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Guardian Variable Products Trust

Filed: 6 Mar 19, 9:45am
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORMN-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number811-23148

 

 

Guardian Variable Products Trust

(Exact name of registrant as specified in charter)

 

 

7 Hanover Square New York, N.Y. 10004

(Address of principal executive offices) (Zip code)

 

 

Gordon Dinsmore

President

Guardian Variable Products Trust

7 Hanover Square

New York, N.Y. 10004

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code:212-598-8000

Date of fiscal year end: December 31

Date of reporting period: December 31, 2018

 

 

 


Table of Contents

Item 1. Reports to Stockholders.

 


Table of Contents

Guardian Variable

Products Trust

2018

Annual Report

All Data as of December 31, 2018

Guardian Large Cap Fundamental Growth VIP Fund

Important Notice

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.

You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.


 

LOGO

 

Not FDIC insured. May lose value. No bank guarantee. www.guardianlife.com


Table of Contents

TABLE OF CONTENTS

 

Guardian Large Cap Fundamental Growth VIP Fund

 

 

Except as otherwise specifically stated, all information, including portfolio security positions, is as of December 31, 2018. The views expressed in the Fund Commentary are those of the Fund’s portfolio manager(s) as of the date of this report and are subject to change without notice. They do not necessarily represent the views of Park Avenue Institutional Advisers LLC or asub-adviser. The Fund Commentary may contain some forward-looking statements providing expectations or forecasts of future events as of the date of this report; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.


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GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

FUND COMMENTARY OF CLEARBRIDGE INVESTMENTS LLC,SUB-ADVISER

Highlights

 

 Guardian Large Cap Fundamental Growth VIP Fund (the “Fund”) returned-1.81%, underperforming its benchmark, the Russell 1000® Growth Index1 (the “Index”), for the 12 months ended December 31, 2018. The Fund’s underperformance relative to the Index was primarily due to stock selection in the information technology sector.

 

 The Index delivered a-1.51% return for the period. This performance was largely due to strength in the consumer discretionary, information technology and health care sectors but was offset by weakness in the energy, communication services and industrials sectors, especially late in the period.

Market Overview

Stocks suffered losses for the 12 months ended December 31, 2018, with the Index declining 1.51%. Volatility rose sharply in the fourth quarter, sending U.S. equities to broad losses as investors fretted over risks related to slowing global growth, rising interest rates and stumbles by some of the market’s largest companies. The Standard & Poor’s 500®Index2 suffered its second-worst December on record(-9.03%) to finish down 13.52% for the fourth quarter and register its first annual loss(-4.38%) since the global financial crisis. The Index fell 15.89% for the quarter, but still outperformed its value counterpart, the Russell 1000® Value Index,3 by 676 basis points for the year. Momentum among the largest growth companies in the market weakened as the year progressed, yet the information technology and consumer discretionary sectors were the leading performers for the year. Health care stocks held their own during the year, finishing as one of just four sectors

with gains for the year. The energy sector was a headwind to performance as lower demand from slowing global growth and oversupply from U.S. shale drillers, Saudi Arabia, and Russia contributed to a more than 21% decline in crude oil prices. Market action late in 2018 also reflects a return to normalized valuations and earnings growth rates as monetary and fiscal stimulus measures are simultaneously removed from the economy.

Portfolio Review

Stock selection in the information technology, consumer discretionary and materials sectors and an underweight to the industrials sector contributed to relative performance. On the negative side, stock selection in the health care, financials and real estate sectors, as well as an overweight to energy negatively impacted relative returns.

Outlook

Many of the tailwinds that have driven equities higher through the long-running bull market are turning into headwinds, in our view. In this generally less advantageous environment, we believe it is essential to be much more selective in choosing companies to own for the long term. From a portfolio standpoint, we believe the Fund remains positioned for positive GDP growth but at a slower pace than the 3.4% rate in the third quarter. We have been opportunistically repositioning the Fund over the last 12 months, and seeking companies and industries that we believe are capable of generating visible and durable growth, and that we consider more insulated from macro risks than the general market.

 

 

1

The Index is an unmanaged market-capitalization-weighted index that measures the performance of those companies in the Russell 1000® Index (which consists of the 1.000 largest U.S. companies based on total market capitalization) with higher price-to-book ratios and higher forecasted growth values. Index results assume the reinvestment of dividends paid on the stocks constituting the Index. You may not invest in the Index, and, unlike the Fund, the Index does not incur fees or expenses.

 

2

The Standard & Poor’s 500® Index (the “S&P 500 Index”) is an unmanaged market-capitalization-weighted index generally considered to be representative of U.S. equity market activity. The S&P 500 Index consists of 500 stocks representing leading industries of the U.S. economy. Index results assume the reinvestment of dividends paid on the stocks constituting the Index. You may not invest in the S&P 500 Index, and, unlike the Fund, the S&P 500 Index does not incur fees or expenses.

 

3

The Russell 1000® Value Index (the “Index”) is an unmanaged market-capitalization-weighted index that measures the performance of those companies in the Russell 1000® Index (which consists of the 1,000 largest U.S. companies based on total market capitalization) with lower price-to-book ratios and lower forecasted growth values. Index results assume the reinvestment of dividends paid on the stocks constituting the Index. You may not invest in the Index, and, unlike the Fund, the Index does not incur fees or expenses.

 

  1


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GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

Funds in the Guardian Variable Products Trust are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses or to obtain a printed copy, call1-888-GUARDIAN(1-888-482-7342).

As with all mutual funds, the value of an investment in the Fund could decline, and you could lose money. Diversification does not guarantee profit or protect against loss, and there can be no assurance that the Fund will achieve its investment objective. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets. Investing in large-capitalization companies involves risks such as having low growth rates, and slow responsiveness to competitive challenges or opportunities than in the case of smaller companies. Investments in growth companies may be highly volatile. Growth stocks may not realize their perceived growth potential and during certain periods the Fund may underperform other equity funds that employ a different style. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty and greater volatility. Foreign securities are subject to political, regulatory, economic, and exchange-rate risks not present in domestic investments. Investing in a more limited number of issuers and sectors can be subject to greater market fluctuation. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

2  


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GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

Fund Characteristics (unaudited)

 

Total Net Assets: $223,264,250  

 

 

Sector Allocation1

As of December 31, 2018

LOGO

 

  

Top Ten Holdings2

As of December 31, 2018

       
  
Holding    % of Total
Net Assets
 
Amazon.com, Inc.     6.07% 
Microsoft Corp.     4.48% 
Visa, Inc., Class A     3.57% 
Facebook, Inc., Class A     3.52% 
Alphabet, Inc., Class C     3.20% 
UnitedHealth Group, Inc.     3.18% 
Adobe, Inc.     2.77% 
Apple, Inc.     2.30% 
Zoetis, Inc.     2.27% 
WW Grainger, Inc.     2.24% 
Total     33.60% 

 

1

The Fund’s holdings are allocated to each sector based on the MSCI Global Industry Classification Standard (GICS®). Cash includes short-term investments and net other assets and liabilities.

2

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

  3


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GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

Fund Performance (unaudited)

 

      

Average Annual Total Returns

As of December 31, 2018

                    
  
   Inception Date  1 Year  5 Year  10 Year  Since Inception 
Guardian Large Cap Fundamental Growth VIP Fund  9/1/2016   -1.81%         10.07% 
Russell 1000® Growth Index      -1.51%         11.84% 

 

 

Results of a Hypothetical $10,000 Investment

As of December 31, 2018

LOGO

The chart above shows the performance of a hypothetical $10,000 investment made on inception date in Guardian Large Cap Fundamental Growth VIP Fund and the Russell 1000® Growth Index. Index returns do not include the fees and expenses of the Fund, but do include reinvestment of dividends, if any.

Performance quoted represents past performance and does not guarantee or predict future results. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. The Fund’s fees and expenses are detailed in the Financial Highlights section of this report. Fees and expenses are factored into the net asset value of Fund shares and any performance numbers we release. Total return figures include the effect of expense limitations in effect during the periods shown, if applicable; without such limitations, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contract owner/policyholder may pay on redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current andmonth-end performance information, which may be lower or higher than that cited, is available by calling1-888-GUARDIAN(1-888-482-7342) and is periodically updated on our website: http://guardianlife.com.

 

4  


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UNDERSTANDING YOUR FUND’S EXPENSES(UNAUDITED)

 

By investing in the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including, as applicable, investment advisory fees, distribution and/or service(12b-1) fees and other Fund expenses. The example below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2018 to December 31, 2018. The table below shows the Fund’s expenses in two ways:

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher. Charges and expenses at the insurance company separate account level are not reflected in the table.

 

 

     
   

Beginning
Account Value

7/1/18

 Ending
Account Value
12/31/18
  

Expenses Paid

During Period*

7/1/18-12/31/18

  

Expense Ratio

During Period

7/1/18-12/31/18

 
Based on Actual Return $ 1,000.00 $932.20  $4.87   1.00% 
Based on Hypothetical Return (5% Return Before Expenses) $ 1,000.00 $1,020.16  $5.09   1.00% 

 

*

Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by184/365 (to reflect theone-half year period).

 

  5


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SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

December 31, 2018  Shares   Value 
Common Stocks – 98.2%

 

 
Air Freight & Logistics – 1.5%

 

  

United Parcel Service, Inc., Class B

   34,350   $3,350,156 
     

 

 

 
  
     3,350,156 
Beverages – 3.1%

 

  

Anheuser-Busch InBev S.A., ADR

   56,320    3,706,419 
  

The Coca-Cola Co.

   69,200    3,276,620 
     

 

 

 
  
     6,983,039 
Biotechnology – 7.5%

 

  

Alexion Pharmaceuticals, Inc.(1)

   32,310    3,145,702 
  

Biogen, Inc.(1)

   15,500    4,664,260 
  

BioMarin Pharmaceutical, Inc.(1)

   27,320    2,326,298 
  

Celgene Corp.(1)

   58,040    3,719,783 
  

Regeneron Pharmaceuticals, Inc.(1)

   7,670    2,864,745 
     

 

 

 
  
     16,720,788 
Capital Markets – 3.6%

 

  

BlackRock, Inc.

   10,040    3,943,913 
  

The Charles Schwab Corp.

   97,020    4,029,240 
     

 

 

 
  
     7,973,153 
Chemicals – 3.6%

 

  

Ecolab, Inc.

   29,860    4,399,871 
  

Linde PLC

   23,420    3,654,457 
     

 

 

 
  
     8,054,328 
Consumer Finance – 1.7%

 

  

American Express Co.

   38,800    3,698,416 
     

 

 

 
  
     3,698,416 
Energy Equipment & Services – 0.9%

 

  

Schlumberger Ltd.

   58,200    2,099,856 
     

 

 

 
  
     2,099,856 
Entertainment – 2.2%

 

  

The Walt Disney Co.

   45,020    4,936,443 
     

 

 

 
  
     4,936,443 
Equity Real Estate Investment – 1.7%

 

  

Equinix, Inc. REIT

   10,440    3,680,726 
     

 

 

 
  
     3,680,726 
Food & Staples Retailing – 1.7%

 

  

Costco Wholesale Corp.

   18,310    3,729,930 
     

 

 

 
  
     3,729,930 
Food Products – 1.0%

 

  

McCormick & Co., Inc.

   15,643    2,178,131 
     

 

 

 
  
     2,178,131 
Health Care Providers & Services – 3.2%

 

  

UnitedHealth Group, Inc.

   28,510    7,102,411 
     

 

 

 
  
     7,102,411 
Hotels, Restaurants & Leisure – 3.0%

 

  

Chipotle Mexican Grill, Inc.(1)

   6,640    2,867,086 
  

Yum China Holdings, Inc.

   111,250    3,730,212 
     

 

 

 
  
     6,597,298 
December 31, 2018  Shares   Value 
 
Industrial Conglomerates – 1.9%

 

  

Honeywell International, Inc.

   32,650   $4,313,718 
     

 

 

 
  
     4,313,718 
Interactive Media & Services – 8.0%

 

  

Alphabet, Inc., Class A(1)

   2,755    2,878,865 
  

Alphabet, Inc., Class C(1)

   6,906    7,151,922 
  

Facebook, Inc., Class A(1)

   60,020    7,868,022 
     

 

 

 
  
     17,898,809 
Internet & Direct Marketing Retail – 7.2%

 

  

Alibaba Group Holding Ltd., ADR(1)

   17,910    2,454,924 
  

Amazon.com, Inc.(1)

   9,022    13,550,773 
     

 

 

 
  
     16,005,697 
IT Services – 7.5%

 

  

Akamai Technologies, Inc.(1)

   69,910    4,270,103 
  

PayPal Holdings, Inc.(1)

   54,800    4,608,132 
  

Visa, Inc., Class A

   60,420    7,971,815 
     

 

 

 
  
     16,850,050 
Life Sciences Tools & Services – 2.2%

 

  

Thermo Fisher Scientific, Inc.

   21,830    4,885,336 
     

 

 

 
  
     4,885,336 
Machinery – 1.3%

 

  

Caterpillar, Inc.

   23,270    2,956,919 
     

 

 

 
  
     2,956,919 
Media – 2.0%

 

  

Comcast Corp., Class A

   131,010    4,460,891 
     

 

 

 
  
     4,460,891 
Oil, Gas & Consumable Fuels – 0.8%

 

  

Pioneer Natural Resources Co.

   14,305    1,881,394 
     

 

 

 
  
     1,881,394 
Pharmaceuticals – 3.7%

 

  

Johnson & Johnson

   25,090    3,237,864 
  

Zoetis, Inc.

   59,250    5,068,245 
     

 

 

 
  
     8,306,109 
Professional Services – 1.3%

 

  

IHS Markit Ltd.(1)

   60,857    2,919,310 
     

 

 

 
  
     2,919,310 
Semiconductors & Semiconductor Equipment – 4.2%

 

  

NVIDIA Corp.

   11,920    1,591,320 
  

QUALCOMM, Inc.

   70,980    4,039,472 
  

Texas Instruments, Inc.

   39,370    3,720,465 
     

 

 

 
  
     9,351,257 
Software – 16.9%

 

  

Adobe, Inc.(1)

   27,290    6,174,090 
  

Microsoft Corp.

   98,430    9,997,535 
  

Nutanix, Inc., Class A(1)

   58,410    2,429,272 
  

Oracle Corp.

   105,910    4,781,836 
  

Palo Alto Networks, Inc.(1)

   20,040    3,774,534 
  

Red Hat, Inc.(1)

   24,320    4,271,565 
  

Splunk, Inc.(1)

   36,150    3,790,328 
  

VMware, Inc., Class A

   18,440    2,528,677 
     

 

 

 
  
     37,747,837 
 

 

6  The accompanying notes are an integral part of these financial statements.


Table of Contents

SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

December 31, 2018  Shares   Value 
 
Specialty Retail – 2.0%

 

  

The Home Depot, Inc.

   25,520   $4,384,846 
     

 

 

 
  
     4,384,846 
Technology Hardware, Storage & Peripherals – 2.3%

 

  

Apple, Inc.

   32,590    5,140,747 
     

 

 

 
  
     5,140,747 
Trading Companies & Distributors – 2.2%

 

  

WW Grainger, Inc.

   17,700    4,997,772 
     

 

 

 
  
     4,997,772 
  
Total Common Stocks
(Cost $225,939,229)

 

   219,205,367 
    
    Principal
Amount
   Value 
Short–Term Investment – 1.8%

 

 
Repurchase Agreements – 1.8%

 

  

Fixed Income Clearing Corp., 0.50%, dated 12/31/2018, proceeds at maturity value of $4,068,113, due 1/2/2019(2)

  $    4,068,000    4,068,000 
  
Total Repurchase Agreements
(Cost $4,068,000)

 

   4,068,000 
  
Total Investments – 100.0%
(Cost $230,007,229)

 

   223,273,367 
  
Liabilities in excess of other assets – (0.0)%

 

   (9,117
  
Total Net Assets – 100.0%

 

  $223,264,250 

 

(1) 

Non–income–producing security.

(2) 

The table below presents collateral for repurchase agreements.

 

Security Coupon  Maturity
Date
  Principal
Amount
  Value 
U.S. Treasury Note  2.875%   7/31/2025  $4,045,000  $4,150,583 

Legend:

ADR — American Depositary Receipt

REIT — Real Estate Investment Trust

 

 

The following is a summary of the inputs used as of December 31, 2018 in valuing the Fund’s investments. For more information on valuation inputs, please refer to Note 2a of the accompanying Notes to Financial Statements.

 

                                    Valuation Inputs                                     
Investments in Securities    Level 1     Level 2     Level 3     Total 
Common Stocks    $219,205,367     $     $     $219,205,367 
Repurchase Agreements           4,068,000            4,068,000 
Total    $    219,205,367     $    4,068,000     $    —     $    223,273,367 

 

The accompanying notes are an integral part of these financial statements.  7


Table of Contents

FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

Statement of Assets and Liabilities

As of December 31, 2018

    

Assets

  
  

Investments, at value

 $223,273,367 
  

Cash

  196,568 
  

Dividends/interest receivable

  128,759 
  

Foreign tax reclaims receivable

  22,739 
  

Reimbursement receivable from adviser

  10,424 
  

Prepaid expenses

  17,490 
  

 

 

 
  

Total Assets

  223,649,347 
  

 

 

 
  

Liabilities

  
  

Payable for fund shares redeemed

  166,488 
  

Investment advisory fees payable

  115,538 
  

Distribution fees payable

  48,812 
  

Accrued audit fees

  15,000 
  

Accrued custodian and accounting fees

  7,170 
  

Accrued trustees’ and officers’ fees

  3,397 
  

Accrued expenses and other liabilities

  28,692 
  

 

 

 
  

Total Liabilities

  385,097 
  

 

 

 
  

Total Net Assets

 $223,264,250 
  

 

 

 
  

Net Assets Consist of:

  
  

Paid-in capital

 $221,501,523 
  

Distributable earnings

  1,762,727 
  

 

 

 
  

Total Net Assets

 $223,264,250 
  

 

 

 
  

Investments, at Cost

 $230,007,229 
  

 

 

 
  

Pricing of Shares

  
  

Shares of Beneficial Interest Outstanding with No Par Value

  17,843,644 
  

Net Asset Value Per Share

  $12.51 
     

Statement of Operations

For the Year Ended December 31, 2018

    

Investment Income

  
  

Dividends

 $2,402,720 
  

Interest

  16,326 
  

Withholding taxes on foreign dividends

  (22,850
  

 

 

 
  

Total Investment Income

  2,396,196 
  

 

 

 
  

Expenses

  
  

Investment advisory fees

  1,124,272 
  

Distribution fees

  476,407 
  

Trustees’ and officers’ fees

  109,261 
  

Professional fees

  70,419 
  

Custodian and accounting fees

  47,424 
  

Administrative fees

  44,750 
  

Shareholder reports

  19,746 
  

Transfer agent fees

  18,733 
  

Other expenses

  28,408 
  

 

 

 
  

Total Expenses

  1,939,420 
  

Less: Fees waived

  (48,706
  

 

 

 
  

Net expenses before Adviser recoupment

  1,890,714 
  

Expenses recouped by Adviser

  14,914 
  

 

 

 
  

Total Expenses, Net

  1,905,628 
  

 

 

 
  

Net Investment Income/(Loss)

  490,568 
  

 

 

 
  

Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments

  
  

Net realized gain/(loss) from investments

  6,619,884 
  

Net change in unrealized appreciation/(depreciation) on investments

  (8,867,885
  

 

 

 
  

Net Loss on Investments

  (2,248,001
  

 

 

 
  

Net Decrease in Net Assets Resulting From Operations

 $(1,757,433
  

 

 

 
     
 

 

8  The accompanying notes are an integral part of these financial statements.


Table of Contents

FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

Statements of Changes in Net Assets

              
  
      For the
Year Ended
12/31/18
     For the
Year Ended
12/31/17
 
      

 

 

Operations

         
  

Net investment income/(loss)

    $490,568     $13,841 
  

Net realized gain/(loss) from investments

     6,619,884      1,368,660 
  

Net change in unrealized appreciation/(depreciation) on investments

     (8,867,885     2,012,222 
     

 

 

     

 

 

 
  

Net Increase/(Decrease) in Net Assets Resulting from Operations

     (1,757,433     3,394,723 
     

 

 

     

 

 

 
  

Capital Share Transactions

         
  

Proceeds from sales of shares

     246,910,584      5,559,941 
  

Cost of shares redeemed

     (33,834,722     (6,787,106
     

 

 

     

 

 

 
  

Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions

     213,075,862      (1,227,165
     

 

 

     

 

 

 
  

Net Increase in Net Assets

     211,318,429      2,167,558 
     

 

 

     

 

 

 
  

Net Assets

         
  

Beginning of year

     11,945,821      9,778,263 
     

 

 

     

 

 

 
  

End of year

    $223,264,250     $11,945,821 
     

 

 

     

 

 

 
  

Other Information:

         
  

Shares

         
  

Sold

     19,371,482      518,039 
  

Redeemed

     (2,465,268     (540,548
     

 

 

     

 

 

 
  

Net Increase/(Decrease)

     16,906,214      (22,509
     

 

 

     

 

 

 
               

 

The accompanying notes are an integral part of these financial statements.  9


Table of Contents

FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past five years (or, if shorter, the period since inception). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund.

 

Financial Highlights

                            
    Per Share Operating Performance     
    Net Asset Value,
Beginning of
Period
   Net Investment
Income(1)
   

Net Realized
and Unrealized
Gain/(Loss)

  Total
Operations
  Net Asset
Value, End of
Period
   

Total

Return(2)

 
 

Year Ended 12/31/18

  $12.74   $0.03   $(0.26 $(0.23 $12.51    (1.81)
 

Year Ended 12/31/17

   10.19    0.01    2.54   2.55   12.74    25.02
 

Period Ended 12/31/16(4)

   10.00    0.01    0.18   0.19   10.19    1.90%(5) 

 

 

10  The accompanying notes are an integral part of these financial statements.


Table of Contents

FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

 

 

    

    

                     
Ratios/Supplemental Data 
Net Assets, End
of Period (000s)
  Net Ratio of
Expenses to
Average
Net Assets(3)
  Gross Ratio of
Expenses to
Average Net
Assets
  Net Ratio of Net
Investment Income
to Average
Net Assets(3)
  Gross Ratio of Net
Investment Income/(Loss)
to Average
Net Assets
  Portfolio
Turnover Rate
 
 
$223,264   1.00%   1.02%   0.26%   0.24  33% 
 
 11,946   1.00%   1.95%   0.09%   (0.86)  51% 
 
 9,778   1.00%(5)    3.08%(5)    0.26%(5)    (1.82)%(5)   4%(5)  

 

(1) 

Calculated based on the average shares outstanding during the period.

 

(2) 

Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.

 

(3) 

Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers, expense limitations, and recoupments.

 

(4) 

Commenced operations on September 1, 2016.

 

(5) 

Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2016, certain non-recurring fees (i.e., audit fees) are not annualized.

 

The accompanying notes are an integral part of these financial statements.  11


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

December 31, 2018

1. Organization

Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as anopen-end management investment company. The Trust currently has sixteen series. Guardian Large Cap Fundamental Growth VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.

The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).

The Fund seeks long-term growth of capital.

2. Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services — Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

a. Investment Valuations Equity securities traded on an exchange other than NASDAQ Stock Market, LLC (“NASDAQ”) are valued at the last reported sale price on the principal exchange or market on which they are traded; or, if there were no sales that day, at the mean between the closing bid and ask prices. Securities traded on the NASDAQ are generally valued at the NASDAQ official closing price, which may not be the last sale price. If the NASDAQ official closing price is not available

for a security, that security is generally valued at the mean between the closing bid and ask prices. Repurchase agreements are carried at cost, which approximates fair value (see Note 5d). Foreign securities are valued in the currencies of the markets in which they trade and then converted to U.S. dollars by the application of foreign exchange rates at the close of the New York Stock Exchange (“NYSE”). Forward foreign currency contracts, if any, are valued at the mean between the bid and ask rates for the specified time interpolated from rates for proximate time periods. Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with policies and procedures adopted by the Board of Trustees.

Under the policies and procedures approved by the Board of Trustees, Park Avenue Institutional Advisers LLC (“Park Avenue”), the Fund’s investment adviser, has established a Fair Valuation Committee to assist the Board of Trustees with the oversight and monitoring of the valuation of the Fund’s investments. This includes monitoring the appropriateness of fair values based on results of ongoing valuation oversight, including but not limited to consideration of security specific events, market events, and pricing vendor and broker-dealer due diligence. The Fair Valuation Committee oversees and carries out the policies for the valuation of investments held in the Fund. The Fair Valuation Committee is responsible for discussing and assessing the potential impacts to the fair values on an ongoing basis, and at least on a quarterly basis with the Board of Trustees.

Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued in accordance with policies and procedures adopted by the Board of Trustees. In addition, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities. Certain foreign equity instruments are valued by applying international fair value factors provided by approved pricing services. The factors seek to adjust the local closing price for movements of local markets post closing, but prior to the time the NAVs are calculated. Valuations reflected in this report are as of the report date. As a result, changes in valuation due to market events and/or issuer related events after the report date and prior to issuance of the report are not reflected herein.

 

 

12  


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

Various inputs are used in determining the valuation of the Fund’s investments. These inputs are summarized in three broad levels listed below.

 

 Level 1 — unadjusted inputs using quoted prices in active markets for identical investments.

 

 Level 2— other significant observable inputs, including, but not limited to, quoted prices for similar investments, inputs other than quoted prices that are observable for investments (such as interest rates, prepayment speeds, credit risks, etc.) or other market corroborated inputs.

 

 Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input; both individually and in aggregate, that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Trust. The Trust considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, and provided by independent sources that are actively involved in the relevant market. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of a financial instrument’s assigned level within the hierarchy.

The FASB requires reporting entities to make disclosures about purchases, sales, issuances and settlements of Level 3 securities on a gross basis.

The Fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 at the end of the reporting period. For the year ended December 31, 2018, there were no transfers among any levels.

In determining a financial instrument’s placement within the hierarchy, the Trust separates the Fund’s investment portfolio into two categories: investments and derivatives (e.g., futures). A summary of inputs used to value the Fund’s assets and liabilities carried at fair value as of December 31, 2018 is included in the Schedule of Investments.

InvestmentsInvestments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed

equities. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include certain U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, state, municipal and provincial obligations, and certain foreign equity securities, including securities whose prices may have been affected by events occurring after the close of trading on their principal exchange or market and, as a result, whose values are determined by a pricing service as described above, or securities whose values are otherwise determined using fair valuation methods approved by the Fund’s Board of Trustees.

Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or not at all. Level 3 investments include, among others, private placement securities. When observable prices are not available for these securities, the Trust uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the Trust in estimating the value of Level 3 investments include, for example, the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, subsequent rounds of financing, recapitalizations, and other transactions across the capital structure. Level 3 investments may also be adjusted to reflect illiquidity and/ornon-transferability, with the amount of such discount estimated by the Trust in the absence of market information. Assumptions used by the Trust due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Fund’s results of operations. As of December 31, 2018, the Fund had no securities classified as Level 3.

DerivativesExchange-traded derivatives, such as futures contracts, exchange-traded option contracts and certain swaps, are typically classified within Level 1 or Level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. Certainnon-exchange-traded derivatives, such as generic forwards, certain swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within Level 2. During the year ended December 31, 2018, the Fund did not hold any derivatives.

b. Securities TransactionsSecurities transactions are accounted for on the date securities are purchased or

 

 

  13


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NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.

c. Foreign Currency Translation The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. The market value of investment securities and other assets and liabilities are translated at the exchange rate as of the valuation date. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the exchange rates in effect on the dates of the respective transactions. The Fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included in the Net change in net realized and unrealized gain/(loss) from investments on the Statement of Operations.

Reported realized foreign currency gains and losses arise from the disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. These reported realized foreign currency gains and losses, if any, are included in Net realized gain/(loss) from foreign currency transactions on the Statement of Operations. Unrealized foreign currency gains and losses arise from changes (due to changes in exchange rates) in the value of foreign currency and other assets and liabilities denominated in foreign currencies, which are held at period end, if any, and are included in Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies on the Statement of Operations.

d. Foreign Capital Gains Tax The Fund may be subject to foreign taxes on income, gains on investments or currency purchases/repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest.

e. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the

ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is determined using the interest income accrual method, and is accrued and recorded daily.

f. Allocation of Income and Expenses Many of the expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets. In calculating net asset value per share for each series of the Trust, investment income, realized and unrealized gains and losses, and expenses other than series-specific expenses are allocated daily to each series based upon the proportion of net assets attributable to each series.

3. Transactions with Affiliates

a. Investment Advisory Feeand Expense Limitation Under the terms of the advisory agreement, which, after its two year initial term, is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to Park Avenue. Park Avenue is a wholly-owned subsidiary of Guardian Life and receives an investment advisory fee at an annual rate of 0.62% up to $100 million, 0.57% up to $300 million, 0.52% up to $500 million, and 0.50% in excess of $500 million of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.

Park Avenue has contractually agreed through April 30, 2019 to waive certain fees and/or reimburse certain expenses incurred by the Fund to the extent necessary to limit the Fund’s total annual operating expenses after fee waiver and/or expense reimbursement to 1.01% of the Fund’s average daily net assets (excluding, if applicable, any acquired fund fees and expenses, taxes, interest, transaction costs and brokerage commissions, litigation and extraordinary expenses). Prior to April 9, 2018, the expense limitation was 1.00%. The limitation may not be increased or terminated prior to this time without action by the Board of Trustees, may be terminated only upon approval of the Board of Trustees, and is subject to Park Avenue’s recoupment rights. For the year ended December 31, 2018, Park Avenue waived fees and/or paid Fund expenses in the amount of $48,706.

Park Avenue may be entitled to recoupment of previously waived fees and reimbursed expenses from the Fund for three years from the date of the waiver or reimbursement, subject to the expense limitation in effect at the time of the waiver or reimbursement and at the time of the recoupment, if any. Amounts waived or

 

 

14  


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

reimbursed by Park Avenue pursuant to any expense limitation after April 9, 2018 will not be subject to Park Avenue’s recoupment rights. During the year ended December 31, 2018, Park Avenue recouped previous waived or reimbursed expenses in the amount of $14,914. The amount available for potential future recoupment by Park Avenue from the Fund under the Expense Limitation Agreement and the expiration schedule at December 31, 2018 are as follows:

 

  
   

Potential Recoupment Amounts

Expiring

 

Total Potential

Recoupment

Amounts

 2021  2020  2019 
$238,998 $47,223  $146,810  $44,965 

Park Avenue has entered into aSub-Advisory Agreement with ClearBridge Investments LLC (“ClearBridge”). ClearBridge is responsible for providingday-to-day investment advisory services to the Fund, subject to the supervision of Park Avenue and the oversight of the Board of Trustees.Sub-advisory fees are paid by Park Avenue and do not represent a separate or additional expense to the Fund.

b. Compensation of Trustees and OfficersTrustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.

c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust(“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the year ended December 31, 2018, the Fund paid distribution fees in the amount of $476,407 to PAS.

PAS has directed that certain payments under the12b-1 plan be used to compensate GIAC for shareholder services provided to contract owners.

4. Federal Income Taxes

a. Distributions to Shareholders For federal income tax purposes, the Fund is treated as a disregarded entity (“DRE”). As a DRE, the Fund is not subject to an entity-level income tax; and any income, gains, losses, deductions, taxes, and credits of the Fund would instead be “passed through” directly to the separate accounts of GIAC that invest in the Fund and retain the same character for U.S. federal income tax purposes. In addition, the Fund is not required to distribute taxable income and capital gains for U.S. federal income tax purposes. Therefore, no dividends and capital gains distributions were paid by the Fund.

5. Investments

a. Investment Purchases and Sales The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $269,290,238 and $59,285,075, respectively, for the year ended December 31, 2018. During the year ended December 31, 2018, there were no purchases or sales of U.S. government securities.

b. Foreign Securities Foreign securities investments involve special risks and considerations not typically associated with U.S. investments. These risks include, but are not limited to, currency risk; adverse political, regulatory, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign issuers may be less liquid and their prices more volatile than those of comparable U.S. issuers.

c. Industry or Sector Concentration In its normal course of business, the Fund may invest a significant portion of its assets in companies within a limited number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.

d. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn income over periods of time as short as overnight. The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked

 

 

  15


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND

 

to market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically 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 Fund maintains the right to sell the collateral (although it may be prevented or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.

6. Temporary Borrowings

The Fund, with other funds managed by Park Avenue, is party to a $10 million committed revolving credit facility from State Street Bank and Trust Company for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the higher of the dailyone-month LIBOR rate and the Federal Funds rate plus 1.25% at the time of borrowing. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until December 10, 2019. The Fund did not utilize the credit facility during the year ended December 31, 2018.

7. Indemnifications

Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are

indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.

8. Recent Accounting Pronouncement

On August 17, 2018, the U.S. Securities and Exchange Commission (“SEC”) voted to adopt amendments to certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, GAAP, or changes in the information environment. The SEC will also be referring certain SEC disclosure requirements that overlap with, but require information incremental to, GAAP to the FASB for potential incorporation into GAAP. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. As such, the financial statements herein have been updated to conform with these new requirements, which had no effect on the Fund’s net assets or results of operations.

 

 

16  


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Trustees of Guardian Variable Products Trust and Shareholders of

Guardian Large Cap Fundamental Growth VIP Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, ofGuardian Large Cap Fundamental Growth VIP Fund(one of the funds constituting Guardian Variable Products Trust, referred to hereafter as the “Fund”) as of December 31, 2018, the related statement of operationsfor the year ended December 31, 2018, the statement of changes in net assets for each of the two years in the period ended December 31, 2018, including the related notes,and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended December 31, 2018and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.

New York, New York

February 19, 2019

We have served as the auditor of one or more investment companies in Guardian Variable Products Trust since 2016.

 

  17


Table of Contents

SUPPLEMENTAL INFORMATION(UNAUDITED)

 

Approval of Investment Advisory andSub-advisory Agreements

Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s board of trustees annually review and consider the continuation of the fund’s investment advisory andsub-advisory agreements. The continuation of any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at anin-person meeting of the board called for the purpose of voting on such approval.

At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March27-28, 2018, the Board considered and unanimously voted to approve the continuation of the investment management agreement (the “Management Agreement”) between Park Avenue Institutional Advisers LLC (the “Manager”) and the Trust, on behalf of the following 11 series, Guardian Core Plus Fixed Income VIP Fund, Guardian Diversified Research VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund and Guardian Mid Cap Traditional Growth VIP Fund (the “Funds”). The Board also considered and unanimously voted to approve the continuation of thesub-advisory agreements (the“Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and the following investment advisory firms serving assub-advisers to the Funds, ClearBridge Investments LLC, Wellington Management Company LLP, Massachusetts Financial Services Company, Putnam Investment Management, LLC, Boston Partners Global Investors, Inc., AllianceBernstein L.P., Janus Capital Management LLC, Wells Capital Management Incorporated, J.P. Morgan Investment Management Inc., Lazard Asset Management LLC, and Lord, Abbett & Co. LLC (the“Sub-advisers”). The continuation of the Agreements for aone-year period was unanimously approved by the Trustees who are not parties to the Agreements or “interested persons” (as defined in the 1940 Act) of a party to the Agreements (the “Independent Trustees”).

The Board is responsible for overseeing the management of each Fund. In determining whether to approve the continuation of the Agreements, the

Trustees evaluated information and factors that they considered to be relevant and appropriate through the exercise of their own business judgment. The Trustees considered certain information and factors in light of advice furnished to them by legal counsel to the Trust and, in the case of the Independent Trustees, their independent legal counsel.

In advance of the meeting held on March27-28, 2018, the Trustees received materials and information designed to assist their consideration of the Agreements, including written responses from the Manager and eachSub-adviser to a series of questions and requests for information covering a wide variety of topics provided by independent legal counsel on behalf of the Independent Trustees. Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data, was retained to provide the Trustees with reports on how each Fund’s contractual management fees, actual management fees, overall expense ratios and investment performance compared to those of “peer funds” selected by Broadridge that are offered as investment options underlying variable contracts. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to oversee theSub-advisers. During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or anySub-adviser.

In reaching its decisions to approve the continuation of the Agreements, the Board took into account the materials and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees, including information regarding the Funds furnished to the Board by the Manager throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the continuation of the Agreements.

The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to approve the continuation of the Agreements rather than to beall-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and the

 

 

18  


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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

Sub-advisers; (ii) the investment performance of the Funds; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale may exist for a Fund, and the extent to which a Fund may benefit from economies of scale; and (v) any other benefits derived by the Manager or theSub-advisers (or their respective affiliates) from their relationships with the Funds. In addition to considering the above-referenced factors, the Board observed that there are a range of investment options available to variable contract owners who may invest in the Funds, and that these contract owners, having had the opportunity to consider other investment options, may choose to invest or remain invested in the Funds.

Nature, Extent and Quality of Services

The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered the range of investment advisory services andnon-investment advisory services provided by the Manager, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials and assisting the Board with certain valuation matters.

The Trustees considered the operation of the Funds in a“manager-of-managers” structure and the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of theSub-advisers, monitoring theSub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising theSub-advisers with respect to the services that theSub-advisers provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommendsub-advisers, and its ability to monitor and overseesub-advisers and recommend replacementsub-advisers, when necessary, and provide other services under the Management Agreement. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds benefit from the Manager’s use of similar resources and capabilities of its affiliates in providing services to the Funds.

The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by theSub-advisers. The Trustees also

considered, among other things, the range of investment advisory services provided by theSub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, theSub-advisers’ investment philosophies, styles and/or processes and approach to managing risk. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals that serve as portfolio managers for the Funds and the capabilities, resources and reputations of theSub-advisers.

Based upon these considerations, the Board concluded that it was satisfied with the nature, extent and quality of services provided to the Funds by the Manager and eachSub-adviser.

Investment Performance

The Board considered the investment performance of each Fund. Among other reports, the Board reviewed the performance of the Funds for theone-year and since inception periods compared to a universe of peer funds selected by Broadridge. The Board noted that the Funds had performance records of less than two years and that the Board had reviewed longer performance records of the funds or accounts managed by theSub-advisers with similar strategies as the applicable Fund, when available, when the Board initially approved the Agreements in 2016. The Broadridge report placed the Funds in the following quintiles of the relevant peer universe for theone-year and since inception periods, respectively: Guardian Core Plus Fixed Income VIP Fund (3rd, 3rd), Guardian Diversified Research VIP Fund (2nd, 2nd), Guardian Growth & Income VIP Fund (1st, 1st), Guardian Integrated Research VIP Fund (4th, 5th), Guardian International Growth VIP Fund (3rd, 2nd), Guardian International Value VIP Fund (3rd, 5th), Guardian Large Cap Disciplined Growth VIP Fund (3rd, 4th), Guardian Large Cap Disciplined Value VIP Fund (1st, 1st), Guardian Large Cap Fundamental Growth VIP Fund (5th, 4th), Guardian Mid Cap Relative Value VIP Fund (4th, 3rd) and Guardian Mid Cap Traditional Growth VIP Fund (2nd, 2nd).

The Board considered the investment reports provided by the Manager since commencement of operations of the Funds during quarterly Board meetings. The Board also considered the Manager’s analysis ofSub-adviser performance and the steps taken by the Manager and theSub-advisers to seek to improve performance and the results of those steps.

 

 

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In light of the considerations noted above, the Board concluded that it had continued confidence in the Manager’s and theSub-advisers’ overall capabilities to manage the Funds.

Costs and Profitability

The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed information with respect to the management fees, including the portion of the management fees paid to eachSub-adviser, and the management fees paid by other funds offered as investment options underlying variable contracts within the applicable peer group selected by Broadridge. The Broadridge report placed the Funds in the following quintiles of the relevant expense peer group for the contractual management fees and actual management fees, respectively: Guardian Core Plus Fixed Income VIP Fund (1st, 3rd), Guardian Diversified Research VIP Fund (2nd, 3rd), Guardian Growth & Income VIP Fund (1st, 1st), Guardian Integrated Research VIP Fund (1st, 2nd), Guardian International Growth VIP Fund (1st, 2nd), Guardian International Value VIP Fund (3rd, 2nd), Guardian Large Cap Disciplined Growth VIP Fund (1st, 1st), Guardian Large Cap Disciplined Value VIP Fund (1st, 1st), Guardian Large Cap Fundamental Growth VIP Fund (1st, 1st), Guardian Mid Cap Relative Value VIP Fund (1st, 1st) and Guardian Mid Cap Traditional Growth VIP Fund (3rd, 4th).

The Trustees considered thesub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to theSub-advisers are paid by the Manager and not the Funds and that the Manager had negotiated the fees with theSub-advisers atarm’s-length. In addition, the Trustees considered the portion of the management fees paid to eachSub-adviser as compared to the portion retained by the Manager.

The Trustees received and reviewed information in the Broadridge report comparing each Fund’s operating expense ratio to the actual operating expense ratios of a peer group of funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit each Fund’s operating expenses through an expense limitation agreement with the Trust. The Broadridge report placed the Funds in the following quintiles of the relevant expense peer group for the operating expense ratio: Guardian Core Plus Fixed Income VIP Fund (2nd), Guardian Diversified Research VIP Fund (2nd), Guardian Growth & Income VIP Fund

(2nd), Guardian Integrated Research VIP Fund (1st), Guardian International Growth VIP Fund (3rd), Guardian International Value VIP Fund (1st), Guardian Large Cap Disciplined Growth VIP Fund (1st), Guardian Large Cap Disciplined Value VIP Fund (2nd), Guardian Large Cap Fundamental Growth VIP Fund (1st), Guardian Mid Cap Relative Value VIP Fund (1st) and Guardian Mid Cap Traditional Growth VIP Fund (3rd).

Although the Board recognized that the comparisons between the management fees and anticipated operating expenses of the Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of operating expenses.

The Trustees reviewed information regarding the Manager’s costs of sponsoring the Funds and estimated profitability of the Funds to the Manager. The Trustees noted that the information contained estimates, such as allocations of expenses. Although the Trustees did not receive specific cost and profitability information from certainSub-advisers, the Trustees primarily considered the cost and profitability information relating to the Manager because the Manager is responsible for payment of thesub-advisory fees and negotiated the fees with theSub-advisers atarm’s-length.

Based on the consideration of the information and factors summarized above, as well as other information and factors deemed relevant by the Trustees, the Trustees concluded that the management andsub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and theSub-advisers. The Trustees also concluded that the estimated profitability of the Funds to the Manager was acceptable.

Economies of Scale

The Trustees considered the extent to which economies of scale may be shared as assets grow based on current asset levels of the Funds, anticipated asset levels over the next year, the current management andsub-advisory fee rates, the expense limitation arrangements, and any management andsub-advisory fee breakpoints, which reduce fee rates as assets increase. Based on those factors, the Board concluded that it was satisfied with the extent to which any economies of scale would be shared for the benefit of Fund shareholders. The Board noted that it would continue to monitor future growth in each Fund’s assets

 

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

and whether additional steps are required to share appropriately any economies of scale with Fund shareholders.

Ancillary Benefits

The Trustees considered the benefits, other than management fees, that the Manager and/or its affiliates receive because of the Manager’s relationship with the Funds. The Trustees acknowledged that the Funds serve as investment options under variable contracts issued by an affiliate of the Manager that receives fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and an insurance company affiliated with the Manager receive fees from the Funds under a plan of distribution adopted pursuant to Rule12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the

tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other thansub-advisory fees, that theSub-advisers and their affiliates receive because of their relationships with the Funds, including the potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that accrue to the Manager and its affiliates are reasonable and the benefits that accrue to theSub-advisers and their affiliates are consistent with those expected for asub-adviser to a mutual fund such as the applicable Fund.

Conclusion

Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board voting as a whole, including the Independent Trustees voting separately, unanimously approved the continuation of the Agreements.

 

 

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Trustees and Officers Information Table

The following table provides information about the Trustees of the Trust.

 

     
Name and
Year of Birth
  Term of Office,
Position(s) Held
and Length of
Service*
  

Principal
Occupation(s)

During Past Five Years

  

Number of
Funds

in Fund
Complex
Overseen
by Trustees***

  Other Directorships
Held by Trustee
Independent Trustees
  

Bruce W. Ferris

(born 1955)

  Trustee  Retired (since 2015); President and CEO, Prudential Annuity Distributors (2013– 2015); Director/Trustee, Advanced Series Trust, Prudential Series Fund and Prudential’s Gibraltar Fund, Inc. (2013– 2015); Senior Vice President, Prudential Annuities (2008–2015).  16  None.
  

Theda R. Haber

(born 1954)

  Trustee  Adjunct Assistant Professor of Law, UC Hastings College of Law (since 2013); Member of the Board of Directors, Fairholme Trust Company, LLC (since 2015); Attorney, Law Office of Theda R. Haber (since 2014); Visiting Professor of Law, UC Davis School of Law (since 2014); Consultant, Haber & Associates LLC (financial services industry) (since 2012); Advisory Council Chair, Vice Chair, and Member, Advisory Council on Employee Welfare and Pension Benefit Plans (ERISA Advisory Council), U.S. Department of Labor (2009–2011); Managing Director and General Counsel, BlackRock Institutional Trust Company, N.A. (2009–2011); Deputy Global General Counsel, Barclays Global Investors (2006–2009); Managing Director, Barclays Global Investors (1998–2006).  16  None.
  

Marshall Lux

(born 1960)

  Trustee  Senior Advisor, The Boston Consulting Group (since 2014); Senior Partner and Managing Director, The Boston Consulting Group (2009–2014).  16  None.
  

Lisa K. Polsky

(born 1956)

  Trustee  Senior Risk Advisor, AQR (investment management) (since 2016); Senior Risk Advisor, Ultra Capital (venture capital) (since 2016); Board Member and Chair of Risk Committee, DeutscheBank IHC (financial services) (since May 2016); Chief Risk Officer, CIT Group Inc. (financial services) (2010–2015); Board Member and Chair of Audit Committee, Piper Jaffray (investment bank) (2007–2016).  16  None.
  

John Walters

(born 1962)

  Lead Independent Trustee  Board Member, Amerilife Holdings LLC (insurance distribution) (since 2015); Board Member, Stadion Money Management LLC (investment adviser) (since 2011); President and Chief Operating Officer, Hartford Life Insurance Company (2000–2010).  16  None.

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

     
Name and
Year of Birth
  Term of Office,
Position(s) Held
and Length of
Service*
  

Principal
Occupation(s)

During Past Five Years

  

Number of
Funds
in Fund
Complex
Overseen

by Trustees***

  Other Directorships
Held by Trustee
Interested Trustees
  
Gordon Dinsmore**
(born 1952)
  Trustee  Senior Vice President, Head of Product and President of Berkshire, The Guardian Life Insurance Company of America.  16  None.
  
Marc Costantini**
(born 1969)
  Chairman and Trustee  Executive Vice President, Group and Worksite Markets, The Guardian Life Insurance Company of America (since 2017); Executive Vice President and Chief Financial Officer, The Guardian Life Insurance Company of America (2014– 2017); Executive Vice President, Manulife Financial prior thereto (various positions from 1990–2014).  16  None.

 

*

Each Trustee except for Mr. Dinsmore began service in such capacity in 2016 and serves until his or her successor is elected and qualified or until his or her resignation, death or removal. Mr. Dinsmore has served as a Trustee since November 2017. The business address of each Trustee is 7 Hanover Square, New York, New York 10004.

 

**

Each of Gordon Dinsmore and Marc Costantini is considered to be an “interested person” of the Trust within the meaning of the 1940 Act because of their affiliation with The Guardian Life Insurance Company of America and/or its affiliates.

 

***

As of the date of this report, the Trust currently consists of 16 separate Funds.

 

Member of the Audit Committee of the Trust.

The following table provides information about the Officers of the Trust.

 

   
Name and
Year of Birth
  Position(s) Held and
Length of Service*
  Principal Occupation(s)
During Past Five Years
  

Gordon Dinsmore

(born 1952)

  President and Principal Executive Officer (Since November 2017)  Senior Vice President, Head of Product and President of Berkshire, The Guardian Life Insurance Company of America.
  

John H. Walter

(born 1962)

  Senior Vice President, Treasurer, and Principal Financial and Accounting Officer  Vice President, Chief Financial Officer, Equity Profit Center, The Guardian Life Insurance Company of America.
  

Harris Oliner

(born 1971)

  Senior Vice President and Secretary  Senior Vice President, Corporate Secretary, The Guardian Life Insurance Company of America (since 2015); Senior Vice President, Deputy General Counsel, Corporate Secretary, Voya Financial, Inc. (2013–2014); Managing Director, Senior Counsel, Corporate Secretary, BlackRock, Inc. prior thereto.
  

Richard T. Potter

(born 1954)

  Senior Vice President and Chief Legal Officer  Vice President and Equity Counsel, The Guardian Life Insurance Company of America.
  

Philip Stack

(born 1964)

  Chief Compliance Officer
(Since September 2017)
  Executive Director, Chief Compliance Officer, Morgan Stanley (2015–2017); Vice President, Morgan Stanley (2013–2015); Vice President, Corporate Audit Group–Compliance, Morgan Stanley prior thereto.
  

James R. Anderson

(born 1963)

  Anti-Money Laundering Officer
(Since November 2017)
  Second Vice President, Agency and Anti-Money Laundering Compliance, The Guardian Life Insurance Company of America.
  

Kathleen M. Moynihan

(born 1966)

  Senior Counsel  Senior Counsel, The Guardian Life Insurance Company of America.
  

Maria Nydia Morrison

(born 1958)

  Fund Controller  Mutual Fund Controller, The Guardian Life Insurance Company of America (since 2015); Chief Financial Officer/Assistant Operating Officer, St. Francis De Assisi Montessori School (Plaridel, Bulacan), Inc. (Philippines) (2013–2015); Vice President, Bank of New York Mellon prior thereto.

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

   
Name and
Year of Birth
  Position(s) Held and
Length of Service*
  Principal Occupation(s)
During Past Five Years
  

Sonya L. Crosswell

(born 1977)

  Assistant Secretary  Assistant Vice President, Assistant Corporate Secretary and Secretary Pro Tem, The Guardian Life Insurance Company of America (since 2014); Vice President, Secretary and Assistant General Counsel, Carver Federal Savings Bank prior thereto.

 

*

Unless otherwise indicated, the Officers each began service in such capacity in 2016 and hold office for an indefinite term or until their successors shall have been elected and qualified. The business address of each Officer is 7 Hanover Square, New York, New York 10004.

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

 

The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.

 

Portfolio Holdings and Proxy Voting Procedures

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-Q or FormN-PORT (for filings beginning in April 2019 relating to March 31, 2019 data). The Fund’s Form N-Q orForm N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-Q or FormN-PORT information is also available, without charge, upon request, by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/
Prospectuses.

Beginning in April 2019, the Fund will cease to disclose its holdings on Form N-Q and will file Form N-PORT with the Securities and Exchange Commission on a monthly

basis, with the information contained on Form N-PORT for the last month of the Fund’s fiscal quarter being made public by the Securities and Exchange Commission 60 days after the end of the Fund’s fiscal quarter.

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/
Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.

 

 

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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.

 

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The Guardian Life Insurance Company of America    New York, NY 10004-4025

PUB8175


Table of Contents

Guardian Variable

Products Trust

2018

Annual Report

All Data as of December 31, 2018

Guardian Large Cap Disciplined Growth VIP Fund

Important Notice

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.

You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.



 

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Not FDIC insured. May lose value. No bank guarantee. www.guardianlife.com


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TABLE OF CONTENTS

 

Guardian Large Cap Disciplined Growth VIP Fund

 

 

Except as otherwise specifically stated, all information, including portfolio security positions, is as of December 31, 2018. The views expressed in the Fund Commentary are those of the Fund’s portfolio manager(s) as of the date of this report and are subject to change without notice. They do not necessarily represent the views of Park Avenue Institutional Advisers LLC or a sub-adviser. The Fund Commentary may contain some forward-looking statements providing expectations or forecasts of future events as of the date of this report; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.


Table of Contents

GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

FUND COMMENTARY OF WELLINGTON MANAGEMENT COMPANY LLP,SUB-ADVISER

Highlights

 

 Guardian Large Cap Disciplined Growth VIP Fund (the “Fund”) returned-1.18% for the 12 months ended December 31, 2018, outperforming its benchmark, the Russell 1000® Growth Index1 (the “Index”). The Fund’s relative outperformance was primarily due to security selection in the information technology and communication services sectors.

 

 The Index returned-1.51% for the period. Within the Index, the energy, communication services, and materials sectors declined the most during the period.

Market Overview

U.S. equities, as measured by the Standard & Poor’s 500®Index2, posted negative results over the 12 months ended December 31, 2018. The U.S. Federal Reserve raised its benchmark interest rate by 25 basis points four times during 2018, in line with market expectations, albeit signaling a more dovish path heading into 2019. Bullish sentiment was exceptionally strong to start 2018, as better-than-expected corporate profits helped drive U.S. equities higher. Signs of inflation entered the market in February and led to heightened levels of volatility, a theme that continued for the remainder of the period. By the summer of 2018, talk of tariffs and trade wars had progressed to implementation, raising concerns in an otherwise strong economy. Nonetheless, positive sentiment persisted, fueled by robust earnings growth, fiscal stimulus, the announcement of a preliminary trade deal between the U.S. and Mexico, and expectations for stronger U.S. economic growth relative to other regions of the world. This changed in the final months of 2018, when concerns surrounding slowing global growth, rich valuations, rising central bank benchmark interest rates, and capricious U.S. and China trade tensions were at the forefront of investors’ minds. Returns in October and December were sharply negative, with the latter representing the largest U.S. equity market monthly decline seen this decade, culminating the first year of negative U.S. equity returns since 2008.

Portfolio Review

Stock selection was the primary driver of relative outperformance during the period. Strong selection in information technology and communication services

was only partially offset by weak selection in financials, industrials, and health care. Sector allocation, a fall out of the Fund’sbottom-up stock selection process, aided relative results. The Fund’s underweight allocation to the materials sector relative to the Index contributed to relative performance during the period while its overweight to communication services detracted from results.

Outlook

We believe that the U.S. economy remained healthy at year end, although leading indicators are suggesting some moderation in growth later in 2019. With unemployment levels low and trending lower, we still believe risks to U.S. inflation are to the upside. Many companies are facing higher labor and material costs, creating some uncertainty around profitability. While we had fretted about the possibility of higher oil prices last quarter, given the prospect of Iran sanctions, the waivers granted by the Trump administration actually resulted in oversupply and declining crude prices. We expect the recent cuts will restore supply demand balance and allow oil prices to find a firmer footing in the coming months.

Trade continues to dominate the narrative. As the calendar year began, trade representatives started conversations in China. We are hopeful that a satisfactory agreement will be reached; however, some supply chain disruption and temporary pauses in capital investment cannot be ruled out. Brexit hasre-emerged as another near-term uncertainty that we have to monitor. On the flip side, we believe the strong employment situation bodes well for the consumer and as of December 31, 2018, the U.S. government shutdown has had little economic impact.

We will be closely watching profitability trends this quarter, particularly in areas seeing inflationary pressures, to evaluate the ability for companies to pass on prices and still grow. Given the uncertainty of some of the aforementioned macro items, we do expect volatility to remain somewhat elevated despite recent declines in the market.

We remain consistent in adhering to our disciplined portfolio construction process that allows us to assess risk, weight individual positions accordingly, and in the process build a portfolio that focuses largely on stock selection.

 

 

1

The Russell 1000®Growth Index (the “Index”) is an unmanaged market-capitalization-weighted index that measures the performance of those companies in the Russell 1000®Index (which consists of the 1.000 largest U.S. companies based on total market capitalization) with higherprice-to-book ratios and higher forecasted growth values. Index results assume the reinvestment of dividends paid on the stocks constituting the Index. You may not invest in the Index, and, unlike the Fund, the Index does not incur fees or expenses.

 

2

The Standard & Poor’s 500®Index (the “S&P 500 Index”) is an unmanaged market-capitalization-weighted index generally considered to be representative of U.S. equity market activity. The S&P 500 Index consists of 500 stocks representing leading industries of the U.S. economy. Index results assume the reinvestment of dividends paid on the stocks constituting the Index. You may not invest in the S&P 500 Index, and, unlike the Fund, the S&P 500 Index does not incur fees or expenses.

 

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GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

Funds in the Guardian Variable Products Trust are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses or to obtain a printed copy, call 1-888-GUARDIAN (1-888-482-7342).

As with all mutual funds, the value of an investment in the Fund could decline, and you could lose money. Diversification does not guarantee profit or protect against loss, and there can be no assurance that the Fund will achieve its investment objective. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets. Investing inlarge-capitalization companies involves risks such as having low growth rates, and slow responsiveness to competitive challenges or opportunities than in the case of smaller companies. Investments in growth companies may be highly volatile. Growth stocks may not realize their perceived growth potential and during certain periods the Fund may underperform other equity funds that employ a different style. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty and greater volatility. Foreign securities are subject to political, regulatory, economic, andexchange-rate risks not present in domestic investments. Investing in a more limited number of issuers and sectors can be subject to greater market fluctuation. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

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GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

Fund Characteristics (unaudited)

 

Total Net Assets: $181,144,223  

 

 

Sector Allocation1

As of December 31, 2018

LOGO

 

  

Top Ten Holdings2

As of December 31, 2018

    
  
Holding % of Total
Net Assets
 
Amazon.com, Inc.  5.41% 
Microsoft Corp.  5.13% 
Apple, Inc.  5.00% 
Alphabet, Inc., Class A  4.80% 
MasterCard, Inc., Class A  2.98% 
UnitedHealth Group, Inc.  2.86% 
The Boeing Co.  2.79% 
NIKE, Inc., Class B  2.32% 
Alphabet, Inc., Class C  2.03% 
Facebook, Inc., Class A  2.03% 
Total  35.35% 

 

1

The Fund’s holdings are allocated to each sector based on the MSCI Global Industry Classification Standard (GICS®). Cash includes short-term investments and net other assets and liabilities.

2

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

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GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

Fund Performance (unaudited)

 

      

Average Annual Total Returns

As of December 31, 2018

                    
  
   Inception Date  1 Year  5 Year  10 Year  Since Inception 
Guardian Large Cap Disciplined Growth VIP Fund  9/1/2016   -1.18%         10.11% 
Russell 1000® Growth Index      -1.51%         11.84% 

 

 

Results of a Hypothetical $10,000 Investment

As of December 31, 2018

LOGO

The chart above shows the performance of a hypothetical $10,000 investment made on inception date in Guardian Large Cap Disciplined Growth VIP Fund and the Russell 1000® Growth Index. Index returns do not include the fees and expenses of the Fund, but do include reinvestment of dividends, if any.

Performance quoted represents past performance and does not guarantee or predict future results. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. The Fund’s fees and expenses are detailed in the Financial Highlights section of this report. Fees and expenses are factored into the net asset value of Fund shares and any performance numbers we release. Total return figures include the effect of expense limitations in effect during the periods shown, if applicable; without such limitations, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contract owner/policyholder may pay on redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current andmonth-end performance information, which may be lower or higher than that cited, is available by calling1-888-GUARDIAN(1-888-482-7342) and is periodically updated on our website: http://guardianlife.com.

 

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UNDERSTANDING YOUR FUND’S EXPENSES(UNAUDITED)

 

By investing in the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including, as applicable, investment advisory fees, distribution and/or service(12b-1) fees and other Fund expenses. The example below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2018 to December 31, 2018. The table below shows the Fund’s expenses in two ways:

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher. Charges and expenses at the insurance company separate account level are not reflected in the table.

 

 

     
   

Beginning
Account Value

7/1/18

 Ending
Account Value
12/31/18
  

Expenses Paid

During Period*

7/1/18-12/31/18

  

Expense Ratio

During Period

7/1/18-12/31/18

 
Based on Actual Return $1,000.00 $908.60  $4.19   0.87% 
Based on Hypothetical Return (5% Return Before Expenses) $1,000.00 $1,020.82  $4.43   0.87% 

 

*

Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by184/365 (to reflect theone-half year period).

 

  5


Table of Contents

SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

December 31, 2018  Shares   Value 
Common Stocks – 98.8%

 

 
Aerospace & Defense – 2.8%

 

  

The Boeing Co.

   15,659   $    5,050,028 
     

 

 

 
  
         5,050,028 
Banks – 0.6%

 

  

SVB Financial Group(1)

   5,470    1,038,862 
     

 

 

 
  
         1,038,862 
Beverages – 1.8%

 

  

Constellation Brands, Inc., Class A

   7,735    1,243,943 
  

Monster Beverage Corp.(1)

   39,323    1,935,478 
     

 

 

 
  
         3,179,421 
Biotechnology – 2.7%

 

  

Biogen, Inc.(1)

   4,661    1,402,588 
  

Incyte Corp.(1)

   10,138    644,676 
  

Seattle Genetics, Inc.(1)

   19,992    1,132,747 
  

Vertex Pharmaceuticals, Inc.(1)

   10,182    1,687,259 
     

 

 

 
  
         4,867,270 
Building Products – 0.8%

 

  

Fortune Brands Home & Security, Inc.

   37,200    1,413,228 
     

 

 

 
  
         1,413,228 
Capital Markets – 2.5%

 

  

BlackRock, Inc.

   2,967    1,165,497 
  

Intercontinental Exchange, Inc.

   25,121    1,892,365 
  

MarketAxess Holdings, Inc.

   7,249    1,531,786 
     

 

 

 
  
         4,589,648 
Chemicals – 1.8%

 

  

PPG Industries, Inc.

   22,010    2,250,082 
  

The Sherwin-Williams Co.

   2,760    1,085,950 
     

 

 

 
  
         3,336,032 
Commercial Services & Supplies – 0.8%

 

  

Copart, Inc.(1)

   29,931    1,430,103 
     

 

 

 
  
         1,430,103 
Consumer Finance – 0.8%

 

  

Capital One Financial Corp.

   19,239    1,454,276 
     

 

 

 
  
         1,454,276 
Diversified Telecommunication Services – 1.5%

 

  

Verizon Communications, Inc.

   48,742    2,740,275 
     

 

 

 
  
         2,740,275 
Electrical Equipment – 1.6%

 

  

AMETEK, Inc.

   25,245    1,709,087 
  

Eaton Corp. PLC

   18,540    1,272,956 
     

 

 

 
  
         2,982,043 
Electronic Equipment, Instruments & Components – 0.8%

 

  

CDW Corp.

   18,821    1,525,442 
     

 

 

 
  
         1,525,442 
Entertainment – 1.0%

 

  

Netflix, Inc.(1)

   6,734    1,802,422 
     

 

 

 
  
         1,802,422 
Equity Real Estate Investment – 1.2%

 

  

American Tower Corp. REIT

   13,161    2,081,939 
     

 

 

 
  
         2,081,939 
December 31, 2018  Shares   Value 
 
Food & Staples Retailing – 1.6%

 

  

Costco Wholesale Corp.

   14,224   $2,897,571 
     

 

 

 
  
         2,897,571 
Health Care Equipment & Supplies – 4.8%

 

  

Baxter International, Inc.

   41,442    2,727,713 
  

Boston Scientific Corp.(1)

   62,258    2,200,198 
  

Edwards Lifesciences Corp.(1)

   11,631    1,781,520 
  

Teleflex, Inc.

   7,917    2,046,386 
     

 

 

 
  
         8,755,817 
Health Care Providers & Services – 2.9%

 

  

UnitedHealth Group, Inc.

   20,825    5,187,924 
     

 

 

 
  
         5,187,924 
Hotels, Restaurants & Leisure – 1.1%

 

  

Hilton Worldwide Holdings, Inc.

   28,247    2,028,135 
     

 

 

 
  
         2,028,135 
Household Products – 1.3%

 

  

Colgate-Palmolive Co.

   40,239    2,395,025 
     

 

 

 
  
         2,395,025 
Insurance – 0.8%

 

  

The Allstate Corp.

   18,369    1,517,831 
     

 

 

 
  
         1,517,831 
Interactive Media & Services – 8.9%

 

  

Alphabet, Inc., Class A(1)

   8,317    8,690,932 
  

Alphabet, Inc., Class C(1)

   3,550    3,676,416 
  

Facebook, Inc., Class A(1)

   27,983    3,668,291 
     

 

 

 
  
         16,035,639 
Internet & Direct Marketing Retail – 7.7%

 

  

Amazon.com, Inc.(1)

   6,528    9,804,860 
  

Booking Holdings, Inc.(1)

   1,733    2,984,954 
  

Wayfair, Inc., Class A(1)

   12,116    1,091,409 
     

 

 

 
  
         13,881,223 
IT Services – 9.5%

 

  

EPAM Systems, Inc.(1)

   12,509    1,451,169 
  

FleetCor Technologies, Inc.(1)

   13,391    2,486,976 
  

Global Payments, Inc.

   22,135    2,282,783 
  

GoDaddy, Inc., Class A(1)

   45,546    2,988,728 
  

MasterCard, Inc., Class A

   28,581    5,391,806 
  

PayPal Holdings, Inc.(1)

   30,254    2,544,059 
     

 

 

 
  
         17,145,521 
Life Sciences Tools & Services – 1.6%

 

  

Thermo Fisher Scientific, Inc.

   12,603    2,820,425 
     

 

 

 
  
         2,820,425 
Machinery – 3.9%

 

  

Gardner Denver Holdings, Inc.(1)

   34,417    703,828 
  

Illinois Tool Works, Inc.

   14,365    1,819,902 
  

Nordson Corp.

   14,161    1,690,115 
  

Snap-on, Inc.

   10,969    1,593,686 
  

The Middleby Corp.(1)

   11,533    1,184,785 
     

 

 

 
  
         6,992,316 
 

 

6  The accompanying notes are an integral part of these financial statements.


Table of Contents

SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

December 31, 2018  Shares   Value 
Media – 0.8%

 

  

Comcast Corp., Class A

   43,907   $1,495,033 
     

 

 

 
  
         1,495,033 
Oil, Gas & Consumable Fuels – 0.6%

 

  

Continental Resources, Inc.(1)

   28,994    1,165,269 
     

 

 

 
  
         1,165,269 
Personal Products – 0.8%

 

  

The Estee Lauder Cos., Inc., Class A

   11,570    1,505,257 
     

 

 

 
  
         1,505,257 
Pharmaceuticals – 1.7%

 

  

Allergan PLC

   10,943    1,462,641 
  

Bristol-Myers Squibb Co.

   32,354    1,681,761 
     

 

 

 
  
         3,144,402 
Professional Services – 1.2%

 

  

Equifax, Inc.

   9,835    915,934 
  

IHS Markit Ltd.(1)

   26,493    1,270,869 
     

 

 

 
  
         2,186,803 
Road & Rail – 1.4%

 

  

JB Hunt Transport Services, Inc.

   10,364    964,267 
  

Norfolk Southern Corp.

   10,293    1,539,215 
     

 

 

 
  
         2,503,482 
Semiconductors & Semiconductor Equipment – 2.3%

 

  

Advanced Micro Devices, Inc.(1)

   91,254    1,684,549 
  

Micron Technology, Inc.(1)

   45,285    1,436,893 
  

ON Semiconductor Corp.(1)

   64,159    1,059,265 
     

 

 

 
  
         4,180,707 
Software – 13.4%

 

  

Adobe, Inc.(1)

   14,025    3,173,016 
  

Guidewire Software, Inc.(1)

   23,213    1,862,379 
  

Microsoft Corp.

   91,563    9,300,054 
  

salesforce.com, Inc.(1)

   26,020    3,563,959 
  

ServiceNow, Inc.(1)

   9,937    1,769,283 
  

SS&C Technologies Holdings, Inc.

   38,263    1,726,044 
  

Workday, Inc., Class A(1)

   18,053    2,882,703 
     

 

 

 
  
         24,277,438 
Specialty Retail – 1.4%

 

  

The TJX Cos., Inc.

   57,141    2,556,488 
     

 

 

 
  
         2,556,488 
December 31, 2018  Shares   Value 
Technology Hardware, Storage & Peripherals – 5.9%

 

  

Apple, Inc.

   57,430   $9,059,008 
  

NetApp, Inc.

   28,391    1,694,091 
     

 

 

 
  
         10,753,099 
Textiles, Apparel & Luxury Goods – 4.5%

 

  

NIKE, Inc., Class B

   56,796    4,210,856 
  

Under Armour, Inc., Class C(1)

   103,769    1,677,945 
  

VF Corp.

   30,792    2,196,701 
     

 

 

 
  
         8,085,502 
  
Total Common Stocks
(Cost $183,003,274)

 

   179,001,896 
Exchange–Traded Funds – 1.0%

 

  

iShares Russell 1000 Growth ETF

   13,919    1,822,136 
  
Total Exchange–Traded Funds
(Cost $1,918,614)

 

   1,822,136 
    
    Principal
Amount
   Value 
Short–Term Investment – 0.3%

 

 
Repurchase Agreements – 0.3%

 

  

Fixed Income Clearing Corp., 0.50%, dated 12/31/2018, proceeds at maturity value of $457,013, due 1/2/2019(2)

  $    457,000    457,000 
  
Total Repurchase Agreements
(Cost $457,000)

 

   457,000 
  
Total Investments – 100.1%
(Cost $185,378,888)

 

   181,281,032 
  
Liabilities in excess of other assets – (0.1)%

 

   (136,809
  
Total Net Assets – 100.0%

 

  $181,144,223 

 

(1) 

Non–income–producing security.

(2) 

The table below presents collateral for repurchase agreements.

 

Security Coupon  Maturity
Date
  Principal
Amount
  Value 
U.S. Treasury Note  2.875%   7/31/2025  $455,000  $466,876 

Legend:

REIT — Real Estate Investment Trust

 

 

The following is a summary of the inputs used as of December 31, 2018 in valuing the Fund’s investments. For more information on valuation inputs, please refer to Note 2a of the accompanying Notes to Financial Statements.

 

                                  Valuation Inputs                                    
Investments in Securities    Level 1     Level 2     Level 3     Total 
Common Stocks    $    179,001,896     $     $     $179,001,896 
Exchange–Traded Funds     1,822,136                  1,822,136 
Repurchase Agreements           457,000            457,000 
Total    $180,824,032     $    457,000     $    —     $    181,281,032 

 

The accompanying notes are an integral part of these financial statements.  7


Table of Contents

FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

Statement of Assets and Liabilities

As of December 31, 2018

    

Assets

  
  

Investments, at value

 $    181,281,032 
  

Cash

  578 
  

Dividends/interest receivable

  70,034 
  

Reimbursement receivable from adviser

  32,414 
  

Prepaid expenses

  14,705 
  

 

 

 
  

Total Assets

  181,398,763 
  

 

 

 
  

Liabilities

  
  

Investment advisory fees payable

  93,933 
  

Payable for fund shares redeemed

  69,897 
  

Distribution fees payable

  39,336 
  

Accrued audit fees

  15,000 
  

Accrued custodian and accounting fees

  7,713 
  

Accrued trustees’ and officers’ fees

  2,919 
  

Accrued expenses and other liabilities

  25,742 
  

 

 

 
  

Total Liabilities

  254,540 
  

 

 

 
  

Total Net Assets

 $181,144,223 
  

 

 

 
  

Net Assets Consist of:

  
  

Paid-in capital

 $179,092,297 
  

Distributable earnings

  2,051,926 
  

 

 

 
  

Total Net Assets

 $181,144,223 
  

 

 

 

Investments, at Cost

 $185,378,888 
  

 

 

 
  

Pricing of Shares

  
  

Shares of Beneficial Interest Outstanding with No Par Value

  14,469,840 
  

Net Asset Value Per Share

  $12.52 
     

Statement of Operations

For the Year Ended December 31, 2018

    

Investment Income

  
  

Dividends

 $    1,299,493 
  

Interest

  5,944 
  

 

 

 
  

Total Investment Income

  1,305,437 
  

 

 

 
  

Expenses

  
  

Investment advisory fees

  942,157 
  

Distribution fees

  396,725 
  

Trustees’ and officers’ fees

  90,729 
  

Professional fees

  63,632 
  

Custodian and accounting fees

  51,126 
  

Administrative fees

  44,732 
  

Transfer agent fees

  16,735 
  

Shareholder reports

  14,608 
  

Other expenses

  23,814 
  

 

 

 
  

Total Expenses

  1,644,258 
  

Less: Fees waived

  (260,573
  

 

 

 
  

Total Expenses, Net

  1,383,685 
  

 

 

 
  

Net Investment Income/(Loss)

  (78,248
  

 

 

 
  

Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments

  
  

Net realized gain/(loss) from investments

  4,802,346 
  

Net change in unrealized appreciation/(depreciation) on investments

  (5,628,435
  

 

 

 
  

Net Loss on Investments

  (826,089
  

 

 

 
  

Net Decrease in Net Assets Resulting From Operations

 $(904,337
  

 

 

 
     
 

 

8  The accompanying notes are an integral part of these financial statements.


Table of Contents

FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

Statements of Changes in Net Assets

              
  
      For the
Year Ended
12/31/18
     For the
Year Ended
12/31/17
 
      

 

 

Operations

         
  

Net investment income/(loss)

    $(78,248    $33,229 
  

Net realized gain/(loss) from investments

     4,802,346      1,446,500 
  

Net change in unrealized appreciation/(depreciation) on investments

     (5,628,435     1,553,217 
     

 

 

     

 

 

 
  

Net Increase/(Decrease) in Net Assets Resulting from Operations

     (904,337     3,032,946 
     

 

 

     

 

 

 
  

Capital Share Transactions

         
  

Proceeds from sales of shares

     215,934,389      3,969,855 
  

Cost of shares redeemed

     (42,406,621     (6,647,250
     

 

 

     

 

 

 
  

Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions

     173,527,768      (2,677,395
     

 

 

     

 

 

 
  

Net Increase in Net Assets

     172,623,431      355,551 
     

 

 

     

 

 

 
  

Net Assets

         
  

Beginning of year

     8,520,792      8,165,241 
     

 

 

     

 

 

 
  

End of year

    $181,144,223     $8,520,792 
     

 

 

     

 

 

 
  

Other Information:

         
  

Shares

         
  

Sold

     16,846,940      375,170 
  

Redeemed

     (3,049,778     (531,565
     

 

 

     

 

 

 
  

Net Increase/(Decrease)

     13,797,162      (156,395
     

 

 

     

 

 

 
               

 

The accompanying notes are an integral part of these financial statements.  9


Table of Contents

FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past five years (or, if shorter, the period since inception). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund.

 

Financial Highlights

                       
    Per Share Operating Performance     
        
    
Net Asset Value,
Beginning of
Period
   Net Investment
Income/(Loss)(1)
  Net Realized
and Unrealized
Gain/(Loss)
  Total
Operations
  Net Asset
Value, End of
Period
   Total
Return(2)
 
 

Year Ended 12/31/18

  $12.67   $(0.01 $(0.14 $(0.15 $12.52    (1.18)
 

Year Ended 12/31/17

   9.85    0.03   2.79   2.82   12.67    28.63
 

Period Ended 12/31/16(4)

   10.00    0.01   (0.16  (0.15  9.85    (1.50)%(5) 

 

10  The accompanying notes are an integral part of these financial statements.


Table of Contents

FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

 

 
Ratios/Supplemental Data 
Net Assets, End
of Period (000s)
  Net Ratio of
Expenses to
Average
Net Assets(3)
  Gross Ratio of
Expenses to
Average Net
Assets
  Net Ratio of Net
Investment
Income/(Loss)
to Average
Net  Assets(3)
  Gross Ratio of Net
Investment Loss
to Average
Net Assets
  Portfolio
Turnover Rate
 
 
$181,144   0.87%   1.04%   (0.05)%   (0.22)%   47% 
 
 8,521   1.00%   2.08%   0.27%   (0.81)%   77% 
 
 8,165   1.00%(5)    3.16%(5)    0.39%(5)    (1.77)%(5)    42%(5)  

 

(1) 

Calculated based on the average shares outstanding during the period.

 

(2) 

Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.‘s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.

 

(3) 

Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income/(Loss) to Average Net Assets include the effect of fee waivers and expense limitations.

 

(4) 

Commenced operations on September 1, 2016.

 

(5) 

Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2016, certainnon-recurring fees (i.e., audit fees) are not annualized.

 

The accompanying notes are an integral part of these financial statements.  11


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

December 31, 2018

1. Organization

Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as anopen-end management investment company. The Trust currently has sixteen series. Guardian Large Cap Disciplined Growth VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.

The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).

The Fund seeks to maximize long-term growth.

2. Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

a. Investment Valuations Equity securities traded on an exchange other than NASDAQ Stock Market, LLC (“NASDAQ”) are valued at the last reported sale price on the principal exchange or market on which they are traded; or, if there were no sales that day, at the mean between the closing bid and ask prices. Securities traded on the NASDAQ are generally valued at the NASDAQ official closing price, which may not be the last sale price. If the NASDAQ official closing price is not available

for a security, that security is generally valued at the mean between the closing bid and ask prices. Repurchase agreements are carried at cost, which approximates fair value (see Note 5d). Foreign securities are valued in the currencies of the markets in which they trade and then converted to U.S. dollars by the application of foreign exchange rates at the close of the New York Stock Exchange (“NYSE”). Forward foreign currency contracts, if any, are valued at the mean between the bid and ask rates for the specified time interpolated from rates for proximate time periods. Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with policies and procedures adopted by the Board of Trustees.

Under the policies and procedures approved by the Board of Trustees, Park Avenue Institutional Advisers LLC (“Park Avenue”), the Fund’s investment adviser, has established a Fair Valuation Committee to assist the Board of Trustees with the oversight and monitoring of the valuation of the Fund’s investments. This includes monitoring the appropriateness of fair values based on results of ongoing valuation oversight, including but not limited to consideration of security specific events, market events, and pricing vendor and broker-dealer due diligence. The Fair Valuation Committee oversees and carries out the policies for the valuation of investments held in the Fund. The Fair Valuation Committee is responsible for discussing and assessing the potential impacts to the fair values on an ongoing basis, and at least on a quarterly basis with the Board of Trustees.

Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued in accordance with policies and procedures adopted by the Board of Trustees. In addition, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities. Certain foreign equity instruments are valued by applying international fair value factors provided by approved pricing services. The factors seek to adjust the local closing price for movements of local markets post closing, but prior to the time the NAVs are calculated. Valuations reflected in this report are as of the report date. As a result, changes in valuation due to market events and/or issuer related events after the report date and prior to issuance of the report are not reflected herein.

 

 

12  


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NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND

 

Various inputs are used in determining the valuation of the Fund’s investments. These inputs are summarized in three broad levels listed below.

 

 Level 1 — unadjusted inputs using quoted prices in active markets for identical investments.

 

 Level 2 — other significant observable inputs, including, but not limited to, quoted prices for similar investments, inputs other than quoted prices that are observable for investments (such as interest rates, prepayment speeds, credit risks, etc.) or other market corroborated inputs.

 

 Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input; both individually and in aggregate, that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Trust. The Trust considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, and provided by independent sources that are actively involved in the relevant market. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of a financial instrument’s assigned level within the hierarchy.

The FASB requires reporting entities to make disclosures about purchases, sales, issuances and settlements of Level 3 securities on a gross basis.

The Fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 at the end of the reporting period. For the year ended December 31, 2018, there were no transfers among any levels.

In determining a financial instrument’s placement within the hierarchy, the Trust separates the Fund’s investment portfolio into two categories: investments and derivatives (e.g., futures). A summary of inputs used to value the Fund’s assets and liabilities carried at fair value as of December 31, 2018 is included in the Schedule of Investments.

Investments Investments whose values are based on quoted market prices in active markets, and are

therefore classified within Level 1, include active listed equities. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include certain U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, state, municipal and provincial obligations, and certain foreign equity securities, including securities whose prices may have been affected by events occurring after the close of trading on their principal exchange or market and, as a result, whose values are determined by a pricing service as described above, or securities whose values are otherwise determined using fair valuation methods approved by the Fund’s Board of Trustees.

Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or not at all. Level 3 investments include, among others, private placement securities. When observable prices are not available for these securities, the Trust uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the Trust in estimating the value of Level 3 investments include, for example, the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, subsequent rounds of financing, recapitalizations, and other transactions across the capital structure. Level 3 investments may also be adjusted to reflect illiquidity and/ornon-transferability, with the amount of such discount estimated by the Trust in the absence of market information. Assumptions used by the Trust due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Fund’s results of operations. As of December 31, 2018, the Fund had no securities classified as Level 3.

Derivatives Exchange-traded derivatives, such as futures contracts, exchange-traded option contracts and certain swaps, are typically classified within Level 1 or Level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. Certainnon-exchange-traded derivatives, such as generic forwards, certain swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within Level 2. During the year ended December 31, 2018, the Fund did not hold any derivatives.

 

 

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b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.

c. Foreign Currency Translation The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. The market value of investment securities and other assets and liabilities are translated at the exchange rate as of the valuation date. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the exchange rates in effect on the dates of the respective transactions. The Fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included in the Net change in net realized and unrealized gain/(loss) from investments on the Statement of Operations.

Reported realized foreign currency gains and losses arise from the disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. These reported realized foreign currency gains and losses, if any, are included in Net realized gain/(loss) from foreign currency transactions on the Statement of Operations. Unrealized foreign currency gains and losses arise from changes (due to changes in exchange rates) in the value of foreign currency and other assets and liabilities denominated in foreign currencies, which are held at period end, if any, and are included in Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies on the Statement of Operations.

d. Foreign Capital Gains Tax The Fund may be subject to foreign taxes on income, gains on investments or currency purchases/repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest.

e. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on theex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is determined using the interest income accrual method, and is accrued and recorded daily.

f. Allocation of Income and Expenses Many of the expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets. In calculating net asset value per share for each series of the Trust, investment income, realized and unrealized gains and losses, and expenses other than series-specific expenses are allocated daily to each series based upon the proportion of net assets attributable to each series.

3. Transactions with Affiliates

a. Investment Advisory Fee and Expense Limitation Under the terms of the advisory agreement, which, after its two year initial term, is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to Park Avenue. Park Avenue is a wholly-owned subsidiary of Guardian Life and receives an investment advisory fee at an annual rate of 0.62% up to $100 million, 0.57% up to $300 million, 0.52% up to $500 million, and 0.50% in excess of $500 million of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.

Park Avenue has contractually agreed through April 30, 2019 to waive certain fees and/or reimburse certain expenses incurred by the Fund to the extent necessary to limit the Fund’s total annual operating expenses after fee waiver and/or expense reimbursement to 0.87% of the Fund’s average daily net assets (excluding, if applicable, any acquired fund fees and expenses, taxes, interest, transaction costs and brokerage commissions, litigation and extraordinary expenses). Prior to April 9, 2018, the expense limitation was 1.00%. The limitation may not be increased or terminated prior to this time without action by the Board of Trustees, may be terminated only upon approval of the Board of Trustees, and is subject to Park Avenue’s recoupment rights. For the year ended December 31, 2018, Park Avenue waived fees and/or paid Fund expenses in the amount of $260,573.

Park Avenue may be entitled to recoupment of previously waived fees and reimbursed expenses from the Fund for three years from the date of the waiver or reimbursement, subject to the expense limitation in

 

 

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effect at the time of the waiver or reimbursement and at the time of the recoupment, if any. Amounts waived or reimbursed by Park Avenue pursuant to any expense limitation after April 9, 2018 will not be subject to Park Avenue’s recoupment rights. The amount available for potential future recoupment by Park Avenue from the Fund under the Expense Limitation Agreement and the expiration schedule at December 31, 2018 are as follows:

 

  
   Potential Recoupment Amounts
Expiring
 

Total Potential
Recoupment
Amounts

 2021  2020  2019 
$230,335 $38,387  $134,778  $57,170 

Park Avenue has entered into aSub-Advisory Agreement with Wellington Management Company LLP (“Wellington”). Wellington is responsible for providingday-to-day investment advisory services to the Fund, subject to the supervision of Park Avenue and the oversight of the Board of Trustees.Sub-advisory fees are paid by Park Avenue and do not represent a separate or additional expense to the Fund.

b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.

c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust(“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the year ended December 31, 2018, the Fund paid distribution fees in the amount of $396,725 to PAS.

PAS has directed that certain payments under the12b-1 plan be used to compensate GIAC for shareholder services provided to contract owners.

4. Federal Income Taxes

a. Distributions to Shareholders For federal income tax purposes, the Fund is treated as a disregarded entity (“DRE”). As a DRE, the Fund is not subject to an entity-level income tax; and any income, gains, losses, deductions, taxes, and credits of the Fund would instead be “passed through” directly to the separate accounts of GIAC that invest in the Fund and retain the same character for U.S. federal income tax purposes. In addition, the Fund is not required to distribute taxable income and capital gains for U.S. federal income tax purposes. Therefore, no dividends and capital gains distributions were paid by the Fund.

5. Investments

a. Investment Purchases and Sales The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $243,637,287 and $70,460,993, respectively, for the year ended December 31, 2018. During the year ended December 31, 2018, there were no purchases or sales of U.S. government securities.

b. Foreign Securities Foreign securities investments involve special risks and considerations not typically associated with U.S. investments. These risks include, but are not limited to, currency risk; adverse political, regulatory, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign issuers may be less liquid and their prices more volatile than those of comparable U.S. issuers.

c. Industry or Sector Concentration In its normal course of business, the Fund may invest a significant portion of its assets in companies within a limited number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.

d. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn income over periods of time as short as overnight. The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked

 

 

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to market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically 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 Fund maintains the right to sell the collateral (although it may be prevented or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.

6. Temporary Borrowings

The Fund, with other funds managed by Park Avenue, is party to a $10 million committed revolving credit facility from State Street Bank and Trust Company for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the higher of the dailyone-month LIBOR rate and the Federal Funds rate plus 1.25% at the time of borrowing. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until December 10, 2019. The Fund did not utilize the credit facility during the year ended December 31, 2018.

7. Indemnifications

Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are

indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.

8. Recent Accounting Pronouncement

On August 17, 2018, the U.S. Securities and Exchange Commission (“SEC”) voted to adopt amendments to certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, GAAP, or changes in the information environment. The SEC will also be referring certain SEC disclosure requirements that overlap with, but require information incremental to, GAAP to the FASB for potential incorporation into GAAP. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. As such, the financial statements herein have been updated to conform with these new requirements, which had no effect on the Fund’s net assets or results of operations.

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

TotheBoard of Trustees ofGuardian Variable Products TrustandShareholders of Guardian Large Cap Disciplined Growth VIP Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, ofGuardian Large Cap Disciplined Growth VIP Fund(one of the funds constituting Guardian Variable Products Trust, referred to hereafter as the “Fund”) as of December 31, 2018, the related statement of operations for the year ended December 31, 2018, the statement of changes in net assets for each of the two years in the period ended December 31, 2018, including the related notes,and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended December 31, 2018 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.

New York, New York

February 19, 2019

We have served as the auditor of one or more investment companies in Guardian Variable Products Trustsince 2016.

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

Approval of Investment Advisory andSub-advisory Agreements

Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s board of trustees annually review and consider the continuation of the fund’s investment advisory andsub-advisory agreements. The continuation of any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at anin-person meeting of the board called for the purpose of voting on such approval.

At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March27-28, 2018, the Board considered and unanimously voted to approve the continuation of the investment management agreement (the “Management Agreement”) between Park Avenue Institutional Advisers LLC (the “Manager”) and the Trust, on behalf of the following 11 series, Guardian Core Plus Fixed Income VIP Fund, Guardian Diversified Research VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund and Guardian Mid Cap Traditional Growth VIP Fund (the “Funds”). The Board also considered and unanimously voted to approve the continuation of thesub-advisory agreements (the“Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and the following investment advisory firms serving assub-advisers to the Funds, ClearBridge Investments LLC, Wellington Management Company LLP, Massachusetts Financial Services Company, Putnam Investment Management, LLC, Boston Partners Global Investors, Inc., AllianceBernstein L.P., Janus Capital Management LLC, Wells Capital Management Incorporated, J.P. Morgan Investment Management Inc., Lazard Asset Management LLC, and Lord, Abbett & Co. LLC (the“Sub-advisers”). The continuation of the Agreements for aone-year period was unanimously approved by the Trustees who are not parties to the Agreements or “interested persons” (as defined in the 1940 Act) of a party to the Agreements (the “Independent Trustees”).

The Board is responsible for overseeing the management of each Fund. In determining whether to approve the continuation of the Agreements, the

Trustees evaluated information and factors that they considered to be relevant and appropriate through the exercise of their own business judgment. The Trustees considered certain information and factors in light of advice furnished to them by legal counsel to the Trust and, in the case of the Independent Trustees, their independent legal counsel.

In advance of the meeting held on March27-28, 2018, the Trustees received materials and information designed to assist their consideration of the Agreements, including written responses from the Manager and eachSub-adviser to a series of questions and requests for information covering a wide variety of topics provided by independent legal counsel on behalf of the Independent Trustees. Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data, was retained to provide the Trustees with reports on how each Fund’s contractual management fees, actual management fees, overall expense ratios and investment performance compared to those of “peer funds” selected by Broadridge that are offered as investment options underlying variable contracts. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to oversee theSub-advisers. During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or anySub-adviser.

In reaching its decisions to approve the continuation of the Agreements, the Board took into account the materials and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees, including information regarding the Funds furnished to the Board by the Manager throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the continuation of the Agreements.

The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to approve the continuation of the Agreements rather than to beall-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and the

 

 

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Sub-advisers; (ii) the investment performance of the Funds; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale may exist for a Fund, and the extent to which a Fund may benefit from economies of scale; and (v) any other benefits derived by the Manager or theSub-advisers (or their respective affiliates) from their relationships with the Funds. In addition to considering the above-referenced factors, the Board observed that there are a range of investment options available to variable contract owners who may invest in the Funds, and that these contract owners, having had the opportunity to consider other investment options, may choose to invest or remain invested in the Funds.

Nature, Extent and Quality of Services

The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered the range of investment advisory services andnon-investment advisory services provided by the Manager, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials and assisting the Board with certain valuation matters.

The Trustees considered the operation of the Funds in a“manager-of-managers” structure and the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of theSub-advisers, monitoring theSub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising theSub-advisers with respect to the services that theSub-advisers provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommendsub-advisers, and its ability to monitor and overseesub-advisers and recommend replacementsub-advisers, when necessary, and provide other services under the Management Agreement. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds benefit from the Manager’s use of similar resources and capabilities of its affiliates in providing services to the Funds.

The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by theSub-advisers. The Trustees also

considered, among other things, the range of investment advisory services provided by theSub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, theSub-advisers’ investment philosophies, styles and/or processes and approach to managing risk. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals that serve as portfolio managers for the Funds and the capabilities, resources and reputations of theSub-advisers.

Based upon these considerations, the Board concluded that it was satisfied with the nature, extent and quality of services provided to the Funds by the Manager and eachSub-adviser.

Investment Performance

The Board considered the investment performance of each Fund. Among other reports, the Board reviewed the performance of the Funds for theone-year and since inception periods compared to a universe of peer funds selected by Broadridge. The Board noted that the Funds had performance records of less than two years and that the Board had reviewed longer performance records of the funds or accounts managed by theSub-advisers with similar strategies as the applicable Fund, when available, when the Board initially approved the Agreements in 2016. The Broadridge report placed the Funds in the following quintiles of the relevant peer universe for theone-year and since inception periods, respectively: Guardian Core Plus Fixed Income VIP Fund (3rd, 3rd), Guardian Diversified Research VIP Fund (2nd, 2nd), Guardian Growth & Income VIP Fund (1st, 1st), Guardian Integrated Research VIP Fund (4th, 5th), Guardian International Growth VIP Fund (3rd, 2nd), Guardian International Value VIP Fund (3rd, 5th), Guardian Large Cap Disciplined Growth VIP Fund (3rd, 4th), Guardian Large Cap Disciplined Value VIP Fund (1st, 1st), Guardian Large Cap Fundamental Growth VIP Fund (5th, 4th), Guardian Mid Cap Relative Value VIP Fund (4th, 3rd) and Guardian Mid Cap Traditional Growth VIP Fund (2nd, 2nd).

The Board considered the investment reports provided by the Manager since commencement of operations of the Funds during quarterly Board meetings. The Board also considered the Manager’s analysis ofSub-adviser performance and the steps taken by the Manager and theSub-advisers to seek to improve performance and the results of those steps.

 

 

 

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In light of the considerations noted above, the Board concluded that it had continued confidence in the Manager’s and theSub-advisers’ overall capabilities to manage the Funds.

Costs and Profitability

The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed information with respect to the management fees, including the portion of the management fees paid to eachSub-adviser, and the management fees paid by other funds offered as investment options underlying variable contracts within the applicable peer group selected by Broadridge. The Broadridge report placed the Funds in the following quintiles of the relevant expense peer group for the contractual management fees and actual management fees, respectively: Guardian Core Plus Fixed Income VIP Fund (1st, 3rd), Guardian Diversified Research VIP Fund (2nd, 3rd), Guardian Growth & Income VIP Fund (1st, 1st), Guardian Integrated Research VIP Fund (1st, 2nd), Guardian International Growth VIP Fund (1st, 2nd), Guardian International Value VIP Fund (3rd, 2nd), Guardian Large Cap Disciplined Growth VIP Fund (1st, 1st), Guardian Large Cap Disciplined Value VIP Fund (1st, 1st), Guardian Large Cap Fundamental Growth VIP Fund (1st, 1st), Guardian Mid Cap Relative Value VIP Fund (1st, 1st) and Guardian Mid Cap Traditional Growth VIP Fund (3rd, 4th).

The Trustees considered thesub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to theSub-advisers are paid by the Manager and not the Funds and that the Manager had negotiated the fees with theSub-advisers atarm’s-length. In addition, the Trustees considered the portion of the management fees paid to eachSub-adviser as compared to the portion retained by the Manager.

The Trustees received and reviewed information in the Broadridge report comparing each Fund’s operating expense ratio to the actual operating expense ratios of a peer group of funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit each Fund’s operating expenses through an expense limitation agreement with the Trust. The Broadridge report placed the Funds in the following quintiles of the relevant expense peer group for the operating expense ratio: Guardian Core Plus Fixed Income VIP Fund (2nd), Guardian Diversified Research

VIP Fund (2nd), Guardian Growth & Income VIP Fund (2nd), Guardian Integrated Research VIP Fund (1st), Guardian International Growth VIP Fund (3rd), Guardian International Value VIP Fund (1st), Guardian Large Cap Disciplined Growth VIP Fund (1st), Guardian Large Cap Disciplined Value VIP Fund (2nd), Guardian Large Cap Fundamental Growth VIP Fund (1st), Guardian Mid Cap Relative Value VIP Fund (1st) and Guardian Mid Cap Traditional Growth VIP Fund (3rd).

Although the Board recognized that the comparisons between the management fees and anticipated operating expenses of the Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of operating expenses.

The Trustees reviewed information regarding the Manager’s costs of sponsoring the Funds and estimated profitability of the Funds to the Manager. The Trustees noted that the information contained estimates, such as allocations of expenses. Although the Trustees did not receive specific cost and profitability information from certainSub-advisers, the Trustees primarily considered the cost and profitability information relating to the Manager because the Manager is responsible for payment of thesub-advisory fees and negotiated the fees with theSub-advisers atarm’s-length.

Based on the consideration of the information and factors summarized above, as well as other information and factors deemed relevant by the Trustees, the Trustees concluded that the management andsub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and theSub-advisers. The Trustees also concluded that the estimated profitability of the Funds to the Manager was acceptable.

Economies of Scale

The Trustees considered the extent to which economies of scale may be shared as assets grow based on current asset levels of the Funds, anticipated asset levels over the next year, the current management andsub-advisory fee rates, the expense limitation arrangements, and any management andsub-advisory fee breakpoints, which reduce fee rates as assets increase. Based on those factors, the Board concluded that it was satisfied with the extent to which any economies of scale would be shared for the benefit of

 

 

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Fund shareholders. The Board noted that it would continue to monitor future growth in each Fund’s assets and whether additional steps are required to share appropriately any economies of scale with Fund shareholders.

Ancillary Benefits

The Trustees considered the benefits, other than management fees, that the Manager and/or its affiliates receive because of the Manager’s relationship with the Funds. The Trustees acknowledged that the Funds serve as investment options under variable contracts issued by an affiliate of the Manager that receives fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and an insurance company affiliated with the Manager receive fees from the Funds under a plan of distribution adopted pursuant to Rule12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract

investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other thansub-advisory fees, that theSub-advisers and their affiliates receive because of their relationships with the Funds, including the potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that accrue to the Manager and its affiliates are reasonable and the benefits that accrue to theSub-advisers and their affiliates are consistent with those expected for asub-adviser to a mutual fund such as the applicable Fund.

Conclusion

Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board voting as a whole, including the Independent Trustees voting separately, unanimously approved the continuation of the Agreements.

 

 

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Trustees and Officers Information Table

The following table provides information about the Trustees of the Trust.

 

     
Name and
Year of Birth
  Term of Office,
Position(s) Held
and Length of
Service*
  

Principal
Occupation(s)

During Past Five Years

  

Number of
Funds

in Fund
Complex
Overseen

by Trustees***

  Other Directorships
Held by Trustee
Independent Trustees
  
Bruce W. Ferris
(born 1955)
  Trustee  Retired (since 2015); President and CEO, Prudential Annuity Distributors (2013–2015); Director/Trustee, Advanced Series Trust, Prudential Series Fund and Prudential’s Gibraltar Fund, Inc. (2013–2015); Senior Vice President, Prudential Annuities (2008–2015).  16  None.
  
Theda R. Haber
(born 1954)
  Trustee  Adjunct Assistant Professor of Law, UC Hastings College of Law (since 2013); Member of the Board of Directors, Fairholme Trust Company, LLC (since 2015); Attorney, Law Office of Theda R. Haber (since 2014); Visiting Professor of Law, UC Davis School of Law (since 2014); Consultant, Haber & Associates LLC (financial services industry) (since 2012); Advisory Council Chair, Vice Chair, and Member, Advisory Council on Employee Welfare and Pension Benefit Plans (ERISA Advisory Council), U.S. Department of Labor (2009–2011); Managing Director and General Counsel, BlackRock Institutional Trust Company, N.A. (2009–2011); Deputy Global General Counsel, Barclays Global Investors (2006–2009); Managing Director, Barclays Global Investors (1998–2006).  16  None.
  
Marshall Lux
(born 1960)
  Trustee  Senior Advisor, The Boston Consulting Group (since 2014); Senior Partner and Managing Director, The Boston Consulting Group (2009–2014).  16  None.
  
Lisa K. Polsky
(born 1956)
  Trustee  Senior Risk Advisor, AQR (investment management) (since 2016); Senior Risk Advisor, Ultra Capital (venture capital) (since 2016); Board Member and Chair of Risk Committee, DeutscheBank IHC (financial services) (since May 2016); Chief Risk Officer, CIT Group Inc. (financial services) (2010–2015); Board Member and Chair of Audit Committee, Piper Jaffray (investment bank) (2007–2016).  16  None.
  
John Walters
(born 1962)
  Lead Independent Trustee  Board Member, Amerilife Holdings LLC (insurance distribution) (since 2015); Board Member, Stadion Money Management LLC (investment adviser) (since 2011); President and Chief Operating Officer, Hartford Life Insurance Company (2000–2010).  16  None.

 

22  


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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

 

     
Name and
Year of Birth
  Term of Office,
Position(s) Held
and Length of
Service*
  

Principal
Occupation(s)

During Past Five Years

  Number of
Funds
in Fund
Complex
Overseen
by Trustees***
  Other Directorships
Held by Trustee
Interested Trustees
  
Gordon Dinsmore**
(born 1952)
  Trustee  Senior Vice President, Head of Product and President of Berkshire, The Guardian Life Insurance Company of America.  16  None.
  
Marc Costantini**
(born 1969)
  Chairman and Trustee  Executive Vice President, Group and Worksite Markets, The Guardian Life Insurance Company of America (since 2017); Executive Vice President and Chief Financial Officer, The Guardian Life Insurance Company of America (2014– 2017); Executive Vice President, Manulife Financial prior thereto (various positions from 1990–2014).  16  None.

 

*

Each Trustee except for Mr. Dinsmore began service in such capacity in 2016 and serves until his or her successor is elected and qualified or until his or her resignation, death or removal. Mr. Dinsmore has served as a Trustee since November 2017. The business address of each Trustee is 7 Hanover Square, New York, New York 10004.

**

Each of Gordon Dinsmore and Marc Costantini is considered to be an “interested person” of the Trust within the meaning of the 1940 Act because of their affiliation with The Guardian Life Insurance Company of America and/or its affiliates.

***

As of the date of this report, the Trust currently consists of 16 separate Funds.

Member of the Audit Committee of the Trust.

The following table provides information about the Officers of the Trust.

 

   
Name and Year of Birth  Position(s) Held and
Length of Service*
  Principal Occupation(s)
During Past Five Years
  
Gordon Dinsmore
(born 1952)
  President and Principal Executive Officer (Since November 2017)  Senior Vice President, Head of Product and President of Berkshire, The Guardian Life Insurance Company of America.
  
John H. Walter
(born 1962)
  Senior Vice President, Treasurer, and Principal Financial and Accounting Officer  Vice President, Chief Financial Officer, Equity Profit Center, The Guardian Life Insurance Company of America.
  
Harris Oliner
(born 1971)
  Senior Vice President and Secretary  Senior Vice President, Corporate Secretary, The Guardian Life Insurance Company of America (since 2015); Senior Vice President, Deputy General Counsel, Corporate Secretary, Voya Financial, Inc. (2013–2014); Managing Director, Senior Counsel, Corporate Secretary, BlackRock, Inc. prior thereto.
  
Richard T. Potter
(born 1954)
  Senior Vice President and Chief Legal Officer  Vice President and Equity Counsel, The Guardian Life Insurance Company of America.
  
Philip Stack
(born 1964)
  Chief Compliance Officer (Since September 2017)  Executive Director, Chief Compliance Officer, Morgan Stanley (2015–2017); Vice President, Morgan Stanley (2013–2015); Vice President, Corporate Audit Group–Compliance, Morgan Stanley prior thereto.
  
James R. Anderson
(born 1963)
  Anti-Money Laundering Officer (Since November 2017)  Second Vice President, Agency and Anti-Money Laundering Compliance, The Guardian Life Insurance Company of America.
  
Kathleen M. Moynihan
(born 1966)
  Senior Counsel  Senior Counsel, The Guardian Life Insurance Company of America.
  
Maria Nydia Morrison
(born 1958)
  Fund Controller  Mutual Fund Controller, The Guardian Life Insurance Company of America (since 2015); Chief Financial Officer/Assistant Operating Officer, St. Francis De Assisi Montessori School (Plaridel, Bulacan), Inc. (Philippines) (2013–2015); Vice President, Bank of New York Mellon prior thereto.

 

  23


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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

   
Name and Year of Birth  Position(s) Held and
Length of Service*
  Principal Occupation(s)
During Past Five Years
  
Sonya L. Crosswell
(born 1977)
  Assistant Secretary  Assistant Vice President, Assistant Corporate Secretary and Secretary Pro Tem, The Guardian Life Insurance Company of America (since 2014); Vice President, Secretary and Assistant General Counsel, Carver Federal Savings Bank prior thereto.

 

*

Unless otherwise indicated, the Officers each began service in such capacity in 2016 and hold office for an indefinite term or until their successors shall have been elected and qualified. The business address of each Officer is 7 Hanover Square, New York, New York 10004.

 

24  


Table of Contents

SUPPLEMENTAL INFORMATION(UNAUDITED)

 

The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.

 

Portfolio Holdings and Proxy Voting Procedures

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-Q or FormN-PORT (for filings beginning in April 2019 relating to March 31, 2019 data). The Fund’s Form N-Q or FormN-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-Q or FormN-PORT information is also available, without charge, upon request, by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.

Beginning in April 2019, the Fund will cease to disclose its holdings on Form N-Q and will file Form N-PORT with the Securities and Exchange Commission on a monthly

basis, with the information contained on Form N-PORT for the last month of the Fund’s fiscal quarter being made public by the Securities and Exchange Commission 60 days after the end of the Fund’s fiscal quarter.

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.

 

 

  25


Table of Contents

 

 

This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.

 

LOGO

The Guardian Life Insurance Company of America    New York, NY 10004-4025

PUB8173


Table of Contents

Guardian Variable

Products Trust

2018

Annual Report

All Data as of December 31, 2018

Guardian Integrated Research VIP Fund

Important Notice

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.

You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.


 

LOGO

 

Not FDIC insured. May lose value. No bank guarantee. www.guardianlife.com


Table of Contents

TABLE OF CONTENTS

 

Guardian Integrated Research VIP Fund

 

 

Except as otherwise specifically stated, all information, including portfolio security positions, is as of December 31, 2018. The views expressed in the Fund Commentary are those of the Fund’s portfolio manager(s) as of the date of this report and are subject to change without notice. They do not necessarily represent the views of Park Avenue Institutional Advisers LLC or a sub-adviser. The Fund Commentary may contain some forward-looking statements providing expectations or forecasts of future events as of the date of this report; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.


Table of Contents

GUARDIAN INTEGRATED RESEARCH VIP FUND

 

FUND COMMENTARY OF MASSACHUSETTS FINANCIAL SERVICES COMPANY,SUB-ADVISER

Highlights

 

 The Guardian Integrated Research VIP Fund (the “Fund”) returned-8.31% for the 12 months ended December 31, 2018, underperforming its benchmark, the Standard & Poor’s 500® Index1 (the “Index”). The Fund’s underperformance relative to the Index was primarily due to stock selection in the financials sector.

 

 The Index returned -4.38% for the year. The negative return can primarily be attributed to weak performance in the financials, communication services, industrials, energy and consumer staples sectors. To an extent, positive performance from information technology, health care and consumer discretionary stocks offset the weak performance.

Market Overview

During the 12 months ended December 31, 2018, the U.S. Federal Reserve raised interest rates by 100 basis points, bringing the total number of rate hikes to nine since the central bank began to normalize monetary policy in late 2015. Economic growth rates in the U.S., Eurozone and Japan remained above trend, despite a slowing in global growth, particularly toward the end of the period. Inflation remained contained, particularly outside the U.S. Late in the period, the European Central Bank halted its asset purchase program but issued forward guidance that it does not expect to raise interest rates at least until after the summer of 2019. The Bank of England (once) and the Bank of Canada (three times) each raised rates during the period. The European political backdrop became a bit more volatile late in the period, spurred by concerns over cohesion in the Eurozone after the election of an anti-establishment, Eurosceptic coalition government in Italy and widespread protests over stagnant wage growth in France.

Bond yields rose in the U.S. during most of the period, but remained low by historical standards and slipped from their highs late in the period, as market volatility increased. Yields in many developed markets fell. Outside of emerging markets, where spreads and currencies came under pressure, credit spreads remained quite tight until the end of the period, when

thinner liquidity, lower oil prices and concerns over high degrees of corporate leverage emerged. Growing concern over increasing global trade friction appeared to have weighed on business sentiment during the period’s second half, especially outside the U.S. Tighter financial conditions from rising U.S. rates and a strong dollar, combined with trade uncertainty, helped expose structural weaknesses in several emerging markets in the second half of the period.

Volatility increased at the end of the period, amid signs of slowing global economic growth and increasing trade tensions, which prompted a market setback shortly after U.S. markets set record highs in September. It was the second such equity market decline during the reporting period. The correction came despite a third consecutive quarter of strong growth in U.S. earnings per share. Strong earnings growth, combined with the market decline, brought U.S. equity valuations down from elevated levels earlier in the period, to multiples more in line with long-term averages. While the U.S. economy held up better than most, global economic growth became less synchronized during the period, with Europe and China showing signs of a slowdown and some emerging markets coming under stress.

Portfolio Review

Stock selection in the financials sector was a primary detractor from performance relative to the Index. Stock selection in both the health care and consumer discretionary sectors also negatively impacted relative results.

Strong stock selection in the industrials sector was a primary contributor to performance relative to the benchmark. Stock selection in the utilities sector also benefited relative returns. The Fund’s overweight holdings in pharmaceutical companies compared to the Index also boosted relative returns.

Outlook

Looking forward, in contrast to a year ago, we believe the macro environment today is much more daunting and fraught with many risks. U.S. leading economic indicators, while not yet signaling recession, continue to soften. The U.S. Federal Reserve is on track for two more rate increases in 2019; however, we also believe the market is pricing in fewer than that. Trade tensions

 

 

1

The Standard & Poor’s 500®Index (the “Index”) is an unmanaged market-capitalization-weighted index generally considered to be representative of U.S. equity market activity. The Index consists of 500 stocks representing leading industries of the U.S. economy. Index results assume the reinvestment of dividends paid on the stocks constituting the Index. You may not invest in the Index, and, unlike the Fund, the Index does not incur fees or expenses.

 

  1


Table of Contents

GUARDIAN INTEGRATED RESEARCH VIP FUND

 

remain high with negotiations ongoing with Europe, Japan and most importantly, China. In our view, a new divided Congress needs to address the renegotiated NAFTA deal and, barring an impeachment focus, could potentially find bipartisan agreement on infrastructure, minimum wage and drug price legislation.

Given the near-term policy and trade risks, coupled with the weakening economic data and earnings outlook, we believe market leadership is likely to maintain a more

defensive profile. The shift from growth to value leadership is not uncommon in this advanced part of the cycle, as investors look to more defensive characteristics like lower-beta and higher-yielding stocks. We believe that employing a multi-factor quantitative model is important, as factors such as price momentum, earnings momentum, quality and valuation, can encounter transitory performance periods when a factor can be out of favor.

 

 

Funds in the Guardian Variable Products Trust are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses or to obtain a printed copy, call 1-888-GUARDIAN (1-888-482-7342).

As with all mutual funds, the value of an investment in the Fund could decline, and you could lose money. Diversification does not guarantee profit or protect against loss, and there can be no assurance that the Fund will achieve its investment objective. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets. Investing inlarge-capitalization companies involves risks such as having low growth rates, and slow responsiveness to competitive challenges or opportunities than in the case of smaller companies. Investments in growth companies may be highly volatile. Growth stocks may not realize their perceived growth potential and during certain periods the Fund may underperform other equity funds that employ a different style. Value stocks may not realize their perceived value and during certain periods the Fund may underperform other equity funds that employ a different style. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty and greater volatility. Foreign securities are subject to political, regulatory, economic, andexchange-rate risks not present in domestic investments. Investing in a more limited number of issuers and sectors can be subject to greater market fluctuation. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

2  


Table of Contents

GUARDIAN INTEGRATED RESEARCH VIP FUND

 

Fund Characteristics (unaudited)

 

Total Net Assets: $9,814,203  

 

 

Sector Allocation1

As of December 31, 2018

LOGO

 

 

Top Ten Holdings2

As of December 31, 2018

  
Holding % of Total
Net Assets
 
Microsoft Corp.  5.06% 
Amazon.com, Inc.  3.61% 
Johnson & Johnson  3.09% 
Apple, Inc.  2.44% 
Bank of America Corp.  2.41% 
Cisco Systems, Inc.  2.34% 
Intel Corp.  2.32% 
The Boeing Co.  2.25% 
Comcast Corp., Class A  2.04% 
Medtronic PLC  2.03% 
Total  27.59% 

 

1

The Fund’s holdings are allocated to each sector based on the MSCI Global Industry Classification Standard (GICS®). Cash includes short-term investments and net other assets and liabilities.

2

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

  3


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GUARDIAN INTEGRATED RESEARCH VIP FUND

 

Fund Performance (unaudited)

 

      

Average Annual Total Returns

As of December 31, 2018

                    
  
   Inception Date  1 Year  5 Year  10 Year  Since Inception 
Guardian Integrated Research VIP Fund  9/1/2016   -8.31%         5.22% 
Standard & Poor’s 500® Index      -4.38%         8.51% 

 

 

Results of a Hypothetical $10,000 Investment

As of December 31, 2018

LOGO

The chart above shows the performance of a hypothetical $10,000 investment made on inception date in Guardian Integrated Research VIP Fund and the Standard & Poor’s 500® Index. Index returns do not include the fees and expenses of the Fund, but do include reinvestment of dividends, if any.

Performance quoted represents past performance and does not guarantee or predict future results. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. The Fund’s fees and expenses are detailed in the Financial Highlights section of this report. Fees and expenses are factored into the net asset value of Fund shares and any performance numbers we release. Total return figures include the effect of expense limitations in effect during the periods shown, if applicable; without such limitations, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contract owner/policyholder may pay on redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current andmonth-end performance information, which may be lower or higher than that cited, is available by calling1-888-GUARDIAN(1-888-482-7342) and is periodically updated on our website: http://guardianlife.com.

 

4  


Table of Contents

UNDERSTANDING YOUR FUND’S EXPENSES(UNAUDITED)

 

By investing in the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including, as applicable, investment advisory fees, distribution and/or service(12b-1) fees and other Fund expenses. The example below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2018 to December 31, 2018. The table below shows the Fund’s expenses in two ways:

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher. Charges and expenses at the insurance company separate account level are not reflected in the table.

 

 

     
   

Beginning
Account Value

7/1/18

 

Ending

Account Value
12/31/18

  

Expenses Paid

During Period*

7/1/18-12/31/18

  

Expense Ratio

During Period

7/1/18-12/31/18

 
Based on Actual Return $1,000.00 $911.70  $4.63   0.96% 
Based on Hypothetical Return (5% Return Before Expenses) $1,000.00 $1,020.37  $4.89   0.96% 

 

*

Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period).

 

  5


Table of Contents

SCHEDULE OF INVESTMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

December 31, 2018  Shares   Value 
Common Stocks – 99.1%

 

 
Aerospace & Defense – 2.2%

 

  

The Boeing Co.

   685   $    220,912 
     

 

 

 
  
         220,912 
Airlines – 1.1%

 

  

Delta Air Lines, Inc.

   2,241    111,826 
     

 

 

 
  
         111,826 
Auto Components – 1.2%

 

  

Lear Corp.

   950    116,717 
     

 

 

 
  
         116,717 
Banks – 5.9%

 

  

Bank of America Corp.

   9,599    236,520 
  

Citigroup, Inc.

   1,889    98,341 
  

JPMorgan Chase & Co.

   545    53,203 
  

Wells Fargo & Co.

   4,065    187,315 
     

 

 

 
  
         575,379 
Beverages – 2.6%

 

  

Molson Coors Brewing Co., Class B

   2,015    113,162 
  

PepsiCo, Inc.

   1,273    140,641 
     

 

 

 
  
         253,803 
Biotechnology – 2.3%

 

  

Biogen, Inc.(1)

   564    169,719 
  

Celgene Corp.(1)

   898    57,553 
     

 

 

 
  
         227,272 
Capital Markets – 1.7%

 

  

Morgan Stanley

   3,625    143,731 
  

The Goldman Sachs Group, Inc.

   130    21,717 
     

 

 

 
  
         165,448 
Chemicals – 2.1%

 

  

CF Industries Holdings, Inc.

   3,342    145,410 
  

Eastman Chemical Co.

   868    63,460 
     

 

 

 
  
         208,870 
Communications Equipment – 2.3%

 

  

Cisco Systems, Inc.

   5,303    229,779 
     

 

 

 
  
         229,779 
Consumer Finance – 2.0%

 

  

Discover Financial Services

   1,947    114,834 
  

Synchrony Financial

   3,314    77,746 
     

 

 

 
  
         192,580 
Diversified Financial Services – 0.7%

 

  

Berkshire Hathaway, Inc., Class B(1)

   331    67,584 
     

 

 

 
  
         67,584 
Diversified Telecommunication Services – 1.0%

 

  

CenturyLink, Inc.

   2,794    42,329 
  

Verizon Communications, Inc.

   947    53,240 
     

 

 

 
  
         95,569 
Electric Utilities – 1.8%

 

  

Exelon Corp.

   3,973    179,182 
     

 

 

 
  
         179,182 
December 31, 2018  Shares   Value 
Electrical Equipment – 1.4%

 

  

Eaton Corp. PLC

   1,983   $    136,153 
     

 

 

 
  
         136,153 
Entertainment – 1.2%

 

  

Electronic Arts, Inc.(1)

   1,469    115,919 
     

 

 

 
  
         115,919 
Equity Real Estate Investment – 3.8%

 

  

EPR Properties REIT

   734    46,998 
  

Life Storage, Inc. REIT

   755    70,208 
  

Simon Property Group, Inc. REIT

   929    156,063 
  

STORE Capital Corp. REIT

   3,611    102,227 
     

 

 

 
  
         375,496 
Food & Staples Retailing – 4.0%

 

  

Costco Wholesale Corp.

   750    152,782 
  

US Foods Holding Corp.(1)

   2,294    72,582 
  

Walgreens Boots Alliance, Inc.

   2,505    171,167 
     

 

 

 
  
         396,531 
Food Products – 0.5%

 

  

Tyson Foods, Inc., Class A

   1,002    53,507 
     

 

 

 
  
         53,507 
Health Care Equipment & Supplies – 2.3%

 

  

Boston Scientific Corp.(1)

   672    23,749 
  

Medtronic PLC

   2,192    199,384 
     

 

 

 
  
         223,133 
Health Care Providers & Services – 3.5%

 

  

CVS Health Corp.

   1,650    108,108 
  

HCA Healthcare, Inc.

   1,074    133,659 
  

Humana, Inc.

   327    93,679 
  

UnitedHealth Group, Inc.

   21    5,232 
     

 

 

 
  
         340,678 
Hotels, Restaurants & Leisure – 3.3%

 

  

Aramark

   714    20,685 
  

Domino’s Pizza, Inc.

   76    18,847 
  

Marriott International, Inc., Class A

   1,101    119,524 
  

Starbucks Corp.

   2,507    161,451 
     

 

 

 
  
         320,507 
Household Durables – 0.5%

 

  

PulteGroup, Inc.

   2,002    52,032 
     

 

 

 
  
         52,032 
Household Products – 0.4%

 

  

Kimberly-Clark Corp.

   261    29,738 
  

The Procter & Gamble Co.

   79    7,262 
     

 

 

 
  
         37,000 
Independent Power and Renewable Electricity Producers – 2.8%

 

  

AES Corp.

   8,468    122,447 
  

NRG Energy, Inc.

   3,464    137,175 
  

Vistra Energy Corp.(1)

   553    12,658 
     

 

 

 
  
         272,280 
Industrial Conglomerates – 0.6%

 

  

Honeywell International, Inc.

   476    62,889 
     

 

 

 
  
         62,889 
 

 

6  The accompanying notes are an integral part of these financial statements.


Table of Contents

SCHEDULE OF INVESTMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

December 31, 2018  Shares   Value 
Insurance – 2.8%

 

  

MetLife, Inc.

   2,900   $    119,074 
  

Prudential Financial, Inc.

   1,354    110,419 
  

The Allstate Corp.

   521    43,050 
     

 

 

 
  
         272,543 
Interactive Media & Services – 4.5%

 

  

Alphabet, Inc., Class A(1)

   184    192,273 
  

Alphabet, Inc., Class C(1)

   191    197,801 
  

Facebook, Inc., Class A(1)

   402    52,698 
     

 

 

 
  
         442,772 
Internet & Direct Marketing Retail – 5.2%

 

  

Amazon.com, Inc.(1)

   236    354,465 
  

Booking Holdings, Inc.(1)

   92    158,463 
     

 

 

 
  
         512,928 
IT Services – 3.9%

 

  

DXC Technology Co.

   1,698    90,283 
  

FleetCor Technologies, Inc.(1)

   710    131,861 
  

Global Payments, Inc.

   235    24,236 
  

Leidos Holdings, Inc.

   842    44,390 
  

MasterCard, Inc., Class A

   376    70,932 
  

Visa, Inc., Class A

   159    20,979 
     

 

 

 
  
         382,681 
Leisure Products – 0.4%

 

  

Brunswick Corp.

   750    34,837 
     

 

 

 
  
         34,837 
Machinery – 0.7%

 

  

AGCO Corp.

   557    31,008 
  

Ingersoll-Rand PLC

   456    41,601 
     

 

 

 
  
         72,609 
Media – 2.0%

 

  

Comcast Corp., Class A

   5,883    200,316 
     

 

 

 
  
         200,316 
Oil, Gas & Consumable Fuels – 4.9%

 

  

EOG Resources, Inc.

   1,407    122,704 
  

Exxon Mobil Corp.

   535    36,482 
  

Kinder Morgan, Inc.

   5,422    83,390 
  

ONEOK, Inc.

   510    27,515 
  

Phillips 66

   1,449    124,831 
  

Pioneer Natural Resources Co.

   109    14,336 
  

Valero Energy Corp.

   916    68,673 
     

 

 

 
  
         477,931 
Pharmaceuticals – 6.7%

 

  

Bristol-Myers Squibb Co.

   3,167    164,621 
  

Eli Lilly & Co.

   802    92,807 
  

Johnson & Johnson

   2,350    303,268 
  

Pfizer, Inc.

   2,156    94,109 
     

 

 

 
  
         654,805 
Road & Rail – 1.8%

 

  

Union Pacific Corp.

   1,296    179,146 
     

 

 

 
  
         179,146 
December 31, 2018  Shares   Value 
Semiconductors & Semiconductor Equipment – 2.6%

 

  

Intel Corp.

   4,854   $    227,798 
  

Lam Research Corp.

   239    32,545 
     

 

 

 
  
         260,343 
Software – 6.9%

 

  

Adobe, Inc.(1)

   683    154,522 
  

Microsoft Corp.

   4,886    496,271 
  

salesforce.com, Inc.(1)

   170    23,285 
     

 

 

 
  
         674,078 
Specialty Retail – 0.4%

 

  

Urban Outfitters, Inc.(1)

   1,240    41,168 
     

 

 

 
  
         41,168 
Technology Hardware, Storage & Peripherals – 3.1%

 

  

Apple, Inc.

   1,517    239,291 
  

Hewlett Packard Enterprise Co.

   4,609    60,885 
     

 

 

 
  
         300,176 
Textiles, Apparel & Luxury Goods – 0.1%

 

  

Lululemon Athletica, Inc.(1)

   48    5,837 
     

 

 

 
  
         5,837 
Tobacco – 1.7%

 

  

Philip Morris International, Inc.

   2,509    167,501 
     

 

 

 
  
         167,501 
Trading Companies & Distributors – 0.2%

 

  

HD Supply Holdings, Inc.(1)

   413    15,496 
     

 

 

 
  
         15,496 
  
Total Common Stocks
(Cost $9,673,034)

 

   9,726,213 
    
    Principal
Amount
   Value 
Short–Term Investment – 1.1%

 

 
Repurchase Agreements – 1.1%

 

  

Fixed Income Clearing Corp., 0.50%, dated 12/31/2018, proceeds at maturity value of $104,003, due 1/2/2019(2)

  $    104,000    104,000 
  
Total Repurchase Agreements
(Cost $104,000)

 

   104,000 
  
Total Investments – 100.2%
(Cost $9,777,034)

 

   9,830,213 
  
Liabilities in excess of other assets – (0.2)%

 

   (16,010
  
Total Net Assets – 100.0%

 

  $9,814,203 

 

(1) 

Non–income–producing security.

(2) 

The table below presents collateral for repurchase agreements.

 

Security Coupon  Maturity
Date
  Principal
Amount
  Value 
U.S. Treasury Note  2.875%   7/31/2025  $105,000  $107,741 

Legend:

REIT — Real Estate Investment Trust

 

 

The accompanying notes are an integral part of these financial statements.  7


Table of Contents

SCHEDULE OF INVESTMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

The following is a summary of the inputs used as of December 31, 2018 in valuing the Fund’s investments. For more information on valuation inputs, please refer to Note 2a of the accompanying Notes to Financial Statements.

 

                                Valuation Inputs                                  
Investments in Securities    Level 1     Level 2     Level 3     Total 
Common Stocks    $9,726,213     $     $     $9,726,213 
Repurchase Agreements           104,000            104,000 
Total    $    9,726,213     $    104,000     $    —     $    9,830,213 

 

8  The accompanying notes are an integral part of these financial statements.


Table of Contents

FINANCIAL INFORMATION — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

Statement of Assets and Liabilities

As of December 31, 2018

    

Assets

  
  

Investments, at value

 $9,830,213 
  

Cash

  454 
  

Reimbursement receivable from adviser

  14,031 
  

Dividends/interest receivable

  10,501 
  

Prepaid expenses

  1,240 
  

 

 

 
  

Total Assets

  9,856,439 
  

 

 

 
  

Liabilities

  
  

Accrued audit fees

  15,000 
  

Accrued custodian and accounting fees

  8,291 
  

Accrued administrative fees

  7,910 
  

Investment advisory fees payable

  4,744 
  

Distribution fees payable

  2,156 
  

Accrued trustees’ and officers’ fees

  156 
  

Payable for fund shares redeemed

  33 
  

Accrued expenses and other liabilities

  3,946 
  

 

 

 
  

Total Liabilities

  42,236 
  

 

 

 
  

Total Net Assets

 $9,814,203 
  

 

 

 
  

Net Assets Consist of:

  
  

Paid-in capital

 $6,670,343 
  

Distributable earnings

  3,143,860 
  

 

 

 
  

Total Net Assets

 $9,814,203 
  

 

 

 

Investments, at Cost

 $    9,777,034 
  

 

 

 
  

Pricing of Shares

  
  

Shares of Beneficial Interest Outstanding with No Par Value

  871,974 
  

Net Asset Value Per Share

  $11.26 
     

Statement of Operations

For the Year Ended December 31, 2018

    

Investment Income

  
  

Dividends

 $215,469 
  

Interest

  192 
  

 

 

 
  

Total Investment Income

  215,661 
  

 

 

 
  

Expenses

  
  

Investment advisory fees

  62,644 
  

Custodian and accounting fees

  57,527 
  

Administrative fees

  44,638 
  

Professional fees

  36,743 
  

Trustees’ and officers’ fees

  29,450 
  

Distribution fees

  28,475 
  

Transfer agent fees

  11,854 
  

Other expenses

  844 
  

 

 

 
  

Total Expenses

  272,175 
  

Less: Fees waived

      (162,831
  

 

 

 
  

Total Expenses, Net

  109,344 
  

 

 

 
  

Net Investment Income/(Loss)

  106,317 
  

 

 

 
  

Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments

  
  

Net realized gain/(loss) from investments

  538,433 
  

Net change in unrealized appreciation/(depreciation) on investments

  (1,521,435) 
  

 

 

 
  

Net Loss on Investments

  (983,002
  

 

 

 
  

Net Decrease in Net Assets Resulting From Operations

 $(876,685
  

 

 

 
     
 

 

The accompanying notes are an integral part of these financial statements.  9


Table of Contents

FINANCIAL INFORMATION — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

Statements of Changes in Net Assets

              
  
      For the
Year Ended
12/31/18
     For the
Year Ended
12/31/17
 
      

 

 

Operations

         
  

Net investment income/(loss)

    $106,317     $173,122 
  

Net realized gain/(loss) from investments

     538,433      2,237,849 
  

Net change in unrealized appreciation/(depreciation) on investments

     (1,521,435     1,305,018 
     

 

 

     

 

 

 
  

Net Increase/(Decrease) in Net Assets Resulting from Operations

     (876,685     3,715,989 
     

 

 

     

 

 

 
  

Capital Share Transactions

         
  

Proceeds from sales of shares

     258,696      5,574,156 
  

Cost of shares redeemed

     (1,738,400     (12,034,790
     

 

 

     

 

 

 
  

Net Decrease in Net Assets Resulting from Capital Share Transactions

     (1,479,704     (6,460,634
     

 

 

     

 

 

 
  

Net Decrease in Net Assets

     (2,356,389     (2,744,645
     

 

 

     

 

 

 
  

Net Assets

         
  

Beginning of year

     12,170,592      14,915,237 
     

 

 

     

 

 

 
  

End of year

    $9,814,203     $12,170,592 
     

 

 

     

 

 

 
  

Other Information:

         
  

Shares

         
  

Sold

     21,136      519,309 
  

Redeemed

     (140,091     (984,873
     

 

 

     

 

 

 
  

Net Decrease

     (118,955     (465,564
     

 

 

     

 

 

 
               

 

10  The accompanying notes are an integral part of these financial statements.


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  11


Table of Contents

FINANCIAL INFORMATION — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past five years (or, if shorter, the period since inception). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund.

 

Financial Highlights

                        
    Per Share Operating Performance     
        
Net Asset Value,
Beginning of
Period
   Net Investment
Income(1)
   Net Realized
and Unrealized
Gain/(Loss)
  Total
Operations
  Net Asset
Value, End of
Period
   Total
Return(2)
 
  

Year Ended 12/31/18

  $12.28   $0.12   $(1.14 $(1.02 $11.26    (8.31)
  

Year Ended 12/31/17

   10.24    0.09    1.95   2.04   12.28    19.92
  

Period Ended 12/31/16(4)

   10.00    0.03    0.21   0.24   10.24    2.40%(5) 

 

12  The accompanying notes are an integral part of these financial statements.


Table of Contents

FINANCIAL INFORMATION — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

 

 
Ratios/Supplemental Data 
Net Assets, End
of Period (000s)
  Net Ratio of
Expenses to
Average
Net Assets(3)
  Gross Ratio of
Expenses to
Average Net
Assets
  Net Ratio of Net
Investment Income
to Average
Net Assets(3)
  Gross Ratio of Net
Investment Loss
to Average
Net Assets
  Portfolio
Turnover Rate
 
 
$9,814   0.96%   2.39%   0.93%   (0.50)%   58% 
 
 12,171   0.96%   1.91%   0.84%   (0.11)%   80% 
 
 14,915   0.96%(5)    2.65%(5)    0.92%(5)    (0.77)%(5)    15%(5)  

 

(1) 

Calculated based on the average shares outstanding during the period.

 

(2) 

Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.‘s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.

 

(3) 

Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers and expense limitations.

 

(4) 

Commenced operations on September 1, 2016.

 

(5) 

Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2016, certainnon-recurring fees (i.e., audit fees) are not annualized.

 

The accompanying notes are an integral part of these financial statements.  13


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

December 31, 2018

1. Organization

Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as anopen-end management investment company. The Trust currently has sixteen series. Guardian Integrated Research VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.

The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).

The Fund seeks capital appreciation.

2. Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services — Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

a. Investment Valuations Equity securities traded on an exchange other than NASDAQ Stock Market, LLC (“NASDAQ”) are valued at the last reported sale price on the principal exchange or market on which they are traded; or, if there were no sales that day, at the mean between the closing bid and ask prices. Securities traded on the NASDAQ are generally valued at the NASDAQ official closing price, which may not be the last sale price. If the NASDAQ official closing price is not available for a security, that security is generally valued at the

mean between the closing bid and ask prices. Repurchase agreements are carried at cost, which approximates fair value (see Note 5d). Foreign securities are valued in the currencies of the markets in which they trade and then converted to U.S. dollars by the application of foreign exchange rates at the close of the New York Stock Exchange (“NYSE”). Forward foreign currency contracts, if any, are valued at the mean between the bid and ask rates for the specified time interpolated from rates for proximate time periods. Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with policies and procedures adopted by the Board of Trustees.

Under the policies and procedures approved by the Board of Trustees, Park Avenue Institutional Advisers LLC (“Park Avenue”), the Fund’s investment adviser, has established a Fair Valuation Committee to assist the Board of Trustees with the oversight and monitoring of the valuation of the Fund’s investments. This includes monitoring the appropriateness of fair values based on results of ongoing valuation oversight, including but not limited to consideration of security specific events, market events, and pricing vendor and broker-dealer due diligence. The Fair Valuation Committee oversees and carries out the policies for the valuation of investments held in the Fund. The Fair Valuation Committee is responsible for discussing and assessing the potential impacts to the fair values on an ongoing basis, and at least on a quarterly basis with the Board of Trustees.

Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued in accordance with policies and procedures adopted by the Board of Trustees. In addition, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities. Certain foreign equity instruments are valued by applying international fair value factors provided by approved pricing services. The factors seek to adjust the local closing price for movements of local markets post closing, but prior to the time the NAVs are calculated. Valuations reflected in this report are as of the report date. As a result, changes in valuation due to market events and/or issuer related events after the report date and prior to issuance of the report are not reflected herein.

 

 

14  


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

Various inputs are used in determining the valuation of the Fund’s investments. These inputs are summarized in three broad levels listed below.

 

 Level 1 — unadjusted inputs using quoted prices in active markets for identical investments.

 

 Level 2 — other significant observable inputs, including, but not limited to, quoted prices for similar investments, inputs other than quoted prices that are observable for investments (such as interest rates, prepayment speeds, credit risks, etc.) or other market corroborated inputs.

 

 Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input; both individually and in aggregate, that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Trust. The Trust considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, and provided by independent sources that are actively involved in the relevant market. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of a financial instrument’s assigned level within the hierarchy.

The FASB requires reporting entities to make disclosures about purchases, sales, issuances and settlements of Level 3 securities on a gross basis.

The Fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 at the end of the reporting period. For the year ended December 31, 2018, there were no transfers among any levels.

In determining a financial instrument’s placement within the hierarchy, the Trust separates the Fund’s investment portfolio into two categories: investments and derivatives (e.g., futures). A summary of inputs used to value the Fund’s assets and liabilities carried at fair value as of December 31, 2018 is included in the Schedule of Investments.

Investments Investments whose values are based on quoted market prices in active markets, and are

therefore classified within Level 1, include active listed equities. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include certain U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, state, municipal and provincial obligations, and certain foreign equity securities, including securities whose prices may have been affected by events occurring after the close of trading on their principal exchange or market and, as a result, whose values are determined by a pricing service as described above, or securities whose values are otherwise determined using fair valuation methods approved by the Fund’s Board of Trustees.

Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or not at all. Level 3 investments include, among others, private placement securities. When observable prices are not available for these securities, the Trust uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the Trust in estimating the value of Level 3 investments include, for example, the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, subsequent rounds of financing, recapitalizations, and other transactions across the capital structure. Level 3 investments may also be adjusted to reflect illiquidity and/ornon-transferability, with the amount of such discount estimated by the Trust in the absence of market information. Assumptions used by the Trust due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Fund’s results of operations. As of December 31, 2018, the Fund had no securities classified as Level 3.

Derivatives Exchange-traded derivatives, such as futures contracts, exchange-traded option contracts and certain swaps, are typically classified within Level 1 or Level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. Certainnon-exchange-traded derivatives, such as generic forwards, certain swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within Level 2. During the year ended December 31, 2018, the Fund did not hold any derivatives.

 

 

  15


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.

c. Foreign Currency Translation The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. The market value of investment securities and other assets and liabilities are translated at the exchange rate as of the valuation date. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the exchange rates in effect on the dates of the respective transactions. The Fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included in the Net change in net realized and unrealized gain/(loss) from investments on the Statement of Operations.

Reported realized foreign currency gains and losses arise from the disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. These reported realized foreign currency gains and losses, if any, are included in Net realized gain/(loss) from foreign currency transactions on the Statement of Operations. Unrealized foreign currency gains and losses arise from changes (due to changes in exchange rates) in the value of foreign currency and other assets and liabilities denominated in foreign currencies, which are held at period end, if any, and are included in Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies on the Statement of Operations.

d. Foreign Capital Gains Tax The Fund may be subject to foreign taxes on income, gains on investments or currency purchases/repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest.

e. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is determined using the interest income accrual method, and is accrued and recorded daily.

f. Allocation of Income and Expenses Many of the expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets. In calculating net asset value per share for each series of the Trust, investment income, realized and unrealized gains and losses, and expenses other than series-specific expenses are allocated daily to each series based upon the proportion of net assets attributable to each series.

3. Transactions with Affiliates

a. Investment Advisory Fee and Expense Limitation Under the terms of the advisory agreement, which, after its two year initial term, is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to Park Avenue. Park Avenue is a wholly-owned subsidiary of Guardian Life and receives an investment advisory fee at an annual rate of 0.55% up to $100 million, 0.50% up to $300 million, and 0.40% in excess of $300 million of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.

Park Avenue has contractually agreed through April 30, 2019 to waive certain fees and/or reimburse certain expenses incurred by the Fund to the extent necessary to limit the Fund’s total annual operating expenses after fee waiver and/or expense reimbursement to 0.96% of the Fund’s average daily net assets (excluding, if applicable, any acquired fund fees and expenses, taxes, interest, transaction costs and brokerage commissions, litigation and extraordinary expenses). Prior to April 9, 2018, the expense limitation was 0.96%. The limitation may not be increased or terminated prior to this time without action by the Board of Trustees, may be terminated only upon approval of the Board of Trustees, and is subject to Park Avenue’s recoupment rights. For the year ended December 31, 2018, Park Avenue waived fees and/or paid Fund expenses in the amount of $162,831.

Park Avenue may be entitled to recoupment of previously waived fees and reimbursed expenses from the Fund for three years from the date of the waiver or reimbursement, subject to the expense limitation in effect at the time of the waiver or reimbursement and at

 

 

16  


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

the time of the recoupment, if any. The amount available for potential future recoupment by Park Avenue from the Fund under the Expense Limitation Agreement and the expiration schedule at December 31, 2018 are as follows:

 

  
   Potential Recoupment Amounts
Expiring
 

Total Potential

Recoupment

Amounts

 2021  2020  2019 
$436,893 $162,831  $194,792  $79,270 

Park Avenue has entered into aSub-Advisory Agreement with Massachusetts Financial Services Company (“MFS”). MFS is responsible for providingday-to-day investment advisory services to the Fund, subject to the supervision of Park Avenue and the oversight of the Board of Trustees.Sub-advisory fees are paid by Park Avenue and do not represent a separate or additional expense to the Fund.

b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.

c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust(“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the year ended December 31, 2018, the Fund paid distribution fees in the amount of $28,475 to PAS.

PAS has directed that certain payments under the12b-1 plan be used to compensate GIAC for shareholder services provided to contract owners.

4. Federal Income Taxes

a. Distributions to Shareholders For federal income tax purposes, the Fund is treated as a disregarded entity (“DRE”). As a DRE, the Fund is not subject to an entity-level income tax; and any income, gains, losses, deductions, taxes, and credits of the Fund would instead

be “passed through” directly to the separate accounts of GIAC that invest in the Fund and retain the same character for U.S. federal income tax purposes. In addition, the Fund is not required to distribute taxable income and capital gains for U.S. federal income tax purposes. Therefore, no dividends and capital gains distributions were paid by the Fund.

5. Investments

a. Investment Purchases and Sales The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $6,548,873 and $7,928,151, respectively, for the year ended December 31, 2018. During the year ended December 31, 2018, there were no purchases or sales of U.S. government securities.

b. Foreign Securities Foreign securities investments involve special risks and considerations not typically associated with U.S. investments. These risks include, but are not limited to, currency risk; adverse political, regulatory, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign issuers may be less liquid and their prices more volatile than those of comparable U.S. issuers.

c. Industry or Sector Concentration In its normal course of business, the Fund may invest a significant portion of its assets in companies within a limited number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.

d. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn income over periods of time as short as overnight. The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked to market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically 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 Fund maintains the right to sell the collateral (although it may be prevented

 

 

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NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND

 

or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.

6. Temporary Borrowings

The Fund, with other funds managed by Park Avenue, is party to a $10 million committed revolving credit facility from State Street Bank and Trust Company for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the higher of the dailyone-month LIBOR rate and the Federal Funds rate plus 1.25% at the time of borrowing. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until December 10, 2019. The Fund did not utilize the credit facility during the year ended December 31, 2018.

7. Indemnifications

Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the

performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.

8. Recent Accounting Pronouncement

On August 17, 2018, the U.S. Securities and Exchange Commission (“SEC”) voted to adopt amendments to certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, GAAP, or changes in the information environment. The SEC will also be referring certain SEC disclosure requirements that overlap with, but require information incremental to, GAAP to the FASB for potential incorporation into GAAP. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. As such, the financial statements herein have been updated to conform with these new requirements, which had no effect on the Fund’s net assets or results of operations.

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

TotheBoard of Trustees ofGuardian Variable Products TrustandShareholders of Guardian Integrated Research VIP Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, ofGuardian Integrated Research VIP Fund (one of the funds constituting Guardian Variable Products Trust, referred to hereafter as the “Fund”) as of December 31, 2018, the related statement of operations for the year ended December 31, 2018, the statement of changes in net assets for each of the two years in the period ended December 31, 2018, including the related notes,and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended December 31, 2018 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.

New York, New York

February 19, 2019

We have served as the auditor of one or more investment companies in Guardian Variable Products Trustsince 2016.

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

Approval of Investment Advisory andSub-advisory Agreements

Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s board of trustees annually review and consider the continuation of the fund’s investment advisory andsub-advisory agreements. The continuation of any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at anin-person meeting of the board called for the purpose of voting on such approval.

At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March27-28, 2018, the Board considered and unanimously voted to approve the continuation of the investment management agreement (the “Management Agreement”) between Park Avenue Institutional Advisers LLC (the “Manager”) and the Trust, on behalf of the following 11 series, Guardian Core Plus Fixed Income VIP Fund, Guardian Diversified Research VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund and Guardian Mid Cap Traditional Growth VIP Fund (the “Funds”). The Board also considered and unanimously voted to approve the continuation of thesub-advisory agreements (the“Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and the following investment advisory firms serving assub-advisers to the Funds, ClearBridge Investments LLC, Wellington Management Company LLP, Massachusetts Financial Services Company, Putnam Investment Management, LLC, Boston Partners Global Investors, Inc., AllianceBernstein L.P., Janus Capital Management LLC, Wells Capital Management Incorporated, J.P. Morgan Investment Management Inc., Lazard Asset Management LLC, and Lord, Abbett & Co. LLC (the“Sub-advisers”). The continuation of the Agreements for aone-year period was unanimously approved by the Trustees who are not parties to the Agreements or “interested persons” (as defined in the 1940 Act) of a party to the Agreements (the “Independent Trustees”).

The Board is responsible for overseeing the management of each Fund. In determining whether to approve the continuation of the Agreements, the Trustees evaluated information and factors that they

considered to be relevant and appropriate through the exercise of their own business judgment. The Trustees considered certain information and factors in light of advice furnished to them by legal counsel to the Trust and, in the case of the Independent Trustees, their independent legal counsel.

In advance of the meeting held on March27-28, 2018, the Trustees received materials and information designed to assist their consideration of the Agreements, including written responses from the Manager and eachSub-adviser to a series of questions and requests for information covering a wide variety of topics provided by independent legal counsel on behalf of the Independent Trustees. Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data, was retained to provide the Trustees with reports on how each Fund’s contractual management fees, actual management fees, overall expense ratios and investment performance compared to those of “peer funds” selected by Broadridge that are offered as investment options underlying variable contracts. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to oversee theSub-advisers. During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or anySub-adviser.

In reaching its decisions to approve the continuation of the Agreements, the Board took into account the materials and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees, including information regarding the Funds furnished to the Board by the Manager throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the continuation of the Agreements.

The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to approve the continuation of the Agreements rather than to beall-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and theSub-advisers; (ii) the investment performance of the

 

 

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Funds; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale may exist for a Fund, and the extent to which a Fund may benefit from economies of scale; and (v) any other benefits derived by the Manager or theSub-advisers (or their respective affiliates) from their relationships with the Funds. In addition to considering the above-referenced factors, the Board observed that there are a range of investment options available to variable contract owners who may invest in the Funds, and that these contract owners, having had the opportunity to consider other investment options, may choose to invest or remain invested in the Funds.

Nature, Extent and Quality of Services

The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered the range of investment advisory services andnon-investment advisory services provided by the Manager, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials and assisting the Board with certain valuation matters.

The Trustees considered the operation of the Funds in a“manager-of-managers” structure and the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of theSub-advisers, monitoring theSub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising theSub-advisers with respect to the services that theSub-advisers provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommendsub-advisers, and its ability to monitor and overseesub-advisers and recommend replacementsub-advisers, when necessary, and provide other services under the Management Agreement. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds benefit from the Manager’s use of similar resources and capabilities of its affiliates in providing services to the Funds.

The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by theSub-advisers. The Trustees also considered, among other things, the range of investment advisory

services provided by theSub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, theSub-advisers’ investment philosophies, styles and/or processes and approach to managing risk. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals that serve as portfolio managers for the Funds and the capabilities, resources and reputations of theSub-advisers.

Based upon these considerations, the Board concluded that it was satisfied with the nature, extent and quality of services provided to the Funds by the Manager and eachSub-adviser.

Investment Performance

The Board considered the investment performance of each Fund. Among other reports, the Board reviewed the performance of the Funds for theone-year and since inception periods compared to a universe of peer funds selected by Broadridge. The Board noted that the Funds had performance records of less than two years and that the Board had reviewed longer performance records of the funds or accounts managed by theSub-advisers with similar strategies as the applicable Fund, when available, when the Board initially approved the Agreements in 2016. The Broadridge report placed the Funds in the following quintiles of the relevant peer universe for theone-year and since inception periods, respectively: Guardian Core Plus Fixed Income VIP Fund (3rd, 3rd), Guardian Diversified Research VIP Fund (2nd, 2nd), Guardian Growth & Income VIP Fund (1st, 1st), Guardian Integrated Research VIP Fund (4th, 5th), Guardian International Growth VIP Fund (3rd, 2nd), Guardian International Value VIP Fund (3rd, 5th), Guardian Large Cap Disciplined Growth VIP Fund (3rd, 4th), Guardian Large Cap Disciplined Value VIP Fund (1st, 1st), Guardian Large Cap Fundamental Growth VIP Fund (5th, 4th), Guardian Mid Cap Relative Value VIP Fund (4th, 3rd) and Guardian Mid Cap Traditional Growth VIP Fund (2nd, 2nd).

The Board considered the investment reports provided by the Manager since commencement of operations of the Funds during quarterly Board meetings. The Board also considered the Manager’s analysis ofSub-adviser performance and the steps taken by the Manager and theSub-advisers to seek to improve performance and the results of those steps.

In light of the considerations noted above, the Board concluded that it had continued confidence in the Manager’s and theSub-advisers’ overall capabilities to manage the Funds.

 

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

Costs and Profitability

The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed information with respect to the management fees, including the portion of the management fees paid to eachSub-adviser, and the management fees paid by other funds offered as investment options underlying variable contracts within the applicable peer group selected by Broadridge. The Broadridge report placed the Funds in the following quintiles of the relevant expense peer group for the contractual management fees and actual management fees, respectively: Guardian Core Plus Fixed Income VIP Fund (1st, 3rd), Guardian Diversified Research VIP Fund (2nd, 3rd), Guardian Growth & Income VIP Fund (1st, 1st), Guardian Integrated Research VIP Fund (1st, 2nd), Guardian International Growth VIP Fund (1st, 2nd), Guardian International Value VIP Fund (3rd, 2nd), Guardian Large Cap Disciplined Growth VIP Fund (1st, 1st), Guardian Large Cap Disciplined Value VIP Fund (1st, 1st), Guardian Large Cap Fundamental Growth VIP Fund (1st, 1st), Guardian Mid Cap Relative Value VIP Fund (1st, 1st) and Guardian Mid Cap Traditional Growth VIP Fund (3rd, 4th).

The Trustees considered thesub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to theSub-advisers are paid by the Manager and not the Funds and that the Manager had negotiated the fees with theSub-advisers atarm’s-length. In addition, the Trustees considered the portion of the management fees paid to eachSub-adviser as compared to the portion retained by the Manager.

The Trustees received and reviewed information in the Broadridge report comparing each Fund’s operating expense ratio to the actual operating expense ratios of a peer group of funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit each Fund’s operating expenses through an expense limitation agreement with the Trust. The Broadridge report placed the Funds in the following quintiles of the relevant expense peer group for the operating expense ratio: Guardian Core Plus Fixed Income VIP Fund (2nd), Guardian Diversified Research VIP Fund (2nd), Guardian Growth & Income VIP Fund (2nd), Guardian Integrated Research VIP Fund (1st), Guardian International Growth VIP Fund (3rd), Guardian International Value VIP Fund (1st), Guardian Large Cap Disciplined Growth VIP Fund (1st), Guardian Large Cap Disciplined Value VIP Fund (2nd), Guardian Large Cap

Fundamental Growth VIP Fund (1st), Guardian Mid Cap Relative Value VIP Fund (1st) and Guardian Mid Cap Traditional Growth VIP Fund (3rd).

Although the Board recognized that the comparisons between the management fees and anticipated operating expenses of the Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of operating expenses.

The Trustees reviewed information regarding the Manager’s costs of sponsoring the Funds and estimated profitability of the Funds to the Manager. The Trustees noted that the information contained estimates, such as allocations of expenses. Although the Trustees did not receive specific cost and profitability information from certainSub-advisers, the Trustees primarily considered the cost and profitability information relating to the Manager because the Manager is responsible for payment of thesub-advisory fees and negotiated the fees with theSub-advisers atarm’s-length.

Based on the consideration of the information and factors summarized above, as well as other information and factors deemed relevant by the Trustees, the Trustees concluded that the management andsub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and theSub-advisers. The Trustees also concluded that the estimated profitability of the Funds to the Manager was acceptable.

Economies of Scale

The Trustees considered the extent to which economies of scale may be shared as assets grow based on current asset levels of the Funds, anticipated asset levels over the next year, the current management andsub-advisory fee rates, the expense limitation arrangements, and any management andsub-advisory fee breakpoints, which reduce fee rates as assets increase. Based on those factors, the Board concluded that it was satisfied with the extent to which any economies of scale would be shared for the benefit of Fund shareholders. The Board noted that it would continue to monitor future growth in each Fund’s assets and whether additional steps are required to share appropriately any economies of scale with Fund shareholders.

 

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

Ancillary Benefits

The Trustees considered the benefits, other than management fees, that the Manager and/or its affiliates receive because of the Manager’s relationship with the Funds. The Trustees acknowledged that the Funds serve as investment options under variable contracts issued by an affiliate of the Manager that receives fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and an insurance company affiliated with the Manager receive fees from the Funds under a plan of distribution adopted pursuant to Rule12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the

Trustees considered the potential benefits, other thansub-advisory fees, that theSub-advisers and their affiliates receive because of their relationships with the Funds, including the potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that accrue to the Manager and its affiliates are reasonable and the benefits that accrue to theSub-advisers and their affiliates are consistent with those expected for asub-adviser to a mutual fund such as the applicable Fund.

Conclusion

Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board voting as a whole, including the Independent Trustees voting separately, unanimously approved the continuation of the Agreements.

 

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

Trustees and Officers Information Table

The following table provides information about the Trustees of the Trust.

 

     
Name and
Year of Birth
  Term of Office,
Position(s) Held
and Length of
Service*
  Principal
Occupation(s)

During Past Five Years
  Number of
Funds
in Fund
Complex
Overseen
by Trustees***
  Other Directorships
Held by Trustee
Independent Trustees
  

Bruce W. Ferris

(born 1955)

  Trustee  Retired (since 2015); President and CEO, Prudential Annuity Distributors (2013–2015); Director/Trustee, Advanced Series Trust, Prudential Series Fund and Prudential’s Gibraltar Fund, Inc. (2013–2015); Senior Vice President, Prudential Annuities (2008–2015).  16  None.
  
Theda R. Haber
(born 1954)
  Trustee  Adjunct Assistant Professor of Law, UC Hastings College of Law (since 2013); Member of the Board of Directors, Fairholme Trust Company, LLC (since 2015); Attorney, Law Office of Theda R. Haber (since 2014); Visiting Professor of Law, UC Davis School of Law (since 2014); Consultant, Haber & Associates LLC (financial services industry) (since 2012); Advisory Council Chair, Vice Chair, and Member, Advisory Council on Employee Welfare and Pension Benefit Plans (ERISA Advisory Council), U.S. Department of Labor (2009–2011); Managing Director and General Counsel, BlackRock Institutional Trust Company, N.A. (2009–2011); Deputy Global General Counsel, Barclays Global Investors (2006–2009); Managing Director, Barclays Global Investors (1998–2006).  16  None.
  
Marshall Lux
(born 1960)
  Trustee  Senior Advisor, The Boston Consulting Group (since 2014); Senior Partner and Managing Director, The Boston Consulting Group (2009–2014).  16  None.
  
Lisa K. Polsky
(born 1956)
  Trustee  Senior Risk Advisor, AQR (investment management) (since 2016); Senior Risk Advisor, Ultra Capital (venture capital) (since 2016); Board Member and Chair of Risk Committee, DeutscheBank IHC (financial services) (since May 2016); Chief Risk Officer, CIT Group Inc. (financial services) (2010–2015); Board Member and Chair of Audit Committee, Piper Jaffray (investment bank) (2007–2016).  16  None.
  
John Walters
(born 1962)
  Lead Independent Trustee  Board Member, Amerilife Holdings LLC (insurance distribution) (since 2015); Board Member, Stadion Money Management LLC (investment adviser) (since 2011); President and Chief Operating Officer, Hartford Life Insurance Company (2000–2010).  16  None.

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

     
Name and
Year of Birth
  Term of Office,
Position(s) Held
and Length of
Service*
  Principal
Occupation(s)

During Past Five Years
  Number of
Funds
in Fund
Complex
Overseen
by Trustees***
  Other Directorships
Held by Trustee
Interested Trustees
  

Gordon Dinsmore**

(born 1952)

  Trustee  Senior Vice President, Head of Product and President of Berkshire, The Guardian Life Insurance Company of America.  16  None.
  

Marc Costantini**

(born 1969)

  Chairman and Trustee  Executive Vice President, Group and Worksite Markets, The Guardian Life Insurance Company of America (since 2017); Executive Vice President and Chief Financial Officer, The Guardian Life Insurance Company of America (2014–2017); Executive Vice President, Manulife Financial prior thereto (various positions from 1990–2014).  16  None.

 

*

Each Trustee except for Mr. Dinsmore began service in such capacity in 2016 and serves until his or her successor is elected and qualified or until his or her resignation, death or removal. Mr. Dinsmore has served as a Trustee since November 2017. The business address of each Trustee is 7 Hanover Square, New York, New York 10004.

**

Each of Gordon Dinsmore and Marc Costantini is considered to be an “interested person” of the Trust within the meaning of the 1940 Act because of their affiliation with The Guardian Life Insurance Company of America and/or its affiliates.

***

As of the date of this report, the Trust currently consists of 16 separate Funds.

Member of the Audit Committee of the Trust.

The following table provides information about the Officers of the Trust.

 

   
Name and Year of Birth  Position(s) Held and
Length of Service*
  Principal Occupation(s)
During Past Five Years
  

Gordon Dinsmore

(born 1952)

  President and Principal Executive Officer (Since November 2017)  Senior Vice President, Head of Product and President of Berkshire, The Guardian Life Insurance Company of America.
  

John H. Walter

(born 1962)

  Senior Vice President, Treasurer, and Principal Financial and Accounting Officer  Vice President, Chief Financial Officer, Equity Profit Center, The Guardian Life Insurance Company of America.
  

Harris Oliner

(born 1971)

  Senior Vice President and Secretary  Senior Vice President, Corporate Secretary, The Guardian Life Insurance Company of America (since 2015); Senior Vice President, Deputy General Counsel, Corporate Secretary, Voya Financial, Inc. (2013–2014); Managing Director, Senior Counsel, Corporate Secretary, BlackRock, Inc. prior thereto.
  

Richard T. Potter

(born 1954)

  Senior Vice President and Chief Legal Officer  Vice President and Equity Counsel, The Guardian Life Insurance Company of America.
  

Philip Stack

(born 1964)

  Chief Compliance Officer (Since September 2017)  Executive Director, Chief Compliance Officer, Morgan Stanley (2015–2017); Vice President, Morgan Stanley (2013–2015); Vice President, Corporate Audit Group–Compliance, Morgan Stanley prior thereto.
  

James R. Anderson

(born 1963)

  Anti-Money Laundering Officer (Since November 2017)  Second Vice President, Agency and Anti-Money Laundering Compliance, The Guardian Life Insurance Company of America.
  
Kathleen M. Moynihan(born 1966)  Senior Counsel  Senior Counsel, The Guardian Life Insurance Company of America.
  

Maria Nydia Morrison

(born 1958)

  Fund Controller  Mutual Fund Controller, The Guardian Life Insurance Company of America (since 2015); Chief Financial Officer/Assistant Operating Officer, St. Francis De Assisi Montessori School (Plaridel, Bulacan), Inc. (Philippines) (2013–2015); Vice President, Bank of New York Mellon prior thereto.

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

   
Name and Year of Birth  Position(s) Held and
Length of Service*
  Principal Occupation(s)
During Past Five Years
  

Sonya L. Crosswell

(born 1977)

  Assistant Secretary  Assistant Vice President, Assistant Corporate Secretary and Secretary Pro Tem, The Guardian Life Insurance Company of America (since 2014); Vice President, Secretary and Assistant General Counsel, Carver Federal Savings Bank prior thereto.

 

*

Unless otherwise indicated, the Officers each began service in such capacity in 2016 and hold office for an indefinite term or until their successors shall have been elected and qualified. The business address of each Officer is 7 Hanover Square, New York, New York 10004.

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.

 

Portfolio Holdings and Proxy Voting Procedures

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-Q or FormN-PORT (for filings beginning in April 2019 relating to March 31, 2019 data). The Fund’s Form N-Q or FormN-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-Q or FormN-PORT information is also available, without charge, upon request, by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/
Prospectuses.

Beginning in April 2019, the Fund will cease to disclose its holdings on Form N-Q and will file Form N-PORT with the Securities and Exchange Commission on a monthly

basis, with the information contained on Form N-PORT for the last month of the Fund’s fiscal quarter being made public by the Securities and Exchange Commission 60 days after the end of the Fund’s fiscal quarter.

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/
Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.

 

 

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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.

 

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Table of Contents

Guardian Variable

Products Trust

2018

Annual Report

All Data as of December 31, 2018

Guardian Diversified Research VIP Fund

Important Notice

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering fore-delivery.

You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at1-888-GUARDIAN(1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.



 

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TABLE OF CONTENTS

 

Guardian Diversified Research VIP Fund

 

 

Except as otherwise specifically stated, all information, including portfolio security positions, is as of December 31, 2018. The views expressed in the Fund Commentary are those of the Fund’s portfolio manager(s) as of the date of this report and are subject to change without notice. They do not necessarily represent the views of Park Avenue Institutional Advisers LLC or asub-adviser. The Fund Commentary may contain some forward-looking statements providing expectations or forecasts of future events as of the date of this report; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.


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GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

FUND COMMENTARY OF PUTNAM INVESTMENT MANAGEMENT, LLC,SUB-ADVISER

Highlights

 

  Guardian Diversified Research VIP Fund (the “Fund”) returned-6.40%, underperforming its benchmark, the Standard & Poor’s 500® Index1 (the “Index”), for the 12 months ended December 31, 2018. Although stock selection and sector allocation were modestly positive factors relative to the Index, the Fund underperformed primarily due to impacts from currency and cash exposure. Stock selection in the consumer staples, energy, industrials, consumer discretionary, utilities and health care sectors benefited relative performance. Stock selection in the information technology, financials, materials, and communication services sectors detracted from relative performance.

 

  The Index returned-4.38% for the period. The negative return can primarily be attributed to weak performance in the financials, communication services, industrials, energy and consumer staples sectors. To an extent, positive performance from information technology, health care and consumer discretionary stocks offset the weak performance.

Market Overview

The year started with optimism, lifted by the passage of the Tax Cuts and Jobs Act, which ushered in significant tax breaks for corporations. In February, however, a report of rising wage inflation led to a sharp market downturn. Stocks recovered, but slid again in March when President Trump proposed tariffs on aluminum and steel imports, raising concerns about a trade war with China. As a result, U.S. equities endured a turbulent first quarter. The Dow Jones Industrial Average recorded two1,000-point drops, and major indexes entered correction territory, sparking a globalsell-off.

Despite the heightened volatility, stocks rebounded during the second quarter on the back of strong U.S. economic performance and corporate earnings. However, optimism was softened by concerns about protectionist measures between the United States and its major trading partners. Despite a challenging macro-economic backdrop, the gains continued in the third quarter with the Index recording its best quarterly performance since the end of 2013. Stocks were lifted by strong economic growth and positive corporate earnings. According to an August 2018 report, the U.S.

added more jobs than expected and wages grew at the fastest pace since 2009. The final reading of second-quarter GDP was 4.2%, and a gauge of consumer sentiment also reached new highs. Still, trade policy caused some pullbacks in the markets as the United States added tariffs to $200 billion in Chinese goods, and stalled NAFTA negotiations raised concern about whether Canada would join a new pact with the United States and Mexico.

U.S. equities began the fourth quarter after notching significant year-to-date gains. However, the gains were quickly erased by a steep sell-off that resulted in all three major indexes posting their worst annual performance in a decade. The impact of escalating trade tensions between the United States and China, concerns about a global economic slowdown, and political uncertainty fueled market volatility during the final quarter. Economic data was generally positive, although the trade deficit continued to widen, import prices increased, and consumer sentiment weakened. Worries about excess oil supply and slowing global growth caused volatility in the energy market. The spread between the two- and 10-year Treasury yields narrowed the most since 2007, fueling fear that the flattening yield curve may be signaling a recession. In this environment, U.S. equities, as measured by the Index, posted a loss of -4.38% for the year.

Portfolio Review

Although stock selection and sector allocation were modestly positive factors relative to the Index, they were essentially in line with the Index’s performance. As a result, the Fund underperformed the Index due to impacts from currency and cash exposure. The Fund added value relative to the Index through stock selection in the consumer staples, energy, industrials, consumer discretionary, utilities and health care sectors. However, this was offset by unfavorable stock selection in the information technology, financials, materials, and communication services sectors. The real estate sector performed in line with the Index.

Outlook

Many U.S. equity investors greeted the new year with an array of heightened concerns. A difficult December had brought volatility, ayear-end correction, and annual losses for all three major equity indexes. Many of the issues that worried investors throughout 2018, including

 

 

1

The Standard & Poor’s 500® Index (the “Index”) is an unmanaged market-capitalization-weighted index generally considered to be representative of U.S. equity market activity. The Index consists of 500 stocks representing leading industries of the U.S. economy. Index results assume the reinvestment of dividends paid on the stocks constituting the Index. You may not invest in the Index, and, unlike the Fund, the Index does not incur fees or expenses.

 

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Table of Contents

GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

geopolitical instability, uncertainty about monetary policy, and the U.S.–China trade dispute, contributed to the downturn.

The U.S.-China trade dispute remained among the top concerns, despite the“non-escalation” agreement in December that paused hikes in tariffs for 90 days. Higher tariffs typically undermine confidence among corporate leaders and complicate and delay investments in their businesses. Tariff hikes can also lead to inflationary pressure, reduce demand for products, and, ultimately, shrink profit margins.

Aside from tariffs, we believe a slowing economy in China — which has been such a strong engine of global growth — is another key risk to equities. Uncertainty around Brexit is a third, which could be destabilizing for the United Kingdom, with ripple effects throughout Europe. Finally, monetary policy and concerns about

continued interest-rate hikes can put pressure on global economies, particularly emerging markets.

Looking ahead, we believe the key risks weighing on equity markets may subside. We also believe that a favorable resolution of the tariff conflict is quite possible. Even if an agreement is only partial in scope, equity markets should respond positively. In terms of U.S. interest rates, we have seen that the U.S. Federal Reserve is willing to take a more dovish stance when rate hikes are taking a toll on markets. In China, we’re seeing signs of more aggressive stimulus measures, which could improve the economic outlook for both China and global markets. And of course, market downturns naturally bring opportunities in the form of more attractive valuations for companies whose fundamental prospects are strong. In addition, we believe equities remain attractive relative to other asset classes.

 

Funds in the Guardian Variable Products Trust are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses or to obtain a printed copy, call 1-888-GUARDIAN (1-888-482-7342).

As with all mutual funds, the value of an investment in the Fund could decline, and you could lose money. Diversification does not guarantee profit or protect against loss, and there can be no assurance that the Fund will achieve its investment objective. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets. Investing in large-capitalization companies involves risks such as having low growth rates, and slow responsiveness to competitive challenges or opportunities than in the case of smaller companies. Investments in growth companies may be highly volatile. Growth stocks may not realize their perceived growth potential and during certain periods the Fund may underperform other equity funds that employ a different style. Value stocks may not realize their perceived value and during certain periods the Fund may underperform other equity funds that employ a different style. Investing in a more limited number of issuers and sectors can be subject to greater market fluctuation. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

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GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

Fund Characteristics (unaudited)

 

Total Net Assets: $148,193,229  

 

 

Sector Allocation1

As of December 31, 2018

 
LOGO    

 

 

Top Ten Holdings2

As of December 31, 2018

 
  
Holding % of Total
Net Assets
 
Microsoft Corp.  4.02% 
Alphabet, Inc., Class A  3.07% 
Amazon.com, Inc.  2.97% 
Apple, Inc.  2.72% 
Bank of America Corp.  2.20% 
The Coca-Cola Co.  2.17% 
Visa, Inc., Class A  1.94% 
The Home Depot, Inc.  1.78% 
The Procter & Gamble Co.  1.68% 
Facebook, Inc., Class A  1.67% 
Total  24.22% 

 

1

The Fund’s holdings are allocated to each sector based on the MSCI Global Industry Classification Standard (GICS®). Cash includes short-term investments and net other assets and liabilities.

2

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

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GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

Fund Performance (unaudited)

 

      

Average Annual Total Returns

As of December 31, 2018

                    
  
   Inception Date  1 Year  5 Year  10 Year  Since Inception 
Guardian Diversified Research VIP Fund  9/1/2016   -6.40%         7.50% 
Standard & Poor’s 500® Index      -4.38%         8.51% 

 

 

Results of a Hypothetical $10,000 Investment

As of December 31, 2018

LOGO

The chart above shows the performance of a hypothetical $10,000 investment made on inception date in Guardian Diversified Research VIP Fund and the Standard & Poor’s 500® Index. Index returns do not include the fees and expenses of the Fund, but do include reinvestment of dividends, if any.

Performance quoted represents past performance and does not guarantee or predict future results. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. The Fund’s fees and expenses are detailed in the Financial Highlights section of this report. Fees and expenses are factored into the net asset value of Fund shares and any performance numbers we release. Total return figures include the effect of expense limitations in effect during the periods shown, if applicable; without such limitations, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contract owner/policyholder may pay on redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current andmonth-end performance information, which may be lower or higher than that cited, is available by calling1-888-GUARDIAN(1-888-482-7342) and is periodically updated on our website: http://guardianlife.com.

 

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UNDERSTANDING YOUR FUND’S EXPENSES(UNAUDITED)

 

By investing in the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including, as applicable, investment advisory fees, distribution and/or service(12b-1) fees and other Fund expenses. The example below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2018 to December 31, 2018. The table below shows the Fund’s expenses in two ways:

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher. Charges and expenses at the insurance company separate account level are not reflected in the table.

 

 

     
   

Beginning
Account Value

7/1/18

 Ending
Account Value
12/31/18
  

Expenses Paid

During Period*

7/1/18-12/31/18

  

Expense Ratio

During Period

7/1/18-12/31/18

 
Based on Actual Return $1,000.00 $917.10  $4.93   1.02% 

Based on Hypothetical Return (5% Return Before Expenses)

 $1,000.00 $1,020.06  $5.19   1.02% 

 

*

Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period).

 

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SCHEDULE OF INVESTMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

December 31, 2018  Shares   Value 
Common Stocks – 98.7%

 

 
Aerospace & Defense – 1.6%

 

  

Textron, Inc.

   16,030   $737,220 
  

The Boeing Co.

   4,918    1,586,055 
     

 

 

 
  
         2,323,275 
Automobiles – 1.2%

 

  

General Motors Co.

   53,323    1,783,654 
     

 

 

 
  
         1,783,654 
Banks – 5.5%

 

  

Bank of America Corp.

   132,210    3,257,654 
  

Citigroup, Inc.

   40,507    2,108,794 
  

JPMorgan Chase & Co.

   15,534    1,516,429 
  

Wells Fargo & Co.

   27,193    1,253,054 
     

 

 

 
  
         8,135,931 
Beverages – 2.8%

 

  

PepsiCo, Inc.

   8,259    912,454 
  

The Coca-Cola Co.

   67,896    3,214,876 
     

 

 

 
  
         4,127,330 
Biotechnology – 2.7%

 

  

AbbVie, Inc.

   4,402    405,820 
  

Amgen, Inc.

   4,400    856,548 
  

Biogen, Inc.(1)

   2,811    845,886 
  

Celgene Corp.(1)

   7,588    486,315 
  

Gilead Sciences, Inc.

   7,000    437,850 
  

Regeneron Pharmaceuticals,
Inc.(1)

   769    287,222 
  

Vertex Pharmaceuticals, Inc.(1)

   4,541    752,489 
     

 

 

 
  
         4,072,130 
Building Products – 0.7%

 

  

Fortune Brands Home & Security, Inc.

   3,096    117,617 
  

Johnson Controls International PLC

   28,685    850,510 
     

 

 

 
  
         968,127 
Capital Markets – 5.0%

 

  

Apollo Global Management LLC, Class A

   5,599    137,399 
  

BlackRock, Inc.

   2,552    1,002,477 
  

E*TRADE Financial Corp.

   26,766    1,174,492 
  

Intercontinental Exchange, Inc.

   9,773    736,200 
  

KKR & Co., Inc., Class A

   81,342    1,596,744 
  

Raymond James Financial, Inc.

   15,200    1,131,032 
  

The Goldman Sachs Group, Inc.

   9,349    1,561,750 
     

 

 

 
  
         7,340,094 
Chemicals – 2.7%

 

  

Celanese Corp.

   1,086    97,707 
  

DowDuPont, Inc.

   30,901    1,652,585 
  

Ecolab, Inc.

   1,187    174,904 
  

FMC Corp.

   9,475    700,771 
  

RPM International, Inc.

   1,674    98,398 
  

The Sherwin-Williams Co.

   2,749    1,081,622 
  

WR Grace & Co.

   2,646    171,752 
     

 

 

 
  
         3,977,739 
December 31, 2018  Shares   Value 
Commercial Services & Supplies – 0.8%

 

  

Waste Connections, Inc.

   15,994   $    1,187,554 
     

 

 

 
  
         1,187,554 
Construction Materials – 0.3%

 

  

Summit Materials, Inc., Class A(1)

   31,770    393,948 
     

 

 

 
  
         393,948 
 
Containers & Packaging – 0.3%

 

  

Ball Corp.

   11,195    514,746 
     

 

 

 
  
         514,746 
Diversified Telecommunication Services – 1.5%

 

  

AT&T, Inc.

   41,910    1,196,111 
  

Verizon Communications, Inc.

   17,721    996,275 
     

 

 

 
  
         2,192,386 
Electric Utilities – 2.9%

 

  

American Electric Power Co., Inc.

   19,752    1,476,264 
  

Duke Energy Corp.

   8,099    698,944 
  

Edison International

   3,073    174,454 
  

Exelon Corp.

   24,007    1,082,716 
  

NextEra Energy, Inc.

   4,562    792,967 
  

PG&E Corp.(1)

   2,176    51,680 
     

 

 

 
  
         4,277,025 
Electrical Equipment – 1.1%

 

  

Emerson Electric Co.

   27,897    1,666,846 
     

 

 

 
  
         1,666,846 
Entertainment – 2.2%

 

  

Activision Blizzard, Inc.

   33,925    1,579,887 
  

Live Nation Entertainment, Inc.(1)

   11,101    546,724 
  

Twenty-First Century Fox, Inc., Class A

   23,036    1,108,493 
     

 

 

 
  
         3,235,104 
Equity Real Estate Investment – 0.9%

 

  

Gaming and Leisure Properties, Inc. REIT

   20,758    670,691 
  

SBA Communications Corp. REIT(1)

   4,552    736,923 
     

 

 

 
  
         1,407,614 
Food & Staples Retailing – 2.1%

 

  

BJ’s Wholesale Club Holdings, Inc.(1)

   31,553    699,214 
  

Costco Wholesale Corp.

   3,274    666,947 
  

Walgreens Boots Alliance, Inc.

   7,750    529,557 
  

Walmart, Inc.

   13,757    1,281,465 
     

 

 

 
  
         3,177,183 
Food Products – 1.2%

 

  

McCormick & Co., Inc.

   5,826    811,212 
  

The Hershey Co.

   8,818    945,113 
     

 

 

 
  
         1,756,325 
Health Care Equipment & Supplies – 5.1%

 

  

Baxter International, Inc.

   10,761    708,289 
  

Becton Dickinson and Co.

   7,253    1,634,246 
  

Boston Scientific Corp.(1)

   13,423    474,369 
  

Danaher Corp.

   22,885    2,359,901 
  

Edwards Lifesciences Corp.(1)

   2,648    405,594 
  

ICU Medical, Inc.(1)

   2,663    611,505 
 

 

6  The accompanying notes are an integral part of these financial statements.


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SCHEDULE OF INVESTMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

December 31, 2018  Shares   Value 
Health Care Equipment & Supplies(continued)

 

  

Intuitive Surgical, Inc.(1)

   1,521   $728,437 
  

The Cooper Cos., Inc.

   2,557    650,757 
     

 

 

 
  
         7,573,098 
Health Care Providers & Services – 2.1%

 

  

Cigna Corp.

   8,485    1,611,471 
  

UnitedHealth Group, Inc.

   6,279    1,564,225 
     

 

 

 
  
         3,175,696 
Hotels, Restaurants & Leisure – 2.4%

 

  

Chipotle Mexican Grill, Inc.(1)

   1,760    759,950 
  

Hilton Worldwide Holdings, Inc.

   14,203    1,019,776 
  

MGM Resorts International

   15,362    372,682 
  

Wynn Resorts Ltd.

   6,632    655,971 
  

Yum China Holdings, Inc.

   24,362    816,858 
     

 

 

 
  
         3,625,237 
Household Products – 2.2%

 

  

The Clorox Co.

   5,120    789,197 
  

The Procter & Gamble Co.

   27,085    2,489,653 
     

 

 

 
  
         3,278,850 
Independent Power and Renewable Electricity Producers – 0.7%

 

  

NRG Energy, Inc.

   26,306    1,041,718 
     

 

 

 
  
         1,041,718 
Industrial Conglomerates – 2.4%

 

  

Honeywell International, Inc.

   17,200    2,272,464 
  

Roper Technologies, Inc.

   4,940    1,316,609 
     

 

 

 
  
         3,589,073 
Insurance – 2.8%

 

  

American International Group, Inc.

   20,665    814,408 
  

Assured Guaranty Ltd.

   34,023    1,302,400 
  

Chubb Ltd.

   4,611    595,649 
  

Prudential PLC (United Kingdom)

   79,338    1,417,537 
     

 

 

 
  
         4,129,994 
Interactive Media & Services – 5.1%

 

  

Alphabet, Inc., Class A(1)

   4,363    4,559,160 
  

Facebook, Inc., Class A(1)

   18,914    2,479,436 
  

Tencent Holdings Ltd., ADR

   12,733    502,572 
     

 

 

 
  
         7,541,168 
Internet & Direct Marketing Retail – 3.8%

 

  

Alibaba Group Holding Ltd., ADR(1)

   1,338    183,399 
  

Amazon.com, Inc.(1)

   2,932    4,403,776 
  

Booking Holdings, Inc.(1)

   566    974,890 
     

 

 

 
  
         5,562,065 
IT Services – 3.9%

 

  

DXC Technology Co.

   22,260    1,183,564 
  

Fidelity National Information Services, Inc.

   6,387    654,987 
  

First Data Corp., Class A(1)

   39,078    660,809 
  

GoDaddy, Inc., Class A(1)

   6,462    424,036 
  

Visa, Inc., Class A

   21,757    2,870,619 
     

 

 

 
  
         5,794,015 
December 31, 2018  Shares   Value 
Life Sciences Tools & Services – 0.4%

 

  

Mettler-Toledo International, Inc.(1)

   1,146   $648,155 
     

 

 

 
  
         648,155 
Machinery – 0.9%

 

  

Deere & Co.

   3,390    505,686 
  

Fortive Corp.

   11,784    797,306 
     

 

 

 
  
         1,302,992 
Media – 1.3%

 

  

Charter Communications, Inc., Class A(1)

   3,412    972,318 
  

Comcast Corp., Class A

   28,983    986,871 
     

 

 

 
  
         1,959,189 
 
Metals & Mining – 0.2%

 

  

Alcoa Corp.(1)

   8,365    222,342 
     

 

 

 
  
         222,342 
Multi-Utilities – 0.6%

 

  

CenterPoint Energy, Inc.

   9,877    278,828 
  

Dominion Energy, Inc.

   7,592    542,524 
     

 

 

 
  
         821,352 
Oil, Gas & Consumable Fuels – 5.9%

 

  

Anadarko Petroleum Corp.

   13,076    573,252 
  

BP PLC (United Kingdom)

   381,734    2,408,521 
  

Cairn Energy PLC (United Kingdom)(1)

   206,638    394,328 
  

Cenovus Energy, Inc. (Canada)

   235,433    1,655,550 
  

ConocoPhillips

   9,938    619,634 
  

Enterprise Products Partners LP

   30,973    761,626 
  

Exxon Mobil Corp.

   15,704    1,070,856 
  

Kinder Morgan, Inc.

   67,756    1,042,087 
  

Noble Energy, Inc.

   14,814    277,911 
     

 

 

 
  
         8,803,765 
Pharmaceuticals – 4.4%

 

  

Bristol-Myers Squibb Co.

   3,606    187,440 
  

Eli Lilly & Co.

   8,423    974,710 
  

Jazz Pharmaceuticals PLC(1)

   4,614    571,951 
  

Johnson & Johnson

   10,264    1,324,569 
  

Merck & Co., Inc.

   24,944    1,905,971 
  

Pfizer, Inc.

   34,858    1,521,552 
     

 

 

 
  
         6,486,193 
Road & Rail – 1.7%

 

  

Norfolk Southern Corp.

   5,535    827,704 
  

Union Pacific Corp.

   11,824    1,634,431 
     

 

 

 
  
         2,462,135 
Semiconductors & Semiconductor Equipment – 3.8%

 

  

Intel Corp.

   28,318    1,328,964 
  

NXP Semiconductors N.V.

   18,110    1,327,101 
  

ON Semiconductor Corp.(1)

   47,280    780,593 
  

QUALCOMM, Inc.

   38,042    2,164,970 
     

 

 

 
  
         5,601,628 
Software – 6.7%

 

  

Adobe, Inc.(1)

   6,911    1,563,545 
  

Everbridge, Inc.(1)

   12,425    705,243 
  

Microsoft Corp.

   58,609    5,952,916 
 

 

The accompanying notes are an integral part of these financial statements.  7


Table of Contents

SCHEDULE OF INVESTMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

December 31, 2018      
Shares
   Value 
Software(continued)

 

  

salesforce.com, Inc.(1)

   12,067   $1,652,817 
     

 

 

 
  
         9,874,521 
Specialty Retail – 3.0%

 

  

Advance Auto Parts, Inc.

   2,619    412,388 
  

Burlington Stores, Inc.(1)

   1,957    318,345 
  

O’Reilly Automotive, Inc.(1)

   863    297,157 
  

The Home Depot, Inc.

   15,330    2,634,001 
  

The TJX Cos., Inc.

   18,218    815,073 
     

 

 

 
  
         4,476,964 
Technology Hardware, Storage & Peripherals – 2.7%

 

  

Apple, Inc.

   25,585    4,035,778 
     

 

 

 
  
         4,035,778 
 
Textiles, Apparel & Luxury Goods – 0.7%

 

  

NIKE, Inc., Class B

   14,111    1,046,190 
     

 

 

 
  
         1,046,190 
Trading Companies & Distributors – 0.4%

 

  

Yellow Cake PLC (United Kingdom)(1)(2)

   218,884    638,572 
     

 

 

 
  
         638,572 
  
Total Common Stocks
(Cost $154,743,851)

 

   146,227,701 
Exchange–Traded Funds – 0.5%

 

  

SPDR S&P 500 ETF Trust

   2,723    680,532 
           
  
Total Exchange–Traded Funds
(Cost $717,007)

 

   680,532 
December 31, 2018  Principal
Amount
   Value 
Short–Term Investment – 0.9%

 

 
Repurchase Agreements – 0.9%

 

  

Fixed Income Clearing Corp., 0.50%, dated 12/31/2018, proceeds at maturity value of $1,406,039, due 1/2/2019(3)

  $    1,406,000   $1,406,000 
  
Total Repurchase Agreements
(Cost $1,406,000)

 

   1,406,000 
  
Total Investments – 100.1%
(Cost $156,866,858)

 

   148,314,233 
  
Liabilities in excess of other assets – (0.1)%

 

   (121,004
  
Total Net Assets – 100.0%

 

  $148,193,229 

 

(1) 

Non–income–producing security.

(2) 

Securities that may be resold in transactions, exempt from registration under Rule 144A of the Securities Act of 1933, as amended, normally to certain qualified buyers. At December 31, 2018, the aggregate market value of these securities amounted to $638,572, representing 0.4% of net assets. These securities have been deemed liquid by the investment adviser pursuant to the Fund’s liquidity procedures approved by the Board of Trustees.

(3) 

The table below presents collateral for repurchase agreements.

 

Security Coupon  Maturity
Date
  Principal
Amount
  Value 
U.S. Treasury Note  2.875%   7/31/2025  $1,400,000  $1,436,543 

Legend:

ADR — American Depositary Receipt

REIT — Real Estate Investment Trust

 

 

The following is a summary of the inputs used as of December 31, 2018 in valuing the Fund’s investments. For more information on valuation inputs, please refer to Note 2a of the accompanying Notes to Financial Statements.

 

                                    Valuation Inputs                                     
Investments in Securities    Level 1     Level 2     Level 3     Total 
Common Stocks    $141,368,743     $4,858,958    $     $146,227,701 
Exchange–Traded Funds     680,532                  680,532 
Repurchase Agreements           1,406,000            1,406,000 
Total    $    142,049,275     $    6,264,958     $    —     $    148,314,233 

 

*

Consists of certain foreign securities whose values were determined by a pricing service using pricing models (See Note 2a in Notes to Financial Statements). These investments in securities were classified as Level 2 rather than Level 1.

 

8  The accompanying notes are an integral part of these financial statements.


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FINANCIAL INFORMATION — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

Statement of Assets and Liabilities

As of December 31, 2018

    

Assets

  
  

Investments, at value

 $148,314,233 
  

Cash

  850 
  

Dividends/interest receivable

  87,121 
  

Reimbursement receivable from adviser

  4,666 
  

Foreign tax reclaims receivable

  1,430 
  

Prepaid expenses

  11,685 
  

 

 

 
  

Total Assets

  148,419,985 
  

 

 

 
  

Liabilities

  
  

Investment advisory fees payable

  77,621 
  

Payable for investments purchased

  45,716 
  

Distribution fees payable

  32,342 
  

Payable for fund shares redeemed

  20,743 
  

Accrued audit fees

  15,000 
  

Accrued custodian and accounting fees

  9,343 
  

Accrued trustees’ and officers’ fees

  2,265 
  

Accrued expenses and other liabilities

  23,726 
  

 

 

 
  

Total Liabilities

  226,756 
  

 

 

 
  

Total Net Assets

 $148,193,229 
  

 

 

 
  

Net Assets Consist of:

  
  

Paid-in capital

 $152,007,739 
  

Distributable loss

  (3,814,510
  

 

 

 
  

Total Net Assets

 $    148,193,229 
  

 

 

 

Investments, at Cost

 $156,866,858 
  

 

 

 
  

Pricing of Shares

  
  

Shares of Beneficial Interest Outstanding with No Par Value

  12,513,640 
  

Net Asset Value Per Share

  $11.84 
     

Statement of Operations

For the Year Ended December 31, 2018

    

Investment Income

  
  

Dividends

 $2,159,636 
  

Interest

  7,352 
  

Withholding taxes on foreign dividends

  (12,680
  

 

 

 
  

Total Investment Income

  2,154,308 
  

 

 

 
  

Expenses

  
  

Investment advisory fees

  759,203 
  

Distribution fees

  316,335 
  

Trustees’ and officers’ fees

  79,512 
  

Custodian and accounting fees

  67,486 
  

Professional fees

  58,226 
  

Administrative fees

  44,746 
  

Transfer agent fees

  17,404 
  

Shareholder reports

  11,217 
  

Other expenses

  19,377 
  

 

 

 
  

Total Expenses

  1,373,506 
  

Less: Fees waived

  (84,844
  

 

 

 
  

Total Expenses, Net

  1,288,662 
  

 

 

 
  

Net Investment Income/(Loss)

  865,646 
  

 

 

 
  

Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions

  
  

Net realized gain/(loss) from investments

  2,287,700 
  

Net realized gain/(loss) from foreign currency transactions

  (838
  

Net change in unrealized appreciation/(depreciation) on investments

  (10,288,935
  

Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies

  (221
  

 

 

 
  

Net Loss on Investments and Foreign Currency Transactions

  (8,002,294
  

 

 

 
  

Net Decrease in Net Assets Resulting From Operations

 $    (7,136,648
  

 

 

 
  ��  
 

 

The accompanying notes are an integral part of these financial statements.  9


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FINANCIAL INFORMATION — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

Statements of Changes in Net Assets

              
  
      

For the

Year Ended
12/31/18

     

For the

Year Ended
12/31/17

 
      

 

 

Operations

 

  

Net investment income/(loss)

    $865,646     $106,484 
  

Net realized gain/(loss) from investments and foreign currency transactions

     2,286,862      1,457,659 
  

Net change in unrealized appreciation/(depreciation) on investments and
translation of assets and liabilities in foreign currencies

     (10,289,156     1,465,012 
     

 

 

     

 

 

 
  

Net Increase/(Decrease) in Net Assets Resulting from Operations

     (7,136,648     3,029,155 
     

 

 

     

 

 

 
 

Capital Share Transactions

 

  

Proceeds from sales of shares

     159,081,293      5,773,745 
  

Cost of shares redeemed

     (15,880,682     (6,812,524
     

 

 

     

 

 

 
  

Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions

     143,200,611      (1,038,779
     

 

 

     

 

 

 
  

Net Increase in Net Assets

     136,063,963      1,990,376 
     

 

 

     

 

 

 
 

Net Assets

 

  

Beginning of year

     12,129,266      10,138,890 
     

 

 

     

 

 

 
  

End of year

    $    148,193,229     $    12,129,266 
     

 

 

     

 

 

 
 

Other Information:

 

  

Shares

         
  

Sold

     12,769,094      526,654 
  

Redeemed

     (1,214,013     (545,718
     

 

 

     

 

 

 
  

Net Increase/(Decrease)

     11,555,081      (19,064
     

 

 

     

 

 

 
               

 

10  The accompanying notes are an integral part of these financial statements.


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  11


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FINANCIAL INFORMATION — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past five years (or, if shorter, the period since inception). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund.

 

Financial Highlights

                        
    Per Share Operating Performance     
    

Net Asset Value,
Beginning of
Period

   Net Investment
Income(1)
   Net Realized
and Unrealized
Gain/(Loss)
  Total
Operations
  Net Asset
Value, End of
Period
   Total
Return(2)
 
 

Year Ended 12/31/18

  $12.65   $0.09   $(0.90 $(0.81 $11.84    (6.40)% 
 

Year Ended 12/31/17

   10.37    0.08    2.20   2.28   12.65    21.99% 
 

Period Ended 12/31/16(4)

   10.00    0.04    0.33   0.37   10.37    3.70%(5)  

 

   
12  The accompanying notes are an integral part of these financial statements.


Table of Contents

FINANCIAL INFORMATION — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

 

    

    

                     
Ratios/Supplemental Data 
Net Assets, End
of Period (000s)
  Net Ratio of
Expenses to
Average
Net Assets(3)
  Gross Ratio of
Expenses to
Average Net
Assets
  Net Ratio of Net
Investment Income
to Average
Net Assets(3)
  Gross Ratio of Net
Investment Income/
(Loss) to Average
Net Assets
  Portfolio
Turnover Rate
 
 
$148,193   1.02%   1.09%   0.68%   0.61%   88% 
 
 12,129   0.96%   2.43%   0.67%   (0.80)%   154% 
 
 10,139   0.96%(5)    3.07%(5)    1.12%(5)    (0.99)%(5)    61%(5)  

 

(1) 

Calculated based on the average shares outstanding during the period.

 

(2) 

Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.

 

(3) 

Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers and expense limitations.

 

(4) 

Commenced operations on September 1, 2016.

 

(5) 

Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2016, certainnon-recurring fees (i.e., audit fees) are not annualized.

 

The accompanying notes are an integral part of these financial statements.  13


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

December 31, 2018

1. Organization

Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as anopen-end management investment company. The Trust currently has sixteen series. Guardian Diversified Research VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.

The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).

The Fund seeks capital appreciation.

2. Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services — Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

a. Investment Valuations Equity securities traded on an exchange other than NASDAQ Stock Market, LLC (“NASDAQ”) are valued at the last reported sale price on the principal exchange or market on which they are traded; or, if there were no sales that day, at the mean between the closing bid and ask prices. Securities traded on the NASDAQ are generally valued at the NASDAQ official closing price, which may not be the last sale price. If the NASDAQ official closing price is not available for a security, that security is generally valued at the

mean between the closing bid and ask prices. Repurchase agreements are carried at cost, which approximates fair value (see Note 5d). Foreign securities are valued in the currencies of the markets in which they trade and then converted to U.S. dollars by the application of foreign exchange rates at the close of the New York Stock Exchange (“NYSE”). Forward foreign currency contracts, if any, are valued at the mean between the bid and ask rates for the specified time interpolated from rates for proximate time periods. Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with policies and procedures adopted by the Board of Trustees.

Under the policies and procedures approved by the Board of Trustees, Park Avenue Institutional Advisers LLC (“Park Avenue”), the Fund’s investment adviser, has established a Fair Valuation Committee to assist the Board of Trustees with the oversight and monitoring of the valuation of the Fund’s investments. This includes monitoring the appropriateness of fair values based on results of ongoing valuation oversight, including but not limited to consideration of security specific events, market events, and pricing vendor and broker-dealer due diligence. The Fair Valuation Committee oversees and carries out the policies for the valuation of investments held in the Fund. The Fair Valuation Committee is responsible for discussing and assessing the potential impacts to the fair values on an ongoing basis, and at least on a quarterly basis with the Board of Trustees.

Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued in accordance with policies and procedures adopted by the Board of Trustees. In addition, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities. Certain foreign equity instruments are valued by applying international fair value factors provided by approved pricing services. The factors seek to adjust the local closing price for movements of local markets post closing, but prior to the time the NAVs are calculated. Valuations reflected in this report are as of the report date. As a result, changes in valuation due to market events and/or issuer related events after the report date and prior to issuance of the report are not reflected herein.

 

 

14  


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NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

Various inputs are used in determining the valuation of the Fund’s investments. These inputs are summarized in three broad levels listed below.

 

 Level 1 — unadjusted inputs using quoted prices in active markets for identical investments.

 

 Level 2— other significant observable inputs, including, but not limited to, quoted prices for similar investments, inputs other than quoted prices that are observable for investments (such as interest rates, prepayment speeds, credit risks, etc.) or other market corroborated inputs.

 

 Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input; both individually and in aggregate, that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Trust. The Trust considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, and provided by independent sources that are actively involved in the relevant market. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of a financial instrument’s assigned level within the hierarchy.

The FASB requires reporting entities to make disclosures about purchases, sales, issuances and settlements of Level 3 securities on a gross basis.

The Fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 at the end of the reporting period. For the year ended December 31, 2018, there were no transfers among any levels.

In determining a financial instrument’s placement within the hierarchy, the Trust separates the Fund’s investment portfolio into two categories: investments and derivatives (e.g., futures). A summary of inputs used to value the Fund’s assets and liabilities carried at fair value as of December 31, 2018 is included in the Schedule of Investments.

Investments Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed

equities. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include certain U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, state, municipal and provincial obligations, and certain foreign equity securities, including securities whose prices may have been affected by events occurring after the close of trading on their principal exchange or market and, as a result, whose values are determined by a pricing service as described above, or securities whose values are otherwise determined using fair valuation methods approved by the Fund’s Board of Trustees.

Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or not at all. Level 3 investments include, among others, private placement securities. When observable prices are not available for these securities, the Trust uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the Trust in estimating the value of Level 3 investments include, for example, the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, subsequent rounds of financing, recapitalizations, and other transactions across the capital structure. Level 3 investments may also be adjusted to reflect illiquidity and/ornon-transferability, with the amount of such discount estimated by the Trust in the absence of market information. Assumptions used by the Trust due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Fund’s results of operations. As of December 31, 2018, the Fund had no securities classified as Level 3.

Derivatives Exchange-traded derivatives, such as futures contracts, exchange-traded option contracts and certain swaps, are typically classified within Level 1 or Level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. Certainnon-exchange-traded derivatives, such as generic forwards, certain swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within Level 2. During the year ended December 31, 2018, the Fund did not hold any derivatives.

b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or

 

 

  15


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NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.

c. Foreign Currency Translation The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. The market value of investment securities and other assets and liabilities are translated at the exchange rate as of the valuation date. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the exchange rates in effect on the dates of the respective transactions. The Fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included in the Net change in net realized and unrealized gain/(loss) from investments on the Statement of Operations.

Reported realized foreign currency gains and losses arise from the disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. These reported realized foreign currency gains and losses, if any, are included in Net realized gain/(loss) from foreign currency transactions on the Statement of Operations. Unrealized foreign currency gains and losses arise from changes (due to changes in exchange rates) in the value of foreign currency and other assets and liabilities denominated in foreign currencies, which are held at period end, if any, and are included in Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies on the Statement of Operations.

d. Foreign Capital Gains Tax The Fund may be subject to foreign taxes on income, gains on investments or currency purchases/repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest.

e. Investment IncomeDividend income net of foreign taxes withheld, if any, is generally recorded on the

ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is determined using the interest income accrual method, and is accrued and recorded daily.

f. Allocation of Income and Expenses Many of the expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets. In calculating net asset value per share for each series of the Trust, investment income, realized and unrealized gains and losses, and expenses other than series-specific expenses are allocated daily to each series based upon the proportion of net assets attributable to each series.

3. Transactions with Affiliates

a. Investment Advisory Fee and Expense Limitation Under the terms of the advisory agreement, which, after its two year initial term, is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to Park Avenue. Park Avenue is a wholly-owned subsidiary of Guardian Life and receives an investment advisory fee at an annual rate of 0.60% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.

Park Avenue has contractually agreed through April 30, 2019 to waive certain fees and/or reimburse certain expenses incurred by the Fund to the extent necessary to limit the Fund’s total annual operating expenses after fee waiver and/or expense reimbursement to 1.02% of the Fund’s average daily net assets (excluding, if applicable, any acquired fund fees and expenses, taxes, interest, transaction costs and brokerage commissions, litigation and extraordinary expenses). Prior to April 9, 2018, the expense limitation was 0.96%. The limitation may not be increased or terminated prior to this time without action by the Board of Trustees, may be terminated only upon approval of the Board of Trustees, and is subject to Park Avenue’s recoupment rights. For the year ended December 31, 2018, Park Avenue waived fees and/or paid Fund expenses in the amount of $84,844.

Park Avenue may be entitled to recoupment of previously waived fees and reimbursed expenses from the Fund for three years from the date of the waiver or reimbursement, subject to the expense limitation in effect at the time of the waiver or reimbursement and at the time of the recoupment, if any. Amounts waived or reimbursed by Park Avenue pursuant to any expense limitation after April 9, 2018 will not be subject to Park

 

 

16  


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

Avenue’s recoupment rights. The amount available for potential future recoupment by Park Avenue from the Fund under the Expense Limitation Agreement and the expiration schedule at December 31, 2018 are as follows:

 

  
   Potential Recoupment Amounts
Expiring
 

Total Potential

Recoupment

Amounts

 2021  2020  2019 
$354,298 $60,975  $232,223  $61,100 

Park Avenue has entered into aSub-Advisory Agreement with Putnam Investment Management LLC (“Putnam”). Putnam is responsible for providingday-to-day investment advisory services to the Fund, subject to the supervision of Park Avenue and the oversight of the Board of Trustees.Sub-advisory fees are paid by Park Avenue and do not represent a separate or additional expense to the Fund.

b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.

c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust(“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the year ended December 31, 2018, the Fund paid distribution fees in the amount of $316,335 to PAS.

PAS has directed that certain payments under the12b-1 plan be used to compensate GIAC for shareholder services provided to contract owners.

4. Federal Income Taxes

a. Distributions to Shareholders For federal income tax purposes, the Fund is treated as a disregarded entity (“DRE”). As a DRE, the Fund is not subject to an entity-level income tax; and any income, gains, losses, deductions, taxes, and credits of the Fund would instead

be “passed through” directly to the separate accounts of GIAC that invest in the Fund and retain the same character for U.S. federal income tax purposes. In addition, the Fund is not required to distribute taxable income and capital gains for U.S. federal income tax purposes. Therefore, no dividends and capital gains distributions were paid by the Fund.

5. Investments

a. Investment Purchases and Sales The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $248,521,251 and $104,461,996, respectively, for the year ended December 31, 2018. During the year ended December 31, 2018, there were no purchases or sales of U.S. government securities.

b. Foreign Securities Foreign securities investments involve special risks and considerations not typically associated with U.S. investments. These risks include, but are not limited to, currency risk; adverse political, regulatory, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign issuers may be less liquid and their prices more volatile than those of comparable U.S. issuers.

c. Industry or Sector Concentration In its normal course of business, the Fund may invest a significant portion of its assets in companies within a limited number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.

d. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn income over periods of time as short as overnight. The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked to market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically 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 Fund maintains the right to sell the collateral (although it may be prevented

 

 

  17


Table of Contents

NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND

 

or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.

6. Temporary Borrowings

The Fund, with other funds managed by Park Avenue, is party to a $10 million committed revolving credit facility from State Street Bank and Trust Company for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the higher of the dailyone-month LIBOR rate and the Federal Funds rate plus 1.25% at the time of borrowing. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until December 10, 2019. The Fund did not utilize the credit facility during the year ended December 31, 2018.

7. Indemnifications

Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in

the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.

8. Recent Accounting Pronouncement

On August 17, 2018, the U.S. Securities and Exchange Commission (“SEC”) voted to adopt amendments to certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, GAAP, or changes in the information environment. The SEC will also be referring certain SEC disclosure requirements that overlap with, but require information incremental to, GAAP to the FASB for potential incorporation into GAAP. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. As such, the financial statements herein have been updated to conform with these new requirements, which had no effect on the Fund’s net assets or results of operations.

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

TotheBoard of Trustees ofGuardian Variable Products TrustandShareholders of

Guardian Diversified Research VIP Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, ofGuardian Diversified Research VIP Fund (one of the funds constituting Guardian Variable Products Trust, referred to hereafter as the “Fund”) as of December 31, 2018, the related statement of operations for the year ended December 31, 2018, the statement of changes in net assets for each of the two years in the period ended December 31, 2018, including the related notes,and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended December 31, 2018 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

New York, New York

February 19, 2019

We have served as the auditor of one or more investment companies in Guardian Variable Products Trustsince 2016.

 

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Approval of Investment Advisory andSub-advisory Agreements

Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s board of trustees annually review and consider the continuation of the fund’s investment advisory andsub-advisory agreements. The continuation of any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at anin-person meeting of the board called for the purpose of voting on such approval.

At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March27-28, 2018, the Board considered and unanimously voted to approve the continuation of the investment management agreement (the “Management Agreement”) between Park Avenue Institutional Advisers LLC (the “Manager”) and the Trust, on behalf of the following 11 series, Guardian Core Plus Fixed Income VIP Fund, Guardian Diversified Research VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund and Guardian Mid Cap Traditional Growth VIP Fund (the “Funds”). The Board also considered and unanimously voted to approve the continuation of thesub-advisory agreements (the“Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and the following investment advisory firms serving assub-advisers to the Funds, ClearBridge Investments LLC, Wellington Management Company LLP, Massachusetts Financial Services Company, Putnam Investment Management, LLC, Boston Partners Global Investors, Inc., AllianceBernstein L.P., Janus Capital Management LLC, Wells Capital Management Incorporated, J.P. Morgan Investment Management Inc., Lazard Asset Management LLC, and Lord, Abbett & Co. LLC (the“Sub-advisers”). The continuation of the Agreements for aone-year period was unanimously approved by the Trustees who are not parties to the Agreements or “interested persons” (as defined in the 1940 Act) of a party to the Agreements (the “Independent Trustees”).

The Board is responsible for overseeing the management of each Fund. In determining whether to approve the continuation of the Agreements, the Trustees evaluated information and factors that they

considered to be relevant and appropriate through the exercise of their own business judgment. The Trustees considered certain information and factors in light of advice furnished to them by legal counsel to the Trust and, in the case of the Independent Trustees, their independent legal counsel.

In advance of the meeting held on March27-28, 2018, the Trustees received materials and information designed to assist their consideration of the Agreements, including written responses from the Manager and eachSub-adviser to a series of questions and requests for information covering a wide variety of topics provided by independent legal counsel on behalf of the Independent Trustees. Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data, was retained to provide the Trustees with reports on how each Fund’s contractual management fees, actual management fees, overall expense ratios and investment performance compared to those of “peer funds” selected by Broadridge that are offered as investment options underlying variable contracts. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to oversee theSub-advisers. During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or anySub-adviser.

In reaching its decisions to approve the continuation of the Agreements, the Board took into account the materials and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees, including information regarding the Funds furnished to the Board by the Manager throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the continuation of the Agreements.

The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to approve the continuation of the Agreements rather than to beall-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and theSub-advisers; (ii) the investment performance of the

 

 

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Funds; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale may exist for a Fund, and the extent to which a Fund may benefit from economies of scale; and (v) any other benefits derived by the Manager or theSub-advisers (or their respective affiliates) from their relationships with the Funds. In addition to considering the above-referenced factors, the Board observed that there are a range of investment options available to variable contract owners who may invest in the Funds, and that these contract owners, having had the opportunity to consider other investment options, may choose to invest or remain invested in the Funds.

Nature, Extent and Quality of Services

The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered the range of investment advisory services andnon-investment advisory services provided by the Manager, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials and assisting the Board with certain valuation matters.

The Trustees considered the operation of the Funds in a“manager-of-managers” structure and the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of theSub-advisers, monitoring theSub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising theSub-advisers with respect to the services that theSub-advisers provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommendsub-advisers, and its ability to monitor and overseesub-advisers and recommend replacementsub-advisers, when necessary, and provide other services under the Management Agreement. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds benefit from the Manager’s use of similar resources and capabilities of its affiliates in providing services to the Funds.

The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by theSub-advisers. The Trustees also

considered, among other things, the range of investment advisory services provided by theSub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, theSub-advisers’ investment philosophies, styles and/or processes and approach to managing risk. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals that serve as portfolio managers for the Funds and the capabilities, resources and reputations of theSub-advisers.

Based upon these considerations, the Board concluded that it was satisfied with the nature, extent and quality of services provided to the Funds by the Manager and eachSub-adviser.

Investment Performance

The Board considered the investment performance of each Fund. Among other reports, the Board reviewed the performance of the Funds for theone-year and since inception periods compared to a universe of peer funds selected by Broadridge. The Board noted that the Funds had performance records of less than two years and that the Board had reviewed longer performance records of the funds or accounts managed by theSub-advisers with similar strategies as the applicable Fund, when available, when the Board initially approved the Agreements in 2016. The Broadridge report placed the Funds in the following quintiles of the relevant peer universe for theone-year and since inception periods, respectively: Guardian Core Plus Fixed Income VIP Fund (3rd, 3rd), Guardian Diversified Research VIP Fund (2nd, 2nd), Guardian Growth & Income VIP Fund (1st, 1st), Guardian Integrated Research VIP Fund (4th, 5th), Guardian International Growth VIP Fund (3rd, 2nd), Guardian International Value VIP Fund (3rd, 5th), Guardian Large Cap Disciplined Growth VIP Fund (3rd, 4th), Guardian Large Cap Disciplined Value VIP Fund (1st, 1st), Guardian Large Cap Fundamental Growth VIP Fund (5th, 4th), Guardian Mid Cap Relative Value VIP Fund (4th, 3rd) and Guardian Mid Cap Traditional Growth VIP Fund (2nd, 2nd).

The Board considered the investment reports provided by the Manager since commencement of operations of the Funds during quarterly Board meetings. The Board also considered the Manager’s analysis ofSub-adviser performance and the steps taken by the Manager and theSub-advisers to seek to improve performance and the results of those steps.

 

 

 

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In light of the considerations noted above, the Board concluded that it had continued confidence in the Manager’s and theSub-advisers’ overall capabilities to manage the Funds.

Costs and Profitability

The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed information with respect to the management fees, including the portion of the management fees paid to eachSub-adviser, and the management fees paid by other funds offered as investment options underlying variable contracts within the applicable peer group selected by Broadridge. The Broadridge report placed the Funds in the following quintiles of the relevant expense peer group for the contractual management fees and actual management fees, respectively: Guardian Core Plus Fixed Income VIP Fund (1st, 3rd), Guardian Diversified Research VIP Fund (2nd, 3rd), Guardian Growth & Income VIP Fund (1st, 1st), Guardian Integrated Research VIP Fund (1st, 2nd), Guardian International Growth VIP Fund (1st, 2nd), Guardian International Value VIP Fund (3rd, 2nd), Guardian Large Cap Disciplined Growth VIP Fund (1st, 1st), Guardian Large Cap Disciplined Value VIP Fund (1st, 1st), Guardian Large Cap Fundamental Growth VIP Fund (1st, 1st), Guardian Mid Cap Relative Value VIP Fund (1st, 1st) and Guardian Mid Cap Traditional Growth VIP Fund (3rd, 4th).

The Trustees considered thesub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to theSub-advisers are paid by the Manager and not the Funds and that the Manager had negotiated the fees with theSub-advisers atarm’s-length. In addition, the Trustees considered the portion of the management fees paid to eachSub-adviser as compared to the portion retained by the Manager.

The Trustees received and reviewed information in the Broadridge report comparing each Fund’s operating expense ratio to the actual operating expense ratios of a peer group of funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit each Fund’s operating expenses through an expense limitation agreement with the Trust. The Broadridge report placed the Funds in the following quintiles of the relevant expense peer group for the operating expense ratio: Guardian Core Plus Fixed Income VIP Fund (2nd), Guardian Diversified Research VIP Fund (2nd), Guardian Growth & Income VIP Fund

(2nd), Guardian Integrated Research VIP Fund (1st), Guardian International Growth VIP Fund (3rd), Guardian International Value VIP Fund (1st), Guardian Large Cap Disciplined Growth VIP Fund (1st), Guardian Large Cap Disciplined Value VIP Fund (2nd), Guardian Large Cap Fundamental Growth VIP Fund (1st), Guardian Mid Cap Relative Value VIP Fund (1st) and Guardian Mid Cap Traditional Growth VIP Fund (3rd).

Although the Board recognized that the comparisons between the management fees and anticipated operating expenses of the Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of operating expenses.

The Trustees reviewed information regarding the Manager’s costs of sponsoring the Funds and estimated profitability of the Funds to the Manager. The Trustees noted that the information contained estimates, such as allocations of expenses. Although the Trustees did not receive specific cost and profitability information from certainSub-advisers, the Trustees primarily considered the cost and profitability information relating to the Manager because the Manager is responsible for payment of thesub-advisory fees and negotiated the fees with theSub-advisers atarm’s-length.

Based on the consideration of the information and factors summarized above, as well as other information and factors deemed relevant by the Trustees, the Trustees concluded that the management andsub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and theSub-advisers. The Trustees also concluded that the estimated profitability of the Funds to the Manager was acceptable.

Economies of Scale

The Trustees considered the extent to which economies of scale may be shared as assets grow based on current asset levels of the Funds, anticipated asset levels over the next year, the current management andsub-advisory fee rates, the expense limitation arrangements, and any management andsub-advisory fee breakpoints, which reduce fee rates as assets increase. Based on those factors, the Board concluded that it was satisfied with the extent to which any economies of scale would be shared for the benefit of Fund shareholders. The Board noted that it would continue to monitor future growth in each Fund’s assets

 

 

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and whether additional steps are required to share appropriately any economies of scale with Fund shareholders.

Ancillary Benefits

The Trustees considered the benefits, other than management fees, that the Manager and/or its affiliates receive because of the Manager’s relationship with the Funds. The Trustees acknowledged that the Funds serve as investment options under variable contracts issued by an affiliate of the Manager that receives fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and an insurance company affiliated with the Manager receive fees from the Funds under a plan of distribution adopted pursuant to Rule12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-

received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other thansub-advisory fees, that theSub-advisers and their affiliates receive because of their relationships with the Funds, including the potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that accrue to the Manager and its affiliates are reasonable and the benefits that accrue to theSub-advisers and their affiliates are consistent with those expected for asub-adviser to a mutual fund such as the applicable Fund.

Conclusion

Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board voting as a whole, including the Independent Trustees voting separately, unanimously approved the continuation of the Agreements.

 

 

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Trustees and Officers Information Table

The following table provides information about the Trustees of the Trust.

 

     
Name and Year
of Birth
  Term of Office,
Position(s) Held
and Length of
Service*
  

Principal
Occupation(s)

During Past Five Years

  

Number of
Funds

in Fund
Complex

Overseen

by Trustees***

  Other Directorships
Held by Trustee
Independent Trustees                
  

Bruce W. Ferris

(born 1955)

  Trustee  Retired (since 2015); President and CEO, Prudential Annuity Distributors (2013–2015); Director/Trustee, Advanced Series Trust, Prudential Series Fund and Prudential’s Gibraltar Fund, Inc. (2013–2015); Senior Vice President, Prudential Annuities (2008–2015).  16  None.
  

Theda R. Haber

(born 1954)

  Trustee  Adjunct Assistant Professor of Law, UC Hastings College of Law (since 2013); Member of the Board of Directors, Fairholme Trust Company, LLC (since 2015); Attorney, Law Office of Theda R. Haber (since 2014); Visiting Professor of Law, UC Davis School of Law (since 2014); Consultant, Haber & Associates LLC (financial services industry) (since 2012); Advisory Council Chair, Vice Chair, and Member, Advisory Council on Employee Welfare and Pension Benefit Plans (ERISA Advisory Council), U.S. Department of Labor (2009–2011); Managing Director and General Counsel, BlackRock Institutional Trust Company, N.A. (2009–2011); Deputy Global General Counsel, Barclays Global Investors (2006–2009); Managing Director, Barclays Global Investors (1998–2006).  16  None.
  

Marshall Lux

(born 1960)

  Trustee  Senior Advisor, The Boston Consulting Group (since 2014); Senior Partner and Managing Director, The Boston Consulting Group (2009–2014).  16  None.
  
Lisa K. Polsky
(born 1956)
  Trustee  Senior Risk Advisor, AQR (investment management) (since 2016); Senior Risk Advisor, Ultra Capital (venture capital) (since 2016); Board Member and Chair of Risk Committee, DeutscheBank IHC (financial services) (since May 2016); Chief Risk Officer, CIT Group Inc. (financial services) (2010–2015); Board Member and Chair of Audit Committee, Piper Jaffray (investment bank) (2007–2016).  16  None.
  
John Walters
(born 1962)
  Lead Independent Trustee  Board Member, Amerilife Holdings LLC (insurance distribution) (since 2015); Board Member, Stadion Money Management LLC (investment adviser) (since 2011); President and Chief Operating Officer, Hartford Life Insurance Company (2000–2010).  16  None.

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

     
Name and Year
of Birth
  Term of Office,
Position(s) Held
and Length of
Service*
  

Principal
Occupation(s)

During Past Five Years

  

Number of
Funds

in Fund
Complex

Overseen

by Trustees***

  Other Directorships
Held by Trustee
Interested Trustees                
  
Gordon Dinsmore**
(born 1952)
  Trustee  Senior Vice President, Head of Product and President of Berkshire, The Guardian Life Insurance Company of America.  16  None.
  
Marc Costantini**
(born 1969)
  Chairman and Trustee  Executive Vice President, Group and Worksite Markets, The Guardian Life Insurance Company of America (since 2017); Executive Vice President and Chief Financial Officer, The Guardian Life Insurance Company of America (2014–2017); Executive Vice President, Manulife Financial prior thereto (various positions from 1990–2014).  16  None.

 

*

Each Trustee except for Mr. Dinsmore began service in such capacity in 2016 and serves until his or her successor is elected and qualified or until his or her resignation, death or removal. Mr. Dinsmore has served as a Trustee since November 2017. The business address of each Trustee is 7 Hanover Square, New York, New York 10004.

**

Each of Gordon Dinsmore and Marc Costantini is considered to be an “interested person” of the Trust within the meaning of the 1940 Act because of their affiliation with The Guardian Life Insurance Company of America and/or its affiliates.

***

As of the date of this report, the Trust currently consists of 16 separate Funds.

Member of the Audit Committee of the Trust.

The following table provides information about the Officers of the Trust.

 

   
Name and Year of Birth  Position(s) Held
and Length of Service*
  Principal Occupation(s)
During Past Five Years
  
Gordon Dinsmore
(born 1952)
  President and Principal Executive Officer (Since November 2017)  Senior Vice President, Head of Product and President of Berkshire, The Guardian Life Insurance Company of America.
  
John H. Walter
(born 1962)
  Senior Vice President, Treasurer, and Principal Financial and Accounting Officer  Vice President, Chief Financial Officer, Equity Profit Center, The Guardian Life Insurance Company of America.
  
Harris Oliner
(born 1971)
  Senior Vice President and Secretary  Senior Vice President, Corporate Secretary, The Guardian Life Insurance Company of America (since 2015); Senior Vice President, Deputy General Counsel, Corporate Secretary, Voya Financial, Inc. (2013–2014); Managing Director, Senior Counsel, Corporate Secretary, BlackRock, Inc. prior thereto.
  
Richard T. Potter
(born 1954)
  Senior Vice President and Chief Legal Officer  Vice President and Equity Counsel, The Guardian Life Insurance Company of America.
  
Philip Stack
(born 1964)
  Chief Compliance Officer (Since September 2017)  Executive Director, Chief Compliance Officer, Morgan Stanley (2015–2017); Vice President, Morgan Stanley (2013–2015); Vice President, Corporate Audit Group–Compliance, Morgan Stanley prior thereto.
  
James R. Anderson
(born 1963)
  Anti-Money Laundering Officer (Since November 2017)  Second Vice President, Agency and Anti-Money Laundering Compliance, The Guardian Life Insurance Company of America.
  
Kathleen M. Moynihan
(born 1966)
  Senior Counsel  Senior Counsel, The Guardian Life Insurance Company of America.
  
Maria Nydia Morrison
(born 1958)
  Fund Controller  Mutual Fund Controller, The Guardian Life Insurance Company of America (since 2015); Chief Financial Officer/Assistant Operating Officer, St. Francis De Assisi Montessori School (Plaridel, Bulacan), Inc. (Philippines) (2013–2015); Vice President, Bank of New York Mellon prior thereto.

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

   
Name and Year of Birth  Position(s) Held
and Length of Service*
  Principal Occupation(s)
During Past Five Years
  
Sonya L. Crosswell
(born 1977)
  Assistant Secretary  Assistant Vice President, Assistant Corporate Secretary and Secretary Pro Tem, The Guardian Life Insurance Company of America (since 2014); Vice President, Secretary and Assistant General Counsel, Carver Federal Savings Bank prior thereto.

 

*

Unless otherwise indicated, the Officers each began service in such capacity in 2016 and hold office for an indefinite term or until their successors shall have been elected and qualified. The business address of each Officer is 7 Hanover Square, New York, New York 10004.

 

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SUPPLEMENTAL INFORMATION(UNAUDITED)

 

The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.

 

Portfolio Holdings and Proxy Voting Procedures

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-Q or FormN-PORT (for filings beginning in April 2019 relating to March 31, 2019 data). The Fund’s Form N-Q or FormN-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-Q or FormN-PORT information is also available, without charge, upon request, by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/
Prospectuses.

Beginning in April 2019, the Fund will cease to disclose its holdings on Form N-Q and will file Form N-PORT with the Securities and Exchange Commission on a monthly

basis, with the information contained on Form N-PORT for the last month of the Fund’s fiscal quarter being made public by the Securities and Exchange Commission 60 days after the end of the Fund’s fiscal quarter.

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free1-888-GUARDIAN(1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/
Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.

 

 

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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.

 

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Table of Contents

Guardian Variable

Products Trust

2018

Annual Report

All Data as of December 31, 2018

Guardian Large Cap Disciplined Value VIP Fund

Important Notice

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering fore-delivery.

You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at1-888-GUARDIAN(1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.



 

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Table of Contents

TABLE OF CONTENTS

 

Guardian Large Cap Disciplined Value VIP Fund

 

 

Except as otherwise specifically stated, all information, including portfolio security positions, is as of December 31, 2018. The views expressed in the Fund Commentary are those of the Fund’s portfolio manager(s) as of the date of this report and are subject to change without notice. They do not necessarily represent the views of Park Avenue Institutional Advisers LLC or asub-adviser. The Fund Commentary may contain some forward-looking statements providing expectations or forecasts of future events as of the date of this report; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.


Table of Contents

GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND

 

FUND COMMENTARY BY BOSTON PARTNERS GLOBAL INVESTORS, INC.,SUB-ADVISER

Highlights

 

 Guardian Large Cap Disciplined Value VIP Fund (the “Fund”) returned-10.89%, underperforming its benchmark, the Russell 1000® Value Index1 (the “Index”), for the 12 months ended December 31, 2018. The Fund’s underperformance relative to the Index was primarily due to stock selection in the health care and technology sectors. Stock selection in the energy and consumernon-durables sectors contributed to relative performance.

 

 The Index returned-8.27% for the period. The health care and utilities sectors were two of the largest contributors to performance for the Index during the period.

Market Overview

A combination of tightening monetary policy and increased trade tensions between the U.S. and China resulted in a spike in volatility during the end of the year, beginning with the Octobersell-off. Both the economy and the market’s underlying fundamentals were positive in 2018, with GDP on pace for its strongest growth since 2005 and an increase in the Standard & Poor’s 500® Index2 earnings growth not seen since 2010. While July through September saw no daily price moves of the S&P 500 Index in excess of 1%, the fourth quarter experienced twenty-eight such occurrences as volatility surged.

For the year, three sectors had positive returns: consumer discretionary, utilities and health care, the latter the leader with a gain of 6.47%. Energy stocks ended the year with a return of-18.1%. The momentum that had helped growth stock returns during the first three quarters of the year abruptly reversed course in the fourth quarter. Historically, in periods of weakness, large capitalization stocks have generally outperformed

small-capitalization stocks, as size has been equated with safety. This proved to be the case during the fourth quarter and the year. For the year, international markets underperformed.

Portfolio Review

For the 12 months ended December 31, 2018, the Fund underperformed the Index. The Fund’s underperformance relative to the Index was primarily due to stock selection in the health care and technology sectors. The Fund’s underweight relative to the Index in the utilities sector also detracted from relative performance. Conversely, stock selection has been positive in energy and consumernon-durables. The Fund avoided the underperforming tobacco and food industries.

Outlook

For investors to return to a comfort zone for investing in equities there will need to be a catalyst or catalysts for them to do so. Catalyst candidates could include: a resolution to the U.S.-China trade conflict, evidence that the growth scare out of Europe and China were temporary in nature, a pause in rate hikes and/or balance sheet reduction from the U.S. Federal Reserve, a reacceleration of business spending similar to levels seen earlier in the year, and proof of stability in company profit margins.

In our view, some positive conditions are already in place that could lend support to a more desirable outcome for 2019: announcements of $1.08 trillion in stock buybacks for the year, a 10% expected increase in tax refunds to individuals ($26 billion) this year versus last year, and an additional $86 billion in discretionary spending in fiscal 2019 by the U.S. government versus 2018. With price/earnings multiples experiencing their third largest decline in the last 40 years during 2018, we believe valuations are now below average levels.

 

 

 

1

The Russell 1000® Value Index (the “Index”) is an unmanaged market-capitalization-weighted index that measures the performance of those companies in the Russell 1000® Index (which consists of the 1,000 largest U.S. companies based on total market capitalization) with lower price-to-book ratios and lower forecasted growth values. Index results assume the reinvestment of dividends paid on the stocks constituting the Index. You may not invest in the Index, and, unlike the Fund, the Index does not incur fees or expenses.

 

2

The Standard & Poor’s 500® Index (the “S&P 500 Index”) is an unmanaged market-capitalization-weighted index generally considered to be representative of U.S. equity market activity. The S&P 500 Index consists of 500 stocks representing leading industries of the U.S. economy. Index results assume the reinvestment of dividends paid on the stocks constituting the Index. You may not invest in the S&P 500 Index, and, unlike the Fund, the S&P 500 Index does not incur fees or expenses.

 

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Table of Contents

GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND

 

Funds in the Guardian Variable Products Trust are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses or to obtain a printed copy, call1-888-GUARDIAN(1-888-482-7342).

As with all mutual funds, the value of an investment in the Fund could decline, and you could lose money. Diversification does not guarantee profit or protect against loss, and there can be no assurance that the Fund will achieve its investment objective. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets. Investing in large-capitalization companies involves risks such as having low growth rates, and slow responsiveness to competitive challenges or opportunities than in the case of smaller companies. Value stocks may not realize their perceived value and during certain periods the Fund may underperform other equity funds that employ a different style. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty and greater volatility. Foreign securities are subject to political, regulatory, economic, and exchange-rate risks not present in domestic investments. Investing in a more limited number of issuers and sectors can be subject to greater market fluctuation. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

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Table of Contents

GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND

 

Fund Characteristics (unaudited)

 

Total Net Assets: $185,363,420  

 

 

Sector Allocation1

As of December 31, 2018

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Top Ten Holdings2

As of December 31, 2018

  
Holding % of Total
Net Assets
 
Berkshire Hathaway, Inc., Class B  4.63% 
Johnson & Johnson  4.54% 
Cisco Systems, Inc.  3.51% 
JPMorgan Chase & Co.  3.44% 
Pfizer, Inc.  3.30% 
Comcast Corp., Class A  3.09% 
Bank of America Corp.  2.91% 
The Procter & Gamble Co.  2.89% 
Chevron Corp.  2.70% 
Wells Fargo & Co.  2.64% 
Total  33.65% 

 

1

The Fund’s holdings are allocated to each sector based on the MSCI Global Industry Classification Standard (GICS®). Cash includes short-term investments and net other assets and liabilities.

2

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

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GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND

 

Fund Performance (unaudited)

 

      

Average Annual Total Returns

As of December 31, 2018

                    
  
   Inception Date  1 Year  5 Year  10 Year  Since Inception 
Guardian Large Cap Disciplined Value VIP Fund  9/1/2016   -10.89%         5.97% 
Russell 1000® Value Index      -8.27%         4.63% 

 

 

Results of a Hypothetical $10,000 Investment

As of December 31, 2018

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The chart above shows the performance of a hypothetical $10,000 investment made on inception date in Guardian Large Cap Disciplined Value VIP Fund and the Russell 1000® Value Index. Index returns do not include the fees and expenses of the Fund, but do include reinvestment of dividends, if any.

Performance quoted represents past performance and does not guarantee or predict future results. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. The Fund’s fees and expenses are detailed in the Financial Highlights section of this report. Fees and expenses are factored into the net asset value of Fund shares and any performance numbers we release. Total return figures include the effect of expense limitations in effect during the periods shown, if applicable; without such limitations, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contract owner/policyholder may pay on redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current andmonth-end performance information, which may be lower or higher than that cited, is available by calling1-888-GUARDIAN(1-888-482-7342) and is periodically updated on our website: http://guardianlife.com.

 

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