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
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The Park Avenue Portfolio
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(Exact name of registrant as specified in charter)
7 Hanover Square New York, N.Y. 10004
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(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
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(Name and address of agents for service)
Registrant's telephone number, including area code: (800) 221-3253
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2002
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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:
<Table>
[PHOTO] "NOTHING BUT THE UNEXPECTED"
Thomas G. Sorell, C.F.A.
President 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.
</Table>
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
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(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.
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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
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(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.
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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
<Table>
<Caption>
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1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
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S&P 500 Index 0.28 -13.40 -17.28 8.44
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DJIA 4.26 -10.72 -17.45 10.59
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NASDAQ -5.31 -20.64 -19.82 14.07
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Russell 2000 3.99 -8.35 -21.39 6.17
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The Lehman Aggregate
Bond Index(9) 0.09 3.69 4.58 1.57
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The Lehman Municipal
Bond Index(9) 0.94 3.66 4.75 0.00
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The Lehman High Yield
Bond Index(9) 1.68 -6.41 -2.93 6.74
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<Caption>
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2002
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S&P 500 Index -22.10
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DJIA -15.02
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NASDAQ -31.27
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Russell 2000 -20.47
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The Lehman Aggregate
Bond Index(9) 10.26
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The Lehman Municipal
Bond Index(9) 9.60
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The Lehman High Yield
Bond Index(9) -1.41
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</Table>
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.
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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.
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(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.
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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
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THE PARK AVENUE PORTFOLIO
TABLE OF CONTENTS
<Table>
<Caption>
PORTFOLIO SCHEDULE
MANAGER OF
INTERVIEW INVESTMENTS
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THE GUARDIAN PARK AVENUE FUND 2 23
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THE GUARDIAN PARK AVENUE SMALL CAP FUND 6 25
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THE GUARDIAN ASSET ALLOCATION FUND 8 27
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THE GUARDIAN S&P 500 INDEX FUND 10 30
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THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND 12 35
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THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND 14 37
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THE GUARDIAN INVESTMENT QUALITY BOND FUND 16 40
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THE GUARDIAN HIGH YIELD BOND FUND 18 44
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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
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</Table>
THE GUARDIAN PARK AVENUE FUND
<Table>
[PHOTO] OBJECTIVE: Long-term growth of
Richard Goldman capital
Portfolio Manager
PORTFOLIO: At least 80% common
stocks and convertible securities
INCEPTION: June 1, 1972
</Table>
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.
<Table>
<Caption>
- --------------------------------------------------------------
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%
- --------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
3
THE GUARDIAN PARK AVENUE FUND
SECTOR WEIGHTINGS OF
COMMON STOCKS HELD
BY THE FUND AS OF DECEMBER 31, 2002
PIE CHART
<Table>
<Caption>
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
<Caption>
TELECOMMUNICATIONS
CASH SERVICES UTILITIES
- ---- ------------------ ---------
2.31 3.80 1.14
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------------------------
</Table>
(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]
<Table>
<Caption>
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
</Table>
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
<Table>
[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
</Table>
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]
<Table>
<Caption>
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
</Table>
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.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------------------
</Table>
(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
<Table>
[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
</Table>
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]
<Table>
<Caption>
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
</Table>
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%
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------------------
</Table>
(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
<Table>
[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
</Table>
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]
<Table>
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
</Table>
[LINE GRAPH] GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
<Table>
<Caption>
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
</Table>
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.
<Table>
<Caption>
- ------------------------------------------------------------------------
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%
- ------------------------------------------------------------------------
</Table>
(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
<Table>
[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
</Table>
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]
<Table>
<Caption>
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
</Table>
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]
<Table>
<Caption>
CONTINENTAL
UK JAPAN ASIA PACIFIC CASH EUROPE EMERGING MARKETS
- -- ----- ------------ ---- ----------- ----------------
28.23 19.87 5.67 0.36 43.10 2.77
</Table>
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------------------
</Table>
(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
<Table>
[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
</Table>
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
<Table>
<Caption>
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
</Table>
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
<Table>
<Caption>
MIDDLE EAST AND
LATIN AMERICA ASIA AFRICA CASH EUROPE
- ------------- ---- --------------- ---- ------
19.46 53.89 14.48 2.45 9.72
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------------------
</Table>
(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
<Table>
[PHOTO] [PHOTO]
Thomas G. Sorell, C.F.A. Howard W. Chin
Co-Portfolio Manager Co-Portfolio Manager
</Table>
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]
<Table>
<Caption>
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
</Table>
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.
<Table>
<Caption>
- -------------------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------------
</Table>
(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
<Table>
[PHOTO] [PHOTO]
Peter J. Liebst Thomas G. Sorell, C.F.A.
Co-Portfolio Manager Co-Portfolio Manager
</Table>
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]
<Table>
<Caption>
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
</Table>
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.
<Table>
<Caption>
- ---------------------------------------------------------------------------------
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%
- ---------------------------------------------------------------------------------
</Table>
(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
<Table>
[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
</Table>
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]
<Table>
<Caption>
LOCAL GENERAL OBLIGATION
STATE GENERAL OBLIGATION BONDS BONDS REVENUE BONDS INSURED BONDS
- ------------------------------ ------------------------ ------------- -------------
7.26 20.10 21.11 51.53
</Table>
CREDIT QUALITY AS OF DECEMBER 31, 2002
[PIE CHART]
<Table>
<Caption>
AAA/US GOVERNMENT & GOVERNMENT AGENCY AA A
- ------------------------------------- -- -
68.58 26.64 4.78
</Table>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
[LINE GRAPH]
<Table>
<Caption>
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
</Table>
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.
<Table>
<Caption>
- -------------------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------------
</Table>
(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
<Table>
[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
</Table>
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
<Table>
<Caption>
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
- -------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
23
THE GUARDIAN PARK AVENUE FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
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
- -------------------------------------------------------------------------------
</Table>
(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
<Table>
<Caption>
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
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
25
THE GUARDIAN PARK AVENUE SMALL CAP FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
<Caption>
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
- ----------------------------------------------------------------------------
</Table>
(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
<Table>
<Caption>
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
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
27
THE GUARDIAN ASSET ALLOCATION FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
28
THE GUARDIAN ASSET ALLOCATION FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
<Caption>
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
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
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
- ----------------------------------------------------------------------------
<Caption>
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
- ----------------------------------------------------------------------------
</Table>
(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.
<Table>
<Caption>
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)
- ---------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
29
/ / The Guardian S&P 500 Index Fund
<Table>
<Caption>
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
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
30
THE GUARDIAN S&P 500 INDEX FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
31
THE GUARDIAN S&P 500 INDEX FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
32
THE GUARDIAN S&P 500 INDEX FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
33
THE GUARDIAN S&P 500 INDEX FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
<Caption>
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
- ----------------------------------------------------------------------------
<Caption>
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
- ----------------------------------------------------------------------------
</Table>
(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.
<Table>
<Caption>
PURCHASED FUTURES CONTRACTS
Unrealized
Contracts Description Expiration Depreciation
- --------------------------------------------------
8 S&P 500 Index 3/2003 $ (34,680)
- --------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
34
/ / The Guardian Baillie Gifford International Fund
<Table>
<Caption>
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
- ------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------
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
- ------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
35
THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ------------------------------------------------------------
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
</Table>
<Table>
<Caption>
- ------------------------------------------------------------
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
- ------------------------------------------------------------
<Caption>
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
- ------------------------------------------------------------
</Table>
+ 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
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
- ------------------------------------------------------------
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
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
37
THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ------------------------------------------------------------
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
</Table>
<Table>
<Caption>
- ------------------------------------------------------------
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
- ------------------------------------------------------------
<Caption>
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
- ------------------------------------------------------------
<Caption>
WARRANTS -- 2.1%
HONG KONG -- 0.0%
28,800 Kingboard Chemicals Hldgs. Ltd.
Warrants, expiring
12/31/2003* $ 2,585
- ------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
38
THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ------------------------------------------------------------
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
- ------------------------------------------------------------
<Caption>
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
- ------------------------------------------------------------
</Table>
(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
<Table>
<Caption>
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
- -----------------------------------------------------------------------
<Caption>
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
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
<Caption>
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
- -----------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
40
THE GUARDIAN INVESTMENT QUALITY BOND FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
41
\THE GUARDIAN INVESTMENT QUALITY BOND FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
<Caption>
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
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
<Caption>
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
- -----------------------------------------------------------------------
<Caption>
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
- -----------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
42
THE GUARDIAN INVESTMENT QUALITY BOND FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
<Caption>
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
- -----------------------------------------------------------------------
</Table>
(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
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
44
THE GUARDIAN HIGH YIELD BOND FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
45
THE GUARDIAN HIGH YIELD BOND FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
46
THE GUARDIAN HIGH YIELD BOND FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
<Caption>
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
- ----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
47
THE GUARDIAN HIGH YIELD BOND FUND
Schedule of Investments (Continued)
<Table>
<Caption>
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
- ----------------------------------------------------------------------------
</Table>
* 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
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------------
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
- ------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
49
THE GUARDIAN TAX-EXEMPT FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ------------------------------------------------------------------------
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
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------------
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
- ------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
50
THE GUARDIAN TAX-EXEMPT FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- ------------------------------------------------------------------------
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
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------------
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
- ------------------------------------------------------------------------
</Table>
(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
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
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
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
52
THE GUARDIAN CASH MANAGEMENT FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- -------------------------------------------------------------------
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
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------
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
- -------------------------------------------------------------------
<Caption>
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
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
53
THE GUARDIAN CASH MANAGEMENT FUND
Schedule of Investments (Continued)
<Table>
<Caption>
- -------------------------------------------------------------------
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
- -------------------------------------------------------------------
<Caption>
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
- -------------------------------------------------------------------
</Table>
+ 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
- -------------------------------------------------------------------------------
<Table>
<Caption>
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
--------------------------------------------
--------------------------------------------
</Table>
See notes to financial statements.
56
<Table>
<Caption>
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
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</Table>
57
/ / The Park Avenue Portfolio
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 2002
- -------------------------------------------------------------------------------
<Table>
<Caption>
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
</Table>
* Based on sale of less than $100,000. On sale of $100,000 or more,
the offering price is reduced.
** No load is charged on Class A shares.
See notes to financial statements.
58
<Table>
<Caption>
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**
</Table>
59
/ / The Park Avenue Portfolio
STATEMENTS OF OPERATIONS
Year Ended December 31, 2002
- -------------------------------------------------------------------------------
<Table>
<Caption>
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)
-------------------------------------------
-------------------------------------------
</Table>
See notes to financial statements.
60
<Table>
<Caption>
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
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</Table>
61
/ / The Park Avenue Portfolio
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
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 $ -- $ --
<Caption>
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
</Table>
See notes to financial statements.
62
<Table>
<Caption>
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) $ -- $ --
<Caption>
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
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
$ -- $ -- $ -- $ -- $ -- $ --
</Table>
63
/ / The Guardian Investment Quality Bond Fund
STATEMENT OF CASH FLOWS
Year Ended December 31, 2002
- -------------------------------------------------------------------------------
<Table>
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
-------------
-------------
</Table>
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:
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
-----------------------------------------------------
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
</Table>
For the year ended December 31, 2002, the components of distributable
earnings on a tax basis were as follows:
<Table>
<Caption>
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) --
</Table>
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:
<Table>
<Caption>
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
</Table>
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:
<Table>
<Caption>
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)
</Table>
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:
<Table>
<Caption>
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%
</Table>
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:
<Table>
<Caption>
- ---------------------------------------------------------
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%
==== ==== ==== ====
</Table>
<Table>
<Caption>
- ---------------------------------------------------------
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%
==== ==== ==== ====
</Table>
68
<Table>
<Caption>
- ---------------------------------------------------------
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%
==== ==== ==== ====
</Table>
<Table>
<Caption>
- ---------------------------------------------------------
GTEF
- ---------------------------------------------------------
CLASS A CLASS C
------- -------
Ordinary Operating Expenses .06% .06%
12b-1 Fees -- .31%
---- ----
.06% .37%
==== ====
</Table>
<Table>
<Caption>
- ---------------------------------------------------------
GCMF
- ---------------------------------------------------------
CLASS A CLASS B CLASS C CLASS K
------- ------- ------- -------
Administrative
Fees .02% .25% .25% --
12b-1 Fees -- .12% -- --
---- ---- ---- ----
.02% .37% .25% --
==== ==== ==== ====
</Table>
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:
<Table>
<Caption>
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
</Table>
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:
<Table>
<Caption>
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
</Table>
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:
<Table>
<Caption>
- --------------------------------------------------------
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
- --------------------------------------------------------
</Table>
The gross unrealized appreciation and depreciation of investments, on a tax
basis, excluding foreign currency and futures at December 31, 2002, were as
follows:
<Table>
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
==============
</Table>
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
<Table>
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
/ / THE GUARDIAN PARK AVENUE SMALL CAP FUND
<Table>
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
+ Commencement of operations.
72
/ / THE GUARDIAN ASSET ALLOCATION FUND
<Table>
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
/ / THE GUARDIAN S&P 500 INDEX FUND
<Table>
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
+ Commencement of operations.
73
/ / THE GUARDIAN BAILLIE GIFFORD INTERNATIONAL FUND
<Table>
<Caption>
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)
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
/ / THE GUARDIAN BAILLIE GIFFORD EMERGING MARKETS FUND
<Table>
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
+ Commencement of operations.
74
/ / THE GUARDIAN INVESTMENT QUALITY BOND FUND
<Table>
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
/ / THE GUARDIAN HIGH YIELD BOND FUND
<Table>
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
+ Commencement of operations.
75
/ / THE GUARDIAN TAX-EXEMPT FUND
<Table>
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
/ / THE GUARDIAN CASH MANAGEMENT FUND
<Table>
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
+ 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:
<Table>
<Caption>
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 --
<Caption>
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)
</Table>
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).
<Table>
<Caption>
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.
</Table>
- ---------------
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
<Table>
<Caption>
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).
</Table>
78
<Table>
<Caption>
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.
</Table>
79
<Table>
<Caption>
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.
</Table>
80
<Table>
<Caption>
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) President Since 1997 Executive Vice President and Chief 23
Investment Officer, The Guardian Life
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.
</Table>
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:
<Table>
<Caption>
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) --
</Table>
+ Commencement of operations.
++ Rounds to less than $0.01.
82
<Table>
<Caption>
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
</Table>
* 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:
<Table>
<Caption>
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)
</Table>
+ Commencement of operations.
++ Rounds to less than $0.01.
84
<Table>
<Caption>
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
<Caption>
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
</Table>
* 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:
<Table>
<Caption>
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)
</Table>
+ Commencement of operations.
++ Rounds to less than $0.01.
86
<Table>
<Caption>
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
<Caption>
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
</Table>
* 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:
<Table>
<Caption>
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)
</Table>
+ Commencement of operations.
++ Date of initial public investment.
88
<Table>
<Caption>
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) --
<Caption>
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
</Table>
* 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:
<Table>
<Caption>
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++
</Table>
* Excludes the effect of sales load.
+ Commencement of operations.
++ Not annualized.
90
<Table>
<Caption>
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------
NET
NET ASSETS, INVESTMENT
END OF EXPENSES EXPENSES INCOME
PERIOD TO AVERAGE SUBSIDIZED TO AVERAGE
(000'S OMITTED) NET ASSETS(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)
</Table>
(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 10, 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 10, 2003
By: /s/ FRANK L. PEPE
-------------------------------
Frank L. Pepe
Vice President and Treasurer of
The Park Avenue Portfolio
Date: March 10, 2003