------------------------------------------------------------------
Financial-Banks -- 3.1%
22,900 Cullen Frost Bankers, Inc. 1,256,638
42,420 Peoples Heritage Financial Group 848,400
34,400 U.S. Bancorp, Inc. 683,700
34,000 Valley National Bancorp 958,375
23,100 Westamerica Bancorp 848,925
------------
4,596,038
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
25
<PAGE>
The Guardian Park Avenue Small Cap Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Financial-Other -- 2.3%
13,000 Duff & Phelps Credit Rating Co. $ 712,563
23,300 Freedom Securities Corp. 352,413
8,300 Jefferies Group, Inc. 411,887
23,000 Mech Financial, Inc. 638,250
30,000 Morgan Keegan, Inc. 564,375
35,000 Ragen Mackenzie Group, Inc.* 417,812
14,700 Southwest Securities Group, Inc. 295,838
------------
3,393,138
- --------------------------------------------------------------------------------
Financial-Thrift -- 0.5%
10,500 Coast Federal Litigation Trust* 69,562
32,000 Waddell & Reed Financial, Inc.* 758,000
------------
827,562
- --------------------------------------------------------------------------------
Food, Beverage and Tobacco -- 8.0%
6,500 Adolph Coors Co.* 366,844
30,000 Bob Evans Farms, Inc. 781,875
61,600 CKE Restaurants, Inc. 1,813,350
107,800 Earthgrains Co. 3,335,062
82,800 Fresh Foods, Inc.* 393,300
17,300 McCormick & Co., Inc. 584,956
83,000 Ralcorp Hldgs., Inc.* 1,514,750
39,500 Ruby Tuesday, Inc.* 839,375
32,000 Tootsie Roll Industries, Inc. 1,252,000
22,000 U.S. Foodservice* 1,078,000
------------
11,959,512
- --------------------------------------------------------------------------------
Household Products -- 0.6%
87,000 Home Products Int'l., Inc.* 864,563
- --------------------------------------------------------------------------------
Insurance -- 9.2%
45,600 American Heritage Life Investments 1,114,350
17,500 American Safety Insurance Group* 168,437
27,000 Chicago Title Corp. 1,267,312
39,200 Enhance Financial Svcs. Group, Inc. 1,176,000
43,956 Fidelity National Financial, Inc. 1,340,658
12,000 Financial Sec. Assur. Hldgs. Ltd. 651,000
20,000 First American Financial Corp. 642,500
20,200 Harleysville Group, Inc. 521,413
26,000 Landamerica Financial Group, Inc.* 1,451,125
3,800 Markel Corp.* 687,800
72,400 Penn America Group, Inc. 656,125
9,200 Philadelphia Consolid. Hldg. Corp.* 208,150
14,000 Reinsurance Group of America 850,500
71,000 State Auto Financial Corp. 878,625
19,000 Stewart Information Svcs. Corp. 1,102,000
30,950 W.R. Berkley Corp. 1,054,234
------------
13,770,229
- --------------------------------------------------------------------------------
Lodging -- 0.8%
24,000 Silverleaf Resorts, Inc.* 223,500
66,400 Sunterra Corp.* 996,000
------------
1,219,500
- --------------------------------------------------------------------------------
Machinery and Equipment -- 4.7%
16,200 AAR Corp. 386,775
25,000 Graco, Inc. 737,500
114,000 JLG Industries, Inc. 1,781,250
28,500 Manitowoc Co., Inc. 1,264,687
61,000 Northwest Pipe Co.* 983,625
10,500 SPX Corp.* 703,500
54,062 Varlen Corp. 1,246,805
------------
7,104,142
- --------------------------------------------------------------------------------
Merchandising-Food -- 0.6%
67,400 Grand Union Co.* 825,650
- --------------------------------------------------------------------------------
Merchandising-Special -- 6.5%
49,000 1-800 Contacts, Inc.* 882,000
27,000 Ames Department Stores, Inc.* 729,000
32,000 BJ's Wholesale Club, Inc.* 1,482,000
38,000 Eagle Hardware & Garden, Inc.* 1,235,000
21,000 Hughes Supply, Inc. 614,250
48,000 Miami Computer Supplies* 1,182,000
37,400 PC Connection, Inc.* 659,175
49,500 Trans World Entertainment Corp.* 943,594
60,000 Zale Corp.* 1,935,000
------------
9,662,019
- --------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Cyclical -- 1.0%
87,000 Nielsen Media Research, Inc.* 1,566,000
- --------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Staples -- 2.5%
22,000 A.C. Nielsen Corp.* 621,500
40,000 Access Worldwide, Inc.* 335,000
69,500 Innotrac Corp.* 1,259,688
30,600 Valassis Communications, Inc.* 1,579,725
------------
3,795,913
- --------------------------------------------------------------------------------
Oil and Gas Producing -- 1.1%
53,000 Basin Exploration, Inc.* 665,812
30,500 Callon Petroleum Co.* 354,562
29,900 Chieftain Int'l., Inc.* 429,812
19,000 Snyder Oil Corp. 252,938
------------
1,703,124
- --------------------------------------------------------------------------------
Oil and Gas Services -- 0.8%
74,000 B.J. Services Co.* 1,156,250
- --------------------------------------------------------------------------------
Publishing-News -- 2.2%
51,000 Harte-Hanks Communications 1,453,500
6,000 Pulitzer Publishing Co. 519,750
45,600 World Color Press, Inc.* 1,387,950
------------
3,361,200
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
26
<PAGE>
The Guardian Park Avenue Small Cap Fund
Schedule of Investments (Continued)
- -------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------
Real Estate Investment Trust -- 1.4%
18,000 Brandywine Realty Trust $ 321,750
13,000 CCA Prison Realty Trust* 266,500
26,000 Colonial Pptys. Trust, Inc. 692,250
18,000 Kilroy Realty Corp. 414,000
112,000 Stratus Pptys., Inc.* 420,000
------------
2,114,500
- -------------------------------------------------------------------------------
Textile-Apparel and Production -- 3.9%
30,200 Columbia Sportswear Co.* 509,625
44,000 Mohawk Industries, Inc.* 1,850,750
61,000 Shaw Industries, Inc.* 1,479,250
55,000 Tropical Sportswear Int'l. Corp.* 1,973,125
------------
5,812,750
- -------------------------------------------------------------------------------
Transportation-Miscellaneous -- 0.6%
5,700 Central Parking Corp. 184,894
25,700 Sea Containers Ltd. 769,394
------------
954,288
- -------------------------------------------------------------------------------
Utilities-Gas and Electric -- 3.9%
31,600 BEC Energy* 1,301,525
25,600 Black Hills Corp.* 675,200
13,300 Central Hudson Gas & Elec. Corp.* 595,175
11,500 IPALCO Enterprises 637,531
14,000 Minnesota Power & Light Co. 616,000
16,000 Otter Tail Power Co. 638,000
36,000 TNP Enterprises, Inc. 1,365,750
------------
5,829,181
- -------------------------------------------------------------------------------
Utilities-Telecommunications -- 0.3%
55,000 Startec Global Communications
Corp.* $ 529,375
- -------------------------------------------------------------------------------
Total Common Stocks
(Cost $128,687,925) 145,582,322
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Repurchase Agreement-- 4.6%
- -------------------------------------------------------------------------------
Principal
Amount Value
- -------------------------------------------------------------------------------
$ 6,917,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/98, maturity
value $6,920,843 at 5.00%
due 1/4/99 (collateralized by
$7,060,000 Federal Home Loan
Bank Notes, 5.03% due 10/29/99) $ 6,917,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $6,917,000) 6,917,000
- -------------------------------------------------------------------------------
Total Investments -- 101.9%
(Cost $135,604,925) 152,499,322
Liabilities in Excess of Cash, Receivables
and Other Assets -- (1.9%) (2,852,186)
- -------------------------------------------------------------------------------
Net Assets -- 100.0% $149,647,136
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
27
<PAGE>
o The Guardian Asset Allocation Fund
- --------------------------------------------------------------------------------
Common Stocks -- 10.7%
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Aerospace and Defense -- 0.2%
5,000 Precision Castparts Corp. $ 221,250
2,900 United Technologies Corp. 315,375
-------------
536,625
- --------------------------------------------------------------------------------
Air Transportation -- 0.3%
9,000 AMR Corp., DE* 534,375
4,000 Continental Airlines, Inc.* 134,000
-------------
668,375
- --------------------------------------------------------------------------------
Automotive Parts -- 0.0%
1,300 Meritor Automotive, Inc. 27,544
- --------------------------------------------------------------------------------
Biotechnology -- 0.0%
800 Amgen, Inc.* 83,650
- --------------------------------------------------------------------------------
Building Materials and Homebuilders -- 0.1%
2,289 Martin Marietta Materials, Inc. 142,347
- --------------------------------------------------------------------------------
Computer Software -- 1.3%
300 ChoicePoint, Inc.* 19,350
20,000 Microsoft Corp.* 2,773,750
-------------
2,793,100
- --------------------------------------------------------------------------------
Computer Systems -- 1.4%
6,300 Compaq Computer Corp. 264,206
1,500 Honeywell, Inc. 112,969
12,500 Lexmark Int'l. Group, Inc.* 1,256,250
6,000 Pitney Bowes, Inc. 396,375
26,000 Storage Technology Corp.* 924,625
3,000 Sun Microsystems, Inc.* 256,875
-------------
3,211,300
- --------------------------------------------------------------------------------
Conglomerates -- 0.4%
12,000 Textron, Inc. 911,250
- --------------------------------------------------------------------------------
Drugs and Hospitals -- 0.9%
10,000 Allegiance Corp. 466,250
7,400 Bristol-Myers Squibb Corp. 990,213
3,400 Pfizer, Inc. 426,487
3,200 Schering-Plough Corp.* 176,800
--------------
2,059,750
- --------------------------------------------------------------------------------
Electrical Equipment -- 1.9%
40,200 General Electric Co. 4,102,913
- --------------------------------------------------------------------------------
Electronics and Instruments -- 0.0%
2,500 Dynatech Corp.* 6,875
- --------------------------------------------------------------------------------
Financial-Banks -- 0.6%
3,750 Comerica, Inc. 255,703
4,500 Firstar Corp. 419,625
5,200 Mellon Bank Corp. 357,500
4,500 Union BanCal Corp. 153,281
2,400 Zions Bancorp 149,700
-------------
1,335,809
- --------------------------------------------------------------------------------
Financial-Other -- 1.2%
30,000 A.G. Edwards, Inc.* 1,117,500
3,000 Countrywide Credit Industries, Inc. 150,562
7,200 Federal Home Loan Mortgage Corp. 463,950
12,000 Federal National Mortgage Assn. 888,000
-------------
2,620,012
- --------------------------------------------------------------------------------
Financial-Thrift -- 0.1%
5,600 Astoria Financial Corp. 256,200
575 Commercial Federal Corp. 13,333
-------------
269,533
- --------------------------------------------------------------------------------
Food, Beverage and Tobacco -- 0.1%
1,600 Earthgrains Co. 49,500
3,000 Interstate Bakeries Corp. 79,313
-------------
128,813
- --------------------------------------------------------------------------------
Insurance -- 0.2%
73 Berkshire Hathaway, Inc.* 172,725
5,000 Hartford Financial Svcs. Group, Inc. 274,375
800 MBIA, Inc.* 52,450
-------------
499,550
- --------------------------------------------------------------------------------
Merchandising-Department Stores -- 0.1%
4,800 Dayton Hudson Corp. 260,400
- --------------------------------------------------------------------------------
Merchandising-Drugs -- 0.1%
5,304 CVS Corp. 291,720
- --------------------------------------------------------------------------------
Merchandising-Food -- 0.5%
19,274 Safeway, Inc.* 1,174,509
- --------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Cyclical -- 0.0%
900 Nielsen Media Research, Inc. 16,200
- --------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Staples -- 0.1%
1,500 Interpublic Group Cos., Inc. 119,625
- --------------------------------------------------------------------------------
Oil and Gas Producing -- 0.2%
6,300 Chieftain Int'l., Inc.* 90,562
10,000 Devon Energy Corp. 306,875
-------------
397,437
- --------------------------------------------------------------------------------
Oil-Integrated-Domestic -- 0.1%
16,700 Tesoro Petroleum, Inc.* 202,488
- --------------------------------------------------------------------------------
Oil-Integrated-International -- 0.6%
7,500 Chevron Corp. 622,031
10,400 Exxon Corp. 760,500
-------------
1,382,531
- --------------------------------------------------------------------------------
Publishing-News -- 0.1%
3,400 Gannett Co., Inc. 219,300
- --------------------------------------------------------------------------------
Utilities-Telecommunications -- 0.2%
6,400 Ameritech Corp. 405,600
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $9,903,322) 23,867,256
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
28
<PAGE>
The Guardian Asset Allocation Fund
Schedule of Investments (Continued)
- -------------------------------------------------------------------------------
Mutual Funds -- 55.8%
- -------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------
Equity -- 35.6%
1,527,172 The Guardian Park Avenue
Fund, Class A $ 79,236,468
Fixed Income -- 20.2%
4,496,789 The Guardian Investment Quality
- -------------------------------------------------------------------------------
Bond Fund, Class A 44,925,662
- -------------------------------------------------------------------------------
Total Mutual Funds
(Cost $117,241,901) 124,162,130
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. Government -- 3.1%
- -------------------------------------------------------------------------------
Principal
Amount Value
- -------------------------------------------------------------------------------
$7,000,000 U.S. Treasury Bill, 4.35%
due 6/10/99
(Cost $6,864,667) $ 6,864,667
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Options -- 0.2%
- -------------------------------------------------------------------------------
Number of
Contracts Value
- -------------------------------------------------------------------------------
130 U.S. Treasury Bond Futures
Expires May, 1999
Exercise price $128
(Cost $354,751) $ 371,719
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Short-term Investments -- 9.4%
- -------------------------------------------------------------------------------
Principal
Amount Value
- -------------------------------------------------------------------------------
$7,000,000 Ford Motor Credit Co.
5.16%, due 1/22/99 $ 6,978,930
7,000,000 Household Financial Corp.
5.18%, due 1/14/99 6,986,906
7,000,000 Lucent Technologies Co., Inc.
5.12%, due 2/4/99 6,966,151
- -------------------------------------------------------------------------------
Total Short-term Investments
(Cost $20,931,987) 20,931,987
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Repurchase Agreement -- 20.8%
- -------------------------------------------------------------------------------
Principal
Amount Value
- -------------------------------------------------------------------------------
$46,216,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/98, maturity
value $46,241,676 at 5.00%,
due 1/4/99 (collateralized by
$47,150,000 Federal National
Mtg. Assn. Notes, 5.81%,
due 4/06/00) $ 46,216,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $46,216,000) 46,216,000
- -------------------------------------------------------------------------------
Total Investments -- 100.0%
(Cost $201,512,628) 222,413,759
Liabilities in Excess of Cash, Receivables
and Other Assets-- 0.0% (41,533)
- -------------------------------------------------------------------------------
Net Assets -- 100.0% $222,372,226
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Purchased Futures Contracts
- -------------------------------------------------------------------------------
Unrealized
Contract Description Expiration Appreciation
- -------------------------------------------------------------------------------
178 S&P 500 Stock Index March, 1999 $ 3,453,627
At December 31, 1998 the Asset Allocation Fund had sufficient cash and/or
securities to cover margin requirements on open futures contracts and had set
aside $3,000,000 U.S. Treasury Bill due 6/10/99 as collateral.
- --------------------------------------------------------------------------------
See notes to financial statements.
29
<PAGE>
o The Guardian Baillie Gifford International Fund
- --------------------------------------------------------------------------------
Common Stocks -- 98.5%
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Australia -- 1.8%
Banks -- 1.1%
34,900 Commonwealth Bank of Australia* $ 495,367
43,630 National Australia Bank 657,698
Beverages -- 0.5%
181,400 Fosters Brewing Group 491,322
Business Services -- 0.2%
9,360 Brambles Industries Ltd. 227,992
------------
1,872,379
- --------------------------------------------------------------------------------
Chile -- 0.0%
Mutual Fund -- 0.0%
2,010 Genesis Chile Fund 49,748
- --------------------------------------------------------------------------------
France -- 6.8%
Construction Materials -- 2.2%
24,300 Lafarge 2,307,870
Financial Services -- 3.2%
22,800 AXA UAP 3,303,166
Oil-Integrated -- 1.4%
12,500 Elf Aquitaine 1,444,285
------------
7,055,321
- --------------------------------------------------------------------------------
Germany -- 15.1%
Automobiles -- 1.9%
2,145 Bayerische Motoren Werke AG 1,664,158
429 Bayerische Motoren Werke AG-- New* 317,902
Banks -- 1.9%
25,000 Bayerische Vereinsbank AG 1,957,578
Chemicals -- 1.0%
27,880 BASF AG 1,063,943
Drugs and Health Care-- 0.9%
13,590 GEHE AG 937,748
Footwear -- 1.2%
11,440 Adidas AG 1,242,434
Industrial Machineries -- 4.3%
38,900 Mannesmann AG 4,458,118
Insurance -- 1.8%
3,955 Munchener Ruckvers 1,915,088
Software -- 2.1%
5,000 SAP AG 2,160,086
------------
15,717,055
- --------------------------------------------------------------------------------
Hong Kong -- 1.0%
Conglomerates -- 0.7%
113,000 Hutchison Whampoa 798,538
Real Estate -- 0.3%
39,000 Cheung Kong Hldgs.* 280,635
------------
1,079,173
- --------------------------------------------------------------------------------
Hungary -- 0.3%
Pharmaceuticals -- 0.3%
7,180 Richter Gedeon VEG 305,819
- --------------------------------------------------------------------------------
Ireland -- 3.6%
Banks -- 1.8%
105,000 Allied Irish Bank 1,876,855
Construction Materials -- 1.8%
110,000 CRH PLC 1,879,655
------------
3,756,510
- --------------------------------------------------------------------------------
Italy -- 8.8%
Banks -- 4.5%
1,271,000 Banco di Roma* 2,152,348
142,700 Sao Paolo IMI SPA* 2,520,088
Telecommunications -- 4.3%
720,900 Olivetti SPA* 2,506,985
238,000 Telecom. Italia SPA 2,029,575
------------
9,208,996
- --------------------------------------------------------------------------------
Japan -- 15.1%
Automotive -- 0.5%
16,000 Honda Motor Co. 525,077
Automotive Parts -- 0.7%
39,000 Denso Corp. 721,008
Chemicals -- 1.3%
62,000 Kao Corp. 1,398,496
Drugs and Health Care -- 1.0%
46,000 Sankyo Co. 1,005,042
Electronics -- 3.1%
26,000 Canon, Inc. 555,418
95,000 Matsushita Electric Works 970,588
6,000 Rohm Co. 546,130
7,200 Sony Corp. 524,158
7,000 TDK Corp. 639,629
Financial Services -- 3.4%
22,900 Credit Saison Co. 564,144
56,000 Nomura Securities Co. Ltd.* 487,926
19,100 Promise Co. 993,437
105,000,000 Sanwa Int'l. Financial 740,712
2,200 Shohkoh Fund & Co. 708,359
Leisure Products -- 0.4%
3,000 Toho Co. 410,792
Merchandising-Mass -- 0.7%
5,100 Ryohin Keikaku Co. Ltd. 678,947
Photography -- 0.7%
21,000 Fuji Photo Film Co. 780,186
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
30
<PAGE>
The Guardian Baillie Gifford International Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Retail Trade -- 1.1%
17,000 Ito Yokado Co. $ 1,187,970
Telecommunications -- 2.2%
140 Nippon Tele. & Tel. Corp. 1,079,876
29 NTT Mobile Comm. Network, Inc.* 1,192,835
------------
15,710,730
- --------------------------------------------------------------------------------
Netherlands -- 3.5%
Broadcasting and Publishing -- 2.2%
61,200 Ver Ned Uitgevers 2,306,361
Computer Services -- 1.3%
50,300 CMG PLC 1,325,305
------------
3,631,666
- --------------------------------------------------------------------------------
New Zealand -- 0.1%
Telecommunications -- 0.1%
60,510 Telecom. Corp. of New Zealand 132,139
- --------------------------------------------------------------------------------
People's Republic of China -- 0.4%
Telecommunications -- 0.4%
256,000 China Telecom.* 442,769
- --------------------------------------------------------------------------------
Poland -- 0.9%
Electrical Equipment -- 0.9%
85,000 Elektrim 920,228
- --------------------------------------------------------------------------------
Singapore -- 0.6%
Publishing -- 0.6%
53,197 Singapore Press Hldgs. 579,979
- --------------------------------------------------------------------------------
Spain -- 5.5%
Banks -- 1.7%
86,200 Banco Santander S.A. 1,710,414
Construction and Housing -- 3.8%
48,600 Acciona S.A. 3,963,369
------------
5,673,783
- --------------------------------------------------------------------------------
Sweden -- 2.2%
Construction and Mining Equipment -- 0.7%
37,000 Atlas Copco AB 801,497
Telecommunications -- 1.5%
64,780 LM Ericsson 1,538,812
------------
2,340,309
- --------------------------------------------------------------------------------
Switzerland -- 9.7%
Business Services -- 1.3%
3,000 Adecco S.A. 1,369,295
Insurance -- 2.7%
3,740 Zurich Allied AG* 2,768,858
Pharmaceuticals -- 3.5%
1,870 Novartis AG 3,675,475
Telecommunications -- 2.2%
5,415 Swisscom AG* 2,266,597
------------
10,080,225
- --------------------------------------------------------------------------------
United Kingdom -- 23.1%
Banks -- 3.5%
36,000 Barclays* 780,528
49,000 Halifax PLC* 692,993
112,000 Lloyds TSB Group PLC 1,594,684
24,500 National Westminster Bank Co. PLC 474,207
Conglomerates -- 3.4%
189,000 Hanson PLC 1,504,087
155,000 Rentokil Initial PLC 1,171,706
153,461 Williams Hldgs. 877,066
Data Services -- 0.4%
34,666 Reuters Group PLC 365,724
Drugs and Health Care -- 4.1%
96,000 Glaxo Wellcome 3,304,735
73,000 Smithkline Beecham 1,011,727
Electronics -- 0.3%
52,000 Electrocomponents 342,981
Financial Services -- 0.7%
43,000 CGU PLC 677,970
Food, Beverage and Tobacco-- 2.0%
132,800 Imperial Tobacco 1,389,998
55,929 Whitbread 717,348
Industrial Machineries -- 0.6%
43,000 Smiths Industries PLC* 616,531
Insurance -- 0.6%
42,000 Prudential Corp. 640,690
Leisure Products -- 1.5%
39,000 Granada Group 683,585
341,000 Thomson Travel Group 929,124
Newspapers -- 0.2%
40,000 Southnews PLC 245,223
Oil-International -- 1.8%
126,847 BP Amoco PLC 1,888,269
Telecommunications -- 2.8%
74,000 British Telecom. 1,120,020
53,373 Cable & Wireless Co.* 486,821
78,000 Vodafone Group 1,267,387
Transportation -- 1.2%
61,000 BAA PLC 716,514
125,000 Stagecoach Hldgs. 500,498
------------
24,000,416
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $78,346,682) 102,557,245
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
31
<PAGE>
The Guardian Baillie Gifford International Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Repurchase Agreement -- 1.0%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$1,033,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/98, maturity
value $1,033,459 at 4.00%
due 1/4/99 (collateralized
by $1,060,000 U.S. Treasury
Notes, 7.875% due 11/15/04) $ 1,033,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,033,000) 1,033,000
- --------------------------------------------------------------------------------
Total Investments -- 99.5%
(Cost $79,379,682) 103,590,245
Cash, Receivables and Other Assets
Less Liabilities -- 0.5% 497,313
- --------------------------------------------------------------------------------
Net Assets-- 100.0% $104,087,558
- --------------------------------------------------------------------------------
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
- --------------------------------------------------------------------------------
See notes to financial statements.
32
<PAGE>
o The Guardian Baillie Gifford Emerging Markets Fund
- --------------------------------------------------------------------------------
Common Stocks -- 79.0%
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Argentina -- 5.0%
Gas Distribution -- 0.9%
17,128 Transportadora de Gas Del
Sur ADR* $ 173,421
Oil and Gas -- 0.5%
20,328 Perez Companc S.A. 86,064
Real Estate -- 1.2%
7,328 IRSA Inversiones Y Represente GDR 203,816
Retail-Food -- 1.3%
29,712 Imp. Y Exp. Patagonia 231,962
Telecommunications -- 1.1%
6,900 Telefonica de Argentina S.A. ADR 192,769
------------
888,032
- --------------------------------------------------------------------------------
Brazil -- 13.3%
Banks -- 0.9%
340,000 Banco Itau S.A. 166,016
Food, Beverage and Tobacco -- 0.9%
280,000 Comp. Cerv. Ria Brahma 122,353
4,700,000 Comp. Lorenz 35,007
Industrial Machineries -- 2.2%
36,866 Elevadores Atlas 396,638
Real Estate -- 0.5%
6,500 Brazil Realty S.A. GDR 81,768
Retail-Appliances -- 0.5%
24,500 Globex Utilidades* 85,161
Retail-Food -- 2.1%
24,508 Comp. Brasileiras de Dist. ADR 379,874
Telecommunications -- 2.7%
11,453,000 Telecom. Centro Sul Participacoes* 99,431
1,800,000 Telecom. de Sao Paolo S.A.* 154,928
22,943,000 Telecom. Sudeste Celular Participacoes* 96,838
17,500,000 Telesp. Celular Participacoes* 128,900
Textile-Apparel and Production -- 1.0%
83,700 Confeccoes Guararapes S.A. 173,177
Tobacco -- 1.5%
40,000 Souza Cruz (Cia) 258,214
Utilities-Electric and Water -- 1.0%
8,500,000 Comp. Energetica de Minas 161,797
1,020,396 Emp. Bandeirante de Energia S.A.* 10,978
------------
2,351,080
- --------------------------------------------------------------------------------
Chile -- 2.2%
Chemicals -- 1.1%
5,700 Sociedad Quimica Y Minera
de Chile S.A. ADR 192,019
Mining -- 0.5%
30,420 Antofagasta Hldgs. 90,972
Mutual Funds -- 0.6%
4,310 Genesis Chile Fund 106,673
------------
389,664
- --------------------------------------------------------------------------------
Colombia -- 0.5%
Banks -- 0.5%
8,600 Banco Ganadero S.A. ADR 77,938
- --------------------------------------------------------------------------------
Czech Republic -- 2.0%
Financial Services -- 0.5%
13,000 IKS KB Plus 86,192
Telecommunications -- 1.5%
18,000 SPT Telecom. AS* 274,667
------------
360,859
- --------------------------------------------------------------------------------
Greece -- 2.3%
Telecommunications -- 2.3%
5,980 OTE - S.A. Telecom. Org.* 159,179
9,150 Panafon Hellenic Telecom. S.A.* 245,194
------------
404,373
- --------------------------------------------------------------------------------
Hungary -- 6.9%
Food, Beverage and Tobacco -- 1.7%
7,000 Pick Szeged RT 297,340
Lodging -- 1.7%
14,322 Danubius Hotel* 299,857
Pharmaceuticals -- 1.9%
8,000 Richter Gedeon VEG 340,746
Plastics -- 1.6%
10,000 Pannonplast 282,949
------------
1,220,892
- --------------------------------------------------------------------------------
India -- 4.1%
Mutual Funds -- 3.0%
22,000 India I.T. Fund Ltd.* 247,500
32,000 Indian Opportunity Fund* 276,000
Telecommunications -- 1.1%
17,000 Mahanagar Telephone Nigam
Ltd. GDR* 207,400
------------
730,900
- --------------------------------------------------------------------------------
Israel -- 1.1%
Electronic Equipments -- 1.1%
5,400 ECI Telecom. Ltd.* 192,375
- --------------------------------------------------------------------------------
Malaysia -- 0.1%
Food, Beverage and Tobacco -- 0.1%
32,000 RJ Reynolds Berhad 25,347
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements. * Non-income producing security.
33
<PAGE>
The Guardian Baillie Gifford Emerging Markets Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Mexico -- 14.7%
Conglomerates -- 1.6%
5,900 Fomento Economico
Mexicano ADR* $ 157,088
40,000 Grupo Carso S.A. de C.V. 135,864
Financial Services -- 1.4%
296,600 Grupo Financiero Banorte* 254,477
Food, Beverage and Tobacco -- 3.1%
75,250 Grupo Continental 181,916
80,000 Grupo Industrial Bimbo S.A. 153,427
17,574 Grupo Industrial Maseca S.A.
de C.V. ADR* 218,577
Media and Entertainment -- 3.6%
180,000 Corp. Interamericana Entretenimiento* 490,562
5,700 Grupo Television S.A. de C.V. ADR* 140,719
Real Estate -- 1.2%
74,900 Corp. Geo S.A.* 207,909
Retail Trade -- 1.6%
11,400 Grupo Elektra S.A. GDR 57,000
69,040 Organiz. Soriana 223,002
Telecommunications -- 2.2%
49,834 Grupo Carso Global Telecom.* 168,008
4,400 Telefonos de Mexico S.A. ADR 214,225
------------
2,602,774
- --------------------------------------------------------------------------------
People's Republic of China -- 1.8%
Household Products -- 1.2%
236,000 Guandong Kelon Elec. Hldgs. 210,181
Utilities-Electric -- 0.6%
354,000 Beijing Datang Power Gen. Co. 106,233
------------
316,414
- --------------------------------------------------------------------------------
Peru -- 1.5%
Mining -- 0.7%
10,200 Comp. De Minas Buenaventura ADR 132,600
Telecommunications -- 0.8%
10,750 Telefonica del Peru S.A. ADR 136,391
------------
268,991
- --------------------------------------------------------------------------------
Philippines -- 0.4%
Business Services -- 0.4%
900,000 Int'l. Container Terminal Svcs.* 75,193
- --------------------------------------------------------------------------------
Poland-- 6.9%
Banks -- 4.1%
25,000 Bank Handlowy Warsaw 308,405
17,620 Bank Roswoju Eksport 406,615
Electrical Equipments -- 1.8%
30,000 Elektrim 324,786
Telecommunications -- 1.0%
34,470 Telekomunikacja Polska GDR* 175,797
------------
1,215,603
- --------------------------------------------------------------------------------
Portugal -- 0.8%
Financial Services -- 0.8%
4,380 Comp. de Seguros Tranquilidade 139,853
- --------------------------------------------------------------------------------
Singapore -- 0.3%
Construction -- 0.3%
48,000 Clipsal Industries Ltd. 48,000
- --------------------------------------------------------------------------------
South Africa -- 4.9%
Brewing -- 1.5%
15,148 South African Breweries 255,111
Conglomerates -- 1.2%
35,000 Rembrandt Group Ltd.* 207,969
Consumer Goods -- 1.2%
96,000 Ellerine Hldgs. 206,984
Miscellaneous-Financial -- 0.6%
4,000 Anglo American Corp. of South Africa 112,592
Retail-Mass -- 0.4%
18,870 Pepkor Ltd.* 78,488
------------
861,144
- --------------------------------------------------------------------------------
South Korea -- 4.2%
Metals and Steel -- 4.2%
44,000 Pohang Iron & Steel Co. Ltd. ADR 742,500
- --------------------------------------------------------------------------------
Sri Lanka -- 1.7%
Banks -- 0.6%
52,000 National Development Bank 97,267
Conglomerates -- 1.1%
62,000 John Keels Hldgs.* 202,046
------------
299,313
- --------------------------------------------------------------------------------
Taiwan -- 2.8%
Drugs and Health Care -- 0.7%
154,000 Test Rite Int'l.* 115,667
Electronics and Instruments -- 0.8%
73,000 Taiwan Secom* 140,472
Insurance -- 0.8%
46,000 Cathay Life Insurance Co. Ltd.* 148,479
Miscellaneous-Cons. Growth Cyclical -- 0.5%
50,000 Lee Chi Enterprises Co. Ltd.* 96,214
------------
500,832
- --------------------------------------------------------------------------------
United Kingdom -- 1.5%
Food and Beverage -- 0.8%
80,000 Coca Cola Beverage* 140,887
Mutual Funds -- 0.7%
7,450 East Europe Development Fund* 131,418
------------
272,305
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $16,615,427) 13,984,382
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security. See notes to financial statements.
34
<PAGE>
The Guardian Baillie Gifford Emerging Markets Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Preferred Stock -- 0.6%
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
830,000 Telecom. de Sao Paolo S.A.
(Cost $146,948) $ 113,135
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Convertible Bonds -- 6.6%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 117,000 Ashanti Capital
5.50% due 3/15/03 $ 96,963
260,000 Metro Pacific Capital
2.50% due 4/11/03 232,375
450,000 Orient Semiconductor Elect. Ltd.
1.50% due 2/26/03 414,563
430,000 Siliconware Precision Industries
.50% due 7/21/04 434,429
- --------------------------------------------------------------------------------
Total Convertible Bonds
(Cost $1,215,819) 1,178,330
- --------------------------------------------------------------------------------
Repurchase Agreement -- 11.0%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 1,945,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/98, maturity
value $1,945,864 at 4.00%
due 1/4/99 (collateralized
by $1,990,000 U.S
Treasury Bonds, 7.25%
due 5/15/16) $ 1,945,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,945,000) 1,945,000
- --------------------------------------------------------------------------------
Total Investments -- 97.2%
(Cost $19,923,194) 17,220,847
Cash, Receivables and Other Assets
Less Liabilities-- 2.8% 487,994
- --------------------------------------------------------------------------------
Net Assets-- 100.0% $17,708,841
- --------------------------------------------------------------------------------
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
- --------------------------------------------------------------------------------
See notes to financial statements.
35
<PAGE>
o The Guardian Investment Quality Bond Fund
- --------------------------------------------------------------------------------
Asset Backed -- 6.3%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 500,000 Amresco 1997-1 M1F
7.42% due 3/25/27 $ 503,590
400,000 California Infrastructure
Dev. 1997-1 A7
6.42% due 9/25/08 416,568
2,000,000 Comed Transitional Funding
Tr. 1998 A3
5.34% due 3/25/04 2,001,600
1,500,000 Illinois Power Supply Purp.
Tr. 1998-1 A5
5.38% due 6/25/07 1,489,050
1,565,000 Premier Auto Tr. 1997-2 B
6.53% due 12/6/03 1,598,913
1,200,000 Sears Cr. Account Master 1998-1 A
5.80% due 8/15/05 1,207,560
1,740,000 UCFC Loan Tr. 1997-D A6
7.095% due 4/15/27 1,763,264
- --------------------------------------------------------------------------------
Total Asset Backed
(Cost $8,915,648) 8,980,545
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporate Bonds -- 27.0%
- --------------------------------------------------------------------------------
Aerospace and Defense -- 1.5%
$ 1,000,000 Lockheed Martin Corp.
6.55% due 5/15/99 1,003,580
1,250,000 Raytheon Co.+
6.40% due 12/15/18 1,234,324
------------
2,237,904
- --------------------------------------------------------------------------------
Automotive Parts -- 0.9%
1,250,000 Autozone, Inc.
6.00% due 11/1/03 1,239,289
- --------------------------------------------------------------------------------
Banks-- 0.9%
1,250,000 First Union Bank, Charlotte N.C.
5.80% due 12/1/08 1,247,340
- --------------------------------------------------------------------------------
Beverage-- 0.9%
1,250,000 Joseph E. Seagram & Sons, Inc.
6.40% due 12/15/03 1,240,903
- --------------------------------------------------------------------------------
Building Products -- 0.7%
1,000,000 Lafarge Corp.
6.375% due 7/15/05 1,025,649
- --------------------------------------------------------------------------------
Entertainment -- 1.8%
1,250,000 Time Warner, Inc.
6.95% due 1/15/28 1,323,996
1,250,000 Time Warner, Inc.
6.625% due 5/15/29 1,270,517
------------
2,594,513
- --------------------------------------------------------------------------------
Financial-Other -- 4.2%
1,000,000 Associates Corp. of North America
5.85% due 1/15/01 1,007,203
1,250,000 Donaldson Lufkin & Jenrette
Sec. Corp.
6.11% due 5/15/01 1,252,813
2,500,000 Lehman Brothers Hldgs., Inc.
6.00% due 2/26/01 2,481,760
1,250,000 PaineWebber Group, Inc.
6.45% due 12/1/03 1,254,226
------------
5,996,002
- --------------------------------------------------------------------------------
Homebuilders -- 0.9%
1,250,000 Marlin Water Trust/Cap.+
7.09% due 12/15/01 1,255,821
- --------------------------------------------------------------------------------
Hospital-Supplies -- 0.7%
1,000,000 Mallinckrodt, Inc.+
6.30% due 3/15/11 998,674
- --------------------------------------------------------------------------------
Household Products -- 0.9%
1,250,000 U.S. Filter Corp.
6.375% due 5/15/01 1,240,905
- --------------------------------------------------------------------------------
Insurance -- 1.6%
1,300,000 Conseco, Inc.
6.40% due 6/15/01 1,244,164
950,000 Zurich Capital Tr.+
8.376% due 6/1/37 1,054,281
------------
2,298,445
- --------------------------------------------------------------------------------
Merchandising-Department Stores -- 0.9%
1,250,000 Federated Department Stores, Inc.
6.125% due 9/1/01 1,263,714
- --------------------------------------------------------------------------------
Merchandising-Mass -- 0.9%
1,250,000 Aramark Services, Inc.
6.75% due 8/1/04 1,256,102
- --------------------------------------------------------------------------------
Miscellaneous-Capital Goods -- 0.9%
1,250,000 Ikon Capital, Inc.
6.73% due 6/15/01 1,220,945
- --------------------------------------------------------------------------------
Miscellaneous-Financial -- 0.9%
1,250,000 Comdisco, Inc.
6.13% due 8/1/01 1,243,211
- --------------------------------------------------------------------------------
Oil and Gas Producing -- 0.7%
1,000,000 Vastar Resources, Inc.
6.00% due 4/20/00 1,001,363
- --------------------------------------------------------------------------------
Telecommunications -- 4.1%
1,000,000 Cox Communications, Inc.
6.95% due 1/15/28 1,043,058
1,250,000 MCI WorldCom, Inc.
6.95% due 8/15/28 1,344,075
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
+ Rule 144A restricted security. See notes to financial statements.
36
<PAGE>
The Guardian Investment Quality Bond Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 2,750,000 Sprint Capital Corp.
6.875% due 11/15/28 $ 2,855,551
500,000 TCI Communications, Inc.
7.125% due 2/15/28 545,303
------------
5,787,987
- --------------------------------------------------------------------------------
Utilities-Electric -- 1.0%
1,400,000 Niagara Mohawk Power Corp.
6.875% due 3/1/01 1,432,858
- --------------------------------------------------------------------------------
Utilities-Gas and Pipeline -- 2.6%
1,250,000 Williams Cos., Inc.
6.50% due 8/1/06 1,254,188
2,500,000 Williams Cos., Inc.+
5.95% due 2/15/00 2,498,227
------------
3,752,415
- --------------------------------------------------------------------------------
Total Corporate Bonds
(Cost $38,053,469) 38,334,040
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligation -- 1.0%
- --------------------------------------------------------------------------------
$ 1,448,025 GE Capital Mortgage Svcs., Inc.
1996-3A7 7.00% due 3/25/26
(Cost $1,450,074) 1,455,334
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs -- 23.7%
- --------------------------------------------------------------------------------
$ 9,300,000 FHLMC TBA
6.50% (30 yr.) (a) 9,373,395
55,212 FHLMC Pool # C15287
6.50% due 9/1/28 55,627
971,387 FHLMC Pool # C15685
6.50% due 9/1/28 978,682
506,392 FHLMC Pool # C16257
6.50% due 10/1/28 510,195
502,771 FHLMC Pool # C16258
6.50% due 10/1/28 506,547
999,566 FHLMC Pool # C16776
6.50% due 10/1/28 1,007,073
467,967 FHLMC Pool # C16778
6.50% due 10/1/28 471,481
30,755 FHLMC Pool # C16999
6.50% due 10/1/28 30,986
150,359 FHLMC Pool # E54124
7.00% due 8/1/08 153,801
150,752 FHLMC Pool # G00454
6.50% due 2/1/26 151,858
800,000 FNMA TBA
7.00% (30 yr.) (a) 816,257
3,500,000 FNMA TBA
6.50% (30 yr.) (a) 3,524,094
4,500,000 FNMA TBA
6.00% (30 yr.) (a) 4,441,900
73,690 FNMA Pool # 050989
7.00% due 2/1/09 75,331
27,927 FNMA Pool # 250993
7.00% due 7/1/12 28,542
492,741 FNMA Pool # 251568
6.50% due 3/1/28 496,132
19,327 FNMA Pool # 336526
6.50% due 3/1/26 19,463
5,289 FNMA Pool # 339760
7.50% due 5/1/27 5,432
706,228 FNMA Pool # 349957
6.50% due 7/1/11 716,376
30,887 FNMA Pool # 392283
7.00% due 6/1/12 31,566
408,877 FNMA Pool # 395044
7.00% due 12/1/12 417,876
37,029 FNMA Pool # 395781
7.00% due 10/1/27 37,783
497,225 FNMA Pool # 408825
6.50% due 2/1/28 500,646
462,984 FNMA Pool # 416606
6.50% due 11/1/28 466,170
478,414 FNMA Pool # 419273
6.50% due 3/1/13 485,294
458,852 FNMA Pool # 424155
6.50% due 4/1/28 462,009
504,243 FNMA Pool # 429534
6.50% due 6/1/28 507,712
547,510 FNMA Pool # 433385
6.50% due 7/1/13 555,383
704,116 FNMA Pool # 435589
6.50% due 7/1/13 714,242
256,905 FNMA Pool # 435942
6.50% due 7/1/13 260,600
201,413 FNMA Pool # 437177
6.50% due 9/1/28 202,798
988,645 FNMA Pool # 440723
6.50% due 11/1/28 995,447
1,001,622 FNMA Pool # 442281
6.50% due 10/1/28 1,008,513
545,782 FNMA Pool # 442370
6.50% due 10/1/28 549,537
511,036 FNMA Pool # 444986
6.50% due 10/1/28 514,552
655,695 FNMA Pool # 447071
6.50% due 11/1/28 660,206
1,004,264 FNMA Pool # 447954
6.50% due 10/1/28 1,011,173
- --------------------------------------------------------------------------------
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
See notes to financial statements.
37
<PAGE>
The Guardian Investment Quality Bond Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 996,698 FNMA Pool 448635
6.50% due 11/1/28 $ 1,003,555
- --------------------------------------------------------------------------------
Total Mortgage Pass-Throughs
(Cost $33,617,239) 33,748,234
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. Government -- 40.0%
- --------------------------------------------------------------------------------
$ 3,475,000 U.S. Treasury Bonds
6.625% due 2/15/27 4,110,275
700,000 U.S. Treasury Bonds
6.50% due 11/15/26 814,625
4,370,000 U.S. Treasury Bonds
6.125% due 11/15/27 4,894,400
500,000 U.S. Treasury Notes
7.875% due 11/15/04 579,219
5,600,000 U.S. Treasury Notes
6.50% due 5/15/05 6,137,253
5,250,000 U.S. Treasury Notes
6.00% due 8/15/00 5,358,281
200,000 U.S. Treasury Notes
5.875% due 11/15/05 213,375
3,550,000 U.S. Treasury Notes
5.75% due 8/15/03 3,705,312
6,900,000 U.S. Treasury Notes
5.50% due 5/31/00 6,979,785
9,350,000 U.S. Treasury Notes
5.375% due 6/30/00 9,446,427
3,350,000 U.S. Treasury Notes
5.25% due 8/15/03 3,433,750
3,900,000 U.S. Treasury Notes
4.75% due 11/15/08(b) 3,930,471
5,850,000 U.S. Treasury Notes
4.625% due 11/30/00(b) 5,853,656
1,400,000 U.S. Treasury Notes
4.25% due 11/15/03 1,381,626
- --------------------------------------------------------------------------------
Total U.S. Government Securities
(Cost $56,218,257) 56,838,455
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Commercial Paper -- 20.2%
- --------------------------------------------------------------------------------
Automotive -- 4.5%
$ 5,000,000 Ford Motor Credit Co.
5.76% due 1/4/99(b) $ 4,997,600
1,478,000 General Motors Acceptance Corp.
5.73% due 1/4/99(b) 1,477,294
--------------
6,474,894
- --------------------------------------------------------------------------------
Banks -- 4.2%
$ 5,102,000 Bank of Montreal
5.215% due 1/14/99(a) 5,092,392
823,000 Bank of Nova Scotia
5.36% due 1/20/99(a) 820,672
--------------
5,913,064
- --------------------------------------------------------------------------------
Chemicals -- 2.7%
3,861,000 Morton Int'l., Inc.
5.15% due 2/11/99(a) 3,838,354
- --------------------------------------------------------------------------------
Conglomerates-- 4.5%
2,500,000 BTR Dunlop Finance, Inc.
5.30% due 1/14/99(a) 2,495,215
3,907,000 Koch Industries
5.25% due 1/4/99(b) 3,905,291
-------------
6,400,506
- --------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Staples -- 2.8%
4,000,000 Hertz Corp.
5.27% due 1/14/99(a) 3,992,388
- --------------------------------------------------------------------------------
Publishing-News-- 1.5%
2,107,000 Knight Ridder, Inc.
5.40% due 1/14/99(a) 2,102,891
- --------------------------------------------------------------------------------
Total Commercial Paper
(Cost $28,722,097) 28,722,097
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreement -- 1.0%
- --------------------------------------------------------------------------------
$ 1,472,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/98, maturity
value $1,472,818 at 5.00%
due 1/4/99 (collateralized
by Federal Home Loan Bank
Notes, $1,505,000,
5.03% due 10/29/99) $ 1,472,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,472,000) 1,472,000
- --------------------------------------------------------------------------------
Total Investments-119.2%
(Cost $168,448,784) 169,550,705
Payables for Reverse Repurchase
Agreements(b) -- (6.9%) (9,776,813)
Payables for Mortgage Pass-Throughs
Delayed Delivery Securities(a) -- (12.7%) (18,155,646)
Cash, Receivables and Other Assets
Less Liabilities-- 0.4% 580,388
- --------------------------------------------------------------------------------
Net Assets-- 100.0% $142,198,634
- --------------------------------------------------------------------------------
(a) Commercial paper with the total amount of $18,341,912 is segregated to
cover forward mortgage purchases.
(b) Commercial paper in the amount of $10,380,185 is segregated to cover
reverse repurchase agreements.
- --------------------------------------------------------------------------------
See notes to financial statements.
38
<PAGE>
o The Guardian High Yield Bond Fund
- --------------------------------------------------------------------------------
Fixed Income -- 96.1%
- --------------------------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- --------------------------------------------------------------------------------
Aerospace -- 4.7%
$ 1,500,000 K & F Ind., Inc.
Sr. Sub. Nt. Ser. B
9.25% due 10/15/07 B3/B- $ 1,518,750
1,000,000 Kellstrom Ind., Inc.
Sub. Nt. Conv.
5.50% due 6/15/03 B3/B- 1,021,250
------------
2,540,000
- --------------------------------------------------------------------------------
Building Products -- 3.7%
1,000,000 American Standard Cos., Inc.
Sr. Nt.
7.125% due 2/15/03 Ba3/BB- 1,005,186
1,000,000 Building Materials Corp.
Sr. Nt. Ser. B
7.75% due 7/15/05 Ba3/BB 985,000
------------
1,990,186
- --------------------------------------------------------------------------------
Cable and Media -- 11.8%
1,000,000 Adelphia Comm. Corp.
Sr. Nt. Ser. B
9.875% due 3/1/07 B1/B+ 1,105,000
1,000,000 Capstar Broadcasting Partners
Sr. Sub. Nt.
9.25% due 7/1/07 B2/B- 1,035,000
1,000,000 CSC Holdings, Inc.
Sr. Sub. Deb.
9.875% due 2/15/13 B1/BB- 1,120,000
1,000,000 Chancellor Media Corp.
Sr. Sub. Nt.+
9.00% due 10/1/08 B1/B 1,055,000
1,000,000 Fox Liberty Networks LLC
Sr. Nt.
8.875% due 8/15/07 B1/B 1,020,000
1,000,000 Pegasus Communications Corp.
Sr. Nt.+
9.75% due 12/1/06 B3/B- 1,002,500
------------
6,337,500
- --------------------------------------------------------------------------------
Consumer Products -- 7.0%
500,000 Bell Sports, Inc.
Sr. Sub. Nt.+
11.00% due 8/15/08 B3/B- 507,500
1,000,000 Ekco Group, Inc.
Sr. Nt. Ser. B
9.25% due 4/1/06 Ba3/B+ 1,010,000
1,000,000 Revlon Consumer Prods. Corp.
Sr. Nt.
8.125% due 2/1/06 B2/B 960,000
500,000 Revlon Consumer Prods. Corp.
Sr. Nt.+
9.00% due 11/1/06 B2/B 497,500
Rating
800,000 Softkey Intl., Inc.
Sr. Nt. Conv.
5.50% due 11/1/00 NR/NR 789,000
------------
3,764,000
- --------------------------------------------------------------------------------
Containers -- 1.9%
1,000,000 Ball Corp.
Sr. Sub. Nt.+
8.25% due 8/1/08 B1/BB- 1,040,000
- --------------------------------------------------------------------------------
Electronics/Information/Data -- 4.6%
1,000,000 Advanced Micro Devices, Inc.
Sub. Nt. Conv.
6.00% due 5/15/05 B3/CCC+ 1,021,250
750,000 L 3 Communications Corp.
Sr. Sub. Nt.+
8.00% due 8/1/08 B2/B 751,875
1,000,000 System Software Assoc., Inc.
Sub. Nt. Conv.
7.00% due 9/15/02 NR/NR 715,000
------------
2,488,125
- --------------------------------------------------------------------------------
Energy -- 5.1%
1,000,000 Houston Exploration Co.
Sr. Sub. Nt. Ser. B
8.625% due 1/1/08 B2/B 970,000
1,000,000 Ocean Energy, Inc.
Sr. Sub. Nt. Ser. B
8.375% due 7/1/08 B1/BB- 930,000
1,000,000 Offshore Logistics, Inc.
Sub. Nt. Conv.
6.00% due 12/15/03 B2/B+ 858,750
------------
2,758,750
- --------------------------------------------------------------------------------
Gaming -- 7.8%
1,000,000 Argosy Gaming Co.
1st Mtg. Nt.
13.25% due 6/1/04 B2/B+ 1,120,000
1,000,000 Hard Rock Hotel, Inc.
Sr. Sub. Nt. Ser. B
9.25% due 4/1/05 B3/B- 1,000,000
1,000,000 Hollywood Casino, Inc.
Sr. Nt.
12.75% due 11/1/03 B2/B+ 1,060,000
1,000,000 Majestic Star Casino
Sr. Nt.
12.75% due 5/15/03 B2/B 1,037,500
------------
4,217,500
- --------------------------------------------------------------------------------
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
See notes to financial statements. * Unaudited.
39
<PAGE>
The Guardian High Yield Bond Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- --------------------------------------------------------------------------------
Health Care-Facilities -- 7.8%
$ 700,000 Concentra Mgd. Care, Inc.
Sub. Nt. Conv.+
4.50% due 3/15/03 B1/B $ 529,375
1,000,000 Fisher Scientific Int'l., Inc.
Sr. Sub. Nt.
9.00% due 2/1/08 B3/B- 1,000,000
250,000 Fisher Scientific Int'l., Inc.
Sr. Sub. Nt.+
9.00% due 2/1/08 B3/B- 250,000
750,000 Hudson Respiratory Care, Inc.
Sr. Sub. Nt.
9.125% due 4/15/08 B3/B- 615,000
1,000,000 Novacare, Inc.
Sub. Deb. Conv.
5.50% due 1/15/00 B1/B 735,000
1,000,000 Tenet Health Care Corp.
Sr. Sub. Nt.+
8.125% due 12/1/08 Ba3/BB- 1,025,000
------------
4,154,375
- --------------------------------------------------------------------------------
Leasing -- 3.6%
1,000,000 Anthony Crane Rentals
Sr. Nt.+
10.375% due 8/1/08 B3/B 960,000
1,000,000 United Rentals, Inc.
Sr. Sub. Nt.+
8.80% due 8/15/08 B1/BB- 980,000
------------
1,940,000
- --------------------------------------------------------------------------------
Leisure -- 8.0%
1,000,000 AMC Ent., Inc.
Sr. Sub. Nt.
9.50% due 3/15/09 B2/B 1,020,000
750,000 Imax Corp.
Sr. Nt.
7.875% due 12/1/05 Ba2/BB- 757,500
1,000,000 Loews Cineplex Ent.
Corp. Sr. Sub. Nt.
8.875% due 8/1/08 B3/B 1,032,500
1,500,000 Regal Cinemas, Inc.
Sr. Sub. Nt.+
8.875% due 12/15/10 B3/B 1,488,750
------------
4,298,750
- --------------------------------------------------------------------------------
Lodging -- 3.2%
1,000,000 HMH Properties, Inc.
Sr. Nt. Ser. C
8.45% due 12/1/08 Ba2/BB 1,000,000
1,000,000 Signature Resorts, Inc.
Sub. Nt. Conv.
5.75% due 1/15/07 Caa1/B 713,750
------------
1,713,750
- --------------------------------------------------------------------------------
Publishing -- 2.0%
1,000,000 Hollinger Int'l., Inc.
Sr. Sub. Nt.
9.25% due 2/1/06 B1/BB- 1,055,000
- --------------------------------------------------------------------------------
Services-Other -- 6.1%
500,000 Loewen Group Int'l., Inc.
Sr. Nt. Ser. 4
8.25% due 10/15/03 B2/B+ 430,000
1,000,000 Loewen Group Int'l., Inc.
Sr. Nt. Ser. 6
7.20% due 6/1/03 B2/B+ 850,000
1,000,000 Pierce Leahy Corp.
Sr. Sub. Nt.
11.125% due 7/15/06 B3/B- 1,105,000
1,000,000 Rural/Metro Corp.
Sr. Nt.
7.875% due 3/15/08 Ba3/BB- 910,000
------------
3,295,000
- --------------------------------------------------------------------------------
Sovereign -- 1.0%
500,000 Republic of Korea
8.75% due 4/15/03 510,000
- --------------------------------------------------------------------------------
Telecommunications -- 10.7%
1,000,000 Intermedia Comm., Inc.
Sr. Nt. Ser. B
8.60% due 6/1/08 B2/B 950,000
1,000,000 Level 3 Comm., Inc.
Sr. Nt.
9.125% due 5/1/08 B3/B 987,500
1,000,000 Orange PLC
Sr. Nt.
8.00% due 8/1/08 Ba3/B+ 1,010,000
1,000,000 Paging Network, Inc.
Sr. Sub. Nt.
10.00% due 10/15/08 B2/B 960,000
1,000,000 Qwest Comm. Int'l., Inc.
Sr. Disc. Nt.
7.99% due 10/15/07 Ba1/BB+ 772,500
1,000,000 Time Warner Telecom.
Sr. Nt.
9.75% due 7/15/08 B2/B- 1,050,000
------------
5,730,000
- --------------------------------------------------------------------------------
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
* Unaudited See notes to financial statements.
40
<PAGE>
The Guardian High Yield Bond Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- --------------------------------------------------------------------------------
Textile and Apparel -- 5.7%
$ 1,000,000 Globe Mfg. Corp.
Sr. Sub. Nt.+
10.00% due 8/1/08 B2/B- $ 905,000
2,000,000 Pillowtex Corp.
Sr. Sub. Nt.
10.00% due 11/15/06 B2/B+ 2,160,000
---------
3,065,000
- --------------------------------------------------------------------------------
Utilities -- 1.4%
1,000,000 Niagara Mohawk Power Corp.
Sr. Disc. Nt. Ser. H
6.61% due 7/1/10 Ba2/BB+ 778,373
- --------------------------------------------------------------------------------
Total Fixed Income
(Cost $51,397,069) 51,676,309
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreement -- 1.7%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 935,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/98, maturity
value $935,519 at 5.00%
due 1/4/99 (collateralized
by Federal Home Loan
Bank Notes, $960,000,
5.03% due 10/29/99) $ 935,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $935,000) 935,000
- --------------------------------------------------------------------------------
Total Investments -- 97.8%
(Cost $52,332,069) 52,611,309
Cash, Receivables and Other Assets
Less Liabilities-- 2.2% 1,159,292
- --------------------------------------------------------------------------------
Net Assets -- 100.0% $ 53,770,601
- --------------------------------------------------------------------------------
+ Rule 144A restricted security.
- --------------------------------------------------------------------------------
See notes to financial statements. * Unaudited.
41
<PAGE>
o The Guardian Tax-Exempt Fund
- --------------------------------------------------------------------------------
Municipal Bonds -- 100.8%
- --------------------------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- --------------------------------------------------------------------------------
Municipal Bonds -- 100.8%
- --------------------------------------------------------------------------------
Alabama -- 1.8%
$ 1,300,000 Columbia, AL Indl.
Pol. Control Ser. D(1)
4.05% due 10/1/22 VMIG1/A1 $ 1,300,000
- --------------------------------------------------------------------------------
Arizona-- 2.7%
1,000,000 Phoenix, AZ G.O. Ser. A,
7.00% due 7/1/10 Aa1/AA+ 1,247,080
530,000 Pima Cty., AZ
School District No.16
Catalina Foothills G.O.,
6.50% due 7/1/10 Aaa/AAA 634,918
------------
1,881,998
- --------------------------------------------------------------------------------
California -- 3.2%
1,500,000 California St. Public
Service Ser. A,
5.25% due 10/1/17 A2/A 1,545,255
700,000 Los Angeles, CA Regl.
Airport Lease Rev.(1)
4.10% due 12/1/25 NR/A1+ 700,000
------------
2,245,255
- --------------------------------------------------------------------------------
Florida -- 7.6%
1,000,000 Florida St. Board of Ed. Cap
Outlay G.O. Prerefunded
6.70% due 6/1/22 Aaa/AAA 1,081,920
1,500,000 Florida St. Div. Bd.
Finance Dept.,
5.25% due 7/1/12 Aaa/AAA 1,592,025
1,500,000 Orange Cty., FL
Tourist Dev. Tax,
5.00% due 10/1/15 Aaa/AAA 1,521,510
1,200,000 Orlando, FL Ser. A,
5.00% due 10/1/18 Aa3/AA- 1,203,672
------------
5,399,127
- --------------------------------------------------------------------------------
Georgia -- 2.9%
1,840,000 Georgia St. G.O. Ser. B,
6.10% due 3/1/05 Aaa/AAA 2,059,217
- --------------------------------------------------------------------------------
Louisiana -- 1.7%
1,025,000 New Orleans, LA Home
Mtg. Auth.,
6.25% due 1/15/11 Aaa/NR 1,188,446
- --------------------------------------------------------------------------------
Massachusetts -- 2.9%
2,000,000 Massachusetts Bay Trans.
Auth. Ser. B,
5.125% due 3/1/15 Aa3/AA- 2,047,720
- --------------------------------------------------------------------------------
Minnesota -- 6.5%
1,500,000 Minneapolis & St. Paul, MN
Ser. A,
5.00% due 1/1/19 Aaa/AAA 1,504,410
1,000,000 Minnesota Water Pollution
Control Rev.,
5.00% due 3/1/12 Aaa/AAA 1,034,000
2,000,000 Minnesota Water Pollution
Control Rev. Ser. B,
5.125% due 3/1/15 Aaa/AAA 2,059,140
------------
4,597,550
- --------------------------------------------------------------------------------
Missouri -- 4.0%
1,000,000 Missouri St. G.O. Ser. A,
Fourth State Bldg.,
5.75% due 8/1/18 Aaa/AAA 1,078,520
1,485,000 St. Louis, MO Reg. Con.
Prerefunded Ser. C,
7.90% due 8/15/21 Aaa/NR 1,741,118
------------
2,819,638
- --------------------------------------------------------------------------------
Nebraska -- 3.0%
2,000,000 Nebraska Pub. Power
Dist. Rev. Ser. A Prerefunded,
5.25% due 1/1/22 Aaa/AAA 2,151,840
- --------------------------------------------------------------------------------
New Jersey -- 3.5%
1,750,000 New Jersey St.
Hwy. Auth.,
6.25% due 1/1/14 A1/AA- 1,884,890
500,000 New Jersey St. Transit
Auth. Ser. A,
6.50% due 6/15/05 Aaa/AAA 570,365
------------
2,455,255
- --------------------------------------------------------------------------------
New York -- 17.8%
1,000,000 Long Island Power Auth., NY
Elec. System Rev. Ser. 6,(1)
4.05% due 5/1/33 VMIG1/A1+ 1,000,000
1,500,000 Long Island Power Auth., NY
Elec. System Rev.,
5.125% due 4/1/12 Aaa/NR 1,570,035
1,500,000 New York City G.O. Ser. E,
5.875% due 8/1/13 A3/A- 1,637,040
1,500,000 New York City G.O. Ser. F,
5.25% due 8/1/14 A3/A- 1,554,690
1,500,000 New York City Muni.
Water & Sewer Fin. Auth. Ser. A,
5.625% due 6/15/19 A1/A 1,580,340
1,000,000 New York St. Dorm.
Auth. Rev. Ref. City Univ.
5.75% due 7/1/12 Aaa/AAA 1,129,780
1,500,000 New York St. Dorm.
Auth. Rev. St. Univ. Ed. Facs.,
5.00% due 5/15/15 A3/A- 1,508,970
1,000,000 New York St. Dorm.
Auth. Rev. St. Univ. Ed. Facs.,
5.00% due 5/15/17 A3/A- 999,350
- --------------------------------------------------------------------------------
(1) Variable rate demand notes.
- --------------------------------------------------------------------------------
* Unaudited. See notes to financial statements.
42
<PAGE>
The Guardian Tax-Exempt Fund
Schedule of Investments (Continued)
- --------------------------------------------------------------------------------
Rating
Principal Moody's/
Amount S&P* Value
- --------------------------------------------------------------------------------
$ 500,000 New York St. G.O. Ser. A,
5.875% due 3/15/15 A2/A $ 536,270
1,000,000 New York St. Thruway
Auth. Svc. Contract,
5.75% due 4/1/16 Baa1/BBB+ 1,053,780
-----------
12,570,255
- --------------------------------------------------------------------------------
Ohio -- 6.7%
1,000,000 Cleveland, OH
Parking Fac. Rev.,
5.50% due 9/15/16 Aaa/AAA 1,056,750
500,000 Columbus, OH
Water System Rev.,
6.10% due 11/1/03 Aa3/AA- 540,180
1,000,000 Ohio St. Bldg. Auth. Disalle
Gov't. Center Ser. A,
6.00% due 10/1/05 Aa3/AA- 1,116,590
1,000,000 Ohio St.Water Dev.
Pollution Control,
5.00% due 6/1/15 Aaa/AAA 1,012,640
1,000,000 Ohio St. Water
Dev. Auth. Rev.,
5.125% due 12/1/18 Aa3/A+ 1,008,480
-----------
4,734,640
- --------------------------------------------------------------------------------
Oklahoma -- 4.3%
1,270,000 Grand River Dam
Auth., OK,
6.25% due 6/1/11 Aaa/AAA 1,494,333
1,500,000 Oklahoma St. Tpk.
Second Sr. Ser. A,
5.00% due 1/1/16 Aaa/AAA 1,527,780
-----------
3,022,113
- --------------------------------------------------------------------------------
Pennsylvania -- 2.9%
2,000,000 Pennsylvania St. G.O.
Third Ser.,
4.50% due 12/1/07 Aa3/AA 2,052,720
- --------------------------------------------------------------------------------
Puerto Rico -- 4.3%
1,500,000 Puerto Rico Comwlth.,
5.00% due 7/1/17 Aaa/AAA 1,534,275
1,500,000 Puerto Rico Comwlth., Ser. A,
5.00% due 7/1/17 Aaa/AAA 1,533,135
-----------
3,067,410
- --------------------------------------------------------------------------------
South Carolina -- 3.0%
1,000,000 South Carolina St. Public
Svc. Auth. Ser. B Prerefunded
7.00% due 7/1/12 Aaa/AAA 1,100,030
1,000,000 South Carolina Trans.
Infrastructure Ser. A,
5.00% due 10/1/03 Aaa/AAA 1,052,310
-----------
2,152,340
- --------------------------------------------------------------------------------
Tennessee -- 3.1%
2,000,000 Shelby Cnty. TN G.O.
Ref. Ser. B,
5.50% due 8/1/09 Aa2/AA+ 2,214,640
- --------------------------------------------------------------------------------
Texas -- 16.8%
1,250,000 Austin, TX Ref.,
5.00% due 9/1/15 Aa2/AA 1,267,175
1,050,000 Bryan, TX Indpt.
Sch. Dist. G.O.,
5.50% due 2/15/17 Aaa/NR 1,090,625
1,500,000 Colorado River, TX
Municipal Water District,
5.125% due 1/1/16 Aaa/AAA 1,523,805
1,000,000 Houston, TX Water & Sewer
System Rev. Ser. A Prerefunded,
6.20% due 12/1/23 Aaa/AAA 1,132,200
2,000,000 San Antonio, TX Elec.
& Gas Rev. Ser. A,
5.25% due 2/1/16 Aa1/AA 2,068,580
150,000 Texas St. G.O. Prerefunded
Water Dev. Brd.
6.50% due 8/15/05 NR/AA 171,353
1,000,000 Texas St. Pub. Fin. Auth. Bldg.
Gen. Svc. Comm. Proj. Ser. A,
5.00% due 2/1/14 Aaa/AAA 1,018,200
2,000,000 Texas St. Refunded
G.O. Ser. B,
5.125% due 10/1/15 Aa2/AA 2,059,520
405,000 Texas St. Unrefunded. G.O.
6.50% due 8/1/05 Aa2/AA 462,652
1,000,000 University, TX Univ. Revs.
Fing. System Ser. D,
4.75% due 8/15/04 Aa1/AAA 1,044,190
-----------
11,838,300
- --------------------------------------------------------------------------------
Virginia -- 2.1%
1,500,000 Virginia College Bldg.
Auth. Ser. A,
5.00% due 9/1/16 Aa2/AA 1,509,960
- --------------------------------------------------------------------------------
Total Municipal Bonds
(Cost $69,511,769) 71,308,424
- --------------------------------------------------------------------------------
Total Investments -- 100.8%
(Cost $69,511,769) 71,308,424
Liabilities in Excess of Cash, Receivables and
Other Assets -- (0.8%) (588,296)
- --------------------------------------------------------------------------------
Net Assets -- 100.0% $70,720,128
- --------------------------------------------------------------------------------
Glossary:
G.O. -- General Obligation.
- --------------------------------------------------------------------------------
See notes to financial statements. * Unaudited.
43
<PAGE>
o The Guardian Cash Management Fund
- --------------------------------------------------------------------------------
Commercial Paper -- 78.0%
- --------------------------------------------------------------------------------
Principal Maturity
Amount Date Value
- --------------------------------------------------------------------------------
FINANCIAL -- 21.5%
Finance Companies -- 14.6%
$ 10,000,000 Goldman Sachs Group LP
5.10% 3/9/99 $ 9,905,083
10,000,000 Household Fin. Corp.
5.36% 1/6/99 9,992,555
7,500,000 Merrill Lynch & Co., Inc.
5.19% 1/26/99 7,472,968
7,500,000 Morgan Stanley Dean
Witter & Co., 5.42% 1/11/99 7,488,708
-------------
34,859,314
- --------------------------------------------------------------------------------
Other Major Banks -- 3.1%
7,500,000 Dresdner U.S. Finance
5.21% 1/4/99 7,496,743
- --------------------------------------------------------------------------------
Utilities-Electric -- 3.8%
9,000,000 Nat'l. Rural Utils. Coop.
Fin. Corp., 5.04% 3/24/99 8,896,680
- --------------------------------------------------------------------------------
TOTAL FINANCIAL 51,252,737
- --------------------------------------------------------------------------------
INDUSTRIAL -- 56.5%
Automotive -- 6.4%
7,500,000 BMW U.S. Capital Corp.
5.73% 1/13/99 7,485,675
7,500,000 Ford Motor Credit Co.
5.20% 1/8/99 7,492,417
-------------
14,978,092
- --------------------------------------------------------------------------------
Conglomerates -- 6.5%
7,500,000 BTR Dunlop Fin., Inc.
5.32% 1/22/99 7,476,725
8,000,000 General Electric Cap. Corp.
5.32% 1/19/99 7,978,720
-------------
15,455,445
- --------------------------------------------------------------------------------
Entertainment -- 3.1%
7,500,000 Walt Disney Co.
5.25% 1/14/99 7,485,781
- --------------------------------------------------------------------------------
Food and Beverage -- 6.9%
7,500,000 General Mills, Inc.
5.25% 1/4/99 7,496,719
9,000,000 H. J. Heinz Co.
5.25% 1/12/99 8,985,563
-------------
16,482,282
- --------------------------------------------------------------------------------
Household Products -- 6.5%
6,500,000 Clorox Co.
5.12% 1/21/99 6,481,511
9,000,000 Colgate Palmolive Co.
5.21% 2/5/99 8,954,413
-------------
15,435,924
- --------------------------------------------------------------------------------
Insurance -- 3.8%
9,000,000 American General Fin. Corp.
5.30% 1/15/99 8,981,450
- --------------------------------------------------------------------------------
Machinery and Equipment-- 3.1%
7,500,000 Deere & Co.
5.65% 1/7/99 7,492,938
- --------------------------------------------------------------------------------
Metals-- 3.1%
7,500,000 Rio Tinto America, Inc.
5.20% 1/15/99 7,484,833
- --------------------------------------------------------------------------------
Oil-Integrated-International-- 3.6%
8,500,000 Texaco, Inc.
5.36% 1/19/99 8,477,220
- --------------------------------------------------------------------------------
Telecommunications -- 10.4%
7,000,000 Bell Atlantic Fin. Svcs.
5.14% 1/20/99 6,981,011
9,000,000 GTE Funding, Inc.
5.16% 2/8/99 8,950,980
9,000,000 Lucent Technologies, Inc.
5.12% 2/4/99 8,956,480
-------------
24,888,471
- --------------------------------------------------------------------------------
Utilities-Electric -- 3.1%
7,500,000 Virginia Electric & Power Co.
5.31% 1/7/99 7,493,363
- --------------------------------------------------------------------------------
TOTAL INDUSTRIAL 134,655,799
- --------------------------------------------------------------------------------
Total Commercial Paper
(Cost $185,908,536) 185,908,536
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreement -- 21.8%
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
$ 52,006,000 State Street Bank & Trust Co.
repurchase agreement,
dated 12/31/98, maturity
value $52,034,892 at 5.00%
due 1/4/99 (collateralized
by $53,055,000 Federal Home
Loan Bank Notes, 5.03% due
10/29/99) $ 52,006,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $52,006,000) 52,006,000
- --------------------------------------------------------------------------------
Total Investments -- 99.8%
(Cost $237,914,536) 237,914,536
Cash, Receivables and Other Assets
Less Liabilities-- 0.2% 512,064
- --------------------------------------------------------------------------------
Net Assets-- 100.0% $238,426,600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to financial statements.
44
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
- --------------------------------------------------------------------------------
45
<PAGE>
- ------------------------
Financial Statements
- ------------------------
o The Park Avenue Portfolio
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Guardian The Guardian The Guardian The Guardian
Park Avenue Park Avenue Asset Baillie Gifford
Fund Small Cap Allocation International
Fund Fund Fund
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at identified cost* .................. $2,433,088,187 $135,604,925 $201,512,628 $ 79,379,682
====================================================================
Investments, at market ............................ 3,398,098,459 152,499,322 176,197,759 103,590,245
Repurchase agreements ............................. -- -- 46,216,000 --
--------------------------------------------------------------------
Total Investments ............................... 3,398,098,459 152,499,322 222,413,759 103,590,245
Cash .............................................. 133,047 11,494 288 835
Foreign Currency (cost $863,797 GBGIF and $574,964
GBGEMF, respectively) ........................... -- -- -- 837,862
Receivable for securities sold .................... 23,609,561 727,023 156,804 --
Receivable for fund shares sold ................... 4,824,243 871,882 296,222 144,431
Receivable for futures variation margin ........... -- -- 151,300 --
Dividends receivable .............................. 2,774,450 70,454 215,828 93,835
Interest receivable ............................... 27,762 961 6,419 115
Deferred organization expenses-- Note 8 ........... -- 29,506 -- --
Dividend reclaim receivable ....................... -- -- -- 67,182
Other assets ...................................... -- -- -- --
--------------------------------------------------------------------
Total Assets .................................... 3,429,467,522 154,210,642 223,240,620 104,734,505
--------------------------------------------------------------------
LIABILITIES
Payable for securities purchased .................. 28,975,388 -- 145,334 11,867
Payable for reverse repurchase agreements -- Note 6 -- -- -- --
Payable for forward mortgage securities -- Note 7 . -- -- -- --
Distributions payable ............................. -- -- -- --
Payable for fund shares redeemed .................. 13,189,863 4,056,978 370,888 174,874
Accrued expenses .................................. 605,036 42,937 44,790 68,019
Due to affiliates ................................. 6,440,513 463,591 307,382 392,187
--------------------------------------------------------------------
Total Liabilities ............................... 49,210,800 4,563,506 868,394 646,947
--------------------------------------------------------------------
Net Assets ...................................... $3,380,256,722 $149,647,136 $222,372,226 $104,087,558
====================================================================
</TABLE>
<TABLE>
<CAPTION>
The Guardian The Guardian The Guardian The Guardian The Guardian
Baillie Gifford Investment High Yield Tax-Exempt Cash
Emerging Quality Bond Fund Management
Markets Fund Bond Fund Fund Fund
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at identified cost* .................. $19,923,194 $168,448,784 $52,332,069 $69,511,769 $237,914,536
===========================================================================
Investments, at market ............................ 15,275,847 169,550,705 52,611,309 71,308,424 185,908,536
Repurchase agreements ............................. 1,945,000 -- -- -- 52,006,000
---------------------------------------------------------------------------
Total Investments ............................... 17,220,847 169,550,705 52,611,309 71,308,424 237,914,536
Cash .............................................. 336 1,875 794 491,219 1,102
Foreign Currency (cost $863,797 GBGIF and $574,964
GBGEMF, respectively) ........................... 592,367 -- -- -- --
Receivable for securities sold .................... -- -- -- -- --
Receivable for fund shares sold ................... 5,427 39,783 61,120 50 13,940,260
Receivable for futures variation margin ........... -- -- -- -- --
Dividends receivable .............................. 59,829 -- -- -- --
Interest receivable ............................... 13,078 1,257,984 1,195,613 1,136,537 7,223
Deferred organization expenses-- Note 8 ........... 17,585 -- -- -- --
Dividend reclaim receivable ....................... 2,245 -- -- -- --
Other assets ...................................... 10,396 -- -- -- --
---------------------------------------------------------------------------
Total Assets .................................... 17,922,110 170,850,347 53,868,836 72,936,230 251,863,121
---------------------------------------------------------------------------
LIABILITIES
Payable for securities purchased .................. 69,300 16,932 -- 2,082,709 --
Payable for reverse repurchase agreements -- Note 6 -- 9,776,813 -- -- --
Payable for forward mortgage securities -- Note 7 . -- 18,155,646 -- -- --
Distributions payable ............................. -- 34,003 731 3,583 54,484
Payable for fund shares redeemed .................. 706 402,015 15 17,265 12,855,505
Accrued expenses .................................. -- -- 1,000 -- 52,159
Due to affiliates ................................. 143,263 266,304 96,489 112,545 474,373
---------------------------------------------------------------------------
Total Liabilities ............................... 213,269 28,651,713 98,235 2,216,102 13,436,521
---------------------------------------------------------------------------
Net Assets ...................................... $17,708,841 $142,198,634 $53,770,601 $70,720,128 $238,426,600
===========================================================================
</TABLE>
* Includes repurchase agreements.
See Notes to financial statements.
46 & 47
<PAGE>
o The Park Avenue Portfolio
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (continued)
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Guardian The Guardian The Guardian The Guardian
Park Avenue Park Avenue Asset Baillie Gifford
Fund Small Cap Allocation International
Fund Fund Fund
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMPONENTS OF NET ASSETS
Shares of beneficial interest, at par ....... $ 651,922 $ 117,130 $ 150,531 $ 56,687
Additional paid-in capital .................. 2,337,705,600 148,716,471 193,546,431 79,594,481
Undistributed/(overdistributed) net
investment income ......................... 363,075 -- 47,871 (606,890)
Accumulated net realized gain/(loss)
on investments and foreign currency
related transactions ...................... 76,525,853 (16,080,862) 4,272,635 854,410
Net unrealized appreciation/(depreciation) of
investments and foreign currency related
transactions .............................. 965,010,272 16,894,397 24,354,758 24,188,870
-----------------------------------------------------------------------------
Net Assets .............................. $3,380,256,722 $ 149,647,136 $ 222,372,226 $ 104,087,558
=============================================================================
NET ASSETS
Class A ................................... $2,990,767,483 $ 127,525,266 $ 194,827,437 $ 93,871,121
Class B ................................... $ 389,489,239 $ 22,121,870 $ 27,544,789 $ 10,216,437
Shares of Beneficial Interest Outstanding --
$0.01 Par Value
Class A ................................... 57,642,930 9,959,051 13,182,711 5,100,150
Class B ................................... 7,549,254 1,753,941 1,870,400 568,512
Net Asset Value Per Share
Class A ................................... $ 51.88 $ 12.80 $ 14.78 $ 18.41
Class B ................................... $ 51.59 $ 12.61 $ 14.73 $ 17.97
Maximum Offering Price Per Share
Class A Only (Net Asset Value x 104.71%)* . $ 54.32 $ 13.40 $ 15.48 $ 19.28
</TABLE>
<TABLE>
<CAPTION>
The Guardian The Guardian The Guardian The Guardian The Guardian
Baillie Gifford Investment High Yield Tax-Exempt Cash
Emerging Quality Bond Fund Management
Markets Fund Bond Fund Fund Fund
<S> <C> <C> <C> <C> <C>
COMPONENTS OF NET ASSETS
Shares of beneficial interest, at par .................. $ 26,672 $ 142,332 $ 54,663 $ 69,779 $ 2,384,266
Additional paid-in capital ............................. 26,553,002 140,633,209 53,344,288 68,811,779 236,042,334
Undistributed/(overdistributed) net
investment income .................................... (39,415) -- -- -- --
Accumulated net realized gain/(loss)
on investments and foreign currency
related transactions ................................. (6,143,821) 321,172 92,410 41,915 --
Net unrealized appreciation/(depreciation) of
investments and foreign currency related
transactions ......................................... (2,687,597) 1,101,921 279,240 1,796,655 --
-----------------------------------------------------------------------
Net Assets ......................................... $ 17,708,841 $142,198,634 $ 53,770,601 $ 70,720,128 $238,426,600
=======================================================================
NET ASSETS
Class A .............................................. $ 16,342,264 $142,198,634 $ 51,288,344 $ 70,720,128 $225,996,565
Class B .............................................. $ 1,366,577 N/A $ 2,482,257 N/A $ 12,430,035
Shares of Beneficial Interest Outstanding --
$0.01 Par Value
Class A .............................................. 2,454,976 14,233,228 5,213,810 6,977,881 225,996,565
Class B .............................................. 212,243 N/A 252,530 N/A 12,430,035
Net Asset Value Per Share
Class A .............................................. $ 6.66 $ 9.99 $ 9.84 $ 10.13 $ 1.00
Class B .............................................. $ 6.44 N/A $ 9.83 N/A $ 1.00
Maximum Offering Price Per Share
Class A Only (Net Asset Value x 104.71%)* ............ $ 6.97 $ 10.46 $ 10.30 $ 10.61 N/A**
</TABLE>
* Based on sale of less than $100,000. On sale of $100,000 or more, the
offering price is reduced.
** No load is charged on Class A shares.
See notes to financial statements.
48 & 89
<PAGE>
o The Park Avenue Portfolio
- --------------------------------------------------------------------------------
Statements of Operations
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Guardian The Guardian The Guardian The Guardian
Park Avenue Park Avenue Asset Baillie Gifford
Fund Small Cap Allocation International
Fund Fund Fund
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends .............................................. $ 34,442,506 $ 996,458 $ 2,782,219 $ 1,334,363
Interest ............................................... 10,278,149 448,563 2,982,847 197,036
Less: Foreign tax withheld ............................. (6,449) -- -- (162,328)
-----------------------------------------------------------------
Total Income ......................................... 44,714,206 1,445,021 5,765,066 1,369,071
-----------------------------------------------------------------
Expenses:
Investment advisory fees -- Note 2 ..................... 14,957,011 1,051,495 1,198,863 705,157
Administrative fees -- Class A -- Note 2 ............... 4,433,726 293,407 409,946 199,950
Administrative fees -- Class B -- Note 2 ............... 770,635 57,092 51,155 20,412
12b-1 fees-- Class B -- Note 3 ......................... 2,311,906 171,275 153,465 61,236
Transfer agent fees .................................... 2,591,121 246,884 214,781 172,781
Custodian fees ......................................... 410,253 105,002 104,700 210,296
Registration fees ...................................... 292,560 55,982 49,386 38,250
Printing expense ....................................... 290,500 13,200 16,000 7,500
Trustees' fees -- Note 2 ............................... 24,000 24,000 21,500 21,500
Audit fees ............................................. 20,500 17,500 17,500 21,000
Legal fees ............................................. 12,500 2,000 2,900 3,800
Insurance expense ...................................... 3,828 1,131 1,769 1,421
Interest expense on reverse repurchase agreements ...... -- -- -- --
Other .................................................. 700 700 700 700
Deferred organization expense -- Note 8 ................ -- 9,074 897 1,224
-----------------------------------------------------------------
Total Expenses ................................... 26,119,240 2,048,742 2,243,562 1,465,227
Less: Expenses assumed by investment advisor-- Note 2 .. -- -- 961,205 --
-----------------------------------------------------------------
Expenses Net of Reimbursement .................... 26,119,240 2,048,742 1,282,357 1,465,227
-----------------------------------------------------------------
Net Investment Income/(Loss) ............................. 18,594,966 (603,721) 4,482,709 (96,156)
-----------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES -- NOTE 4
Net realized gain/(loss) on investments -- Note 1 ...... 240,110,403 (16,113,586) 18,983,038 4,325,561
Net realized gains received from underlying funds ...... -- -- 5,567,321 --
Net realized gain/(loss) on foreign currencies -- Note 1 -- -- -- (2,640)
Net change in unrealized appreciation/(depreciation)
on investments -- Note 4 ............................. 321,166,359 6,377,291 4,998,042 11,011,937
Net change in unrealized depreciation from translation
of other assets and liabilities denominated in foreign
currencies -- Note 4 ................................. -- -- -- 22,038
-----------------------------------------------------------------
Net Realized and Unrealized Gain/(Loss) on Investments
and Foreign Currencies ............................... 561,276,762 (9,736,295) 29,548,401 15,356,896
-----------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
FROM OPERATIONS .................................... $ 579,871,728 $ (10,340,016) $ 34,031,110 $ 15,260,740
================================================================
</TABLE>
<TABLE>
<CAPTION>
The Guardian The Guardian The Guardian The Guardian The Guardian
Baillie Gifford Investment High Yield Tax-Exempt Cash
Emerging Quality Bond Fund Management
Markets Fund Bond Fund Fund+ Fund
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends .............................................. $ 450,974 $ -- $ -- $ -- $ --
Interest ............................................... 116,135 7,522,988 1,605,509 2,573,725 9,994,206
Less: Foreign tax withheld ............................. (20,912) -- -- -- --
----------------------------------------------------------------------
Total Income ......................................... 546,197 7,522,988 1,605,509 2,573,725 9,994,206
----------------------------------------------------------------------
Expenses:
Investment advisory fees -- Note 2 ..................... 200,101 617,349 106,242 255,405 909,278
Administrative fees -- Class A -- Note 2 ............... 45,936 308,675 42,477 127,702 434,510
Administrative fees -- Class B -- Note 2 ............... 4,089 -- 1,790 -- 20,129
12b-1 fees-- Class B -- Note 3 ......................... 12,267 -- 5,371 -- 60,388
Transfer agent fees .................................... 67,884 72,871 12,986 35,937 331,389
Custodian fees ......................................... 151,768 82,446 23,469 37,073 78,296
Registration fees ...................................... 15,250 45,000 5,271 11,900 54,038
Printing expense ....................................... 2,100 9,900 1,500 4,500 14,500
Trustees' fees -- Note 2 ............................... 21,500 21,500 13,000 21,500 21,500
Audit fees ............................................. 21,000 17,500 21,000 17,000 17,000
Legal fees ............................................. 2,000 2,550 -- 2,400 2,900
Insurance expense ...................................... 1,131 354 -- 273 1,769
Interest expense on reverse repurchase agreements ...... -- 127,205 -- -- --
Other .................................................. 700 700 700 700 700
Deferred organization expense -- Note 8 ................ 5,344 896 -- 896 --
----------------------------------------------------------------------
Total Expenses ................................... 551,070 1,306,946 233,806 515,286 1,946,397
Less: Expenses assumed by investment advisor-- Note 2 .. -- 253,717 89,745 132,180 400,623
----------------------------------------------------------------------
Expenses Net of Reimbursement .................... 551,070 1,053,229 144,061 383,106 1,545,774
----------------------------------------------------------------------
Net Investment Income/(Loss) ............................. (4,873) 6,469,759 1,461,448 2,190,619 8,448,432
----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES -- NOTE 4
Net realized gain/(loss) on investments -- Note 1 ...... (5,453,135) 2,736,440 92,410 582,307 --
Net realized gains received from underlying funds ...... -- -- -- -- --
Net realized gain/(loss) on foreign currencies -- Note 1 (42,781) -- -- -- --
Net change in unrealized appreciation/(depreciation)
on investments -- Note 4 ............................. (1,660,160) 301,260 279,240 208,997 --
Net change in unrealized depreciation from translation
of other assets and liabilities denominated in foreign
currencies -- Note 4 ................................. 10,462 -- -- -- --
----------------------------------------------------------------------
Net Realized and Unrealized Gain/(Loss) on Investments
and Foreign Currencies ............................... (7,145,614) 3,037,700 371,650 791,304 --
----------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
FROM OPERATIONS .................................... $(7,150,487) $ 9,507,459 $ 1,833,098 $ 2,981,923 $ 8,448,432
======================================================================
</TABLE>
+ Period from July 7, 1998 (commencement of operations) to December 31,
1998.
See notes to financial statements.
50 & 51
<PAGE>
o The Park Avenue Portfolio
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Guardian
The Guardian Park Avenue
Park Avenue Fund Small Cap Fund
-----------------------------------------------------------------
Period from
April 2,
Year Ended 1997+ to
Year Ended December 31, December 31, December 31,
1998 1997 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income/(loss) .................. $ 18,594,966 $ 17,523,581 $ (603,721) $ (41,076)
Net realized gain/(loss) on investments and
foreign currency related transactions ....... 240,110,403 250,113,783 (16,113,586) 2,422,438
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency related transactions ............... 321,166,359 296,292,118 6,377,291 10,517,106
-----------------------------------------------------------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ............... 579,871,728 563,929,482 (10,340,016) 12,898,468
-----------------------------------------------------------------
Dividends and Distributions to
Shareholders from:
Net investment income
Class A ..................................... (18,598,388) (17,140,750) -- --
Class B ..................................... -- (15,027) -- --
Distribution in excess of net investment income
Class A ..................................... -- -- -- --
Net realized gain on investments and foreign
currency related transactions
Class A ..................................... (199,305,595) (200,697,619) (978,178) (1,015,732)
Class B ..................................... (25,414,666) (16,602,423) (203,338) (184,137)
-----------------------------------------------------------------
Total Dividends and Distributions
to Shareholders ......................... (243,318,649) (234,455,819) (1,181,516) (1,199,869)
-----------------------------------------------------------------
From Capital Share Transactions:
Net increase in net assets from
capital share transactions-- Note 9 ......... 529,325,454 756,713,154 41,904,893 107,565,176
-----------------------------------------------------------------
Net Increase in Net Assets ...................... 865,878,533 1,086,186,817 30,383,361 119,263,775
NET ASSETS:
Beginning of period ............................... 2,514,378,189 1,428,191,372 119,263,775 --
-----------------------------------------------------------------
End of period* .................................... $ 3,380,256,722 $ 2,514,378,189 $ 149,647,136 $ 119,263,775
=================================================================
+ Commencement of operations
* Includes undistributed/(overdistributed)
net investment income of ...................... $ 363,075 $ 367,804 $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
The Guardian
The Guardian Baillie Gifford
Asset Allocation Fund International Fund
------------------------------------------------------------
Year Ended December 31, Year Ended December 31,
1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income/(loss) .................. $ 4,482,709 $ 2,914,100 $ (96,156) $ (25,976)
Net realized gain/(loss) on investments and
foreign currency related transactions ....... 24,550,359 16,232,374 4,322,921 4,071,149
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency related transactions ............... 4,998,042 6,056,517 11,033,975 2,446,182
------------------------------------------------------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ............... 34,031,110 25,202,991 15,260,740 6,491,355
------------------------------------------------------------
Dividends and Distributions to
Shareholders from:
Net investment income
Class A ..................................... (4,972,430) (2,813,753) (27,940) --
Class B ..................................... (455,159) (140,422) -- --
Distribution in excess of net investment income
Class A ..................................... -- -- -- (630,995)
Net realized gain on investments and foreign
currency related transactions
Class A ..................................... (18,144,589) (14,369,551) (3,899,799) (2,642,377)
Class B ..................................... (2,541,210) (1,441,303) (423,733) (250,985)
------------------------------------------------------------
Total Dividends and Distributions
to Shareholders ......................... (26,113,388) (18,765,029) (4,351,472) (3,524,357)
------------------------------------------------------------
From Capital Share Transactions:
Net increase in net assets from
capital share transactions-- Note 9 ......... 63,440,174 51,310,480 19,910,823 9,394,500
------------------------------------------------------------
Net Increase in Net Assets ...................... 71,357,896 57,748,442 30,820,091 12,361,498
NET ASSETS:
Beginning of period ............................... 151,014,330 93,265,888 73,267,467 60,905,969
------------------------------------------------------------
End of period* .................................... $ 222,372,226 $ 151,014,330 $ 104,087,558 $ 73,267,467
============================================================
+ Commencement of operations
* Includes undistributed/(overdistributed)
net investment income of ...................... $ 47,871 $ -- $ (606,890) $ (596,990)
</TABLE>
<TABLE>
<CAPTION>
The Guardian
Baillie Gifford Emerging
Markets Fund
-----------------------------
Period from
April 2,
Year Ended 1997+ to
December 31, December 31,
1998 1997
-----------------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income/(loss) .................. $ (4,873) $ 80,943
Net realized gain/(loss) on investments and
foreign currency related transactions ....... (5,495,916) (794,872)
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency related transactions ............... (1,649,698) (1,037,899)
-----------------------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations ............... (7,150,487) (1,751,828)
-----------------------------
Dividends and Distributions to
Shareholders from:
Net investment income
Class A ..................................... (6,306) (76,816)
Class B ..................................... -- --
Distribution in excess of net investment income
Class A ..................................... -- --
Net realized gain on investments and foreign
currency related transactions
Class A ..................................... (727) --
Class B ..................................... (66) --
-----------------------------
Total Dividends and Distributions
to Shareholders ......................... (7,099) (76,816)
-----------------------------
From Capital Share Transactions:
Net increase in net assets from
capital share transactions-- Note 9 ......... 1,385,379 25,309,692
-----------------------------
Net Increase in Net Assets ...................... (5,772,207) 23,481,048
NET ASSETS:
Beginning of period ............................... 23,481,048 --
-----------------------------
End of period* .................................... $ 17,708,841 $ 23,481,048
=============================
+ Commencement of operations
* Includes undistributed/(overdistributed)
net investment income of ...................... $ (39,415) $ 6,300
</TABLE>
See notes to financial statements.
52 & 53
<PAGE>
o The Park Avenue Portfolio
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Guardian The Guardian
Investment Quality High Yield
Bond Fund Bond Fund
--------------------------------------------------
Period from
July 7,
1998+ to
Year Ended December 31, December 31,
1998 1997 1998
--------------------------------------------------
<S> <C> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income .................. $ 6,469,759 $ 4,216,366 $ 1,461,448
Net realized gain on investments ....... 2,736,440 486,008 92,410
Net change in unrealized appreciation/
(depreciation) of investments ........ 301,260 1,432,635 279,240
-------------------------------------------------
Net Increase in Net Assets Resulting
from Operations .................. 9,507,459 6,135,009 1,833,098
-------------------------------------------------
Dividends and Distributions to
Shareholders from:
Net investment income
Class A .............................. (6,469,759) (4,216,366) (1,412,378)
Class B .............................. -- -- (49,070)
Net realized gain on investments
Class A .............................. (2,157,409) -- --
-------------------------------------------------
Total Dividends and Distributions to
Shareholders ..................... (8,627,168) (4,216,366) (1,461,448)
-------------------------------------------------
From Capital Share Transactions:
Net increase in net assets from capital
share transactions-- Note 9 .......... 42,383,631 46,222,148 53,398,951
--------------------------------------------------
Net Increase in Net Assets ............... 43,263,922 48,140,791 53,770,601
NET ASSETS:
Beginning of period ........................ 98,934,712 50,793,921 --
-------------------------------------------------
End of period .............................. $ 142,198,634 $ 98,934,712 $ 53,770,601
=================================================
</TABLE>
<TABLE>
<CAPTION>
The Guardian The Guardian
Tax-Exempt Fund Cash Management Fund
-------------------------------------------------------------------
Year Ended December 31, Year Ended December 31,
1998 1997 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income .................. $ 2,190,619 $ 1,910,755 $ 8,448,432 $ 5,275,865
Net realized gain on investments ....... 582,307 784,253 -- --
Net change in unrealized appreciation/
(depreciation) of investments ........ 208,997 954,910 -- --
-------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations .................. 2,981,923 3,649,918 8,448,432 5,275,865
-------------------------------------------------------------------
Dividends and Distributions to
Shareholders from:
Net investment income
Class A .............................. (2,190,619) (1,910,755) (8,075,149) (5,094,586)
Class B .............................. -- -- (373,283) (181,279)
Net realized gain on investments
Class A .............................. (174,452) -- -- --
-------------------------------------------------------------------
Total Dividends and Distributions to
Shareholders ..................... (2,365,071) (1,910,755) (8,448,432) (5,275,865)
-------------------------------------------------------------------
From Capital Share Transactions:
Net increase in net assets from capital
share transactions-- Note 9 .......... 22,742,961 6,435,964 100,038,914 47,587,885
-------------------------------------------------------------------
Net Increase in Net Assets ............... 23,359,813 8,175,127 100,038,914 47,587,885
NET ASSETS:
Beginning of period ........................ 47,360,315 39,185,188 138,387,686 90,799,801
-------------------------------------------------------------------
End of period .............................. $ 70,720,128 $ 47,360,315 $ 238,426,600 $ 138,387,686
===================================================================
</TABLE>
+ Commencement of operations.
See notes to financial statements.
54 & 55
<PAGE>
- --------------------
Notes to
Financial Statements
- --------------------
December 31, 1998
The Park Avenue Portfolio
o The Guardian Park Avenue Fund
o The Guardian Park Avenue Small Cap Fund
o The Guardian Asset Allocation Fund
o The Guardian Baillie Gifford International Fund
o The Guardian Baillie Gifford Emerging Markets Fund
o The Guardian Investment Quality Bond Fund
o The Guardian High Yield Bond Fund
o The Guardian Tax-Exempt Fund
o The Guardian Cash Management Fund
o The Guardian Park Avenue Tax-Efficient Fund
Note 1. Organization and Accounting Policies
The Park Avenue Portfolio (the Portfolio) is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended (the 1940 Act), which is organized as a business trust under
the laws of the Commonwealth of Massachusetts. The Portfolio consists of ten
series, namely: The Guardian Park Avenue Fund (GPAF); The Guardian Park Avenue
Small Cap Fund (GPASCF); The Guardian Asset Allocation Fund (GAAF); The Guardian
Baillie Gifford International Fund (GBGIF); The Guardian Baillie Gifford
Emerging Markets Fund (GBGEMF); The Guardian Investment Quality Bond Fund
(GIQBF); The Guardian High Yield Bond Fund (GHYBF); The Guardian Tax-Exempt Fund
(GTEF); The Guardian Cash Management Fund (GCMF); and The Guardian Park Avenue
Tax-Efficient Fund (GPATEF). As of December 31, 1998, GPATEF had not commenced
operations. The series are collectively referred to herein as the "Funds".
On April 2, 1997 each of GPASCF and GBGEMF sold 2,000,000 shares of
beneficial interest to The Guardian Life Insurance Company of America for
$20,000,000 each, to facilitate the commencement of operations.
On July 2, 1998 GHYBF sold 573,788 and 10,000, respectively, of beneficial
interest Class A and B shares to The Guardian Life Insurance Company of America
and Guardian Investor Services Corporation (GISC) for $5,737,876 and $100,000,
respectively, to facilitate the commencement of operations.
Prior to May 1, 1997, GAAF invested entirely in individual securities.
Since May 1, 1997, GAAF has been implementing a gradual conversion to a "fund of
funds" arrangement. As a fund of funds, GAAF invests the equity portion of its
assets in GPAF, the debt portion of its assets in GIQBF and the cash portion in
GCMF.
The Funds offer up to three classes of shares: Class A, Class B and the
Institutional Class. Each of the Funds offers Class A shares. All shares
existing prior to May 1, 1996 were classified as Class A shares. Class A shares
are sold with an initial sales load of up to 4.50% and an administrative fee of
up to .25% on an annual basis of the Funds' average daily net asssets. As of
December 31, 1998, Class B shares are offered by GPAF, GPASCF, GAAF, GBGIF,
GBGEMF, GHYBF
56
<PAGE>
and GCMF. Class B shares are sold without an initial sales load but are subject
to a 12b-1 fee of .75% and an administrative fee of up to .25% on an annual
basis of the Funds' average daily net assets, and a contingent deferred sales
load (CDSL) of up to 3% imposed on certain redemptions. As of December 31, 1998,
Institutional Class shares are offered by GPAF, GPASCF, GAAF, GBGIF, GBGEMF,
GIQBF and GHYBF. Institutional Class shares are offered at net asset value,
without an initial or contingent deferred sales load. As of December 31, 1998,
none of the Funds had issued Institutional Class shares. All classes of shares
for each Fund represent interests in the same portfolio of investments, have the
same rights and are generally identical in all respects except that each class
bears its separate distribution and certain class expenses, and has exclusive
voting rights with respect to any matter to which a separate vote of any class
is required.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
Equity and debt securities listed on domestic or foreign securities
exchanges are valued at the last sales price of such exchanges, or if no sale
occurred, at the mean of the bid and asked prices. Securities traded in the
over-the-counter market are valued using the last sales price, when available.
Otherwise, over-the- counter securities are valued at the mean between the bid
and asked prices or yield equivalents as obtained from one or more dealers that
make a market in the securities.
Pursuant to valuation procedures approved by the Board of Trustees,
certain debt securities may be valued each business day by an independent
pricing service (Service). Debt securities for which quoted bid prices are
readily available and representative of the bid side of the market, in the
judgement of the Service, are valued at the bid price, except for GTEF. In GTEF,
debt securities are valued at the mean between the bid and asked prices each as
obtained by the Service. Other debt securities that are valued by the Service
are carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions.
Other securities, including securities for which market quotations are not
readily available (such as certain mortgage-backed securities and restricted
securities) are valued at fair value as determined in good faith by or under the
direction of the Funds' Board of Trustees.
Repurchase agreements are carried at cost which approximates market value
(see Note 5). Short-term securities held by the Funds are valued on an amortized
cost basis which approximates market value but does not take into account
unrealized gains and losses. GCMF values its investments based on amortized cost
in accordance with Rule 2a-7 under the 1940 Act. Investment transactions are
recorded on the date of purchase or sale.
Investing outside of the U.S. may involve certain considerations and risks
not typically associated with domestic investments, including the possibility of
political and economic unrest and different levels of governmental supervision
and regulation of foreign securities markets.
Security gains or losses are determined on an identified cost basis.
Interest income, including amortization of premium and discount, is accrued
daily. Dividend income is recorded on the ex-dividend date. Dividends on foreign
securities are recorded when the funds are informed of the dividend.
All income, expenses (other than class-specific expenses) and realized and
unrealized gains or losses are allocated daily to each class of shares based
upon the relative value of shares of each class. Class-specific expenses, which
include distribution and service fees and any other items that are specifically
attributed to a particular class, are charged directly to such class. For
57
<PAGE>
the year ended December 31, 1998, distribution, administrative and transfer
agent fees were the only class-specific expenses.
Foreign Currency Translation
GPAF, GPASCF, GAAF, GBGIF, GBGEMF and GHYBF are permitted to buy
international securities that are not U.S. dollar denominated. GPAF, GPASCF,
GAAF, GBGIF, GBGEMF and GHYBF's books and records are maintained in U.S. dollars
as follows:
(1) The foreign currency market value of investment securities and
other assets and liabilities stated in foreign currencies are translated
into U.S. dollars at the current rate of exchange.
(2) Purchases, sales, income and expenses are translated at the rate
of exchange prevailing on the respective dates of such transactions.
The resulting gains and losses are included in the Statement of Operations
as follows:
Realized foreign exchange gains and losses, which result from changes in
foreign exchange rates between the date on which a Fund earns dividends and
interest or pays foreign withholding taxes or other expenses and the date on
which U.S. dollar equivalent amounts are actually received or paid, are included
in net realized gain or loss on foreign currencies. Realized foreign exchange
gains and losses which result from changes in foreign exchange rates between the
trade and settlement dates on security and currency transactions are also
included in net realized gain on foreign currencies. Net currency gains and
losses from valuing investments and other assets and liabilities denominated in
foreign currency as of December 31, 1998 are reflected in net change in
unrealized appreciation or depreciation from translation of assets and
liabilities in foreign currencies based on the applicable exchange rate in
effect at the end of period.
Forward Foreign Currency Contracts
GPAF, GPASCF, GAAF, GBGIF, GBGEMF and GHYBF may enter into foreign
currency contracts in connection with planned purchases or sales of securities,
or to hedge against changes in currency exchange rates affecting the values of
its investments that are denominated in a particular currency. A forward foreign
currency contract is a commitment to purchase or sell a foreign currency at a
future date at a negotiated forward exchange rate. Risks may arise from the
potential inability of a counterparty to meet the terms of a contract and from
an unanticipated movement in the value of a foreign currency relative to the
U.S. dollar. Fluctuations in the value of forward foreign currency contracts are
recorded for book purposes as unrealized gains or losses from translation of
other assets and liabilities denominated in foreign currencies by the Fund. When
a forward contract is closed, the Fund will record a realized gain or loss equal
to the difference between the value of the forward contract at the time it was
opened and the value at the time it was closed. Such amount is recorded in net
realized gain or loss on foreign currencies. The Funds will not enter into a
forward foreign currency contract if such contract would obligate the applicable
Fund to deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency.
Futures Contracts
GAAF, GBGIF, GBGEMF, GIQBF, GHYBF and GTEF may enter into financial
futures contracts for the delayed delivery of securities, currency or contracts
based on financial indices at a fixed price on a future date. In entering into
such contracts, the Funds are required to deposit either in cash or securities
an amount equal to a certain percentage of the contract amount. Subsequent
payments are made or received by the Funds each day, depending on the daily
fluctuations in the value of the underlying security, and are recorded for
financial statement purposes as unrealized gains or losses by the Funds. The
Funds' investments in financial futures contracts are designed to hedge against
anticipated future changes in interest or exchange rates or securities prices
(or for non-hedging purposes). Should interest or exchange rates or securities
prices move unexpectedly, the Funds may not achieve the anticipated benefits of
the financial futures contracts and may realize a loss.
58
<PAGE>
Dividends and Distributions to Shareholders
Dividends from net investment income are declared and accrued daily and
are paid monthly for GIQBF, GHYBF and GTEF, and declared and paid semi-annually
for GPAF, GPASCF, GAAF, GBGIF and GBGEMF. Net realized short-term and long-term
capital gains for these Funds will be distributed at least annually. Dividends
from GCMF's net investment income, which includes any net realized capital gains
or losses, are declared and accrued daily and paid monthly on the last business
day of each month.
All dividends or distributions to the shareholders are recorded on the
ex-dividend date. Such distributions are determined in accordance with federal
income tax regulations. Differences between the recognition of income on an
income tax basis and recognition of income based on generally accepted
accounting principles may cause temporary overdistributions of net realized
gains and net investment income.
Federal Income Taxes
Each Fund qualified and intends to remain qualified to be taxed as a
"regulated investment company" under the provisions of the Internal Revenue Code
(Code), and as such will not be subject to federal income tax on taxable income
(including any realized capital gains) which is distributed in accordance with
the provisions of the Code. Therfore, no federal income tax provision is
required.
At December 31, 1998, for federal income tax purposes, GPASCF had a net
capital loss carryforward of $12,581,290 which expires in 2006. GBGEMF had a net
capital loss carryforward of $5,554,426 which expires in 2006.
Reclassification of Capital Accounts
The treatment for financial statement purposes of distributions made
during the year from net investment income and net realized gains may differ
from their ultimate treatment for federal income tax purposes. These differences
primarily are caused by differences in the timing of the recognition of certain
components of income or capital gain; and the recharacterization of foreign
exchange gains or losses to either ordinary income or realized capital gains for
federal income tax purposes. Where such differences are permanent in nature,
they are reclassified in the components of net assets based on their ultimate
characterization for federal income tax purposes. Any such reclassifications
will have no effect on net assets, results of operations, or net asset value per
share of the Fund.
During the year ended December 31, 1998, certain Portfolio Funds
reclassified amounts to paid-in capital from undistributed/(overdistributed) net
investment income and net accumulated net realized gain/(loss) on investment and
foreign currency related transactions. Increases (decreases) to the various
capital accounts were as follows:
Undistributed/ Accumulated
(overdistributed) net realized
Paid-in net investment gain/(loss) on
capital income investments
------- -------------- --------------
GPAF -- $ (1,307) $ 1,307
GPASCF $(636,468) 603,721 32,747
GAAF -- 992,751 (992,751)
GIQBF (14,500) -- 14,500
GBGIF -- 114,196 (114,196)
GBGEMF (115,397) (34,536) 149,933
Note 2. Investment Advisory Agreements and Payments to Related Parties
GISC provides investment advisory services to each of the Funds (except
GBGIF and GBGEMF) under an investment advisory agreement. Fees for investment
advisory services are at an annual rate of .50% of the average daily net assets
of each Fund, except for GAAF, which is subject to a contractual annual fee of
.65% of its average daily net assets, GPASCF and GHYBF, which pay GISC an annual
rate of .75% and .60%, respectively, of its average daily net assets. GISC has
agreed to a waiver of .15% of GAAF's annual advisory fee when GAAF is operated
as a "fund of funds", so that GAAF's effective advisory fee is .50% of its
average daily net assets. Although GPATEF had not commenced operations as of
December 31, 1998, the Fund has agreed that GISC will be paid at an annual rate
of .60% of its average daily net assets when operations commence. GISC
voluntarily assumes a portion of the ordinary operating expenses (excluding
interest
59
<PAGE>
expense associated with reverse repurchase agreements and securities lending)
that exceeds .75% of GIQBF, GTEF and GHYBF's Class "A" average daily net assets,
.51% of the total expenses of GHYBF Class "B" shares and operating expenses that
exceed .85% of GCMF's average daily net assets. For the year ended December 31,
1998 GISC voluntarily assumed $253,717, $89,745, $132,180 and $400,623 of the
ordinary operating expenses of GIQBF, GHYBF, GTEF and GCMF, respectively.
The Portfolio, on behalf of GBGIF and GBGEMF, has an investment management
agreement with Guardian Baillie Gifford Limited (GBG), a Scottish corporation
formed through a joint venture between The Guardian Insurance & Annuity Company,
Inc. (GIAC) and Baillie Gifford Overseas Limited (BG Overseas). GBG is
responsible for the overall investment management of GBGIF and GBGEMF's
portfolio, subject to the supervision of the Portfolio's Board of Trustees. GBG
has entered into a sub-investment management agreement with BG Overseas pursuant
to which BG Overseas is responsible for the day-to-day management of GBGIF and
GBGEMF. GBG continually monitors and evaluates the performance of BG Overseas.
As compensation for its services, GBGIF and GBGEMF pay GBG annual investment
management fees of .80% and 1.00%, respectively, of their respective average
daily net assets. One half of the fee for each of those Funds is payable by GBG
to BG Overseas for its services. Payment of the sub-investment management fee
does not represent a separate or additional expense to GBGIF or GBGEMF.
Trustees who are not deemed to be "interested persons" (as defined in the
1940 Act) are paid $500 per Fund for each meeting of the Board of Trustees. An
annual fee of $1,000 per Fund was also paid to each such Trustee during such
period. GISC pays compensation to the Trustees who are interested persons.
Certain officers and Trustees of the Funds are affiliated with GISC.
GAAF received $7,859,962 of dividends received from other Guardian mutual
funds.
Administrative Services Agreement
Pursuant to the Administrative Services Agreement adopted by the Funds on
behalf of the Class A and ClassB shares, each of the Funds, except GPAF, pays
GISC an administrative service fee at an annual rate of up to .25% of its
average daily net assets. GPAF pays this fee at an annual rate of up to .25% of
the average daily net assets for which a "dealer of record" has been designated.
For the year ended December 31, 1998, GPAF Class A shares paid an annualized
rate of .17% of its average daily net assets under the Administrative Services
Agreement.
Note 3. Underwriting Agreement and Distribution Plan
The Portfolio has entered into an Underwriting Agreement with GISC
pursuant to which GISC serves as the principal underwriter for shares of the
Funds.
For the year ended December 31, 1998, aggregate sales commissions for the
purchase of Class A shares paid to GISC was as follows:
Fund Commissions Fund Commissions
- ---- ----------- ---- -----------
GPAF $6,911,800 GBGEMF $ 27,717
GPASCF 875,026 GIQBF 276,113
GAAF 851,587 GHYBF 19,999
GBGIF 289,609 GTEF 97,420
Under a Distribution Plan adopted by the Portfolio pursuant to Rule 12b-1
under the 1940 Act (the "12b-1 Plan"), each multiple class fund is authorized to
pay a monthly 12b-1 fee at an annual rate of up to .75% of average daily net
assets of the Fund's Class B shares as compensation for distribution-related
services provided to the Class B shares of those Funds.
GISC is entitled to retain any CDSL imposed on certain Class B share
redemptions. For the year ended December 31, 1998, such charges were as follows:
Fund Class B
- ---- -------
GPAF ................................................................ $683,670
GPASCF .............................................................. 68,114
GAAF ................................................................ 33,262
GBGIF ............................................................... 10,877
GBGEMF .............................................................. 1,537
GHYBF ............................................................... 405
GCMF ................................................................ 34,422
60
<PAGE>
Note 4. Investment Transactions
Purchases and proceeds from sales of securities (excluding short-term
securities) for the year ended December 31, 1998 were as follows:
- --------------------------------------------------------------------------------
GPAF GPASCF
- --------------------------------------------------------------------------------
Purchases $1,804,252,390 $ 127,785,376
Proceeds 1,526,575,824 83,964,804
- --------------------------------------------------------------------------------
GAAF GBGIF
- --------------------------------------------------------------------------------
Purchases $ 56,667,984 $ 52,933,222
Proceeds 29,860,373 37,250,008
- --------------------------------------------------------------------------------
GBGEMF GIQBF
- --------------------------------------------------------------------------------
Purchases $ 15,647,752 $ 412,205,153
Proceeds 14,429,193 370,448,003
- --------------------------------------------------------------------------------
GHYBF GTEF
- --------------------------------------------------------------------------------
Purchases $ 55,022,184 $ 81,827,739
Proceeds 3,814,920 56,675,590
The cost of investments owned at December 31, 1998 for federal income tax
purposes was substantially the same as the cost for financial reporting purposes
for the Funds. The gross unrealized appreciation and depreciation of investments
excluding foreign currency at December 31, 1998, were as follows:
GPAF GPASCF
---- ------
Appreciation $ 999,654,014 $ 24,926,214
(Depreciation) (34,643,742) (8,031,817)
------------- -------------
Net Unrealized
Appreciation $ 965,010,272 $ 16,894,397
============= =============
GAAF GBGIF
---- -----
Appreciation $ 20,968,120 $ 25,453,391
(Depreciation) (66,989) (1,242,828)
------------- -------------
Net Unrealized
Appreciation $ 20,901,131 $ 24,210,563
============= =============
GBGEMF GIQBF
------ -----
Appreciation $ 803,167 $ 1,461,324
(Depreciation) (3,505,514) (359,403)
------------- -------------
Net Unrealized
Appreciation/
(Depreciation) $ (2,702,347) $ 1,101,921
============= =============
GHYBF GTEF
----- ----
Appreciation $ 1,255,170 $ 1,829,433
(Depreciation) (975,930) (32,778)
------------- -------------
Net Unrealized
Appreciation $ 279,240 $ 1,796,655
============= =============
Note 5. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully
negotiable U.S. government securities. Repurchase agreements are fully
collateralized (including the interest earned thereon) and such collateral is
marked-to-market daily while the agreements remain in force. If the value of the
collateral falls below the value of the repurchase price plus accrued interest,
the applicable Fund will require the seller to deposit additional collateral by
the next business day. If the request for additional collateral is not met, or
the seller defaults, the applicable Fund maintains the right to sell the
collateral and may claim any resulting loss against the seller. The Board of
Trustees has established standards to evaluate the creditworthiness of
broker-dealers and banks which engage in repurchase agreements with each Fund.
61
<PAGE>
Note 6. Reverse Repurchase Agreements
GIQBF and GHYBF may enter into reverse repurchase agreements with banks or
third party broker-dealers to borrow short term funds. Interest on the value of
reverse repurchase agreements issued and outstanding is based upon competitive
market rates at the time of issuance. At the time GIQBF and GHYBF enter into a
reverse repurchase agreement, the funds establish and maintain cash, U.S.
government securities or liquid, unencumbered securities that are
marked-to-market daily in a segregated account with the Funds' custodian. The
value of such segregated assets must be at least equal to the value of the
repurchase obligation (principal plus accrued interest), as applicable. Reverse
repurchase agreements involve the risk that the buyer of the securities sold by
GIQBF and GHYBF may be unable to deliver the securities when the Funds seek to
repurchase them.
Information regarding transactions by GIQBF under reverse repurchase
agreements is as follows:
<TABLE>
<CAPTION>
Market
Face Value Value
---------- -----
<S> <C> <C>
$5,871,938 Reverse Repurchase Agreement with Goldman Sachs LP, 5.76% dated
12/30/98, to be repurchased at $5,874,588 on 1/4/99 $5,871,938
3,904,875 Reverse Repurchase Agreement with J.P. Morgan, 5.25% dated 12/31/98,
to be repurchased at $3,904,962 on 1/4/99 ......................... 3,904,875
----------
$9,776,813
==========
Average amount outstanding during the year ........................ $3,349,973
Weighted average interest rate during the year .................... 3.45%
</TABLE>
Note 7. Dollar Roll Transactions
GIQBF and GHYBF may enter into dollar roll transactions with financial
institutions to take advantage of opportunities in the mortgage market. A dollar
roll transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase similar securities at an agreed upon price
and date. The securities repurchased will bear the same interest as those sold,
but generally will be collateralized at the time of delivery by different pools
of mortgages.
Note 8. Deferred Organization and Initial Offering Expenses
GPASCF and GBGEMF incurred $45,392 and $26,758, respectively, in
connection with their organization and registration. Such expenses were advanced
by GISC and were repaid by GPASCF and GBGEMF. Organization and initial offering
expenses have been deferred and are being amortized on a straight-line method
over a five year period, beginning with the commencement of operations of the
Funds.
Note 9. Shares of Beneficial Interest
There is an unlimited number of $0.01 par value shares of beneficial
interest authorized, divided into three classes, designated as Class A, Class B
and Institutional Class shares. As of December 31, 1998: (i) GPAF, GPASCF, GAAF,
GBGIF, GBGEMF and GHYBF offered all three classes; (ii) GIQBF offered Class A
and Institutional Class shares; (iii) GCMF offered Class A and Class B shares;
and (iv) GTEF offered Class A shares only. Through December 31, 1998, no
Institutional class shares of the Funds were sold.
62
<PAGE>
Transactions in shares of beneficial interest were as follows:
o The Guardian Park Avenue Fund
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold 18,152,958 17,883,364 $ 885,038,761 $ 799,066,805
Shares issued in reinvestment of
dividends and distributions 4,072,601 4,641,797 209,800,362 208,919,318
Shares repurchased (14,727,389) (9,104,998) (721,647,093) (403,755,099)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 7,498,170 13,420,163 $ 373,192,030 $ 604,231,024
====================================================================================================================================
Class B
Shares sold 3,603,391 3,236,995 $ 176,030,617 $ 143,714,212
Shares issued in reinvestment of
distributions 474,635 359,417 24,340,017 16,167,277
Shares repurchased (912,470) (162,809) (44,237,210) (7,399,359)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 3,165,556 3,433,603 $ 156,133,424 $ 152,482,130
====================================================================================================================================
</TABLE>
o The Guardian Park Avenue Small Cap Fund
<TABLE>
<CAPTION>
Year Ended Period from Year Ended Period from
December 31, April 2, 1997+ to December 31, April 2, 1997+ to
1998 December 31, 1997 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold 8,955,435 7,627,273 $ 113,720,444 $ 94,368,743
Shares issued in reinvestment of
distributions 66,726 74,820 962,201 1,001,090
Shares repurchased (6,399,295) (365,908) (79,156,710) (5,041,538)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 2,622,866 7,336,185 $ 35,525,935 $ 90,328,295
====================================================================================================================================
Class B
Shares sold 947,722 1,358,653 $ 13,042,662 $ 17,466,551
Shares issued in reinvestment of
distributions 14,540 13,670 207,322 181,544
Shares repurchased (542,866) (37,778) (6,871,026) (411,214)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 419,396 1,334,545 $ 6,378,958 $ 17,236,881
====================================================================================================================================
</TABLE>
+ Commencement of operations
63
<PAGE>
o The Guardian Asset Allocation Fund
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold 3,552,074 2,726,033 $ 52,391,637 $ 40,059,487
Shares issued in reinvestment of
dividends and distributions 1,528,532 1,201,442 22,611,939 16,793,107
Shares repurchased (1,642,141) (988,551) (24,292,529) (14,336,286)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 3,438,465 2,938,924 $ 50,711,047 $ 42,516,308
====================================================================================================================================
Class B
Shares sold 827,799 550,382 $ 12,174,248 $ 7,896,309
Shares issued in reinvestment of
dividends and distributions 197,429 109,733 2,908,672 1,525,775
Shares repurchased (159,197) (48,496) (2,353,793) (627,912)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 866,031 611,619 $ 12,729,127 $ 8,794,172
====================================================================================================================================
</TABLE>
o The Guardian Baillie Gifford International Fund
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold 5,077,189 1,128,171 $ 88,983,605 $ 18,720,231
Shares issued in reinvestment of
dividends and distributions 194,168 199,985 3,581,435 3,205,710
Shares repurchased (4,337,226) (946,086) (75,707,177) (15,383,791)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 934,131 382,070 $ 16,857,863 $ 6,542,150
====================================================================================================================================
Class B
Shares sold 207,081 176,590 $ 3,615,723 $ 2,867,170
Shares issued in reinvestment of
distributions 23,175 15,633 417,986 246,383
Shares repurchased (56,683) (16,447) (980,749) (261,203)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 173,573 175,776 $ 3,052,960 $ 2,852,350
====================================================================================================================================
</TABLE>
64
<PAGE>
o The Guardian Baillie Gifford Emerging Markets Fund
<TABLE>
<CAPTION>
Year Ended Period from Year Ended Period from
December 31, April 2, 1997+ to December 31, April 2, 1997+ to
1998 December 31, 1997 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold 307,937 2,336,844 $ 2,438,788 $ 23,610,122
Shares issued in reinvestment of
dividends and distributions 951 8,288 7,008 76,167
Shares repurchased (142,603) (56,441) (1,047,780) (627,877)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 166,285 2,288,691 $ 1,398,016 $ 23,058,412
====================================================================================================================================
Class B
Shares sold 36,991 222,415 $ 284,221 $ 2,319,202
Shares issued in reinvestment of
distributions 9 -- 66 --
Shares repurchased (40,736) (6,436) (296,924) (67,922)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (3,736) 215,979 $ (12,637) $ 2,251,280
====================================================================================================================================
</TABLE>
o The Guardian Investment Quality Bond Fund
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,256,976 5,848,887 $ 52,592,427 $ 56,852,114
Shares issued in reinvestment of
dividends and distributions 838,248 386,846 8,403,203 3,786,174
Shares repurchased (1,848,650) (1,484,591) (18,611,999) (14,416,140)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 4,246,574 4,751,142 $ 42,383,631 $ 46,222,148
====================================================================================================================================
</TABLE>
+ Commencement of operations.
65
<PAGE>
o The Guardian High Yield Bond Fund
Period from
September 1, 1998+ to
December 31, 1998
- --------------------------------------------------------------------------------
Shares Amount
- --------------------------------------------------------------------------------
Class A
Shares sold 5,073,898 $ 49,633,346
Shares issued in reinvestment of dividends 146,405 1,409,495
Shares repurchased (6,493) (60,633)
- --------------------------------------------------------------------------------
Net increase 5,213,810 $ 50,982,208
================================================================================
Class B
Shares sold 261,298 2,413,483
Shares issued in reinvestment of dividends 5,077 48,933
Shares repurchased (13,845) (45,673)
- --------------------------------------------------------------------------------
Net increase 252,530 $ 2,416,743
================================================================================
o The Guardian Tax-Exempt Fund
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,184,548 720,851 $ 22,216,685 $ 6,983,816
Shares issued in reinvestment of
dividends and distributions 230,604 191,773 2,320,394 1,862,173
Shares repurchased (178,814) (249,303) (1,794,118) (2,410,025)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 2,236,338 663,321 $ 22,742,961 $ 6,435,964
====================================================================================================================================
</TABLE>
o The Guardian Cash Management Fund
Year Ended December 31,
1998 1997
- --------------------------------------------------------------------------------
Shares/@ $1 per share
- --------------------------------------------------------------------------------
Class A
Shares sold 754,062,229 435,510,421
Shares issued in reinvestment of dividends 7,764,025 4,841,856
Shares repurchased (668,353,118) (396,046,079)
- --------------------------------------------------------------------------------
Net increase 93,473,136 44,306,198
================================================================================
Class B
Shares sold 26,314,334 9,032,391
Shares issued in reinvestment of dividends 331,516 165,039
Shares repurchased (20,080,072) (5,915,743)
- --------------------------------------------------------------------------------
Net increase 6,565,778 3,281,687
================================================================================
+ Commencement of operations.
66
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
- --------------------------------------------------------------------------------
67
<PAGE>
- --------------------
Financial Highlights
- --------------------
Selected data for a share of beneficial interest outstanding throughout the
periods indicated:
<TABLE>
<CAPTION>
Net Realized Distributions
& Unrealized from
Gain/(Loss) on Net Realized
Investments Increase/ Distributions Gain on
Net Asset Net and Foreign (Decrease) Dividends in Excess Investment
Value, Investment Currency from from Net of Net and Foreign
Beginning Income/ Related Investment Investment Investment Currency Related
of Period (Loss) Transactions Operations Income Income Transactions
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund
Class A:
Year ended 12/31/98 $ 46.12 $ 0.35 $ 9.38 $ 9.73 $ (0.34) -- $(3.63)
Year ended 12/31/97 37.91 0.40 12.61 13.01 (0.39) -- (4.41)
Year ended 12/31/96 33.97 0.42 8.41 8.83 (0.42) $ (0.01) (4.46)
Year ended 12/31/95 26.89 0.33 8.87 9.20 (0.33) -- (1.79)
Year ended 12/31/94 28.63 0.31 (0.72) (0.41) (0.31) -- (1.02)
Class B:
Year ended 12/31/98 46.02 (0.08) 9.28 9.20 0.00 -- (3.63)
Year ended 12/31/97 37.90 0.00 12.54 12.54 (0.01) -- (4.41)
Period from 5/1/96+ to 12/31/96 36.26 0.05 6.10 6.15 (0.05) -- (4.46)
The Guardian Park Avenue Small Cap Fund
Class A:
Year ended 12/31/98 13.77 (0.03) (0.83) (0.86) -- -- (0.11)
Period from 4/2/97+ to 12/31/97 10.00 0.00 3.91 3.91 -- -- (0.14)
Class B:
Year ended 12/31/98 13.67 (0.15) (0.80) (0.95) -- -- (0.11)
Period from 5/6/97+ to 12/31/97 10.57 (0.04) 3.28 3.24 -- -- (0.14)
The Guardian Asset Allocation Fund
Class A:
Year ended 12/31/98 14.05 0.39 2.31 2.70 (0.43) -- (1.54)
Year ended 12/31/97 12.96 0.34 2.77 3.11 (0.34) -- (1.68)
Year ended 12/31/96 12.19 0.23 1.96 2.19 (0.23) -- (1.19)
Year ended 12/31/95 10.23 0.23 2.29 2.52 (0.23) -- (0.33)
Year ended 12/31/94 10.98 0.28 (0.52) (0.24) (0.28) -- (0.23)
Class B:
Year ended 12/31/98 14.00 0.24 2.31 2.55 (0.28) -- (1.54)
Year ended 12/31/97 12.92 0.17 2.77 2.94 (0.18) -- (1.68)
Period from 5/1/96+
to 12/31/96 12.61 0.04 1.50 1.54 (0.04) -- (1.19)
The Guardian Baillie Gifford
International Fund
Class A:
Year ended 12/31/98 16.08 0.02 3.13 3.15 (0.01) -- (0.81)
Year ended 12/31/97 15.22 0.02 1.66 1.68 -- (0.16) (0.66)
Year ended 12/31/96 13.57 0.05 1.89 1.94 (0.05) (0.05) (0.19)
Year ended 12/31/95 13.01 0.04 1.40 1.44 (0.04) (0.23) (0.61)
Year ended 12/31/94 13.19 0.01 (0.09) (0.08) (0.01) -- (0.09)
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------------
Net
Net Asset Net Assets, Investment
Value, End of Expenses Expenses Income/(Loss) Portfolio
End of Total Period to Average Waived to Average Turnover
Period Return* (000's Omitted) Net Assets (b) By GISC Net Assets Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund
Class A:
Year ended 12/31/98 $ 51.88 21.30% $2,990,767 0.78% -- 0.72% 55%
Year ended 12/31/97 46.12 34.85 2,312,632 0.79 -- 0.95 50
Year ended 12/31/96 37.91 26.49 1,392,186 0.79 -- 1.19 81
Year ended 12/31/95 33.97 34.28 972,275 0.81 -- 1.07 78
Year ended 12/31/94 26.89 (1.44) 640,917 0.84 -- 1.15 54
Class B:
Year ended 12/31/98 51.59 20.16 389,489 1.70 -- (0.21) 55
Year ended 12/31/97 46.02 33.53 201,746 1.73 -- 0.00 50
Period from 5/1/96+ to 12/31/96 37.90 17.35 36,006 1.77(a) -- 0.04(a) 81
The Guardian Park Avenue Small Cap Fund
Class A:
Year ended 12/31/98 12.80 (6.35) 127,525 1.32 -- (0.29) 63
Period from 4/2/97+ to 12/31/97 13.77 39.16 101,016 1.36(a) -- 0.04(a) 25
Class B:
Year ended 12/31/98 12.61 (7.05) 22,122 2.17 -- (1.14) 63
Period from 5/6/97+ to 12/31/97 13.67 30.47 18,248 2.26(a) -- (1.01)(a) 25
The Guardian Asset Allocation Fund
Class A:
Year ended 12/31/98 14.78 19.41 194,827 0.60 0.52% 2.52 23
Year ended 12/31/97 14.05 24.44 136,948 0.95 0.19 2.50 58
Year ended 12/31/96 12.96 18.74 88,190 1.30 -- 1.91 122
Year ended 12/31/95 12.19 24.51 70,591 1.25 -- 1.98 219
Year ended 12/31/94 10.23 (2.13) 54,875 1.30 -- 2.72 216
Class B:
Year ended 12/31/98 14.73 18.32 27,545 1.48 0.52 1.70 23
Year ended 12/31/97 14.00 23.09 14,066 2.04 0.19 1.50 58
Period from 5/1/96+
to 12/31/96 12.92 12.07 5,075 2.39(a) -- 0.70(a) 122
The Guardian Baillie Gifford
International Fund
Class A:
Year ended 12/31/98 18.41 19.61 93,871 1.56 -- (0.01) 44
Year ended 12/31/97 16.08 11.07 66,999 1.62 -- 0.07 55
Year ended 12/31/96 15.22 14.33 57,593 1.70 -- 0.29 39
Year ended 12/31/95 13.57 11.14 44,546 1.74 -- 0.19 51
Year ended 12/31/94 13.01 (0.55) 37,542 1.91 -- 0.20 33
</TABLE>
+ Commencement of operations.
* Excludes the effect of sales load.
(a) Annualized.
(b) After expenses waived by GISC.
68 & 69
<PAGE>
- --------------------
Financial Highlights
- --------------------
Selected data for a share of beneficial interest outstanding throughout the
periods indicated:
<TABLE>
<CAPTION>
Net Realized Distributions
& Unrealized from
Gain/(Loss) on Net Realized
Investments Increase/ Distributions Gain on
Net Asset Net and Foreign (Decrease) Dividends in Excess Investment
Value, Investment Currency from from Net of Net and Foreign
Beginning Income/ Related Investment Investment Investment Currency Related
of Period (Loss) Transactions Operations Income Income Transactions
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Guardian Baillie Gifford
International Fund
Class B:
Year ended 12/31/98 $ 15.87 $ (0.09) $ 3.00 $ 2.91 -- -- $ (0.81)
Year ended 12/31/97 15.12 (0.11) 1.52 1.41 -- -- (0.66)
Period from 5/1/96+ to 12/31/96 14.71 (0.04) 0.76 0.72 $ (0.04) $ (0.08) (0.19)
The Guardian Baillie Gifford Emerging
Markets Fund
Class A:
Year ended 12/31/98 9.38 0.01 (2.73) (2.72) (0.00)++ -- --
Period from 4/2/97+ to 12/31/97 10.00 0.04 (0.63) (0.59) (0.03) -- --
Class B:
Year ended 12/31/98 9.30 (0.18) (2.68) (2.86) -- -- --
Period from 5/6/97+ to 12/31/97 10.28 (0.09) (0.89) (0.98) -- -- --
The Guardian Investment Quality
Bond Fund
Class A:
Year ended 12/31/98 9.91 0.53 0.23 0.76 (0.53) -- (0.15)
Year ended 12/31/97 9.70 0.58 0.21 0.79 (0.58) -- --
Year ended 12/31/96 10.00 0.55 (0.30) 0.25 (0.55) -- --
Year ended 12/31/95 9.12 0.59 0.88 1.47 (0.59) -- --
Year ended 12/31/94 10.04 0.46 (0.90) (0.44) (0.46) -- (0.02)
The Guardian High Yield Bond Fund
Class A:
Period from 9/1/98+++ to 12/31/98 9.26 0.38 0.58 0.96 (0.38) -- --
Class B:
Period from 9/1/98+++ to 12/31/98 9.26 0.31 0.57 0.88 (0.31) -- --
The Guardian Tax-Exempt Fund
Class A:
Year ended 12/31/98 9.99 0.43 0.17 0.60 (0.43) -- (0.03)
Year ended 12/31/97 9.61 0.44 0.38 0.82 (0.44) -- --
Year ended 12/31/96 9.69 0.42 (0.08) 0.34 (0.42) -- --
Year ended 12/31/95 8.86 0.44 0.83 1.27 (0.44) -- --
Year ended 12/31/94 10.20 0.40 (1.30) (0.90) (0.40) -- (0.04)
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
------------------------------------------------------------------------------
Expenses Net
Net Asset Net Assets, (excluding Investment
Value, End of Expenses interest expense) Expenses Income/(Loss) Portfolio
End of Total Period to Average to Average Subsidized to Average Turnover
Period Return* (000's Omitted) Net Assets(c) Net Assets(b) by GISC Net Assets Rate
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Guardian Baillie Gifford
International Fund
Class B:
Year ended 12/31/98 $ 17.97 18.36% $ 10,216 2.67% -- -- (1.13)% 44%
Year ended 12/31/97 15.87 9.37 6,268 2.91 -- -- (1.46) 55
Period from 5/1/96+ to 12/31/96 15.12 4.34 3,313 3.05(a) -- -- (1.47)(a) 39
The Guardian Baillie Gifford
Emerging Markets Fund
Class A:
Year ended 12/31/98 6.66 (28.97) 16,342 2.55 -- -- 0.18 83
Period from 4/2/97+ to 12/31/97 9.38 (5.86) 21,472 2.31(a) -- -- 0.61(a) 36
Class B:
Year ended 12/31/98 6.44 (30.75) 1,367 5.04 -- -- (2.31) 83
Period from 5/6/97+ to 12/31/97 9.30 (9.71) 2,009 4.24(a) -- -- (0.02)(a) 36
The Guardian Investment Quality
Bond Fund
Class A:
Year ended 12/31/98 9.99 7.89 142,199 0.85(b) 0.75% 0.21% 5.24 309
Year ended 12/31/97 9.91 8.43 98,935 0.75(b) -- 0.29 5.94 313
Year ended 12/31/96 9.70 2.73 50,794 0.75(b) -- 0.37 5.73 257
Year ended 12/31/95 10.00 16.64 53,706 0.75(b) -- 0.39 6.11 401
Year ended 12/31/94 9.12 (4.50) 43,487 1.46 -- -- 4.94 186
The Guardian High Yield Bond Fund
Class A:
Period from 9/1/98+++
to 12/31/98 9.84 9.24 51,288 0.75(a)(b) -- 0.51(a) 8.31(a) 11
Class B:
Period from 9/1/98+++
to 12/31/98 9.83 8.61 2,482 2.33(a)(b) -- 0.51(a) 6.85(a) 11
The Guardian Tax-Exempt Fund
Class A:
Year ended 12/31/98 10.13 6.11 70,720 0.75(b) -- 0.26 4.29 111
Year ended 12/31/97 9.99 8.74 47,360 0.75(b) -- 0.31 4.51 202
Year ended 12/31/96 9.61 3.62 39,185 0.75(b) -- 0.60 4.96 240
Year ended 12/31/95 9.69 14.59 17,501 0.75(b) -- 0.79 4.66 194
Year ended 12/31/94 8.86 (8.98) 15,967 1.09(b) -- 0.47 4.26 107
</TABLE>
+ Commencement of operations.
++ Rounds to less than $0.01.
+++ Date of initial public investment.
* Excludes the effect of sales load.
(a) Annualized. For GHYBF, ratios are calculated from 7/7/98 (commencement of
operations).
(b) After expenses subsidized by GISC.
(c) Expense ratio includes interest expense associated with reverse repurchase
agreements.
70 & 73
<PAGE>
- --------------------
Financial Highlights
- --------------------
Selected data for a share of beneficial interest outstanding throughout the
periods indicated: Ratios/Supplemental Data
<TABLE>
<CAPTION>
Net Asset Dividends Net Asset
Value, Net from Net Value,
Beginning Investment Investment End of Total
of Period Income Income Period Return*
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Guardian Cash Management Fund
Class A:
Year ended 12/31/98 $ 1.000 $ 0.047 $ (0.047) $ 1.000 4.76%
Year ended 12/31/97 1.000 0.047 (0.047) 1.000 4.81
Year ended 12/31/96 1.000 0.045 (0.045) 1.000 4.62
Year ended 12/31/95 1.000 0.051 (0.051) 1.000 5.22
Year ended 12/31/94 1.000 0.034 (0.034) 1.000 3.48
Class B:
Year ended 12/31/98 1.000 0.047 (0.047) 1.000 4.76
Year ended 12/31/97 1.000 0.047 (0.047) 1.000 4.81
Period from 5/1/96+ to 12/31/96 1.000 0.028 (0.028) 1.000 2.81(b)
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
-------------------------------------------------------------
Net
Net Assets, Investment
End of Expenses Expenses Income
Period to Average Subsidized to Average
(000's Omitted) Net Assets(c) by GISC Net Assets
-------------------------------------------------------------
<S> <C> <C> <C> <C>
The Guardian Cash Management Fund
Class A:
Year ended 12/31/98 $225,997 0.85% 0.19% 4.65%
Year ended 12/31/97 132,523 0.85 0.28 4.71
Year ended 12/31/96 88,217 0.90 0.30 4.62
Year ended 12/31/95 69,913 0.85 0.37 5.10
Year ended 12/31/94 56,730 0.87 0.50 3.54
Class B:
Year ended 12/31/98 12,430 0.85 0.97 4.65
Year ended 12/31/97 5,864 0.85 1.10 4.71
Period from 5/1/96+ to 12/31/96 2,583 1.16(a) 0.59(a) 4.43(a)
</TABLE>
+ Commencement of operations.
* Excludes the effect of sales load.
(a) Annualized.
(b) Not annualized.
(c) After expenses subsidized by GISC.
72 & 73
<PAGE>
- ---------------------------
Report of Ernst & Young LLP
Independent Auditors
- ---------------------------
Board of Trustees and Shareholders
The Park Avenue Portfolio
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of The Park Avenue Portfolio
(comprising, respectively, The Guardian Park Avenue Fund, The Guardian Park
Avenue Small Cap Fund, The Guardian Asset Allocation Fund, The Guardian Baillie
Gifford International Fund, The Guardian Baillie Gifford Emerging Markets Fund,
The Guardian Investment Quality Bond Fund, The Guardian High Yield Bond Fund,
The Guardian Tax-Exempt Fund and The Guardian Cash Management Fund) as of
December 31, 1998, and the related statements of operations, the statements of
changes in net assets and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Portfolios' management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective Funds constituting The Park Avenue Portfolio at December
31, 1998, the results of their operations, the changes in their net assets and
the financial highlights for each of the indicated periods, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
February 10, 1999
74
<PAGE>
o Trustees
Joseph D. Sargent -- Chair
John C. Angle
Frank J. Fabozzi, Ph.D.
Arthur V. Ferrara, CLU
Leo R. Futia, CLU
WIlliam W. Hewitt, Jr.
Sidney I. Lirtzman, Ph.D.
Carl W. Schafer
Robert G. Smith, Ph.D.
o Officers
Frank J. Jones -- President
Kevin S. Alter
Joseph A. Caruso
Howard W. Chin
Alexander M. Grant, Jr.
Edward H. Hocknell
Jonathan C. Jankus
Ann T. Kearney
Peter J. Liebst
Larry A. Luxenberg
R. Robin Menzies
Andrew J. Mika
John B. Murphy
Karen L. Olvany
Frank L. Pepe
Richard T. Potter, Jr.
Marjorie A. Silverman
Thomas G. Sorell
Donald Sullivan, Jr.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or depository institution, nor are they federally insured
by the Federal Deposit Insurance Corporation, The Federal Reserve Board, or any
other agency. They involve investment risk, including possible loss of principal
amount invested.
This report is authorized for distribution to the public only when accompanied
or preceded by a current prospectus for the funds which comprise The Park Avenue
Portfolio.
<PAGE>
o Investment Advisor & Distributor
Guardian Investor Services Corporation(R)
201 Park Avenue South
New York, New York 10003
o Custodian of Assets
State Street Bank and Trust Company
Custody Division
1776 Heritage Drive
North Quincy, Massachusetts 02171
o Shareholder Servicing Agent, Transfer Agent & Dividend Paying Agent for
State Street Bank and Trust Company
National Financial Data Services
Post Office Box 419611
Kansas City, Missouri 64141-6611
o Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
[LOGO]
GUARDIAN(SM)
Guardian Investor
Services Corporation(R)
201 Park Avenue South
New York, NY 10003
(C) 1998 Guardian Investor Services Corporation
EB-011566 12/98
- -----------------------------
Annual Report to Shareholders
- -----------------------------
THE
PARK AVENUE
PORTFOLIO(R)
...............................................
Annual Report
to Shareholders
December 31, 1998
...............................................
o The Guardian Park Avenue Fund
o The Guardian Park Avenue
Small Cap Fund
o The Guardian Asset Allocation Fund
o The Guardian Baillie Gifford
International Fund
o The Guardian Baillie Gifford
Emerging Markets Fund
o The Guardian Investment
Quality Bond Fund
o The Guardian High Yield
Bond Fund
o The Guardian
Tax-Exempt Fund
o The Guardian
Cash Management Fund
[LOGO]
GUARDIAN(SM)
