Registration Nos. 33-23966
811-5641
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
POST-EFFECTIVE AMENDMENT No. 20 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
AMENDMENT No. 24 |X|
(Check appropriate box or boxes)
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THE PARK AVENUE PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
201 Park Avenue South, New York, New York 10003
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (212) 598-8359
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RICHARD T. POTTER, JR., ESQ.
c/o The Guardian Life Insurance
Company of America
201 Park Avenue South
New York, New York 10003
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b)
|X| on May 1, 1999 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|_| on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
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<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 495 under the Securities Act of 1933)
Form N-1A Item No. Location
Part A
Item 1. Front and Back Cover Pages............ Front and Back Cover Pages
Item 2. Risk/Return Summary: Investments,
Risks, and Performance ............. About our Funds
Item 3. Risk/Return Summary: Fee Table........ About our Funds
Item 4. Investment Objectives, Principal
Investment Strategies, and Related
Risks .............................. About our Funds; Risks and
Special Investment Techniques
Item 5. Management's Discussion of Fund
Performance......................... About our Funds
Item 6. Management, Organization, and Capital
Structure .......................... Fund Management
Item 7. Shareholder Information .............. Managing your account;
Dividends and distributions;
Capital gains and taxes
Item 8. Distribution Arrangements ............ Managing Your Account
Item 9. Financial Highlights Information ..... Financial Highlights
Part B
Item 10. Cover Page and Table of Contents ..... Cover Page and Table of
Contents
Item 11. Fund History ......................... Not Applicable
Item 12. Description of the Fund and Its
Investments and Risks .............. Investment Restrictions;
Special Investment Techniques
Item 13. Management of the Fund................ Portfolio Management;
Investment Advisers and
Distributor
Item 14. Control Persons and Principal Holders
of Securities....................... Portfolio Affiliates and
Principal Holders of Fund
Shares
Item 15. Investment Advisory and Other Investment Advisers and
Services ........................... Distributor; Custodian;
Transfer Agent; Independent
Auditors
Item 16. Brokerage Allocation and Other Portfolio Transactions and
Practices........................... Brokerage
Item 17. Capital Stock and Other Securities.... Shareholder Voting Rights
Item 18. Purchase, Redemption and Pricing of
Shares.............................. Redemption of Shares
Item 19. Taxation of the Fund.................. Taxes
Item 20. Underwriters.......................... Investment Advisers and
Distributor
Item 21. Calculation of Performance Data....... Performance Results
Item 22. Financial Statements.................. Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
[GRAPHIC OMITTED]
THE PARK AVENUE PORTFOLIO PROSPECTUS
Prospectus
May 1, 1999
The Park Avenue Portfolio(R)
The Guardian Park Avenue Fund(R)
The Guardian Park Avenue Small Cap Fund(SM)
The Guardian Asset Allocation Fund(SM)
The Guardian Baillie Gifford International Fund(SM)
The Guardian Baillie Gifford Emerging Markets Fund(SM)
The Guardian Investment Quality Bond Fund(SM)
The Guardian High Yield Bond Fund(SM)
The Guardian Tax-Exempt Fund(SM)
The Guardian Cash Management Fund(SM)
These securities have not been approved or disapproved by the Securities and
Exchange Commission, nor has the Commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or depository institution, are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency, and involve investment risk, including possible loss of the
principal amount invested.
<PAGE>
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CONTENTS
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Overview ............................................... 1
About our funds
- The Guardian Park Avenue Fund(R) ..................... 2
- The Guardian Park Avenue Small Cap Fund(SM) .......... 6
- The Guardian Asset Allocation Fund(SM) ............... 10
- The Guardian Baillie Gifford International Fund(SM) .. 14
- The Guardian Baillie Gifford Emerging Markets Fund(SM) 19
- The Guardian Investment Quality Bond Fund(SM) ........ 24
- The Guardian High Yield Bond Fund(SM) ................ 28
- The Guardian Tax-Exempt Fund(SM) ..................... 32
- The Guardian Cash Management Fund(SM) ................ 36
Risks and special investment techniques
- Principal risks to investors ......................... 40
- Special investment techniques ........................ 45
Fund management
- The Funds' investment advisers ....................... 50
- Portfolio managers ................................... 51
Managing your account
- Types of shares available ............................ 54
- How to sell shares ................................... 60
- Special purchase and sale plans ...................... 63
- Calculation of net asset values ...................... 66
Dividends and distributions ............................ 67
Taxes .................................................. 68
Financial highlights ................................... 70
Where to get more information .....................Back cover
<PAGE>
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OVERVIEW
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This prospectus describes Funds in The Park Avenue Portfolio. Each Fund has its
own investment objective, risks and opportunities. You should consider each Fund
separately to determine if it's appropriate for you. No single Fund can provide
a complete or balanced investment program, and there is no assurance that a
particular Fund will achieve its investment objective.
There are nine mutual funds in The Park Avenue Portfolio. The prospectus begins
with individual sections about each of the Funds, including their principal
investment strategies, risk considerations, performance history, and expense
information.
After the sections on the individual Funds, there is a section called Risks and
special investment techniques, which provides detailed information about the
risks highlighted in the individual Fund sections. In addition, Risks and
special investment techniques provides detailed information about some of the
financial instruments and transactions that the Funds may use in managing their
investments. It is important that you review this section carefully for a full
understanding of how each Fund will operate. We have also included information
about the investment advisers of each Fund.
The rest of the prospectus tells you about how to buy and sell shares of the
Funds, and includes general information about share prices, dividends and
distributions, and taxes. Of course, you should consult your own tax adviser
about the tax consequences of investing in the Funds. Finally, the prospectus
provides a summary of financial and other information about the Funds.
OVERVIEW PROSPECTUS 1
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ABOUT OUR FUNDS
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The Guardian
Park Avenue Fund
Stock selection system
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The Fund's adviser, Guardian Investor Services Corporation (GISC), uses a stock
selection system to identify securities that represent good relative value and
have reasonable prospects of superior relative price gain.
OBJECTIVE
The Park Avenue Fund seeks long-term growth of capital. Income is not a specific
objective, although it is anticipated that long-term growth of capital will be
accompanied by growth of income.
The Fund's principal investment strategies
At least 80% of the value of the Fund's total assets is invested in a
diversified portfolio of U.S. common stocks and convertible securities.
Convertible securities are described in the section called Risks and special
investment techniques. Under normal circumstances, the Fund intends to be fully
invested in these types of securities.
The Fund's adviser, Guardian Investor Services Corporation (GISC), uses a stock
selection system to identify securities that represent good relative value and
have reasonable prospects of superior relative price gain. This system uses
several quantitative models that score each security considered for purchase or
sale. In making investment decisions, GISC will also take into account the
risk-reward prospects for each security and the portfolio managers' judgment
about the outlook for specific industries, companies and the economy.
GISC uses a flexible approach in managing the Fund's portfolio. GISC considers
factors in analyzing potential investments that vary over time and among
different issuers. The Fund may select companies of any size and in any industry
sector, while maintaining broad diversification within the equity markets.
As a temporary defensive strategy, the Fund may invest some or all of its assets
in debt obligations, including U.S. government securities, investment grade
corporate bonds, commercial paper, repurchase agreements and cash equivalents.
To the extent the Fund assumes a temporary defensive position, it may not pursue
its investment objective during that time.
The Fund may invest up to 5% of its net assets in securities of U.S. or foreign
companies which are issued and settled overseas.
The principal risks of investing in the Fund
As with all mutual funds, the value of your investment could decline so you
could lose money. The Fund is subject to the general risks of investing in the
stock markets, which include the risk that share prices of the securities in its
portfolio can be driven up or down gradually or sharply by general conditions in
the stock markets, or by the performance of an individual company or industry.
2 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
The Guardian Park Avenue Fund
The Fund could also be subject to the risks of foreign investing to the limited
extent that its portfolio may be invested overseas. Foreign investments may be
affected by political, social and economic developments abroad, differences in
auditing and other financial standards, and greater volatility. When the Fund
buys securities denominated in a foreign currency, there are special risks such
as changes in currency exchange rates, and the risk that a foreign government
could regulate foreign exchange transactions.
More detailed information about equity risk and risks of foreign investing
appears in the section called Risks and special investment techniques.
How the Fund has performed
The bar chart below provides some indication of the risks of investing in the
Fund by showing how its performance has varied over the past 10 years. The
performance figures shown assume that all dividends and distributions are
reinvested in the Fund but do not include any sales charge you pay when you buy
or sell shares. If the sales charge were included, the returns shown would be
lower. Past results do not necessarily indicate how the Fund will perform in the
future.
Year-by-year returns
Total returns for Class A shares
(Years ended December 31)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
23.66 (12.21) 35.16 20.48 20.28 (1.44) 34.28 26.49 34.85 21.30
Returns of Class B shares and Institutional Class shares would be different from
the returns depicted in the bar chart because they have expenses that differ
from those of Class A shares.
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Highest and lowest quarters
During the period shown in the bar chart, the highest and lowest returns,
respectively, for a quarter were:
Best quarter
22.20% for the quarter ended December 31, 1998.
Worst quarter
(15.65)% for the quarter ended September 30, 1990.
ABOUT OUR FUNDS PROSPECTUS 3
<PAGE>
The Guardian Park Avenue Fund
Average annual total returns
This table provides some indication of the risks of investing in the Fund by
showing the average annual total returns for the 1, 5 and 10-year periods ended
December 31, 1998. It compares the Fund's performance with the S&P 500 Index, an
index of 500 large-cap U.S. stocks that is generally considered to be
representative of U.S. stock market activity. No Institutional Class shares were
outstanding in 1998. Past results do not necessarily indicate how the Fund will
perform in the future.
10 years,
or since
1 year 5 years inception
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Class A shares 21.30% 22.32% 19.26%
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Class B shares 20.16% n/a 26.82%(1)
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S&P 500 Index 28.58% 23.96% 19.10%(2)
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NOTES
(1) Inception of Class B shares: May 1, 1996.
(2) The S&P 500 Index had average annual returns of 30.03% since May 1, 1996,
the date of inception of Class B shares.
Fees and expenses
The following tables show the fees and expenses you will pay to own shares of
the Fund.
Fees you pay directly
Maximum sales Maximum deferred sales
charge to buy charge to sell shares, as
shares, as a % of a % of the amount sold
Share class the offering price subject to the charge
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Class A shares 4.50% None(1)
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Class B shares None 3.00%(2)
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Institutional Class shares None None
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NOTES
(1) Purchases of $1 million or more of Class A shares may be subject to a
contingent deferred sales charge if such shares are redeemed within 18
months of purchase.
(2) Maximum sales charge declines to 2% if shares are sold in years 3 or 4 after
purchase; 1% in years 5 or 6; and zero in year 7 and beyond.
Annual fees and expenses deducted from the Fund's assets
(as a percentage of average net assets)
Management Distribution Other
Share class fees (12b-1) fees expenses(1) Total
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Class A shares(2) 0.50% 0.00% 0.28% 0.78%
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Class B shares 0.50% 0.75% 0.45% 1.70%
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Institutional Class shares 0.50% 0.00% 0.11% 0.61%
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NOTES
(1) Includes Administrative Service Fee of 0.25% for Class A and Class B shares
for which a "dealer of record" has been designated.
(2) This table does not reflect deductions for expenses which relate to owning
Class A Park Avenue Fund shares through a Value Guard variable annuity
contract. The Value Guard prospectus provides information about such
expenses.
4 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
The Guardian Park Avenue Fund
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EXAMPLE
The example on the right allows you to compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes:
o you invest $10,000 at the start of the periods shown
o your investment has a 5% return each year
o the Fund's operating expenses do not change.
The ten-year figures shown reflect the conversion of Class B shares to Class A
shares after the eighth anniversary of purchase.
Using these assumptions the costs of investing in the Fund would be as shown in
the table below. Your actual costs may be higher or lower than those reflected
here.
If you sold all of your shares at the end of the periods shown, the costs of
investing in the Fund would be:
1 year 3 years 5 years 10 years
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Class A shares $ 526 $ 688 $ 864 $1,373
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Class B shares $ 473 $ 736 $1,023 $1,764
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Institutional Class shares $ 62 $ 195 $ 340 $ 762
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If you did not sell any of your shares at the end of the periods shown, the
costs of investing in the Fund would be:
1 year 3 years 5 years 10 years
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Class A shares $ 526 $ 688 $ 864 $1,373
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Class B shares $ 173 $ 536 $ 923 $1,764
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Institutional Class shares $ 62 $ 195 $ 340 $ 762
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ABOUT OUR FUNDS PROSPECTUS 5
<PAGE>
The Guardian Park Avenue Small Cap Fund
Small market capitalization
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Companies with a small market capitalization or value refer to companies
included in the Russell 2000 Index. The index excludes the 1,000 largest U.S.
companies in market capitalization, but includes the next 2,000 largest
companies. As of December 31, 1998, the companies included in this index had
market values ranging from $4.4 million to $3.2 billion. A company's "market
capitalization" is determined by multiplying the current market price of a share
of the company's stock by the total number of shares outstanding.
OBJECTIVE
The Small Cap Fund seeks long-term growth of capital. Income is not a specific
objective, although it is anticipated that long-term growth of capital will be
accompanied by growth of income.
The Fund's principal investment strategies
At least 85% of the value of the Fund's total assets is usually invested in a
diversified portfolio of common stocks and convertible securities issued by
companies with a small market capitalization. Convertible securities are
described in the section called Risks and special investment techniques.
The Fund's adviser, GISC, uses a stock selection system to identify securities
that represent good relative value and have reasonable prospects of superior
relative price gain. This system uses several quantitative models that score
each security considered for purchase or sale. In making investment decisions,
GISC will also take into account the risk-reward prospects for each security and
the portfolio manager's judgment about the outlook for specific industries,
companies and the economy.
GISC uses a flexible approach in managing the Fund's portfolio. GISC considers
factors in analyzing potential investments that vary over time and among
different issuers. In selecting the Fund's investments, GISC evaluates the
business fundamentals of small cap companies, including, among other things,
each company's operating history and product lines.
The Small Cap Fund may invest up to 15% of its total assets in securities issued
by companies in operation for less than three years.
The Fund may also invest up to 15% of its net assets in foreign securities. Of
this amount, the Fund may invest up to 10% of its net assets in securities of
U.S. or foreign companies that are issued or traded overseas, primarily in the
form of American Depositary Receipts (ADRs) or European Depositary Receipts
(EDRs). All of the Fund's investments in these vehicles will be made in U.S.
dollars. In addition, the Fund may invest the remaining 5% of its net assets in
securities denominated in foreign currencies, and may use forward foreign
currency exchange contracts to try to manage changes in currency exchange rates.
6 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
The Guardian Park Avenue Small Cap Fund
For more information on ADRs, EDRs and forward foreign currency exchange
contracts, see Risks and special investment techniques.
As a temporary defensive strategy, the Fund may invest some or all of its assets
in debt obligations, including U.S. government securities, investment grade
corporate bonds, commercial paper, repurchase agreements and cash equivalents.
To the extent the Fund assumes a temporary defensive position, it may not pursue
its investment objective during that time.
The principal risks of investing in the Fund
As with all mutual funds, the value of your investment could decline so you
could lose money. Because it invests in equity securities, the Fund is subject
to the general risks of investing in stock markets, which include the risk that
share prices of the securities in its portfolio can be driven up or down
gradually or sharply by general conditions in the stock markets, or by the
performance of an individual company or industry. In addition, an investment in
the Fund exposes you to the risks of investing in small companies. Small
companies may expose you to greater risks than larger companies, such as
dependence on limited financial resources, limited product lines and markets,
and a small number of individuals in company management. These securities also
trade less frequently and have more dramatic price fluctuations. With respect to
the 15% of the net assets that the Fund may invest in foreign securities, you
face additional risks. Foreign investments may be affected by political, social
and economic developments abroad, differences in auditing and other financial
standards, and greater volatility. When the Fund buys securities denominated in
a foreign currency, there are special risks such as changes in currency exchange
rates, and the risk that a foreign government could regulate foreign exchange
transactions.
Equity risk, small company risk and foreign investment risk are all described in
detail in Risks and special investment techniques.
How the Fund has performed
The bar chart below provides some indication of the risks of investing in the
Fund by showing how its performance has varied since it was launched on May 1,
1997. The performance figures shown assume that all dividends and distributions
are reinvested in the Fund, but do not include sales charges you pay when you
buy or sell shares. If the sales charge were included, the returns shown would
be lower. Past results do not necessarily indicate how the Fund will perform in
the future.
ABOUT OUR FUNDS PROSPECTUS 7
<PAGE>
THE GUARDIAN PARK AVENUE SMALL CAP FUND
Year-by-year returns
Total returns for Class A shares
(Years ended December 31)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
1998
(6.35)
Returns of Class B shares and Institutional Class shares would be different from
the returns depicted in the bar chart because they have expenses that differ
from those of Class A shares.
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Highest and lowest quarters
During the period shown in the bar chart, the highest and lowest returns,
respectively, for a quarter were:
Best quarter
17.11% for the quarter ended December 31, 1998.
Worst quarter
(25.09)% for the quarter ended September 30, 1998.
Average annual total returns
This table provides some indication of the risks of investing in the Fund by
showing the average annual total returns for the one-year period and since
inception through December 31, 1998. It compares the Fund's performance with the
Russell 2000 Index, an index that is generally considered to be representative
of small capitalization issuers in the U.S. stock market. No Institutional Class
shares were outstanding in 1998. Past results do not necessarily indicate how
the Fund will perform in the future.
Since inception
1 year (May 1, 1997)
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Class A shares (6.35)% 15.46%
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Class B shares (7.05)% 12.37%
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Russell 2000 Index (2.55)% 14.53%
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8 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN PARK AVENUE SMALL CAP FUND
Fees and expenses
The following tables show the fees and expenses you will pay to own shares of
the Fund.
Fees you pay directly
Maximum sales Maximum deferred sales
charge to buy charge to sell shares, as
shares, as a % of a % of the amount sold
Share class the offering price subject to the charge
- --------------------------------------------------------------------------------
Class A shares 4.50% None(1)
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Class B shares None 3.00%(2)
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Institutional Class shares None None
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NOTES
(1) Purchases of $1 million or more of Class A shares may be subject to a
contingent deferred sales charge if such shares are redeemed within 18
months of purchase.
(2) Maximum sales charge declines to 2% if shares are sold in years 3 or 4
after purchase; 1% in years 5 or 6; and zero in year 7 and beyond.
Annual fees and expenses deducted from the Fund's assets
(as a percentage of average net assets)
Management Distribution Other
Share class fees (12b-1) fees expenses(1) Total
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Class A shares 0.75% 0.00% 0.57% 1.32%
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Class B shares 0.75% 0.75% 0.67% 2.17%
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Institutional Class shares 0.75% 0.00% 0.32% 1.07%
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NOTES
(1) Includes Administrative Service Fee of 0.25% for Class A and Class B
shares.
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EXAMPLE
The example on the right allows you to compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes:
o you invest $10,000 at the start of the periods shown
o your investment has a 5% return each year
o the Fund's operating expenses do not change.
The ten-year figures shown reflect the conversion of Class B shares to Class A
shares after the eighth anniversary of purchase.
Using these assumptions the costs of investing in the Fund would be as shown in
the table below. Your actual costs may be higher or lower than those reflected
here.
If you sold all of your shares at the end of the periods shown, the costs of
investing in the Fund would be:
1 year 3 years 5 years 10 years
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Class A shares $ 526 $ 849 $1,141 $1,969
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Class B shares $ 520 $ 879 $1,264 $2,287
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Institutional Class shares $ 109 $ 340 $ 590 $1,306
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If you did not sell any of your shares at the end of the periods shown, the
costs of investing in the Fund would be:
1 year 3 years 5 years 10 years
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Class A shares $ 578 $ 849 $1,141 $1,969
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Class B shares $ 220 $ 679 $1,164 $2,287
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Institutional Class shares $ 109 $ 340 $ 590 $1,306
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ABOUT OUR FUNDS PROSPECTUS 9
<PAGE>
THE GUARDIAN
ASSET ALLOCATION FUND
A fund of funds
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The Fund currently operates primarily as a "fund of funds." The adviser
generally invests in Class A shares of other funds in The Park Avenue Portfolio.
The equity or stock part of the Fund's portfolio is usually invested in The
Guardian Park Avenue Fund, while the debt or bond part is invested in The
Guardian Investment Quality Bond Fund, and the money market part is invested in
The Guardian Cash Management Fund. This approach has been gradually implemented
since May 1, 1997. The Fund may also invest in individual securities when the
portfolio manager thinks it is advisable.
OBJECTIVE
THE ASSET ALLOCATION FUND seeks long-term total investment return consistent
with moderate investment risk. Total investment return consists of income and
changes in the market value of the Fund's investments.
The Fund's principal investment strategies
The Fund allocates its assets among three broad classes of investments: U.S.
common stocks and convertible securities; investment grade bonds and other debt
obligations; and cash and money market instruments.
The Fund uses its own theoretical models to decide how much to invest in each
asset class, fluctuating from a "neutral position" of 60% of assets in equity
and 40% in debt. Shifts are expected to be modest and gradual, but there is no
limit to the portion of money that can be moved at any one time. The models
generally provide for the adviser to invest from 20% to 80% in equities; from
20% to 70% in debt; and from zero to 60% in cash, although the Fund has the
flexibility to invest outside these guidelines.
The models evaluate information about the economy, the markets and other
financial and technical matters daily to provide "signals" about portfolio
allocations. The adviser makes portfolio allocations among equities, debt
securities and cash after assessing the relative values of these different types
of investments under prevailing market conditions, taking into account the risks
associated with each type of securities. For example, the Fund may invest
primarily in equity securities when corporate profitability and growth appear to
be strong, or increase the allocation to debt securities when the models suggest
that stocks are generally overvalued or that the interest rate environment makes
bonds more attractive.
The Fund may use special techniques, such as futures and options, to protect
against adverse changes in the markets while the Fund is moving money between
asset classes or when there are large cash inflows.
The principal risks of investing in the Fund
As with all mutual funds, the value of your investment could decline so you
could lose money. Part of the Fund is invested in equities, or shares of
companies. Some of the assets are invested in bonds. The Fund is therefore
subject to the risks of investing in the equity markets and the debt markets.
Equity risks include the risk that share prices of the securities in its
portfolio can be driven up or down gradually or sharply by general conditions in
the stock markets, or by the
10 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN ASSET ALLOCATION FUND
performance of an individual company or industry. Debt risks include interest
rate risk (the risk that a debt obligation's price will be adversely affected by
increases in interest rates), credit risk (the risk that the issuer of the debt
obligation will fail to repay principal and interest), and prepayment risk (the
risk that debt obligations will be prepaid when interest rates are lower). You
should also review the main risks of investing in the Park Avenue Fund and the
Bond Fund to fully understand the risks associated with investing in the Asset
Allocation Fund. More detail about equity risk and debt risk appears in the
section called Risks and special investment techniques.
Because the Fund uses options and futures as part of its investment strategy,
you will also face risks associated with those techniques. While the Fund will
use these techniques in an effort to best manage the shifts in its investment
allocations, it is possible that the Fund will lose more value than it would
have if options or futures were not used. For further information about the
risks of options and futures, see the section called Risks and special
investment techniques.
There is no assurance that the Fund's allocations will result in the most
favorable return to investors. However, it is expected that the Fund's
performance will be less volatile than the performance of funds that concentrate
their investments in one asset class.
The Fund does not have to pay any sales charges when it invests in other Funds.
While there are no duplicative advisory or administrative service fees, you
should know that you will pay indirectly for certain expenses in these other
Funds, in addition to the expenses of the Asset Allocation Fund.
How the Fund has performed
The bar chart below provides some indication of the risks of investing in the
Fund by showing how its performance has varied from year to year since it was
launched on February 16, 1993. The performance figures shown assume that all
dividends and distributions are reinvested in the Fund, but they do not include
sales charges you pay when you buy or sell shares. If the sales charge were
included, the returns shown would be lower. Past results do not necessarily
indicate how the Fund will perform in the future.
ABOUT OUR FUNDS PROSPECTUS 11
<PAGE>
THE GUARDIAN ASSET ALLOCATION FUND
Year-by-year returns
Total returns for Class A shares
(Years ended December 31)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
1994 1995 1996 1997 1998
(2.13) 24.51 18.74 24.44 19.41
Returns of Class B shares and Institutional Class shares would be different from
the returns depicted in the bar chart because they have expenses that differ
from those of Class A shares.
- --------------------------------------------------------------------------------
Highest and lowest quarters
During the period shown in the bar chart, the highest and lowest returns,
respectively, for a quarter were:
Best quarter
16.15% for the quarter ended December 31, 1998.
Worst quarter
(5.89)% for the quarter ended September 30, 1998.
Average annual total returns
This table provides some indication of the risks of investing in the Fund by
showing the average annual total returns for the 1 and 5-year periods and since
inception through December 31, 1998. It compares the Fund's performance with the
S&P 500 Index, an index of 500 large-cap U.S. stocks that is generally
considered to be representative of U.S. stock market activity, and the Lehman
Aggregate Bond Index, an index that is generally considered to be representative
of U.S. bond market activity. No Institutional Class shares were outstanding in
1998. Past results do not necessarily indicate how the Fund will perform in the
future.
1 year 5 year Since inception
- --------------------------------------------------------------------------------
Class A shares 19.41% 16.55% 16.16%(1)
- --------------------------------------------------------------------------------
Class B shares 18.32% n/a 20.44%(1)
- --------------------------------------------------------------------------------
S&P 500 Index 28.58% 23.96% 21.61%(2)
- --------------------------------------------------------------------------------
Lehman Aggregate Bond Index 8.69% 7.27% 7.40%(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Inception of Class A shares: February 16, 1993; Class B shares: May 1,
1996.
(2) The returns in the chart for each Index are since February 16, 1993, the
date of inception of Class A shares. The S&P 500 Index and the Lehman
Aggregate Bond Index had average annual returns of 30.03% and 9.20%,
respectively, since May 1, 1996, the date of inception of Class B shares.
12 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN ASSET ALLOCATION FUND
Fees and expenses
The following tables show the fees and expenses you will pay to own shares of
the Fund.
Fees you pay directly
Maximum sales Maximum deferred sales
charge to buy charge to sell shares, as
shares, as a % of a % of the amount sold
Share class the offering price subject to the charge
- --------------------------------------------------------------------------------
Class A shares 4.50% None(1)
- --------------------------------------------------------------------------------
Class B shares None 3.00%(2)
- --------------------------------------------------------------------------------
Institutional Class shares None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Purchases of $1 million or more of Class A shares may be subject to a
contingent deferred sales charge if such shares are redeemed within 18
months of purchase.
(2) Maximum sales charge declines to 2% if shares are sold in years 3 or 4
after purchase; 1% in years 5 or 6; and zero in year 7 and beyond.
Annual fees and expenses deducted from the Fund's assets
(as a percentage of average net assets)
Management Distribution Other
Share class fees(1) (12b-1) fees expenses(2) Total
- --------------------------------------------------------------------------------
Class A shares 0.65% 0.00% 0.35% 1.00%
- --------------------------------------------------------------------------------
Class B shares 0.65% 0.75% 0.48% 1.88%
- --------------------------------------------------------------------------------
Institutional Class shares 0.65% 0.00% 0.22% 0.87%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) The fees and expenses shown for the Asset Allocation Fund do not reflect
management fee waivers by GISC that reduce the effective annual rate of
management fees to 0.50%.
(2) Includes Administrative Service Fee of 0.25% for Class A and Class B
shares.
- --------------------------------------------------------------------------------
EXAMPLE
The example on the right allows you to compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes:
o you invest $10,000 at the start of the periods shown
o your investment has a 5% return each year
o the Fund's operating expenses do not change.
The ten-year figures shown reflect the conversion of Class B shares to Class A
shares after the eighth anniversary of purchase.
Using these assumptions the costs of investing in the Fund would be as shown in
the table below. Your actual costs may be higher or lower than those reflected
here.
If you sold all of your shares at the end of the periods shown, the costs of
investing in the Fund would be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A shares $ 509 $ 634 $ 770 $1,166
- --------------------------------------------------------------------------------
Class B shares $ 451 $ 668 $ 908 $1,529
- --------------------------------------------------------------------------------
Institutional Class shares $ 48 $ 151 $ 263 $ 591
- --------------------------------------------------------------------------------
If you did not sell any of your shares at the end of the periods shown, the
costs of investing in the Fund would be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A shares $ 509 $ 634 $ 770 $1,166
- --------------------------------------------------------------------------------
Class B shares $ 151 $ 468 $ 808 $1,529
- --------------------------------------------------------------------------------
Institutional Class shares $ 48 $ 151 $ 263 $ 591
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ABOUT OUR FUNDS PROSPECTUS 13
<PAGE>
THE GUARDIAN BAILLIE GIFFORD
INTERNATIONAL FUND
Principal countries
- --------------------------------------------------------------------------------
A significant part of the Fund's assets will normally be divided among
Continental Europe, the United Kingdom, Japan and Asia (including Australia and
New Zealand).
OBJECTIVE
THE INTERNATIONAL FUND seeks long-term growth of capital. Income is not a
specific objective, although it is anticipated that growth of capital will be
accompanied by dividend income, which may vary depending on factors such as the
location of the investments.
The Fund's principal investment strategies
At least 80% of the value of the Fund's total assets is usually invested in a
diversified portfolio of common stocks and convertible securities issued by
companies domiciled outside of the United States. Convertible securities are
described in the section called Risks and special investment techniques.
The Fund does not usually focus its investments in a particular industry or
country. There are no limitations on how much money the Fund can invest in any
one country. Up to 10% of the Fund's total assets may be invested in countries
in emerging markets when the investment adviser believes it would be appropriate
to do so.
To determine how to allocate its assets geographically, the Fund constantly
evaluates economic, market and political trends worldwide. Among the factors
considered are currency exchange rates, growth potential of economies and
securities markets, technological developments and political and social
conditions.
The adviser's investment philosophy is to add value through active management by
making long-term investments in well-researched and well-managed, quality
businesses that enjoy sustainable, competitive advantages in their marketplace.
The adviser's investment style primarily uses a bottom-up, stock driven approach
to country and asset allocation, with the objective of selecting stocks that can
sustain an above-average growth rate and trade at a reasonable price.
Companies are screened first for quality and then for value. The adviser looks
for companies with attractive industry backgrounds, strong competitive positions
within those industries, high quality earnings and a positive approach towards
shareholders. The main fundamental factors the adviser considers when analyzing
companies in this bottom-up analysis (in order of importance) are: earnings
growth, cash flow growth, profitability, debt and interest cover, and valuation.
The Fund invests its assets primarily in large, well-established companies, but
will also invest in smaller and newer companies.
14 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
The Fund may also invest in foreign issuers through American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs), or similar investment vehicles. To
attempt to manage the risk of changes in currency exchange rates, the Fund may
use special investment techniques, such as forward foreign currency exchange
contracts. These securities are described in Risks and special investment
techniques.
As a temporary defensive measure, if the Fund's adviser believes investing in
foreign equity securities is too risky, the Fund may significantly alter its
portfolio by investing, without any percentage limit, in foreign or U.S.
investment grade, non-convertible preferred stocks, bonds, government
securities, or money market instruments. To the extent the Fund assumes a
temporary defensive position, it may not pursue its investment objective during
that time.
The principal risks of investing in the Fund
As with all mutual funds, the value of your investment could decline so you
could lose money. The Fund invests primarily in equity securities and therefore
exposes you to the general risks of investing in stock markets. These include
the risk that share prices of the securities in its portfolio can be driven up
or down gradually or sharply by general conditions in the stock markets, or by
the performance of an individual company or industry. Since most of the
securities in the Fund's portfolio are invested abroad, you face risks in
addition to those of investing in domestic equity markets. The Fund's
investments may be affected by political, social and economic developments
abroad, differences in auditing and other financial standards, and greater
volatility. When the Fund buys securities denominated in the currency of a
foreign country, you face special risks. There will be changes in currency
exchange rates, and foreign governments could regulate foreign exchange
transactions. To the extent that investments are made in a limited number of
countries, events in those countries will have a more significant impact on the
Fund. All of these factors can affect the value of securities and their
earnings.
Forward foreign currency contracts are intended to hedge against adverse changes
in the currency rates of securities purchased or sold by the Fund, and not for
speculative purposes. If the adviser's judgment about the direction of currency
exchange rates is incorrect, however, the Fund may lose money through use of
these contracts.
- --------------------------------------------------------------------------------
Euro Conversion
On January 1, 1999, the European Monetary Union (EMU) launched a new currency,
the Euro. It became the official currency of 11 European countries (Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain) and replaced individual currencies in those countries. Three
other EU member countries (Denmark, Greece and the United Kingdom) may convert
to the Euro at a later date. It is expected that 46% of the capitalization of
the entire European market will be reflected in Euros, and most participating
governments will issue their bonds in Euros.
It is impossible to predict what effect, if any, the conversion to Euros will
have on the Funds. The Euro conversion presents investors with unique risks and
uncertainties, including:
o the readiness of Euro payment, clearing and other operational systems;
o the legal treatment of debt instruments and financial contracts
denominated in or referring to existing national currencies rather than
the Euro;
o exchange-rate fluctuations between the Euro and non-Euro currencies during
the transition period of January 1, 1999 through December 31, 2001 and
beyond;
o potential U.S. tax issues with respect to Fund securities; and
o the ability to manage monetary policies among the participating countries.
These and other factors could adversely affect the value of or income from
Fund securities.
- --------------------------------------------------------------------------------
ABOUT OUR FUNDS PROSPECTUS 15
<PAGE>
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
The Fund's investments in smaller, newer companies may involve additional risks
such as limited financial resources, product lines and markets, and greater
volatility.
To the limited extent that the Fund invests in emerging markets, there are
special risks in addition to the general risks of investing abroad. These risks
include greater political and economic instability, greater volatility in
currency exchange rates, less developed securities markets and possible trade
barriers.
For more information on stock market risks and foreign investment risk, see the
section called Risks and special investment techniques.
How the Fund has performed
The bar chart below provides some indication of the risks of investing in the
Fund by showing how its performance has varied from year to year since it was
launched on February 16, 1993. The performance figures shown assume that all
dividends and distributions are reinvested in the Fund, but do not include any
sales charge you pay when you buy or sell shares. If the sales charge were
included, the returns shown would be lower. Past results do not necessarily
indicate how the Fund will perform in the future.
Year-by-year returns
Total returns for Class A shares
(Years ended December 31)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
1994 1995 1996 1997 1998
(0.55) 11.14 14.33 11.07 19.61
Returns of Class B shares and Institutional Class shares would be different from
the returns depicted in the bar chart because they have expenses that differ
from those of Class A shares.
- --------------------------------------------------------------------------------
Highest and lowest quarters
During the period shown in the bar chart, the highest and lowest returns,
respectively, for a quarter were:
Best quarter
18.11% for the quarter ended December 31, 1998.
Worst quarter
(14.75)% for the quarter ended September 30, 1998.
16 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
Average annual total returns
This table provides some indication of the risks of investing in the Fund by
showing the average annual total returns for the 1 and 5-year periods and since
inception through December 31, 1998. It compares the Fund's performance with the
Morgan Stanley Capital International (MSCI) Index for Europe, Australia, and Far
East (EAFE), an index that is generally considered to be representative of
international stock market activity. No Institutional Class shares were
outstanding in 1998. Past results do not necessarily indicate how the Fund will
perform in the future.
1 year 5 year Since inception
- --------------------------------------------------------------------------------
Class A shares 19.61% 10.92% 14.12%(1)
- --------------------------------------------------------------------------------
Class B shares 18.36% n/a 11.95%(1)
- --------------------------------------------------------------------------------
MSCI (EAFE) Index 20.33% 9.50% 13.07%(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Inception of Class A shares: February 16, 1993; Class B shares: May 1,
1996.
(2) The return shown in the chart is since February 16, 1993, the date of
inception of Class A shares. The MSCI(EAFE) Index had average annual
returns of 8.14% since May 1, 1996, the date of inception for Class B
shares.
Fees and expenses
The following tables show the fees and expenses you will pay to own shares of
the Fund.
Fees you pay directly
Maximum sales Maximum deferred sales
charge to buy charge to sell shares, as
shares, as a % of a % of the amount sold
Share class the offering price subject to the charge
- --------------------------------------------------------------------------------
Class A shares 4.50% None(1)
- --------------------------------------------------------------------------------
Class B shares None 3.00%(2)
- --------------------------------------------------------------------------------
Institutional Class shares None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Purchases of $1 million or more of Class A shares may be subject to a
contingent deferred sales charge if such shares are redeemed within 18
months of purchase.
(2) Maximum sales charge declines to 2% if shares are sold in years 3 or 4
after purchase; 1% in years 5 or 6; and zero in year 7 and beyond.
Annual fees and expenses deducted from the Fund's assets
(as a percentage of average net assets)
Management Distribution Other
Share class fees (12b-1) fees expenses(1) Total
- --------------------------------------------------------------------------------
Class A shares 0.80% 0.00% 0.76% 1.56%
- --------------------------------------------------------------------------------
Class B shares 0.80% 0.75% 1.12% 2.67%
- --------------------------------------------------------------------------------
Institutional Class shares 0.80% 0.00% 0.51% 1.31%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Includes Administrative Service Fee of 0.25% for Class A and Class B
shares.
ABOUT OUR FUNDS PROSPECTUS 17
<PAGE>
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
- --------------------------------------------------------------------------------
EXAMPLE
The example on the right allows you to compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes:
o you invest $10,000 at the start of the periods shown
o your investment has a 5% return each year
o the Fund's operating expenses do not change.
The ten-year figures shown reflect the conversion of Class B shares to Class A
shares after the eighth anniversary of purchase.
Using these assumptions the costs of investing in the Fund would be as shown in
the table below. Your actual costs may be higher or lower than those reflected
here.
If you sold all of your shares at the end of the periods shown, the costs of
investing in the Fund would be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A shares $ 602 $ 920 $1,262 $2,223
- --------------------------------------------------------------------------------
Class B shares $ 570 $1,029 $1,515 $2,734
- --------------------------------------------------------------------------------
Institutional Class shares $ 113 $ 415 $ 718 $1,579
- --------------------------------------------------------------------------------
If you did not sell any of your shares at the end of the periods shown, the
costs of investing in the Fund would be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A shares $ 602 $ 920 $1,262 $2,223
- --------------------------------------------------------------------------------
Class B shares $ 270 $ 829 $1,415 $2,734
- --------------------------------------------------------------------------------
Institutional Class shares $ 133 $ 415 $ 718 $1,579
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
18 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN BAILLIE GIFFORD
EMERGING MARKETS FUND
OBJECTIVE
THE EMERGING MARKETS FUND seeks long-term capital appreciation. Income is not a
specific objective, although it is anticipated that growth of capital will be
accompanied by dividend income, which may vary depending on factors such as the
location of the investments.
The Fund's principal investment strategies
At least 65% of the value of the Fund's total assets is invested in a
diversified portfolio of common stocks and convertible securities issued by
companies in emerging markets. Convertible securities are described in the
section called Risks and special investment techniques.
The Fund expects to invest in some or all of the following emerging market
countries: Argentina, Brazil, Chile, China, Colombia, the Czech Republic,
Greece, Hungary, India, Indonesia, Israel, Jordan, Malaysia, Mexico, Pakistan,
Peru, Philippines, Poland, Portugal, the Slovak Republic, South Africa, South
Korea, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela, and Zimbabwe. The Fund's
investment adviser determines the universe of emerging market countries, and
this list may change based on the adviser's assessment of a country's
suitability for investment.
The adviser's investment philosophy is to add value through active management by
making long-term investments in well-researched and well-managed, quality
businesses that enjoy sustainable, competitive advantages in their marketplace.
The adviser's investment style primarily uses a bottom-up, stock driven approach
to country and asset allocation, with the objective to select stocks that can
sustain an above-average growth rate and trade at a reasonable price.
Companies are screened first for quality and then for value. The adviser looks
for companies with attractive industry backgrounds, strong competitive positions
within those industries, high quality earnings and a positive approach towards
shareholders. The main fundamental factors the adviser considers when analyzing
companies in this bottom-up analysis (in order of importance) are: earnings
growth, cash flow growth, profitability, debt and interest cover, and valuation.
In addition, up to 35% of the Fund's net assets may be invested in bonds and
other types of debt securities issued by governments in emerging market
countries; stocks and debt securities issued by companies or governments in
developed countries; and cash or money market instruments. The Fund will invest
in emerging market debt securities when the investment adviser believes that
debt is more attractive than an equity investment in the same country, taking
into account the risk and reward prospects of each type of investment.
Emerging markets
- --------------------------------------------------------------------------------
The Fund defines an emerging market country as one whose economy or markets are
considered by the International Finance Corporation and the World Bank to be
emerging or developing, as well as countries which are classified by the United
Nations as developing. An emerging market company is one that is organized under
the laws of, or has its principal office in, an emerging market country; derives
50% or more of its revenue from goods produced, services performed or sales made
in emerging market countries; or for which the principal securities market is
located in an emerging market country.
ABOUT OUR FUNDS PROSPECTUS 19
<PAGE>
THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
Investment rating agencies in the United States often consider bonds issued in
emerging market countries to be below investment grade (commonly referred to as
junk bonds). No more than 10% of the Fund's assets will be invested in below
investment grade securities.
Some emerging market countries do not allow foreign companies, such as the Fund,
to buy stocks and bonds in their countries. Purchases have to be made through
government-authorized investment companies, sometimes at a price that exceeds
the value of these securities. In these cases, you would bear higher expenses.
The Fund may invest up to 10% of its total assets in these kinds of companies.
The Fund may also hold cash in U.S. dollars or foreign currencies. To attempt to
protect against adverse changes in currency exchange rates, it may also use
special investment techniques such as forward foreign currency exchange
contracts. For more information, see Risks and special investment techniques.
As a temporary defensive strategy, the Fund may significantly change its
portfolio if the adviser believes that political or economic conditions make
investing in emerging market countries too risky. In this case, the Fund may
acquire foreign or U.S. investment grade, non-convertible preferred stocks,
bonds, government securities, and money market instruments. To the extent the
Fund assumes a temporary defensive position, it may not pursue its investment
objective during that time.
Special risks
- --------------------------------------------------------------------------------
Emerging markets present special risks in addition to the general risks of
investing abroad. These risks include greater political and economic
instability, greater volatility in currency exchange rates, less developed
securities markets and possible trade barriers.
The principal risks of investing in the Fund
As with all mutual funds, the value of your investment could decline so you
could lose money. An investment in this Fund must be considered speculative
because investing in emerging markets is riskier than investing in more
developed markets.
There are several risks associated with investing in the Emerging Markets Fund.
The Fund invests primarily in equity securities and is therefore subject to the
general risks of investing in stock markets. Since most of the securities in the
Fund's portfolio are invested abroad, you face risks in addition to those of
investing in domestic equity markets. The Fund's investments may be affected by
political, social and economic developments abroad, differences in auditing and
other financial standards, and greater volatility. When the Fund buys securities
denominated in the currency of a foreign country, you face special risks. There
will be changes in currency exchange rates, and foreign governments could
regulate foreign exchange transactions. To the extent that investments are made
in a limited number of countries, events in those countries will have a more
significant impact on the Fund. All of these factors can affect the value of
securities and their earnings.
20 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
Emerging markets present special risks in addition to the general risks of
investing abroad. These risks include greater political and economic
instability, greater volatility in currency exchange rates, less developed
securities markets and possible trade barriers.
Forward foreign currency contracts are intended to hedge against adverse changes
in the currency rates of securities purchased or sold by the Fund, and not for
speculative purposes. If the adviser's judgment about the direction of currency
exchange rates is incorrect, however, the Fund may lose money through use of
these contracts.
The Fund will invest in some companies with small market capitalization,
exposing you to the risks of investing in small companies, such as limited
financial resources, product lines and markets, and greater volatility. With
respect to the 35% of the Fund's net assets that may be invested in debt
securities, you face risks associated with the debt markets. Debt securities of
emerging market companies are particularly subject to credit risk (the risk that
the borrower will fail to repay principal and interest when due). Emerging
market debt is generally more volatile and less liquid than debt issued in more
developed countries. As with all debt securities, you will also be subject to
interest rate risk (the risk that a debt obligation's price will be adversely
affected by changes in interest rates). Finally, since debt securities issued in
emerging markets are often rated below investment grade, you will have exposure
to the risks of investing in junk bonds, including the risk that the bonds will
be more sensitive to adverse economic conditions.
More detailed information about the risks associated with the Fund, including
stock market risk, foreign investment risk (including the particular risks of
emerging markets), small company risk, and the risks of investing in debt
securities (including junk bonds), appears in the section called Risks and
special investment techniques.
How the Fund has performed
The bar chart below provides some indication of the risks of investing in the
Fund by showing how its performance has varied since it was launched on May 1,
1997. The performance figures shown assume that all dividends and distributions
are reinvested, but do not include any sales charges you pay when you buy or
sell shares. If the sales charge were included, the returns shown would be
lower. Past results do not necessarily indicate how the Fund will perform in the
future.
ABOUT OUR FUNDS PROSPECTUS 21
<PAGE>
THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
Year-by-year returns
Total returns for Class A shares
(Years ended December 31)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
1998
(28.97)
Returns of Class B shares and Institutional Class shares would be different from
the returns depicted in the bar chart because they have expenses that differ
from those of Class A shares.
Average annual total returns
This table provides some indication of the risks of investing in the Fund by
showing the average annual total returns for the 1-year period and since
inception through December 31, 1998. It compares the Fund's performance with the
Morgan Stanley Capital International (MSCI) Emerging Markets Free (EMF) Index,
an index that is generally considered to be representative of the stock market
activity of emerging markets. No Institutional Class shares were outstanding in
1998. Past results do not necessarily indicate how the Fund will perform in the
future.
Since inception
1 year (May 1, 1997)
- --------------------------------------------------------------------------------
Class A shares (28.97)% (22.55)%
- --------------------------------------------------------------------------------
Class B shares (30.75)% (24.73)%
- --------------------------------------------------------------------------------
MSCI (EMF) Index (25.34)% (25.83)%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Highest and lowest quarters
During the period shown in the bar chart, the highest and lowest returns,
respectively, for a quarter were:
Best quarter
14.83% for the quarter ended December 31, 1998.
Worst quarter
(23.28)% for the quarter ended September 30, 1998.
22 PROSPECTUS ABOUT THE FUNDS
<PAGE>
THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
Fees and expenses
The following tables show the fees and expenses you will pay to own shares of
the Fund.
Fees you pay directly
Maximum sales Maximum deferred sales
charge to buy charge to sell shares, as
shares, as a % of a % of the amount sold
Share class the offering price subject to the charge
- --------------------------------------------------------------------------------
Class A shares 4.50% None(1)
- --------------------------------------------------------------------------------
Class B shares None 3.00%(2)
- --------------------------------------------------------------------------------
Institutional Class shares None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Purchases of $1 million or more of Class A shares may be subject to a
contingent deferred sales charge if such shares are redeemed within 18
months of purchase.
(2) Maximum sales charge declines to 2% if shares are sold in years 3 or 4
after purchase; 1% in years 5 or 6; and zero in year 7 and beyond.
Annual fees and expenses deducted from the Fund's assets
(as a percentage of average net assets)
Management Distribution Other
Share class fees (12b-1) fees expenses(1) Total
- --------------------------------------------------------------------------------
Class A shares 1.00% 0.00% 1.55% 2.55%
- --------------------------------------------------------------------------------
Class B shares 1.00% 0.75% 3.29% 5.04%
- --------------------------------------------------------------------------------
Institutional Class shares 1.00% 0.00% 1.30% 2.30%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Includes Administrative Service Fee of 0.25% for Class A and Class B
shares.
- --------------------------------------------------------------------------------
EXAMPLE
The example on the right allows you to compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes:
o you invest $10,000 at the start of the periods shown
o your investment has a 5% return each year
o the Fund's operating expenses do not change.
The ten-year figures shown reflect the conversion of Class B shares to Class A
shares after the eighth anniversary of purchase.
Using these assumptions the costs of investing in the Fund would be as shown in
the table below. Your actual costs may be higher or lower than those reflected
here.
If you sold all of your shares at the end of the periods shown, the costs of
investing in the Fund would be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A shares $ 697 $1,208 $1,744 $3,205
- --------------------------------------------------------------------------------
Class B shares $ 804 $1,711 $2,617 $4,546
- --------------------------------------------------------------------------------
Institutional Class shares $ 233 $ 718 $1,230 $2,636
- --------------------------------------------------------------------------------
If you did not sell any of your shares at the end of the periods shown, the
costs of investing in the Fund would be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A shares $ 697 $1,208 $1,744 $3,205
- --------------------------------------------------------------------------------
Class B shares $ 504 $1,511 $2,517 $4,546
- --------------------------------------------------------------------------------
Institutional Class shares $ 233 $ 718 $1,230 $2,636
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ABOUT OUR FUNDS PROSPECTUS 23
<PAGE>
THE GUARDIAN INVESTMENT
QUALITY BOND FUND
Investment grade securities
- --------------------------------------------------------------------------------
Investment grade securities are bonds or convertible preferred stock that
nationally recognized statistical ratings organizations, such as Moody's
Investors Service, Inc. and Standard & Poor's Ratings Group, rate as Aaa or AAA
(the highest quality) to Baa or BBB (the fourth highest category).
OBJECTIVE
THE BOND FUND seeks a high level of current income and capital appreciation
without undue risk to principal.
The Fund's principal investment strategies
At least 80% of the value of the Fund's total assets is usually invested in
different kinds of investment grade debt obligations, such as corporate bonds,
mortgage-backed and asset-backed securities, and obligations of the U.S.
government and its agencies.
Debt obligations are written promises by the borrower to pay interest for a
specified period and to repay the debt on a specified date or over time.
Interest can be payable at a fixed, variable, or floating rate or, as in the
case of zero coupon bonds, the obligation can be purchased at a discount from
its face value in place of interest.
GISC, the Fund's investment adviser, allocates the Fund's investments among the
various sectors of the debt markets by analyzing overall economic conditions
within and among these sectors. The Fund usually diversifies its asset
allocations broadly among the debt securities markets, but may emphasize some
sectors over others based on their attractiveness relative to each other. Within
the sector allocations, the adviser selects individual securities by considering
yield, potential appreciation, credit quality, maturity and the degree of risk
relative to other securities in the sector. The Fund generally maintains a
stable intermediate duration, but may lengthen or shorten its duration within
the intermediate range to reflect changes in the overall composition of the
investment grade debt markets.
Most of the debt obligations in the Fund are rated investment grade. This means
they are secured or unsecured obligations rated in one of the four highest
categories by a nationally recognized statistical ratings organization such as
Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, or are
deemed to be of comparable quality by GISC, the Fund's investment adviser. Some
of the Fund's assets may have lower ratings, either because they were downgraded
after the Fund acquired them or because they have strong prospects of being
raised to investment grade. Debt securities rated below investment grade are
commonly known as junk bonds, and are described in the section called Risks and
special investment techniques. Normally, less than 10% of the Fund's assets will
be invested in lower-rated securities.
The Fund may invest in mortgage-backed securities. These securities represent
interests in pools of commercial or residential mortgages. The Fund may also
invest in collateralized mortgage obligations, or CMOs, which are backed by
pooled mortgage loans that may be issued or guaranteed by a bank, the U.S.
government or a U.S. government agency. Mortgage-backed securities may be issued
by U.S. government agencies or by private entities. Some mortgage-backed
securities may be backed by the U.S. government.
24 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN INVESTMENT QUALITY BOND FUND
The Bond Fund may also invest in asset-backed securities. These are similar in
structure to mortgage-backed securities but represent interests in pools of
loans, leases or other receivables in place of mortgages. Asset-backed
securities are primarily issued by non-government entities.
The Bond Fund may invest in so-called Yankee securities. Yankee securities are
debt securities issued by non-U.S. corporate or government entitites, but are
denominated in U.S. dollars. Yankee securities trade and may be settled in U.S.
markets. Additionally, from time to time, the Bond Fund may invest up to 10% of
the value of its total net assets in other foreign securities denominated in
U.S. dollars.
The Fund also invests in Treasury bills, notes and bonds, which are backed by
the U.S. government.
The Bond Fund may engage in dollar roll and reverse repurchase agreement
transactions when the adviser believes it would be advantageous, as well as
financial futures contracts and options. For more information, see the section
called Risks and special investment techniques.
The principal risks of investing in the Fund
As with all mutual funds, the value of your investment could decline so you
could lose money. An investment in the Fund exposes you to the general risks of
investing in debt markets. These include interest rate risk (the risk that a
debt obligation's price will be adversely affected by increases in interest
rates), credit risk (the risk that the issuer of the debt obligation will fail
to repay principal and interest), and prepayment risk (the risk that debt
obligations, particularly mortgage-related securities, will be prepaid when
interest rates are lower). Because the Fund may invest up to 10% of its total
net assets in U.S. dollar denominated securities that are issued and settled
overseas, you face additional risks. Foreign investments may be affected by
political, social and economic developments abroad, differences in auditing and
other financial standards, and greater volatility. When the Fund buys securities
denominated in a foreign currency, there are special risks such as changes in
currency exchange rates, and the risk that a foreign government could regulate
foreign exchange transactions. See the section called Risks and special
investment techniques for a discussion of the debt market and foreign market
risks of investing in this Fund.
Bonds in the Fund's portfolio which are downgraded present extra risks because
the issuer is considered less likely to repay the interest and principal than
issuers of higher-quality bonds. Lower quality debt securities can be more
sensitive to adverse economic conditions, including the issuer's financial
condition or stresses in its industry. While the Fund does not expect to have a
significant portion of its assets in lower-quality debt, you should review the
risks of lower-quality debt investments in the section called Risks and special
investment techniques.
ABOUT OUR FUNDS PROSPECTUS 25
<PAGE>
THE GUARDIAN INVESTMENT QUALITY BOND FUND
The Fund may invest in zero coupon securities. Since these securities do not pay
interest, they fluctuate more in value than interest-bearing securities. For
more information, see Risks and special investment techniques.
The Fund may experience a relatively high portfolio turnover, resulting in
greater transaction costs, as well as increased short-term capital gains or
losses. This is primarily attributable to GISC's continuing asset allocation
efforts among various sectors of the bond markets.
How the Fund has performed
The bar chart below provides some indication of the risks of investing in the
Fund by showing how its performance has varied from year to year since it was
launched on February 16, 1993. The performance figures shown assume that all
dividends and distributions are reinvested in the Fund, but they do not include
any sales charges you pay when you buy or sell shares. If the sales charge were
included, the returns shown would be lower. Past results do not necessarily
indicate how the Fund will perform in the future.
Year-by-year returns
Total returns for Class A shares
(Years ended December 31)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
1994 1995 1996 1997 1998
(4.50) 16.64 2.73 8.43 7.89
Returns of Institutional Class shares would be different from the returns
depicted in the bar chart because they have expenses that differ from those of
Class A shares.
- --------------------------------------------------------------------------------
Highest and lowest quarters
During the period shown in the bar chart, the highest and lowest returns,
respectively, for a quarter were:
Best quarter
5.20% for the quarter ended June 30, 1995.
Worst quarter
(2.92)% for the quarter ended March 31, 1994.
Average annual total returns
This table shows the Fund's average annual total returns for the periods ending
December 31, 1998. It compares the Fund's performance with the Lehman Aggregate
Bond Index, an index that is generally
26 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN INVESTMENT QUALITY BOND FUND
considered to be representative of U.S. bond market activity. No Institutional
Class shares were outstanding in 1998. Past results do not necessarily indicate
how the Fund will perform in the future.
Since inception
1 year 5 year (February 16, 1993)
- --------------------------------------------------------------------------------
Class A shares 7.89% 5.99% 6.03%
- --------------------------------------------------------------------------------
Lehman Aggregate Bond Index 8.69% 7.27% 7.42%
- --------------------------------------------------------------------------------
Fees and expenses
The following tables show the fees and expenses you will pay to own shares of
the Fund.
Fees you pay directly
Maximum sales Maximum deferred sales
charge to buy charge to sell shares, as
shares, as a % of a % of the amount sold
Share class the offering price subject to the charge
- --------------------------------------------------------------------------------
Class A shares 4.50% None(1)
- --------------------------------------------------------------------------------
Institutional Class shares None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Purchases of $1 million or more of Class A shares may be subject to a
contingent deferred sales charge if such shares are redeemed within 18
months of purchase.
Annual fees and expenses deducted from the Fund's assets(1)
(as a percentage of average net assets)
Management Distribution Other
Share class fees (12b-1) fees expenses(2) Total
- --------------------------------------------------------------------------------
Class A shares 0.50% 0.00% 0.46% 0.96%
- --------------------------------------------------------------------------------
Institutional Class shares 0.50% 0.00% 0.21% 0.71%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) The fees and expenses shown do not reflect GISC's assumption of ordinary
operating expenses that exceed 0.80% of the average daily net assets of
the Fund for both classes of shares.
(2) Includes Administrative Service Fee of 0.25% for Class A shares.
- --------------------------------------------------------------------------------
EXAMPLE
The example on the right allows you to compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes:
o you invest $10,000 at the start of the periods shown
o your investment has a 5% return each year
o the Fund's operating expenses do not change.
Using these assumptions the costs of investing in the Fund would be as shown in
the table below. Your actual costs may be higher or lower than those reflected
here.
If you sold all of your shares at the end of the periods shown, the costs of
investing in the Fund would be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A shares $ 544 $ 742 $ 957 $1,575
- --------------------------------------------------------------------------------
Institutional Class shares $ 73 $ 227 $ 395 $ 883
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ABOUT OUR FUNDS PROSPECTUS 27
<PAGE>
THE GUARDIAN HIGH YIELD
BOND FUND
OBJECTIVE
THE HIGH YIELD FUND seeks current income. Capital appreciation is a secondary
objective.
The Fund's principal investment strategies
At least 75% of the value of the Fund's total assets is invested in corporate
bonds and other debt securities that, at the time of purchase, are rated below
investment grade by nationally recognized statistical ratings organizations or
are unrated, but deemed by GISC to be of comparable quality. These securities
are commonly known as junk bonds. Bonds are debt obligations which involve a
written promise by the borrower to pay interest for a specified period and repay
the principal on a specified date. Interest can be fixed, contingent, floating
or variable. The Fund may also invest in convertible bonds, which are described
in the section called Risks and special investment techniques.
The investment adviser considers several factors in purchasing and selling
securities, such as the issuer's earnings patterns, financial history,
management and general prospects, relative to the price of the security. The
duration of the Fund's portfolio is not actively managed due to the nature of
the high yield securities in which the Fund invests.
There is no lower limit on the rating of securities that may be in the High
Yield Fund. Some of the securities the Fund buys and holds may be in default,
giving them the lowest rating.
The Fund may invest its assets in corporate bonds issued in connection with
highly leveraged transactions such as mergers, leveraged buy-outs,
recapitalizations and acquisitions.
The Fund may invest in common and preferred stocks, and warrants to purchase
common stocks, bonds or other kinds of securities. Usually, no more than 25% of
the Fund's assets will be invested in these types of securities.
The Fund may also purchase zero coupon bonds and "pay-in-kind" securities. Zero
coupon bonds are issued at a significant discount from face value, do not make
periodic interest payments and become due only upon maturity. Pay-in-kind
securities (PIKs) make periodic interest payments either in cash or in
additional securities.
The Fund may invest up to 25% of its total assets in foreign securities and
so-called Yankee securities, which are debt securities issued by non-U.S.
corporate or government entities, but are denominated in U.S. dollars. Yankee
securities trade and may be settled in U.S. markets. The Fund may enter into
forward foreign currency exchange contracts to try to minimize the effects of
changes in foreign exchange rates.
28 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN HIGH YIELD BOND FUND
The Fund may invest in mortgage-backed and asset-backed securities.
Mortgage-backed securities represent interests in pools of commercial or
residential mortgages. The Fund may also invest in collateralized mortgage
obligations, or CMOs, which are backed by pooled mortgage loans that may be
issued or guaranteed by a bank, the U.S. government, or a U.S. government
agency. Mortgage-backed securities may be issued by U.S. government agencies or
by private entities. Some mortgage-backed securities may be backed by the U.S.
government.
Asset-backed securities are similar in structure to mortgage-backed securities
but represent interests in pools of loans, leases or other receivables in place
of mortgages. Asset-backed securities are primarily issued by non-government
entities.
As a temporary defensive strategy, the Fund may invest some or all of its assets
in investment grade debt obligations, including U.S. government securities,
investment grade corporate bonds, commercial paper, repurchase agreements, and
cash equivalents. To the extent the Fund assumes a temporary defensive position,
it may not pursue its investment objective during that time.
The Fund may also buy Treasury bills, notes and bonds, which are all guaranteed
by the U.S. government.
The principal risks of investing in the Fund
As with all mutual funds, the value of your investment could decline so you
could lose money. An investment in the Fund exposes you to the general risks of
investing in debt markets. These include interest rate risk (the risk that a
debt obligation's price will be adversely affected by increases in interest
rates), credit risk (the risk that the issuer of the debt obligation will fail
to repay principal and interest), and prepayment risk (the risk that debt
obligations will be prepaid when interest rates are lower). PIKs may be more
sensitive to interest rate changes than other bonds.
Additionally, since the Fund invests primarily in below investment grade
securities, an investment in the Fund exposes you to the special risks
associated with these securities. Lower-quality debt is considered to be
speculative because it's less certain that the issuer will be able to pay
interest or repay the principal. These securities are generally more volatile
and less liquid than investment grade debt. Lower quality debt securities can
also be more sensitive to adverse economic conditions, including the issuer's
financial condition or stresses in its industry.
With respect to the 25% of its total net assets that the Fund may invest in
foreign securities, you face additional risks. Foreign investments may be
affected by political, social and economic developments abroad, differences in
auditing and other financial
Junk bond risk
- --------------------------------------------------------------------------------
Junk bonds are below investment grade bonds rated as Ba or BB and lower, and are
also known as high-yield bonds. They may be issued by companies without a long
track record of sales and earnings, or those with questionable credit strength.
The market prices of these securities may fluctuate more than higher-quality
securities and may decline significantly in periods of general or regional
economic difficulty.
ABOUT OUR FUNDS PROSPECTUS 29
<PAGE>
THE GUARDIAN HIGH YIELD BOND FUND
standards, and greater volatility. When the Fund buys securities denominated in
a foreign currency, there are special risks such as changes in currency exchange
rates, and the risk that a foreign government could regulate foreign exchange
transactions.
See the section called Risks and special investment techniques for a discussion
of debt and junk bond risks, as well as the foreign market risks of investing in
this Fund.
The Fund may invest in zero coupon securities. Since these securities do not pay
interest, they fluctuate more in value than other interest-bearing securities.
For more information, see Risks and special investment techniques.
The Fund may experience a relatively high portfolio turnover which will result
in greater transaction costs, as well as increased short-term capital gains or
losses. This is primarily attributable to GISC's continuing asset allocation
efforts among various sectors of the high yield bond markets.
Fees and expenses
The following tables show the fees and expenses you will pay to own shares of
the Fund.
Fees you pay directly
Maximum sales Maximum deferred sales
charge to buy charge to sell shares, as
shares, as a % of a % of the amount sold
Share class the offering price subject to the charge
- --------------------------------------------------------------------------------
Class A shares 4.50% None(1)
- --------------------------------------------------------------------------------
Class B shares None 3.00%(2)
- --------------------------------------------------------------------------------
Institutional Class shares None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Purchases of $1 million or more of Class A shares may be subject to a
contingent deferred sales charge if such shares are redeemed within 18
months of purchase.
(2) Maximum sales charge declines to 2% if shares are sold in years 3 or 4
after purchase; 1% in years 5 or 6; and zero in year 7 and beyond.
Annual fees and expenses deducted from the Fund's assets(1)
(as a percentage of average net assets)
Management Distribution Other
Share class fees (12b-1) fees expenses(2) Total
- --------------------------------------------------------------------------------
Class A shares 0.60% 0.00% 0.66% 1.26%
- --------------------------------------------------------------------------------
Class B shares 0.60% 0.75% 1.49% 2.84%
- --------------------------------------------------------------------------------
Institutional Class shares 0.60% 0.00% 0.41% 1.01%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) The fees and expenses in the table do not reflect GISC's assumption of
ordinary operating expenses that exceed 0.75% of the average daily net
assets of the Fund's Class A shares and 1.00% of the average daily net
assets of Class B shares.
(2) Includes Administrative Service Fee of 0.25% for Class A and Class B
shares.
30 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
EXAMPLE
The example on the right allows you to compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes:
o you invest $10,000 at the start of the periods shown
o your investment has a 5% return each year
o the Fund's operating expenses do not change.
Using these assumptions the costs of investing in the Fund would be as shown in
the table below. Your actual costs may be higher or lower than those reflected
here.
If you sold all of your shares at the end of the periods shown, the costs of
investing in the Fund would be:
1 year 3 years
- --------------------------------------------------------------------------------
Class A shares $ 573 $ 832
- --------------------------------------------------------------------------------
Class B shares $ 587 $1,080
- --------------------------------------------------------------------------------
Institutional Class shares $ 103 $ 322
- --------------------------------------------------------------------------------
If you did not sell any of your shares at the end of the periods shown, the
costs of investing in the Fund would be:
1 year 3 years
- --------------------------------------------------------------------------------
Class A shares $573 $832
- --------------------------------------------------------------------------------
Class B shares $287 $880
- --------------------------------------------------------------------------------
Institutional Class shares $103 $322
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ABOUT OUR FUNDS PROSPECTUS 31
<PAGE>
THE GUARDIAN
TAX-EXEMPT FUND
Municipal debt obligations
- --------------------------------------------------------------------------------
These bonds are issued to finance public projects such as highways and schools,
or to refinance outstanding obligations, obtain funds for general operating
expenses, or to provide funds to other public institutions. Interest on these
obligations is, in the opinion of the issuer's bond counsel, exempt from federal
income tax.
OBJECTIVE
THE TAX-EXEMPT FUND seeks to maximize current income exempt from federal income
taxes, consistent with the preservation of capital.
The Fund's principal investment strategies
At least 80% of the value of the Fund's net assets will be invested in a
diversified portfolio of investment grade municipal obligations. Municipal
obligations are debt securities issued by states, territories and possessions of
the United States and the District of Columbia and their political subdivisions,
agencies, authorities and instrumentalities. These bonds are issued to finance
public projects such as highways and schools, or to refinance outstanding
obligations, obtain funds for general operating expenses, or to provide funds to
other public institutions. Interest on these obligations is, in the opinion of
the issuer's bond counsel, exempt from federal income tax.
There are different types of municipal obligations:
o General obligation bonds, guaranteed by the issuer's full faith, credit
and taxing power
o Specific obligation bonds, payable by a special tax or revenue source
o Revenue bonds, guaranteed solely by the corporate entity that issues them
o Notes, or short-term obligations issued in anticipation of a bond sale,
collection of taxes or receipt of revenues
o Industrial development bonds issued by or on behalf of public authorities.
There is no limit on how much the Fund can invest in each type of municipal
obligation, although no more than 20% of the Fund's assets will be held in
industrial development bonds.
The Fund will primarily invest its assets in municipal securities with remaining
maturities of 7 to 25 years. The average maturity of assets held by the Fund may
vary substantially, depending on GISC's analysis of the market and the economy.
Bonds must be investment grade when they are purchased. However, a bond may be
downgraded after the Fund acquires it. The Fund is not required to sell a bond
that has been downgraded, but normally, no more than 10% of its assets will be
held in below investment grade bonds.
32 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN TAX-EXEMPT FUND
The Fund may concentrate more than 25% of its assets in a single state, or in
bonds that pay interest from similar revenue sources. Up to 20% of the Fund's
net assets may be invested in bonds that pay interest subject to regular federal
income tax, or in private activity bonds. The interest on private activity bonds
is a tax preference item for the purpose of the federal alternative minimum tax
(AMT). The AMT is a special tax that applies only to certain taxpayers.
The Tax-Exempt Fund may invest in zero coupon securities, which are sold at a
steep discount from their face value but pay no interest. Zero coupon bonds are
described in the section called Risks and special investment techniques. The
Fund may also purchase tax-exempt floating and variable rate demand notes and
bonds. These securities include master demand notes, which are frequently
secured by letters of credit, but have no established secondary market.
The principal risks of investing in the Fund
As with all mutual funds, the value of your investment could decline so you
could lose money. An investment in the Fund exposes you to the general risks of
investing in debt markets. These include interest rate risk (the risk that a
debt obligation's price will be adversely affected by changes in interest
rates), credit risk (the risk that the issuer of the debt obligation will fail
to repay principal and interest), and prepayment risk (the risk that debt
obligations will be prepaid when interest rates are lower.) See the section
called Risks and special investment techniques for information on the debt risks
associated with investing in this Fund.
As the Fund's average weighted maturity increases, its securities become more
sensitive to changes in interest rates, increasing the potential volatility of
Fund share values.
The Fund may invest in zero coupon securities. Since these securities do not pay
interest, they fluctuate more in value than other interest-bearing securities.
For more information, see Risks and special investment techniques.
Future changes in federal tax laws may adversely affect the tax-exempt status of
interest on municipal bonds in this Fund. GISC relies on the issuers' bond
counsel for advice on the tax status of the bonds, without independent
verification.
Bonds in the Fund's portfolio which are downgraded present extra risks because
the issuer is less likely to repay the interest and principal than issuers of
higher-quality bonds. Lower-quality debt securities can be more sensitive to
adverse economic conditions, including the issuer's financial condition or
stresses in its industry. While the Fund does not expect to have a significant
portion of its assets in lower-quality debt, you should review the risks of
lower-quality debt investments in the section called Risks and special
investment techniques.
ABOUT OUR FUNDS PROSPECTUS 33
<PAGE>
THE GUARDIAN TAX-EXEMPT FUND
The Fund may experience a relatively high portfolio turnover which will result
in greater transaction costs, as well as increased short-term capital gains or
losses. This is primarily attributable to GISC's continuing asset allocation
efforts, for example, replacing short-term commercial paper with larger blocks
of municipal obligations.
How the Fund has performed
The bar chart below provides some indication of the risks of investing in the
Fund by showing how its performance has varied since it was launched on February
16, 1993. The performance figures shown assume that all dividends and
distributions are reinvested in the Fund but they do not include sales charges
you pay when you buy or sell shares. If the sales charge were included, the
returns shown would be lower. Past results do not necessarily indicate how the
Fund will perform in the future.
Year-by-year returns
Total returns for Class A shares
(Years ended December 31)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
1997 1995 1996 1997 1998
(8.98) 14.59 3.62 8.74 6.11
Average annual total returns
This table shows the Fund's average annual total returns for the periods ending
December 31, 1998. It compares the Fund's performance with the Lehman Aggregate
Bond Index, an index that is generally considered to be representative of U.S.
bond market activity. Past results do not necessarily indicate how the Fund will
perform in the future.
Since inception
1 year 5 year (February 16, 1993)
- --------------------------------------------------------------------------------
Class A shares 6.11% 4.52% 5.13%
- --------------------------------------------------------------------------------
Lehman Municipal Bond Index 6.48% 6.22% 6.96%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Highest and lowest quarters
During the period shown in the bar chart, the highest and lowest returns,
respectively, for a quarter were:
Best quarter
6.21% for the quarter ended March 31, 1995.
Worst quarter
(7.98)% for the quarter ended March 31, 1994.
34 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN TAX-EXEMPT FUND
Fees and expenses
The following tables show the fees and expenses you will pay to own shares of
the Fund.
Fees you pay directly
Maximum sales Maximum deferred sales
charge to buy charge to sell shares, as
shares, as a % of a % of the amount sold
Share class the offering price subject to the charge
- --------------------------------------------------------------------------------
Class A shares 4.50% None(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Purchases of $1 million or more of Class A shares may be subject to a
contingent deferred sales charge if such shares are redeemed within 18
months of purchase.
Annual fees and expenses deducted from the Fund's assets(1)
(as a percentage of average net assets)
Management Distribution Other
Share class fees (12b-1) fees expenses(2) Total
- --------------------------------------------------------------------------------
Class A shares 0.50% 0.00% 0.51% 1.01%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) The fees and expenses shown do not reflect GISC's assumption of ordinary
operating expenses that exceed 0.80% of the average daily net assets of
the Fund.
(2) Includes Administrative Service Fee of 0.25%.
- --------------------------------------------------------------------------------
EXAMPLE
The example on the right allows you to compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes:
o you invest $10,000 at the start of the periods shown
o your investment has a 5% return each year
o the Fund's operating expenses do not change.
Using these assumptions the costs of investing in the Fund would be as shown in
the table below. Your actual costs may be higher or lower than those reflected
here.
If you sold all of your shares at the end of the periods shown, the costs of
investing in the Fund would be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A shares $ 548 $ 757 $ 983 $1,631
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ABOUT OUR FUNDS PROSPECTUS 35
<PAGE>
THE GUARDIAN
CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
Not insured or guaranteed
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.
- --------------------------------------------------------------------------------
OBJECTIVE
THE CASH FUND seeks as high a level of current income as is consistent with
liquidity and preservation of capital.
The Fund's principal investment strategies
The Cash Fund invests in money market instruments denominated in U.S. dollars.
The Fund primarily selects investments that present minimal credit risks, as
determined by GISC, the Fund's adviser, in accordance with guidelines
established by the Board of Trustees. The guidelines prescribe that the
instruments acquired by the Cash Fund be rated within the highest short-term
ratings categories assigned by nationally recognized statistical ratings
organizations. The Fund primarily invests in securities that have received the
highest short-term ratings from at least two of these organizations (or that
received the highest rating from the single ratings organization assigning a
rating - "First Tier" securities). No more than 5% of the value of the Fund's
total assets may be invested in securities rated lower than "First Tier".
The Cash Fund may also invest in unregistered commercial paper which is issued
in reliance on an exemption from registration under the federal securities laws.
The Fund selects investments that have terms of 13 months or less, or which have
a rate of interest that is readjusted at least once every 13 months. These
investments include U.S. government securities, such as Treasury bills or bonds,
commercial paper, repurchase agreements, as well as certificates of deposit and
short-term obligations issued by banks or savings and loan associations. The
Fund maintains a dollar-weighted average portfolio maturity of 90 days or less.
The Fund may not invest more than 5% of its total assets in the securities of
any one issuer, except for the U.S. government.
Up to 25% of the Fund's net assets may be invested in U.S. dollar denominated
certificates of deposit issued by foreign branches of U.S. banks and by U.S.
branches of foreign banks - provided that each bank's net worth is at least $100
million. Certificates of deposit are debt instruments that usually pay interest.
Fund assets are valued at "amortized cost." See the section called Calculation
of net asset value.
36 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN CASH MANAGEMENT FUND
The principal risks of investing in the Fund
The return on money market instruments is typically lower than the return on
stocks or bonds, but the relative risks are also lower. Modest additional
investment risk is involved in holding securities which are not "First Tier"
securities which are less liquid and fluctuate more in value.
How the Fund has performed
The bar chart below provides some indication of the risks of investing in the
Fund by showing how its performance has varied from year to year over the last
10 years. The performance figures shown assume that all dividends and
distributions are reinvested in the Fund but don't include sales charges you pay
when you buy or sell shares. If the sales charge were included, the returns
shown would be lower. Past results do not necessarily indicate how the Fund will
perform in the future.
Year-by-year returns
Total returns for Class A shares
(Years ended December 31)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
8.60 7.91 5.70 3.06 2.15 3.48 5.22 4.62 4.81 4.76
Returns of Class B shares would be different from the returns depicted in the
bar chart because they have expenses that differ from those of Class A shares.
- --------------------------------------------------------------------------------
Highest and lowest quarters
During the period shown in the bar chart, the highest and lowest returns,
respectively, for a quarter were:
Best quarter
2.30% for the quarter ended June 30, 1989.
Worst quarter
0.52% for the quarter ended June 30, 1993.
ABOUT OUR FUNDS PROSPECTUS 37
<PAGE>
THE GUARDIAN CASH MANAGEMENT FUND
Average annual total returns
This table shows the Fund's average annual total returns for the periods ending
December 31, 1998. Past results do not necessarily indicate how the Fund will
perform in the future.
10 years,
or since
1 year 5 years inception
- --------------------------------------------------------------------------------
Class A shares 4.76% 4.58% 5.36%
- --------------------------------------------------------------------------------
Class B shares 4.76% n/a 4.65%(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Inception of Class B shares:
May 1, 1996.
Fees and expenses
The following tables show the fees and expenses you will pay to own shares of
the Fund.
Fees you pay directly
Maximum sales Maximum deferred sales
charge to buy charge to sell shares, as
shares, as a % of a % of the amount sold
Share class the offering price subject to the charge
- --------------------------------------------------------------------------------
Class A shares None None(1)
- --------------------------------------------------------------------------------
Class B shares None 3.00%(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) Purchases of $1 million or more of Class A shares may be subject to a
contingent deferred sales charge if such shares are redeemed within 18
months of purchase. A sales charge may also be imposed upon certain
exchanges from Class A shares of the Cash Fund to Class A shares of the
other Funds.
(2) Maximum sales charge declines to 2% if shares are sold in years 3 or 4
after purchase; 1% in years 5 or 6; and zero in year 7 and beyond.
38
Annual fees and expenses deducted from the Fund's assets1
(as a percentage of average net assets)
Management Distribution Other
Share class fees (12b-1) fees expenses(2) Total
- --------------------------------------------------------------------------------
Class A shares 0.50% 0.00% 0.24% 1.04%
- --------------------------------------------------------------------------------
Class B shares 0.50% 0.75% 0.27% 1.82%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES
(1) The fees and expenses in the table do not reflect GISC's assumption of
ordinary operating expenses that exceed 0.85% of the average daily net
assets of the Fund for both classes of shares.
(2) Includes Administrative Service Fee of 0.25% for Class A and Class B
shares.
38 PROSPECTUS ABOUT OUR FUNDS
<PAGE>
THE GUARDIAN CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
EXAMPLE
The example on the right allows you to compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes:
o you invest $10,000 at the start of the periods shown
o your investment has a 5% return each year
o the Fund's operating expenses do not change.
The ten-year figures shown reflect the conversion of Class B shares to Class A
shares after the eighth anniversary of purchase.
Using these assumptions the costs of investing in the Fund would be as shown in
the table below. Your actual costs may be higher or lower than those reflected
here.
If you sold all of your shares at the end of the periods shown, the costs of
investing in the Fund would be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A shares $551 $766 $ 998 $1,664
- --------------------------------------------------------------------------------
Class B shares $485 $773 $1,085 $1,933
- --------------------------------------------------------------------------------
If you did not sell any of your shares at the end of the periods shown, the
costs of investing in the Fund would be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A shares $551 $766 $998 $1,664
- --------------------------------------------------------------------------------
Class B shares $185 $573 $985 $1,933
- --------------------------------------------------------------------------------
ABOUT OUR FUNDS PROSPECTUS 39
<PAGE>
- --------------------------------------------------------------------------------
RISKS AND SPECIAL INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------
We've already briefly described the principal risks of investing in each Fund in
The Park Avenue Portfolio. In this section of the prospectus, we describe the
risks in more detail, as well as some of the special investment techniques the
Funds' advisers expect to use for one or more of the Funds.
- --------------------------------------------------------------------------------
YEAR 2000 CONSIDERATIONS
Like other mutual fund companies and financial and business organizations around
the world, the Funds could be adversely affected if our computers or those of
our advisers or other service providers fail to process data properly as of
January 1, 2000. Many computer systems cannot distinguish the year 2000 from the
year 1900 when they are making date-related calculations, because of the way
date information is stored in these systems.
We are working to address this issue, and expect that all relevant systems will
be able to correctly interpret the year 2000 when that date arrives. As of the
date of this prospectus, we do not anticipate that shareholders will experience
negative effects on their investments or on the services provided in connection
with our Year 2000 conversion. However, we cannot guarantee that our
preparations will be successful.
Everyone involved is making substantial efforts to address their systems and the
systems with which they interface, but it is not possible to provide assurance
that operational problems will not occur. We believe that, with the modification
of existing computer systems, updates by vendors and conversion to new software
and hardware, shareholders will not experience negative effects on their
investments as a result of the year 2000 issue. However, the year 2000 issue, by
its very nature, contains inherent uncertainties, including the uncertainty of
year 2000 readiness of third parties. As a result, we are unable to determine at
this time whether the consequences of year 2000 failures will have a material
adverse effect on our operations, liquidity or financial position.
It is possible that the markets for securities in which the Funds invest may be
detrimentally affected by computer failures throughout the financial industry
beginning January 1, 2000 if systems should cease to function at that time. This
may result in trade settlement problems and liquidity issues. Corporate and
governmental data processing errors may result in production problems for
individual companies and overall economic uncertainties. Earnings of individual
issuers may be affected by remediation costs. In addition, it has been reported
that foreign institutions have made less progress in addressing the Year 2000
problem than major U.S. entities, which could make certain Fund investments more
sensitive to these risks.
- --------------------------------------------------------------------------------
PRINCIPAL RISKS TO INVESTORS
Stock market risks
Applies to: Park Avenue, Small Cap, Asset Allocation, International and Emerging
Markets Funds You could lose money in connection with a Fund's equity
investments, or a Fund's performance could fall below that of other possible
investments, if any of the following occurs:
o the U.S. or a foreign stock market declines
o stocks are temporarily out of favor relative to bonds or cash
o an adverse event such as negative press reports about a company in the
Fund's portfolio depresses the value of the company's stock
o the investment adviser's judgment about the value or potential
appreciation of a particular stock proves to be incorrect
o companies pay lower stock dividends than expected, or pay no dividends at
all.
Small company risks
Applies to: Small Cap, International and Emerging Markets Funds In addition to
the general risks of investing in the stock markets, there are special risks
associated with investing in small companies. Small companies may have limited
product lines, markets or financial resources. They may depend on a small number
of people to manage the company. Buying and selling shares of small companies
may be
40 PROSPECTUS RISKS AND SPECIAL INVESTMENT TECHNIQUES
<PAGE>
more difficult than it is for larger companies because there are fewer shares
available, and they tend to trade less frequently. There may be less publicly
available information about these companies, which may prolong the time it takes
for a company's share price to match its underlying value. Share prices of small
company stocks may fluctuate more dramatically than those of larger companies.
Debt risks
Applies to: Bond, High Yield, Emerging Markets, Tax-Exempt and Asset Allocation
Funds You could lose money in connection with a Fund's debt investments, or a
Fund's performance could fall below that of other possible investments, if any
of the following occur:
o interest rates rise, causing the market values of debt securities in the
Fund to fall ("interest rate risk")
o the issuer of a debt security in the Fund defaults on its obligation to
pay principal or interest, has its credit rating downgraded, or is
perceived by the market to be less creditworthy ("credit risk")
o as a result of declining interest rates, the issuer of a security
exercises its right to prepay principal, forcing the Fund to reinvest in
lower-yielding securities ("prepayment risk")
o as a result of rising interest rates, the issuer of a security exercises
its right to pay principal later than scheduled, which will lock in a
below-market interest rate and reduce the value of the security
("extension risk")
o the investment adviser's judgment about the value or potential
appreciation of a particular bond proves to be incorrect ("manager's
selection risk").
Interest rate risk
The value of the debt obligations in the Funds may vary according to changes in
interest rates. When interest rates rise, bond prices generally fall, and when
interest rates fall, bond prices generally rise. Usually the price of bonds that
must be repaid over longer time periods fluctuate more than shorter-term bonds.
Some debt securities, such as zero coupon bonds, pay-in-kind securities (which
make interest payments in cash or additional securities) and mortgage-backed and
asset-backed securities, may be more sensitive to interest rate changes than
other bonds. If an instrument has a variable rate of interest and a change in
the market rate occurs, there may be a delay before the coupon rate is affected,
and this could adversely affect a Fund's performance.
Credit risk
Investors face the risk that the issuer of debt cannot pay interest or principal
on the money owed. U.S. government securities are substantially protected from
financial or credit risk. However, certain agency obligations, while of the
highest credit quality, do not have this guarantee.
RISKS AND SPECIAL INVESTMENT TECHNIQUES PROSPECTUS 41
<PAGE>
Prepayment and extension risk
There is also the possibility that a debt security could be repaid before the
money is due, and that the proceeds could be invested at lower interest rates.
Intermediate-term and long-term bonds commonly provide protection against this
possibility, but mortgage-backed securities do not. Mortgage-backed securities
are more sensitive to the risks of prepayment because they can be prepaid
whenever their underlying collateral is prepaid. Conversely, extension risk is
the possibility that in an environment of rising interest rates, expected
prepayments will not be made, with the result that the security's life will
become longer than anticipated. Typically, the security's value will drop when
this occurs.
Junk bond risk
Applies to: Bond, High Yield, Emerging Markets and Tax-Exempt Funds Junk bonds
are below investment grade bonds rated as Ba or BB and lower, and are also known
as high-yield bonds. They may be issued by companies without a long track record
of sales and earnings, or those with questionable credit strength. The market
prices of these securities may fluctuate more than higher-quality securities and
may decline significantly in periods of general or regional economic difficulty.
Lower-quality debt obligations are particularly susceptible to the risk of
default or price changes because of changes in the issuer's creditworthiness.
These securities may also be less liquid, making it more difficult for the Fund
to dispose of them. To the extent a Fund's portfolio is more heavily weighted
toward investment in investment grade securities of lower quality, similar
issues arise.
Lower-quality debt can be particularly sensitive to changes in the economy, the
financial situation of the issuer, or trouble in the issuer's industry. If the
issuer defaults on the loan, the investor could face the additional cost of the
effort to recover some or all of the money. When the economy is uncertain, the
price of these securities could fluctuate more dramatically than the price of
higher-rated debt. It may also be difficult for a Fund to sell these securities
at the time it sees fit.
Junk bonds usually pay a higher interest rate than investment grade bonds, but
also involve greater risks. You could lose money in connection with a Fund's
investments in junk bonds, or the Fund's performance could fall below that of
other possible investments, because junk bonds:
o are speculative and have a higher risk of default
o tend to react more to changes in interest rates than higher-rated
securities
o tend to be less liquid, and may be more difficult to value
o are issued by entities whose ability to make principal and interest
payments are more likely to be affected by changes in economic conditions
or other circumstances.
42 PROSPECTUS RISKS AND SPECIAL INVESTMENT TECHNIQUES
<PAGE>
Foreign market risks
Applies to: Park Avenue, Small Cap, International, Emerging Markets, Bond and
High Yield Funds
Investing in foreign markets, particularly those of emerging markets (see the
section called Emerging market risk below), involves additional risks. Foreign
securities may be affected by political, social and economic developments
abroad. Financial markets in foreign countries may be less liquid or more
volatile than U.S. markets. Less information may be available about foreign
company operations, and foreign countries may impose withholding taxes on
interest and dividend income. Government regulations and accounting standards
may be less stringent as well. Brokerage commissions and custodial fees for
foreign investments are often higher than those for investments in U.S.
securities. Exchange rates can adversely affect the value of foreign securities
and their dividends or earnings, irrespective of the underlying performance.
You could lose money on your investment, or the Fund in which you have invested
may not perform as well as other investments, if:
o in a changing market, the Fund is unable to sell securities at the desired
times, amounts or at prices it considers reasonable
o stock prices in countries selected by the Fund decline
o the government of a country selected by the Fund imposes restrictions on
currency conversion or trading
o relationships between countries selected by the Fund change and have a
negative impact on stock or currency values.
Many countries in which a Fund invests have markets that are less liquid, more
volatile, and less subject to governmental supervision than the U.S. markets.
Public information about a foreign security or issuer may be less available than
in the U.S. Unfavorable political, economic or regulatory factors, including
foreign taxation, may affect an issuer's ability to repay principal or interest.
In the event of a default on any foreign obligation, it may be difficult legally
to obtain or to enforce a judgment against the issuer.
Foreign securities (other than ADRs) typically are traded on the applicable
country's principal stock or bond exchange, but may also be traded on regional
exchanges or over-the-counter. Foreign markets, especially emerging markets, may
have different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
A country that exports only a few commodities or depends on certain strategic
imports could be vulnerable to fluctuations in international prices of these
commodities or imports. To the extent that a country receives payment for its
exports in currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected.
RISKS AND SPECIAL INVESTMENT TECHNIQUES PROSPECTUS 43
<PAGE>
Investing in foreign securities also is subject to currency risk, which is the
risk that fluctuations in the exchange rates between the U.S. dollar and foreign
currencies may negatively affect the value of an investment. Currency
fluctuations may negatively impact a Fund's portfolio even if the foreign stock
has not declined in value.
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), and
Global Depositary Receipts (GDRs) are also subject to currency risks.
Specifically, changes in the value of the currency in which the security
underlying a depositary receipt is denominated, relative to the U.S. dollar, may
adversely affect the value of the depositary receipt.
Emerging market risk
Applies to: International and Emerging Markets Funds
Emerging market countries may have higher relative rates of inflation than
developed countries, and may be more likely to experience political unrest and
economic instability. Many emerging market countries have experienced
substantial rates of inflation for many years, which may have adverse effects on
the economies and securities markets of those countries. The result could be
expropriation of assets, which could wipe out the entire value of a Fund's
investment in that market. Countries heavily dependent on trade face additional
threats from the imposition of trade barriers and other protectionist measures.
Emerging market countries have a greater risk of currency depreciation or
devaluation relative to the U.S. dollar, which could adversely affect any
investment made by a Fund.
The securities markets in emerging countries may be less developed than in other
countries, causing liquidity and settlement problems, such as delays, and making
it harder for a Fund to buy and sell securities. Emerging market debt securities
are often rated below investment grade, which increases the risk of issuer
default or bankruptcy. Political and economic turmoil could raise the
possibility that trading of securities will be halted. If this happens, an
affected Fund may ask the Securities and Exchange Commission for permission to
suspend the sale of the Fund's shares during the emergency. Prior to receipt of
the SEC's determination, portfolio securities in the affected markets would be
priced at fair value as determined in good faith by, or under the direction of,
the Trustees.
Diversification risk
Applies to: All Funds
In order to meet a Fund's investment objectives, the investment adviser must try
to determine the proper mix of securities that will maximize the Fund's return.
It may not properly ascertain the appropriate mix of securities for any
particular economic cycle. Also, the timing of movements from one type of
security to another could have a negative effect on the Fund's overall
objective.
44 PROSPECTUS RISKS AND SPECIAL INVESTMENT TECHNIQUES
<PAGE>
Portfolio turnover
Applies to: All Funds
Portfolio turnover refers to the rate at which the securities held by a Fund are
replaced. The higher the rate, the higher the transactional and brokerage costs
associated with the turnover, unless the securities traded can be bought and
sold without corresponding commission costs. Active trading of securities may
also increase a Fund's realized capital gains or losses, which may affect the
taxes you pay as a Fund shareholder.
SPECIAL INVESTMENT TECHNIQUES
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs)
Applies to: Small Cap, International, Emerging Markets, Bond, High Yield, and
Asset Allocation Funds
The Funds may invest in securities of U.S. or foreign companies which are issued
or settled overseas in the form of ADRs, EDRs, or other similar securities. An
ADR is a U.S. dollar-denominated security issued by a U.S. bank or trust company
which represents, and may be converted into, a foreign security. An EDR or GDR
is similar, but is issued by a European bank. Depositary receipts are subject to
the same risks as direct investment in foreign securities.
Borrowing
Applies to: All Funds
The Funds may borrow money for temporary emergency purposes, and some Funds may
borrow as part of their investment strategies. When a Fund borrows for any
purpose, it will maintain assets in a segregated account to cover its repayment
obligation. The Investment Company Act of 1940 (the 1940 Act) limits borrowings
to 331/3% of a mutual fund's total assets. Each Fund may commit this or a lesser
amount to borrowings, as set forth in the Statement of Additional Information.
Convertible securities
Applies to: Park Avenue, Small Cap, International, Emerging Markets, High Yield,
and Asset Allocation Funds
The Funds may invest in convertible securities, which are securities such as
debt or preferred stock, that can be exchanged for a set number of another
security (usually common shares) at a predetermined price.
RISKS AND SPECIAL INVESTMENT TECHNIQUES PROSPECTUS 45
<PAGE>
Dollar roll and reverse repurchase transactions
Applies to: Bond and High Yield Funds
In a dollar roll transaction, a Fund sells mortgage-backed securities for
delivery to the buyer in the current month and simultaneously contracts to
purchase similar securities on a specified future date from the same party. The
securities to be purchased will be of the same type and have the same interest
rate as the sold securities, but will be supported by different mortgage pools.
In a reverse repurchase agreement transaction, a Fund sells securities to a bank
or securities dealer and agrees to repurchase them at an agreed time and price.
Whenever a Fund enters into a dollar roll or reverse repurchase transaction, it
maintains segregated assets - typically U.S. government securities or liquid,
unencumbered securities - whose value equals or exceeds the value of the forward
commitment or repurchase obligation on a daily basis.
Although dollar rolls and reverse repurchase agreements are considered leveraged
transactions by the Securities and Exchange Commission, GISC believes that they
do not present the risks associated with other types of leveraged transactions.
The Securities and Exchange Commission also has taken the position that these
transactions are borrowings within the meaning of the 1940 Act. See Borrowings,
above.
Financial futures contracts
Applies to: International, Emerging Markets, Bond, High Yield, Tax-Exempt and
Asset Allocation Funds
A Fund may enter into financial futures contracts, in which the Fund agrees to
buy or sell certain financial instruments on a specified future date based on a
projected level of interest rates or the projected performance of a particular
security index. If the Fund's adviser misjudges the direction of interest rates
or markets, the Fund's overall performance could suffer. The risk of loss could
be far greater than the investment made, since a futures contract requires only
a small deposit to take a large position. A small change in a financial futures
contract could have a substantial impact, favorable or unfavorable.
Forward foreign currency exchange contracts
Applies to: Park Avenue, Small Cap, International, Emerging Markets and High
Yield Funds
The Funds may use these contracts to try to manage the risk of changes in
currency exchange rates. A forward foreign currency exchange contract is an
agreement to exchange a specified amount of U.S. dollars for a specified amount
of a foreign currency on a specific date in the future. The outcome of this
transaction depends on the adviser's ability to predict how the U.S. dollar will
fare against the foreign currency. The Funds use these contracts to try to hedge
against adverse exchange rate changes, and not for speculative purposes, but
there is no guarantee of success.
46 PROSPECTUS RISKS AND SPECIAL INVESTMENT TECHNIQUES
<PAGE>
Illiquid securities and exempt commercial paper
Applies to: All Funds
Illiquid securities are either not readily marketable at their approximate value
within seven days, are not registered under the federal securities laws (unless
they are exempt from registration, as noted in the following paragraph), or are
otherwise viewed as illiquid by the Securities and Exchange Commission.
Repurchase agreements which mature in more than seven days, certain variable
rate master demand notes and over-the-counter options are treated as illiquid
securities. The absence of trading can make it difficult to value or dispose of
illiquid securities. It can also adversely affect a Fund's ability to calculate
its net asset value or manage its portfolio. The Statement of Additional
Information sets out the upper limit for each Fund's investments in illiquid
securities. The Securities and Exchange Commission currently limits investments
in illiquid securities to 15% of net assets (10% of assets for money market
funds).
Securities which qualify under an exemption from registration under federal
securities laws for resales to institutional investors may be treated by the
Funds as liquid. If the Fund's adviser determines that these securities are
liquid under guidelines adopted by the Board of Trustees, they may be purchased
without regard to the illiquidity limits in the Statement of Additional
Information. Similarly, the Funds typically treat commercial paper issued in
reliance on an exemption from registration under federal securities laws as
liquid.
Investment grade securities
Applies to: All Funds
Investment grade securities are bonds or convertible preferred stock that
nationally recognized statistical ratings organizations, such as Moody's
Investors Service, Inc. and Standard & Poor's Ratings Group, rate as Aaa or AAA
(the highest quality) to Baa or BBB.
Money market instruments
Applies to: All Funds
From time to time, the Funds may invest a portion of their assets in money
market instruments. These are short-term debt instruments, which are written
promises to repay debt within a year. They include Treasury bills and
certificates of deposit, and they are characterized by safety and liquidity,
which means they are easily convertible into cash. Money market instruments may
be used by the Funds for cash management or temporary defensive purposes.
RISKS AND SPECIAL INVESTMENT TECHNIQUES PROSPECTUS 47
<PAGE>
Options
Applies to: International, Emerging Markets, Bond, High Yield, Tax-Exempt and
Asset Allocation Funds
The Funds may purchase or sell options to buy or sell securities, indices of
securities or financial futures contracts within a specified future period. The
owner of an option has the right to buy or sell the underlying instrument at a
set price, by a specified date in the future. The Funds may, but are not
required to, use options to attempt to minimize the risk of the underlying
investment and to manage exposure to changes in foreign currencies. However, if
the adviser misjudges the direction of the market for a security, a Fund could
lose money by using options - more money than it would have lost by investing
directly in the security.
Pay-in-kind securities
Applies to: High Yield Fund
The Fund may purchase pay-in-kind securities (PIKs). These are debt securities
that make periodic interest payments either in cash or in additional securities.
Privatizations
Applies to: International and Emerging Markets Funds
Some foreign governments have begun programs to divest all or part of their
interests in government owned or controlled enterprises. These programs are
known as privatizations. Investing in these enterprises may offer significant
opportunities for capital appreciation. However, foreign investors such as a
Fund may be limited to terms less advantageous than those offered to local
investors. There is no assurance that foreign governments will continue to
privatize enterprises, or that these programs will be successful.
Repurchase agreements
Applies to: All Funds
In a repurchase agreement transaction, a Fund purchases a debt security and
obtains a simultaneous commitment from the selling bank or securities dealer to
repurchase that debt security at an agreed time and price, reflecting a market
rate of interest. Repurchase agreements are fully collateralized by U.S.
government securities, bank obligations and cash or cash equivalents. Costs,
delays or losses could result if the seller became bankrupt or was otherwise
unable to complete the repurchase agreement. To minimize this risk, the
investment adviser evaluates the creditworthiness of potential repurchase
agreement counterparties using guidelines adopted by the Board of Trustees.
Securities lending
Applies to: Small Cap, Emerging Markets, Bond, High Yield, Tax-Exempt and Asset
Allocation Funds
The Funds may lend their portfolio securities to securities dealers, banks and
other institutional investors to earn additional income.
48 PROSPECTUS RISKS AND SPECIAL INVESTMENT TECHNIQUES
<PAGE>
These transactions must be continuously secured by collateral, and the
securities loaned must be marked-to-market daily. A Fund generally continues to
receive all interest earned or dividends paid on the loaned securities, although
lending fees may be paid to the borrower. The lending of portfolio securities is
limited to 331/3% of the value of a Fund's total net assets.
When-issued or delayed-delivery transactions
Applies to: Small Cap, International, Emerging Markets, Bond, High Yield,
Tax-Exempt and Asset Allocation Funds
A Fund may commit to purchase or sell particular securities, with payment and
delivery to take place at a future date. These are known as when-issued or
delayed-delivery transactions. If the counterparty fails to deliver a security
the Fund has purchased on a when-issued or delayed-delivery basis, there could
be a loss as well as a missed opportunity to make an alternative investment. The
Funds engage in these transactions to acquire securities that are appropriate
for their portfolios at favorable prices or yields. They do not engage in these
transactions to speculate on interest rate changes.
Yankee securities
Applies to: Bond and High Yield Funds
The Funds may invest in so-called Yankee securities. These are debt securities
issued by non-U.S corporate or government entities, but are denominated in U.S.
dollars. Yankee securities trade and may be settled in U.S. markets.
Zero coupon bonds
Applies to: Bond, High Yield and Tax-Exempt Funds
The Funds may invest in zero coupon bonds. These bonds do not pay interest but
instead are sold at a deep discount relative to their face value, and become due
only on maturity. Because zero coupon securities do not pay interest, they
fluctuate in value more than other interest-bearing securities. When interest
rates rise, the values of zero coupons fall more rapidly than securities paying
interest on a current basis, because the zero coupons are locked into rates of
reinvestment that become less attractive the further rates rise. The converse is
true when interest rates fall.
Other
Applies to: All Funds
New financial products and risk management techniques continue to be developed.
Each Fund may use these instruments and techniques to the extent consistent with
its investment objectives or regulatory and federal tax considerations.
RISKS AND SPECIAL INVESTMENT TECHNIQUES PROSPECTUS 49
<PAGE>
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FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE MANAGEMENT and affairs of The Park Avenue Portfolio are supervised by its
Board of Trustees.
The Funds' investment advisers
Guardian Investor Services Corporation (GISC) is the adviser for all of the
Funds in The Park Avenue Portfolio, except for the two international Funds. GISC
is wholly owned by The Guardian Life Insurance Company of America (Guardian
Life), a New York mutual insurance company. GISC is located at 7 Hanover Square,
New York, New York 10004. GISC buys and sells securities, selects brokers to
effect transactions, and negotiates brokerage fees. GISC is the adviser to
several other mutual funds sponsored by Guardian Life, and it is the underwriter
and distributor of all the Funds' shares and of variable annuity and variable
life insurance contracts issued by The Guardian Insurance & Annuity Company,
Inc. (GIAC).
The two international funds are The Guardian Baillie Gifford International Fund
and The Guardian Baillie Gifford Emerging Markets Fund. The adviser for these
Funds is Guardian Baillie Gifford Limited (GBG), an investment management
company based in Edinburgh, Scotland. GBG is responsible for the overall
investment management of the two Funds, which includes buying and selling
securities, choosing brokers and negotiating commissions. Guardian Life owns 51%
of GBG, and the remaining 49% is owned by Baillie Gifford Overseas Limited (BG
Overseas), which is wholly owned by a Scottish investment company, Baillie
Gifford & Co. Founded in 1908, Baillie Gifford & Co. manages money for
institutional clients primarily within the United Kingdom. It is one of the
largest independently owned investment management firms in the U.K. BG Overseas
is the sub-adviser for the two Funds. GBG is a member of and regulated by IMRO,
an international regulator of investment advisory firms. GBG, BG Overseas and
Baillie Gifford & Co. are all located at 1 Rutland Court, Edinburgh, EH3 8EY.
50 PROSPECTUS FUND MANAGEMENT
<PAGE>
You will find the annual management fees that the Funds paid last year to their
investment adviser in the table below.
Fund Management Fee(1) Paid to
- --------------------------------------------------------------------------------
Park Avenue 0.50% GISC
- --------------------------------------------------------------------------------
Small Cap 0.75% GISC
- --------------------------------------------------------------------------------
Asset Allocation
(after voluntary management fee waivers) 0.50%(2) GISC
- --------------------------------------------------------------------------------
International 0.80% GBG
- --------------------------------------------------------------------------------
Emerging Markets 1.00% GBG
- --------------------------------------------------------------------------------
Bond 0.50% GISC
- --------------------------------------------------------------------------------
High Yield 0.60% GISC
- --------------------------------------------------------------------------------
Tax-Exempt 0.50% GISC
- --------------------------------------------------------------------------------
Cash Management 0.50% GISC
- --------------------------------------------------------------------------------
(1) Annual fees as a percentage of average net assets
(2) The Asset Allocation Fund is authorized to pay GISC an annual advisory fee
of 0.65% of average daily net assets. However, GISC has undertaken that
while this Fund is operated as a "fund of funds", the effective annual
advisory fee paid by shareholders for advisory services will be 0.50% of
average daily net assets.
PORTFOLIO MANAGERS
Park Avenue Fund
Frank J. Jones, Ph.D., Executive Vice President and Chief Investment Officer of
Guardian Life since January 1994, assumed joint responsibility for the portfolio
management of the Park Avenue Fund as of April 1998. He has also been
responsible for the allocation of the Bond Fund's assets since January 1997.
Dr. Jones manages the Fund jointly with Larry Luxenberg, CFA and John B. Murphy,
CFA. Mr. Luxenberg, Vice President, Equity Securities, has been with Guardian
Life for the past 15 years. Mr. Murphy, Vice President, Equity Securities, has
been with Guardian Life for the past 8 years.
FUND MANAGEMENT PROSPECTUS 51
<PAGE>
Small Cap Fund
Larry A. Luxenberg is the portfolio manager of the Small Cap Fund. He has
managed or co-managed this Fund since its inception in May 1997. He also
co-manages the Park Avenue Fund. Mr. Luxenberg, Vice President, Equity
Securities, has been with Guardian Life for the past 15 years.
Asset Allocation Fund
Jonathan C. Jankus, CFA, is responsible for allocating assets for this Fund. He
has been a Vice President of Guardian Life since March 1998. Mr. Jankus joined
Guardian Life in 1995, after working as chief investment strategist for global
bonds at Barclays Investments.
International Fund
R. Robin Menzies has been in charge of the geographical diversification of the
International Fund's assets since its inception in 1993. Investment teams at BG
Overseas make the securities selections for the International Fund. Mr. Menzies
is a director of BG Overseas and a partner of Baillie Gifford & Co.
Emerging Markets Fund
Edward H. Hocknell has been in charge of the geographical diversification of the
Emerging Markets Fund's assets since its inception in 1997. The decision to buy
and sell securities is made with help from several investment teams at BG
Overseas. Mr. Hocknell is a director of BG Overseas, and became partner of
Baillie Gifford & Co. in May 1998.
Bond Fund
Thomas G. Sorell, CFA, and Howard W. Chin have managed the Bond Fund since
January 1998. Mr. Sorell has served as sole or co-portfolio manager of the Bond
Fund's assets since January 1997. He has been a Vice President of Guardian Life
since 1994 and manages part of the fixed income assets of Guardian Life.
Mr. Chin has been a Vice President of Guardian Life since 1997. He also manages
part of the fixed income assets of Guardian Life. Before joining Guardian Life,
he worked as senior mortgage strategist at Goldman Sachs & Co.
Frank J. Jones, Ph.D., who shares responsibility for the Park Avenue Fund, is
responsible for the allocation of assets among the various sectors of fixed
income securities selected by the portfolio managers. Dr. Jones has been
Executive Vice President and Chief Investment Officer of Guardian Life since
1994.
52 PROSPECTUS FUND MANAGEMENT
<PAGE>
High Yield Fund
The High Yield Fund is managed by a team consisting of Thomas G. Sorell, CFA,
Frank J. Jones, Ph.D., and Peter J. Liebst.
Mr. Liebst is a Vice President of Guardian Life. Until August 1998, Mr. Liebst
was vice president and associate high yield portfolio manager at Van Kampen
American Capital Investment Advisory Corporation. Mr. Liebst has not previously
managed a mutual fund.
Mr. Sorell is also co-manager of the Bond Fund, while Dr. Jones shares
responsibility for the Park Avenue Fund and the Bond Fund. Dr. Jones has been
Executive Vice President and Chief Investment Officer of Guardian Life since
1994. Mr. Sorell has been Vice President of Guardian Life since 1994.
Tax-Exempt Fund and Cash Management Fund
Both Funds are managed by Alexander M. Grant, Jr. He has managed the Tax-Exempt
Fund since December 1993 and the Cash Fund since 1986. Mr. Grant has been Vice
President of Guardian Life since March 1999, and has managed Guardian Life's
tax-exempt assets since 1993.
FUND MANAGEMENT 53 PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
MANAGING YOUR ACCOUNT
- --------------------------------------------------------------------------------
TYPES OF SHARES AVAILABLE
We offer three types of shares within The Park Avenue Portfolio: Class A, Class
B and Institutional Class. For each class, expenses and sales charges vary.
Based on the amount you plan to invest, and how long you plan to hold your
shares, you select the class of shares that is best suited to you.
Expenses
There are two types of expenses related to mutual funds: expenses you pay
directly (called a sales charge), and expenses that are deducted from fund
assets.
Expenses you pay directly
There is a one-time fee that you pay upon either purchase or sale of Class A or
Class B shares. At purchase it is called an initial (or "front-end") sales
charge; at sale, a deferred (or "back-end") sales charge. These charges cover
our cost of selling the Fund to you. It doesn't cover any fee your broker or
agent may charge for helping you buy your Funds.
Expenses you pay through the Funds
The costs of managing and administering a Fund are spread equally among
shareholders of each class of shares. These operating costs cover such things as
auditing, marketing and administrative expenses, fees and expenses of Trustees,
as well as the advisory fees of the Fund's investment adviser - the people
making informed investment decisions for your Fund.
Administrative expenses are for services such as providing office space,
equipment and personnel, maintenance of shareholder accounts, responding to
shareholder inquiries, assisting in the processing of shareholder transactions,
and other services. Each of the Funds pays GISC an administrative service fee
for these services. The Park Avenue Fund pays this fee at an annual rate of
0.25% of the average daily net assets of those Class A and Class B Fund assets
for which a "dealer of record" has been designated. The other Funds pay this fee
at an annual rate of 0.25% of their respective average daily net assets in Class
A and Class B shares.
- --------------------------------------------------------------------------------
12b-1 fees
Applies to the Class B shares of: Park Avenue, Small Cap, Asset Allocation,
International, Emerging Markets, High Yield and Cash Funds
The Portfolio has adopted a plan under Rule 12b-1 under the 1940 Act that
permits shareholders to pay distribution fees for the sale and distribution of
Class B shares. Each Fund with Class B shares is authorized to pay a monthly fee
at an annual rate of up to 0.75% of average daily net assets of the Fund's Class
B shares as compensation for distribution-related services provided to the Class
B shares of that Fund. These fees are paid out of assets on an ongoing basis, so
they will increase the cost of your investment and may cost you more than paying
other types of sales charges.
- --------------------------------------------------------------------------------
54 PROSPECTUS MANAGING YOUR ACCOUNT
<PAGE>
Front-end 12b-1 Back-end
- --------------------------------------------------------------------------------
Class A shares Yes No No(1)
- --------------------------------------------------------------------------------
Class B shares No Yes Yes
- --------------------------------------------------------------------------------
Institutional Class shares No No No
- --------------------------------------------------------------------------------
(1) A deferred sales charge may apply to purchases of $1 million or more if
redeemed within 18 months of purchase.
Class A shares
All of the Funds offer Class A shares. When you buy Class A shares, you pay a
sales charge at the time of your investment. This fee is deducted from the
amount you invest, and the remainder of your money is used to buy shares in the
Fund. You may qualify for a reduction of the initial sales charge based on the
amount you invest. Please see the table below for details.
Amount of purchase Sales charge as a % Sales charge as a % of
payment of offering price net amount invested
- --------------------------------------------------------------------------------
Less than $100,000 4.50% 4.71%
- --------------------------------------------------------------------------------
$100,000 to $249,999 3.75% 3.90%
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.75% 2.83%
- --------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04%
- --------------------------------------------------------------------------------
$1,000,000 or more1 None None
- --------------------------------------------------------------------------------
(1) If you purchase $1 million worth of shares, you will pay no initial sales
charge whatsoever. However, in this case, if you were to sell your shares
within 18 months of purchase, you may have to pay a deferred sales charge
of 1% of the value of the Class A shares sold or the total cost of such
shares, whichever is less.
There is no sales charge on Class A shares of The Guardian Cash Management Fund.
Class A shares can be bought through payroll deduction plans.
Purchases without sales charge Class A share purchases are available without
sales charge to:
o Guardian Life, its subsidiaries, or any of their separate accounts
o present and retired directors, officers, employees, general agents and
field representatives of Guardian Life or its subsidiaries
o directors, trustees, or officers of any open-end investment management
company within the Guardian Fund complex
o trustees or custodians of any employee benefit plan, IRA, Keogh plan or
trust established for the benefit of Guardian Life employees and officers
named above
MANAGING YOUR ACCOUNT PROSPECTUS 55
<PAGE>
o present and retired directors, trustees, officers, partners and employees
of broker-dealer firms that have written sales agreements with GISC
o spouses, parents, siblings, children and grandchildren of the individuals
named above
o employee benefit plans that cover at least 200 eligible participants
o any trust company or bank trust department exercising discretionary
investment authority and holding unallocated accounts in a fiduciary,
agency, custodial or similar capacity
o broker-dealers, financial institutions and registered investment advisers
who offer fee-based "wrap account" programs and have entered into
agreements with GISC, and
o the Asset Allocation Fund, when it makes purchases of other Funds
Class B shares
Class B shares are offered in the following Funds:
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 High Yield Bond Fund
o The Guardian Cash Management Fund
The sales charge on Class B shares is deferred until you sell your shares, and
it diminishes with length of ownership, until it is waived after six years. On
the eighth anniversary of your purchase, your Class B shares will automatically
be converted into Class A shares, which have lower operating costs. Because the
initial sales charge for Class A shares decreases as the purchase amount
increases, it is more cost effective for you to buy Class A shares if you are
making a large purchase. In fact we won't allow you to invest more than $250,000
in Class B shares because Class A shares will serve you better.
Class B shares may not be bought through payroll deduction accounts.
When you place an order to sell Class B shares, you authorize us to redeem
enough additional shares to cover the deferred sales charge. The sales charge is
imposed on the original purchase price of the shares or the current value of the
shares you are selling, whichever is less. Reinvested dividends and capital
gains and amounts attributable to capital appreciation of your shares are not
subject to a sales charge.
56 PROSPECTUS MANAGING YOUR ACCOUNT
<PAGE>
When you sell Class B shares, the deferred sales charge is calculated as if
shares not subject to a sales charge are sold first. This means that the sales
charge will be assessed at the lowest possible rate. You would first redeem the
shares acquired through the reinvestment of dividends or capital gains
distributions, which are not subject to a sales charge. You would next sell the
shares you've owned the longest because they are subject to the lowest sales
charge. For tax purposes, the amount of any deferred sales charge will reduce
the capital gain you realize upon the sale of your shares, or increase your
capital loss, as the case may be.
The deferred sales charge will be waived if you are exchanging Class B shares
for Class B shares of another Fund within the Portfolio. The charge is also
waived for a total or partial redemption within a year of the death of the
shareholder.
You'll pay a deferred sales charge
calculated as a % of the purchase or sale
If you sell your shares during: price, whichever is less, of:
- --------------------------------------------------------------------------------
The first year 3%
- --------------------------------------------------------------------------------
The second year 3%
- --------------------------------------------------------------------------------
The third year 2%
- --------------------------------------------------------------------------------
The fourth year 2%
- --------------------------------------------------------------------------------
The fifth year 1%
- --------------------------------------------------------------------------------
The sixth year 1%
- --------------------------------------------------------------------------------
After the sixth year None
- --------------------------------------------------------------------------------
Institutional Class shares
Institutional Class shares are offered by the following Funds:
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
Youdo not pay a sales charge of any kind on Institutional Class shares, and
these shares do not have 12b-1 fees. As the name implies, they are intended for
large institutional purchasers, such as pension funds. The minimum purchase is
$3 million.
MANAGING YOUR ACCOUNT PROSPECTUS 57
<PAGE>
Minimum purchase amounts
Class A and Class B (includes initial sales charge)
- --------------------------------------------------------------------------------
Initial investment $ 1,000
- --------------------------------------------------------------------------------
Additional investments $ 100
- --------------------------------------------------------------------------------
Class A only (includes initial sales charge)
- --------------------------------------------------------------------------------
Payroll Deduction Accounts (initial and additional investments) $ 100
- --------------------------------------------------------------------------------
Payroll Deduction Accounts for Guardian employees
(initial and additional investments) $ 50
- --------------------------------------------------------------------------------
Institutional Class
- --------------------------------------------------------------------------------
Initial investment $3 million
- --------------------------------------------------------------------------------
Additional investments No minimum
- --------------------------------------------------------------------------------
GISC can change these minimums at any time.
Making your first purchase To buy a Fund, you will need:
o payment for the purchase
o instructions for your investment
o a properly completed Park Avenue Portfolio application.
Your first purchase must be made through:
o registered representatives of Park Avenue Securities
o registered representatives of other broker-dealer firms who are authorized
to sell our products, or
o broker-dealers or other institutions who handle our Funds
A registered representative is an employee of a broker-dealer who acts as an
account executive for clients. Registered representatives provide advice on
which securities to buy or sell and receive a percentage of the commission
income generated as a result.
We may from time to time, at our own expense, compensate our own registered
representatives, certain dealers whose registered representatives have sold or
are expected to sell substantial amounts of our Funds, and other financial
institutions for administrative or marketing services.
- --------------------------------------------------------------------------------
Share price
The share price of our Funds is calculated each day that the New York Stock
Exchange (NYSE) is open. The price is set at the close of trading on the NYSE or
4 p.m. Eastern time, whichever is earlier. The price is based on the Fund's
current Net Asset Value (NAV) plus any sales charges that may apply.
The price you pay per share will be the next share price that is calculated
after we receive your completed purchase order. For example, the price for a
purchase order we receive before the close of trading on the NYSE will be the
share price set that day. Purchase orders we receive after the close will be the
share price set at the close of trading on the next day the NYSE is open. Where
authorized, orders will be priced at the NAV next computed after receipt by
certain third party intermediaries who act as agents of the Portfolio.
- --------------------------------------------------------------------------------
58 PROSPECTUS MANAGING YOUR ACCOUNT
<PAGE>
Payment
Make checks payable to The Park Avenue Portfolio. We do not accept money orders
or third-party checks endorsed to us.
Follow-up purchases
You can make follow-up purchases through your broker or agent (who may charge
for this) or directly through our transfer agent, National Financial Data
Services (1-800-343-0817).
Purchases by wire
You can make a purchase by wire through any bank that is a member of the
Automated Clearing House. A fee may be charged for this service both by us and
by the bank. The minimum wire purchase is $1,000 and must be sent to the
following address:
State Street Bank and Trust Company
ABA Routing Number 0110-000-28
Boston, MA 02101
Attention: Guardian A/C 9904-713-6
Name of your Fund:
Account of: (your name)
Your shareholder account number:
The share price for a wire order will be the public offering price first set
after receipt of the funds.
Purchases by telephone
You or your registered representative can place an order with us by phone by
calling 1-800-343-0817 between 9:00 a.m. and 3:00 p.m. Eastern time on any
business day.
In order for you to use this service, your bank must be a member of the
Automated Clearing House. Also, you must have completed the appropriate section
of your Park Avenue Portfolio application. The funds will automatically be
deducted from the bank account you have specified to us. The share price for a
phone order will be the public offering price first set after we receive the
funds (normally within two business days of the call).
Purchases by mail
If you wish to make a purchase by mail, please send us your request in writing,
along with a void check from your bank account.
Guardian Investor Services Corporation and each Fund reserve the right to reject
any purchase order and to suspend the offering of a Fund's shares.
The portfolio agent
We have appointed several authorized broker-dealers to act as our portfolio
agent. A purchase order is deemed to have been received by us when one of these
authorized firms receives it.
MANAGING YOUR ACCOUNT PROSPECTUS 59
<PAGE>
Payments or
sales requests
- --------------------------------------------------------------------------------
We may postpone payments or suspend sales requests:
o when the New York Stock Exchange is closed other than for a weekend or
holiday
o when trading on the NYSE is restricted
o when an emergency makes it impractical for us to sell assets or calculate
share prices, or
o when the Securities and Exchange Commission permits because, for example,
simultaneous requests for sales or exchanges are so large that it would
significantly alter our share price
HOW TO SELL SHARES
Fund share prices fluctuate from day to day, so when you decide to sell your
shares, their value may be higher or lower than when you bought them. The share
price you receive will be the next share price that is calculated after we
receive your completed request to sell. If you're selling Class A or Class B
shares, we will deduct any deferred sales charge from the proceeds of the sale
or sell additional shares to cover the charge.
You can arrange to sell your shares in writing, over the telephone or through a
broker-dealer. You can also arrange to receive the proceeds of the sale by wire.
You can write checks against Class A shares of The Guardian Cash Management
Fund. Those shares that are held in certificate form or qualified plan accounts
may be sold only by written request.
Normally, we will send payment within three business days from when we receive
your request to sell. However, if you purchased shares by check, we may delay
sending sales proceeds until the check has cleared. This could take up to 15
days.
While redemptions will generally be made in cash, under certain circumstances
they may be made entirely or partly in readily marketable securities or other
non-cash assets. This could happen if the Trustees determine that orderly
liquidation of a Fund's securities is impractical, or if cash payment would
adversely affect the remaining shareholders.
Selling by mail
If you wish, you can send us a written request to sell your shares. If you have
been issued certificates for the shares you are selling, you must include them
and be sure that you have endorsed them.
If you are sending your request to sell shares by regular U.S. mail, use the
following address:
National Financial Data Services
(name of your Guardian Fund)
P.O. Box 419611
Kansas City, MO 64141-6611
If you are using registered, certified or express mail use this address:
National Financial Data Services
(name of your Guardian Fund)
330 W. 9th Street
Kansas City, MO 64105-2112
60 PROSPECTUS MANAGING YOUR ACCOUNT
<PAGE>
Under certain circumstances, your written request must be accompanied by a
guaranteed signature, which is available from most banks, credit unions or other
financial institutions and from most broker-dealer firms (see accompanying
note). A guaranteed signature cannot be obtained from a notary public.
Selling by phone
For sales requests of $1,000 or more, or to close out your account, you may call
1-800-343-0817 between 9:00 a.m. and 3:00 p.m. Eastern time on any business day.
In order to use this service, you must have provided us with the appropriate
authorization on your application or Shareholder Privilege form.
You may not use this service for qualified retirement plan accounts or for
shares for which certificates have been issued.
Over the phone, we require specific information about your account, as well as
other identifying information. We will accept a sales request from any caller
who can provide this information. You risk possible loss if someone gives us
unauthorized or fraudulent instructions for your account. If we follow
reasonable security procedures, we're not responsible if a loss occurs.
We have the right to change or withdraw the telephone sales privilege at any
time upon 7 days' notice to shareholders.
Receiving your money by wire
We can wire proceeds to your bank account if you fill out the authorization on
our application or a Shareholder Privilege form (with signature guarantees). The
minimum amount for this service is $1,000 or the entire balance of your Fund
account, if it is less. Your bank must be a member of the Automated Clearing
House. Any fees for this service will be deducted from the proceeds. When
required, applicable taxes are withheld from the proceeds.
Signature guarantees
- --------------------------------------------------------------------------------
You will need a guaranteed signature if:
o your request is for $50,000 or more
o the shareholder is not a natural person
o the proceeds are to be made payable to someone other than the account
holder
o the proceeds are to be mailed to an address other than that specified on
your account records
MANAGING YOUR ACCOUNT PROSPECTUS 61
<PAGE>
Using Cash Fund checks
If you hold Class A shares in this Fund, you can cash your shares by writing
checks against your Cash Fund account. We redeem shares to cover the amount of
your check on the day the check is presented for payment. You will continue to
receive dividends on those shares until that time. We do not charge a fee for
check-writing.
We will not honor checks that exceed the balance in your Cash Fund account, and
will return them marked "insufficient funds." Checks are subject to a minimum of
$250. Because the value of your shares fluctuates, we advise against attempting
to close out an account by writing a check.
If your shares are part of a qualified retirement plan account, you will not
have check-writing privileges.
We have the right to withdraw or charge for check-writing privileges at any
time.
Repurchases by broker-dealer firms
Broker-dealers who sell our shares are authorized to buy back shares from you if
you wish to sell. The share price you receive is the next price calculated after
the broker-dealer receives your request. The broker-dealers may charge a fee for
repurchases. A broker-dealer's offer to repurchase may be suspended or
discontinued at any time.
Minimum account balance
We may close your account if it falls below $1,000 for any reason other than
market factors. However, you will be given 30 days notice to increase the amount
in your account before it is closed. Minimum balance requirements don't apply
to:
o automatic investment plan
o dollar cost averaging program
o qualified retirement plans
o payroll deduction plans.
Reinstatement privilege
If you redeem Fund shares, you are allowed to reinvest as much as the redemption
amount at NAV. Shareholders who wish to reinstate Class B shares will receive
pro rata credit for any deferred sales charge paid in connection with the
redemption of Class B shares. You must contact NFDS to do this. The
reinstatement privilege can be used by a shareholder only once, and the
reinvestment must be effected within 30 days of the redemption date.
Reinstatement will not affect any taxable gain you realized when you sold your
shares, but any taxable loss may be affected if you reinvest in the same series.
62 PROSPECTUS MANAGING YOUR ACCOUNT
<PAGE>
SPECIAL PURCHASE AND SALE PLANS
Special purchase and sale plans we offer for the Funds are briefly described
below. If you would like more information about them, please call us at
1-800-343-0817.
These plans are not available to anyone who owns Park Avenue Fund shares through
a Value Guard variable annuity contract.
We reserve the right to modify, end or charge for these plans at any time.
These programs do not assure a profit or prevent any loss in your Fund
investment.
Automatic investment plan
If you participate in this plan, we will automatically withdraw a specified
amount from your bank account for investment in one or more Funds. You must make
an initial investment of at least $50 in each of the Funds you wish to
contribute to. Thereafter, the minimum investment is $100 per Fund. You must
invest at least $1,000 per Fund in each 12-month period.
In order to participate you must complete the appropriate section of your
application or Shareholder Privilege form. Also, your bank must be a member of
the Automated Clearing House.
You can opt out of the plan at any time by notifying us, but it may take up to
15 days for us to stop withdrawals from your account. If at any time there are
insufficient funds in your account to cover the withdrawal, we will terminate
the plan.
Rights of accumulation
To reduce your initial sales charge, you can combine proposed Class A purchases
with your current Fund holdings. You can also include shares held by your spouse
and minor children. However, you may not include shares that are not subject to
a sales charge. Specifically, sales charges are paid on Class A shares of each
Fund (except the Cash Fund) and on Class B shares, so these shares may be
included. Cash Fund purchases, Institutional Class shares, and shares purchased
through the reinvestment of dividends or distributions may not be included.
Simply notify us or NFDS that your purchase will qualify for a reduction in the
sales charge and provide the names and account numbers of the family members
whose holdings are to be included.
Special purchase and sale plans
- --------------------------------------------------------------------------------
We offer several purchase and sale plans to Park Avenue Portfolio shareholders,
including:
o automatic investment plan
o rights of accumulation
o automatic withdrawal plan
o investment by letter of intent
o dollar cost averaging
MANAGING YOUR ACCOUNT PROSPECTUS 63
<PAGE>
Automatic withdrawal plan
If you own at least $1,000 worth of shares in a Fund, you can arrange to
withdraw a specific amount monthly, quarterly, semi-annually or annually. The
minimum withdrawal is $100. We will pay you, deposit the amount in your bank
account, or pay another party you specify. Simply complete the appropriate
section of your application or Shareholder Privilege form to begin a withdrawal
plan. You must apply at least 30 days before the first payment date. To end
withdrawals, give us notice at any time. Please note that taxable gains or
losses may be realized when shares are automatically withdrawn.
You can use the automatic withdrawal plan in conjunction with the Guard-O-Matic
Premium Payment Program to pay premiums for Guardian Life and GIAC insurance
policies. Under this plan, enough shares are withdrawn from your Fund account(s)
in time to send a check in the mail or wire the money to a pre-designated bank
account. (The receiving bank must be a member of the Automatic Clearing House.)
Only Class A shares of the Park Avenue Fund and Cash Fund may be used for
Guard-O-Matic.
If you're making an automatic withdrawal of proceeds of Class B shares, no
contingent deferred sales charge will be imposed, as long as you do not withdraw
annually more than 10% of the account value as of the time when you set up the
account plan.
It may not be advantageous to buy additional shares at the same time that you're
making automatic withdrawals because of tax liabilities and sales charges. Any
charges made by NFDS to operate an automatic withdrawal plan will be assessed
against your accounts when each withdrawal is made.
Investment by letter of intent
An investor who intends to invest $100,000 or more over a 13-month period can
reduce the initial sales charge on each intended purchase of Class A shares by
completing the letter of intent item on The Park Avenue Portfolio application or
Shareholder Privilege form. The sales charge for each purchase will be at the
reduced rate that would apply if the investment were made at one time. You can
include holdings held by your spouse and minor children. However, you cannot
include shares that are not subject to a sales charge, such as Cash Fund shares
or shares purchased through the reinvestment of dividends and distributions.
If you complete a letter of intent within 90 days of a prior purchase of one of
the Funds (other than The Guardian Cash Management Fund), that purchase may be
included under the letter of intent. In this case, an appropriate adjustment, if
any, will be made for any sales charge you paid in connection with the prior
purchase, based on the current NAV.
64 PROSPECTUS MANAGING YOUR ACCOUNT
<PAGE>
The letter of intent does not bind the shareholder to buy the entire intended
amount. However, NFDS will escrow shares valued at 5% of the intended investment
to assure payment of additional sales charges if the intended purchases are not
made and the shareholder fails to pay the additional sales charge within 20 days
after NFDS requests payment.
How to exchange shares
This privilege is not available to anyone who owns Park Avenue Fund shares
through a Value Guard variable annuity contract. You can exchange shares of one
Fund for shares of another, provided they are of the same class. You won't have
to pay an initial sales charge, except when Class A shares of The Guardian Cash
Management Fund are exchanged for Class A shares of other Funds.
The share prices used for the exchange will be the next share price calculated
after we receive your exchange request.
Should you sell your shares at any point after an exchange, any deferred sales
charge will be calculated from the date of the initial purchase, not the date of
exchange. For tax purposes, an exchange is the same as a sale, so taxable gains
or losses may be realized.
You can request an exchange by mail, by telephone or through your registered
representative, as you would with any purchase or sale (brokers may charge for
this.) To establish telephone sale privileges, simply fill out the appropriate
section of our application or Shareholder Privilege form. The minimum telephone
exchange is $500. Telephone exchanges have the same security rules as telephone
withdrawals.
If you have certificates for your shares, you must endorse them and return them
to us before we can complete an exchange.
We have the right to, change or end exchange privileges at any time, with at
least 60 days' notice, if required by the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
Our right to reject purchase orders and exchange requests
Exchanges are meant for investment purposes only. Our Funds are not designed for
professional market timing or for programmed or frequent exchanges, because this
type of activity can have a disruptive effect on the Fund and can be detrimental
to shareholders.
We have the right to:
o reject or restrict purchase orders or requests
o limit the number of exchanges permitted within a specified period of time
If we reject an exchange, we will not process either the sale or purchase side
of the exchange request.
- --------------------------------------------------------------------------------
MANAGING YOUR ACCOUNT PROSPECTUS 65
<PAGE>
Dollar cost averaging
You can arrange to have amounts of $100 or more automatically exchanged among
our Funds on a monthly or quarterly basis. Shares must be of the same class and:
o you must have a minimum balance of $1,000 in both the originating and
receiving Funds, or
o you must have a minimum balance of $5,000 in the originating Fund.
This type of periodic investing does not guarantee a profit or protect you
against loss in a declining market.
Dollar cost averaging transactions are subject to the same rules and
considerations as other exchanges, including tax consequences.
Net asset value
- --------------------------------------------------------------------------------
Each Fund's NAV consists of its total assets, less liabilities (including daily
expenses), divided by the total number of shares outstanding.
CALCULATION OF NET ASSET VALUES
Net asset values (NAV) for all Funds in The Park Avenue Portfolio are determined
each day the New York Stock Exchange is open, as of 4:00 p.m. Eastern time or
the close of trading on the NYSE, whichever is earlier. Each Fund's NAV consists
of its total assets, less liabilities (including daily expenses), divided by the
total number of shares outstanding. Each Fund values its assets at current
market prices when market prices are readily available. All investments made by
the International and Emerging Markets Funds, as well as investments by other
Funds in foreign securities, are valued daily in U.S. dollars based on current
exchange rates. Securities that are primarily listed on foreign stock exchanges
may trade on days when the Funds do not price their shares. Accordingly, the NAV
of Funds investing in such securities may change on days when you cannot
purchase or sell shares.
If market prices for Fund assets are not readily available, assets are valued at
fair value as determined in good faith by, or under the direction of, the
Portfolio's Board of Trustees. In addition, market prices for foreign securities
are not determined at the same time of day as the NAVs for the Funds that hold
these securities.
To maintain a NAV of $1.00 per share, the Cash Fund has chosen to value its
portfolio on the basis of amortized cost in accordance with Rule 2a-7 under the
Investment Company Act of 1940. The Rule stipulates that the Fund must maintain
a dollar-weighted average portfolio maturity of 90 days or less, and that it
must invest only in securities that are considered to present minimal risk.
Eligible securities are those ranked within the two highest rating categories by
nationally recognized statistical rating organizations, or unrated securities
deemed to be of comparable quality by GISC. Short-term securities that mature in
60 days or less are also valued by using the amortized cost method, unless the
Board determines that this does not represent fair value.
66 PROSPECTUS MANAGING YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
THE DIFFERENCE between the purchase and sale price of an asset is referred to as
a capital gain or loss. The Funds will have net capital gains if their capital
gains on sales of portfolio securities exceed capital losses.
We determine each Fund's net investment income by subtracting expenses from any
interest and dividend income the Fund has earned. Then we distribute the net
realized capital gains and net investment income to you. These distributions are
made at least once a year for all of our Funds. The exception is The Guardian
Cash Management Fund, which distributes its short-term gains monthly, and is not
expected to realize long-term capital gains.
Each of our Funds pays its dividends and other distributions in the form of
additional shares, unless you request payment in cash. If you do wish to receive
dividends and other distributions in cash, simply complete the appropriate
section of our application or Shareholder Privilege form, or speak to your
registered representative. Dividends and distributions of less than $10 will
automatically be reinvested in shares.
- --------------------------------------------------------------------------------
Dividends and distributions
Twice yearly
The following Funds distribute any net investment income to shareholders twice a
year:
o The Guardian Park Avenue Fund
o The Guardian Park Avenue Small Cap Fund
o The Guardian Baillie Gifford International Fund
o The Guardian Baillie Gifford Emerging Markets Fund
o The Guardian Asset Allocation Fund.
Monthly
The following Funds declare dividends daily and distribute any net investment
income to shareholders once a month:
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.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS PROSPECTUS 67
<PAGE>
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
EACH OF OUR FUNDS is considered a separate entity for accounting and federal
income tax purposes.
Taxes on the sale of shares
Any sale or exchange of Fund shares may generate tax liability (unless you are a
tax-exempt investor or your investment is in a qualified retirement account.)
When you redeem any of your shares, whether it be an outright sale or through an
exchange into another Fund, you may realize a taxable gain or loss. This is
measured by the difference between the proceeds of the sale and the tax basis
for the shares you sold. (To aid in computing your tax basis, you generally
should retain your account statements for the period that you hold shares in the
Funds.) Any loss recognized on shares held for six months or less will be
treated as a long-term capital loss to the extent of any capital gain dividends
that were received with respect to the shares sold or exchanged.
Taxes on distributions from the Funds The following summary does not apply to:
o qualified retirement accounts (because tax is deferred until you withdraw
your money)
o tax-exempt investors, or
o exempt-interest distributions from The Guardian Tax-Exempt Fund
The Funds intend to make distributions that will be taxed as ordinary income or
capital gains. Dividends and capital gains distributions from our Funds are
taxable whether you receive them in cash or as additional shares in the Funds.
If we declare dividends in October, November or December, you will be taxed for
them in the year in which we declared them, as long as we pay them out to you by
February 1 of the following calendar year. Net investment income dividends and
short-term capital gains distributions are taxable as ordinary income.
Long-term capital gains distributions are taxable at a maximum federal income
tax rate of 20%. The decision on whether a capital gains distribution is
short-term or long-term is based on how long the Fund held the securities, not
how long you held your shares in the Fund. The dividends we pay that come from
U.S. government securities may be exempt from state and local income taxes.
68 PROSPECTUS TAXES
<PAGE>
If you buy your shares any time before or on the record date, you are entitled
to receive the distribution, which may be subject to income taxes. The tax
status of the dividends and distributions for each calendar year will be
detailed in your annual tax statement from the Funds. In addition to federal
income taxes, you may be subject to state, local or foreign taxes on payments
received from the Funds (including The Guardian Tax-Exempt Fund discussed
below.) More tax information is provided in the Statement of Additional
Information.
You should also consult with your own tax adviser regarding all tax consequences
applicable to your investments in the Funds.
Distributions from The Guardian Tax-Exempt Fund
The Guardian Tax-Exempt Fund expects to distribute primarily exempt-interest
dividends. These dividends will be exempt income for federal income tax
purposes, whether received in the form of cash or additional shares. However,
dividends from the Fund may not be entirely tax-exempt and any distributions by
the Fund of net long-term capital gains will generally be taxable to you as
long-term capital gains. Distributions from the Fund may be subject to state and
local taxes.
Your annual statements will provide you with information about the
exempt-interest dividends you have received. You must disclose this information
on your federal tax return. The statement will also report the amount that
relates to private activity bonds which could be subject to the alternative
minimum tax (AMT). If you are subject to the AMT, please consult your tax
adviser regarding the implications of holding shares in the Tax-Exempt Fund.
If you receive Social Security or railroad retirement benefits, please consult
your tax adviser and be aware that exempt-interest dividends will be considered
for the purpose of determining to what extent your benefits will be taxed.
Interest on indebtedness you incurred to purchase or carry shares of the
Tax-Exempt Fund generally will not be deductible for federal income tax
purposes. If you receive an exempt-interest dividend on shares that are held by
you for six months or less, any loss on the sale or exchange of the shares will
be disallowed to the extent of such dividend amount. We also recommend that
corporations consult their tax advisers about the implications of holding these
shares.
TAXES PROSPECTUS 69
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the financial
performance for the Funds over the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, are included in The Park Avenue Portfolio's annual
report, which is available upon request. Since no Institutional Class shares
were outstanding in 1998, there is no information for them in the table.
<TABLE>
<CAPTION>
Income from investment operations Less distributions
------------------------------------------- ------------------------
Net gains Distributions
Net asset Net or losses on Total Dividends in excess
value, investment securities from from net of net
beginning income (both realized investment investment investment
of period (loss) and unrealized) operations income income
--------- ---------- -------------- ---------- ---------- -------------
<S> <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) $ --
Year ended 12/31/97 37.91 0.40 12.61 13.01 (0.39) --
Year ended 12/31/96 33.97 0.42 8.41 8.83 (0.42) (0.01)
Year ended 12/31/95 26.89 0.33 8.87 9.20 (0.33) --
Year ended 12/31/94 28.63 0.31 (0.72) (0.41) (0.31) --
Class B
Year ended 12/31/98 46.02 (0.08) 9.28 9.20 0.00 --
Year ended 12/31/97 37.90 0.00 12.54 12.54 (0.01) --
Period from 5/1/96+ to 12/31/96 36.26 0.05 6.10 6.15 (0.05) --
The Guardian Park Avenue
Small Cap Fund
Class A
Year ended 12/31/98 13.77 (0.03) (0.83) (0.86) -- --
Period from 4/2/97+ to 12/31/97 10.00 0.00 3.91 3.91 -- --
Class B
Year ended 12/31/98 13.67 (0.15) (0.80) (0.95) -- --
Period from 5/6/97+ to 12/31/97 10.57 (0.04) 3.28 3.24 -- --
The Guardian Asset Allocation Fund
Class A
Year ended 12/31/98 14.05 0.39 2.31 2.70 (0.43) --
Year ended 12/31/97 12.96 0.34 2.77 3.11 (0.34) --
Year ended 12/31/96 12.19 0.23 1.96 2.19 (0.23) --
Year ended 12/31/95 10.23 0.23 2.29 2.52 (0.23) --
Year ended 12/31/94 10.98 0.28 (0.52) (0.24) (0.28) --
Class B
Year ended 12/31/98 14.00 0.24 2.31 2.55 (0.28) --
Year ended 12/31/97 12.92 0.17 2.77 2.94 (0.18) --
Period from 5/1/96+ to 12/31/96 12.61 0.04 1.50 1.54 (0.04) --
The Guardian Baillie Gifford
International Fund
Class A
Year ended 12/31/98 16.08 0.02 3.13 3.15 (0.01) --
Year ended 12/31/97 15.22 0.02 1.66 1.68 -- (0.16)
Year ended 12/31/96 13.57 0.05 1.89 1.94 (0.05) (0.05)
Year ended 12/31/95 13.01 0.04 1.40 1.44 (0.04) (0.23)
Year ended 12/31/94 13.19 0.01 (0.09) (0.08) (0.01) --
Class B
Year ended 12/31/98 15.87 (0.09) 3.00 2.91 -- --
Year ended 12/31/97 15.12 (0.11) 1.52 1.41 -- --
Period from 5/1/96+ to 12/31/96 14.71 (0.04) 0.76 0.72 (0.04) (0.08)
</TABLE>
+ Commencement of operations.
* Excludes the effect of sales charge.
(a) Annualized.
(b) After expenses subsidized by GISC.
70 PROSPECTUS FINANCIAL HIGHLIGHTS
<PAGE>
<TABLE>
<CAPTION>
Less distributions Ratios/supplemental data
---------------------------- ----------------------------
Net assets,
Net asset end of Ratio of
Distributions value, period expenses
from Total end of Total (000's to average
capital gains distributions period return* omitted) net assets(b)
------------- ------------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
The Guardian Park Avenue Fund
Class A
Year ended 12/31/98 $ (3.63) $ (3.97) $ 51.88 21.30% $2,990,767 0.78%
Year ended 12/31/97 (4.41) (4.80) 46.12 34.85 2,312,632 0.79
Year ended 12/31/96 (4.46) (4.89) 37.91 26.49 1,392,186 0.79
Year ended 12/31/95 (1.79) (2.12) 33.97 34.28 972,275 0.81
Year ended 12/31/94 (1.02) (1.33) 26.89 (1.44) 640,917 0.84
Class B
Year ended 12/31/98 (3.63) (3.63) 51.59 20.16 389,489 1.70
Year ended 12/31/97 (4.41) (4.42) 46.02 33.53 201,746 1.73
Period from 5/1/96+ to 12/31/96 (4.46) (4.51) 37.90 17.35 36,006 1.77(a)
The Guardian Park Avenue
Small Cap Fund
Class A
Year ended 12/31/98 (0.11) (0.11) 12.80 (6.35) 127,525 1.32
Period from 4/2/97+ to 12/31/97 (0.14) (0.14) 13.77 39.16 101,016 1.36(a)
Class B
Year ended 12/31/98 (0.11) (0.11) 12.61 (7.05) 22,122 2.17
Period from 5/6/97+ to 12/31/97 (0.14) (0.14) 13.67 30.47 18,248 2.26(a)
The Guardian Asset Allocation Fund
Class A
Year ended 12/31/98 (1.54) (1.97) 14.78 19.41 194,827 0.60
Year ended 12/31/97 (1.68) (2.02) 14.05 24.44 136,948 0.95
Year ended 12/31/96 (1.19) (1.42) 12.96 18.74 88,190 1.30
Year ended 12/31/95 (0.33) (0.56) 12.19 24.51 70,591 1.25
Year ended 12/31/94 (0.23) (0.51) 10.23 (2.13) 54,875 1.30
Class B
Year ended 12/31/98 (1.54) (1.82) 14.73 18.32 27,545 1.48
Year ended 12/31/97 (1.68) (1.86) 14.00 23.09 14,066 2.04
Period from 5/1/96+ to 12/31/96 (1.19) (1.23) 12.92 12.07 5,075 2.39(a)
The Guardian Baillie Gifford
International Fund
Class A
Year ended 12/31/98 (0.81) (0.82) 18.41 19.61 93,871 1.56
Year ended 12/31/97 (0.66) (0.82) 16.08 11.07 66,999 1.62
Year ended 12/31/96 (0.19) (0.29) 15.22 14.33 57,593 1.70
Year ended 12/31/95 (0.61) (0.88) 13.57 11.14 44,546 1.74
Year ended 12/31/94 (0.09) (0.10) 13.01 (0.55) 37,542 1.91
Class B
Year ended 12/31/98 (0.81) (0.81) 17.97 18.36 10,216 2.67
Year ended 12/31/97 (0.66) (0.66) 15.87 9.37 6,268 2.91
Period from 5/1/96+ to 12/31/96 (0.19) (0.31) 15.12 4.34 3,313 3.05(a)
<CAPTION>
Ratios/supplemental data
--------------------------------------
Ratio of net
investment
Expenses income (loss) Portfolio
subsidized to average turnover
by GISC net assets rate
---------- ------------ ---------
<S> <C> <C> <C>
The Guardian Park Avenue Fund
Class A
Year ended 12/31/98 --% 0.72% 55%
Year ended 12/31/97 -- 0.95 50
Year ended 12/31/96 -- 1.19 81
Year ended 12/31/95 -- 1.07 78
Year ended 12/31/94 -- 1.15 54
Class B
Year ended 12/31/98 -- (0.21) 55
Year ended 12/31/97 -- 0.00 50
Period from 5/1/96+ to 12/31/96 -- 0.04(a) 81
The Guardian Park Avenue
Small Cap Fund
Class A
Year ended 12/31/98 -- (0.29) 63
Period from 4/2/97+ to 12/31/97 -- 0.04(a) 25
Class B
Year ended 12/31/98 -- (1.14) 63
Period from 5/6/97+ to 12/31/97 -- (1.01)(a) 25
The Guardian Asset Allocation Fund
Class A
Year ended 12/31/98 0.52 2.52 23
Year ended 12/31/97 0.19 2.50 58
Year ended 12/31/96 -- 1.91 122
Year ended 12/31/95 -- 1.98 219
Year ended 12/31/94 -- 2.72 216
Class B
Year ended 12/31/98 0.52 1.70 23
Year ended 12/31/97 0.19 1.50 58
Period from 5/1/96+ to 12/31/96 -- 0.70(a) 122
The Guardian Baillie Gifford
International Fund
Class A
Year ended 12/31/98 -- (0.01) 44
Year ended 12/31/97 -- 0.07 55
Year ended 12/31/96 -- 0.29 39
Year ended 12/31/95 -- 0.19 51
Year ended 12/31/94 -- 0.20 33
Class B
Year ended 12/31/98 -- (1.13) 44
Year ended 12/31/97 -- (1.46) 55
Period from 5/1/96+ to 12/31/96 -- (1.47)(a) 39
</TABLE>
FINANCIAL HIGHLIGHTS PROSPECTUS 71
<PAGE>
<TABLE>
<CAPTION>
Income from investment operations Less distributions
------------------------------------------- ------------------------
Net gains Distributions
Net asset Net or losses on Total Dividends in excess
value, investment securities from from net of net
beginning income (both realized investment investment investment
of period (loss) and unrealized) operations income income
--------- ---------- -------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
The Guardian Baillie Gifford
Emerging Markets Fund
Class A
Year ended 12/31/98 $ 9.38 $ 0.01 $(2.73) $(2.72) $(0.00)(d) $ --
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) --
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) --
The Guardian Tax-Exempt Fund
Class A
Year ended 12/31/98 9.99 0.43 0.17 0.60 (0.43) --
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) --
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) --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Dividends Net asset
value, investment from net value,
beginning income investment end of Total
of period (loss) 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(d)
</TABLE>
+ Commencement of operations.
++ Date of initial pubic investment.
* Excludes the effect of sales charge.
(a) Annualized. For GHYBF, ratios are calculated from 7/7/98 (commencement of
operations).
(b) After expenses subsidized by GISC.
(c) Not annualized.
(d) Rounds to less than $0.01.
72 PROSPECTUS FINANCIAL HIGHLIGHTS
<PAGE>
<TABLE>
<CAPTION>
Less distributions Ratios/supplemental data
---------------------------- ----------------------------
Net assets,
Net asset end of Ratio of
Distributions value, period expenses
from Total end of Total (000's to average
capital gains distributions period return* omitted) net assets(b)
------------- ------------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
The Guardian Baillie Gifford
Emerging Markets Fund
Class A
Year ended 12/31/98 -- (0.00) 6.66 (28.97)% $ 16,342 2.55%
Period from 4/2/97+ to 12/31/97 -- (0.03) 9.38 (5.86) 21,472 2.31
Class B
Year ended 12/31/98 -- -- 6.44 (30.75) 1,367 5.04
Period from 5/6/97+ to 12/31/97 -- -- 9.30 (9.71) 2,009 4.24(a)
The Guardian Investment
Quality Bond Fund
Class A
Year ended 12/31/98 (0.15) (0.68) 9.99 7.89 142,199 0.85
Year ended 12/31/97 -- (0.58) 9.91 8.43 98,935 0.75
Year ended 12/31/96 -- (0.55) 9.70 2.73 50,794 0.75
Year ended 12/31/95 -- (0.59) 10.00 16.64 53,706 0.75
Year ended 12/31/94 (0.02) (0.48) 9.12 (4.50) 43,487 1.46
The Guardian Tax-Exempt Fund
Class A
Year ended 12/31/98 (0.03) (0.46) 10.13 6.11 70,720 0.75
Year ended 12/31/97 -- (0.44) 9.99 8.74 47,360 0.75
Year ended 12/31/96 -- (0.42) 9.61 3.62 39,185 0.75
Year ended 12/31/95 -- (0.44) 9.69 14.59 17,501 0.75
Year ended 12/31/94 (0.04) (0.44) 8.86 (8.98) 15,967 1.09
High Yield Bond Fund
Class A
Period from 9/1/98++ to 12/31/98 -- (0.38) 9.84 9.24 51,288 0.75(a)
Class B
Period from 9/1/98++ to 12/31/98 -- (0.31) 9.83 8.61 2,482 2.33(a)
<CAPTION>
Ratios/supplemental data
--------------------------------------
Ratio of net
investment
Expenses income (loss) Portfolio
subsidized to average turnover
by GISC net assets rate
---------- ------------ ---------
<S> <C> <C> <C>
The Guardian Baillie Gifford
Emerging Markets Fund
Class A
Year ended 12/31/98 --% 0.18% 83%
Period from 4/2/97+ to 12/31/97 -- 0.61(a) 36
Class B
Year ended 12/31/98 -- (2.31) 83
Period from 5/6/97+ to 12/31/97 -- (0.02)(a) 36
The Guardian Investment
Quality Bond Fund
Class A
Year ended 12/31/98 0.21 5.24 309
Year ended 12/31/97 0.29 5.94 313
Year ended 12/31/96 0.37 5.73 257
Year ended 12/31/95 0.39 6.11 401
Year ended 12/31/94 -- 4.94 186
The Guardian Tax-Exempt Fund
Class A
Year ended 12/31/98 0.26 4.29 111
Year ended 12/31/97 0.31 4.51 202
Year ended 12/31/96 0.60 4.96 240
Year ended 12/31/95 0.79 4.66 194
Year ended 12/31/94 0.47 4.26 107
High Yield Bond Fund
Class A
Period from 9/1/98++ to 12/31/98 0.51(a) 8.31 11
Class B
Period from 9/1/98++ to 12/31/98 0.51(a) 6.85 11
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
------------------------------------------------------
Net assets, Net
end of investment
period Expenses Expenses income (loss)
(000's to average subsidized to average
omitted) net assets(d) 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>
FINANCIAL HIGHLIGHTS PROSPECTUS 73
<PAGE>
Custodian
State Street Bank and Trust Company
Custody Division
1776 Heritage Drive
North Quincy, Massachusetts 02171
Transfer and Dividend Paying Agent
National Financial Data Services (NFDS) is our transfer and dividend paying
agent. NFDS is an affiliate of State Street Bank and Trust Company.
<PAGE>
WHERE TO GET MORE INFORMATION
For prospective investors:
Guardian Investor Services Corporation (GISC)
1-800-221-3253
GISC's executive office:
7 Hanover Square
New York, New York 10004
GISC's administrative office:
P.O. Box 26205
Lehigh Valley, Pennsylvania 18002-6205
For existing shareholders:
National Financial Data Services (NFDS)
1-800-343-0817
NFDS's first class mail address:
P.O. Box 419611
Kansas City, Missouri 64141-6611
NFDS's express, registered and certified mail address:
330 W. 9th Street
Kansas City, Missouri 64105-2112
For more detailed information:
Additional information about the investments of The Park Avenue Portfolio is
available in the annual and semi-annual reports to shareholders. In the
Portfolio's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected their performance during
the past fiscal year.
The Portfolio's Statement of Additional Information contains additional
information about the Portfolio and has been filed with the SEC and is
incorporated in this prospectus by reference. A free copy of the Fund's
Statement of Additional Information and most recent annual report and
semi-annual report may be obtained, and further inquiries can be made, by
calling 1-800-221-3253 or by writing Guardian Investor Services Corporation at 7
Hanover Square, New York, New York 10004.
Information about the Portfolio (including the Statement of Additional
Information) can be reviewed and copied at the SEC's Public Reference Room in
Washington D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. Reports and other information
about the Portfolio are available on the SEC's Internet site at
http://www.sec.gov and copies of this information may be obtained, upon payment
of a duplicating fee, by writing the Public Reference Section of the SEC,
Washington D.C. 20549-6009.
1940 Act File No. 811-5641
<PAGE>
The Park Avenue Portfolio(R)
--------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
--------------------------------------------------------------
This Statement of Additional Information contains information about the
nine series funds that comprise The Park Avenue Portfolio(R) series trust (the
"Portfolio"). The nine series are: The Guardian Park Avenue Fund (R) (the "Park
Avenue Fund"), The Guardian Park Avenue Small Cap Fund(SM) (the "Small Cap
Fund"), The Guardian Asset Allocation Fund(SM) (the "Asset Allocation Fund"),
The Guardian Baillie Gifford International Fund(SM) (the "International Fund"),
The Guardian Baillie Gifford Emerging Markets Fund(SM) (the "Emerging Markets
Fund"), The Guardian Investment Quality Bond Fund(SM) (the "Bond Fund"), The
Guardian High Yield Bond Fund(SM) (the "High Yield Fund"), The Guardian
Tax-Exempt Fund(SM) (the "Tax-Exempt Fund") and The Guardian Cash Management
Fund(SM) (the "Cash Fund"). The series funds are referred to in this Statement
of Additional Information as the "Funds" and each separately as a "Fund." This
Statement of Additional Information is not a prospectus, but should be read in
conjunction with the Prospectus for the Portfolio dated May 1, 1999. Much of the
information contained herein expands upon subjects discussed in the Prospectus.
No investment in shares of any of the Funds should be made without first reading
the Prospectus. A free copy of the Prospectus may be obtained by writing to
Guardian Investor Services Corporation, 7 Hanover Square, New York, New York
10004 or by telephoning (800) 221-3253. This Statement of Additional Information
has been incorporated by reference into the Prospectus. Please retain this
document for future reference.
The latest Annual Report of the Portfolio has been incorporated by
reference into this Statement of Additional Information. A free copy of the
Annual Report may be obtained by calling Guardian Investor Services Corporation
(toll-free) at (800) 221-3253.
The terms used in this Statement of Additional Information are the same as
defined in the Prospectus for the Portfolio.
Table of Contents
Page
----
Investment Restrictions ..................................... B-2
The Park Avenue Fund ...................................... B-2
The Small Cap Fund ........................................ B-3
The International Fund .................................... B-4
The Emerging Markets Fund ................................. B-6
The Bond Fund ............................................. B-7
The High Yield Fund ....................................... B-9
The Tax-Exempt Fund ....................................... B-9
The Cash Fund ............................................. B-10
The Asset Allocation Fund ................................. B-11
Additional Investment Restrictions ........................ B-13
Investment Objectives and Policies .......................... B-13
Special Investment Techniques ............................... B-16
Investment Advisers and Distributor ......................... B-22
Portfolio Transactions and Brokerage ........................ B-27
Redemption of Shares ........................................ B-28
Performance Results ......................................... B-29
Net Asset Value ............................................. B-32
Portfolio Management ........................................ B-33
Portfolio Affiliates and Principal Holders of Fund Shares ... B-38
Taxes ....................................................... B-38
Shareholder Voting Rights ................................... B-40
Trustee Liability ........................................... B-40
Custodian ................................................... B-41
Transfer Agent .............................................. B-41
Legal Opinions .............................................. B-41
Independent Auditors ........................................ B-41
Appendix .................................................... B-42
The Guardian, Guardian Investor Services Corporation, The Park Avenue Portfolio,
The Guardian Park Avenue Fund, The Guardian Tax-Exempt Fund, The Guardian Asset
Allocation Fund, The Guardian Investment Quality Bond Fund, The Guardian High
Yield Bond Fund, The Guardian Park Avenue Small Cap Fund, The Guardian Baillie
Gifford International Fund, The Guardian Cash Management Fund and The Guardian
Baillie Gifford Emerging Markets Fund are servicemarks owned by The Guardian
Life Insurance Company of America.
<PAGE>
ORGANIZATION OF THE PORTFOLIO
The Portfolio was organized on January 12, 1993 as a Massachusetts
business trust. The Portfolio is an open-end, managment investment company. Each
of the Funds within the Portfolio is diversified within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act").
INVESTMENT RESTRICTIONS
In addition to the restrictions described in the section of the Prospectus
entitled "Special Investment Techniques," the Park Avenue Fund and the Cash Fund
have each adopted the following fundamental investment restrictions. These
restrictions cannot be changed without the approval of the holders of a majority
of the outstanding shares of the affected Fund. Under the Investment Company Act
of 1940, as amended (the "1940 Act"), the vote of a majority of the outstanding
voting securities of a Fund means the lesser of the vote of: (1) 67% of the
shares of the Fund at a meeting where more than 50% of the outstanding voting
shares are present in person or by proxy; or (2) more than 50% of the
outstanding voting shares of the Fund. Under the 1940 Act, certain investment
restrictions for each of the International Fund, the Bond Fund, the Tax-Exempt
Fund and the Asset Allocation Fund can only be changed with the approval of the
holders of a majority of the outstanding shares of the affected Fund. Others are
non-fundamental operating policies which can be changed with the approval of a
majority of the Board of Trustees, and without shareholder approval.
The investment restrictions for the Emerging Markets Fund, the High Yield
Fund and the Small Cap Fund are divided into fundamental and non-fundamental
categories. Those restrictions deemed to be fundamental under the Investment
Company Act of 1940 may be changed only upon the approval of shareholders. The
remaining restrictions are non-fundamental and may be amended by the Board of
Trustees without a shareholder vote.
If a percentage restriction is adhered to at the time of investment, a
later violation of the specified limit that results from a change in the value
of the investment or a change in the Fund's net assets will not constitute a
violation of the applicable investment restriction.
The Park Avenue Fund
The following investment restrictions provide that the Park Avenue Fund
may not:
1. Make any purchase which would result in more than 5% of the value of
its total assets being invested in the securities of any one issuer
except U.S. government securities.
2. Purchase the securities of any issuer if such purchase would result
in more than 10% of the voting securities, or the securities of any
class of such issuer, being held by the Fund.
3. Borrow money, except as a temporary measure for emergency purposes,
in an aggregate amount exceeding 5% of the total assets of the Fund.
4. Purchase any security other than those discussed under "Investment
Objectives and Policies," as set forth in the Prospectus.
5. Invest more than 5% of the value of its total assets in companies
(including predecessors) having a record of less than 3 years
continuous operation.
6. Invest in the securities of any company for the purpose of
exercising control or management.
7. Purchase a security if as a result thereof more than 25% of its
total assets will be invested in a particular industry.
8. Purchase the securities of any other investment company.
9. Purchase any put, call, straddle, spread or any combination thereof.
10. Purchase any interest in oil, gas or other mineral exploration or
development programs.
11. Engage in the purchase or sale of real estate or interests therein
or interests in real estate investment trusts, commodities or
commodity contracts.
12. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, officers or trustees of the Fund or of the Fund's
investment adviser who own individually more than one-half of 1% of
the securities of such issuer together own more than 5% of such
securities.
13. Act as a securities underwriter except to the extent that it may be
regarded as an underwriter upon disposition of any of its securities
which are subject to legal or contractual restrictions on re-sale or
are otherwise not readily saleable.
14. Invest more than 15% of the value of its net assets in securities
which are not readily marketable or which are restricted as to
resale under federal securities laws, excluding any such securities
that have been
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determined by the Trustees (or the person(s) designated by them to
make such determinations) to be readily marketable.
15. Purchase securities on margin or make any short sales of securities.
16. Make loans of money or other assets except through the purchase of
privately issued notes, bonds, debentures or other debt securities
either from the issuer or others. Purchases of a portion of an issue
of publicly distributed debt securities and repurchase agreements
are not deemed to be loans for purposes of this limitation. Under a
repurchase agreement, the Fund may purchase and simultaneously
resell for later delivery (normally within seven days) obligations
issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities.
17. Pledge, mortgage or hypothecate its assets to an extent greater than
10% of the Fund's total asset value. However, in order to comply
with certain state statutes or investment restrictions, the Fund
will not as a matter of operating policy, pledge, mortgage or
hypothecate its assets to the extent that at any time the percentage
of pledged assets plus the sales load will exceed 10% of the
offering price of the Fund's shares.
Since shares of the Park Avenue Fund are available as an underlying
investment for certain variable annuity contracts issued by The Guardian
Insurance & Annuity Company, Inc. ("GIAC"), the Fund's investments may be
subject to additional restrictions imposed by the insurance laws and regulations
of the states where GIAC offers such contracts.
The Small Cap Fund
The following fundamental investment restrictions provide that the Small
Cap Fund may not:
1. As to 75% of the Fund's total assets, purchase any security (other
than obligations of the U.S. Government, its agencies or
instrumentalities and investment companies) if as a result, more
than 5% of the Fund's total assets (taken at current value) would
then be invested in the securities of a single issuer.
2. Purchase more than 10% of any class of securities of any issuer. All
debt securities and all preferred stocks are each considered as one
class.
3. Borrow money, except that the Fund may (i) borrow up to 5% of the
value of its total assets (not including the amount borrowed) for
temporary or emergency needs; and (ii) engage in reverse repurchase
agreements or other transactions which may involve a borrowing from
banks or other persons, provided that the aggregate amount involved
in all such transactions shall not exceed 33% of the value of the
Fund's total assets (including the amount borrowed) less liabilities
(other than borrowings) or such other percentage permitted by law.
4. Mortgage, pledge or hypothecate more than 5% of the value of its
total assets and then only to secure borrowings effected within the
above restriction.
5. Make loans to other persons except for loans of portfolio securities
and except through the purchase of debt obligations and repurchase
agreements in which the Fund may invest, consistent with its
investment objectives and policies, provided that repurchase
agreements maturing in more than seven days, when taken together and
at current value, may not exceed 15% of the Fund's net assets.
6. Purchase any securities other than the obligations of the U.S.
Government, or its agencies or instrumentalities, if, immediately
after such purchase, more than 25% of the value of the Fund's total
assets would be invested in the securities of issuers in the same
industry (there is no limitation as to investments in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities).
7. Engage in the underwriting of the securities of other issuers,
except to the extent that the Fund may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the
sale of portfolio securities.
8. Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations as well as readily
marketable interests such as real estate investment trusts and
readily marketable securities of companies which invest in real
estate).
9. Write, purchase or sell puts, calls, or combination thereof.
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<PAGE>
10. Purchase or sell commodities or commodity contracts.
11. Issue any senior securities except as permitted under the 1940 Act.
The following non-fundamental investment restrictions may be changed by
the Board of Trustees without a shareholder vote. Under these restrictions, the
Fund may not:
12. Invest more than 5% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the
New York or American Stock Exchanges, except that warrants attached
to other securities are not subject to these limitations.
13. Purchase securities restricted as to resale if, as a result, (i)
more than 10% of the Fund's total assets would be invested in such
securities, or (ii) more than 5% of the Fund's total assets
(excluding any securities eligible for resale under Rule 144A under
the Securities Act of 1933) would be invested in such securities.
14. Invest in (a) securities which at the time of such investment are
not readily marketable, (b) securities restricted as to resale, and
(c) repurchase agreements maturing in more than seven days, if, as a
result, more than 15% of the Fund's net assets (taken at current
value) would then be invested in the aggregate in securities
described in (a), (b), and (c) above.
15. Invest in securities of other registered investment companies.
16. Purchase securities on margin or sell securities short, or
participate on a joint or a joint and several basis in any trading
account in securities.
17. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Fund may invest in the securities of companies which invest in or
sponsor such programs.
18. Purchase or retain the securities of any issuer, if, to the
knowledge of the Fund, the officers, directors and employees of the
Fund or of the Adviser who individually own more than 1/2 of 1% of
the outstanding securities of such issuer together own more than 5%
of the securities of such issuer.
19. Purchase securities for the purpose of exercising control over
another company.
The International Fund
The following investment restrictions provide that the International Fund
may not:
1. Borrow money, except that the Fund may borrow from banks up to 20%
of the value of its total assets as a temporary measure for
extraordinary or emergency needs, for example, to enable the Fund to
meet redemption requests or to settle transactions on different
stock markets where different settlement dates apply which might
otherwise require the sale of portfolio securities at a time when it
would not be in the Fund's best interests to do so. Up to 5% of the
Fund's total assets may be borrowed from non-banking institutions.
The Fund may not, however, borrow money for investment purposes.
2. Mortgage, pledge or hypothecate more than 5% of the value of its
total assets, and then only to secure borrowings effected within the
above restriction. For purposes of this restriction, collateral
arrangements with respect to options, financial futures contracts,
options on futures contracts, when-issued or delayed delivery
securities, forward contracts, or similar collateral arrangements
which may be required in connection with securities transactions by
the 1940 Act are not considered a pledge of assets.
3. Make loans of money or portfolio securities, except through the
purchase of debt obligations or repurchase agreements in which the
Fund may invest consistent with its investment objective and
policies.
4. Purchase any securities if, immediately after such purchase, more
than 25% of the value of the Fund's total assets would be invested
in the securities of issuers in the same industry. For purposes of
this restriction, the obligations of each foreign government are
deemed to constitute an industry.
5. Invest more than 5% of the value of its total assets in the
securities of any one issuer or purchase more than 10% of the
outstanding voting securities, or any class of securities, of any
one issuer. For purposes of this restriction, all outstanding debt
securities of an issuer are considered as one class, and all
preferred
B-4
<PAGE>
stock of an issuer is considered as one class. (This restriction
does not apply to obligations issued or guaranteed by the U.S. or
foreign governments, or their respective agencies or
instrumentalities.)
6. Invest more than 10% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the
New York Stock Exchange, American Stock Exchange, or one of the
major foreign stock exchanges, except that warrants attached to
other securities in which the Fund invests are not subject to these
limitations.
7. Invest more than 15% of the value of its net assets in securities
which are not readily marketable or which are restricted as to
resale under the U.S. federal securities laws, excluding any such
securities that have been determined by the Trustees (or the
person(s) designated by them to make such determinations) to be
readily marketable.
8. Engage in the underwriting of the securities of other issuers,
except to the extent that the Fund may be deemed to be an
underwriter under the Securities Act of 1933 in selling its
portfolio securities.
9. Invest in securities of other U.S. or foreign investment companies,
except that: (a) the Fund may purchase such securities in the open
market, without regard to section (b) below, provided that
immediately thereafter (i) not more than 10% of the Fund's total
assets would be invested in such securities, (ii) not more than 5%
of the Fund's total assets would be invested in securities of any
one investment company, and (iii) not more than 3% of the total
outstanding voting stock of any one investment company would be
owned by the Fund; or (b) the Fund may acquire such securities as
part of a merger, consolidation, reorganization, acquisition of
assets, offer of exchange or as a dividend.
10. Purchase securities on margin, sell securities short, maintain a
short position or participate on a joint or a joint and several
basis in any trading account in securities, except that the Fund may
(i) obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities; (ii) purchase or
sell futures contracts; and (iii) deposit or pay initial or
variation margin in connection with financial futures contracts or
related options transactions.
11. Purchase or sell put options, call options, or combinations thereof,
except that the Fund may (i) write covered call and secured put
options and enter into closing purchase transactions with respect to
such options, (ii) purchase put and call options, provided that the
premiums on all outstanding options do not exceed 5% of its total
assets, and enter into closing sale transactions with respect to
such options; and (iii) engage in financial futures contracts and
related options transactions to seek to hedge against either a
decline in the value of securities included in the Fund's portfolio
or an increase in the price of securities which the Fund plans to
purchase in the future.
12. Purchase or sell commodities or commodity contracts, except that the
Fund may enter into financial futures contracts, options contracts,
options on futures contracts and forward foreign currency exchange
contracts as described in the Prospectus and Statement of Additional
Information.
13. Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations, securities that are
secured by interests in real estate, or securities that represent
interests in real estate, including real estate investment trusts).
14. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Fund may invest in the securities of companies which invest in or
sponsor such programs.
15. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, the officers, trustees and employees of the Fund or of
the Fund's investment adviser or sub-investment adviser who
individually own more than one half of 1% of the outstanding
securities of such issuer together own more than 5% of the
securities of such issuer.
16. Purchase securities for the purpose of exercising control over
another company.
17. Issue any "senior securities" as defined in the 1940 Act (except for
engaging in futures and options transactions as well as any other
investment techniques set forth in the Prospectus or Statement of
Additional Information, and except for borrowing subject to the
restrictions set forth under Investment Restriction 1, above).
B-5
<PAGE>
The Emerging Markets Fund
The following fundamental investment restrictions provide that the
Emerging Markets Fund may not:
1. Borrow money, except that the Fund may borrow from banks up to 20%
of the value of its total assets as a temporary measure for
extraordinary or emergency needs, for example, to enable the Fund to
meet redemption requests or to settle transactions on different
stock markets where different settlement dates apply which might
otherwise require the sale of portfolio securities at a time when it
would not be in the Fund's best interests to do so. Up to 5% of the
Fund's total assets may be borrowed from non-banking institutions.
The Fund may not, however, borrow money for investment purposes.
2. Mortgage, pledge or hypothecate more than 5% of the value of the
Fund's total assets, and then only to secure borrowings effected
within the above restriction. Neither the deposit in escrow of
underlying securities in connection with the writing of call
options, nor the deposit in escrow of U.S. Treasury bills in
connection with the writing of put options, nor the deposit of cash
and cash equivalents in a segregated account with the Fund's
custodian or in a margin account with a broker in connection with
futures transactions, options transactions, nor the writing of call
and put options in spread transactions, is deemed to be a pledge.
3. Make loans to other persons except for loans of portfolio securities
and except through the purchase of debt obligations and repurchase
agreements in which the Fund may invest, consistent with its
investment objectives and policies, provided that repurchase
agreements maturing in more than seven days, when taken together and
at current value, may not exceed 15% of the Fund's net assets.
4. Purchase any securities if, immediately after such purchase, more
than 25% of the value of a Fund's total assets would be invested in
the securities of issuers in the same industry. There is no
limitation as to the Fund's investments in obligations issued by
U.S. branches of domestic banks or issued or guaranteed by the U.S.
government, its agencies or instrumentalities. For purposes of this
restriction, the obligations of each foreign government are deemed
to constitute an industry.
5. Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities and investment
companies) if as a result, more than 5% of the Fund's total assets
(taken at current value) would then be invested in the securities of
any one issuer, or purchase more than 10% of the outstanding voting
securities, or any class of securities, of any one issuer. For
purposes of this restriction, all outstanding debt securities of an
issuer are considered as one class, and all preferred stock of an
issuer is considered as one class. (This restriction does not apply
to obligations issued or guaranteed by the U.S. or foreign
governments, or their respective agencies or instrumentalities.)
6. Engage in the underwriting of the securities of other issuers,
except to the extent that the Fund may be deemed to be an
underwriter under the Securities Act of 1933 in selling its
portfolio securities.
7. Purchase or sell commodities or commodity contracts, except that the
Fund may enter into financial futures contracts, options contracts,
options on futures contracts and forward foreign currency exchange
contracts as described in the Prospectus and Statement of Additional
Information.
8. Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations, securities that are
secured by interests in real estate, or securities that represent
interests in real estate, including real estate investment trusts).
9. Issue any "senior securities" as defined in the 1940 Act (except for
engaging in futures and options transactions as well as any other
investment techniques described in the Prospectus or Statement of
Additional Information, and except for borrowing subject to the
restrictions set forth under Investment Restriction 1, above).
The following non-fundamental investment restrictions may be changed by
vote of the Board of Trustees, without a vote of shareholders. Under these
restrictions, the Fund may not:
10. Purchase securities for the purpose of exercising control over
another company.
11. Purchase or sell put options, call options, or combinations thereof,
except that the Fund may (i) write covered call and secured put
options and enter into closing purchase transactions with respect to
such options, (ii) purchase put and call options, provided that the
premiums on all outstanding options do not exceed 5%
B-6
<PAGE>
of its total assets, and enter into closing sale transactions with
respect to such options; and (iii) engage in financial futures
contracts and related options transactions to seek to hedge against
either a decline in the value of securities included in the Fund's
portfolio or an increase in the price of securities which the Fund
plans to purchase in the future, or to increase the current return
of its portfolio by writing covered call or covered put options, as
each is described in the Prospectus and Statement of Additional
Information.
12. Invest more than 10% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the
New York Stock Exchange, American Stock Exchange, or one of the
major foreign stock exchanges, except that warrants attached to
other securities in which the Fund invests are not subject to these
limitations.
13. Invest more than 15% of the value of its net assets in securities
that are not readily marketable or which are restricted as to
disposition under the U.S. securities laws or otherwise. This
restriction shall not apply to securities purchased or sold pursuant
to Rule 144A under the Securities Act of 1933. This restriction will
apply to repurchase agreements maturing in more than seven days.
This restriction will also apply to securities received as a result
of a corporate reorganization or similar transaction affecting
readily marketable securities already held in the Fund's portfolio.
To the extent that securities received under these circumstances,
together with other securities considered illiquid by the staff of
the Securities and Exchange Commission ("SEC") or by the Portfolio's
Board of Trustees, exceed the applicable percentage of the value of
the Fund's total assets, the Fund will attempt to dispose of them in
an orderly fashion in order to reduce its holdings in such
securities to less than the applicable threshold.
14. Purchase securities of other U.S. or foreign investment companies,
except that the Fund may make such a purchase (a) in the open market
provided that immediately thereafter (i) not more than 10% of the
Fund's total assets would be invested in such securities; (ii) not
more than 5% of the Fund's total assets would be invested in
securities of any one investment company; and (iii) not more than 3%
of the total outstanding voting stock of any one investment company
would be owned by the Fund, or (b) as part of an offer of exchange,
reorganization or as a dividend.
15. Purchase securities on margin, sell securities short, maintain a
short position or participate on a joint or a joint and several
basis in any trading account in securities, except that the Fund may
(i) obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities; (ii) purchase or
sell futures contracts; and (iii) deposit or pay initial or
variation margin in connection with financial futures contracts or
related options transactions.
16. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Funds may invest in the securities of companies which invest in or
sponsor such programs.
17. Purchase or retain the securities of any issuer if, to the knowledge
of the Portfolio, the officers, trustees and employees of the
Portfolio or of the Portfolio's investment manager or sub-investment
manager who individually own more than one half of 1% of the
outstanding securities of such issuer together own more than 5% of
the securities of such issuer.
The Bond Fund
The following investment restrictions provide that the Bond Fund may not:
1. Purchase any security other than those discussed under "Investment
Objectives and Policies," as set forth in the Prospectus.
2. Invest more than 5% of the value of its total assets in securities
of issuers having a record, together with predecessors, of less than
three years of continuous operation. This restriction does not apply
to any obligation issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
3. Borrow money, except that the Fund may (i) borrow up to 10% of the
value of its total assets for temporary or emergency purposes; and
(ii) engage in reverse repurchase agreements, dollar rolls or other
transactions which may involve a borrowing from banks or other
persons, provided that the aggregate amount involved in all such
transactions shall not exceed 33 1/3% of the value of the Fund's
total assets (including the amount borrowed) less liabilities (other
than borrowings) or such other percentage permitted by law.
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<PAGE>
4. Mortgage, pledge or hypothecate more than 5% of the value of its
total assets, and then only to secure borrowings effected within the
above restriction. For purposes of this restriction, collateral
arrangements with respect to options, financial futures contracts,
options on futures contracts, when-issued or delayed delivery
securities, forward contracts, or similar collateral arrangements
which may be required in connection with securities transactions by
the 1940 Act are not considered a pledge of assets.
5. Make loans to others, except through the purchase of debt
obligations or repurchase agreements, or by lending the Fund's
portfolio securities, consistent with its investment objectives,
policies and techniques as set forth in the Prospectus or Statement
of Additional Information.
6. Purchase any securities other than the obligations of U.S. branches
of domestic banks or of the U.S. government, or its agencies or
instrumentalities, if, immediately after such purchase, more than
25% of the value of the Fund's total assets would be invested in the
securities of issuers in the same industry. For the purpose of this
restriction, gas, electric, water and telephone utilities will each
be treated as a separate industry.
7. With respect to 75% of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer or
purchase more than 10% of the outstanding voting securities, or any
other class of securities, of any one issuer. For purposes of this
restriction, all outstanding debt securities of an issuer are
considered as one class, and all preferred stock of an issuer is
considered as one class. This restriction does not apply to
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
8. Invest more than 5% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the
New York or American Stock Exchanges, except that warrants attached
to other securities in which the Fund invests are not subject to
these limitations.
9. Invest more than 15% of the value of its net assets in securities
which are not readily marketable or which are restricted as to
resale under federal securities laws, excluding any such securities
that have been determined by the Trustees (or the person(s)
designated by them to make such determinations) to be readily
marketable.
10. Engage in the underwriting of the securities of other issuers,
except to the extent that the Fund may be deemed to be an
underwriter under the Securities Act of 1933 in selling portfolio
securities.
11. Purchase securities on margin or sell securities short, or
participate on a joint or a joint and several basis in any trading
account in securities, except that the Fund may (i) obtain such
short-term credits as may be necessary for the clearance of
purchases and sales of securities; (ii) purchase or sell futures
contracts; and (iii) deposit or pay initial or variation margin in
connection with financial futures contracts or related options
transactions.
12. Purchase or sell commodities or commodity contracts, except that the
Fund may invest in financial futures contracts, options and options
on financial futures contracts as described in the Prospectus and
Statement of Additional Information.
13. Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations), securities that are
secured by interests in real estate, or securities that represent
interests in real estate, including real estate investment trusts.
14. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Fund may invest in the securities of companies which invest in or
sponsor such programs.
15. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, the officers, trustees and employees of the Fund or of
the Adviser who individually own more than one-half of 1% of the
outstanding securities of such issuer together own more than 5% of
the securities of such issuer.
16. Purchase securities for the purpose of exercising control over
another company.
17. Issue any "senior securities" as defined in the 1940 Act, except for
engaging in futures and options transactions as well as any other
investment techniques set forth in the Prospectus or the Statement
of Additional Information, and except for borrowing subject to the
restrictions set forth under Investment Restriction 3, above.
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<PAGE>
18. Purchase or sell put options, call options, or combinations thereof,
except that the Fund may (i) write covered call and secured put
options and enter into closing purchase transactions with respect to
such options, (ii) purchase put and call options, provided that the
premiums on all outstanding options do not exceed 5% of its total
assets, and enter into closing sale transactions with respect to
such options; and (iii) engage in financial futures contracts and
related options transactions to seek to hedge against either a
decline in the value of securities included in the Fund's portfolio
or an increase in the price of securities which the Fund plans to
purchase in the future.
19. Invest in securities of other investment companies, except that: (a)
the Fund may purchase such securities in the open market, without
regard to section (b), below, provided that immediately thereafter
(i) not more than 10% of the Fund's total assets would be invested
in such securities, (ii) not more than 5% of the Fund's total assets
would be invested in securities of any one investment company, and
(iii) not more than 3% of the total outstanding voting stock of any
one investment company would be owned by the Fund; or (b) the Fund
may acquire such securities as part of a merger, consolidation,
reorganization, acquisition of assets, offer of exchange or as a
dividend.
The High Yield Fund
The following fundamental investment restrictions provide that the Fund
may not:
1. Make any investment inconsistent with the Fund's classification as a
diversified company under the Investment Company Act of 1940;
2. Borrow money or pledge its assets, except that the Fund may (i)
borrow for temporary or emergency needs, and engage in reverse
repurchase agreements, mortgage dollar rolls or other transactions
which may involve a borrowing from banks or other persons, provided
that the aggregate amount involved in all such transactions shall
not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings) or such other percentage permitted by law; (ii) obtain
such short-term credit as may be necessary for the clearance of
transactions in portfolio securities; and (iii) purchase securities
on margin to the extent permitted by applicable law;
3. Make loans to other persons except (i) loans of portfolio securities
and entry into repurchase agreements to the extent permitted under
applicable law, and (ii) to the extent that the purchase of debt
obligations in which the Fund may invest, consistent with its
investment objectives and policies, may be deemed to be loans;
4. Purchase any securities other than the obligations of the U.S.
Government, or its agencies or instrumentalities, if, immediately
after such purchase, 25% or more of the value of the Fund's total
assets would be invested in the securities of issuers conducting
their principal business activities in the same industry or group of
industries;
5 Engage in the underwriting of the securities of other issuers,
except to the extent that the Fund may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the
sale of portfolio securities;
6. Purchase or sell commodities or commodity contracts, except to the
extent permitted under applicable law without registration as a
commodity pool operator under the Commodity Exchange Act (or any
comparable registration under successor legislation);
7. Purchase, hold, sell or deal in real estate, although the Fund may
(i) purchase and sell securities that are secured by real estate or
interests therein, (ii) purchase and sell securities of issuers that
engage in real estate operations, as well as real estate investment
trusts and mortgage-related securities, and (iii) hold and sell real
estate acquired by the Fund as a result of the ownership of
securities; and
8. Issue any senior securities to the extent such issuance would
violate applicable law.
The following non-fundamental restrictions, which could be changed by the
Board of Directors without shareholder approval, provide that the Fund may not:
1. invest in (i) securities which at the time of such investment are
not readily marketable, (ii) securities restricted as to resale or
other disposition, or (iii) repurchase agreements maturing in more
than seven days, if as a result, more than 15% of the Fund's net
assets (taken at current value), or such other percentage provided
by applicable law, would then be invested in the aggregate in
securities described in (i), (ii), and (iii) above. This restriction
shall not apply to securities which the Board of Directors of the
Fund has determined to be liquid pursuant to applicable law;
2. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law; and
3. Purchase securities for the purpose of exercising control over
another company.
The Tax-Exempt Fund
The following investment restrictions provide that the Tax-Exempt Fund may
not:
1. Purchase securities other than Municipal Obligations (as that term
is defined in the Prospectus) and certain taxable obligations as set
forth in the Prospectus and Statement of Additional Information.
2. Borrow money, except that the Fund may borrow up to 10% of the value
of its total assets as a temporary measure for extraordinary or
emergency needs, such as enabling the Fund to meet redemption
requests which might otherwise require the sale of portfolio
securities at a time when it is not in the Fund's best interests.
The Fund may not, however, borrow money for investment purposes.
3. Mortgage, pledge or hypothecate more than 5% of the value of its
total assets, and then only to secure borrowings effected within the
above restriction. For purposes of this restriction, collateral
arrangements with respect to options, financial futures contracts,
options on futures contracts, when-issued or delayed delivery
securities, forward contracts, or similar collateral arrangements
which may be required in connection with securities transactions by
the 1940 Act are not considered a pledge of assets.
4. Purchase securities on margin, sell securities short or participate
on a joint or a joint and several basis in any trading account in
securities, except that the Fund may (i) obtain such short-term
credits as may be necessary for the clearance of purchases and sales
of securities; (ii) purchase or sell futures contracts; and (iii)
deposit or pay initial or variation margin in connection with
financial futures contracts or related options transactions.
5. Underwrite the securities of other issuers, except to the extent
that the Fund may be deemed to be an underwriter under the
Securities Act of 1933 in selling portfolio securities and except
that the Fund may bid separately or as part of a group for the
purchase of Municipal Obligations directly from an issuer for its
own portfolio to take advantage of the lowest purchase price
available.
6. Invest more than 15% of the value of its net assets in securities
which are not readily marketable or which are restricted as to
resale under federal securities laws, excluding any such securities
that have been determined by the Trustees (or the person(s)
designated by them to make such determinations) to be readily
marketable.
7. Purchase or sell real estate or real estate limited partnerships,
but this shall not prevent the Fund from investing in Municipal
Obligations secured by real estate or interests therein.
8. Purchase or sell commodities or commodity contracts, except that the
Fund may enter into financial futures contracts, options contracts
and options on futures contracts as described in the Prospectus and
Statement of Additional Information.
9. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Fund may invest in the securities of issuers which invest in or
sponsor such programs.
B-9
<PAGE>
10. Make loans to others, except through the purchase of debt
obligations or repurchase agreements or by lending the Fund's
portfolio securities consistent with its investment objectives,
policies and techniques as set forth in the Prospectus or Statement
of Additional Information.
11. Invest more than 5% of its assets in the obligations of any issuer,
except that up to 25% of the value of the Fund's total assets may be
invested, and securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities may be purchased, without
regard to any such limitations. For purposes of this Investment
Restriction, identification of the "issuer" will be based on a
determination of the source of assets and revenues committed to
meeting interest and principal payments of each security.
12. Invest more than 25% of its assets in the securities of issuers in
any single industry; provided that there shall be no limitation on
the purchase of Municipal Obligations. For purposes of this
Investment Restriction, industrial development bonds, where the
payment of principal and interest is the ultimate responsibility of
companies within the same industry, are grouped together as an
"industry."
13. Purchase more than 10% of the voting securities of any issuer or
invest in companies for the purpose of exercising control.
14. Invest in securities of other investment companies, except that: (a)
the Fund may purchase such securities in the open market, without
regard to section (b), below, provided that immediately thereafter
(i) not more than 10% of the Fund's total assets would be invested
in such securities, (ii) not more than 5% of the Fund's total assets
would be invested in securities of any one investment company, and
(iii) not more than 3% of the total outstanding voting stock of any
one investment company would be owned by the Fund; or (b) the Fund
may acquire such securities as part of a merger, consolidation,
reorganization, acquisition of assets, offer of exchange or as a
dividend.
15. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, the officers, trustees and employees of the Fund or of
the Fund's investment adviser who individually own more than
one-half of 1% of the outstanding securities of such issuer together
own more than 5% of the securities of such issuer.
16. Issue any "senior securities" as defined in the 1940 Act, except for
engaging in futures and options transactions as well as any other
investment techniques set forth in the Prospectus or Statement of
Additional Information, and except for borrowing subject to the
restrictions set forth under Investment Restriction 2, above.
17. Purchase or sell put options, call options, or combinations thereof,
except that the Fund may (i) write covered call and secured put
options and enter into closing purchase transactions with respect to
such options, (ii) purchase put and call options, provided that the
premiums on all outstanding options do not exceed 5% of its total
assets, and enter into closing sale transactions with respect to
such options; and (iii) engage in financial futures contracts and
related options transactions to seek to hedge against either a
decline in the value of securities included in the Fund's portfolio
or an increase in the price of securities which the Fund plans to
purchase in the future.
The Cash Fund
The following investment restrictions provide that the Cash Fund may not:
1. Purchase the securities of any issuer if, immediately after such
purchase, more than 5% of the Fund's total assets, taken at market
value, would be invested in such securities.
2. Purchase any securities, other than obligations of the U.S.
government or its agencies or instrumentalities, if, immediately
after such purchase, more than 10% of the outstanding voting
securities of one issuer would be owned by the Fund.
3. Purchase any securities, other than obligations of U.S. branches of
domestic banks or of the U.S. government, or its agencies or
instrumentalities, if, immediately after such purchase, more than
25% of the value of the Fund's total assets would be invested in the
securities of issuers in the same industry.
4. Make loans to others, except through the purchase of debt
obligations and repurchase agreements in which the Fund may invest,
consistent with its investment objective and policies.
B-10
<PAGE>
5. Purchase or retain the securities of any issuer if any officer or
trustee of the Fund is an officer or director of such issuer and
owns beneficially more than one-half of 1% of the securities of such
issuer and all of the officers and trustees of the Fund and its
investment adviser together own more than 5% of the securities of
such issuer.
6. Purchase or sell real estate; however, the Fund may purchase
marketable securities issued by the companies which invest in real
estate or interests therein.
7. Purchase securities on margin or sell short.
8. Purchase or sell commodities or commodity futures contracts, or oil,
gas or mineral exploration or development programs.
9. Underwrite securities of other issuers.
10. Purchase warrants, or write, purchase or sell puts, calls,
straddles, spreads or combinations thereof.
11. Participate on a joint or joint-and-several basis in any securities
trading account.
12. Purchase the securities of any other investment company.
13. Purchase securities of any issuer for the purpose of exercising
control or management.
14. Borrow money, except from banks for temporary or emergency purposes
or to meet redemption requests which might otherwise require the
untimely disposition of securities (not for leveraging), provided
that borrowing in the aggregate may not exceed 10% of the value of
the Fund's total assets, including the amount borrowed, at the time
of such borrowing.
15. Mortgage, pledge or hypothecate any assets except in connection with
any borrowing and in amounts not in excess of 10% of the value of
the Fund's total assets at the time of such borrowing or make
additional investments during any period that borrowings exceed 5%
of the value of the Fund's total assets.
16. Issue any senior securities (except for borrowing subject to the
restrictions set forth in the Prospectus).
17. Invest more than 10% of the value of its net assets in securities
which are not readily marketable or which are restricted as to
resale under federal securities laws, excluding any such securities
that have been determined by the trustees (or the person(s)
designated by them to make such determinations) to be readily
marketable.
18. Underwrite securities of other issuers, except to the extent that
the Fund or its investment adviser may be deemed to be an
underwriter under the Securities Act of 1933 in selling portfolio
securities.
The Asset Allocation Fund
The following investment restrictions provide that the Asset Allocation
Fund may not:
1. Purchase or sell put options, call options, or combinations thereof,
except that the Fund may (i) write covered call and secured put
options and enter into closing purchase transactions with respect to
such options, (ii) purchase put and call options, provided that the
premiums on all outstanding options do not exceed 5% of its total
assets, and enter into closing sale transactions with respect to
such options; and (iii) engage in financial futures contracts and
related options transactions to seek to hedge against either a
decline in the value of securities included in the Fund's portfolio
or an increase in the price of securities which the Fund plans to
purchase in the future.
2. Borrow money, except that the Fund may borrow up to 10% of the value
of its total assets as a temporary measure for extraordinary or
emergency needs, such as enabling the Fund to meet redemption
requests which might otherwise require the sale of portfolio
securities at a time when it is not in the Fund's best interests.
The Fund may not, however, borrow money for investment purposes.
3. Mortgage, pledge or hypothecate more than 5% of the value of its
total assets, and then only to secure borrowings effected within the
above restriction. For purposes of this restriction, collateral
arrangements with respect to options, financial futures contracts,
options on futures contracts, when-issued or delayed delivery
securities, forward contracts, or similar collateral arrangements
which may be required in connection with securities transactions by
the 1940 Act are not considered a pledge of assets.
B-11
<PAGE>
4. Engage in the underwriting of securities, except to the extent that
the Fund may be deemed an underwriter under the Securities Act of
1933 in selling portfolio securities.
5. Invest in real estate, real estate limited partnership interests,
securities that are secured by interests in real estate, or
securities that represent interests in real estate, including real
estate investment trusts, although the Fund may purchase securities
of issuers which engage in real estate operations.
6. Invest in commodities or commodity contracts, except that it may
invest in financial futures contracts, options and options on
financial futures contracts as described in the Prospectus or
Statement of Additional Information.
7. Make loans to others, except through the purchase of debt
obligations or repurchase agreements, or by lending the Fund's
portfolio securities consistent with its investment objectives,
policies and techniques as set forth in the Prospectus or Statement
of Additional Information.
8. Invest more than 5% of the value of its total assets in the
securities of any one issuer or purchase more than 10% of the
outstanding voting securities, or any other class of securities, of
any one issuer. For purposes of this 10% restriction, all
outstanding debt securities of an issuer are considered as one
class, and all preferred stock of an issuer is considered as one
class. This restriction does not apply to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities
or to any security issued by any investment company or series
thereof.
9. Invest 25% or more of its assets in securities of issuers in any one
industry. For the purpose of this restriction, gas, electric, water
and telephone utilities will each be treated as a separate industry.
10. Invest more than 5% of the value of its total assets in securities
of issuers having a record, together with predecessors, of less than
three years of continuous operation. The restriction does not apply
to any obligation issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
11. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, those officers and trustees of the Fund or of the
Fund's investment adviser who individually own more than one-half of
1% of the outstanding securities of such issuer together own more
than 5% of such securities.
12. Issue any "senior securities" as defined in the 1940 Act, except for
engaging in futures and options transactions as well as any other
investment techniques set forth in the Prospectus or Statement of
Additional Information, and except for borrowing subject to the
restrictions set forth under Investment Restriction 2, above.
13. Purchase securities for the purpose of exercising control over
another company.
14. Purchase securities on margin or sell securities short or
participate on a joint or a joint and several basis in any trading
account in securities, except that the Fund may (i) obtain such
short-term credits as may be necessary for the clearance of
purchases and sales of securities, (ii) purchase or sell futures
contracts; and (iii) deposit or pay initial or variation margin in
connection with financial futures contracts or related options
transactions.
15. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Fund may invest in the securities of companies which invest in or
sponsor such programs.
16. Invest in the securities of other investment companies, except that
(a) during any period in which the Fund operates as a "fund of
funds" in accordance with the Prospectus and applicable law, and
notwithstanding (b) and (c) below, the Fund may purchase, without
limit, shares of The Guardian Park Avenue Fund, The Guardian
Investment Quality Bond Fund and The Guardian Cash Management Fund,
and any other mutual fund currently existing or hereafter created
whose investment adviser is the Fund's adviser or an affiliate
thereof, or the respective successors in interest of any such mutual
fund or adviser; (b) during any period in which the Fund does not
operate as a "fund of funds" in accordance with the Prospectus, the
Fund may purchase securities of other investment companies in the
open market, without regard to section (c) below, provided that
immediately thereafter (i) not more than 10% of the Fund's total
assets would be invested in such securities, (ii) not more than 5%
of the Fund's total assets would be invested in securities of any
one investment company, and (iii) not more than 3% of the total
outstanding voting stock of any one investment company would be
owned by the Fund; or (c) the Fund
B-12
<PAGE>
may acquire securities of other investment companies as part of a
merger, consolidation, reorganization, acquisition of assets, offer
of exchange or as a dividend.
17. Invest more than 10% of the value of its total assets in warrants or
more than 2% of such value in warrants which are not listed on the
New York or American Stock Exchanges, except that warrants attached
to other securities in which the Fund invests are not subject to
these limitations.
18. Invest more than 15% of the value of its net assets in securities
which are not readily marketable or which are restricted as to
resale under federal securities laws, excluding any such securities
that have been determined by the Trustees (or the person(s)
designated by them to make such determinations) to be readily
marketable.
Additional Investment Restrictions
The Park Avenue Fund will not issue any "senior securities" as defined in
the 1940 Act, except for any investment technique set forth in the Prospectus or
Statement of Additional Information which may be treated as a senior security,
or except for borrowing subject to the Fund's Investment Restriction Number 3.
Notwithstanding the reservation of right provided by its Investment
Restriction No. 6, the Bond Fund will not purchase any securities of U.S.
branches of domestic banks if, immediately after such purchase, more than 25% of
the Fund's total assets would be invested in such securities.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the information contained in the
Prospectus section entitled "Investment Objectives and Policies."
The International Fund and the Emerging Markets Fund
Several foreign governments permit investments by non-residents only
through participation in certain specifically organized investment companies.
Subject to the provisions of the 1940 Act, the International Fund and the
Emerging Markets Fund may invest in the shares of other investment companies. In
addition, pursuant to exemptive relief granted to those Funds under the 1940
Act, a portion of the equity and convertible securities which may be acquired by
the Funds may be issued by foreign companies that, in each of their most recent
fiscal years, derived more than 15% of their gross revenues from their
activities as brokers, dealers, underwriters or investment advisers.
The International Fund may also invest a portion of its assets in unit
trusts organized in the United Kingdom (which are analogous to United States
mutual funds) and which invest in smaller foreign markets than those in which
the International Fund would ordinarily invest directly. GBG and BG Overseas,
the International Fund's investment advisers, believe that investments in such
unit trusts will enhance the geographical diversification of the Fund's assets
while reducing the risks associated with investing in certain smaller foreign
markets. Investments by the International Fund in such unit trusts are likely to
provide increased liquidity and lower transaction costs than are normally
associated with direct investments in such markets. At the present time, the
International Fund intends to limit its investments in unit trusts, together
with its investments in other investment companies, to no more than 5% of its
total assets.
If the U.S. government restricts any type of foreign investment which may
be made by or through the International Fund or the Emerging Markets Fund, the
Portfolio's Board of Trustees will promptly take steps to determine whether
significant changes in the Funds' portfolios are appropriate.
The Park Avenue Fund, The Small Cap Fund, The International Fund, the Emerging
Markets Fund, The High Yield Fund and The Asset Allocation Fund
As described in the Prospectus, certain Funds are permitted to invest in
convertible securities.
Convertible securities are fixed-income securities, such as bonds or
preferred stock, which may be converted at a stated price within a specified
period of time into a specific number of shares of common stock of the same or a
different issuer. Convertible securities also have characteristics similar to
non-convertible debt securities in that they ordinarily provide income with
generally higher yields than those of common stock of the same or a similar
issuer. However, convertible securities are usually subordinated to
non-convertible debt securities. Convertible securities carry the potential for
capital appreciation should the value of the underlying common stock increase,
but they are subject to a lesser risk of a decline in value, relative to the
underlying common stock, due to their fixed-income nature. Due to the conversion
feature, however, the interest rate or dividend rate on a convertible security
is generally less than would be the case if the securities were not convertible.
In evaluating a convertible security the investment advisers look
primarily at the attractiveness of the underlying common stock and at the
fundamental business strengths of the issuer. Other factors considered by the
investment advisers include the yield of the convertible security in relation to
the yield of the underlying common stock, the premium over investment value and
the degree of call protection.
Convertible securities purchased by the Funds (other than the High Yield
Fund) will primarily be "investment grade," i.e., rated in one of the top four
rating categories established by nationally recognized statistical rating
organizations like Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Group ("Standard & Poor's"). Under normal conditions, less than
5% of the assets of the Park Avenue Fund and the Small Cap Fund, and less than
10% of the assets of the Asset Allocation Fund, the Bond Fund and the
International Fund, will consist of securities rated lower than "investment
grade." Such holdings will typically result from reductions in the ratings of
securities after such securities were acquired by the Funds as "investment
grade" securities.
B-13
<PAGE>
All of these Funds may, however, acquire convertible securities without regard
to their ratings.
Lower rated securities may be subject to certain risks not typically
associated with "investment grade" securities, such as the following: (1) the
market for lower rated securities, which expanded rapidly during a period of
economic expansion, has only been tested during one period of economic downturn;
(2) reliable and objective information about the value of lower rated
obligations may be difficult to obtain because the market for such securities
may be thinner and less active than that for investment grade obligations; (3)
adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower than investment grade
obligations, and, in turn, adversely affect their market; (4) companies that
issue lower rated obligations may be in the growth stage of their development,
or may be financially troubled or highly leveraged, so they may not have more
traditional methods of financing available to them; (5) when other institutional
investors dispose of their holdings of lower rated debt securities, the general
market and the prices for such securities could be adversely affected; and (6)
the market for lower rated securities could be impaired if legislative proposals
to limit their use in connection with corporate reorganizations or to limit
their tax and other advantages are enacted.
The Bond Fund, the High Yield Fund and the Asset Allocation Fund
The Bond Fund, the High Yield Fund and the Asset Allocation Fund may
purchase mortgage-backed securities, such as collateralized mortgage obligations
("CMOs") and mortgage pass-throughs.
A mortgage pass-through is collateralized by a pool of mortgages that have
a common coupon rate (i.e., interest rate) and maturity. The holders of a
particular mortgage pass-through share the rights to receive interest and
principal payments from the underlying pool of mortgages, net of servicing fees,
as payment for debt service on the pass-through. CMOs are collateralized by
pooled mortgage loans that may not share coupon rate and maturity
characteristics, and are sold as multi-class bonds. CMO classes have different
interests in the stream of interest and principal payments from the underlying
pool of mortgages. Hence, the classes are typically paid sequentially according
to the payment structure of the CMO. CMOs may be issued or guaranteed by the
U.S. government and its agencies or instrumentalities, or by private entities.
Payments of principal and interest on the mortgage obligations underlying
CMOs are not passed through directly to the holders. Rather, they are made to an
independent trustee created specifically for the allocation of such interest and
principal payments because CMOs are frequently issued in a variety of classes or
series which are designed to be retired sequentially as the underlying mortgages
are repaid. In the event of prepayment on such mortgages, the class of
obligations next scheduled to mature generally will be paid down first. Thus,
even if the issuer does not supply additional collateral, there will be
sufficient collateral to secure the obligations which remain outstanding. A
mortgage pass-through, on the other hand, is secured by a pool of mortgages with
common characteristics, so it will not have the class structure associated with
CMOs. For this reason, payments of principal and interest on the underlying
mortgages can be passed-through to all holders of the mortgage pass-through.
And, all such holders will share the same pre-payment risk.
Mortgage-backed securities issued by the Government National Mortgage
Association ("GNMA") are backed by the full faith and credit of the U.S.
government. Privately owned, government sponsored agencies like the Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC") issue their own guarantees for interest and principal
payments on the mortgage-backed securities and other obligations they issue.
These guarantees are supported only by the issuer's credit or the issuer's right
to borrow from the U.S. Treasury. Accordingly, such investments may involve a
greater risk of loss of principal and interest than other U.S. government
securities since a Fund must look principally or solely to the issuing or
guaranteeing agency or instrumentality for repayment.
Privately issued mortgage-backed securities purchased by the Funds must be
fully collateralized by GNMA certificates, other government mortgage-backed
securities, or by whole loans. Whole loans are securitized mortgage pools backed
by fixed or adjustable rate mortgages originated by private institutions.
Mortgage-backed securities may be more sensitive to interest rate changes
than conventional bonds which can result in greater price volatility. Because
the collateral underlying mortgage-backed securities may be prepaid at any time,
mortgage-backed securities are also subject to greater prepayment risks than
conventional bonds. Accelerated prepayments of mortgage-backed securities
purchased at a premium impose a risk of loss of principal because the premium
may not have been fully amortized when the principal is repaid. Prepayments tend
to accelerate when interest rates decline, so prepaid mortgage-backed security
proceeds are then likely to be reinvested at lower interest rates.
Many factors affect the frequency of unscheduled prepayments or
refinancings of the underlying mortgages, including interest rate changes,
economic conditions, the ages of the mortgages and locations of the mortgaged
properties. Prepayments on mortgage obligations tend to occur more frequently
after interest rates generally have declined. The return provided to the Funds
will be lower if the proceeds of prepaid mortgage-backed securities are
reinvested in securities that provide lower coupons. In addition, the Funds may
suffer losses on prepaid obligations which were acquired at a premium.
When interest rates are rising, mortgage-backed securities may suffer price
declines, particularly if their durations extend because mortgage prepayments or
refinancings slow down. Securities that have lost value will have an adverse
impact on a Fund's total return.
Stripped mortgage securities are another type of mortgage-backed security.
Stripped mortgage securities are created by separating the interest and
principal payments generated by a pool of mortgage-backed bonds to create two
classes of securities. Generally, one class receives only interest payments
(IOs) and one principal payments (POs). IOs and POs are acutely sensitive to
interest rate changes and to the rate of principal prepayments. They are very
volatile in price and may have lower liquidity than most mortgage-backed
securities. Certain CMOs may also exhibit these qualities, especially those
which pay variable rates of interest which adjust inversely with and more
rapidly than short-term interest rates. The Portfolio's Board of Trustees has
adopted procedures for use by GISC, the investment adviser to these Funds, to
ascertain the liquidity and fair value of their investments, including their
mortgage-backed securities holdings. There is no guarantee that the Funds'
investments in CMOs, IOs or POs will be successful, and the Funds' total return
could be adversely affected as a result.
The Funds may also invest in asset-backed securities. Asset-backed
securities, which are structured similarly to mortgage-backed securities, are
collateralized by interests in pools of loans, receivables or other obligations
originated by single or multiple lenders and may use similar credit
enhancements. The underlying assets, which include motor vehicle installment
purchase contracts, home equity loans, credit card receivables and other credit
arrangements, are securitized in pass-through structures similar to mortgage
pass-throughs or in pay-through structures similar to CMOs. The Funds may
invest in these and other types of asset-backed securities that may be developed
in the future.
Asset-backed securities generally do not have the benefit of first lien
security interests in the related collateral. Certain receivables such as credit
card receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, certain of
which may hinder the right to receive full payment. Also, the security interests
in the underlying collateral may not be properly transferred when the pool is
created, resulting in the possibility that the collateral may be resold. Some
asset-backed securities may also have prepayment risk due to refinancing of
their receivables. Generally, these types of loans are of shorter average life
than mortgages, but may have average lives of up to 10 years. These securities,
which are primarily issued by non-governmental entities, carry no direct or
indirect governmental guarantees.
In addition, these Funds may invest in trust-preferred (or "capital")
securities. These securities, which are issued by entities such as special
purpose bank subsidiaries, currently are permitted to treat the interest
payments as a tax-deductible cost. Capital securities, which have no voting
rights, have a final stated maturity date and a fixed schedule for periodic
payments. In addition, capital securities have provisions which afford
preference over common and preferred stock upon liquidation, although the
securities are subordinated to other, more senior debt securities of the same
issuer. The issuers of these securities retain the right to defer interest
payments for a period of up to five years, although interest continues to accrue
cumulatively. The deferral of payments may not exceed the stated maturity date
of the securities themselves. The non-payment of deferred interest at the end of
the permissible period will be treated as an incidence of default.
At the present time, the Internal Revenue Service treats capital
securities as debt. Proposed legislation may cause this tax treatment to be
modified in the future. In the event that the tax treatment of interest payments
of these types of securities is modified, the Bond Fund will reconsider the
appropriateness of continued investment in these securities.
Some of the Funds' investments may have variable interest rates. When an
instrument provides for periodic adjustments to its interest rate, fluctuations
in principal value may be minimized. However, changes in the coupon rate can lag
behind changes in market rates, which may adversely affect the Fund's
performance.
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The Bond Fund, the Tax-Exempt Fund and the High Yield Fund
The Funds may purchase zero coupon bonds, and the High Yield Fund may
purchase pay-in-kind bonds. Zero coupon bonds, which are issued at a significant
discount from face value, do not make periodic interest payments and the
obligation becomes due only upon maturity. Pay-in-kind securities ("PIK bonds")
make periodic interest payments either in cash or in the form of additional
securities. The value of both zero coupon bonds and PIKs may be more sensitive
to fluctuations in interest rates than other bonds.
Federal tax law requires that the interest on zero coupon bonds be accrued
as income to the Fund regardless of the fact that the Fund will not receive cash
until such securities mature. Since the income must be distributed to
shareholders, the Fund may be forced to liquidate other securities in order to
make the required distribution.
The High Yield Fund may also invest in loan participation interests, which
are interests in loans made to corporate, governmental or other borrowers. These
interests take the form of interests in, or assignments of loans, and are
acquired from banks, insurance companies or other financial institutions that
have either made the loans or participated in the loan syndicate. These
interests, which may be of any credit quality, involve the risk of insolvency or
default by the borrower. In addition, participation interests carry the risk of
insolvency of the lender from which the interest was acquired.
The High Yield Fund may also invest in a form of derivatives known as
structured securities. This type of instrument involves the deposit with, or
purchase by an entity, such as a corporation or trust, of specified securities
or loans and the issuance by that entity of single or multiple classes of
securities which are either backed by, or represent interests in, the underlying
securities. The cash flow on the underlying pool of instruments may be
apportioned among the various classes with the goal of creating securities with
differing maturities, payment priorities and interest rate provisions. The value
of the principal or interest on certain other structured securities may be
positively or negatively linked to currencies, interest rates, commodities,
indices or other financial indicators ("reference instruments"). The interest
rate or principal amounts payable at the time of maturity or redemption may vary
depending on changes in the value of the reference instruments. While in general
an investor in these securities will bear the market risk of the underlying
instruments, the credit risk of certain classes of the security may be lessened
by credit enhancements offered by the issuer. Certain classes may have higher
yields than others and, thus, may involve greater risk than others. These
securities may be deemed to be investment companies, as defined by the 1940 Act,
and investment by the High Yield Fund may, accordingly, be limited by SEC rules.
The Tax-Exempt Fund
Diversification. For the purpose of diversification under the 1940 Act, the
identification of the issuer of Municipal Obligations depends on the terms and
conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and revenues of the subdivision, such subdivision would be deemed
to be the sole issuer. Similarly, in the case of an industrial development bond,
if that bond is backed only by the assets and revenues of the non-governmental
issuer, then such non-governmental issuer would be deemed to be the sole issuer.
If, however, in either case, the creating government or some other entity
guarantees a security, such a guaranty would be considered a separate security
and will be treated as an issue of such government or other entity.
The Tax-Exempt Fund may invest more than 25% of the value of its total
assets in Municipal Obligations which pay interest from similar revenue sources
or securities which are offered within a single state. When Municipal
Obligations are related in these ways, an economic, business or political
development which affects one security could also affect the other related
securities. This investment practice may subject the Tax-Exempt Fund to greater
risks than a fund which does not concentrate its assets in this manner.
Municipal Lease/Purchase Agreements. The Tax-Exempt Fund may invest in
Municipal Lease/Purchase Agreements which are similar to installment purchase
contracts for property or equipment. These obligations typically are not fully
backed by the issuing municipality's credit and their interest may become
taxable if the lease is assigned. If the governmental issuer does not
appropriate sufficient funds for the following year's lease payments, the lease
will terminate, with the possibility of default on the lease obligation, which
may result in loss to the Fund.
Variable Rate Demand Notes. The Tax-Exempt Fund may also purchase
tax-exempt floating and variable rate demand notes and bonds. Variable rate
demand notes include master demand notes. Master demand notes are frequently
secured by letters of credit or other credit supports, which are not expected to
adversely affect the tax-exempt status of these obligations. Master demand notes
are redeemable at face value, but there is no established secondary market for
them. Accordingly, when these obligations are not secured, the Tax-Exempt Fund's
right to redeem depends on the borrower's ability to pay principal and interest
on demand. GISC continuously considers the creditworthiness of the issuers of
any floating and variable rate demand obligations in the Tax-Exempt Fund's
portfolio to attempt to minimize this risk. Master demand notes with a demand
feature extending for more than seven days are treated as illiquid securities.
See "Special Investment Techniques."
Stand-by Commitments. The Tax-Exempt Fund may acquire stand-by commitments
from brokers, dealers or banks to facilitate its portfolio liquidity. Under a
stand-by commitment, the obligor must repurchase, at the Fund's option,
specified securities held in the Fund's portfolio at a specified price. Thus,
stand-by commitments are comparable to put options. The exercise of a stand-by
commitment is subject to the ability of the seller to make payment on demand.
The Tax-Exempt Fund does not intend to exercise its rights under stand-by
commitments for trading purposes. The Tax-Exempt Fund may pay for stand-by
commitments if such action is deemed necessary, thus increasing to a degree the
cost of the underlying Municipal Obligation and similarly decreasing such
security's yield. Gains realized in connection with stand-by commitments will be
taxable.
Tender Option Bonds. The Tax-Exempt Fund may invest in tender option bonds,
which generally are long-term Municipal Obligations which are coupled with
options to tender the underlying Municipal Obligations to third-party financial
institutions at periodic intervals. Holders of tender option bonds pay periodic
fees to the financial institution(s) that provide(s) the option(s). Such fees
are typically equal to the difference between the Municipal Obligation's fixed
coupon rate and the rate at or near the commencement of the option period that
would cause the securities, coupled with the tender option, to trade at par on
the date that a remarketing or similar agent would make the relevant rate
determinations. Thus, the holder effectively holds a demand obligation that
bears interest at the prevailing short-term tax-exempt rate. In certain
instances and for certain tender option bonds, the option may be terminable in
the event of a default in payment of principal or interest on the underlying
Municipal Obligation and for other reasons. Accordingly, GISC will consider, on
an ongoing basis, the creditworthiness of: (1) the issuers of Municipal
Obligations which are coupled with tender options; (2) any custodian; and (3)
the provider of the tender option.
The Fund will purchase tender option bonds only when it is satisfied that
any custodial arrangements and the
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tender option arrangements, including the fee payment arrangements, will not
adversely affect the tax-exempt status of the underlying Municipal Obligations
and that payment of any tender fees will not have the effect of creating taxable
income for the Fund. Based on the tender option bond agreement, the Fund expects
to be able to value the tender option bond at par; however, the value of the
instrument will be monitored to assure that it is valued at fair value.
Other. The Tax-Exempt Fund may also invest in Municipal Obligations with
embedded derivatives. Such securities increase their interest rate payments to
the holder if rates go up and prices correspondingly decline. As the price of a
security goes down, the income goes up, offsetting the price decline.
Ratings of Municipal Obligations. Subsequent to its purchase by the Fund,
an issue of rated Municipal Obligations may cease to be rated or its rating may
be reduced below the minimum required for purchase by the Fund. Neither event
will require the sale of such Municipal Obligations by the Fund, but GISC will
consider such event in determining whether the Fund should continue to hold the
Municipal Obligations. To the extent that the ratings given by Moody's or
Standard & Poor's for Municipal Obligations may change as a result of changes in
such organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for its investments in accordance with the
investment policies contained in the Prospectus and this Statement of Additional
Information. See the Appendix to this Statement of Additional Information for a
more detailed discussion of securities ratings.
SPECIAL INVESTMENT TECHNIQUES
Each Fund has an investment objective which it pursues through its stated
investment policies and special investment techniques. There can be no assurance
that the objective of a Fund will be achieved. The following is a description of
certain of the special investment techniques which may be used by the investment
advisers on behalf of the Funds to the extent permitted by the Funds' investment
restrictions. This section supplements the description of "Special Investment
Techniques" contained in the Prospectus.
Options on Securities
General. Each of the International Fund, the Emerging Markets Fund, the
Bond Fund, the High Yield Fund, the Tax-Exempt Fund and the Asset Allocation
Fund may purchase put and call options and write (sell) covered call options and
secured put options. As a covered call option writer, a Fund must own securities
which are acceptable for the purpose of covering any outstanding options. So
long as the Fund is obligated as a writer of a put option, it will invest an
amount not less than the exercise price of the put option in eligible securities
(i.e., cash or cash equivalents). These duties reduce a Fund's flexibility to
pursue other investment opportunities while options are outstanding.
Basically, there are two types of options: call options and put options.
The purchaser of a call option acquires the right to buy a security at a fixed
price during a specified period. The writer (seller) of such an option is then
obligated to sell the security if the option is exercised, and bears the risk
that the security's market price will increase over the purchase price set by
the option. The purchaser of a put option acquires the right to sell a security
at a fixed price during a specified period. The writer of such an option is then
obligated to buy the security if the option is exercised, and bears the risk
that the security's market price will decline from the purchase price set by the
option. Options are typically purchased subject to a premium which can reduce
the risks retained by the option writer.
As the writer of a covered call option or the purchaser of a secured put
option, a Fund must own securities that can be used to cover or secure any such
outstanding options. Also, when a Fund writes a put option, it must segregate
with the Portfolio's custodian either cash or liquid, unencumbered debt
securities that are marked-to-market daily. The value of such segregated assets
must at least equal the exercise price of the put option. Segregating assets may
limit the Fund's ability to pursue other investment opportunities while options
are outstanding. The cover for a call option that is related to a foreign
currency can be short-term debt securities having a value equal to the option's
face that are denominated in the same currency as the call.
Options transactions can be voluntarily terminated before the exercise or
expiration of the options only by entering into closing transactions. The
ability to close out an option depends, in part, upon the liquidity of the
option market. If a Fund cannot close an option when it wants, it may miss
alternative investment opportunities.
Options trade on U.S. or foreign securities exchanges and in the
over-the-counter ("OTC") market. Exchange listed options are three-party
contracts issued by a clearing corporation. They generally have standardized
prices, expiration dates and performance mechanics. In contrast, all the terms
of an OTC option, including price and expiration date, are set by negotiation
between the buyer and seller (e.g., a Fund and a securities dealer or other
financial institution). A Fund could lose any premium it paid for an OTC option,
as well as any anticipated benefits of the transaction, if its counterparty
fails to perform under the option's terms. To minimize this risk, the Funds'
investment advisers consider the creditworthiness of any counterparties with
whom the Funds may engage in OTC options transactions. However, there can be no
assurance that a counterparty will remain financially stable while an OTC option
is outstanding.
Generally, the staff of the SEC currently requires OTC options and any
assets used to cover such options to be treated as illiquid assets because OTC
options may not be actively traded. Until the SEC staff revises this position,
no Fund will engage in OTC option transactions if, as a result, more than the
permitted portion of its net assets is invested in illiquid securities.
During the option period, the covered call writer gives up the potential
for capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the writer
having to deliver the underlying security to the holder of the option at the
exercise price, which will likely be lower than the security's value. For the
secured put writer, substantial depreciation in the value of the underlying
security would result in the exercise of the option by the holder, thereby
obligating the writer to purchase the underlying securities at the exercise
price, which will likely exceed the security's value. If a covered call option
expires unexercised, the writer realizes a gain and the buyer a loss in the
amount of the premium. If the covered call option writer has to sell the
underlying security because of the exercise of the call option, the writer
realizes a gain or loss from the sale of the underlying security, with the
proceeds being increased by the amount of the premium. If a secured put option
expires unexercised, the writer realizes a gain and the buyer a loss in the
amount of the premium. If the secured put writer has to buy the underlying
security because of the exercise of the put option, the secured put writer
incurs an unrealized loss to the extent that the current market value of the
underlying security is less than the exercise price of the put option. However,
this would be offset in whole or in part by gain from the premium received and
any interest income earned on the investment of the premium.
The exercise price of an option may be below, equal to or above the
current market value of the underlying security at the time the option is
written. The buyer of a put who also owns the related security is protected by
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ownership of a put option against any decline in that security's price below the
exercise price less the amount paid for the option. The ability to purchase put
options allows a Fund to protect capital gains in an appreciated security which
is already owned, without being required to actually sell that security. At
times a Fund may seek to establish a position in securities upon which call
options are available. By purchasing a call option a Fund is able to fix the
cost of acquiring the security, this being the cost of the call plus the
exercise price of the option. This procedure also provides some protection from
an unexpected downturn in the market, because a Fund is only at risk for the
amount of the premium paid for the call option which it can, if it chooses,
permit to expire.
The Funds named above may also write or purchase spread options, which are
options for which the exercise price may be a fixed monetary spread or yield
spread between the security underlying the option and another security that is
used as a benchmark. Spread options involve the same risks as are associated
with purchasing and selling options on securities generally, as described above.
The writer (seller) of a spread option which expires unexercised realizes a gain
in the amount of the premium and any interest earned on the investment of the
premium. However, if the spread option is exercised, the writer will forego the
potential for capital appreciation or incur an unrealized loss to the extent the
market value of the underlying security exceeds or is less than the exercise
price of such spread option. The purchaser of a spread option incurs costs equal
to the amount of the premium paid for such option if the spread option expires
unexercised, or the associated transaction costs if the purchaser closes out the
spread option position.
A Fund which is authorized to buy and sell options may purchase a put
option and a call option, each with the same expiration date, on the same
underlying security. The Fund will profit from the combination position if an
increase or decrease in the value of the underlying security is sufficient for
the Fund to profit from exercise of either the call option or the put option.
Combined option positions involve higher transaction costs (because of the
multiple positions taken) and may be more difficult to open and close out than
other option positions.
Options on Securities Indices. The Funds named above may write or purchase
options on securities indices, subject to their general investment restrictions
regarding options transactions. Index options offer the Funds the opportunity to
achieve many of the same objectives sought through the use of options on
individual securities. Options on securities indices are similar to options on a
security except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. This amount of cash is equal to such difference between the
closing price of the index and the exercise price of the option. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount. Unlike security options, all settlements are in cash and gain or
loss depends on price movements in the market generally (or in a particular
industry or segment of the market) rather than price movements in individual
securities.
Price movements in securities which the Funds own or intend to purchase
probably will not correlate perfectly with movements in the level of a
securities index and, therefore, the Funds bear the risk of a loss on a
securities index option which is not completely offset by movements in the price
of such securities. Because securities index options are settled in cash, a call
writer cannot determine the amount of its settlement obligations in advance and,
unlike call writing on a specific security, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding underlying
securities. The Funds may, however, cover call options written on a securities
index by holding a mix of securities which substantially replicate the movement
of the index or by holding a call option on the securities index with an
exercise price no higher than the call option sold.
When a Fund writes an option on a securities index, it will be required to
cover the option or to segregate assets equal in value to 100% of the exercise
price in the case of a put, or the contract value in the case of a call. In
addition, where a Fund writes a call option on a securities index at a time when
the exercise price exceeds the contract value, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess.
Options on securities indices involve risks similar to those risks
relating to transactions in financial futures contracts described below. Also, a
purchased option may expire worthless, in which case the premium which was paid
for it is lost.
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Financial Futures Transactions.
General. The International Fund, the Emerging Markets Fund, the Bond Fund,
the High Yield Fund, the Tax-Exempt Fund and the Asset Allocation Fund may enter
into interest rate futures contracts and securities index futures contracts
(collectively referred to as "financial futures contracts") primarily to hedge
(protect) against anticipated future changes in interest rates or equity market
conditions which otherwise might affect adversely the value of securities which
these Funds hold or intend to purchase. In addition, the Asset Allocation Fund
may also enter into financial futures to reallocate assets among the Fund's
equity, fixed- income and money market asset categories while minimizing
transaction costs or generally as a hedge against changes in market conditions.
A "sale" of a financial futures contract means the undertaking of a contractual
obligation to deliver the securities or the cash value called for by the
contract at a specified price during a specified delivery period. A "purchase"
of a financial futures contract means the undertaking of a contractual
obligation to acquire the securities at a specified price during a specified
delivery period.
Interest rate futures contracts obligate the long or short holder to take
or make delivery of a specified quantity of a financial instrument during a
specified future period at a specified price. Securities index futures contracts
are similar in economic effect, but they are based on a specific index of
securities (rather than on specified securities) and are settled in cash. These
Funds may also purchase and write put and call options on financial futures
contracts as an attempt to hedge against market risks.
The Funds may also invest in financial futures contracts when the purchase
of these instruments may provide more liquidity than the direct investment in
the underlying securities. The use of these instruments may permit a Fund to
gain rapid exposure to the markets following a large inflow of investable cash
or in response to changes in investment strategy. The purchase of a financial
futures contract may also provide a Fund with a price advantage over the direct
purchase of the underlying securities, either based on a differential between
the securities and the futures markets or because of the lower transaction costs
that are associated with these types of instruments.
There are special risks associated with entering into financial futures
contracts. The skills needed to use financial futures contracts effectively are
different from those needed to select a Fund's investments. There may be an
imperfect correlation between the price movements of financial futures contracts
and the price movements of the securities in which a Fund invests. There is also
a risk that a Fund will be unable to close a futures position when desired
because there is no liquid secondary market for it.
The risk of loss in trading financial futures can be substantial due to
the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. relatively small price movement in a financial
futures contract could have an immediate and substantial impact, which may be
favorable or unfavorable to a contractholder. It is possible for a price-related
loss to exceed the amount of a Fund's margin deposit.
The Bond Fund and the Tax-Exempt Fund may only engage in financial futures
transactions on commodities exchanges or boards of trade. A Fund will have the
Portfolio's custodian segregate either cash or liquid, unencumbered debt
securities that are marked-to-market daily to the extent required to comply with
the 1940 Act whenever it engages in futures transactions. Segregating assets may
limit a Fund's ability to pursue other investment opportunities.
None of the Funds will enter into financial futures contracts for
speculative purposes.
When a Fund enters into a financial futures contract, it is required to
deposit with its custodian, on behalf of the broker, a specified amount of cash
or eligible securities called "initial margin." The initial margin required for
a financial futures contract is set by the exchange on which the contract is
traded. Subsequent payments, called "variation margin," to and from the broker
are made on a daily basis as the market price of the financial futures contract
fluctuates. At the time of delivery, pursuant to the contract, adjustments are
made to recognize differences in value arising from the delivery of securities
with a different interest rate than that specified in the contract. With respect
to securities index futures contracts, settlement is made by means of a cash
payment based on any fluctuation in the contract value since the last adjustment
in the variation margin was made.
If a Fund owned long-term bonds and interest rates were expected to rise,
it could sell interest rate futures contracts. If interest rates did increase,
the value of the bonds in such Fund's portfolio would decline, but this decline
should be offset in whole or in part by an increase in the value of the Fund's
interest rate futures contracts. If, on the other hand, long-term interest rates
were expected to decline, a Fund could hold short-term debt securities and
benefit from the income earned by holding such securities, while at the same
time purchasing interest rate futures contracts on long-term bonds. Thus, a Fund
could take advantage of the anticipated rise in the value of long-term bonds
without actually buying them. The interest rate futures contracts and short-term
debt securities could then be liquidated and the cash proceeds used to buy
long-term bonds.
Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contractual
commitment is closed out before delivery of the security. The offsetting of a
contractual obligation is accomplished by purchasing (or selling as the case may
be) on a commodities or futures exchange an identical financial futures contract
calling for delivery in the same month. Such a transaction, if effected through
a member of an exchange, cancels the obligation to make or take delivery of the
securities. All transactions in the futures market are made, offset or fulfilled
through a clearing house associated with the exchange on which the contracts are
traded. A Fund will incur brokerage fees when it purchases or sells financial
futures contracts, and will be required to maintain margin deposits. If a liquid
secondary market does not exist when a Fund wishes to close out a financial
futures contract, it will not be able to do so and will continue to be required
to make daily cash payments of variation margin in the event of adverse price
movements.
Special Considerations Relating to Financial Futures Contracts. Financial
futures contracts entail risks. If the investment adviser's judgment about the
general direction of interest rates or markets is wrong, the overall performance
may be poorer than if no financial futures contracts had been entered into. For
example, in some cases, securities called for by a financial futures contract
may not have been issued at the time the contract was written. There may also be
an imperfect correlation between movements in prices of financial futures
contracts and portfolio securities being hedged. The degree of difference in
price movement between financial futures contracts and the securities being
hedged depends upon such things as differences between the securities being
hedged and the securities underlying the financial futures contracts, and
variations in speculative market demand for financial futures contracts and
securities. In addition, the market prices of financial futures contracts may be
affected by certain factors. If participants in the futures market elect to
close out their contracts through offsetting transactions rather than meet
margin requirements, distortions in the normal relationship between the
securities and financial futures markets could result. Price distortions could
also result if investors in financial futures contracts decide to make or take
delivery of underlying securities rather than engage in closing transactions,
which would reduce the liquidity of the futures market. In addition, because the
margin requirements in the futures
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markets are less onerous than margin requirements in the cash market, increased
participation by the speculators in the futures market could cause temporary
price distortions. Due to the possibility of price distortions in the futures
market and because there may be an imperfect correlation between movements in
the prices of securities and movements in the prices of financial futures
contracts, a correct forecast of market trends by the investment adviser may
still not result in a successful hedging transaction. If this should occur, the
Funds could lose money on the financial futures contracts and also on the value
of their portfolio securities.
Options on Financial Futures Contracts
The International Fund, the Emerging Markets Fund, the Bond Fund, the High
Yield Fund, the Tax-Exempt Fund and the Asset Allocation Fund may purchase and
write call and put options on financial futures contracts. An option on a
financial futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a financial futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise, the writer of the option delivers the financial futures contract to
the holder at the exercise price. A Fund would be required to deposit with its
custodian initial margin and variation margin with respect to put and call
options on a financial futures contract as written by it.
Dollar Roll and Reverse Repurchase Transactions
The Bond Fund and the High Yield Fund may use dollar rolls and reverse
repurchase agreements. In a dollar roll transaction, a Fund sells
mortgage-backed securities for delivery in the current month and simultaneously
contracts to purchase substantially similar securities on a specified future
date from the same party. In a dollar roll, the securities that are to be
purchased will be of the same type and have the same interest rate as the sold
securities, but will be supported by different pools of mortgages. A Fund that
engages in a dollar roll forgoes principal and interest paid on the sold
securities during the roll period, but is compensated by the difference between
the current sales price and the lower forward price for the future purchase. In
addition, the Funds earn interest by investing the transaction proceeds during
the roll period.
In a reverse repurchase agreement transaction, a Fund sells securities to
a bank or securities dealer and agrees to repurchase them at an agreed time and
price. During the period between the sale and the forward purchase, the Fund
will continue to receive principal and interest payments on the securities sold.
A Fund may also receive interest income similar to that received in the case of
dollar rolls.
A Fund will normally use the proceeds of dollar roll and reverse
repurchase agreement transactions to maintain offsetting positions in securities
or repurchase agreements that mature on or before the settlement date for the
related dollar roll or reverse repurchase agreement. The market value of
securities sold under a reverse repurchase agreement or dollar roll is typically
greater than the amount to be paid for the related forward commitment. Reverse
repurchase agreements and dollar rolls involve the risk that the buyer of the
sold securities might be unable to deliver them when a Fund seeks to repurchase
the securities. If the buyer files for bankruptcy or becomes insolvent, such
buyer or its representative may ask for and receive an extension of time to
decide whether to enforce the Fund's repurchase obligation. A Fund's use of the
transaction proceeds may be restricted pending such decision.
Whenever a Fund enters into a dollar roll or reverse repurchase agreement
transaction, it will maintain cash, U.S. government securities or liquid,
unencumbered securities that are marked to market daily in a segregated account
with the Fund's custodian. The value of such segregated assets must be at least
equal to the value of the forward commitment or repurchase obligation (principal
plus accrued interest), as applicable. Segregating assets may limit a Fund's
ability to pursue other investment opportunities.
Since a Fund will receive interest on the securities or repurchase
agreements in which it invests the transaction proceeds, dollar rolls and
reverse repurchase agreements will involve leverage. However, since the acquired
securities or repurchase agreements must satisfy a Fund's credit quality
requirements and mature on or before the settlement date for the related dollar
roll or reverse repurchase agreement, and because the Fund will segregate assets
as described above, GISC believes that these transactions do not present the
risks associated with other types of leverage. The Portfolio Funds do not intend
to enter into dollar roll or reverse repurchase agreement transactions other
than as described above, or for temporary or emergency purposes.
When-Issued or Delayed-Delivery Transactions
The Small Cap Fund, the International Fund, the Emerging Markets Fund, the
Bond Fund, the High Yield Fund, the Tax-Exempt Fund and the Asset Allocation
Fund may enter into when-issued or delayed delivery transactions. In when-issued
or delayed-delivery transactions, a Fund commits to purchase or sell particular
securities, with payment and delivery to take place at a future date. Although a
Fund does not pay for the securities or start earning interest on them until
they are delivered, it immediately assumes the risks of ownership, including the
risk of price fluctuation. If a Fund's counterparty fails to deliver a security
purchased on a when-issued or delayed-delivery basis, there may be a loss, and
the Fund may have missed an opportunity to make an alternative investment.
A Fund engages in these transactions to acquire securities that are
appropriate for its portfolio while securing prices or yields that appear
attractive when the transactions occur. The Funds do not engage in these
transactions to speculate on interest rate changes. However, each Fund reserves
the right to sell securities acquired on a when-issued or delayed-delivery basis
before settlement.
Prior to settlement of these transactions, the value of the subject
securities will fluctuate, reflecting interest rate changes. Accordingly, when a
Fund commits to buy particular securities and make payment in the future, it
must set aside, in a segregated account with the custodian, cash or liquid high
grade securities at least equal in value to its commitments, marked-to-market
daily. In the case of a sale of securities on a delayed-delivery basis, a Fund
will instruct the custodian to hold the subject portfolio securities in a
segregated account while the commitment is outstanding. These obligations to
segregate cash or securities will limit the investment advisers' ability to
pursue other investment opportunities.
Lending of Portfolio Securities
The Small Cap Fund, the Bond Fund, the High Yield Fund, the Tax-Exempt
Fund and the Asset Allocation Fund may lend their portfolio securities to
broker-dealers, banks and other institutional investors to earn additional
income. Such loans must be continuously secured by collateral, and the loaned
securities must be marked-to-market daily. The Funds will generally continue to
be entitled to all interest earned or dividends paid on the loaned securities,
though lending fees may be paid to the borrower from such interest or dividends.
The Funds can increase their income through securities lending by investing the
cash collateral deposited by the borrower in short-term interest-bearing
obligations that meet the Funds' credit quality requirements and investment
policies. As with any extension of credit, however, there are risks of delay in
recovery of the loaned securities and collateral should a borrower fail
financially.
No Fund will continue to lend securities if, as a result, the aggregate
value of securities then on loan would exceed 33 1/3% of that Fund's total net
assets. A significant portion of a Fund's loan transactions may be with only one
or a few institutions at any given time. This practice can increase the risk to
the Fund should a borrower fail. Apart from lending securities and acquiring
debt securities, the Funds will not make loans to other persons.
The Funds will typically receive commitment fees from the borrowers which
are normally payable upon the expiration of the loan transactions. However, if a
Fund calls the loaned securities prior to the expiration date of a loan, the
Fund may not be entitled to receive the entire commitment fee. The Funds do not
expect to call loaned securities prior to the applicable loan expiration date
unless the current market value of the loaned securities exceeds the expected
return of the loan, including commitment fee income, on the expiration date.
These loan transactions may be structured to permit similar, but not necessarily
identical, securities to be returned to the Funds upon the expiration of a loan.
Since there are risks of delays in recovery or even loss of rights in the
collateral related to all types of secured credit, the loans will be made only
to borrowers deemed by GISC to be creditworthy and will not be made unless, in
GISC's judgment, the income which can be earned justifies the risk. Any such
loans entered into by the Funds will create leverage for the Funds, as lender.
This leverage results from the expectation that the income and gains on the
securities acquired by the Funds with the loan collateral provided by the
borrower will exceed the cost of the loan transaction. Accordingly, each Fund
will only enter into a loan transaction if its earnings or net asset value are
expected to increase faster than otherwise would be the case. However, should
the income and gains earned on the securities acquired with the loan collateral
fail to exceed the cost of the loan, the Fund's earnings or net asset value will
decline faster than otherwise would be the case.
In the event the borrower is unable to complete a loan transaction, or in
the event of any default or insolvency of the borrower, each Fund will retain
the collateral it received in connection with the loan transaction. If this
collateral is insufficient to fully satisfy its rights under the loan agreement,
the affected Fund will take whatever steps it deems advisable to satisfy its
claim.
The Funds may pay reasonable custodian and administrative fees in
connection with the loans.
B-19
<PAGE>
Foreign Currency Futures and Options on Foreign Currency Futures.
The International Fund, the Emerging Markets Fund and the High Yield Fund
may purchase and sell futures contracts on foreign currencies, related options
thereon and options on foreign currencies as a hedge against possible variation
in foreign exchange rates. A futures contract on a foreign currency is an
agreement between two parties to buy and sell a specified amount of a particular
currency for a particular price on a future date. An option on a foreign
currency futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a foreign currency futures contract at a
specified price at any time during the period of the option. An option
transaction on a foreign currency provides the holder with ability to buy or
sell a particular currency at a fixed price on a future date, and is used to
hedge the currency exchange rate risk on non-U.S. dollar-denominated securities
owned by a Fund, anticipated to be purchased by the Fund, or sold by the Fund
but not yet delivered. Options on foreign currencies may be traded on U.S. and
foreign exchanges or in the over-the-counter market.
Foreign currency futures contracts and options on foreign currency futures
contracts are traded on boards of trade and futures exchanges. Buyers and
sellers of foreign currency futures contracts are subject to the same risks
which apply to the use of future contracts generally. In addition, there are
risks associated with foreign currency futures contracts similar to those
associated with options on foreign currencies, described above. Moreover, the
ability to close out positions in such options is subject to the maintenance of
a liquid secondary market. In order to reduce this risk, a Fund will not
purchase or sell options on foreign currency options unless, in the opinion of
the Fund's investment adviser, a sufficiently liquid secondary market exists so
that the risks connected to such options transactions are not greater than the
risks associated with the underlying foreign currency futures contract.
A Fund will only write covered options on foreign currency or foreign
currency futures contracts. A put on a foreign currency or foreign currency
futures contract written by the Fund will be considered covered if the Fund
segregates cash, U.S. government securities or other liquid unencumbered debt
securities, equal to the average exercise price of the put. A call on a foreign
currency or on a foreign currency futures contract written by the Fund will be
considered covered if the Fund owns short-term debt securities with a value
equal to the face amount of the option contract denominated in the currency upon
which the call is written.
A Fund will purchase an option on foreign currency as a hedge against
fluctuations in exchange rates. However, should exchange rates move adversely to
the Fund's position, the Fund may forfeit both the entire price of the option
plus the related transaction costs.
Engaging in foreign futures and foreign options transactions involves the
execution and clearing of trades on or subject to the rules of a foreign board
of trade. Neither the National Futures Association ("NFA") nor any domestic
(U.S.) exchange regulates activities of any foreign boards of trade, including
the execution, delivery and clearing of transactions, or has the power to compel
enforcement of the rules of a foreign board of trade or any applicable foreign
law. This is true even if the exchange is formally linked to a domestic market
so that a position taken on the exchange may be liquidated by a transaction on
the appropriate domestic market. Moreover, applicable laws or regulations will
vary depending on the foreign country in which the foreign futures or foreign
options transaction occurs. Therefore, entities (such as the Funds) which trade
foreign futures or foreign options contracts may not be afforded certain of the
protective measures provided by the Commodity Exchange Act, Commodity Futures
Trading Commission ("CFTC") regulations, the rules of the NFA or those of a
domestic (U.S.) exchange. In particular, monies received from customers for
foreign futures or foreign options transactions may not be provided the same
protections as monies received in connection with transactions on U.S. futures
exchanges. In addition, the price of any foreign futures or foreign options
contract and, therefore, the potential profit and loss thereon, may be affected
by any variance in the foreign exchange rate between the time the order for the
futures contract or option is placed and the time it is liquidated, offset or
exercised.
Forward Foreign Currency Transactions.
The foreign securities held by the Small Cap, High Yield, International
and Emerging Markets Funds will usually be denominated in foreign currencies and
the Funds may temporarily hold foreign currency in connection with such
investments. As a result, the value of the assets held by a Fund may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations. The Funds may enter into forward foreign currency
exchange contracts ("forward currency contracts") in an effort to control some
of the uncertainties of foreign currency exchange rate fluctuations. A forward
currency contract is an agreement to purchase or sell a specific currency at a
specified future date and price agreed to by the parties at the time of entering
into the contract. The Funds will not engage in forward currency contracts for
speculation, but only as an attempt to hedge against
B-20
<PAGE>
changes in currency exchange rates affecting the values of securities which a
Fund holds or intends to purchase. Thus, a Fund will not enter into a forward
currency contract if such contract would obligate the Fund to deliver an amount
of foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency.
A Fund will normally be expected to use forward currency contracts to fix
the value of certain securities it has agreed to buy or sell. For example, when
a Fund enters into a contract to purchase or sell securities denominated in a
particular foreign currency, the Fund could effectively fix the maximum cost of
those securities by purchasing or selling a foreign currency contract, for a
fixed value of another currency, in the amount of foreign currency involved in
the underlying transaction. In this way, the Fund can protect the value of
securities in the underlying transaction from an adverse change in the exchange
rate between the currency of the underlying securities in the transaction and
the currency denominated in the foreign currency contract, during the period
between the date the security is purchased or sold and the date on which payment
is made or received.
The Funds may also use forward currency contracts to hedge the value, in
U.S. dollars, of securities it currently owns. For example, if a Fund holds
securities denominated in a foreign currency and anticipates a substantial
decline (or increase) in the value of that currency against the U.S. dollar, the
Fund may enter into a foreign currency contract to sell (or purchase), for a
fixed amount of U.S. dollars, the amount of foreign currency approximating the
value of all or a portion of the securities held which are denominated in such
foreign currency.
Upon the maturity of a forward currency transaction, the Funds may either
accept or make delivery of the currency specified in the contract or, at any
time prior to maturity, enter into a closing transaction which involves the
purchase or sale of an offsetting contract. An offsetting contract terminates a
Fund's contractual obligation to deliver the foreign currency pursuant to the
terms of the forward currency contract by obligating the Fund to purchase the
same amount of the foreign currency, on the same maturity date and with the same
currency trader, as specified in the forward currency contract. The Fund will
realize a gain or loss as a result of entering into such an offsetting contract
to the extent the exchange rate between the currencies involved moved between
the time of the execution of the original forward currency contract and the
offsetting contract.
The use of forward currency contracts to protect the value of securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities a Fund owns or intends to acquire, but
it does fix a future rate of exchange. Although such contracts minimize the risk
of loss resulting from a decline in the value of the hedged currency, they also
limit the potential for gain resulting from an increase in the value of the
hedged currency. The benefits of forward currency contracts to the Funds will
depend on the ability of the Funds' investment advisers to accurately predict
future currency exchange rates.
Regulatory Restrictions.
To the extent required to comply with the 1940 Act and rules and
interpretations thereunder, a Fund may not maintain open short positions in
financial futures contracts, call options written on financial futures contracts
or call options written on indexes if, in the aggregate, the market value of all
such open positions exceeds the current value of the securities in its
portfolio, plus or minus unrealized gains and losses on the open positions,
adjusted for the historical relative volatility of the relationship between the
portfolio and the positions. When purchasing a financial futures contract or
writing a put option on a financial futures contract, the Fund must segregate
cash, cash-equivalents (including any margin) or liquid, unencumbered debt
obligations equal to the market value of such contract. These cover and
segregation requirements may limit the Fund's ability to pursue other investment
opportunities.
In order to comply with the Commodity Futures Trading Commission Regulation
4.5 and thereby avoid being deemed a "commodity pool operator," a Fund will use
commodity futures or commodity options contracts solely for bona fide hedging
purposes within the meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts that do not come
with the meaning and intent of Regulation 1.3(z), the aggregate initial margin
and premiums required to establish such positions will not exceed 5% of the fair
market value of the assets of the Fund, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into. In the
case of an option that is in-the-money at the time of purchase, the in-the-money
amount (as defined in Section 190.01(x) of the CFTC Regulations) may be excluded
in computing such 5%.
The Funds may alter their investment practices on a temporary or emergency
basis when the Funds' investment advisers believe it is appropriate due to
political, economic or other circumstances. All of the Funds may invest in cash
or cash equivalents and repurchase agreements in these circumstances. In
addition, the Park Avenue Fund and the Small Cap Fund may invest without limit
in debt obligations, including U.S. government securities, investment grade
corporate bonds, commercial paper rated Prime-2 or higher by Moody's or A-2 or
higher by Standard & Poor's. The International Fund and the Emerging Markets
Fund may invest without limit in investment grade non-convertible preferred
stock, debt obligations, foreign or U.S. government securities and domestic or
foreign money market securities. The High Yield Fund may invest in investment
grade securities.
B-21
<PAGE>
INVESTMENT ADVISERS AND DISTRIBUTOR
Guardian Investor Services Corporation ("GISC"). GISC is the investment
adviser for each of the Funds (except the International Fund and the Emerging
Markets Fund). GISC and the Portfolio have entered into a written investment
advisory agreement which provides that GISC shall act as the applicable Funds'
investment adviser, manage their investments and provide them with various
services and facilities. The investment advisory agreement will continue in full
force and effect from year to year with respect to each Fund so long as its
continuance is approved at least annually by vote of a majority of the
outstanding voting securities of that Fund, or by vote of the Board of Trustees
of the Portfolio, including a majority of the Trustees who are not parties to
the agreement or "interested persons" of the Portfolio or of GISC, cast in
person at a meeting called for that purpose. The agreement will terminate
automatically upon its assignment and may be terminated with respect to any Fund
without penalty at any time by either party upon 60 days' written notice. For
purposes of calculating investment management fees, all shares of the Funds are
treated as one class. Each Fund pays its investment management fee separately.
Under the terms of the investment advisory agreement, GISC provides or pays
for certain of the Funds' administrative costs. Among the services and
facilities provided or paid for by GISC are: office space; clerical staff and
recordkeeping; and the services of all Fund personnel, including any fees and
expenses of the Trustees who are affiliated with The Guardian Life Insurance
Company of America ("Guardian Life"). All other costs and expenses are to be
paid by the Funds that GISC advises.
The investment advisory agreement provides that neither GISC nor any of
its personnel shall be liable for any error of judgment or mistake of law or for
any loss suffered by GISC or the Funds in connection with the matters to which
the investment advisory agreement relates, except for loss resulting from
willful misfeasance or misconduct, willful default, bad faith, or gross
negligence in the performance of its or his/her duties on behalf of GISC or the
Funds or from reckless disregard by GISC or any such person of the duties of
GISC under the investment advisory agreement.
Guardian Life has registered and maintains the exclusive ownership
interest of the following trademarks or service marks, as the case may be: "The
Guardian Park Avenue Fund," "The Guardian Park Avenue Small Cap Fund," "The
Guardian Investment Quality Bond Fund," "The Guardian High Yield Bond Fund,"
"The Guardian Tax-Exempt Fund," "The Guardian Cash Management Fund," "The
Guardian Asset Allocation Fund", "The Guardian Baillie Gifford International
Fund" and "The Guardian Baillie Gifford Emerging Markets Fund." If the
investment advisory agreement is terminated with respect to any or all of the
Funds and it is not replaced by an agreement with another affiliate of Guardian
Life, any affected Fund's continued use of its name is subject to the approval
of Guardian Life.
The investment advisory agreement includes a provision that if any 1940 Act
requirement is relaxed by rule, regulation or order of the SEC, then any
provision of the agreement which reflects such 1940 Act requirement shall be
deemed to incorporate the effect of such rule, regulation or order.
A service agreement between GISC and Guardian Life provides that the latter
will furnish the office space, clerical staff, services and facilities which
GISC needs to perform its duties under the investment advisory agreement. GISC's
officers and other personnel are salaried employees of Guardian Life; they
receive no compensation from GISC. GISC reimburses Guardian Life for its
expenses under the separate agreement.
The following chart details the investment management fees paid to GISC by
the Funds named during the periods noted. The information provided for the High
Yield Fund reflects the period from September 1, 1998 (commencement of
operations) to December 31, 1998. The information provided for the Small Cap
Fund in 1997 reflects the period from April 2, 1997 (commencement of operations)
to December 31, 1997.
- --------------------------------------------------------------------------------
Fund Name Year ended Year ended Year ended
12/31/96 12/31/97 12/31/98
- --------------------------------------------------------------------------------
Park Avenue $5,851,464 $9,792,148 $14,957,011
Small Cap N/A $ 349,236 $ 1,051,495
Cash $ 388,947 $ 559,451 $ 909,278
Bond $ 259,454 $ 355,092 $ 617,349
Tax-Exempt $ 105,144 $ 211,611 $ 255,405
Asset Allocation $ 510,556 $ 783,239 $ 1,198,863
High Yield N/A N/A $ 106,242
- --------------------------------------------------------------------------------
Guardian Baillie Gifford Limited ("GBG"). GBG is the investment adviser to
the International Fund and the Emerging Markets Fund pursuant to an investment
advisory agreement between GBG and the Portfolio. GBG
B-22
<PAGE>
was formed in November 1990 through a joint venture between GIAC, a wholly owned
subsidiary of Guardian Life and Baillie Gifford Overseas Limited ("BG
Overseas"), which is wholly owned by Baillie Gifford & Co.
The agreement provides that GBG is responsible for the overall investment
management of the investment portfolios of the International Fund and the
Emerging Markets Fund. For purposes of calculating investment management fees,
all shares of the Funds are treated as one class. The investment management fee
is payable by each Fund separately. Under the terms of the agreement, GBG is
responsible for all decisions to buy and sell securities for the Funds,
furnishes the Board with recommendations with respect to the Funds' investment
policies, provides the Board with regular reports pertaining to the
implementation and performance of such policies, and maintains certain books and
records as required by the 1940 Act and by any other applicable laws and
regulations. GBG has, in turn, entered into a sub-investment advisory agreement
with BG Overseas appointing the latter as sub-investment adviser and delegating
to BG Overseas much of the day-to-day management responsibilities for the Funds'
portfolios (see "Baillie Gifford Overseas Limited" below).
The agreement between GBG and the Portfolio will continue in full force and
effect with respect to each Fund from year to year, provided its continuance is
specifically approved at least annually by vote of a majority of the outstanding
securities of the respective Funds, or by vote of the Board of Trustees of the
Portfolio, including a majority of the Trustees who are not parties to the
agreement or "interested persons" of the Portfolio or of GBG, cast in person at
a meeting called for the purpose of voting on such continuance.
The agreement provides that neither GBG, nor any of its officers,
directors, or employees shall be liable for any error of judgment or mistake of
law or for any loss suffered by either Fund in connection with the matters to
which the agreement relates, except for loss resulting from willful misfeasance
or misconduct, willful default, bad faith, or gross negligence in the
performance of its or his/her duties on behalf of a Fund or from reckless
disregard by GBG or any such person of the duties of GBG under the agreement.
The agreement includes a provision that if any 1940 Act requirement is
relaxed by rule, regulation or order of the SEC, then any provision of the
agreement which reflects such 1940 Act requirement shall be deemed to
incorporate the effect of such rule, regulation or order.
The agreement may be terminated with respect to a Fund, without penalty, at
any time by either party upon 60 days' written notice and will terminate
automatically upon its assignment. In addition, either party may terminate the
agreement immediately in any of the following situations: (1) the other party
commits any material breach of its obligations under the agreement which, if
curable, is not remedied within 30 days; (2) the dissolution of the other party;
or (3) the termination or expiration of the joint venture agreement between GIAC
and BG Overseas. Termination of the investment advisory agreement with respect
to one Fund will not affect its validity with respect to the other Fund.
In the event that the agreement is terminated and unless it is replaced by
another agreement between GIAC and BG Overseas or their affiliates, the
continued use of the names "The Guardian Baillie Gifford International Fund" and
"The Guardian Baillie Gifford Emerging Markets Fund" is subject to the approval
of both GIAC and BG Overseas.
The management fees paid by the International Fund to GBG for the years
ended December 31, 1998, December 31, 1997, and December 31, 1996 were $705,157,
$553,624, and $423,523, respectively. The management fees paid by the Emerging
Markets Fund, which commenced operations on April 2, 1997, to GBG for the years
ended December 31, 1998 and December 31, 1997 were $200,101 and $179,196,
respectively.
Baillie Gifford Overseas Limited. BG Overseas is the sub-investment adviser
for the International and Emerging Markets Funds pursuant to a sub-investment
advisory agreement with GBG. Pursuant to this sub-investment advisory agreement,
BG Overseas manages the day-to-day operations of each Fund's portfolio. In so
doing, BG Overseas has full discretion to purchase and sell portfolio
securities, to select brokers for the execution of such purchases, sales, and to
negotiate brokerage commissions, if any, subject to monitoring by GBG. GBG
continually monitors and evaluates the performance of BG Overseas.
The sub-investment advisory agreement will continue in full force and
effect with respect to each Fund from year to year, provided its continuance is
specifically approved at least annually (1) by the Board of Directors of GBG and
(2) by either (a) a majority of the outstanding securities of the respective
Funds or (b) the Board of Trustees of the Portfolio, including approval by a
vote of the majority of the Trustees who are not parties to the sub-investment
advisory agreement or "interested persons" of the Portfolio or of GBG, cast in
person at a meeting called for the purpose of voting on such continuance.
B-23
<PAGE>
The sub-investment advisory agreement provides that neither BG Overseas,
nor any of its officers, directors or employees shall be liable for any error of
judgment or mistake of law or for any loss suffered by GBG or either Fund in
connection with the matters to which the sub-investment advisory agreement
relates, except for any loss resulting from willful misfeasance or misconduct,
willful default, bad faith, or gross negligence in the performance of its or
his/her duties on behalf of GBG or the Funds or from reckless disregard by BG
Overseas or any such person of the duties of BG Overseas under the
sub-investment advisory agreement.
The sub-investment advisory agreement includes a provision that if any 1940
Act requirement is relaxed by rule, regulation or order of the SEC, then any
provision of the sub-investment advisory agreement which reflects such 1940 Act
requirement shall be deemed to incorporate the effect of such rule, regulation
or order.
The sub-investment advisory agreement may be terminated, without penalty,
at any time by either party upon 60 days' written notice and will terminate
automatically upon its assignment. In addition, either party may terminate the
sub-investment advisory agreement immediately in any of the following
situations: (1) the other party commits any material breach of its obligations
under the agreement which, if curable, is not remedied within 30 days; (2) the
dissolution of the other party; or (3) the termination or expiration of the
joint venture agreement between GIAC and BG Overseas. Termination of the
sub-investment advisory agreement with respect to one Fund will not affect its
validity with respect to the other Fund.
Of the management fees that it receives under its investment advisory
agreement with the International and Emerging Markets Funds, GBG pays 0.40% of
the average daily net assets of the International Fund and 0.50% of the average
daily net assets of the Emerging Markets Fund to BG Overseas as compensation for
BG Overseas' services as the Funds' sub-investment adviser. For the years ended
December 31, 1998, December 31, 1997 and December 31, 1996, BG Overseas received
$352,578, $276,812 and $211,761, respectively, from GBG as compensation for its
services to the International Fund. For the years ended December 31, 1998 and
December 31, 1997, BG Overseas received $100,050 and $89,598, respectively, from
GBG as compensation for its services to the Emerging Markets Fund, which
commenced operations on April 2, 1997.
(See the Prospectus section entitled "Management" for more information
about the Portfolio's investment advisory agreements.)
The Administrative Services Agreement. GISC and the Portfolio have also
entered into an Administrative Services Agreement on behalf of both classes of
shares pursuant to which GISC will provide information and administrative
services for the benefit of the Portfolio and its shareholders. These services
include providing office space, equipment and personnel, maintenance of
shareholder account records, responding to routine shareholder inquiries
regarding the Portfolio and assisting in the processing of shareholder
transactions and any other services which the Portfolio may reasonably request.
GISC may also enter into related agreements with other broker-dealers or other
financial services firms that provide such services and facilities for their
customers who are shareholders of the Portfolio. The Administrative Services
Agreement may be terminated at any time by either party upon 60 days' written
notice. The Agreement may not be assigned without the consent of the Portfolio.
Any material amendments to the Agreement, including an increase in the amount of
fees, must be approved by the Board of Trustees of the Portfolio. For the period
from May 1, 1996 (effectiveness of the Administrative Services Agreement) to
December 31, 1996 and for the years ended December 31, 1997 and December 31,
1998, the Funds paid fees under the Administrative Services Agreement to GISC in
the amounts set forth in the following table. The fee paid by the High Yield
Fund covers the period from September 1, 1998 (commencement of operations) to
December 31, 1998.
- --------------------------------------------------------------------------------
Administrative Service Fees Paid by the Funds for the period
from May 1, 1996 to December 31, 1996
and Years Ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares*
-------------- ---------------
Name of Fund Year Ended Year Ended Year Ended Year Ended
5/1/96-12/31/96 December 31, 1997 December 31, 1998 5/1/96-12/31/96 December 31, 1997 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Park Avenue $1,087,354 $2,876,989 $4,433,726 $19,018 $284,649 $770,635
Small Cap** $ N/A $ 101,730 $ 293,407 $ N/A $ 14,682 $ 57,092
Asset Allocation $ 176,899 $ 229,391 $ 409,946 $ 4,608 $ 23,344 $ 51,155
International $ 88,088 $ 160,676 $ 199,950 $ 3,257 $ 12,331 $ 20,412
Emerging Markets** $ N/A $ 41,708 $ 45,936 $ N/A $ 3,091 $ 4,089
Bond $ 86,597 $ 177,546 $ 308,675 -- $ -- $ --
High Yield $ N/A $ N/A $ 42,477 N/A N/A $ 1,790
Tax-Exempt $ 40,748 $ 105,805 $ 127,702 -- $ -- $ --
Cash $ 121,068 $ 270,337 $ 434,510 $ 3,340 $ 9,388 $ 20,129
- ------------------------------------------------------------------------------------------------------------------------------------
* The Bond Fund and the Tax-Exempt Fund do not offer Class B shares.
** The Small Cap Fund and Emerging Markets Fund each commenced operations on
April 2, 1997.
</TABLE>
B-24
<PAGE>
Underwriting Agreement. The Portfolio has also entered into an underwriting
agreement with GISC which, together with a distribution plan and agreement
pursuant to Rule 12b-1 under the 1940 Act (see below), governs the sale and
distribution of Fund shares and payment of commissions to GISC. Shares are
offered continuously; however, the Portfolio reserves the right to cease the
offer of any Fund's shares at any time, subject to applicable laws, rules and
regulations. The underwriting agreement shall remain in full force and effect
from year to year so long as its continuance is approved at least annually by
the Board of Trustees of the Portfolio, including a majority of Trustees who are
not parties to the agreement or interested persons of any such party. It will
terminate upon assignment and may be terminated with respect to any or all of
the Funds at any time by either party on not less than 30 nor more than 60 days'
written notice. Termination of the underwriting agreement with respect to one
Fund will not affect its validity with respect to any other Fund. The agreement
also provides that the Portfolio shall indemnify GISC and persons in control of
GISC with respect to certain liabilities, including liabilities arising under
the Securities Act of 1933. Shares of each Fund may be purchased through
Guardian Life agents who are registered representatives and licensed by GISC to
sell Fund shares, and through registered representatives of selected
broker-dealers which are members of the National Association of Securities
Dealers, Inc. and which have entered into selling agreements with GISC. GISC may
reallow up to 100% of any sales charge on shares sold by dealers with whom it
has sales agreements.
Contingent Deferred Sales Charge -- Class B Shares. As discussed in the
Prospectus, Class B shares redeemed within six years of purchase generally are
subject to a contingent deferred sales charge ("CDSC") subject to waivers
described in the Prospectus. For the period May 1, 1996 to December 31, 1996 and
the years ended December 31, 1997 and 1998, GISC received the following CDSCs
with respect to redemptions of Class B shares of the Funds that offer Class B
shares. The fees paid by the High Yield Fund reflect the period from September
1, 1998 (commencement of operations) to December 31, 1998.
- --------------------------------------------------------------------------------
May 1, 1996 to Year Ended Year Ended
Fund December 31, 1996 December 31, 1997 December 31, 1998
---- ----------------- ----------------- -----------------
Park Avenue $6,448 $101,089 $683,670
Small Cap $ N/A $ 1,502 $ 68,114
Asset Allocation $1,360 $ 12,496 $ 33,262
International $ 96 $ 4,448 $ 10,877
Emerging Markets $ N/A $ 173 $ 1,537
High Yield N/A N/A $ 405
Cash $2,044 $ 2,723 $ 34,422
- --------------------------------------------------------------------------------
Distribution Plan Pursuant to Rule 12b-1 and Distribution Agreement. Under
a Distribution Plan adopted by the Portfolio pursuant to Rule 12b-1 under the
1940 Act (the "12b-1 Plan"), each Fund which issues Class B shares is authorized
to pay a monthly 12b-1 fee at an annual rate of up to 0.75% of average daily net
assets of the Fund's Class B shares as compensation for distribution-related
services provided to the Class B shares of those Funds.
The 12b-1 fees may be paid by the Funds to third parties, including GISC,
which enter into Distribution Agreements with the Portfolio. Under the 12b-1
Plan, distribution fees may be used to compensate brokers and dealers who engage
in or support the distribution of the Class B shares. The 12b-1 fees may also be
used to pay other distribution-related expenses incurred, such as communications
equipment charges, printing prospectuses, statements of additional information
and reports for prospective investors, the costs of printing sales literature
and advertising materials, training and educating sales personnel and other
overhead. The 12b-1 Plan, in conjunction with the CDSC, permits an investor to
purchase Class B shares through a distributor without the imposition of an
initial sales load.
In order to effect the 12b-1 Plan, the Portfolio, on behalf of the Funds,
has entered into a Distribution Agreement with GISC. GISC is compensated by the
fees it receives under the 12b-1 Plan and is not paid any additional amounts
under the Distribution Agreement. GISC intends to use these fees to pay for
distribution-related expenses for Class B shareholders and payments to
registered representatives for the sale of Class B shares. GISC also intends to
use the 12b-1 fees to advance payments of up to 3.0% of the proceeds of sales of
Class B shares to its registered representatives and other authorized
broker-dealers.
GISC absorbs its distribution and service expenses which exceed the amount
of 12b-1 fees collected. No Fund is obligated to reimburse GISC for such excess
expenses, and GISC will not carry one year's deficiency to a subsequent year in
order to recover such deficiency from the subsequent year's fee. Similarly, if
the 12b-1 Plan or Underwriting Agreement, as either pertains to a Fund, is
terminated or not renewed, any expenses incurred by
B-25
<PAGE>
GISC on behalf of such Fund which are in excess of fees which GISC has received
or accrued shall be absorbed by GISC. Conversely, if GISC's expenditures for a
Fund under the 12b-1 Plan are less than the amount collected, GISC is entitled
to retain the excess. However, the Trustees are authorized to negotiate changes
to the 12b-1 Plan, such as a fee reduction or increased services, if the fee
paid by a Fund in a particular year exceeds the covered expenses. Alternatively,
the Trustees may find such excess justifiable under the circumstances.
The 12b-1 Plan specifically provides that while it is in effect, the
selection and nomination of the Trustees who are not "interested persons" of the
Portfolio, as that term is defined in the 1940 Act, shall be made solely at the
discretion of the Trustees who are not interested persons of the Portfolio.
The fees to be paid by a Fund under the 12b-1 Plan may not be amended in a
material way without approval by vote of: (1) a majority of the Trustees; (2) a
majority of the Trustees who are not "interested persons" of the Portfolio and
have no direct or indirect financial interest in the operation of the 12b-1 Plan
or related agreements ("Independent Trustees"); and (3) a majority of such
Fund's outstanding voting securities, as defined by the 1940 Act.
The 12b-1 Plan will continue from year-to-year for each Fund if such
continuance is specifically approved by vote of the Board, and by vote of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on the 12b-1 Plan.
The 12b-1 Plan may be terminated with respect to the Portfolio or a Fund
(1) at any time by vote of a majority of the Trustees, a majority of the
Independent Trustees, or a majority of that Fund's outstanding voting
securities, or (2) by GISC on 60 days' notice in writing to the Portfolio.
For the period from January 1, 1998 to December 31, 1998, the Class B
shares of the Funds that offer Class B shares paid fees under the Rule 12b-1
Plan to GISC as set forth in the following table. The table details the amount
that the Class B shares of each Fund paid to GISC and how GISC used that money
to promote sales and provide customer service during this period. Information
for the High Yield Fund reflects the period from September 1, 1998 (commencement
of operations) to December 31, 1998.
- --------------------------------------------------------------------------------
Rule 12b-1 Fees Paid by Class B shares of the Funds
and Expenditures by GISC from January 1, 1998 to December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Interest,
Compensation to carrying
Printing, and Mailing underwriters, or other
Fund -- Name and 12b-1 Marketing and Prospectuses to broker-dealers and Trail financing Amounts Retained
Fees Paid to GISC Advertising Prospective Investors sales personnel Commissions charge by GISC
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Park Avenue
$2,311,906 $96,587 $45,095 $203,938 $5,870,224 $0 $0
Small Cap
$ 171,275 $ 7,959 $ 3,769 $ 17,213 $ 412,570 $0 $0
Asset Allocation
$ 153,465 $ 6,458 $ 2,977 $ 13,520 $ 358,792 $0 $0
International
$ 61,236 $ 2,787 $ 1,277 $ 5,849 $ 99,781 $0 $0
Emerging Markets
$ 12,267 $ 724 $ 333 $ 1,543 $ 7,463 $0 $0
High Yield
$ 5,371 $ 197 $ 77 $ 294 $ 11,658 $0 $0
Cash
$ 60,388 $ 2,352 $ 1,079 $ 4,834 $ 208,569 $0 $0
</TABLE>
The Portfolio has also entered into a Distribution Plan with GISC on behalf
of the Class A shares. This Plan was made dormant by the Board as of May 1, 1996
and no 12b-1 fees are currently authorized to be paid in connection with sales
of Class A shares.
B-26
<PAGE>
Assumption of Expenses
From time to time and at their discretion, GISC of GBG may voluntarily assume
some or all of the ordinary operating expenses of the Funds that they manage.
For the year ending December 31, 1999, GISC is assuming ordinary operating
expenses, excluding interest, that exceed 0.80% of the Bond Fund's average daily
net assets, 0.85% of the Cash Fund's average daily net assets (for Class A
and Class B shares), 0.75% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of the Class B shares of the High
Yield Fund, and 0.80% of the average daily net assets of the Tax-Exempt Fund.
When GISC ceases to subsidize these expenses, the expenses actually paid by
these Funds will increase, so that returns to shareholders will decrease. GISC
is also waiving, on an annual basis, 0.15% of the total advisory fee that it may
charge to the Asset Allocation Fund. This waiver will remain in effect during
any period when the Asset Allocation Fund is operated as a "fund of funds", as
described in the Prospectus. Termination of this waiver is subject to the
approval of the Portfolio's Board of Trustees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GISC currently serves as investment adviser to several Guardian-sponsored
mutual funds, serves as manager of one other mutual fund and is the co-adviser
of a separate account established by its corporate parent, GIAC. GBG and BG
Overseas currently serve as investment adviser and sub-investment adviser,
respectively, to two series of one other Guardian-sponsored mutual fund. In the
future, each of GISC, GBG or BG Overseas (collectively, the "Advisers") may act
as investment advisers to other Guardian-sponsored mutual funds or GIAC separate
accounts. At times, investment decisions may be made to purchase or sell the
same investment security for one or more of the other clients advised by the
Advisers. It is each Adviser's practice to allocate purchase and sale
transactions among the Funds and other clients whose assets they manage in such
manner as is deemed equitable, which may or may not be beneficial to the Funds.
The Advisers have no formula for the distribution of brokerage business
when placing orders for the purchase and sale of portfolio securities. For
over-the-counter transactions, the Advisers attempt to deal with a primary
market maker unless they believe better prices and execution are available
elsewhere. In allocating portfolio transactions among brokers, the Advisers give
consideration to brokers whom they believe can obtain the best price and
execution of orders and to brokers who furnish statistical data, research and
other factual information. The Advisers are authorized to pay a commission in
excess of that which another broker may charge for effecting the same
transaction if they consider that such commissions they pay for brokerage,
research services and other statistical data are appropriate and reasonable for
the services rendered. The research services and statistical data which the
Advisers receive in connection with the Funds' portfolio transactions may be
used by the Advisers to benefit other clients and will not necessarily be used
in connection with the Funds. The Advisers do not participate in commissions
paid by the Funds to other brokers or dealers and do not knowingly receive any
reciprocal business directly or indirectly as a result of such commissions.
While the Advisers will be primarily responsible for the placement of each
Fund's business, the policies and practices will be subject to review by the
Board of Trustees. The following chart details brokerage commissions paid by the
Funds during the years ended December 31, 1996, 1997 and 1998.
B-27
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Brokerage Commissions
Paid by the Funds Comprising
The Park Avenue Portfolio
- ----------------------------------------------------------------------------------------------
Commissions Paid Commissions Paid Commissions Paid
During the Year Ended During the Year Ended During the Year Ended
Fund December 31, 1996 December 31, 1997 December 31, 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Park Avenue Fund $1,655,483 $2,245,661 $3,576,865
- ----------------------------------------------------------------------------------------------
Small Cap Fund N/A $ 156,429 $ 326,459
- ----------------------------------------------------------------------------------------------
Asset Allocation Fund $ 107,020 $ 69,813 $ 83,888
- ----------------------------------------------------------------------------------------------
International Fund $ 104,968 $ 159,710 $ 183,878
- ----------------------------------------------------------------------------------------------
Emerging Markets Fund N/A $ 136,224 $ 86,009
- ----------------------------------------------------------------------------------------------
</TABLE>
The Cash Fund, Bond Fund, High Yield Fund and Tax-Exempt Fund primarily purchase
securities in principal transactions at net prices. None of these Funds paid
separate brokerage commissions during the time periods covered by the foregoing
chart.
- --------------------------------------------------------------------------------
In any particular year, market conditions could necessitate portfolio
activity which results in high or low turnover rates. Portfolio turnover is
calculated by dividing the lesser of purchases or sales of a Fund's securities
during a fiscal year by the average monthly value of the Fund's securities
during such fiscal year. In determining the portfolio turnover rate, all
securities whose maturities or expiration dates at the time of acquisition were
one year or less are excluded. Turnover rates may be affected by factors such as
purchase and redemption requirements and market volatility, and may vary greatly
from time to time. The portfolio turnover rate of a Fund may be higher during
its early history. Increased portfolio turnover will not necessarily indicate a
variation from a Fund's stated investment policies, but may result in greater
brokerage commissions and, consequently, higher expenses. The following chart
shows each Fund's portfolio turnover rate during the time periods noted.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Portfolio
Turnover Rates
- ------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate Portfolio Turnover Rate Portfolio Turnover Rate
for the Year Ended for the Year Ended for the Year Ended
Fund* December 31, 1996 December 31, 1997 December 31, 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Park Avenue Fund 81% 50% 55%
- ------------------------------------------------------------------------------------------------------
Small Cap Fund N/A 25% 63%
- ------------------------------------------------------------------------------------------------------
International Fund 39% 55% 44%
- ------------------------------------------------------------------------------------------------------
Emerging Markets Fund N/A 36% 83%
- ------------------------------------------------------------------------------------------------------
Bond Fund 257% 313% 309%
- ------------------------------------------------------------------------------------------------------
High Yield Fund** N/A N/A 11%
- ------------------------------------------------------------------------------------------------------
Tax-Exempt Fund 240% 202% 111%
- ------------------------------------------------------------------------------------------------------
Asset Allocation Fund 122% 58% 23%
- ------------------------------------------------------------------------------------------------------
</TABLE>
* The Cash Fund's Portfolio turnover rate is not meaningful since, by its
nature, a money market mutual fund that invests in short-term instruments
will turn its portfolio over several times during the course of a year.
The information for Small Cap and Emerging Markets Funds for 1997 relates
to the period between May 1, 1997 (commencement of operations to December
31, 1997).
** The High Yield Fund commenced operations on September 1, 1998.
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
National Financial Data Services, the Portfolio's shareholder servicing
agent, will typically pay redemption proceeds within three business days after
it receives a proper redemption request. Redemptions will generally be made in
cash but may be made wholly or partly in readily marketable securities or other
non-cash assets if the Board of Trustees should determine that orderly
liquidation of a Fund's securities is impracticable or that payment wholly in
cash would have a material adverse effect on the remaining shareholders. The
redemption will be made at the NAV next determined after the redemption request
is received in proper form. Shares that are purchased by check cannot be
redeemed until the check has cleared. This may take up to 15 calendar days.
Shareholders are not permitted to elect whether the redemption will be made in
cash or securities. The Portfolio has elected to be governed by Rule 18f-1 under
the 1940 Act, so it is committed to pay cash redemptions to each shareholder
during any 90-day period up to the lesser of $250,000 or 1% of the net asset
value of a Fund at the beginning of such period. Any portfolio securities paid
or distributed in kind will be valued as described under "Net Asset Value"
B-28
<PAGE>
below. A subsequent sale of such securities would ordinarily require payment of
brokerage commissions by the redeeming shareholders.
The right to redeem a Fund's shares may be suspended, or the payment date
postponed, for any period during which: (1) the New York Stock Exchange ("NYSE")
is closed (other than customary weekend and holiday closings); (2) trading on
the NYSE is restricted for any reason; (3) an emergency exists, as a result of
which disposal by a Fund of securities owned by it is not reasonably
practicable, or it is not reasonably practicable for a Fund fairly to determine
the value of its net assets, as determined by the SEC under its rules and
regulations; or (4) the SEC, by order, so permits suspension for the protection
of shareholders of a Fund.
PERFORMANCE RESULTS
As described in the Prospectus, a Fund may state its yield, average annual
total return and total return in advertisements, sales materials and investor
communications. These various measures of performance are described and
illustrated below.
Performance figures are based upon historic results and do not represent
future performance. With the exception of the Cash Fund, Class A shares are sold
at NAV plus a maximum sales load of 4.50% of the NAV. Class B shares are sold at
NAV, subject to a maximum contingent deferred sales charge of 3.0%. Returns will
fluctuate and may be different for Class A and Class B shares of the same Fund,
since Class B shares bear higher overall expenses than Class A shares. Factors
affecting Fund performance include general market conditions, the level of
overall operating expenses, investment management fees, and, with respect to
Funds that may invest in securities denominated in foreign currencies, exchange
rates. Any additional fees charged by a broker, dealer or other financial
services firm will further reduce the returns described in this section. Class A
shares of the Funds are redeemable at NAV. Class B shares of the Funds are
redeemable subject to a CDSC. Redemption proceeds may be more or less than the
original cost.
NOTE: Performance illustrations provided for the Class A Park Avenue Fund
and the Class A Cash Fund for periods ending prior to January 1, 1993 do not
reflect the imposition of charges under the Portfolio's Class A 12b-1 Plan which
went into effect on January 1, 1993. No 12b-1 fees are currently being imposed
on the Class A shares of any Fund. Restating these Funds' performance results to
include the effect of such charges would reduce the performance results.
Yield is a measure of the net investment income per share earned over a
specific time period (one month or 30 days in the case of the Bond Fund, the
High Yield Fund and the Tax-Exempt Fund, and seven days in the case of the Cash
Fund) expressed as a percentage of the maximum offering price of the Fund's
shares.
Yield is computed in accordance with the following SEC standardized method.
YIELD = 2 [(((a-b)/cd) + 1 )^6 - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
This standardized methodology is not necessarily consistent with generally
accepted accounting principles.
The Bond Fund's yield for the 30-day period ended December 31, 1998 was
4.82%, the High Yield Fund's yield was 8.73% for Class A shares and 7.34% for
Class B shares. The Tax-Exempt Fund's yield was 4.01% for the same period. The
Tax-Exempt Fund's tax equivalent yield is computed by dividing that portion of
the yield (as calculated above) which is tax-exempt by one minus the maximum
federal income tax rate and adding the product to that portion, if any, of the
Fund's yield that is not tax-exempt. Using this formula, the tax equivalent
yield of the Tax-Exempt Fund for the 30-day period ended December 31, 1998 was
6.17%.
The Cash Fund provides current yield and effective yield quotations, which
are calculated in accordance with SEC standards and are based upon changes in
account value during a recent seven-day base period. Current yield
B-29
<PAGE>
quotations are computed by annualizing (on a 365-day basis) the "base period
return." The "base period return" is computed by determining the net change,
exclusive of capital changes, in the value of one Cash Fund share and dividing
that amount by the value of one Fund share at the beginning of the base period.
Effective yield is computed by compounding the "base period return." The Cash
Fund's current yield for the seven days ended December 31, 1998 was 4.44% for
Class A shares and 4.54% for Class B shares. Its effective yield for the same
period was 4.54% for Class A shares and 4.54% for Class B shares.
Yields are affected by market conditions, portfolio quality, portfolio
maturity, type of instruments held and operating expenses.
A Fund's average annual total return is computed in accordance with the
following SEC standardized method.
P(1 + T)^n = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which the
maximum sales load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Total return is calculated in a similar manner, except that the results are
not annualized. Each calculation assumes that all dividends and distribution are
reinvested at NAV on the reinvestment dates during the period, but do not take
into account income taxes due on Fund distributions. Any statements of total
return or other performance data of a Fund will be accompanied by the Fund's
average annual total returns for the one-year, five-year and ten-year periods as
of the end of the most recent calendar quarter, if applicable. A Fund may also
advertise total return and average annual total return information for different
periods of time.
Recent returns for Class A shares of all of the Funds except the Cash Fund
are presented below.
<TABLE>
<CAPTION>
Emerging High Asset
Park Avenue Small Cap International Markets Bond Yield Tax-Exempt Allocation
Average Annual Total Return Fund Fund Fund Fund Fund Fund Fund Fund
--------------------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year ended December 31, 1998 .... 21.30% -6.35% 19.61% -28.97% 7.89% N/A 6.11% 19.41%
5 years ended December 31, 1998 ... 22.32% N/A 10.92% N/A 5.99% N/A 4.52% 16.55%
10 years (or life of Fund if less)
ended December 31, 1998 ......... 19.26% 15.46%* 14.12% -22.55%* 6.03%*** 9.24%** 5.13%*** 16.16%***
</TABLE>
* Period from May 1, 1997 (commencement of operations) to 12/31/98
** Total return for period from September 1, 1998 (commencement of
operations) to December 31, 1998.
*** Period from February 16, 1993 (commencement of operations) to December 31,
1998.
The following example shows the average annual total return performance of
Class A shares of each Fund except for the Cash Fund. The example shows the
average annual percentage change for each period and the ending redeemable
value, or ERV, of a hypothetical $1,000 investment. The example takes into
account all expenses of Class A shares, including sales charges, and assumes
reinvestment of all capital gains distributions and income dividends.
Average Annual Total Returns - Class A shares
<TABLE>
<CAPTION>
Park Avenue Small Cap International Emerging Markets Bond
Period Fund Fund Fund Fund Fund
- ------ ---- ---- ---- ---- ----
% Return ERV % Return ERV % Return ERV % Return ERV % Return ERV
-------- --- -------- --- -------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year ended
December 31, 1998 .............. 15.84% $1,158 -10.56% $894 14.23% $1,142 -32.17% $678 3.03% $1,030
3 years ended
December 31, 1998 .............. 25.48% $1,976 N/A % $ N/A 13.20% $1,451 N/A % N/A 4.70% $1,148
5 years ended December 31, 1998 .. 21.20% $2,615 N/A % $ N/A 9.90% $1,603 N/A % N/A 5.02% $1,277
10 years (or life of Fund if less)
ended December 31, 1998 ........ 18.71% $5,558 12.32% $1,214 13.23% $2,074 -24.66% $623 5.20% $1,347
<CAPTION>
High Yield Tax-Exempt Asset Allocation
Period Fund Fund Fund
- ------ ---- ---- ----
% Return ERV % Return ERV % Return ERV
-------- --- -------- --- -------- ---
1 year ended
December 31, 1998 .............. N/A N/A 1.34% $1,013 14.04% $1,140
3 years ended
December 31, 1998 .............. N/A N/A 4.52% $1,142 19.00% $1,685
5 years ended December 31, 1998... N/A N/A 3.56% $1,191 15.48% $2,054
10 years (or life of Fund if
less) ended December 31, 1998... 4.32%* $1,043 4.31% $1,281 15.25% $2,301
</TABLE>
* Total return since inception (September 1, 1998).
The table below shows the total cumulative return and average annual total
return for Class A shares of the Park Avenue Fund for the one-year, five-year
and ten-year periods, as well as the life of the Fund, through December 31,
1998.
B-30
<PAGE>
================================================================================
Period Ended The Guardian The Guardian
December 31, 1998 Park Avenue Fund* Park Avenue Fund++
- --------------------------------------------------------------------------------
Lifetime Cumulative Total Return+ 6,278.61% 5,991.58%
- --------------------------------------------------------------------------------
Lifetime Average Annual Total Return+ 16.92% 16.72%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ten Year Cumulative Total Return 482.03% 455.84%
- --------------------------------------------------------------------------------
Ten Year Average Annual Total Return 19.26% 18.71%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Five Year Cumulative Total Return 173.83% 161.51%
- --------------------------------------------------------------------------------
Five Year Average Annual Total Return 22.32% 21.20%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
One Year Average Annual Total Return 21.30% 15.84%
================================================================================
- --------------------------------------------------------------------------------
* Shows performance without deduction of sales load.
+ Period beginning June 1, 1972.
++ Reflects deduction of current maximum sales load of 4.5% at beginning of
period. Prior to August 25, 1988, shares of the Park Avenue Fund were
offered with a higher sales load, so actual returns would have been
somewhat lower.
================================================================================
Average annual total return information for Class B shares of the Funds
that offer Class B shares (other than the Cash Fund) for the periods ended
December 31, 1998 are set forth below. Actual total return information for the
High Yield Fund is provided for the period from September 1, 1998 (commencement
of operations) to December 31, 1998. The information in the table is net of
CDSCs.
Average Annual Total Returns
<TABLE>
<CAPTION>
Class B Shares
--------------
Park Avenue Asset Allocation International Emer. Mkt. Small Cap High Yield*
% ERV % ERV % ERV % ERV % ERV % ERV
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year Ended
December 31, 1998 17.18% $1,172 15.32% $1,153 15.36% $1,154 -32.83% $672 -9.84% $902 8.35% $1,084
May 1, 1996 (commencement
of operations) to
December 31, 1998 26.31% $1,865 19.89% $1,623 11.33% $1,332 -26.10% $606 10.68% $1,183 N/A N/A
</TABLE>
As noted in the Prospectus, each Fund may compare its performance to
certain indices, similar mutual funds and other investment vehicles.
Additionally, a Fund may quote information from industry and financial
publications in its promotional materials. In particular:
(1) the Park Avenue Fund may compare its performance to that of the S&P
500, Dow Jones Industrials, Russell 3000, or the New York Stock Exchange
Composite Index;
(2) the Small Cap Fund may compare its performance to that of the Russell
2000 Index;
(3) the International Fund may compare its performance to the Morgan
Stanley Capital International's Europe, Australia and the Far East ("EAFE")
Index;
(4) the Emerging Markets Fund may compare its performance to that of the
Morgan Stanley Capital International Emerging Markets Free Index;
(5) the Bond Fund may compare its performance to the Salomon Brothers
Government and High Grade Bond Indices, the Shearson-Lehman Government Bond or
Government/Corporate Bond Indices, the Merrill Lynch Government Master or
Government/Corporate Master Indices, and the Lehman Mortgage-Backed Securities
or the Lehman Aggregate Bond Indices;
(6) The High Yield Fund may compare its performance to the Donaldson,
Lufkin & Jenrette (DLJ) High Yield Index;
(7) The Tax-Exempt Fund may compare its performance to the Lehman Brothers
Municipal Bond Index;
(8) The Cash Fund may compare its performance to the Consumer Price Index
or the Bank Rate Monitor; and
(9) The Asset Allocation Fund may compare its performance to the S&P 500
and the Lehman Aggregate Bond Index.
Performance calculations contained in reports by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Morningstar, the WM Company
or industry or financial publications of general interest such
B-31
<PAGE>
as Business Week, Financial World, Forbes, Financial Times, The Wall Street
Journal, The New York Times, Barron's and Money which may be quoted by the Funds
are often based upon changes in NAV with all dividends reinvested and may not
reflect the imposition of any sales loads.
NET ASSET VALUE
Each Fund's NAV is determined as of the earlier of 4:00 p.m. Eastern time
or the close of trading on the NYSE on each day on which the NYSE is open for
business. The NAV is calculated by adding the value of all securities, cash or
other assets, subtracting liabilities, dividing the remainder by the number of
shares outstanding and adjusting the results to the nearest full cent per share.
The Cash Fund. Securities held by the Cash Fund are valued at their
amortized cost. Amortized cost is acquisition cost as adjusted for amortization
of any discount or premium at a constant daily rate to maturity. This method
provides certainty in valuation, but may result in valuations that are higher or
lower than the price which would be received if an instrument was sold prior to
its maturity because neither unrealized gains nor unrealized losses are
accounted for.
The Cash Fund's use of amortized cost and the maintenance of the Cash
Fund's net asset value at $1.00 per share is based on its election to value its
portfolio in accordance with the provisions of Rule 2a-7 under the 1940 Act. As
a condition of operating under that rule, the Cash Fund must: maintain a
dollar-weighted average portfolio maturity of 90 days or less; purchase U.S.
dollar-denominated instruments having remaining maturities of thirteen months or
less; and invest only in securities that are determined to present minimal
credit risks and that are eligible for investment under the rule. Eligible
securities are securities rated within the two highest rating categories
assigned by the requisite number of nationally recognized statistical rating
organizations ("NRSROs") or, if unrated, deemed to be of comparable quality by
GISC, the Cash Fund's investment adviser in accordance with guidelines adopted
by the Board of Trustees.
The aforementioned guidelines were adopted by the Board of Trustees and are
designed to stabilize the Cash Fund's NAV at $1.00, taking into account current
market conditions and the Fund's investment objective. These guidelines mandate
periodic review, as the Board deems appropriate and at such intervals as are
reasonable in light of current market conditions, of the relationship between
the amortized cost value per share and a NAV based upon available indications of
market value. In such review, investments for which market quotations are
readily available are valued at the most recent bid price or quoted yield
equivalent for such securities or for securities of comparable maturity, quality
and type as obtained from one or more of the major market makers for the
securities to be valued. Other investments and assets are valued at fair value,
as determined in good faith by or under the direction of the Portfolio's Board
of Trustees.
In the event of a deviation of over one half of 1% between the Cash Fund's
NAV based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Board will promptly consider what action, if
any, should be taken. Action will also be taken to reduce, to the extent
reasonably practicable, any material dilution or other unfair results which
might arise from differences between the Cash Fund's NAV based upon market
values and amortized cost. Such action may include redemption in kind, selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten the average portfolio maturity, withholding or paying dividends or
distributions, or using a market value NAV.
The Board will also take such action as it deems appropriate if securities
held by the Cash Fund are downgraded, go into default, become ineligible for
investment under Rule 2a-7, or come to present greater than minimal credit
risks. In the event that securities accounting for 11/42 of 1% or more of the
Cash Fund's total assets default in a material way that is related to the
issuer's financial condition, the SEC will be notified and advised of the
actions to be taken in response to the situation.
Since dividends from net investment income and from net realized and
unrealized gains will be accrued daily and paid monthly, the net asset value per
share will ordinarily remain at $1.00, but the Cash Fund's daily dividends will
vary in amount, and there may be days when there will be no dividend. If net
realized or unrealized losses on any day exceeds interest income, less expenses,
the net asset value per share on that day might decline.
The calculation of the NAV of the International Fund and the Emerging
Markets Fund, and other Funds to the extent they invest in foreign markets, may
not occur contemporaneously with the determination of the value of those Funds'
portfolios because trading on foreign exchanges may not take place every day the
NYSE is open and
B-32
<PAGE>
the NYSE may be closed when foreign exchanges are open for business. Hence, it
is possible that the value of the Funds' assets may change significantly on days
when the Funds' shares are not valued. The foregoing also applies to any
holdings of foreign securities by the other Funds which are authorized to make
such investments.
Securities Valuations. Securities that are listed or traded on any U.S. or
foreign securities exchange or on the NASDAQ National Market System are valued
at the last sale price or, if there have been no sales during the day, at the
mean of the closing bid and asked prices. Where a security is traded on more
than one exchange, the security is valued on the exchange on which it is
principally traded unless it was not traded on that exchange on the date in
question. In such cases, the last sale price of the security on other exchanges
shall be used. Securities traded both on an exchange and in the over-the counter
markets will be valued according to the broadest and most representative market.
Investments in U.S. government securities (other than short-term securities) are
valued at the quoted bid price in the over-the-counter market. Certain debt
securities may be valued each business day by an independent pricing service
("Service"). The use of a Service to ascertain values has been approved by the
Portfolio's Board of Trustees. Debt securities for which quoted bid prices, in
the judgment of a Service, are readily available and are representative of the
bid side of the market are valued at the quoted bid prices (as obtained by the
Service from dealers in such securities) except for the Tax-Exempt Fund, which
values such securities at the mean between the bid and the asked prices obtained
by the Service from dealers in such securities. Other debt securities that are
valued by the Service are carried at estimated market value as determined by the
Service, based on methods which include consideration of: yields or prices of
government securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Securities
for which market quotations are not readily available, including certain
mortgage-backed and asset-backed securities, and illiquid securities and certain
other debt securities, are valued at fair value as determined in good faith by
or under the direction of the Portfolio's Board of Trustees. Repurchase
agreements are carried at cost which approximates market value. Options are
valued at the last sale price unless the bid price is higher or the asked price
is lower, in which event such bid or asked price is used. Financial futures
contracts are valued at the settlement prices established each day by the boards
of trade or exchanges on which they are traded. Foreign securities are valued in
the currencies of the markets where they trade. Conversions to U.S. dollar
values occur in connection with each calculation of net asset value per share
for Funds investing in foreign securities denominated in foreign currencies.
PORTFOLIO MANAGEMENT
As a Massachusetts business trust, the Portfolio is managed by its Board
of Trustees. The trustees meet regularly to review each Fund's investments,
performance, expenses and other business affairs. The trustees also elect the
Portfolio's officers. The Board currently consists of nine trustees, five of
whom are not "interested persons" of the Portfolio within the meaning of the
1940 Act. These five trustees are also members of the Audit Committee of the
Board. The Audit Committee is responsible for the selection and evaluation of
the independent accountants for the Portfolio.
The trustees and officers of the Portfolio are named below. Information
about their principal occupations and certain other affiliations during the past
five years is also provided. The business address of each trustee and officer is
7 Hanover Square, New York, New York 10004 unless otherwise noted. The "Guardian
Fund Complex" referred to in this biographical information is comprised of (1)
the Portfolio, (2) The Guardian Cash Fund, Inc., (3) The Guardian Stock Fund,
Inc., (4) The Guardian Bond Fund, Inc. and (5) GIAC Funds, Inc. (a series fund
that issues its shares in three series).
Name and Address Title Business History
---------------- ----- ----------------
JOHN C. ANGLE (75)* Trustee Retired. Former Chairman of the
3800 South 42nd Street Board and Chief Executive
Lincoln, Nebraska 68516 Officer, The Guardian Life
Insurance Company of America;
Director 1/78-12/98. Director
of The Guardian Insurance &
Annuity Company, Inc. 6/82-12/98,
Guardian Investor Services
Corporation 6/82-2/96. Director
(Trustee) of all of the mutual
funds within the Guardian Fund
Complex.
- ----------
* Trustee who is an "interested person" under the 1940 Act.
B-33
<PAGE>
Name and Address Title Business History
---------------- ----- ----------------
JOSEPH A. CARUSO (47) Vice President Vice President and Corporate
and Secretary Secretary, The Guardian Life
Insurance Company of America
since 3/96; Second Vice President
prior thereto. Vice President and
Secretary, The Guardian Insurance
& Annuity Company, Inc., Guardian
Investor Services Corporation,
Guardian Asset Management
Corporation, Park Avenue Life
Insurance Company, Park Avenue
Securities LLC, Guardian Baillie
Gifford Limited, and all of the
mutual funds within the Guardian
Fund Complex.
HOWARD W. CHIN (46) Vice President Vice President, The Guardian
Life Insurance Company of
America since 9/97; Vice
President and Senior Mortgage
Strategist, Goldman, Sachs & Co.
prior thereto. Officer of various
mutual funds within the Guardian
Fund Complex.
FRANK J. FABOZZI (50) Trustee Adjunct Professor of Finance,
858 Tower View Circle School of Management -- Yale
New Hope, Pennsylvania University, 2/94-present;
18938 Visiting Professor of Finance and
Accounting, Sloan School of
Management -- Massachusetts
Institute of Technology prior
thereto. Editor, Journal of
Portfolio Management. Director
(Trustee) of all of the mutual
funds within the Guardian Fund
Complex. Director (Trustee) of
various closed-end investment
companies sponsored by Blackstone
Financial Management.
ARTHUR V. FERRARA (68)* Trustee Retired. Chairman of the Board
70 Baldwin Farms South and Chief Executive Officer, The
Greenwich, Connecticut Guardian Life Insurance Company
06831 of America 1/93-12/95; President,
Director and Chief Executive
Officer prior thereto. Manager,
Park Avenue Securities LLC.
Director (Trustee) of The
Guardian Insurance & Annuity
Company, Inc., Guardian Investor
Services Corporation and all of
the mutual funds within the
Guardian Fund Complex.
LEO R. FUTIA (79)* Trustee Retired. Former Chairman of The
18 Interlaken Road Board and Chief Executive
Greenwich, Connecticut 06830 Officer, The Guardian Life
Insurance Company of America;
Director 5/70-present. Manager,
Park Avenue Securities LLC
Director (Trustee) of The
Guardian Insurance & Annuity
Company, Inc., Guardian Investor
Services Corporation, Park Avenue
Securities LLC and all of the
mutual funds within the Guardian
Fund Complex. Director (Trustee)
of various mutual funds sponsored
by Value Line, Inc.
ALEXANDER M. GRANT, JR. (49) Second Vice Second Vice President,
President Investments, The Guardian Life
Insurance Company of America
since 1/97; Assistant Vice
President prior thereto.
Officer of various mutual funds
within the Guardian Fund Complex.
WILLIAM W. HEWITT, JR. (70) Trustee Retired. Former Executive Vice
P.O. Box 2359 President, Shearson Lehman
Princeton, New Jersey 08543 Brothers, Inc. Director (Trustee)
of all of the mutual funds within
the Guardian Fund Complex.
Director (Trustee) of various
mutual funds sponsored by
Mitchell Hutchins Asset
Management, Inc. and Paine
Webber, Inc.
- ----------
* Trustee who is an "interested person" under the 1940 Act.
B-34
<PAGE>
Name and Address Title Business History
---------------- ----- ----------------
EDWARD H. HOCKNELL (38) Vice President Partner, Baillie Gifford & Co.,
c/o Baillie Gifford Overseas since May 1998. Director, Baillie
Limited Gifford Overseas Limited
1 Rutland Court 10/92-present; Portfolio Manager,
Edinburgh, EH3 8EY, Baillie Gifford & Co. prior
Scotland thereto. Officer of various
mutual funds within the Guardian
Fund Complex.
JONATHAN C. JANKUS (52) Vice President Vice President, Investments, The
Guardian Life Insurance Company
of America since 3/98; Second
Vice President, Investments,
3/95-2/98; Chief Investment
Strategist-Global Bonds, Barclays
Investments 1/94-3/95; Senior
Vice President, Kidder Peabody &
Co. prior thereto. Vice
President, Guardian Asset
Management Corporation.
FRANK J. JONES (60) President Executive Vice President and
Chief Investment Officer, The
Guardian Life Insurance Company
of America 1/94-present; Senior
Vice President and Chief
Investment Officer prior thereto.
Senior Vice President and Chief
Investment Officer and Director,
The Guardian Insurance & Annuity
Company, Inc. Manager, Park
Avenue Securities LLC. Director,
Guardian Investor Services
Corporation, and Guardian
Baillie Gifford Limited. Officer
of various mutual funds within
the Guardian Fund Complex.
ANN T. KEARNEY (47) Controller Vice President, Group Pensions,
The Guardian Life Insurance
Company of America 1/95-present;
Assistant Vice President and
Equity Controller 6/94-12/94;
Assistant Controller prior
thereto. Second Vice President of
The Guardian Insurance & Annuity
Company, Inc. and Guardian
Investor Services Corporation.
Controller of various mutual
funds within the Guardian Fund
Complex.
SIDNEY I. LIRTZMAN (67) Trustee Professor of Management
38 West 26th Street 9/67-present and Acting Dean of
New York, New York 10010 the School of Business Management
2/95-present, City University of
New York-Baruch College.
President, Fairfield Consulting
Associates, Inc. Director
(Trustee) of all of the mutual
funds within the Guardian Fund
Complex.
LARRY LUXENBERG (43) Vice President Vice President, Equity
Securities, The Guardian Life
Insurance Company of America
3/98 to present; Second Vice
President, Equity Securities,
6/97 to 3/98; Assistant Vice
President, Equity Securities,
prior thereto. Officer, various
mutual funds within the Guardian
Fund Complex.
R. ROBIN MENZIES (46) Vice President Partner, Baillie Gifford & Co.
c/o Baillie Gifford Overseas 4/81-present. Director, Baillie
Limited Gifford Overseas Limited
1 Rutland Court 11/90-present. Director, Guardian
Edinburgh, EH3 8EY, Baillie Gifford Limited
Scotland 11/90-present.
JOHN B. MURPHY (51) Vice President Vice President, Equity
Securities, The Guardian Life
Insurance Company of America
since 3/98; Second Vice President
3/97 to 3/98; Assistant Vice
President prior thereto. Officer
of various mutual funds within
the Guardian Fund Complex.
B-35
<PAGE>
Name and Address Title Business History
---------------- ----- ----------------
FRANK L. PEPE (56) Treasurer Vice President and Equity
Controller, The Guardian Life
Insurance Company of America
since 1/96; Second Vice President
and Equity Controller prior
thereto. Vice President and
Controller, The Guardian
Insurance & Annuity Company, Inc.
and Guardian Investor Services
Corporation. Controller, Guardian
Asset Management Corporation.
Officer of various mutual funds
within the Guardian Fund Complex.
RICHARD T. POTTER, JR. (44) Vice President Vice President and Equity
and Counsel Counsel, The Guardian Life
Insurance Company of America
1/96-present; Second Vice
President and Equity Counsel
prior thereto. Vice President and
Counsel, The Guardian Insurance &
Annuity Company, Inc., Guardian
Investor Services Corporation,
Guardian Asset Management
Corporation, Park Avenue
Securities LLC and various mutual
funds within the Guardian Fund
Complex.
JOSEPH D. SARGENT* (61) Trustee President, Chief Executive
Officer and Director, The
Guardian Life Insurance Company
of America, since 1/96; President
and Director prior thereto.
Manager, Park Avenue Securities
LLC. Director (Trustee) of The
Guardian Insurance & Annuity
Company, Inc., Guardian Investor
Services Corporation Park Avenue
and all of the mutual funds
within the Guardian Fund Complex.
CARL W. SCHAFER (63) Trustee President, Atlantic Foundation
P.O. Box 1164 (charitable foundation supporting
Princeton, New Jersey 08542 mainly oceanographic exploration
and research). Director of
Roadway Express (trucking), Evans
Systems, Inc. (a motor fuels,
convenience store and diversified
company), Hidden Lake Gold Mines
Ltd. (gold mining), Electronic
Clearing House, Inc. (financial
transactions processing), Wainoco
Oil Corporation and NutraCeutrics
Inc. (biotechnology). Chairman of
the Investment Advisory Committee
of the Howard Hughes Medical
Institute 1985-1992. Director
(Trustee) of all of the mutual
funds within the Guardian Fund
Complex. Director (Trustee) of
various mutual funds sponsored by
Mitchell Hutchins Asset
Management, Inc. and Paine
Webber, Inc.
ROBERT G. SMITH (66) Trustee President, Smith Affiliated
132 East 72nd Street Capital Corp. 4/82-present.
New York, New York 10021 Director (Trustee) of all of the
mutual funds within the Guardian
Fund Complex.
THOMAS G. SORELL (43) Vice President Vice President, Fixed Income
Securities, The Guardian Life
Insurance Company of America
10/94-present. Director of Fixed
Income, White River Corporation,
prior thereto. Vice President,
Guardian Asset Management
Corporation. Vice President,
Investments: Park Avenue Life
Insurance Company. Officer of
various mutual funds with the
Guardian Fund Complex.
DONALD P. SULLIVAN, JR. (44) Vice President Vice President, Equity
Administration, The Guardian Life
Insurance Company of America
3/99-present; Second Vice
President, Equity Administration
prior thereto. Vice President,
The Guardian Insurance & Annuity
Company, Inc. and Guardian
Investor Services Corporation.
Officer of various mutual funds
within the Guardian Fund Complex.
- ----------
*Trustee who is an "interested person" under the 1940 Act.
The Portfolio pays the Trustees who are not "interested persons" of the
Portfolio an annual retainer fee of $1,000 per Fund and a per meeting fee of
$500 per Fund. Trustees who are "interested persons" of the Portfolio, except
Mr. Sargent, receive the same fees, but they are paid by GISC. Mr. Sargent
receives no compensation for his trusteeship. The officers of the Portfolio are
employees of Guardian Life; they receive no compensation from the Portfolio.
Each Trustee is also a director of The Guardian Stock Fund, Inc., The
Guardian Bond Fund, Inc., The Guardian Cash Fund, Inc. and GIAC Funds, Inc., a
series fund consisting of Baillie Gifford International Fund, Baillie Gifford
Emerging Markets Fund and The Guardian Small-Cap Stock Fund. The Portfolio and
the other funds named in this paragraph are a "Fund Complex" for purposes of the
federal securities laws. The following table provides information about the
compensation paid by the Portfolio and the Fund Complex to the Portfolio's
Trustees during the year ended December 31, 1998.
B-36
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Compensation Table*
- --------------------------------------------------------------------------------------------------------------------
Aggregate Accrued Pension or Estimated Annual Total Compensation from the
Compensation Retirement Benefits Benefits Upon Portfolio and Other Members
Name and Title from the Portfolio** Paid by the Portfolio Retirement of the Fund Complex**
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank J. Fabozzi, $38,000 N/A N/A $54,400
Trustee
- --------------------------------------------------------------------------------------------------------------------
William W. Hewitt, Jr. $38,000 N/A N/A $54,400
Trustee
- --------------------------------------------------------------------------------------------------------------------
Sidney I. Lirtzman $38,000 N/A N/A $54,400
Trustee
- --------------------------------------------------------------------------------------------------------------------
Carl W. Schafer $38,000 N/A N/A $54,400
Trustee
- --------------------------------------------------------------------------------------------------------------------
Robert G. Smith $38,000 N/A N/A $54,400
Trustee
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Trustees who are "interested persons" of the Portfolio are not compensated
by the Portfolio, so information about their compensation is not included
in this table.
** Includes compensation paid to attend meetings of the Board's Audit
Committee.
- --------------------------------------------------------------------------------
As of April 1, 1999, the number of shares of each Fund owned by all
officers and trustees of the Portfolio in the aggregate totalled less than 1%
of the outstanding shares of each Fund.
B-37
<PAGE>
PORTFOLIO AFFILIATES AND PRINCIPAL HOLDERS OF FUND SHARES
Guardian Entities. Guardian Life, 201 Park Avenue South, New York, New York
10003, is the parent company and sole stockholder of GIAC. GIAC, also located at
201 Park Avenue South, New York, New York 10003, is the parent and sole
stockholder of GISC.
Until September 1, 1998, the date of commencement of its operations,
Guardian Life owned 100% of the outstanding shares of the High Yield Fund.
As of February 26, 1999, The Guardian/Value Line Separate Account,
established by GIAC, held 4,373,383, or 8%, of the Park Avenue Fund's Class A
shares. In addition, The Guardian Separate Account L, a separate account
established by GIAC, owned 3,868,448 (7%) Class A shares of the Fund, and
2,751,548 (20%) Class A shares of the Asset Allocation Fund.
Owners of variable annuity contracts issued by GIAC have the beneficial
interest in these Park Avenue Fund shares. At any shareholders meetings where
shareholders of the Park Avenue Fund are entitled to vote, GIAC, as the owner of
record, votes the Park Avenue Fund shares which are attributable to variable
annuity contracts in accordance with voting instructions received from
contractowners.
The Cash Fund. As of February 26, 1999, GIAC and GISC each owned shares of
the Cash Fund for their own accounts as follows: GIAC -- 3,045,337 Class A
shares (1%); GISC -- 1,445,448 (0.5%) Class A shares and 1,136,049 (10%) Class B
shares. At any shareholders meeting(s), GIAC and GISC are expected to vote their
respective shares of the Funds FOR proposals presented by Management. As of
February 26, 1999, Separate Account L, a separate account established by GIAC,
owned 65,926,596, or 27%, of the Class A shares of the Cash Fund.
As of February 26, 1999, Guardian Life was in control of the Bond Fund,
the High Yield Fund and the Tax-Exempt Fund, and owned more than 10% of the
outstanding Class A shares issued by the International Fund, the Small Cap Fund,
and the Asset Allocation Fund. Guardian Life invested in these Funds to provide
them with sufficient capital to commence their operations and acquire
securities. Guardian Life's positions in these Funds as of February 26, 1999
were:
Number Percentage
of of Class A Shares
Fund Shares Outstanding
---- ------ -----------
International Fund .................... 1,296,050 22%
Bond Fund ............................. 4,829,792 34%
Tax-Exempt Fund ....................... 6,717,838 89%
Asset Allocation Fund ................. 1,632,941 11%
High Yield Fund ....................... 5,095,435 91%
Small Cap Fund ........................ 2,036,435 19%
At any shareholders meeting where shareholders of these Funds are entitled
to vote, Guardian Life will vote its shares FOR proposals presented by
Management.
In addition, GISC owned 165,114, or 1%, of the Class A shares of the Bond
Fund, 169,787, or 9%, of the Class B shares of the Asset Allocation Fund,
117,120, or 19%, of the Class B shares of the International Fund, 144,247 or 8%
of the Class B shares of the Small Cap Fund, and 145,637, or 69% of the Class B
shares of the Emerging Markets Fund, on February 26, 1999.
Except as disclosed above, Management of the Portfolio does not know of
any other person who owned beneficially 5% or more of the shares of any of the
Funds as of February 26, 1999.
The International Fund, Bond Fund, Tax-Exempt Fund, Asset Allocation Fund,
Small Cap Fund, and Emerging Markets Fund incurred expenses in connection with
their organization in the amounts of $15,218, $16,418, $16,418, $16,418,
$45,392, and $26,991, respectively. GISC advanced these expenses to the Funds;
they included legal and auditing fees, registration fees and preparation and
printing costs for the registration statement and other documents. Each of these
Funds has reimbursed GISC for its organizational expenses, which are being
amortized on a straight-line basis over a five-year period.
TAXES
For federal income tax purposes, each Fund is treated as a separate
entity. Each Fund intends to qualify and to continue to qualify to be taxed as a
regulated investment company under the U.S. Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a regulated investment company, a Fund must
(i) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities or foreign currencies or other income
(including gains from options, futures or forward contracts) derived in
connection with the pursuit of its investment objectives; (ii) must distribute
to its shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain, and net gains from certain foreign currency transactions); and
(iii) must be diversified such that at the close of each quarter of the Fund's
taxable year (a) at least 50% of the value of its total assets consists of cash
and cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities that, with respect to any one issuer,
do not exceed 5% of the value of the Fund's total assets and that do not
represent more than 10% of the outstanding voting securities of the issuer and
(b) not more than 25% of the value of the Fund's total assets are invested in
securities (other than U.S. Government securities or the securities of other
regulated investment companies) of any one issuer.
B-38
<PAGE>
So long as a Fund qualifies as a regulated investment company and complies
with the provisions of the Code pertaining to regulated investment companies
which distribute substantially all of their net income (both net ordinary income
and net capital gains) to their shareholders, the Fund will not incur a tax
liability on that portion of its net ordinary income and net realized capital
gains which have been distributed to its shareholders. The Code imposes a 4%
nondeductible excise tax on each regulated investment company with regard to the
amount, if any, by which such investment company does not meet the distribution
requirements specified in the Code. Accordingly, each Fund intends to distribute
all or substantially all of its net investment income and net capital gains.
Options, forward contracts, financial futures contracts and foreign
currency transactions entered into by a Fund are subject to special tax rules.
These rules may accelerate income to the Fund, defer Fund losses, cause
adjustments in the holding periods of Fund securities, convert capital gain into
ordinary income and convert short-term capital losses into long-term capital
losses. As a result, these rules could affect the amount, timing and character
of Fund distributions.
Income received by a Fund from sources within various foreign countries
will generally be subject to foreign income taxes withheld at the source. If the
United States has entered into a tax treaty with the country in which the payor
is a resident, foreign tax withholding from dividends and interest is typically
set at a rate between 10% and 15%. If the United States has not entered into a
tax treaty with the country in which the payor is a resident, such withholding
may be as high as 30% to 35%. Taxes paid to foreign governments will reduce a
Fund's return on its investments. A shareholder's pro rata share of foreign
income taxes paid by a Fund is treated as taxable income to that shareholder.
Accordingly, the Portfolio, on behalf of the International Fund and the Emerging
Markets Fund, has made an election under Section 853 of the Code so that those
Funds' shareholders can claim a credit (subject to certain limits contained in
the Code) or deduction on their income tax returns for their pro rata portions
of the Funds' foreign income taxes, assuming these Funds continue to meet the
eligibility requirements for such treatment. Under the Code, no deduction for
foreign taxes may be claimed by individual shareholders who do not elect to
itemize deductions on their federal income tax returns.
Shareholders of a Fund may exchange their shares for shares of another Fund
within the Portfolio (the "reinvested shares"). If a shareholder (other than a
tax-exempt entity) makes such exchanges, the shareholder will recognize a
capital gain or loss for federal income tax purposes measured by the difference
between the value of the reinvested shares and the basis of the exchanged
shares. Upon the exchange of shares which were purchased subject to a sales
charge after October 3, 1989 and held less than 91 days, the lesser of (1) the
sales charge incurred on the exchanged shares or (2) the sales charge waived on
the reinvested shares is included in the basis of the reinvested shares and is
not included in the basis of the exchanged shares. If a shareholder realizes a
loss on the redemption of Fund shares and reinvests in shares of the same Fund
within the period beginning 30 days before and ending 30 days after the
redemption, the transactions may be subject to the wash sale rules resulting in
a disallowance of such loss for federal income tax purposes. Any loss recognized
on the disposition of Fund shares held for six months or less will be treated as
long-term capital loss to the extent that the shareholder has received any
long-term capital gain distributions on such shares. In addition, if a
shareholder sells shares that have been held for six months or less at a loss,
the loss will be disallowed to the extent of any exempt-interest dividends
received by the shareholder on such shares.
Interest on indebtedness that is incurred to purchase or carry shares of a
mutual fund which distributes exempt-interest dividends during the year is not
deductible for federal income tax purposes. Further, the Tax- Exempt Fund may
not be an appropriate investment for persons who are "substantial users" of
facilities financed by industrial development bonds held by the Fund or who are
"related persons" to such users; such persons should consult their tax advisers
before investing in the Tax-Exempt Fund.
B-39
<PAGE>
If the Portfolio establishes additional series funds, each such series will
be treated as a separate entity for federal income tax purposes.
The discussions of "Taxes" in the Prospectus and this Statement of
Additional Information are general and abbreviated. Interpretations of the
Code's provisions and U.S. Treasury regulations can change at any time.
Additionally, no attempt has been made to describe any state, local or foreign
tax consequences of purchasing, owning and redeeming shares of the Portfolio
Funds.
SHAREHOLDER VOTING RIGHTS
The Portfolio is registered with the SEC as an open-end management
investment company and organized as a Massachusetts business trust. It may issue
an unlimited number of shares of beneficial interest in one or more series, and
classes within such series. Presently, the Portfolio offers shares of nine
series. The following series currently offer three classes of shares, designated
Class A, Class B and Institutional Class: The Park Avenue Fund, The Small Cap
Fund, The International Fund, The Emerging Markets Fund, The Asset Allocation
Fund and The High Yield Fund. The Cash Fund offers two classes of shares
designated Class A and Class B. The Bond Fund also offers two classes of shares,
designated Class A and Institutional Class, and The Tax-Exempt Fund offers only
Class A shares. An additional series of the Portfolio is not currently offering
its shares.
The Portfolio generally is not required to hold shareholder meetings. Under
the Portfolio's Amended and Restated Declaration of Trust, however, shareholder
meetings will be held for all shareholders or just the shareholders of affected
Funds, as the case may be, in connection with the following matters: (1) the
election or removal of trustees if a meeting is called for such purpose; (2) the
adoption of any contract for which shareholder approval is required by the 1940
Act; (3) termination of the Portfolio or any Fund to the extent and as provided
in the Amended and Restated Declaration of Trust; (4) the amendment of the
Amended and Restated Declaration of Trust to the extent and as provided in the
Amended and Restated Declaration of Trust; (5) to determine whether a court
action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Portfolio or any Fund or the
shareholders, to the same extent as the shareholders of a Massachusetts business
corporation; and (6) such additional matters as may be required by law, the
Amended and Restated Declaration of Trust, the By-Laws of the Portfolio, any
registration of the Portfolio with the SEC or any state, or as the trustees may
consider necessary or desirable. Shareholders also would be entitled to vote
upon changes in fundamental investment objectives, policies or restrictions
which pertain to any Fund(s) in which they have a voting interest.
Each trustee serves until the earlier of: (1) the next meeting of
shareholders, if any, called for the purpose of electing trustees and until the
election and qualification of his or her successor; or (2) such trustee's death,
resignation, retirement or removal by a two-thirds vote of the trustees or by a
majority vote of the outstanding shares of the Portfolio. In accordance with the
1940 Act: (1) the Portfolio will hold a shareholders meeting for the election of
trustees at such time as less than a majority of the trustees have been elected
by shareholders; and (2) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the trustees have been elected by shareholders. In that
event, the vacancy will be filled only by a vote of shareholders.
A special meeting of the shareholders shall be called by the trustees for
the purpose of removing a trustee upon the written request of shareholders
owning at least 10% of the outstanding shares entitled to vote at the meeting.
Whenever ten or more persons who have been shareholders of record for at least
six months preceding the date of application, and who hold in the aggregate
either shares having a net asset value of at least $25,000 or at least one
percent of the outstanding shares, whichever is less, wish to communicate with
other shareholders for the purpose of obtaining signatures to request a meeting,
the trustees shall either afford the applicants access to a list of the names
and addresses of all shareholders of record or mail the communication to the
Portfolio shareholders at the applicants' cost.
TRUSTEE LIABILITY
The Amended and Restated Declaration of Trust provides that the trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
nothing in the Amended and Restated Declaration of Trust protects a trustee
against any liability to which the trustee would otherwise be subject by reason
of willful malfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his or her office. The By-laws of the
Portfolio provide for indemnification by the Portfolio of the trustees and the
officers of the Portfolio except with respect to any matter as to which any such
person did not act in good faith in the belief that his or her action was in, or
not opposed to, the best interests of the Portfolio. Such person may not be
indemnified against any liability to the Portfolio or the Portfolio's
shareholders to which he or she would otherwise be subject by reason of willful
malfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
B-40
<PAGE>
CUSTODIAN
State Street Bank and Trust Company ("State Street Bank"), Custody
Division, 1776 Heritage Drive, North Quincy, Massachusetts 02171, is the
custodian of the Portfolio's assets.
Portfolio securities purchased for a Fund outside of the U.S. are cleared
through foreign depositories and are maintained in the custody of foreign banks
and trust companies which are members of State Street Bank's Global Custody
Network. State Street Bank and each of the foreign custodial institutions
holding portfolio securities of a Fund have been approved by the Board in
accordance with regulations under the 1940 Act.
The Board reviews, at least annually, whether it is in the best interest of
a Fund and its shareholders to maintain Fund assets in each custodial
institution. However, with respect to foreign custodians, there can be no
assurance that a Fund, and the value of its shares, will not be adversely
affected by acts of foreign governments, financial or operational difficulties
of the foreign custodians, difficulties and costs of obtaining jurisdiction
over, or enforcing judgment against, the foreign custodians, or application of
foreign law to a Fund's foreign custodial arrangements. Accordingly, an investor
should recognize that the noninvestment risks associated with holding assets
abroad may be greater than those associated with investing in the U.S.
State Street Bank plays no part in formulating the investment policies of
the Funds or in determining which portfolio securities are to be purchased or
sold by the Funds.
TRANSFER AGENT
National Financial Data Services ("NFDS"), P.O. Box 419611, Kansas City,
Missouri 64141-6611, is the Portfolio's transfer agent and dividend paying
agent. NFDS issues and redeems shares of each Fund and distributes dividends to
each Fund's shareholder accounts.
NFDS plays no part in formulating the investment policies of the Funds or
in determining which portfolio securities are to be purchased or sold by the
Funds.
LEGAL OPINIONS
The legality of the shares described in the Prospectus has been passed
upon by Richard T. Potter, Jr., Counsel of the Portfolio. Federal securities law
matters relating to the Portfolio have been passed upon by the law firm of
Vedder, Price, Kaufman & Kammholz of Chicago, Illinois.
INDEPENDENT AUDITORS
The Portfolio's independent auditors are Ernst & Young LLP, 787 Seventh
Avenue, New York, New York 10019. Ernst & Young LLP audited and reported on the
financial statements of the Portfolio which appear in the Annual Report to
Shareholders for the year ended December 31, 1998. That Annual Report is
incorporated by reference into this Statement of Additional Information. Free
copies of the Annual Report are available upon request.
B-41
<PAGE>
APPENDIX
DESCRIPTIONS OF TYPES OF DEBT OBLIGATIONS
U.S. Government Agency and Instrumentality Securities: U.S. government
agency securities are debt obligations issued by agencies or authorities
controlled by and acting as instrumentalities of the U.S. government established
under authority granted by Congress. U.S. government agency obligations include,
but are not limited to, those issued by the Bank for Co-operatives, Federal Home
Loan Banks, Federal Intermediate Credit Banks, and the Federal National Mortgage
Association. U.S. government instrumentality obligations include, but are not
limited to, those issued by the Export-Import Bank and Farmers Home
Administration. Some obligations issued or guaranteed by U.S. government
agencies and instrumentalities are supported by the full faith and credit of the
U.S. Treasury; others, by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; and others only by the credit of
the agency or instrumentality. No assurance can be given that the U.S.
government will provide financial support to such U.S. government sponsored
agencies or instrumentalities in the future, since it is not obligated to do so
by law.
U.S. Treasury Securities: U.S. Treasury securities consist of Treasury
Bills, Treasury Notes and Treasury Bonds. These securities are each backed by
the full faith and credit of the U.S. government and differ in their interest
rates, maturities, and dates of issuance. U.S. Treasury Bills are issued with
maturities of up to one year. U.S. Treasury Notes may be issued with an original
maturity of not less than one year and not more than 10 years. U.S. Treasury
Bonds may be issued with any maturity, but generally have original maturities of
over 10 years.
Certificates of Deposit: Certificates of deposit are negotiable receipts
issued by a bank or savings and loan association in exchange for the deposit of
funds. A certificate of deposit earns a specified rate of return over a definite
period of time. Normally a certificate can be traded in a secondary market prior
to maturity. Eurodollar certificates of deposit are U.S. dollar-denominated
deposits in banks outside the U.S. The bank may be a foreign branch of a U.S.
bank. Eurodollar deposits in foreign branches of U.S. banks are the legal
equivalent of domestic deposits, but are not covered by FDIC insurance. Yankee
certificates of deposit are U.S. dollar-denominated deposits issued and payable
by U.S. branches of foreign banks.
Commercial Paper: Commercial paper is generally defined as unsecured
short-term notes issued in bearer form by large, well-known corporations and
finance companies. Maturities on commercial paper range from a few days to nine
months. Commercial paper is also sold on a discount basis.
Bankers Acceptances: Bankers acceptances generally arise from short-term
credit arrangements designed to enable businesses to obtain funds in order to
finance commercial transactions. Generally, an acceptance is a time draft drawn
on a bank by an exporter or an importer to obtain a stated amount of funds to
pay for specific merchandise. The draft is then "accepted" by a bank that, in
effect, unconditionally guarantees to pay the face value of the instrument on
its maturity date.
Repurchase Agreements: Repurchase agreements are instruments by which a
Fund purchases a security and obtains a simultaneous commitment from the seller
(a domestic bank or broker-dealer) to repurchase the security at an agreed upon
price and date. The resale price is in excess of the purchase price and reflects
an agreed upon market rate unrelated to the coupon rate on the purchased
security. Such transactions afford an opportunity for a Fund to invest
temporarily available cash and earn a return that is insulated from market
fluctuations during the term of the agreement. The risk to a Fund is limited to
the risk that the seller will be unable to pay the agreed upon sum upon the
delivery date. Repurchase agreements are collateralized by cash or the
securities purchased in connection with the agreement. In the event a selling
party to an agreement is unable to repurchase the securities pursuant to that
agreement, a Fund will liquidate the collateral held and thus recover the
proceeds loaned under the agreement. The loss to a Fund will be the difference
between the proceeds from the sale and the repurchase price. Investments in
repurchase agreements will be limited to transactions with financial
institutions believed by the Board of Trustees of the Portfolio to present
minimal credit risks.
Corporate Obligations: Such instruments include bonds and notes issued by
U.S. and foreign corporations in order to finance longer term credit needs.
B-42
<PAGE>
DESCRIPTION OF LONG TERM DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa. Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risk appear somewhat greater than the "Aaa"
securities.
A. Bonds which are rated "A" possess many favorable investment attributes
and are considered as upper- medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa. Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B. Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa. Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or there may be present elements of danger respect to principal or
interest.
Ca. Bonds which are rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospectus of ever
attaining real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from "Aa" through "B" in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS GROUP ("STANDARD & POOR'S")
AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated "AA" has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A. Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
With respect to Municipal Obligations, debt rated "A" differs from the two
higher ratings because:
General Obligation Bonds -- There is some weakness in the local economic
base, debt burden, balance between revenues and expenditures, or quality of
management. Under certain adverse circumstances, any one such weakness might
impair the ability of the issuer to meet debt obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
B-43
<PAGE>
General Obligation Bonds -- Under certain adverse conditions, weakness in
the local economic base, debt burden, balance between revenues and expenditures,
or quality of management could contribute to a lesser capacity for payment of
debt service. The difference between "A" and "BBB" rating is that the latter
shows more than one fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the factors
considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
Obligations rated "BB", "B", "CCC", "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations are likely to have some
quality and protective characteristics, nevertheless, these may be outweighed by
uncertainties or major exposure to adverse conditions.
BB. Debt rated "BB" is regarded as less vulnerable to nonpayment than other
speculative issues. The obligor faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet its financial commitments on the debt.
B. Debt rated "B" is regarded as more vulnerable to nonpayment than debt rated
"BB", but the obligor currently has the capacity to meet its obligations on the
debt. Adverse business, financial or economic conditions will likely impair the
obligor's capacity or willingness to meet its financial commitments on the debt.
CCC. Debt rated "CCC" is regarded as currently vulnerable to nonpayment and is
dependent upon favorable business, financial and economic conditions in order
for the obligor to meet its financial obligations on the debt. In the event of
adverse business, financial or economic conditions, the obligor is unlikely to
be able to meet its financial commitments on the debt.
CC. Debt rated "CC" is regarded as currently vulnerable to nonpayment.
C. Debt rated "C" is may represent an obligation in which a bankruptcy petition
has already been filed or other similar actions taken, but in which payments on
the obligation are still be made.
D. Debt rated "D" is in payment default..
Note: Standard & Poor's ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S
P-1 (Prime-1). Issuers (or supporting institutions) rated P-1 have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation;
well-established access to a range of financial markets and assured sources of
alternate liquidity.
P-2 (Prime-2). Issuers (or supporting institutions) rated P-2 have a strong
ability for repayment of senior short-term obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD & POOR'S
A-1. Issues in the A-1 category, which is the highest category, have a very
strong degree of safety regarding timely payment. Those issues determined to
possess extremely strong safety characteristics are denoted with a plus (+) sign
designation.
A-2. Capacity for timely payment on issues rated A-2 is strong. However,
the relative degree of safety is not as high as for issues designated `A-1'.
DUFF & PHELPS, INC.
Duff 1+ Issues rated Duff 1+ have the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or ready access
to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
Duff 1 Issues rated Duff 1 have very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff 1- Issues rated Duff 1- have high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Duff 2 Issues rated Duff 2 have good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
B-44
<PAGE>
FITCH INVESTORS SERVICES, INC.
F-1+ Issues rated F-1+ have exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 Issues rated F-1 have very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated `F-1+'.
F-2 Issues rated F-2 have good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payments, but the margin of
safety is not as great as the `F-1+' and `F-1' ratings.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
MOODY'S
Moody's ratings for state municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand feature.
Such ratings will be designated as VMIG or, if the demand feature is not rated,
as NR. Short-term ratings on issues with demand features are differentiated by
the use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand, rather than fixed maturity dates, and payment relying on
external liquidity. Additionally, investors should be alert to the fact that the
source of payment may be limited to the external liquidity with no or limited
legal recourse to the issuer in the event the demand is not met. MIG and VMIG
ratings indicate that the rated securities are investment grade.
MIG 1/VMIG 1. This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2. This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG 3/VMIG 3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
MIG 4/VMIG 4. This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
STANDARD & POOR'S
SP-1. The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.
SP-2. The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
USING THE RATINGS
Ratings represent each rating organization's opinion as to the quality of
the securities that they undertake to rate. It should be emphasized that ratings
are relative and subjective, and are not absolute standards of quality.
Consequently, securities with the same maturity, interest rate and rating may
have different market prices or yields. Subsequent to its purchase by a Fund, an
issue of securities may cease to be rated or its rating may be reduced. The
investment adviser will consider such an event in determining whether a Fund
should continue to hold the security. Although ratings may be an initial
criterion for selection of portfolio investments, the investment adviser also
performs its own credit analysis with respect to the securities it purchases and
holds for a Fund.
B-45
<PAGE>
THE PARK AVENUE PORTFOLIO
PART C. OTHER INFORMATION
Item 23. Exhibits
Number Description
(a) Form of Amended and Restated Declaration of Trust(1)
(b) Trust By-Laws(2)
(c) Form of Specimen Security(3)
(d)(i) Form of Investment Advisory Agreement between The Park Avenue
Portfolio and Guardian Investor Services Corporation(4)
(d)(ii) Form of Investment Advisory Agreement between The Park Avenue
Portfolio and Guardian Baillie Gifford Limited(5)
(d)(iii) Form of Sub-Investment Advisory Agreement
between Guardian Baillie Gifford Limited and Baillie Gifford
Overseas Limited(6)
e(i) Form of Underwriting Agreement(7)
e(ii) Form of Selling Group Agreement(8)
f Not applicable
g Form of Custodian Contract(9)
h(a) Form of Transfer Agency Agreement(10)
h(b) Form of Administrative Services Agreement(11)
i(a) Opinion and Consent of Counsel*
j(i) Consent of Counsel*
j(ii) Consent of Ernst & Young LLP*
j(iii) Consent of Vedder, Price, Kaufman & Kammholz*
C-1
<PAGE>
k Not applicable
l Letter from Guardian Investor Services Corporation with respect
to providing the initial capital for Trust(12)
m(i) Form of Distribution Plan and Agreement Pursuant to
Rule 12b-1 under the Investment Company Act of 1940(13)
m(ii) Form of Distribution Plan Pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Class B shares(14)
m(iii) Form of Distribution Agreement for Class B shares(14)
n Financial Data Schedules*
o Not applicable
p Miscellaneous
p(i) Powers of Attorney executed by each member of the Board of
Trustees and certain principal officers of the Trust*
- ----------
1. Incorporated by reference to Exhibit 1 of Post-Effective Amendment No. 17
to the Registration Statement on Form N-1A (Reg. No. 33-23966) as filed on
February 13, 1998.
2. Incorporated by reference to Exhibit 2 of Post-Effective Amendment No. 1
to the Registration Statement on Form N-1A (Reg. No. 33-23966) as filed on
February 13, 1998.
3. Incorporated by reference to Exhibit 4 of the Registration Statement on
Form N-1A (Reg. No. 33-23966), as filed on August 22, 1988.
4. Incorporated by reference to Exhibit 5(a) of Post-Effective Amendment No.
1 to the Registration Statement on Form N-1A (Reg. No. 33-23966) as filed
on February 13, 1998.
5. Incorporated by reference to Exhibit 5(b) of Post-Effective Amendment No.
1 to the Registration Statement on Form N-1A (Reg. No. 33-23966) as filed
on February 13, 1998.
6. Incorporated by reference to Exhibit 5(c) of Post-Effective Amendment No.
1 to the Registration Statement on Form N-1A (Reg. No. 33-23966) as filed
on February 13, 1998.
7. Incorporated by reference to Exhibit 6(a) of Post-Effective Amendment No.
1 to the Registration Statement on Form N-1A (Reg. No. 33-23966) as filed
on February 13, 1998.
8. Incorporated by reference to Exhibit 6(b) of Post-Effective Amendment No.
1 to the Registration Statement on Form N-1A (Reg. No. 33-23966) as filed
on February 13, 1998.
9. Incorporated by reference to Exhibit 8 of Post-Effective Amendment No. 1
to the Registration Statement on Form N-1A (Reg. No. 33-23966) as filed on
February 13, 1998.
10. Incorporated by reference to Exhibit 9(a) of Post-Effective Amendment No.
1 to the Registration Statement on Form N-1A (Reg. No. 33-23966) as filed
on February 13, 1998.
11. Incorporated by reference to Exhibit 9(b) of Post-Effective Amendment No.
13 to the Registration Statement on Form N-1A (Reg. No. 33-23966) as filed
on February 14, 1997.
12. Incorporated by reference to Exhibit 13 of Pre-Effective Amendment No. 3
to the Registration Statement on Form N-1A (Reg. No. 33-23966), as filed
on February 8, 1989.
13. Incorporated by reference to Exhibit 15(a) of Post-Effective Amendment No.
1 to the Registration Statement on Form N-1A (Reg. No. 33-23966) as filed
on February 13, 1998.
14. Incorporated by reference to Exhibits 15(b) and 15(c) of Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A (Reg. No.
33-23966) as filed on March 1, 1996.
- ----------
* Filed herewith.
C-2
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
The following list sets forth the persons directly controlled by The
Guardian Life Insurance Company of America ("Guardian Life") as of February 28,
1999.
Percentage of
State of Incorporation Voting Securities
Name of Entity or Organization Owned
-------------- ---------------------- -----------------
The Guardian Insurance & Delaware 100%
Annuity Company, Inc.
Guardian Asset Management Delaware 100%
Corporation
Guardian Reinsurance Connecticut 100%
Services Inc.
Managed Dental Care, Inc. California 100%
Park Avenue Life Insurance Delaware 100%
Company
Managed Dental Guard of Missouri 100%
Missouri, Inc.
Managed Dental Guard of Texas 100%
Texas, Inc.
Managed Dental Guard of Illinois 100%
Illinois, Inc.
Private Healthcare Systems, Inc. Delaware 48%
The Guardian Investment Massachusetts 34%
Quality Bond Fund
The Guardian Tax-Exempt Fund Massachusetts 89%
The Guardian Baillie Gifford Massachusetts 22%
International Fund
The Guardian Asset Allocation Massachusetts 11%
Fund
The Guardian Park Avenue Small
Cap Fund Massachusetts 19%
The Guardian Baillie Gifford
Emerging Markets Fund Massachusetts 76%
Baillie Gifford Emerging Markets Fund Maryland 33%
Baillie Gifford International Fund Maryland 24%
The Guardian High Yield Bond Fund Massachusetts 91%
The Guardian Small Cap Stock Fund Maryland 33%
The following list sets forth the persons directly controlled by affiliates
of Guardian Life, and thereby indirectly controlled by Guardian Life, as of
February 28, 1999:
Approximate
Percentage of Voting
Securities Owned
Place of Incorporation by Guardian Life
Name of Entity or Organization Affiliates
-------------- ---------------------- --------------------
Guardian Investor Services New York 100%
Corporation
Guardian Baillie Gifford Limited Scotland 51%
The Guardian Cash Fund, Inc. Maryland 100%
The Guardian Bond Fund, Inc. Maryland 100%
The Guardian Stock Fund, Inc. Maryland 100%
The Guardian Park Avenue Fund Massachusetts 11%
GIAC Funds, Inc. Maryland 100%
Park Avenue Securities LLC Delaware 100%
C-3
<PAGE>
Item 25. Indemnification
Reference is made to Registrant's Amended and Restated Declaration of
Trust which has been filed as Exhibit Number 1 to the Registration Statement and
is incorporated herein by reference.
Item 26. Business and Other Connections of Investment Adviser
Guardian Investor Services Corporation ("GISC") acts as the sole
investment adviser for The Guardian Stock Fund, Inc., The Guardian Cash Fund,
Inc., The Guardian Bond Fund, Inc., and seven of the nine currently operating
series funds comprising The Park Avenue Portfolio, namely: The Guardian Cash
Management Fund, The Guardian Park Avenue Fund, The Guardian Park Avenue Small
Cap Fund, The Guardian Investment Quality Bond Fund, The Guardian Tax-Exempt
Fund, The Guardian High Yield Bond Fund and The Guardian Asset Allocation Fund,
and one of the three series funds comprising GIAC Funds, Inc., namely The
Guardian Small Cap Stock Fund. GISC is also the manager of Gabelli Capital Asset
Fund. GISC's principal business address is 201 Park Avenue South, New York, New
York 10003. In addition, GISC is the distributor of The Park Avenue Portfolio
and variable annuities and variable life insurance policies offered by The
Guardian Insurance & Annuity Company, Inc. ("GIAC") through its separate
accounts. These separate accounts, The Guardian/Value Line Separate Account, The
Guardian Separate Account A, The Guardian Separate Account B, The Guardian
Separate Account C, The Guardian Separate Account D, The Guardian Separate
Account E, The Guardian Separate Account K and The Guardian Separate Account M
are all unit investment trusts registered under the Investment Company Act of
1940, as amended.
A list of GISC's officers and directors is set forth below, indicating the
business, profession, vocation or employment of a substantial nature in which
each person has been engaged during the past two fiscal years for his or her own
account or in the capacity of director, officer, partner, or trustee, aside from
any affiliation with the Registrant. Except where otherwise noted, the principal
business address of each company is 201 Park Avenue South, New York, New York
10003.
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Philip H. Dutter Director Independent Consultant
(self-employed). Director: The
Guardian Life Insurance Company of
America. Director: The Guardian
Insurance & Annuity Company, Inc.
Manager: Park Avenue Securities
LLC.
William C. Warren Director Retired.
Director: The Guardian Life
Insurance Company of America.
Director: The Guardian Insurance &
Annuity Company, Inc. Manager:
Park Avenue Securities LLC.
* Principal business address: 7 Hanover Square, New York, New York 10004
C-4
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Arthur V. Ferrara Director Retired. Chairman of the Board and
Chief Executive Officer: The
Guardian Life Insurance Company of
America until 12/95. Director
(Trustee) of The Guardian
Insurance & Annuity Company, Inc.,
and various Guardian-sponsored
mutual funds. Manager: Park Avenue
Securities LLC.*
John M. Smith President & Executive Vice President: The
Director Guardian Life Insurance Company of
America 1/95 to present.
Executive Vice President and
Director: The Guardian Insurance &
Annuity Company, Inc. Director:
Guardian Baillie Gifford Limited**
and Guardian Asset Management
Corporation. President: GIAC
Funds, Inc.
Leo R. Futia Director Director: The Guardian Life
Insurance Company of America.
Director: The Guardian Insurance &
Annuity Company, Inc.
Director/Trustee of various
Guardian-sponsored mutual funds.
Director/Trustee of various mutual
funds sponsored by Value Line,
Inc.*** Manager: Park Avenue
Securities LLC.*
Earl C. Harry Treasurer Treasurer: The Guardian Life
Insurance Company of America
11/96 - present.
Treasurer: The Guardian Insurance
& Annuity Company, Inc., and
Guardian Asset Management
Corporation. Treasurer: Park
Avenue Securities LLC.*
Peter L. Hutchings Director Executive Vice President and Chief
Financial Officer: The Guardian
Life Insurance Company of America.
Director: The Guardian Insurance &
Annuity Company, Inc. Director:
Guardian Asset Management
Corporation. Manager: Park Avenue
Securities LLC.*
- ----------
* Principal business address: 7 Hanover Square, NY, NY 10004.
** Principal business address: 1 Rutland Court, Edinburgh EH#3 8EY, Scotland.
*** Principal business address:
711 Third Avenue, New York, NY 10017.
C-5
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Frank J. Jones Director Executive Vice President and Chief
Investment Officer: The Guardian
Life Insurance Company of America.
Director, Executive Vice President
and Chief Investment Officer: The
Guardian Insurance & Annuity
Company, Inc. Director: Guardian
Asset Management Corporation and
Guardian Baillie Gifford Limited.*
Officer of various
Guardian-sponsored mutual funds.
Joseph D. Sargent Director President, Chief Executive Officer
and Director: The Guardian Life
Insurance Company of America.
President, Chief Executive Officer
and Director: The Guardian
Insurance & Annuity Company, Inc.
and Park Avenue Life Insurance
Company. Director: Guardian Asset
Management Corporation. Director:
Guardian Baillie Gifford
Limited.** Manager: Park Avenue
Securities LLC.* Chairman and
Director/Trustee of various
Guardian-sponsored mutual funds.
Ryan W. Johnson Senior Vice Vice President, Equity Sales and
President Marketing; The Guardian Life
Insurance Company of America since
3/98; Second Vice President prior
thereto. Vice President, Equity
Sales, The Guardian Insurance &
Annuity Company, Inc.
- ----------
* Principal business address: 7 Hanover Square, NY, NY 10004.
** Principal business address: 1 Rutland Court, Edinburgh EH3 8EY, Scotland.
C-6
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Frank L. Pepe Vice President & Vice President and Equity
Controller Controller: The Guardian Life
Insurance Company of America. Vice
President and Controller: The
Guardian Insurance & Annuity
Company, Inc. Officer of various
Guardian-sponsored mutual funds.
Richard T. Potter, Vice President and Vice President and Equity Counsel:
Jr. Counsel The Guardian Life Insurance
Company of America. Vice President
and Counsel: The Guardian
Insurance & Annuity Company, Inc.,
Guardian Asset Management
Corporation and various
Guardian-sponsored mutual funds.
Donald P. Sullivan, Vice President Vice President: The Jr. Guardian
Life Insurance Company of America;
Second Vice President prior
thereto. Vice President: The
Guardian Insurance & Annuity
Company, Inc.
C-7
<PAGE>
Other Substantial Business,
Name Position(s) with GISC Profession, Vocation or Employment
---- --------------------- ----------------------------------
Joseph A. Caruso Vice President and Vice President and Secretary, The
Secretary Guardian Life Insurance Company of
America. Vice President and
Secretary: The Guardian Insurance
& Annuity Company, Inc., Guardian
Asset Management Corporation, Park
Avenue Securities LLC,** and
various Guardian-sponsored mutual
funds.
Item 27. Principal Underwriters
(a) GISC is the principal underwriter and distributor of the nine
operational series funds comprising The Park Avenue Portfolio, namely: The
Guardian Park Avenue Fund, The Guardian Park Avenue Small Cap Fund, The Guardian
Cash Management Fund, The Guardian Investment Quality Bond Fund, The Guardian
High Yield Bond Fund, The Guardian Tax-Exempt Fund, The Guardian Baillie Gifford
International Fund, The Baillie Gifford Emerging Markets Fund and The Guardian
Asset Allocation Fund. In addition, GISC is the distributor of variable
annuities and variable life insurance policies offered by GIAC through GIAC's
separate accounts: The Guardian/Value Line Separate Account, The Guardian
Separate Account A, The Guardian Separate Account B, The Guardian Separate
Account C, The Guardian Separate Account D, The Guardian Separate Account E, The
Guardian Separate Account K, and The Guardian Separate Account M, which are all
registered as unit investment trusts under the Investment Company Act of 1940,
as amended. These latter separate accounts buy and sell shares of The Guardian
Stock Fund, Inc., The Guardian Bond Fund, Inc., The Guardian Cash Fund, Inc. and
GIAC Funds, Inc. on behalf of GIAC's variable contractowners.
(b) The principal business address of the officers and directors of GISC
listed below is 201 Park Avenue South, New York, New York 10003.
Position(s) Position(s)
Name with Underwriter with Registrant
----- --------------- -------------
John M. Smith President & Director None
Arthur V. Ferrara Director Director
Leo R. Futia Director Director
Peter L. Hutchings Director None
Philip H. Dutter Director None
William C. Warren Director None
Joseph D. Sargent Director Director
Frank J. Jones Director President
Ryan W. Johnson Senior Vice President None
Frank L. Pepe Vice President & Controller Vice President
Richard T. Potter, Jr. Vice President and Counsel Vice President
and Counsel
Donald P. Sullivan, Jr. Vice President None
Earl Harry Treasurer None
Joseph A. Caruso Vice President and Secretary Secretary
(c) Not Applicable.
- ----------
* Principal business address: 1 Rutland Court, Edinburgh EH3 8EY, Scotland.
** Principal business address: 7 Hanover Square, New York, New York 10004.
C-8
<PAGE>
Guardian Baillie Gifford Limited
Guardian Baillie Gifford Limited ("GBG") is exclusively engaged in the
business of acting as the investment adviser to Baillie Gifford International
Fund and Baillie Gifford Emerging Markets Fund, two series of GIAC Funds, Inc.,
and The Guardian Baillie Gifford International Fund and The Guardian Baillie
Gifford Emerging Markets Fund, two series of the Registrant. GBG's principal
business address is 1 Rutland Court, Edinburgh, EH3 8EY, Scotland. A list of
GBG's executive officers and directors is set forth below, indicating the
business, profession, vocation or employment of a substantial nature in which
each person has been engaged during the past two fiscal years for his or her own
account or in the capacity of director, officer, partner, or trustee, aside from
any affiliation with the Registrant.
Position Other Substantial
Name with GBG Business Affiliations
---- -------- ---------------------
Gavin John Norman Gemmell Director Senior Partner: Baillie Gifford &
Co.* Director: Baillie Gifford
Overseas Limited* Director: Toyo
Trust Baillie Gifford*
Edward H. Hocknell Director Director: Baillie Gifford Overseas
Limited*
Rowan Robin Menzies Director Partner: Baillie Gifford & Co.*
Director: Baillie Gifford Overseas
Limited*
Joseph Dudley Sargent Director President, Chief Executive Officer
and Director: The Guardian Life
Insurance Company of America**
since 1/96. President and Director:
The Guardian Insurance & Annuity
Company, Inc.** Director (Trustee)
Guardian Asset Management
Corporation.** Chairman of the
Board of: various Guardian-
sponsored mutual funds.**
- ----------
* Principal business address is 1 Rutland Court, Edinburgh, EH3 8EY, Scotland.
** Principal business address is 201 Park Avenue South, New York, New York
10003.
C-9
<PAGE>
Position Other Substantial
Name with GBG Business Affiliations
---- -------- ---------------------
John Matthew Smith Director Executive Vice President, Equity
Products: The Guardian Life
Insurance Company of America.**
Executive Vice President and
Director: The Guardian Insurance &
Annuity Company, Inc.** President
and Director of Guardian Investor
Services Corporation** Director;
Guardian Asset Management
Corporation** President: GIAC
Funds, Inc.
Maxwell C.B. Ward Director Partner: Baillie Gifford & Co.
Chairman: Baillie Gifford Overseas
Limited
- ----------
**Principal business address is 201 Park Avenue South, New York, New York 10003.
C-10
<PAGE>
Baillie Gifford Overseas Limited
Baillie Gifford Overseas Limited ("BGO") acts as the sub-investment adviser for
Baillie Gifford International Fund and Baillie Gifford Emerging Markets Fund,
two series of GIAC Funds, Inc. and The Guardian Baillie Gifford International
Fund and The Guardian Baillie Gifford Emerging Markets Fund, two series of the
Registrant. BGO also provides investment management services to institutional
clients outside of the United Kingdom. BGO is wholly owned by Baillie Gifford &
Co. which is an investment management firm providing independent investment
management services to investment trusts, unit trusts, pension funds, charitable
funds and other institutional clients primarily located in the United Kingdom.
A list of BGO's directors is set forth below, indicating the business,
profession, vocation or employment of a substantial nature in which each person
has been engaged during the past two fiscal years for his or her own account or
in the capacity of director, officer, partner, or trustee, aside from any
affiliation with the Registrant. Except where otherwise noted, the principal
business address of each individual in his capacity as director of BGO is 1
Rutland Court, Edinburgh, EH3 8EY, Scotland.
Position Other Substantial
Name with BGO Business Affiliations**
---- -------- -----------------------
James K. Anderson Director Partner: Baillie Gifford & Co.
Director: Baillie Gifford & Co.Limited
Gavin J. N. Gemmell* Director Senior Partner: Baillie Gifford & Co.
Edward H. Hocknell* Director Partner: Baillie Gifford & Co.
Gareth A. Howlett Director Director: Toyo Trust Baillie Gifford
Limited
J. Ross Lidstone Director Partner: Baillie Gifford & Co.
Gill E. Meekison Director Director: Baillie Gifford Savings
Management Limited
R. Robin Menzies* Director Partner: Baillie Gifford & Co.
Maxwell C. B. Ward Chairman Partner: Baillie Gifford & Co.
C-11
<PAGE>
Item 28. Location of Accounts and Records
Most of the Registrant's accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are maintained by the custodian for the Registrant, the
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy,
Massachusetts 02171, and by the transfer agent for the Funds, National Financial
Data Services, 1100 Main Street, Kansas City, Missouri 64105-2123. The
Registrant's corporate records are maintained by the Registrant at 201 Park
Avenue South, New York, New York 10003.
Item 29. Management Services
None.
Item 30. Undertakings
Not applicable.
C-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the Investment
Company Act of 1940, the Registrant, The Park Avenue Portfolio certifies that it
meets all of the requirements for effectiveness of this post-effective amendment
to the registration statement under Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and the State of New York on the 29th day of April, 1999.
THE PARK AVENUE PORTFOLIO
By /s/ FRANK J. JONES
-----------------------------
Frank J. Jones
President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
/s/ FRANK J. JONES President
- -------------------------------- (Principal Executive Officer)
Frank J. Jones
/s/ FRANK L. PEPE* Treasurer
- -------------------------------- (Principal Financial and
Frank L. Pepe Accounting Officer)
/s/ JOHN C. ANGLE* Trustee
- --------------------------------
John C. Angle
/s/ FRANK J. FABOZZI* Trustee
- --------------------------------
Frank J. Fabozzi
/s/ ARTHUR V. FERRARA* Trustee
- --------------------------------
Arthur V. Ferrara
/s/ LEO R. FUTIA* Trustee
- --------------------------------
Leo R. Futia
/s/ WILLIAM W. HEWITT, JR.* Trustee
- --------------------------------
William W. Hewitt, Jr.
/s/ SIDNEY I. LIRTZMAN* Trustee
- --------------------------------
Sidney I. Lirtzman
/s/ JOSEPH D. SARGENT* Trustee
- --------------------------------
Joseph D. Sargent
/s/ CARL W. SCHAFER* Trustee
- --------------------------------
Carl W. Schafer
/s/ ROBERT G. SMITH* Trustee
- --------------------------------
Robert G. Smith
*By /s/ FRANK J. JONES Date: April 29, 1999
- --------------------------------
Frank J. Jones
Pursuant to a Power of Attorney
<PAGE>
THE PARK AVENUE PORTFOLIO
EXHIBIT LIST
j(i) Consent of Counsel
j(ii) Consent of Ernst & Young LLP
j(iii) Consent of Vedder Price Kaufman & Kammholz
p Powers of Attorney
27 Financial Data Schedules
CONSENT OF COUNSEL
I hereby consent both to the reference to my name under the heading "Legal
Opinions" in the Statement of Additional Information constituting part of this
Post-Effective Amendment to the Registation Statement on Form N-1A for The Park
Avenue Portfolio and to the filing of this consent as an exhibit to said
Amendment.
/s/ Richard T. Potter, Jr.
--------------------------
Richard T. Potter, Jr.
Counsel
New York, New York
April 29, 1999
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors and Financial
Statements" in the Statement of Additional Information in this Registration
Statement (Form N-1A No. 33-23966), and to the incorporation by reference
therein of our report dated February 10, 1999 on the financial statements and
financial highlights of The Park Avenue Portfolio.
ERNST & YOUNG LLP
New York, New York
April 26, 1999
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601-1003
April 28, 1999
The Park Avenue Portfolio
201 Park Avenue South
New York, New York 10003
Gentlemen and Ladies:
We hereby consent to the reference to our name under the heading "Legal
Opinions" in the Statement of Additional Information contained in Post-Effective
Amendment No. 20 to the registration statement on Form N-1A for The Park Avenue
Portfolio (File No.33-23966) and to the filing of this consent as an exhibit to
the registration statement.
Very truly yours,
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
By: /s/ Cathy G. O'Kelly
---------------------------------
Cathy G. O'Kelly
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that John C. Angle, whose signature
appears below, constitutes and appoints Frank J. Jones, Frank L. Pepe, Joseph A.
Caruso and Richard T. Potter, Jr., and each of them, his attorney-in-fact, each
with the power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for THE PARK
AVENUE PORTFOLIO and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitutes, may do or cause to be done by virtue hereof.
/s/ John C. Angle
----------------------------------------
John C. Angle
Dated: March 31, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Frank J. Fabozzi, whose
signature appears below, constitutes and appoints Frank J. Jones, Frank L. Pepe,
Joseph A. Caruso and Richard T. Potter, Jr., and each of them, his
attorney-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any registration statements and amendments to registration
statements for THE PARK AVENUE PORTFOLIO and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitutes, may do or cause to be done by virtue
hereof.
/s/ Frank J. Fabozzi
----------------------------------------
Frank J. Fabozzi
Dated: March 31, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Arthur V. Ferrara, whose
signature appears below, constitutes and appoints Frank J. Jones, Frank L. Pepe,
Joseph A. Caruso and Richard T. Potter, Jr., and each of them, his
attorney-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any registration statements and amendments to registration
statements for THE PARK AVENUE PORTFOLIO and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitutes, may do or cause to be done by virtue
hereof.
/s/ Arthur V. Ferrara
----------------------------------------
Arthur V. Ferrara
Dated: April 1, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Leo R. Futia, whose signature
appears below, constitutes and appoints Frank J. Jones, Frank L. Pepe, Joseph A.
Caruso and Richard T. Potter, Jr., and each of them, his attorney-in-fact, each
with the power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for THE PARK
AVENUE PORTFOLIO and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitutes, may do or cause to be done by virtue hereof.
/s/ Leo R. Futia
----------------------------------------
Leo R. Futia
Dated: March 31, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that William W. Hewitt, Jr., whose
signature appears below, constitutes and appoints Frank J. Jones, Frank L. Pepe,
Joseph A. Caruso and Richard T. Potter, Jr., and each of them, his
attorney-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any registration statements and amendments to registration
statements for THE PARK AVENUE PORTFOLIO and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitutes, may do or cause to be done by virtue
hereof.
/s/ William W. Hewitt, Jr.
----------------------------------------
William W. Hewitt, Jr.
Dated: March 31, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Sidney I. Lirtzman, whose
signature appears below, constitutes and appoints Frank J. Jones, Frank L. Pepe,
Joseph A. Caruso and Richard T. Potter, Jr., and each of them, his
attorney-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any registration statements and amendments to registration
statements for THE PARK AVENUE PORTFOLIO and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitutes, may do or cause to be done by virtue
hereof.
/s/ Sidney I. Lirtzman
----------------------------------------
Sidney I. Lirtzman
Dated: April 1, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Joseph D. Sargent, whose
signature appears below, constitutes and appoints Frank J. Jones, Frank L. Pepe,
Joseph A. Caruso and Richard T. Potter, Jr., and each of them, his
attorney-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any registration statements and amendments to registration
statements for THE PARK AVENUE PORTFOLIO and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitutes, may do or cause to be done by virtue
hereof.
/s/ Joseph D. Sargent
----------------------------------------
Joseph D. Sargent
Dated: April 7, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Carl W. Schafer, whose signature
appears below, constitutes and appoints Frank J. Jones, Frank L. Pepe, Joseph A.
Caruso and Richard T. Potter, Jr., and each of them, his attorney-in-fact, each
with the power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for THE PARK
AVENUE PORTFOLIO and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitutes, may do or cause to be done by virtue hereof.
/s/ Carl W. Schafer
----------------------------------------
Carl W. Schafer
Dated: April 3, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Robert G. Smith, whose signature
appears below, constitutes and appoints Frank J. Jones, Frank L. Pepe, Joseph A.
Caruso and Richard T. Potter, Jr., and each of them, his attorney-in-fact, each
with the power of substitution, for him in any and all capacities, to sign any
registration statements and amendments to registration statements for THE PARK
AVENUE PORTFOLIO and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitutes, may do or cause to be done by virtue hereof.
/s/ Robert G. Smith
----------------------------------------
Robert G. Smith
Dated: April 1, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Frank J. Jones, whose signature
appears below, constitutes and appoints Frank L. Pepe, Thomas G. Sorell, Joseph
A. Caruso and Richard T. Potter, Jr., and each of them, his attorney-in-fact,
each with the power of substitution, for him in any and all capacities, to sign
any registration statements and amendments to registration statements for THE
PARK AVENUE PORTFOLIO.. and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitutes, may do or cause to be done by virtue hereof.
/s/ Frank J. Jones
----------------------------------------
Signature
Dated: April 26, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Frank L. Pepe, whose signature
appears below, constitutes and appoints, Frank J. Jones, Thomas G. Sorell,
Joseph A. Caruso and Richard T. Potter, Jr., and each of them, his
attorney-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any registration statements and amendments to registration
statements for THE PARK AVENUE PORTFOLIO. and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitutes, may do or cause to be done by virtue
hereof.
/s/ Frank L. Pepe
----------------------------------------
Signature
Dated: April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN PARK AVENUE FUND CLASS A
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> THE GUARDIAN PARK AVENUE FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,433,088
<INVESTMENTS-AT-VALUE> 3,398,098
<RECEIVABLES> 31,369
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,429,468
<PAYABLE-FOR-SECURITIES> 28,975
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,235
<TOTAL-LIABILITIES> 49,211
<SENIOR-EQUITY> 652
<PAID-IN-CAPITAL-COMMON> 2,337,706
<SHARES-COMMON-STOCK> 57,643 <F1>
<SHARES-COMMON-PRIOR> 50,145 <F1>
<ACCUMULATED-NII-CURRENT> 363
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 76,526
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 965,010
<NET-ASSETS> 2,990,767 <F1>
<DIVIDEND-INCOME> 34,436
<INTEREST-INCOME> 10,278
<OTHER-INCOME> 0
<EXPENSES-NET> 26,119
<NET-INVESTMENT-INCOME> 18,595
<REALIZED-GAINS-CURRENT> 240,110
<APPREC-INCREASE-CURRENT> 321,166
<NET-CHANGE-FROM-OPS> 579,872
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18,598 <F1>
<DISTRIBUTIONS-OF-GAINS> 199,306 <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,153 <F1>
<NUMBER-OF-SHARES-REDEEMED> (14,727) <F1>
<SHARES-REINVESTED> 4,073 <F1>
<NET-CHANGE-IN-ASSETS> 865,879
<ACCUMULATED-NII-PRIOR> 368
<ACCUMULATED-GAINS-PRIOR> 61,134
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14,957
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26,119
<AVERAGE-NET-ASSETS> 2,683,148 <F1>
<PER-SHARE-NAV-BEGIN> 46.12 <F1>
<PER-SHARE-NII> 0.35 <F1>
<PER-SHARE-GAIN-APPREC> 9.38 <F1>
<PER-SHARE-DIVIDEND> (0.34) <F1>
<PER-SHARE-DISTRIBUTIONS> (3.63) <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 51.88 <F1>
<EXPENSE-RATIO> 0.78 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN PARK AVENUE FUND CLASS B
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> THE GUARDIAN PARK AVENUE FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,433,088
<INVESTMENTS-AT-VALUE> 3,398,098
<RECEIVABLES> 31,369
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,429,468
<PAYABLE-FOR-SECURITIES> 28,975
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,235
<TOTAL-LIABILITIES> 49,211
<SENIOR-EQUITY> 652
<PAID-IN-CAPITAL-COMMON> 2,337,706
<SHARES-COMMON-STOCK> 7,549 <F1>
<SHARES-COMMON-PRIOR> 4,384 <F1>
<ACCUMULATED-NII-CURRENT> 363
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 76,526
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 965,010
<NET-ASSETS> 389,489 <F1>
<DIVIDEND-INCOME> 34,436
<INTEREST-INCOME> 10,278
<OTHER-INCOME> 0
<EXPENSES-NET> 26,119
<NET-INVESTMENT-INCOME> 18,595
<REALIZED-GAINS-CURRENT> 240,110
<APPREC-INCREASE-CURRENT> 321,166
<NET-CHANGE-FROM-OPS> 579,872
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0 <F1>
<DISTRIBUTIONS-OF-GAINS> (25,415) <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,603 <F1>
<NUMBER-OF-SHARES-REDEEMED> (912) <F1>
<SHARES-REINVESTED> 475 <F1>
<NET-CHANGE-IN-ASSETS> 865,879
<ACCUMULATED-NII-PRIOR> 368
<ACCUMULATED-GAINS-PRIOR> 61,134
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14,957
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26,119
<AVERAGE-NET-ASSETS> 308,254 <F1>
<PER-SHARE-NAV-BEGIN> 46.02 <F1>
<PER-SHARE-NII> (0.08) <F1>
<PER-SHARE-GAIN-APPREC> 9.28 <F1>
<PER-SHARE-DIVIDEND> 0.00 <F1>
<PER-SHARE-DISTRIBUTIONS> (3.63) <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 51.59 <F1>
<EXPENSE-RATIO> 1.70 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN PARK AVENUE SMALL CAP FUND CLASS A
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> THE GUARDIAN PARK AVENUE SMALL CAP FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 135,605
<INVESTMENTS-AT-VALUE> 152,499
<RECEIVABLES> 1,711
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 154,211
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,564
<TOTAL-LIABILITIES> 4,564
<SENIOR-EQUITY> 117
<PAID-IN-CAPITAL-COMMON> 148,716
<SHARES-COMMON-STOCK> 9,959 <F1>
<SHARES-COMMON-PRIOR> 7,336 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (16,081)
<ACCUM-APPREC-OR-DEPREC> 16,894
<NET-ASSETS> 127,525 <F1>
<DIVIDEND-INCOME> 996
<INTEREST-INCOME> 449
<OTHER-INCOME> 0
<EXPENSES-NET> 2,049
<NET-INVESTMENT-INCOME> (604)
<REALIZED-GAINS-CURRENT> (16,114)
<APPREC-INCREASE-CURRENT> 6,377
<NET-CHANGE-FROM-OPS> (10,340)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0 <F1>
<DISTRIBUTIONS-OF-GAINS> (978) <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,955 <F1>
<NUMBER-OF-SHARES-REDEEMED> (6,399) <F1>
<SHARES-REINVESTED> 67 <F1>
<NET-CHANGE-IN-ASSETS> 30,383
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,181
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,051
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,049
<AVERAGE-NET-ASSETS> 117,363 <F1>
<PER-SHARE-NAV-BEGIN> 13.77 <F1>
<PER-SHARE-NII> (0.03) <F1>
<PER-SHARE-GAIN-APPREC> (0.83) <F1>
<PER-SHARE-DIVIDEND> 0.00 <F1>
<PER-SHARE-DISTRIBUTIONS> (0.11) <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.80 <F1>
<EXPENSE-RATIO> 1.32 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN PARK AVENUE SMALL CAP FUND CLASS B
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> THE GUARDIAN PARK AVENUE SMALL CAP FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 135,605
<INVESTMENTS-AT-VALUE> 152,499
<RECEIVABLES> 1,711
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 154,211
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,564
<TOTAL-LIABILITIES> 4,564
<SENIOR-EQUITY> 117
<PAID-IN-CAPITAL-COMMON> 148,716
<SHARES-COMMON-STOCK> 1,754 <F1>
<SHARES-COMMON-PRIOR> 1,335 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (16,081)
<ACCUM-APPREC-OR-DEPREC> 16,894
<NET-ASSETS> 22,122 <F1>
<DIVIDEND-INCOME> 996
<INTEREST-INCOME> 449
<OTHER-INCOME> 0
<EXPENSES-NET> 2,049
<NET-INVESTMENT-INCOME> (604)
<REALIZED-GAINS-CURRENT> (16,114)
<APPREC-INCREASE-CURRENT> 6,377
<NET-CHANGE-FROM-OPS> (10,340)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0 <F1>
<DISTRIBUTIONS-OF-GAINS> (203) <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 948 <F1>
<NUMBER-OF-SHARES-REDEEMED> (543) <F1>
<SHARES-REINVESTED> 15 <F1>
<NET-CHANGE-IN-ASSETS> 30,383
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,181
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,051
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,049
<AVERAGE-NET-ASSETS> 22,837 <F1>
<PER-SHARE-NAV-BEGIN> 13.67 <F1>
<PER-SHARE-NII> (0.15) <F1>
<PER-SHARE-GAIN-APPREC> (0.80) <F1>
<PER-SHARE-DIVIDEND> 0.00 <F1>
<PER-SHARE-DISTRIBUTIONS> (0.11) <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.61 <F1>
<EXPENSE-RATIO> 2.17 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN ASSET ALLOCATION FUND CLASS A
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> THE GUARDIAN ASSET ALLOCATION FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 201,513
<INVESTMENTS-AT-VALUE> 222,414
<RECEIVABLES> 827
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 223,241
<PAYABLE-FOR-SECURITIES> 145
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 723
<TOTAL-LIABILITIES> 868
<SENIOR-EQUITY> 151
<PAID-IN-CAPITAL-COMMON> 193,546
<SHARES-COMMON-STOCK> 13,183 <F1>
<SHARES-COMMON-PRIOR> 9,744 <F1>
<ACCUMULATED-NII-CURRENT> 48
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,273
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,355
<NET-ASSETS> 194,827 <F1>
<DIVIDEND-INCOME> 2,782
<INTEREST-INCOME> 2,983
<OTHER-INCOME> 0
<EXPENSES-NET> 1,282
<NET-INVESTMENT-INCOME> 4,483
<REALIZED-GAINS-CURRENT> 24,550
<APPREC-INCREASE-CURRENT> 4,998
<NET-CHANGE-FROM-OPS> 34,031
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,972) <F1>
<DISTRIBUTIONS-OF-GAINS> (18,145) <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,552 <F1>
<NUMBER-OF-SHARES-REDEEMED> (1,642) <F1>
<SHARES-REINVESTED> 1,529 <F1>
<NET-CHANGE-IN-ASSETS> 71,358
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,401
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,199
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,282
<AVERAGE-NET-ASSETS> 163,978 <F1>
<PER-SHARE-NAV-BEGIN> 14.05 <F1>
<PER-SHARE-NII> 0.39 <F1>
<PER-SHARE-GAIN-APPREC> 2.31 <F1>
<PER-SHARE-DIVIDEND> (0.43) <F1>
<PER-SHARE-DISTRIBUTIONS> (1.54) <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.78 <F1>
<EXPENSE-RATIO> 0.60 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN ASSET ALLOCATION FUND CLASS B
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> THE GUARDIAN ASSET ALLOCATION FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 201,513
<INVESTMENTS-AT-VALUE> 222,414
<RECEIVABLES> 827
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 223,241
<PAYABLE-FOR-SECURITIES> 145
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 723
<TOTAL-LIABILITIES> 868
<SENIOR-EQUITY> 151
<PAID-IN-CAPITAL-COMMON> 193,546
<SHARES-COMMON-STOCK> 1,870 <F1>
<SHARES-COMMON-PRIOR> 1,004 <F1>
<ACCUMULATED-NII-CURRENT> 48
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,273
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,355
<NET-ASSETS> 27,545 <F1>
<DIVIDEND-INCOME> 2,782
<INTEREST-INCOME> 2,983
<OTHER-INCOME> 0
<EXPENSES-NET> 1,282
<NET-INVESTMENT-INCOME> 4,483
<REALIZED-GAINS-CURRENT> 24,550
<APPREC-INCREASE-CURRENT> 4,998
<NET-CHANGE-FROM-OPS> 34,031
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (455) <F1>
<DISTRIBUTIONS-OF-GAINS> (2,541) <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 828 <F1>
<NUMBER-OF-SHARES-REDEEMED> (159) <F1>
<SHARES-REINVESTED> 197 <F1>
<NET-CHANGE-IN-ASSETS> 71,358
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,401
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,199
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,282
<AVERAGE-NET-ASSETS> 20,462 <F1>
<PER-SHARE-NAV-BEGIN> 14.00 <F1>
<PER-SHARE-NII> 0.24 <F1>
<PER-SHARE-GAIN-APPREC> 2.31 <F1>
<PER-SHARE-DIVIDEND> (0.28) <F1>
<PER-SHARE-DISTRIBUTIONS> (1.54) <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.73 <F1>
<EXPENSE-RATIO> 1.48 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND CLASS A
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 79,380
<INVESTMENTS-AT-VALUE> 103,590
<RECEIVABLES> 1,144
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,735
<PAYABLE-FOR-SECURITIES> 12
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 635
<TOTAL-LIABILITIES> 647
<SENIOR-EQUITY> 57
<PAID-IN-CAPITAL-COMMON> 79,594
<SHARES-COMMON-STOCK> 5,100 <F1>
<SHARES-COMMON-PRIOR> 4,166 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (607)
<ACCUMULATED-NET-GAINS> 854
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,189
<NET-ASSETS> 93,871 <F1>
<DIVIDEND-INCOME> 1,172
<INTEREST-INCOME> 197
<OTHER-INCOME> 0
<EXPENSES-NET> 1,465
<NET-INVESTMENT-INCOME> (96)
<REALIZED-GAINS-CURRENT> 4,323
<APPREC-INCREASE-CURRENT> 11,034
<NET-CHANGE-FROM-OPS> 15,261
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28) <F1>
<DISTRIBUTIONS-OF-GAINS> (3,900) <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,077 <F1>
<NUMBER-OF-SHARES-REDEEMED> (4,337) <F1>
<SHARES-REINVESTED> 194 <F1>
<NET-CHANGE-IN-ASSETS> 30,820
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 969
<OVERDISTRIB-NII-PRIOR> (597)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 705
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,465
<AVERAGE-NET-ASSETS> 79,980 <F1>
<PER-SHARE-NAV-BEGIN> 16.08 <F1>
<PER-SHARE-NII> 0.02 <F1>
<PER-SHARE-GAIN-APPREC> 3.13 <F1>
<PER-SHARE-DIVIDEND> (0.01) <F1>
<PER-SHARE-DISTRIBUTIONS> (0.81) <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.41 <F1>
<EXPENSE-RATIO> 1.56 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND CLASS B
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 8
<NAME> THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 79,380
<INVESTMENTS-AT-VALUE> 103,590
<RECEIVABLES> 1,144
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,735
<PAYABLE-FOR-SECURITIES> 12
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 635
<TOTAL-LIABILITIES> 647
<SENIOR-EQUITY> 57
<PAID-IN-CAPITAL-COMMON> 79,594
<SHARES-COMMON-STOCK> 569 <F1>
<SHARES-COMMON-PRIOR> 395 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (607)
<ACCUMULATED-NET-GAINS> 854
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,189
<NET-ASSETS> 10,216 <F1>
<DIVIDEND-INCOME> 1,172
<INTEREST-INCOME> 197
<OTHER-INCOME> 0
<EXPENSES-NET> 1,465
<NET-INVESTMENT-INCOME> (96)
<REALIZED-GAINS-CURRENT> 4,323
<APPREC-INCREASE-CURRENT> 11,034
<NET-CHANGE-FROM-OPS> 15,261
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0 <F1>
<DISTRIBUTIONS-OF-GAINS> (424) <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 207 <F1>
<NUMBER-OF-SHARES-REDEEMED> (57) <F1>
<SHARES-REINVESTED> 23 <F1>
<NET-CHANGE-IN-ASSETS> 30,820
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 969
<OVERDISTRIB-NII-PRIOR> (597)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 705
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,465
<AVERAGE-NET-ASSETS> 8,165 <F1>
<PER-SHARE-NAV-BEGIN> 15.87 <F1>
<PER-SHARE-NII> (0.09) <F1>
<PER-SHARE-GAIN-APPREC> 3.00 <F1>
<PER-SHARE-DIVIDEND> 0 <F1>
<PER-SHARE-DISTRIBUTIONS> (0.81) <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.97 <F1>
<EXPENSE-RATIO> 2.67 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND CLASS A
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 9
<NAME> THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 19,923
<INVESTMENTS-AT-VALUE> 17,221
<RECEIVABLES> 691
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,922
<PAYABLE-FOR-SECURITIES> 69
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 143
<TOTAL-LIABILITIES> 213
<SENIOR-EQUITY> 27
<PAID-IN-CAPITAL-COMMON> 26,553
<SHARES-COMMON-STOCK> 2,455 <F1>
<SHARES-COMMON-PRIOR> 2,289 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (39)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6,144)
<ACCUM-APPREC-OR-DEPREC> (2,688)
<NET-ASSETS> 16,342 <F1>
<DIVIDEND-INCOME> 430
<INTEREST-INCOME> 116
<OTHER-INCOME> 0
<EXPENSES-NET> 551
<NET-INVESTMENT-INCOME> (5)
<REALIZED-GAINS-CURRENT> (5,496)
<APPREC-INCREASE-CURRENT> (1,649)
<NET-CHANGE-FROM-OPS> (7,150)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6) <F1>
<DISTRIBUTIONS-OF-GAINS> (1) <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 308 <F1>
<NUMBER-OF-SHARES-REDEEMED> (143) <F1>
<SHARES-REINVESTED> 1 <F1>
<NET-CHANGE-IN-ASSETS> (5,772)
<ACCUMULATED-NII-PRIOR> 6
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (797)
<GROSS-ADVISORY-FEES> 200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 551
<AVERAGE-NET-ASSETS> 18,374 <F1>
<PER-SHARE-NAV-BEGIN> 9.38 <F1>
<PER-SHARE-NII> 0.01 <F1>
<PER-SHARE-GAIN-APPREC> (2.73) <F1>
<PER-SHARE-DIVIDEND> 0 <F1>
<PER-SHARE-DISTRIBUTIONS> 0 <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.66 <F1>
<EXPENSE-RATIO> 2.55 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND CLASS B
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 19,923
<INVESTMENTS-AT-VALUE> 17,221
<RECEIVABLES> 691
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,922
<PAYABLE-FOR-SECURITIES> 69
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 143
<TOTAL-LIABILITIES> 213
<SENIOR-EQUITY> 27
<PAID-IN-CAPITAL-COMMON> 26,553
<SHARES-COMMON-STOCK> 212 <F1>
<SHARES-COMMON-PRIOR> 216 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (39)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6,144)
<ACCUM-APPREC-OR-DEPREC> (2,688)
<NET-ASSETS> 1,367 <F1>
<DIVIDEND-INCOME> 430
<INTEREST-INCOME> 116
<OTHER-INCOME> 0
<EXPENSES-NET> 551
<NET-INVESTMENT-INCOME> (5)
<REALIZED-GAINS-CURRENT> (5,496)
<APPREC-INCREASE-CURRENT> (1,649)
<NET-CHANGE-FROM-OPS> (7,150)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0 <F1>
<DISTRIBUTIONS-OF-GAINS> 0 <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37 <F1>
<NUMBER-OF-SHARES-REDEEMED> (41) <F1>
<SHARES-REINVESTED> 0 <F1>
<NET-CHANGE-IN-ASSETS> (5,772)
<ACCUMULATED-NII-PRIOR> 6
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (797)
<GROSS-ADVISORY-FEES> 200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 551
<AVERAGE-NET-ASSETS> 1,636 <F1>
<PER-SHARE-NAV-BEGIN> 9.30 <F1>
<PER-SHARE-NII> (0.18) <F1>
<PER-SHARE-GAIN-APPREC> (2.68) <F1>
<PER-SHARE-DIVIDEND> 0 <F1>
<PER-SHARE-DISTRIBUTIONS> 0 <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.44 <F1>
<EXPENSE-RATIO> 5.04 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN INVESTMENT QUALITY BOND FUND
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> THE GUARDIAN INVESTMENT QUALITY BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 168,449
<INVESTMENTS-AT-VALUE> 169,551
<RECEIVABLES> 1,299
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 170,849
<PAYABLE-FOR-SECURITIES> 27,949
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 702
<TOTAL-LIABILITIES> 28,652
<SENIOR-EQUITY> 142
<PAID-IN-CAPITAL-COMMON> 140,633
<SHARES-COMMON-STOCK> 14,233 <F1>
<SHARES-COMMON-PRIOR> 9,987 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 321
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,102
<NET-ASSETS> 142,199 <F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,523
<OTHER-INCOME> 0
<EXPENSES-NET> 1,053
<NET-INVESTMENT-INCOME> 6,470
<REALIZED-GAINS-CURRENT> 2,736
<APPREC-INCREASE-CURRENT> 301
<NET-CHANGE-FROM-OPS> 9,507
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,470) <F1>
<DISTRIBUTIONS-OF-GAINS> (2,157) <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,257 <F1>
<NUMBER-OF-SHARES-REDEEMED> (1,849) <F1>
<SHARES-REINVESTED> 838 <F1>
<NET-CHANGE-IN-ASSETS> 43,264
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (272)
<GROSS-ADVISORY-FEES> 617
<INTEREST-EXPENSE> 127
<GROSS-EXPENSE> 1,307
<AVERAGE-NET-ASSETS> 123,470 <F1>
<PER-SHARE-NAV-BEGIN> 9.91 <F1>
<PER-SHARE-NII> 0.53 <F1>
<PER-SHARE-GAIN-APPREC> 0.23 <F1>
<PER-SHARE-DIVIDEND> (0.53) <F1>
<PER-SHARE-DISTRIBUTIONS> (0.15) <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99 <F1>
<EXPENSE-RATIO> 0.85 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN HIGH YIELD BOND FUND CLASS A
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 15
<NAME> THE GUARDIAN HIGH YIELD BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 52,332
<INVESTMENTS-AT-VALUE> 52,611
<RECEIVABLES> 1,258
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53,869
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 98
<TOTAL-LIABILITIES> 98
<SENIOR-EQUITY> 55
<PAID-IN-CAPITAL-COMMON> 53,344
<SHARES-COMMON-STOCK> 5,214 <F1>
<SHARES-COMMON-PRIOR> 0 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 92
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 279
<NET-ASSETS> 51,288 <F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,606
<OTHER-INCOME> 0
<EXPENSES-NET> 144
<NET-INVESTMENT-INCOME> 1,461
<REALIZED-GAINS-CURRENT> 92
<APPREC-INCREASE-CURRENT> 279
<NET-CHANGE-FROM-OPS> 1,833
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,412) <F1>
<DISTRIBUTIONS-OF-GAINS> 0 <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,074 <F1>
<NUMBER-OF-SHARES-REDEEMED> (6) <F1>
<SHARES-REINVESTED> 146 <F1>
<NET-CHANGE-IN-ASSETS> 53,771
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 106
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 234
<AVERAGE-NET-ASSETS> 34,841 <F1>
<PER-SHARE-NAV-BEGIN> 9.26 <F1>
<PER-SHARE-NII> 0.38 <F1>
<PER-SHARE-GAIN-APPREC> 0.58 <F1>
<PER-SHARE-DIVIDEND> (0.38) <F1>
<PER-SHARE-DISTRIBUTIONS> 0 <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.84 <F1>
<EXPENSE-RATIO> 0.75 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN HIGH YIELD BOND FUND CLASS B
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 16
<NAME> THE GUARDIAN HIGH YIELD BOND FUND CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 52,332
<INVESTMENTS-AT-VALUE> 52,611
<RECEIVABLES> 1,258
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53,869
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 98
<TOTAL-LIABILITIES> 98
<SENIOR-EQUITY> 55
<PAID-IN-CAPITAL-COMMON> 53,344
<SHARES-COMMON-STOCK> 253 <F1>
<SHARES-COMMON-PRIOR> 0 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 92
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 279
<NET-ASSETS> 2,482 <F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,606
<OTHER-INCOME> 0
<EXPENSES-NET> 144
<NET-INVESTMENT-INCOME> 1,461
<REALIZED-GAINS-CURRENT> 92
<APPREC-INCREASE-CURRENT> 279
<NET-CHANGE-FROM-OPS> 1,833
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (49) <F1>
<DISTRIBUTIONS-OF-GAINS> 0 <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 261 <F1>
<NUMBER-OF-SHARES-REDEEMED> (14) <F1>
<SHARES-REINVESTED> 5 <F1>
<NET-CHANGE-IN-ASSETS> 53,771
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 106
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 234
<AVERAGE-NET-ASSETS> 1,469 <F1>
<PER-SHARE-NAV-BEGIN> 9.26 <F1>
<PER-SHARE-NII> 0.31 <F1>
<PER-SHARE-GAIN-APPREC> 0.57 <F1>
<PER-SHARE-DIVIDEND> (0.31) <F1>
<PER-SHARE-DISTRIBUTIONS> 0 <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.83 <F1>
<EXPENSE-RATIO> 2.33 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN TAX EXEMPT FUND
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 12
<NAME> THE GUARDIAN TAX EXEMPT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 69,512
<INVESTMENTS-AT-VALUE> 71,308
<RECEIVABLES> 1,628
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 72,936
<PAYABLE-FOR-SECURITIES> 2,083
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133
<TOTAL-LIABILITIES> 2,216
<SENIOR-EQUITY> 70
<PAID-IN-CAPITAL-COMMON> 68,812
<SHARES-COMMON-STOCK> 6,978 <F1>
<SHARES-COMMON-PRIOR> 4,742 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 42
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,797
<NET-ASSETS> 70,720 <F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,574
<OTHER-INCOME> 0
<EXPENSES-NET> 383
<NET-INVESTMENT-INCOME> 2,191
<REALIZED-GAINS-CURRENT> 582
<APPREC-INCREASE-CURRENT> 209
<NET-CHANGE-FROM-OPS> 2,982
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,191) <F1>
<DISTRIBUTIONS-OF-GAINS> (174) <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,185 <F1>
<NUMBER-OF-SHARES-REDEEMED> (179) <F1>
<SHARES-REINVESTED> 231 <F1>
<NET-CHANGE-IN-ASSETS> 23,360
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (366)
<GROSS-ADVISORY-FEES> 255
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 515
<AVERAGE-NET-ASSETS> 51,081 <F1>
<PER-SHARE-NAV-BEGIN> 9.99 <F1>
<PER-SHARE-NII> 0.43 <F1>
<PER-SHARE-GAIN-APPREC> 0.17 <F1>
<PER-SHARE-DIVIDEND> (0.43) <F1>
<PER-SHARE-DISTRIBUTIONS> (0.03) <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.13 <F1>
<EXPENSE-RATIO> 0.75 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN CASH MANAGEMENT FUND CLASS A
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 13
<NAME> THE GUARDIAN CASH MANAGEMENT FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 237,915
<INVESTMENTS-AT-VALUE> 237,915
<RECEIVABLES> 13,948
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 251,863
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,436
<TOTAL-LIABILITIES> 13,436
<SENIOR-EQUITY> 2,384
<PAID-IN-CAPITAL-COMMON> 236,042
<SHARES-COMMON-STOCK> 225,997 <F1>
<SHARES-COMMON-PRIOR> 132,523 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 225,997 <F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,994
<OTHER-INCOME> 0
<EXPENSES-NET> 1,546
<NET-INVESTMENT-INCOME> 8,448
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,448
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,075) <F1>
<DISTRIBUTIONS-OF-GAINS> 0 <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 754,062 <F1>
<NUMBER-OF-SHARES-REDEEMED> (668,353) <F1>
<SHARES-REINVESTED> 7,764 <F1>
<NET-CHANGE-IN-ASSETS> 100,039
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 909
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,946
<AVERAGE-NET-ASSETS> 173,804 <F1>
<PER-SHARE-NAV-BEGIN> 1.00 <F1>
<PER-SHARE-NII> 0.047 <F1>
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> (0.047) <F1>
<PER-SHARE-DISTRIBUTIONS> 0 <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00 <F1>
<EXPENSE-RATIO> 0.85 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE GUARDIAN CASH MANAGEMENT FUND CLASS B
This schedule contains financial information extracted from the "Semiannual
Report to Shareholders" dated December 31, 1998, and is qualified in its
entirety to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 14
<NAME> THE GUARDIAN CASH MANAGEMENT FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 237,915
<INVESTMENTS-AT-VALUE> 237,915
<RECEIVABLES> 13,948
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 251,863
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,436
<TOTAL-LIABILITIES> 13,436
<SENIOR-EQUITY> 2,384
<PAID-IN-CAPITAL-COMMON> 236,042
<SHARES-COMMON-STOCK> 12,430 <F1>
<SHARES-COMMON-PRIOR> 5,864 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 12,430 <F1>
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,994
<OTHER-INCOME> 0
<EXPENSES-NET> 1,546
<NET-INVESTMENT-INCOME> 8,448
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,448
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (373) <F1>
<DISTRIBUTIONS-OF-GAINS> 0 <F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,314 <F1>
<NUMBER-OF-SHARES-REDEEMED> (20,080) <F1>
<SHARES-REINVESTED> 332 <F1>
<NET-CHANGE-IN-ASSETS> 100,039
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 390
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,946
<AVERAGE-NET-ASSETS> 8,052 <F1>
<PER-SHARE-NAV-BEGIN> 1.00 <F1>
<PER-SHARE-NII> 0.047 <F1>
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> (0.047) <F1>
<PER-SHARE-DISTRIBUTIONS> 0 <F1>
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00 <F1>
<EXPENSE-RATIO> 0.85 <F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
