-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LDynKtIG0N71vyTrKupGXuVdhIC2o3mzln6eGKSphy5L3s9JloINat1uVjWppXMW aNesdJKXNjUaqg3V7sgPaA== 0000950123-03-002582.txt : 20030307 0000950123-03-002582.hdr.sgml : 20030307 20030307125811 ACCESSION NUMBER: 0000950123-03-002582 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030307 EFFECTIVENESS DATE: 20030307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARK AVENUE PORTFOLIO CENTRAL INDEX KEY: 0000837910 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05641 FILM NUMBER: 03595775 BUSINESS ADDRESS: STREET 1: 7 HANOVER SQUARE 19-C CITY: NEW YORK STATE: NY ZIP: 10003 BUSINESS PHONE: 2125988818 MAIL ADDRESS: STREET 1: 7 HANOVER SQUARE 19-C CITY: NEW YORK STATE: NY ZIP: 10004 FORMER COMPANY: FORMER CONFORMED NAME: GUARDIAN U S GOVERNMENT TRUST DATE OF NAME CHANGE: 19920703 N-CSR 1 y66693ncnvcsr.txt PARK AVENUE PORTFOLIO UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-05641 -------------------------------------------------------------------------- The Park Avenue Portfolio -------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 7 Hanover Square New York, N.Y. 10004 -------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Frank L. Pepe Thomas G. Sorell The Park Avenue Portfolio The Park Avenue Portfolio 7 Hanover Square 7 Hanover Square New York, N.Y. 10004 New York, N.Y. 10004 - -------------------------------------------------------------------------------- (Name and address of agents for service) Registrant's telephone number, including area code: (800) 221-3253 ---------------------------------------------------------------------------- Date of fiscal year end: December 31 ---------------------------------------------------------------------------- Date of reporting period: December 31, 2002 ---------------------------------------------------------------------------- ITEM 1. REPORTS TO STOCKHOLDERS. The Annual Report to Stockholders follows. ANNUAL REPORT TO SHAREHOLDERS [GUARDIAN LOGO] ANNUAL REPORT TO SHAREHOLDERS December 31, 2002 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 S&P 500 Index 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) DEAR SHAREHOLDER: [PHOTO] "NOTHING BUT THE UNEXPECTED" Thomas G. Sorell, C.F.A. Chief Investment Officer As year 2002 commenced, many investors expected the economy to recover from the recession with improving prospects for the stock market. Many economic forecasts assumed the Federal Reserve Board (Fed) would tighten monetary policy as early as May, and that interest rates would rise over the course of the year. During 2002, the U.S. economy grew at an annual pace of 2.4% (5.0% in the first quarter, 1.3% in the second, 4.0% in the third, and 0.7% in the fourth quarter). How- ever, any "recovery" was deemed anemic, and its future considered uncertain by the capital markets. Forecasts of higher stock prices and interest rates could not have been further off the mark. In the midst of this modest economic recovery, what precipitated such a dramatic decline in the U.S. equity markets and interest rates? In order to understand some of the factors that contributed to these unexpected results, let us first review the major financial events of 2002.
THE YEAR IN REVIEW The year 2002 will unfortunately be remembered as a year in which investor confidence was further shaken by a series of corporate scandals and bankruptcies. It was also the third year in a row the U.S. equity markets, as measured by the S&P 500 Index,(1) declined, an event that has not occurred since 1939-1941. From peak to trough (March 2000 to October 2002), and excluding dividends, a return of -49.15% marked the worst decline in the stock market since the 1973-1974 return of -48.20%. The S&P 500 Index lost 22.10% in value during 2002, a greater loss than the two previous years combined (-9.1% and - -11.9%, respectively) and its worst year since 1974. Instead of seeing interest rates rise, investors watched yields fall to four decade lows. For stock investors, 2002 was truly annus horribilus as investors withdrew $27.1 billion from equity mutual funds and instead invested $140.5 billion in fixed income. In addition, the overall credit quality of corporate America deteriorated as an unprecedented amount of corporate debt, $142.0 billion for 318 companies, was downgraded by the rating agencies to below investment grade ("fallen angels"). WorldCom, Qwest, El Paso, Tyco and Williams accounted for $63.4 billion of that debt. During 2002, the default rate was a record high 0.60% among investment grade bonds and 7.32% among speculative grade bonds. While conventional wisdom early in 2002 expected a modest economic recovery, most investors remained cautious at the outset, given the post 9/11 terrorist threats and the war in Afghanistan. In January 2002, geopolitical risk and the U.S. policy response to it was delineated in President Bush's "State of the Union" address in which he identified Iraq, Iran and North Korea as the "Axis of Evil" and made fighting terrorism a priority. The U.S. stock market, as measured by the S&P 500 Index, lost almost 3.5% in value during the first two months of the year and reversed course in March as prospects for corporate profits appeared to improve. After-tax corporate profits(2) had risen 30.5% during the fourth quarter in 2001, signaling a profits recovery ahead in 2002. We ended the first quarter at basically the same levels as we started the quarter, with the S&P 500 Index returning 0.28%, while the Dow Jones Industrial Average (DJIA)(3) earned 4.26%, the Russell 2000 Index(4) earned 3.99%, and the NASDAQ Composite Index(5) still suffering under the weight of the poor performing telecommunications and technology sectors, lost 5.31%. As first quarter economic indicators provided evidence of renewed growth, Treasury yields rose with the ten-year rate jumping to 5.40%, or almost 0.6%, higher than the quarter low. While the first quarter was of little consequence to most investors, the second and third quarters were devastating to equity investors and precipitated a decline in interest rates that few had expected. During the second and third quarters, investors lost confidence in audited financial statements as they witnessed the declining veracity of corporate leadership and the magnitude and pervasiveness of corporate malfeasance. Five of the eight largest bankruptcies ever to be filed occurred in 2002, with the WorldCom bankruptcy representing the largest filing in U.S. history to-date at $41 billion in debt. In this environment, equity volatility reached levels not seen since 1938. During 2002, the S&P 500 Index moved more than 1% at a ratio of about one out of every two trading days. During the third quarter, such moves occurred at a ratio of about two out of every three trading days. The - -------------------- (1) The S&P 500 Index is an unmanaged index of 500 primarily large-cap U.S. stocks that is generally considered to be representative of U.S. stock market activity. The S&P 500 Index is not available for direct investment. (2) As reported in the U.S. Department of Commerce Bureau of Economic Analysis January 30, 2003 National Income and Product Accounts (NIPA) Tables. (3) The Dow Jones Industrial Average (DJIA) is an unmanaged index of 30 industrial stocks listed on the New York Stock Exchange that is generally considered to be representative of U.S. stock market activity. The DJIA is not available for direct investment. (4) The Russell 2000 Index is an unmanaged index that is generally considered to be representative of small capitalization issues in the U.S. stock market. The Russell 2000 Index is not available for direct investment. (5) The NASDAQ Composite Index is a broad-based capitalization-weighted index of all NASDAQ National Market stocks. The Index is not available for direct investment. - -------------------------------------------------------------------------------- VIX Index,(6) another measure of equity volatility, averaged 31.6 during the second and third quarter, peaking at 50.5 on July 23, 2002, versus a seventeen-year average of 21.6. Understandably, investors seriously began to question the quality of reported earnings, as well as the very definition of operating earnings. Concerns regarding the treatment of employee stock options, pension fund returns, expense assumptions, and "one time" expenses raised fundamental issues regarding investors' ability to assess equity valuations. The SEC announced in April it was looking into the accounting practices of several large U.S. companies. In June, Tyco announced the resignation of its CEO based on allegations that he misused corporate funds and engaged in questionable accounting practices. The second quarter closed with allegations that WorldCom committed one of the biggest accounting frauds on record, while Adelphia Communications announced its plans to file for bankruptcy amidst allegations of corporate self-dealing. The S&P 500 Index lost 13.40% during the second quarter. There was little relief in sight, when early in the third quarter the Justice Department announced it would begin a criminal probe of Qwest. As if that wasn't enough, investors' trust in equity research analysts was severely tested when e-mails were released by State of New York Attorney General Eliot Spitzer which revealed analysts had privately disparaged stocks that they had publicly recommended to their clients. Investigators also revealed that it was common practice among the investment banks to allocate large chunks of sought-after IPOs to the personal brokerage accounts of corporate CEOs who were in a position to direct future investment banking business. With a parade of CEOs being led away in handcuffs, investors were losing faith in the integrity of key business managers. The pressing need to improve corporate ethics clearly marked the nadir in recent U.S. business history and led to the passage, in July, of the landmark ethics legislation for public companies, the Sarbanes-Oxley Act. This act established a new accounting oversight board, required CEOs and Chief Financial Officers (CFOs) to sign-off on their companies financial statements, and instituted wide-ranging ethics rules in corporate governance and relationships with independent accountants. During July, daily volatility in the U.S. equity markets was enormous as moves of 2% or more a day became common. By July 22, the DJIA experienced its worst two-week decline since the 1987 crash, and was at its lowest level (7784) since October 1998. The following day, the S&P 500 Index closed below 800 (797.70) for the first time since May 1997. The market later reversed course when it commenced a brief, month-long summer rally driving the S&P 500 Index up almost 21% to 963 by August 22. In August, the Fed, increasingly concerned about the stability of the economic recovery, changed its policy bias from a balanced perspective to one of weakness, but left rates unchanged. The markets were disappointed by lack of Fed action and the stock market euphoria was short-lived as companies began cutting third quarter earnings forecasts. One month later, as the third quarter came to a close, the S&P 500 Index reversed all of its summer gains and fell back to near 800 (815.2), losing 17.28% during the quarter. While U.S. equity markets were volatile and declining during the second and third quarters, historically low interest rates provided a bonanza for consumers. U.S. auto manufacturers competed for market share and, desperate to stimulate sales, provided zero percent financing and attractive incentives to motivate consumers to purchase new vehicles. As 30-year mortgage rates fell below 6% for the first time since 1965, borrowers rushed to refinance their homes and reduce their monthly interest burden, often extracting some of their home's appreciation in cash-out refinancings. Approximately $1.5 trillion in mortgage refinancing occurred in 2002, far surpassing the prior peak of $750 billion in 1998. As consumers received these funds, many spent part of the proceeds, which boosted consumer spending and continued to support a fragile economic recovery. As U.S. equity market losses approached 30% in value during the second and third quarters, fears grew of a double dip recession and deflation. Interest rates responded with a steady decline from the beginning of second quarter to the end of third quarter, as investors sought a safe haven in U.S. Treasuries from the volatility and losses experienced in the equity market. The ten-year Treasury rate that ended the first quarter at 5.40% declined by 1.8% to 3.60% at the end of the third quarter. Many investors feared opening their third quarter 401(k) statements; they were increasingly concerned about their retirement plans and their commitment to equity investments. The -17.28% return of the S&P 500 Index during the third quarter was its worst quarterly return since the fourth quarter of 1987. Through September 30, 2002, stocks had underperformed versus long-term government bonds(7) during the last 5 years, 10 years, and 15 years. Investor enthusiasm for stocks was understandably low as evidenced by an outflow of $71.9 billion from stock funds during the third quarter and a corresponding inflow of $61.4 billion to bond funds. The fourth quarter began with a reminder of the geopolitical risk that confronted the economy and our markets. Early in October, Congress approved the Bush Administration's request for a war resolution to attack Iraq if UN - -------------------- (6) The Chicago Board Options Exchange (CBOE) Market Volatility Index, or simply the VIX index, is constructed from the implied volatilities of S&P 100 index options traded on the CBOE. It represents a market consensus view of expected volatility of the S&P 100 index. Research indicates that over its seventeen-year history, it has reliably acted as a gauge of investor fear or risk aversion. High levels of the VIX have coincided with high degrees of market turmoil. (7) As measured by the Ibbotson Long-Term Government Index which is an unmanaged Index that is generally considered to be representative of U.S. long-term government bond market activity. The Index is not available for direct investment. - -------------------------------------------------------------------------------- inspection and disarmament efforts failed. We were reminded of terrorist threats when several hundred tourists in Bali, Indonesia were killed by a car bomb. On October 9, the S&P 500 Index closed below 800 for the last time during the year. On that same day, the rate on the ten-year Treasury bond hit a low for the year of 3.56%. During the fourth quarter, the S&P 500 Index returned 8.44%. This was fueled by a speculative rally in technology stocks, as the NASDAQ returned 14.07% during this same period. Many of the stocks that had suffered most during the first three quarters of 2002 rallied significantly. Risk aversion and volatility declined as evidenced by a drop in the VIX Index, which fell from 44.6 at the end of the third quarter to 32 at year-end. When the real GDP(8) for the third quarter was reported in October on a preliminary basis to have increased 3.1%, and later revised to 4%, investor confidence was partially restored and it was thought that the economy was once again on the road to recovery. As the stock market rallied, Treasuries once again reversed course and interest rates rose as the ten-year Treasury was back up to 4.26% in October. However, in November the Fed became increasingly concerned that the economy had hit a "soft patch" and surprised the markets when they lowered the Fed funds rate by 0.5% to 1.25%. As the quarter ended, economic estimates for growth in the final quarter of 2002 were slashed below 2% and Treasuries declined once again. The ten-year Treasury closed the year at 3.82%, only 0.25% off the year's low and 1.21% lower than at the start of the year. 2002 RATES OF RETURN
- --------------------------------------------------------------------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER - --------------------------------------------------------------------------------------------------------------- S&P 500 Index 0.28 -13.40 -17.28 8.44 - --------------------------------------------------------------------------------------------------------------- DJIA 4.26 -10.72 -17.45 10.59 - --------------------------------------------------------------------------------------------------------------- NASDAQ -5.31 -20.64 -19.82 14.07 - --------------------------------------------------------------------------------------------------------------- Russell 2000 3.99 -8.35 -21.39 6.17 - --------------------------------------------------------------------------------------------------------------- The Lehman Aggregate Bond Index(9) 0.09 3.69 4.58 1.57 - --------------------------------------------------------------------------------------------------------------- The Lehman Municipal Bond Index(9) 0.94 3.66 4.75 0.00 - --------------------------------------------------------------------------------------------------------------- The Lehman High Yield Bond Index(9) 1.68 -6.41 -2.93 6.74 - --------------------------------------------------------------------------------------------------------------- - --------------------- -------------------- 2002 - --------------------- -------------------- S&P 500 Index -22.10 - ------------------------------------------- DJIA -15.02 - ------------------------------------------- NASDAQ -31.27 - ------------------------------------------- Russell 2000 -20.47 - ------------------------------------------- The Lehman Aggregate Bond Index(9) 10.26 - ------------------------------------------- The Lehman Municipal Bond Index(9) 9.60 - ------------------------------------------- The Lehman High Yield Bond Index(9) -1.41 - -------------------------------------------
Undoubtedly, concerns about poor corporate profits, the sustainability of economic growth, the loss of investor confidence in reported earnings, and geopolitical risk all contributed to the poor performance of U.S. equity markets and the dramatic decline in interest rates in 2002. The questions going forward are what ails the U.S. economy and what are its prospects in 2003? AN UNUSUAL RECESSION To analyze what ails the U.S. economy, we need to take a closer look at the 2001 recession. The 2001 recession was very unusual. This recession was not caused by rapid economic growth and inflationary pressures, but instead by the bursting of an asset bubble and a precipitous decline in capital spending and corporate profitability. This recession has often been characterized as the business or "profits led" recession. While the economy did recover in 2002, its performance was clearly erratic with real GDP oscillating from 5% in the first quarter to 0.7% in the fourth. Not only is this recession unusual, but so too is the recovery. On average, the typical post WWII recovery has experienced real GDP growth of 7% in the first year after recession. The 2002 recovery was just 2.4%. Consumer willingness and ability to continue spending during the 2001 recession is the principal reason it has been considered statistically mild by historical standards. Consumption in 2001 actually grew at a 2.5% annual rate. What impeded economic growth most during the 2001 recession was the 9.3%(10) decline in business spending as well as a $158.3 billion decrease in inventory investment from fourth quarter 2000 to fourth quarter 2001. Going forward the questions are: will consumers continue to spend? When will the business sector recover and invest in capital equipment and inventories? One way to determine whether consumers will spend is to look at the impact of household debt. Household debt rose during the '90s due to increase in both mortgage debt and consumer loans. However, the decline in interest rates has eased the repayment burden. The household debt service burden as a percentage of disposable income is currently at 14%. This number has been falling since reaching a high of 14.4% during the fourth quarter of 2001. The personal savings rate is currently at 4.3% and has been rising since 2001. Thus, it appears that consumer balance sheet repair is currently underway and this could restrain consumer spending during the next year. The Fed has clearly provided additional monetary stimulus by lowering the Fed funds rate to 1.25% last year. Fiscal policy has also been extremely stimulative with two tax cuts for individuals in 2001 and another for business in 2002. Currently, the Bush Administration has proposed additional tax relief and fiscal stimulus in 2003. - -------------------- (8) Gross Domestic Product (GDP) measures the value of goods and services produced in an economy. Real GDP is the gross domestic product adjusted for changes in price level. Real GDP growth is generally used as the basis to assess economic performance. (9) The Lehman Aggregate Bond Index, The Lehman Municipal Bond Index, and The Lehman High Yield Bond Index are unmanaged indexes that are generally considered to be representative of U.S. bond market activity, U.S. municipal bond activity, and U.S. corporate high yield bond market activity, respectively. The Indexes are not available for direct investment, and their returns do not reflect the fees and expenses that have been deducted from the Fund. (10) The Nonresidential Fixed Investments (NFI) Index measures business spending on structures and equipment. - -------------------------------------------------------------------------------- While the size and timing (front-load vs back-load) of the proposed $674 billion in tax cuts may change as Congress debates the package, it appears that the 2003 stimulus at the federal level may be offset by spending cuts and tax increases at the state and municipality levels. Thus, the net boost to GDP from fiscal policy at all levels of government in 2003 may be muted. Nevertheless, while monetary policy has been successful in supporting consumer spending, the business sector has been slow to respond to this stimulus. A lack of pricing power and the difficulty that Corporate America is encountering in its attempt to increase margins and profits continues to be part of the problem. In addition, there remains tremendous excess capacity in the economy and little need to expand existing resources. Capacity utilization is currently at 75.4%, well below its seventeen-year average of 81.5%. It has been falling since it crested at 83.6% during May 2000. After-tax corporate profits(11) fell 7.1%, 4%, and 2.6% during the first three quarters of 2002, respectively. Furthermore, after the debt debacle of 2002 (bankruptcies and credit downgrades), many companies are focused on repairing over-leveraged balance sheets, not increases in capital spending. Therefore, what ails the economy is weak corporate profitability, leveraged corporate balance sheets, excess capacity and a consumer that might not continue spending at a 2% plus pace. With these background factors in mind, what should we expect in 2003? 2003 OUTLOOK Ironically, as we evaluate prospects for both the economy and the financial markets, one can't help but think of Yogi Berra's "It's deja vu all over again." Expectations for 2003 are very similar to those incorrectly forecasted at the start of 2002 with the U.S. economy facing many of the same conditions it confronted then. Most economists and forecasters may simply be adhering to the principle that eventually they have to be right, it's just a matter of when. The Blue Chip Consensus forecast(12) for real GDP growth is 2.7% in 2003, with growth accelerating from 2.6% in the first quarter to 3.8% in the fourth quarter. The Wall Street Journal survey of economists has a consensus forecast for ten-year Treasury yields at 4.42% or an increase of 0.6% from year-end 2002. A Wall Street Journal/Barron's survey of investment strategists has forecasts for the S&P 500 return during 2003 ranging between 31% and -15% with an average of 15%. So what should we expect, or more importantly, what economic factors should we monitor during the course of 2003 that might support a more hospitable environment for equity investors and provide insight on the likely direction of interest rates? As mentioned, the Fed has recently characterized U.S. economic growth as having hit a "soft patch." Will the economy continue to grow? Will it again fall into recession and economic malaise? If it does grow, from where will the impetus come from? The principal concern regarding economic growth remains: will personal consumption deteriorate before business investment picks up? There is little doubt that the most significant stimulative effect of the mortgage refinancing process is past, and that consumer spending could slow from last year's pace. With personal consumption expenditures (PCE) accounting for approximately 2/3 of total GDP, it has always been a critical factor. Despite constant fears of a consumer retrenchment tied to the tremendous loss of wealth in equities and the eight-year low in consumer confidence, consumers have proven to be resilient. The Fed has also focused its policy on supporting the consumer sector by maintaining low interest rates awaiting a business sector recovery. Furthermore, additional fiscal stimulus plans by the Bush Administration should prove supportive. While PCE is currently estimated to have increased approximately 3.1% in 2002, forecasts for 2003 are closer to 2.5%. Given the fact that even during the 2001 recession PCE grew at a 2.8% rate, we believe this estimate seems reasonable. The more difficult question and the one that will most likely contribute the most variance to any economic forecast for 2003 is: will business spending recover from the contraction experienced in 2001 (-5.2%) and in 2002?(13) The Blue Chip Consensus forecast is for business spending to grow 3.4% in 2003 versus a contraction of 5.8% in 2002. The real question here is, will Corporate America's profitability improve sufficiently for companies to once again start investing in their businesses? Some argue that technology and equipment have become dated after two years of declines in capital investments and that growth in business spending is almost inevitable. However, with many corporations focused on repairing leveraged balance sheets, and executives reluctant to increase investment until geopolitical risks abate (due to concerns that war with Iraq could disrupt economic growth), this component of GDP growth forecasts appears more vulnerable than others. On balance, we believe we can expect a continuation of sub-par economic growth of approximately 3% with greater risks to the downside given potential weakness in consumption and uncertainties in the business sector. What then should we expect from the financial markets? We believe corporate profitability will improve. With valuations finally "fair," we believe equity returns will likely remain in the high single digits, but volatility will remain high. - -------------------- (11) As reported in the U.S. Department of Commerce Bureau of Economic Analysis January 30, 2003 NIPA Tables. (12) The Blue Chip Consensus Forecast is a forecast of economic variables published monthly based on the surveys of 55 leading economists and financial analysts. (13) As measured by the NFI Index. - -------------------------------------------------------------------------------- There has been much attention focused on increasing fears of deflationary risks to the U.S. economy. While certain industries are subject to deflationary pressures, this is not a broad-based problem for our economy. We expect that inflation will remain subdued but trend slightly higher over the next year. Despite low levels of inflation expectations, rising interest rates could still result from growing Federal deficits, potential weakness in the dollar, a mild recovery and hopefully a reduction of geopolitical risks. We would not be at all surprised to see the Fed slowly tighten monetary policy beginning late in the second half of 2003. We believe the recovery will be mild, as will any expected increase in interest rates. In fact, we could very well end the year where we started the prior one, with a ten-year Treasury rate of near 5%. SUMMARY While 2002 was clearly a difficult year and its results very much unexpected, fortunately it is behind us. Once again we have learned how markets can surprise. Most investors thought it unlikely we would experience three years of negative equity returns and probably just as many have doubts of the likelihood of a fourth year of negative equity returns. The best and most useful advice we can provide investors with in volatile markets is to not focus on your favorite prognosticator's forecast. Instead, focus on maintaining a well-diversified portfolio of equity and fixed income investments that will help you achieve your long-term financial objectives within the context of appropriate and well-reasoned risk tolerances. As difficult as it may be, don't let your long-term asset allocation be driven by short-term fears and emotions. If you adhere to this investment principle, over the long-term you are more likely to survive the unexpected. Regards, /s/ THOMAS G. SORELL Thomas G. Sorell, CFA President, The Park Avenue Portfolio - -------------------------------------------------------------------------------- (This page intentionally left blank) THE PARK AVENUE PORTFOLIO TABLE OF CONTENTS
PORTFOLIO SCHEDULE MANAGER OF INTERVIEW INVESTMENTS - ------------------------------------------------------------------------------------ THE GUARDIAN PARK AVENUE FUND 2 23 - ------------------------------------------------------------------------------------ THE GUARDIAN PARK AVENUE SMALL CAP FUND 6 25 - ------------------------------------------------------------------------------------ THE GUARDIAN ASSET ALLOCATION FUND 8 27 - ------------------------------------------------------------------------------------ THE GUARDIAN S&P 500 INDEX FUND 10 30 - ------------------------------------------------------------------------------------ THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND 12 35 - ------------------------------------------------------------------------------------ THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND 14 37 - ------------------------------------------------------------------------------------ THE GUARDIAN INVESTMENT QUALITY BOND FUND 16 40 - ------------------------------------------------------------------------------------ THE GUARDIAN HIGH YIELD BOND FUND 18 44 - ------------------------------------------------------------------------------------ THE GUARDIAN TAX-EXEMPT FUND 20 49 - ------------------------------------------------------------------------------------ THE GUARDIAN CASH MANAGEMENT FUND 22 52 - ------------------------------------------------------------------------------------ FINANCIAL STATEMENTS 56 - ------------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS 65 - ------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS 82 - ------------------------------------------------------------------------------------
THE GUARDIAN PARK AVENUE FUND [PHOTO] OBJECTIVE: Long-term growth of Richard Goldman capital Portfolio Manager PORTFOLIO: At least 80% common stocks and convertible securities INCEPTION: June 1, 1972
NET ASSETS AT DECEMBER 31, 2002: $1,299,457,947 Q: HOW DID THE FUND PERFORM IN 2002 AND WHY? A: 2002 was a very difficult year, with the U.S. equity market down for the third consecutive year which hasn't happened since 1939-41. The Guardian Park Avenue Fund's total return for the year was -21.56%.(1) Nevertheless it beat its benchmark, the S&P 500 Index,(2) on both its performance objectives: the Fund had higher returns than the S&P 500 Index's -22.10% and it had less daily volatility, which is a proxy for risk. That said, I never like it when the Fund is down -- I'm not just the portfolio manager of the Fund but a shareholder too. We were able to modestly beat the S&P 500 Index because higher quality stocks did relatively better in 2002. It isn't surprising that investors' appetite for speculative stocks waned further over the past year. Our investment discipline is designed to identify and invest in high quality companies, which we define as companies with more predictable cash flows and stronger balance sheets. Unfortunately even the highest quality companies could not avoid the pain in this extremely difficult market. For example, the Fund owns what we currently believe to be the highest quality companies within the telecommunication services sector, as based on our criteria (described in more detail below). Specifically, the Fund owns certain regional phone companies, and has avoided the long-distance and wireless companies that are over-leveraged and have negative earnings. As a result, the Fund's performance, relative to the stock market, benefited because it didn't own the more speculative companies in the sector that were down approximately 60% during 2002. But to the extent that the Fund's two regional phone companies were nonetheless down 20% during 2002, the result was not very satisfying on an absolute basis, but still attractive relative to the rest of the sector. Over the course of the year, the Fund's relative performance was strong for the first three quarters, but lost ground relative to its benchmark in the fourth quarter when the market experienced a speculative two-month rally. During this period companies with more speculative earnings and dividends (defined as having S&P Earnings and Dividend Quality Rank of B or worse) were up 44% vs. the entire S&P 500 Index which was up 21% and The Guardian Park Avenue Fund which was up 18%. We expect this effect to be transitory and that going forward investors will once again be more attracted to higher quality companies. - -------------------------------------------------------------------------------- "We believe our focus on company fundamentals and management performance assessments helps reduce the risk of owning a company that self-destructs, either through fraud or a poor business model." - -------------------------------------------------------------------------------- Q: YOUR INVESTMENT DISCIPLINE PRIORITIZES FOCUSING ON FUNDAMENTALS. WHAT DOES THAT MEAN AND WHAT ADVANTAGE DOES IT PROVIDE INVESTORS? A: Fundamentals pertain to the company's financial statements. Our investment discipline has and will continue to strive to identify the highest quality companies. To do this, our fundamental analysis focuses on evaluating the quality and sustainability of a company's cash flows and earnings, as well as assessing the strength of the company's balance sheet. Specifically, our sector specialists start by analyzing a company's income statement, cash flow statement and balance sheet using a variety of financial models that quantitatively evaluate a company on the criteria we think are important. For example, we rank companies by how much debt they have; how profitably they reinvest their cash earnings; and how much of their earnings come from accounting devices versus cash earnings. The sector specialists then dig deeper into the companies that meet our criteria by doing qualitative fundamental research, specifically, meeting with management, competitors and customers to judge a company's position within the industry as well as the attractiveness of the industry as a whole. We believe our investment policy provides an advantage to investors. By focusing on companies with stronger balance sheets and more sustainable earnings, we reduce risk and benefit from long-term returns. Our attention to the quality of each company's fundamentals has helped us avoid companies which eventually were in the spotlight in 2002 for their poor or misleading accounting practices, like Qwest, Global Crossing, and Computer Associates. - -------------------- (1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. Total return represents return for Class A shares and does not take into account the current maximum sales charge of 4.5%. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (2) The S&P 500 Index is an unmanaged index of 500 primarily large cap U.S. stocks that is generally considered to be representative of U.S. stock market activity. The S&P 500 Index is not available for direct investment, and its returns do not reflect the fees and expenses that have been deducted from the Fund. Likewise, return figures for the S&P 500 Index do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. - -------------------------------------------------------------------------------- 2 THE GUARDIAN PARK AVENUE FUND Q: HOW DOES GUARDIAN CONTROL RISK? A: There are several aspects of our investment discipline that are designed to control risk: - No market timing risk. The Guardian Park Avenue Fund is intended for investors who want equity exposure. As such the Fund will remain invested in equities. We do not try to time the markets (selling all our stocks when we think the market is due for a downturn and buying back when we think it's time for a rally). We think the evidence is very clear that it is riskier to try to time the markets than to stay invested in equities for the long-term. As a Fund that is always invested in large cap equities, there is the inherent risk that the stock market goes down. Just as all ships rise and fall with the tide, the Fund is vulnerable to cyclical market downdrafts. - No style drift. The Guardian Park Avenue Fund is a large cap core fund and will not stray into becoming a growth fund, a value fund, a small cap fund, or for that matter any other type of fund. Core funds are designed for investors to use as a foundation for their portfolio. And just as you don't want the foundation of your house swaying from one position to another, we are committed to maintaining a Fund that is well-diversified across large cap stocks. We incorporate risk models into our investment discipline to ensure we are aware of the inherent risks in the portfolio so we can stay disciplined and do not unintentionally become skewed towards any particular style. - We believe our focus on company fundamentals and management performance assessments helps reduce the risk of owning a company that self-destructs, either through fraud or a poor business model. - We're committed to preventing excessive concentration in any one stock or sector.
- -------------------------------------------------------------- TOP TEN HOLDINGS AS OF DECEMBER 31, 2002 Company Percentage of Total Net Assets - -------------------------------------------------------------- 1. Microsoft Corp. 4.02% - -------------------------------------------------------------- 2. Exxon Mobil Corp. 3.70% - -------------------------------------------------------------- 3. Pfizer, Inc. 3.47% - -------------------------------------------------------------- 4. American Int'l. Group, 2.93% Inc. - -------------------------------------------------------------- 5. General Electric Co. 2.84% - -------------------------------------------------------------- 6. Wal-Mart Stores, Inc. 2.76% - -------------------------------------------------------------- 7. Verizon Comm. 2.47% - -------------------------------------------------------------- 8. Citigroup, Inc. 2.31% - -------------------------------------------------------------- 9. Johnson & Johnson 1.99% - -------------------------------------------------------------- 10. Cisco Systems, Inc. 1.79% - --------------------------------------------------------------
- -------------------------------------------------------------------------------- 3 THE GUARDIAN PARK AVENUE FUND SECTOR WEIGHTINGS OF COMMON STOCKS HELD BY THE FUND AS OF DECEMBER 31, 2002 PIE CHART
CONSUMER CONSUMER HEALTH INFORMATION DISCRETIONARY STAPLES ENERGY FINANCIALS CARE INDUSTRIALS TECHNOLOGY MATERIALS ------------- -------- ------ ---------- ------ ----------- ----------- --------- 7.50 8.30 7.27 23.11 18.40 9.04 16.78 2.35 TELECOMMUNICATIONS CASH SERVICES UTILITIES - ---- ------------------ --------- 2.31 3.80 1.14
- ------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED DECEMBER 31, 2002 Inception Since Date 1 Year 3 Years 5 Years 10 Years Inception - ------------------------------------------------------------------------------------------------------- Class A Shares (without sales charge) 6/1/72 -21.56% -20.65% -4.62% 7.92% 13.03% - ------------------------------------------------------------------------------------------------------- Class A Shares (with sales charge) 6/1/72 -25.09% -21.86% -5.49% 7.42% 12.86% - ------------------------------------------------------------------------------------------------------- Class B Shares (without sales charge) 5/1/96 -22.31% -21.39% -5.49% NA 2.53% - ------------------------------------------------------------------------------------------------------- Class B Shares (with sales charge) 5/1/96 -24.64% -21.92% -5.68% NA 2.53% - ------------------------------------------------------------------------------------------------------- Class C Shares (without sales charge) 8/7/00 -22.49% NA NA NA -27.07% - ------------------------------------------------------------------------------------------------------- Class C Shares (with sales charge) 8/7/00 -23.27% NA NA NA -27.07% - ------------------------------------------------------------------------------------------------------- Class K Shares (without sales charge) 5/15/01 -21.83% NA NA NA -20.51% - ------------------------------------------------------------------------------------------------------- Class K Shares (with sales charge) 5/15/01 -22.61% NA NA NA -20.51% - -------------------------------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Total return figures for Class A shares do not take into account the current maximum sales charge of 4.5%, except where noted. Total return figures for Class B, Class C and Class K shares do not take into account the contingent deferred sales charge applicable to such shares (maximum 3% for Class B shares and 1% for Class C and Class K shares), except where noted. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Prior to August 25, 1988, Class A shares of the Fund were offered at a higher sales charge, so that actual returns would have been somewhat lower. - -------------------------------------------------------------------------------- 4 THE GUARDIAN PARK AVENUE FUND GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT [LINE GRAPH]
THE GUARDIAN PARK AVENUE FUND (CLASS A) S&P 500 INDEX COST OF LIVING ------------------------ ------------- -------------- 6/1/72 10000.00 10000.00 10000.00 1972 9914.46 10935.50 10209.80 1973 8349.32 9320.12 11105.80 1974 7010.23 6860.77 12476.50 1975 10301.80 9410.43 13341.90 1976 14711.80 11628.00 13991.00 1977 15877.50 10765.90 14928.50 1978 18177.60 11454.10 16274.70 1979 23464.90 13538.80 18438.30 1980 28512.40 17907.00 20746.10 1981 30159.70 17009.40 22597.10 1982 37817.80 20656.20 23462.50 1983 48638.80 25279.70 24352.00 1984 54796.70 26822.10 25313.60 1985 72870.60 35288.90 26275.20 1986 86265.10 41837.40 26563.60 1987 88817.70 43971.70 27741.60 1988 107273.00 51153.70 28967.60 1989 132839.00 67203.70 30313.80 1990 116458.00 65040.90 32164.80 1991 157405.00 84769.50 33150.40 1992 189636.00 91213.70 34112.00 1993 228090.00 100349.00 35049.60 1994 224815.00 101655.00 35987.10 1995 301881.00 139649.00 36900.60 1996 399827.00 171525.00 38126.60 1997 514907.00 228623.00 38775.70 1998 624578.00 294369.00 39400.70 1999 813487.00 356272.00 40459.40 2000 662010.00 323863.00 41923.00 2001 518020.00 285456.00 42357.80 2002 406361.00 222359.00 43190.00
PERFORMANCE FOR CLASS B, CLASS C, AND CLASS K SHARES, WHICH WERE FIRST OFFERED ON MAY 1, 1996, AUGUST 7, 2000, AND MAY 15, 2001, RESPECTIVELY, WILL VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO EACH SHARE CLASS. A hypothetical $10,000 investment in Class A shares made at the inception of The Guardian Park Avenue Fund on June 1, 1972 has a starting point of $9,550, which reflects the current maximum sales charge for Class A shares of 4.5%. This investment would have grown to $406,361 on December 31, 2002. We compare our performance to that of the S&P 500 Index, an unmanaged index that is generally considered the performance benchmark of the U.S. stock market. While you cannot invest directly in the S&P 500 Index, a similar hypothetical investment would now be worth $222,359. The Cost of Living, as measured by the Consumer Price Index, is generally representative of the level of U.S. inflation and is provided to lend a more complete understanding of the investment's real worth. This performance does not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Returns represent past performance and are not indicative of future results. - -------------------------------------------------------------------------------- 5 THE GUARDIAN PARK AVENUE SMALL CAP FUND [PHOTO] OBJECTIVE: Long-term growth of Matthew Ziehl capital Portfolio Manager PORTFOLIO: At least 85% in a diversified portfolio of common stocks and convertible securities issued by companies with small market capitalization at time of initial purchase INCEPTION: May 1, 1997
NET ASSETS AT DECEMBER 31, 2002: $141,564,211 Q: HOW DID SMALL CAP STOCKS PERFORM DURING 2002? A: The U.S. stock market suffered its third consecutive down year in 2002, and while smaller companies did modestly outperform the broader U.S. stock market, they could not escape the "bear trap." The Russell 2000 Index(1) posted a total return of -20.50%, versus a -22.10% decline for the S&P 500 Index.(2) Most of the small cap outperformance occurred in the first half of the year amid optimism that an economic recovery would translate into a relatively faster earnings recovery for smaller companies. As the economy lost steam over the summer and the stock market declined in the third quarter, small cap stocks fell more sharply and lost much of their year-to-date advantage. Subsequently, small caps trailed larger companies in a fourth quarter snapback rally from oversold conditions. Continued skepticism over the pace of economic recovery and a weakening dollar (a weaker dollar should benefit large-company earnings growth relatively more than smaller caps, due to large caps' greater international sales and profits exposure) led investors to favor larger caps during the period. Q: HOW DID THE FUND PERFORM, AND WHAT FACTORS DROVE RELATIVE PERFORMANCE? A: The Guardian Park Avenue Small Cap Fund significantly outperformed its benchmark (the Russell 2000) with a return of -15.50%.(3) The Fund's outperformance versus benchmark was due almost entirely to stock selection, rather than to sector allocations versus the Russell 2000 benchmark. This is consistent with our bottom-up investment process that focuses on choosing what we believe to be the best individual companies across economic sectors, rather than placing large "bets" at the sector level by significantly overweighting or underweighting certain sectors versus the benchmark. Though stock selection was positive across most sectors, we experienced particular strength in healthcare, consumer, energy and technology stocks. These areas of strength far outweighed negative selection in the industrials, basic materials and utility sectors. - -------------------------------------------------------------------------------- ". . . we are maintaining our strong emphasis on stability and consistency of earnings growth, sticking with those companies that have the financial wherewithal and management skill to weather any potential renewed downturn as well as to participate in the stronger times ahead." - -------------------------------------------------------------------------------- Q: WHAT IS YOUR OUTLOOK FOR 2003? A: We see evidence of stabilization in the industrial economy, and expect gradual improvement in 2003. On the other hand, an unexpectedly weak holiday shopping season and sluggish automobile sales have cast significant doubt on the continued strength of the consumer. For these reasons, we have moved from an overweight in consumer cyclical stocks at mid-year to a modest underweight at this time, and we have raised our weighting in industrial stocks to about neutral versus an underweighted posture during most of 2002. We also remain overweight in technology -- our position since early 2002, though this move was somewhat premature -- as we expect improved technology spending by corporations in 2003 after several years of flat to lower spending. From a broader perspective, it appears the economy and stock market have stabilized somewhat. However, at the time of this writing in early January, we face the possibility of going to war in Iraq along with the uncertainty and risk surrounding a growing nuclear threat from North Korea. These factors should contribute to sustained market volatility and put the current economic recovery at risk. Therefore, we are maintaining our strong emphasis on stability and consistency of earnings growth, sticking with those companies that have the financial wherewithal and management skill to weather any potential renewed downturn as well as to participate in the stronger times ahead. - -------------------- (1) The Russell 2000 Index is an unmanaged index that is generally considered to be representative of small capitalization issues in the U.S. stock market. The Russell 2000 Index is not available for direct investment, and its returns do not reflect the fees and expenses that have been deducted from the Fund's returns. Likewise, return figures for the Russell 2000 Index do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. (2) The S&P 500 Index is an unmanaged index of 500 primarily large cap U.S. stocks that is generally considered to be representative of U.S. stock market activity. The S&P 500 Index is not available for direct investment, and its returns do not reflect the fees and expenses that have been deducted from the Fund's returns. Likewise, return figures for the S&P 500 Index do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. (3) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. Total return represents return for Class A shares and does not take into account the current maximum sales charge of 4.5%. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. - -------------------------------------------------------------------------------- 6 THE GUARDIAN PARK AVENUE SMALL CAP FUND GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT [LINE GRAPH]
THE GUARDIAN PARK AVENUE THE GUARDIAN PARK AVENUE SMALL CAP FUND (CLASS A) SMALL CAP FUND (CLASS B) RUSSELL 2000 INDEX ------------------------ ------------------------ ------------------ 5/1/97 9550.00 10000.00 10000.00 6/97 10999.80 11085.90 11588.80 12/97 13016.70 13046.50 12867.50 6/98 13895.50 13876.50 13501.50 12/98 12190.70 12126.40 12539.90 6/99 12000.20 11886.00 13704.10 12/99 16665.50 16405.70 15206.70 6/00 18591.30 18223.20 15668.50 12/00 16273.50 15895.00 12247.10 6/01 15562.20 15138.60 13097.20 12/01 15129.60 14205.00 12563.60 12/02 12784.00 12136.00 9991.00
To give you a comparison, the chart above shows the performance of a hypothetical $10,000 investment made in Class A and Class B shares of The Guardian Park Avenue Small Cap Fund and the Russell 2000 Index. The starting point of $9,550 for Class A shares reflects the maximum sales charge of 4.5% that an investor may have to pay when purchasing Class A shares of the Fund. For Class B shares, the contingent deferred sales charge of 1% was imposed at the end of the period. The Index and Class B shares begin at $10,000. This performance does not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Returns represent past performance and are not indicative of future results. PERFORMANCE FOR CLASS C AND CLASS K SHARES, WHICH WERE FIRST OFFERED ON AUGUST 7, 2000 AND MAY 15, 2001, RESPECTIVELY, WILL VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO EACH SHARE CLASS.
- -------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED DECEMBER 31, 2002 Inception Since Date 1 Year 3 Years 5 Years Inception - -------------------------------------------------------------------------------------------- Class A Shares (without sales charge) 5/1/97 -15.50% -8.46% -0.38% 5.17% - -------------------------------------------------------------------------------------------- Class A Shares (with sales charge) 5/1/97 -19.30% -9.85% -1.29% 4.32% - -------------------------------------------------------------------------------------------- Class B Shares (without sales charge) 5/6/97 -16.29% -9.26% -1.24% 3.67% - -------------------------------------------------------------------------------------------- Class B Shares (with sales charge) 5/6/97 -18.80% -9.87% -1.44% 3.52% - -------------------------------------------------------------------------------------------- Class C Shares (without sales charge) 8/7/00 -16.46% NA NA -16.15% - -------------------------------------------------------------------------------------------- Class C Shares (with sales charge) 8/7/00 -17.30% NA NA -16.15% - -------------------------------------------------------------------------------------------- Class K Shares (without sales charge) 5/15/01 -15.81% NA NA -11.16% - -------------------------------------------------------------------------------------------- Class K Shares (with sales charge) 5/15/01 -16.65% NA NA -11.16% - --------------------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Total return figures for Class A shares do not take into account the current maximum sales charge of 4.5%, except where noted. Total return figures for Class B, Class C and Class K shares do not take into account the contingent deferred sales charge applicable to such shares (maximum of 3% for Class B shares and 1% for Class C and Class K shares), except where noted. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. - -------------------------------------------------------------------------------- 7 THE GUARDIAN ASSET ALLOCATION FUND [PHOTO] OBJECTIVE: Long-term total Jonathan C. Jankus, C.F.A. investment return consistent with Portfolio Manager moderate investment risk PORTFOLIO: Generally purchases shares of The Guardian S&P 500 Index, The Guardian Park Avenue, The Guardian Investment Quality Bond, and/or The Guardian Cash Management Funds. Also invests in individual securities and uses futures to manage allocations among the equity, debt and money market asset classes. INCEPTION: February 16, 1993
NET ASSETS AT DECEMBER 31, 2002: $152,252,538 Q: HOW DID THE FUND PERFORM THIS YEAR? A: For the year ended December 31, 2002, the Fund's total return was - -20.64%,(1) placing it below the average -11.74% return of funds with similar objectives and policies in the Lipper(2) universe. The Fund also underperformed the median return of -10.53% produced by Morningstar's(3) universe of asset allocation funds. For the life of the Fund beginning February 16, 1993 and ending December 31, 2002, the Fund's average annual return of 7.05% places it behind the average annual return of 8.78% experienced by its passive composite benchmark (60% of the S&P 500 Index(4) and 40% of the Lehman Aggregate Bond Index,(5) rebalanced monthly). Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE? A: U.S. stock market returns were negative for the third year in a row, the first time that has happened since the 1939-1941 period. Indeed, the market's returns have been so poor that the cumulative return on the S&P 500 Index, including dividends, for the five-year period ended December 31, 2002 has actually been negative. In addition to a weak economy, the market has had to deal with shocking levels of corporate malfeasance, the continuing threats of terrorist attacks and a potential war in the Middle East. The Fund's performance was negatively impacted by an overly aggressive stance on the stock market. After the declines of 2000, 2001 and the first half of 2002, our models viewed the stock market as being extremely "cheap" relative to fixed income alternatives. Unfortunately, the market has been unresponsive to the sort of quantitative value measures that have served us well in the past. At some point, we expect that relative valuation measures will return to historic norms, but until then, the concerns noted above will continue to cast their pall on investors. Q: WHAT ARE YOUR EXPECTATIONS FOR THE COMING YEAR? A: Our investing will, of course, continue to be guided by our quantitative model which, as of year-end, has us invested fully 100% in stocks, 0% in bonds and 0% in cash. This is the most aggressive position that the Fund can hold. - -------------------------------------------------------------------------------- "Our investing will, of course, continue to be guided by our quantitative model which, as of year-end, has us invested fully 100% in stocks, 0% in bonds and 0% in cash." - -------------------------------------------------------------------------------- At the time of this writing in January 2003, the Federal Reserve has lowered short-term interest rates dramatically in the hope of stimulating the economy, and the Bush administration has proposed more tax cuts. Historically, these actions have boded well for equities, but corporate profitability remains a question. At the very least, valuation levels are far more attractive now than they were three years ago. - -------------------- (1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. Total return figures for Class A shares do not take into account the current maximum sales charge of 4.5%. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring and rating service. Its database of performance information is based on historical total returns, which assume the reinvestment of dividends and distributions and the deduction of all fund expenses. Lipper returns do not reflect the deduction of sales charges that an investor may have to pay when purchasing or redeeming shares of the Fund. (3) (C)2002 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an "expert" under the Securities Act of 1933. Past performance is no guarantee of future results. Morningstar's database of performance information is based on historical total returns, which assumes the reinvestment of dividends and distributions and the deduction of all fund expenses. (4) The S&P 500 Index is an unmanaged index of 500 primarily large cap U.S. stocks that is generally considered to be representative of U.S. stock market activity. The S&P 500 Index is not available for direct investment, and its returns do not reflect the fees and expenses that have been deducted from the Fund. Likewise, return figures for the S&P 500 Index do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. (5) The Lehman Aggregate Bond Index is an unmanaged index that is generally considered to be representative of U.S. bond market activity. The Lehman Aggregate Bond Index is not available for direct investment, and its returns do not reflect the fees and expenses that have been deducted from the Fund. Likewise, return figures for the Lehman Aggregate Bond Index do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. - -------------------------------------------------------------------------------- 8 THE GUARDIAN ASSET ALLOCATION FUND GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT: [LINE GRAPH]
THE GUARDIAN ASSET LEHMAN AGGREGATE BOND ALLOCATION FUND (CLASS A) S&P 500 INDEX INDEX ------------------------- ------------- --------------------- 2/93 10000.00 10000.00 10000.00 12/93 10711.20 10748.70 10719.60 12/94 10977.30 10888.50 10406.80 12/95 13053.20 14960.00 12329.60 12/96 15500.60 18373.80 12775.20 12/97 19288.60 24488.40 14012.40 12/98 23032.20 31530.50 15227.80 12/99 26023.00 38158.80 15101.00 12/00 26284.00 34687.50 16858.30 12/01 23594.40 30576.00 18282.20 12/02 18727.00 23819.00 20158.00
To give you a comparison, the chart above shows the performance of a hypothetical $10,000 investment made in Class A shares of each The Guardian Asset Allocation Fund, the S&P 500 Index and the Lehman Aggregate Bond Index. The starting point of $9,550 for Class A shares reflects the maximum sales charge of 4.5% that an investor may pay when purchasing Class A shares of the Fund. Each Index begins at $10,000. This performance does not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Returns represent past performance and are not indicative of future results. PERFORMANCE FOR CLASS B, CLASS C AND CLASS K SHARES, WHICH WERE FIRST OFFERED ON MAY 1, 1996, AUGUST 7, 2000, AND MAY 15, 2001, RESPECTIVELY, WILL VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO EACH SHARE CLASS. PORTFOLIO COMPOSITION BY ASSET CLASS AS OF DECEMBER 31, 2002 [PIE CHART] COMMON STOCKS 100%
- -------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED DECEMBER 31, 2002 Inception Since Date 1 Year 3 Years 5 Years Inception - -------------------------------------------------------------------------------------------- Class A Shares (without sales charge) 2/16/93 -20.64% -10.39% -0.59% 7.05% - -------------------------------------------------------------------------------------------- Class A Shares (with sales charge) 2/16/93 -24.21% -11.75% -1.50% 6.55% - -------------------------------------------------------------------------------------------- Class B Shares (without sales charge) 5/1/96 -21.31% -11.11% -1.41% 3.92% - -------------------------------------------------------------------------------------------- Class B Shares (with sales charge) 5/1/96 -23.67% -11.71% -1.61% 3.92% - -------------------------------------------------------------------------------------------- Class C Shares (without sales charge) 8/7/00 -21.70% NA NA -15.69% - -------------------------------------------------------------------------------------------- Class C Shares (with sales charge) 8/7/00 -22.48% NA NA -15.69% - -------------------------------------------------------------------------------------------- Class K Shares (without sales charge) 5/15/01 -21.05% NA NA -17.30% - -------------------------------------------------------------------------------------------- Class K Shares (with sales charge) 5/15/01 -21.84% NA NA -17.30% - --------------------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Total return figures for Class A shares do not take into account the current maximum sales charge of 4.5%, except where noted. Total return figures for Class B, Class C and Class K shares do not take into account the contingent deferred sales charge applicable to such shares (maximum of 3% for Class B shares and 1% for Class C and Class K shares), except where noted. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. - -------------------------------------------------------------------------------- 9 THE GUARDIAN S&P 500 INDEX FUND [PHOTO] OBJECTIVE: Seeks to track the Jonathan C. Jankus, C.F.A. investment performance of the Portfolio Manager Standard & Poor's 500 Composite Stock Price Index ("the S&P 500 Index") PORTFOLIO: Common stocks of companies included in the S&P 500 Index, which emphasizes securities issued by large U.S. companies INCEPTION: August 7, 2000
NET ASSETS AT DECEMBER 31, 2002: $120,498,087 Q: HOW DID THE FUND PERFORM THIS YEAR? A: For the year ended December 31, 2002, the Fund's return was -22.35%.(1) The Fund's objective is to track the returns of the S&P 500 Index,(2) a theoretical portfolio of 500 blue-chip stocks, which returned -22.10% over the same period. The S&P portfolio index is theoretical in the sense that it is computed as though the stocks tracked by the Index were purchased and subsequently rebalanced without any trading costs or fund expenses. For the life of the Fund beginning August 7, 2000 and ending December 31, 2002, the Fund's average annual return was -18.50% compared to a total average annual return of -18.30% for the S&P 500 Index. Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE? A: U.S. stock market returns were negative for the third year in a row -- the first time that has happened since the 1939-1941 period. Indeed, the stock market's returns have been so poor that the cumulative return on the S&P 500 Index, including dividends, for the five-year period ended December 31, 2002 has actually been negative despite the strong equity markets of the late 1990's. In addition to a weak economy, the stock market has had to deal with shocking levels of corporate malfeasance and the continuing threats of terrorist attacks and a potential war in the Middle East. Q: WHAT ARE YOUR EXPECTATIONS FOR THE COMING YEAR? A: We will continue to manage the portfolio to be fully invested in stocks, attempt to match the S&P 500 Index and keep trading costs to a minimum. Although past performance is not a guarantee of future results, if history is any indication, this strategy has proven to be a successful one over the long term. - -------------------------------------------------------------------------------- "We will continue to manage the portfolio to be fully invested in stocks, attempt to match the S&P 500 Index and keep trading costs to a minimum." - -------------------------------------------------------------------------------- At the time of this writing in January 2003, the Federal Reserve has lowered short-term interest rates dramatically in the hope of stimulating the economy and the Bush administration has proposed more tax cuts. Historically, these actions have boded well for equities, but corporate profitability remains a question. At the very least, valuation levels are far more attractive now than they were three years ago. - -------------------- (1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. Total return represents return for Class A shares and does not take into account the current maximum sales charge of 4.5%. Since inception, the investment adviser for the Fund has assumed certain ordinary operating expenses for the Fund. Without this assumption of expenses, returns would have been lower. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (2) "S&P," "S&P 500(R)," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Guardian Investor Services LLC. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Fund. The S&P 500 Index is an unmanaged index of 500 primarily large cap U.S. stocks that is generally considered to be representative of U.S. stock market activity. The S&P 500 Index is not available for direct investment, and its returns do not reflect the fees and expenses that have been deducted from the Fund's return. Likewise, return figures for the Index do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. - -------------------------------------------------------------------------------- 10 THE GUARDIAN S&P 500 INDEX FUND SECTOR WEIGHTINGS FOR THE GUARDIAN S&P 500 INDEX FUND AND THE S&P 500 INDEX AS OF DECEMBER 31, 2002 [PIE CHART] Financials 20.45 Health Care 14.91 Information Technology 14.31 Consumer Discretionary 13.45 Industrials 11.53 Consumer Staples 9.48 Energy 6.00 Telecommunication Services 4.19 Utilities 2.85 Materials 2.83
[LINE GRAPH] GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
THE GUARDIAN S&P THE GUARDIAN S&P THE GUARDIAN S&P 500 INDEX FUND 500 INDEX FUND 500 INDEX FUND (CLASS A) (CLASS B) (CLASS C) THE S&P 500 INDEX --------------------- --------------------- --------------------- ----------------- 8/7/00 9550.00 10000.00 10000.00 10000.00 12/00 8580.66 8946.98 8946.98 8967.32 3/01 7558.92 7879.28 7879.28 7905.50 6/01 7986.26 8304.38 8304.38 8368.50 9/01 6819.62 7078.50 7078.50 7108.45 12/01 7530.00 7561.00 7718.00 7868.00 12/02 5888.00 5840.00 6022.00 6240.00
To give you a comparison, the chart above shows the performance of a hypothetical $10,000 investment made in Class A, Class B and Class C shares of The Guardian S&P 500 Index Fund and the S&P 500 Index Fund. The starting point of $9,550 for Class A shares reflects the maximum sales charge of 4.5% that an investor may have to pay when purchasing Class A shares of the Fund. For Class B shares, the contingent deferred sales charge of 2% was imposed at the end of the period. The S&P 500 Index, Class B and Class C shares begin at $10,000. This performance does not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Returns represent past performance and are not indicative of future results. PERFORMANCE FOR CLASS K SHARES, WHICH WERE FIRST OFFERED ON MAY 15, 2001, WILL VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO SUCH SHARE CLASS.
- ------------------------------------------------------------------------ AVERAGE ANNUAL RETURNS(1) FOR PERIODS ENDED DECEMBER 31, 2002 Inception Since Date 1 Year Inception - ------------------------------------------------------------------------ Class A Shares (without sales charge) 8/7/00 -22.35% -18.50% - ------------------------------------------------------------------------ Class A Shares (with sales charge) 8/7/00 -25.84% -20.05% - ------------------------------------------------------------------------ Class B Shares (without sales charge) 8/7/00 -23.22% -19.27% - ------------------------------------------------------------------------ Class B Shares (with sales charge) 8/7/00 -25.52% -19.95% - ------------------------------------------------------------------------ Class C Shares (without sales charge) 8/7/00 -23.21% -19.27% - ------------------------------------------------------------------------ Class C Shares (with sales charge) 8/7/00 -23.98% -19.27% - ------------------------------------------------------------------------ Class K Shares (without sales charge) 5/15/01 -23.00% -20.33% - ------------------------------------------------------------------------ Class K Shares (with sales charge) 5/15/01 -23.77% -20.33% - ------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Total return figures for Class A shares do not take into account the current maximum sales charge of 4.5%, except where noted. Total return figures for Class B, Class C and Class K shares do not take into account the contingent deferred sales charge applicable to such shares (maximum of 3% for Class B shares and 1% for Class C and Class K shares), except where noted. Since inception, the investment adviser for the Fund has assumed certain ordinary operating expenses for the Fund. Without this assumption of expenses, returns would have been lower. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. - -------------------------------------------------------------------------------- 11 THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND [PHOTO] OBJECTIVE: Long-term growth of R. Robin Menzies capital Portfolio Manager PORTFOLIO: At least 80% in a diversified portfolio of common stocks and convertible securities of companies domiciled outside of the United States INCEPTION: February 16, 1993
NET ASSETS AT DECEMBER 31, 2002: $63,333,783 Q: HOW DID THE FUND PERFORM? A: With another year of weak global equity markets, the total return for the Fund during 2002 was -19.75%,(1) compared with the total return of -15.66% for the MSCI EAFE Index(2) during the same period. The weakness of the U.S. dollar masked larger declines in local markets. In local currency terms, the MSCI EAFE Index had a 2002 total return of -25.82%. During the same period, the MSCI Europe Index had a total return of -29.12%, the MSCI Japan Index had a total return of -18.61%, and the MSCI Pacific ex-Japan Index had a total return of - -11.81%.(3) As in 2001, the worst sectors were Software and Services and Technology Hardware and Equipment, which fell by 47.5% and 37.2%, respectively. And again it was the "old economy" sectors that buoyed performance as Household and Personal Products and Food, Beverage and Tobacco recorded positive total returns of 10.0% and 5.4%, respectively. Transportation (-3.3%), Energy (-2.4%) and Health Care Equipment and Services (-2.5%) all outperformed the Index as well. Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE? A: The Fund performed less well than the MSCI EAFE Index. However, many of the underlying investment management factors were positive. Regional allocation was beneficial in Europe where a slight underweight helped. Stock selection was the main source of relative outperformance in the United Kingdom and Europe. This was largely offset by stock selection in Japan and the Asia Pacific region, which had a negative impact. Our overweight position in defensive industries like Food, Beverage and Tobacco and Household and Personal Products helped the Fund's performance, along with our stock selection in the Transportation industry. However, our choice of holdings in Banking and Diversified Financials offset the good performance in other areas. - -------------------------------------------------------------------------------- "Regional allocation was beneficial in Europe where a slight underweight helped. Stock selection was the main source of relative outperformance in the United Kingdom and Europe. This was largely offset by stock selection in Japan and the Asia Pacific region, which had a negative impact." - -------------------------------------------------------------------------------- Q: WHAT IS YOUR OUTLOOK FOR THE FUTURE? A: A general upturn in profits is unlikely when most international economies show little sign of recovery. In this atmosphere we prefer: - Defensive businesses that remain in control of their own destiny, such as pharmaceutical companies with good products and patent protection and tobacco companies; - The Telecommunications Services sector where the winners are becoming apparent both in infrastructure and mobile handsets; the balance sheets of some of the operators are stabilizing, while the next generation of telecommunications technology will increase levels of usage; - Some cyclical businesses, such as insurance, building, mining and advertising, that have good prospects and whose valuations are not demanding. International equity valuations are relatively attractive and any weakening of the U.S. dollar would boost returns. - -------------------- (1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. Total return represents return for Class A shares and does not take into account the current maximum sales charge of 4.5%. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (2) The Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index is an unmanaged index that is generally considered to be representative of international stock market activity. The MSCI EAFE Index is not available for direct investment, and its returns do not reflect the fees and expenses that have been deducted from the Fund. (3) These indexes are all unmanaged indexes generally considered to be representative of their covered region. The MSCI Japan Index is generally considered to be representative of Japanese stock market activity. The MSCI Pacific ex-Japan Index is generally considered to be representative of the stock market activity of Australia, Singapore, Hong Kong and New Zealand. The MSCI Europe Index is generally considered to be representative of European stock market activity. The returns for these indexes do not reflect the fees and expenses that have been deducted from the Fund. Likewise, return figures for the Indexes do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. - -------------------------------------------------------------------------------- 12 THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT [LINE GRAPH]
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND (CLASS A) MSCI EAFE INDEX ---------------------------- --------------- 2/16/93 9550 10000 6/93 10389.3 12156.9 12/93 12353.5 13092.5 6/94 12381.6 14260.6 12/94 12285.1 14147.9 6/95 12360.6 14538.7 12/95 13653.6 15782.2 6/96 14931.4 16519.2 12/96 15610.4 16786 6/97 17757.6 18693.7 12/97 17338.7 17131.4 6/98 20595.8 19886.7 12/98 20738 20614.8 6/99 21400.4 21462.1 12/99 28455.5 26242.3 6/00 25690.3 25205.7 12/00 21678.9 22579.4 6/01 18779.2 19250 12/01 16836 17791.3 3/02 16760 17893 6/02 16228 17547 9/02 12933 14093 12/02 13509 15006
To give you a comparison, the chart above shows the performance of a hypothetical $10,000 investment made in Class A shares of The Guardian Baillie Gifford International Fund and the MSCI EAFE Index. The starting point of $9,550 for Class A shares reflects the maximum sales charge of 4.5% that an investor may pay when purchasing Class A shares of the Fund. The Index begins at $10,000. This performance does not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Returns represent past performance and are not indicative of future results. PERFORMANCE FOR CLASS B, CLASS C AND CLASS K SHARES, WHICH WERE FIRST OFFERED ON MAY 1, 1996, AUGUST 7, 2000 AND MAY 15, 2001, RESPECTIVELY, WILL VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO EACH SHARE CLASS. PORTFOLIO COMPOSITION BY GEOGRAPHIC LOCATION AS OF DECEMBER 31, 2002 [PIE CHART]
CONTINENTAL UK JAPAN ASIA PACIFIC CASH EUROPE EMERGING MARKETS - -- ----- ------------ ---- ----------- ---------------- 28.23 19.87 5.67 0.36 43.10 2.77
- -------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED DECEMBER 31, 2002 Inception Since Date 1 Year 3 Years 5 Years Inception - -------------------------------------------------------------------------------------------- Class A Shares (without sales charge) 2/16/93 -19.75% -21.99% -4.87% 3.58% - -------------------------------------------------------------------------------------------- Class A Shares (with sales charge) 2/16/93 -23.36% -23.18% -5.74% 3.10% - -------------------------------------------------------------------------------------------- Class B Shares (without sales charge) 5/1/96 -20.81% -22.92% -5.89% -2.54% - -------------------------------------------------------------------------------------------- Class B Shares (with sales charge) 5/1/96 -23.19% -23.44% -6.08% -2.54% - -------------------------------------------------------------------------------------------- Class C Shares (without sales charge) 8/7/00 -20.77% NA NA -22.85% - -------------------------------------------------------------------------------------------- Class C Shares (with sales charge) 8/7/00 -21.56% NA NA -22.85% - -------------------------------------------------------------------------------------------- Class K Shares (without sales charge) 5/15/01 -19.93% NA NA -21.33% - -------------------------------------------------------------------------------------------- Class K Shares (with sales charge) 5/15/01 -20.73% NA NA -21.33% - --------------------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Total return figures for Class A shares do not take into account the current maximum sales charge of 4.5%, except where noted. Total return figures for Class B, Class C and Class K shares do not take into account the contingent deferred sales charge applicable to such shares (maximum of 3% for Class B shares and 1% for Class C and Class K shares), except where noted. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. - -------------------------------------------------------------------------------- 13 THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND [PHOTO] OBJECTIVE: Long-term capital Edward H. Hocknell appreciation Portfolio Manager PORTFOLIO: At least 80% in a portfolio of common stocks and convertible securities issued by companies in emerging markets INCEPTION: May 1, 1997
NET ASSETS AT DECEMBER 31, 2002: $47,313,148 Q: HOW DID THE FUND PERFORM THIS YEAR? A: In a turbulent year that challenged all equity investors, emerging markets have fared considerably better than their developed counterparts. The Fund's total return for the year was -4.50%.(1) The Morgan Stanley Capital International (MSCI) Emerging Markets Free (EMF) Index(2) fell 6.0% for the year ended December 31, 2002, compared to a decline of 19.5% in the MSCI World Index(3) and an even greater fall in the S&P 500 Index(4), which was down 22.10%. It has been a roller coaster year: the first and final quarters showed notable gains; however, during the six months in between, emerging markets reverted to the weak trend seen in the developed markets and fell sharply, losing almost a quarter of their value. Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE? A: The developing region of Europe, led by a 15.7% rise in Russia, was in positive territory for the year as a whole. Asia slipped into negative territory with contrasting returns from South Korea, up 8.6%, and Taiwan, down 24.5%. Latin America, down 22.5%, was the laggard region where Argentina and Brazil weighed heavily as their local currencies depreciated markedly against the U.S. dollar.(5) The Fund itself had a contrasting experience after a positive start to the year. A strong contribution from stock selection in South Africa, South Korea, Russia and Taiwan in the first half was partly reversed in the second half of the year as the same stocks fell from favor. - -------------------------------------------------------------------------------- "Against a challenging global economic and corporate backdrop, we feel optimistic that emerging markets may continue to outperform developed markets due to the secular attractions of higher growth and lower valuations." - -------------------------------------------------------------------------------- Politics have been very much to the fore this year with changes in leadership in Brazil, Argentina, China, South Korea and Turkey. Economic conditions across the developing region has deteriorated. Company profits have generally taken a turn for the worse. Corporate governance issues have never been far from the surface, but have been broadly supportive, notably in Russia and South Korea. Q: WHAT IS YOUR OUTLOOK FOR THE FUTURE? A: Against a challenging global economic and corporate backdrop, we feel optimistic that emerging markets may continue to outperform developed markets due to the secular attractions of higher growth and lower valuations. The strength of the Chinese economy, in particular, will continue to play an important role. The most recent rise in commodity prices is a good case in point. As leading producers of basic raw materials, companies located in developing countries are major beneficiaries of this trend as seen in Brazil, South Africa, Russia, South Korea, and in Taiwan. Elsewhere in the region we will continue to concentrate on picking stocks with solid financial characteristics and above average long-term growth prospects. - -------------------- (1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. Total return represents return for Class A shares and does not take into account the current maximum sales charge of 4.5%. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (2) The Morgan Stanley Capital International (MSCI) Emerging Markets Free (EMF) Index is an unmanaged index that is generally considered to be representative of the stock market activity of emerging markets. The MSCI EMF Index is a market capitalization weighted index composed of companies representative of the market structure of 22 emerging market countries in Europe, Latin America and the Pacific Basin. The MSCI EMF Index excludes closed markets and those shares in otherwise free markets that may not be purchased by foreigners. The MSCI EMF Index is not available for direct investment, and the returns do not reflect the fees and expenses that have been deducted from the Fund's return. Likewise, total return figures for the Index do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. (3) The MSCI World Index is an unmanaged index that is generally considered to be representative of the global stock market activity of the developed markets. The MSCI World Index is not available for direct investment, and its returns do not reflect the fees and expenses that have been deducted from the Fund's return. Likewise, total return figures for the Index do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. (4) The S&P 500 Index is an unmanaged index of 500 primarily large cap U.S. stocks that is generally considered to be representative of U.S. stock market activity. The S&P 500 Index is not available for direct investment, and its returns do not reflect the fees and expenses that have been deducted from the Fund. Likewise, return figures for the S&P 500 Index do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. (5) As measured by The MSCI EMF Index. - -------------------------------------------------------------------------------- 14 THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND [LINE GRAPH] GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
THE GUARDIAN BAILLIE THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS GIFFORD EMERGING MARKETS MSCI EMERGING MARKETS FUND (CLASS A) FUND (CLASS B) FREE INDEX ------------------------ ------------------------ --------------------- 5/1/97 9550.00 10000.00 10000.00 9960.75 10349.50 10247.00 6/97 10399.50 10796.10 10839.50 10894.30 11291.30 11037.00 10110.10 10466.00 9762.68 10408.80 10776.70 9836.83 8653.81 8941.75 8139.60 8401.76 8679.61 7826.65 12/97 8788.61 9029.50 7950.48 7870.40 8078.00 7413.86 8619.96 8835.32 8233.59 8816.72 9000.37 8524.64 8779.24 8942.12 8374.67 7514.36 7650.80 7238.31 6/98 6983.04 7097.38 6506.07 7273.61 7378.95 6714.57 5398.97 5475.96 4855.05 5436.46 5485.66 5171.21 5811.39 6009.96 5729.05 6261.30 6291.52 6190.79 12/98 6242.56 6252.69 6105.01 5933.24 5932.28 6005.07 5830.14 5815.77 6119.13 6561.25 6524.54 6887.56 7114.26 7058.54 7769.29 6973.67 6912.91 7751.10 6/99 7798.51 7699.35 8686.62 7657.91 7544.00 8366.96 7761.02 7631.38 8594.65 7442.33 7301.27 8248.02 7798.51 7631.38 8484.92 9063.89 8854.74 9136.14 12/99 10606.50 10340.20 10306.80 10825.70 10534.40 10581.80 12035.90 11699.50 10725.40 11950.20 11592.70 10814.80 10663.70 10330.50 9784.78 9996.59 9660.59 9491.51 6/00 10577.90 10214.00 9791.41 10006.50 9641.18 9309.95 10307.70 9922.74 9336.95 9365.32 9010.08 8489.39 8636.69 8550.35 7841.13 7937.20 7850.33 7172.79 12/00 8073.22 7738.18 7334.31 7636.04 7272.15 6973.17 6/01 8432.75 7982.96 7245.07 6417.28 6067.05 5687.86 12/01 8167.44 7257.00 7201.10 9694.00 8023.00 6/02 8772.00 8243.00 7350.00 7362.00 6903.00 6152.00 12/02 7840.00 7257.00 6769.00
To give you a comparison, the chart above shows the performance of a hypothetical $10,000 investment made in Class A and Class B shares of The Guardian Baillie Gifford Emerging Markets Fund and the MSCI EMF Index. The starting point of $9,550 for Class A shares reflects the maximum sales charge of 4.5% that an investor may have to pay when purchasing Class A shares of the Fund. For Class B shares the contingent deferred sales charge of 1% was imposed at the end of the period. The Index and Class B shares begin at $10,000. This performance does not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Returns represent past performance and are not indicative of future results. PERFORMANCE FOR CLASS C AND CLASS K SHARES, WHICH WERE FIRST OFFERED ON AUGUST 7, 2000 AND MAY 15, 2001, RESPECTIVELY, WILL VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO EACH SHARE CLASS. PORTFOLIO COMPOSITION BY [PIE CHART] GEOGRAPHICAL REGION AS OF DECEMBER 31, 2002
MIDDLE EAST AND LATIN AMERICA ASIA AFRICA CASH EUROPE - ------------- ---- --------------- ---- ------ 19.46 53.89 14.48 2.45 9.72
- ------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED DECEMBER 31, 2002 Inception Date 1 Year 3 Years 5 Years Since Inception - ------------------------------------------------------------------------------------------------- Class A Shares (without sales charge) 5/1/97 -4.50% -9.58% -2.26% -3.42% - ------------------------------------------------------------------------------------------------- Class A Shares (with sales charge) 5/1/97 -8.80% -10.96% -3.16% -4.20% - ------------------------------------------------------------------------------------------------- Class B Shares (without sales charge) 5/6/97 -5.39% -10.83% -4.08% -5.35% - ------------------------------------------------------------------------------------------------- Class B Shares (with sales charge) 5/6/97 -8.23% -11.43% -4.27% -5.52% - ------------------------------------------------------------------------------------------------- Class C Shares (without sales charge) 8/7/00 -5.50% NA NA -10.71% - ------------------------------------------------------------------------------------------------- Class C Shares (with sales charge) 8/7/00 -6.45% NA NA -10.71% - ------------------------------------------------------------------------------------------------- Class K Shares (without sales charge) 5/15/01 -4.67% NA NA -3.18% - ------------------------------------------------------------------------------------------------- Class K Shares (with sales charge) 5/15/01 -5.62% NA NA -3.18% - -------------------------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Total return figures for Class A shares do not take into account the current maximum sales charge of 4.5%, except where noted. Total return figures for Class B, Class C and Class K shares do not take into account the contingent deferred sales charge applicable to such shares (maximum of 3% for Class B shares and 1% for Class C and Class K shares), except where noted. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. - -------------------------------------------------------------------------------- 15 THE GUARDIAN INVESTMENT QUALITY BOND FUND [PHOTO] [PHOTO] Thomas G. Sorell, C.F.A. Howard W. Chin Co-Portfolio Manager Co-Portfolio Manager
NET ASSETS AT DECEMBER 31, 2002: $209,931,930 Q: HOW DID THE FUND PERFORM IN 2002? A: The Fund had a total return of 9.25%(1) for the year ended December 31, 2002, substantially outperforming the average fund in the Lipper Intermediate Investment Grade(2) peer group, which returned 8.14% for the same period (the peer group consists of other mutual funds that invest in primarily investment grade debt with average maturities of 5-10 years). Additionally, the Lehman Aggregate Bond Index,(3) which measures the taxable fixed income market, had a return of 10.26% for 2002. Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE? A: 2002 was notable for the long-awaited economic recovery that didn't fully materialize. Most investors entered 2002 expecting a modest recovery and while economic growth was positive in 2002 it was very erratic, creating confusion as to whether the economy was actually on the road to recovery. Periods of growth proved to be short-lived as positive economic news was later offset by new signs of continued economic weakness. To be sure, consumer spending (fueled by generational lows in mortgage rates and unprecedented refinancing opportunities) supported the faltering economy but it was insufficient to pull the economy out of its doldrums. To accomplish that, the business sector needed to resume its spending on capital improvements but that was unlikely to occur given their excess manufacturing capacity and low profitability. As a result, expectations regarding the timing of the recovery (and the need to increase interest rates) were pushed further and further off into the future and thus created a very positive environment for fixed income. In fact, after holding rates steady for nearly all of 2002, the Federal Reserve Board (Fed) surprised the markets with a 0.50% cut in the Fed Funds rate (to 1.25%) in November to provide additional interim stimulus and time for business investment to resume. Given this very favorable interest rate environment, the domestic fixed income market enjoyed yet another strong performance in 2002, the third consecutive year in which it experienced sharply positive returns. (The Lehman Aggregate Index has returned more than 10% annually on average during this period.) In contrast, the equity market saw an unwelcome continuation of 2001's weak performance. 2002 saw a record-setting number of corporate bankruptcies and a deluge of headlines regarding corporate fraud, suspect accounting practices and increased scrutiny of Wall Street research analysts. These events served to seriously erode investor confidence in the equity markets and contributed to a 22.10% decline in the S&P 500 Index(4) and much greater interest in fixed income as a less-risky investment alternative. - -------------------------------------------------------------------------------- Given this very favorable interest rate environment, the domestic fixed income market enjoyed yet another strong performance in 2002, the third consecutive year in which it experienced sharply positive returns. - -------------------------------------------------------------------------------- The Treasury market performed very well in 2002 as the 2-year note dropped 1.42% in yield to close at 1.61% as of December 31, 2002 while the 10-year note rallied by 1.23% to finish at 3.83% as of December 31, 2002. Overall, the Lehman Treasury Index(3) returned 11.79%. On the other hand, the Lehman Credit Index(3) returned 10.52% for 2002 and while not dramatically worse than the Treasury Index on a nominal basis, the corporate bond sector experienced much of the same volatility and challenges as the equity market. A record $142 billion in investment grade bonds were downgraded to high yield status by the rating agencies in 2002. The hardest hit sectors were Communications, which underperformed Treasuries by 12.07% in the second quarter alone, and the Utility sector, which underperformed by 10.15% during the third quarter. The corporate market recouped a substantial portion of its underperformance in the fourth quarter as it rallied along with the equity markets, returning 2.51% more than Treasuries. The link between the performance of the bond and equity markets manifested itself clearly in 2002. However, the Credit Index still ended 2002 with an overall negative excess return of 1.87%, the fourth worst annual showing in the history of the Index. The performance of the various segments of the structured products was very strong but not uniformly so. Mortgage-backed securities (MBS) performed extremely well, posting a nominal return of 8.75% and outperforming comparable duration Treasuries by a record-setting 1.73%. Commercial mortgage-backed securities (CMBS) performed even better. In fact, their nominal return of 15.32% and excess return of 2.10% were the best among all fixed income sectors. In contrast, asset-backed securities (ABS) posted one of their weaker performances, returning 8.55% on a nominal basis and underperforming Treasuries (by 0.16%) for the first time since 1998.(5) - -------------------- (1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. Total return represents return for Class A shares and does not take into account the current maximum sales charge of 4.5%. Since June 1, 1994, the investment adviser for the Fund has assumed certain ordinary operating expenses for the Fund. Without this assumption of expenses, returns would have been lower. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring and rating service. Its database of performance information is based on historical returns, which assume the reinvestment of dividends and distributions and the deduction of all fund expenses. Lipper return figures do not reflect the deduction of any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. (3) The Lehman Aggregate Bond Index, The Lehman Treasury Index, and The Lehman Credit Index are unmanaged indexes that are generally considered to be representative of U.S. bond market activity, the U.S. treasury market, and U.S. investment grade corporate bond market activity, respectively. The Indexes are not available for direct investment, and their returns do not reflect the fees and expenses that have been deducted from the Fund. Likewise, return figures for the Indexes do not reflect any sales charges that an investor may have to pay when purchasing or redeeming shares of the Fund. (4) The S&P 500 Index is an unmanaged index of 500 primarily large cap U.S. stocks that is generally considered to be representative of U.S. stock market activity. The Index is not available for direct investment, and its returns do not reflect the fees and expenses that have been deducted from the Fund. Likewise, return figures for the Index do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. (5) The respective indexes are: the Lehman Mortgage-Backed Securities (MBS) Index, the Lehman Commercial Mortgage-Backed Securities (CMBS) Index and the Lehman Asset-Backed Securities (ABS) Index. - -------------------------------------------------------------------------------- 16 THE GUARDIAN INVESTMENT QUALITY BOND FUND Q: WHAT WAS YOUR INVESTMENT STRATEGY DURING THE PERIOD? A: Coming into 2002, we believed the spread sectors were fundamentally undervalued and elected to overweight many of the sectors on a selective basis. We remained overweighted in all segments of the securitized products sector for the entire year and as noted above, the MBS and CMBS sectors performed extremely well and contributed substantially to the Fund's outperformance. We were also overweighted in the corporate sector, but assumed a much more defensive and cautious posture as the year unfolded. We reduced our overweighted exposure as the prospects for a strong recovery faded, but more importantly, we decided to keep our portfolio very well diversified with smaller individual exposures. This approach, as well as an even more intensified monitoring of credits, was warranted as investors lost confidence in financial reporting and numerous companies admitted to inappropriate, or at best aggressive, interpretations of GAAP accounting policies. This asset allocation and diversification served us very well for much of the year, as large differences in realized performance among investment grade funds could be attributed to success in avoiding the handful of corporate credits that "blew up." Q: WHAT IS YOUR OUTLOOK FOR 2003? A: The signs of the long-awaited economic recovery seem closer. Fiscal and monetary policies remain very accommodative and consumer spending is likely to remain sufficiently strong until the business sector recovers. We believe that treasury yields will likely rise and the yield curve will be flatter if the recovery takes hold. To be sure, geopolitical uncertainties in Iraq or North Korea or further acts of terrorism could jeopardize this outlook but despite this possibility, we retain a positive outlook for most segments of the spread sectors. The Credit Index ended 2002 on a strong note and we believe the corporate market should continue to outperform this year, as an improving economy and the benefits of corporations' earlier efforts at cost cutting and strengthening balance sheets will significantly improve corporate profitability. Investors will likely have greater comfort with undertaking more credit risk. We also remain very constructive on the prospects for the structured products sector. The positive environment from 2002 (strong demand and steep yield curve) continues to be in place and barring another unprecedented rally and refinancing wave, prepayment risks should be relatively modest. Accordingly, we are entering 2003 with overweights to the corporate and structured products sectors with a watchful eye towards a potential realignment in the relative value between them. In 2002, a portion of the demand for structured products came from investors who sought a temporary safe haven from the carnage experienced in the corporate sector. To the extent that the economy is viewed as clearly recovering, there is the potential for substantial outperformance by overweighting the corporate sector as 2002's asset allocation decision is reversed. We plan to monitor the sectors closely and adjust our sector exposures as appropriate. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT [LINE GRAPH]
THE GUARDIAN INVESTMENT QUALITY BOND FUND (CLASS A) LEHMAN AGGREGATE BOND INDEX ------------------------------- --------------------------- 2/16/93 9550.00 10000.00 6/93 9858.19 10440.90 12/93 10064.90 10719.70 6/94 9590.79 10305.00 12/94 9612.38 10407.00 6/95 10596.00 11598.00 12/95 11212.00 12329.70 6/96 10987.60 12179.90 12/96 11518.60 12777.30 6/97 11880.00 13172.50 12/97 12495.20 14010.90 6/98 12979.00 14561.20 12/98 13479.80 15228.00 6/99 13285.80 15019.30 12/99 13346.00 15102.80 6/00 13816.60 15704.90 12/00 14657.10 16858.60 12/01 15907.00 18282.20 3/02 15933.00 18299.00 6/02 16458.00 18975.00 9/02 17168.00 19846.00 12/02 17377.00 20158.00
To give you a comparison, the chart above shows the performance of a hypothetical $10,000 investment made in Class A shares of The Guardian Investment Quality Bond Fund and the Lehman Aggregate Bond Index. The starting point of $9,550 for Class A shares reflects the maximum sales charge of 4.5% that an investor may pay when purchasing Class A shares of the Fund. The Index begins at $10,000. This performance does not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Returns represent past performance and are not indicative of future results. PERFORMANCE FOR CLASS B AND C SHARES, WHICH WERE FIRST OFFERED ON AUGUST 7, 2000 AND FOR CLASS K SHARES, WHICH WERE FIRST OFFERED ON MAY 15, 2001, WILL VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO EACH SHARE CLASS.
- ------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED DECEMBER 31, 2002 Inception Since Date 1 Year 3 Years 5 Years Inception - ------------------------------------------------------------------------------------------- Class A Shares (without sales charge) 2/16/93 9.25% 9.20% 6.82% 6.24% - ------------------------------------------------------------------------------------------- Class A Shares (with sales charge) 2/16/93 4.33% 7.54% 5.84% 5.75% - ------------------------------------------------------------------------------------------- Class B Shares (without sales charge) 8/7/00 8.43% NA NA 8.68% - ------------------------------------------------------------------------------------------- Class B Shares (with sales charge) 8/7/00 5.43% NA NA 7.93% - ------------------------------------------------------------------------------------------- Class C Shares (without sales charge) 8/7/00 8.44% NA NA 8.68% - ------------------------------------------------------------------------------------------- Class C Shares (with sales charge) 8/7/00 7.44% NA NA 8.68% - ------------------------------------------------------------------------------------------- Class K Shares (without sales charge) 5/15/01 8.81% NA NA 8.67% - ------------------------------------------------------------------------------------------- Class K Shares (with sales charge) 5/15/01 7.81% NA NA 8.67% - -------------------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Total return figures for Class A shares do not take into account the current maximum sales charge of 4.5%, except where noted. Total return figures for Class B, Class C and Class K shares do not take into account the contingent deferred sales charge applicable to such shares (maximum of 3% for Class B shares and 1% for Class C and Class K shares), except where noted. Since June 1, 1994, the investment adviser for the Fund has assumed certain ordinary operating expenses for the Fund. Without this assumption of expenses, returns would have been lower. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. - -------------------------------------------------------------------------------- 17 THE GUARDIAN HIGH YIELD BOND FUND [PHOTO] [PHOTO] Peter J. Liebst Thomas G. Sorell, C.F.A. Co-Portfolio Manager Co-Portfolio Manager
OBJECTIVE: Seeks current income. Capital appreciation is a secondary objective. PORTFOLIO: At least 80% is invested in corporate bonds and other debt securities that, at the time of purchase, are rated below investment grade or are unrated INCEPTION: September 1, 1998 NET ASSETS AT DECEMBER 31, 2002: $57,883,506 Q: HOW DID THE FUND PERFORM DURING 2002? A: The Guardian High Yield Bond Fund posted a 0.96%(1) return for calendar year 2002. This compared to an average -1.76% return for the 379 high yield bond funds tracked by Lipper Analytical Services.(2) The Fund outperformed the overall high yield market by 2.37% as the Fund's benchmark, the Lehman Brothers Corporate High Yield Index,(3) posted a -1.41%(2) return for the year 2002. Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE? A: The number and magnitude of events impacting the U.S. financial markets during calendar year 2002 will long be highlighted in the financial history books. The year began with an economy struggling to recover from 2001's business driven recession. Many market pundits expounded an optimistic forecast of a recovery during 2002. Unfortunately the demand for goods and services needed to spur business capital spending never materialized throughout the year. The only bright spot was the consumer who, supported by low interest rates and proceeds from mortgage refinancing, continued to spend and hold up the fragile economy. Complicating this macroeconomic environment were realities such as a rampant level of corporate credit deterioration. During 2002, the U.S. corporate credit markets experienced a level of credit deterioration never before seen in a single year since the high yield market became established in the late '80s. The number of investment grade issues downgraded to below investment grade (fallen angels) totaled 318 and represented $142 billion of outstanding bonds. At the end of the year, these fallen angels accounted for a stunning 22.1% of the high yield market as measured by the Lehman Brothers Corporate High Yield Index. Fallen angels also had a notable effect on the overall performance of the high yield market, as the annual return would have been 2.55% higher if these fallen angels were excluded. - -------------------------------------------------------------------------------- "The Guardian High Yield Bond Fund outperformed the high yield market and its mutual fund peer group during calendar 2002 by actively managing sector diversification and adhering to a credit based fundamental investment selection process." - -------------------------------------------------------------------------------- Uncertainty and distrust were added to the credit realities of a second consecutive year of economic weakness, with ongoing geopolitical concerns and a wave of improper corporate governance disclosures. Geopolitical risks did not ease during 2002, but instead escalated. The war on terrorism was expanded to take aim at Iraq, tensions between India and Pakistan reached a crisis level, and North Korea was identified as a potential nuclear threat. Additionally, while corporate mismanagement is not a new revelation, it was startling to see the scale of malfeasance revealed by some of the largest and most well-known organizations in the corporate world. Names such as WorldCom, Tyco, Adelphia, Vivendi, National Century, and numerous other firms grabbed the spotlight for dubious reasons. The Guardian High Yield Bond Fund outperformed the high yield market and its mutual fund peer group during calendar 2002 by actively managing sector diversification and adhering to a credit-based fundamental investment selection process. The high yield market's performance was heavily impacted by the substantial negative returns in the Media Cable, Wireline Telecommunications, Airline, Electric Utility and Pipeline sectors. The Fund benefited from being substantially underweighted in all the above with the exception of Media Cable for which a market weight was maintained. The sectors which produced a notable contribu- - -------------------- (1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. Total return represents return for Class A shares and does not take into account the current maximum sales charge of 4.5%. Since inception, the investment adviser for the Fund has assumed certain ordinary operating expenses for the Fund. Without this assumption of expenses, returns would have been lower. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring and rating service. Its database of performance information is based on historical total returns, which assume the reinvestment of dividends and distributions, and the deduction of all fund expenses. Lipper returns do not reflect the deduction of sales charges that an investor may have to pay when purchasing or redeeming shares of the Fund. (3) The Lehman Brothers Corporate High Yield Bond Index is an unmanaged index that is generally considered to be representative of U.S. corporate high yield bond market activity. The Index is not available for direct investment, and its returns do not reflect the fees and expenses that have been deducted from the Fund. Likewise, return figures for the Index do not reflect any sales charges that an investor may have to pay when purchasing or redeeming shares of the Fund. - -------------------------------------------------------------------------------- 18 THE GUARDIAN HIGH YIELD BOND FUND tion to the Fund's performance were Media-NonCable, Consumer Products, Gaming and Healthcare. Q: WHAT WAS YOUR INVESTMENT STRATEGY DURING THE YEAR AND WHAT IS YOUR OUTLOOK FOR THE FUTURE? A: The Fund's overall strategy was to maximize the total return of a diversified fixed-income portfolio principally composed of below investment grade securities with up to 20% invested in convertible securities. Specifically, we sought to identify attractive asset allocation weightings based on analysis of industry fundamentals, issuer creditworthiness and risk/return profile, and relative value. Throughout 2002, stronger credit quality and larger, more liquid issues were emphasized. At year-end, the Fund remains cautious with regard to the timing of a notable improvement in the U.S. economy. Therefore we will continue to manage a diversified investment portfolio with an emphasis on credit quality and liquidity. GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT [LINE GRAPH]
THE GUARDIAN BAILLIE THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS GIFFORD EMERGING MARKETS MSCI EMERGING MARKETS FUND (CLASS A) FUND (CLASS B) FREE INDEX ------------------------ ------------------------ --------------------- 9/1/98 9550.00 10000.00 10000.00 9842.71 10363.70 10045.10 9849.67 10367.90 9839.37 10380.20 10900.70 10247.60 12/98 10432.70 10941.80 10258.90 10464.20 10973.30 10411.30 10407.90 10887.50 10350.00 10511.80 10986.90 10446.60 10684.00 11167.20 10651.10 10453.20 10908.90 10507.00 6/99 10386.30 10816.00 10484.60 10336.40 10779.90 10526.60 10296.10 10712.50 10410.40 10131.00 10531.90 10335.40 10055.00 10442.10 10266.80 10277.40 10656.90 10387.40 12/99 10371.10 10435.10 10504.20 10235.30 10286.60 10459.00 10317.10 10361.00 10479.20 10074.70 10106.50 10257.00 10219.80 10255.40 10275.40 10093.00 10118.00 10170.00 6/00 10290.80 10305.70 10377.10 10321.70 10313.10 10456.30 10462.10 10448.40 10527.80 10355.40 10333.90 10435.80 10001.20 9969.16 10101.50 9324.15 9283.08 9701.49 12/00 9694.31 9659.77 9888.90 10150.40 10096.80 10517.70 6/01 9789.53 9705.43 10277.10 9430.61 9349.60 9842.24 12/01 9972.32 9558.00 10410.00 10146.00 10586.00 6/02 9874.00 10026.00 9907.00 9645.00 9774.00 9616.00 12/02 10070.00 10082.00 10265.00
To give you a comparison, the chart above shows the performance of a hypothetical $10,000 investment made in Class A and Class B shares of The Guardian High Yield Bond Fund and the Lehman Brothers Corporate High Yield Index. The starting point of $9,550 for Class A shares reflects the maximum sales charge of 4.5% that an investor may pay when purchasing Class A shares of the Fund. For Class B shares, the contingent deferred sales charge of 1% was imposed at the end of the period. The Index and Class B shares begin at $10,000. This performance does not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Returns represent past performance and are not indicative of future results. PERFORMANCE FOR CLASS C AND CLASS K SHARES, WHICH WERE FIRST OFFERED ON AUGUST 7, 2000 AND MAY 15, 2001, RESPECTIVELY, WILL VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO EACH SHARE CLASS.
- --------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED DECEMBER 31, 2002 Inception Since Date 1 Year 3 Years Inception - --------------------------------------------------------------------------------- Class A Shares (without sales charge) 9/1/98 0.96% -0.98% 1.39% - --------------------------------------------------------------------------------- Class A Shares (with sales charge) 9/1/98 -3.58% -2.49% 0.32% - --------------------------------------------------------------------------------- Class B Shares (without sales charge) 9/1/98 0.35% -1.76% 0.43% - --------------------------------------------------------------------------------- Class B Shares (with sales charge) 9/1/98 -2.65% -2.42% 0.20% - --------------------------------------------------------------------------------- Class C Shares (without sales charge) 8/7/00 0.35% NA -1.74% - --------------------------------------------------------------------------------- Class C Shares (with sales charge) 8/7/00 -0.65% NA -1.74% - --------------------------------------------------------------------------------- Class K Shares (without sales charge) 5/15/01 0.55% NA -0.06% - --------------------------------------------------------------------------------- Class K Shares (with sales charge) 5/15/01 -0.44% NA -0.06% - ---------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Total return figures for Class A shares do not take into account the current maximum sales charge of 4.5%, except where noted. Total return figures for Class B, Class C and Class K shares do not take into account the contingent deferred sales charge applicable to such shares (maximum 3% for Class B shares and 1% for Class C and Class K shares), except where noted. Since inception, the investment adviser for the Fund has assumed certain ordinary operating expenses for the Fund. Without this assumption of expenses, returns would have been lower. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. - -------------------------------------------------------------------------------- 19 THE GUARDIAN TAX-EXEMPT FUND [PHOTO] OBJECTIVE: Seeks to maximize Alexander M. Grant, Jr. current income exempt from Portfolio Manager federal income taxes, consistent with the preservation of capital PORTFOLIO: At least 80% in investment grade municipal debt obligations INCEPTION: February 16, 1993
NET ASSETS AT DECEMBER 31, 2002: $123,592,794 Q: HOW DID THE GUARDIAN TAX-EXEMPT FUND PERFORM IN 2002? A: The Guardian Tax-Exempt Fund produced a total return of 10.20%(1) for 2002. The Lehman Municipal Bond Index(2) produced a total return of 9.60% for the same period. The latter reflects the different investment parameters of that Index which includes all bonds and maturities. Even so, The Guardian Tax-Exempt Fund exceeded it by 0.59%. Somewhat more meaningful peer group comparisons are from Lipper and Morningstar. The Lipper General Municipal(3) average return the year ended December 31, 2002 was 8.36%, ranking the Fund 22nd out of 287 funds with the same objective and in Lipper's 8th percentile. For Morningstar's(4) universe of municipal national long funds, the average return for the year ended December 31, 2002 was 7.97%. The Guardian Tax-Exempt Fund outperformed Morningstar's universe of municipal national long funds by 2.23%. For the three-year period ended December 31, 2002, Lipper ranks the Fund 15th out of 246 general municipal funds and in the 7th percentile. For the five-year period ended December 31, 2002, the Fund ranks 9th out of 204 funds and in the 5th percentile. For the life of the Fund beginning February 16, 1993 and ended December 31, 2002, Lipper ranks the Fund 59th out of 94 funds and in the 63rd percentile. As of December 31, 2002, the Fund's 30-day yield was 3.75%, which compares to a 6.01% tax equivalent yield for a person in the highest federal income tax bracket in 2002. Q: WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND? A: Benefiting from historically low interest rates, municipal issuers issued bonds at record levels. For 2002, $357.9 billion in long-term bonds were issued, a 24% increase over the $286.6 billion issued in 2001. The high new issue volume in 2002 broke the $292.2 billion record set in 1993. Investors poured money into municipal bonds, allowing the market to absorb this volume. - -------------------------------------------------------------------------------- "Our strategy continued to be to buy good quality, attractively structured national market names and stay away from "hot" deals or lower investment quality bonds." - -------------------------------------------------------------------------------- Our strategy continued to be to buy good quality, attractively structured national market names and stay away from "hot" deals or lower investment quality bonds. On the sell side, we sold selectively retail and institutional blocks when the prices were attractive in terms of the spread off our benchmarks. Q: WHAT IS YOUR OUTLOOK FOR THE FUTURE? A: The increased volume of issues in 2002 was easily absorbed by traditional institutional and retail investors with investment capital made available by coupon and redemption payments as well as by crossovers and arbitrageurs (who are investors who usually buy taxable bonds) brought in by the attractive ratios to taxable bonds. As long as the lower interest rate environment continues, we would expect these issuance and investment patterns to continue. If interest rates do not decline any further and in fact increase, at the very least we would expect new issuance for refundings to decline in 2003. In 2002, new issuance for refundings was $92.0 billion, versus $63.4 billion in 2001. Also, the strength of the economic recovery, resolutions of state and local government budgetary problems, inflationary pressures and propositions and enacted tax law changes in Washington will be the variables to carefully monitor over the coming weeks and months. They are critical influences on interest rates, new issuance volume, credit quality and investor demand. - -------------------- (1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. Total return represents return for Class A shares and does not take into account the current maximum sales charge of 4.5%. Since June 1, 1994, the investment adviser for the Fund has assumed certain ordinary operating expenses for the Fund. Without this assumption of expenses, returns would have been lower. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. (2) The Lehman Municipal Bond Index is an unmanaged index that is generally considered to be representative of U.S. municipal bond activity. The Lehman Municipal Bond Index is not available for direct investment, and its return does not reflect the expenses that have been deducted from the Fund. Likewise, return figures for the Lehman Municipal Bond Index do not reflect any sales charges that an investor may pay when purchasing or redeeming shares of the Fund. (3) Lipper Analytical Services, Inc. is an independent mutual fund monitoring and rating service. Its database of performance information is based on historical total returns, which assume the reinvestment of dividends and distributions and the deduction of all fund expenses. Lipper returns do not reflect the deduction of sales charges that an investor may pay when purchasing or redeeming shares of the Fund. There are 287 funds in the Lipper General Municipal category for the twelve-month period ended December 31, 2002. (4) (C)2002 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an "expert" under the Securities Act of 1933. Returns represent past performance and are no guarantee of future results. Morningstar's database of performance information is based on historical total returns, which assumes the reinvestment of dividends and distributions, and the deduction of all fund expenses. - -------------------------------------------------------------------------------- 20 THE GUARDIAN TAX-EXEMPT FUND PORTFOLIO COMPOSITION BY SECTOR ALLOCATION AS OF DECEMBER 31, 2002 [PIE CHART]
LOCAL GENERAL OBLIGATION STATE GENERAL OBLIGATION BONDS BONDS REVENUE BONDS INSURED BONDS - ------------------------------ ------------------------ ------------- ------------- 7.26 20.10 21.11 51.53
CREDIT QUALITY AS OF DECEMBER 31, 2002 [PIE CHART]
AAA/US GOVERNMENT & GOVERNMENT AGENCY AA A - ------------------------------------- -- - 68.58 26.64 4.78
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT [LINE GRAPH]
THE GUARDIAN TAX-EXEMPT FUND (CLASS A) LEHMAN MUNICIPAL BOND INDEX ---------------------------- --------------------------- 2/16/93 9550.00 10000.00 9682.97 10244.90 9475.59 10136.70 9571.16 10239.00 9638.18 10296.50 6/93 9829.56 10468.40 9767.66 10482.10 10052.80 10700.40 10230.30 10822.20 10135.20 10843.20 10004.00 10747.60 12/93 10228.50 10974.50 10358.40 11099.90 9957.25 10812.40 9409.59 10372.10 9381.47 10460.00 9523.56 10550.70 6/94 9383.11 10486.30 9555.98 10678.50 9564.96 10715.40 9398.78 10558.20 9243.34 10370.70 9083.23 10182.90 12/94 9313.33 10407.00 9593.52 10704.60 9820.20 11015.90 9896.19 11142.50 9895.04 11155.70 10181.10 11511.70 6/95 9985.84 11411.00 10122.50 11519.00 10212.90 11665.20 10268.90 11738.90 10398.30 11909.50 10564.80 12107.40 12/95 10669.90 12223.60 10775.00 12316.00 10658.30 12232.80 10484.20 12076.50 10468.50 12042.30 10452.80 12037.70 6/96 10532.20 12168.90 10658.70 12279.00 10629.90 12276.20 10771.70 12447.80 10902.90 12588.50 11102.30 12819.00 12/96 11053.70 12764.90 11035.30 12789.10 11123.20 12906.50 10986.70 12734.30 11069.90 12841.10 11233.30 13034.30 6/97 11369.80 13173.20 11671.40 13538.00 11539.50 13411.10 11681.30 13570.10 11754.00 13657.60 11835.20 13738.00 12/97 12020.10 13938.30 12100.00 14082.10 12062.60 14086.40 12106.70 14098.90 12027.40 14035.30 12276.80 14257.30 6/98 12300.80 14313.60 12322.40 14349.40 12528.60 14571.10 12711.90 14752.70 12632.00 14752.40 12722.70 14804.10 12/98 12761.70 14841.40 12875.50 15017.90 12873.20 14952.40 12834.30 14973.20 12859.10 15010.20 12700.20 14923.40 6/99 12529.30 14708.70 12562.60 14762.20 12445.20 14643.90 12427.10 14650.00 12243.40 14491.30 12416.00 14645.40 12/99 12333.70 14536.20 12276.90 14473.20 12441.70 14641.10 12752.50 14961.30 12653.50 14872.60 12567.40 14795.30 6/00 12924.20 15187.30 13094.20 15398.60 13304.90 15636.00 13218.10 15554.60 13361.40 15724.30 13479.20 15843.30 12/00 13856.90 16225.90 13856.90 16225.90 13856.90 16225.90 14099.50 16595.00 14099.50 16595.00 14099.50 16595.00 6/01 14172.60 16702.90 14172.60 16702.90 14172.60 16702.90 14569.40 17171.70 14569.40 17171.70 14569.40 17171.70 12/01 14518.00 17067.00 3/02 14648.00 17228.00 6/02 15199.00 17859.00 9/02 16084.00 18707.00 12/02 15998.00 18706.00
To give you a comparison, the chart above shows the performance of a hypothetical $10,000 investment made in Class A shares of The Guardian Tax-Exempt Fund and the Lehman Municipal Bond Index. The starting point of $9,550 for Class A shares reflects the maximum sales charge of 4.5% that an investor may pay when purchasing Class A shares of the Fund. The Index begins at $10,000. This performance does not reflect the deduction of taxes that a shareholder may pay on distributions or redemption of shares. Returns represent past performance and are not indicative of future results. PERFORMANCE FOR CLASS C SHARES, WHICH WERE FIRST OFFERED ON AUGUST 7, 2000, WILL VARY DUE TO DIFFERENCES IN SALES LOAD AND OTHER EXPENSES CHARGED TO SUCH SHARE CLASS.
- ------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED DECEMBER 31, 2002 Inception Since Date 1 Year 3 Years 5 Years Inception - ------------------------------------------------------------------------------------------- Class A Shares (without sales charge) 2/16/93 10.20% 9.04% 5.88% 5.41% - ------------------------------------------------------------------------------------------- Class A Shares (with sales charge) 2/16/93 5.24% 7.38% 4.91% 4.92% - ------------------------------------------------------------------------------------------- Class C Shares (without sales charge) 8/7/00 9.37% NA NA 7.63% - ------------------------------------------------------------------------------------------- Class C Shares (with sales charge) 8/7/00 8.37% NA NA 7.63% - -------------------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. The return figures shown do not reflect the deduction of taxes that a shareholder may pay on distributions of gains or redemption of shares. Total return figures for Class A shares do not take into account the current maximum sales charge of 4.5%, except where noted. Total return figures for Class C shares do not take into account the contingent deferred sales charges applicable to such shares (maximum of 1% except where noted). Since June 1, 1994, the investment adviser for the Fund has assumed certain ordinary operating expenses for the Fund. Without this assumption of expenses, returns would have been lower. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. - -------------------------------------------------------------------------------- 21 THE GUARDIAN CASH MANAGEMENT FUND [PHOTO] OBJECTIVE: Seeks as high a level of Alexander M. Grant, Jr. current income as is consistent Portfolio Manager with liquidity and preservation of capital PORTFOLIO: Short-term money market instruments INCEPTION: November 3, 1982
NET ASSETS AT DECEMBER 31, 2002: $694,474,771 Q: HOW DID THE GUARDIAN CASH MANAGEMENT FUND PERFORM FOR THE YEAR ENDED DECEMBER 31, 2002? A: As of December 31, 2002 the effective 7-day net annualized yield for The Guardian Cash Management Fund was 0.65%.(1) The Fund produced a total net return of 0.95%(2) for the year ended December 31, 2002. In comparison, the effective 7-day annualized yield of Tier One money market funds as measured by iMoneyNet, Inc. was 0.74% as of December 31, 2002; total return for the year ended December 31, 2002 for the same category was 1.10%. iMoneyNet, Inc. is a research firm that tracks money market funds. Q: WHAT WAS YOUR INVESTMENT STRATEGY DURING THE YEAR? A: The Guardian Cash Management Fund is a place for our investors to put their money while they decide their preferred long-term investment vehicle, be it stocks or bonds. Also, some of our investors prefer the relative stability of the money markets. To best accommodate all our investors, we will continue to try to provide a strong 7-day yield, while offering safety and liquidity. Our investment strategy was to create a diversified portfolio of money market instruments that presented minimal credit risks according to our criteria. As always, we only purchased securities for the Fund's portfolio from issuers that had received ratings in the two highest credit quality categories established by nationally recognized statistical ratings organizations like Moody's Investors Service Inc. and Standard & Poor's Corporation. Most of the portfolio (74.09%) was invested in commercial paper and short maturity corporate bonds; the balance was invested in repurchase agreements (5.66%) and floating rate taxable municipal bonds (20.25%). Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE? A: Money market funds are directly affected by the actions of the Federal Reserve Board (Fed). During most of 2002, the Fed's policy making Federal Open Market Committee (FOMC) maintained the Federal Funds target rate at 1.75%. However, in November of 2002, the committee cut the Federal Funds target rate to 1.25%, citing economic weakness. The Federal Funds target is the rate at which banks can borrow from each other overnight. While the Fed does not set this rate, it can establish a target rate and, through open market operations, the Fed can move member banks in the direction of that target rate. The Discount Rate is the rate at which banks can borrow directly from the Federal Reserve. Another factor affecting performance was the portfolio's average maturity of 37 days as of December 31, 2002. The average Tier One money market fund as measured by iMoneyNet, Inc. had an average maturity of 46 days. - -------------------------------------------------------------------------------- "Our investment strategy was to create a diversified portfolio of money market instruments that presented minimal credit risks according to our criteria." - -------------------------------------------------------------------------------- Q: WHAT IS YOUR OUTLOOK FOR THE FUTURE? A: Uncertainty regarding the direction of the stock market contributes to large daily inflows and outflows of money in the Fund. As the stock market rallies, our investors have typically transferred cash to equity funds. During those times when the stock market stalls, we see cash inflows. Due to the relatively short average days-to-maturity, these daily fluctuations have little effect on the Fund. AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. - -------------------- (1) Yields are annualized historical figures. Effective yield assumes reinvested income. Yields will vary as interest rates change. Past performance is not indicative of future results. (2) Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. Since June 1, 1994, the investment adviser for the Fund has assumed certain ordinary operating expenses of the Fund. Without these expense assumptions, the returns would have been lower. The total return and yield figures cited represent total return and yield for Class A shares. Returns represent past performance and are not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. - -------------------------------------------------------------------------------- 22 SCHEDULE OF INVESTMENTS December 31, 2002 / / The Guardian Park Avenue Fund
COMMON STOCKS -- 97.8% Shares Value - ------------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 2.0% 187,800 General Dynamics Corp. $ 14,905,686 183,900 Lockheed Martin Corp. 10,620,225 -------------- 25,525,911 - ------------------------------------------------------------------------------- BANKS -- 7.5% 333,100 Bank of America Corp. 23,173,767 217,700 Bank One Corp. 7,956,935 158,025 Charter One Financial, Inc. 4,540,058 169,800 Golden West Financial Corp. 12,193,338 167,800 M & T Bank Corp. 13,314,930 192,700 North Fork Bancorporation, Inc. 6,501,698 352,200 SouthTrust Corp. 8,752,170 458,300 Wells Fargo & Co. 21,480,521 -------------- 97,913,417 - ------------------------------------------------------------------------------- BEVERAGES -- 3.2% 87,000 Anheuser-Busch Cos., Inc. 4,210,800 409,200 Coca-Cola Co. 17,931,144 305,100 PepsiCo., Inc. 12,881,322 238,000 The Pepsi Bottling Group, Inc. 6,116,600 -------------- 41,139,866 - ------------------------------------------------------------------------------- BIOTECHNOLOGY -- 1.2% 310,000 Amgen, Inc.* 14,985,400 - ------------------------------------------------------------------------------- CHEMICALS -- 1.3% 153,700 Air Products & Chemicals, Inc. 6,570,675 257,900 E.I. Du Pont de Nemours & Co. 10,934,960 -------------- 17,505,635 - ------------------------------------------------------------------------------- COMMERCIAL SERVICES AND SUPPLIES -- 2.1% 595,300 Concord EFS, Inc.* 9,370,022 198,600 First Data Corp. 7,032,426 306,900 Fiserv, Inc.* 10,419,255 -------------- 26,821,703 - ------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT -- 1.8% 1,777,800 Cisco Systems, Inc.* 23,289,180 - ------------------------------------------------------------------------------- COMPUTERS AND PERIPHERALS -- 3.6% 615,100 Dell Computer Corp.* 16,447,774 501,100 Hewlett Packard Co. 8,699,096 281,300 Int'l. Business Machines 21,800,750 -------------- 46,947,620 - ------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 9.2% 236,600 American Express Co. 8,363,810 851,566 Citigroup, Inc. 29,966,607 253,600 Federal Home Loan Mortgage Corp. 14,975,080 249,100 Federal National Mortgage Assn. 16,024,603 150,000 Goldman Sachs Group, Inc. 10,215,000 213,866 Legg Mason, Inc. 10,381,056 116,000 Lehman Brothers Hldgs., Inc. 6,181,640 164,200 Merrill Lynch & Co., Inc. 6,231,390 77,000 SLM Corp. 7,997,220 236,800 State Street Corp. 9,235,200 -------------- 119,571,606 - ------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.8% 637,300 SBC Comm., Inc. 17,277,203 829,200 Verizon Comm. 32,131,500 -------------- 49,408,703 - ------------------------------------------------------------------------------- ELECTRIC UTILITIES -- 1.1% 246,300 FPL Group, Inc. 14,810,019 - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- Shares Value - ------------------------------------------------------------------------------- ENERGY EQUIPMENT AND SERVICES -- 2.2% 235,300 Nabors Industries, Inc.* $ 8,299,031 491,500 Schlumberger Ltd. 20,687,235 -------------- 28,986,266 - ------------------------------------------------------------------------------- FOOD PRODUCTS -- 1.4% 92,200 Hershey Foods Corp. 6,217,968 303,200 Kraft Foods, Inc. 11,803,576 -------------- 18,021,544 - ------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT AND SUPPLIES -- 3.0% 321,600 Baxter Int'l., Inc. 9,004,800 218,200 Boston Scientific Corp.* 9,277,864 196,600 Guidant Corp.* 6,065,110 311,500 Medtronic, Inc. 14,204,400 -------------- 38,552,174 - ------------------------------------------------------------------------------- HEALTH CARE PROVIDERS AND SERVICES -- 4.0% 390,400 AmerisourceBergen Corp. 21,202,624 379,800 HCA, Inc. 15,761,700 313,000 Health Management Associates, Inc. 5,602,700 420,000 Laboratory Corp. of America Hldgs.* 9,760,800 -------------- 52,327,824 - ------------------------------------------------------------------------------- HOUSEHOLD DURABLES -- 0.8% 337,300 Newell Rubbermaid, Inc. 10,230,309 - ------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 1.7% 263,900 Procter & Gamble Co. 22,679,566 - ------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 2.8% 1,518,000 General Electric Co. 36,963,300 - ------------------------------------------------------------------------------- INFORMATION TECHNOLOGY CONSULTING AND SERVICES -- 1.0% 539,400 SunGard Data Systems, Inc.* 12,708,264 - ------------------------------------------------------------------------------- INSURANCE -- 6.4% 118,400 Ambac Financial Group, Inc. 6,658,816 658,700 American Int'l. Group, Inc. 38,105,795 367,900 Chubb Corp. 19,204,380 416,200 Marsh & McLennan Cos., Inc. 19,232,602 -------------- 83,201,593 - ------------------------------------------------------------------------------- INTERNET AND CATALOG RETAIL -- 0.5% 255,700 USA Interactive* 5,860,644 - ------------------------------------------------------------------------------- MACHINERY -- 1.1% 207,800 Danaher Corp. 13,652,460 - ------------------------------------------------------------------------------- MEDIA -- 2.7% 172,100 Clear Channel Comm., Inc.* 6,417,609 521,000 Viacom, Inc.* 21,235,960 484,900 Walt Disney Co. 7,908,719 -------------- 35,562,288 - ------------------------------------------------------------------------------- METALS AND MINING -- 1.0% 457,500 Alcoa, Inc. 10,421,850 93,100 Newmont Mining Corp. 2,702,693 -------------- 13,124,543 - ------------------------------------------------------------------------------- MULTILINE RETAIL -- 3.2% 186,000 Costco Wholesale Corp.* 5,219,160 711,300 Wal-Mart Stores, Inc. 35,927,763 -------------- 41,146,923 - ------------------------------------------------------------------------------- OIL AND GAS -- 5.0% 196,200 EOG Resources, Inc. 7,832,304 1,376,900 Exxon Mobil Corp. 48,108,886 338,200 Occidental Petroleum Corp. 9,621,790 -------------- 65,562,980 - -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 23 THE GUARDIAN PARK AVENUE FUND Schedule of Investments (Continued)
- ------------------------------------------------------------------------------- Shares Value - ------------------------------------------------------------------------------- PERSONAL PRODUCTS -- 1.0% 237,200 Avon Products, Inc. $ 12,777,964 - ------------------------------------------------------------------------------- PHARMACEUTICALS -- 10.3% 128,400 Abbott Laboratories 5,136,000 319,200 Bristol-Myers Squibb Corp. 7,389,480 481,740 Johnson & Johnson 25,874,256 325,000 King Pharmaceuticals, Inc.* 5,586,750 373,900 Merck & Co., Inc. 21,166,479 1,475,400 Pfizer, Inc. 45,102,978 392,900 Pharmacia Corp. 16,423,220 183,000 Wyeth 6,844,200 -------------- 133,523,363 - ------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 3.8% 786,500 Applied Materials, Inc.* 10,248,095 1,411,800 Intel Corp. 21,981,726 159,500 KLA-Tencor Corp.* 5,641,515 354,300 National Semiconductor Corp.* 5,318,043 450,100 Texas Instruments, Inc. 6,756,001 -------------- 49,945,380 - ------------------------------------------------------------------------------- SOFTWARE -- 6.6% 513,300 Adobe Systems, Inc. 12,730,353 1,010,900 Microsoft Corp.* 52,263,530 1,320,400 Oracle Corp.* 14,260,320 152,800 Symantec Corp.* 6,189,928 -------------- 85,444,131 - ------------------------------------------------------------------------------- SPECIALTY RETAIL -- 0.4% 139,500 Bed, Bath & Beyond, Inc.* 4,816,935 - ------------------------------------------------------------------------------- TOBACCO -- 1.0% 330,400 Philip Morris Cos., Inc. 13,391,112 - ------------------------------------------------------------------------------- TRADING COMPANIES AND DISTRIBUTORS -- 1.1% 283,200 W.W. Grainger, Inc. $ 14,598,960 - ------------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $1,418,784,326) 1,270,997,583 - -------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.5% Principal Amount Value - ------------------------------------------------------------------------------- $31,871,000 State Street Bank and Trust Co. repurchase agreement, dated 12/31/2002, maturity value $31,873,036 at 1.15%, due 1/2/2003 (1) (COST $31,871,000) $ 31,871,000 - ------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.3% (COST $1,450,655,326) 1,302,868,583 LIABILITIES IN EXCESS OF CASH, RECEIVABLES AND OTHER ASSETS -- (0.3)% (3,410,636) - ------------------------------------------------------------------------------- NET ASSETS -- 100% $1,299,457,947 - -------------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. * Non-income producing security. - -------------------------------------------------------------------------------- See notes to financial statements. 24 / / The Guardian Park Avenue Small Cap Fund
COMMON STOCKS -- 96.3% Shares Value - ---------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 3.0% 26,350 Alliant Techsystems, Inc.* $ 1,642,922 34,400 DRS Technologies, Inc.* 1,077,752 61,000 Precision Castparts Corp. 1,479,250 ------------ 4,199,924 - ---------------------------------------------------------------------------- AIR FREIGHT AND LOGISTICS -- 0.5% 29,400 UTi Worldwide, Inc. 771,750 - ---------------------------------------------------------------------------- AIRLINES -- 1.2% 125,400 Skywest, Inc. 1,638,978 - ---------------------------------------------------------------------------- AUTO COMPONENTS -- 1.3% 78,600 American Axle & Mfg. Hldgs., Inc.* 1,840,812 - ---------------------------------------------------------------------------- BANKS -- 8.3% 32,500 Allegiant Bancorp, Inc. 592,443 22,580 Associated Banc-Corp 766,365 33,000 City National Corp. 1,451,670 28,700 Community Bank System, Inc. 899,745 57,200 East West Bancorp, Inc. 2,063,776 94,400 Fulton Financial Corp. 1,667,104 45,300 Southwest Bancorp. of Texas, Inc.* 1,305,093 42,400 UCBH Hldgs., Inc. 1,799,880 44,600 W Hldg. Co., Inc. 731,886 14,850 Wintrust Financial Corp. 465,102 ------------ 11,743,064 - ---------------------------------------------------------------------------- BEVERAGES -- 1.9% 52,700 Boston Beer Co., Inc.* 753,610 105,900 Cott Corp.* 1,887,138 ------------ 2,640,748 - ---------------------------------------------------------------------------- BIOTECHNOLOGY -- 2.3% 24,700 Charles River Laboratories Int'l.* 950,456 152,600 Medarex, Inc.* 602,770 127,100 Protein Design Labs, Inc.* 1,080,350 42,300 Vertex Pharmaceuticals, Inc.* 670,455 ------------ 3,304,031 - ---------------------------------------------------------------------------- CHEMICALS -- 2.3% 70,500 Cabot Corp. 1,871,070 65,500 Spartech Corp. 1,351,265 ------------ 3,222,335 - ---------------------------------------------------------------------------- COMMERCIAL SERVICES AND SUPPLIES -- 4.4% 41,500 Banta Corp. 1,297,705 103,400 Daisytek Int'l. Corp.* 819,962 27,750 FTI Consulting, Inc.* 1,114,163 20,300 G & K Svcs., Inc. 718,640 21,300 Global Payments, Inc. 681,813 18,900 NCO Group, Inc.* 301,455 67,300 School Specialty, Inc.* 1,344,654 ------------ 6,278,392 - ---------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT -- 2.4% 44,700 Avocent Corp.* 993,234 82,000 F5 Networks, Inc.* 880,680 100,400 Foundry Networks, Inc.* 706,816 105,900 McDATA Corp.* 744,477 ------------ 3,325,207 - ---------------------------------------------------------------------------- COMPUTERS AND PERIPHERALS -- 0.8% 150,100 Synaptics, Inc.* 1,140,760 - ---------------------------------------------------------------------------- CONSTRUCTION AND ENGINEERING -- 1.5% 16,200 EMCOR Group, Inc.* 858,762 33,800 Jacobs Engineering Group, Inc.* 1,203,280 ------------ 2,062,042 - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 3.3% 32,900 Federal Agricultural Mortgage Corp.* $ 1,008,056 41,300 Financial Federal Corp.* 1,037,869 48,200 Investors Financial Svcs. Corp. 1,320,198 26,900 Legg Mason, Inc. 1,305,726 ------------ 4,671,849 - ---------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.8% 32,800 Commonwealth Telephone Enterprises, Inc.* 1,175,552 - ---------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 0.8% 136,500 AstroPower, Inc.* 1,090,635 - ---------------------------------------------------------------------------- ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 2.7% 33,700 Benchmark Electronics, Inc.* 965,842 49,700 Planar Systems, Inc.* 1,025,311 74,400 Plexus Corp.* 653,232 40,800 Varian, Inc.* 1,170,552 ------------ 3,814,937 - ---------------------------------------------------------------------------- ENERGY EQUIPMENT AND SERVICES -- 2.6% 68,200 Offshore Logistics, Inc.* 1,494,944 70,800 Patterson-UTI Energy, Inc.* 2,136,036 ------------ 3,630,980 - ---------------------------------------------------------------------------- FOOD AND DRUG RETAILING -- 1.0% 55,800 United Natural Foods, Inc.* 1,414,530 - ---------------------------------------------------------------------------- FOOD PRODUCTS -- 1.9% 54,300 American Italian Pasta Co.* 1,953,714 36,500 Smithfield Foods, Inc.* 724,160 ------------ 2,677,874 - ---------------------------------------------------------------------------- HEALTH CARE EQUIPMENT AND SUPPLIES -- 0.5% 20,000 Diagnostic Products Corp. 772,400 - ---------------------------------------------------------------------------- HEALTH CARE PROVIDERS AND SERVICES -- 3.9% 24,400 AdvancePCS* 541,924 20,200 DIANON Systems, Inc.* 963,742 45,200 Henry Schein, Inc.* 2,034,000 34,400 LifePoint Hospitals, Inc.* 1,029,626 101,050 Province Healthcare Co.* 983,217 ------------ 5,552,509 - ---------------------------------------------------------------------------- HOTELS, RESTAURANTS AND LEISURE -- 2.3% 42,200 Lone Star Steakhouse & Saloon 816,148 90,900 Penn National Gaming, Inc.* 1,441,674 54,100 Ruby Tuesday, Inc. 935,389 ------------ 3,193,211 - ---------------------------------------------------------------------------- HOUSEHOLD DURABLES -- 1.6% 22,752 Beazer Homes USA, Inc.* 1,378,771 32,600 Snap-On, Inc. 916,386 ------------ 2,295,157 - ---------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 0.8% 58,900 Dial Corp. 1,199,793 - ---------------------------------------------------------------------------- INFORMATION TECHNOLOGY CONSULTING AND SERVICES -- 2.6% 38,000 CACI Int'l., Inc.* 1,354,320 139,000 Keane, Inc.* 1,249,610 48,400 Manhattan Assoc., Inc.* 1,145,144 ------------ 3,749,074 - ---------------------------------------------------------------------------- INSURANCE -- 6.4% 51,200 Authur J. Gallagher & Co. 1,504,256 41,600 Brown & Brown, Inc. 1,344,512 54,600 Harleysville Group, Inc. 1,443,078 25,200 Montpelier Re Hldgs. Ltd* 725,760 16,700 PartnerRe Ltd. 865,394
- -------------------------------------------------------------------------------- See notes to financial statements. 25 THE GUARDIAN PARK AVENUE SMALL CAP FUND Schedule of Investments (Continued)
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- 47,900 Philadelphia Conso. Hldg. Corp.* $ 1,695,660 37,400 RenaissanceRe Hldgs. Ltd. 1,481,040 ------------ 9,059,700 - ---------------------------------------------------------------------------- LEISURE EQUIPMENT AND PRODUCTS -- 1.4% 42,900 Action Performance Cos., Inc. 815,100 29,000 Winnebago Inds., Inc. 1,137,670 ------------ 1,952,770 - ---------------------------------------------------------------------------- MACHINERY -- 2.8% 46,000 AGCO Corp.* 1,016,600 33,400 CLARCOR, Inc.* 1,077,818 23,600 IDEX Corp. 771,720 17,300 Oshkosh Truck Corp. 1,063,950 ------------ 3,930,088 - ---------------------------------------------------------------------------- MEDIA -- 1.0% 38,000 Cumulus Media, Inc.* 565,060 14,600 Media General, Inc. 875,270 ------------ 1,440,330 - ---------------------------------------------------------------------------- METALS AND MINING -- 0.4% 21,000 Peabody Energy Corp. 613,830 - ---------------------------------------------------------------------------- OIL AND GAS -- 2.5% 21,100 Evergreen Resources, Inc.* 946,335 73,400 Spinnaker Exploration Co.* 1,618,470 24,600 Western Gas Resources, Inc. 906,510 ------------ 3,471,315 - ---------------------------------------------------------------------------- PAPER AND FOREST PRODUCTS -- 1.6% 47,000 Glatfelter 618,520 105,200 Louisiana-Pacific Corp. 847,912 18,200 Rayonier, Inc. 823,550 ------------ 2,289,982 - ---------------------------------------------------------------------------- PHARMACEUTICALS -- 4.5% 52,300 Medicis Pharmaceutical Corp.* 2,597,741 41,100 NPS Pharmaceuticals, Inc.* 1,034,487 74,300 Taro Pharmaceutical Inds. Ltd.* 2,793,680 ------------ 6,425,908 - ---------------------------------------------------------------------------- REAL ESTATE -- 3.9% 27,300 AMB Ppty. Corp. 746,928 58,300 Arden Realty, Inc. 1,291,345 31,800 Home Pptys. NY, Inc. 1,095,510 45,300 Prentiss Pptys. Trust 1,281,084 53,200 Reckson Assocs. Realty Corp. 1,119,860 ------------ 5,534,727 - ---------------------------------------------------------------------------- ROAD AND RAIL -- 1.5% 40,900 P.A.M. Transportation Svcs., Inc.* 1,031,089 51,800 Werner Enterprises, Inc. 1,115,254 ------------ 2,146,343 - ---------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 4.8% 111,500 Entegris, Inc.* 1,148,450 73,700 Exar Corp.* 913,880
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- 77,900 Micrel, Inc.* $ 699,542 67,800 MKS Instruments, Inc.* 1,113,954 87,400 Monolithic System Technology, Inc.* 1,055,792 161,200 Pericom Semiconductor Corp.* 1,339,572 136,700 TriQuint Semiconductor, Inc.* 579,608 ------------ 6,850,798 - ---------------------------------------------------------------------------- SOFTWARE -- 6.8% 88,700 Borland Software Corp.* 1,091,010 77,200 FactSet Research Systems, Inc. 2,182,444 42,167 Fair, Issac & Co., Inc. 1,800,531 84,100 Henry Jack & Assocs., Inc. 1,012,564 36,700 Hyperion Solutions Corp.* 942,089 97,400 J.D. Edwards & Co.* 1,098,672 146,600 RSA Security, Inc.* 878,134 46,600 THQ, Inc.* 617,450 ------------ 9,622,894 - ---------------------------------------------------------------------------- SPECIALTY RETAIL -- 3.2% 63,800 Chico's FAS, Inc.* 1,206,458 52,500 Cost Plus, Inc.* 1,505,175 76,200 Group 1 Automotive, Inc.* 1,819,656 ------------ 4,531,289 - ---------------------------------------------------------------------------- WATER UTILITIES -- 0.8% 53,600 Philadelphia Subn. Corp. 1,104,160 - ---------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $136,839,506) 136,380,678 - ---------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 4.4% Principal Amount Value - ---------------------------------------------------------------------------- $6,168,000 State Street Bank and Trust Co. repurchase agreement, dated 12/31/2002, maturity value $6,168,394 at 1.15%, due 1/2/2003 (1) (COST $6,168,000) $ 6,168,000 - ---------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.7% (COST $143,007,506) 142,548,678 LIABILITIES IN EXCESS OF CASH, RECEIVABLES AND OTHER ASSETS -- (0.7)% (984,467) - ---------------------------------------------------------------------------- NET ASSETS -- 100% $141,564,211 - ----------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. * Non-income producing security. - -------------------------------------------------------------------------------- See notes to financial statements. 26 / / The Guardian Asset Allocation Fund
COMMON STOCKS -- 18.1% Shares Value - ---------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 0.4% 4,433 Boeing Co. $ 146,245 4,489 Honeywell Int'l., Inc. 107,736 1,046 Lockheed Martin Corp. 60,406 606 Northrop Grumman Corp. 58,782 1,924 Raytheon Co. 59,163 2,630 United Technologies Corp. 162,902 ------------ 595,234 - ---------------------------------------------------------------------------- AIR FREIGHT AND LOGISTICS -- 0.2% 3,800 United Parcel Svcs., Inc. 239,704 - ---------------------------------------------------------------------------- AIRLINES -- 0.1% 5,803 Southwest Airlines Co. 80,662 - ---------------------------------------------------------------------------- AUTOMOBILES -- 0.2% 10,571 Ford Motor Co. 98,310 3,595 General Motors Corp. 132,512 2,241 Harley-Davidson, Inc. 103,534 ------------ 334,356 - ---------------------------------------------------------------------------- BANKS -- 1.4% 7,268 Bank of America Corp. 505,635 4,324 Bank of New York, Inc. 103,603 1,872 BB&T Corp. 69,245 3,330 Fifth Third Bancorp 194,971 6,182 FleetBoston Financial Corp. 150,223 7,743 KeyCorp 194,659 2,356 Mellon Financial Corp. 61,515 10,491 U.S. Bancorp 222,619 6,197 Wachovia Corp. 225,819 5,341 Washington Mutual, Inc. 184,425 3,950 Wells Fargo & Co. 185,136 ------------ 2,097,850 - ---------------------------------------------------------------------------- BEVERAGES -- 0.6% 4,261 Anheuser-Busch Cos., Inc. 206,232 7,078 Coca-Cola Co. 310,158 3,197 Coca-Cola Enterprises, Inc. 69,439 5,931 PepsiCo., Inc. 250,407 2,305 The Pepsi Bottling Group, Inc. 59,238 ------------ 895,474 - ---------------------------------------------------------------------------- BIOTECHNOLOGY -- 0.3% 4,585 Amgen, Inc.* 221,639 1,840 Biogen, Inc.* 73,710 2,172 Chiron Corp.* 81,667 1,726 MedImmune, Inc.* 46,896 ------------ 423,912 - ---------------------------------------------------------------------------- BUILDING PRODUCTS -- 0.1% 4,951 Masco Corp. 104,219 - ---------------------------------------------------------------------------- CHEMICALS -- 0.3% 5,733 Dow Chemical Co. 170,270 3,035 E.I. Du Pont de Nemours & Co. 128,684 1,085 Monsanto Co. 20,886 1,174 PPG Industries, Inc. 58,876 1,770 Rohm & Haas Co. 57,490 ------------ 436,206 - ---------------------------------------------------------------------------- COMMERCIAL SERVICES AND SUPPLIES -- 0.5% 3,405 Automatic Data Processing, Inc. 133,646 5,396 Cendant Corp.* 56,550 1,807 Cintas Corp. 82,670 3,414 Concord EFS, Inc.* 53,736 4,412 First Data Corp. 156,229 2,602 Paychex, Inc. 72,596 2,928 Pitney Bowes, Inc. 95,629 1,608 Sabre Hldgs. Corp.* 29,121 2,779 Waste Management, Inc. 63,695 ------------ 743,872 - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT -- 0.4% 27,148 Cisco Systems, Inc.* $ 355,639 6,482 Corning, Inc.* 21,455 11,481 Motorola, Inc. 99,311 3,534 QUALCOMM, Inc.* 128,602 ------------ 605,007 - ---------------------------------------------------------------------------- COMPUTERS AND PERIPHERALS -- 0.6% 8,361 Dell Computer Corp.* 223,573 10,996 EMC Corp.* 67,515 10,744 Hewlett Packard Co. 186,516 5,733 Int'l. Business Machines 444,308 12,916 Sun Microsystems, Inc.* 40,169 ------------ 962,081 - ---------------------------------------------------------------------------- DISTRIBUTORS -- 0.1% 4,414 Genuine Parts Co. 135,951 - ---------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 1.4% 6,539 American Express Co. 231,153 1,586 Capital One Financial Corp. 47,136 8,048 Charles Schwab Corp. 87,321 17,874 Citigroup, Inc. 628,986 3,282 Federal National Mortgage Assn. 211,131 1,000 Goldman Sachs Group, Inc. 68,100 9,331 J.P. Morgan Chase & Co. 223,944 1,791 Lehman Brothers Hldgs., Inc. 95,442 7,285 MBNA Corp. 138,561 4,364 Merrill Lynch & Co., Inc. 165,614 3,352 Morgan Stanley Dean Witter & Co. 133,812 755 SLM Corp. 78,414 2,616 State Street Corp. 102,024 ------------ 2,211,638 - ---------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.7% 1,564 ALLTEL Corp. 79,764 1,989 AT & T Corp. 51,933 6,829 BellSouth Corp. 176,666 9,857 SBC Comm., Inc. 267,223 1,710 Sprint Corp. (FON Group) 24,761 10,414 Verizon Comm. 403,543 ------------ 1,003,890 - ---------------------------------------------------------------------------- ELECTRIC UTILITIES -- 0.3% 1,705 Entergy Corp. 77,731 2,759 Exelon Corp. 145,592 1,214 FPL Group, Inc. 72,998 1,395 Progress Energy, Inc. 60,473 1,682 Public Svc. Enterprise Group, Inc. 53,992 2,650 Southern Co. 75,234 1,292 TXU Corp. 24,135 ------------ 510,155 - ---------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 0.0% 424 Cooper Industries Ltd. 15,455 1,106 Emerson Electric Co. 56,240 ------------ 71,695 - ---------------------------------------------------------------------------- ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 0.0% 2,990 Agilent Technologies, Inc.* 53,700 4,723 Solectron Corp.* 16,767 ------------ 70,467 - ---------------------------------------------------------------------------- ENERGY EQUIPMENT AND SERVICES -- 0.1% 2,205 Baker Hughes, Inc. 70,979 1,681 Schlumberger Ltd. 70,753 ------------ 141,732 - ---------------------------------------------------------------------------- FOOD AND DRUG RETAILING -- 0.2% 840 Albertson's, Inc. 18,698 2,620 CVS Corp. 65,422
- -------------------------------------------------------------------------------- See notes to financial statements. 27 THE GUARDIAN ASSET ALLOCATION FUND Schedule of Investments (Continued)
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- 5,361 Kroger Co.* $ 82,828 3,148 Safeway, Inc.* 73,537 ------------ 240,485 - ---------------------------------------------------------------------------- FOOD PRODUCTS -- 0.4% 5,644 Archer-Daniels-Midland Co. 69,985 2,621 Campbell Soup Co. 61,515 2,662 ConAgra, Inc. 66,576 1,083 Del Monte Foods Co.* 8,336 1,866 General Mills, Inc. 87,609 2,424 H.J. Heinz Co. 79,677 1,314 Hershey Foods Corp. 88,616 2,012 Kellogg Co. 68,951 1,269 W.M. Wrigley Jr. Co. 69,643 ------------ 600,908 - ---------------------------------------------------------------------------- HEALTH CARE EQUIPMENT AND SUPPLIES -- 0.6% 3,644 Baxter Int'l., Inc. 102,032 2,122 Becton Dickinson & Co., Inc. 65,124 2,495 Boston Scientific Corp.* 106,087 1,285 C.R. Bard, Inc. 74,530 2,824 Guidant Corp.* 87,120 5,967 Medtronic, Inc. 272,095 2,090 St. Jude Medical, Inc.* 83,015 1,696 Stryker Corp. 113,836 884 Zimmer Hldgs., Inc.* 36,704 ------------ 940,543 - ---------------------------------------------------------------------------- HEALTH CARE PROVIDERS AND SERVICES -- 0.3% 998 AmerisourceBergen Corp. 54,201 746 Cigna Corp. 30,675 3,447 HCA, Inc. 143,050 3,629 Health Management Associates, Inc. 64,959 2,719 McKesson Corp. 73,495 1,512 Tenet Healthcare Corp.* 24,797 929 Wellpoint Health Networks, Inc.* 66,108 ------------ 457,285 - ---------------------------------------------------------------------------- HOTELS, RESTAURANTS AND LEISURE -- 0.1% 4,004 Carnival Corp. 99,900 2,751 McDonald's Corp. 44,236 2,943 Starbucks Corp.* 59,978 ------------ 204,114 - ---------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 0.4% 1,680 Clorox Co. 69,300 2,979 Kimberly-Clark Corp. 141,413 4,384 Procter & Gamble Co. 376,761 ------------ 587,474 - ---------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 0.7% 1,118 3M Co. 137,849 33,647 General Electric Co. 819,304 8,945 Tyco Int'l. Ltd. 152,781 ------------ 1,109,934 - ---------------------------------------------------------------------------- INFORMATION TECHNOLOGY CONSULTING AND SERVICES -- 0.0% 2,525 Electronic Data Systems Corp. 46,536 - ---------------------------------------------------------------------------- INSURANCE -- 0.8% 3,699 AFLAC, Inc. 111,414 2,008 Allstate Corp. 74,276 9,048 American Int'l. Group, Inc. 523,427 1,281 Chubb Corp. 66,868 2,684 John Hancock Financial Svcs., Inc. 74,884 2,344 Loews Corp. 104,214 3,182 Marsh & McLennan Cos., Inc. 147,040 2,884 MetLife, Inc. 77,983 1,253 Progressive Corp. 62,186 1,586 Travelers Ppty. Casualty Corp.* 23,235 ------------ 1,265,527 - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- INTERNET SOFTWARE AND SERVICES -- 0.0% 3,255 Yahoo! Inc.* $ 53,219 - ---------------------------------------------------------------------------- LEISURE EQUIPMENT AND PRODUCTS -- 0.1% 2,541 Eastman Kodak Co. 89,037 3,448 Mattel, Inc. 66,029 ------------ 155,066 - ---------------------------------------------------------------------------- MACHINERY -- 0.2% 2,604 Caterpillar, Inc. 119,055 1,491 Deere & Co. 68,362 2,138 Dover Corp. 62,344 ------------ 249,761 - ---------------------------------------------------------------------------- MEDIA -- 0.8% 15,529 AOL Time Warner, Inc.* 203,430 3,166 Clear Channel Comm., Inc.* 118,060 3,217 Comcast Corp.-Class A* 75,825 5,199 Comcast Corp.-Class A Special* 117,445 2,608 Gannett Co., Inc. 187,254 1,395 New York Times Co. 63,793 3,164 Tribune Co. 143,836 5,969 Viacom, Inc.* 243,297 5,567 Walt Disney Co. 90,798 ------------ 1,243,738 - ---------------------------------------------------------------------------- METALS AND MINING -- 0.1% 4,492 Alcoa, Inc. 102,328 - ---------------------------------------------------------------------------- MULTILINE RETAIL -- 0.7% 2,414 Kohl's Corp.* 135,063 5,267 Target Corp. 158,010 15,540 Wal-Mart Stores, Inc. 784,926 ------------ 1,077,999 - ---------------------------------------------------------------------------- MULTI-UTILITIES AND UNREGULATED POWER -- 0.1% 3,468 AES Corp.* 10,473 4,604 Duke Energy Corp. 89,962 3,136 El Paso Corp. 21,827 3,916 Williams Cos., Inc. 10,573 ------------ 132,835 - ---------------------------------------------------------------------------- OIL AND GAS -- 1.0% 2,349 Anadarko Petroleum Corp. 112,517 2,874 Burlington Resources, Inc. 122,576 2,887 ChevronTexaco Corp. 191,928 3,925 ConocoPhillips 189,931 23,431 Exxon Mobil Corp. 818,679 4,115 Unocal Corp. 125,837 ------------ 1,561,468 - ---------------------------------------------------------------------------- PAPER AND FOREST PRODUCTS -- 0.0% 2,952 Georgia-Pacific Corp. 47,704 - ---------------------------------------------------------------------------- PERSONAL PRODUCTS -- 0.1% 1,376 Avon Products, Inc. 74,125 2,784 Gillette Co. 84,522 ------------ 158,647 - ---------------------------------------------------------------------------- PHARMACEUTICALS -- 1.5% 1,116 Allergan, Inc. 64,304 8,263 Bristol-Myers Squibb Corp. 191,289 4,246 Eli Lilly & Co. 269,621 1,305 Forest Laboratories, Inc.* 128,177 10,914 Johnson & Johnson 586,191 1,779 King Pharmaceuticals, Inc.* 30,581 23,879 Pfizer, Inc. 729,981 4,434 Pharmacia Corp. 185,341 3,875 Schering-Plough Corp. 86,025 ------------ 2,271,510 - ----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 28 THE GUARDIAN ASSET ALLOCATION FUND Schedule of Investments (Continued)
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- REAL ESTATE -- 0.1% 2,383 Plum Creek Timber Co., Inc. $ 56,239 1,972 Simon Ppty. Group, Inc. 67,186 ------------ 123,425 - ---------------------------------------------------------------------------- ROAD AND RAIL -- 0.2% 2,352 Burlington Northern Santa Fe 61,176 2,884 Union Pacific Corp. 172,665 ------------ 233,841 - ---------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 0.6% 2,923 Altera Corp.* 36,041 2,561 Analog Devices, Inc.* 61,131 4,648 Applied Materials, Inc.* 60,563 1,688 Broadcom Corp.* 25,421 22,499 Intel Corp. 350,309 1,448 KLA-Tencor Corp.* 51,216 2,153 Linear Technology Corp. 55,375 2,177 Maxim Integrated Products, Inc. 71,928 3,302 Micron Technology, Inc.* 32,162 5,091 Texas Instruments, Inc. 76,416 2,346 Xilinx, Inc.* 48,328 ------------ 868,890 - ---------------------------------------------------------------------------- SOFTWARE -- 0.7% 1,802 Adobe Systems, Inc. 44,692 3,590 Computer Associates Int'l., Inc. 48,465 18,837 Microsoft Corp.* 973,873 2,830 Siebel Systems, Inc.* 21,168 2,739 VERITAS Software Corp.* 42,783 ------------ 1,130,981 - ---------------------------------------------------------------------------- SPECIALTY RETAIL -- 0.4% 2,702 Bed, Bath & Beyond, Inc.* 93,300 1,930 Best Buy Co., Inc.* 46,610 9,001 Home Depot, Inc. 215,664 2,415 Lowe's Cos., Inc. 90,562 3,749 Staples, Inc.* 68,607 5,047 The Gap, Inc. 78,329 ------------ 593,072 - ---------------------------------------------------------------------------- TEXTILES, APPAREL AND LUXURY GOODS -- 0.1% 2,238 NIKE, Inc. 99,524 - ---------------------------------------------------------------------------- TOBACCO -- 0.2% 6,424 Philip Morris Cos., Inc. 260,365 509 UST, Inc. 17,016 ------------ 277,381 - ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.0% 12,777 AT & T Wireless Svcs., Inc.* 72,190 - ---------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $36,671,252) 27,570,490 - ---------------------------------------------------------------------------- MUTUAL FUNDS -- 78.1% EQUITY -- 61.4% 15,466,689 The Guardian S&P 500 Index Fund, Class A (1) $ 93,418,803 - ---------------------------------------------------------------------------- FIXED INCOME -- 16.7% 2,479,290 The Guardian Investment Quality Bond Fund, Class A (2) $ 25,487,098 - ---------------------------------------------------------------------------- TOTAL MUTUAL FUNDS (COST $158,212,634) 118,905,901 - ----------------------------------------------------------------------------
U.S. GOVERNMENT -- 2.0% Principal Amount Value - ---------------------------------------------------------------------------- U.S. Treasury Bill $2,000,000 1.177%, 3/20/2003 (3) $ 1,994,900 1,000,000 1.535%, 1/9/2003 (3) 999,659 - ---------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT (COST $2,994,559) 2,994,559 - ---------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 2.0% $3,111,000 State Street Bank and Trust Co. repurchase agreement, dated 12/31/2002, maturity value $3,111,199 at 1.15%, due 1/2/2003 (4) (COST $3,111,000) $ 3,111,000 - ---------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.2% (COST $200,989,445) 152,581,950 LIABILITIES IN EXCESS OF CASH, RECEIVABLES AND OTHER ASSETS -- (0.2)% (329,412) - ---------------------------------------------------------------------------- NET ASSETS -- 100% $152,252,538 - ----------------------------------------------------------------------------
(1) Majority-owned subsidiary. (2) Affiliated issuer. (3) The U.S. Treasury Bills are segregated as collateral to cover margin requirements on open futures contracts. (4) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. * Non-income producing security.
PURCHASED (P)/SOLD (S) FUTURES CONTRACTS Unrealized Contracts Type Description Expiration Depreciation - --------------------------------------------------------------- 223 S U.S. Treasury Notes, 5 Year 3/2003 $ (664,270) 141 P S&P 500 Index 3/2003 (611,241) ------------ $ (1,275,511) - ---------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 29 / / The Guardian S&P 500 Index Fund
COMMON STOCKS -- 97.9% Shares Value - ---------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 1.8% 12,039 Boeing Co. $ 397,167 2,868 General Dynamics Corp. 227,633 1,476 Goodrich Corp. 27,040 12,069 Honeywell Int'l., Inc. 289,656 6,217 Lockheed Martin Corp. 359,032 2,626 Northrop Grumman Corp. 254,722 5,860 Raytheon Co. 180,195 2,645 Rockwell Collins, Inc. 61,523 6,791 United Technologies Corp. 420,634 ------------ 2,217,602 - ---------------------------------------------------------------------------- AIR FREIGHT AND LOGISTICS -- 1.0% 4,237 FedEx Corp. 229,730 810 Ryder Systems, Inc. 18,177 16,167 United Parcel Svcs., Inc. 1,019,814 ------------ 1,267,721 - ---------------------------------------------------------------------------- AIRLINES -- 0.2% 2,175 AMR Corp.* 14,355 1,785 Delta Airlines, Inc. 21,599 10,945 Southwest Airlines Co. 152,135 ------------ 188,089 - ---------------------------------------------------------------------------- AUTO COMPONENTS -- 0.2% 945 Cooper Tire & Rubber Co. 14,496 2,085 Dana Corp. 24,519 8,041 Delphi Automotive Systems Corp. 64,730 4,744 Goodyear Tire & Rubber Co. 32,307 1,229 Johnson Controls, Inc. 98,529 1,852 Visteon Corp. 12,890 ------------ 247,471 - ---------------------------------------------------------------------------- AUTOMOBILES -- 0.6% 26,733 Ford Motor Co. 248,617 7,915 General Motors Corp. 291,747 4,354 Harley-Davidson, Inc. 201,155 ------------ 741,519 - ---------------------------------------------------------------------------- BANKS -- 7.2% 5,373 AmSouth Bancorporation 103,162 21,293 Bank of America Corp. 1,481,354 10,676 Bank of New York, Inc. 255,797 16,677 Bank One Corp. 609,544 6,636 BB&T Corp. 245,466 3,302 Charter One Financial, Inc. 94,866 2,548 Comerica, Inc. 110,176 8,186 Fifth Third Bancorp 479,290 1,845 First Tennessee Nat'l. Corp. 66,309 15,151 FleetBoston Financial Corp. 368,169 2,276 Golden West Financial Corp. 163,440 3,600 Huntington Bancshares, Inc. 67,356 6,165 KeyCorp 154,988 3,114 Marshall & Ilsley Corp. 85,261 7,034 Mellon Financial Corp. 183,658 8,809 National City Corp. 240,662 2,405 North Fork Bancorporation, Inc. 81,145 3,195 Northern Trust Corp. 111,985 4,177 PNC Financial Svcs. Group 175,016 3,484 Regions Financial Corp. 116,226 4,873 SouthTrust Corp. 121,094 4,276 SunTrust Banks, Inc. 243,390 4,126 Synovus Financial Corp. 80,044 26,169 U.S. Bancorp 555,306 2,982 Union Planters Corp. 83,914 20,178 Wachovia Corp. 735,286 13,818 Washington Mutual, Inc. 477,136 24,635 Wells Fargo & Co. 1,154,642 1,438 Zions Bancorp 56,584 ------------ 8,701,266 - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- BEVERAGES -- 3.0% 525 Adolph Coors Co. $ 32,156 13,045 Anheuser-Busch Cos., Inc. 631,378 995 Brown-Forman Corp. 65,033 35,477 Coca-Cola Co. 1,554,602 6,006 Coca-Cola Enterprises, Inc. 130,451 25,165 PepsiCo., Inc. 1,062,467 4,359 The Pepsi Bottling Group, Inc. 112,026 ------------ 3,588,113 - ---------------------------------------------------------------------------- BIOTECHNOLOGY -- 1.1% 18,599 Amgen, Inc.* 899,076 2,114 Biogen, Inc.* 84,687 2,723 Chiron Corp.* 102,385 3,379 Genzyme Corp.* 99,917 3,661 MedImmune, Inc.* 99,469 ------------ 1,285,534 - ---------------------------------------------------------------------------- BUILDING PRODUCTS -- 0.2% 1,062 American Standard Cos., Inc.* 75,551 6,429 Masco Corp. 135,330 ------------ 210,881 - ---------------------------------------------------------------------------- CHEMICALS -- 1.6% 3,281 Air Products & Chemicals, Inc. 140,263 12,885 Dow Chemical Co. 382,684 15,009 E.I. Du Pont de Nemours & Co. 636,381 1,083 Eastman Chemical Co. 39,822 1,804 Ecolab, Inc. 89,298 1,823 Engelhard Corp. 40,744 685 Great Lakes Chemical Corp. 16,358 1,497 Hercules, Inc.* 13,174 1,377 Int'l. Flavors & Fragrances, Inc. 48,333 3,328 Monsanto Co. 64,064 2,413 PPG Industries, Inc. 121,012 2,266 Praxair, Inc. 130,907 3,134 Rohm & Haas Co. 101,792 1,093 Sigma-Aldrich 53,229 ------------ 1,878,061 - ---------------------------------------------------------------------------- COMMERCIAL SERVICES AND SUPPLIES -- 1.9% 2,838 Allied Waste Industries, Inc.* 28,380 2,507 Apollo Group, Inc.* 110,308 9,179 Automatic Data Processing, Inc. 360,276 1,581 Avery Dennison Corp. 96,567 14,291 Cendant Corp.* 149,770 2,425 Cintas Corp. 110,944 7,400 Concord EFS, Inc.* 116,476 2,482 Convergys Corp.* 37,602 997 Deluxe Corp. 41,974 2,052 Equifax, Inc. 47,483 11,404 First Data Corp. 403,816 2,689 Fiserv, Inc.* 91,291 2,604 H & R Block, Inc. 104,681 5,381 Paychex, Inc. 150,130 3,634 Pitney Bowes, Inc. 118,686 1,723 R.R. Donnelley & Sons Co. 37,510 2,547 Robert Half Int'l., Inc.* 41,032 1,910 Sabre Hldgs. Corp.* 34,590 8,974 Waste Management, Inc. 205,684 ------------ 2,287,200 - ---------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT -- 2.0% 11,132 ADC Telecomm., Inc.* 23,266 1,131 Andrew Corp.* 11,627 4,030 Avaya, Inc.* 9,873 4,989 CIENA Corp.* 25,643 106,642 Cisco Systems, Inc.* 1,397,010 2,380 Comverse Technology, Inc.* 23,848 13,220 Corning, Inc.* 43,758 18,734 JDS Uniphase Corp.* 46,273 48,945 Lucent Technologies, Inc.* 61,671
- -------------------------------------------------------------------------------- See notes to financial statements. 30 THE GUARDIAN S&P 500 INDEX FUND Schedule of Investments (Continued)
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- 32,778 Motorola, Inc. $ 283,530 11,187 QUALCOMM, Inc.* 407,095 2,311 Scientific Atlanta, Inc. 27,408 5,897 Tellabs, Inc.* 42,871 ------------ 2,403,873 - ---------------------------------------------------------------------------- COMPUTERS AND PERIPHERALS -- 3.6% 4,953 Apple Computer, Inc.* 70,976 38,046 Dell Computer Corp.* 1,017,350 32,506 EMC Corp.* 199,587 4,621 Gateway, Inc.* 14,510 43,223 Hewlett Packard Co. 750,351 24,669 Int'l. Business Machines 1,911,848 1,823 Lexmark Int'l. Group, Inc.* 110,292 1,379 NCR Corp.* 32,737 4,602 Network Appliance, Inc.* 46,020 46,932 Sun Microsystems, Inc.* 145,959 ------------ 4,299,630 - ---------------------------------------------------------------------------- CONSTRUCTION AND ENGINEERING -- 0.0% 1,050 Fluor Corp. 29,400 784 McDermott Int'l., Inc.* 3,434 ------------ 32,834 - ---------------------------------------------------------------------------- CONSTRUCTION MATERIALS -- 0.0% 1,439 Vulcan Materials Co. 53,963 - ---------------------------------------------------------------------------- CONTAINERS AND PACKAGING -- 0.2% 813 Ball Corp. 41,618 752 Bemis Co., Inc. 37,322 2,261 Pactiv Corp.* 49,425 1,181 Sealed Air Corp.* 44,051 697 Temple-Inland, Inc. 31,233 ------------ 203,649 - ---------------------------------------------------------------------------- DISTRIBUTORS -- 0.1% 2,486 Genuine Parts Co. 76,569 - ---------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 7.6% 19,169 American Express Co. 677,624 1,537 Bear Stearns Cos., Inc. 91,298 3,150 Capital One Financial Corp. 93,618 19,889 Charles Schwab Corp. 215,796 72,352 Citigroup, Inc. 2,546,067 1,672 Countrywide Credit Industries, Inc. 86,359 10,026 Federal Home Loan Mortgage Corp. 592,035 14,537 Federal National Mortgage Assn. 935,165 3,801 Franklin Resources, Inc. 129,538 6,786 Goldman Sachs Group, Inc. 462,126 6,794 Household Int'l., Inc. 188,941 28,628 J.P. Morgan Chase & Co. 687,072 3,599 Lehman Brothers Hldgs., Inc. 191,791 18,401 MBNA Corp. 349,987 12,228 Merrill Lynch & Co., Inc. 464,052 2,359 Moody's Corp. 97,403 16,092 Morgan Stanley Dean Witter & Co. 642,393 5,116 Principal Financial Group, Inc. 154,145 4,111 Providian Financial Corp.* 26,680 2,367 SLM Corp. 245,837 4,655 State Street Corp. 181,545 3,184 Stilwell Financial, Inc.* 41,615 1,728 T. Rowe Price Group, Inc. 47,140 ------------ 9,148,227 - ---------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.7% 4,514 ALLTEL Corp. 230,214 11,030 AT & T Corp. 287,993 28,012 BellSouth Corp. 724,670 1,992 CenturyTel, Inc. 58,525 3,719 Citizens Comm. Co.* 39,235 23,823 Qwest Comm. Int'l., Inc.* 119,115 48,750 SBC Comm., Inc. 1,321,613
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- 12,674 Sprint Corp. (FON Group) $ 183,520 39,396 Verizon Comm. 1,526,595 ------------ 4,491,480 - ---------------------------------------------------------------------------- ELECTRIC UTILITIES -- 2.2% 1,753 Allegheny Energy, Inc. 13,253 1,971 Ameren Corp. 81,934 4,641 American Electric Power, Inc. 126,839 4,248 CenterPoint Energy, Inc. 36,108 2,286 CiNergy Corp. 77,084 1,896 CMS Energy Corp. 17,898 3,075 Consolidated Edison, Inc. 131,672 2,335 Constellation Energy Group, Inc. 64,960 6,880 Dominion Resources, Inc. 377,712 2,578 DTE Energy Co. 119,619 4,648 Edison Int'l.* 55,079 3,218 Entergy Corp. 146,709 4,598 Exelon Corp. 242,636 4,395 FirstEnergy Corp. 144,903 2,550 FPL Group, Inc. 153,331 5,509 PG&E Corp.* 76,575 1,212 Pinnacle West Capital Corp. 41,317 2,089 PPL Corp. 72,447 2,954 Progress Energy, Inc. 128,056 3,120 Public Svc. Enterprise Group, Inc. 100,152 9,746 Southern Co. 276,689 2,624 TECO Energy, Inc. 40,593 3,721 TXU Corp. 69,508 4,916 Xcel Energy, Inc. 54,076 ------------ 2,649,150 - ---------------------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 0.4% 2,786 American Power Conversion Corp.* 42,208 1,359 Cooper Industries Ltd. 49,535 6,202 Emerson Electric Co. 315,372 1,094 Power-One, Inc.* 6,203 2,645 Rockwell Automation, Inc. 54,778 767 Thomas & Betts Corp.* 12,962 ------------ 481,058 - ---------------------------------------------------------------------------- ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 0.4% 6,556 Agilent Technologies, Inc.* 117,746 2,726 Jabil Circuit, Inc.* 48,850 653 Millipore Corp.* 22,202 2,802 Molex, Inc. 64,558 2,010 PerkinElmer, Inc. 16,582 7,816 Sanmina-SCI Corp.* 35,094 12,349 Solectron Corp.* 43,839 3,132 Symbol Technologies, Inc. 25,745 1,336 Tektronix, Inc.* 24,302 2,568 Thermo Electron Corp.* 51,668 2,045 Waters Corp.* 44,540 ------------ 495,126 - ---------------------------------------------------------------------------- ENERGY EQUIPMENT AND SERVICES -- 0.8% 2,317 B.J. Svcs. Co.* 74,862 4,764 Baker Hughes, Inc. 153,353 6,355 Halliburton Co. 118,902 2,092 Nabors Industries, Inc.* 73,785 2,008 Noble Corp.* 70,581 1,317 Rowan Cos., Inc. 29,896 8,249 Schlumberger Ltd. 347,201 4,534 Transocean Sedco Forex, Inc. 105,189 ------------ 973,769 - ---------------------------------------------------------------------------- FOOD AND DRUG RETAILING -- 1.2% 5,902 Albertson's, Inc. 131,379 5,636 CVS Corp. 140,731 11,800 Kroger Co.* 182,310 7,230 Safeway, Inc.* 168,893 1,885 Supervalu, Inc. 31,121 9,731 Sysco Corp. 289,886
- -------------------------------------------------------------------------------- See notes to financial statements. 31 THE GUARDIAN S&P 500 INDEX FUND Schedule of Investments (Continued)
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- 14,630 Walgreen Co. $ 427,050 2,010 Winn-Dixie Stores, Inc. 30,713 ------------ 1,402,083 - ---------------------------------------------------------------------------- FOOD PRODUCTS -- 1.4% 9,568 Archer-Daniels-Midland Co. 118,643 6,069 Campbell Soup Co. 142,440 7,728 ConAgra, Inc. 193,277 2,243 Del Monte Foods Co.* 17,273 5,346 General Mills, Inc. 250,995 5,023 H.J. Heinz Co. 165,106 1,960 Hershey Foods Corp. 132,182 5,844 Kellogg Co. 200,274 11,107 Sara Lee Corp. 250,019 3,230 W.M. Wrigley Jr. Co. 177,262 ------------ 1,647,471 - ---------------------------------------------------------------------------- GAS UTILITIES -- 0.3% 1,989 KeySpan Corp. 70,092 1,648 Kinder Morgan, Inc. 69,661 674 NICOR, Inc. 22,936 2,931 NiSource, Inc. 58,620 527 Peoples Energy Corp. 20,369 2,954 Sempra Energy 69,862 ------------ 311,540 - ---------------------------------------------------------------------------- HEALTH CARE EQUIPMENT AND SUPPLIES -- 1.8% 3,019 Applera Corp.-Applied Biosystems Group 52,953 755 Bausch & Lomb, Inc. 27,180 8,470 Baxter Int'l., Inc. 237,160 3,689 Becton Dickinson & Co., Inc. 113,215 3,846 Biomet, Inc. 110,226 5,826 Boston Scientific Corp.* 247,722 721 C.R. Bard, Inc. 41,818 4,422 Guidant Corp.* 136,419 17,544 Medtronic, Inc. 800,006 2,433 St. Jude Medical, Inc.* 96,639 2,817 Stryker Corp. 189,077 2,817 Zimmer Hldgs., Inc.* 116,962 ------------ 2,169,377 - ---------------------------------------------------------------------------- HEALTH CARE PROVIDERS AND SERVICES -- 1.7% 2,062 Aetna, Inc. 84,789 1,527 AmerisourceBergen Corp. 82,931 2,046 Anthem, Inc.* 128,693 6,588 Cardinal Health, Inc. 389,944 2,221 Cigna Corp. 91,328 7,462 HCA, Inc. 309,673 3,671 Health Management Associates, Inc. 65,711 5,556 HEALTHSOUTH Corp.* 23,335 2,389 Humana, Inc.* 23,890 4,249 IMS Health, Inc. 67,984 1,456 Manor Care, Inc.* 27,096 4,085 McKesson Corp. 110,418 1,646 Quintiles Transnational Corp.* 19,917 6,941 Tenet Healthcare Corp.* 113,832 4,610 UnitedHealth Group 384,935 1,799 Wellpoint Health Networks, Inc.* 128,017 ------------ 2,052,493 - ---------------------------------------------------------------------------- HOTELS, RESTAURANTS AND LEISURE -- 1.1% 8,411 Carnival Corp. 209,854 2,575 Darden Restaurants, Inc. 52,659 1,649 Harrah's Entertainment, Inc.* 65,300 5,226 Hilton Hotels Corp. 66,422 1,339 Int'l. Game Technology* 101,657 3,443 Marriott Int'l., Inc. 113,171 18,921 McDonald's Corp. 304,250 5,426 Starbucks Corp.* 110,582 4,492 Starwood Hotels & Resorts Worldwide, Inc. 106,640 1,623 Wendy's Int'l., Inc. 43,935 4,234 Yum! Brands, Inc.* 102,548 ------------ 1,277,018 - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- HOUSEHOLD DURABLES -- 0.5% 800 American Greetings Corp.* $ 12,640 1,127 Black & Decker Corp. 48,337 842 Centex Corp. 42,269 2,219 Fortune Brands, Inc. 103,206 618 KB Home 26,481 2,782 Leggett & Platt, Inc. 62,428 1,066 Maytag Corp. 30,381 3,827 Newell Rubbermaid, Inc. 116,073 1,023 Pulte Homes, Inc. 48,971 811 Snap-On, Inc. 22,797 1,228 Stanley Works 42,464 786 Tupperware Corp. 11,853 933 Whirlpool Corp. 48,721 ------------ 616,621 - ---------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 2.1% 3,390 Clorox Co. 139,838 8,248 Colgate-Palmolive Co. 432,443 7,704 Kimberly-Clark Corp. 365,709 18,742 Procter & Gamble Co. 1,610,687 ------------ 2,548,677 - ---------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 4.0% 5,709 3M Co. 703,920 143,933 General Electric Co. 3,504,769 2,056 Textron, Inc. 88,387 28,991 Tyco Int'l. Ltd. 495,166 ------------ 4,792,242 - ---------------------------------------------------------------------------- INFORMATION TECHNOLOGY CONSULTING AND SERVICES -- 0.3% 2,428 Computer Sciences Corp.* 83,645 6,747 Electronic Data Systems Corp. 124,347 3,991 SunGard Data Systems, Inc.* 94,028 4,516 Unisys Corp.* 44,708 ------------ 346,728 - ---------------------------------------------------------------------------- INSURANCE -- 4.8% 4,286 ACE Ltd. 125,751 7,659 AFLAC, Inc. 230,689 10,558 Allstate Corp. 390,540 1,504 Ambac Financial Group, Inc. 84,585 37,976 American Int'l. Group, Inc. 2,196,912 3,686 Aon Corp. 69,629 2,514 Chubb Corp. 131,231 2,309 Cincinnati Financial Corp. 86,703 5,013 Hartford Financial Svcs. Group, Inc. 227,741 2,226 Jefferson-Pilot Corp. 84,833 4,288 John Hancock Financial Svcs., Inc. 119,635 2,766 Lincoln Nat'l. Corp. 87,350 2,851 Loews Corp. 126,755 7,934 Marsh & McLennan Cos., Inc. 366,630 2,115 MBIA, Inc. 92,764 10,421 MetLife, Inc. 281,784 1,532 MGIC Investment Corp. 63,272 3,156 Progressive Corp. 156,632 7,674 Prudential Financial, Inc. 243,573 1,823 SAFECO Corp. 63,203 3,133 St. Paul Cos., Inc. 106,679 1,831 Torchmark Corp. 66,886 15,308 Travelers Ppty. Casualty Corp.* 224,262 3,475 UnumProvident Corp. 60,952 1,913 XL Capital Ltd. 147,779 ------------ 5,836,770 - ---------------------------------------------------------------------------- INTERNET AND CATALOG RETAIL -- 0.2% 4,298 eBay, Inc.* 291,490 - ----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 32 THE GUARDIAN S&P 500 INDEX FUND Schedule of Investments (Continued)
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- INTERNET SOFTWARE AND SERVICES -- 0.1% 8,049 Yahoo! Inc.* $ 131,601 - ---------------------------------------------------------------------------- LEISURE EQUIPMENT AND PRODUCTS -- 0.3% 1,223 Brunswick Corp. 24,289 4,324 Eastman Kodak Co. 151,513 2,426 Hasbro, Inc. 28,020 6,117 Mattel, Inc. 117,141 ------------ 320,963 - ---------------------------------------------------------------------------- MACHINERY -- 1.1% 4,962 Caterpillar, Inc. 226,863 841 Crane Co. 16,761 571 Cummins, Inc. 16,062 2,085 Danaher Corp. 136,984 3,371 Deere & Co. 154,560 2,911 Dover Corp. 84,885 977 Eaton Corp. 76,313 4,354 Illinois Tool Works, Inc. 282,400 2,311 Ingersoll-Rand Co. 99,512 1,256 ITT Industries, Inc. 76,227 832 Navistar Int'l. Corp.* 20,226 1,645 PACCAR, Inc. 75,884 1,735 Pall Corp. 28,940 1,682 Parker-Hannifin Corp. 77,591 ------------ 1,373,208 - ---------------------------------------------------------------------------- MEDIA -- 3.9% 64,215 AOL Time Warner, Inc.* 841,216 8,760 Clear Channel Comm., Inc.* 326,660 17,841 Comcast Corp.-Class A* 420,512 13,521 Comcast Corp.-Class A Special* 305,439 1,237 Dow Jones & Co., Inc. 53,476 3,802 Gannett Co., Inc. 272,984 5,651 Interpublic Group Cos., Inc. 79,566 1,337 Knight-Ridder, Inc. 84,565 2,816 McGraw-Hill Cos., Inc. 170,199 690 Meredith Corp. 28,366 2,319 New York Times Co. 106,048 2,732 Omnicom Group, Inc. 176,487 1,707 TMP Worldwide, Inc.* 19,306 4,358 Tribune Co. 198,115 2,961 Univision Comm., Inc.* 72,545 25,862 Viacom, Inc.* 1,054,135 29,970 Walt Disney Co. 488,811 ------------ 4,698,430 - ---------------------------------------------------------------------------- METALS AND MINING -- 0.5% 12,481 Alcoa, Inc. 284,317 1,132 Allegheny Technologies, Inc. 7,052 2,172 Freeport-McMoran Copper & Gold, Inc.* 36,446 6,958 Newmont Mining Corp. 201,991 1,128 Nucor Corp. 46,586 1,125 Phelps Dodge Corp.* 35,606 1,246 United States Steel Corp. 16,348 1,195 Worthington Industries, Inc. 18,212 ------------ 646,558 - ---------------------------------------------------------------------------- MULTILINE RETAIL -- 4.0% 1,561 Big Lots, Inc.* 20,652 6,425 Costco Wholesale Corp.* 180,286 1,201 Dillards, Inc. 19,048 4,737 Dollar General Corp. 56,607 2,900 Family Dollar Stores, Inc. 90,509 2,840 Federated Department Stores, Inc.* 81,678 3,729 J.C. Penney Co., Inc. 85,804 4,756 Kohl's Corp.* 266,098 4,265 May Department Stores Co. 98,010 1,837 Nordstrom, Inc. 34,848 4,812 SearsRoebuck & Co. 115,248 15,014 Target Corp. 450,420 64,865 Wal-Mart Stores, Inc. 3,276,331 ------------ 4,775,539 - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- MULTI-UTILITIES AND UNREGULATED POWER -- 0.3% 7,632 AES Corp.* $ 23,049 4,272 Calpine Corp.* 13,927 12,644 Duke Energy Corp. 247,064 4,647 Dynegy, Inc. 5,483 7,606 El Paso Corp. 52,938 6,162 Mirant Corp.* 11,646 7,802 Williams Cos., Inc. 21,065 ------------ 375,172 - ---------------------------------------------------------------------------- OFFICE ELECTRONICS -- 0.1% 9,582 Xerox Corp.* 77,135 - ---------------------------------------------------------------------------- OIL AND GAS -- 5.0% 1,272 Amerada Hess Corp. 70,024 4,135 Anadarko Petroleum Corp. 198,067 2,816 Apache Corp. 160,484 966 Ashland, Inc. 27,560 3,106 Burlington Resources, Inc. 132,471 15,369 ChevronTexaco Corp. 1,021,731 9,140 ConocoPhillips 442,285 2,686 Devon Energy Corp. 123,287 1,669 EOG Resources, Inc. 66,626 97,310 Exxon Mobil Corp. 3,400,011 1,350 Kerr-McGee Corp. 59,805 4,449 Marathon Oil Corp. 94,719 5,341 Occidental Petroleum Corp. 151,951 1,169 Sunoco, Inc. 38,787 3,244 Unocal Corp. 99,202 ------------ 6,087,010 - ---------------------------------------------------------------------------- PAPER AND FOREST PRODUCTS -- 0.5% 811 Boise Cascade Corp. 20,453 3,253 Georgia-Pacific Corp. 52,568 8,870 Int'l. Paper Co. 310,184 1,413 Louisiana-Pacific Corp. 11,389 2,831 MeadWestvaco Corp. 69,954 3,142 Weyerhaeuser Co. 154,618 ------------ 619,166 - ---------------------------------------------------------------------------- PERSONAL PRODUCTS -- 0.6% 801 Alberto-Culver Co. 40,370 3,423 Avon Products, Inc. 184,397 15,165 Gillette Co. 460,410 ------------ 685,177 - ---------------------------------------------------------------------------- PHARMACEUTICALS -- 9.9% 23,002 Abbott Laboratories 920,080 1,885 Allergan, Inc. 108,614 28,177 Bristol-Myers Squibb Corp. 652,298 16,238 Eli Lilly & Co. 1,031,113 2,515 Forest Laboratories, Inc.* 247,023 42,574 Johnson & Johnson 2,286,650 3,608 King Pharmaceuticals, Inc.* 62,021 32,517 Merck & Co., Inc. 1,840,787 89,628 Pfizer, Inc. 2,739,928 19,507 Pharmacia Corp. 815,393 21,060 Schering-Plough Corp. 467,532 1,463 Watson Pharmaceuticals, Inc.* 41,359 19,168 Wyeth 716,883 ------------ 11,929,681 - ---------------------------------------------------------------------------- REAL ESTATE -- 0.3% 6,439 Equity Office Pptys. Trust 160,846 4,460 Equity Residential 109,627 2,659 Plum Creek Timber Co., Inc. 62,753 2,660 Simon Ppty. Group, Inc. 90,626 ------------ 423,852 - ----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 33 THE GUARDIAN S&P 500 INDEX FUND Schedule of Investments (Continued)
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- ROAD AND RAIL -- 0.5% 5,663 Burlington Northern Santa Fe $ 147,295 3,037 CSX Corp. 85,977 5,523 Norfolk Southern Corp. 110,405 3,564 Union Pacific Corp. 213,377 ------------ 557,054 - ---------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 2.8% 4,499 Advanced Micro Devices, Inc.* 29,064 5,686 Altera Corp.* 70,108 5,168 Analog Devices, Inc.* 123,360 24,158 Applied Materials, Inc.* 314,779 4,283 Applied Micro Circuits Corp.* 15,804 3,923 Broadcom Corp.* 59,080 98,131 Intel Corp. 1,527,900 2,641 KLA-Tencor Corp.* 93,412 4,550 Linear Technology Corp. 117,026 5,783 LSI Logic Corp.* 33,368 5,737 Maxim Integrated Products, Inc. 189,551 8,530 Micron Technology, Inc.* 83,082 2,484 National Semiconductor Corp.* 37,285 2,010 Novellus Systems, Inc.* 56,441 2,246 NVIDIA Corp.* 25,851 2,652 PMC-Sierra, Inc.* 14,745 1,314 QLogic Corp.* 45,346 2,493 Teradyne, Inc.* 32,434 24,963 Texas Instruments, Inc. 374,695 4,739 Xilinx, Inc.* 97,623 ------------ 3,340,954 - ---------------------------------------------------------------------------- SOFTWARE -- 4.9% 3,464 Adobe Systems, Inc. 85,911 1,611 Autodesk, Inc. 23,037 3,499 BMC Software, Inc.* 59,868 2,659 Citrix Systems, Inc.* 32,759 8,300 Computer Associates Int'l., Inc. 112,050 5,272 Compuware Corp.* 25,306 1,900 Electronic Arts, Inc.* 94,563 3,928 Intuit, Inc.* 184,302 1,159 Mercury Interactive Corp.* 34,364 78,705 Microsoft Corp.* 4,069,048 4,527 Novell, Inc.* 15,120 80,487 Oracle Corp.* 869,260 3,803 Parametric Technology Corp.* 9,584 4,507 PeopleSoft, Inc.* 82,478 4,780 Rational Software Corp.* 49,664 6,843 Siebel Systems, Inc.* 51,186 5,883 VERITAS Software Corp.* 91,892 ------------ 5,890,392 - ---------------------------------------------------------------------------- SPECIALTY RETAIL -- 2.0% 1,633 AutoZone, Inc.* 115,371 4,093 Bed, Bath & Beyond, Inc.* 141,331 4,479 Best Buy Co., Inc.* 108,168 2,929 Circuit City Stores, Inc. 21,733 34,067 Home Depot, Inc. 816,245 11,013 Lowe's Cos., Inc. 412,988 4,230 Office Depot, Inc.* 62,435 2,665 RadioShack Corp. 49,942 2,265 Sherwin-Williams Co. 63,986 6,492 Staples, Inc.* 118,804 12,190 The Gap, Inc. 189,189 9,439 The Limited, Inc. 131,485 2,083 Tiffany & Co. 49,805 7,969 TJX Cos., Inc. 155,555 2,834 Toys R Us, Inc.* 28,340 ------------ 2,465,377 - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- Shares Value - ---------------------------------------------------------------------------- TEXTILES, APPAREL AND LUXURY GOODS -- 0.3% 2,039 Jones Apparel Group, Inc.* $ 72,262 1,864 Liz Claiborne, Inc. 55,267 3,766 NIKE, Inc. 167,474 649 Reebok Int'l. Ltd.* 19,081 1,473 V.F. Corp. 53,102 ------------ 367,186 - ---------------------------------------------------------------------------- TOBACCO -- 1.1% 30,851 Philip Morris Cos., Inc. 1,250,391 1,345 R.J. Reynolds Tobacco Hldgs., Inc. 56,638 2,362 UST, Inc. 78,962 ------------ 1,385,991 - ---------------------------------------------------------------------------- TRADING COMPANIES AND DISTRIBUTORS -- 0.1% 1,344 W.W. Grainger, Inc. 69,283 - ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.4% 38,322 AT & T Wireless Svcs., Inc.* 216,519 15,664 Nextel Comm., Inc.* 180,919 14,547 Sprint Corp. (PCS Group)* 63,716 ------------ 461,154 - ---------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $154,052,527) 117,896,178 - ---------------------------------------------------------------------------- U.S. GOVERNMENT -- 0.2% Principal Amount Value - ---------------------------------------------------------------------------- U.S. Treasury Bill $ 250,000 1.19%, 3/6/2003 (1) (COST $249,471) $ 249,471 - ---------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 1.7% $2,069,000 State Street Bank and Trust Co. repurchase agreement, dated 12/31/2002, maturity value $2,069,132 at 1.15%, due 1/2/2003 (2) (COST $2,069,000) $ 2,069,000 - ---------------------------------------------------------------------------- TOTAL INVESTMENTS -- 99.8% (COST $156,370,998) 120,214,649 CASH, RECEIVABLES AND OTHER ASSETS LESS LIABILITIES -- 0.2% 283,438 - ---------------------------------------------------------------------------- NET ASSETS -- 100% $120,498,087 - ----------------------------------------------------------------------------
(1) The U.S. Treasury Bill is segregated as collateral to cover margin requirements on open futures contracts. (2) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. * Non-income producing security.
PURCHASED FUTURES CONTRACTS Unrealized Contracts Description Expiration Depreciation - -------------------------------------------------- 8 S&P 500 Index 3/2003 $ (34,680) - --------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 34 / / The Guardian Baillie Gifford International Fund
COMMON STOCKS -- 100.4% Shares Value - ------------------------------------------------------------ AUSTRALIA -- 4.0% BANKS -- 1.4% 44,000 Australia and NZ Banking Group Ltd. $ 429,603 26,732 National Australia Bank 477,629 BEVERAGES -- 0.5% 108,300 Fosters Brewing Group 274,256 CONTAINERS AND PACKAGING -- 0.5% 61,266 Amcor Ltd. 292,714 FOOD AND DRUG RETAILING -- 0.4% 39,906 Woolworths Ltd. 256,011 MEDIA -- 0.2% 22,700 News Corp. Ltd. 146,651 METALS AND MINING -- 1.0% 109,306 BHP Billiton Ltd. 624,346 ----------- 2,501,210 - ------------------------------------------------------------ DENMARK -- 1.5% BANKS -- 1.5% 58,970 Danske Bank AS 973,933 - ------------------------------------------------------------ FINLAND -- 2.4% COMMUNICATIONS EQUIPMENT -- 2.4% 93,500 Nokia OYJ 1,485,509 - ------------------------------------------------------------ FRANCE -- 11.3% BEVERAGES -- 1.8% 11,470 Pernod-Ricard S.A. 1,110,238 DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.6% 23,370 France Telecom S.A. 408,795 OIL AND GAS -- 3.1% 13,730 Total Fina Elf S.A. 1,959,656 PERSONAL PRODUCTS -- 1.5% 12,400 L'Oreal S.A. 943,431 PHARMACEUTICALS -- 3.4% 35,740 Sanofi-Synthelabo S.A. 2,183,240 WIRELESS TELECOMMUNICATION SERVICES -- 0.9% 80,840 Orange S.A.* 558,680 ----------- 7,164,040 - ------------------------------------------------------------ GERMANY -- 3.3% DIVERSIFIED FINANCIALS -- 1.1% 17,310 Deutsche Boerse AG 692,718 HEALTH CARE PROVIDERS AND SERVICES -- 1.0% 16,180 GEHE AG 629,511 SOFTWARE -- 1.2% 9,630 SAP AG 762,675 ----------- 2,084,904 - ------------------------------------------------------------ HONG KONG -- 1.2% BANKS -- 0.2% 12,100 Hang Seng Bank Ltd. 128,780 COMPUTERS AND PERIPHERALS -- 0.1% 188,000 Legend Group Ltd. 62,076 ELECTRICAL EQUIPMENT -- 0.2% 118,000 Johnson Electric Hldgs. Ltd. 130,127 INDUSTRIAL CONGLOMERATES -- 0.3% 29,000 Hutchison Whampoa 181,470 REAL ESTATE -- 0.4% 39,000 Cheung Kong Hldgs. Ltd. 253,797 ----------- 756,250 - ------------------------------------------------------------ IRELAND -- 2.4% AIRLINES -- 1.1% 100,170 Ryanair Hldgs. PLC* 698,571 CONSTRUCTION MATERIALS -- 1.3% 66,970 CRH PLC 825,219 ----------- 1,523,790 - ------------------------------------------------------------
- ------------------------------------------------------------ Shares Value - ------------------------------------------------------------ ISRAEL -- 0.4% PHARMACEUTICALS -- 0.4% 7,000 Teva Pharmaceutical Inds. Ltd. ADR $ 270,270 - ------------------------------------------------------------ ITALY -- 4.6% HEALTH CARE EQUIPMENT AND SUPPLIES -- 0.5% 23,200 Luxottica Group SPA ADR 316,680 INSURANCE -- 1.4% 74,270 Riunione Adriatica di Sicurta SPA 903,488 OIL AND GAS -- 2.7% 108,010 ENI SPA 1,716,041 ----------- 2,936,209 - ------------------------------------------------------------ JAPAN -- 20.3% AUTO COMPONENTS -- 0.9% 47,000 Bridgestone Corp. 581,761 AUTOMOBILES -- 1.5% 34,200 Toyota Motor Corp. 918,643 BANKS -- 0.3% 161 UFJ Hldgs.* 162,681 BUILDING PRODUCTS -- 0.9% 39,000 Tostem Inax Hldg. Corp. 591,108 CHEMICALS -- 1.8% 15,900 Shin-Etsu Chemical Co. Ltd. 520,807 151,000 Sumitomo Chemical 596,320 DIVERSIFIED FINANCIALS -- 1.2% 9,600 JAFCO Co. Ltd. 414,685 10,400 Promise Co. 370,428 DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.6% 113 Nippon Tele. & Tel. Corp. 410,096 ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 1.3% 101,000 Hitachi 386,957 7,800 Kyocera Corp. 453,840 HOUSEHOLD DURABLES -- 0.8% 5,600 Nintendo Co. Ltd. 522,937 HOUSEHOLD PRODUCTS -- 1.0% 29,000 Kao Corp. 636,115 INSURANCE -- 0.6% 89,000 Mitsui Sumitomo Insurance Co. 409,178 LEISURE EQUIPMENT AND PRODUCTS -- 1.3% 25,000 Fuji Photo Film Co. Ltd. 814,668 METALS AND MINING -- 1.0% 52,100 JFE Hldgs., Inc.* 632,167 MULTILINE RETAIL -- 0.7% 15,000 Ito-Yokado Co. Ltd. 442,068 OFFICE ELECTRONICS -- 1.0% 16,000 Canon, Inc. 602,223 PHARMACEUTICALS -- 1.0% 15,000 Takeda Chemical Industries Ltd. 626,474 ROAD AND RAIL -- 1.0% 123 East Japan Railway 610,029 SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 1.4% 6,800 Rohm Co. Ltd. 865,173 TRADING COMPANIES AND DISTRIBUTORS -- 0.9% 123,000 Mitsui & Co. Ltd. 573,779 WIRELESS TELECOMMUNICATION SERVICES -- 1.1% 386 NTT DoCoMo, Inc. 711,805 ----------- 12,853,942 - ------------------------------------------------------------ MEXICO -- 0.5% BANKS -- 0.5% 411,000 Grupo Fin. BBVA Bancomer S.A. de C.V.* 311,997 - ------------------------------------------------------------ NETHERLANDS -- 1.0% MEDIA -- 1.0% 24,330 Ver Ned Uitgevers 634,044 - ------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 35 THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND Schedule of Investments (Continued)
- ------------------------------------------------------------ Shares Value - ------------------------------------------------------------ NEW ZEALAND -- 0.3% DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.3% 84,200 Telecom. Corp. of New Zealand $ 199,734 - ------------------------------------------------------------ PORTUGAL -- 3.4% DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.7% 154,440 Portugal Telecom. SGPS S.A. 1,060,846 TRANSPORTATION INFRASTRUCTURE -- 1.7% 200,400 Brisa-Auto Estradas de Portugal S.A. 1,109,641 ----------- 2,170,487 - ------------------------------------------------------------ RUSSIA -- 0.5% OIL AND GAS -- 0.5% 2,200 YUKOS Corp. ADR 307,450 - ------------------------------------------------------------ SINGAPORE -- 0.6% AIRLINES -- 0.2% 18,000 Singapore Airlines Ltd. 105,843 ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 0.4% 32,000 Venture Corp. Ltd. 256,420 ----------- 362,263 - ------------------------------------------------------------ SOUTH AFRICA -- 0.4% METALS AND MINING -- 0.4% 6,800 Anglo American Platinum Corp. 250,516 - ------------------------------------------------------------ SOUTH KOREA -- 0.8% TOBACCO -- 0.4% 40,000 Korea Tobacco & Ginseng Corp. GDR+ 266,000 WIRELESS TELECOMMUNICATION SERVICES -- 0.4% 10,600 SK Telecom Co. Ltd. ADR 226,310 ----------- 492,310 - ------------------------------------------------------------ SPAIN -- 3.3% BANKS -- 1.1% 16,910 Banco Popular Espanol S.A. 691,075 TOBACCO -- 2.2% 61,810 Altadis S.A. 1,409,189 ----------- 2,100,264 - ------------------------------------------------------------ SWEDEN -- 1.8% COMMUNICATIONS EQUIPMENT -- 0.7% 621,600 LM Ericsson* 436,135 MACHINERY -- 1.1% 38,800 Atlas Copco AB 689,510 ----------- 1,125,645 - ------------------------------------------------------------ SWITZERLAND -- 6.8% CONSTRUCTION MATERIALS -- 1.4% 4,970 Holcim Ltd. 901,938 FOOD PRODUCTS -- 1.4% 4,280 Nestle S.A. 906,688 INSURANCE -- 2.1% 20,060 Swiss Reinsurance 1,315,481 PHARMACEUTICALS -- 1.9% 32,600 Novartis AG 1,189,118 ----------- 4,313,225 - ------------------------------------------------------------ TAIWAN -- 0.2% SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 0.2% 40,250 United Microelectronics Corp. ADR* 135,240 - ------------------------------------------------------------ UNITED KINGDOM -- 29.4% BANKS -- 7.3% 128,800 Barclays PLC 798,119 50,325 HBOS PLC 530,537 111,000 HSBC Hldgs. 1,226,463 116,000 Lloyds TSB Group PLC 832,691 51,464 Royal Bank of Scotland 1,232,530
- ------------------------------------------------------------ Shares Value - ------------------------------------------------------------ BEVERAGES -- 1.6% 92,000 Diageo PLC $ 999,499 CONSTRUCTION MATERIALS -- 0.4% 59,000 Hanson PLC 262,091 GAS UTILITIES -- 0.7% 97,000 BG Group PLC 418,406 HOTELS, RESTAURANTS AND LEISURE -- 0.2% 28,678 Compass Group 152,319 INSURANCE -- 0.8% 45,000 Aviva PLC 320,854 28,000 Prudential Corp. 197,840 MEDIA -- 1.6% 51,000 British Sky Broadcasting Group* 524,520 40,400 Elsevier NV 493,581 MULTILINE RETAIL -- 0.5% 27,000 Next PLC 320,057 OIL AND GAS -- 3.5% 251,000 BP Amoco PLC 1,725,014 76,000 Shell Transport & Trading 500,297 PHARMACEUTICALS -- 4.9% 19,300 Astrazeneca 689,606 126,102 GlaxoSmithKline PLC 2,419,297 SOFTWARE -- 0.3% 85,000 Sage Group 181,954 TOBACCO -- 4.0% 61,000 British American Tobacco PLC 609,204 114,000 Imperial Tobacco 1,935,745 WIRELESS TELECOMMUNICATION SERVICES -- 3.6% 1,241,650 Vodafone Group 2,263,228 ----------- 18,633,852 - ------------------------------------------------------------ TOTAL COMMON STOCKS (COST $71,491,600) 63,587,084 - ------------------------------------------------------------ PREFERRED STOCK -- 1.0% GERMANY -- 1.0% AUTOMOBILES -- 1.0% 1,560 Porsche AG (Cost $550,349) $ 647,845 - ------------------------------------------------------------ TOTAL INVESTMENTS -- 101.4% (COST $72,041,949) 64,234,929 LIABILITIES IN EXCESS OF CASH, RECEIVABLES AND OTHER ASSETS -- (1.4)% (901,146) - ------------------------------------------------------------ NET ASSETS -- 100% $63,333,783 - ------------------------------------------------------------
+ Rule 144A restricted security. * Non-income producing security. GLOSSARY OF TERMS: ADR -- American Depositary Receipt. GDR -- Global Depositary Receipt. - -------------------------------------------------------------------------------- See notes to financial statements. 36 / / The Guardian Baillie Gifford Emerging Markets Fund
COMMON STOCKS -- 91.2% Shares Value - ------------------------------------------------------------ ARGENTINA -- 0.1% DISTRIBUTORS -- 0.1% 11,480 Imp. Y Exp. Patagonia* $ 25,587 - ------------------------------------------------------------ BRAZIL -- 4.2% DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.6% 39,000 Telecom. Norte Leste Participacoes ADR 286,650 FOOD AND DRUG RETAILING -- 0.5% 15,000 Comp. Brasileiras de Dist. ADR 229,500 METALS AND MINING -- 1.7% 39,000 Comp. Siderurgica Nacional S.A. ADR 559,260 8,300 Comp. Vale Do Rio Doce ADR 239,953 OIL AND GAS -- 0.8% 25,000 Petroleo Brasileiro S.A. ADR 373,500 PAPER AND FOREST PRODUCTS -- 0.6% 17,800 Votorantim Celulose e Papel S.A. ADR 292,632 ----------- 1,981,495 - ------------------------------------------------------------ CHILE -- 2.0% BANKS -- 0.6% 14,296 Banco Santander Chile ADR 266,335 FOOD AND DRUG RETAILING -- 0.4% 18,000 Distribucion Y Servicio ADR 180,000 METALS AND MINING -- 1.0% 47,940 Antofagasta Hldgs. 482,246 ----------- 928,581 - ------------------------------------------------------------ CROATIA -- 1.3% PHARMACEUTICALS -- 1.3% 42,215 Pliva d.d. GDR 599,453 - ------------------------------------------------------------ ESTONIA -- 0.8% BANKS -- 0.8% 23,000 Hansabank Ltd. 385,439 - ------------------------------------------------------------ HONG KONG -- 4.7% CHEMICALS -- 0.4% 288,000 Kingboard Chemicals Hldgs. Ltd. 210,501 INTERNET SOFTWARE AND SERVICES -- 0.3% 500,000 Tom.Com Ltd.* 118,612 REAL ESTATE -- 0.9% 3,000,000 China Overseas Land & Invest. Ltd. 280,822 920,000 New World China Land Ltd. 151,002 SPECIALTY RETAIL -- 0.9% 1,122,000 Giordano Int'l. Ltd. 438,812 WIRELESS TELECOMMUNICATION SERVICES -- 2.2% 430,000 China Mobile (Hong Kong) Ltd.* 1,025,575 ----------- 2,225,324 - ------------------------------------------------------------ HUNGARY -- 0.9% DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.9% 123,000 Matav RT 445,731 - ------------------------------------------------------------ INDIA -- 1.5% BANKS -- 1.5% 111,100 ICICI Bank Ltd. ADR 722,150 - ------------------------------------------------------------ INDONESIA -- 1.0% FOOD PRODUCTS -- 0.0% 48,000 Astra Agro Lestari 8,313 INDUSTRIAL CONGLOMERATES -- 0.4% 570,000 Astra Int'l.* 200,614 MULTILINE RETAIL -- 0.4% 600,000 Ramayana Lestari Sentosa 169,274
- ------------------------------------------------------------ Shares Value - ------------------------------------------------------------ TOBACCO -- 0.2% 265,000 H M Sampoerna $ 109,553 ----------- 487,754 - ------------------------------------------------------------ ISRAEL -- 4.0% BANKS -- 0.6% 215,000 Bank Hapoalim Ltd.* 307,415 INTERNET SOFTWARE AND SERVICES -- 1.0% 37,400 Check Point Software Technologies Ltd.* 485,078 PHARMACEUTICALS -- 2.4% 29,000 Teva Pharmaceutical Inds. Ltd. ADR 1,119,690 ----------- 1,912,183 - ------------------------------------------------------------ MALAYSIA -- 4.8% AUTOMOBILES -- 1.1% 215,000 Perusahaan Otomobil Nasional Berhad 497,895 CONSTRUCTION AND ENGINEERING -- 1.0% 573,000 Road Builder (M) Hldgs. Berhad 491,574 HOTELS, RESTAURANTS AND LEISURE -- 0.9% 66,000 Genting Berhad 232,737 93,000 Tanjong PLC 210,474 INDUSTRIAL CONGLOMERATES -- 0.5% 180,000 Sime Darby Berhad 234,947 TOBACCO -- 1.0% 48,000 British American Tobacco Malaysia Berhad 448,421 WIRELESS TELECOMMUNICATION SERVICES -- 0.3% 100,000 Maxis Comms. Berhad* 142,105 ----------- 2,258,153 - ------------------------------------------------------------ MEXICO -- 9.9% BANKS -- 1.9% 98,200 Grupo Fin. Banorte S.A. de C.V. 240,317 874,200 Grupo Fin. BBVA Bancomer S.A. de C.V.* 663,620 BEVERAGES -- 0.9% 180,190 Grupo Modelo S.A. 440,791 CONSTRUCTION AND ENGINEERING -- 1.6% 25,097 Cemex S.A. de C.V. ADR 539,836 150,000 Consorcio Ara S.A. de C.V.* 223,129 DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.8% 24,300 America Movil S.A. de C.V. ADR 348,948 271,000 Grupo Carso Global Telecom.* 301,689 21,700 Telefonos de Mexico S.A. ADR 693,966 MEDIA -- 0.8% 76,000 TV Azteca S.A. de C.V. ADR 364,040 MULTILINE RETAIL -- 1.3% 313,170 Wal-Mart de Mexico S.A. de C.V. 606,203 TRANSPORTATION INFRASTRUCTURE -- 0.4% 14,400 Grupo Aeroportuario del Sureste S.A. de C.V. ADR 169,200 WIRELESS TELECOMMUNICATION SERVICES -- 0.2% 191,000 America Telecom S.A. de C.V.* 111,814 ----------- 4,703,553 - ------------------------------------------------------------ PEOPLE'S REPUBLIC OF CHINA -- 4.0% METALS AND MINING -- 1.9% 2,060,000 Aluminum Corp of China Ltd. 298,492 1,835,000 Jiangxi Copper Co. Ltd. 228,241 958,000 Yanzhou Coal Mining 380,814 OIL AND GAS -- 1.8% 4,248,000 PetroChina Co. Ltd. 844,311
- -------------------------------------------------------------------------------- See notes to financial statements. 37 THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND Schedule of Investments (Continued)
- ------------------------------------------------------------ Shares Value - ------------------------------------------------------------ REAL ESTATE -- 0.3% 1,250,000 Beijing North Star Co. Ltd. $ 152,272 ----------- 1,904,130 - ------------------------------------------------------------ RUSSIA -- 5.6% METALS AND MINING -- 1.0% 25,000 JSC MMC Norilsk Nickel ADR 500,250 OIL AND GAS -- 4.6% 6,300 LUKOIL ADR 383,040 51,052 OAO Gazprom ADR 602,414 8,400 YUKOS Corp. ADR 1,173,900 ----------- 2,659,604 - ------------------------------------------------------------ SOUTH AFRICA -- 10.4% BANKS -- 1.4% 184,000 Standard Bank Group Ltd. 646,762 METALS AND MINING -- 9.0% 43,335 Anglo American Platinum Corp. 1,596,486 26,300 Anglo American PLC 387,869 49,796 Aquarius Platinum Ltd. 250,058 12,400 Impala Platinum Hldgs. Ltd. 787,875 331,905 Kumba Resources Ltd. 1,259,517 ----------- 4,928,567 - ------------------------------------------------------------ SOUTH KOREA -- 20.9% BANKS -- 1.9% 18,197 Kookmin Bank ADR 643,264 6,700 Kookmin Bank* 237,258 BUILDING PRODUCTS -- 0.8% 3,980 Kumkang Korea Chemical Co. Ltd. 392,614 CHEMICALS -- 2.4% 74,439 Hyosung Corp. 809,631 27,200 LG Petrochemical Co. Ltd.* 311,893 CONSTRUCTION AND ENGINEERING -- 1.0% 80,000 Hyundai Development Co.* 472,156 HOTELS, RESTAURANTS AND LEISURE -- 0.4% 43,000 Hotel Shilla Co. Ltd.* 172,210 INSURANCE -- 1.6% 13,700 Samsung Fire & Marine Ins. Co. Ltd. 748,501 MEDIA -- 0.9% 5,300 Cheil Comms., Inc. 416,028 PHARMACEUTICALS -- 0.5% 14,000 Jeil Pharmaceutical Co. 254,964 SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 3.4% 8,200 Samsung Electronics Co. Ltd GDR+ 1,094,700 1,900 Samsung Electronics Co. Ltd. 503,014 TOBACCO -- 1.6% 117,400 Korea Tobacco & Ginseng Corp. GDR+ 780,710 TRADING COMPANIES AND DISTRIBUTORS -- 1.9% 170,200 Samsung Corp.* 918,410 WIRELESS TELECOMMUNICATION SERVICES -- 4.5% 4,000 SK Telecom Co. Ltd.* 772,311 63,000 SK Telecom Co. Ltd. ADR 1,345,050 ----------- 9,872,714 - ------------------------------------------------------------ TAIWAN -- 12.7% BANKS -- 1.0% 1,280,000 China Development Financial Hldg. Corp.* 489,466 CHEMICALS -- 1.6% 586,400 Formosa Plastic Corp. 771,712 COMMERCIAL SERVICES AND SUPPLIES -- 0.5% 310,550 Taiwan Secom 235,713 COMPUTERS AND PERIPHERALS -- 0.5% 419,850 Compeq Mfg. Co. Ltd.* 222,951
- ------------------------------------------------------------ Shares Value - ------------------------------------------------------------ CONSTRUCTION AND ENGINEERING -- 1.1% 977,000 CTCI Corp. $ 521,630 DIVERSIFIED FINANCIALS -- 1.0% 560,000 Fubon Financial Hldg. Co. Ltd. 446,061 ELECTRONIC EQUIPMENT AND INSTRUMENTS -- 2.0% 68,300 Au Optronics Corp. ADR* 393,408 76,040 Hon Hai Precision Inds. Co. Ltd. GDR 570,300 SEMICONDUCTOR EQUIPMENT AND PRODUCTS -- 4.7% 774,400 Taiwan Semiconductor Mfg. Co. Ltd.* 952,076 107,500 Taiwan Semiconductor Mfg. Co. Ltd. ADR* 757,875 803,042 United Microelectronics Corp.* 489,010 TRADING COMPANIES AND DISTRIBUTORS -- 0.3% 201,000 Test-Rite Int'l. Co. Ltd. 146,182 ----------- 5,996,384 - ------------------------------------------------------------ THAILAND -- 1.3% CONSTRUCTION MATERIALS -- 0.3% 4,200 The Siam Cement Public Co. Ltd. 121,669 REAL ESTATE -- 1.0% 257,500 Land & Houses Public Co. Ltd. 480,388 ----------- 602,057 - ------------------------------------------------------------ TURKEY -- 1.1% INDUSTRIAL CONGLOMERATES -- 0.5% 23,640,000 Koc Hldg. A.S.* 244,552 MEDIA -- 0.6% 171,000,000 Dogan Yayin Hldg. A.S.* 248,680 ----------- 493,232 - ------------------------------------------------------------ TOTAL COMMON STOCKS (COST $45,868,508) 43,132,091 - ------------------------------------------------------------ PREFERRED STOCKS -- 4.0% BRAZIL -- 3.3% AEROSPACE AND DEFENSE -- 0.6% 17,702 Embraer-Empresa Brasileira de Aeronautica ADR $ 281,462 BANKS -- 1.2% 1,054,514 Itausa-Investimentos Itau S.A. 560,024 DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.3% 1,719,000 Celular CRT Participacoes S.A. 149,029 FOOD PRODUCTS -- 0.0% 4,700,000 Comp. Lorenz S.A.* 0 METALS AND MINING -- 0.8% 13,000 Comp. Vale Do Rio Doce 358,455 OIL AND GAS -- 0.4% 15,500 Petroleo Brasileiro S.A. ADR 207,700 ----------- 1,556,670 - ------------------------------------------------------------ THAILAND -- 0.7% BANKS -- 0.7% 507,000 Siam Commercial Bank* 331,929 - ------------------------------------------------------------ TOTAL PREFERRED STOCKS (COST $2,482,897) 1,888,599 - ------------------------------------------------------------ WARRANTS -- 2.1% HONG KONG -- 0.0% 28,800 Kingboard Chemicals Hldgs. Ltd. Warrants, expiring 12/31/2003* $ 2,585 - ------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 38 THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND Schedule of Investments (Continued)
- ------------------------------------------------------------ Shares Value - ------------------------------------------------------------ INDIA -- 2.1% 10,150 Infosys Technologies Ltd. Zero- Strike Warrants, expiring 11/19/2003+* $ 1,009,278 - ------------------------------------------------------------ TOTAL WARRANTS (COST $764,597) 1,011,863 - ------------------------------------------------------------ REPURCHASE AGREEMENT -- 2.0% Principal Amount Value - ------------------------------------------------------------ $ 955,000 State Street Bank and Trust Co. repurchase agreement, dated 12/31/2002, maturity value $955,027 at 0.50%, due 1/2/2003 (1) (COST $955,000) $ 955,000 - ------------------------------------------------------------ TOTAL INVESTMENTS -- 99.3% (COST $50,071,002) 46,987,553 CASH, RECEIVABLES AND OTHER ASSETS LESS LIABILITIES -- 0.7% 325,595 - ------------------------------------------------------------ NET ASSETS -- 100% $47,313,148 - ------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. + Rule 144A restricted security. * Non-income producing security. GLOSSARY OF TERMS: ADR -- American Depositary Receipt. GDR -- Global Depositary Receipt. - -------------------------------------------------------------------------------- See notes to financial statements. 39 / / The Guardian Investment Quality Bond Fund
ASSET BACKED -- 11.4% Principal Amount Value - ----------------------------------------------------------------------- $ 900,000 Aesop Funding II LLC 2002-1A A1 3.85% due 10/20/2006+ $ 927,189 167,002 Amresco 1997-1 MIF 7.42% due 3/25/2027 166,713 2,000,000 California Infrastructure SCE 1997-1 A7 6.42% due 12/26/2009 2,246,238 1,800,000 Chase Manhattan Auto Owner Tr. 2002-A A4 4.24% due 9/15/2008 1,886,210 1,480,000 Chevy Chase Auto Rec. Tr. 2001-2 A4 4.44% due 4/16/2007 1,538,341 2,542,000 Citibank Credit Card Issuance Tr. 2000-A1 A1 6.90% due 10/15/2007 2,839,888 1,700,000 Daimler Chrysler Auto Tr. 2002-A A4 4.49% due 10/6/2008 1,785,408 2,044,000 Honda Auto Rec. Owner Tr. 2002-1 A4 4.22% due 4/16/2007 2,133,948 2,542,000 Peco Energy Transition Tr. 1999-A A6 6.05% due 3/1/2009 2,807,395 1,960,000 Residential Asset Mtg. Products, Inc. 2002-RZ3 A3 3.71% due 2/25/2029 1,988,672 1,700,000 Residential Asset Sec. Corp. 2000-KS5 AI5 7.615% due 12/25/2031 1,830,565 1,800,000 Residential Funding Mtg. Sec. II 2002-HS2 A3 4.44% due 3/25/2017 1,837,930 1,900,000 Vanderbilt Acquisition Loan Tr. 2002-1 A3 5.70% due 9/7/2023 1,970,312 - ----------------------------------------------------------------------- TOTAL ASSET BACKED (COST $23,062,878) 23,958,809 - ----------------------------------------------------------------------- COMMERCIAL MORTGAGE BACKED -- 8.8% $ 1,981,791 Bear Stearns Comm'l. Mtg. Sec., Inc. 2002-Top8 A1 4.06% due 8/15/2038 $ 2,007,148 1,895,000 Bear Stearns Comm'l. Mtg. Sec., Inc. 2002-Top6 A2 6.46% due 10/15/2036 2,134,581 2,247,809 First Union-Lehman Bros.-Bank of America 1998-C2 A1 6.28% due 11/18/2035 2,405,684 1,600,000 LB-UBS Comm'l. Mtg. Tr. 2002-C2 A4 5.594% due 6/15/2031 1,708,649 2,360,000 LB-UBS Comm'l. Mtg. Tr. 2001-C7 A5 6.133% due 12/15/2030 2,610,714 1,952,000 LB-UBS Comm'l. Mtg. Tr. 2001-C3 A2 6.365% due 12/15/2028 2,180,910 240,000 Morgan Stanley Dean Witter Capital I 2002-Top7 A2 5.98% due 1/15/2039 264,060
- ----------------------------------------------------------------------- Principal Amount Value - ----------------------------------------------------------------------- $ 950,000 Salomon Brothers Mtg. Secs. VII, Inc. 2001-C2 A3 6.499% due 10/13/2011 $ 1,072,222 3,700,000 Wachovia Bank Comm'l. Mtg. Tr. 2002-C1 A2 5.681% due 4/15/2034 4,017,191 - ----------------------------------------------------------------------- TOTAL COMMERCIAL MORTGAGE BACKED (COST $17,547,280) 18,401,159 - ----------------------------------------------------------------------- CORPORATE BONDS -- 18.2% AEROSPACE AND DEFENSE -- 0.2% $ 300,000 Lockheed Martin Corp. 8.50% due 12/1/2029 $ 402,493 100,000 Northrop Grumman Corp. 7.125% due 2/15/2011 113,659 ------------ 516,152 - ----------------------------------------------------------------------- AIRLINES -- 0.4% 800,000 Delta Air Lines, Inc. 6.417% due 7/2/2012 846,846 - ----------------------------------------------------------------------- AUTOMOTIVE -- 0.2% 100,000 Delphi Corp. 7.125% due 5/1/2029 96,930 225,000 Ford Motor Co. 7.45% due 7/16/2031 195,720 150,000 TRW, Inc. 7.75% due 6/1/2029 176,926 ------------ 469,576 - ----------------------------------------------------------------------- BUILDING MATERIALS -- 0.1% 250,000 Masco Corp. 6.50% due 8/15/2032 256,993 - ----------------------------------------------------------------------- ENERGY-0.6% 200,000 Anadarko Petroleum Corp. 5.00% due 10/1/2012 202,443 850,000 Devon Energy Corp. 7.95% due 4/15/2032 1,021,877 ------------ 1,224,320 - ----------------------------------------------------------------------- ENERGY-REFINING -- 0.5% 850,000 Tosco Corp. 8.125% due 2/15/2030 1,083,502 - ----------------------------------------------------------------------- ENTERTAINMENT -- 0.5% 954,000 Time Warner Cos., Inc. 7.57% due 2/1/2024 957,118 - ----------------------------------------------------------------------- ENVIRONMENTAL -- 0.4% 850,000 Waste Management, Inc. 7.375% due 8/1/2010 930,019 - ----------------------------------------------------------------------- FINANCE COMPANIES -- 0.9% 250,000 Ford Motor Credit Co. 7.25% due 10/25/2011 242,919 600,000 Ford Motor Credit Co. 7.60% due 8/1/2005 612,627 500,000 General Electric Capital Corp. 5.45% due 1/15/2013 519,368 300,000 General Motors Acceptance Corp. 7.00% due 2/1/2012 301,271 135,000 General Motors Acceptance Corp. 8.00% due 11/1/2031 135,735 150,000 Household Finance Corp. 7.35% due 11/27/2032 161,688 ------------ 1,973,608 - -----------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 40 THE GUARDIAN INVESTMENT QUALITY BOND FUND Schedule of Investments (Continued)
- ----------------------------------------------------------------------- Principal Amount Value - ----------------------------------------------------------------------- FINANCIAL-0.6% $ 500,000 Goldman Sachs Group, Inc. 5.70% due 9/1/2012 $ 520,022 300,000 Lehman Brothers Hldgs., Inc. 6.625% due 1/18/2012 332,049 400,000 Morgan Stanley Dean Witter 6.60% due 4/1/2012 443,327 ------------ 1,295,398 - ----------------------------------------------------------------------- FINANCIAL-BANKS -- 1.6% 425,000 Bank America Corp. 4.875% due 9/15/2012 429,586 200,000 BB&T Corp. 6.50% due 8/1/2011 225,886 600,000 Citigroup, Inc. 5.625% due 8/27/2012 630,889 750,000 MBNA America Bank Nat'l. 7.125% due 11/15/2012 784,883 200,000 Regions Financial Corp. 6.375% due 5/15/2012 223,052 1,025,000 Wells Fargo Bank NA 6.45% due 2/1/2011 1,150,658 ------------ 3,444,954 - ----------------------------------------------------------------------- FOOD AND BEVERAGE -- 0.7% 650,000 Coca Cola Bottling Co. 5.00% due 11/15/2012 653,488 100,000 Coca Cola Enterprises, Inc. 6.75% due 9/15/2028 111,589 200,000 Pepsi Bottling Group, Inc. 7.00% due 3/1/2029 232,381 400,000 Unilever Capital Corp. 5.90% due 11/15/2032 409,174 ------------ 1,406,632 - ----------------------------------------------------------------------- INDUSTRIAL-OTHER -- 0.8% 1,650,000 Aramark Svcs., Inc. 6.75% due 8/1/2004 1,716,716 - ----------------------------------------------------------------------- MEDIA-CABLE -- 0.9% 500,000 AT & T Broadband Corp. 9.455% due 11/15/2022 589,138 1,000,000 Comcast Cable Comm., Inc. 6.875% due 6/15/2009 1,063,893 200,000 Cox Comm., Inc. 7.125% due 10/1/2012 222,147 ------------ 1,875,178 - ----------------------------------------------------------------------- MEDIA-NONCABLE -- 0.8% 1,500,000 Scholastic Corp. 5.75% due 1/15/2007 1,600,703 - ----------------------------------------------------------------------- MERCHANDISING-SUPERMARKETS -- 0.9% 850,000 Kroger Co. 7.25% due 6/1/2009 963,694 825,000 Safeway, Inc. 7.25% due 2/1/2031 933,484 ------------ 1,897,178 - ----------------------------------------------------------------------- NATURAL GAS-PIPELINES -- 1.1% 1,700,000 Consolidated Natural Gas Co. 7.25% due 10/1/2004 1,831,124 150,000 Duke Energy Field Svcs. 8.125% due 8/16/2030 152,256 250,000 Kinder Morgan, Inc. 6.50% due 9/1/2012 261,268 ------------ 2,244,648 - -----------------------------------------------------------------------
- ----------------------------------------------------------------------- Principal Amount Value - ----------------------------------------------------------------------- PAPER AND FOREST PRODUCTS -- 0.6% $ 300,000 Abitibi-Consolidated, Inc. 8.55% due 8/1/2010 $ 332,960 200,000 Domtar, Inc. 7.875% due 10/15/2011 233,752 500,000 Int'l. Paper Co.+ 5.85% due 10/30/2012 523,521 200,000 Weyerhaeuser Co. 6.75% due 3/15/2012 218,068 ------------ 1,308,301 - ----------------------------------------------------------------------- RAILROADS -- 1.3% 200,000 CSX Corp. 4.875% due 11/1/2009 206,060 700,000 Norfolk Southern Corp. 6.75% due 2/15/2011 792,317 450,000 Norfolk Southern Corp. 7.25% due 2/15/2031 523,096 1,200,000 Union Pacific Corp. 6.625% due 2/1/2029 1,316,705 ------------ 2,838,178 - ----------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST -- 0.5% 250,000 Duke Realty Corp. 5.875% due 8/15/2012 256,489 100,000 EOP Operating LP 7.00% due 7/15/2011 108,957 150,000 Kimco Realty Corp. 6.00% due 11/30/2012 153,356 200,000 Liberty Ppty. LP 7.25% due 3/15/2011 218,945 100,000 Regency Centers LP 6.75% due 1/15/2012 107,976 125,000 Simon Ppty. Group LP+ 6.35% due 8/28/2012 130,358 ------------ 976,081 - ----------------------------------------------------------------------- RETAILERS -- 0.3% 300,000 Staples, Inc.+ 7.375% due 10/1/2012 329,348 200,000 Target Corp. 6.35% due 11/1/2032 209,072 ------------ 538,420 - ----------------------------------------------------------------------- TECHNOLOGY -- 0.1% 225,000 IBM Corp. 6.50% due 1/15/2028 240,998 - ----------------------------------------------------------------------- UTILITIES-ELECTRIC AND WATER -- 1.1% 100,000 Alabama Power Co. 5.50% due 10/15/2017 104,745 100,000 Detroit Edison Co. 5.20% due 10/15/2012 103,497 250,000 Georgia Power Co. 5.125% due 11/15/2012 258,695 425,000 National Rural Utilities Coop. Fin. 8.00% due 3/1/2032 512,963 200,000 Oncor Electric Delivery Co.+ 7.25% due 1/15/2033 203,675 400,000 Pepco Hldgs., Inc.+ 6.45% due 8/15/2012 423,571 500,000 PSEG Energy Hldgs., Inc. 8.50% due 6/15/2011 407,500 200,000 Public Service Electric Gas Co. 5.125% due 9/1/2012 205,742 ------------ 2,220,388 - -----------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 41 \THE GUARDIAN INVESTMENT QUALITY BOND FUND Schedule of Investments (Continued)
- ----------------------------------------------------------------------- Principal Amount Value - ----------------------------------------------------------------------- WIRELESS COMMUNICATIONS -- 0.6% $ 300,000 AT & T Wireless Svcs., Inc. 7.875% due 3/1/2011 $ 301,500 690,000 Verizon Wireless Capital LLC 5.375% due 12/15/2006 720,833 150,000 Vodafone Group PLC 6.25% due 11/30/2032 149,827 ------------ 1,172,160 - ----------------------------------------------------------------------- WIRELINE COMMUNICATIONS -- 1.9% 210,000 British Telecom. PLC 8.875% due 12/15/2030 267,729 200,000 Century Tel. Enterprises, Inc. 6.875% due 1/15/2028 208,193 200,000 Citizens Comm. Co. 9.00% due 8/15/2031 234,091 500,000 Deutsche Telekom Int'l. Fin. 9.25% due 6/1/2032 634,270 625,000 France Telecom S.A. 9.25% due 3/1/2011 722,669 100,000 Royal KPN NV 8.375% due 10/1/2030 123,363 300,000 Sprint Capital Corp. 8.375% due 3/15/2012 298,500 825,000 Verizon New York, Inc. 7.375% due 4/1/2032 954,009 500,000 Verizon Pennsylvania, Inc. 5.65% due 11/15/2011 524,237 ------------ 3,967,061 - ----------------------------------------------------------------------- YANKEE -- 0.6% 1,200,000 Pemex Master Tr.+ 7.875% due 2/1/2009 1,290,000 - ----------------------------------------------------------------------- TOTAL CORPORATE BONDS (COST $36,020,266) 38,291,128 - ----------------------------------------------------------------------- MORTGAGE PASS-THROUGHS -- 31.5% FHLMC $ 7,207,000 6.00%, (30 yr. TBA) $ 7,450,236 4,065,997 6.50%, 2032 4,237,243 35,559 7.00%, 8/1/2008 37,901 5,268,246 7.00%, 6/1/2032 5,537,246 FNMA 3,600,000 5.50%, (15 yr. TBA) 3,729,377 1,300,000 6.00%, (15 yr. TBA) 1,358,500 900,000 5.50%, (30 yr. TBA) 917,719 900,000 5.50%, 12/1/2032 919,491 2,262,938 6.00%, 10/1/2013 2,377,785 699,999 6.00%, 9/1/2032 724,612 3,396,521 6.50%, 2017 3,589,732 5,580,000 6.50%, 4/1/2031 5,812,655 13,988,060 6.50%, 2032 14,571,028 22,122 7.00%, 2/1/2009 23,590 162,377 7.00%, 2012 172,997 572,541 7.00%, 9/1/2014 609,460 11,818 7.00%, 8/1/2023 12,529 9,831 7.00%, 12/1/2027 10,371 158,449 7.00%, 12/1/2028 166,889 2,470,448 7.00%, 2032 2,598,439 984 7.50%, 5/1/2027 1,049 553,841 7.50%, 12/1/2029 588,475 2,061,741 7.50%, 2/1/2031 2,192,810 743,354 8.00%, 2030 801,367
- ----------------------------------------------------------------------- Principal Amount Value - ----------------------------------------------------------------------- GNMA $ 1,900,000 6.00%, (30 yr. TBA) $ 1,976,000 542,809 6.50%, 7/15/2029 570,417 4,094,382 6.50%, 5/15/2032 4,300,305 764,391 8.00%, 2030 826,850 - ----------------------------------------------------------------------- TOTAL MORTGAGE PASS-THROUGHS (COST $64,781,771) 66,115,073 - ----------------------------------------------------------------------- SOVEREIGN DEBT -- 0.6% $ 500,000 Korea Development Bank 5.50% due 11/13/2012 $ 519,838 200,000 Malaysia 7.50% due 7/15/2011 229,940 600,000 United Mexican States 8.00% due 9/24/2022 621,000 - ----------------------------------------------------------------------- TOTAL SOVEREIGN DEBT (COST $1,323,066) 1,370,778 - ----------------------------------------------------------------------- U.S. GOVERNMENT -- 25.6% U.S. GOVERNMENT AGENCIES -- 6.9% FNMA $ 5,750,000 5.00%, 1/15/2007 $ 6,232,741 2,690,000 6.00%, 5/15/2008 3,047,006 3,675,000 6.125%, 3/15/2012 4,189,430 875,000 6.375%, 6/15/2009 1,012,469 ------------ 14,481,646 - ----------------------------------------------------------------------- U.S. TREASURY BONDS AND NOTES -- 18.7% U.S. Treasury Bonds 2,672,000 5.375%, 2/15/2031 2,912,897 U.S. Treasury Notes 7,850,000 2.25%, 7/31/2004 7,953,031 1,500,000 2.75%, 9/30/2003 1,517,109 2,030,000 3.00%, 1/31/2004 2,067,746 6,920,000 3.00%, 11/15/2007 7,003,254 715,000 3.25%, 8/15/2007 732,708 3,200,000 4.00%, 11/15/2012 3,245,251 1,890,000 4.375%, 5/15/2007 2,029,535 832,000 4.375%, 8/15/2012 869,667 2,415,000 5.25%, 5/15/2004 2,543,768 1,500,000 5.75%, 8/15/2010 1,724,649 780,000 5.875%, 11/15/2004 842,430 2,250,000 6.00%, 8/15/2009 2,615,976 1,320,000 6.125%, 8/15/2007 1,517,897 1,500,000 6.75%, 5/15/2005 1,672,325 ------------ 39,248,243 - ----------------------------------------------------------------------- TOTAL U.S. GOVERNMENT (COST $51,602,725) 53,729,889 - ----------------------------------------------------------------------- COMMERCIAL PAPER -- 7.4% AUTOMOTIVE -- 2.4% $ 5,000,000 Volkswagen of America, Inc. 1.19% due 1/14/2003 (a) $ 4,997,851 - ----------------------------------------------------------------------- FINANCIAL -- 1.0% 2,000,000 Morgan Stanley Dean Witter 1.23% due 1/22/2003 (a) 1,998,565 - ----------------------------------------------------------------------- FOOD AND BEVERAGE -- 2.4% 5,100,000 Brown-Forman Corp. 1.23% due 1/21/2003 (a) 5,096,515 - -----------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 42 THE GUARDIAN INVESTMENT QUALITY BOND FUND Schedule of Investments (Continued)
- ----------------------------------------------------------------------- Principal Amount Value - ----------------------------------------------------------------------- OIL AND GAS SERVICES -- 1.6% $ 3,350,000 Exxon Imperial US, Inc. 1.17% due 1/14/2003 (a) $ 3,348,585 - ----------------------------------------------------------------------- TOTAL COMMERCIAL PAPER (COST $15,441,516) 15,441,516 - ----------------------------------------------------------------------- REPURCHASE AGREEMENT -- 3.4% $ 7,213,000 State Street Bank and Trust Co. repurchase agreement, dated 12/31/2002, maturity value $7,213,461 at 1.15%, due 1/2/2003 (1)(a) (COST $7,213,000) $ 7,213,000 - ----------------------------------------------------------------------- TOTAL INVESTMENTS -- 106.9% (COST $216,992,502) 224,521,352 PAYABLES FOR MORTGAGE PASS-THROUGHS DELAYED DELIVERY SECURITIES(a) -- (7.2)% (15,244,213) CASH, RECEIVABLES AND OTHER ASSETS LESS LIABILITIES -- 0.3% 654,791 - ----------------------------------------------------------------------- NET ASSETS -- 100% $209,931,930 - -----------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. (a) Commercial paper and repurchase agreement are segregated to cover forward mortgage purchases. + Rule 144A restricted security. - -------------------------------------------------------------------------------- See notes to financial statements. 43 / / The Guardian High Yield Bond Fund
CORPORATE BONDS -- 93.0% Rating Principal Moody's/ Amount S&P* Value - ---------------------------------------------------------------------------- AEROSPACE AND DEFENSE -- 4.9% Alliant Techsystems, Inc. $ 710,000 Sr. Sub. Nt. 8.50% due 5/15/2011 B2/B $ 766,800 BE Aerospace, Inc. 570,000 Sr. Sub. Nt. 9.50% due 11/1/2008 B3/B 433,200 K & F Ind., Inc. 765,000 Sr. Sub. Nt. Ser. B 9.25% due 10/15/2007 B3/B 791,775 Sequa Corp. 360,000 Sr. Nt. 8.875% due 4/1/2008 Ba3/BB- 343,800 495,000 Sr. Nt. 9.00% due 8/1/2009 Ba3/BB- 475,200 ----------- 2,810,775 - ---------------------------------------------------------------------------- AUTOMOTIVE -- 3.4% American Axle & Mfg., Inc. 572,000 Sr. Sub. Nt. 9.75% due 3/1/2009 Ba2/BB- 613,470 Collins & Aikman Products Co. 569,000 Sr. Nt. 10.75% due 12/31/2011 B1/B 541,972 Dura Operating Corp. 560,000 Sr. Sub. Nt. 9.00% due 5/1/2009 B2/B 509,600 Hayes Lemmerz Int'l., Inc. 370,000 Sr. Sub. Nt.++ 11.00% due 7/15/2006 NR/NR 8,325 Lear Corp. 286,000 Sr. Nt. Ser. B 8.11% due 5/15/2009 Ba1/BB+ 302,445 ----------- 1,975,812 - ---------------------------------------------------------------------------- BANKING -- 0.6% Western Financial Bank 350,000 Sub. Cap. Debt. 9.625% due 5/15/2012 B1/BB- 339,500 - ---------------------------------------------------------------------------- BUILDING MATERIALS -- 0.9% Associated Materials, Inc. 280,000 Sr. Sub. Nt. 9.75% due 4/15/2012 B3/B 295,400 Collins & Aikman Floor Cover 71,000 Sr. Sub. Nt. 9.75% due 2/15/2010 B2/B 71,000 Interface, Inc. 210,000 Sr. Nt. 7.30% due 4/1/2008 B2/B+ 180,863 ----------- 547,263 - ---------------------------------------------------------------------------- CHEMICALS -- 1.8% Compass Minerals Group, Inc. 245,000 Sr. Sub. Nt. 10.00% due 8/15/2011 B3/B 268,275 FMC Corp. 280,000 Sr. Sec. Nt.+ 10.25% due 11/1/2009 Ba2/BB+ 302,400 Huntsman Int'l. LLC 70,000 Sr. Nt. 9.875% due 3/1/2009 B3/B 70,000 Lyondell Chemical Co. 285,000 Nt. Ser. A 9.625% due 5/1/2007 Ba3/BB 273,600
- ---------------------------------------------------------------------------- Rating Principal Moody's/ Amount S&P* Value - ---------------------------------------------------------------------------- Millennium America, Inc. $ 140,000 Sr. Nt. 7.00% due 11/15/2006 Ba1/BBB- $ 135,275 ----------- 1,049,550 - ---------------------------------------------------------------------------- CONSTRUCTION MACHINERY -- 2.6% H & E Equipment/Finance 280,000 Sr. Nt.+ 11.125% due 6/15/2012 B3/B 210,000 Joy Global, Inc. 140,000 Sr. Sub. Nt. 8.75% due 3/15/2012 B2/B+ 145,950 NMHG Hldg. Co. 140,000 Sr. Nt. 10.00% due 5/15/2009 B3/B+ 140,000 Terex Corp. 285,000 Sr. Sub. Nt. 10.375% due 4/1/2011 B3/B 267,900 285,000 Sr. Sub. Nt. 9.25% due 7/15/2011 B3/B 259,706 United Rentals NA, Inc. 280,000 Sr. Nt. 10.75% due 4/15/2008 B1/BB 278,600 United Rentals, Inc. 280,000 Sr. Sub. Nt. 9.00% due 4/1/2009 B2/B+ 223,300 ----------- 1,525,456 - ---------------------------------------------------------------------------- CONSUMER CYCLICAL SERVICES -- 2.6% Coinmach Corp. 560,000 Sr. Nt. 9.00% due 2/1/2010 B2/B 587,300 Iron Mountain, Inc. 860,000 Sr. Sub. Nt. 8.625% due 4/1/2013 B2/B 898,700 ----------- 1,486,000 - ---------------------------------------------------------------------------- CONSUMER PRODUCTS -- 6.5% Armkel LLC 142,000 Sr. Sub. Nt. 9.50% due 8/15/2009 B2/B- 154,070 Elizabeth Arden, Inc. 670,000 Sr. Sec. Nt. Ser. B 11.75% due 2/1/2011 B2/B 690,100 Pennzoil-Quaker St. 372,000 Sr. Nt. 10.00% due 11/1/2008 Aa2/AAA 459,420 Playtex Products, Inc. 763,000 Sr. Sub. Nt. 9.375% due 6/1/2011 B2/B 843,115 Sealy Mattress Co. 286,000 Sr. Sub. Nt. Ser. B 9.875% due 12/15/2007 B3/B- 274,560 Simmons Co. 562,000 Sr. Sub. Nt. Ser. B 10.25% due 3/15/2009 B2/B- 595,720 St. John Knits Int'l., Inc. 750,000 Sr. Sub. Nt. 12.50% due 7/1/2009 B3/B- 772,500 ----------- 3,789,485 - ---------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING -- 0.1% Rexnord Corp. 35,000 Sr. Sub. Nt.+ 10.125% due 12/15/2012 B3/B- 35,875 - ----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 44 THE GUARDIAN HIGH YIELD BOND FUND Schedule of Investments (Continued)
- ---------------------------------------------------------------------------- Rating Principal Moody's/ Amount S&P* Value - ---------------------------------------------------------------------------- ELECTRIC -- 0.8% Calpine Canada Energy $ 560,000 Sr. Nt. 8.50% due 5/1/2008 B1/B+ $ 243,600 PSEG Energy Hldgs., Inc. 280,000 Sr. Nt. 8.50% due 6/15/2011 Baa3/BBB- 228,200 ----------- 471,800 - ---------------------------------------------------------------------------- ENERGY -- 6.0% Belden & Blake Corp. 280,000 Sr. Sub. Nt. Ser. B 9.875% due 6/15/2007 Caa3/CCC- 238,000 Dresser, Inc. 280,000 Sr. Nt. 9.375% due 4/15/2011 B2/B 281,400 Newfield Exploration Co. 280,000 Sr. Sub. Nt. 8.375% due 8/15/2012 Ba3/BB- 298,582 Newpark Resources, Inc. 700,000 Sr. Sub. Nt. Ser. B 8.625% due 12/15/2007 B2/B+ 668,500 Pride Int'l., Inc. 420,000 Sr. Nt. 9.375% due 5/1/2007 Ba2/BB 438,900 280,000 Sr. Nt. 10.00% due 6/1/2009 Ba2/BB 302,400 Tesoro Petroleum Corp. 420,000 Sr. Sub. Nt. 9.625% due 4/1/2012 B3/B 273,000 Western Oil Sands, Inc. 560,000 Sr. Sec. Nt. 8.375% due 5/1/2012 Ba2/BB+ 557,200 Westport Resources Corp. 285,000 Sr. Sub. Nt. 8.25% due 11/1/2011 Ba3/B+ 299,250 135,000 Sr. Sub. Nt.+ 8.25% due 11/1/2011 Ba3/B+ 141,750 ----------- 3,498,982 - ---------------------------------------------------------------------------- ENTERTAINMENT -- 3.1% Intrawest Corp. 670,000 Sr. Nt. 9.75% due 8/15/2008 B1/B+ 683,400 185,000 Sr. Nt. 10.50% due 2/1/2010 B1/B+ 194,250 Premier Parks, Inc. 937,000 Sr. Nt. 9.75% due 6/15/2007 B2/B 908,890 ----------- 1,786,540 - ---------------------------------------------------------------------------- ENVIRONMENTAL -- 2.8% Allied Waste NA, Inc. 286,000 Sr. Nt. 7.625% due 1/1/2006 Ba3/BB- 284,570 1,034,000 Sr. Sub. Nt. 10.00% due 8/1/2009 B2/B+ 1,026,245 Waste Management, Inc. 280,000 Sr. Nt. 7.375% due 8/1/2010 Ba1/BBB 306,359 ----------- 1,617,174 - ---------------------------------------------------------------------------- FOOD AND BEVERAGE -- 4.6% American Seafood Group LLC 560,000 Sr. Sub. Nt. 10.125% due 4/15/2010 B3/B 571,200
- ---------------------------------------------------------------------------- Rating Principal Moody's/ Amount S&P* Value - ---------------------------------------------------------------------------- Constellation Brands, Inc. $ 95,000 Sr. Sub. Nt. 8.625% due 8/1/2006 Ba2/BB $ 100,700 190,000 Sr. Sub. Nt. 8.50% due 3/1/2009 Ba3/B+ 199,025 71,000 Sr. Sub. Nt. 8.125% due 1/15/2012 Ba3/B+ 73,485 Del Monte Corp. 635,000 Sr. Sub. Nt. 9.25% due 5/15/2011 B3/B 661,194 Michael Foods, Inc. 750,000 Sr. Sub. Nt. Ser. B 11.75% due 4/1/2011 B2/B- 840,000 Premium Standard Farms, Inc. 280,000 Sr. Nt. 9.25% due 6/15/2011 B1/BB 229,600 ----------- 2,675,204 - ---------------------------------------------------------------------------- GAMING -- 5.0% Hollywood Casino Corp. 1,000,000 Sr. Nt. 11.25% due 5/1/2007 B3/B 1,080,000 Mandalay Resort Group 280,000 Sr. Sub. Nt. Ser. B 10.25% due 8/1/2007 Ba3/BB- 307,300 Park Place Entertainment Corp. 286,000 Sr. Nt. 7.50% due 9/1/2009 Ba1/BBB- 294,136 Sun Int'l. Hotels Ltd. 285,000 Sr. Sub. Nt. 8.875% due 8/15/2011 B2/B+ 290,700 Waterford Gaming LLC 864,000 Sr. Nt.+ 9.50% due 3/15/2010 B1/B+ 894,240 ----------- 2,866,376 - ---------------------------------------------------------------------------- GAS DISTRIBUTORS -- 0.7% AmeriGas Partners LP 190,000 Sr. Nt. 10.00% due 4/15/2006 Ba3/BB+ 200,450 190,000 Sr. Nt. 8.875% due 5/20/2011 Ba3/BB- 197,600 ----------- 398,050 - ---------------------------------------------------------------------------- HEALTH CARE -- 6.2% Fisher Scientific Int'l., Inc. 1,000,000 Sr. Sub. Nt. 9.00% due 2/1/2008 B3/B 1,042,500 Fresenius Medical Care 570,000 Capital Tr. 7.875% due 6/15/2011 Ba2/BB- 552,900 HCA-The Healthcare Corp. 280,000 Nt. 8.75% due 9/1/2010 Ba1/BBB- 322,251 Insight Health Svcs. Corp. 381,000 Sr. Sub. Nt. Ser. B 9.875% due 11/1/2011 B3/B- 365,760 PerkinElmer, Inc. 560,000 Sr. Sub. Nt.+ 8.875% due 1/15/2013 Ba3/BB- 551,600 Triad Hospitals, Inc. 725,000 Sr. Nt. Ser. B 8.75% due 5/1/2009 B1/B- 776,656 ----------- 3,611,667 - ----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 45 THE GUARDIAN HIGH YIELD BOND FUND Schedule of Investments (Continued)
- ---------------------------------------------------------------------------- Rating Principal Moody's/ Amount S&P* Value - ---------------------------------------------------------------------------- HOME CONSTRUCTION -- 2.9% Beazer Homes USA, Inc. $ 280,000 Sr. Nt. 8.375% due 4/15/2012 Ba2/BB $ 288,400 Meritage Corp. 286,000 Sr. Nt. 9.75% due 6/1/2011 Ba3/B 298,870 Schuler Homes, Inc. 560,000 Sr. Nt. 9.00% due 4/15/2008 Ba1/BB 568,400 Standard Pacific Corp. 280,000 Sr. Sub. Nt. 9.25% due 4/15/2012 Ba3/B+ 270,200 WCI Communities, Inc. 280,000 Sr. Sub. Nt. 9.125% due 5/1/2012 Ba3/B 252,000 ----------- 1,677,870 - ---------------------------------------------------------------------------- INDUSTRIAL-OTHER -- 1.2% Briggs & Stratton Corp. 645,000 Sr. Nt. 8.875% due 3/15/2011 Ba1/BB+ 694,988 - ---------------------------------------------------------------------------- LODGING -- 1.9% Hilton Hotels Corp. 280,000 Nt. 7.625% due 12/1/2012 Ba1/BBB- 282,759 HMH Pptys., Inc. 280,000 Sr. Nt. Ser. C 8.45% due 12/1/2008 Ba3/BB- 276,500 John Q. Hammons Hotels LP 280,000 1st Mtg. Nt. Ser. B 8.875% due 5/15/2012 B2/B 281,400 Starwood Hotels & Resorts 280,000 Nt.+ 7.875% due 5/1/2012 Ba1/BBB- 277,200 ----------- 1,117,859 - ---------------------------------------------------------------------------- MEDIA-CABLE -- 2.2% Charter Comm. Hldgs. 280,000 Sr. Disc. Nt. 0/11.75% due 1/15/2010(1) B2/B+ 82,600 840,000 Sr. Disc. Nt. 0/11.75% due 5/15/2011(1) B3/CCC+ 210,000 CSC Hldgs., Inc. 420,000 Sr. Nt. 7.625% due 4/1/2011 B1/BB- 394,275 Insight Midwest LP 572,000 Sr. Nt. 10.50% due 11/1/2010 B2/B+ 556,270 ----------- 1,243,145 - ---------------------------------------------------------------------------- MEDIA-NONCABLE -- 7.2% Allbritton Comm. Co. 286,000 Sr. Sub. Nt. Ser. B 8.875% due 2/1/2008 B3/B- 295,653 American Media Operations, Inc. 570,000 Sr. Sub. Nt. Ser. B 10.25% due 5/1/2009 B2/B- 589,950 Clear Channel Comm. 382,000 Sr. Sub. Nt. Ser. B 8.125% due 12/15/2007 Ba2/BB+ 397,757 Corus Entertainment, Inc. 285,000 Sr. Sub. Nt. 8.75% due 3/1/2012 B1/B+ 301,744
- ---------------------------------------------------------------------------- Rating Principal Moody's/ Amount S&P* Value - ---------------------------------------------------------------------------- Echostar DBS Corp. $ 286,000 Sr. Nt. 9.25% due 2/1/2006 B1/B+ $ 299,585 Emmis Comm. Corp. 286,000 Sr. Sub. Nt 8.125% due 3/15/2009 B2/B- 296,010 Entravision Comm. Corp. 280,000 Sr. Sub. Nt. 8.125% due 3/15/2009 B3/B- 291,200 Lamar Media Corp. 280,000 Sr. Sub. Nt. 8.625% due 9/15/2007 Ba3/B 292,600 R.H. Donnelley Fin. Corp. I 160,000 Sr. Nt.+ 8.875% due 12/15/2010 B1/B+ 171,200 1,110,000 Sr. Sub. Nt.+ 10.875% due 12/15/2012 B2/B+ 1,209,900 ----------- 4,145,599 - ---------------------------------------------------------------------------- METALS AND MINING -- 1.6% AK Steel Corp. 280,000 Sr. Nt.+ 7.75% due 6/15/2012 B1/BB 282,100 Luscar Coal Ltd. 286,000 Sr. Nt. 9.75% due 10/15/2011 Ba3/BB 306,377 Oregon Steel Mills, Inc. 280,000 1st Mtg. Nt.+ 10.00% due 7/15/2009 B1/BB- 284,200 Steel Dynamics, Inc. 70,000 Sr. Nt. 9.50% due 3/15/2009 B2/B 73,325 ----------- 946,002 - ---------------------------------------------------------------------------- PACKAGING -- 3.0% Ball Corp. 560,000 Sr. Nt.+ 6.875% due 12/15/2012 Ba3/BB 562,800 Graphic Packaging Corp. 285,000 Nt. 8.625% due 2/15/2012 B2/B+ 299,962 Kappa Beheer BV 670,000 Sr. Sub. Nt. 10.625% due 7/15/2009 B2/B 716,900 Silgan Hldgs., Inc. 140,000 Sr. Sub. Debt. 9.00% due 6/1/2009 B1/B 145,950 ----------- 1,725,612 - ---------------------------------------------------------------------------- PAPER AND FOREST PRODUCTS -- 2.6% Norske Skog Canada Ltd. 140,000 Sr. Nt. 8.625% due 6/15/2011 Ba2/BB+ 141,050 Packaging Corp. of America 335,000 Sr. Sub. Nt. 9.625% due 4/1/2009 Ba2/BB+ 359,287 Stone Container Corp. 670,000 Sr. Nt. 9.75% due 2/1/2011 B2/B 716,900 Tembec Industries, Inc. 280,000 Sr. Nt. 8.50% due 2/1/2011 Ba1/BB+ 282,100 ----------- 1,499,337 - ----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 46 THE GUARDIAN HIGH YIELD BOND FUND Schedule of Investments (Continued)
- ---------------------------------------------------------------------------- Rating Principal Moody's/ Amount S&P* Value - ---------------------------------------------------------------------------- RESTAURANTS -- 1.7% Jack in the Box, Inc. $ 725,000 Sr. Sub. Nt. 8.375% due 4/15/2008 Ba3/BB- $ 734,969 Sbarro, Inc. 285,000 Sr. Nt. 11.00% due 9/15/2009 B2/B+ 265,050 ----------- 1,000,019 - ---------------------------------------------------------------------------- RETAILERS -- 3.7% Asbury Automotive Group 140,000 Sr. Sub. Nt. 9.00% due 6/15/2012 B3/B 121,800 Cole National Group, Inc. 280,000 Sr. Sub. Nt. 8.875% due 5/15/2012 B2/B 263,200 Hollywood Entertainment Corp. 420,000 Sr. Sub. Nt. 9.625% due 3/15/2011 B3/B- 428,400 J.C. Penney Co., Inc. 580,000 Nt.+ 9.00% due 8/1/2012 Ba3/BBB- 591,600 Petco Animal Supplies, Inc. 285,000 Sr. Sub. Nt. 10.75% due 11/1/2011 B2/B 313,856 Rent-A-Center, Inc. 142,000 Sr. Sub. Nt. Ser. D 11.00% due 8/15/2008 B1/B+ 152,828 United Auto Group, Inc. 280,000 Sr. Sub. Nt.+ 9.625% due 3/15/2012 B3/B 271,600 ----------- 2,143,284 - ---------------------------------------------------------------------------- SUPERMARKETS -- 0.5% Pathmark Stores, Inc. 284,000 Sr. Sub. Nt. 8.75% due 2/1/2012 B2/B 261,280 - ---------------------------------------------------------------------------- TECHNOLOGY -- 2.8% Flextronics Int'l. Ltd. 700,000 Sr. Sub. Nt. 9.875% due 7/1/2010 Ba2/BB- 754,250 Seagate Tech. 560,000 Sr. Nt.+ 8.00% due 5/15/2009 Ba2/BB+ 579,600 Solectron Corp. 280,000 Sr. Nt. 9.625% due 2/15/2009 Ba3/BB 273,000 ----------- 1,606,850 - ---------------------------------------------------------------------------- TEXTILE -- 1.3% Russell Corp. 35,000 Sr. Nt. 9.25% due 5/1/2010 B1/BB 37,450 William Carter Co. 650,000 Sr. Sub. Nt. Ser. B 10.875% due 8/15/2011 B3/B 708,500 ----------- 745,950 - ---------------------------------------------------------------------------- TRANSPORTATION -- 0.5% Teekay Shipping Corp. 280,000 Sr. Nt. 8.875% due 7/15/2011 Ba2/BB- 287,350 - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- Rating Principal Moody's/ Amount S&P* Value - ---------------------------------------------------------------------------- WIRELESS COMMUNICATIONS -- 4.0% Crown Castle Int'l. Corp. $ 381,000 Sr. Nt. 10.75% due 8/1/2011 B3/B $ 333,375 Nextel Comm., Inc. 560,000 Sr. Disc. Nt. 9.75% due 10/31/2007 B3/B 518,000 Telecorp PCS, Inc. 186,000 Sr. Sub. Disc. Nt. 0/11.625% due 4/15/2009(1) Baa2/BBB 175,305 555,000 Sr. Sub. Nt. 10.625% due 7/15/2010 Baa2/BBB 596,625 Triton PCS, Inc. 420,000 Sr. Sub. Disc. Nt. 0/11.00% due 5/1/2008(1) B3/B- 349,650 420,000 Sr. Sub. Nt. 8.75% due 11/15/2011 B3/B- 340,200 ----------- 2,313,155 - ---------------------------------------------------------------------------- WIRELINE COMMUNICATIONS -- 3.3% Qwest Corp. 1,260,000 Debt. 7.20% due 11/10/2026 Ba3/B+ 982,800 Qwest Services Corp. 355,600 Nt.+ 13.50% due 12/15/2010 NR/CCC+ 369,824 Sprint Capital Corp. 560,000 Nt. 8.375% due 3/15/2012 Baa3/BBB- 557,200 ----------- 1,909,824 - ---------------------------------------------------------------------------- TOTAL CORPORATE BONDS (COST $53,463,072) 53,803,633 - ---------------------------------------------------------------------------- SOVEREIGN DEBT -- 1.1% United Mexican States $ 572,000 Nt. 8.375% due 1/14/2011 Baa2/BBB- (COST $580,966) $ 646,360 - ---------------------------------------------------------------------------- WARRANTS -- 0.0% Shares Value - ---------------------------------------------------------------------------- 2,100 GT Group Telecomm., Inc. $ 1,050 exp. 2/1/2010+ 670 Horizon PCS, Inc. 34 exp. 10/1/2010+ 1,000 Leap Wireless Int'l., Inc. 250 exp. 4/15/2010+ 670 Leap Wireless Int'l., Inc. 167 exp. 4/15/2010+ 460 Ubiquitel Operating Co. 115 exp. 4/15/2010+ 330 XM Satellite Radio, Inc. 165 exp. 3/15/2010+ - ---------------------------------------------------------------------------- TOTAL WARRANTS (COST $71,835) 1,781 - ----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 47 THE GUARDIAN HIGH YIELD BOND FUND Schedule of Investments (Continued)
REPURCHASE AGREEMENT -- 3.8% Principal Amount Value - ---------------------------------------------------------------------------- $2,216,000 State Street Bank and Trust Co. repurchase agreement, dated 12/31/2002, maturity value $2,216,142 at 1.15% due 1/2/2003 (2) (COST $2,216,000) $ 2,216,000 - ---------------------------------------------------------------------------- TOTAL INVESTMENTS -- 97.9% (COST $56,331,873) 56,667,774 CASH, RECEIVABLES AND OTHER ASSETS LESS LIABILITIES -- 2.1% 1,215,732 - ---------------------------------------------------------------------------- NET ASSETS -- 100% $57,883,506 - ----------------------------------------------------------------------------
* Unaudited. (1) Step-up bond. (2) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. + Rule 144A restricted security. ++ Non-income producing, security in default. - -------------------------------------------------------------------------------- See notes to financial statements. 48 / / The Guardian Tax-Exempt Fund
MUNICIPAL BONDS -- 95.9% Rating Principal Moody's/ Amount S&P* Value - ------------------------------------------------------------------------ ARIZONA -- 4.7% $ 2,000,000 Arizona Sch. Facs. Brd. Rev. St. Sch. Impt., 5.25% due 7/1/2020 Aaa/AAA $ 2,145,100 1,900,000 Arizona St. Trans. Brd. Hwy. Rev. Ser. B, 5.25% due 7/1/2022 Aa1/AAA 2,003,037 500,000 Arizona St. Trans. Brd. Hwy. Rev., 5.75% due 7/1/2019 (2) Aa1/AAA 584,670 1,000,000 Phoenix, AZ G.O. Ser. B, 5.375% due 7/1/2020 Aa1/AA+ 1,074,940 ------------ 5,807,747 - ------------------------------------------------------------------------ ARKANSAS -- 0.9% 1,000,000 Arkansas St. G.O. Fed. Hwy. Grant Ser. A, 5.50% due 8/1/2011 Aa2/AA 1,123,930 - ------------------------------------------------------------------------ CALIFORNIA -- 2.5% 1,500,000 California St. G.O., 5.375% due 10/1/2027 A1/A 1,533,675 1,500,000 California St. G.O., 5.125% due 6/1/2022 A1/A 1,509,600 ------------ 3,043,275 - ------------------------------------------------------------------------ COLORADO -- 4.9% 1,920,000 Denver, CO City & Cnty. Wastewtr. Rev., 5.25% due 11/1/2018 Aaa/AAA 2,082,336 2,165,000 South Suburban Park & Rec. Dist., CO Rev., 5.50% due 9/15/2019 Aaa/AAA 2,340,841 1,500,000 Weld Cnty., CO Sch. Dist. G.O., 5.25% due 12/1/2018 Aaa/AAA 1,627,740 ------------ 6,050,917 - ------------------------------------------------------------------------ CONNECTICUT -- 1.2% 1,350,000 Connecticut St. Special Tax Oblig. Trans. Infra. Ser. A, 5.375% due 10/1/2018 Aaa/AAA 1,466,964 - ------------------------------------------------------------------------ FLORIDA -- 3.1% 2,000,000 Florida St. Brd. of Ed. Lottery Rev. Ser. A, 5.50% due 7/1/2017 Aaa/AAA 2,211,380 1,500,000 Florida St. Brd. of Ed. Lottery Rev. Ser. C, 5.25% due 7/1/2016 Aaa/AAA 1,633,440 ------------ 3,844,820 - ------------------------------------------------------------------------ GEORGIA -- 7.5% 1,000,000 Atlanta, GA Wtr. & Wastewtr. Rev., 5.50% due 11/1/2022 Aaa/AAA 1,130,160 2,340,000 Augusta, GA Wtr. & Swr. Rev., 5.25% due 10/1/2022 Aaa/AAA 2,467,507 1,550,000 Cherokee Cnty., GA Sch. Sys. G.O., 5.25% due 8/1/2017 Aa2/AA 1,678,092 1,000,000 Fulton Cnty., GA Dev. Auth. Rev. Georgia Tech. Foundation Ser. A, 5.125% due 11/1/2021 Aa1/AA+ 1,043,540
- ------------------------------------------------------------------------ Rating Principal Moody's/ Amount S&P* Value - ------------------------------------------------------------------------ $ 700,000 Gainesville, GA Wtr. & Swg. Rev., 5.25% due 11/15/2018 Aaa/AAA $ 754,404 2,000,000 Gainesville, GA Wtr. & Swg. Rev., 5.375% due 11/15/2020 Aaa/AAA 2,156,880 ------------ 9,230,583 - ------------------------------------------------------------------------ IDAHO -- 3.2% 1,625,000 Boise City, ID Urban Renewal Agy. Lease, 6.00% due 8/15/2023 Aaa/AAA 1,831,586 2,000,000 Univ. of ID Univ. Rev. Hsg., 5.375% due 4/1/2023 Aaa/AAA 2,107,920 ------------ 3,939,506 - ------------------------------------------------------------------------ ILLINOIS -- 0.9% 1,000,000 Chicago, IL Brd. of Ed. Ser. A, 5.25% due 12/1/2018 Aaa/AAA 1,077,590 - ------------------------------------------------------------------------ IOWA -- 0.9% 1,000,000 Cedar Rapids, IA G.O., 5.25% due 6/1/2019 Aaa/NR 1,056,070 - ------------------------------------------------------------------------ KANSAS -- 4.3% 2,000,000 Butler Cnty., KS Pub. Bldg. Comm. Rev., 5.55% due 10/1/2021 Aaa/NR 2,158,800 1,280,000 Kansas St. Dept. Trans. Hwy. Rev., 5.25% due 9/1/2013 (2) Aa2/AAA 1,463,258 1,500,000 Kansas St. Dept. Trans. Hwy. Rev. Ser. A, 5.75% due 9/1/2013 Aa2/AA+ 1,716,135 ------------ 5,338,193 - ------------------------------------------------------------------------ KENTUCKY -- 4.3% 1,500,000 Kentucky Infra. Wtr. Svcs. Auth., 5.25% due 6/1/2017 Aa3/AA- 1,623,735 2,000,000 Kentucky St. Ppty. & Bldgs. Comm. Rev., 5.375% due 10/1/2019 Aaa/AAA 2,161,120 1,430,000 Kentucky St. Ppty. & Bldgs. Comm. Ser. A, 5.70% due 5/1/2018 Aaa/AAA 1,593,406 ------------ 5,378,261 - ------------------------------------------------------------------------ MARYLAND -- 3.2% 1,470,000 Anne Arundel Cnty., MD, 5.25% due 3/1/2018 Aa1/AA+ 1,588,526 2,085,000 Prince Georges Cnty., MD Ref., 5.50% due 5/15/2011 Aaa/AAA 2,394,602 ------------ 3,983,128 - ------------------------------------------------------------------------ MASSACHUSETTS -- 2.4% 1,000,000 Massachusetts Bay Trans. Auth. Gen. Trans. Ser. B Rev., 5.375% due 3/1/2025 Aaa/AAA 1,037,220 1,750,000 Massachusetts St. G.O., 5.25% due 11/1/2019 Aaa/AAA 1,870,855 ------------ 2,908,075 - ------------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 49 THE GUARDIAN TAX-EXEMPT FUND Schedule of Investments (Continued)
- ------------------------------------------------------------------------ Rating Principal Moody's/ Amount S&P* Value - ------------------------------------------------------------------------ MICHIGAN -- 3.6% $ 2,000,000 Detroit, MI City Sch. Dist. Ser. A, 5.50% due 5/1/2020 Aaa/AAA $ 2,172,960 1,000,000 Garden City, MI Sch. Dist., 5.50% due 5/1/2018 Aaa/AAA 1,086,030 1,000,000 Holt, MI Pub. Sch. Ser. A, 5.75% due 5/1/2017 Aaa/AAA 1,168,730 ------------ 4,427,720 - ------------------------------------------------------------------------ MINNESOTA -- 0.8% 1,000,000 Minneapolis, MN G.O., 5.00% due 12/1/2022 Aa1/AAA 1,025,080 - ------------------------------------------------------------------------ MISSOURI -- 2.2% 2,500,000 Cass Cnty., MO Reorg. Sch. Dist., 5.25% due 3/1/2020 Aaa/AAA 2,666,300 - ------------------------------------------------------------------------ NEW JERSEY -- 1.8% 500,000 New Jersey St. Trans. Auth. Ser. A, 6.50% due 6/15/2005 Aaa/AAA 558,685 1,500,000 New Jersey St. Ref. Ser. H G.O., 5.25% due 7/1/2016 Aa2/AA 1,698,990 ------------ 2,257,675 - ------------------------------------------------------------------------ NEW MEXICO -- 0.9% 1,000,000 New Mexico St. Hwy. Comm. Tax Rev., 6.00% due 6/15/2010 Aa2/AA+ 1,167,500 - ------------------------------------------------------------------------ NEW YORK -- 9.2% 2,000,000 Metro. Trans. Auth. New York Svc. Contract Ref. Ser. A, 5.125% due 1/1/2024 A3/AA- 2,044,460 1,000,000 New York St. Ref. Ser. A G.O., 5.25% due 3/15/2015 A2/AA 1,093,750 1,500,000 New York St. Dorm. Auth. Lease Ser. A, 6.25% due 7/1/2020 A1/A+ 1,740,300 1,000,000 New York St. Local Gov't. Assist. Corp. Ref. Ser. C Rev., 5.50% due 4/1/2017 A1/AA- 1,147,450 1,250,000 New York St. Thruway Auth. Hwy. & Brdg. Tr. Fd. Ser. B, 5.375% due 4/1/2015 Aaa/AAA 1,392,800 1,500,000 New York St. Thruway Auth. Svc. Contract Rev., 5.25% due 4/1/2020 NR/AA- 1,573,440 500,000 New York, NY G.O. Sub. Ser. B2, 1.60% due 8/15/2019 (1) VMIG1/A-1+ 500,000 500,000 New York, NY G.O. Sub. Ser. E2, 1.60% due 8/1/2020 (1) VMIG1/A-1+ 500,000 1,310,000 Taconic Hills, NY Central Sch. Dist. at Craryville Ref., 5.00% due 6/15/2019 Aaa/NR 1,375,316 ------------ 11,367,516 - ------------------------------------------------------------------------
- ------------------------------------------------------------------------ Rating Principal Moody's/ Amount S&P* Value - ------------------------------------------------------------------------ NORTH CAROLINA -- 0.5% $ 600,000 Univ. of NC Hosp. Chapel Hill Rev. Ser. A, 1.65% due 2/15/2031 (1) VMIG1/A-1+ $ 600,000 - ------------------------------------------------------------------------ NORTH DAKOTA -- 0.9% 1,000,000 North Dakota St. Wtr. Comm. Rev., 5.75% due 8/1/2020 Aaa/AAA 1,107,780 - ------------------------------------------------------------------------ OHIO -- 6.9% 500,000 Cleveland, OH Parking Facs. Rev., 5.50% due 9/15/2016 Aaa/AAA 550,090 1,500,000 Ohio St. Wtr. Dev. Auth. Rev., 5.50% due 12/1/2020 Aaa/AAA 1,650,210 750,000 Ohio St. Bldg. Auth. Disalle Gov't. Ctr. Ser. A, 6.00% due 10/1/2005 Aa2/AA 836,483 1,300,000 Ohio St. Higher Ed. Fac. Comm., 5.50% due 12/1/2020 Aaa/AAA 1,409,174 1,500,000 Ohio St. Wtr. Dev. Auth. Poll. Control, 5.25% due 6/1/2019 Aaa/AAA 1,615,215 1,235,000 River Valley, OH Local Sch. Dist. Facs., 5.25% due 11/1/2020 Aaa/NR 1,311,903 1,050,000 Univ. of Cincinnati, OH General Rcpts. Ser. A, 5.50% due 6/1/2011 Aaa/AAA 1,203,342 ------------ 8,576,417 - ------------------------------------------------------------------------ OREGON -- 5.0% 1,690,000 Lane & Douglas Cntys., OR Sch. Dist. G.O., 6.00% due 6/15/2019 (2) NR/AA 2,007,263 1,530,000 Lane Cnty., OR Sch. Dist. G.O., 5.625% due 6/15/2020 (2) Aa2/NR 1,779,436 1,105,000 McMinnville, OR Sch. Dist. Ref. G.O., 5.50% due 6/15/2016 Aaa/NR 1,279,767 1,000,000 Washington & Clackamas Cntys., OR Sch. Dist. G.O. Ref., 5.25% due 6/1/2016 Aaa/NR 1,132,010 ------------ 6,198,476 - ------------------------------------------------------------------------ PENNSYLVANIA -- 1.8% 1,000,000 Delaware River Port Auth. PA & NJ, 5.10% due 1/1/2020 Aaa/AAA 1,061,400 1,000,000 Delaware River Port Auth. PA & NJ, 6.00% due 1/1/2017 Aaa/AAA 1,141,770 ------------ 2,203,170 - ------------------------------------------------------------------------
- -------------------------------------------------------------------------------- See notes to financial statements. 50 THE GUARDIAN TAX-EXEMPT FUND Schedule of Investments (Continued)
- ------------------------------------------------------------------------ Rating Principal Moody's/ Amount S&P* Value - ------------------------------------------------------------------------ PUERTO RICO -- 3.5% $ 2,500,000 Puerto Rico Comwlth. Hwy. & Trans. Auth. Rev. Ser. B, 6.00% due 7/1/2026 Aaa/AAA $ 2,744,600 1,000,000 Puerto Rico Elect. Power Auth. Ser. HH Rev., 5.375% due 7/1/2030 Aaa/AAA 1,041,770 500,000 Puerto Rico Pub. Bldgs. Auth. Rev. Gov. Facs. Ser. D, 5.125% due 7/1/2024 Baa1/A- 505,050 ------------ 4,291,420 - ------------------------------------------------------------------------ SOUTH CAROLINA -- 5.2% 350,000 Charleston Cnty., SC Sch. Dist. Ref. Ser. B, 5.00% due 2/1/2016 Aa1/AA+ 374,196 1,250,000 Charleston, SC Wtrwks. & Swr. Rev., 5.25% due 1/1/2018 Aa3/AA- 1,353,425 1,000,000 Mount Pleasant, SC Wtr. & Swr. Rev. Ref. & Impt., 5.25% due 12/1/2019 Aaa/AAA 1,075,910 1,870,000 Richland Cnty., SC Sch. Dist. Ser. A, 5.00% due 3/1/2014 Aa1/AA+ 2,032,970 1,500,000 South Carolina St. G.O., 5.65% due 7/1/2020 Aaa/AAA 1,628,445 ------------ 6,464,946 - ------------------------------------------------------------------------ TENNESSEE -- 4.7% 1,000,000 Knox Cnty., TN Pub. Impt. G.O., 5.375% due 5/1/2020 Aa2/AA 1,063,940 1,165,000 Knoxville, TN Elec. Rev., 5.00% due 7/1/2014 Aa3/AA 1,245,164 2,000,000 Memphis, TN G.O., 5.25% due 11/1/2022 Aa2/AA 2,098,460
- ------------------------------------------------------------------------ Rating Principal Moody's/ Amount S&P* Value - ------------------------------------------------------------------------ $ 1,340,000 Metro. Gov't. Nashville Davidson Cnty., TN Ser. A, 5.25% due 10/1/2022 Aaa/AAA $ 1,409,787 ------------ 5,817,351 - ------------------------------------------------------------------------ VIRGINIA -- 2.5% 1,370,000 Fairfax Cnty., VA Wtr. Auth. Rev. Ref., 5.375% due 4/1/2020 Aa1/AAA 1,484,450 1,500,000 Virginia St. Pub. Sch. Auth. Ser. A Rev., 5.50% due 8/1/2018 Aa1/AA+ 1,638,270 ------------ 3,122,720 - ------------------------------------------------------------------------ WASHINGTON -- 2.4% 1,500,000 Cowlitz Cnty., WA Sch. Dist. G.O., 5.50% due 12/1/2019 Aaa/NR 1,626,135 1,250,000 Snohomish Cnty., WA G.O., 5.375% due 12/1/2019 Aaa/AAA 1,338,925 ------------ 2,965,060 - ------------------------------------------------------------------------ TOTAL MUNICIPAL BONDS (COST $111,879,310) 118,508,190 - ------------------------------------------------------------------------ TOTAL INVESTMENTS -- 95.9% (COST $111,879,310) 118,508,190 CASH, RECEIVABLES AND OTHER ASSETS LESS LIABILITIES -- 4.1% 5,084,604 - ------------------------------------------------------------------------ NET ASSETS -- 100% $123,592,794 - ------------------------------------------------------------------------
(1) Variable rate demand notes. (2) Pre-refunded. * Unaudited. GLOSSARY: G.O. -- General Obligation. - -------------------------------------------------------------------------------- See notes to financial statements. 51 / / The Guardian Cash Management Fund
ASSET BACKED -- 0.3% Principal Maturity Amount Date Value - ------------------------------------------------------------------- $ 1,800,000 MMCA Auto Owner Tr. 2002-5 A1 1.41% 12/15/2003 (COST $1,800,000) $ 1,800,000 - ------------------------------------------------------------------- CORPORATE BONDS -- 8.6% FINANCIAL-BANKS -- 1.2% $ 5,183,000 Bank of New York, Inc. 6.625% 6/15/2003 $ 5,294,091 750,000 Wachovia Corp. 6.375% 4/15/2003 759,877 2,500,000 Wells Fargo & Co. 4.25% 8/15/2003 2,535,380 ------------ 8,589,348 - ------------------------------------------------------------------- FINANCIAL-OTHER -- 5.4% 7,000,000 Bear Stearns Cos., Inc. 6.20% 3/30/2003 7,073,729 3,000,000 Countrywide Funding Corp. 5.25% 5/22/2003 3,033,530 5,000,000 Goldman Sachs Group LP+ 6.25% 2/1/2003 5,015,996 8,000,000 Goldman Sachs Group LP+ 5.90% 1/15/2003 8,010,666 12,000,000 Lehman Brothers Hldgs., Inc. 6.25% 4/1/2003 12,120,264 2,000,000 Lehman Brothers Hldgs., Inc. 7.25% 4/15/2003 2,025,727 200,000 Pitney Bowes Credit Corp. 5.65% 1/15/2003 200,287 ------------ 37,480,199 - ------------------------------------------------------------------- MERCHANDISING-MASS -- 0.7% 4,000,000 Wal-Mart Stores, Inc. 4.625% 4/15/2003 4,034,094 1,000,000 Wal-Mart Stores, Inc. 4.375% 8/1/2003 1,014,762 ------------ 5,048,856 - ------------------------------------------------------------------- TELECOMMUNICATIONS -- 0.2% 1,000,000 BellSouth Telecomm. 6.25% 5/15/2003 1,016,492 - ------------------------------------------------------------------- UTILITIES-ELECTRIC AND WATER -- 1.1% 2,000,000 Alabama Power Co. 7.85% 5/15/2003 2,043,232 3,150,000 Gulf Power Co. 4.69% 8/1/2003 3,206,186 2,330,000 Virginia Electric & Power Co. 6.625% 4/1/2003 2,353,040 ------------ 7,602,458 - ------------------------------------------------------------------- TOTAL CORPORATE BONDS (COST $59,737,353) 59,737,353 - ------------------------------------------------------------------- COMMERCIAL PAPER -- 65.3% FINANCIAL -- 25.9% AUTOMOTIVE -- 5.1% $ 5,000,000 American Honda Fin. Corp. 1.75% 1/9/2003 $ 4,998,055 5,000,000 American Honda Fin. Corp. 1.73% 1/13/2003 4,997,117 8,000,000 American Honda Fin. Corp. 1.31% 3/6/2003 7,981,369 10,000,000 Toyota Motor Credit Corp. 1.32% 1/30/2003 9,989,367
- ------------------------------------------------------------------- Principal Maturity Amount Date Value - ------------------------------------------------------------------- $ 7,500,000 Toyota Motor Credit Corp. 1.30% 2/11/2003 $ 7,488,896 ------------ 35,454,804 - ------------------------------------------------------------------- FINANCE COMPANIES -- 5.6% 5,000,000 Private Export Funding Corp. 1.70% 1/23/2003 4,994,806 2,500,000 Private Export Funding Corp. 1.32% 4/2/2003 2,491,658 2,500,000 Private Export Funding Corp. 1.31% 6/10/2003 2,485,445 5,000,000 Private Export Funding Corp. 1.69% 1/31/2003 4,992,958 5,000,000 Private Export Funding Corp. 1.63% 2/5/2003 4,992,076 7,500,000 Siemens Capital Corp. 1.28% 1/28/2003 7,492,800 11,190,000 Southern Co. Funding Corp. 1.32% 2/10/2003 11,173,588 ------------ 38,623,331 - ------------------------------------------------------------------- FINANCIAL-BANKS -- 13.7% 15,000,000 Abbey Nat'l. LLC 1.72% 1/17/2003 14,988,533 5,000,000 Abbey Nat'l. LLC 1.31% 2/13/2003 4,992,177 15,000,000 Barclays Bank PLC 1.32% 3/11/2003 14,962,050 5,000,000 Commonwealth Bank Australia 1.75% 1/28/2003 4,993,437 10,000,000 Dexia Delaware LLC 1.32% 1/27/2003 9,990,466 7,500,000 Dexia Delaware LLC 1.48% 2/4/2003 7,489,517 8,000,000 Dresdner Bank AG 1.55% 2/4/2003 7,988,289 10,000,000 Societe Generale NA 1.325% 2/7/2003 9,986,382 10,000,000 Societe Generale NA 1.56% 1/2/2003 9,999,567 10,000,000 UBS Finance, Inc. 1.31% 2/10/2003 9,985,444 ------------ 95,375,862 - ------------------------------------------------------------------- FINANCIAL-OTHER -- 1.5% 10,000,000 American General Fin. Corp. 1.75% 1/14/2003 9,993,681 - ------------------------------------------------------------------- TOTAL FINANCIAL 179,447,678 - ------------------------------------------------------------------- INDUSTRIAL -- 39.4% AIRLINES -- 2.9% $10,000,000 Executive Jet, Inc. 1.32% 2/14/2003 $ 9,983,867 10,000,000 Executive Jet, Inc. 1.32% 2/24/2003 9,980,200 ------------ 19,964,067 - ------------------------------------------------------------------- COSMETICS AND TOILETRIES -- 0.9% 6,500,000 Kimberly-Clark Worldwide 1.31% 2/14/2003 6,489,593 - ------------------------------------------------------------------- DRUGS AND HOSPITALS -- 7.9% 7,500,000 Bayer Corp. 1.28% 1/16/2003 7,496,000 7,500,000 Bayer Corp. 1.30% 1/16/2003 7,495,938 6,566,000 Becton Dickinson & Co. 1.67% 1/6/2003 6,564,477
- -------------------------------------------------------------------------------- See notes to financial statements. 52 THE GUARDIAN CASH MANAGEMENT FUND Schedule of Investments (Continued)
- ------------------------------------------------------------------- Principal Maturity Amount Date Value - ------------------------------------------------------------------- $ 5,000,000 Becton Dickinson & Co. 1.72% 1/22/2003 $ 4,994,983 5,000,000 Becton Dickinson & Co. 1.25% 1/28/2003 4,995,313 8,000,000 Medtronic, Inc. 1.62% 1/17/2003 7,994,240 4,415,000 Pfizer, Inc. 1.30% 1/28/2003 4,410,695 11,000,000 Pfizer, Inc. 1.29% 2/12/2003 10,983,445 ------------ 54,935,091 - ------------------------------------------------------------------- EDUCATION -- 9.4% 10,000,000 Columbia University 1.73% 1/28/2003 9,987,025 4,000,000 Massachusetts Coll. of Pharmacy 1.70% 1/9/2003 3,998,489 5,000,000 Massachusetts Coll. of Pharmacy 1.33% 2/20/2003 4,990,764 9,000,000 Massachusetts Coll. of Pharmacy 1.34% 3/13/2003 8,976,215 5,000,000 Northwestern University 1.74% 1/7/2003 4,998,550 2,500,000 Northwestern University 1.75% 2/20/2003 2,493,924 5,000,000 Northwestern University 1.75% 2/25/2003 4,986,632 5,000,000 Northwestern University 1.29% 3/18/2003 4,986,383 5,000,000 University of California 1.27% 1/8/2003 4,998,765 10,000,000 University of California 1.73% 1/10/2003 9,995,675 5,000,000 University of California 1.31% 2/6/2003 4,993,450 ------------ 65,405,872 - ------------------------------------------------------------------- ELECTRONICS AND INSTRUMENTS -- 2.9% 5,000,000 Sharp Electronics 1.31% 1/17/2003 4,997,089 5,000,000 Sharp Electronics 1.32% 2/7/2003 4,993,217 10,000,000 Sharp Electronics 1.33% 2/28/2003 9,978,572 ------------ 19,968,878 - ------------------------------------------------------------------- FINANCE COMPANIES -- 1.4% 10,000,000 Harley-Davidson Dealer Funding+ 1.31% 1/24/2003 9,991,630 - ------------------------------------------------------------------- FINANCIAL-OTHER -- 2.9% 10,000,000 Chevron UK Invt. PLC+ 1.74% 2/20/2003 9,975,833 10,000,000 Chevron UK Invt. PLC+ 1.76% 1/23/2003 9,989,245 ------------ 19,965,078 - ------------------------------------------------------------------- FOOD AND BEVERAGE -- 2.2% 5,000,000 Diageo Capital PLC 1.66% 1/28/2003 4,993,775 10,000,000 Nestle Capital Corp. 1.58% 1/28/2003 9,988,150 ------------ 14,981,925 - -------------------------------------------------------------------
- ------------------------------------------------------------------- Principal Maturity Amount Date Value - ------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 2.2% $ 250,000 Procter & Gamble Co. 5.25% 9/15/2003 $ 256,366 5,000,000 Procter & Gamble Co. 1.27% 1/14/2003 4,997,707 10,000,000 Procter & Gamble Co. 1.31% 2/7/2003 9,986,536 ------------ 15,240,609 - ------------------------------------------------------------------- METALS-MISCELLANEOUS -- 1.4% 10,000,000 Rio Tinto America, Inc. 1.32% 2/10/2003 9,985,333 - ------------------------------------------------------------------- PHARMACEUTICALS -- 1.7% 12,000,000 Johnson & Johnson 1.30% 4/9/2003 11,957,533 - ------------------------------------------------------------------- TELECOMMUNICATIONS -- 3.6% 10,000,000 SBC Int'l., Inc. 1.32% 1/16/2003 9,994,500 5,000,000 SBC Int'l., Inc. 1.31% 1/23/2003 4,995,997 10,000,000 Verizon Global Funding Corp. 1.32% 2/11/2003 9,984,967 ------------ 24,975,464 - ------------------------------------------------------------------- TOTAL INDUSTRIAL 273,861,073 - ------------------------------------------------------------------- TOTAL COMMERCIAL PAPER (COST $453,308,751) 453,308,751 - ------------------------------------------------------------------- FLOATING RATE NOTES AND BONDS -- 20.2% Principal Reset Amount Date Value - ------------------------------------------------------------------- MUNICIPAL BONDS -- 20.2% $ 2,825,000 Alaska St. Housing Fin. Corp. (a) 1.45% 1/2/2003 $ 2,825,000 13,590,000 California Housing Fin. Agency (a) 1.44% 1/2/2003 13,590,000 3,000,000 California St. (a) 1.46% 1/2/2003 3,000,000 8,250,000 Colorado Housing & Fin. Auth. (a) 1.45% 1/2/2003 8,250,000 10,000,000 Colorado Housing & Fin. Auth. (a) 2.185% 7/25/2003 10,000,000 11,000,000 Los Angeles, CA Wtr. & Power (a) 1.40% 1/2/2003 11,000,000 4,000,000 Michigan St. Housing Dev. Auth. (a) 1.45% 1/2/2003 4,000,000 22,530,000 New York City Transitional (a) 1.45% 1/2/2003 22,530,000 18,000,000 Sacramento Cnty., CA (a) 1.44% 1/2/2003 18,000,000 8,100,000 Sacramento Cnty., CA (a) 1.44% 1/2/2003 8,100,000 5,000,000 Utah Housing Corp. Single Family (a) 1.45% 1/2/2003 5,000,000 5,000,000 Utah Housing Corp. Single Family (a) 1.45% 1/2/2003 5,000,000
- -------------------------------------------------------------------------------- See notes to financial statements. 53 THE GUARDIAN CASH MANAGEMENT FUND Schedule of Investments (Continued)
- ------------------------------------------------------------------- Principal Reset Amount Date Value - ------------------------------------------------------------------- $ 1,700,000 Utah Housing Corp. Single Family (a) 1.45% 1/2/2003 $ 1,700,000 1,290,000 Utah Housing Corp. Single Family Mtg. (a) 1.45% 1/2/2003 1,290,000 3,755,000 Utah St. Housing Fin. Agency (a) 1.45% 1/2/2003 3,755,000 6,200,000 Utah St. Housing Fin. Agency (a) 1.43% 1/2/2003 6,200,000 16,435,000 Virginia St. Housing Dev. Auth. (a) 1.45% 1/2/2003 16,435,000 - ------------------------------------------------------------------- TOTAL FLOATING RATE NOTES AND BONDS (COST $140,675,000) 140,675,000 - ------------------------------------------------------------------- REPURCHASE AGREEMENT -- 5.7% Principal Amount Value - ------------------------------------------------------------------- $39,351,000 State Street Bank and Trust Co. repurchase agreement, dated 12/31/2002, maturity value $39,353,514 at 1.15% due 1/2/2003 (1) (COST $39,351,000) $ 39,351,000 - ------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.1% (COST $694,872,104) 694,872,104 LIABILITIES IN EXCESS OF CASH, RECEIVABLES AND OTHER ASSETS -- (0.1)% (397,333) - ------------------------------------------------------------------- NET ASSETS -- 100% $694,474,771 - -------------------------------------------------------------------
+ Rule 144A restricted security. (a) Floating rate note. The rate shown is the rate in effect at December 31, 2002. (1) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at the date of the portfolio. - -------------------------------------------------------------------------------- See notes to financial statements. 54 (This page intentionally left blank) 55 / / The Park Avenue Portfolio STATEMENTS OF ASSETS AND LIABILITIES December 31, 2002 - -------------------------------------------------------------------------------
THE GUARDIAN THE GUARDIAN THE GUARDIAN PARK AVENUE PARK AVENUE ASSET FUND SMALL CAP ALLOCATION FUND FUND -------------------------------------------- ASSETS Investments, at identified cost (includes controlled affiliated issue of $134,145,563 and non controlled affiliated issue of $24,067,071 for GAAF)............ $1,450,655,326 $143,007,506 $200,989,445 -------------------------------------------- -------------------------------------------- Investments, at market -- Note 1 (includes controlled affiliated issue of $93,418,803 and non controlled affiliated issue of $25,487,098 for GAAF)............ 1,302,868,583 142,548,678 152,581,950 Cash................................................... 805 573 841 Foreign Currency (cost $84,632 GBGIF and $446,829 GBGEMF, respectively)................................ -- -- -- Dividends receivable................................... 1,776,617 153,645 128,883 Receivable for securities sold......................... 861,179 -- -- Receivable for fund shares sold........................ 419,497 194,320 164,488 Interest receivable.................................... 1,018 197 99 Receivable for variation margin -- Note 1.............. -- -- 82,559 Dividend reclaim receivable............................ -- -- -- Other assets........................................... 17,480 1,736 1,990 -------------------------------------------- TOTAL ASSETS...................................... 1,305,945,179 142,899,149 152,960,810 -------------------------------------------- LIABILITIES Payable for fund shares redeemed....................... 3,108,265 674,240 573,910 Payable for securities purchased....................... 2,025,141 442,054 -- Accrued expenses....................................... 405,975 75,374 84,031 Accrued foreign capital gains tax...................... -- -- -- Due to custodian....................................... -- -- -- Payable for forward mortgage securities purchased -- Note 7.................................. -- -- -- Distributions payable.................................. -- -- -- Due to affiliates...................................... 947,851 143,270 50,331 -------------------------------------------- TOTAL LIABILITIES................................. 6,487,232 1,334,938 708,272 -------------------------------------------- NET ASSETS........................................ $1,299,457,947 $141,564,211 $152,252,538 -------------------------------------------- --------------------------------------------
See notes to financial statements. 56
THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN S&P 500 BAILLIE GIFFORD BAILLIE GIFFORD INVESTMENT HIGH YIELD THE GUARDIAN CASH INDEX INTERNATIONAL EMERGING QUALITY BOND TAX-EXEMPT MANAGEMENT FUND FUND MARKETS FUND BOND FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------ $156,370,998 $ 72,041,949 $50,071,002 $216,992,502 $56,331,873 $111,879,310 $694,872,104 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ 120,214,649 64,234,929 46,987,553 224,521,352 56,667,774 118,508,190 694,872,104 88,732 -- 130 41,675 76,809 3,656,023 45,093 -- 84,828 451,306 -- -- -- -- 185,507 70,419 141,999 -- -- -- -- -- -- -- -- 192,662 -- -- 157,640 368,522 10,185 305,830 17,242 1,250 484,349 66 -- 13 1,840,644 1,221,443 1,577,169 1,413,878 2,800 -- -- -- -- -- -- -- 113,375 -- -- -- -- -- 2,080 940 497 1,560 463 964 6,426 - ------------------------------------------------------------------------------------------------------------ 120,651,474 64,873,013 47,591,683 226,711,061 58,176,393 123,743,596 696,821,850 - ------------------------------------------------------------------------------------------------------------ 47,969 1,233,653 22,472 139,962 -- -- 1,764,616 -- -- 106,757 1,012,270 192,662 -- -- 39,763 87,915 95,907 37,485 44,051 57,581 100,935 -- -- 31,794 -- -- -- -- -- 194,963 -- -- -- -- -- -- -- -- 15,244,213 -- -- -- -- -- -- 186,410 -- 7,031 1,074 65,655 22,699 21,605 158,791 56,174 86,190 480,454 - ------------------------------------------------------------------------------------------------------------ 153,387 1,539,230 278,535 16,779,131 292,887 150,802 2,347,079 - ------------------------------------------------------------------------------------------------------------ $120,498,087 $ 63,333,783 $47,313,148 $209,931,930 $57,883,506 $123,592,794 $694,474,771 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
57 / / The Park Avenue Portfolio STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) December 31, 2002 - -------------------------------------------------------------------------------
THE GUARDIAN THE GUARDIAN THE GUARDIAN PARK AVENUE PARK AVENUE ASSET FUND SMALL CAP ALLOCATION FUND FUND -------------------------------------------- COMPONENTS OF NET ASSETS Shares of beneficial interest, at par.................. $ 522,251 $ 107,447 $ 180,436 Additional paid-in capital............................. 2,100,137,842 156,091,493 255,749,315 Undistributed/(overdistributed) net investment income............................................... 4,730,635 -- 2,032,514 Accumulated net realized gain/(loss) on investments and foreign currency related transactions................ (658,146,038) (14,175,901) (56,026,722) Net unrealized appreciation/(depreciation) of investments and foreign currency related transactions......................................... (147,786,743) (458,828) (49,683,005) -------------------------------------------- NET ASSETS........................................ $1,299,457,947 $141,564,211 $152,252,538 -------------------------------------------- -------------------------------------------- NET ASSETS Class A................................................ $1,120,351,303 $111,803,498 $110,593,432 Class B................................................ $ 167,471,229 $ 17,188,908 $ 29,063,681 Class C................................................ $ 5,883,635 $ 5,823,751 $ 6,469,538 Class K................................................ $ 5,751,780 $ 6,748,054 $ 6,125,887 SHARES OF BENEFICIAL INTEREST OUTSTANDING -- $0.01 PAR VALUE Class A................................................ 44,765,591 8,408,787 13,088,709 Class B................................................ 6,981,360 1,360,204 3,456,873 Class C................................................ 247,733 462,695 771,253 Class K................................................ 230,427 512,978 726,792 NET ASSET VALUE PER SHARE Class A................................................ $25.03 $13.30 $8.45 Class B................................................ $23.99 $12.64 $8.41 Class C................................................ $23.75 $12.59 $8.39 Class K................................................ $24.96 $13.15 $8.43 MAXIMUM OFFERING PRICE PER SHARE Class A Only (Net Asset Value X 104.71%)*............. $26.21 $13.93 $8.85
* Based on sale of less than $100,000. On sale of $100,000 or more, the offering price is reduced. ** No load is charged on Class A shares. See notes to financial statements. 58
THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN S&P 500 BAILLIE GIFFORD BAILLIE GIFFORD INVESTMENT HIGH YIELD TAX-EXEMPT CASH INDEX INTERNATIONAL EMERGING QUALITY BOND FUND MANAGEMENT FUND FUND MARKETS FUND BOND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------ $ 199,639 $ 72,176 $ 59,768 $ 204,131 $ 86,518 $ 117,610 $ 6,944,748 253,065,021 108,084,938 56,098,779 202,165,618 79,216,041 116,715,777 687,530,023 27,146 63,677 (124,550) -- -- -- -- (96,602,690) (37,097,889) (5,634,787) 33,331 (21,754,954) 130,527 -- (36,191,029) (7,789,119) (3,086,062) 7,528,850 335,901 6,628,880 -- - ------------------------------------------------------------------------------------------------------------ $120,498,087 $ 63,333,783 $47,313,148 $209,931,930 $57,883,506 $123,592,794 $694,474,771 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ $100,128,945 $ 47,948,263 $27,356,347 $170,657,667 $33,894,225 $113,851,520 $658,159,216 $ 8,472,313 $ 5,597,839 $ 5,965,347 $ 19,308,009 $ 8,335,559 -- $ 18,485,497 $ 6,174,788 $ 4,380,637 $ 6,306,087 $ 10,753,068 $ 7,709,836 $ 9,741,274 $ 9,330,426 $ 5,722,041 $ 5,407,044 $ 7,685,367 $ 9,213,186 $ 7,943,886 -- $ 8,499,632 16,586,839 5,387,639 3,388,603 16,594,093 5,065,450 10,833,997 658,159,216 1,404,441 680,824 790,435 1,878,089 1,246,430 -- 18,485,497 1,024,805 531,618 833,771 1,045,926 1,153,056 926,978 9,330,426 947,804 617,499 963,947 894,968 1,186,867 -- 8,499,632 $6.04 $8.90 $8.07 $10.28 $6.69 $10.51 $1.00 $6.03 $8.22 $7.55 $10.28 $6.69 -- $1.00 $6.03 $8.24 $7.56 $10.28 $6.69 $10.51 $1.00 $6.04 $8.76 $7.97 $10.29 $6.69 -- $1.00 $6.32 $9.32 $8.45 $10.76 $7.01 $11.01 N/A**
59 / / The Park Avenue Portfolio STATEMENTS OF OPERATIONS Year Ended December 31, 2002 - -------------------------------------------------------------------------------
THE GUARDIAN THE GUARDIAN THE GUARDIAN PARK AVENUE PARK AVENUE ASSET FUND SMALL CAP ALLOCATION FUND FUND ------------------------------------------- INVESTMENT INCOME Dividends (includes $1,550,074 from a controlled affiliate and $1,590,366 from a non controlled affiliate for GAAF).................................. $ 22,208,379 $ 1,155,320 $ 3,673,900 Interest............................................... 815,646 172,143 170,931 Less: Foreign tax withheld............................. (78,100) (2,183) (1,215) ------------------------------------------- Total Income..................................... 22,945,925 1,325,280 3,843,616 ------------------------------------------- EXPENSES: Investment advisory fees -- Note 2..................... 8,296,547 1,245,325 1,231,249 Administrative fees -- Class A -- Note 2............... 2,905,480 331,490 347,530 Administrative fees -- Class B -- Note 2............... 544,592 49,123 90,950 Administrative fees -- Class C -- Note 2............... 17,693 15,929 18,198 Administrative fees -- Class K -- Note 2............... 15,966 18,566 16,879 12b-1 fees -- Class B -- Note 3........................ 1,633,777 147,368 272,849 12b-1 fees -- Class C -- Note 3........................ 53,080 47,788 54,595 12b-1 fees -- Class K -- Note 3........................ 25,545 29,706 27,007 Transfer agent fees -- Class A......................... 1,762,810 144,100 182,060 Transfer agent fees -- Class B......................... 606,454 59,284 75,145 Transfer agent fees -- Class C......................... 36,800 32,447 33,707 Transfer agent fees -- Class K......................... 500 500 500 Custodian fees......................................... 256,508 114,909 104,038 Printing expense....................................... 207,214 20,000 24,215 Trustees' fees -- Note 2............................... 108,365 8,827 10,747 Registration fees...................................... 74,034 60,726 62,032 Legal fees............................................. 60,001 5,000 2,000 Insurance expense...................................... 25,846 1,921 1,043 Audit fees............................................. 24,000 19,850 19,850 Loan commitment fees -- Note 9......................... 21,746 2,000 600 Other.................................................. 455 5,003 670 Interest expense on reverse repurchase agreements...... -- -- -- ------------------------------------------- Total Expenses before Reimbursement and Custody credits........................................ 16,677,413 2,359,862 2,575,864 Less: Expenses assumed by investment adviser -- Note 2............................................... -- -- (1,382,564) Custody credits -- Note 1........................ -- -- -- ------------------------------------------- Expenses Net of Reimbursement and Custody credits........................................ 16,677,413 2,359,862 1,193,300 ------------------------------------------- NET INVESTMENT INCOME/(LOSS).............................. 6,268,512 (1,034,582) 2,650,316 ------------------------------------------- REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES -- NOTE 4 Net realized gain/(loss) on investments -- Note 1...... (269,243,443) (7,577,860) (9,158,536) Net realized loss on sale of affiliated underlying funds................................................ -- -- (3,317,755) Net realized gains received from affiliated underlying funds................................................ -- -- 70,164 Foreign capital gains tax.............................. -- -- -- Net realized gain on foreign currency related transactions -- Note 1............................... -- -- -- Net change in unrealized appreciation/(depreciation) on investments -- Note 4................................ (151,728,126) (21,018,611) (35,892,162) Net change in unrealized depreciation from translation of other assets and liabilities denominated in foreign currencies -- Note 1......................... -- -- -- ------------------------------------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES................................. (420,971,569) (28,596,471) (48,298,289) ------------------------------------------- NET INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS................................... $(414,703,057) $(29,631,053) $(45,647,973) ------------------------------------------- -------------------------------------------
See notes to financial statements. 60
THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN THE GUARDIAN S&P 500 BAILLIE GIFFORD BAILLIE GIFFORD INVESTMENT HIGH YIELD TAX-EXEMPT CASH INDEX INTERNATIONAL EMERGING QUALITY BOND FUND MANAGEMENT FUND FUND MARKETS FUND BOND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------ $ 3,596,132 $ 1,847,565 $ 1,093,699 -- -- -- -- 60,041 19,760 14,913 $ 9,796,226 $ 5,179,350 $ 5,549,776 $12,100,317 (11,035) (188,278) (110,351) -- -- -- -- - ------------------------------------------------------------------------------------------------------------ 3,645,138 1,679,047 998,261 9,796,226 5,179,350 5,549,776 12,100,317 - ------------------------------------------------------------------------------------------------------------ 582,535 704,982 486,573 937,539 344,475 589,782 3,374,553 526,538 175,464 66,837 382,660 84,550 271,856 1,602,047 22,362 17,242 16,562 39,909 20,430 -- 41,871 17,552 12,412 17,184 24,324 18,989 23,035 22,492 16,084 15,189 21,060 21,877 19,562 -- 20,865 67,085 51,724 49,686 119,727 61,288 -- 125,614 52,655 37,236 51,553 72,971 56,969 69,104 67,477 25,734 24,302 33,696 35,004 31,299 -- 33,386 41,194 116,272 38,889 85,597 34,754 37,150 445,573 37,432 45,730 33,932 39,154 34,507 -- 29,297 32,756 31,910 28,869 32,057 31,789 31,901 6,833 250 -- 500 -- -- -- 4,001 161,830 242,858 245,475 126,889 102,483 82,494 164,882 29,322 13,256 8,259 19,404 9,241 13,878 58,171 13,742 5,435 2,195 8,792 2,940 5,622 30,602 90,150 65,920 56,184 56,151 58,504 21,830 51,471 10,614 2,000 1,620 5,098 1,000 1,000 23,379 2,565 1,245 436 1,632 516 1,018 6,174 20,200 24,450 24,450 20,200 24,500 20,200 19,200 3,383 1,132 545 2,172 685 1,667 7,859 455 455 2,009 455 455 455 455 -- -- -- 2,945 -- -- -- - ------------------------------------------------------------------------------------------------------------ 1,754,438 1,589,214 1,186,514 2,034,557 938,936 1,170,992 6,136,202 (373,990) -- -- (210,093) (301,374) (79,778) (181,108) -- -- -- -- -- (19,481) -- - ------------------------------------------------------------------------------------------------------------ 1,380,448 1,589,214 1,186,514 1,824,464 637,562 1,071,733 5,955,094 - ------------------------------------------------------------------------------------------------------------ 2,264,690 89,833 (188,253) 7,971,762 4,541,788 4,478,043 6,145,223 - ------------------------------------------------------------------------------------------------------------ (95,822,692) (22,697,910) 2,922,432 962,427 (5,394,424) 1,826,662 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (63,647) -- -- -- -- -- 82,469 48,886 -- -- -- -- 18,959,704 5,633,894 (6,030,496) 7,351,497 1,260,183 5,144,825 -- -- 39,337 4,318 -- -- -- -- - ------------------------------------------------------------------------------------------------------------ (76,862,988) (16,942,210) (3,118,507) 8,313,924 (4,134,241) 6,971,487 -- - ------------------------------------------------------------------------------------------------------------ $(74,598,298) $(16,852,377) $(3,306,760) $16,285,686 $ 407,547 $11,449,530 $ 6,145,223 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
61 / / The Park Avenue Portfolio STATEMENTS OF CHANGES IN NET ASSETS
THE GUARDIAN THE GUARDIAN PARK AVENUE SMALL PARK AVENUE FUND CAP FUND ------------------------------- --------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2002 2001 2002 2001 ------------------------------------------------------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income/(loss).......... $ 6,268,512 $ 4,552,848 $ (1,034,582) $ (908,986) Net realized gain/(loss) on investments and foreign currency related transactions................ (269,243,443) (388,310,475) (7,577,860) (2,167,853) Net change in unrealized appreciation/ (depreciation) of investments and foreign currency related transactions........................ (151,728,126) (312,815,223) (21,018,611) (10,619,923) ------------------------------------------------------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........... (414,703,057) (696,572,850) (29,631,053) (13,696,762) ------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class A............................. (4,310,369) (1,670,149) -- -- Class B............................. -- -- -- -- Class C............................. -- -- -- -- Class K............................. -- -- -- -- Net realized gain on investments and foreign currency related transactions Class A............................. -- (13,211,280) -- -- Class B............................. -- (2,153,237) -- -- Class C............................. -- (49,060) -- -- Class K............................. -- (48,270) -- -- ------------------------------------------------------------- TOTAL DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS...................... (4,310,369) (17,131,996) -- -- ------------------------------------------------------------- FROM CAPITAL SHARE TRANSACTIONS: Net increase/(decrease) in net assets from capital share transactions -- Note 9.............. (350,930,660) (245,379,763) (4,165,700) 7,026,051 ------------------------------------------------------------- NET INCREASE/(DECREASE) IN NET ASSETS... (769,944,086) (959,084,609) (33,796,753) (6,670,711) NET ASSETS: Beginning of year........................ 2,069,402,033 3,028,486,642 175,360,964 182,031,675 ------------------------------------------------------------- End of year*............................. $1,299,457,947 $2,069,402,033 $141,564,211 $175,360,964 ------------------------------------------------------------- ------------------------------------------------------------- * Includes undistributed/(distributions in excess) of net investment income of...................................... $ 4,730,635 $ 2,772,492 $ -- $ -- THE GUARDIAN THE GUARDIAN ASSET ALLOCATION S&P 500 FUND INDEX FUND --------------------------- --------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2002 2001 2002 2001 --------------------------------------------------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income/(loss).......... $ 2,650,316 $ 5,718,410 $ 2,264,690 $ 2,084,152 Net realized gain/(loss) on investments and foreign currency related transactions................ (12,406,127) (44,074,298) (95,822,692) (758,613) Net change in unrealized appreciation/ (depreciation) of investments and foreign currency related transactions........................ (35,892,162) 7,653,004 18,959,704 (36,478,577) --------------------------------------------------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........... (45,647,973) (30,702,884) (74,598,298) (35,153,038) --------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class A............................. (2,611,441) (2,947,712) (2,164,053) (2,075,105) Class B............................. (296,792) (417,338) (28,553) (5,702) Class C............................. (39,379) (23,321) (22,264) (5,091) Class K............................. (92,412) -- (43,052) (21,719) Net realized gain on investments and foreign currency related transactions Class A............................. -- (11,069,074) -- -- Class B............................. -- (2,627,089) -- -- Class C............................. -- (485,346) -- -- Class K............................. -- (447,297) -- -- --------------------------------------------------------- TOTAL DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS...................... (3,040,024) (18,017,177) (2,257,922) (2,107,617) --------------------------------------------------------- FROM CAPITAL SHARE TRANSACTIONS: Net increase/(decrease) in net assets from capital share transactions -- Note 9.............. (28,957,348) (8,177,791) (103,976,012) 156,130,007 --------------------------------------------------------- NET INCREASE/(DECREASE) IN NET ASSETS... (77,645,345) (56,897,852) (180,832,232) 118,869,352 NET ASSETS: Beginning of year........................ 229,897,883 286,795,735 301,330,319 182,460,967 --------------------------------------------------------- End of year*............................. $152,252,538 $229,897,883 $120,498,087 $301,330,319 --------------------------------------------------------- --------------------------------------------------------- * Includes undistributed/(distributions in excess) of net investment income of...................................... $ 2,032,514 $ 2,422,222 $ 27,146 $ 20,378
See notes to financial statements. 62
THE GUARDIAN THE GUARDIAN BAILLIE GIFFORD THE GUARDIAN BAILLIE GIFFORD EMERGING INVESTMENT QUALITY INTERNATIONAL FUND MARKETS FUND BOND FUND --------------------------- -------------------------- --------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2002 2001 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------ $ 89,833 $ (135,856) $ (188,253) $ (238,190) $ 7,971,762 $ 8,549,822 (22,615,441) (13,035,097) 2,907,671 (5,055,341) 962,427 6,988,196 5,673,231 (15,415,050) (6,026,178) 5,778,239 7,351,497 (2,077,753) - ------------------------------------------------------------------------------------------ (16,852,377) (28,586,003) (3,306,760) 484,708 16,285,686 13,460,265 - ------------------------------------------------------------------------------------------ -- -- -- -- (6,694,956) (7,456,788) -- -- -- -- (572,072) (474,812) -- -- -- -- (354,303) (384,029) -- -- -- -- (350,431) (234,193) -- -- -- -- (465,319) (758,645) -- -- -- -- (52,987) (68,824) -- -- -- -- (29,434) (47,992) -- -- -- -- (25,176) (44,467) - ------------------------------------------------------------------------------------------ -- -- -- -- (8,544,678) (9,469,750) - ------------------------------------------------------------------------------------------ (21,180,662) 15,515,905 10,313,357 8,811,353 26,728,214 29,817,747 - ------------------------------------------------------------------------------------------ (38,033,039) (13,070,098) 7,006,597 9,296,061 34,469,222 33,808,262 101,366,822 114,436,920 40,306,551 31,010,490 175,462,708 141,654,446 - ------------------------------------------------------------------------------------------ $ 63,333,783 $101,366,822 $47,313,148 $ 40,306,551 $209,931,930 $175,462,708 - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ $ 63,677 $ (108,626) $ (124,550) $ (42,806) $ -- $ -- THE GUARDIAN THE GUARDIAN THE GUARDIAN HIGH YIELD TAX-EXEMPT CASH MANAGEMENT BOND FUND FUND FUND ------------------------- --------------------------- --------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2002 2001 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------ $ 4,541,788 $ 5,045,017 $ 4,478,043 $ 4,339,426 $ 6,145,223 $ 17,140,530 (5,394,424) (9,122,172) 1,826,662 3,524,664 -- -- 1,260,183 5,354,568 5,144,825 (2,908,494) -- -- - ------------------------------------------------------------------------------------------ 407,547 1,277,413 11,449,530 4,955,596 6,145,223 17,140,530 - ------------------------------------------------------------------------------------------ (2,763,882) (3,300,689) (4,191,275) (4,055,607) (6,042,276) (16,499,290) (606,359) (684,449) -- -- (37,641) (333,975) (563,588) (648,727) (286,768) (283,819) (19,989) (205,968) (607,959) (411,152) -- -- (45,317) (101,297) -- -- (1,983,160) (737,702) -- -- -- -- -- -- -- -- -- -- (168,362) (63,034) -- -- -- -- -- -- -- -- - ------------------------------------------------------------------------------------------ (4,541,788) (5,045,017) (6,629,565) (5,140,162) (6,145,223) (17,140,530) - ------------------------------------------------------------------------------------------ 4,489,847 7,591,869 2,313,675 11,067,965 56,129,038 156,109,408 - ------------------------------------------------------------------------------------------ 355,606 3,824,265 7,133,640 10,883,399 56,129,038 156,109,408 57,527,900 53,703,635 116,459,154 105,575,755 638,345,733 482,236,325 - ------------------------------------------------------------------------------------------ $57,883,506 $57,527,900 $123,592,794 $116,459,154 $694,474,771 $638,345,733 - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ $ -- $ -- $ -- $ -- $ -- $ --
63 / / The Guardian Investment Quality Bond Fund STATEMENT OF CASH FLOWS Year Ended December 31, 2002 - ------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net increase in net assets resulting from operations... $ 16,285,686 Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: Purchases of long-term securities................. (530,524,463) Proceeds from sales of long-term securities....... 498,831,295 Proceeds from mortgage paydown securities......... 8,585,235 Premium amortization/discount accretion, net...... 331,764 Purchases of short-term investments, net.......... 15,889,886 Increase in receivables........................... (199,306) Decrease in payables.............................. (60,567) Net realized gain on investments.................. (962,427) Net change in unrealized appreciation of investments........................................ (7,351,497) ------------- Net cash provided by operating activities......... 825,606 ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Fund shares sold.................... 126,342,502 Payments for Fund shares redeemed................. (104,927,212) Cash distributions paid........................... (1,986,585) Proceeds from the financing of dollar roll transactions, net.................................. (20,314,133) ------------- Net cash used in financing activities............. (885,428) ------------- DECREASE IN CASH....................................... (59,822) CASH Beginning of year...................................... 101,497 ------------- End of year............................................ $ 41,675 ------------- ------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Non-cash financing activities not included above: Reinvestment of distributions..................... $ 6,558,093 ------------- -------------
See notes to financial statements. 64 NOTES TO FINANCIAL STATEMENTS December 31, 2002 The Park Avenue Portfolio / / The Guardian Park Avenue Fund / / The Guardian UBS Large Cap Value Fund / / The Guardian Park Avenue Small Cap Fund / / The Guardian UBS Small Cap Value Fund / / The Guardian Asset Allocation Fund / / The Guardian S&P 500 Index Fund / / The Guardian Baillie Gifford International Fund / / The Guardian Baillie Gifford Emerging Markets Fund / / The Guardian Investment Quality Bond Fund / / The Guardian High Yield Bond Fund / / The Guardian Tax-Exempt Fund / / The Guardian Cash Management Fund NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES The Park Avenue Portfolio (the Portfolio) is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act), which is organized as a business trust under the laws of the Commonwealth of Massachusetts. The Portfolio consists of twelve series, namely: The Guardian Park Avenue Fund (GPAF); The Guardian UBS Large Cap Value Fund (GULCVF); The Guardian Park Avenue Small Cap Fund (GPASCF); The Guardian UBS Small Cap Value Fund (GUSCVF); The Guardian Asset Allocation Fund (GAAF); The Guardian S&P 500 Index Fund (GSP500F); The Guardian Baillie Gifford International Fund (GBGIF); The Guardian Baillie Gifford Emerging Markets Fund (GBGEMF); The Guardian Investment Quality Bond Fund (GIQBF); The Guardian High Yield Bond Fund (GHYBF); The Guardian Tax-Exempt Fund (GTEF); and The Guardian Cash Management Fund (GCMF). The series are collectively referred to herein as the "Funds". GULCVF and GUSCVF had not commenced operations as of December 31, 2002. On May 15, 2001, the Funds, except for GTEF, began to offer Class K shares. To facilitate the commencement of operations of Class K shares, The Guardian Life Insurance Company of America (Guardian Life) redeemed Class A shares of beneficial interest in GPAF, GPASCF, GAAF, GSP500F, GIQBF and GHYBF for investment in Class K shares of beneficial interest in the Funds, excluding GTEF. The Funds offer up to five classes of shares: Class A, Class B, Class C, Class K and the Institutional Class. Each of the Funds offers Class A shares. Class A shares are sold with an initial sales load of up to 4.50% and an administrative fee of up to .25% on an annual basis of the Funds' average daily net assets. Class B shares are offered by all of the Funds, except for GTEF. Class B shares are sold without an initial sales load but are subject to a 12b-1 fee of .75% and an administrative fee of .25% on an annual basis of the Funds' Class B average daily net assets, and a contingent deferred sales load (CDSL) of up to 3% imposed on certain redemptions. Each of the Funds offers Class C shares. Class C shares are sold without an initial sales load but are subject to a 12b-1 fee of .75% and an administrative fee of .25% on an annual basis of the Funds' Class C average daily net assets, and a CDSL of up to 1% imposed on certain redemptions. Class K shares are offered by all of the Funds, except for GTEF. Class K shares are sold without an initial sales load but are subject to a 12b-1 fee of .40% and an administrative fee of .25% on an annual basis of the Funds' Class K average daily net assets, and a CDSL of up to 1% imposed on certain redemptions. Institutional Class shares are offered by GPAF, GPASCF, GAAF, GSP500F, GBGIF, GBGEMF, GIQBF and GHYBF. As of December 31, 2002, none of the Funds had issued Institutional Class shares. Institutional Class shares are offered at net asset value, without an initial or contingent deferred sales load. All classes of shares for each Fund represent interests in the same portfolio of investments, have the same rights and are generally identical in all respects except that each class bears its separate distribution and certain class expenses, and has exclusive voting rights with respect to any matter to which a separate vote of any class is required. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 65 Significant accounting policies of the Funds are as follows: Investments Securities listed on domestic or foreign securities exchanges are valued at the last sales price of such exchanges, or if no sale occurred, at the mean of the bid and asked prices. Securities traded in the over-the-counter market are valued using the last sale price, when available. Otherwise, over-the-counter securities are valued at the mean between the bid and asked prices or yield equivalents as obtained from one or more dealers that make a market in the securities. In GAAF, investments in the underlying Funds are valued at the closing net asset value of each underlying Fund on the day of valuation. Pursuant to valuation procedures approved by the Board of Trustees, certain debt securities may be valued each business day by an independent pricing service (Service). Debt securities for which quoted bid prices are readily available and representative of the bid side of the market, in the judgement of the Service, are valued at the bid price, except for GTEF. In GTEF, debt securities are valued at the mean between the bid and asked prices obtained by the Service. Other debt securities that are valued by the Service are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Other securities, including securities for which market quotations are not readily available (such as certain mortgage-backed securities and restricted securities) are valued at fair value as determined in good faith by or under the direction of the Funds' Board of Trustees. Repurchase agreements are carried at cost which approximates market value (see Note 5). Short-term securities held by the Funds are valued on an amortized cost basis which approximates market value but does not take into account unrealized gains and losses. GCMF values its investments based on amortized cost in accordance with Rule 2a-7 under the 1940 Act. Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets. Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily. Dividend income is recorded on the ex-dividend date. All income, expenses (other than class-specific expenses) and realized and unrealized gains or losses are allocated daily to each class of shares based upon the relative value of shares of each class. Class-specific expenses, which include any items that are specifically attributed to a particular class, are charged directly to such class. For the year ended December 31, 2002, distribution, administrative and transfer agent fees were the only class-specific expenses. Foreign Currency Translation GPAF, GPASCF, GAAF, GBGIF, GBGEMF and GHYBF are permitted to buy international securities that are not U.S. dollar denominated. Their books and records are maintained in U.S. dollars as follows: (1) The foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated into U.S. dollars at the current rate of exchange. (2) Security purchases and sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions. The resulting gains and losses are included in the Statement of Operations as follows: Realized foreign exchange gains and losses, which result from changes in foreign exchange rates between the date on which a Fund earns dividends and interest or pays foreign withholding taxes or other expenses and the date on which U.S. dollar equivalent amounts are actually received or paid, are included in net realized gains or losses on foreign currency related transactions. Realized foreign exchange gains and losses which result from changes in foreign exchange rates between the trade and settlement dates on security and currency transactions are also included in net realized gains or losses on foreign currency related transactions. Net currency gains and losses from valuing other assets and liabilities denominated in foreign currency at the period end exchange rate are reflected in net change in unrealized appreciation or depreciation from translation of other assets and liabilities denominated in foreign currencies. Forward Foreign Currency Contracts GPAF, GPASCF, GAAF, GBGIF, GBGEMF and GHYBF may enter into forward foreign currency contracts in connection with planned purchases or sales of securities, or to hedge against changes in currency exchange rates affecting the values of its investments that are denominated in a particular currency. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the value of forward foreign currency con- 66 tracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by the Fund. When forward contracts are closed, the Fund will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. The Funds will not enter into a forward foreign currency contract if such contract would obligate the applicable Fund to deliver an amount of foreign currency in excess of the value of the Funds' portfolio securities or other assets denominated in that currency. Futures Contracts GAAF, GSP500F, GBGIF, GBGEMF, GIQBF, GHYBF and GTEF may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, the Funds are required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Funds each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margin by the Funds. The daily changes in the variation margin are recognized as unrealized gains or losses by the Funds. The Funds' investments in financial futures contracts are designed to hedge against anticipated future changes in interest or exchange rates or securities prices. In addition, GAAF may enter into financial futures contracts for non-hedging purposes. Should interest or exchange rates or securities prices or prices of futures contracts move unexpectedly, the Funds may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. Dividend Distributions Dividends from net investment income are declared and accrued daily and are paid monthly for GIQBF, GHYBF and GTEF, and declared and paid semi-annually for GPAF, GPASCF, GAAF, GSP500F, GBGIF and GBGEMF. Net realized short-term and long-term capital gains for these Funds will be distributed at least annually. Dividends from GCMF's net investment income, which includes any net realized capital gains or losses, are declared and accrued daily and paid monthly on the last business day of each month. All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income. The tax character of distributions paid to shareholders during the years ended December 31, 2002 and 2001 were as follows:
TAX ORDINARY LONG-TERM EXEMPT INCOME CAPITAL GAIN TOTAL ---------- ----------- ------------ ----------- ----------------------------------------------------- 2002 ----------------------------------------------------- GPAF........ $ -- $ 4,310,369 $ -- $ 4,310,369 GAAF........ -- 3,040,024 -- 3,040,024 GSP500F..... -- 2,257,922 -- 2,257,922 GIQBF....... -- 7,981,745 562,933 8,544,678 GHYBF....... -- 4,541,788 -- 4,541,788 GTEF........ 4,478,043 880,639 1,270,883 6,629,565 GCMF........ -- 6,145,223 -- 6,145,223
----------------------------------------------------- 2001 ----------------------------------------------------- GPAF........ $ -- $ 1,670,149 $15,461,847 $17,131,996 GAAF........ -- 5,432,021 12,585,156 18,017,177 GSP500F..... -- 2,107,617 -- 2,107,617 GIQBF....... -- 8,549,875 919,875 9,469,750 GHYBF....... -- 5,045,017 -- 5,045,017 GTEF........ 4,339,426 -- 800,737 5,140,163 GCMF........ -- 17,140,530 -- 17,140,530
For the year ended December 31, 2002, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG-TERM GAIN/ ORDINARY POST-OCTOBER LOSS/ UNREALIZED CAPITAL CAPITAL LOSS APPRECIATION INCOME CARRYFORWARD (DEPRECIATION) ------------- ------------------- -------------- GPAF.......... $4,730,635 $(650,900,916) $(155,031,865) GPASCF........ -- (13,356,487) (1,278,243) GAAF.......... 2,032,514 (57,302,206) (49,683,032) GSP500F....... 27,147 (96,416,633) (36,411,767) GBGIF......... 63,677 (34,984,976) (9,902,031) GBGEMF........ -- (5,592,394) (3,253,005) GIQBF......... 361,026 10,488 7,190,668 GHYBF......... -- (21,653,996) 234,943 GTEF.......... 91,882 38,645 6,628,880 GCMF.......... 317 (195) --
Taxes Each Fund has qualified and intends to remain qualified to be taxed as a "regulated investment company" under the provisions of the U.S. Internal Revenue Code (Code), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required. Withholding taxes on foreign interest, dividends and capital gains in GBGIF and GBGEMF have been provided for in accordance with the applicable country's tax rules and rates. 67 For the year ended December 31, 2002, for federal income tax purposes, the following Funds have post-October capital losses and capital losses carryforward of:
POST-OCTOBER CAPITAL LOSS EXPIRATION CAPITAL LOSS CARRYFORWARD DATE ------------ ------------ ---------- GPAF........ $27,797,924 $367,844,523 2009 GPAF........ -- 255,258,469 2010 GPASCF...... 3,011,617 6,598,041 2009 GPASCF...... -- 3,746,829 2010 GAAF........ 288,966 42,559,735 2009 GAAF........ -- 14,453,505 2010 GSP500F..... -- 509,976 2009 GSP500F..... -- 95,906,657 2010 GBGIF....... 3,153,819 9,713,035 2009 GBGIF....... -- 22,118,121 2010 GBGEMF...... -- 5,592,394 2009 GHYBF....... 1,706,904 3,924,007 2007 GHYBF....... -- 3,128,645 2008 GHYBF....... -- 7,587,223 2009 GHYBF....... -- 5,307,217 2010 GCMF........ -- 195 2007
Expense Reductions GTEF has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the period, GTEF's custodian fees were reduced by $19,481 under this arrangement. GTEF could have employed the uninvested assets to produce income if GTEF had not entered into such an arrangement. Reclassification of Capital Accounts The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations, or net asset value per share of the Fund. During the year ended December 31, 2002, certain Funds reclassified amounts to paid-in capital from undistributed/(overdistributed) net investment income and accumulated net realized gain/(loss) on investment and foreign currency related transactions. Increases/(decreases) to the various capital accounts were as follows:
ACCUMULATED NET REALIZED GAIN/(LOSS) ON INVESTMENTS UNDISTRIBUTED AND FOREIGN PAID-IN NET INVESTMENT CURRENCY RELATED CAPITAL INCOME TRANSACTIONS ----------- -------------- ---------------- GPASCF...... $(1,034,582) $1,034,582 $ -- GBGIF....... -- 82,470 (82,470) GBGEMF...... (121,269) 106,509 14,760 GCMF........ (122) 317 (195)
NOTE 2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO OR FROM RELATED PARTIES Guardian Investor Services LLC (GIS, formerly known as "Guardian Investor Services Corporation") provides investment advisory services to each of the Funds (except GBGIF and GBGEMF). Fees for investment advisory services are at an annual rate of .50% of the average daily net assets of each Fund, except for GPASCF, GSP500F and GHYBF, which pay GIS an annual rate of .75%, .25% and .60%, respectively, of their average daily net assets. For the year ended December 31, 2002, GIS voluntarily assumed a portion of the ordinary operating expenses (excluding interest expense associated with reverse repurchase agreements and securities lending) that exceeded a percentage of the average daily net assets of the respective Funds, by class, as follows:
FUND CLASS A CLASS B CLASS C CLASS K ---- ------- ------- ------- ------- GSP500F .53% 1.28% 1.28% 0.93% GIQBF .85% 1.60% 1.60% 1.25% GHYBF .85% 1.60% 1.60% 1.25% GTEF .85% N/A 1.60% N/A GCMF .85% 1.60% 1.60% 1.25%
For the year ended December 31, 2002, GIS voluntarily assumed a portion of certain Funds' expenses based on their respective average daily net assets as follows:
- --------------------------------------------------------- GSP500F - --------------------------------------------------------- CLASS A CLASS B CLASS C CLASS K ------- ------- ------- ------- Ordinary Operating Expenses .13% .13% .13% .10% 12b-1 Fees -- .39% .44% -- ---- ---- ---- ---- .13% .52% .57% .10% ==== ==== ==== ====
- --------------------------------------------------------- GIQBF - --------------------------------------------------------- CLASS A CLASS B CLASS C CLASS K ------- ------- ------- ------- Ordinary Operating Expenses .08% .08% .08% .03% 12b-1 Fees -- .19% .28% -- ---- ---- ---- ---- .08% .27% .36% .03% ==== ==== ==== ====
68
- --------------------------------------------------------- GHYBF - --------------------------------------------------------- CLASS A CLASS B CLASS C CLASS K ------- ------- ------- ------- Ordinary Operating Expenses .45% .45% .45% .35% 12b-1 Fees -- .32% .32% -- ---- ---- ---- ---- .45% .77% .77% .35% ==== ==== ==== ====
- --------------------------------------------------------- GTEF - --------------------------------------------------------- CLASS A CLASS C ------- ------- Ordinary Operating Expenses .06% .06% 12b-1 Fees -- .31% ---- ---- .06% .37% ==== ====
- --------------------------------------------------------- GCMF - --------------------------------------------------------- CLASS A CLASS B CLASS C CLASS K ------- ------- ------- ------- Administrative Fees .02% .25% .25% -- 12b-1 Fees -- .12% -- -- ---- ---- ---- ---- .02% .37% .25% -- ==== ==== ==== ====
For the year ended December 31, 2002 GIS voluntarily assumed $373,990, $210,093, $301,374, $79,778 and $181,108 of the ordinary operating expenses of GSP500F, GIQBF, GHYBF, GTEF and GCMF, respectively. GAAF is subject to a contractual annual advisory fee of .65% of its average daily net assets. However, GIS has agreed to a waiver of .15% of GAAF's annual advisory fee when GAAF is operated as a "fund of funds" so that GAAF's effective advisory fee is .50% of its average daily net assets. There are no duplicative advisory and administrative service fees charged to GAAF on assets invested in other Guardian Funds. Under an SEC exemptive order, advisory and administrative fees are paid at the underlying Fund level. The Portfolio, on behalf of GBGIF and GBGEMF, has an investment management agreement with Guardian Baillie Gifford Limited (GBG), a Scottish corporation owned by The Guardian Insurance & Annuity Company, Inc. (GIAC), a wholly-owned subsidiary of Guardian Life and Baillie Gifford Overseas Limited (BG Overseas). GBG is responsible for the overall investment management of GBGIF and GBGEMF's portfolios, subject to the supervision of the Portfolio's Board of Trustees. GBG has entered into a sub-investment management agreement with BG Overseas pursuant to which BG Overseas is responsible for the day-to-day management of GBGIF and GBGEMF. GBG continually monitors and evaluates the performance of BG Overseas. As compensation for its services, GBGIF and GBGEMF pay GBG annual investment management fees of .80% and 1.00%, respectively, of their respective average daily net assets. One half of these fees is payable by GBG to BG Overseas for its services. Payment of the sub-investment management fee does not represent a separate or additional expense to GBGIF or GBGEMF. The Guardian Fund Complex pays trustees who are not "interested persons" (as defined in the 1940 Act) fees consisting of a $5,000 per meeting and an annual retainer of $30,500, allocated among all funds in the Guardian Fund Complex based on relative average daily net assets. Board committee members also receive a fee of $2,000 per committee meeting, which also is allocated among all funds in the Guardian Fund Complex based on relative average daily net assets. GIS pays compensation to certain trustees who are interested persons. Certain officers and trustees of the Funds are affiliated with GIS. Park Avenue Securities LLC (PAS), a wholly-owned subsidiary of GIAC and an affiliate of GIS distributes the Portfolio's shares as a retail broker-dealer. For the year ended December 31, 2002, PAS received $412,714 for brokerage commissions from the Portfolio. Administrative Services Agreement Pursuant to the Administrative Services Agreement adopted by the Funds on behalf of the Class A, Class B, Class C and Class K shares, each of the Funds, except GPAF, pays GIS an administrative service fee at an annual rate of .25% of the Funds' average daily net assets. GPAF pays this fee to GIS at an annual rate of up to .25% of the average daily net assets for which a "dealer of record" has been designated. For the year ended December 31, 2002, GPAF Class A shares paid an annualized rate of .20% of its average daily net assets pursuant to the Administrative Services Agreement. NOTE 3. UNDERWRITING AGREEMENT AND DISTRIBUTION PLAN The Portfolio has entered into an Underwriting Agreement with GIS pursuant to which GIS serves as the principal underwriter for shares of the Funds. For the year ended December 31, 2002, aggregate front-end sales charges for the sale of Class A shares paid to GIS were as follows:
FUND COMMISSIONS FUND COMMISSIONS ---- ----------- ---- ----------- GPAF $39,030 GBGEMF $1,451 GPASCF 1,574 GIQBF 5,863 GAAF 3,129 GHYBF 1,166 GSP500F 1,363 GTEF 1,437 GBGIF 2,435
Under Distribution Plans adopted by the Portfolio pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plans"), each Fund is authorized to pay a monthly 12b-1 fee for certain classes of shares at an annual rate of .75% of average daily net assets of the Fund's Class B and Class C shares and .40% of average daily net assets of the Fund's Class K shares as compensation for distribution-related services provided to the Class B, Class C and Class K shares of those Funds. 69 GIS is entitled to retain any CDSL imposed on certain Class B, Class C and Class K share redemptions. For the year ended December 31, 2002, GIS received CDSL charges on Class B and Class C as follows:
FUND CLASS B CLASS C ---- -------- ------- GPAF............................ $638,179 $3,348 GPASCF.......................... 52,469 133 GAAF............................ 88,791 329 GSP500F......................... 8,575 1,389 GBGIF........................... 14,324 3,236 GBGEMF.......................... 2,929 397 GIQBF........................... 12,531 10 GHYBF........................... 7,129 25 GCMF............................ 178,876 21
NOTE 4. INVESTMENT TRANSACTIONS Purchases and proceeds from sales of securities (excluding short-term securities) for the year ended December 31, 2002 were as follows:
- -------------------------------------------------------- GPAF GPASCF - -------------------------------------------------------- Purchases $ 980,104,000 $168,840,150 Proceeds 1,276,231,530 169,483,347 - -------------------------------------------------------- GAAF GSP500F - -------------------------------------------------------- Purchases $ 8,138,327 $ 22,121,918 Proceeds 40,075,555 117,235,412 - -------------------------------------------------------- GBGIF GBGEMF - -------------------------------------------------------- Purchases $ 38,760,282 $ 46,967,592 Proceeds 54,220,835 37,146,597 - -------------------------------------------------------- GIQBF GHYBF - -------------------------------------------------------- Purchases $ 531,035,865 $ 40,827,403 Proceeds 498,831,295 37,499,691 - -------------------------------------------------------- GTEF - -------------------------------------------------------- Purchases $ 115,368,447 Proceeds 119,382,940 - --------------------------------------------------------
The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding foreign currency and futures at December 31, 2002, were as follows: GPAF GPASCF -------------- ------------ Appreciation $ 54,824,291 $ 12,894,666 (Depreciation) (209,856,156) (14,172,909) -------------- ------------ NET UNREALIZED DEPRECIATION $ (155,031,865) $ (1,278,243) ============== ============ Cost of investments for tax purposes $1,457,900,448 $143,826,921 ============== ============ GAAF GSP500F -------------- ------------ Appreciation $ 1,874,180 $ 8,922,088 (Depreciation) (50,281,702) (45,299,175) -------------- ------------ NET UNREALIZED DEPRECIATION $ (48,407,522) $(36,377,087) ============== ============ Cost of investments for tax purposes $ 200,989,472 $156,591,736 ============== ============ GBGIF GBGEMF -------------- ------------ Appreciation $ 3,503,380 $ 3,582,123 (Depreciation) (13,423,312) (6,832,515) -------------- ------------ NET UNREALIZED DEPRECIATION $ (9,919,932) $ (3,250,392) ============== ============ Cost of investments for tax purposes $ 74,154,861 $ 50,237,945 ============== ============ GIQBF GHYBF -------------- ------------ Appreciation $ 7,547,098 $ 1,968,112 (Depreciation) (356,430) (1,733,169) -------------- ------------ NET UNREALIZED APPRECIATION $ 7,190,668 $ 234,943 ============== ============ Cost of investments for tax purposes $ 217,330,684 $ 56,432,831 ============== ============ GTEF -------------- Appreciation $ 6,648,446 (Depreciation) (19,566) -------------- NET UNREALIZED APPRECIATION $ 6,628,880 ============== Cost of investments for tax purposes $ 111,879,310 ==============
NOTE 5. REPURCHASE AGREEMENTS The collateral received for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, the applicable Fund will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the applicable Fund maintains the right to sell the collateral and may claim any resulting loss against the seller. 70 NOTE 6. REVERSE REPURCHASE AGREEMENTS GAAF, GIQBF and GHYBF may enter into reverse repurchase agreements with banks or third party broker-dealers to borrow short-term funds. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time GAAF, GIQBF and GHYBF enter into a reverse repurchase agreement, the Funds establish and segregate cash, U.S. government securities or liquid, unencumbered securities that are marked-to-market daily. The value of such segregated assets must be at least equal to the value of the repurchase obligation (principal plus accrued interest), as applicable. Reverse repurchase agreements involve the risk that the buyer of the securities sold by GAAF, GIQBF and GHYBF may be unable to deliver the securities when the Funds seek to repurchase them. Interest paid by GIQBF on reverse repurchase agreements for the year ended December 31, 2002 amounted to $2,945. NOTE 7. DOLLAR ROLL TRANSACTIONS GAAF, GIQBF and GHYBF may enter into dollar roll transactions with financial institutions to take advantage of opportunities in the mortgage market. A dollar roll transaction involves a sale by the Fund of securities that it holds with an agreement by the Fund to repurchase similar securities at an agreed upon price and date. The securities repurchased will bear the same interest as those sold, but generally will be collateralized at the time of delivery by different pools of mortgages with different prepayment histories than those securities sold. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. Dollar roll transactions involve the risk that the buyer of the securities sold by GAAF, GIQBF and GHYBF may be unable to deliver the securities when the Funds seek to repurchase them. NOTE 8. SHARES OF BENEFICIAL INTEREST There is an unlimited number of $0.01 par value shares of beneficial interest authorized, divided into five classes, designated as Class A, Class B, Class C, Class K and Institutional Class shares. As of December 31, 2002: (i) GPAF, GPASCF, GAAF, GSP500F, GBGIF, GBGEMF, GIQBF and GHYBF offered all five classes; (ii) GTEF offered Class A and Class C shares; and (iii) GCMF offered Class A, Class B, Class C and Class K shares. Through December 31, 2002, no Institutional Class shares of the Funds were sold. 71 Transactions in shares of beneficial interest were as follows: / / THE GUARDIAN PARK AVENUE FUND
Year Ended December 31, Year Ended December 31, 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS A Shares sold 3,071,277 14,842,764 $ 87,019,350 $ 573,611,639 Shares issued in reinvestment of dividends and distributions 144,059 416,153 4,193,466 14,350,513 Shares repurchased (14,071,395) (22,513,827) (391,653,154) (783,686,077) - --------------------------------------------------------------------------------------------------------------------------------- NET DECREASE (10,856,059) (7,254,910) $ (300,440,338) $ (195,723,925) - --------------------------------------------------------------------------------------------------------------------------------- CLASS B Shares sold 316,116 718,681 $ 8,756,755 $ 24,755,865 Shares issued in reinvestment of distributions -- 60,776 -- 2,039,204 Shares repurchased (2,232,897) (2,638,966) (59,546,800) (85,925,461) - --------------------------------------------------------------------------------------------------------------------------------- NET DECREASE (1,916,781) (1,859,509) $ (50,790,045) $ (59,130,392) - --------------------------------------------------------------------------------------------------------------------------------- CLASS C Shares sold 51,819 54,217 $ 1,532,408 $ 1,841,039 Shares issued in reinvestment of distributions -- 1,433 -- 47,705 Shares repurchased (51,896) (14,129) (1,335,406) (462,546) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) (77) 41,521 $ 197,002 $ 1,426,198 - --------------------------------------------------------------------------------------------------------------------------------- Period from Period from Year Ended May 15, 2001+ to Year Ended May 15, 2001+ to December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS K Shares sold 4,015 225,038 $ 103,216 $ 8,000,086 Shares issued in reinvestment of distributions -- 1,394 -- 48,270 Shares repurchased (20) -- (495) -- - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 3,995 226,432 $ 102,721 $ 8,048,356 - ---------------------------------------------------------------------------------------------------------------------------------
/ / THE GUARDIAN PARK AVENUE SMALL CAP FUND
Year Ended December 31, Year Ended December 31, 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS A Shares sold 2,782,741 2,875,873 $ 42,101,323 $ 44,088,643 Shares repurchased (3,255,243) (2,854,612) (46,439,000) (43,315,896) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) (472,502) 21,261 $ (4,337,677) $ 772,747 - --------------------------------------------------------------------------------------------------------------------------------- CLASS B Shares sold 217,932 114,334 $ 3,217,947 $ 1,704,176 Shares repurchased (240,199) (255,548) (3,301,687) (3,752,232) - --------------------------------------------------------------------------------------------------------------------------------- NET DECREASE (22,267) (141,214) $ (83,740) $ (2,048,056) - --------------------------------------------------------------------------------------------------------------------------------- CLASS C Shares sold 21,118 21,280 $ 298,183 $ 330,284 Shares repurchased (6,407) (2,432) (87,676) (35,771) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 14,711 18,848 $ 210,507 $ 294,513 - --------------------------------------------------------------------------------------------------------------------------------- Period from Period from Year Ended May 15, 2001+ to Year Ended May 15, 2001+ to December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS K Shares sold 3,317 509,661 $ 45,210 $ 8,006,847 - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 3,317 509,661 $ 45,210 $ 8,006,847 - ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations. 72 / / THE GUARDIAN ASSET ALLOCATION FUND
Year Ended December 31, Year Ended December 31, 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS A Shares sold 1,524,801 2,388,885 $ 14,387,848 $ 28,320,165 Shares issued in reinvestment of dividends and distributions 257,058 1,214,068 2,516,751 13,537,855 Shares repurchased (4,314,488) (5,454,837) (39,879,710) (62,047,718) - --------------------------------------------------------------------------------------------------------------------------------- NET DECREASE (2,532,629) (1,851,884) $ (22,975,111) $ (20,189,698) - --------------------------------------------------------------------------------------------------------------------------------- CLASS B Shares sold 239,318 765,500 $ 2,266,828 $ 8,751,061 Shares issued in reinvestment of dividends and distributions 29,270 265,921 286,492 2,957,127 Shares repurchased (972,783) (811,443) (8,982,368) (9,255,899) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) (704,195) 219,978 $ (6,429,048) $ 2,452,289 - --------------------------------------------------------------------------------------------------------------------------------- CLASS C Shares sold 56,416 113,855 $ 562,704 $ 1,390,025 Shares issued in reinvestment of dividends and distributions 3,956 44,917 38,735 499,477 Shares repurchased (39,534) (68,632) (359,141) (784,006) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 20,838 90,140 $ 242,298 $ 1,105,496 - --------------------------------------------------------------------------------------------------------------------------------- Period from Period from Year Ended May 15, 2001+ to Year Ended May 15, 2001+ to December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS K Shares sold 13,246 663,964 $ 112,101 $ 8,006,825 Shares issued in reinvestment of dividends and distributions 9,429 40,153 92,412 447,297 - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 22,675 704,117 $ 204,513 $ 8,454,122 - ---------------------------------------------------------------------------------------------------------------------------------
/ / THE GUARDIAN S&P 500 INDEX FUND
Year Ended December 31, Year Ended December 31, 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS A Shares sold 1,830,415 17,486,860 $ 11,566,863 $ 151,684,833 Shares issued in reinvestment of dividends 86,617 134,488 605,220 1,079,196 Shares repurchased (20,356,324) (1,065,290) (118,000,511) (9,081,811) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) (18,439,292) 16,556,058 $ (105,828,428) $ 143,682,218 - --------------------------------------------------------------------------------------------------------------------------------- CLASS B Shares sold 342,017 414,851 $ 2,343,329 $ 3,329,965 Shares issued in reinvestment of dividends 4,430 704 27,713 5,511 Shares repurchased (173,276) (32,153) (1,146,882) (246,498) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 173,171 383,402 $ 1,224,160 $ 3,088,978 - --------------------------------------------------------------------------------------------------------------------------------- CLASS C Shares sold 187,627 161,598 $ 1,400,528 $ 1,358,241 Shares issued in reinvestment of dividends 3,553 643 22,207 5,039 Shares repurchased (130,517) (3,940) (874,323) (33,013) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 60,663 158,301 $ 548,412 $ 1,330,267 - --------------------------------------------------------------------------------------------------------------------------------- Period from Period from Year Ended May 15, 2001+ to Year Ended May 15, 2001+ to December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS K Shares sold 6,165 932,135 $ 36,792 $ 8,006,825 Shares issued in reinvestment of dividends 6,734 2,770 43,052 21,719 - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 12,899 934,905 $ 79,844 $ 8,028,544 - ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations. 73 / / THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
Year Ended December 31, Year Ended December 31, 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS A Shares sold 26,379,926 28,034,626 $ 268,688,195 $ 341,632,919 Shares repurchased (28,286,267) (27,355,035) (288,753,391) (332,446,962) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) (1,906,341) 679,591 $ (20,065,196) $ 9,185,957 - --------------------------------------------------------------------------------------------------------------------------------- CLASS B Shares sold 552,901 40,753 $ 4,895,940 $ 470,302 Shares repurchased (664,735) (189,444) (6,002,347) (2,136,318) - --------------------------------------------------------------------------------------------------------------------------------- NET DECREASE (111,834) (148,691) $ (1,106,407) $ (1,666,016) - --------------------------------------------------------------------------------------------------------------------------------- CLASS C Shares sold 94,458 586 $ 753,032 $ 7,228 Shares repurchased (94,502) (881) (763,931) (11,339) - --------------------------------------------------------------------------------------------------------------------------------- NET DECREASE (44) (295) $ (10,899) $ (4,111) - --------------------------------------------------------------------------------------------------------------------------------- Period from Period from Year Ended May 15, 2001+ to Year Ended May 15, 2001+ to December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS K Shares sold 209 617,290 $ 1,840 $ 8,000,075 - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 209 617,290 $ 1,840 $ 8,000,075 - ---------------------------------------------------------------------------------------------------------------------------------
/ / THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
Year Ended December 31, Year Ended December 31, 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS A Shares sold 2,084,844 1,518,596 $ 19,196,380 $ 12,396,053 Shares repurchased (1,037,525) (1,397,209) (9,382,580) (11,524,330) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 1,047,319 121,387 $ 9,813,800 $ 871,723 - --------------------------------------------------------------------------------------------------------------------------------- CLASS B Shares sold 973,656 18,874 $ 7,741,707 $ 152,157 Shares repurchased (937,516) (30,194) (7,477,413) (230,498) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) 36,140 (11,320) $ 264,294 $ (78,341) - --------------------------------------------------------------------------------------------------------------------------------- CLASS C Shares sold 28,313 938 $ 239,626 $ 11,146 Shares repurchased (5,667) -- (44,448) -- - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 22,646 938 $ 195,178 $ 11,146 - --------------------------------------------------------------------------------------------------------------------------------- Period from Period from Year Ended May 15, 2001+ to Year Ended May 15, 2001+ to December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS K Shares sold 4,995 958,952 $ 40,085 $ 8,006,825 - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 4,995 958,952 $ 40,085 $ 8,006,825 - ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations. 74 / / THE GUARDIAN INVESTMENT QUALITY BOND FUND
Year Ended December 31, Year Ended December 31, 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS A Shares sold 11,341,936 11,603,316 $ 113,553,764 $ 114,001,912 Shares issued in reinvestment of dividends and distributions 517,494 630,690 5,207,398 6,200,352 Shares repurchased (9,956,834) (10,530,768) (99,280,342) (103,503,358) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 1,902,596 1,703,238 $ 19,480,820 $ 16,698,906 - --------------------------------------------------------------------------------------------------------------------------------- CLASS B Shares sold 1,016,356 541,171 $ 10,196,034 $ 5,346,957 Shares issued in reinvestment of dividends and distributions 59,127 52,999 594,614 522,675 Shares repurchased (519,717) (156,075) (5,196,692) (1,540,834) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 555,766 438,095 $ 5,593,956 $ 4,328,798 - --------------------------------------------------------------------------------------------------------------------------------- CLASS C Shares sold 114,498 11,192 $ 1,152,765 $ 187,227 Shares issued in reinvestment of dividends and distributions 37,890 40,792 380,474 324,082 Shares repurchased (28,439) -- (286,467) -- - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 123,949 51,984 $ 1,246,772 $ 511,309 - --------------------------------------------------------------------------------------------------------------------------------- Period from Period from Year Ended May 15, 2001+ to Year Ended May 15, 2001+ to December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS K Shares sold 3,060 826,454 $ 31,059 $ 8,000,075 Shares issued in reinvestment of dividends and distributions 37,363 28,091 375,607 278,659 - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 40,423 854,545 $ 406,666 $ 8,278,734 - ---------------------------------------------------------------------------------------------------------------------------------
/ / THE GUARDIAN HIGH YIELD BOND FUND
Year Ended December 31, Year Ended December 31, 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS A Shares sold 1,022,945 1,013,723 $ 7,149,700 $ 7,660,961 Shares issued in reinvestment of dividends 398,176 432,987 2,727,625 3,273,416 Shares repurchased (1,059,195) (1,787,883) (7,319,978) (13,591,900) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) 361,926 (341,173) $ 2,557,347 $ (2,657,523) - --------------------------------------------------------------------------------------------------------------------------------- CLASS B Shares sold 141,649 129,891 $ 961,254 $ 1,018,478 Shares issued in reinvestment of dividends 85,305 89,185 584,043 671,132 Shares repurchased (119,806) (68,191) (814,725) (516,114) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 107,148 150,885 $ 730,572 $ 1,173,496 - --------------------------------------------------------------------------------------------------------------------------------- CLASS C Shares sold 4,786 4,797 $ 32,953 $ 39,513 Shares issued in reinvestment of dividends 82,282 86,149 563,430 648,549 Shares repurchased (377) (3,157) (2,525) (23,392) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 86,691 87,789 $ 593,858 $ 664,670 - --------------------------------------------------------------------------------------------------------------------------------- Period from Period from Year Ended May 15, 2001+ to Year Ended May 15, 2001+ to December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS K Shares sold 17 1,041,677 $ 113 $ 8,000,075 Shares issued in reinvestment of dividends 88,726 56,447 607,957 411,151 - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 88,743 1,098,124 $ 608,070 $ 8,411,226 - ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations. 75 / / THE GUARDIAN TAX-EXEMPT FUND
Year Ended December 31, Year Ended December 31, 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- CLASS A Shares sold 2,805,928 3,335,392 $ 29,029,828 $ 34,016,231 Shares issued in reinvestment of dividends and distributions 580,929 462,467 6,051,465 4,704,621 Shares repurchased (3,227,880) (2,743,458) (33,353,923) (28,061,348) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 158,977 1,054,401 $ 1,727,370 $ 10,659,504 - --------------------------------------------------------------------------------------------------------------------------------- CLASS C Shares sold 39,077 6,042 $ 417,830 $ 61,808 Shares issued in reinvestment of dividends and distributions 43,565 34,090 453,798 346,653 Shares repurchased (26,469) -- (285,324) -- - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 56,173 40,132 $ 586,304 $ 408,461 - ---------------------------------------------------------------------------------------------------------------------------------
/ / THE GUARDIAN CASH MANAGEMENT FUND
Year Ended December 31, 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares @ $1 per share - --------------------------------------------------------------------------------------------------------------------------------- CLASS A Shares sold 537,843,107 842,976,401 Shares issued in reinvestment of dividends 5,976,666 16,144,640 Shares repurchased (491,705,217) (715,259,348) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 52,114,556 143,861,693 - --------------------------------------------------------------------------------------------------------------------------------- CLASS B Shares sold 25,578,371 17,186,988 Shares issued in reinvestment of dividends 34,808 310,922 Shares repurchased (22,812,305) (13,673,695) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 2,800,874 3,824,215 - --------------------------------------------------------------------------------------------------------------------------------- CLASS C Shares sold 942,599 145,266 Shares issued in reinvestment of dividends 19,777 205,952 Shares repurchased (123,627) (52,491) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 838,749 298,727 - --------------------------------------------------------------------------------------------------------------------------------- Period from Year Ended May 15, 2001+ to December 31, 2002 December 31, 2001 - --------------------------------------------------------------------------------------------------------------------------------- Shares @ $1 per share - --------------------------------------------------------------------------------------------------------------------------------- CLASS K Shares sold 393,942 8,050,476 Shares issued in reinvestment of dividends 45,312 101,297 Shares repurchased (64,395) (27,000) - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE 374,859 8,124,773 - ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations. NOTE 9. LINE OF CREDIT A $100,000,000 line of credit available to all of the Funds and other related Guardian Funds has been established with State Street Bank and Trust Company and Bank of Montreal. The rate of interest charged on any borrowing is based upon the prevailing Federal Funds rate at the time of the loan plus .50% calculated on a 360 day basis per annum. For the year ended December 31, 2002, none of the Funds borrowed against this line of credit. The Funds are obligated to pay State Street Bank and Trust Company and Bank of Montreal a commitment fee computed at a rate of .08% per annum on the average daily unused portion of the revolving credit. 76 NOTE 10. INVESTMENTS IN AFFILIATES(1) A summary of GAAF transactions in affiliated securities during the year ended December 31, 2002 is set forth below:
BALANCE OF BALANCE OF DIVIDENDS NET REALIZED SHARES HELD PURCHASES GROSS SHARES HELD VALUE INCLUDED IN GAINS FROM DECEMBER 31, AND SALES AND DECEMBER 31, DECEMBER 31, DIVIDEND UNDERLYING NAME OF ISSUER 2001 ADDITIONS REDUCTIONS 2002 2002 INCOME FUNDS - -------------------------------------------------------------------------------------------------------------------------------- Non-Controlled Affiliates The Guardian Investment Quality Bond Fund, Class A 4,820,068 -- 2,340,778 2,479,290 $25,487,098 $1,590,366 $70,164 Majority-Owned Subsidiary The Guardian S&P 500 Index Fund, Class A 16,620,000 162,601 1,315,912 15,466,689 93,418,803 1,550,074 -- NET REALIZED GAIN/(LOSS) NAME OF ISSUER ON SALES - -------------------------------------------- Non-Controlled Affiliates The Guardian Investment Quality Bond Fund, Class A $ 130,682 Majority-Owned Subsidiary The Guardian S&P 500 Index Fund, Class A (3,448,437)
NOTE 11. MANAGEMENT INFORMATION (UNAUDITED) 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 composed of (1) the Portfolio(2), (2) The Guardian Variable Contract Funds, Inc.(3) (a series fund that issues its shares in six series), (3) The Guardian Bond Fund, Inc., (4) The Guardian Cash Fund, Inc. and (5) GIAC Funds, Inc. (a series fund that issues its shares in three series).
NUMBER OF FUNDS IN THE POSITION TERM OF OFFICE GUARDIAN FUND WITH AND LENGTH OF PRINCIPAL OCCUPATIONS COMPLEX OVERSEEN NAME, ADDRESS AND AGE PORTFOLIO TIME SERVED+ DURING PAST 5 YEARS BY TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES* Arthur V. Ferrara (72) Trustee Since 1987 Retired. Former Chairman of the Board 23 Box 902 and Chief Executive Officer, The East Orleans, Massachusetts Guardian Life Insurance Company of 02643 America 1/93-12/95; Director (Trustee) of all of the mutual funds within the Guardian Fund Complex. Director of various mutual funds sponsored by Gabelli Asset Management (4 portfolios). Leo R. Futia (83) Trustee Since 1982 Retired. Former Chairman of The Board 23 18 Interlaken Road and Chief Executive Officer, The Greenwich, Connecticut Guardian Life Insurance Company of 06830 America; Director since 5/70. Director (Trustee) of all of the mutual funds within the Guardian Fund Complex.
- --------------- 1 Affiliated issuers, as defined in the 1940 Act, include issuers in which the Fund held 5% or more of the outstanding voting securities. Majority-owned subsidiaries include issuers on which the Fund held 50% or more of the outstanding voting securities. 2 During the year, the Portfolio included two new series: The Guardian UBS Large Cap Value Fund and The Guardian UBS Small Cap Value Fund. As of December 31, 2002, these two Funds had not commenced operations. 3 In February 2003, The Guardian Variable Contract Funds, Inc. will begin issuing shares in two new series: The Guardian UBS VC Large Cap Value Fund and The Guardian UBS VC Small Cap Value Fund. As of December 31, 2002, these two Funds had not commenced operations. * "Interested" Trustee means one who is an "interested person" under the Investment Company Act of 1940 by virtue of a current or past position with The Guardian Life Insurance Company of America, the indirect parent company of Guardian Investor Services LLC, the investment adviser of certain Funds in the Guardian Fund Complex. + There is no set term of office for Trustees and Officers. The table reflects the number of years for which each person has served as Trustee and/or Officer. 77
NUMBER OF FUNDS IN THE POSITION TERM OF OFFICE GUARDIAN FUND WITH AND LENGTH OF PRINCIPAL OCCUPATIONS COMPLEX OVERSEEN NAME, ADDRESS AND AGE PORTFOLIO TIME SERVED+ DURING PAST 5 YEARS BY TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------- Dennis J. Manning (55) Trustee Since 2003 President and Chief Executive Officer, 23 81 Greanest Ridge Road The Guardian Life Insurance Company of Wilton, Connecticut America, since 1/03. President and 06897 Chief Operating Officer, 1/02 to 12/02; Executive Vice President and Chief Operating Officer, 1/01 to 12/01; Executive Vice President, Individual Markets and Group Pensions, 1/99 to 12/00; Senior Vice President, Individual Markets and Group Pensions, 6/98 to 12/98; Senior Vice President, Chief Marketing Officer prior thereto. Director of The Guardian Insurance & Annuity Company, Inc. since 3/01. Chairman of the Board of all of the mutual funds within the Guardian Fund Complex. DISINTERESTED TRUSTEES Frank J. Fabozzi, Ph.D. (54) Trustee Since 1992 Adjunct Professor of Finance, School of 23 858 Tower View Circle Management -- Yale University, 2/94 to New Hope, Pennsylvania present; Visiting Professor of Finance 18938 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 (48 portfolios). William W. Hewitt, Jr. (74) Trustee Since 1989 Retired. Director (Trustee) of all of 23 c/o Guardian Investor the mutual funds within the Guardian Services LLC Fund Complex. Director (Trustee) of 7 Hanover Square, H27-A various mutual funds sponsored by UBS New York, New York Global Asset Management (U.S.), Inc. 10004 (41 portfolios). Dr. Sidney I. Lirtzman (72) Trustee Since 1987 City University of New York at Baruch 23 38 West 26th Street College -- Dean, Zicklin School of New York, New York Business 2/96 to 9/02; Interim 10010 President 9/99 to 9/00; Vice President 10/01 to present. Emanuel Saxe Professor of Management 2/96 to present. Director (Trustee) of all of the mutual funds within the Guardian Fund Complex. Carl W. Schafer (66) Trustee Since 1996 President, Atlantic Foundation (a 23 66 Witherspoon Street, #1100 private charitable foundation). Princeton, New Jersey Director of Roadway Corporation 08542 (trucking), Labor Ready, Inc. (provider of temporary manual labor), and Frontier Oil Corporation. Director (Trustee) of all of the mutual funds within the Guardian Fund Complex. Director (Trustee) of various mutual funds sponsored by UBS Global Asset Management (U.S.), Inc. (41 portfolios).
78
NUMBER OF FUNDS IN THE POSITION TERM OF OFFICE GUARDIAN FUND WITH AND LENGTH OF PRINCIPAL OCCUPATIONS COMPLEX OVERSEEN NAME, ADDRESS AND AGE PORTFOLIO TIME SERVED+ DURING PAST 5 YEARS BY TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------- Robert G. Smith (70) Trustee Since 1982 Chairman and Chief Executive Officer, 23 132 East 72nd Street Smith Affiliated Capital Corp. since New York, New York 4/82. Director (Trustee) of all of the 10021 mutual funds within the Guardian Fund Complex. Governor appointments as Director of New York Health Care Reform Act Charitable Organization and Nassau County Interim Finance Authority. Senior private member of the New York State Financial Control Board of New York City. Senior Director for the New York State Comptroller's Investment Advisory Committee for State Pension Funds (Common Fund). OFFICERS Joseph A. Caruso (50) Senior Vice Since 1992 Senior Vice President and Corporate 23 President and Secretary, The Guardian Life Insurance Secretary Company of America since 1/01; Vice President and Corporate Secretary prior thereto. Senior Vice President and Secretary, The Guardian Insurance & Annuity Company, Inc., Guardian Investor Services LLC, Park Avenue Life Insurance Company, Guardian Baillie Gifford Limited, and all of the mutual funds within the Guardian Fund Complex. Vice President and Corporate Secretary, Park Avenue Securities LLC. Director of Guardian Insurance & Annuity Company, Inc., Guardian Investor Services LLC and Park Avenue Securities LLC since 3/02. Howard W. Chin (50) Managing Since 1997 Managing Director, The Guardian Life 13 Director Insurance Company of America since 9/97; Officer of various mutual funds within the Guardian Fund Complex. Richard A. Cumiskey (42) Compliance Since 2002 Second Vice President, Equity 23 Officer Administration and Oversight, The Guardian Life Insurance Company of America since 1/01; Assistant Vice President, Equity Administration and Oversight, 6/99 to 12/00; Director Compliance Officer, 10/97 to 5/99; Manager prior thereto. Second Vice President and Compliance Officer of The Guardian Insurance & Annuity Company, Inc. and Guardian Investor Services LLC. Officer of all of the mutual funds within the Guardian Fund Complex. Richard A. Goldman (40) Managing Since 2001 Managing Director, Equity Investments, 21 Director The Guardian Life Insurance Company of America since 7/01. Director, Citigroup Asset Management prior thereto. Officer of various mutual funds within the Guardian Fund Complex.
79
NUMBER OF FUNDS IN THE POSITION TERM OF OFFICE GUARDIAN FUND WITH AND LENGTH OF PRINCIPAL OCCUPATIONS COMPLEX OVERSEEN NAME, ADDRESS AND AGE PORTFOLIO TIME SERVED+ DURING PAST 5 YEARS BY TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------- Alexander M. Grant, Jr. (53) Managing Since 1993 Managing Director, The Guardian Life 14 Director Insurance Company of America since 3/99; Second Vice President, Investments, 1/97 to 3/99; Assistant Vice President, Investments, prior thereto. Officer of various mutual funds within the Guardian Fund Complex. Edward H. Hocknell (42) Vice President Since 1997 Partner, Baillie Gifford & Co., since 15 c/o Baillie Gifford Overseas, 5/98. Director, Baillie Gifford Limited Overseas Limited since 10/92. Officer 1 Rutland Court of various mutual funds within the Edinburgh, EH3 8EY, Guardian Fund Complex. Scotland Jonathan C. Jankus (55) Managing Since 1993 Managing Director, Investments, The 18 Director Guardian Life Insurance Company of America since 3/98; Second Vice President, Investments, prior thereto. Officer of various mutual funds within the Guardian Fund Complex. Ann T. Kearney (51) Controller Since 1987 Second Vice President, Group Pensions 23 Financial Management, The Guardian Life Insurance Company of America. Second Vice President of The Guardian Insurance & Annuity Company, Inc. Controller of all of the mutual funds within the Guardian Fund Complex. Peter J. Liebst (46) Managing Since 1999 Managing Director, Investments, The 18 Director Guardian Life Insurance Company of America, since 8/98; Vice President, Van Kampen American Capital Investment Advisory Corporation prior thereto. Officer of various mutual funds within the Guardian Fund Complex. R. Robin Menzies (50) Vice President Since 1991 Partner, Baillie Gifford & Co. 4/81 to 15 c/o Baillie Gifford Overseas, present. Director, Baillie Gifford Limited Overseas Limited 11/90 to present. 1 Rutland Court Director, Guardian Baillie Gifford Edinburgh, EH3 8EY, Limited 11/90 to present. Officer of Scotland various mutual funds within the Guardian Fund Complex. John B. Murphy (55) Managing Since 1991 Managing Director, Equity Securities, 21 Director 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. Frank L. Pepe (60) Vice President Since 1995 Vice President, Equity Financial 23 and Treasurer Management and Control, The Guardian Life Insurance Company of America. Vice President and Controller, Guardian Insurance & Annuity Company, Inc. Senior Vice President and Controller, Guardian Investor Services LLC. Officer of all of the mutual funds within the Guardian Fund Complex.
80
NUMBER OF FUNDS IN THE POSITION TERM OF OFFICE GUARDIAN FUND WITH AND LENGTH OF PRINCIPAL OCCUPATIONS COMPLEX OVERSEEN NAME, ADDRESS AND AGE PORTFOLIO TIME SERVED+ DURING PAST 5 YEARS BY TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------- Richard T. Potter, Jr. (48) Vice President Since 1992 Vice President and Equity Counsel, The 23 and Counsel Guardian Life Insurance Company of America. Vice President and Counsel, The Guardian Insurance & Annuity Company, Inc., Guardian Investor Services LLC, Park Avenue Securities LLC and all of the mutual funds within the Guardian Fund Complex. Robert A. Reale (42) Managing Since 2001 Managing Director, The Guardian Life 23 Director Insurance Company of America, The Guardian Insurance & Annuity Company, Inc. and Guardian Investor Services LLC since 3/01. Assistant Vice President, Metropolitan Life prior thereto. Officer of all of the mutual funds within the Guardian Fund Complex. Thomas G. Sorell (47) Senior Since 1997 Executive Vice President and Chief 14 Managing Investment Officer, The Guardian Life Director Insurance Company of America since 1/03; Senior Managing Director, Fixed Income Securities, since 3/00; Vice President, Fixed Income Securities prior thereto. Managing Director, Investments: Park Avenue Life Insurance Company. Officer of various mutual funds within the Guardian Fund Complex. Donald P. Sullivan, Jr. (48) Vice President Since 1995 Vice President, Equity Administration, 23 The Guardian Life Insurance Company of America since 3/99; Second Vice President, Equity Administration prior thereto. Vice President, The Guardian Insurance & Annuity Company, Inc., Guardian Investor Services LLC and Park Avenue Securities LLC. Officer of all of the mutual funds within the Guardian Fund Complex. Matthew Ziehl (35) Managing Since 2002 Managing Director, the Guardian Life 15 Director Insurance Company of America, since 1/02; prior thereto, Team Leader, Salomon Brothers Asset Management, Inc. from 1/01 to 12/01; Co-Portfolio Manager, 8/99 to 12/00; Analyst, Small Cap Equity, 1/95-7/99. Officer of various mutual funds within the Guardian Fund Complex.
The Statement of Additional Information includes additional information about fund trustees and is available upon request, without charge, by calling (800) 221-3253. 81 FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIODS INDICATED:
NET REALIZED & UNREALIZED GAIN/(LOSS) ON INVESTMENTS INCREASE/ NET ASSET NET AND FOREIGN (DECREASE) DIVIDENDS VALUE, INVESTMENT CURRENCY FROM FROM NET BEGINNING INCOME/ RELATED INVESTMENT INVESTMENT OF PERIOD (LOSS) TRANSACTIONS OPERATIONS INCOME ----------------------------------------------------------------- THE GUARDIAN PARK AVENUE FUND CLASS A: Year ended 12/31/2002...................... $32.00 $ 0.17 $ (7.06) $ (6.89) $(0.08) Year ended 12/31/2001...................... 41.18 0.12 (9.06) (8.94) (0.03) Year ended 12/31/2000...................... 59.42 (0.09) (10.57) (10.66) (0.00)++ Year ended 12/31/1999...................... 51.88 0.13 15.04 15.17 (0.08) Year ended 12/31/1998...................... 46.12 0.35 9.38 9.73 (0.34) CLASS B: Year ended 12/31/2002...................... 30.88 (0.20) (6.69) (6.89) -- Year ended 12/31/2001...................... 40.08 (0.23) (8.76) (8.99) -- Year ended 12/31/2000...................... 58.57 (0.43) (10.48) (10.91) -- Year ended 12/31/1999...................... 51.59 (0.31) 14.84 14.53 -- Year ended 12/31/1998...................... 46.02 (0.08) 9.28 9.20 -- CLASS C: Year ended 12/31/2002...................... 30.64 (0.19) (6.70) (6.89) -- Year ended 12/31/2001...................... 39.85 (0.25) (8.75) (9.00) -- Period from 8/7/2000+ to 12/31/2000........ 58.01 (0.11) (12.59) (12.70) -- CLASS K: Year ended 12/31/2002...................... 31.93 0.05 (7.02) (6.97) -- Period from 5/15/2001+ to 12/31/2001....... 35.55 (0.00) (3.41) (3.41) -- THE GUARDIAN PARK AVENUE SMALL CAP FUND CLASS A: Year ended 12/31/2002...................... 15.74 (0.07) (2.37) (2.44) -- Year ended 12/31/2001...................... 16.93 (0.06) (1.13) (1.19) -- Year ended 12/31/2000...................... 17.48 (0.05) (0.37) (0.42) -- Year ended 12/31/1999...................... 12.80 (0.07) 4.75 4.68 -- Year ended 12/31/1998...................... 13.77 (0.03) (0.83) (0.86) -- CLASS B: Year ended 12/31/2002...................... 15.10 (0.20) (2.26) (2.46) -- Year ended 12/31/2001...................... 16.39 (0.20) (1.09) (1.29) -- Year ended 12/31/2000...................... 17.06 (0.20) (0.34) (0.54) -- Year ended 12/31/1999...................... 12.61 (0.19) 4.64 4.45 -- Year ended 12/31/1998...................... 13.67 (0.15) (0.80) (0.95) -- CLASS C: Year ended 12/31/2002...................... 15.07 (0.22) (2.26) (2.48) -- Year ended 12/31/2001...................... 16.39 (0.21) (1.11) (1.32) -- Period from 8/7/2000+ to 12/31/2000........ 19.37 (0.08) (2.77) (2.85) -- CLASS K: Year ended 12/31/2002...................... 15.62 (0.11) (2.36) (2.47) -- Period from 5/15/2001+ to 12/31/2001....... 15.71 (0.07) (0.02) (0.09) --
+ Commencement of operations. ++ Rounds to less than $0.01. 82
DISTRIBUTIONS FROM RATIOS/SUPPLEMENTAL DATA NET REALIZED -------------------------------------------------------- GAIN ON NET ASSETS, NET INVESTMENTS NET ASSET END OF INVESTMENT AND FOREIGN VALUE, PERIOD EXPENSES INCOME/(LOSS) PORTFOLIO CURRENCY RELATED END OF TOTAL (000'S TO AVERAGE TO AVERAGE TURNOVER TRANSACTIONS PERIOD RETURN* OMITTED) NET ASSETS NET ASSETS RATE - ---------------------------------------------------------------------------------------------------- -- $25.03 (21.56)% $1,120,351 0.87% 0.51 % 60% $(0.21) 32.00 (21.75) 1,779,818 0.83 0.31 143 (7.58) 41.18 (18.62) 2,589,059 0.79 (0.16) 108 (7.55) 59.42 30.25 3,334,722 0.77 0.24 74 (3.63) 51.88 21.30 2,990,767 0.78 0.72 55 -- 23.99 (22.31) 167,471 1.83 (0.44) 60 (0.21) 30.88 (22.46) 274,761 1.75 (0.61) 143 (7.58) 40.08 (19.34) 431,206 1.67 (1.03) 108 (7.55) 58.57 29.13 507,764 1.67 (0.66) 74 (3.63) 51.59 20.16 389,489 1.70 (0.21) 55 -- 23.75 (22.49) 5,884 2.07 (0.67) 60 (0.21) 30.64 (22.62) 7,594 1.96 (0.81) 143 (5.46) 39.85 (21.79)(a) 8,222 2.18(b) (1.29)(b) 108 -- 24.96 (21.83) 5,752 1.21 0.19 60 (0.21) 31.93 (9.63)(a) 7,229 1.22(b) 0.02(b) 143 -- 13.30 (15.50) 111,803 1.25 (0.45) 108 -- 15.74 (7.03) 139,774 1.28 (0.37) 131 (0.13) 16.93 (2.35) 150,022 1.25 (0.31) 125 -- 17.48 36.56 119,032 1.34 (0.48) 92 (0.11) 12.80 (6.35) 127,525 1.32 (0.29) 63 -- 12.64 (16.29) 17,189 2.19 (1.40) 108 -- 15.10 (7.87) 20,876 2.18 (1.27) 131 (0.13) 16.39 (3.11) 24,977 2.12 (1.18) 125 -- 17.06 35.29 22,430 2.23 (1.36) 92 (0.11) 12.61 (7.05) 22,122 2.17 (1.14) 63 -- 12.59 (16.46) 5,824 2.40 (1.60) 108 -- 15.07 (8.05) 6,752 2.34 (1.43) 131 (0.13) 16.39 (14.67)(a) 7,033 2.22(b) (1.12)(b) 125 -- 13.15 (15.81) 6,748 1.55 (0.75) 108 -- 15.62 (0.57)(a) 7,959 1.61(b) (0.77)(b) 131
* Excludes the effect of sales load. (a) Not annualized. (b) Annualized. 83 FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIODS INDICATED:
NET REALIZED & UNREALIZED GAIN/(LOSS) ON INCREASE/ NET ASSET NET AND FOREIGN (DECREASE) DIVIDENDS VALUE, INVESTMENT CURRENCY FROM FROM NET BEGINNING INCOME/ RELATED INVESTMENT INVESTMENT OF PERIOD (LOSS) TRANSACTIONS OPERATIONS INCOME ----------------------------------------------------------------- THE GUARDIAN ASSET ALLOCATION FUND CLASS A: Year ended 12/31/2002..................... $10.84 $ 0.17 $(2.38) $(2.21) $(0.18) Year ended 12/31/2001..................... 13.00 0.30 (1.61) (1.31) (0.18) Year ended 12/31/2000..................... 14.77 0.45 (0.29) 0.16 (0.44) Year ended 12/31/1999..................... 14.78 0.37 1.47 1.84 (0.37) Year ended 12/31/1998..................... 14.05 0.39 2.31 2.70 (0.43) CLASS B: Year ended 12/31/2002..................... 10.77 0.09 (2.37) (2.28) (0.08) Year ended 12/31/2001..................... 12.95 0.19 (1.59) (1.40) (0.11) Year ended 12/31/2000..................... 14.72 0.32 (0.27) 0.05 (0.33) Year ended 12/31/1999..................... 14.73 0.23 1.47 1.70 (0.23) Year ended 12/31/1998..................... 14.00 0.24 2.31 2.55 (0.28) CLASS C: Year ended 12/31/2002..................... 10.77 0.05 (2.38) (2.33) (0.05) Year ended 12/31/2001..................... 12.94 0.17 (1.64) (1.47) (0.03) Period from 8/7/2000+ to 12/31/2000....... 14.72 0.15 (0.78) (0.63) (0.23) CLASS K: Year ended 12/31/2002..................... 10.82 0.13 (2.39) (2.26) (0.13) Period from 5/15/2001+ to 12/31/2001...... 12.06 0.11 (0.68) (0.57) -- THE GUARDIAN S&P 500 INDEX FUND CLASS A: Year ended 12/31/2002..................... 7.90 0.10 (1.86) (1.76) (0.10) Year ended 12/31/2001..................... 9.07 0.06 (1.17) (1.11) (0.06) Period from 7/25/2000+ to 12/31/2000...... 10.06 0.03 (0.99) (0.96) (0.03) CLASS B: Year ended 12/31/2002..................... 7.88 0.02 (1.85) (1.83) (0.02) Year ended 12/31/2001..................... 9.05 0.01 (1.18) (1.17) (0.00)++ Period from 7/25/2000+ to 12/31/2000...... 10.06 0.00 (1.01) (1.01) -- CLASS C: Year ended 12/31/2002..................... 7.88 0.02 (1.85) (1.83) (0.02) Year ended 12/31/2001..................... 9.05 0.01 (1.17) (1.16) (0.01) Period from 7/25/2000+ to 12/31/2000...... 10.06 0.00 (1.01) (1.01) -- CLASS K: Year ended 12/31/2002..................... 7.90 0.05 (1.86) (1.81) (0.05) Period from 5/15/2001+ to 12/31/2001...... 8.59 0.02 (0.69) (0.67) (0.02) THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND CLASS A: Year ended 12/31/2002..................... 11.09 0.06 (2.25) (2.19) -- Year ended 12/31/2001..................... 14.28 0.01 (3.20) (3.19) -- Year ended 12/31/2000..................... 23.36 (0.06) (5.52) (5.58) -- Year ended 12/31/1999..................... 18.41 0.01 6.68 6.69 -- Year ended 12/31/1998..................... 16.08 0.02 3.13 3.15 (0.01)
+ Commencement of operations. ++ Rounds to less than $0.01. 84
DISTRIBUTIONS FROM NET REALIZED DISTRIBUTIONS GAIN ON IN EXCESS INVESTMENTS NET ASSET OF NET AND FOREIGN VALUE, INVESTMENT CURRENCY RELATED TAX RETURN END OF TOTAL INCOME TRANSACTIONS OF CAPITAL PERIOD RETURN* - ----------------------------------------------------------------------- -- -- -- $ 8.45 (20.64)% -- $(0.67) -- 10.84 (10.23) -- (1.49) -- 13.00 1.00 -- (1.48) -- 14.77 12.99 -- (1.54) -- 14.78 19.41 -- -- -- 8.41 (21.31) -- (0.67) -- 10.77 (10.99) -- (1.49) -- 12.95 0.26 -- (1.48) -- 14.72 12.09 -- (1.54) -- 14.73 18.32 -- -- -- 8.39 (21.70) -- (0.67) -- 10.77 (11.48) -- (0.92) -- 12.94 (4.18)(d) -- -- -- 8.43 (21.05) -- (0.67) -- 10.82 (4.85)(d) -- -- -- 6.04 (22.35) -- -- -- 7.90 (12.25) -- (0.00)(f) -- 9.07 (9.53)(d) -- -- -- 6.03 (23.22) -- -- -- 7.88 (12.87) -- (0.00)(f) -- 9.05 (10.00)(d) -- -- -- 6.03 (23.21) -- -- -- 7.88 (12.87) -- (0.00)(f) -- 9.05 (10.00)(d) -- -- -- 6.04 (23.00) -- -- -- 7.90 (7.76)(d) -- -- -- 8.90 (19.75) -- -- -- 11.09 (22.34) -- (3.26) $(0.24) 14.28 (23.81) $(0.03) (1.71) -- 23.36 37.21 -- (0.81) -- 18.41 19.61 RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------- NET NET ASSETS, EXPENSES GAAF INVESTMENT END OF EXPENSES WAIVED/ GROSS INCOME/(LOSS) PORTFOLIO PERIOD TO AVERAGE SUBSIDIZED EXPENSE TO AVERAGE TURNOVER (000'S OMITTED) NET ASSETS(a) BY GIS RATIO(b) NET ASSETS RATE - ----------------------------------------------------------------------------------- $110,593 0.42%(c) 0.73% 1.04% 1.60% 4% 169,386 0.47(c) 0.63 1.01 2.44 51 227,228 0.46(c) 0.60 1.10 3.07 11 227,031 0.48(c) 0.58 1.08 2.48 16 194,827 0.60(c) 0.52 1.13 2.52 23 29,064 1.25(c) 0.73 1.87 0.78 4 44,813 1.28(c) 0.63 1.82 1.62 51 51,024 1.28(c) 0.60 1.91 2.29 11 40,914 1.31(c) 0.58 1.91 1.66 16 27,545 1.48(c) 0.52 2.02 1.70 23 6,470 1.50(c) 0.73 2.12 0.58 4 8,080 1.46(c) 0.63 2.00 1.43 51 8,544 1.49(c)(e) 0.55(e) 2.07(e) 2.61(e) 11 6,126 0.70(c) 0.73 1.31 1.39 4 7,619 0.75(c)(e) 0.72(e) 1.37(e) 1.57(e) 51 100,129 0.53 0.13 -- 1.03 10 276,645 0.53 0.10 -- 0.87 1 167,487 0.53(e) 0.21(e) -- 0.71(e) 4 8,472 1.28 0.52 -- 0.33 10 9,705 1.28 0.47 -- 0.09 1 7,677 1.28(e) 0.47(e) -- (0.04)(e) 4 6,175 1.28 0.57 -- 0.33 10 7,598 1.28 0.49 -- 0.09 1 7,296 1.28(e) 0.47(e) -- (0.04)(e) 4 5,722 0.93 0.10 -- 0.68 10 7,383 0.93(e) 0.15(e) -- 0.47(e) 1 47,948 1.62 -- -- 0.29 45 80,856 1.53 -- -- 0.06 63 94,482 1.45 -- -- (0.29) 78 148,727 1.44 -- -- (0.03) 54 93,871 1.56 -- -- (0.01) 44
* Excludes the effect of sales load. (a) After expenses subsidized by GIS. (b) Amounts include the expenses of the underlying Funds. (c) Amounts do not include the expenses of the underlying Funds. (d) Not annualized. (e) Annualized. (f) Rounds to less than $0.01. 85 FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIODS INDICATED:
NET REALIZED & UNREALIZED GAIN/(LOSS) ON INVESTMENTS INCREASE/ NET ASSET NET AND FOREIGN (DECREASE) DIVIDENDS VALUE, INVESTMENT CURRENCY FROM FROM NET BEGINNING INCOME/ RELATED INVESTMENT INVESTMENT OF PERIOD (LOSS) TRANSACTIONS OPERATIONS INCOME ----------------------------------------------------------------- THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND CLASS B: Year ended 12/31/2002...................... $10.38 $(0.19) $(1.97) $(2.16) -- Year ended 12/31/2001...................... 13.54 (0.20) (2.96) (3.16) -- Year ended 12/31/2000...................... 22.61 (0.11) (5.46) (5.57) -- Year ended 12/31/1999...................... 17.97 (0.12) 6.47 6.35 -- Year ended 12/31/1998...................... 15.87 (0.09) 3.00 2.91 -- CLASS C: Year ended 12/31/2002...................... 10.40 (0.09) (2.07) (2.16) -- Year ended 12/31/2001...................... 13.55 (0.12) (3.03) (3.15) -- Period from 8/7/2000+ to 12/31/2000........ 19.19 (0.09) (2.20) (2.29) -- CLASS K: Year ended 12/31/2002...................... 10.94 (0.00) (2.18) (2.18) -- Period from 5/15/2001+ to 12/31/2001....... 12.96 (0.04) (1.98) (2.02) -- THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND CLASS A: Year ended 12/31/2002...................... 8.45 0.01 (0.39) (0.38) -- Year ended 12/31/2001...................... 8.31 0.01 0.13 0.14 -- Year ended 12/31/2000...................... 11.13 (0.55) (2.05) (2.60) $(0.22) Year ended 12/31/1999...................... 6.66 (0.07) 4.72 4.65 (0.18) Year ended 12/31/1998...................... 9.38 0.01 (2.73) (2.72) (0.00)++ CLASS B: Year ended 12/31/2002...................... 7.98 (0.10) (0.33) (0.43) -- Year ended 12/31/2001...................... 7.97 (0.10) 0.11 0.01 -- Year ended 12/31/2000...................... 10.65 0.08 (2.76) (2.68) -- Year ended 12/31/1999...................... 6.44 (0.27) 4.48 4.21 -- Year ended 12/31/1998...................... 9.30 (0.18) (2.68) (2.86) -- CLASS C: Year ended 12/31/2002...................... 8.00 (0.09) (0.35) (0.44) -- Year ended 12/31/2001...................... 7.98 (0.09) 0.11 0.02 -- Period from 8/7/2000+ to 12/31/2000........ 9.92 (0.08) (1.86) (1.94) -- CLASS K: Year ended 12/31/2002...................... 8.36 (0.03) (0.36) (0.39) -- Period from 5/15/2001+ to 12/31/2001....... 8.35 (0.06) 0.07 0.01 -- THE GUARDIAN INVESTMENT QUALITY BOND FUND CLASS A: Year ended 12/31/2002...................... 9.86 0.44 0.45 0.89 (0.44) Year ended 12/31/2001...................... 9.61 0.50 0.30 0.80 (0.50) Year ended 12/31/2000...................... 9.33 0.60 0.28 0.88 (0.60) Year ended 12/31/1999...................... 9.99 0.53 (0.63) (0.10) (0.53) Year ended 12/31/1998...................... 9.91 0.53 0.23 0.76 (0.53)
+ Commencement of operations. ++ Rounds to less than $0.01. 86
DISTRIBUTIONS FROM RATIOS/SUPPLEMENTAL DATA NET REALIZED ---------------------------------- GAIN ON INVESTMENTS NET ASSET NET ASSETS, AND FOREIGN VALUE, END OF EXPENSES CURRENCY RELATED TAX RETURN END OF TOTAL PERIOD TO AVERAGE TRANSACTIONS OF CAPITAL PERIOD RETURN* (000'S OMITTED) NET ASSETS(a)(b) - ------------------------------------------------------------------------------------------- -- -- $ 8.22 (20.81)% $ 5,598 2.87% -- -- 10.38 (23.34) 8,228 2.62 $(3.26) $(0.24) 13.54 (24.56) 12,747 2.43 (1.71) -- 22.61 36.16 15,623 2.45 (0.81) -- 17.97 18.36 10,216 2.67 -- -- 8.24 (20.77) 4,381 2.85 -- -- 10.40 (23.25) 5,530 2.60 (3.11) (0.24) 13.55 (11.72)(c) 7,208 2.51(d) -- -- 8.76 (19.93) 5,407 1.86 -- -- 10.94 (15.59)(c) 6,753 1.84(d) -- -- 8.07 (4.50) 27,356 2.10 -- -- 8.45 1.68 19,777 2.39 -- -- 8.31 (23.88) 18,439 2.18 -- -- 11.13 69.91 32,940 2.43 -- -- 6.66 (28.97) 16,342 2.55 -- -- 7.55 (5.39) 5,965 3.21 -- -- 7.98 0.13 6,023 3.51 -- -- 7.97 (25.16) 6,105 3.79 -- -- 10.65 65.37 2,320 5.07 -- -- 6.44 (30.75) 1,367 5.04 -- -- 7.56 (5.50) 6,306 3.12 -- -- 8.00 0.25 6,486 3.34 -- -- 7.98 (19.56)(c) 6,466 3.49(d) -- -- 7.97 (4.67) 7,685 2.36 -- -- 8.36 0.12(c) 8,020 2.63(d) (0.03) -- 10.28 9.25 170,658 0.85 (0.05) -- 9.86 8.55 144,900 0.86 -- -- 9.61 9.81 124,805 0.85 (0.03) -- 9.33 (1.02) 139,661 0.81 (0.15) -- 9.99 7.89 142,199 0.85 RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------- EXPENSES NET (EXCLUDING INVESTMENT INTEREST EXPENSE) EXPENSES INCOME/(LOSS) PORTFOLIO TO AVERAGE SUBSIDIZED TO AVERAGE TURNOVER NET ASSETS(a) BY GIS NET ASSETS RATE - ------------------------------------------------------------------------- -- -- (0.98)% 45% -- -- (1.05) 63 -- -- (1.27) 78 -- -- (1.03) 54 -- -- (1.13) 44 -- -- (0.99) 45 -- -- (1.04) 63 -- -- (1.52)(d) 78 -- -- 0.01 45 -- -- (0.60)(d) 63 -- -- (0.04) 81 -- -- (0.19) 101 -- -- (0.86) 101 -- -- (1.07) 96 -- -- 0.18 83 -- -- (1.16) 81 -- -- (1.28) 101 -- -- (2.54) 101 -- -- (3.70) 96 -- -- (2.31) 83 -- -- (1.08) 81 -- -- (1.12) 101 -- -- (2.31)(d) 101 -- -- (0.32) 81 -- -- (1.23)(d) 101 0.85% 0.08% 4.37 275 0.85 0.09 5.11 414 0.85 0.09 6.41 344 0.80 0.13 5.49 271 0.75 0.21 5.24 309
* Excludes the effect of sales load. (a) After expenses subsidized by GIS. (b) Expense ratio includes interest expense associated with reverse repurchase agreements. (c) Not annualized. (d) Annualized. 87 FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIODS INDICATED:
NET REALIZED & UNREALIZED GAIN/(LOSS) ON INVESTMENTS INCREASE/ NET ASSET AND FOREIGN (DECREASE) DIVIDENDS VALUE, NET CURRENCY FROM FROM NET BEGINNING INVESTMENT RELATED INVESTMENT INVESTMENT OF PERIOD INCOME TRANSACTIONS OPERATIONS INCOME ----------------------------------------------------------------- THE GUARDIAN INVESTMENT QUALITY BOND FUND CLASS B: Year ended 12/31/2002...................... $ 9.86 $0.37 $ 0.45 $ 0.82 $(0.37) Year ended 12/31/2001...................... 9.60 0.43 0.31 0.74 (0.43) Period from 8/7/2000+ to 12/31/2000........ 9.41 0.22 0.19 0.41 (0.22) CLASS C: Year ended 12/31/2002...................... 9.86 0.37 0.45 0.82 (0.37) Year ended 12/31/2001...................... 9.60 0.43 0.31 0.74 (0.43) Period from 8/7/2000+ to 12/31/2000........ 9.41 0.22 0.19 0.41 (0.22) CLASS K: Year ended 12/31/2002...................... 9.87 0.40 0.45 0.85 (0.40) Period from 5/15/2001+ to 12/31/2001....... 9.68 0.28 0.24 0.52 (0.28) THE GUARDIAN HIGH YIELD BOND FUND CLASS A: Year ended 12/31/2002...................... 7.19 0.55 (0.50) 0.05 (0.55) Year ended 12/31/2001...................... 7.66 0.69 (0.47) 0.22 (0.69) Year ended 12/31/2000...................... 8.98 0.77 (1.32) (0.55) (0.77) Year ended 12/31/1999...................... 9.84 0.78 (0.84) (0.06) (0.78) Period from 9/1/1998++ to 12/31/1998....... 9.26 0.38 0.58 0.96 (0.38) CLASS B: Year ended 12/31/2002...................... 7.18 0.50 (0.49) 0.01 (0.50) Year ended 12/31/2001...................... 7.66 0.64 (0.48) 0.16 (0.64) Year ended 12/31/2000...................... 8.97 0.68 (1.31) (0.63) (0.68) Year ended 12/31/1999...................... 9.83 0.67 (0.84) (0.17) (0.67) Period from 9/1/1998++ to 12/31/1998....... 9.26 0.31 0.57 0.88 (0.31) CLASS C: Year ended 12/31/2002...................... 7.18 0.50 (0.49) 0.01 (0.50) Year ended 12/31/2001...................... 7.65 0.64 (0.47) 0.17 (0.64) Period from 8/7/2000+ to 12/31/2000........ 8.47 0.28 (0.82) (0.54) (0.28) CLASS K: Year ended 12/31/2002...................... 7.19 0.53 (0.50) 0.03 (0.53) Period from 5/15/2001+ to 12/31/2001....... 7.68 0.39 (0.49) (0.10) (0.39) THE GUARDIAN TAX-EXEMPT FUND CLASS A: Year ended 12/31/2002...................... 10.09 0.40 0.61 1.01 (0.40) Year ended 12/31/2001...................... 10.10 0.41 0.06 0.47 (0.41) Year ended 12/31/2000...................... 9.40 0.43 0.70 1.13 (0.43) Year ended 12/31/1999...................... 10.13 0.40 (0.73) (0.33) (0.40) Year ended 12/31/1998...................... 9.99 0.43 0.17 0.60 (0.43) CLASS C: Year ended 12/31/2002...................... 10.09 0.32 0.61 0.93 (0.32) Year ended 12/31/2001...................... 10.10 0.34 0.06 0.40 (0.34) Period from 8/7/2000+ to 12/31/2000........ 9.77 0.14 0.33 0.47 (0.14)
+ Commencement of operations. ++ Date of initial public investment. 88
DISTRIBUTIONS FROM RATIOS/SUPPLEMENTAL DATA NET REALIZED ------------------------------------------------------ GAIN ON EXPENSES INVESTMENTS NET ASSET NET ASSETS, (EXCLUDING AND FOREIGN VALUE, END OF EXPENSES INTEREST EXPENSE) CURRENCY RELATED END OF TOTAL PERIOD TO AVERAGE TO AVERAGE TRANSACTIONS PERIOD RETURN* (000'S OMITTED) NET ASSETS(a)(b) NET ASSETS(a) - -------------------------------------------------------------------------------------------------- $(0.03) $10.28 8.43% $ 19,308 1.60% 1.60% (0.05) 9.86 7.86 13,036 1.61 1.60 -- 9.60 4.40(c) 8,493 1.60(d) 1.60(d) (0.03) 10.28 8.44 10,753 1.60 1.60 (0.05) 9.86 7.85 9,090 1.61 1.60 -- 9.60 4.39(c) 8,356 1.60(d) 1.60(d) (0.03) 10.29 8.81 9,213 1.25 1.25 (0.05) 9.87 5.43(c) 8,436 1.26(d) 1.25(d) -- 6.69 0.96 33,894 0.85 -- -- 7.19 2.87 33,797 0.85 -- -- 7.66 (6.53) 38,646 0.85 -- (0.02) 8.98 (0.63) 54,178 0.75 -- -- 9.84 9.24(c) 51,288 0.75(d) -- -- 6.69 0.35 8,336 1.60 -- -- 7.18 1.96 8,182 1.60 -- -- 7.66 (7.32) 7,567 1.74 -- (0.02) 8.97 (1.78) 3,184 1.87 -- -- 9.83 8.61(c) 2,482 2.33(d) -- -- 6.69 0.35 7,710 1.60 -- -- 7.18 2.09 7,657 1.60 -- -- 7.65 (6.42)(c) 7,491 1.60(d) -- -- 6.69 0.55 7,944 1.25 -- -- 7.19 (1.31)(c) 7,893 1.25(d) -- (0.19) 10.51 10.20 113,852 0.87(e) -- (0.07) 10.09 4.78 107,676 0.91(e) -- -- 10.10 12.29 97,185 0.88(e) -- (0.00)(f) 9.40 (3.29) 97,908 0.86(e) -- (0.03) 10.13 6.11 70,720 0.75 -- (0.19) 10.51 9.37 9,741 1.62(e) -- (0.07) 10.09 3.99 8,783 1.66(e) -- -- 10.10 4.87(c) 8,391 1.65(d)(e) -- RATIOS/SUPPLEMENTAL DATA - ----------------------------------- NET INVESTMENT EXPENSES INCOME PORTFOLIO SUBSIDIZED TO AVERAGE TURNOVER BY GIS NET ASSETS RATE - -------------------------------------------------------------------------------- 0.27% 3.58% 275% 0.31 4.31 414 0.34(d) 5.78(d) 344 0.36 3.64 275 0.36 4.36 414 0.34(d) 5.78(d) 344 0.03 4.00 275 0.08(d) 4.48(d) 414 0.45 8.17 69 0.47 9.21 141 0.38 9.03 163 0.40 8.34 152 0.51(d) 8.31(d) 11 0.77 7.42 69 0.78 8.42 141 0.77 8.37 163 1.00 7.22 152 0.51(d) 6.85(d) 11 0.77 7.42 69 0.71 8.43 141 0.63(d) 8.74(d) 163 0.35 7.77 69 0.41(d) 8.36(d) 141 0.06 3.85 99 0.09 4.03 181 0.07 4.43 124 0.08 4.11 144 0.26 4.29 111 0.37 3.11 99 0.37 3.28 181 0.31(d) 3.62(d) 124
* Excludes the effect of sales load. (a) After expenses subsidized by GIS. (b) Expense ratio includes interest expense associated with reverse repurchase agreements. (c) Not annualized. (d) Annualized. For GHYBF, ratios for 1998 are calculated from 7/7/98 (commencement of operations). (e) Before offset of custody credits. Including the custody credits in Class A, the expense ratio is 0.80% for 1999 and 0.85% for 2000, 2001 and 2002; in Class C the expense ratio is 1.60% for 2000, 2001 and 2002. (f) Rounds to less than $0.01. 89 FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE PERIODS INDICATED:
NET ASSET DIVIDENDS NET ASSET VALUE, NET FROM NET VALUE, BEGINNING INVESTMENT INVESTMENT END OF TOTAL OF PERIOD INCOME INCOME PERIOD RETURN* ------------------------------------------------------- THE GUARDIAN CASH MANAGEMENT FUND CLASS A: Year ended 12/31/2002.......................... $1.000 $0.009 $(0.009) $1.000 0.95% Year ended 12/31/2001.......................... 1.000 0.032 (0.032) 1.000 3.27 Year ended 12/31/2000.......................... 1.000 0.056 (0.056) 1.000 5.69 Year ended 12/31/1999.......................... 1.000 0.044 (0.044) 1.000 4.45 Year ended 12/31/1998.......................... 1.000 0.047 (0.047) 1.000 4.76 CLASS B: Year ended 12/31/2002.......................... 1.000 0.002 (0.002) 1.000 0.23 Year ended 12/31/2001.......................... 1.000 0.025 (0.025) 1.000 2.48 Year ended 12/31/2000.......................... 1.000 0.052 (0.052) 1.000 5.34 Year ended 12/31/1999.......................... 1.000 0.044 (0.044) 1.000 4.45 Year ended 12/31/1998.......................... 1.000 0.047 (0.047) 1.000 4.76 CLASS C: Year ended 12/31/2002.......................... 1.000 0.002 (0.002) 1.000 0.22 Year ended 12/31/2001.......................... 1.000 0.025 (0.025) 1.000 2.48 Period from 8/7/2000+ to 12/31/2000............ 1.000 0.020 (0.020) 1.000 2.03++ CLASS K: Year ended 12/31/2002.......................... 1.000 0.005 (0.005) 1.000 0.55 Period from 5/15/2001+ to 12/31/2001........... 1.000 0.013 (0.013) 1.000 1.26++
* Excludes the effect of sales load. + Commencement of operations. ++ Not annualized. 90
RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------ NET NET ASSETS, INVESTMENT END OF EXPENSES EXPENSES INCOME PERIOD TO AVERAGE SUBSIDIZED TO AVERAGE (000'S OMITTED) NET ASSETS(A) BY GIS NET ASSETS - ------------------------------------------------------------ $658,159 0.85% 0.02% 0.94% 606,045 0.85 0.04 3.13 462,183 0.85 0.07 5.57 390,106 0.85 0.09 4.41 225,997 0.85 0.19 4.65 18,485 1.60 0.37 0.22 15,685 1.60 0.12 2.37 11,860 1.14 0.63 5.25 13,782 0.85 0.93 4.41 12,430 0.85 0.97 4.65 9,330 1.60 0.25 0.22 8,492 1.60 0.04 2.47 8,193 1.60(b) 0.13(b) 5.06(b) 8,500 1.25 -- 0.54 8,125 1.25(b) 0.01(b) 1.99(b)
(a) After expenses subsidized by GIS. (b) Annualized. 91 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS BOARD OF TRUSTEES AND SHAREHOLDERS THE PARK AVENUE PORTFOLIO We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of The Park Avenue Portfolio (comprising, respectively, The Guardian Park Avenue Fund, The Guardian Park Avenue Small Cap Fund, The Guardian Asset Allocation Fund, The Guardian S&P 500 Index Fund, The Guardian Baillie Gifford International Fund, The Guardian Baillie Gifford Emerging Markets Fund, The Guardian Investment Quality Bond Fund, The Guardian High Yield Bond Fund, The Guardian Tax-Exempt Fund and The Guardian Cash Management Fund) as of December 31, 2002, and the related statements of operations (and cash flows for The Guardian Investment Quality Bond Fund) for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolios' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective Funds constituting The Park Avenue Portfolio at December 31, 2002, the results of their operations (and cash flows for The Guardian Investment Quality Bond Fund) for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. [Ernest & Young] New York, New York February 7, 2003 92 ITEM 2. CODE OF ETHICS. Not applicable to annual reports for the period ended December 31, 2002. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable to annual reports for the period ended December 31, 2002. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable to annual reports for the period ended December 31, 2002. ITEMS 5-6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to annual reports for the period ended December 31, 2002. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) Not applicable to annual reports for the period ended December 31, 2002. (b) There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 10. EXHIBITS. (a) Not applicable to annual reports for the period ended December 31, 2002. (b) Attached hereto. Exhibit 99.CERT Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 99.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Park Avenue Portfolio By: /s/ THOMAS G. SORELL ------------------------- Thomas G. Sorell President of The Park Avenue Portfolio Date: March 6, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ THOMAS G. SORELL ------------------------- Thomas G. Sorell President of The Park Avenue Portfolio Date: March 6, 2003 By: /s/ FRANK L. PEPE ------------------------------- Frank L. Pepe Vice President and Treasurer of The Park Avenue Portfolio Date: March 6, 2003 EX-99.CERT 3 y66693ncexv99wcert.txt CERTIFICATIONS EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - -------------------------------------------------------------------------------- I, Thomas G. Sorrell, President of The Park Avenue Portfolio, certify that: 1. I have reviewed this report on Form N-CSR of The Park Avenue Portfolio; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report. Date: March 6, 2003 /s/ Thomas G. Sorrell --------------------------- Thomas G. Sorrell, President of The Park Avenue Portfolio EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - -------------------------------------------------------------------------------- I, Frank L. Pepe, Vice President and Treasurer of The Park Avenue Portfolio, certify that: 1. I have reviewed this report on Form N-CSR of The Park Avenue Portfolio; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report. Date: March 6, 2003 /s/ Frank L. Pepe ---------------------------- Frank L. Pepe, Vice President and Treasurer The Park Avenue Portfolio Exhibit 99.1 Certification Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Report of The Park Avenue Portfolio (the "Portfolio") on Form N-CSR for the fiscal year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas G. Sorell, President of the Portfolio, certify that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Portfolio. Dated: March 6, 2003 /s/ Thomas G. Sorell ------------------------- Thomas G. Sorell, President of The Park Avenue Portfolio Exhibit 99.1 Certification Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Report of The Park Avenue Portfolio (the "Portfolio") on Form N-CSR for the fiscal year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frank L. Pepe, Vice President and Treasurer of the Portfolio, certify that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Portfolio. Dated: March 6, 2003 /s/ Frank L. Pepe ------------------------------- Frank L. Pepe, Vice President and Treasurer of The Park Avenue Portfolio -----END PRIVACY-ENHANCED MESSAGE-----