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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-23148
Guardian Variable Products Trust
(Exact name of registrant as specified in charter)
10 Hudson Yards New York, N.Y. 10001
(Address of principal executive offices) (Zip code)
Dominique Baede
President
Guardian Variable Products Trust
10 Hudson Yards
New York, N.Y. 10001
(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: June 30, 2021
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Item 1. | Reports to Stockholders. |
(a) | A copy of the report transmitted to stockholders pursuant to Rule 30e-1 is filed herewith. |
(b) | Not applicable to this semi-annual report. |
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Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Large Cap Fundamental Growth VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
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Guardian Large Cap Fundamental Growth VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 22 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. 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 Characteristics (unaudited)
Total Net Assets: $380,505,493 |
Sector Allocation1 As of June 30, 2021 |
Top Ten Holdings2 As of June 30, 2021 | ||||
Holding | % of Total Net Assets | |||
Amazon.com, Inc. | 8.90% | |||
Facebook, Inc., Class A | 6.55% | |||
Microsoft Corp. | 5.15% | |||
Visa, Inc., Class A | 4.61% | |||
Apple, Inc. | 4.60% | |||
NVIDIA Corp. | 3.60% | |||
Adobe, Inc. | 3.51% | |||
salesforce.com, Inc. | 3.12% | |||
UnitedHealth Group, Inc. | 3.09% | |||
Thermo Fisher Scientific, Inc. | 2.58% | |||
Total | 45.71% |
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. |
1 |
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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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $1,000.00 | $1,114.00 | $4.87 | 0.93% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.18 | $4.66 | 0.93% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
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SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.4% |
| |||||||
Aerospace & Defense – 1.5% |
| |||||||
Raytheon Technologies Corp. | 68,450 | $ | 5,839,470 | |||||
|
| |||||||
5,839,470 | ||||||||
Air Freight & Logistics – 2.6% |
| |||||||
United Parcel Service, Inc., Class B | 46,856 | 9,744,642 | ||||||
|
| |||||||
9,744,642 | ||||||||
Auto Components – 1.7% |
| |||||||
Aptiv PLC(1) | 40,814 | 6,421,267 | ||||||
|
| |||||||
6,421,267 | ||||||||
Beverages – 2.4% |
| |||||||
Anheuser-Busch InBev S.A., ADR | 48,568 | 3,497,382 | ||||||
Monster Beverage Corp.(1) | 63,580 | 5,808,033 | ||||||
|
| |||||||
9,305,415 | ||||||||
Biotechnology – 2.2% |
| |||||||
Amgen, Inc. | 22,680 | 5,528,250 | ||||||
BioMarin Pharmaceutical, Inc.(1) | 36,081 | 3,010,599 | ||||||
|
| |||||||
8,538,849 | ||||||||
Chemicals – 1.2% |
| |||||||
Ecolab, Inc. | 22,321 | 4,597,456 | ||||||
|
| |||||||
4,597,456 | ||||||||
Electrical Equipment – 0.3% |
| |||||||
Eaton Corp. PLC | 7,870 | 1,166,177 | ||||||
|
| |||||||
1,166,177 | ||||||||
Entertainment – 3.0% |
| |||||||
Sea Ltd., ADR(1) | 16,560 | 4,547,376 | ||||||
The Walt Disney Co.(1) | 37,929 | 6,666,780 | ||||||
|
| |||||||
11,214,156 | ||||||||
Equity Real Estate Investment – 1.6% |
| |||||||
Equinix, Inc. REIT | 7,407 | 5,944,858 | ||||||
|
| |||||||
5,944,858 | ||||||||
Health Care Equipment & Supplies – 2.3% |
| |||||||
Alcon, Inc. | 71,060 | 4,992,675 | ||||||
Intuitive Surgical, Inc.(1) | 3,990 | 3,669,364 | ||||||
|
| |||||||
8,662,039 | ||||||||
Health Care Providers & Services – 3.1% |
| |||||||
UnitedHealth Group, Inc. | 29,367 | 11,759,722 | ||||||
|
| |||||||
11,759,722 | ||||||||
Hotels, Restaurants & Leisure – 1.2% |
| |||||||
Booking Holdings, Inc.(1) | 2,127 | 4,654,067 | ||||||
|
| |||||||
4,654,067 | ||||||||
Interactive Media & Services – 6.6% |
| |||||||
Facebook, Inc., Class A(1) | 71,683 | 24,924,896 | ||||||
|
| |||||||
24,924,896 | ||||||||
Internet & Direct Marketing Retail – 10.7% |
| |||||||
Alibaba Group Holding Ltd., ADR(1) | 30,486 | 6,913,615 | ||||||
Amazon.com, Inc.(1) | 9,844 | 33,864,935 | ||||||
|
| |||||||
40,778,550 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
IT Services – 7.5% |
| |||||||
Akamai Technologies, Inc.(1) | 46,129 | $ | 5,378,641 | |||||
Fidelity National Information Services, Inc. | 40,217 | 5,697,542 | ||||||
Visa, Inc., Class A | 74,997 | 17,535,799 | ||||||
|
| |||||||
28,611,982 | ||||||||
Life Sciences Tools & Services – 2.6% |
| |||||||
Thermo Fisher Scientific, Inc. | 19,442 | 9,807,906 | ||||||
|
| |||||||
9,807,906 | ||||||||
Pharmaceuticals – 2.4% |
| |||||||
Zoetis, Inc. | 49,661 | 9,254,824 | ||||||
|
| |||||||
9,254,824 | ||||||||
Professional Services – 2.0% |
| |||||||
IHS Markit Ltd. | 65,817 | 7,414,943 | ||||||
|
| |||||||
7,414,943 | ||||||||
Road & Rail – 1.8% |
| |||||||
Uber Technologies, Inc.(1) | 138,962 | 6,964,775 | ||||||
|
| |||||||
6,964,775 | ||||||||
Semiconductors & Semiconductor Equipment – 8.8% |
| |||||||
ASML Holding N.V. | 7,550 | 5,215,842 | ||||||
NVIDIA Corp. | 17,123 | 13,700,112 | ||||||
NXP Semiconductors N.V. | 25,810 | 5,309,633 | ||||||
QUALCOMM, Inc. | 64,921 | 9,279,159 | ||||||
|
| |||||||
33,504,746 | ||||||||
Software – 20.6% |
| |||||||
Adobe, Inc.(1) | 22,810 | 13,358,448 | ||||||
Atlassian Corp. PLC, Class A(1) | 22,840 | 5,866,682 | ||||||
Microsoft Corp. | 72,374 | 19,606,117 | ||||||
Nutanix, Inc., Class A(1) | 68,682 | 2,625,026 | ||||||
Palo Alto Networks, Inc.(1) | 21,924 | 8,134,900 | ||||||
salesforce.com, Inc.(1) | 48,650 | 11,883,736 | ||||||
Splunk, Inc.(1) | 39,131 | 5,657,560 | ||||||
UiPath, Inc., Class A(1) | 34,679 | 2,355,745 | ||||||
VMware, Inc., Class A(1) | 27,590 | 4,413,572 | ||||||
Workday, Inc., Class A(1) | 18,930 | 4,519,348 | ||||||
|
| |||||||
78,421,134 | ||||||||
Specialty Retail – 7.0% |
| |||||||
Advance Auto Parts, Inc. | 29,780 | 6,109,069 | ||||||
The Home Depot, Inc. | 28,023 | 8,936,255 | ||||||
Tractor Supply Co. | 26,220 | 4,878,493 | ||||||
Ulta Beauty, Inc.(1) | 19,033 | 6,581,040 | ||||||
|
| |||||||
26,504,857 | ||||||||
Technology Hardware, Storage & Peripherals – 4.6% |
| |||||||
Apple, Inc. | 127,714 | 17,491,710 | ||||||
|
| |||||||
17,491,710 | ||||||||
Trading Companies & Distributors – 1.7% |
| |||||||
WW Grainger, Inc. | 15,139 | 6,630,882 | ||||||
|
| |||||||
6,630,882 | ||||||||
Total Common Stocks (Cost $233,635,120) |
| 378,159,323 |
The accompanying notes are an integral part of these financial statements. | 3 |
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SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investment – 0.8% |
| |||||||
Repurchase Agreements – 0.8% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $3,213,878, due 7/1/2021(2) | $ | 3,213,878 | $ | 3,213,878 | ||||
Total Repurchase Agreements (Cost $3,213,878) |
| 3,213,878 | ||||||
Total Investments – 100.2% (Cost $236,848,998) |
| 381,373,201 | ||||||
Liabilities in excess of other assets – (0.2)% |
| (867,708 | ) | |||||
Total Net Assets – 100.0% |
| $ | 380,505,493 |
(1) | Non–income–producing security. |
(2) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.25% | 1/15/2025 | $ | 2,686,300 | $ | 3,278,172 |
Legend:
ADR — American Depositary Receipt
REIT — Real Estate Investment Trust
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 378,159,323 | $ | — | $ | — | $ | 378,159,323 | ||||||||
Repurchase Agreements | — | 3,213,878 | — | 3,213,878 | ||||||||||||
Total | $ | 378,159,323 | $ | 3,213,878 | $ | — | $ | 381,373,201 |
4 | The accompanying notes are an integral part of these financial statements. |
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FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,175,058 | ||
Withholding taxes on foreign dividends | (11,342 | ) | ||
|
| |||
Total Investment Income | 1,163,716 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 1,016,118 | |||
Distribution fees | 440,836 | |||
Trustees’ and officers’ fees | 50,028 | |||
Professional fees | 41,756 | |||
Administrative fees | 28,147 | |||
Custodian and accounting fees | 21,364 | |||
Shareholder reports | 17,376 | |||
Transfer agent fees | 5,990 | |||
Other expenses | 14,197 | |||
|
| |||
Total Expenses | 1,635,812 | |||
|
| |||
Net Investment Income/(Loss) | (472,096 | ) | ||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | 12,892,216 | |||
Net change in unrealized appreciation/(depreciation) on investments | 26,672,354 | |||
|
| |||
Net Gain on Investments | 39,564,570 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 39,092,474 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
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FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
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7 |
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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 six reporting periods (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 Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment (Loss)(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 21.57 | $ | (0.03 | ) | $ | 2.49 | $ | 2.46 | $ | 24.03 | 11.40% | (4) | |||||||||||
Year Ended 12/31/20 | 16.50 | (0.03 | ) | 5.10 | 5.07 | 21.57 | 30.73% | |||||||||||||||||
Year Ended 12/31/19 | 12.51 | 0.00 | (5) | 3.99 | 3.99 | 16.50 | 31.89% | |||||||||||||||||
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(6) | 10.00 | 0.01 | 0.18 | 0.19 | 10.19 | 1.90% | (4) |
8 | The accompanying notes are an integral part of these financial statements. |
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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/(Loss) to Average Net Assets(3) | Gross Ratio of Net Investment Income/(Loss) to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 380,505 | 0.93% | (4) | 0.93% | (4) | (0.27)% | (4) | (0.27)% | (4) | 12% | (4) | |||||||||||
339,890 | 1.00% | 1.00% | (0.18)% | (0.18)% | 20% | |||||||||||||||||
349,921 | 1.00% | 1.00% | 0.01% | 0.01% | 44% | |||||||||||||||||
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% | (4) | 3.08% | (4) | 0.26% | (4) | (1.82)% | (4) | 4% | (4) |
(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, expense limitations, and recoupments, if any. |
(4) | 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. |
(5) | Rounds to $0.00 per share. |
(6) | Commenced operations on September 1, 2016. |
The accompanying notes are an integral part of these financial statements. | 9 |
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four 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.
10 |
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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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
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.
11 |
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
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 0.62% 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, 2022 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). 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 six months ended June 30, 2021, Park Avenue did not waive any fees or pay any Fund expenses.
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 are not subject to Park Avenue’s recoupment rights. The entitlement to recoupment by Park Avenue from the Fund under the Expense Limitation Agreement expired on April 9, 2021.
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Park Avenue has entered into a Sub-Advisory Agreement with ClearBridge Investments LLC (“ClearBridge”). ClearBridge is responsible for providing day-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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $440,836 to PAS.
PAS has directed that certain payments under the 12b-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 $45,738,497 and $42,984,646, respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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 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
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untimely disposition of securities. Interest is calculated based on the higher of the daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting
supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund, (iii) Putnam Investment Management, LLC with respect
to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and 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 any Sub-adviser.
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In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and
reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
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Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense
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limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board |
also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
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Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that |
the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
20 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
21 |
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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
22 |
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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8175
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian International Value VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian International Value VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 8 | |||
Statement of Operations | 8 | |||
Statements of Changes in Net Assets | 9 | |||
Financial Highlights | 10 | |||
Notes to Financial Statements | 12 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 17 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 18 | |||
Portfolio Holdings and Proxy Voting Procedures | 24 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN INTERNATIONAL VALUE VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $228,025,213 |
Geographic Region Allocation1 As of June 30, 2021 | ||
Sector Allocation1 As of June 30, 2021 | ||
1 |
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GUARDIAN INTERNATIONAL VALUE VIP FUND
Top Ten Holdings2 As of June 30, 2021 | ||||||
Holding | Country | % of Total Net Assets | ||||
Hitachi Ltd. | Japan | 3.28% | ||||
Medtronic PLC | Ireland | 3.00% | ||||
RELX PLC | United Kingdom | 2.85% | ||||
Sanofi | France | 2.57% | ||||
Vivendi SE | France | 2.37% | ||||
Engie S.A. | France | 2.33% | ||||
Vestas Wind Systems A/S | Denmark | 2.29% | ||||
Volkswagen AG | Germany | 2.21% | ||||
Enel S.p.A. | Italy | 2.02% | ||||
ABB Ltd. (Reg S) | Switzerland | 1.97% | ||||
Total | 24.89% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. Cash includes short-term investments and net other assets and liabilities. |
2 | 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 |
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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $1,000.00 | $1,051.70 | $5.29 | 1.04% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.64 | $5.21 | 1.04% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
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SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 97.2% |
| |||||||
Canada – 3.8% |
| |||||||
CAE, Inc.(1) | 76,281 | $ | 2,349,475 | |||||
Suncor Energy, Inc. | 144,968 | 3,472,168 | ||||||
TMX Group Ltd. | 27,238 | 2,877,173 | ||||||
|
| |||||||
8,698,816 | ||||||||
Cayman Islands – 3.3% |
| |||||||
Autohome, Inc., ADR | 43,412 | 2,776,631 | ||||||
ENN Energy Holdings Ltd. | 134,800 | 2,566,104 | ||||||
ESR Cayman Ltd.(1)(2) | 650,400 | 2,194,805 | ||||||
|
| |||||||
7,537,540 | ||||||||
China – 0.8% |
| |||||||
China Longyuan Power Group Corp. Ltd., Class H | 1,005,000 | 1,732,006 | ||||||
|
| |||||||
1,732,006 | ||||||||
Denmark – 4.0% |
| |||||||
Carlsberg A/S, Class B | 20,823 | 3,887,394 | ||||||
Vestas Wind Systems A/S | 133,174 | 5,218,691 | ||||||
|
| |||||||
9,106,085 | ||||||||
Finland – 2.2% |
| |||||||
Nordea Bank Abp | 292,390 | 3,253,356 | ||||||
Sampo OYJ, Class A | 36,398 | 1,673,839 | ||||||
|
| |||||||
4,927,195 | ||||||||
France – 13.7% |
| |||||||
Air Liquide S.A. | 24,098 | 4,222,550 | ||||||
Alstom S.A.(1) | 68,894 | 3,481,248 | ||||||
Capgemini SE | 17,990 | 3,459,314 | ||||||
Engie S.A. | 388,070 | 5,320,139 | ||||||
Pernod Ricard S.A. | 15,274 | 3,390,193 | ||||||
Sanofi | 55,967 | 5,864,539 | ||||||
Vivendi SE | 161,191 | 5,415,724 | ||||||
|
| |||||||
31,153,707 | ||||||||
Germany – 9.1% |
| |||||||
adidas AG | 6,134 | 2,284,111 | ||||||
Continental AG | 22,931 | 3,372,075 | ||||||
Infineon Technologies AG | 67,649 | 2,712,783 | ||||||
Merck KGaA | 17,952 | 3,446,244 | ||||||
MTU Aero Engines AG | 17,395 | 4,309,960 | ||||||
ProSiebenSat.1 Media SE | 120,045 | 2,388,381 | ||||||
Vonovia SE | 35,179 | 2,276,465 | ||||||
|
| |||||||
20,790,019 | ||||||||
India – 0.9% |
| |||||||
Reliance Industries Ltd. | 74,816 | 2,129,008 | ||||||
|
| |||||||
2,129,008 | ||||||||
Ireland – 6.3% |
| |||||||
Aon PLC, Class A | 18,512 | 4,419,925 | ||||||
Medtronic PLC | 55,061 | 6,834,722 | ||||||
Ryanair Holdings PLC, ADR(1) | 29,127 | 3,151,833 | ||||||
|
| |||||||
14,406,480 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Israel – 1.3% |
| |||||||
Bank Leumi Le-Israel BM(1) | 378,903 | $ | 2,878,356 | |||||
|
| |||||||
2,878,356 | ||||||||
Italy – 2.0% |
| |||||||
Enel S.p.A. | 494,888 | 4,598,147 | ||||||
|
| |||||||
4,598,147 | ||||||||
Japan – 16.8% |
| |||||||
Asics Corp. | 72,000 | 1,821,288 | ||||||
Daikin Industries Ltd. | 12,000 | 2,233,812 | ||||||
Daiwa House Industry Co. Ltd. | 110,412 | 3,313,327 | ||||||
Fujitsu Ltd. | 18,737 | 3,509,517 | ||||||
Hitachi Ltd. | 130,700 | 7,480,072 | ||||||
Makita Corp. | 66,700 | 3,139,079 | ||||||
Matsumotokiyoshi Holdings Co. Ltd. | 54,500 | 2,405,568 | ||||||
Nexon Co. Ltd. | 91,263 | 2,034,594 | ||||||
Ryohin Keikaku Co. Ltd. | 112,600 | 2,351,490 | ||||||
Shimano, Inc. | 10,100 | 2,394,947 | ||||||
Sumitomo Mitsui Financial Group, Inc. | 85,400 | 2,939,018 | ||||||
Suzuki Motor Corp. | 62,600 | 2,647,775 | ||||||
Yamaha Corp. | 37,500 | 2,034,518 | ||||||
|
| |||||||
38,305,005 | ||||||||
Mexico – 0.8% |
| |||||||
Arca Continental S.A.B. de C.V. | 316,500 | 1,831,616 | ||||||
|
| |||||||
1,831,616 | ||||||||
Netherlands – 5.2% |
| |||||||
Akzo Nobel N.V. | 31,018 | 3,833,071 | ||||||
JDE Peet’s N.V.(1) | 36,498 | 1,324,395 | ||||||
Koninklijke DSM N.V. | 19,687 | 3,675,371 | ||||||
Wolters Kluwer N.V. | 30,498 | 3,065,280 | ||||||
|
| |||||||
11,898,117 | ||||||||
Norway – 2.5% |
| |||||||
Equinor ASA | 131,369 | 2,780,565 | ||||||
Telenor ASA | 165,702 | 2,795,999 | ||||||
|
| |||||||
5,576,564 | ||||||||
Portugal – 0.9% |
| |||||||
Galp Energia SGPS S.A. | 191,131 | 2,079,641 | ||||||
|
| |||||||
2,079,641 | ||||||||
Republic of Korea – 1.4% |
| |||||||
Samsung Electronics Co. Ltd. | 45,265 | 3,244,385 | ||||||
|
| |||||||
3,244,385 | ||||||||
Singapore – 1.2% |
| |||||||
DBS Group Holdings Ltd. | 123,280 | 2,735,703 | ||||||
|
| |||||||
2,735,703 | ||||||||
Spain – 3.1% |
| |||||||
Banco Santander S.A.(1) | 908,653 | 3,464,401 | ||||||
Industria de Diseno Textil S.A. | 100,294 | 3,534,040 | ||||||
|
| |||||||
6,998,441 | ||||||||
Sweden – 1.3% |
| |||||||
Sandvik AB | 118,810 | 3,035,377 | ||||||
|
| |||||||
3,035,377 |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Switzerland – 3.7% |
| |||||||
ABB Ltd. (Reg S) | 132,629 | $ | 4,502,024 | |||||
Novartis AG (Reg S) | 43,742 | 3,986,855 | ||||||
|
| |||||||
8,488,879 | ||||||||
United Kingdom – 12.9% |
| |||||||
3i Group PLC | 135,473 | 2,202,024 | ||||||
Anglo American PLC | 79,274 | 3,158,981 | ||||||
Barclays PLC | 1,080,891 | 2,563,579 | ||||||
Ferguson PLC | 27,595 | 3,841,194 | ||||||
Informa PLC(1) | 106,523 | 740,464 | ||||||
Prudential PLC | 175,936 | 3,338,182 | ||||||
RELX PLC | 244,294 | 6,490,042 | ||||||
Tesco PLC | 1,050,553 | 3,243,012 | ||||||
Unilever PLC | 65,421 | 3,826,406 | ||||||
|
| |||||||
29,403,884 | ||||||||
Total Common Stocks (Cost $185,339,528) |
| 221,554,971 | ||||||
Preferred Stocks – 2.2% |
| |||||||
Germany – 2.2% |
| |||||||
Volkswagen AG, 3.00% | 20,108 | 5,042,594 | ||||||
Total Preferred Stocks (Cost $3,359,441) |
| 5,042,594 |
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investment – 0.8% |
| |||||||
Repurchase Agreements – 0.8% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $1,965,392, due 7/1/2021(3) | $ | 1,965,392 | $ | 1,965,392 | ||||
Total Repurchase Agreements (Cost $1,965,392) |
| 1,965,392 | ||||||
Total Investments – 100.2% (Cost $190,664,361) |
| 228,562,957 | ||||||
Liabilities in excess of other assets – (0.2)% |
| (537,744 | ) | |||||
Total Net Assets – 100.0% |
| $ | 228,025,213 |
(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 June 30, 2021, the aggregate market value of these securities amounted to $2,194,805, representing 1.0% 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 | ||||||||||||
10-Year U.S. TIPS | 0.375% | 7/15/2025 | $ | 1,621,000 | $ | 2,004,809 |
Legend:
ADR — American Depositary Receipt
TIPS — Treasury Inflation–Protected Securities
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | ||||||||||||||||
Canada | $ | 8,698,816 | $ | — | $ | — | $ | 8,698,816 | ||||||||
Cayman Islands | 2,776,631 | 4,760,909 | * | — | 7,537,540 | |||||||||||
China | — | 1,732,006 | * | — | 1,732,006 | |||||||||||
Denmark | — | 9,106,085 | * | — | 9,106,085 | |||||||||||
Finland | — | 4,927,195 | * | — | 4,927,195 | |||||||||||
France | — | 31,153,707 | * | — | 31,153,707 | |||||||||||
Germany | — | 20,790,019 | * | — | 20,790,019 | |||||||||||
India | — | 2,129,008 | * | — | 2,129,008 | |||||||||||
Ireland | 14,406,480 | — | — | 14,406,480 | ||||||||||||
Israel | — | 2,878,356 | * | — | 2,878,356 | |||||||||||
Italy | — | 4,598,147 | * | — | 4,598,147 | |||||||||||
Japan | — | 38,305,005 | * | — | 38,305,005 | |||||||||||
Mexico | 1,831,616 | — | — | 1,831,616 | ||||||||||||
Netherlands | — | 11,898,117 | * | — | 11,898,117 | |||||||||||
Norway | — | 5,576,564 | * | — | 5,576,564 | |||||||||||
Portugal | — | 2,079,641 | * | — | 2,079,641 | |||||||||||
Republic of Korea | — | 3,244,385 | * | — | 3,244,385 | |||||||||||
Singapore | — | 2,735,703 | * | — | 2,735,703 | |||||||||||
Spain | — | 6,998,441 | * | — | 6,998,441 | |||||||||||
Sweden | — | 3,035,377 | * | — | 3,035,377 | |||||||||||
Switzerland | — | 8,488,879 | * | — | 8,488,879 | |||||||||||
United Kingdom | — | 29,403,884 | * | — | 29,403,884 | |||||||||||
Preferred Stocks | ||||||||||||||||
Germany | — | 5,042,594 | * | — | 5,042,594 | |||||||||||
Repurchase Agreements | — | 1,965,392 | — | 1,965,392 | ||||||||||||
Total | $ | 27,713,543 | $ | 200,849,414 | $ | — | $ | 228,562,957 |
* | 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. |
6 | The accompanying notes are an integral part of these financial statements. |
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This Page Intentionally Left Blank
7 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL VALUE VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||||
Investment Income | ||||||
Dividends | $ | 4,531,499 | ||||
Withholding taxes on foreign dividends | (407,834 | ) | ||||
|
| |||||
Total Investment Income | 4,123,665 | |||||
|
| |||||
Expenses | ||||||
Investment advisory fees | 889,920 | |||||
Distribution fees | 288,375 | |||||
Professional fees | 38,007 | |||||
Custodian and accounting fees | 35,939 | |||||
Trustees’ and officers’ fees | 35,404 | |||||
Administrative fees | 16,510 | |||||
Shareholder reports | 10,021 | |||||
Transfer agent fees | 5,368 | |||||
Other expenses | 10,786 | |||||
|
| |||||
Total Expenses | 1,330,330 | |||||
Less: Fees waived | (130,339 | ) | ||||
|
| |||||
Total Expenses, Net | 1,199,991 | |||||
|
| |||||
Net Investment Income/(Loss) | 2,923,674 | |||||
|
| |||||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments, Foreign Currency Transactions and Foreign Capital Gains Tax | ||||||
Net realized gain/(loss) from investments | 10,313,310 | |||||
Net realized gain/(loss) from foreign currency transactions | (21,678 | ) | ||||
Foreign capital gains taxes paid | (17 | ) | ||||
Net change in unrealized appreciation/(depreciation) on investments | (1,395,163 | ) | ||||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (19,708 | ) | ||||
|
| |||||
Net Gain on Investments, Foreign Currency Transactions and Foreign Capital Gains Tax | 8,876,744 | |||||
|
| |||||
Net Increase in Net Assets Resulting From Operations | $ | 11,800,418 | ||||
|
| |||||
8 | The accompanying notes are an integral part of these financial statements. |
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FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL VALUE VIP FUND
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL VALUE VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||
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) | |||||||||||||||||
Six Months Ended 6/30/21 | $ | 13.16 | $ | 0.17 | $ | 0.51 | $ | 0.68 | $ | 13.84 | 5.17%(4) | |||||||||||
Year Ended 12/31/20 | 12.15 | 0.12 | 0.89 | 1.01 | 13.16 | 8.31% | ||||||||||||||||
Year Ended 12/31/19 | 10.01 | 0.22 | 1.92 | 2.14 | 12.15 | 21.38% | ||||||||||||||||
Year Ended 12/31/18 | 11.80 | 0.20 | (1.99 | ) | (1.79 | ) | 10.01 | (15.17)% | ||||||||||||||
Year Ended 12/31/17 | 9.63 | 0.15 | 2.02 | 2.17 | 11.80 | 22.53% | ||||||||||||||||
Period Ended 12/31/16(5) | 10.00 | 0.01 | (0.38 | ) | (0.37 | ) | 9.63 | (3.70)%(4) |
10 | The accompanying notes are an integral part of these financial statements. |
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FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL VALUE 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 (Loss) to Average | Portfolio Turnover Rate | |||||||||||||||||
$ | 228,025 | 1.04% | (4) | 1.15% | (4) | 2.53% | (4) | 2.42% | (4) | 20% | (4) | |||||||||||
234,233 | 1.00% | 1.18% | 1.03% | 0.85% | 38% | |||||||||||||||||
220,989 | 0.94% | 1.20% | 1.99% | 1.73% | 32% | |||||||||||||||||
208,182 | 0.94% | 1.23% | 1.79% | 1.50% | 74% | |||||||||||||||||
11,133 | 1.11% | 2.39% | 1.40% | 0.12% | 61% | |||||||||||||||||
14,100 | 1.11% | (4) | 3.11% | (4) | 0.42% | (4) | (1.58)% | (4) | 8% | (4) |
(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) | 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. |
(5) | Commenced operations on September 1, 2016. |
The accompanying notes are an integral part of these financial statements. | 11 |
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian International Value 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 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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL VALUE 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
c. Futures Contracts The Fund may enter into financial futures contracts. In entering into such contracts, the Fund is required to deposit with the counterparty, either in cash or securities, an amount equal to a certain percentage of the face value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
d. 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.
e. 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.
f. 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.
g. 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 0.80% of the first $100 million, and 0.75% in excess of $100 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, 2022 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 1.08% 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 May 1, 2021, the expense limitation was 1.02%. 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 six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $130,339.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
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 are not subject to Park Avenue’s recoupment rights. The entitlement to recoupment by Park Avenue from the Fund under the Expense Limitation Agreement expired on April 9, 2021.
Park Avenue has entered into a Sub-Advisory Agreement with Lazard Asset Management LLC (“Lazard”). Lazard is responsible for providing day-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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $288,375 to PAS.
PAS has directed that certain payments under the 12b-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 $46,014,513 and $60,805,946, respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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 or delayed from doing so in certain circumstances) and
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
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 daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment,
in current market conditions without significantly changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund, (iii) Putnam Investment Management, LLC with respect
to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and 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 any Sub-adviser.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided
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to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included
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breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The |
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Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since- |
inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at
https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT
/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8172
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Mid Cap Traditional Growth VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian Mid Cap Traditional Growth VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 6 | |||
Statement of Operations | 6 | |||
Statements of Changes in Net Assets | 7 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 22 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $129,698,880 |
Sector Allocation1 As of June 30, 2021 |
Top Ten Holdings2 As of June 30, 2021 | ||||
Holding | % of Total Net Assets | |||
KLA Corp. | 2.91% | |||
LPL Financial Holdings, Inc. | 2.84% | |||
TE Connectivity Ltd. | 2.70% | |||
SS&C Technologies Holdings, Inc. | 2.58% | |||
Lamar Advertising Co., Class A, REIT | 2.50% | |||
Broadridge Financial Solutions, Inc. | 2.44% | |||
Sensata Technologies Holding PLC | 2.42% | |||
WEX, Inc. | 2.26% | |||
Aon PLC, Class A | 2.24% | |||
Constellation Software, Inc. | 2.23% | |||
Total | 25.12% |
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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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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $1,000.00 | $1,096.90 | $5.72 | 1.10% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.34 | $5.51 | 1.10% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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SCHEDULE OF INVESTMENTS – GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.0% |
| |||||||
Aerospace & Defense – 2.8% |
| |||||||
L3Harris Technologies, Inc. | 8,275 | $ | 1,788,641 | |||||
Teledyne Technologies, Inc.(1) | 4,503 | 1,885,992 | ||||||
|
| |||||||
3,674,633 | ||||||||
Airlines – 1.0% |
| |||||||
Ryanair Holdings PLC, ADR(1) | 12,253 | 1,325,897 | ||||||
|
| |||||||
1,325,897 | ||||||||
Auto Components – 0.6% |
| |||||||
Visteon Corp.(1) | 6,812 | 823,843 | ||||||
|
| |||||||
823,843 | ||||||||
Banks – 1.1% |
| |||||||
SVB Financial Group(1) | 2,452 | 1,364,366 | ||||||
|
| |||||||
1,364,366 | ||||||||
Biotechnology – 2.4% |
| |||||||
Abcam PLC, ADR(1) | 15,974 | 304,145 | ||||||
Ascendis Pharma A/S, ADR(1) | 3,160 | 415,698 | ||||||
BioMarin Pharmaceutical, Inc.(1) | 8,711 | 726,846 | ||||||
Emergent BioSolutions, Inc.(1) | 5,602 | 352,870 | ||||||
Neurocrine Biosciences, Inc.(1) | 8,430 | 820,407 | ||||||
Sarepta Therapeutics, Inc.(1) | 6,092 | 473,592 | ||||||
|
| |||||||
3,093,558 | ||||||||
Capital Markets – 4.9% |
| |||||||
Cboe Global Markets, Inc. | 8,153 | 970,615 | ||||||
LPL Financial Holdings, Inc. | 27,288 | 3,683,334 | ||||||
MSCI, Inc. | 2,023 | 1,078,421 | ||||||
The Charles Schwab Corp. | 9,353 | 680,992 | ||||||
|
| |||||||
6,413,362 | ||||||||
Commercial Services & Supplies – 2.6% |
| |||||||
Cimpress PLC(1) | 12,113 | 1,313,170 | ||||||
Ritchie Bros Auctioneers, Inc. | 35,090 | 2,080,135 | ||||||
|
| |||||||
3,393,305 | ||||||||
Containers & Packaging – 1.1% |
| |||||||
Sealed Air Corp. | 24,468 | 1,449,729 | ||||||
|
| |||||||
1,449,729 | ||||||||
Diversified Consumer Services – 1.6% |
| |||||||
Coursera, Inc.(1) | 3,407 | 134,781 | ||||||
frontdoor, Inc.(1) | 18,750 | 934,125 | ||||||
Terminix Global Holdings, Inc.(1) | 22,332 | 1,065,460 | ||||||
|
| |||||||
2,134,366 | ||||||||
Electric Utilities – 1.4% |
| |||||||
Alliant Energy Corp. | 31,384 | 1,749,972 | ||||||
|
| |||||||
1,749,972 | ||||||||
Electrical Equipment – 2.4% |
| |||||||
Sensata Technologies Holding PLC(1) | 54,125 | 3,137,626 | ||||||
|
| |||||||
3,137,626 | ||||||||
Electronic Equipment, Instruments & Components – 5.2% |
| |||||||
Flex Ltd.(1) | 103,152 | 1,843,326 | ||||||
National Instruments Corp. | 33,924 | 1,434,307 | ||||||
June 30, 2021 (unaudited) | Shares | Value | ||||||
Electronic Equipment, Instruments & Components (continued) |
| |||||||
TE Connectivity Ltd. | 25,939 | $ | 3,507,212 | |||||
|
| |||||||
6,784,845 | ||||||||
Entertainment – 0.9% |
| |||||||
Liberty Media Corp-Liberty Formula One, Class C(1) | 23,759 | 1,145,421 | ||||||
|
| |||||||
1,145,421 | ||||||||
Equity Real Estate Investment – 3.0% |
| |||||||
Crown Castle International Corp. REIT | 3,196 | 623,540 | ||||||
Lamar Advertising Co., Class A, REIT | 31,088 | 3,246,209 | ||||||
|
| |||||||
3,869,749 | ||||||||
Health Care Equipment & Supplies – 7.0% |
| |||||||
Boston Scientific Corp.(1) | 67,022 | 2,865,861 | ||||||
Dentsply Sirona, Inc. | 20,014 | 1,266,086 | ||||||
ICU Medical, Inc.(1) | 5,579 | 1,148,158 | ||||||
Teleflex, Inc. | 2,859 | 1,148,718 | ||||||
The Cooper Cos., Inc. | 6,824 | 2,704,146 | ||||||
|
| |||||||
9,132,969 | ||||||||
Health Care Technology – 0.1% |
| |||||||
Doximity, Inc., Class A(1) | 1,710 | 99,522 | ||||||
|
| |||||||
99,522 | ||||||||
Hotels, Restaurants & Leisure – 1.4% |
| |||||||
Aramark | 27,370 | 1,019,533 | ||||||
Entain PLC(1) | 31,590 | 763,371 | ||||||
|
| |||||||
1,782,904 | ||||||||
Insurance – 6.1% |
| |||||||
Aon PLC, Class A | 12,149 | 2,900,695 | ||||||
Intact Financial Corp. (Canada) | 18,761 | 2,548,839 | ||||||
Oscar Health, Inc., Class A(1) | 8,410 | 180,815 | ||||||
WR Berkley Corp. | 30,833 | 2,294,900 | ||||||
|
| |||||||
7,925,249 | ||||||||
Internet & Direct Marketing Retail – 1.3% |
| |||||||
Wayfair, Inc., Class A(1) | 5,270 | 1,663,792 | ||||||
|
| |||||||
1,663,792 | ||||||||
IT Services – 13.4% |
| |||||||
Amdocs Ltd. | 27,696 | 2,142,563 | ||||||
Broadridge Financial Solutions, Inc. | 19,618 | 3,168,895 | ||||||
Edenred (France) | 18,580 | 1,058,993 | ||||||
Fidelity National Information Services, Inc. | 14,189 | 2,010,156 | ||||||
Global Payments, Inc. | 10,473 | 1,964,106 | ||||||
GoDaddy, Inc., Class A(1) | 31,117 | 2,705,934 | ||||||
WEX, Inc.(1) | 15,080 | 2,924,012 | ||||||
Wix.com Ltd.(1) | 4,758 | 1,381,152 | ||||||
|
| |||||||
17,355,811 | ||||||||
Life Sciences Tools & Services – 4.4% |
| |||||||
ICON PLC(1) | 611 | 126,300 | ||||||
Illumina, Inc.(1) | 2,257 | 1,068,035 | ||||||
PerkinElmer, Inc. | 8,900 | 1,374,249 | ||||||
PRA Health Sciences, Inc.(1) | 10,131 | 1,673,743 | ||||||
The accompanying notes are an integral part of these financial statements. | 3 |
Table of Contents
SCHEDULE OF INVESTMENTS – GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Life Sciences Tools & Services (continued) |
| |||||||
Waters Corp.(1) | 4,281 | $ | 1,479,556 | |||||
|
| |||||||
5,721,883 | ||||||||
Machinery – 3.0% |
| |||||||
Ingersoll Rand, Inc.(1) | 31,153 | 1,520,578 | ||||||
Rexnord Corp. | 28,306 | 1,416,432 | ||||||
Westinghouse Air Brake Technologies Corp. | 10,743 | 884,149 | ||||||
|
| |||||||
3,821,159 | ||||||||
Pharmaceuticals – 2.4% |
| |||||||
Catalent, Inc.(1) | 17,894 | 1,934,699 | ||||||
Elanco Animal Health, Inc.(1) | 32,375 | 1,123,089 | ||||||
|
| |||||||
3,057,788 | ||||||||
Professional Services – 0.7% |
| |||||||
Verisk Analytics, Inc. | 5,249 | 917,105 | ||||||
|
| |||||||
917,105 | ||||||||
Real Estate Management & Development – 0.6% |
| |||||||
Redfin Corp.(1) | 12,027 | 762,632 | ||||||
|
| |||||||
762,632 | ||||||||
Road & Rail – 1.9% |
| |||||||
JB Hunt Transport Services, Inc. | 15,098 | 2,460,219 | ||||||
|
| |||||||
2,460,219 | ||||||||
Semiconductors & Semiconductor Equipment – 8.3% |
| |||||||
KLA Corp. | 11,639 | 3,773,480 | ||||||
Lam Research Corp. | 2,959 | 1,925,422 | ||||||
Microchip Technology, Inc. | 13,458 | 2,015,201 | ||||||
NXP Semiconductors N.V. | 4,928 | 1,013,788 | ||||||
ON Semiconductor Corp.(1) | 54,172 | 2,073,704 | ||||||
|
| |||||||
10,801,595 | ||||||||
Software – 11.4% |
| |||||||
Atlassian Corp. PLC, Class A(1) | 3,739 | 960,399 | ||||||
Ceridian HCM Holding, Inc.(1) | 19,431 | 1,863,821 | ||||||
Constellation Software, Inc. (Canada) | 1,909 | 2,891,236 | ||||||
Dolby Laboratories, Inc., Class A | 10,260 | 1,008,455 | ||||||
Dynatrace, Inc.(1) | 15,723 | 918,538 | ||||||
J2 Global, Inc.(1) | 4,842 | 666,017 | ||||||
Nice Ltd., ADR(1) | 11,621 | 2,875,733 | ||||||
SS&C Technologies Holdings, Inc. | 46,415 | 3,344,665 | ||||||
Topicus.com, Inc. (Canada)(1) | 3,550 | 257,888 | ||||||
|
| |||||||
14,786,752 | ||||||||
Specialty Retail – 3.2% |
| |||||||
Burlington Stores, Inc.(1) | 3,194 | 1,028,436 | ||||||
CarMax, Inc.(1) | 18,691 | 2,413,943 | ||||||
Vroom, Inc.(1) | 17,348 | 726,187 | ||||||
|
| |||||||
4,168,566 | ||||||||
Textiles, Apparel & Luxury Goods – 1.6% |
| |||||||
Gildan Activewear, Inc. | 55,268 | 2,040,495 | ||||||
|
| |||||||
2,040,495 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Trading Companies & Distributors – 1.2% |
| |||||||
Ferguson PLC (United Kingdom) | 10,981 | $ | 1,528,543 | |||||
|
| |||||||
1,528,543 | ||||||||
Total Common Stocks (Cost $87,122,671) |
| 128,387,656 | ||||||
Principal Amount | Value | |||||||
Short–Term Investment – 1.3% |
| |||||||
Repurchase Agreements – 1.3% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $1,637,831, due 7/1/2021(2) | $ | 1,637,831 | 1,637,831 | |||||
Total Repurchase Agreements (Cost $1,637,831) |
| 1,637,831 | ||||||
Total Investments – 100.3% (Cost $88,760,502) |
| 130,025,487 | ||||||
Liabilities in excess of other assets – (0.3)% |
| (326,607 | ) | |||||
Total Net Assets – 100.0% |
| $ | 129,698,880 |
(1) | Non–income–producing security. |
(2) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.375% | 7/15/2025 | $ | 1,350,800 | $ | 1,670,633 |
Legend:
ADR — American Depositary Receipt
REIT — Real Estate Investment Trust
TIPS — Treasury Inflation–Protected Securities
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 125,036,749 | $ | 3,350,907 | * | $ | — | $ | 128,387,656 | |||||||
Repurchase Agreements | — | 1,637,831 | — | 1,637,831 | ||||||||||||
Total | $ | 125,036,749 | $ | 4,988,738 | $ | — | $ | 130,025,487 |
* | 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. |
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 674,488 | ||
Withholding taxes on foreign dividends | (11,391 | ) | ||
|
| |||
Total Investment Income | 663,097 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 511,383 | |||
Distribution fees | 162,196 | |||
Professional fees | 26,604 | |||
Custodian and accounting fees | 22,034 | |||
Trustees’ and officers’ fees | 19,310 | |||
Administrative fees | 7,628 | |||
Shareholder reports | 7,041 | |||
Transfer agent fees | 5,921 | |||
Other expenses | 5,347 | |||
|
| |||
Total Expenses | 767,464 | |||
Less: Fees waived | (53,800 | ) | ||
|
| |||
Total Expenses, Net | 713,664 | |||
|
| |||
Net Investment Income/(Loss) | (50,567 | ) | ||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 8,410,168 | |||
Net realized gain/(loss) from foreign currency transactions | 403 | |||
Net change in unrealized appreciation/(depreciation) on investments | 3,745,847 | |||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (84 | ) | ||
|
| |||
Net Gain on Investments and Foreign | 12,156,334 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 12,105,767 | ||
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
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) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 19.91 | $ | (0.01 | ) | $ | 1.94 | $ | 1.93 | $ | 21.84 | 9.69% | (4) | |||||||||||
Year Ended 12/31/20 | 16.71 | (0.04 | ) | 3.24 | 3.20 | 19.91 | 19.15% | |||||||||||||||||
Year Ended 12/31/19 | 12.27 | (0.01 | ) | 4.45 | 4.44 | 16.71 | 36.19% | |||||||||||||||||
Year Ended 12/31/18 | 12.72 | (0.01 | ) | (0.44 | ) | (0.45 | ) | 12.27 | (3.54)% | |||||||||||||||
Year Ended 12/31/17 | 9.99 | (0.02 | ) | 2.75 | 2.73 | 12.72 | 27.33% | |||||||||||||||||
Period Ended 12/31/16(5) | 10.00 | 0.00 | (6) | (0.01 | ) | (0.01 | ) | 9.99 | (0.10)%(4) |
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MID CAP TRADITIONAL 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 Income to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 129,699 | 1.10% | (4) | 1.18% | (4) | (0.08)% | (4) | (0.16)% | (4) | 7% | (4) | |||||||||||
130,558 | 1.10% | 1.23% | (0.25)% | (0.38)% | 19% | |||||||||||||||||
125,058 | 1.10% | 1.26% | (0.07)% | (0.23)% | 10% | |||||||||||||||||
110,065 | 1.10% | 1.31% | (0.07)% | (0.28)% | 30% | |||||||||||||||||
12,681 | 1.09% | 2.15% | (0.20)% | (1.26)% | 35% | |||||||||||||||||
13,272 | 1.09% | (4) | 2.93% | (4) | 0.14% | (4) | (1.70)% | (4) | 5% | (4) |
(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) | 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. |
(5) | Commenced operations on September 1, 2016. |
(6) | Rounds to $0.00 per share. |
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian Mid Cap Traditional 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.
10 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP TRADITIONAL 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
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.
11 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
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 0.80% up to $100 million, 0.75% up to $300 million, and 0.73% 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, 2022 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 1.10% 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). 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 six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $53,800.
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 are not subject to Park Avenue’s recoupment rights. The entitlement to recoupment by Park Avenue from the Fund under the Expense Limitation Agreement expired on April 9, 2021.
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
Park Avenue has entered into a Sub-Advisory Agreement with Janus Capital Management LLC (“Janus Capital”). Janus Capital is responsible for providing day-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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $162,196 to PAS.
PAS has directed that certain payments under the 12b-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 $8,639,303 and $21,118,179, respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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 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
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of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the higher of the daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment,
in current market conditions without significantly changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund,
(iii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not
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Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
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Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted
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that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board |
also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
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Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark |
index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
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Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/
Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8177
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Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Large Cap Disciplined Growth VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian Large Cap Disciplined Growth VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 22 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. 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 Characteristics (unaudited)
Total Net Assets: $669,622,309 |
Sector Allocation1 As of June 30, 2021 |
Top Ten Holdings2 As of June 30, 2021 | ||||
Holding | % of Total Net Assets | |||
Microsoft Corp. | 8.16% | |||
Apple, Inc. | 8.12% | |||
Amazon.com, Inc. | 6.96% | |||
Alphabet, Inc., Class A | 4.85% | |||
Facebook, Inc., Class A | 4.80% | |||
Adobe, Inc. | 2.48% | |||
PayPal Holdings, Inc. | 2.39% | |||
Mastercard, Inc., Class A | 2.27% | |||
Netflix, Inc. | 1.93% | |||
salesforce.com, Inc. | 1.86% | |||
Total | 43.82% |
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. |
1 |
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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $1,000.00 | $1,114.10 | $4.56 | 0.87% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.48 | $4.36 | 0.87% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.7% |
| |||||||
Aerospace & Defense – 0.9% |
| |||||||
Raytheon Technologies Corp. | 69,486 | $ | 5,927,851 | |||||
|
| |||||||
5,927,851 | ||||||||
Air Freight & Logistics – 1.0% |
| |||||||
FedEx Corp. | 23,328 | 6,959,442 | ||||||
|
| |||||||
6,959,442 | ||||||||
Automobiles – 1.0% |
| |||||||
Tesla, Inc.(1) | 10,274 | 6,983,238 | ||||||
|
| |||||||
6,983,238 | ||||||||
Beverages – 2.0% |
| |||||||
Constellation Brands, Inc., Class A | 28,034 | 6,556,872 | ||||||
Monster Beverage Corp.(1) | 74,134 | 6,772,141 | ||||||
|
| |||||||
13,329,013 | ||||||||
Biotechnology – 3.0% |
| |||||||
Exact Sciences Corp.(1) | 25,064 | 3,115,706 | ||||||
Horizon Therapeutics PLC(1) | 21,521 | 2,015,226 | ||||||
Regeneron Pharmaceuticals, Inc.(1) | 10,095 | 5,638,461 | ||||||
Seagen, Inc.(1) | 26,015 | 4,107,248 | ||||||
Vertex Pharmaceuticals, Inc.(1) | 26,512 | 5,345,615 | ||||||
|
| |||||||
20,222,256 | ||||||||
Building Products – 0.9% |
| |||||||
Fortune Brands Home & Security, Inc. | 61,180 | 6,094,140 | ||||||
|
| |||||||
6,094,140 | ||||||||
Capital Markets – 0.6% |
| |||||||
S&P Global, Inc. | 9,347 | 3,836,476 | ||||||
|
| |||||||
3,836,476 | ||||||||
Chemicals – 0.9% |
| |||||||
PPG Industries, Inc. | 33,905 | 5,756,052 | ||||||
|
| |||||||
5,756,052 | ||||||||
Commercial Services & Supplies – 0.6% |
| |||||||
Copart, Inc.(1) | 32,478 | 4,281,575 | ||||||
|
| |||||||
4,281,575 | ||||||||
Consumer Finance – 1.6% |
| |||||||
American Express Co. | 66,298 | 10,954,418 | ||||||
|
| |||||||
10,954,418 | ||||||||
Electronic Equipment, Instruments & Components – 0.3% |
| |||||||
Cognex Corp. | 19,600 | 1,647,380 | ||||||
|
| |||||||
1,647,380 | ||||||||
Entertainment – 2.9% |
| |||||||
Netflix, Inc.(1) | 24,494 | 12,937,976 | ||||||
The Walt Disney Co.(1) | 38,483 | 6,764,157 | ||||||
|
| |||||||
19,702,133 | ||||||||
Equity Real Estate Investment – 1.0% |
| |||||||
American Tower Corp. REIT | 23,408 | 6,323,437 | ||||||
|
| |||||||
6,323,437 | ||||||||
Health Care Equipment & Supplies – 3.1% |
| |||||||
Align Technology, Inc.(1) | 8,678 | 5,302,258 | ||||||
Baxter International, Inc. | 61,221 | 4,928,290 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Health Care Equipment & Supplies (continued) |
| |||||||
Edwards Lifesciences Corp.(1) | 53,236 | $ | 5,513,653 | |||||
Teleflex, Inc. | 12,947 | 5,201,975 | ||||||
|
| |||||||
20,946,176 | ||||||||
Health Care Providers & Services – 1.8% |
| |||||||
agilon health, Inc.(1) | 21,300 | 864,141 | ||||||
UnitedHealth Group, Inc. | 27,969 | 11,199,906 | ||||||
|
| |||||||
12,064,047 | ||||||||
Hotels, Restaurants & Leisure – 4.0% |
| |||||||
Airbnb, Inc., Class A(1) | 36,147 | 5,535,552 | ||||||
Booking Holdings, Inc.(1) | 3,876 | 8,481,037 | ||||||
Chipotle Mexican Grill, Inc.(1) | 5,872 | 9,103,596 | ||||||
Penn National Gaming, Inc.(1) | 51,708 | 3,955,145 | ||||||
|
| |||||||
27,075,330 | ||||||||
Household Products – 1.1% |
| |||||||
The Procter & Gamble Co. | 56,549 | 7,630,157 | ||||||
|
| |||||||
7,630,157 | ||||||||
Interactive Media & Services – 9.6% |
| |||||||
Alphabet, Inc., Class A(1) | 13,286 | 32,441,622 | ||||||
Facebook, Inc., Class A(1) | 92,368 | 32,117,277 | ||||||
|
| |||||||
64,558,899 | ||||||||
Internet & Direct Marketing Retail – 7.0% |
| |||||||
Amazon.com, Inc.(1) | 13,546 | 46,600,407 | ||||||
|
| |||||||
46,600,407 | ||||||||
IT Services – 9.7% |
| |||||||
EPAM Systems, Inc.(1) | 14,713 | 7,517,754 | ||||||
FleetCor Technologies, Inc.(1) | 30,013 | 7,685,129 | ||||||
Global Payments, Inc. | 35,461 | 6,650,356 | ||||||
GoDaddy, Inc., Class A(1) | 78,453 | 6,822,273 | ||||||
Mastercard, Inc., Class A | 41,705 | 15,226,078 | ||||||
PayPal Holdings, Inc.(1) | 55,012 | 16,034,898 | ||||||
Square, Inc., Class A(1) | 20,519 | 5,002,532 | ||||||
|
| |||||||
64,939,020 | ||||||||
Life Sciences Tools & Services – 1.3% |
| |||||||
Thermo Fisher Scientific, Inc. | 17,542 | 8,849,413 | ||||||
|
| |||||||
8,849,413 | ||||||||
Machinery – 1.9% |
| |||||||
Deere & Co. | 19,520 | 6,884,899 | ||||||
Nordson Corp. | 26,942 | 5,914,039 | ||||||
|
| |||||||
12,798,938 | ||||||||
Pharmaceuticals – 1.8% |
| |||||||
Eli Lilly and Co. | 51,192 | 11,749,588 | ||||||
|
| |||||||
11,749,588 | ||||||||
Professional Services – 1.7% |
| |||||||
Equifax, Inc. | 23,331 | 5,588,008 | ||||||
Leidos Holdings, Inc. | 53,643 | 5,423,307 | ||||||
|
| |||||||
11,011,315 | ||||||||
Semiconductors & Semiconductor Equipment – 8.6% |
| |||||||
Advanced Micro Devices, Inc.(1) | 88,967 | 8,356,670 | ||||||
Entegris, Inc. | 48,389 | 5,950,395 |
The accompanying notes are an integral part of these financial statements. | 3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Semiconductors & Semiconductor Equipment (continued) |
| |||||||
KLA Corp. | 21,197 | $ | 6,872,279 | |||||
Marvell Technology, Inc. | 97,475 | 5,685,717 | ||||||
Micron Technology, Inc.(1) | 52,998 | 4,503,770 | ||||||
NVIDIA Corp. | 8,376 | 6,701,638 | ||||||
Skyworks Solutions, Inc. | 28,152 | 5,398,146 | ||||||
Teradyne, Inc. | 37,751 | 5,057,124 | ||||||
Texas Instruments, Inc. | 45,583 | 8,765,611 | ||||||
|
| |||||||
57,291,350 | ||||||||
Software – 17.0% |
| |||||||
Adobe, Inc.(1) | 28,409 | 16,637,447 | ||||||
DocuSign, Inc.(1) | 13,794 | 3,856,388 | ||||||
Five9, Inc.(1) | 26,548 | 4,868,638 | ||||||
Microsoft Corp. | 201,704 | 54,641,613 | ||||||
RingCentral, Inc., Class A(1) | 18,539 | 5,387,063 | ||||||
salesforce.com, Inc.(1) | 50,971 | 12,450,686 | ||||||
ServiceNow, Inc.(1) | 14,125 | 7,762,394 | ||||||
Workday, Inc., Class A(1) | 34,928 | 8,338,711 | ||||||
|
| |||||||
113,942,940 | ||||||||
Specialty Retail – 1.7% |
| |||||||
The TJX Cos., Inc. | 169,243 | 11,410,363 | ||||||
|
| |||||||
11,410,363 | ||||||||
Technology Hardware, Storage & Peripherals – 9.1% |
| |||||||
Apple, Inc. | 396,954 | 54,366,820 | ||||||
NetApp, Inc. | 76,099 | 6,226,420 | ||||||
|
| |||||||
60,593,240 | ||||||||
Textiles, Apparel & Luxury Goods – 3.6% |
| |||||||
Lululemon Athletica, Inc.(1) | 23,063 | 8,417,303 | ||||||
NIKE, Inc., Class B | 72,369 | 11,180,287 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Textiles, Apparel & Luxury Goods (continued) |
| |||||||
VF Corp. | 52,853 | $ | 4,336,060 | |||||
|
| |||||||
23,933,650 | ||||||||
Total Common Stocks (Cost $432,320,056) |
| 667,412,244 | ||||||
Principal Amount | Value | |||||||
Short–Term Investment – 0.4% |
| |||||||
Repurchase Agreements – 0.4% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $2,789,659, due 7/1/2021(2) | $ | 2,789,659 | 2,789,659 | |||||
Total Repurchase Agreements (Cost $2,789,659) |
| 2,789,659 | ||||||
Total Investments – 100.1% (Cost $435,109,715) |
| 670,201,903 | ||||||
Liabilities in excess of other assets – (0.1)% |
| (579,594 | ) | |||||
Total Net Assets – 100.0% |
| $ | 669,622,309 |
(1) | Non–income–producing security. |
(2) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.375% | 7/15/2025 | $ | 2,300,800 | $ | 2,845,567 |
Legend:
REIT — Real Estate Investment Trust
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 667,412,244 | $ | — | $ | — | $ | 667,412,244 | ||||||||
Repurchase Agreements | — | 2,789,659 | — | 2,789,659 | ||||||||||||
Total | $ | 667,412,244 | $ | 2,789,659 | $ | — | $ | 670,201,903 |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,808,208 | ||
|
| |||
Total Investment Income | 1,808,208 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 1,717,617 | |||
Distribution fees | 784,425 | |||
Trustees’ and officers’ fees | 92,595 | |||
Professional fees | 64,674 | |||
Administrative fees | 53,032 | |||
Custodian and accounting fees | 21,301 | |||
Shareholder reports | 19,248 | |||
Transfer agent fees | 6,343 | |||
Other expenses | 24,020 | |||
|
| |||
Total Expenses | 2,783,255 | |||
Less: Fees waived | (53,457 | ) | ||
|
| |||
Total Expenses, Net | 2,729,798 | |||
|
| |||
Net Investment Income/(Loss) | (921,590 | ) | ||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | 33,813,645 | |||
Net change in unrealized appreciation/(depreciation) on investments | 36,160,282 | |||
|
| |||
Net Gain on Investments | 69,973,927 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 69,052,337 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
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FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
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This Page Intentionally Left Blank
7 |
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 six reporting periods (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.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
| Net Investment | Net Realized | Total | Net Asset | Total | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 23.83 | $ | (0.04 | ) | $ | 2.76 | $ | 2.72 | $ | 26.55 | 11.41% | (4) | |||||||||||
Year Ended 12/31/20 | 17.47 | (0.02 | ) | 6.38 | 6.36 | 23.83 | 36.41% | |||||||||||||||||
Year Ended 12/31/19 | 12.52 | (0.00 | )(5) | 4.95 | 4.95 | 17.47 | 39.54% | |||||||||||||||||
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(6) | 10.00 | 0.01 | (0.16 | ) | (0.15 | ) | 9.85 | (1.50)% | (4) |
8 | 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 | 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 | |||||||||||||||||
$ | 669,622 | 0.87% | (4) | 0.89% | (4) | (0.29)% | (4) | (0.31)% | (4) | 19% | (4) | |||||||||||
621,402 | 0.87% | 0.89% | (0.12)% | (0.14)% | 24% | |||||||||||||||||
625,755 | 0.87% | 0.96% | (0.01)% | (0.10)% | 116% | |||||||||||||||||
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% | (4) | 3.16% | (4) | 0.39% | (4) | (1.77)% | (4) | 42% | (4) |
(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, expense limitations, and recoupments, if any. |
(4) | 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. |
(5) | Rounds to $(0.00) per share. |
(6) | Commenced operations on September 1, 2016. |
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four 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.
10 |
Table of Contents
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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
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.
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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 0.62% 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, 2022 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). 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 six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $53,457.
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 are not subject to Park Avenue’s recoupment rights. The entitlement to recoupment by Park Avenue from the Fund under the Expense Limitation Agreement expired on April 9, 2021.
Park Avenue has entered into a Sub-Advisory Agreement with Wellington Management Company LLP
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(“Wellington”). Wellington is responsible for providing day-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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $784,425 to PAS.
PAS has directed that certain payments under the 12b-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 $119,023,585 and $142,531,727,
respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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 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
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calculated based on the higher of the daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting
supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund, (iii) Putnam Investment Management, LLC with respect
to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and 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 any Sub-adviser.
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In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided
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to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included breakpoints that are tiered based on growth in asset
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levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
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Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the |
20 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that |
the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
21 |
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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
22 |
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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8173
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Core Plus Fixed Income VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian Core Plus Fixed Income VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 16 | |||
Statement of Operations | 16 | |||
Statements of Changes in Net Assets | 17 | |||
Financial Highlights | 18 | |||
Notes to Financial Statements | 20 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 27 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 28 | |||
Portfolio Holdings and Proxy Voting Procedures | 34 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN CORE PLUS FIXED INCOME VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $368,823,840
Bond Sector Allocation1 As of June 30, 2021 | ||
Bond Quality Allocation2 As of June 30, 2021 | ||
1 |
Table of Contents
GUARDIAN CORE PLUS FIXED INCOME VIP FUND
Top Ten Holdings1 As of June 30, 2021 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Bill | 0.038% | 7/29/2021 | 7.91% | |||||||||
U.S. Treasury Note | 0.375% | 4/15/2024 | 5.59% | |||||||||
U.S. Treasury Note | 1.625% | 5/15/2031 | 3.58% | |||||||||
U.S. Treasury Note | 0.750% | 3/31/2026 | 3.38% | |||||||||
U.S. Treasury Bond | 1.625% | 11/15/2050 | 2.52% | |||||||||
U.S. Treasury Bond | 1.125% | 5/15/2040 | 2.09% | |||||||||
U.S. Treasury Bill | 0.044% | 11/18/2021 | 2.03% | |||||||||
Government National Mortgage Association | 2.500% | 7/1/2051 | 1.92% | |||||||||
Uniform Mortgage-Backed Security | 3.000% | 7/1/2051 | 1.65% | |||||||||
U.S. Treasury Note | 0.125% | 3/31/2023 | 1.53% | |||||||||
Total | 32.20% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. Cash includes short-term investments and net other assets and liabilities. |
2 | The Bond Quality Allocation chart displays the percentage of fund assets allocated to each rating. Rating agencies’ independent ratings of individual securities are aggregated by Barclays, and market weights are reported using Standard & Poor’s letter rating conventions. Rating methodology uses the middle rating of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services, and Fitch Ratings. When a rating from only two of the rating agencies is available, the lower rating is used. Credit quality ratings assigned by a rating agency are subject to change periodically and are not absolute standards of credit quality. Rating agencies may fail to make timely changes in credit ratings, and an issuer’s current financial condition may be better or worse than a rating indicates. In formulating investment decisions for the Fund, Lord, Abbett & Co. LLC develops its own analysis of the credit quality and risks associated with individual debt instruments, rather than relying exclusively on rating agency ratings. |
2 |
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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||||
Based on Actual Return | $ | 1,000.00 | $ | 997.40 | $ | 4.01 | 0.81% | |||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,020.78 | $ | 4.06 | 0.81% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 6.9% |
| |||||||
Federal National Mortgage Association | $ | 2,619,680 | $ | 2,802,799 | ||||
3.50% due 3/1/2050 | 1,614,475 | 1,727,445 | �� | |||||
Government National Mortgage Association | 6,850,000 | 7,085,229 | ||||||
Uniform Mortgage-Backed Security | 4,892,000 | 5,058,817 | ||||||
3.00% due 7/1/2051(1) | 5,850,000 | 6,098,274 | ||||||
3.50% due 7/1/2051(1) | 2,500,000 | 2,631,250 | ||||||
Total Agency Mortgage–Backed Securities (Cost $25,227,157) |
| 25,403,814 | ||||||
Asset–Backed Securities – 20.7% |
| |||||||
ACC Trust | 278,170 | 280,579 | ||||||
Apidos CLO XXXV | 400,000 | 400,362 | ||||||
Arbor Realty CLO Ltd. | 700,000 | 701,520 | ||||||
2021-FL2 E | 170,000 | 170,422 | ||||||
Avid Automobile Receivables Trust | 94,040 | 94,514 | ||||||
2019-1 B | 500,000 | 508,554 | ||||||
Avis Budget Rental Car Funding AESOP LLC | 1,545,000 | 1,614,991 | ||||||
2020-2A A | 1,750,000 | 1,802,929 | ||||||
Barings CLO Ltd. | 250,000 | 246,125 | ||||||
2019-3A BR | 540,000 | 539,729 | ||||||
BlueMountain CLO Ltd. | 350,589 | 350,098 | ||||||
2016-1A BR | 822,000 | 818,630 | ||||||
Carlyle U.S. CLO Ltd. | 1,400,000 | 1,399,629 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
CarMax Auto Owner Trust | $ | 131,194 | $ | 131,435 | ||||
2021-1 A2A | 2,500,000 | 2,500,292 | ||||||
CBAM Ltd. | 530,000 | 522,898 | ||||||
Cedar Funding XIV CLO Ltd. | 1,000,000 | 999,494 | ||||||
CIFC Funding Ltd. | 630,000 | 625,401 | ||||||
2021-1A A1 | 1,330,000 | 1,329,664 | ||||||
2021-4A A | 1,000,000 | 999,750 | ||||||
2021-4A B | 1,250,000 | 1,249,375 | ||||||
CPS Auto Receivables Trust | 750,000 | 765,592 | ||||||
2020-C C | 410,000 | 414,677 | ||||||
Drive Auto Receivables Trust 2017-1 D | 374,441 | 376,166 | ||||||
2020-2 C | 1,975,000 | 2,018,530 | ||||||
Dryden 58 CLO Ltd. | 1,400,000 | 1,394,120 | ||||||
Dryden 61 CLO Ltd. | 900,000 | 899,774 | ||||||
Dryden Senior Loan Fund | 1,010,000 | 1,009,493 | ||||||
2017-47A CR | 950,000 | 949,522 | ||||||
Exeter Automobile Receivables Trust | 50,979 | 51,021 | ||||||
First Investors Auto Owner Trust | 600,000 | 602,628 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Flagship Credit Auto Trust | $ | 269,451 | $ | 270,767 | ||||
2020-2 A | 91,770 | 92,300 | ||||||
2021-1 A | 818,444 | 818,352 | ||||||
2021-2 C | 1,875,000 | 1,872,622 | ||||||
Ford Credit Auto Lease Trust | 2,519,303 | 2,519,136 | ||||||
Ford Credit Auto Owner Trust 2020-A A2 | 30,613 | 30,637 | ||||||
2020-B A2 | 546,467 | 546,724 | ||||||
Foursight Capital Automobile Receivables Trust | 6,191 | 6,198 | ||||||
Halcyon Loan Advisors Funding Ltd. | 250,000 | 250,312 | ||||||
Hardee’s Funding LLC | 362,355 | 417,068 | ||||||
2018-1A A2II | 746,880 | 805,320 | ||||||
Hertz Vehicle Financing III LP | 1,485,000 | 1,488,501 | ||||||
HGI CRE CLO Ltd. | 550,000 | 550,709 | ||||||
2021-FL1 D | 500,000 | 500,970 | ||||||
Honda Auto Receivables Owner Trust | 182,515 | 182,702 | ||||||
Kayne CLO 10 Ltd. | 1,190,000 | 1,189,682 | ||||||
Kayne CLO 5 Ltd. | 700,000 | 700,730 | ||||||
KKR CLO 18 Ltd. | 526,000 | 530,638 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Lending Funding Trust | $ | 936,000 | $ | 960,228 | ||||
Lendmark Funding Trust | 750,000 | 756,316 | ||||||
Logan CLO I Ltd. | 530,000 | 530,181 | ||||||
Longtrain Leasing III LLC | 454,808 | 477,046 | ||||||
Marble Point CLO XVII Ltd. | 613,030 | 613,726 | ||||||
Master Credit Card Trust II | 100,000 | 100,585 | ||||||
ME Funding LLC | 1,105,170 | 1,167,161 | ||||||
Mercedes-Benz Auto Lease Trust | 2,512,431 | 2,512,465 | ||||||
Mountain View CLO LLC | 561,712 | 561,038 | ||||||
Navient Private Education Refi Loan Trust | 295,461 | 310,881 | ||||||
Neuberger Berman Loan Advisers CLO 35 Ltd. | 1,000,000 | 1,001,471 | ||||||
Newark BSL CLO 1 Ltd. | 360,000 | 354,960 | ||||||
NextGear Floorplan Master Owner Trust | 950,000 | 956,750 | ||||||
2020-1A A1 | 2,450,000 | 2,474,058 | ||||||
OCP CLO Ltd. | 790,000 | 789,802 | ||||||
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Octagon Investment Partners 29 Ltd. | $ | 555,371 | $ | 558,859 | ||||
Octagon Investment Partners 48 Ltd. | 650,000 | 650,826 | ||||||
Octagon Investment Partners XV Ltd. | 850,000 | 848,980 | ||||||
OneMain Financial Issuance Trust | 956,000 | 1,033,780 | ||||||
Palmer Square CLO Ltd. | 940,000 | 939,760 | ||||||
Pennsylvania Higher Education Assistance Agency | 26,053 | 25,366 | ||||||
Planet Fitness Master Issuer LLC | 262,010 | 263,902 | ||||||
Race Point IX CLO Ltd. | 250,000 | 240,075 | ||||||
Santander Drive Auto Receivables Trust | 30,902 | 31,291 | ||||||
2020-2 D | 816,000 | 834,667 | ||||||
2021-1 A2 | 1,914,047 | 1,914,746 | ||||||
2021-1 C | 1,850,000 | 1,854,279 | ||||||
SCF Equipment Leasing LLC | 87,545 | 87,673 | ||||||
2019-1A C | 1,298,000 | 1,300,085 | ||||||
2019-2A B | 797,000 | 827,348 | ||||||
2021-1A C | 1,000,000 | 980,113 | ||||||
2021-1A D | 750,000 | 734,056 | ||||||
Shackleton CLO Ltd. | 1,042,000 | 1,041,479 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
SLC Student Loan Trust | $ | 123,401 | $ | 126,031 | ||||
Sound Point CLO XI Ltd. | 273,261 | 273,432 | ||||||
TCW CLO Ltd. | 300,000 | 295,170 | ||||||
Towd Point Asset Trust | 288,889 | 287,453 | ||||||
Toyota Auto Receivables Owner Trust | 3,448,000 | 3,447,841 | ||||||
Westgate Resorts LLC | 104,765 | 104,765 | ||||||
Westlake Automobile Receivables Trust | 1,011,832 | 1,014,688 | ||||||
2020-3A E | 750,000 | 769,920 | ||||||
Wind River CLO Ltd. | 860,000 | 859,785 | ||||||
World Financial Network Credit Card Master Trust | 489,000 | 492,239 | ||||||
World Omni Auto Receivables Trust | 2,469,000 | 2,467,809 | ||||||
Total Asset–Backed Securities (Cost $76,193,236) |
| 76,414,368 | ||||||
Corporate Bonds & Notes – 33.7% |
| |||||||
Aerospace & Defense – 0.9% |
| |||||||
The Boeing Co. 4.875% due 5/1/2025 | 1,480,000 | 1,658,784 | ||||||
5.04% due 5/1/2027 | 1,049,000 | 1,211,008 | ||||||
TransDigm, Inc. | 334,000 | 345,763 | ||||||
|
| |||||||
3,215,555 | ||||||||
Agriculture – 0.5% |
| |||||||
BAT Capital Corp. 4.70% due 4/2/2027 | 265,000 | 299,394 | ||||||
4.906% due 4/2/2030 | 1,033,000 | 1,187,186 | ||||||
MHP Lux S.A. | 475,000 | 473,912 | ||||||
|
| |||||||
1,960,492 |
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Airlines – 0.7% |
| |||||||
American Airlines, Inc. | $ | 469,000 | $ | 588,506 | ||||
British Airways Pass-Through Trust | 348,497 | 373,735 | ||||||
Delta Air Lines, Inc. | 717,000 | 836,638 | ||||||
Delta Air Lines, Inc. / SkyMiles IP Ltd. | 296,000 | 318,668 | ||||||
4.75% due 10/20/2028(2) | 300,000 | 333,861 | ||||||
Spirit Loyalty Cayman Ltd. / Spirit IP Cayman Ltd. | 286,200 | 324,362 | ||||||
|
| |||||||
2,775,770 | ||||||||
Apparel – 0.2% |
| |||||||
Levi Strauss & Co. | 715,000 | 712,612 | ||||||
|
| |||||||
712,612 | ||||||||
Auto Manufacturers – 1.1% |
| |||||||
Ford Motor Co. | 1,005,000 | 1,323,525 | ||||||
General Motors Financial Co., Inc. | 2,128,000 | 2,306,667 | ||||||
Tesla, Inc. | 351,000 | 362,614 | ||||||
|
| |||||||
3,992,806 | ||||||||
Auto Parts & Equipment – 0.1% |
| |||||||
American Axle & Manufacturing, Inc. | 349,000 | 369,678 | ||||||
Clarios Global LP / Clarios U.S. Finance Co. | 192,000 | 209,294 | ||||||
|
| |||||||
578,972 | ||||||||
Biotechnology – 0.2% |
| |||||||
Regeneron Pharmaceuticals, Inc. | 642,000 | 608,995 | ||||||
|
| |||||||
608,995 | ||||||||
Building Materials – 0.3% |
| |||||||
Cemex S.A.B. de C.V. | 530,000 | 583,085 | ||||||
Griffon Corp. | 469,000 | 497,928 | ||||||
|
| |||||||
1,081,013 | ||||||||
Chemicals – 0.4% |
| |||||||
Braskem Netherlands Finance B.V. | 536,000 | 560,292 | ||||||
CF Industries, Inc. | 277,000 | 326,827 | ||||||
Phosagro OAO Via Phosagro Bond Funding DAC | 300,000 | 312,357 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Chemicals (continued) |
| |||||||
Tronox, Inc. | $ | 270,000 | $ | 273,021 | ||||
|
| |||||||
1,472,497 | ||||||||
Coal – 0.1% |
| |||||||
Warrior Met Coal, Inc. | 336,000 | 341,087 | ||||||
|
| |||||||
341,087 | ||||||||
Commercial Banks – 4.8% |
| |||||||
Akbank T.A.S. | 215,000 | 220,459 | ||||||
Bank of America Corp. | 821,000 | 827,708 | ||||||
2.687% (2.687% fixed rate until 4/22/2031; SOFR + 1.32% thereafter) due 4/22/2032(3) | 642,000 | 661,311 | ||||||
3.593% (3.593% fixed rate until 7/21/2027; LIBOR 3 Month + 1.37% thereafter) due 7/21/2028(3) | 1,125,000 | 1,237,477 | ||||||
BankUnited, Inc. | 613,000 | 714,360 | ||||||
Citigroup, Inc. | 437,000 | 445,198 | ||||||
3.887% (3.887% fixed rate until 1/10/2027; LIBOR 3 Month + 1.56% thereafter) due 1/10/2028(3) | 712,000 | 792,257 | ||||||
3.98% (3.980% fixed rate until 3/20/2029; LIBOR 3 Month + 1.34% thereafter) due 3/20/2030(3) | 503,000 | 570,809 | ||||||
JPMorgan Chase & Co. | 1,002,000 | 1,100,316 | ||||||
3.782% (3.782% fixed rate until 2/1/2027; LIBOR 3 Month + 1.34% thereafter) due 2/1/2028(3) | 604,000 | 670,301 | ||||||
Macquarie Bank Ltd. | 203,000 | 214,636 | ||||||
Macquarie Group Ltd. | 968,000 | 970,139 | ||||||
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Commercial Banks (continued) |
| |||||||
4.654% (4.654% fixed rate until 3/27/2028; LIBOR 3 Month + 1.73% thereafter) due 3/27/2029(2)(3) | $ | 963,000 | $ | 1,110,223 | ||||
Morgan Stanley | 502,000 | 557,125 | ||||||
4.431% (4.431% fixed rate until 1/23/2029; LIBOR 3 Month + 1.63% thereafter) due 1/23/2030(3) | 847,000 | 993,251 | ||||||
National Australia Bank Ltd. | 550,000 | 558,459 | ||||||
UBS AG | 872,000 | 960,796 | ||||||
Wells Fargo & Co. 2.393% (2.393% fixed rate until 6/2/2027; SOFR + 2.10% thereafter) due 6/2/2028(3) | 2,093,000 | 2,170,274 | ||||||
3.584% (3.584% fixed rate until 5/22/2027; LIBOR 3 Month + 1.31% thereafter) due 5/22/2028(3) | 976,000 | 1,074,566 | ||||||
Westpac Banking Corp. | 555,000 | 575,735 | ||||||
4.322% (4.322% fixed rate until 11/23/2026; 5 Year USD ICE Swap + | 1,300,000 | 1,445,392 | ||||||
|
| |||||||
17,870,792 | ||||||||
Commercial Services – 0.5% |
| |||||||
Adani Ports & Special Economic Zone Ltd. | 200,000 | 207,354 | ||||||
CoStar Group, Inc. | 194,000 | 197,228 | ||||||
Garda World Security Corp. | 304,000 | 337,008 | ||||||
Rent-A-Center, Inc. | 703,000 | 753,616 | ||||||
United Rentals North America, Inc. | 160,000 | 164,661 | ||||||
4.875% due 1/15/2028 | 322,000 | 341,732 | ||||||
|
| |||||||
2,001,599 | ||||||||
Computers – 0.3% |
| |||||||
Dell International LLC / EMC Corp. | 141,000 | 152,950 | ||||||
8.35% due 7/15/2046 | 623,000 | 1,019,259 | ||||||
|
| |||||||
1,172,209 |
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Diversified Financial Services – 3.0% |
| |||||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust | $ | 872,000 | $ | 924,085 | ||||
3.875% due 1/23/2028 | 567,000 | 607,336 | ||||||
Ally Financial, Inc. | 364,000 | 376,907 | ||||||
8.00% due 11/1/2031 | 732,000 | 1,052,792 | ||||||
Aviation Capital Group LLC | 408,000 | 407,992 | ||||||
5.50% due 12/15/2024(2) | 982,000 | 1,110,976 | ||||||
Avolon Holdings Funding Ltd. | 1,255,000 | 1,244,044 | ||||||
4.25% due 4/15/2026(2) | 643,000 | 697,211 | ||||||
Brightsphere Investment Group, Inc. | 315,000 | 340,468 | ||||||
Global Aircraft Leasing Co. Ltd. 6.50% due 9/15/2024, Toggle PIK (6.50% Cash or 7.25% PIK)(2)(4) | 502,153 | 503,609 | ||||||
International Lease Finance Corp. | 112,000 | 118,444 | ||||||
Nationstar Mortgage Holdings, Inc. | 370,000 | 372,934 | ||||||
Navient Corp. | 712,000 | 738,316 | ||||||
Neuberger Berman Group LLC / Neuberger Berman Finance Corp. | 380,000 | 428,792 | ||||||
4.875% due 4/15/2045(2) | 198,000 | 230,082 | ||||||
OneMain Finance Corp. | 975,000 | 1,062,194 | ||||||
Quicken Loans LLC / Quicken Loans Co-Issuer, Inc. | 503,000 | 497,683 | ||||||
SURA Asset Management S.A. | 250,000 | 270,505 | ||||||
|
| |||||||
10,984,370 | ||||||||
Electric – 2.5% |
| |||||||
Ausgrid Finance Pty. Ltd. | 580,000 | 653,892 | ||||||
Calpine Corp. | 302,000 | 307,022 | ||||||
Cikarang Listrindo Tbk PT | 525,000 | 539,474 | ||||||
Emera U.S. Finance LP | 2,117,000 | 2,315,130 | ||||||
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Electric (continued) |
| |||||||
FirstEnergy Corp. | $ | 482,000 | $ | 479,349 | ||||
4.40% due 7/15/2027 | 657,000 | 715,815 | ||||||
Minejesa Capital B.V. | 730,000 | 773,559 | ||||||
NRG Energy, Inc. | 280,000 | 309,585 | ||||||
5.75% due 1/15/2028 | 336,000 | 358,334 | ||||||
Pennsylvania Electric Co. | 370,000 | 395,238 | ||||||
PG&E Corp. | 320,000 | 323,827 | ||||||
PSEG Power LLC | 393,000 | 604,434 | ||||||
The AES Corp. | 578,000 | 633,083 | ||||||
Vistra Operations Co. LLC | 841,000 | 889,013 | ||||||
|
| |||||||
9,297,755 | ||||||||
Energy-Alternate Sources – 0.1% |
| |||||||
Greenko Solar Mauritius Ltd. | 330,000 | 355,839 | ||||||
|
| |||||||
355,839 | ||||||||
Entertainment – 0.4% |
| |||||||
Live Nation Entertainment, Inc. | 98,000 | 98,482 | ||||||
4.75% due 10/15/2027(2) | 629,000 | 651,789 | ||||||
Penn National Gaming, Inc. | 337,000 | 350,143 | ||||||
Scientific Games International, Inc. | 486,000 | 548,198 | ||||||
|
| |||||||
1,648,612 | ||||||||
Environmental Control – 0.1% |
| |||||||
Stericycle, Inc. | 276,000 | 276,715 | ||||||
|
| |||||||
276,715 | ||||||||
Food – 0.4% |
| |||||||
Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons LP / Albertsons LLC | 308,000 | 328,476 | ||||||
JBS USA LUX S.A. / JBS USA Food Co. / JBS USA Finance, Inc. | 291,000 | 328,123 | ||||||
Kraft Heinz Foods Co. | 336,000 | 380,795 | ||||||
Minerva Luxembourg S.A. | 288,000 | 305,801 | ||||||
|
| |||||||
1,343,195 | ||||||||
Forest Products & Paper – 0.1% |
| |||||||
Suzano Austria GmbH | 428,000 | 448,129 | ||||||
|
| |||||||
448,129 |
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Gas – 0.2% |
| |||||||
National Fuel Gas Co. | $ | 554,000 | $ | 641,571 | ||||
|
| |||||||
641,571 | ||||||||
Healthcare-Services – 1.1% |
| |||||||
Centene Corp. | 286,000 | 289,764 | ||||||
3.375% due 2/15/2030 | 302,000 | 315,629 | ||||||
CommonSpirit Health | 205,000 | 222,159 | ||||||
DaVita, Inc. | 333,000 | 319,720 | ||||||
HCA, Inc. | 838,000 | 944,996 | ||||||
4.50% due 2/15/2027 | 428,000 | 483,918 | ||||||
5.25% due 6/15/2026 | 473,000 | 547,152 | ||||||
RP Escrow Issuer LLC | 515,000 | 537,938 | ||||||
Tenet Healthcare Corp. | 353,000 | 368,871 | ||||||
|
| |||||||
4,030,147 | ||||||||
Home Builders – 0.6% |
| |||||||
Century Communities, Inc. | 319,000 | 338,382 | ||||||
NVR, Inc. | 904,000 | 957,987 | ||||||
Toll Brothers Finance Corp. | 363,000 | 399,914 | ||||||
Tri Pointe Homes, Inc. | 377,000 | 409,426 | ||||||
|
| |||||||
2,105,709 | ||||||||
Household Products & Wares – 0.0% |
| |||||||
Kimberly-Clark de Mexico S.A.B. de C.V. | 100,000 | 107,007 | ||||||
|
| |||||||
107,007 | ||||||||
Housewares – 0.1% |
| |||||||
Newell Brands, Inc. | 291,000 | 359,656 | ||||||
|
| |||||||
359,656 | ||||||||
Insurance – 0.1% |
| |||||||
Assurant, Inc. | 379,000 | 378,238 | ||||||
|
| |||||||
378,238 | ||||||||
Internet – 0.9% |
| |||||||
Baidu, Inc. | 260,000 | 260,861 | ||||||
Match Group Holdings II LLC 5.00% due 12/15/2027(2) | 151,000 | 158,704 | ||||||
5.625% due 2/15/2029(2) | 160,000 | 173,703 | ||||||
Meituan | 755,000 | 744,256 | ||||||
Netflix, Inc. | 662,000 | 844,083 | ||||||
Prosus N.V. | 580,000 | 538,269 | ||||||
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Internet (continued) |
| |||||||
5.50% due 7/21/2025(2) | $ | 278,000 | $ | 317,718 | ||||
Uber Technologies, Inc. | 315,000 | 339,491 | ||||||
|
| |||||||
3,377,085 | ||||||||
Investment Companies – 0.1% |
| |||||||
Temasek Financial I Ltd. | 250,000 | 242,435 | ||||||
|
| |||||||
242,435 | ||||||||
Iron & Steel – 0.5% |
| |||||||
Cleveland-Cliffs, Inc. | 365,000 | 383,903 | ||||||
5.875% due 6/1/2027 | 326,000 | 342,952 | ||||||
CSN Resources S.A. | 480,000 | 488,203 | ||||||
GUSAP III LP | 340,000 | 367,809 | ||||||
United States Steel Corp. | 333,000 | 356,660 | ||||||
|
| |||||||
1,939,527 | ||||||||
Leisure Time – 0.4% |
| |||||||
Carnival Corp. | 375,000 | 408,604 | ||||||
11.50% due 4/1/2023(2) | 427,000 | 482,147 | ||||||
Royal Caribbean Cruises Ltd. | 429,000 | 494,937 | ||||||
|
| |||||||
1,385,688 | ||||||||
Lodging – 0.2% |
| |||||||
Boyd Gaming Corp. | 297,000 | 308,773 | ||||||
MGM Resorts International | 496,000 | 544,568 | ||||||
|
| |||||||
853,341 | ||||||||
Machinery-Diversified – 0.5% |
| |||||||
nVent Finance Sarl | 1,112,000 | 1,223,089 | ||||||
TK Elevator US Newco, Inc. | 556,000 | 585,696 | ||||||
|
| |||||||
1,808,785 | ||||||||
Media – 0.8% |
| |||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | 295,000 | 311,720 | ||||||
CSC Holdings LLC | 293,000 | 307,498 | ||||||
DISH DBS Corp. | 306,000 | 346,386 | ||||||
Globo Comunicacao e Participacoes S.A. | 520,000 | 538,247 | ||||||
Scripps Escrow, Inc. | 527,000 | 545,671 | ||||||
Time Warner Cable LLC | 274,000 | 398,708 | ||||||
Time Warner Entertainment Co. LP | 282,000 | 427,941 | ||||||
|
| |||||||
2,876,171 |
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Mining – 1.8% |
| |||||||
Anglo American Capital PLC | $ | 600,000 | $ | 665,220 | ||||
4.75% due 4/10/2027(2) | 978,000 | 1,125,854 | ||||||
Antofagasta PLC | 400,000 | 385,708 | ||||||
FMG Resources August 2006 Pty. Ltd. | 737,000 | 786,998 | ||||||
Freeport-McMoRan, Inc. | 683,000 | 712,307 | ||||||
4.25% due 3/1/2030 | 156,000 | 167,209 | ||||||
Glencore Funding LLC | 555,000 | 564,024 | ||||||
4.875% due 3/12/2029(2) | 1,547,000 | 1,802,255 | ||||||
Hecla Mining Co. | 303,000 | 331,546 | ||||||
|
| |||||||
6,541,121 | ||||||||
Miscellaneous Manufacturing – 0.3% |
| |||||||
General Electric Co. | 1,359,000 | 1,330,774 | ||||||
|
| |||||||
1,330,774 | ||||||||
Oil & Gas – 3.5% |
| |||||||
Apache Corp. | 548,000 | 583,626 | ||||||
California Resources Corp. | 358,000 | 377,257 | ||||||
Continental Resources, Inc. | 642,000 | 769,090 | ||||||
Diamondback Energy, Inc. | 1,271,000 | 1,362,309 | ||||||
4.75% due 5/31/2025 | 296,000 | 333,707 | ||||||
Equinor ASA | 700,000 | 871,612 | ||||||
Hilcorp Energy I LP / Hilcorp Finance Co. | 913,000 | 951,793 | ||||||
Laredo Petroleum, Inc. | 786,000 | 828,538 | ||||||
MEG Energy Corp. | 355,000 | 372,977 | ||||||
7.125% due 2/1/2027(2) | 609,000 | 649,894 | ||||||
Murphy Oil Corp. | 342,000 | 356,750 | ||||||
Occidental Petroleum Corp. | 496,000 | 583,222 | ||||||
Ovintiv, Inc. | 289,000 | 385,604 | ||||||
Petroleos Mexicanos | 490,000 | 496,419 | ||||||
5.35% due 2/12/2028 | 1,398,000 | 1,375,394 | ||||||
Qatar Petroleum | 515,000 | 513,100 | ||||||
SA Global Sukuk Ltd. | 730,000 | 738,490 | ||||||
10 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Oil & Gas (continued) |
| |||||||
SM Energy Co. | $ | 340,000 | $ | 336,658 | ||||
6.75% due 9/15/2026 | 201,000 | 204,429 | ||||||
Southwestern Energy Co. | 326,000 | 353,788 | ||||||
Tengizchevroil Finance Co. International Ltd. | 235,000 | 239,228 | ||||||
Viper Energy Partners LP | 161,000 | 168,516 | ||||||
|
| |||||||
12,852,401 | ||||||||
Packaging & Containers – 0.1% |
| |||||||
Ball Corp. | 475,000 | 465,847 | ||||||
|
| |||||||
465,847 | ||||||||
Pharmaceuticals – 0.2% |
| |||||||
Bausch Health Cos., Inc. | 391,000 | 364,795 | ||||||
Bayer U.S. Finance II LLC | 478,000 | 511,991 | ||||||
|
| |||||||
876,786 | ||||||||
Pipelines – 1.3% |
| |||||||
Buckeye Partners LP | 438,000 | 399,868 | ||||||
Cheniere Corpus Christi Holdings LLC | 505,000 | 551,541 | ||||||
Galaxy Pipeline Assets Bidco Ltd. | 717,000 | 713,014 | ||||||
NGPL PipeCo LLC | 690,000 | 711,452 | ||||||
Sabine Pass Liquefaction LLC | 1,357,000 | 1,605,860 | ||||||
Western Midstream Operating LP | 746,000 | 837,765 | ||||||
|
| |||||||
4,819,500 | ||||||||
Real Estate – 0.2% |
| |||||||
American Homes 4 Rent | 451,000 | 444,294 | ||||||
Country Garden Holdings Co. Ltd. | 200,000 | 204,270 | ||||||
|
| |||||||
648,564 | ||||||||
Real Estate Investment Trusts – 1.0% |
| |||||||
EPR Properties | 695,000 | 751,788 | ||||||
Equinix, Inc. | 816,000 | 801,443 | ||||||
Park Intermediate Holdings LLC / PK Domestic Property LLC / PK Finance Co-Issuer | 336,000 | 357,558 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Real Estate Investment Trusts (continued) |
| |||||||
VEREIT Operating Partnership LP | $ | 756,000 | $ | 872,605 | ||||
WEA Finance LLC | 743,000 | 766,791 | ||||||
|
| |||||||
3,550,185 | ||||||||
Retail – 1.3% |
| |||||||
IRB Holding Corp. | 300,000 | 323,934 | ||||||
Kohl’s Corp. | 613,000 | 735,085 | ||||||
L Brands, Inc. | 473,000 | 547,119 | ||||||
6.875% due 11/1/2035 | 430,000 | 544,995 | ||||||
Nordstrom, Inc. | 329,000 | 342,545 | ||||||
PetSmart, Inc. / PetSmart Finance Corp. | 897,000 | 931,481 | ||||||
Rite Aid Corp. | 1,015,000 | 1,030,265 | ||||||
The Gap, Inc. | 294,000 | 322,421 | ||||||
|
| |||||||
4,777,845 | ||||||||
Semiconductors – 0.3% |
| |||||||
SK Hynix, Inc. | 750,000 | 732,938 | ||||||
Skyworks Solutions, Inc. | 319,000 | 326,831 | ||||||
|
| |||||||
1,059,769 | ||||||||
Software – 0.8% |
| |||||||
Oracle Corp. | 1,305,000 | 1,375,431 | ||||||
PTC, Inc. | 304,000 | 313,917 | ||||||
VMware, Inc. | 974,000 | 1,153,011 | ||||||
|
| |||||||
2,842,359 | ||||||||
Telecommunications – 0.6% |
| |||||||
CommScope, Inc. | 324,000 | 351,857 | ||||||
Frontier Communications Holdings LLC | 392,000 | 405,469 | ||||||
LogMeIn, Inc. | 666,000 | 690,429 | ||||||
Sprint Capital Corp. | 257,000 | 329,718 | ||||||
Zayo Group Holdings, Inc. | 314,000 | 311,934 | ||||||
|
| |||||||
2,089,407 |
The accompanying notes are an integral part of these financial statements. | 11 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Toys, Games & Hobbies – 0.0% |
| |||||||
Mattel, Inc. | $ | 58,000 | $ | 60,936 | ||||
|
| |||||||
60,936 | ||||||||
Transportation – 0.1% |
| |||||||
Watco Cos. LLC / Watco Finance Corp. | 331,000 | 355,117 | ||||||
|
| |||||||
355,117 | ||||||||
Total Corporate Bonds & Notes (Cost $119,203,541) |
| 124,514,985 | ||||||
Municipals – 0.5% |
| |||||||
County of Miami-Dade Florida 2.786% due 10/1/2037 | 105,000 | 106,358 | ||||||
Foothill-Eastern Transportation Corridor Agency | 354,000 | 378,235 | ||||||
New Jersey Transportation Trust Fund Authority | 85,000 | 95,372 | ||||||
4.131% due 6/15/2042 | 605,000 | 690,982 | ||||||
New York City Transitional Finance Authority B-3 | 330,000 | 319,034 | ||||||
Regents of the University of California Medical Center Pooled Revenue | 205,000 | 211,447 | ||||||
Total Municipals (Cost $1,758,193) |
| 1,801,428 | ||||||
Non–Agency Mortgage–Backed Securities – 8.8% |
| |||||||
Angel Oak Mortgage Trust | 104,843 | 106,187 | ||||||
Atrium Hotel Portfolio Trust | 540,000 | 540,358 | ||||||
BAMLL Commercial Mortgage Securities Trust | 3,900,000 | 4,151,101 | ||||||
BBCMS Mortgage Trust | 365,000 | 362,204 | ||||||
2019-BWAY B | 160,000 | 158,346 | ||||||
Benchmark Mortgage Trust | 830,000 | 946,400 | ||||||
BFLD Trust | 1,000,000 | 994,111 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
BHMS | $ | 320,000 | $ | 319,987 | ||||
BX Trust | 987,000 | 988,846 | ||||||
Citigroup Commercial Mortgage Trust | 1,685,000 | 1,260,955 | ||||||
Commercial Mortgage Trust 2015-PC1 AM | 310,000 | 338,600 | ||||||
2015-PC1 B | 100,000 | 109,155 | ||||||
2015-PC1 C | 375,000 | 397,927 | ||||||
2015-PC1 D | 33,000 | 30,562 | ||||||
Credit Suisse Mortgage Capital Certificates | 431,153 | 433,379 | ||||||
Credit Suisse Mortgage Trust 2019-UVIL A | 337,000 | 356,820 | ||||||
2020-AFC1 A1 | 280,412 | 276,645 | ||||||
CSAIL Commercial Mortgage Trust | 394,045 | 424,444 | ||||||
DBWF Mortgage Trust | 630,000 | 630,911 | ||||||
Deephaven Residential Mortgage Trust | 184,623 | 185,652 | ||||||
2020-1 A1 | 161,580 | 162,672 | ||||||
Extended Stay America Trust | 650,000 | 650,000 | ||||||
Freddie Mac STACR REMIC Trust | 655,000 | 668,983 | ||||||
GCAT Trust | 113,207 | 114,827 | ||||||
Grace Trust | 1,100,000 | 1,121,649 | ||||||
Great Wolf Trust | 1,028,000 | 1,029,085 | ||||||
12 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
GS Mortgage Securities Corp. II | $ | 1,273,000 | $ | 1,294,760 | ||||
GS Mortgage Securities Corp. Trust 2018-RIVR A | 437,247 | 437,083 | ||||||
2021-ROSS G | 660,000 | 661,785 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust 2016-WIKI D | 225,000 | 223,003 | ||||||
2018-LAQ B | 554,400 | 555,162 | ||||||
2018-MINN A | 339,000 | 344,996 | ||||||
2018-WPT AFL | 234,229 | 235,403 | ||||||
2018-WPT BFL | 724,000 | 726,503 | ||||||
2018-WPT BFX | 218,000 | 229,418 | ||||||
2018-WPT CFX | 290,000 | 305,134 | ||||||
2020-MKST E | 570,000 | 548,009 | ||||||
JPMBB Commercial Mortgage Securities Trust | 13,000 | 13,728 | ||||||
New Residential Mortgage Loan Trust | 101,904 | 103,555 | ||||||
One New York Plaza Trust | 850,000 | 857,559 | ||||||
PFP Ltd. | 236,288 | 236,142 | ||||||
ReadyCap Commercial Mortgage Trust | 275,346 | 275,358 | ||||||
Residential Mortgage Loan Trust | 73,740 | 74,822 | ||||||
Starwood Mortgage Residential Trust 2020-1 A1 | 153,138 | 155,412 | ||||||
2020-3 A1 | 607,156 | 599,158 | ||||||
Verus Securitization Trust | 325,041 | 329,380 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
2020-5 A1 | $ | 613,275 | $ | 613,989 | ||||
2021-2 A1 | 1,032,800 | 1,028,692 | ||||||
Vista Point Securitization Trust | 403,298 | 405,962 | ||||||
Wells Fargo Commercial |
| |||||||
2015-C28 D | 1,500,000 | 1,481,184 | ||||||
2015-SG1 B | 1,260,000 | 1,305,646 | ||||||
2016-C35 C | 131,000 | 136,381 | ||||||
2017-C41 AS | 279,000 | 305,325 | ||||||
WFLD Mortgage Trust | 2,000,000 | 2,106,199 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $31,764,469) |
| 32,349,554 | ||||||
Foreign Government – 1.9% |
| |||||||
Dominican Republic International Bond | USD | 360,000 | 371,995 | |||||
Egypt Government International Bond | ||||||||
6.588% due 2/21/2028(2) | USD | 550,000 | 581,779 | |||||
7.60% due 3/1/2029(2) | USD | 500,000 | 548,850 | |||||
Ghana Government International Bond | USD | 725,000 | 728,625 | |||||
Nigeria Government International Bond | ||||||||
6.375% due 7/12/2023(2) | USD | 315,000 | 337,450 | |||||
7.143% due 2/23/2030(2) | USD | 695,000 | 732,335 | |||||
Qatar Government International Bond | ||||||||
3.75% due 4/16/2030(2) | USD | 1,260,000 | 1,426,093 | |||||
4.00% due 3/14/2029(2) | USD | 860,000 | 989,869 | |||||
Sri Lanka Government International Bond | USD | 400,000 | 340,000 | |||||
Turkey Government International Bond | USD | 230,000 | 218,075 | |||||
Turkiye Ihracat Kredi Bankasi A.S. | USD | 670,000 | 664,948 | |||||
Total Foreign Government (Cost $6,766,680) |
| 6,940,019 |
The accompanying notes are an integral part of these financial statements. | 13 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
U.S. Government Securities – 30.2% |
| |||||||
U.S. Treasury Bill |
| |||||||
0.038% due 7/29/2021(6) | $ | 29,176,000 | $ | 29,175,125 | ||||
0.044% due 11/18/2021(6) | 7,500,000 | 7,498,725 | ||||||
U.S. Treasury Bond |
| |||||||
1.125% due 5/15/2040 | 8,916,000 | 7,698,409 | ||||||
1.625% due 11/15/2050 | 10,354,000 | 9,295,951 | ||||||
2.25% due 8/15/2049 | 1,466,000 | 1,518,226 | ||||||
U.S. Treasury Note |
| |||||||
0.125% due 3/31/2023 | 5,663,000 | 5,654,815 | ||||||
0.375% due 4/15/2024 | 20,624,000 | 20,599,831 | ||||||
0.75% due 3/31/2026 | 12,508,000 | 12,453,277 | ||||||
1.125% due 2/29/2028 | 4,300,000 | 4,287,906 | ||||||
1.625% due 5/15/2031 | 13,001,000 | 13,204,141 | ||||||
Total U.S. Government Securities (Cost $110,883,712) |
| 111,386,406 | ||||||
Short–Term Investment – 3.6% |
| |||||||
Repurchase Agreements – 3.6% |
| |||||||
Fixed Income Clearing Corp., | 13,379,747 | 13,379,747 | ||||||
Total Repurchase Agreements (Cost $13,379,747) |
| 13,379,747 | ||||||
Total Investments(8) – 106.3% (Cost $385,176,735) |
| 392,190,321 | ||||||
Liabilities in excess of other assets(9) – (6.3)% |
| (23,366,481 | ) | |||||
Total Net Assets – 100.0% |
| $ | 368,823,840 |
(1) | TBA — To be announced. |
(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 June 30, 2021, the aggregate market value of these securities amounted to $141,137,626, representing 38.3% 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) | Variable rate securities, which may include step-up bonds or adjustable rate mortgages. The rate shown is the rate in effect at June 30, 2021. |
(4) | Payment–in–kind security, for which interest payments may be made in additional principal ranging from 0% to 100% of the full stated interest rate. As of June 30, 2021, interest payments had been made in cash. |
(5) | Variable coupon rate based on weighted average interest rate of underlying mortgages. |
(6) | Interest rate shown reflects the discount rate at time of purchase. |
(7) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 0.125% | 1/31/2023 | $ | 13,654,200 | $ | 13,647,400 |
(8) | Securities are segregated to cover anticipated or existing derivative positions or to be announced securities (TBA). |
(9) | Liabilities in excess of other assets include net unrealized appreciation on futures contracts as follows: |
Open futures contracts at June 30, 2021:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||
U.S. 2-Year Treasury Note | September 2021 | 283 | Long | $ | 62,500,605 | $ | 62,350,648 | $ | (149,957 | ) | ||||||||||||||
U.S. 10-Year Treasury Note | September 2021 | 73 | Long | 9,643,542 | 9,672,500 | 28,958 | ||||||||||||||||||
U.S. Long Bond | September 2021 | 180 | Long | 28,237,828 | 28,935,000 | 697,172 | ||||||||||||||||||
U.S. Ultra Bond | September 2021 | 61 | Long | 11,321,333 | 11,753,938 | 432,605 | ||||||||||||||||||
Total |
| $ | 111,703,308 | $ | 112,712,086 | $ | 1,008,778 |
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||
U.S. 5-Year Treasury Note | September 2021 | 97 | Short | $ | (12,013,671 | ) | $ | (11,972,680 | ) | $ | 40,991 | |||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2021 | 171 | Short | (24,802,880 | ) | (25,171,734 | ) | (368,854 | ) | |||||||||||||||
Total |
| $ | (36,816,551 | ) | $ | (37,144,414 | ) | $ | (327,863 | ) |
Legend:
CLO — Collateralized Loan Obligation
H15T5Y — 5-year Constant Maturity Treasury Rate
LIBOR — London Interbank Offered Rate
PIK — Payment–In–Kind
SOFR — Secured Overnight Financing Rate
USD — United States Dollar
14 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Agency Mortgage–Backed Securities | $ | — | $ | 25,403,814 | $ | — | $ | 25,403,814 | ||||||||
Asset–Backed Securities | — | 76,414,368 | — | 76,414,368 | ||||||||||||
Corporate Bonds & Notes | — | 124,514,985 | — | 124,514,985 | ||||||||||||
Municipals | — | 1,801,428 | — | 1,801,428 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 32,349,554 | — | 32,349,554 | ||||||||||||
Foreign Government | — | 6,940,019 | — | 6,940,019 | ||||||||||||
U.S. Government Securities | — | 111,386,406 | — | 111,386,406 | ||||||||||||
Repurchase Agreements | — | 13,379,747 | — | 13,379,747 | ||||||||||||
Total | $ | — | $ | 392,190,321 | $ | — | $ | 392,190,321 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts | ||||||||||||||||
Assets | $ | 1,199,726 | $ | — | $ | — | $ | 1,199,726 | ||||||||
Liabilities | (518,811 | ) | — | — | (518,811 | ) | ||||||||||
Total | $ | 680,915 | $ | — | $ | — | $ | 680,915 |
The accompanying notes are an integral part of these financial statements. | 15 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Interest | $ | 4,145,131 | ||
|
| |||
Total Investment Income | 4,145,131 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 782,986 | |||
Distribution fees | 442,877 | |||
Custodian and accounting fees | 57,252 | |||
Professional fees | 51,003 | |||
Trustees’ and officers’ fees | 50,121 | |||
Administrative fees | 27,260 | |||
Shareholder reports | 16,405 | |||
Transfer agent fees | 5,855 | |||
Other expenses | 15,167 | |||
|
| |||
Total Expenses | 1,448,926 | |||
Less: Fees waived | (14,005 | ) | ||
|
| |||
Total Expenses, Net | 1,434,921 | |||
|
| |||
Net Investment Income/(Loss) | 2,710,210 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | 1,674,611 | |||
Net realized gain/(loss) from futures contracts | (3,014,688 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (3,256,987 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | 804,012 | |||
|
| |||
Net Loss on Investments and Derivative Contracts | (3,793,052 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (1,082,842 | ) | |
|
| |||
16 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
The accompanying notes are an integral part of these financial statements. | 17 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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 Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
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) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 11.58 | $ | 0.09 | $ | (0.12 | ) | $ | (0.03 | ) | $ | 11.55 | (0.26) | %(4) | ||||||||||
Year Ended 12/31/20 | 10.78 | 0.24 | 0.56 | 0.80 | 11.58 | 7.42 | % | |||||||||||||||||
Year Ended 12/31/19 | 9.95 | 0.26 | 0.57 | 0.83 | 10.78 | 8.34 | % | |||||||||||||||||
Year Ended 12/31/18 | 10.08 | 0.26 | (0.39 | ) | (0.13 | ) | 9.95 | (1.29) | % | |||||||||||||||
Year Ended 12/31/17 | 9.73 | 0.17 | 0.18 | 0.35 | 10.08 | 3.60 | % | |||||||||||||||||
Period Ended 12/31/16(5) | 10.00 | 0.04 | (0.31 | ) | (0.27 | ) | 9.73 | (2.70) | %(4) |
18 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN CORE PLUS FIXED INCOME 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 | |||||||||||||||||
$ | 368,824 | 0.81% | (4) | 0.82% | (4) | 1.53% | (4) | 1.52% | (4) | 81% | (4) | |||||||||||
341,827 | 0.80% | 0.83% | 2.12% | 2.09% | 183% | |||||||||||||||||
350,049 | 0.79% | 0.84% | 2.53% | 2.48% | 211% | |||||||||||||||||
355,070 | 0.79% | 0.87% | 2.60% | 2.52% | 543% | |||||||||||||||||
23,096 | 0.81% | 1.77% | 1.69% | 0.73% | 409% | |||||||||||||||||
24,888 | 0.81% | (4) | 2.54% | (4) | 1.18% | (4) | (0.55)% | (4) | 107% | (4) |
(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) | 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. |
(5) | Commenced operations on September 1, 2016. |
The accompanying notes are an integral part of these financial statements. | 19 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian Core Plus Fixed Income 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 income and capital appreciation to produce a high total return.
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 The valuations of debt securities for which quoted bid prices are readily available are valued at the bid price by independent pricing services (each, a “Service”). Debt securities for which quoted bid prices are not readily available are valued by a Service at the evaluated bid price provided by the Service or the bid price provided by an independent broker-dealer or at a calculated price based on the spread to an appropriate benchmark
provided by such broker-dealer. Securities for which market quotations are not readily available or for which market quotations may be considered unreliable or for which a Service or independent broker-dealer does not provide a valuation 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.
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 5c). 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”).
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. 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.
20 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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.
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. Futures Contracts The Fund may enter into financial futures contracts. In entering into such contracts, the
21 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
Fund is required to deposit with the counterparty, either in cash or securities, an amount equal to a certain percentage of the face value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
d. Credit Derivatives The Fund may enter into credit derivatives, including credit default swaps on individual obligations or credit indices. The Fund may use these investments (i) as alternatives to direct long or short investment in a particular security or securities, (ii) to adjust the Fund’s asset allocation or risk exposure, (iii) to
enhance potential return, or (iv) for hedging purposes. The use by the Fund of credit default swaps may have the effect of creating a short position in a security. Credit derivatives can create investment leverage and may create additional investment risks that may subject the Fund to greater volatility than investments in more traditional securities, as described in the Statement of Additional Information.
The Fund may enter into credit default swap agreements either as a buyer or seller. The Fund may buy protection under a credit default swap to attempt to mitigate the risk of default or credit quality deterioration in one or more individual holdings or in a segment of the fixed income securities market. The Fund may sell protection under a credit default swap in an attempt to gain exposure to an underlying issuer’s credit quality characteristics without investing directly in that issuer.
For swaps entered with an individual counterparty, the Fund bears the risk of loss of the uncollateralized amount expected to be received under a credit default swap agreement in the event of the default or bankruptcy of the counterparty. Credit default swap agreements are generally valued at a price at which the counterparty to such agreement would terminate the agreement. The Fund may also enter into cleared swaps.
In entering into swap contracts, the Fund is required to deposit with the broker (or for the benefit of the broker), either in cash or securities, an amount equal to a percentage of the notional value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are
recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the swap contracts and may realize a loss.
There were no credit default swaps held as of June 30, 2021.
e. Options Transactions The Fund can write (sell) put and call options on securities and indexes to earn premiums, for hedging purposes, for risk management purposes or otherwise as part of its investment strategies. In writing options, the Fund is required to deposit with the broker or counterparty, either in cash or securities, an amount equal to a percentage of the face value of the options. When an option is written, the premium received is recorded as an asset with an equal liability that is subsequently marked to market to reflect the market value of the written option. These liabilities, if any, are reflected as written options, at value, in the Fund’s Statement of Assets and Liabilities. Premiums received from writing options which expire unexercised are recorded on the expiration date as a realized gain. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchased transactions, as a realized loss. If a written call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether there has been a realized gain or loss. If a written put option is exercised, the premium reduces the cost basis of the security. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security underlying the written option. Exercise of a written option could result in the Fund purchasing or selling a security at a price different from its current market value. There were no options transactions as of June 30, 2021.
f. 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.
g. 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
22 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
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 0.45% of the first $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, 2022 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 0.81% 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). 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 six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $14,005.
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 are not subject to Park Avenue’s recoupment rights. The entitlement to recoupment by Park Avenue from the Fund under the Expense Limitation Agreement expired on April 9, 2021.
Park Avenue has entered into a Sub-Advisory Agreement with Lord, Abbett & Co. LLC (“Lord Abbett”). Lord Abbett is responsible for providing day-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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $442,877 to PAS.
PAS has directed that certain payments under the 12b-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 and U.S. government agency obligations purchased and the proceeds from U.S. government agency obligations and other investments sold (excluding short-term investments and to be announced (TBA) securities) for the six months ended June 30, 2021, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 122,588,602 | $ | 161,716,655 | ||||
Sales | 100,163,120 | 144,236,916 |
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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. 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 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.
d. Securities Purchased on a When-Issued or Delayed-Delivery Basis The Fund may purchase securities on a when-issued or delayed-delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than at the trade date purchase price. Although the Fund will generally enter into these transactions with the intention of taking delivery of the securities, it may sell the securities before the settlement date. Assets will be segregated when a fund agrees to purchase on a when-issued or delayed-delivery basis. These transactions may create investment leverage.
e. Restricted and Illiquid Securities A restricted security cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended (except pursuant to an applicable exemption). The values of these securities may be highly volatile. If the security is subsequently registered and resold, the issuer would typically bear the expense of all registrations at no cost to the Fund. Restricted and illiquid securities are valued according to the policies and
procedures adopted by the Trust’s Board of Trustees and are noted, if any, in the Fund’s Schedule of Investments. As of June 30, 2021, the Fund did not hold any restricted, other than 144A restricted securities, or illiquid securities.
f. Below Investment Grade Securities The Fund may invest in below investment grade securities (i.e. lower-quality, “junk” debt), which are subject to various risks. Lower-quality debt is considered to be speculative because it is less certain that the issuer will be able to pay interest or repay the principal than in the case of investment grade debt. These securities can involve a substantially greater risk of default than higher-rated securities, and their values can decline significantly over short periods of time. Lower-quality debt securities tend to be more sensitive to adverse news about their issuers, the market and the economy in general, than higher-quality debt securities. The market for these securities can be less liquid, especially during periods of recession or general market decline.
g. Mortgage- and Asset-Backed Securities The values of some mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose the Fund to a lower rate of return upon reinvestment of principal. The values of mortgage- and asset-backed securities depend in part on the credit quality and adequacy of the underlying assets or collateral and may fluctuate in response to the market’s perception of these factors as well as current and future repayment rates. Some mortgage-backed securities are backed by the full faith and credit of the U.S. government (e.g., mortgage-backed securities issued by the Government National Mortgage Association, commonly known as “Ginnie Mae”), while other mortgage-backed securities (e.g., mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, commonly known as “Fannie Mae” and “Freddie Mac”), are backed only by the credit of the government entity issuing them. In addition, some mortgage-backed securities are issued by private entities and, as such, are not guaranteed by the U.S. government or any agency or instrumentality of the U.S. government.
h. Treasury Inflation Protected Securities Treasury inflation protected securities (“TIPS”) are debt securities issued by the U.S. Treasury whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. The interest rate paid by the TIPS is fixed,
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while the principal value rises or falls based on changes in a published Consumer Price Index (“CPI”). Thus, if inflation occurs, the principal and interest payments on TIPS are adjusted accordingly to protect investors from inflationary loss. During a deflationary period, the principal and interest payments decrease, although the TIPS principal amounts will not drop below their face amounts at maturity. In exchange for the inflation protection, the TIPS generally pay lower interest rates than typical U.S. Treasury securities. Only if inflation occurs will TIPS offer a higher real yield than a conventional Treasury bond of the same maturity.
i. LIBOR Risk Many financial instruments may be tied to the London Interbank Offered Rate, or “LIBOR,” to determine payment obligations, financing terms, hedging strategies, or investment value. LIBOR is the offered rate for short-term Eurodollar deposits between major international banks. The head of the UK Financial Conduct Authority has announced that after 2021 it will no longer persuade nor compel banks to submit rates for the calculation of LIBOR. As a result, it is possible that commencing in 2022, LIBOR may no longer be available or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes and other instruments or investments comprising some or all of a fund’s portfolio. A fund may continue to invest in instruments that reference LIBOR or otherwise use reference rates due to favorable liquidity or pricing. Regulators and market participants have been working together to identify or develop successor reference rates and how the calculation of associated spreads (i.e., the amounts above the relevant reference rates paid by borrowers in the market) (if any) should be adjusted. At this time, it is not possible to predict the effect of the establishment of any replacement rate or any other reforms to LIBOR. There is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades. In addition, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known. The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR, reduced values of LIBOR related investments, and reduced effectiveness of hedging strategies, adversely
affecting the Fund’s performance or NAV. In addition, the alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for the Fund.
j. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into U.S. Treasury futures contracts for the six months ended June 30, 2021 to manage portfolio duration. The Fund bears the risk of interest rates moving unexpectedly, in which case the Fund may not achieve the anticipated benefits of the futures contracts and realize a loss. There is minimal counterparty credit risk to the Funds since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees futures against default.
Under certain market conditions, the Fund may use credit default swaps to seek to (i) hedge various investments, (ii) manage or adjust duration and yield curve exposure, (iii) manage risk, (iv) enhance returns, or (v) as substitutes for permitted Fund investments. Credit default swaps involve the exchange of a floating or fixed rate payment in return for assuming potential credit losses of an underlying security or pool of securities.
The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency or security, or in a “basket” of securities representing a particular index. Cleared swaps are transacted through futures commission merchants (“FCM”s) that are members of central clearinghouses with the clearinghouse serving as a central counterparty similar to transactions in futures contracts. Funds post initial and variation margin by making payments to their clearing member FCMs.
Generally, the Fund will enter into credit default swaps on a net basis, which means that the two payment streams are netted out, with a Fund receiving or paying, as the case may be, only the net amount of the two payments. Credit default swaps do not normally involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to credit default swaps is normally limited to the net amount of payments that a Fund is contractually obligated to make. If the other party to a credit default swap defaults, a Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any.
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In addition to the risks generally applicable to derivatives, risks associated with credit default swap agreements include adverse changes in the returns of the underlying instruments, failure of the counterparties to perform under the agreement’s terms and the possible lack of liquidity with respect to the agreements.
As of June 30, 2021, the Fund had the following derivatives at fair value, grouped into appropriate risk categories that illustrate the Fund’s use of derivative instruments:
Interest Rate Contracts | ||||
Asset Derivatives | ||||
Futures Contracts1 | $ | 1,199,726 | ||
Liability Derivatives | ||||
Futures Contracts1 | $ | (518,811 | ) |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Transactions in derivative investments for the six months ended June 30, 2021 were as follows:
Interest Rate Contracts | ||||
Net Realized Gain (Loss) | ||||
Futures Contracts1 | $ | (3,014,688 | ) | |
Net Change in Unrealized Appreciation/(Depreciation) |
| |||
Futures Contracts2 | $ | 804,012 | ||
Average Number of Notional Amounts | ||||
Futures Contracts3 | 983 |
1 | Statement of Operations location: Net realized gain/(loss) from futures contracts. |
2 | Statement of Operations location: Net change in unrealized appreciation/(depreciation) on futures contracts. |
3 | Amount represents number of contracts. |
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 daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund,
(iii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not
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Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
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Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense
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limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the |
1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
31 |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark |
index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
32 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that |
the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
33 |
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at
http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
34 |
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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8167
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian U.S. Government Securities VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian U.S. Government Securities VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 7 | |||
Statement of Operations | 7 | |||
Statements of Changes in Net Assets | 8 | |||
Financial Highlights | 10 | |||
Notes to Financial Statements | 12 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 19 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 20 | |||
Portfolio Holdings and Proxy Voting Procedures | 26 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $284,663,790 |
Bond Sector Allocation1 As of June 30, 2021 |
Bond Quality Allocation2 As of June 30, 2021 |
1 |
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GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
Top Ten Holdings1 As of June 30, 2021 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Note | 1.500% | 9/30/2024 | 15.15% | |||||||||
U.S. Treasury Note | 0.125% | 1/31/2023 | 8.53% | |||||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 4.050% | 9/25/2028 | 7.84% | |||||||||
Federal Home Loan Banks | 2.375% | 9/10/2021 | 5.47% | |||||||||
U.S. Treasury Note | 0.125% | 4/30/2023 | 2.81% | |||||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 2.595% | 9/25/2029 | 2.66% | |||||||||
Federal Farm Credit Banks Funding Corp. | 1.600% | 1/21/2022 | 2.39% | |||||||||
Federal Farm Credit Banks Funding Corp. | 1.625% | 12/27/2021 | 2.39% | |||||||||
CGRBS Commercial Mortgage Trust | 3.704% | 3/13/2035 | 2.37% | |||||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 3.117% | 6/25/2027 | 2.33% | |||||||||
Total | 51.94% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. Cash includes short-term investments and net other assets and liabilities. |
2 | The Bond Quality Allocation chart displays the percentage of fund assets allocated to each rating. Rating agencies’ independent ratings of individual securities are aggregated by Barclays, and market weights are reported using Standard & Poor’s letter rating conventions. Rating methodology uses the middle rating of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services, and Fitch Ratings. When a rating from only two of the rating agencies is available, the lower rating is used. Credit quality ratings assigned by a rating agency are subject to change periodically and are not absolute standards of credit quality. Rating agencies may fail to make timely changes in credit ratings, and an issuer’s current financial condition may be better or worse than a rating indicates. In formulating investment decisions for the Fund, Park Avenue Institutional Advisers LLC develops its own analysis of the credit quality and risks associated with individual debt instruments, rather than relying exclusively on rating agency ratings. |
2 |
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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $1,000.00 | $ 989.60 | $3.70 | 0.75% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,021.08 | $3.76 | 0.75% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
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SCHEDULE OF INVESTMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 36.7% |
| |||||||
Fannie Mae ACES | $ | 2,604,900 | $ | 2,784,038 | ||||
2016-M11 A2 | 4,500,000 | 4,755,172 | ||||||
2021-M4 A2 | 5,000,000 | 4,946,388 | ||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 2,865,000 | 2,937,082 | ||||||
K030 A2 | 5,000,000 | 5,216,205 | ||||||
K032 A2 | 2,490,000 | 2,614,518 | ||||||
K035 A2 | 4,000,000 | 4,212,762 | ||||||
K048 A2 | 2,045,000 | 2,220,174 | ||||||
K053 A2 | 2,225,000 | 2,408,221 | ||||||
K058 A2 | 1,500,000 | 1,610,941 | ||||||
K063 A2 | 946,945 | 1,056,032 | ||||||
K064 A2 | 5,500,000 | 6,082,557 | ||||||
K065 A2 | 1,300,000 | 1,441,291 | ||||||
K066 A2 | 6,000,000 | 6,617,306 | ||||||
K073 A2 | 4,277,000 | 4,803,925 | ||||||
K075 A2 | 4,000,000 | 4,571,526 | ||||||
K082 A2 | 2,385,000 | 2,782,641 | ||||||
K083 A2 | 19,000,000 | 22,323,582 | ||||||
K099 A2 | 7,000,000 | 7,583,987 | ||||||
K124 A2 | 4,200,000 | 4,242,460 | ||||||
K730 A2 | 3,878,310 | 4,211,933 | ||||||
K740 A2 | 5,000,000 | 5,066,114 | ||||||
Total Agency Mortgage–Backed Securities (Cost $104,036,201) |
| 104,488,855 | ||||||
Asset–Backed Securities – 1.8% |
| |||||||
AmeriCredit Automobile Receivables Trust | 49,435 | 49,483 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
BlueMountain CLO Ltd. due 10/20/2030(2)(3) | $ | 600,000 | $ | 599,697 | ||||
Enterprise Fleet Financing LLC | 1,458,495 | 1,477,625 | ||||||
Hyundai Auto Lease Securitization Trust | 2,000,000 | 2,004,382 | ||||||
Voya CLO Ltd. due 10/18/2031(2)(3) | 925,000 | 931,665 | ||||||
Total Asset–Backed Securities (Cost $5,032,816) |
| 5,062,852 | ||||||
Corporate Bonds & Notes – 6.6% |
| |||||||
Apparel – 1.1% |
| |||||||
NIKE, Inc. | 2,810,000 | 3,053,149 | ||||||
|
| |||||||
3,053,149 | ||||||||
Auto Manufacturers – 0.6% |
| |||||||
Cummins, Inc. | 1,690,000 | 1,630,579 | ||||||
|
| |||||||
1,630,579 | ||||||||
Commercial Banks – 1.7% |
| |||||||
Bank of America Corp. 7/23/2030; SOFR + 1.53% thereafter) due 7/23/2031(2) | 2,250,000 | 2,183,243 | ||||||
JPMorgan Chase & Co. 11/19/2030; SOFR + 1.105% thereafter) due 11/19/2031(2) | 2,810,000 | 2,698,780 | ||||||
|
| |||||||
4,882,023 | ||||||||
Healthcare–Services – 0.6% |
| |||||||
UnitedHealth Group, Inc. | 1,690,000 | 1,704,010 | ||||||
|
| |||||||
1,704,010 | ||||||||
Insurance – 0.4% |
| |||||||
Chubb INA Holdings, Inc. | 1,300,000 | 1,236,729 | ||||||
|
| |||||||
1,236,729 | ||||||||
Oil & Gas – 0.6% |
| |||||||
BP Capital Markets America, Inc. | 1,690,000 | 1,649,812 | ||||||
|
| |||||||
1,649,812 |
4 | The accompanying notes are an integral part of these financial statements. |
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SCHEDULE OF INVESTMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Retail – 0.7% |
| |||||||
Target Corp. | $ | 1,970,000 | $ | 2,056,700 | ||||
|
| |||||||
2,056,700 | ||||||||
Software – 0.9% |
| |||||||
Microsoft Corp. | 2,250,000 | 2,608,155 | ||||||
|
| |||||||
2,608,155 | ||||||||
Total Corporate Bonds & Notes (Cost $19,420,363) |
| 18,821,157 | ||||||
Non–Agency Mortgage–Backed Securities – 11.2% |
| |||||||
BAMLL Commercial Mortgage Securities Trust | 1,450,000 | 1,547,424 | ||||||
BB-UBS Trust | 1,000,000 | 1,059,811 | ||||||
CGRBS Commercial Mortgage Trust | 2,000,000 | 2,071,349 | ||||||
2013-VN05 B | 6,500,000 | 6,752,205 | ||||||
Citigroup Commercial Mortgage Trust | 1,700,000 | 1,834,104 | ||||||
Commercial Mortgage Trust | 3,075,000 | 3,222,844 | ||||||
2013-WWP C | 1,500,000 | 1,568,164 | ||||||
2013-WWP D | 1,397,000 | 1,467,403 | ||||||
2014-UBS3 A4 | 1,550,000 | 1,672,627 | ||||||
2015-CR23 A4 | 2,500,000 | 2,712,964 | ||||||
GS Mortgage Securities Corp. II | 1,700,000 | 1,938,642 | ||||||
GS Mortgage Securities Trust | 1,410,000 | 1,514,340 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 961,031 | 978,683 | ||||||
ONE Park Mortgage Trust 2021-PARK A | 1,500,000 | 1,499,519 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
Wells Fargo Commercial Mortgage Trust | $ | 636,315 | $ | 639,079 | ||||
WFRBS Commercial Mortgage Trust | 310,616 | 310,895 | ||||||
2014-C19 AS | 1,000,000 | 1,078,094 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $31,639,824) |
| 31,868,147 | ||||||
U.S. Government Agencies – 13.5% |
| |||||||
Federal Farm Credit Banks Funding Corp. | 5,000,000 | 5,085,350 | ||||||
0.50% due 7/2/2025 | 4,100,000 | 4,058,877 | ||||||
1.625% due 12/27/2021 | 6,750,000 | 6,797,655 | ||||||
1.60% due 1/21/2022 | 6,750,000 | 6,807,105 | ||||||
Federal Home Loan Banks | 15,500,000 | 15,568,355 | ||||||
Total U.S. Government Agencies (Cost $38,272,074) |
| 38,317,342 | ||||||
U.S. Government Securities – 29.3% |
| |||||||
U.S. Treasury Note | 24,300,000 | 24,278,168 | ||||||
0.125% due 4/30/2023 | 8,000,000 | 7,985,938 | ||||||
0.375% due 1/31/2026 | 3,000,000 | 2,940,234 | ||||||
0.875% due 11/15/2030 | 500,000 | 475,547 | ||||||
1.50% due 9/30/2024 | 41,800,000 | 43,132,375 | ||||||
2.00% due 4/30/2024 | 4,400,000 | 4,595,937 | ||||||
Total U.S. Government Securities (Cost $82,066,887) |
| 83,408,199 | ||||||
Short–Term Investment – 0.5% |
| |||||||
Repurchase Agreements – 0.5% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $1,506,462, due 7/1/2021(4) | 1,506,462 | 1,506,462 | ||||||
Total Repurchase Agreements (Cost $1,506,462) |
| 1,506,462 | ||||||
Total Investments(5) – 99.6% (Cost $281,974,627) |
| 283,473,014 | ||||||
Assets in excess of other liabilities(6) – 0.4% |
| 1,190,776 | ||||||
Total Net Assets – 100.0% |
| $ | 284,663,790 |
(1) | Variable coupon rate based on weighted average interest rate of underlying mortgages. |
(2) | Variable rate securities, which may include step-up bonds or adjustable rate mortgages. The rate shown is the rate in effect at June 30, 2021. |
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
(3) | 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 June 30, 2021, the aggregate market value of these securities amounted to $26,779,809, representing 9.4% 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. |
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.25% | 1/15/2025 | $ | 1,259,200 | $ | 1,536,639 |
(5) | Securities are segregated to cover anticipated or existing derivative positions or to be announced securities (TBA). |
(6) | Assets in excess of other liabilities include net unrealized depreciation on futures contracts as follows: |
Open futures contracts at June 30, 2021:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||
U.S. 5-Year Treasury Note | September 2021 | 284 | Long | $ | 35,243,513 | $ | 35,054,031 | $ | (189,482 | ) |
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||
U.S. 10-Year Treasury Note | September 2021 | 21 | Short | $ | (2,774,795 | ) | $ | (2,782,500 | ) | $ | (7,705) | |||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2021 | 250 | Short | (36,319,423 | ) | (36,800,781 | ) | (481,358) | ||||||||||||||||
U.S. Ultra Long Bond | September 2021 | 2 | Short | (375,306 | ) | (385,375 | ) | (10,069) | ||||||||||||||||
Total |
| $ | (39,469,524 | ) | $ | (39,968,656 | ) | $ | (499,132 | ) |
Legend:
CLO — Collateralized Loan Obligation
LIBOR — London Interbank Offered Rate
SOFR — Secured Overnight Financing Rate
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Agency Mortgage–Backed Securities | $ | — | $ | 104,488,855 | $ | — | $ | 104,488,855 | ||||||||
Asset–Backed Securities | — | 5,062,852 | — | 5,062,852 | ||||||||||||
Corporate Bonds & Notes | — | 18,821,157 | — | 18,821,157 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 31,868,147 | — | 31,868,147 | ||||||||||||
U.S. Government Agencies | — | 38,317,342 | — | 38,317,342 | ||||||||||||
U.S. Government Securities | — | 83,408,199 | — | 83,408,199 | ||||||||||||
Repurchase Agreements | — | 1,506,462 | — | 1,506,462 | ||||||||||||
Total | $ | — | $ | 283,473,014 | $ | — | $ | 283,473,014 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts | ||||||||||||||||
Liabilities | $ | (688,614 | ) | $ | — | $ | — | $ | (688,614 | ) | ||||||
Total | $ | (688,614 | ) | $ | — | $ | — | $ | (688,614 | ) |
6 | The accompanying notes are an integral part of these financial statements. |
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FINANCIAL INFORMATION — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 25,279 | ||
Interest | 1,829,048 | |||
|
| |||
Total Investment Income | 1,854,327 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 645,442 | |||
Distribution fees | 343,320 | |||
Trustees’ and officers’ fees | 38,295 | |||
Professional fees | 37,907 | |||
Shareholder reports | 25,288 | |||
Custodian and accounting fees | 21,570 | |||
Administrative fees | 19,915 | |||
Transfer agent fees | 5,697 | |||
Other expenses | 10,627 | |||
|
| |||
Total Expenses | 1,148,061 | |||
Less: Fees waived | (118,100 | ) | ||
|
| |||
Total Expenses, Net | 1,029,961 | |||
|
| |||
Net Investment Income/(Loss) | 824,366 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | 380,624 | |||
Net realized gain/(loss) from futures contracts | 738,351 | |||
Net change in unrealized appreciation/(depreciation) on investments | (4,200,414 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | (684,635 | ) | ||
|
| |||
Net Loss on Investments and Derivative Contracts | (3,766,074 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (2,941,708 | ) | |
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| |||
The accompanying notes are an integral part of these financial statements. | 7 |
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FINANCIAL INFORMATION — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
8 | The accompanying notes are an integral part of these financial statements. |
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FINANCIAL INFORMATION — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
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) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 10.53 | $ | 0.03 | $ | (0.14 | ) | $ | (0.11 | ) | $ | 10.42 | (1.04) | %(4) | ||||||||||
Year Ended 12/31/20 | 10.00 | 0.09 | 0.44 | 0.53 | 10.53 | 5.30 | % | |||||||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.02 | (0.02 | ) | 0.00 | 10.00 | 0.00 | %(4) |
10 | The accompanying notes are an integral part of these financial statements. |
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FINANCIAL INFORMATION — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of 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 to Average | Portfolio Rate | |||||||||||||||||
$ | 284,664 | 0.75% | (4) | 0.84% | (4) | 0.60% | (4) | 0.51% | (4) | 25% | (4) | |||||||||||
263,190 | 0.75% | 0.84% | 0.84% | 0.75% | 76% | |||||||||||||||||
270,003 | 0.70% | (4) | 0.89% | (4) | 1.29% | (4) | 1.10% | (4) | 31% | (4) |
(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) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2019, certain non-recurring fees (i.e., audit fees) are not annualized. |
(5) | Commenced operations on October 21, 2019. |
The accompanying notes are an integral part of these financial statements. | 11 |
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian U.S. Government Securities VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 21, 2019. 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 total return with an emphasis on current income as well as 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 The valuations of debt securities for which quoted bid prices are readily available are valued at the bid price by independent pricing services (each, a “Service”). Debt securities for which quoted bid prices are not readily available are valued by a Service at the evaluated bid price provided by the Service or the bid price provided by an independent broker-dealer or at a calculated price based on the spread to an appropriate benchmark
provided by such broker-dealer. Securities for which market quotations are not readily available or for which market quotations may be considered unreliable or for which a Service or independent broker-dealer does not provide a valuation 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.
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”).
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. 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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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.
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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
c. Futures Contracts The Fund may enter into financial futures contracts. In entering into such contracts, the Fund is required to deposit with the counterparty, either in cash or securities, an amount equal to a certain percentage of the face value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
d. Credit Derivatives The Fund may enter into credit derivatives, including credit default swaps on individual obligations or credit indices. The Fund may use these investments (i) as alternatives to direct long or short investment in a particular security or securities, (ii) to adjust the Fund’s asset allocation or risk exposure, (iii) to
enhance potential return, or (iv) for hedging purposes. The use by the Fund of credit default swaps may have the effect of creating a short position in a security. Credit derivatives can create investment leverage and may create additional investment risks that may subject the Fund to greater volatility than investments in more traditional securities, as described in the Statement of Additional Information.
The Fund may enter into credit default swap agreements either as a buyer or seller. The Fund may buy protection under a credit default swap to attempt to mitigate the risk of default or credit quality deterioration in one or more individual holdings or in a segment of the fixed income securities market. The Fund may sell protection under a credit default swap in an attempt to gain exposure to an underlying issuer’s credit quality characteristics without investing directly in that issuer.
For swaps entered with an individual counterparty, the Fund bears the risk of loss of the uncollateralized amount expected to be received under a credit default swap agreement in the event of the default or bankruptcy of the counterparty. Credit default swap agreements are generally valued at a price at which the counterparty to such agreement would terminate the agreement. The Fund may also enter into cleared swaps.
In entering into swap contracts, the Fund is required to deposit with the broker (or for the benefit of the broker), either in cash or securities, an amount equal to a percentage of the notional value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the
values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the swap contracts and may realize a loss.
There were no credit default swaps held as of June 30, 2021.
e. Options Transactions The Fund can write (sell) put and call options on securities and indexes to earn premiums, for hedging purposes, for risk management purposes or otherwise as part of its investment strategies. In writing options, the Fund is required to deposit with the broker or counterparty, either in cash or securities, an amount equal to a percentage of the face value of the options. When an option is written, the premium received is recorded as an asset with an equal liability that is subsequently marked to market to reflect the market value of the written option. These liabilities, if any, are reflected as written options, at value, in the Fund’s Statement of Assets and Liabilities. Premiums received from writing options which expire unexercised are recorded on the expiration date as a realized gain. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchased transactions, as a realized loss. If a written call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether there has been a realized gain or loss. If a written put option is exercised, the premium reduces the cost basis of the security. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security underlying the written option. Exercise of a written option could result in the Fund purchasing or selling a security at a price different from its current market value. There were no options transactions as of June 30, 2021.
f. 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.
g. 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
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
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 0.47% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.
Park Avenue has contractually agreed through April 30, 2022 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 0.75% 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). 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. Amounts waived or reimbursed by Park Avenue pursuant to any expense limitation will not be subject to Park Avenue’s recoupment rights. For the six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $118,100.
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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $343,320 to PAS.
PAS has directed that certain payments under the 12b-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 and U.S. government agency obligations purchased and the proceeds from U.S. government agency obligations and other investments sold (excluding short-term investments and to be announced (TBA) securities) for the six months ended June 30, 2021, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 9,970,860 | $ | 89,501,379 | ||||
Sales | 18,867,609 | 50,373,126 |
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
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
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 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.
e. Securities Purchased on a When-Issued or Delayed-Delivery Basis The Fund may purchase securities on a when-issued or delayed-delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than at the trade date purchase price. Although the Fund will generally enter into these transactions with the intention of taking delivery of the securities, it may sell the securities before the settlement date. Assets will be segregated when a fund agrees to purchase on a when-issued or delayed-delivery basis. These transactions may create investment leverage.
f. Restricted and Illiquid Securities A restricted security cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended (except pursuant to an applicable exemption). The values of these securities may be highly volatile. If the security is subsequently registered and resold, the issuer would typically bear the expense of all registrations at no cost to the Fund. Restricted and illiquid securities are valued according to the policies and procedures adopted by the Trust’s Board of Trustees and are noted, if any, in the Fund’s Schedule of Investments. As of June 30, 2021, the Fund did not hold
any restricted, other than 144A restricted securities, or illiquid securities.
g. Mortgage- and Asset-Backed Securities The values of some mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose the Fund to a lower rate of return upon reinvestment of principal. The values of mortgage- and asset-backed securities depend in part on the credit quality and adequacy of the underlying assets or collateral and may fluctuate in response to the market’s perception of these factors as well as current and future repayment rates. Some mortgage-backed securities are backed by the full faith and credit of the U.S. government (e.g., mortgage-backed securities issued by the Government National Mortgage Association, commonly known as “Ginnie Mae”), while other mortgage-backed securities (e.g., mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, commonly known as “Fannie Mae” and “Freddie Mac”), are backed only by the credit of the government entity issuing them. In addition, some mortgage-backed securities are issued by private entities and, as such, are not guaranteed by the U.S. government or any agency or instrumentality of the U.S. government.
h. Treasury Inflation Protected Securities Treasury inflation protected securities (“TIPS”) are debt securities issued by the U.S. Treasury whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. The interest rate paid by the TIPS is fixed, while the principal value rises or falls based on changes in a published Consumer Price Index (“CPI”). Thus, if inflation occurs, the principal and interest payments on TIPS are adjusted accordingly to protect investors from inflationary loss. During a deflationary period, the principal and interest payments decrease, although the TIPS principal amounts will not drop below their face amounts at maturity. In exchange for the inflation protection, the TIPS generally pay lower interest rates than typical U.S. Treasury securities. Only if inflation occurs will TIPS offer a higher real yield than a conventional Treasury bond of the same maturity.
i. LIBOR Risk Many financial instruments may be tied to the London Interbank Offered Rate, or “LIBOR,” to determine payment obligations, financing terms, hedging strategies, or investment value. LIBOR is the offered rate for short-term Eurodollar deposits between major international banks. The head of the UK Financial
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
Conduct Authority has announced that after 2021 it will no longer persuade nor compel banks to submit rates for the calculation of LIBOR. As a result, it is possible that commencing in 2022, LIBOR may no longer be available or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes and other instruments or investments comprising some or all of a fund’s portfolio. A fund may continue to invest in instruments that reference LIBOR or otherwise use reference rates due to favorable liquidity or pricing. Regulators and market participants have been working together to identify or develop successor reference rates and how the calculation of associated spreads (i.e., the amounts above the relevant reference rates paid by borrowers in the market) (if any) should be adjusted. At this time, it is not possible to predict the effect of the establishment of any replacement rate or any other reforms to LIBOR. There is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades. In addition, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known. The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR, reduced values of LIBOR related investments, and reduced effectiveness of hedging strategies, adversely affecting the Fund’s performance or NAV. In addition, the alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for the Fund.
j. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into U.S. Treasury futures contracts for the six months ended June 30, 2021 to manage portfolio duration. The Fund bears the risk of interest rates moving unexpectedly, in which case the Fund may not achieve the anticipated benefits of the futures contracts and realize a loss. There is minimal counterparty credit risk to the Funds since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees futures against default.
Under certain market conditions, the Fund may use credit default swaps to seek to (i) hedge various investments,
(ii) manage or adjust duration and yield curve exposure, (iii) manage risk, (iv) enhance returns, or (v) as substitutes for permitted Fund investments. Credit default swaps involve the exchange of a floating or fixed rate payment in return for assuming potential credit losses of an underlying security or pool of securities.
The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency or security, or in a “basket” of securities representing a particular index. Cleared swaps are transacted through futures commission merchants (“FCM”s) that are members of central clearinghouses with the clearinghouse serving as a central counterparty similar to transactions in futures contracts. Funds post initial and variation margin by making payments to their clearing member FCMs.
Generally, the Fund will enter into credit default swaps on a net basis, which means that the two payment streams are netted out, with a Fund receiving or paying, as the case may be, only the net amount of the two payments. Credit default swaps do not normally involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to credit default swaps is normally limited to the net amount of payments that a Fund is contractually obligated to make. If the other party to a credit default swap defaults, a Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any.
In addition to the risks generally applicable to derivatives, risks associated with credit default swap agreements include adverse changes in the returns of the underlying instruments, failure of the counterparties to perform under the agreement’s terms and the possible lack of liquidity with respect to the agreements.
As of June 30, 2021, the Fund had the following derivatives at fair value, grouped into appropriate risk categories that illustrate the Fund’s use of derivative instruments:
Interest Rate Contracts | ||||
Liability Derivatives | ||||
Futures Contracts1 | $ | (688,614 | ) |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
Transactions in derivative investments for the six months ended June 30, 2021 were as follows:
Interest Rate Contracts | ||||
Net Realized Gain (Loss) | ||||
Futures Contracts1 | $738,351 | |||
Net Change in Unrealized Appreciation/(Depreciation) |
| |||
Futures Contracts2 | $(684,635) | |||
Average Number of Notional Amounts | ||||
Futures Contracts3 | 479 |
1 | Statement of Operations location: Net realized gain/(loss) from futures contracts. |
2 | Statement of Operations location: Net change in unrealized appreciation/(depreciation) on futures contracts. |
3 | Amount represents number of contracts. |
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 daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund, (iii) Putnam Investment Management, LLC with respect
to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and 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 any Sub-adviser.
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In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and
reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
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Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the
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expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board |
also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
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Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the |
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1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that |
the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT
/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB10527
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Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Global Utilities VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
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Guardian Global Utilities VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 22 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
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GUARDIAN GLOBAL UTILITIES VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $87,499,461 |
Geographic Region Allocation1 As of June 30, 2021 |
Top Ten Holdings1 As of June 30, 2021 | ||||||
Holding | Country | % of Total Net Assets | ||||
China Longyuan Power Group Corp. Ltd., Class H | China | 8.26% | ||||
Duke Energy Corp. | United States | 7.33% | ||||
Iberdrola S.A. | Spain | 6.39% | ||||
American Electric Power Co., Inc. | United States | 4.74% | ||||
FirstEnergy Corp. | United States | 4.70% | ||||
CenterPoint Energy, Inc. | United States | 4.54% | ||||
Exelon Corp. | United States | 4.49% | ||||
The AES Corp. | United States | 4.39% | ||||
The Southern Co. | United States | 4.30% | ||||
ENN Energy Holdings Ltd. | Cayman Islands | 4.20% | ||||
Total | 53.34% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. Cash includes short-term investments and net other assets and liabilities. |
1 |
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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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21–6/30/21 | Expense Ratio During Period 1/1/21–6/30/21 | |||||||||||
Based on Actual Return | $1,000.00 | $1,079.40 | $5.31 | 1.03% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.69 | $5.16 | 1.03% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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SCHEDULE OF INVESTMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 98.8% |
| |||||||
Bermuda – 3.7% |
| |||||||
China Gas Holdings Ltd. | 72,000 | $ | 219,704 | |||||
CK Infrastructure Holdings Ltd. | 501,000 | 2,987,603 | ||||||
|
| |||||||
3,207,307 | ||||||||
Brazil – 1.3% |
| |||||||
Cia de Saneamento Basico do Estado de Sao Paulo | 153,400 | 1,128,186 | ||||||
|
| |||||||
1,128,186 | ||||||||
Cayman Islands – 4.2% |
| |||||||
ENN Energy Holdings Ltd. | 193,000 | 3,674,021 | ||||||
|
| |||||||
3,674,021 | ||||||||
China – 8.3% |
| |||||||
China Longyuan Power Group Corp. Ltd., Class H | 4,192,800 | 7,225,825 | ||||||
|
| |||||||
7,225,825 | ||||||||
France – 4.0% |
| |||||||
Engie S.A. | 253,145 | 3,470,422 | ||||||
|
| |||||||
3,470,422 | ||||||||
Germany – 5.1% |
| |||||||
E.ON SE | 211,429 | 2,445,124 | ||||||
RWE AG | 56,903 | 2,062,118 | ||||||
|
| |||||||
4,507,242 | ||||||||
Italy – 4.1% |
| |||||||
Enel S.p.A. | 391,157 | 3,634,353 | ||||||
|
| |||||||
3,634,353 | ||||||||
Japan – 2.6% |
| |||||||
The Kansai Electric Power Co., Inc. | 145,500 | 1,382,961 | ||||||
Tokyo Gas Co. Ltd. | 45,800 | 860,809 | ||||||
|
| |||||||
2,243,770 | ||||||||
Spain – 6.4% |
| |||||||
Iberdrola S.A. | 458,529 | 5,587,372 | ||||||
|
| |||||||
5,587,372 | ||||||||
United Kingdom – 3.6% |
| |||||||
National Grid PLC | 246,096 | 3,133,379 | ||||||
|
| |||||||
3,133,379 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
United States – 55.5% |
| |||||||
American Electric Power Co., Inc. | 49,049 | $ | 4,149,055 | |||||
Avangrid, Inc. | 24,954 | 1,283,384 | ||||||
CenterPoint Energy, Inc. | 162,158 | 3,976,114 | ||||||
Duke Energy Corp. | 65,014 | 6,418,182 | ||||||
Edison International | 59,089 | 3,416,526 | ||||||
Exelon Corp. | 88,749 | 3,932,468 | ||||||
FirstEnergy Corp. | 110,423 | 4,108,840 | ||||||
NextEra Energy, Inc. | 49,108 | 3,598,634 | ||||||
NRG Energy, Inc. | 84,344 | 3,399,063 | ||||||
Pinnacle West Capital Corp. | 42,466 | 3,480,938 | ||||||
Sempra Energy | 24,461 | 3,240,593 | ||||||
The AES Corp. | 147,198 | 3,837,452 | ||||||
The Southern Co. | 62,185 | 3,762,815 | ||||||
|
| |||||||
48,604,064 | ||||||||
Total Common Stocks (Cost $74,855,372) |
| 86,415,941 |
Principal Amount | Value | |||||||||||||
Short–Term Investment – 0.3% |
| |||||||||||||
Repurchase Agreements – 0.3% |
| |||||||||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $274,521, due 7/1/2021(1) | $ | 274,521 | 274,521 | |||||||||||
Total Repurchase Agreements (Cost $274,521) |
| 274,521 | ||||||||||||
Total Investments – 99.1% (Cost $75,129,893) |
| 86,690,462 | ||||||||||||
Assets in excess of other liabilities – 0.9% |
| 808,999 | ||||||||||||
Total Net Assets – 100.0% |
| $ | 87,499,461 |
(1) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
5-Year U.S. TIPS | 0.125% | 4/15/2025 | $ | 251,200 | $ | 280,076 |
Legend:
TIPS — Treasury Inflation–Protected Securities
The accompanying notes are an integral part of these financial statements. | 3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks |
| |||||||||||||||
Bermuda | $ | — | $ | 3,207,307 | * | $ | — | $ | 3,207,307 | |||||||
Brazil | 1,128,186 | — | — | 1,128,186 | ||||||||||||
Cayman Islands | — | 3,674,021 | * | — | 3,674,021 | |||||||||||
China | — | 7,225,825 | * | — | 7,225,825 | |||||||||||
France | — | 3,470,422 | * | — | 3,470,422 | |||||||||||
Germany | — | 4,507,242 | * | — | 4,507,242 | |||||||||||
Italy | — | 3,634,353 | * | — | 3,634,353 | |||||||||||
Japan | — | 2,243,770 | * | — | 2,243,770 | |||||||||||
Spain | — | 5,587,372 | * | — | 5,587,372 | |||||||||||
United Kingdom | — | 3,133,379 | * | — | 3,133,379 | |||||||||||
United States | 48,604,064 | — | — | 48,604,064 | ||||||||||||
Repurchase Agreements | — | 274,521 | — | 274,521 | ||||||||||||
Total | $ | 49,732,250 | $ | 36,958,212 | $ | — | $ | 86,690,462 |
* | 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. |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN GLOBAL UTILITIES VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,657,897 | ||
Non-cash dividends | 98,303 | |||
Withholding taxes on foreign dividends | (80,823 | ) | ||
|
| |||
Total Investment Income | 1,675,377 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 315,421 | |||
Distribution fees | 108,021 | |||
Custodian and accounting fees | 25,771 | |||
Professional fees | 21,386 | |||
Shareholder reports | 19,389 | |||
Trustees’ and officers’ fees | 12,248 | |||
Transfer agent fees | 6,246 | |||
Administrative fees | 3,770 | |||
Other expenses | 3,178 | |||
|
| |||
Total Expenses | 515,430 | |||
Less: Fees waived | (70,383 | ) | ||
|
| |||
Total Expenses, Net | 445,047 | |||
|
| |||
Net Investment Income/(Loss) | 1,230,330 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 1,451,902 | |||
Net realized gain/(loss) from foreign currency transactions | (575 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | 3,882,527 | |||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (6,684 | ) | ||
|
| |||
Net Gain on Investments and Foreign | 5,327,170 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 6,557,500 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
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FINANCIAL INFORMATION — GUARDIAN GLOBAL UTILITIES VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
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7 |
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FINANCIAL INFORMATION — GUARDIAN GLOBAL UTILITIES VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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 Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Income(1) | Net Realized and Unrealized Gain | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 10.70 | $ | 0.16 | $ | 0.69 | $ | 0.85 | $ | 11.55 | 7.94% | (4) | ||||||||||||
Year Ended 12/31/20 | 10.27 | 0.23 | 0.20 | 0.43 | 10.70 | 4.19% | ||||||||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.03 | 0.24 | 0.27 | 10.27 | 2.70% | (4) |
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN GLOBAL UTILITIES 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 to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 87,499 | 1.03% | (4) | 1.19% | (4) | 2.85% | (4) | 2.69% | (4) | 9% | (4) | |||||||||||
84,619 | 1.03% | 1.22% | 2.35% | 2.16% | 43% | |||||||||||||||||
85,307 | 0.89% | (4) | 1.37% | (4) | 1.56% | (4) | 1.08% | (4) | 50% | (4) |
(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) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2019, certain non-recurring fees (i.e., audit fees) are not annualized. |
(5) | Commenced operations on October 21, 2019. |
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian Global Utilities VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 21, 2019. 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 total return.
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.
10 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GLOBAL UTILITIES 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
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.
11 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
c. Futures Contracts The Fund may enter into financial futures contracts. In entering into such contracts, the Fund is required to deposit with the counterparty, either in cash or securities, an amount equal to a certain percentage of the face value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
d. 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.
e. 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.
f. 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.
g. 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 0.73% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.
Park Avenue has contractually agreed through April 30, 2022 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 1.03% 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). 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. Amounts waived or reimbursed by Park Avenue pursuant to any expense limitation will not be subject to Park Avenue’s recoupment rights. For the six months
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $70,383.
Park Avenue has entered into a Sub-Advisory Agreement with Wellington Management Company LLP (“Wellington”). Wellington is responsible for providing day-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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $108,021 to PAS.
PAS has directed that certain payments under the 12b-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 $7,907,924 and $11,029,128, respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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 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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
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 daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly changing the
investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund, (iii) Putnam Investment Management, LLC with respect
to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not
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Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided
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to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds,
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the management and Sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is
considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
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• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that |
the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
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• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the |
1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB10537
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Small Cap Core VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian Small Cap Core VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 6 | |||
Statement of Operations | 6 | |||
Statements of Changes in Net Assets | 7 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 16 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN SMALL CAP CORE VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $313,867,589 |
Sector Allocation1 As of June 30, 2021 |
Top Ten Holdings2 As of June 30, 2021 |
Holding | % of Total Net Assets | |||
Gray Television, Inc. | 1.88% | |||
Black Hills Corp. | 1.80% | |||
Wintrust Financial Corp. | 1.73% | |||
CommVault Systems, Inc. | 1.73% | |||
Olin Corp. | 1.67% | |||
Washington Federal, Inc. | 1.62% | |||
R1 RCM, Inc. | 1.54% | |||
Textainer Group Holdings Ltd. | 1.49% | |||
Century Communities, Inc. | 1.47% | |||
Vista Outdoor, Inc. | 1.45% | |||
Total | 16.38% |
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. |
1 |
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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value 6/30/21 | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $1,000.00 | $1,197.40 | $5.72 | 1.05% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.59 | $5.26 | 1.05% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN SMALL CAP CORE VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.7% |
| |||||||
Airlines – 0.9% |
| |||||||
SkyWest, Inc.(1) | 67,773 | $ | 2,918,983 | |||||
|
| |||||||
2,918,983 | ||||||||
Auto Components – 2.0% |
| |||||||
The Goodyear Tire & Rubber Co.(1) | 169,290 | 2,903,324 | ||||||
Visteon Corp.(1) | 27,280 | 3,299,243 | ||||||
|
| |||||||
6,202,567 | ||||||||
Banks – 6.8% |
| |||||||
Bank OZK | 95,045 | 4,007,097 | ||||||
Cadence BanCorp | 140,270 | 2,928,838 | ||||||
First Interstate BancSystem, Inc., Class A | 62,675 | 2,621,695 | ||||||
TriState Capital Holdings, Inc.(1) | 144,810 | 2,952,676 | ||||||
WesBanco, Inc. | 97,161 | 3,461,846 | ||||||
Wintrust Financial Corp. | 71,979 | 5,443,772 | ||||||
|
| |||||||
21,415,924 | ||||||||
Biotechnology – 1.1% |
| |||||||
Amarin Corp. PLC, ADR(1) | 785,826 | 3,441,918 | ||||||
|
| |||||||
3,441,918 | ||||||||
Building Products – 1.1% |
| |||||||
Masonite International Corp.(1) | 31,690 | 3,542,625 | ||||||
|
| |||||||
3,542,625 | ||||||||
Capital Markets – 1.8% |
| |||||||
CONX Corp.(1) | 172,930 | 1,762,157 | ||||||
Landcadia Holdings III, Inc., Class A(1) | 312,130 | 3,870,412 | ||||||
|
| |||||||
5,632,569 | ||||||||
Chemicals – 2.8% |
| |||||||
Avient Corp. | 72,550 | 3,566,558 | ||||||
Olin Corp. | 113,110 | 5,232,469 | ||||||
|
| |||||||
8,799,027 | ||||||||
Construction & Engineering – 1.1% |
| |||||||
Primoris Services Corp. | 115,000 | 3,384,450 | ||||||
|
| |||||||
3,384,450 | ||||||||
Consumer Finance – 2.7% |
| |||||||
Encore Capital Group, Inc.(1) | 80,215 | 3,801,389 | ||||||
Oportun Financial Corp.(1) | 107,054 | 2,144,292 | ||||||
PROG Holdings, Inc. | 54,756 | 2,635,406 | ||||||
|
| |||||||
8,581,087 | ||||||||
Diversified Consumer Services – 3.2% |
| |||||||
2U, Inc.(1) | 97,224 | 4,051,324 | ||||||
frontdoor, Inc.(1) | 48,000 | 2,391,360 | ||||||
Stride, Inc.(1) | 113,694 | 3,652,988 | ||||||
|
| |||||||
10,095,672 | ||||||||
Diversified Financial Services – 0.5% |
| |||||||
East Resources Acquisition Co.(1) | 163,030 | 1,677,579 | ||||||
|
| |||||||
1,677,579 | ||||||||
Diversified Telecommunication Services – 1.0% |
| |||||||
Anterix, Inc.(1) | 52,870 | 3,171,671 | ||||||
|
| |||||||
3,171,671 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Electric Utilities – 0.8% |
| |||||||
Portland General Electric Co. | 56,110 | $ | 2,585,549 | |||||
|
| |||||||
2,585,549 | ||||||||
Electrical Equipment – 2.0% |
| |||||||
EnerSys | 31,640 | 3,092,177 | ||||||
Shoals Technologies Group, Inc., Class A(1) | 88,340 | 3,136,070 | ||||||
|
| |||||||
6,228,247 | ||||||||
Electronic Equipment, Instruments & Components – 2.0% |
| |||||||
Advanced Energy Industries, Inc. | 33,000 | 3,719,430 | ||||||
nLight, Inc.(1) | 69,483 | 2,520,843 | ||||||
|
| |||||||
6,240,273 | ||||||||
Energy Equipment & Services – 0.8% |
| |||||||
Helmerich & Payne, Inc. | 73,430 | 2,396,021 | ||||||
|
| |||||||
2,396,021 | ||||||||
Equity Real Estate Investment – 4.2% |
| |||||||
Kite Realty Group Trust REIT | 163,002 | 3,587,674 | ||||||
Lexington Realty Trust REIT | 302,404 | 3,613,728 | ||||||
Physicians Realty Trust REIT | 181,870 | 3,359,139 | ||||||
RLJ Lodging Trust REIT | 180,370 | 2,747,035 | ||||||
|
| |||||||
13,307,576 | ||||||||
Food & Staples Retailing – 1.3% |
| |||||||
Sprouts Farmers Market, Inc.(1) | 159,623 | 3,966,632 | ||||||
|
| |||||||
3,966,632 | ||||||||
Food Products – 1.1% |
| |||||||
UTZ Brands, Inc. | 163,490 | 3,562,447 | ||||||
|
| |||||||
3,562,447 | ||||||||
Health Care Equipment & Supplies – 2.1% |
| |||||||
Lantheus Holdings, Inc.(1) | 146,860 | 4,059,210 | ||||||
Quotient Ltd.(1) | 658,525 | 2,397,031 | ||||||
|
| |||||||
6,456,241 | ||||||||
Health Care Providers & Services – 6.5% |
| |||||||
Acadia Healthcare Co., Inc.(1) | 68,391 | 4,291,535 | ||||||
CareMax, Inc.(1)(2) | 213,620 | 2,755,698 | ||||||
Covetrus, Inc.(1) | 100,000 | 2,700,000 | ||||||
HealthEquity, Inc.(1) | 51,999 | 4,184,880 | ||||||
R1 RCM, Inc.(1) | 216,656 | 4,818,430 | ||||||
SOC Telemed, Inc.(1) | 309,560 | 1,761,396 | ||||||
|
| |||||||
20,511,939 | ||||||||
Health Care Technology – 2.0% |
| |||||||
Health Catalyst, Inc.(1) | 48,370 | 2,685,019 | ||||||
Omnicell, Inc.(1) | 24,430 | 3,699,923 | ||||||
|
| |||||||
6,384,942 | ||||||||
Hotels, Restaurants & Leisure – 2.4% |
| |||||||
Bloomin’ Brands, Inc.(1) | 128,000 | 3,473,920 | ||||||
Everi Holdings, Inc.(1) | 160,990 | 4,015,091 | ||||||
|
| |||||||
7,489,011 | ||||||||
Household Durables – 1.5% |
| |||||||
Century Communities, Inc. | 69,310 | 4,611,887 | ||||||
|
| |||||||
4,611,887 |
The accompanying notes are an integral part of these financial statements. | 3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN SMALL CAP CORE VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Insurance – 2.9% |
| |||||||
Assured Guaranty Ltd. | 76,809 | $ | 3,646,891 | |||||
BRP Group, Inc., Class A(1) | 101,780 | 2,712,437 | ||||||
Metromile, Inc.(1)(3) | 313,100 | 2,864,865 | ||||||
|
| |||||||
9,224,193 | ||||||||
Interactive Media & Services – 0.7% |
| |||||||
QuinStreet, Inc.(1) | 114,919 | 2,135,195 | ||||||
|
| |||||||
2,135,195 | ||||||||
Internet & Direct Marketing Retail – 1.8% |
| |||||||
1stdibs.com, Inc.(1) | 90,800 | 3,160,748 | ||||||
ThredUp, Inc., Class A(1) | 87,206 | 2,535,950 | ||||||
|
| |||||||
5,696,698 | ||||||||
IT Services – 2.9% |
| |||||||
CSG Systems International, Inc. | 59,000 | 2,783,620 | ||||||
Switch, Inc., Class A | 168,980 | 3,567,168 | ||||||
TaskUS, Inc., Class A(1) | 81,960 | 2,806,310 | ||||||
|
| |||||||
9,157,098 | ||||||||
Leisure Products – 1.5% |
| |||||||
Vista Outdoor, Inc.(1) | 98,620 | 4,564,134 | ||||||
|
| |||||||
4,564,134 | ||||||||
Life Sciences Tools & Services – 1.4% |
| |||||||
Syneos Health, Inc.(1) | 47,286 | 4,231,624 | ||||||
|
| |||||||
4,231,624 | ||||||||
Machinery – 2.0% |
| |||||||
EnPro Industries, Inc. | 33,595 | 3,263,754 | ||||||
Evoqua Water Technologies | 89,240 | 3,014,527 | ||||||
|
| |||||||
6,278,281 | ||||||||
Media – 3.7% |
| |||||||
Advantage Solutions, Inc.(1) | 292,958 | 3,161,017 | ||||||
Gray Television, Inc. | 252,536 | 5,909,342 | ||||||
PLAYSTUDIOS, Inc.(1)(2) | 325,000 | 2,411,500 | ||||||
|
| |||||||
11,481,859 | ||||||||
Metals & Mining – 3.0% |
| |||||||
Commercial Metals Co. | 123,944 | 3,807,560 | ||||||
Constellium SE(1) | 141,500 | 2,681,425 | ||||||
MP Materials Corp.(1) | 79,000 | 2,911,940 | ||||||
|
| |||||||
9,400,925 | ||||||||
Multi-Utilities – 1.8% |
| |||||||
Black Hills Corp. | 86,313 | 5,664,722 | ||||||
|
| |||||||
5,664,722 | ||||||||
Multiline Retail – 0.8% |
| |||||||
Macy’s, Inc.(1) | 139,420 | 2,643,403 | ||||||
|
| |||||||
2,643,403 | ||||||||
Oil, Gas & Consumable Fuels – 2.9% |
| |||||||
Brigham Minerals, Inc., Class A | 157,030 | 3,343,169 | ||||||
CNX Resources Corp.(1) | 158,650 | 2,167,159 | ||||||
International Seaways, Inc. | 182,840 | 3,506,871 | ||||||
|
| |||||||
9,017,199 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Personal Products – 0.7% |
| |||||||
The Honest Co., Inc.(1) | 138,500 | $ | 2,242,315 | |||||
|
| |||||||
2,242,315 | ||||||||
Pharmaceuticals – 2.0% |
| |||||||
Aerie Pharmaceuticals, Inc.(1) | 168,324 | 2,694,867 | ||||||
Intra-Cellular Therapies, Inc.(1) | 83,684 | 3,415,981 | ||||||
|
| |||||||
6,110,848 | ||||||||
Professional Services – 2.1% |
| |||||||
ICF International, Inc. | 36,836 | 3,236,411 | ||||||
Korn Ferry | 48,210 | 3,497,635 | ||||||
|
| |||||||
6,734,046 | ||||||||
Real Estate Management & Development – 0.8% |
| |||||||
Real Matters, Inc. (Canada)(1) | 168,970 | 2,437,225 | ||||||
|
| |||||||
2,437,225 | ||||||||
Road & Rail – 0.7% |
| |||||||
Marten Transport Ltd. | 131,940 | 2,175,691 | ||||||
|
| |||||||
2,175,691 | ||||||||
Semiconductors & Semiconductor Equipment – 1.5% |
| |||||||
Semtech Corp.(1) | 44,502 | 3,061,738 | ||||||
SMART Global Holdings, Inc.(1) | 35,500 | 1,692,640 | ||||||
|
| |||||||
4,754,378 | ||||||||
Software – 3.4% |
| |||||||
CommVault Systems, Inc.(1) | 69,299 | 5,417,103 | ||||||
Rapid7, Inc.(1) | 30,944 | 2,928,231 | ||||||
WalkMe Ltd.(1) | 77,200 | 2,258,872 | ||||||
|
| |||||||
10,604,206 | ||||||||
Specialty Retail – 3.2% |
| |||||||
Murphy USA, Inc. | 31,792 | 4,240,099 | ||||||
Petco Health & Wellness Co., | 115,600 | 2,590,596 | ||||||
Urban Outfitters, Inc.(1) | 80,290 | 3,309,554 | ||||||
|
| |||||||
10,140,249 | ||||||||
Technology Hardware, Storage & Peripherals – 1.4% |
| |||||||
NCR Corp.(1) | 93,990 | 4,286,884 | ||||||
|
| |||||||
4,286,884 | ||||||||
Thrifts & Mortgage Finance – 2.4% |
| |||||||
NMI Holdings, Inc., Class A(1) | 109,190 | 2,454,591 | ||||||
Washington Federal, Inc. | 159,540 | 5,070,181 | ||||||
|
| |||||||
7,524,772 | ||||||||
Trading Companies & Distributors – 4.4% |
| |||||||
Custom Truck One Source, | 400,059 | 3,808,562 | ||||||
GATX Corp. | 31,380 | 2,776,188 | ||||||
Rush Enterprises, Inc., Class A | 61,672 | 2,666,697 | ||||||
Textainer Group Holdings Ltd.(1) | 138,710 | 4,684,237 | ||||||
|
| |||||||
13,935,684 | ||||||||
Total Common Stocks (Cost $234,154,851) |
| 313,046,466 |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN SMALL CAP CORE VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investment – 0.3% |
| |||||||
Repurchase Agreements – 0.3% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $835,566, due 7/1/2021(4) | $ | 835,566 | $ | 835,566 | ||||
Total Repurchase Agreements (Cost $835,566) | 835,566 | |||||||
Total Investments – 100.0% (Cost $234,990,417) | 313,882,032 | |||||||
Liabilities in excess of other assets – (0.0)% |
| (14,443 | ) | |||||
Total Net Assets – 100.0% | $ | 313,867,589 |
(1) | Non–income–producing security. |
(2) | Security is restricted and deemed illiquid by the investment adviser. Acquired through a private placement transaction exempt from registration under the Securities Act of 1933. May be subject to legal or contractual restrictions on resale. Information concerning restricted and illiquid securities is as follows: |
Security | Shares | Cost | Value | Acquisition Date | % of Fund’s Net Assets | |||||||||||||||
CareMax, Inc. | 213,620 | $ | 2,136,200 | $ | 2,755,698 | 6/9/2021 | 0.88% | |||||||||||||
PLAYSTUDIOS, Inc. | 325,000 | 3,250,000 | 2,411,500 | 2/2/2021 | 0.77% |
(3) | Security is restricted. Acquired through a private placement transaction exempt from registration under the Securities Act of 1933. May be subject to legal or contractual restrictions on resale. Information concerning restricted securities is as follows: |
Security | Shares | Cost | Value | Acquisition Date | % of Fund’s Net Assets | |||||||||||||||
Custom Truck One Source, Inc. | 400,059 | $ | 2,000,295 | $ | 3,808,562 | 12/22/2020 | 1.21% | |||||||||||||
Metromile, Inc. | 313,100 | 3,131,000 | 2,864,865 | 11/30/2020 | 0.91% |
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
5-Year U.S. TIPS | 0.125% | 4/15/2025 | $ | 764,500 | $ | 852,380 |
Legend:
ADR — American Depositary Receipt
REIT — Real Estate Investment Trust
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 307,879,268 | $ | 5,167,198 | * | $ | — | $ | 313,046,466 | |||||||
Repurchase Agreements | — | 835,566 | — | 835,566 | ||||||||||||
Total | $ | 307,879,268 | $ | 6,002,764 | $ | — | $ | 313,882,032 |
* | Consists of certain foreign securities whose values were determined by a pricing service using pricing models (See Notes to Schedule of Investments). These investments in securities were classified as Level 2 rather than Level 1. |
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN SMALL CAP CORE VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,418,021 | ||
|
| |||
Total Investment Income | 1,418,021 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 1,102,969 | |||
Distribution fees | 399,626 | |||
Trustees’ and officers’ fees | 49,975 | |||
Professional fees | 40,849 | |||
Shareholder reports | 26,182 | |||
Custodian and accounting fees | 25,445 | |||
Administrative fees | 23,376 | |||
Transfer agent fees | 6,553 | |||
Other expenses | 10,860 | |||
|
| |||
Total Expenses | 1,685,835 | |||
Less: Fees waived | (7,403 | ) | ||
|
| |||
Total Expenses, Net | 1,678,432 | |||
|
| |||
Net Investment Income/(Loss) | (260,411 | ) | ||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 33,550,636 | |||
Net realized gain/(loss) from foreign currency transactions | (769 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | 26,172,908 | |||
|
| |||
Net Gain on Investments and Foreign | 59,722,775 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 59,462,364 | ||
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN SMALL CAP CORE VIP FUND
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN SMALL CAP CORE VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Income/(Loss)(1) | Net Realized and Unrealized Gain | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 11.40 | $ | (0.01 | ) | $ | 2.26 | $ | 2.25 | $ | 13.65 | 19.74% | (4) | |||||||||||
Year Ended 12/31/20 | 11.13 | 0.05 | 0.22 | 0.27 | 11.40 | 2.43% | ||||||||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.01 | 1.12 | 1.13 | 11.13 | 11.30% | (4) |
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN SMALL CAP CORE 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 Income/(Loss) to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 313,868 | 1.05% | (4) | 1.05% | (4) | (0.16)% | (4) | (0.16)% | (4) | 27% | (4) | |||||||||||
337,527 | 1.05% | 1.05% | 0.53% | 0.53% | 69% | |||||||||||||||||
310,451 | 1.01% | (4) | 1.09% | (4) | 0.57% | (4) | 0.49% | (4) | 98% | (4) |
(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) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2019, certain non-recurring fees (i.e., audit fees) are not annualized. |
(5) | Commenced operations on October 21, 2019. |
The accompanying notes are an integral part of these financial statements. | 9 |
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian Small Cap Core VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 21, 2019. 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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE 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, price below current market value, 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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, private investment in public equity, 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE 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 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 0.69% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.
Park Avenue has contractually agreed through April 30, 2022 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 1.05% 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). 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. Amounts waived or reimbursed by Park Avenue pursuant to any expense limitation will not be subject to Park Avenue’s recoupment rights. For the six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $7,403.
Park Avenue has entered into a Sub-Advisory Agreement with ClearBridge Investments LLC (“ClearBridge”). ClearBridge is responsible for providing day-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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP 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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $399,626 to PAS.
PAS has directed that certain payments under the 12b-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 $86,302,236 and $165,330,786, respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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 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.
e. Restricted and Illiquid Securities A restricted security cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended (except pursuant to an applicable exemption). The values of these securities may be highly volatile. If the security is subsequently registered and resold, the issuer would typically bear the expense of all registrations at no cost to the Fund. Restricted and illiquid securities are valued according to the policies and procedures adopted by the Trust’s Board of Trustees and are noted, if any, in the Fund’s Schedule of Investments. As of June 30, 2021, the Fund held two illiquid securities.
f. Private Investment in Public Equity A Fund may invest in securities that are purchased in private investment in public equity (“PIPE”) transactions. PIPEs
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
are an accredited investor’s purchase of stock in a public company at a discount to the current market value per share for the purpose of raising capital and may also issue warrants enabling a Fund to purchase additional shares at a price equal to or at a premium to current market prices. Securities acquired by a Fund in such transactions are subject to resale restrictions under securities laws. Because the shares issued in a PIPE transaction are “restricted securities” under the federal securities laws, a Fund cannot freely trade the securities until the issuer files a registration statement to provide for the public resale of the shares, which typically occurs after the completion of the PIPE transaction and the public registration process with the SEC is completed, a period which can last many months. While issuers in PIPE transactions typically agree that they will register the securities for resale by a Fund after the transaction closes (thereby removing resale restrictions), there is no guarantee that the securities will in fact be registered, or that the registration will be maintained. In addition, a PIPE issuer may require a Fund to agree to other resale restrictions as a condition to the sale of such securities. Thus, a Fund’s ability to resell securities acquired in PIPE transactions may be limited, and even though a public market may exist for such securities, the securities held by a Fund may be deemed illiquid.
g. Special Purpose Acquisition Companies A Fund may invest in stock, warrants, rights and other securities of special purpose acquisition companies (“SPACs”) or similar special purpose entities in a private placement transaction or as part of a public offering. A SPAC, sometimes referred to as “blank check company,” is a private or publicly traded company that raises investment capital for the purpose of acquiring or merging with an existing company. The shares of a SPAC are typically issued in “units” that include one share of common stock and one right or warrant (or partial right or warrant) conveying the right to purchase additional shares of common stock. At a specified time, the rights and warrants may be separated from the common stock at the election of the holder, after which time each security typically is freely tradeable. Private companies can combine with a SPAC to go public by taking the SPAC’s place on an exchange as an alternative to making an initial public offering. Additionally, a Fund may purchase units or shares of SPACs that have completed an IPO on a secondary market, during a SPAC’s IPO or through a PIPE offering. PIPE transactions involve the purchase of securities typically at a discount to the market price of the company’s common stock and may be subject to transfer restrictions, which typically would make them less liquid than equity issued through a public offering. Investments in SPACs also have risks
peculiar to the SPAC structure and investment process. Until an acquisition or merger is completed, a SPAC generally invests its assets, less a portion retained to cover expenses, in U.S. government securities, money market securities and cash and does not typically pay dividends in respect of its common stock. To the extent a SPAC is invested in cash or similar securities, this may impact a Fund’s ability to meet its investment objective. SPAC shareholders may not approve any proposed acquisition or merger, or an acquisition or merger, once effected, may prove unsuccessful. If an acquisition or merger is not completed within a pre-established period (typically, two years), the remainder of funds invested in the SPAC are returned to its shareholders. While a SPAC investor may receive both stock in the SPAC, as well as warrants or other rights at no marginal cost, those warrants or other rights may expire worthless or may be repurchased or retired by the SPAC at an unfavorable price. A Fund may also be delayed in receiving any redemption or liquidation proceeds from a SPAC to which it is entitled. An investment in a SPAC is typically subject to a higher risk of dilution by additional later offerings of interests in the SPAC or by other investors exercising existing rights to purchase shares of the SPAC. Moreover, interests in SPACs may be illiquid and/or be subject to restrictions on resale, which may remain for an extended time, and may only be traded in the over-the-counter market.
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 daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic
disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund, (iii) Putnam Investment Management, LLC with respect
to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and 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 any Sub-adviser.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and
reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the
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SUPPLEMENTAL INFORMATION (UNAUDITED)
expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB10526
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Integrated Research VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian Integrated Research VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 22 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. 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 Characteristics (unaudited)
Total Net Assets: $13,361,782 |
Sector Allocation1 As of June 30, 2021 |
Top Ten Holdings2 As of June 30, 2021 |
Holding | % of Total Net Assets | |||
Microsoft Corp. | 6.98% | |||
Alphabet, Inc., Class C | 5.72% | |||
Amazon.com, Inc. | 5.17% | |||
Apple, Inc. | 4.30% | |||
Johnson & Johnson | 2.51% | |||
Bank of America Corp. | 2.44% | |||
The Procter & Gamble Co. | 2.13% | |||
The Home Depot, Inc. | 2.10% | |||
Mastercard, Inc., Class A | 2.05% | |||
Comcast Corp., Class A | 2.00% | |||
Total | 35.40% |
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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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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $1,000.00 | $1,168.80 | $5.16 | 0.96% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.03 | $4.81 | 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 181/365 (to reflect the one-half year period). |
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SCHEDULE OF INVESTMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.2% |
| |||||||
Aerospace & Defense – 1.0% |
| |||||||
Howmet Aerospace, Inc.(1) | 3,954 | $ | 136,294 | |||||
|
| |||||||
136,294 | ||||||||
Air Freight & Logistics – 1.6% |
| |||||||
United Parcel Service, Inc., Class B | 1,015 | 211,090 | ||||||
|
| |||||||
211,090 | ||||||||
Airlines – 1.1% |
| |||||||
Southwest Airlines Co.(1) | 2,832 | 150,351 | ||||||
|
| |||||||
150,351 | ||||||||
Automobiles – 1.6% |
| |||||||
General Motors Co.(1) | 2,625 | 155,321 | ||||||
Tesla, Inc.(1) | 79 | 53,697 | ||||||
|
| |||||||
209,018 | ||||||||
Banks – 4.1% |
| |||||||
Bank of America Corp. | 7,922 | 326,624 | ||||||
Popular, Inc. | 1,480 | 111,074 | ||||||
Zions Bancorporation N.A. | 2,033 | 107,464 | ||||||
|
| |||||||
545,162 | ||||||||
Biotechnology – 3.6% |
| |||||||
AbbVie, Inc. | 2,133 | 240,261 | ||||||
BioMarin Pharmaceutical, Inc.(1) | 1,018 | 84,942 | ||||||
Exact Sciences Corp.(1) | 622 | 77,321 | ||||||
Horizon Therapeutics PLC(1) | 867 | 81,186 | ||||||
|
| |||||||
483,710 | ||||||||
Building Products – 2.3% |
| |||||||
Masco Corp. | 2,583 | 152,164 | ||||||
Trane Technologies PLC | 876 | 161,307 | ||||||
|
| |||||||
313,471 | ||||||||
Capital Markets – 6.6% |
| |||||||
BlackRock, Inc. | 286 | 250,242 | ||||||
Intercontinental Exchange, Inc. | 1,492 | 177,100 | ||||||
State Street Corp. | 2,554 | 210,143 | ||||||
The Charles Schwab Corp. | 3,310 | 241,001 | ||||||
|
| |||||||
878,486 | ||||||||
Communications Equipment – 1.8% |
| |||||||
Cisco Systems, Inc. | 4,474 | 237,122 | ||||||
|
| |||||||
237,122 | ||||||||
Electronic Equipment, Instruments & Components – 1.3% |
| |||||||
TE Connectivity Ltd. | 1,317 | 178,072 | ||||||
|
| |||||||
178,072 | ||||||||
Entertainment – 1.4% |
| |||||||
Electronic Arts, Inc. | 1,349 | 194,027 | ||||||
|
| |||||||
194,027 | ||||||||
Equity Real Estate Investment – 1.6% |
| |||||||
Prologis, Inc. REIT | 1,789 | 213,839 | ||||||
|
| |||||||
213,839 | ||||||||
Food Products – 1.5% |
| |||||||
Mondelez International, Inc., Class A | 3,175 | 198,247 | ||||||
|
| |||||||
198,247 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Health Care Equipment & Supplies – 3.4% |
| |||||||
Medtronic PLC | 1,931 | $ | 239,695 | |||||
Stryker Corp. | 826 | 214,537 | ||||||
|
| |||||||
454,232 | ||||||||
Health Care Providers & Services – 1.6% |
| |||||||
Centene Corp.(1) | 2,858 | 208,434 | ||||||
|
| |||||||
208,434 | ||||||||
Household Products – 2.1% |
| |||||||
The Procter & Gamble Co. | 2,109 | 284,567 | ||||||
|
| |||||||
284,567 | ||||||||
Insurance – 1.6% |
| |||||||
The Allstate Corp. | 1,669 | 217,704 | ||||||
|
| |||||||
217,704 | ||||||||
Interactive Media & Services – 5.7% |
| |||||||
Alphabet, Inc., Class C(1) | 305 | 764,428 | ||||||
|
| |||||||
764,428 | ||||||||
Internet & Direct Marketing Retail – 5.2% |
| |||||||
Amazon.com, Inc.(1) | 201 | 691,472 | ||||||
|
| |||||||
691,472 | ||||||||
IT Services – 4.4% |
| |||||||
Fiserv, Inc.(1) | 1,639 | 175,193 | ||||||
Mastercard, Inc., Class A | 751 | 274,183 | ||||||
Square, Inc., Class A(1) | 559 | 136,284 | ||||||
|
| |||||||
585,660 | ||||||||
Life Sciences Tools & Services – 1.4% |
| |||||||
IQVIA Holdings, Inc.(1) | 778 | 188,525 | ||||||
|
| |||||||
188,525 | ||||||||
Machinery – 1.1% |
| |||||||
AGCO Corp. | 1,134 | 147,851 | ||||||
|
| |||||||
147,851 | ||||||||
Media – 2.0% |
| |||||||
Comcast Corp., Class A | 4,692 | 267,538 | ||||||
|
| |||||||
267,538 | ||||||||
Multi-Utilities – 2.7% |
| |||||||
Ameren Corp. | 2,185 | 174,887 | ||||||
DTE Energy Co. | 1,398 | 181,181 | ||||||
|
| |||||||
356,068 | ||||||||
Multiline Retail – 1.5% |
| |||||||
Target Corp. | 836 | 202,095 | ||||||
|
| |||||||
202,095 | ||||||||
Oil, Gas & Consumable Fuels – 2.3% |
| |||||||
ConocoPhillips | 2,753 | 167,658 | ||||||
Pioneer Natural Resources Co. | 855 | 138,954 | ||||||
|
| |||||||
306,612 | ||||||||
Pharmaceuticals – 4.3% |
| |||||||
Eli Lilly and Co. | 1,037 | 238,012 | ||||||
Johnson & Johnson | 2,035 | 335,246 | ||||||
|
| |||||||
573,258 | ||||||||
Road & Rail – 1.6% |
| |||||||
Union Pacific Corp. | 948 | 208,494 | ||||||
|
| |||||||
208,494 |
The accompanying notes are an integral part of these financial statements. | 3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Semiconductors & Semiconductor Equipment – 6.6% |
| |||||||
Applied Materials, Inc. | 1,504 | $ | 214,170 | |||||
Broadcom, Inc. | 479 | 228,406 | ||||||
NVIDIA Corp. | 326 | 260,832 | ||||||
NXP Semiconductors N.V. | 876 | 180,211 | ||||||
|
| |||||||
883,619 | ||||||||
Software – 10.4% |
| |||||||
Adobe, Inc.(1) | 442 | 258,853 | ||||||
Intuit, Inc. | 415 | 203,420 | ||||||
Microsoft Corp. | 3,441 | 932,167 | ||||||
|
| |||||||
1,394,440 | ||||||||
Specialty Retail – 5.8% |
| |||||||
The Gap, Inc. | 4,342 | 146,108 | ||||||
The Home Depot, Inc. | 878 | 279,985 | ||||||
The TJX Cos., Inc. | 2,643 | 178,191 | ||||||
Ulta Beauty, Inc.(1) | 484 | 167,353 | ||||||
|
| |||||||
771,637 | ||||||||
Technology Hardware, Storage & Peripherals – 4.3% |
| |||||||
Apple, Inc. | 4,192 | 574,136 | ||||||
|
| |||||||
574,136 | ||||||||
Tobacco – 1.7% |
| |||||||
Philip Morris International, Inc. | 2,281 | 226,070 | ||||||
|
| |||||||
226,070 | ||||||||
Total Common Stocks (Cost $9,024,750) |
| 13,255,729 |
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||||||||||
Short–Term Investment – 1.2% |
| |||||||||||||||
Repurchase Agreements – 1.2% |
| |||||||||||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $156,916, due 7/1/2021(2) | $ | 156,916 | $ | 156,916 | ||||||||||||
Total Repurchase Agreements (Cost $156,916) |
| 156,916 | ||||||||||||||
Total Investments – 100.4% (Cost $9,181,666) |
| 13,412,645 | ||||||||||||||
Liabilities in excess of other assets – (0.4)% |
| (50,863 | ) | |||||||||||||
Total Net Assets – 100.0% |
| $ | 13,361,782 |
(1) | Non–income–producing security. |
(2) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.375% | 7/15/2025 | $ | 129,500 | $ | 160,162 |
Legend:
REIT — Real Estate Investment Trust
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 13,255,729 | $ | — | $ | — | $ | 13,255,729 | ||||||||
Repurchase Agreements | — | 156,916 | — | 156,916 | ||||||||||||
Total | $ | 13,255,729 | $ | 156,916 | $ | — | $ | 13,412,645 |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN INTEGRATED RESEARCH VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 96,849 | ||
Withholding taxes on foreign dividends | (273 | ) | ||
|
| |||
Total Investment Income | 96,576 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 35,301 | |||
Distribution fees | 16,046 | |||
Professional fees | 14,821 | |||
Custodian and accounting fees | 14,108 | |||
Transfer agent fees | 5,295 | |||
Trustees’ and officers’ fees | 1,859 | |||
Shareholder reports | 1,181 | |||
Administrative fees | 18 | |||
Other expenses | 572 | |||
|
| |||
Total Expenses | 89,201 | |||
Less: Fees waived | (27,585 | ) | ||
|
| |||
Total Expenses, Net | 61,616 | |||
|
| |||
Net Investment Income/(Loss) | 34,960 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | 764,543 | |||
Net change in unrealized appreciation/(depreciation) on investments | 1,228,649 | |||
|
| |||
Net Gain on Investments | 1,993,192 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 2,028,152 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
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FINANCIAL INFORMATION — GUARDIAN INTEGRATED RESEARCH VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
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7 |
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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 six reporting periods (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.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 17.06 | $ | 0.05 | $ | 2.83 | $ | 2.88 | $ | 19.94 | 16.88% | (4) | ||||||||||||
Year Ended 12/31/20 | 14.31 | 0.20 | (5) | 2.55 | 2.75 | 17.06 | 19.22% | |||||||||||||||||
Year Ended 12/31/19 | 11.26 | 0.14 | 2.91 | 3.05 | 14.31 | 27.09% | ||||||||||||||||||
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(6) | 10.00 | 0.03 | 0.21 | 0.24 | 10.24 | 2.40% | (4) |
8 | 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 (Loss) to Average | Portfolio Turnover Rate | |||||||||||||||||
$ | 13,362 | 0.96% | (4) | 1.39% | (4) | 0.54% | (4) | 0.11 | %(4) | 26% | (4) | |||||||||||
12,432 | 0.96% | 2.08% | 1.36% | (5) | 0.24 | %(5) | 61% | |||||||||||||||
11,852 | 0.96% | 2.30% | 1.08% | (0.26 | )% | 117% | ||||||||||||||||
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% | (4) | 2.65% | (4) | 0.92% | (4) | (0.77 | )%(4) | 15% | (4) |
(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) | 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. |
(5) | Reflects a special dividend paid out during the year by one of the Fund’s holdings. Had the Fund not received the special dividend, the Net Investment Income per share would have been $0.11, the Net Ratio of Net Investment Income to Average Net Assets would have been 0.76%, and the Gross Ratio of Net Investment Income/(Loss) to Average Net Assets would have been (0.36)%. |
(6) | Commenced operations on September 1, 2016. |
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four 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.
10 |
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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
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, 2022 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). 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 six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $27,585.
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. The amount available for potential future recoupment by Park Avenue from
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
the Fund under the Expense Limitation Agreement and the expiration schedule at June 30, 2021 are as follows:
Potential Amounts | Expiration Date | |||||||
$ | 70,859 | 2021 | ||||||
$ | 149,391 | 2022 | ||||||
$ | 125,043 | 2023 | ||||||
$ | 27,585 | 2024 | ||||||
|
| |||||||
Total Potential Recoupment Amounts | $ | 372,878 |
Park Avenue has entered into a Sub-Advisory Agreement with Columbia Management Investment Advisers LLC (“CMIA”). CMIA is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision of Park Avenue and the oversight of the Board of Trustetes. 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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $16,046 to PAS.
PAS has directed that certain payments under the 12b-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 $3,308,943 and $4,501,875, respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
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 daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund, (iii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (iv) Boston
Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and 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 any Sub-adviser.
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In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and
reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
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Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations
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provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the |
1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the |
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3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and |
since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
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Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/
Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8170
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Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian International Growth VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
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Guardian International Growth VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 6 | |||
Statement of Operations | 6 | |||
Statements of Changes in Net Assets | 7 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 22 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
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GUARDIAN INTERNATIONAL GROWTH VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $155,424,011 |
Geographic Region Allocation1 As of June 30, 2021 |
Sector Allocation2 As of June 30, 2021 |
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GUARDIAN INTERNATIONAL GROWTH VIP FUND
Top Ten Holdings1 As of June 30, 2021 | ||||||
Holding | Country | % of Total Net Assets | ||||
Nestle S.A. (Reg S) | Switzerland | 5.23% | ||||
ASML Holding N.V. | Netherlands | 5.01% | ||||
LVMH Moet Hennessy Louis Vuitton SE | France | 4.19% | ||||
Novo Nordisk A/S, Class B | Denmark | 3.16% | ||||
Diageo PLC | United Kingdom | 3.05% | ||||
AIA Group Ltd. | Hong Kong | 2.82% | ||||
L’Oreal S.A. | France | 2.67% | ||||
Keyence Corp. | Japan | 2.43% | ||||
Hong Kong Exchanges & Clearing Ltd. | Hong Kong | 2.34% | ||||
Sony Group Corp. | Japan | 2.33% | ||||
Total | 33.23% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. Cash includes short-term investments and net other assets and liabilities. |
2 | 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. |
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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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $1,000.00 | $1,060.60 | $6.03 | 1.18% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ 1,000.00 | $1,018.94 | $5.91 | 1.18% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 98.4% |
| |||||||
Australia – 2.8% |
| |||||||
CSL Ltd. | 13,257 | $ | 2,836,039 | |||||
IDP Education Ltd. | 85,833 | 1,580,255 | ||||||
|
| |||||||
4,416,294 | ||||||||
Cayman Islands – 6.1% |
| |||||||
Alibaba Group Holding Ltd.(1) | 58,168 | 1,648,063 | ||||||
Bilibili, Inc., ADR(1) | 13,782 | 1,679,199 | ||||||
Budweiser Brewing Co. APAC Ltd.(2) | 507,300 | 1,596,770 | ||||||
Sea Ltd., ADR(1) | 9,674 | 2,656,480 | ||||||
Tencent Holdings Ltd. | 24,500 | 1,842,869 | ||||||
|
| |||||||
9,423,381 | ||||||||
Denmark – 5.6% |
| |||||||
Genmab A/S(1) | 4,619 | 1,884,007 | ||||||
Novo Nordisk A/S, Class B | 58,786 | 4,918,156 | ||||||
Orsted A/S(2) | 13,901 | 1,955,636 | ||||||
|
| |||||||
8,757,799 | ||||||||
Finland – 1.5% |
| |||||||
Kone OYJ, Class B | 28,605 | 2,333,813 | ||||||
|
| |||||||
2,333,813 | ||||||||
France – 11.5% |
| |||||||
Capgemini SE | 10,727 | 2,062,705 | ||||||
L’Oreal S.A. | 9,316 | 4,154,111 | ||||||
LVMH Moet Hennessy Louis Vuitton | 8,300 | 6,516,885 | ||||||
Safran S.A. | 18,955 | 2,629,900 | ||||||
Schneider Electric SE | 15,834 | 2,492,502 | ||||||
|
| |||||||
17,856,103 | ||||||||
Germany – 6.9% |
| |||||||
adidas AG | 9,429 | 3,511,066 | ||||||
Delivery Hero SE(1)(2) | 22,460 | 2,967,517 | ||||||
Symrise AG | 14,232 | 1,984,030 | ||||||
Zalando SE(1)(2) | 18,895 | 2,284,153 | ||||||
|
| |||||||
10,746,766 | ||||||||
Hong Kong – 5.1% |
| |||||||
AIA Group Ltd. | 352,000 | 4,374,895 | ||||||
Hong Kong Exchanges & Clearing Ltd. | 61,000 | 3,635,975 | ||||||
|
| |||||||
8,010,870 | ||||||||
India – 1.2% |
| |||||||
HDFC Bank Ltd., ADR(1) | 25,764 | 1,883,864 | ||||||
|
| |||||||
1,883,864 | ||||||||
Ireland – 1.5% |
| |||||||
Linde PLC | 8,199 | 2,368,999 | ||||||
|
| |||||||
2,368,999 | ||||||||
Japan – 17.0% |
| |||||||
Daikin Industries Ltd. | 14,000 | 2,606,113 | ||||||
Hoya Corp. | 25,400 | 3,366,487 | ||||||
Keyence Corp. | 7,500 | 3,783,328 | ||||||
Kyowa Kirin Co. Ltd. | 40,100 | 1,415,768 | ||||||
Makita Corp. | 39,600 | 1,863,681 | ||||||
June 30, 2021 (unaudited) | Shares | Value | ||||||
Japan (continued) |
| |||||||
Shimano, Inc. | 8,600 | $ | 2,039,262 | |||||
SMC Corp. | 4,500 | 2,657,971 | ||||||
Sony Group Corp. | 37,300 | 3,620,080 | ||||||
Sysmex Corp. | 20,800 | 2,456,721 | ||||||
Tokyo Electron Ltd. | 6,000 | 2,583,251 | ||||||
|
| |||||||
26,392,662 | ||||||||
Luxembourg – 0.9% |
| |||||||
InPost S.A.(1) | 68,713 | 1,380,495 | ||||||
|
| |||||||
1,380,495 | ||||||||
Netherlands – 8.0% |
| |||||||
Adyen N.V.(1)(2) | 1,203 | 2,940,039 | ||||||
Argenx SE(1) | 5,511 | 1,660,238 | ||||||
ASML Holding N.V. | 11,303 | 7,782,131 | ||||||
|
| |||||||
12,382,408 | ||||||||
Republic of Korea – 1.8% |
| |||||||
LG Chem Ltd. | 1,667 | 1,258,469 | ||||||
Samsung Electronics Co. Ltd. | 22,066 | 1,581,588 | ||||||
|
| |||||||
2,840,057 | ||||||||
Spain – 1.6% |
| |||||||
Cellnex Telecom S.A.(2) | 38,722 | 2,466,725 | ||||||
|
| |||||||
2,466,725 | ||||||||
Sweden – 3.7% |
| |||||||
Assa Abloy AB, Class B | 87,127 | 2,625,041 | ||||||
Atlas Copco AB, Class A | 51,379 | 3,147,585 | ||||||
|
| |||||||
5,772,626 | ||||||||
Switzerland – 9.8% |
| |||||||
Lonza Group AG (Reg S) | 4,570 | 3,239,639 | ||||||
Nestle S.A. (Reg S) | 65,233 | 8,123,815 | ||||||
Partners Group Holding AG | 1,256 | 1,903,426 | ||||||
Straumann Holding AG (Reg S) | 1,267 | 2,020,339 | ||||||
|
| |||||||
15,287,219 | ||||||||
Taiwan – 1.1% |
| |||||||
Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 13,930 | 1,673,829 | ||||||
|
| |||||||
1,673,829 | ||||||||
United Kingdom – 12.3% |
| |||||||
Diageo PLC | 98,765 | 4,733,165 | ||||||
Ferguson PLC | 17,179 | 2,391,298 | ||||||
InterContinental Hotels Group PLC(1) | 26,214 | 1,747,288 | ||||||
Intertek Group PLC | 26,522 | 2,029,954 | ||||||
London Stock Exchange Group PLC | 24,421 | 2,693,584 | ||||||
Reckitt Benckiser Group PLC | 24,675 | 2,183,767 | ||||||
RELX PLC | 122,658 | 3,271,717 | ||||||
|
| |||||||
19,050,773 | ||||||||
Total Common Stocks (Cost $100,169,965) |
| 153,044,683 | ||||||
Preferred Stocks – 0.9% |
| |||||||
Germany – 0.9% |
| |||||||
Sartorius AG, 0.35% | 2,600 | 1,353,406 | ||||||
Total Preferred Stocks (Cost $821,869) |
| 1,353,406 |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investment – 0.5% |
| |||||||
Repurchase Agreements – 0.5% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $738,496, due 7/1/2021(3) | $ | 738,496 | $ | 738,496 |
| |||
Total Repurchase Agreements (Cost $738,496) |
| 738,496 | ||||||
Total Investments – 99.8% (Cost $101,730,330) |
| 155,136,585 |
| |||||
Assets in excess of other liabilities – 0.2% |
| 287,426 | ||||||
Total Net Assets – 100.0% |
| $ | 155,424,011 |
(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 June 30, 2021, the aggregate market value of these securities amounted to $14,210,840, representing 9.1% 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 | ||||||||||||
10-Year U.S. TIPS | 0.375% | 7/15/2025 | $ | 609,100 | $ | 753,318 |
Legend:
ADR — American Depositary Receipt
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | ||||||||||||||||
Australia | $ | — | $ | 4,416,294 | * | $ | — | $ | 4,416,294 | |||||||
Cayman Islands | 4,335,679 | 5,087,702 | * | — | 9,423,381 | |||||||||||
Denmark | — | 8,757,799 | * | — | 8,757,799 | |||||||||||
Finland | — | 2,333,813 | * | — | 2,333,813 | |||||||||||
France | — | 17,856,103 | * | — | 17,856,103 | |||||||||||
Germany | — | 10,746,766 | * | — | 10,746,766 | |||||||||||
Hong Kong | — | 8,010,870 | * | — | 8,010,870 | |||||||||||
India | 1,883,864 | — | — | 1,883,864 | ||||||||||||
Ireland | — | 2,368,999 | * | — | 2,368,999 | |||||||||||
Japan | — | 26,392,662 | * | — | 26,392,662 | |||||||||||
Luxembourg | — | 1,380,495 | * | — | 1,380,495 | |||||||||||
Netherlands | — | 12,382,408 | * | — | 12,382,408 | |||||||||||
Republic of Korea | — | 2,840,057 | * | — | 2,840,057 | |||||||||||
Spain | — | 2,466,725 | * | — | 2,466,725 | |||||||||||
Sweden | — | 5,772,626 | * | — | 5,772,626 | |||||||||||
Switzerland | — | 15,287,219 | * | — | 15,287,219 | |||||||||||
Taiwan | 1,673,829 | — | — | 1,673,829 | ||||||||||||
United Kingdom | — | 19,050,773 | * | — | 19,050,773 | |||||||||||
Preferred Stocks | ||||||||||||||||
Germany | — | 1,353,406 | * | — | 1,353,406 | |||||||||||
Repurchase Agreements | — | 738,496 | — | 738,496 | ||||||||||||
Total | $ | 7,893,372 | $ | 147,243,213 | $ | — | $ | 155,136,585 |
* | 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. |
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL GROWTH VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,362,478 | ||
Withholding taxes on foreign dividends | (143,232 | ) | ||
|
| |||
Total Investment Income | 1,219,246 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 581,694 | |||
Distribution fees | 185,633 | |||
Custodian and accounting fees | 39,649 | |||
Professional fees | 29,468 | |||
Trustees’ and officers’ fees | 21,895 | |||
Shareholder reports | 14,112 | |||
Administrative fees | 9,730 | |||
Transfer agent fees | 6,333 | |||
Other expenses | 6,339 | |||
|
| |||
Total Expenses | 894,853 | |||
Less: Fees waived | (18,664 | ) | ||
|
| |||
Total Expenses, Net | 876,189 | |||
|
| |||
Net Investment Income/(Loss) | 343,057 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 7,008,538 | |||
Net realized gain/(loss) from foreign currency transactions | 9,299 | |||
Net change in unrealized appreciation/(depreciation) on investments | 1,419,513 | |||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (16,969 | ) | ||
|
| |||
Net Gain on Investments and Foreign | 8,420,381 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 8,763,438 | ||
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL GROWTH VIP FUND
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL GROWTH VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
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) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 17.34 | $ | 0.04 | $ | 1.01 | $ | 1.05 | $ | 18.39 | 6.06 | %(4) | ||||||||||||
Year Ended 12/31/20 | 13.53 | (0.00 | )(5) | 3.81 | 3.81 | 17.34 | 28.16 | % | ||||||||||||||||
Year Ended 12/31/19 | 10.24 | 0.07 | 3.22 | 3.29 | 13.53 | 32.13 | % | |||||||||||||||||
Year Ended 12/31/18 | 12.61 | 0.12 | (2.49 | ) | (2.37 | ) | 10.24 | (18.79) | % | |||||||||||||||
Year Ended 12/31/17 | 9.62 | 0.09 | 2.90 | 2.99 | 12.61 | 31.08 | % | |||||||||||||||||
Period Ended 12/31/16(7) | 10.00 | (0.00 | )(5) | (0.38 | ) | (0.38 | ) | 9.62 | (3.80) | %(4) |
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL 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 (Loss) to Average | Gross Ratio of Net (Loss) to Average | Portfolio Turnover Rate | |||||||||||||||||
$ | 155,424 | 1.18% | (4) | 1.21% | (4) | 0.46% | (4) | 0.43% | (4) | 19% | (4) | |||||||||||
146,998 | 1.18% | 1.24% | (0.00)% | (6) | (0.06)% | 25% | ||||||||||||||||
146,555 | 1.18% | 1.26% | 0.56% | 0.48% | 25% | |||||||||||||||||
131,137 | 1.18% | 1.32% | 1.07% | 0.93% | 61% | |||||||||||||||||
10,636 | 1.22% | 2.49% | 0.79% | (0.48)% | 32% | |||||||||||||||||
10,980 | 1.22% | (4) | 3.20% | (4) | (0.06)% | (4) | (2.04)% | (4) | 8% | (4) |
(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) | 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. |
(5) | Rounds to $(0.00) per share. |
(6) | Rounds to (0.00)%. |
(7) | Commenced operations on September 1, 2016. |
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian International 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 total return consisting of long-term capital growth and current income.
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.
10 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
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.
11 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
c. Futures Contracts The Fund may enter into financial futures contracts. In entering into such contracts, the Fund is required to deposit with the counterparty, either in cash or securities, an amount equal to a certain percentage of the face value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
d. 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.
e. 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.
f. 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.
g. 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 0.80% of the first $100 million, and 0.75% in excess of $100 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, 2022 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 1.18% 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). 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 six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $18,664.
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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 are not subject to Park Avenue’s recoupment rights. The entitlement to recoupment by Park Avenue from the Fund under the Expense Limitation Agreement expired on April 9, 2021.
Park Avenue has entered into a Sub-Advisory Agreement with J.P. Morgan Investment Management Inc. (“J.P. Morgan”). J.P. Morgan is responsible for providing day- 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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $185,633 to PAS.
PAS has directed that certain payments under the 12b-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 $28,274,551 and $27,307,413, respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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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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 daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment,
in current market conditions without significantly changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund, (iii) Putnam Investment Management, LLC with respect
to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not
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Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations,
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that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included
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breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is
considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that |
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the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The |
20 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
21 |
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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at
http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
22 |
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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8171
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Mid Cap Relative Value VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian Mid Cap Relative Value VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 6 | |||
Statement of Operations | 6 | |||
Statements of Changes in Net Assets | 7 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Shareholder Meeting Results | 16 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 26 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN MID CAP RELATIVE VALUE VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $236,198,607 |
Sector Allocation1 As of June 30, 2021 | ||||
| ||||
Top Ten Holdings2 As of June 30, 2021 | ||||
Holding | % of Total Net Assets | |||
Carlisle Cos., Inc. | 3.28% | |||
CBRE Group, Inc., Class A | 2.94% | |||
Stanley Black & Decker, Inc. | 2.66% | |||
AerCap Holdings N.V. | 2.65% | |||
Arch Capital Group Ltd. | 2.65% | |||
Amdocs Ltd. | 2.57% | |||
Republic Services, Inc. | 2.55% | |||
Brown & Brown, Inc. | 2.48% | |||
Reynolds Consumer Products, Inc. | 2.37% | |||
Euronet Worldwide, Inc. | 2.27% | |||
Total | 26.42% |
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. |
1 |
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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value 6/30/21 | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $ 1,000.00 | $1,179.50 | $5.78 | 1.07% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ 1,000.00 | $1,019.49 | $5.36 | 1.07% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 97.6% |
| |||||||
Aerospace & Defense – 2.6% |
| |||||||
General Dynamics Corp. | 15,785 | $ | 2,971,685 | |||||
L3Harris Technologies, Inc. | 14,235 | 3,076,895 | ||||||
|
| |||||||
6,048,580 | ||||||||
Auto Components – 3.2% |
| |||||||
Aptiv PLC(1) | 24,487 | 3,852,540 | ||||||
Lear Corp. | 21,720 | 3,807,081 | ||||||
|
| |||||||
7,659,621 | ||||||||
Banks – 4.6% |
| |||||||
Fifth Third Bancorp | 110,176 | 4,212,029 | ||||||
PacWest Bancorp | 39,776 | 1,637,180 | ||||||
Regions Financial Corp. | 168,420 | 3,398,716 | ||||||
Zions Bancorporation N.A. | 29,884 | 1,579,668 | ||||||
|
| |||||||
10,827,593 | ||||||||
Beverages – 1.6% |
| |||||||
Keurig Dr Pepper, Inc. | 109,423 | 3,856,067 | ||||||
|
| |||||||
3,856,067 | ||||||||
Building Products – 1.3% |
| |||||||
Masco Corp. | 51,628 | 3,041,406 | ||||||
|
| |||||||
3,041,406 | ||||||||
Capital Markets – 1.6% |
| |||||||
LPL Financial Holdings, Inc. | 27,356 | 3,692,513 | ||||||
|
| |||||||
3,692,513 | ||||||||
Chemicals – 1.7% |
| |||||||
Celanese Corp. | 19,187 | 2,908,749 | ||||||
Diversey Holdings Ltd.(1) | 61,346 | 1,098,707 | ||||||
|
| |||||||
4,007,456 | ||||||||
Commercial Services & Supplies – 2.6% |
| |||||||
Republic Services, Inc. | 54,814 | 6,030,088 | ||||||
|
| |||||||
6,030,088 | ||||||||
Communications Equipment – 0.9% |
| |||||||
Juniper Networks, Inc. | 78,246 | 2,140,028 | ||||||
|
| |||||||
2,140,028 | ||||||||
Construction & Engineering – 1.1% |
| |||||||
MasTec, Inc.(1) | 25,010 | 2,653,561 | ||||||
|
| |||||||
2,653,561 | ||||||||
Consumer Finance – 1.7% |
| |||||||
Discover Financial Services | 33,484 | 3,960,822 | ||||||
|
| |||||||
3,960,822 | ||||||||
Containers & Packaging – 1.0% |
| |||||||
AptarGroup, Inc. | 15,950 | 2,246,398 | ||||||
|
| |||||||
2,246,398 | ||||||||
Distributors – 2.0% |
| |||||||
LKQ Corp.(1) | 96,969 | 4,772,814 | ||||||
|
| |||||||
4,772,814 | ||||||||
Diversified Consumer Services – 0.4% |
| |||||||
Terminix Global Holdings, Inc.(1) | 18,652 | 889,887 | ||||||
|
| |||||||
889,887 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Diversified Financial Services – 1.7% |
| |||||||
Liberty Media Acquisition Corp.(1) | 39,475 | $ | 418,040 | |||||
Pershing Square Tontine Holdings Ltd., Class A(1) | 153,187 | 3,486,536 | ||||||
|
| |||||||
3,904,576 | ||||||||
Electric Utilities – 3.1% |
| |||||||
American Electric Power Co., Inc. | 43,276 | 3,660,717 | ||||||
FirstEnergy Corp. | 96,464 | 3,589,425 | ||||||
|
| |||||||
7,250,142 | ||||||||
Electronic Equipment, Instruments & Components – 0.6% |
| |||||||
Keysight Technologies, Inc.(1) | 9,761 | 1,507,196 | ||||||
|
| |||||||
1,507,196 | ||||||||
Energy Equipment & Services – 1.1% |
| |||||||
Baker Hughes Co. | 25,536 | 584,008 | ||||||
NOV, Inc.(1) | 134,449 | 2,059,759 | ||||||
|
| |||||||
2,643,767 | ||||||||
Equity Real Estate Investment – 3.8% |
| |||||||
American Campus Communities, Inc. REIT | 65,112 | 3,042,033 | ||||||
Equity LifeStyle Properties, Inc. REIT | 12,327 | 916,019 | ||||||
Invitation Homes, Inc. REIT | 132,550 | 4,942,790 | ||||||
|
| |||||||
8,900,842 | ||||||||
Food & Staples Retailing – 1.9% |
| |||||||
BJ’s Wholesale Club Holdings, Inc.(1) | 93,742 | 4,460,244 | ||||||
|
| |||||||
4,460,244 | ||||||||
Food Products – 1.7% |
| |||||||
Lamb Weston Holdings, Inc. | 49,722 | 4,010,577 | ||||||
|
| |||||||
4,010,577 | ||||||||
Health Care Equipment & Supplies – 4.1% |
| |||||||
Alcon, Inc. | 73,334 | 5,152,447 | ||||||
Zimmer Biomet Holdings, Inc. | 28,304 | 4,551,849 | ||||||
|
| |||||||
9,704,296 | ||||||||
Health Care Providers & Services – 3.2% |
| |||||||
Humana, Inc. | 8,531 | 3,776,844 | ||||||
Universal Health Services, Inc., Class B | 25,069 | 3,670,854 | ||||||
|
| |||||||
7,447,698 | ||||||||
Hotels, Restaurants & Leisure – 3.5% |
| |||||||
Expedia Group, Inc.(1) | 24,620 | 4,030,540 | ||||||
Yum China Holdings, Inc. | 63,229 | 4,188,921 | ||||||
|
| |||||||
8,219,461 | ||||||||
Household Durables – 2.6% |
| |||||||
D.R. Horton, Inc. | 57,768 | 5,220,494 | ||||||
Helen of Troy Ltd.(1) | 4,409 | 1,005,781 | ||||||
|
| |||||||
6,226,275 | ||||||||
Household Products – 3.3% |
| |||||||
Church & Dwight Co., Inc. | 25,650 | 2,185,893 | ||||||
Reynolds Consumer Products, Inc. | 184,108 | 5,587,678 | ||||||
|
| |||||||
7,773,571 | ||||||||
Industrial Conglomerates – 3.3% |
| |||||||
Carlisle Cos., Inc. | 40,474 | 7,745,914 | ||||||
|
| |||||||
7,745,914 |
The accompanying notes are an integral part of these financial statements. | 3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Insurance – 8.2% |
| |||||||
Arch Capital Group Ltd.(1) | 160,652 | $ | 6,255,789 | |||||
Brown & Brown, Inc. | 110,129 | 5,852,255 | ||||||
Loews Corp. | 55,420 | 3,028,703 | ||||||
The Allstate Corp. | 32,576 | 4,249,213 | ||||||
|
| |||||||
19,385,960 | ||||||||
IT Services – 4.8% |
| |||||||
Amdocs Ltd. | 78,557 | 6,077,170 | ||||||
Euronet Worldwide, Inc.(1) | 39,646 | 5,366,086 | ||||||
|
| |||||||
11,443,256 | ||||||||
Machinery – 4.3% |
| |||||||
Donaldson Co., Inc. | 37,396 | 2,375,768 | ||||||
Gates Industrial Corp. PLC(1) | 89,164 | 1,611,194 | ||||||
Stanley Black & Decker, Inc. | 30,671 | 6,287,248 | ||||||
|
| |||||||
10,274,210 | ||||||||
Metals & Mining – 1.1% |
| |||||||
Freeport-McMoRan, Inc. | 73,126 | 2,713,706 | ||||||
|
| |||||||
2,713,706 | ||||||||
Oil, Gas & Consumable Fuels – 3.0% |
| |||||||
Devon Energy Corp. | 60,834 | 1,775,744 | ||||||
EOG Resources, Inc. | 23,287 | 1,943,067 | ||||||
Hess Corp. | 19,886 | 1,736,446 | ||||||
Valero Energy Corp. | 21,915 | 1,711,123 | ||||||
|
| |||||||
7,166,380 | ||||||||
Professional Services – 2.1% |
| |||||||
Jacobs Engineering Group, Inc. | 37,535 | 5,007,920 | ||||||
|
| |||||||
5,007,920 | ||||||||
Real Estate Management & Development – 2.9% |
| |||||||
CBRE Group, Inc., Class A(1) | 80,882 | 6,934,014 | ||||||
|
| |||||||
6,934,014 | ||||||||
Road & Rail – 0.0% |
| |||||||
Kansas City Southern | 232 | 65,742 | ||||||
|
| |||||||
65,742 | ||||||||
Semiconductors & Semiconductor Equipment – 1.7% |
| |||||||
Analog Devices, Inc. | 22,957 | 3,952,277 | ||||||
|
| |||||||
3,952,277 | ||||||||
Software – 0.5% |
| |||||||
ironSource Ltd., Class A(1) | 105,550 | 1,108,275 | ||||||
|
| |||||||
1,108,275 | ||||||||
Specialty Retail – 1.6% |
| |||||||
Best Buy Co., Inc. | 33,708 | 3,875,746 | ||||||
|
| |||||||
3,875,746 | ||||||||
Technology Hardware, Storage & Peripherals – 1.8% |
| |||||||
NCR Corp.(1) | 94,949 | 4,330,624 | ||||||
|
| |||||||
4,330,624 | ||||||||
Trading Companies & Distributors – 3.4% |
| |||||||
AerCap Holdings N.V.(1) | 122,419 | 6,269,077 | ||||||
United Rentals, Inc.(1) | 5,427 | 1,731,267 | ||||||
|
| |||||||
8,000,344 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Water Utilities – 2.0% |
| |||||||
American Water Works Co., Inc. | 30,071 | $ | 4,634,843 | |||||
|
| |||||||
4,634,843 | ||||||||
Total Common Stocks (Cost $165,756,835) | 230,514,690 | |||||||
Exchange–Traded Funds – 0.8% | ||||||||
SPDR S&P Oil & Gas Exploration & Production ETF | 18,858 | 1,823,380 | ||||||
Total Exchange–Traded Funds (Cost $854,011) | 1,823,380 | |||||||
Warrants – 0.0% | ||||||||
Pershing Square Tontine Holdings Ltd., Class A(1) | 17,930 | 112,959 | ||||||
Total Warrants (Cost $103,615) | 112,959 | |||||||
Principal Amount | ||||||||
Short–Term Investment – 0.6% | ||||||||
Repurchase Agreements – 0.6% | ||||||||
Fixed Income Clearing Corp., | $ | 1,379,455 | 1,379,455 | |||||
Total Repurchase Agreements (Cost $1,379,455) | 1,379,455 | |||||||
Total Investments – 99.0% (Cost $168,093,916) | 233,830,484 | |||||||
Assets in excess of other liabilities – 1.0% |
| 2,368,123 | ||||||
Total Net Assets – 100.0% | $ | 236,198,607 |
(1) | Non–income–producing security. |
(2) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.375% | 7/15/2025 | $ | 1,137,700 | $ | 1,407,077 |
Legend: | ||||||||
REIT — Real Estate Investment Trust | ||||||||
TIPS — Treasury Inflation–Protected Securities |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 230,514,690 | $ | — | $ | — | $ | 230,514,690 | ||||||||
Exchange–Traded Funds | 1,823,380 | — | — | 1,823,380 | ||||||||||||
Warrants | — | 112,959 | — | 112,959 | ||||||||||||
Repurchase Agreements | — | 1,379,455 | — | 1,379,455 | ||||||||||||
Total | $ | 232,338,070 | $ | 1,492,414 | $ | — | $ | 233,830,484 |
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,632,592 | ||
Withholding taxes on foreign dividends | (1,344 | ) | ||
|
| |||
Total Investment Income | 1,631,248 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 855,984 | |||
Distribution fees | 310,145 | |||
Professional fees | 37,735 | |||
Trustees’ and officers’ fees | 36,539 | |||
Custodian and accounting fees | 22,973 | |||
Administrative fees | 17,645 | |||
Shareholder reports | 8,056 | |||
Transfer agent fees | 5,823 | |||
Other expenses | 9,685 | |||
|
| |||
Total Expenses | 1,304,585 | |||
Expenses recouped by adviser | 17,687 | |||
|
| |||
Total Expenses | 1,322,272 | |||
|
| |||
Net Investment Income/(Loss) | 308,976 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | 23,908,689 | |||
Net change in unrealized appreciation/(depreciation) on investments | 17,991,870 | |||
|
| |||
Net Gain on Investments | 41,900,559 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 42,209,535 | ||
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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 Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
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) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 14.32 | $ | 0.02 | $ | 2.55 | $ | 2.57 | $ | 16.89 | 17.95 | %(4) | ||||||||||||
Year Ended 12/31/20 | 13.93 | 0.09 | 0.30 | 0.39 | 14.32 | 2.80 | % | |||||||||||||||||
Year Ended 12/31/19 | 10.28 | 0.10 | 3.55 | 3.65 | 13.93 | 35.51 | % | |||||||||||||||||
Year Ended 12/31/18 | 12.02 | 0.08 | (1.82 | ) | (1.74 | ) | 10.28 | (14.48 | )% | |||||||||||||||
Year Ended 12/31/17 | 10.81 | 0.10 | 1.11 | 1.21 | 12.02 | 11.19 | % | |||||||||||||||||
Period Ended 12/31/16(5) | 10.00 | 0.03 | 0.78 | 0.81 | 10.81 | 8.10 | %(4) |
8 | The accompanying notes are an integral part of these financial statements. |
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FINANCIAL INFORMATION — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of 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 (Loss) to Average | Portfolio Turnover Rate | |||||||||||||||||
$ | 236,199 | 1.07% | (4) | 1.07% | (4) | 0.24% | (4) | 0.24% | (4) | 17% | (4) | |||||||||||
244,930 | 1.06% | 1.11% | 0.70% | 0.65% | 56% | |||||||||||||||||
235,342 | 1.00% | 1.10% | 0.83% | 0.73% | 37% | |||||||||||||||||
204,185 | 1.00% | 1.14% | 0.66% | 0.52% | 31% | |||||||||||||||||
12,797 | 1.09% | 2.09% | 0.87% | (0.13)% | 76% | |||||||||||||||||
14,921 | 1.09% | (4) | 2.80% | (4) | 0.93% | (4) | (0.76)% | (4) | 14% | (4) |
(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, if any. |
(4) | 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. |
(5) | Commenced operations on September 1, 2016. |
The accompanying notes are an integral part of these financial statements. | 9 |
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian Mid Cap Relative Value 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 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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
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 0.72% up to $100 million, 0.67% up to $300 million, 0.62% up to $500 million, and 0.60% 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, 2022 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 1.08% 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). 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 six months ended June 30, 2021, Park Avenue did not waive any fees or pay any Fund expenses.
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 are not subject to Park Avenue’s recoupment rights. During the six months ended June 30, 2021, Park Avenue recouped previously waived or reimbursed expenses in the amount of $17,687. The entitlement to recoupment by Park
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
Avenue from the Fund under the Expense Limitation Agreement expired on April 9, 2021.
Park Avenue has entered into a Sub-Advisory Agreement with Wells Capital Management Incorporated (“Wells Capital”). Wells Capital is responsible for providing day-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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $310,145 to PAS.
PAS has directed that certain payments under the 12b-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 $41,382,494 and $92,744,568, respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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 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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
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 daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment,
in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
At a meeting held on June 15-16, 2021, the Board of Trustees of Guardian Variable Products Trust approved submitting the following proposal (“Proposal”) to shareholders of the Guardian Mid Cap Relative Value VIP Fund (the “Fund”) at a special meeting to be held on July 30, 2021 (with any postponements or adjournments, “Special Meeting”):
1. To approve a new investment sub-advisory agreement between Park Avenue Institutional Advisers LLC and Wells Capital Management, LLC with respect to the Fund prompted by the Transaction (defined in the Proxy Statement).
On or about July 9, 2021, shareholders of record of the Fund as of the close of business on May 28, 2021 were sent a proxy statement containing information regarding the Proposal. The proxy statement also included information about the Special Meeting, at which shareholders of the Fund were asked to consider and approve the Proposal. In addition, the proxy statement included information about voting (or providing voting instructions) on the Proposal and options shareholders had to do so.
The Special Meeting was held on July 30, 2021, and the Proposal passed.
The results of the Special Meeting were as follows:
Proposal 1. To approve a new investment sub-advisory agreement between Park Avenue Institutional Advisers LLC and Wells Capital Management, LLC with respect to the Fund prompted by the Transaction (defined in the Proxy Statement):
Votes For | Votes Against | Abstentions | ||||||
13,121,020.422 | 422,304.622 | 676,373.721 |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund,
(iii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment
philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
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Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current
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and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the |
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Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, |
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that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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Approval of Investment Sub-advisory Agreement – Guardian Mid Cap Relative Value VIP Fund (the “Fund”)
At a meeting of the Board held on June 15-16, 2021 (the “June 2021 Meeting”), the Board, including a majority of the Independent Trustees, considered and approved a proposed investment sub-advisory agreement between Park Avenue Institutional Advisers LLC (the “Manager”) and Wells Capital Management Incorporated (“WellsCap”)1 with respect to the Fund (the “Proposed Sub-Advisory Agreement”) for an initial two-year term. The Board, including a majority of the Independent Trustees, also considered and approved an interim investment sub-advisory agreement between the Manager and WellsCap (the “Interim Sub-Advisory Agreement”), which will take effect upon the closing of the proposed sale of Wells Fargo Asset Management (“WFAM”), the asset management businesses of Wells Fargo & Company, which includes WellsCap, the current sub-adviser to the Fund (the “Transaction”) if the shareholders of the Fund do not approve the Proposed Sub-Advisory Agreement before the Transaction is completed. The Board noted that, if approved by shareholders of the Fund, the Proposed Sub-Advisory Agreement would go into effect upon the closing of the Transaction.
In connection with its approvals, the Board considered materials provided in advance of the June 2021 Meeting that detailed among other things, the overall summary of the structure, terms, and conditions of the Transaction, the post-Transaction ownership structure of WFAM, and the continuity of services expected to be provided by WellsCap after the Transaction. The Board also considered the terms of the Proposed Sub-Advisory Agreement and the Interim Sub-Advisory Agreement, noting that the terms were the same as those of the current investment sub-advisory agreement between the Manager and WellsCap (the “Current Sub-Advisory Agreement”), except that the Interim Sub-Advisory Agreement: (1) is terminable by the Board or Fund shareholders without penalty on 10 days’ notice; (2) has a duration of no longer than 150 days; and (3) requires all compensation payable under the agreement to WellsCap to be held in an interest bearing escrow account until the Proposed Sub-Advisory Agreement is approved by shareholders. The Board also determined that it was reasonable to
1 | In connection with the Transaction, WellsCap is expected to convert from a California corporation to a Delaware limited liability company. As applicable, references to “WellsCap” refer to Wells Capital Management Incorporated for periods before such conversion, and to Wells Capital Management, LLC for periods after such conversion. |
take into account its conclusions made when considering and evaluating the most recent renewal of the Current Sub-Advisory Agreement for WellsCap, which occurred at a Board meeting held on March 23-24, 2021 (the “March 2021 Meeting”), as part of its considerations to approve the Proposed Sub-Advisory Agreement and the Interim Sub-Advisory Agreement. The Current Sub-Advisory Agreement, the Proposed Sub-Advisory Agreement, and the Interim Sub-Advisory Agreement are collectively referred to as the “Agreements.”
The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s renewal of the Current Sub-Advisory Agreement at the March 2021 Meeting, and the conclusions made by the Board when determining to renew the Current Sub-Advisory Agreement for an additional one-year term.
In connection with the annual review process and in advance of the March 2021 Meeting, the Manager and WellsCap provided information to the Board in response to requests for information by the Independent Trustees to facilitate the Board’s evaluation of the Current Sub-Advisory Agreement. Individual Trustees may have given different weight to different factors and information with respect to the Current Sub-Advisory Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Current Sub-Advisory Agreement. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to approve the Current Sub-Advisory Agreement rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Fund by WellsCap; (ii) the investment performance of the Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for the Fund, and the extent to which the Fund benefits from economies of scale; and (v) any other benefits derived by WellsCap from its relationship with the Fund. At the March 2021 Meeting, representatives of the Manager made presentations and responded to questions regarding services, fees, and other aspects of the Fund’s advisory relationship with the Manager and WellsCap.
In addition to the March 2021 Meeting, the Board met periodically over the course of the year since the prior annual renewal of the Current Sub-Advisory Agreement in 2020. At these meetings, representatives of the Manager furnished reports and other information to the Board regarding the performance of the Fund, the
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services provided to the Fund by the Manager and WellsCap, and compliance and operations matters related to the Trust, the Fund, the Manager, and WellsCap.
At the March 2021 and June 2021 Meetings, the Board received advice from Fund counsel, and the Independent Trustees received additional advice from their independent legal counsel, including advice regarding the legal standards applicable to the consideration of the approval of the Agreements. The Independent Trustees met in executive session, outside the presence of the interested Trustees, Trust officers, and representatives of the Manager and WellsCap, to discuss the Agreements and the services provided by WellsCap.
In considering the approval of the Agreements, the Board considered various factors, as discussed in further detail below.
Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of the services provided to the Fund by WellsCap, including its responsibilities for management of the Fund. In this regard, the Board considered WellsCap’s role in the day-to-day management of the Fund’s portfolio. The Board also considered the Manager’s oversight of WellsCap, which includes continuous analysis of, and regular discussions with WellsCap about, the investment strategies and performance of the Fund, and periodic meetings with WellsCap.
The Board also noted WellsCap’s operations, including resources devoted to support such operations. The Board considered WellsCap’s ability to attract and retain qualified investment professionals and the experience and skills of management and investment personnel of WellsCap. The Board also noted the compliance program and compliance record of WellsCap.
The Board considered that the Transaction is not expected to result in any material changes in the services that WellsCap provides to the Fund or any changes in the personnel providing portfolio management services to the Fund. The Board noted that WFAM anticipates being able to draw upon the combined resources of its buyers, GTCR LLC and Reverence Capital Partners, L.P.
Based on the above factors, as well as those discussed below, the Board concluded, within the context of its full deliberations, that WellsCap is capable of continuing to provide services of the nature, extent and quality contemplated by the terms of the Agreements.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of the Fund, including net performance, relative performance rankings within the Fund’s Lipper peer group, Morningstar ratings, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s senior investment team review with the Board the economic and market environment, risk management, and style consistency in connection with management of the Fund. The Board considered investment performance for the Fund over the one-year, three-year and since inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data. The Board reviewed the investment performance of the Fund on an absolute basis and in comparison to an appropriate benchmark index and the Fund’s respective peer group as independently selected by Broadridge.
The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods.
Costs and Profitability
The Board considered the management fees paid by the Fund to the Manager under a management agreement and evaluated the reasonableness of these fees. The Board received and reviewed comparative information with respect to the management fees and the management fees paid by other funds offered as investment options underlying variable contracts within the applicable peer group based on data obtained from Broadridge.
The Board considered the sub-advisory fees paid under the Current Sub-Advisory Agreement and evaluated the reasonableness of those fees. The Board also considered that the fees paid to WellsCap would be paid by the Manager and not the Fund and that the Manager had negotiated the fees with WellsCap at arm’s-length. The Board also received and considered estimated profitability information from WellsCap. The Board noted that the sub-advisory fees to be paid under the Proposed Sub-Advisory Agreement and Interim
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Sub-Advisory Agreement would remain that same as the fees payable under the Current Sub-Advisory Agreement.
The Board received comparative information relating to the Fund’s operating expense ratio and the operating expense ratios of a peer group of funds. The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. The Board considered the Manager’s commitment to limit the Fund’s operating expenses through an expense limitation agreement with the Trust. Although the Board recognized that the comparisons between the management fees and operating expenses of the Fund 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 the operating expenses.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Fund by WellsCap.
Economies of Scale
The Board considered whether the Fund’s fee structure is designed to share economies of scale with shareholders as the Fund’s assets grow. In this regard,
the Board noted that the management fee and sub-advisory fee for the Fund included breakpoints that are tiered based on growth in asset levels of the Fund. The Board also noted that the Fund’s expenses were subject to an expense limitation provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee. The Board noted that the Proposed Sub-Advisory Agreement and Interim Sub-Advisory Agreement would not result in any change in fees, breakpoints or expense limitations.
Ancillary Benefits
The Board considered the potential benefits, other than sub-advisory fees, that WellsCap and its affiliates may receive because of its relationship with the Fund, including the potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Board concluded that the benefits that may accrue to WellsCap and its affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the Fund.
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Proposed Sub-Advisory Agreement and Interim Sub-Advisory Agreement.
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8176
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Diversified Research VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian Diversified Research VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 6 | |||
Statement of Operations | 6 | |||
Statements of Changes in Net Assets | 7 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 22 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN DIVERSIFIED RESEARCH VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $203,533,008
Sector Allocation1 As of June 30, 2021 | ||||
| ||||
Top Ten Holdings2 As of June 30, 2021 | ||||
Holding | % of Total Net Assets | |||
Microsoft Corp. | 6.26% | |||
Amazon.com, Inc. | 5.04% | |||
Alphabet, Inc., Class A | 4.78% | |||
Apple, Inc. | 4.39% | |||
Facebook, Inc., Class A | 2.86% | |||
Citigroup, Inc. | 2.30% | |||
PayPal Holdings, Inc. | 2.19% | |||
NVIDIA Corp. | 2.03% | |||
The Home Depot, Inc. | 1.90% | |||
The Goldman Sachs Group, Inc. | 1.77% | |||
Total | 33.52% |
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. |
1 |
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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $ 1,000.00 | $1,139.60 | $5.15 | 0.97% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ 1,000.00 | $1,019.98 | $4.86 | 0.97% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.6% |
| |||||||
Aerospace & Defense – 2.1% |
| |||||||
CAE, Inc. (Canada)(1) | 9,316 | $ | 286,935 | |||||
General Dynamics Corp. | 3,020 | 568,545 | ||||||
Northrop Grumman Corp. | 3,695 | 1,342,874 | ||||||
Raytheon Technologies Corp. | 21,362 | 1,822,392 | ||||||
The Boeing Co.(1) | 1,425 | 341,373 | ||||||
|
| |||||||
4,362,119 | ||||||||
Airlines – 0.2% |
| |||||||
Southwest Airlines Co.(1) | 8,939 | 474,572 | ||||||
|
| |||||||
474,572 | ||||||||
Automobiles – 1.5% |
| |||||||
General Motors Co.(1) | 7,948 | 470,283 | ||||||
Tesla, Inc.(1) | 3,823 | 2,598,493 | ||||||
|
| |||||||
3,068,776 | ||||||||
Banks – 2.3% |
| |||||||
Citigroup, Inc. | 66,144 | 4,679,688 | ||||||
|
| |||||||
4,679,688 | ||||||||
Beverages – 2.3% |
| |||||||
Constellation Brands, Inc., Class A | 882 | 206,291 | ||||||
Molson Coors Beverage Co., Class B(1) | 10,733 | 576,255 | ||||||
PepsiCo, Inc. | 17,291 | 2,562,007 | ||||||
The Coca-Cola Co. | 25,650 | 1,387,922 | ||||||
|
| |||||||
4,732,475 | ||||||||
Biotechnology – 2.7% |
| |||||||
AbbVie, Inc. | 19,299 | 2,173,839 | ||||||
Amgen, Inc. | 2,160 | 526,500 | ||||||
Biogen, Inc.(1) | 2,741 | 949,126 | ||||||
Gilead Sciences, Inc. | 6,319 | 435,126 | ||||||
Ironwood Pharmaceuticals, Inc.(1) | 40,848 | 525,714 | ||||||
Regeneron Pharmaceuticals, Inc.(1) | 1,603 | 895,340 | ||||||
|
| |||||||
5,505,645 | ||||||||
Building Products – 0.8% |
| |||||||
Fortune Brands Home & Security, Inc. | 1,735 | 172,824 | ||||||
Johnson Controls International PLC | 21,437 | 1,471,221 | ||||||
|
| |||||||
1,644,045 | ||||||||
Capital Markets – 4.7% |
| |||||||
Apollo Global Management, Inc. | 21,727 | 1,351,419 | ||||||
Intercontinental Exchange, Inc. | 4,294 | 509,698 | ||||||
KKR & Co., Inc. | 31,070 | 1,840,587 | ||||||
Morgan Stanley | 14,622 | 1,340,691 | ||||||
Quilter PLC (United Kingdom)(2) | 440,107 | 905,734 | ||||||
The Goldman Sachs Group, Inc. | 9,484 | 3,599,462 | ||||||
|
| |||||||
9,547,591 | ||||||||
Chemicals – 1.6% |
| |||||||
Corteva, Inc. | 9,121 | 404,516 | ||||||
Diversey Holdings Ltd.(1) | 9,208 | 164,915 | ||||||
Dow, Inc. | 5,149 | 325,829 | ||||||
DuPont de Nemours, Inc. | 3,490 | 270,161 | ||||||
Eastman Chemical Co. | 2,392 | 279,266 | ||||||
Ecolab, Inc. | 1,447 | 298,039 | ||||||
June 30, 2021 (unaudited) | Shares | Value | ||||||
Chemicals (continued) |
| |||||||
Linde PLC | 2,154 | $ | 622,721 | |||||
The Sherwin-Williams Co. | 3,328 | 906,714 | ||||||
|
| |||||||
3,272,161 | ||||||||
Containers & Packaging – 0.5% |
| |||||||
Avery Dennison Corp. | 3,761 | 790,712 | ||||||
Ball Corp. | 3,842 | 311,279 | ||||||
|
| |||||||
1,101,991 | ||||||||
Diversified Financial Services – 0.3% |
| |||||||
Berkshire Hathaway, Inc., Class B(1) | 2,308 | 641,439 | ||||||
|
| |||||||
641,439 | ||||||||
Electric Utilities – 2.5% |
| |||||||
Exelon Corp. | 29,459 | 1,305,328 | ||||||
NextEra Energy, Inc. | 17,419 | 1,276,464 | ||||||
NRG Energy, Inc. | 63,949 | 2,577,145 | ||||||
|
| |||||||
5,158,937 | ||||||||
Electrical Equipment – 1.3% |
| |||||||
Eaton Corp. PLC | 10,789 | 1,598,714 | ||||||
Emerson Electric Co. | 10,229 | 984,439 | ||||||
|
| |||||||
2,583,153 | ||||||||
Electronic Equipment, Instruments & Components – 0.5% |
| |||||||
Vontier Corp. | 27,793 | 905,496 | ||||||
|
| |||||||
905,496 | ||||||||
Entertainment – 2.7% |
| |||||||
Activision Blizzard, Inc. | 33,532 | 3,200,294 | ||||||
Sea Ltd., ADR(1) | 5,488 | 1,507,005 | ||||||
The Walt Disney Co.(1) | 4,042 | 710,462 | ||||||
|
| |||||||
5,417,761 | ||||||||
Equity Real Estate Investment – 1.2% |
| |||||||
Boston Properties, Inc. REIT | 4,925 | 564,356 | ||||||
Gaming and Leisure Properties, Inc. REIT | 40,802 | 1,890,356 | ||||||
|
| |||||||
2,454,712 | ||||||||
Food & Staples Retailing – 1.5% |
| |||||||
BJ’s Wholesale Club Holdings, Inc.(1) | 3,480 | 165,579 | ||||||
Costco Wholesale Corp. | 2,297 | 908,854 | ||||||
Walmart, Inc. | 14,058 | 1,982,459 | ||||||
|
| |||||||
3,056,892 | ||||||||
Food Products – 0.4% |
| |||||||
Bunge Ltd. | 1,599 | 124,962 | ||||||
McCormick & Co., Inc. | 7,009 | 619,035 | ||||||
|
| |||||||
743,997 | ||||||||
Health Care Equipment & Supplies – 3.7% |
| |||||||
Abbott Laboratories | 13,054 | 1,513,350 | ||||||
Boston Scientific Corp.(1) | 18,733 | 801,023 | ||||||
Danaher Corp. | 6,375 | 1,710,795 | ||||||
Dexcom, Inc.(1) | 1,464 | 625,128 | ||||||
Edwards Lifesciences Corp.(1) | 7,922 | 820,482 | ||||||
Intuitive Surgical, Inc.(1) | 413 | 379,811 | ||||||
Medtronic PLC | 6,082 | 754,959 | ||||||
The Cooper Cos., Inc. | 1,342 | 531,794 | ||||||
The accompanying notes are an integral part of these financial statements. | 3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Health Care Equipment & Supplies (continued) |
| |||||||
Zimmer Biomet Holdings, Inc. | 2,785 | $ | 447,884 | |||||
|
| |||||||
7,585,226 | ||||||||
Health Care Providers & Services – 2.5% |
| |||||||
Anthem, Inc. | 1,961 | 748,710 | ||||||
Cigna Corp. | 4,889 | 1,159,035 | ||||||
CVS Health Corp. | 6,592 | 550,036 | ||||||
McKesson Corp. | 1,762 | 336,965 | ||||||
UnitedHealth Group, Inc. | 5,670 | 2,270,495 | ||||||
|
| |||||||
5,065,241 | ||||||||
Hotels, Restaurants & Leisure – 2.7% |
| |||||||
Aramark | 10,286 | 383,153 | ||||||
Booking Holdings, Inc.(1) | 517 | 1,131,242 | ||||||
Chipotle Mexican Grill, Inc.(1) | 552 | 855,788 | ||||||
Evolution AB (Sweden)(2) | 10,303 | 1,628,803 | ||||||
Hilton Worldwide Holdings, Inc.(1) | 7,598 | 916,471 | ||||||
Penn National Gaming, Inc.(1) | 7,087 | 542,085 | ||||||
|
| |||||||
5,457,542 | ||||||||
Household Durables – 0.3% |
| |||||||
PulteGroup, Inc. | 10,837 | 591,375 | ||||||
|
| |||||||
591,375 | ||||||||
Household Products – 1.6% |
| |||||||
The Procter & Gamble Co. | 23,307 | 3,144,813 | ||||||
|
| |||||||
3,144,813 | ||||||||
Industrial Conglomerates – 1.1% |
| |||||||
General Electric Co. | 43,969 | 591,823 | ||||||
Honeywell International, Inc. | 7,120 | 1,561,772 | ||||||
|
| |||||||
2,153,595 | ||||||||
Insurance – 3.9% |
| |||||||
AIA Group Ltd. (Hong Kong) | 52,600 | 653,748 | ||||||
American International Group, Inc. | 37,748 | 1,796,805 | ||||||
Assured Guaranty Ltd. | 46,227 | 2,194,858 | ||||||
AXA S.A. (France) | 50,167 | 1,270,928 | ||||||
Prudential PLC (United Kingdom) | 87,496 | 1,660,135 | ||||||
The Hartford Financial Services Group, Inc. | 5,575 | 345,483 | ||||||
|
| |||||||
7,921,957 | ||||||||
Interactive Media & Services – 7.6% |
| |||||||
Alphabet, Inc., Class A(1) | 3,983 | 9,725,649 | ||||||
Facebook, Inc., Class A(1) | 16,739 | 5,820,318 | ||||||
|
| |||||||
15,545,967 | ||||||||
Internet & Direct Marketing Retail – 5.0% |
| |||||||
Amazon.com, Inc.(1) | 2,981 | 10,255,117 | ||||||
|
| |||||||
10,255,117 | ||||||||
IT Services – 6.7% |
| |||||||
Fidelity National Information Services, Inc. | 24,197 | 3,427,989 | ||||||
Mastercard, Inc., Class A | 9,092 | 3,319,398 | ||||||
PayPal Holdings, Inc.(1) | 15,278 | 4,453,232 | ||||||
Visa, Inc., Class A | 10,615 | 2,481,999 | ||||||
|
| |||||||
13,682,618 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Leisure Products – 0.2% |
| |||||||
Hasbro, Inc. | 3,733 | $ | 352,843 | |||||
|
| |||||||
352,843 | ||||||||
Life Sciences Tools & Services – 1.4% |
| |||||||
Bio-Rad Laboratories, Inc., Class A(1) | 1,461 | 941,308 | ||||||
Thermo Fisher Scientific, Inc. | 3,686 | 1,859,476 | ||||||
|
| |||||||
2,800,784 | ||||||||
Machinery – 0.9% |
| |||||||
Deere & Co. | 2,367 | 834,865 | ||||||
Otis Worldwide Corp. | 12,499 | 1,022,043 | ||||||
|
| |||||||
1,856,908 | ||||||||
Metals & Mining – 0.7% |
| |||||||
Alamos Gold, Inc., Class A | 30,730 | 235,085 | ||||||
Anglo American PLC (United Kingdom) | 6,358 | 253,359 | ||||||
Freeport-McMoRan, Inc. | 10,012 | 371,545 | ||||||
Newmont Corp. | 7,199 | 456,273 | ||||||
|
| |||||||
1,316,262 | ||||||||
Multi-Utilities – 0.4% |
| |||||||
Ameren Corp. | 7,201 | 576,368 | ||||||
CenterPoint Energy, Inc. | 12,331 | 302,356 | ||||||
|
| |||||||
878,724 | ||||||||
Multiline Retail – 1.2% |
| |||||||
Dollar General Corp. | 3,117 | 674,488 | ||||||
Target Corp. | 7,454 | 1,801,930 | ||||||
|
| |||||||
2,476,418 | ||||||||
Oil, Gas & Consumable Fuels – 3.0% |
| |||||||
Cenovus Energy, Inc. (Canada) | 191,590 | 1,833,057 | ||||||
Exxon Mobil Corp. | 43,000 | 2,712,440 | ||||||
Phillips 66 | 3,884 | 333,325 | ||||||
Royal Dutch Shell PLC, Class A (United Kingdom) | 33,977 | 682,784 | ||||||
Thungela Resources Ltd. (South Africa)(1) | 635 | 1,748 | ||||||
TotalEnergies SE (France) | 11,362 | 515,464 | ||||||
|
| |||||||
6,078,818 | ||||||||
Pharmaceuticals – 2.4% |
| |||||||
Bristol Myers Squibb Co. | 9,486 | 633,854 | ||||||
Eli Lilly and Co. | 4,962 | 1,138,878 | ||||||
Johnson & Johnson | 8,789 | 1,447,900 | ||||||
Merck & Co., Inc. | 10,758 | 836,650 | ||||||
Pfizer, Inc. | 20,629 | 807,832 | ||||||
|
| |||||||
4,865,114 | ||||||||
Professional Services – 0.3% |
| |||||||
CoStar Group, Inc.(1) | 6,840 | 566,489 | ||||||
|
| |||||||
566,489 | ||||||||
Road & Rail – 1.7% |
| |||||||
CSX Corp. | 18,363 | 589,085 | ||||||
Union Pacific Corp. | 13,226 | 2,908,794 | ||||||
|
| |||||||
3,497,879 | ||||||||
Semiconductors & Semiconductor Equipment – 4.8% |
| |||||||
Applied Materials, Inc. | 12,305 | 1,752,232 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Semiconductors & Semiconductor Equipment (continued) |
| |||||||
NVIDIA Corp. | 5,157 | $ | 4,126,116 | |||||
NXP Semiconductors N.V. | 12,250 | 2,520,070 | ||||||
ON Semiconductor Corp.(1) | 35,922 | 1,375,094 | ||||||
|
| |||||||
9,773,512 | ||||||||
Software – 8.8% |
| |||||||
Adobe, Inc.(1) | 5,320 | 3,115,605 | ||||||
Microsoft Corp. | 47,059 | 12,748,283 | ||||||
Oracle Corp. | 26,071 | 2,029,367 | ||||||
|
| |||||||
17,893,255 | ||||||||
Specialty Retail – 2.9% |
| |||||||
Advance Auto Parts, Inc. | 1,643 | 337,045 | ||||||
Burlington Stores, Inc.(1) | 120 | 38,639 | ||||||
CarMax, Inc.(1) | 5,769 | 745,066 | ||||||
L Brands, Inc. | 4,294 | 309,425 | ||||||
The Home Depot, Inc. | 12,128 | 3,867,498 | ||||||
The TJX Cos., Inc. | 9,873 | 665,638 | ||||||
|
| |||||||
5,963,311 | ||||||||
Technology Hardware, Storage & Peripherals – 4.4% |
| |||||||
Apple, Inc. | 65,312 | 8,945,132 | ||||||
|
| |||||||
8,945,132 | ||||||||
Textiles, Apparel & Luxury Goods – 0.6% |
| |||||||
Lululemon Athletica, Inc.(1) | 576 | 210,223 | ||||||
NIKE, Inc., Class B | 7,044 | 1,088,227 | ||||||
|
| |||||||
1,298,450 | ||||||||
Tobacco – 0.3% |
| |||||||
Altria Group, Inc. | 12,764 | 608,588 | ||||||
|
| |||||||
608,588 | ||||||||
Trading Companies & Distributors – 0.4% |
| |||||||
United Rentals, Inc.(1) | 2,224 | 709,478 | ||||||
|
| |||||||
709,478 | ||||||||
Wireless Telecommunication Services – 1.0% |
| |||||||
T-Mobile US, Inc.(1) | 14,237 | 2,061,945 | ||||||
|
| |||||||
2,061,945 | ||||||||
Total Common Stocks (Cost $137,991,381) |
| 202,698,811 |
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investment – 0.4% |
| |||||||
Repurchase Agreements – 0.4% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $775,289, due 7/1/2021(3) | $ | 775,289 | $ | 775,289 | ||||
Total Repurchase Agreements (Cost $775,289) | 775,289 | |||||||
Total Investments – 100.0% (Cost $138,766,670) | 203,474,100 | |||||||
Assets in excess of other liabilities – 0.0% |
| 58,908 | ||||||
Total Net Assets – 100.0% |
| $ | 203,533,008 |
(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 June 30, 2021, the aggregate market value of these securities amounted to $2,534,537, representing 1.2% 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 | ||||||||||||
10-Year U.S. TIPS | 0.375% | 7/15/2025 | $ | 639,500 | $ | 790,916 |
Legend:
ADR — American Depositary Receipt
REIT — Real Estate Investment Trust
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 195,127,856 | $ | 7,570,955 | * | $ | — | $ | 202,698,811 | |||||||
Repurchase Agreements | — | 775,289 | — | 775,289 | ||||||||||||
Total | $ | 195,127,856 | $ | 8,346,244 | $ | — | $ | 203,474,100 |
* | 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. |
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,404,376 | ||
Withholding taxes on foreign dividends | (25,336 | ) | ||
|
| |||
Total Investment Income | 1,379,040 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 594,511 | |||
Distribution fees | 247,713 | |||
Professional fees | 29,513 | |||
Custodian and accounting fees | 29,046 | |||
Trustees’ and officers’ fees | 28,826 | |||
Administrative fees | 13,793 | |||
Transfer agent fees | 5,799 | |||
Shareholder reports | 1,586 | |||
Other expenses | 8,080 | |||
|
| |||
Total Expenses | 958,867 | |||
Less: Fees waived | (396 | ) | ||
|
| |||
Total Expenses, Net | 958,471 | |||
|
| |||
Net Investment Income/(Loss) | 420,569 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 10,988,785 | |||
Net realized gain/(loss) from foreign currency transactions | 665 | |||
Net change in unrealized appreciation/(depreciation) on investments | 14,681,334 | |||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (497 | ) | ||
|
| |||
Net Gain on Investments and Foreign Currency Transactions | 25,670,287 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 26,090,856 | ||
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
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 six reporting periods (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 Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
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) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 19.05 | $ | 0.04 | $ | 2.62 | $ | 2.66 | $ | 21.71 | 13.96% | (4) | ||||||||||||
Year Ended 12/31/20 | 15.85 | 0.08 | 3.12 | 3.20 | 19.05 | 20.19% | ||||||||||||||||||
Year Ended 12/31/19 | 11.84 | 0.11 | 3.90 | 4.01 | 15.85 | 33.87% | ||||||||||||||||||
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(5) | 10.00 | 0.04 | 0.33 | 0.37 | 10.37 | 3.70% | (4) |
8 | The accompanying notes are an integral part of these financial statements. |
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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 (Loss) to Average | Portfolio Turnover Rate | |||||||||||||||||
$ | 203,533 | 0.97% | (4) | 0.97% | (4) | 0.42% | (4) | 0.42% | (4) | 25% | (4) | |||||||||||
193,384 | 1.01% | 1.02% | 0.52% | 0.51% | 76% | |||||||||||||||||
196,050 | 1.01% | 1.03% | 0.77% | 0.75% | 88% | |||||||||||||||||
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% | (4) | 3.07% | (4) | 1.12% | (4) | (0.99)% | (4) | 61% | (4) |
(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) | 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. |
(5) | Commenced operations on September 1, 2016. |
The accompanying notes are an integral part of these financial statements. | 9 |
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four 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.
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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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
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.
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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 0.60% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.
Park Avenue has contractually agreed through April 30, 2022 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 May 1, 2021, 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 six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $396.
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 are not subject to Park Avenue’s recoupment rights. The entitlement to recoupment by Park Avenue from the Fund under the Expense Limitation Agreement expired on April 9, 2021.
Park Avenue has entered into a Sub-Advisory Agreement with Putnam Investment Management LLC
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
(“Putnam”). Putnam is responsible for providing day-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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $247,713 to PAS.
PAS has directed that certain payments under the 12b-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 $47,981,094 and $61,738,716,
respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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 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
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
calculated based on the higher of the daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting
supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund,
(iii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and 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 any Sub-adviser.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided
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to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included
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SUPPLEMENTAL INFORMATION (UNAUDITED)
breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since- inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8168
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Multi-Sector Bond VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian Multi-Sector Bond VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 9 | |||
Statement of Operations | 9 | |||
Statements of Changes in Net Assets | 10 | |||
Financial Highlights | 12 | |||
Notes to Financial Statements | 14 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 21 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 22 | |||
Portfolio Holdings and Proxy Voting Procedures | 28 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN MULTI-SECTOR BOND VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $333,146,449
Bond Sector Allocation1 As of June 30, 2021 |
Bond Quality Allocation2 As of June 30, 2021 |
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GUARDIAN MULTI-SECTOR BOND VIP FUND
Top Ten Holdings1 As of June 30, 2021 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Note | 1.500% | 9/30/2024 | 7.84% | |||||||||
SPDR Blackstone Senior Loan ETF | — | — | 4.63% | |||||||||
Invesco Senior Loan ETF | — | — | 4.59% | |||||||||
Ovintiv Exploration, Inc. | 5.375% | 1/1/2026 | 2.42% | |||||||||
Credit Suisse Group AG | 3.869% | 1/12/2029 | 2.31% | |||||||||
NXP B.V. / NXP Funding LLC / NXP USA, Inc. | 3.400% | 5/1/2030 | 2.29% | |||||||||
Simon Property Group LP | 2.200% | 2/1/2031 | 2.28% | |||||||||
FirstEnergy Corp. | 2.650% | 3/1/2030 | 2.00% | |||||||||
Marriott International, Inc. | 2.850% | 4/15/2031 | 1.95% | |||||||||
Hess Corp. | 4.300% | 4/1/2027 | 1.92% | |||||||||
Total |
| 32.23% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. Cash includes short-term investments and net other assets and liabilities. |
2 | The Bond Quality Allocation chart displays the percentage of fund assets allocated to each rating. Rating agencies’ independent ratings of individual securities are aggregated by Barclays, and market weights are reported using Standard & Poor’s letter rating conventions. Rating methodology uses the middle rating of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services, and Fitch Ratings. When a rating from only two of the rating agencies is available, the lower rating is used. Credit quality ratings assigned by a rating agency are subject to change periodically and are not absolute standards of credit quality. Rating agencies may fail to make timely changes in credit ratings, and an issuer’s current financial condition may be better or worse than a rating indicates. In formulating investment decisions for the Fund, Park Avenue Institutional Advisers LLC develops its own analysis of the credit quality and risks associated with individual debt instruments, rather than relying exclusively on rating agency ratings. |
2 |
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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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $1,000.00 | $1,001.90 | $4.37 | 0.88% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.43 | $4.41 | 0.88% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities – 5.3% |
| |||||||
AIMCO CLO 3.338% (LIBOR 3 Month + 3.15%) | $ | 1,800,000 | $ | 1,808,330 | ||||
AIMCO CLO 14 Ltd. 3.088% (LIBOR 3 Month + 2.90%) due 4/20/2034(1)(2) | 2,000,000 | 1,996,864 | ||||||
AmeriCredit Automobile Receivables Trust | 59,322 | 59,380 | ||||||
Ares XXXIV CLO Ltd. 1.79% (LIBOR 3 Month + 1.60%) | 300,000 | 302,585 | ||||||
Battalion CLO XIX Ltd. 3.428% (LIBOR 3 Month + 3.25%) | 2,000,000 | 1,996,984 | ||||||
BlueMountain CLO Ltd. 1.938% (LIBOR 3 Month + 1.75%) | 600,000 | 599,698 | ||||||
CIFC Funding Ltd. 1.781% (LIBOR 3 Month + 1.60%) due 4/27/2031(1)(2) | 1,200,000 | 1,196,400 | ||||||
Commonbond Student Loan Trust | 857,397 | 853,165 | ||||||
Elmwood CLO IX Ltd. 2.039% (LIBOR 3 Month + 1.90%) | 1,000,000 | 999,500 | ||||||
Greywolf CLO II Ltd. 4.384% (LIBOR 3 Month + 4.20%) | 2,400,000 | 2,396,364 | ||||||
ICG U.S. CLO Ltd. 1.934% (LIBOR 3 Month + 1.75%) | 1,500,000 | 1,500,790 | ||||||
Neuberger Berman CLO XVII Ltd. 1.684% (LIBOR 3 Month + 1.50%) | 1,400,000 | 1,396,080 | ||||||
OHA Credit Funding 2 Ltd. 2.386% (LIBOR 3 Month + 2.20%) | 1,800,000 | 1,795,680 | ||||||
Voya CLO Ltd. 1.94% (LIBOR 3 Month + 1.75%) | 835,000 | 841,016 | ||||||
Total Asset–Backed Securities (Cost $17,712,281) |
| 17,742,836 |
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Corporate Bonds & Notes – 69.6% |
| |||||||
Aerospace & Defense – 2.0% | ||||||||
The Boeing Co. | $ | 1,150,000 | $ | 1,186,282 | ||||
5.15% due 5/1/2030 | 4,600,000 | 5,451,230 | ||||||
|
| |||||||
6,637,512 | ||||||||
Agriculture – 1.6% |
| |||||||
Altria Group, Inc. | 5,400,000 | 5,219,370 | ||||||
|
| |||||||
5,219,370 | ||||||||
Airlines – 1.0% |
| |||||||
American Airlines, Inc. | 2,600,000 | 3,262,506 | ||||||
|
| |||||||
3,262,506 | ||||||||
Auto Manufacturers – 3.2% |
| |||||||
Ford Motor Co. | 875,000 | 1,254,251 | ||||||
Ford Motor Credit Co. LLC | 2,190,000 | 2,297,310 | ||||||
4.125% due 8/17/2027 | 1,000,000 | 1,061,360 | ||||||
General Motors Co. | 850,000 | 1,157,258 | ||||||
General Motors Financial Co., Inc. | 4,500,000 | 4,877,820 | ||||||
|
| |||||||
10,647,999 | ||||||||
Beverages – 1.4% |
| |||||||
Constellation Brands, Inc. | 2,000,000 | 2,100,500 | ||||||
4.10% due 2/15/2048 | 2,100,000 | 2,412,228 | ||||||
|
| |||||||
4,512,728 | ||||||||
Building Materials – 0.5% |
| |||||||
Cornerstone Building Brands, Inc. | 1,500,000 | 1,611,450 | ||||||
|
| |||||||
1,611,450 | ||||||||
Commercial Banks – 7.9% |
| |||||||
Bank of America Corp. 4/22/2031; SOFR + 1.32% thereafter) due 4/22/2032(2) | 4,600,000 | 4,738,368 | ||||||
2.831% (2.831% fixed rate until 10/24/2050; SOFR + 1.88% | 2,500,000 | 2,443,625 | ||||||
Citigroup, Inc. 6/3/2030; SOFR + 2.11% thereafter) due 6/3/2031(2) | 500,000 | 513,845 | ||||||
4.65% due 7/23/2048 | 600,000 | 785,904 | ||||||
Credit Suisse Group AG 1/12/2028; LIBOR 3 Month + 1.41% |
| |||||||
thereafter) due 1/12/2029(1)(2) | 7,000,000 | 7,703,360 | ||||||
Discover Bank | 6,100,000 | 6,386,578 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Commercial Banks (continued) |
| |||||||
JPMorgan Chase & Co. 4/22/2031; SOFR + 1.25% thereafter) due 4/22/2032(2) | $ | 2,000,000 | $ | 2,054,780 | ||||
3.328% (3.328% fixed rate until 4/22/2051; SOFR + 1.58% thereafter) due 4/22/2052(2) | 500,000 | 533,615 | ||||||
Morgan Stanley 4/22/2041; SOFR + 1.49% thereafter) due 4/22/2042(2) | 1,000,000 | 1,058,130 | ||||||
|
| |||||||
26,218,205 | ||||||||
Commercial Services – 0.1% |
| |||||||
Team Health Holdings, Inc. | 500,000 | 475,940 | ||||||
|
| |||||||
475,940 | ||||||||
Diversified Financial Services – 2.1% |
| |||||||
Air Lease Corp. | 1,700,000 | 1,722,338 | ||||||
4.625% due 10/1/2028 | 4,700,000 | 5,311,517 | ||||||
|
| |||||||
7,033,855 | ||||||||
Electric – 2.0% |
| |||||||
FirstEnergy Corp. | 6,700,000 | 6,663,150 | ||||||
|
| |||||||
6,663,150 | ||||||||
Entertainment – 1.1% |
| |||||||
Affinity Gaming | 2,000,000 | 2,126,460 | ||||||
Cinemark USA, Inc. | 1,650,000 | 1,691,993 | ||||||
|
| |||||||
3,818,453 | ||||||||
Environmental Control – 1.5% |
| |||||||
Waste Connections, Inc. | 3,400,000 | 3,516,586 | ||||||
Waste Management, Inc. | 1,500,000 | 1,419,615 | ||||||
2.50% due 11/15/2050 | 200,000 | 186,492 | ||||||
|
| |||||||
5,122,693 | ||||||||
Food – 2.0% |
| |||||||
Kraft Heinz Foods Co. | 4,840,000 | 5,508,549 | ||||||
Post Holdings, Inc. | 1,000,000 | 1,047,280 | ||||||
|
| |||||||
6,555,829 | ||||||||
Food Service – 0.3% |
| |||||||
Aramark Services, Inc. | 1,000,000 | 1,062,270 | ||||||
|
| |||||||
1,062,270 | ||||||||
Healthcare-Services – 1.1% |
| |||||||
Surgery Center Holdings, Inc. | 2,200,000 | 2,416,216 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Healthcare-Services (continued) |
| |||||||
Tenet Healthcare Corp. | $ | 1,000,000 | $ | 1,088,930 | ||||
|
| |||||||
3,505,146 | ||||||||
Insurance – 4.9% |
| |||||||
Aon Corp. | 2,565,000 | 2,698,483 | ||||||
Chubb INA Holdings, Inc. | 3,900,000 | 3,710,187 | ||||||
CNA Financial Corp. | 5,810,000 | 5,711,520 | ||||||
Liberty Mutual Group, Inc. | 700,000 | 776,692 | ||||||
Willis North America, Inc. | 3,155,000 | 3,318,334 | ||||||
|
| |||||||
16,215,216 | ||||||||
Internet – 1.7% |
| |||||||
Expedia Group, Inc. | 5,500,000 | 5,595,700 | ||||||
|
| |||||||
5,595,700 | ||||||||
Leisure Time – 1.3% |
| |||||||
Life Time, Inc. | 2,000,000 | 2,072,360 | ||||||
Viking Cruises Ltd. | 1,965,000 | 2,310,919 | ||||||
|
| |||||||
4,383,279 | ||||||||
Lodging – 2.9% |
| |||||||
Boyd Gaming Corp. | 1,500,000 | 1,552,335 | ||||||
Marriott International, Inc. | 6,400,000 | 6,503,808 | ||||||
MGM Resorts International | 1,500,000 | 1,646,880 | ||||||
|
| |||||||
9,703,023 | ||||||||
Machinery-Construction & Mining – 0.6% |
| |||||||
Caterpillar, Inc. | 1,400,000 | 1,402,702 | ||||||
3.25% due 4/9/2050 | 400,000 | 443,324 | ||||||
|
| |||||||
1,846,026 | ||||||||
Media – 6.5% |
| |||||||
AMC Networks, Inc. | 2,000,000 | 2,020,680 | ||||||
Audacy Capital Corp. | 1,500,000 | 1,559,055 | ||||||
Charter Communications Operating LLC / Charter Communications Operating Capital | 1,500,000 | 1,444,695 | ||||||
3.70% due 4/1/2051 | 1,000,000 | 995,160 | ||||||
Comcast Corp. | 1,400,000 | 1,263,920 | ||||||
CSC Holdings LLC | 1,500,000 | 1,642,800 | ||||||
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Media (continued) |
| |||||||
Gray Television, Inc. | $ | 2,000,000 | $ | 2,171,300 | ||||
iHeartCommunications, Inc. | 2,100,000 | 2,198,112 | ||||||
Scripps Escrow, Inc. | 1,425,000 | 1,475,488 | ||||||
Sinclair Television Group, Inc. | 1,750,000 | 1,782,935 | ||||||
Sirius XM Radio, Inc. | 500,000 | 544,745 | ||||||
TEGNA, Inc. | 2,250,000 | 2,355,345 | ||||||
Univision Communications, Inc. | 200,000 | 201,504 | ||||||
ViacomCBS, Inc. | 1,100,000 | 1,269,829 | ||||||
4.95% due 5/19/2050 | 500,000 | 631,810 | ||||||
|
| |||||||
21,557,378 | ||||||||
Mining – 0.5% |
| |||||||
Freeport-McMoRan, Inc. | 1,300,000 | 1,589,328 | ||||||
|
| |||||||
1,589,328 | ||||||||
Oil & Gas – 6.0% |
| |||||||
Antero Resources Corp. | 1,070,000 | 1,216,793 | ||||||
Cenovus Energy, Inc. | 1,000,000 | 1,118,190 | ||||||
5.40% due 6/15/2047 | 1,700,000 | 2,110,822 | ||||||
Hess Corp. | 5,750,000 | 6,405,270 | ||||||
Marathon Petroleum Corp. | 1,020,000 | 1,166,513 | ||||||
Ovintiv Exploration, Inc. | 7,150,000 | 8,062,054 | ||||||
|
| |||||||
20,079,642 | ||||||||
Oil & Gas Services – 0.2% |
| |||||||
TechnipFMC PLC | 700,000 | 755,174 | ||||||
|
| |||||||
755,174 | ||||||||
Packaging & Containers – 1.7% |
| |||||||
Amcor Flexibles North America, Inc. | 5,500,000 | 5,607,195 | ||||||
|
| |||||||
5,607,195 | ||||||||
Pharmaceuticals – 1.4% |
| |||||||
AbbVie, Inc. | 1,600,000 | 1,918,384 | ||||||
Bausch Health Cos., Inc. | 2,000,000 | 1,865,960 | ||||||
6.125% due 4/15/2025(1) | 969,000 | 992,915 | ||||||
|
| |||||||
4,777,259 |
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Pipelines – 0.9% |
| |||||||
Energy Transfer LP | $ | 1,000,000 | $ | 1,087,180 | ||||
5.00% due 5/15/2050 | 1,300,000 | 1,501,812 | ||||||
ONEOK, Inc. | 400,000 | 444,236 | ||||||
|
| |||||||
3,033,228 | ||||||||
Real Estate Investment Trusts – 2.3% |
| |||||||
Simon Property Group LP | 7,700,000 | 7,606,137 | ||||||
|
| |||||||
7,606,137 | ||||||||
Retail – 2.1% |
| |||||||
Kohl’s Corp. | 1,400,000 | 1,678,824 | ||||||
Magic Mergeco, Inc. | 2,000,000 | 2,060,780 | ||||||
PetSmart, Inc. / PetSmart Finance Corp. | 3,000,000 | 3,308,880 | ||||||
|
| |||||||
7,048,484 | ||||||||
Semiconductors – 4.4% |
| |||||||
Broadcom, Inc. | 5,200,000 | 5,920,824 | ||||||
KLA Corp. | 1,000,000 | 1,152,950 | ||||||
NXP B.V. / NXP Funding LLC / NXP USA, Inc. | 7,000,000 | 7,630,980 | ||||||
|
| |||||||
14,704,754 | ||||||||
Telecommunications – 4.2% |
| |||||||
AT&T, Inc. | 3,150,000 | 3,159,198 | ||||||
4.30% due 2/15/2030 | 2,700,000 | 3,121,740 | ||||||
Frontier Communications Holdings LLC | 2,000,000 | 2,068,720 | ||||||
Level 3 Financing, Inc. | 1,000,000 | 1,037,610 | ||||||
Sprint Corp. | 500,000 | 611,670 | ||||||
T-Mobile USA, Inc. | 2,990,000 | 3,089,806 | ||||||
4.75% due 2/1/2028 | 1,000,000 | 1,070,870 | ||||||
|
| |||||||
14,159,614 | ||||||||
Transportation – 0.2% |
| |||||||
Cargo Aircraft Management, Inc. | 800,000 | 819,128 | ||||||
|
| |||||||
819,128 | ||||||||
Total Corporate Bonds & Notes (Cost $227,060,794) |
| 231,827,671 | ||||||
Non–Agency Mortgage–Backed Securities – 5.7% |
| |||||||
BANK | 1,412,000 | 1,526,084 | ||||||
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
BB-UBS Trust | $ | 1,200,000 | $ | 1,271,773 | ||||
Benchmark Mortgage Trust | 5,000,000 | 5,462,134 | ||||||
Citigroup Commercial Mortgage Trust | 1,000,000 | 1,076,686 | ||||||
GS Mortgage Securities Trust | 1,300,000 | 1,428,714 | ||||||
Jackson Park Trust | 640,000 | 659,527 | ||||||
JPMCC Commercial Mortgage Securities Trust | 625,000 | 689,086 | ||||||
Morgan Stanley Capital I Trust | 1,000,000 | 1,060,640 | ||||||
ONE Park Mortgage Trust | 1,000,000 | 998,729 | ||||||
SLG Office Trust | 1,600,000 | 1,665,040 | ||||||
Stack Infrastructure Issuer LLC | 750,000 | 759,672 | ||||||
Wells Fargo Commercial Mortgage Trust | 500,000 | 551,626 | ||||||
WFRBS Commercial Mortgage Trust | 1,500,000 | 1,617,141 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $18,409,765) |
| 18,766,852 | ||||||
U.S. Government Securities – 8.7% |
| |||||||
U.S. Treasury Note | 1,400,000 | 1,403,719 | ||||||
1.50% due 9/30/2024 | 25,300,000 | 26,106,438 | ||||||
1.625% due 8/15/2029 | 100,000 | 102,281 | ||||||
1.625% due 5/15/2031 | 1,450,000 | 1,472,656 | ||||||
Total U.S. Government Securities (Cost $28,207,821) |
| 29,085,094 | ||||||
June 30, 2021 (unaudited) | Shares | Value | ||||||
Exchange–Traded Funds – 9.2% |
| |||||||
Invesco Senior Loan ETF | 690,000 | $ | 15,283,500 | |||||
SPDR Blackstone Senior Loan ETF | 333,000 | 15,414,570 | ||||||
Total Exchange–Traded Funds (Cost $30,672,945) |
| 30,698,070 | ||||||
Principal Amount | Value | |||||||
Short–Term Investment – 0.8% |
| |||||||
Repurchase Agreements – 0.8% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $2,560,881, due 7/1/2021(4) | $ | 2,560,881 | 2,560,881 | |||||
Total Repurchase Agreements (Cost $2,560,881) |
| 2,560,881 | ||||||
Total Investments(5) – 99.3% (Cost $324,624,487) |
| 330,681,404 | ||||||
Assets in excess of other liabilities(6) – 0.7% |
| 2,465,045 | ||||||
Total Net Assets – 100.0% |
| $ | 333,146,449 |
(1) | 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 June 30, 2021, the aggregate market value of these securities amounted to $87,516,434, representing 26.3% 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. |
(2) | Variable rate securities, which may include step-up bonds or adjustable rate mortgages. The rate shown is the rate in effect at June 30, 2021. |
(3) | Variable coupon rate based on weighted average interest rate of underlying mortgages. |
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 2.50% | 1/31/2025 | $ | 2,422,600 | $ | 2,612,169 |
(5) | Securities are segregated to cover anticipated or existing derivative positions or to be announced securities (TBA). |
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
(6) | Assets in excess of other liabilities include net unrealized depreciation on futures contracts as follows: |
Open futures contracts at June 30, 2021:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||
U.S. 2-Year Treasury Note | September 2021 | 136 | Long | $ | 30,015,217 | $ | 29,963,562 | $ | (51,655 | ) | ||||||||||||||
U.S. 5-Year Treasury Note | September 2021 | 8 | Long | 987,589 | 987,438 | (151 | ) | |||||||||||||||||
U.S. 10-Year Treasury Note | September 2021 | 9 | Long | 1,192,811 | 1,192,500 | (311 | ) | |||||||||||||||||
U.S. Long Bond | September 2021 | 215 | Long | 33,809,243 | 34,561,250 | 752,007 | ||||||||||||||||||
U.S. Ultra Bond | September 2021 | 104 | Long | 19,472,997 | 20,039,500 | 566,503 | ||||||||||||||||||
Total |
| $ | 85,477,857 | $ | 86,744,250 | $ | 1,266,393 |
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2021 | 774 | Short | $ | (112,339,483 | ) | $ | (113,935,219 | ) | $ | (1,595,736 | ) |
Legend:
CLO — Collateralized Loan Obligation
LIBOR — London Interbank Offered Rate
SOFR — Secured Overnight Financing Rate
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Asset–Backed Securities | $ | — | $ | 17,742,836 | $ | — | $ | 17,742,836 | ||||||||
Corporate Bonds & Notes | — | 231,827,671 | — | 231,827,671 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 18,766,852 | — | 18,766,852 | ||||||||||||
U.S. Government Securities | — | 29,085,094 | — | 29,085,094 | ||||||||||||
Exchange–Traded Funds | 30,698,070 | — | — | 30,698,070 | ||||||||||||
Repurchase Agreements | — | 2,560,881 | — | 2,560,881 | ||||||||||||
Total | $ | 30,698,070 | $ | 299,983,334 | $ | — | $ | 330,681,404 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts |
| |||||||||||||||
Assets | $ | 1,318,510 | $ | — | $ | — | $ | 1,318,510 | ||||||||
Liabilities | (1,647,853 | ) | — | — | (1,647,853 | ) | ||||||||||
Total | $ | (329,343 | ) | $ | — | $ | — | $ | (329,343 | ) |
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MULTI-SECTOR BOND VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 251,027 | ||
Interest | 4,017,142 | |||
|
| |||
Total Investment Income | 4,268,169 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 823,439 | |||
Distribution fees | 395,884 | |||
Trustees’ and officers’ fees | 44,791 | |||
Professional fees | 41,319 | |||
Shareholder reports | 26,655 | |||
Custodian and accounting fees | 26,497 | |||
Administrative fees | 23,696 | |||
Transfer agent fees | 6,465 | |||
Other expenses | 12,057 | |||
|
| |||
Total Expenses | 1,400,803 | |||
|
| |||
Net Investment Income/(Loss) | 2,867,366 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | 1,800,491 | |||
Net realized gain/(loss) from futures contracts | 1,264,860 | |||
Net realized gain/(loss) from swap contracts | 846,228 | |||
Net change in unrealized appreciation/(depreciation) on investments | (6,155,640 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | 48,477 | |||
|
| |||
Net Loss on Investments and Derivative Contracts | (2,195,584 | ) | ||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 671,782 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MULTI-SECTOR BOND VIP FUND
10 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
This Page Intentionally Left Blank
11 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MULTI-SECTOR BOND VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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 Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
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) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 10.74 | $ | 0.10 | $ | (0.08 | ) | $ | 0.02 | $ | 10.76 | 0.19% | (4) | |||||||||||
Year Ended 12/31/20 | 10.03 | 0.14 | 0.57 | 0.71 | 10.74 | 7.08% | ||||||||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.03 | 0.00 | (6) | 0.03 | 10.03 | 0.30% | (4) |
12 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MULTI-SECTOR BOND 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 to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 333,146 | 0.88% | (4) | 0.88% | (4) | 1.82% | (4) | 1.82% | (4) | 123% | (4) | |||||||||||
306,696 | 0.89% | 0.89% | 1.38% | 1.38% | 163% | |||||||||||||||||
309,877 | 0.93% | (4) | 0.93% | (4) | 1.33% | (4) | 1.33% | (4) | 27% | (4) |
(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) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2019, certain non-recurring fees (i.e., audit fees) are not annualized. |
(5) | Commenced operations on October 21, 2019. |
(6) | Rounds to $0.00 per share. |
The accompanying notes are an integral part of these financial statements. | 13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian Multi-Sector Bond VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 21, 2019. 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 provide a high current income with a secondary objective of 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 The valuations of debt securities for which quoted bid prices are readily available are valued at the bid price by independent pricing services (each, a “Service”). Debt securities for which quoted bid prices are not readily available are valued by a Service at the evaluated bid price provided by the Service or the bid price provided by an independent broker-dealer or at a calculated price based on the spread to an appropriate benchmark
provided by such broker-dealer. Securities for which market quotations are not readily available or for which market quotations may be considered unreliable or for which a Service or independent broker-dealer does not provide a valuation 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.
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 5c). 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”).
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. 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 MULTI-SECTOR BOND 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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.
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.
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c. Futures Contracts The Fund may enter into financial futures contracts. In entering into such contracts, the Fund is required to deposit with the counterparty, either in cash or securities, an amount equal to a certain percentage of the face value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
d. Credit Derivatives The Fund may enter into credit derivatives, including credit default swaps on individual obligations or credit indices. The Fund may use these investments (i) as alternatives to direct long or short investment in a particular security or securities, (ii) to adjust the Fund’s asset allocation or risk exposure, (iii) to enhance potential return, or (iv) for hedging purposes. The use by the Fund of credit default swaps may have the effect of creating a short position in a security. Credit derivatives can create investment leverage and may create additional investment risks that may subject the Fund to greater volatility than investments in more traditional securities, as described in the Statement of Additional Information.
The Fund may enter into credit default swap agreements either as a buyer or seller. The Fund may buy protection under a credit default swap to attempt to mitigate the risk of default or credit quality deterioration in one or more individual holdings or in a segment of the fixed income securities market. The Fund may sell protection under a credit default swap in an attempt to gain exposure to an underlying issuer’s credit quality characteristics without investing directly in that issuer.
For swaps entered with an individual counterparty, the Fund bears the risk of loss of the uncollateralized amount expected to be received under a credit default swap agreement in the event of the default or bankruptcy of the counterparty. Credit default swap agreements are generally valued at a price at which the counterparty to such agreement would terminate the agreement. The Fund may also enter into cleared swaps.
In entering into swap contracts, the Fund is required to deposit with the broker (or for the benefit of the broker), either in cash or securities, an amount equal to a percentage of the notional value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the
values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the swap contracts and may realize a loss.
During the six months ended June 30, 2021, the Fund entered into credit default swaps for risk exposure management and to enhance potential return. There were no credit default swaps held as of June 30, 2021.
e. Options Transactions The Fund can write (sell) put and call options on securities and indexes to earn premiums, for hedging purposes, for risk management purposes or otherwise as part of its investment strategies. In writing options, the Fund is required to deposit with the broker or counterparty, either in cash or securities, an amount equal to a percentage of the face value of the options. When an option is written, the premium received is recorded as an asset with an equal liability that is subsequently marked to market to reflect the market value of the written option. These liabilities, if any, are reflected as written options, at value, in the Fund’s Statement of Assets and Liabilities. Premiums received from writing options which expire unexercised are recorded on the expiration date as a realized gain. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchased transactions, as a realized loss. If a written call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether there has been a realized gain or loss. If a written put option is exercised, the premium reduces the cost basis of the security. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security underlying the written option. Exercise of a written option could result in the Fund purchasing or selling a security at a price different from its current market value. There were no options transactions as of June 30, 2021.
f. 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.
g. Allocation of Income and Expenses Many of the expenses of the Trust can be directly attributed to a
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
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 0.52% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.
Park Avenue has contractually agreed through April 30, 2022 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 1.00% 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). 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. Amounts waived or reimbursed by Park Avenue pursuant to any expense limitation will not be subject to Park Avenue’s recoupment rights. For the six months ended June 30, 2021, Park Avenue did not waive any fees or pay any Fund expenses.
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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $395,884 to PAS.
PAS has directed that certain payments under the 12b-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 and U.S. government agency obligations purchased and the proceeds from U.S. government agency obligations and other investments sold (excluding short-term investments and to be announced (TBA) securities) for the six months ended June 30, 2021, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 399,461,131 | $ | 18,061,408 | ||||
Sales | 310,567,677 | 75,075,628 |
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. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
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 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.
d. Securities Purchased on a When-Issued or Delayed-Delivery Basis The Fund may purchase securities on a when-issued or delayed-delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than at the trade date purchase price. Although the Fund will generally enter into these transactions with the intention of taking delivery of the securities, it may sell the securities before the settlement date. Assets will be segregated when a fund agrees to purchase on a when-issued or delayed-delivery basis. These transactions may create investment leverage.
e. Restricted and Illiquid Securities A restricted security cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended (except pursuant to an applicable exemption). The values of these securities may be highly volatile. If the security is subsequently registered and resold, the issuer would typically bear the expense of all registrations at no cost to the Fund. Restricted and illiquid securities are valued according to the policies and procedures adopted by the Trust’s Board of Trustees and are noted, if any, in the Fund’s Schedule of Investments. As of June 30, 2021, the Fund did not hold any restricted, other than 144A restricted securities, or illiquid securities.
f. Below Investment Grade Securities The Fund may invest in below investment grade securities (i.e. lower-quality, “junk” debt), which are subject to various risks. Lower-quality debt is considered to be speculative because it is less certain that the issuer will be able to pay interest or repay the principal than in the case of
investment grade debt. These securities can involve a substantially greater risk of default than higher-rated securities, and their values can decline significantly over short periods of time. Lower-quality debt securities tend to be more sensitive to adverse news about their issuers, the market and the economy in general, than higher-quality debt securities. The market for these securities can be less liquid, especially during periods of recession or general market decline.
g. Mortgage- and Asset-Backed Securities The values of some mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose the Fund to a lower rate of return upon reinvestment of principal. The values of mortgage- and asset-backed securities depend in part on the credit quality and adequacy of the underlying assets or collateral and may fluctuate in response to the market’s perception of these factors as well as current and future repayment rates. Some mortgage-backed securities are backed by the full faith and credit of the U.S. government (e.g., mortgage-backed securities issued by the Government National Mortgage Association, commonly known as “Ginnie Mae”), while other mortgage-backed securities (e.g., mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, commonly known as “Fannie Mae” and “Freddie Mac”), are backed only by the credit of the government entity issuing them. In addition, some mortgage-backed securities are issued by private entities and, as such, are not guaranteed by the U.S. government or any agency or instrumentality of the U.S. government.
h. Treasury Inflation Protected Securities Treasury inflation protected securities (“TIPS”) are debt securities issued by the U.S. Treasury whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. The interest rate paid by the TIPS is fixed, while the principal value rises or falls based on changes in a published Consumer Price Index (“CPI”). Thus, if inflation occurs, the principal and interest payments on TIPS are adjusted accordingly to protect investors from inflationary loss. During a deflationary period, the principal and interest payments decrease, although the TIPS principal amounts will not drop below their face amounts at maturity. In exchange for the inflation protection, the TIPS generally pay lower interest rates than typical U.S. Treasury securities. Only if inflation occurs will TIPS offer a higher real yield than a conventional Treasury bond of the same maturity.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
i. LIBOR Risk Many financial instruments may be tied to the London Interbank Offered Rate, or “LIBOR,” to determine payment obligations, financing terms, hedging strategies, or investment value. LIBOR is the offered rate for short-term Eurodollar deposits between major international banks. The head of the UK Financial Conduct Authority has announced that after 2021 it will no longer persuade nor compel banks to submit rates for the calculation of LIBOR. As a result, it is possible that commencing in 2022, LIBOR may no longer be available or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes and other instruments or investments comprising some or all of a fund’s portfolio. A fund may continue to invest in instruments that reference LIBOR or otherwise use reference rates due to favorable liquidity or pricing. Regulators and market participants have been working together to identify or develop successor reference rates and how the calculation of associated spreads (i.e., the amounts above the relevant reference rates paid by borrowers in the market) (if any) should be adjusted. At this time, it is not possible to predict the effect of the establishment of any replacement rate or any other reforms to LIBOR. There is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades. In addition, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known. The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR, reduced values of LIBOR related investments, and reduced effectiveness of hedging strategies, adversely affecting the Fund’s performance or NAV. In addition, the alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for the Fund.
j. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into U.S. Treasury futures contracts for the six months ended June 30, 2021 to manage portfolio duration. The Fund bears the risk of interest rates moving unexpectedly, in which case the Fund may not achieve the anticipated benefits of the futures contracts and realize a loss. There is minimal counterparty credit risk to the Funds since futures are
exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees futures against default.
Under certain market conditions, the Fund may use credit default swaps to seek to (i) hedge various investments, (ii) manage or adjust duration and yield curve exposure, (iii) manage risk, (iv) enhance returns, or (v) as substitutes for permitted Fund investments. Credit default swaps involve the exchange of a floating or fixed rate payment in return for assuming potential credit losses of an underlying security or pool of securities.
The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency or security, or in a “basket” of securities representing a particular index. Cleared swaps are transacted through futures commission merchants (“FCM”s) that are members of central clearinghouses with the clearinghouse serving as a central counterparty similar to transactions in futures contracts. Funds post initial and variation margin by making payments to their clearing member FCMs.
Generally, the Fund will enter into credit default swaps on a net basis, which means that the two payment streams are netted out, with a Fund receiving or paying, as the case may be, only the net amount of the two payments. Credit default swaps do not normally involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to credit default swaps is normally limited to the net amount of payments that a Fund is contractually obligated to make. If the other party to a credit default swap defaults, a Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any.
In addition to the risks generally applicable to derivatives, risks associated with credit default swap agreements include adverse changes in the returns of the underlying instruments, failure of the counterparties to perform under the agreement’s terms and the possible lack of liquidity with respect to the agreements.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
As of June 30, 2021, the Fund had the following derivatives at fair value, grouped into appropriate risk categories that illustrate the Fund’s use of derivative instruments:
Interest Rate Contracts | ||||
Asset Derivatives | ||||
Futures Contracts1 | $ | 1,318,510 | ||
Liability Derivatives | ||||
Futures Contracts1 | $ | (1,647,853 | ) |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Transactions in derivative investments for the six months ended June 30, 2021 were as follows:
Interest Contracts | Credit Contracts | |||||||
Net Realized Gain (Loss) | ||||||||
Futures Contracts1 | $ | 1,264,860 | $ | — | ||||
Swap Contracts2 | — | 846,228 | ||||||
Net Change in Unrealized Appreciation/(Depreciation) | ||||||||
Futures Contracts3 | $ | 48,477 | $ | — | ||||
Average Number of Notional Amounts | ||||||||
Futures Contracts4 | 1,109 | — | ||||||
Swap Contracts — Sell Protection | $ | — | $ | 4,571,429 |
1 | Statement of Operations location: Net realized gain/(loss) from futures contracts. |
2 | Statement of Operations location: Net realized gain/(loss) from swap contracts. |
3 | Statement of Operations location: Net change in unrealized appreciation/(depreciation) on futures contracts. |
4 | Amount represents number of contracts. |
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 daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund,
(iii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the
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SUPPLEMENTAL INFORMATION (UNAUDITED)
expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 2nd quintile. The |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB10525
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Large Cap Disciplined Value VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian Large Cap Disciplined Value VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 6 | |||
Statement of Operations | 6 | |||
Statements of Changes in Net Assets | 7 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 22 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. 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 Characteristics (unaudited)
Total Net Assets: $218,534,205 |
Sector Allocation1 As of June 30, 2021 |
Top Ten Holdings2 As of June 30, 2021 | ||||
Holding | % of Total Net Assets | |||
Johnson & Johnson | 3.07% | |||
JPMorgan Chase & Co. | 3.06% | |||
Berkshire Hathaway, Inc., Class B | 2.88% | |||
Cisco Systems, Inc. | 2.77% | |||
ConocoPhillips | 2.15% | |||
Alphabet, Inc., Class A | 2.08% | |||
AutoZone, Inc. | 2.05% | |||
Bank of America Corp. | 2.03% | |||
Applied Materials, Inc. | 1.92% | |||
Cigna Corp. | 1.92% | |||
Total | 23.93% |
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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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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $ 1,000.00 | $1,210.50 | $5.32 | 0.97% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ 1,000.00 | $1,019.98 | $4.86 | 0.97% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.2% |
| |||||||
Aerospace & Defense – 3.5% |
| |||||||
General Dynamics Corp. | 13,471 | $ | 2,536,051 | |||||
Howmet Aerospace, Inc.(1) | 59,839 | 2,062,650 | ||||||
Northrop Grumman Corp. | 2,782 | 1,011,062 | ||||||
The Boeing Co.(1) | 8,446 | 2,023,324 | ||||||
|
| |||||||
7,633,087 | ||||||||
Auto Components – 0.4% |
| |||||||
Lear Corp. | 4,571 | 801,205 | ||||||
|
| |||||||
801,205 | ||||||||
Automobiles – 0.7% |
| |||||||
Harley-Davidson, Inc. | 31,767 | 1,455,564 | ||||||
|
| |||||||
1,455,564 | ||||||||
Banks – 10.4% |
| |||||||
Bank of America Corp. | 107,500 | 4,432,225 | ||||||
Citigroup, Inc. | 47,892 | 3,388,359 | ||||||
Fifth Third Bancorp | 42,163 | 1,611,892 | ||||||
JPMorgan Chase & Co. | 42,952 | 6,680,754 | ||||||
Truist Financial Corp. | 68,508 | 3,802,194 | ||||||
Wells Fargo & Co. | 64,311 | 2,912,645 | ||||||
|
| |||||||
22,828,069 | ||||||||
Beverages – 1.0% |
| |||||||
Coca-Cola Europacific Partners PLC | 37,454 | 2,221,771 | ||||||
|
| |||||||
2,221,771 | ||||||||
Biotechnology – 1.0% |
| |||||||
AbbVie, Inc. | 19,094 | 2,150,748 | ||||||
|
| |||||||
2,150,748 | ||||||||
Building Products – 0.9% |
| |||||||
Allegion PLC | 5,477 | 762,946 | ||||||
Owens Corning | 12,353 | 1,209,359 | ||||||
|
| |||||||
1,972,305 | ||||||||
Capital Markets – 2.7% |
| |||||||
The Charles Schwab Corp. | 39,967 | 2,909,997 | ||||||
The Goldman Sachs Group, Inc. | 8,110 | 3,077,988 | ||||||
|
| |||||||
5,987,985 | ||||||||
Chemicals – 3.2% |
| |||||||
Axalta Coating Systems Ltd.(1) | 35,358 | 1,078,065 | ||||||
DuPont de Nemours, Inc. | 48,558 | 3,758,875 | ||||||
FMC Corp. | 10,051 | 1,087,518 | ||||||
PPG Industries, Inc. | 6,128 | 1,040,351 | ||||||
|
| |||||||
6,964,809 | ||||||||
Communications Equipment – 2.8% |
| |||||||
Cisco Systems, Inc. | 114,178 | 6,051,434 | ||||||
|
| |||||||
6,051,434 | ||||||||
Construction Materials – 0.5% |
| |||||||
CRH PLC, ADR | 21,541 | 1,095,144 | ||||||
|
| |||||||
1,095,144 | ||||||||
Consumer Finance – 1.2% |
| |||||||
Capital One Financial Corp. | 16,849 | 2,606,372 | ||||||
|
| |||||||
2,606,372 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Distributors – 0.8% |
| |||||||
LKQ Corp.(1) | 36,499 | $ | 1,796,481 | |||||
|
| |||||||
1,796,481 | ||||||||
Diversified Financial Services – 2.9% |
| |||||||
Berkshire Hathaway, Inc., Class B(1) | 22,664 | 6,298,779 | ||||||
|
| |||||||
6,298,779 | ||||||||
Electrical Equipment – 1.9% |
| |||||||
Eaton Corp. PLC | 21,301 | 3,156,382 | ||||||
Vertiv Holdings Co. | 35,386 | 966,038 | ||||||
|
| |||||||
4,122,420 | ||||||||
Energy Equipment & Services – 1.0% |
| |||||||
Schlumberger N.V. | 69,640 | 2,229,176 | ||||||
|
| |||||||
2,229,176 | ||||||||
Food & Staples Retailing – 0.6% |
| |||||||
US Foods Holding Corp.(1) | 34,685 | 1,330,516 | ||||||
|
| |||||||
1,330,516 | ||||||||
Health Care Providers & Services – 9.4% |
| |||||||
AmerisourceBergen Corp. | 14,768 | 1,690,788 | ||||||
Anthem, Inc. | 10,772 | 4,112,749 | ||||||
Centene Corp.(1) | 35,331 | 2,576,690 | ||||||
Cigna Corp. | 17,669 | 4,188,790 | ||||||
CVS Health Corp. | 25,856 | 2,157,425 | ||||||
McKesson Corp. | 8,884 | 1,698,976 | ||||||
UnitedHealth Group, Inc. | 10,198 | 4,083,687 | ||||||
|
| |||||||
20,509,105 | ||||||||
Hotels, Restaurants & Leisure – 0.7% |
| |||||||
Las Vegas Sands Corp.(1) | 29,614 | 1,560,362 | ||||||
|
| |||||||
1,560,362 | ||||||||
Household Durables – 2.6% |
| |||||||
Lennar Corp., Class A | 13,351 | 1,326,422 | ||||||
Mohawk Industries, Inc.(1) | 11,559 | 2,221,524 | ||||||
Sony Group Corp., ADR | 23,067 | 2,242,574 | ||||||
|
| |||||||
5,790,520 | ||||||||
Insurance – 4.5% |
| |||||||
Aflac, Inc. | 18,122 | 972,427 | ||||||
American International Group, Inc. | 33,720 | 1,605,072 | ||||||
Chubb Ltd. | 20,960 | 3,331,382 | ||||||
Everest Re Group Ltd. | 5,909 | 1,489,127 | ||||||
The Progressive Corp. | 24,572 | 2,413,216 | ||||||
|
| |||||||
9,811,224 | ||||||||
Interactive Media & Services – 3.4% |
| |||||||
Alphabet, Inc., Class A(1) | 1,858 | 4,536,846 | ||||||
Facebook, Inc., Class A(1) | 8,296 | 2,884,602 | ||||||
|
| |||||||
7,421,448 | ||||||||
IT Services – 1.1% |
| |||||||
Fidelity National Information Services, Inc. | 16,831 | 2,384,448 | ||||||
|
| |||||||
2,384,448 | ||||||||
Leisure Products – 0.4% |
| |||||||
Polaris, Inc. | 6,856 | 938,998 | ||||||
|
| |||||||
938,998 |
The accompanying notes are an integral part of these financial statements. | 3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Life Sciences Tools & Services – 1.3% |
| |||||||
Avantor, Inc.(1) | 79,188 | $ | 2,811,966 | |||||
|
| |||||||
2,811,966 | ||||||||
Machinery – 5.7% |
| |||||||
Allison Transmission Holdings, Inc. | 17,245 | 685,316 | ||||||
Caterpillar, Inc. | 13,358 | 2,907,101 | ||||||
Deere & Co. | 10,705 | 3,775,761 | ||||||
Dover Corp. | 10,566 | 1,591,240 | ||||||
Otis Worldwide Corp. | 25,913 | 2,118,906 | ||||||
Westinghouse Air Brake Technologies Corp. | 18,114 | 1,490,782 | ||||||
|
| |||||||
12,569,106 | ||||||||
Media – 1.0% |
| |||||||
Charter Communications, Inc., Class A(1) | 2,923 | 2,108,798 | ||||||
|
| |||||||
2,108,798 | ||||||||
Metals & Mining – 0.9% |
| |||||||
Kinross Gold Corp. | 124,382 | 789,826 | ||||||
Newmont Corp. | 20,132 | 1,275,966 | ||||||
|
| |||||||
2,065,792 | ||||||||
Multi-Utilities – 1.7% |
| |||||||
CenterPoint Energy, Inc. | 76,467 | 1,874,971 | ||||||
Dominion Energy, Inc. | 24,098 | 1,772,890 | ||||||
|
| |||||||
3,647,861 | ||||||||
Multiline Retail – 0.5% |
| |||||||
Kohl’s Corp. | 20,852 | 1,149,154 | ||||||
|
| |||||||
1,149,154 | ||||||||
Oil, Gas & Consumable Fuels – 6.9% |
| |||||||
BP PLC, ADR | 35,848 | 947,104 | ||||||
Canadian Natural Resources Ltd. | 55,111 | 1,999,427 | ||||||
ConocoPhillips | 77,101 | 4,695,451 | ||||||
EOG Resources, Inc. | 8,985 | 749,708 | ||||||
HollyFrontier Corp. | 31,584 | 1,039,114 | ||||||
Marathon Petroleum Corp. | 53,247 | 3,217,184 | ||||||
Pioneer Natural Resources Co. | 14,960 | 2,431,299 | ||||||
|
| |||||||
15,079,287 | ||||||||
Pharmaceuticals – 5.7% |
| |||||||
Johnson & Johnson | 40,771 | 6,716,614 | ||||||
Novartis AG, ADR | 35,815 | 3,267,761 | ||||||
Pfizer, Inc. | 64,067 | 2,508,864 | ||||||
|
| |||||||
12,493,239 | ||||||||
Road & Rail – 0.7% |
| |||||||
Union Pacific Corp. | 6,581 | 1,447,359 | ||||||
|
| |||||||
1,447,359 | ||||||||
Semiconductors & Semiconductor Equipment – 7.7% |
| |||||||
Applied Materials, Inc. | 29,467 | 4,196,101 | ||||||
KLA Corp. | 4,256 | 1,379,838 | ||||||
Lam Research Corp. | 3,422 | 2,226,695 | ||||||
Micron Technology, Inc.(1) | 42,516 | 3,613,010 | ||||||
NXP Semiconductors N.V. | 8,431 | 1,734,425 | ||||||
Qorvo, Inc.(1) | 9,809 | 1,919,131 | ||||||
QUALCOMM, Inc. | 13,122 | 1,875,527 | ||||||
|
| |||||||
16,944,727 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Software – 2.4% |
| |||||||
NortonLifeLock, Inc. | 43,422 | $ | 1,181,947 | |||||
Oracle Corp. | 30,640 | 2,385,018 | ||||||
SS&C Technologies Holdings, Inc. | 21,991 | 1,584,671 | ||||||
|
| |||||||
5,151,636 | ||||||||
Specialty Retail – 3.3% |
| |||||||
AutoZone, Inc.(1) | 3,008 | 4,488,598 | ||||||
Lowe’s Cos., Inc. | 7,052 | 1,367,876 | ||||||
The TJX Cos., Inc. | 20,169 | 1,359,794 | ||||||
|
| |||||||
7,216,268 | ||||||||
Technology Hardware, Storage & Peripherals – 0.4% |
| |||||||
NetApp, Inc. | 10,941 | 895,193 | ||||||
|
| |||||||
895,193 | ||||||||
Textiles, Apparel & Luxury Goods – 1.2% |
| |||||||
Tapestry, Inc.(1) | 58,468 | 2,542,189 | ||||||
|
| |||||||
2,542,189 | ||||||||
Trading Companies & Distributors – 1.1% |
| |||||||
United Rentals, Inc.(1) | 7,679 | 2,449,678 | ||||||
|
| |||||||
2,449,678 | ||||||||
Wireless Telecommunication Services – 1.1% |
| |||||||
T-Mobile US, Inc.(1) | 16,360 | 2,369,419 | ||||||
|
| |||||||
2,369,419 | ||||||||
Total Common Stocks (Cost $153,921,906) |
| 216,903,642 | ||||||
Principal Amount | Value | |||||||
Short–Term Investment – 0.9% |
| |||||||
Repurchase Agreements – 0.9% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $1,869,392, due 7/1/2021(2) | $ | 1,869,392 | 1,869,392 | |||||
Total Repurchase Agreements (Cost $1,869,392) |
| 1,869,392 | ||||||
Total Investments – 100.1% (Cost $155,791,298) |
| 218,773,034 | ||||||
Liabilities in excess of other assets – (0.1)% |
| (238,829 | ) | |||||
Total Net Assets – 100.0% |
| $ | 218,534,205 |
(1) | Non–income–producing security. |
(2) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.375% | 7/15/2025 | $ | 1,541,800 | $ | 1,906,857 |
Legend:
ADR — American Depositary Receipt
TIPS — Treasury Inflation–Protected Securities
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 216,903,642 | $ | — | $ | — | $ | 216,903,642 | ||||||||
Repurchase Agreements | — | 1,869,392 | — | 1,869,392 | ||||||||||||
Total | $ | 216,903,642 | $ | 1,869,392 | $ | — | $ | 218,773,034 |
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,979,466 | ||
Withholding taxes on foreign dividends | (27,730 | ) | ||
|
| |||
Total Investment Income | 1,951,736 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 713,494 | |||
Distribution fees | 286,958 | |||
Professional fees | 35,672 | |||
Trustees’ and officers’ fees | 33,434 | |||
Custodian and accounting fees | 24,679 | |||
Administrative fees | 15,460 | |||
Transfer agent fees | 6,221 | |||
Shareholder reports | 4,928 | |||
Other expenses | 8,893 | |||
|
| |||
Total Expenses | 1,129,739 | |||
Less: Fees waived | (16,341 | ) | ||
|
| |||
Total Expenses, Net | 1,113,398 | |||
|
| |||
Net Investment Income/(Loss) | 838,338 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 20,675,454 | |||
Net change in unrealized appreciation/(depreciation) on investments | 23,631,823 | |||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (152 | ) | ||
|
| |||
Net Gain on Investments and Foreign Currency Transactions | 44,307,125 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 45,145,463 | ||
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
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) | ||||||||||||||||||
Six Months Ended 6/30/21 | $ | 14.30 | $ | 0.06 | $ | 2.95 | $ | 3.01 | $ | 17.31 | 21.05% | (4) | ||||||||||||
Year Ended 12/31/20 | 14.13 | 0.19 | (5) | (0.02 | ) | 0.17 | 14.30 | 1.20% | ||||||||||||||||
Year Ended 12/31/19 | 11.45 | 0.16 | 2.52 | 2.68 | 14.13 | 23.41% | ||||||||||||||||||
Year Ended 12/31/18 | 12.85 | 0.15 | (1.55 | ) | (1.40 | ) | 11.45 | (10.89)% | ||||||||||||||||
Year Ended 12/31/17 | 10.78 | 0.10 | 1.97 | 2.07 | 12.85 | 19.20% | ||||||||||||||||||
Period Ended 12/31/16(6) | 10.00 | 0.03 | 0.75 | 0.78 | 10.78 | 7.80% | (4) |
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of 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 | |||||||||||||||||
$ | 218,534 | 0.97% | (4) | 0.98% | (4) | 0.73% | (4) | 0.72% | (4) | 23% | (4) | |||||||||||
223,410 | 0.97% | 1.02% | 1.53% | (5) | 1.48% | (5) | 73% | |||||||||||||||
213,249 | 0.97% | 1.03% | 1.22% | 1.16% | 66% | |||||||||||||||||
185,363 | 0.97% | 1.08% | 1.16% | 1.05% | 56% | |||||||||||||||||
15,905 | 0.98% | 1.91% | 0.89% | (0.04)% | 71% | |||||||||||||||||
17,081 | 0.98% | (4) | 2.70% | (4) | 0.88% | (4) | (0.84)% | (4) | 19% | (4) |
(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) | 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. |
(5) | Reflects a special dividend paid out during the year by one of the Fund’s holdings. Had the Fund not received the special dividend, the Net Investment Income per share would have been $0.14, the Net Ratio of Net Investment Income to Average Net Assets would have been 1.15%, and the Gross Ratio of Net Investment Income/(Loss) to Average Net Assets would have been 1.10%. |
(6) Commenced operations on September 1, 2016.
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian Large Cap Disciplined Value 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 provide long-term growth of capital primarily through investment in equity securities. Current income is a secondary objective.
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.
10 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
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.
11 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
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 0.65% up to $100 million, 0.60% up to $300 million, 0.55% up to $500 million, and 0.53% 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, 2022 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 0.97% 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). 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 six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $16,341.
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 are not subject to Park Avenue’s recoupment rights. The entitlement to recoupment by Park Avenue from the Fund under the Expense Limitation Agreement expired on April 9, 2021.
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
Park Avenue has entered into a Sub-Advisory Agreement with Boston Partners Global Investors, Inc. (“Boston Partners”). Boston Partners is responsible for providing day-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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $286,958 to PAS.
PAS has directed that certain payments under the 12b-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 $51,223,233 and $97,831,683, respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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 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
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the untimely disposition of securities. Interest is calculated based on the higher of the daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund,
(iii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not
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Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
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Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the
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expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The |
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Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and |
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that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/
Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
22 |
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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8174
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Growth & Income VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
TABLE OF CONTENTS
Guardian Growth & Income VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 22 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN GROWTH & INCOME VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $194,360,489 |
Sector Allocation1 As of June 30, 2021 |
Top Ten Holdings2 As of June 30, 2021 | ||||
Holding | % of Total Net Assets | |||
Berkshire Hathaway, Inc., Class B | 3.80% | |||
Philip Morris International, Inc. | 3.62% | |||
Wells Fargo & Co. | 3.55% | |||
Comcast Corp., Class A | 3.36% | |||
The Allstate Corp. | 2.69% | |||
Target Corp. | 2.68% | |||
CBRE Group, Inc., Class A | 2.46% | |||
Amgen, Inc. | 2.36% | |||
Verizon Communications, Inc. | 2.31% | |||
Alexion Pharmaceuticals, Inc. | 2.30% | |||
Total | 29.13% |
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. |
1 |
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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $1,000.00 | $1,202.70 | $5.35 | 0.98% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.94 | $4.91 | 0.98% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN GROWTH & INCOME VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Common Stocks – 97.6% |
| |||||||
Aerospace & Defense – 3.9% |
| |||||||
Curtiss-Wright Corp. | 11,049 | $ | 1,312,179 | |||||
Hexcel Corp.(1) | 26,012 | 1,623,149 | ||||||
Raytheon Technologies Corp. | 28,558 | 2,436,283 | ||||||
Textron, Inc. | 33,156 | 2,280,138 | ||||||
|
| |||||||
7,651,749 | ||||||||
Auto Components – 2.4% |
| |||||||
BorgWarner, Inc. | 45,704 | 2,218,472 | ||||||
Gentex Corp. | 72,746 | 2,407,165 | ||||||
|
| |||||||
4,625,637 | ||||||||
Banks – 7.3% |
| |||||||
Citigroup, Inc. | 49,945 | 3,533,609 | ||||||
JPMorgan Chase & Co. | 24,286 | 3,777,445 | ||||||
Wells Fargo & Co. | 152,370 | 6,900,837 | ||||||
|
| |||||||
14,211,891 | ||||||||
Biotechnology – 4.7% |
| |||||||
Alexion Pharmaceuticals, Inc.(1) | 24,370 | 4,477,013 | ||||||
Amgen, Inc. | 18,796 | 4,581,525 | ||||||
|
| |||||||
9,058,538 | ||||||||
Capital Markets – 3.0% |
| |||||||
Northern Trust Corp. | 22,530 | 2,604,919 | ||||||
The Goldman Sachs Group, Inc. | 8,702 | 3,302,670 | ||||||
|
| |||||||
5,907,589 | ||||||||
Communications Equipment – 3.4% |
| |||||||
Cisco Systems, Inc. | 79,323 | 4,204,119 | ||||||
F5 Networks, Inc.(1) | 13,337 | 2,489,484 | ||||||
|
| |||||||
6,693,603 | ||||||||
Construction & Engineering – 1.8% |
| |||||||
EMCOR Group, Inc. | 21,705 | 2,673,839 | ||||||
Valmont Industries, Inc. | 3,260 | 769,523 | ||||||
|
| |||||||
3,443,362 | ||||||||
Consumer Finance – 1.1% |
| |||||||
Capital One Financial Corp. | 14,122 | 2,184,532 | ||||||
|
| |||||||
2,184,532 | ||||||||
Distributors – 2.1% |
| |||||||
LKQ Corp.(1) | 83,416 | 4,105,736 | ||||||
|
| |||||||
4,105,736 | ||||||||
Diversified Financial Services – 3.8% |
| |||||||
Berkshire Hathaway, Inc., Class B(1) | 26,565 | 7,382,945 | ||||||
|
| |||||||
7,382,945 | ||||||||
Diversified Telecommunication Services – 2.3% |
| |||||||
Verizon Communications, Inc. | 80,236 | 4,495,623 | ||||||
|
| |||||||
4,495,623 | ||||||||
Electrical Equipment – 2.6% |
| |||||||
Acuity Brands, Inc. | 3,704 | 692,759 | ||||||
Emerson Electric Co. | 32,670 | 3,144,161 | ||||||
Hubbell, Inc. | 6,554 | 1,224,549 | ||||||
|
| |||||||
5,061,469 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Electronic Equipment, Instruments & Components – 1.6% |
| |||||||
Keysight Technologies, Inc.(1) | 14,907 | $ | 2,301,790 | |||||
Littelfuse, Inc. | 2,975 | 758,000 | ||||||
|
| |||||||
3,059,790 | ||||||||
Energy Equipment & Services – 0.8% |
| |||||||
Helmerich & Payne, Inc. | 45,651 | 1,489,592 | ||||||
|
| |||||||
1,489,592 | ||||||||
Equity Real Estate Investment – 0.6% |
| |||||||
Mid-America Apartment Communities, Inc. REIT | 7,150 | 1,204,203 | ||||||
|
| |||||||
1,204,203 | ||||||||
Food & Staples Retailing – 2.1% |
| |||||||
Walmart, Inc. | 28,498 | 4,018,788 | ||||||
|
| |||||||
4,018,788 | ||||||||
Health Care Providers & Services – 4.8% |
| |||||||
Anthem, Inc. | 10,873 | 4,151,311 | ||||||
Cigna Corp. | 16,530 | 3,918,767 | ||||||
Quest Diagnostics, Inc. | 9,871 | 1,302,676 | ||||||
|
| |||||||
9,372,754 | ||||||||
Household Durables – 2.8% |
| |||||||
D.R. Horton, Inc. | 41,742 | 3,772,225 | ||||||
Garmin Ltd. | 11,871 | 1,717,021 | ||||||
|
| |||||||
5,489,246 | ||||||||
Industrial Conglomerates – 1.1% |
| |||||||
3M Co. | 10,515 | 2,088,594 | ||||||
|
| |||||||
2,088,594 | ||||||||
Insurance – 4.3% |
| |||||||
Aflac, Inc. | 25,955 | 1,392,745 | ||||||
Fidelity National Financial, Inc. | 38,097 | 1,655,696 | ||||||
The Allstate Corp. | 40,128 | 5,234,296 | ||||||
|
| |||||||
8,282,737 | ||||||||
Internet & Direct Marketing Retail – 1.4% |
| |||||||
eBay, Inc. | 39,684 | 2,786,214 | ||||||
|
| |||||||
2,786,214 | ||||||||
IT Services – 4.1% |
| |||||||
Cognizant Technology Solutions Corp., Class A | 41,581 | 2,879,900 | ||||||
FleetCor Technologies, Inc.(1) | 8,304 | 2,126,322 | ||||||
Maximus, Inc. | 34,558 | 3,040,068 | ||||||
|
| |||||||
8,046,290 | ||||||||
Life Sciences Tools & Services – 0.1% |
| |||||||
Bio-Rad Laboratories, Inc., Class A(1) | 403 | 259,649 | ||||||
|
| |||||||
259,649 | ||||||||
Machinery – 2.3% |
| |||||||
Altra Industrial Motion Corp. | 9,127 | 593,438 | ||||||
Flowserve Corp. | 33,251 | 1,340,680 | ||||||
The Middleby Corp.(1) | 5,248 | 909,268 | ||||||
Westinghouse Air Brake Technologies Corp. | 20,383 | 1,677,521 | ||||||
|
| |||||||
4,520,907 |
The accompanying notes are an integral part of these financial statements. | 3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN GROWTH & INCOME VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Media – 3.4% |
| |||||||
Comcast Corp., Class A | 114,506 | $ | 6,529,132 | |||||
|
| |||||||
6,529,132 | ||||||||
Metals & Mining – 2.1% |
| |||||||
BHP Group Ltd., ADR | 28,110 | 2,047,252 | ||||||
Steel Dynamics, Inc. | 32,362 | 1,928,775 | ||||||
|
| |||||||
3,976,027 | ||||||||
Multiline Retail – 3.8% |
| |||||||
Dollar General Corp. | 9,765 | 2,113,048 | ||||||
Target Corp. | 21,496 | 5,196,443 | ||||||
|
| |||||||
7,309,491 | ||||||||
Oil, Gas & Consumable Fuels – 3.8% |
| |||||||
Chevron Corp. | 14,546 | 1,523,548 | ||||||
ConocoPhillips | 35,787 | 2,179,428 | ||||||
EOG Resources, Inc. | 28,442 | 2,373,201 | ||||||
Phillips 66 | 16,042 | 1,376,724 | ||||||
|
| |||||||
7,452,901 | ||||||||
Pharmaceuticals – 4.3% |
| |||||||
Pfizer, Inc. | 99,078 | 3,879,894 | ||||||
Roche Holding AG, ADR | 93,500 | 4,393,565 | ||||||
|
| |||||||
8,273,459 | ||||||||
Professional Services – 3.1% |
| |||||||
Leidos Holdings, Inc. | 33,914 | 3,428,705 | ||||||
Robert Half International, Inc. | 28,714 | 2,554,685 | ||||||
|
| |||||||
5,983,390 | ||||||||
Real Estate Management & Development – 2.5% |
| |||||||
CBRE Group, Inc., Class A(1) | 55,649 | 4,770,789 | ||||||
|
| |||||||
4,770,789 | ||||||||
Road & Rail – 2.3% |
| |||||||
Kansas City Southern | 6,795 | 1,925,499 | ||||||
Knight-Swift Transportation Holdings, Inc. | 54,358 | 2,471,115 | ||||||
|
| |||||||
4,396,614 | ||||||||
Semiconductors & Semiconductor Equipment – 0.7% |
| |||||||
MKS Instruments, Inc. | 7,967 | 1,417,728 | ||||||
|
| |||||||
1,417,728 | ||||||||
Specialty Retail – 2.0% |
| |||||||
AutoZone, Inc.(1) | 1,437 | 2,144,320 | ||||||
Murphy USA, Inc. | 13,655 | 1,821,168 | ||||||
|
| |||||||
3,965,488 |
June 30, 2021 (unaudited) | Shares | Value | ||||||
Textiles, Apparel & Luxury Goods – 1.0% |
| |||||||
Deckers Outdoor Corp.(1) | 5,017 | $ | 1,926,879 | |||||
|
| |||||||
1,926,879 | ||||||||
Tobacco – 3.6% |
| |||||||
Philip Morris International, Inc. | 71,022 | 7,038,990 | ||||||
|
| |||||||
7,038,990 | ||||||||
Trading Companies & Distributors – 0.6% |
| |||||||
MSC Industrial Direct Co., Inc., Class A | 12,151 | 1,090,309 | ||||||
|
| |||||||
1,090,309 | ||||||||
Total Common Stocks (Cost $137,032,601) |
| 189,572,635 | ||||||
Principal Amount | Value | |||||||
Short–Term Investment – 2.1% |
| |||||||
Repurchase Agreements – 2.1% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $4,128,699, due 7/1/2021(2) | $ | 4,128,699 | 4,128,699 | |||||
Total Repurchase Agreements (Cost $4,128,699) |
| 4,128,699 | ||||||
Total Investments – 99.7% (Cost $141,161,300) |
| 193,701,334 | ||||||
Assets in excess of other liabilities – 0.3% |
| 659,155 | ||||||
Total Net Assets – 100.0% |
| $ | 194,360,489 |
(1) | Non–income–producing security. |
(2) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.375% | 7/15/2025 | $ | 3,405,100 | $ | 4,211,336 |
Legend:
ADR — American Depositary Receipt
REIT — Real Estate Investment Trust
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 189,572,635 | $ | — | $ | — | $ | 189,572,635 | ||||||||
Repurchase Agreements | — | 4,128,699 | — | 4,128,699 | ||||||||||||
Total | $ | 189,572,635 | $ | 4,128,699 | $ | — | $ | 193,701,334 |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN GROWTH & INCOME VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,819,434 | ||
Withholding taxes on foreign dividends | (20,738 | ) | ||
|
| |||
Total Investment Income | 1,798,696 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 629,498 | |||
Distribution fees | 251,960 | |||
Professional fees | 33,253 | |||
Trustees’ and officers’ fees | 29,567 | |||
Custodian and accounting fees | 17,892 | |||
Administrative fees | 12,918 | |||
Transfer agent fees | 5,838 | |||
Shareholder reports | 1,549 | |||
Other expenses | 7,870 | |||
|
| |||
Total Expenses | 990,345 | |||
Less: Fees waived | (7,198 | ) | ||
|
| |||
Total Expenses, Net | 983,147 | |||
|
| |||
Net Investment Income/(Loss) | 815,549 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | 16,565,925 | |||
Net change in unrealized appreciation/(depreciation) on investments | 20,575,029 | |||
|
| |||
Net Gain on Investments | 37,140,954 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 37,956,503 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN GROWTH & INCOME VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
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This Page Intentionally Left Blank
7 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN GROWTH & INCOME VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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 Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
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) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 14.95 | $ | 0.07 | $ | 2.96 | $ | 3.03 | $ | 17.98 | 20.27 | %(4) | ||||||||||||
Year Ended 12/31/20 | 14.64 | 0.15 | 0.16 | 0.31 | 14.95 | 2.12 | % | |||||||||||||||||
Year Ended 12/31/19 | 11.81 | 0.14 | 2.69 | 2.83 | 14.64 | 23.96 | % | |||||||||||||||||
Year Ended 12/31/18 | 12.85 | 0.12 | (1.16 | ) | (1.04 | ) | 11.81 | (8.09) | % | |||||||||||||||
Year Ended 12/31/17 | 10.70 | 0.09 | 2.06 | 2.15 | 12.85 | 20.09 | % | |||||||||||||||||
Period Ended 12/31/16(5) | 10.00 | 0.04 | 0.66 | 0.70 | 10.70 | 7.00 | %(4) |
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN GROWTH & INCOME 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 (Loss) to Average | Portfolio Turnover Rate | |||||||||||||||||
$ | 194,360 | 0.98 | %(4) | 0.98 | %(4) | 0.80 | %(4) | 0.80 | %(4) | 14 | %(4) | |||||||||||
198,155 | 1.01 | % | 1.03 | % | 1.17 | % | 1.15 | % | 36 | % | ||||||||||||
187,172 | 1.01 | % | 1.04 | % | 1.01 | % | 0.98 | % | 36 | % | ||||||||||||
164,861 | 1.01 | % | 1.08 | % | 0.94 | % | 0.87 | % | 58 | % | ||||||||||||
10,542 | 0.98 | % | 2.04 | % | 0.81 | % | (0.25) | % | 85 | % | ||||||||||||
9,457 | 0.98 | %(4) | 3.11 | %(4) | 1.20 | %(4) | (0.93) | %(4) | 11 | %(4) |
(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, if any. |
(4) | 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. |
(5) | Commenced operations on September 1, 2016. |
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GROWTH & INCOME VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian Growth & Income 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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN GROWTH & INCOME 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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 six months ended June 30, 2021, the Fund did not hold any derivatives.
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.
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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 0.65% up to $100 million, 0.60% up to $300 million, 0.55% up to $500 million, and 0.53% 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, 2022 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 May 1, 2021, the expense limitation was 1.01%. 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 six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $7,198.
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 are not subject to Park Avenue’s recoupment rights. The entitlement to recoupment by Park Avenue from the Fund under the Expense Limitation Agreement expired on April 9, 2021.
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Park Avenue has entered into a Sub-Advisory Agreement with AllianceBernstein L.P. (“AllianceBernstein”). AllianceBernstein is responsible for providing day-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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $251,960 to PAS.
PAS has directed that certain payments under the 12b-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 $27,425,652 and $67,105,179, respectively, for the six months ended June 30, 2021. During the six months ended June 30, 2021, 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 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
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the untimely disposition of securities. Interest is calculated based on the higher of the daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund,
(iii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not
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Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided
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to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included
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breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
21 |
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
22 |
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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8169
Table of Contents
Guardian Variable
Products Trust
2021
Semiannual Report
All Data as of June 30, 2021
Guardian Total Return Bond VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
Guardian Total Return Bond VIP Fund |
| |||
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 10 | |||
Statement of Operations | 10 | |||
Statements of Changes in Net Assets | 11 | |||
Financial Highlights | 12 | |||
Notes to Financial Statements | 14 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 21 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 22 | |||
Portfolio Holdings and Proxy Voting Procedures | 28 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2021. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN TOTAL RETURN BOND VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $369,124,977 |
Bond Sector Allocation1 As of June 30, 2021 |
Bond Quality Allocation2 As of June 30, 2021 |
1 |
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GUARDIAN TOTAL RETURN BOND VIP FUND
Top Ten Holdings1 As of June 30, 2021 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Note | 1.500% | 9/30/2024 | 6.67% | |||||||||
SPDR Blackstone Senior Loan ETF | — | — | 2.58% | |||||||||
Invesco Senior Loan ETF | — | — | 2.54% | |||||||||
Hess Corp. | 4.300% | 4/1/2027 | 2.23% | |||||||||
Credit Suisse Group AG | 3.869% | 1/12/2029 | 2.06% | |||||||||
Constellation Brands, Inc. | 2.875% | 5/1/2030 | 1.98% | |||||||||
Federal Farm Credit Banks Funding Corp. | 1.600% | 1/21/2022 | 1.84% | |||||||||
General Motors Financial Co., Inc. | 3.600% | 6/21/2030 | 1.69% | |||||||||
U.S. Treasury Bond | 2.250% | 8/15/2049 | 1.66% | |||||||||
Air Lease Corp. | 4.625% | 10/1/2028 | 1.65% | |||||||||
Total |
| 24.90% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. Cash includes short-term investments and net other assets and liabilities. |
2 | The Bond Quality Allocation chart displays the percentage of fund assets allocated to each rating. Rating agencies’ independent ratings of individual securities are aggregated by Barclays, and market weights are reported using Standard & Poor’s letter rating conventions. Rating methodology uses the middle rating of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services, and Fitch Ratings. When a rating from only two of the rating agencies is available, the lower rating is used. Credit quality ratings assigned by a rating agency are subject to change periodically and are not absolute standards of credit quality. Rating agencies may fail to make timely changes in credit ratings, and an issuer’s current financial condition may be better or worse than a rating indicates. In formulating investment decisions for the Fund, Park Avenue Institutional Advisers LLC develops its own analysis of the credit quality and risks associated with individual debt instruments, rather than relying exclusively on rating agency ratings. |
2 |
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 January 1, 2021 to June 30, 2021. 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 1/1/21 | Ending Account Value | Expenses Paid During Period* 1/1/21-6/30/21 | Expense Ratio During Period 1/1/21-6/30/21 | |||||||||||
Based on Actual Return | $ 1,000.00 | $ 993.50 | $3.90 | 0.79% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ 1,000.00 | $1,020.88 | $3.96 | 0.79% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities – 9.9% |
| |||||||
AIMCO CLO | $ | 2,000,000 | $ | 2,009,256 | ||||
AIMCO CLO 14 Ltd. | 2,200,000 | 2,196,550 | ||||||
Ares XXXIIR CLO Ltd. | 1,200,000 | 1,190,280 | ||||||
Ares XXXIV CLO Ltd. | 450,000 | 453,877 | ||||||
Battalion CLO XIX Ltd. | 2,200,000 | 2,196,682 | ||||||
Battalion CLO XX Ltd. | 2,000,000 | 1,997,000 | ||||||
BlueMountain CLO Ltd. | 800,000 | 799,597 | ||||||
Carlyle U.S. CLO Ltd. | 3,000,000 | 2,998,485 | ||||||
CIFC Funding Ltd. | 800,000 | 797,600 | ||||||
Commonbond Student Loan Trust | 1,579,415 | 1,571,619 | ||||||
Elmwood CLO IX Ltd. | 3,000,000 | 2,998,500 | ||||||
Greywolf CLO II Ltd. | 2,700,000 | 2,695,910 | ||||||
ICG U.S. CLO Ltd. | 2,500,000 | 2,501,318 | ||||||
Neuberger Berman CLO XVI-S Ltd. | 1,000,000 | 999,498 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Neuberger Berman CLO XVII Ltd. | $ | 1,100,000 | $ | 1,096,920 | ||||
Octagon Loan Funding Ltd. | 3,200,000 | 3,184,000 | ||||||
OHA Credit Funding 3 Ltd. | 3,000,000 | 2,998,500 | ||||||
Riserva CLO Ltd. | 3,000,000 | 2,939,700 | ||||||
Voya CLO Ltd. | 955,000 | 961,881 | ||||||
Total Asset–Backed Securities (Cost $36,644,962) |
| 36,587,173 | ||||||
Corporate Bonds & Notes – 63.6% |
| |||||||
Aerospace & Defense – 2.2% |
| |||||||
Northrop Grumman Corp. | ||||||||
4.40% due 5/1/2030 | 1,400,000 | 1,655,766 | ||||||
5.25% due 5/1/2050 | 800,000 | 1,124,944 | ||||||
The Boeing Co. | ||||||||
3.75% due 2/1/2050 | 1,150,000 | 1,186,283 | ||||||
5.15% due 5/1/2030 | 3,550,000 | 4,206,927 | ||||||
|
| |||||||
8,173,920 | ||||||||
Agriculture – 1.2% |
| |||||||
Altria Group, Inc. | 4,750,000 | 4,591,113 | ||||||
|
| |||||||
4,591,113 | ||||||||
Airlines – 0.6% |
| |||||||
American Airlines, Inc. | 1,700,000 | 2,133,177 | ||||||
|
| |||||||
2,133,177 | ||||||||
Auto Manufacturers – 2.8% |
| |||||||
Ford Motor Co. | 875,000 | 1,254,251 | ||||||
Ford Motor Credit Co. LLC | ||||||||
4.00% due 11/13/2030 | 1,650,000 | 1,730,850 | ||||||
4.125% due 8/17/2027 | 1,000,000 | 1,061,360 | ||||||
General Motors Co. | 150,000 | 204,222 | ||||||
General Motors Financial Co., Inc. | 5,750,000 | 6,232,770 | ||||||
|
| |||||||
10,483,453 | ||||||||
Beverages – 2.0% |
| |||||||
Constellation Brands, Inc. | 6,950,000 | 7,299,237 | ||||||
|
| |||||||
7,299,237 |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Building Materials – 2.4% |
| |||||||
Cornerstone Building Brands, Inc. | $ | 1,500,000 | $ | 1,611,450 | ||||
Fortune Brands Home & Security, Inc. | 3,500,000 | 3,769,710 | ||||||
Owens Corning | 3,200,000 | 3,616,832 | ||||||
|
| |||||||
8,997,992 | ||||||||
Chemicals – 2.3% |
| |||||||
Nutrien Ltd. | 4,600,000 | 4,855,668 | ||||||
The Sherwin-Williams Co. | 3,600,000 | 3,650,328 | ||||||
|
| |||||||
8,505,996 | ||||||||
Commercial Banks – 7.6% |
| |||||||
Bank of America Corp. 2.687% (2.687% fixed rate until 4/22/2031; SOFR + 1.32% thereafter) due 4/22/2032(2) | 4,850,000 | 4,995,888 | ||||||
2.831% (2.831% fixed rate until | 1,500,000 | 1,466,175 | ||||||
Citigroup, Inc. | ||||||||
2.572% (2.572% fixed rate until 6/3/2030; SOFR + 2.11% thereafter) due 6/3/2031(2) | 1,100,000 | 1,130,459 | ||||||
4.65% due 7/23/2048 | 450,000 | 589,428 | ||||||
Credit Suisse Group AG | 6,900,000 | 7,593,312 | ||||||
Discover Bank | 5,300,000 | 5,548,994 | ||||||
JPMorgan Chase & Co. | 4,000,000 | 4,109,560 | ||||||
Morgan Stanley | ||||||||
1.928% (1.928% fixed rate until 4/28/2021; SOFR + 1.02% thereafter) due 4/28/2032(2) | 1,800,000 | 1,750,626 | ||||||
3.217% (3.217% fixed rate until 4/22/2041; SOFR + 1.49% thereafter) due 4/22/2042(2) | 800,000 | 846,504 | ||||||
|
| |||||||
28,030,946 | ||||||||
Commercial Services – 0.1% |
| |||||||
Team Health Holdings, Inc. | 500,000 | 475,940 | ||||||
|
| |||||||
475,940 | ||||||||
Diversified Financial Services – 2.6% |
| |||||||
Air Lease Corp. | 5,400,000 | 6,102,594 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Diversified Financial Services (continued) |
| |||||||
Jefferies Group LLC / Jefferies Group Capital Finance, Inc. | $ | 3,100,000 | $ | 3,484,524 | ||||
|
| |||||||
9,587,118 | ||||||||
Electric – 1.4% |
| |||||||
FirstEnergy Corp. | 5,000,000 | 4,972,500 | ||||||
|
| |||||||
4,972,500 | ||||||||
Entertainment – 0.2% |
| |||||||
Cinemark USA, Inc. | 650,000 | 666,543 | ||||||
|
| |||||||
666,543 | ||||||||
Environmental Control – 1.5% |
| |||||||
Waste Connections, Inc. | ||||||||
2.60% due 2/1/2030 | 3,000,000 | 3,102,870 | ||||||
3.05% due 4/1/2050 | 750,000 | 763,335 | ||||||
Waste Management, Inc. | ||||||||
1.50% due 3/15/2031 | 1,500,000 | 1,419,615 | ||||||
2.50% due 11/15/2050 | 200,000 | 186,492 | ||||||
|
| |||||||
5,472,312 | ||||||||
Food – 1.6% |
| |||||||
General Mills, Inc. | 1,700,000 | 1,802,595 | ||||||
Kraft Heinz Foods Co. | 2,650,000 | 3,016,044 | ||||||
Post Holdings, Inc. | 1,000,000 | 1,047,280 | ||||||
|
| |||||||
5,865,919 | ||||||||
Food Service – 0.5% |
| |||||||
Aramark Services, Inc. | 1,650,000 | 1,752,746 | ||||||
|
| |||||||
1,752,746 | ||||||||
Healthcare-Services – 0.2% |
| |||||||
Surgery Center Holdings, Inc. | 650,000 | 713,882 | ||||||
|
| |||||||
713,882 | ||||||||
Home Builders – 1.2% |
| |||||||
MDC Holdings, Inc. | 1,450,000 | 1,412,532 | ||||||
NVR, Inc. | 2,800,000 | 2,967,216 | ||||||
|
| |||||||
4,379,748 | ||||||||
Insurance – 3.2% |
| |||||||
Aon Corp. | 1,740,000 | 1,830,550 | ||||||
Chubb INA Holdings, Inc. | 2,600,000 | 2,473,458 | ||||||
CNA Financial Corp. | 4,705,000 | 4,625,250 | ||||||
Liberty Mutual Group, Inc. | 600,000 | 665,736 | ||||||
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Insurance (continued) |
| |||||||
Willis North America, Inc. | $ | 2,160,000 | $ | 2,271,823 | ||||
|
| |||||||
11,866,817 | ||||||||
Internet – 1.1% |
| |||||||
Expedia Group, Inc. | 4,100,000 | 4,171,340 | ||||||
|
| |||||||
4,171,340 | ||||||||
Leisure Time – 0.4% |
| |||||||
Viking Cruises Ltd. | 1,365,000 | 1,605,295 | ||||||
|
| |||||||
1,605,295 | ||||||||
Lodging – 2.1% |
| |||||||
Boyd Gaming Corp. | 500,000 | 517,445 | ||||||
Marriott International, Inc. | 5,350,000 | 5,436,777 | ||||||
MGM Resorts International | 1,650,000 | 1,811,568 | ||||||
|
| |||||||
7,765,790 | ||||||||
Machinery-Construction & Mining – 1.3% |
| |||||||
Caterpillar, Inc. | ||||||||
1.90% due 3/12/2031 | 3,300,000 | 3,306,369 | ||||||
3.25% due 4/9/2050 | 1,300,000 | 1,440,803 | ||||||
|
| |||||||
4,747,172 | ||||||||
Media – 5.6% |
| |||||||
AMC Networks, Inc. | 2,000,000 | 2,020,680 | ||||||
Audacy Capital Corp. | 500,000 | 519,685 | ||||||
Charter Communications Operating LLC / Charter Communications Operating Capital | 3,500,000 | 3,370,955 | ||||||
Comcast Corp. | 1,925,000 | 1,737,890 | ||||||
CSC Holdings LLC | 1,500,000 | 1,642,800 | ||||||
Discovery Communications LLC | 2,450,000 | 2,674,714 | ||||||
iHeartCommunications, Inc. | 1,900,000 | 1,988,768 | ||||||
Scripps Escrow, Inc. | 325,000 | 336,515 | ||||||
Sinclair Television Group, Inc. | 1,750,000 | 1,782,935 | ||||||
Sirius XM Radio, Inc. | 500,000 | 544,745 | ||||||
TEGNA, Inc. | 2,250,000 | 2,355,345 | ||||||
Univision Communications, Inc. | 200,000 | 201,504 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Media (continued) |
| |||||||
ViacomCBS, Inc. |
| |||||||
4.375% due 3/15/2043 | $ | 1,100,000 | $ | 1,269,829 | ||||
4.95% due 5/19/2050 | 300,000 | 379,086 | ||||||
|
| |||||||
20,825,451 | ||||||||
Mining – 0.3% |
| |||||||
Freeport-McMoRan, Inc. | 900,000 | 1,100,304 | ||||||
|
| |||||||
1,100,304 | ||||||||
Oil & Gas – 4.0% |
| |||||||
Antero Resources Corp. | 2,430,000 | 2,763,372 | ||||||
Cenovus Energy, Inc. | ||||||||
4.25% due 4/15/2027 | 740,000 | 827,460 | ||||||
5.40% due 6/15/2047 | 1,300,000 | 1,614,158 | ||||||
Hess Corp. | 7,400,000 | 8,243,304 | ||||||
Marathon Petroleum Corp. | 1,150,000 | 1,315,186 | ||||||
|
| |||||||
14,763,480 | ||||||||
Oil & Gas Services – 0.1% |
| |||||||
TechnipFMC PLC | 300,000 | 323,646 | ||||||
|
| |||||||
323,646 | ||||||||
Packaging & Containers – 1.0% |
| |||||||
Amcor Flexibles North America, Inc. | 3,600,000 | 3,670,164 | ||||||
|
| |||||||
3,670,164 | ||||||||
Pharmaceuticals – 1.3% |
| |||||||
AbbVie, Inc. | 2,150,000 | 2,577,829 | ||||||
Bausch Health Cos., Inc. | ||||||||
5.25% due 1/30/2030(1) | 500,000 | 466,490 | ||||||
6.125% due 4/15/2025(1) | 1,599,000 | 1,638,463 | ||||||
|
| |||||||
4,682,782 | ||||||||
Pipelines – 2.7% |
| |||||||
Energy Transfer LP |
| |||||||
3.75% due 5/15/2030 | 4,450,000 | 4,837,951 | ||||||
5.00% due 5/15/2050 | 700,000 | 808,668 | ||||||
ONEOK, Inc. | ||||||||
3.40% due 9/1/2029 | 1,700,000 | 1,812,506 | ||||||
4.00% due 7/13/2027 | 2,100,000 | 2,320,626 | ||||||
|
| |||||||
9,779,751 | ||||||||
Real Estate Investment Trusts – 1.5% |
| |||||||
Simon Property Group LP | 5,500,000 | 5,432,955 | ||||||
|
| |||||||
5,432,955 | ||||||||
Retail – 0.9% |
| |||||||
Kohl’s Corp. | 1,050,000 | 1,259,118 | ||||||
Magic Mergeco, Inc. | 500,000 | 515,195 | ||||||
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Retail (continued) |
| |||||||
PetSmart, Inc. / PetSmart Finance Corp. | $ | 1,500,000 | $ | 1,654,440 | ||||
|
| |||||||
3,428,753 | ||||||||
Semiconductors – 3.8% |
| |||||||
Broadcom, Inc. | 4,450,000 | 5,066,859 | ||||||
KLA Corp. | 2,700,000 | 3,112,965 | ||||||
NXP B.V. / NXP Funding LLC / NXP USA, Inc. | ||||||||
3.40% due 5/1/2030(1) | 900,000 | 981,126 | ||||||
4.30% due 6/18/2029(1) | 4,300,000 | 4,934,766 | ||||||
|
| |||||||
14,095,716 | ||||||||
Telecommunications – 3.7% |
| |||||||
�� | ||||||||
AT&T, Inc. | 2,500,000 | 2,507,300 | ||||||
4.30% due 2/15/2030 | 3,500,000 | 4,046,700 | ||||||
Level 3 Financing, Inc. | 1,000,000 | 1,037,610 | ||||||
Sprint Corp. | 500,000 | 611,670 | ||||||
T-Mobile USA, Inc. | 1,650,000 | 1,766,935 | ||||||
Vodafone Group PLC | 3,150,000 | 3,664,269 | ||||||
|
| |||||||
13,634,484 | ||||||||
Transportation – 0.2% |
| |||||||
Cargo Aircraft Management, Inc. | 800,000 | 819,128 | ||||||
|
| |||||||
819,128 | ||||||||
Total Corporate Bonds & Notes (Cost $230,647,104) |
| 234,815,570 | ||||||
Non–Agency Mortgage–Backed Securities – 6.5% |
| |||||||
BANK | 1,413,000 | 1,527,165 | ||||||
BB-UBS Trust | 2,500,000 | 2,649,527 | ||||||
Citigroup Commercial Mortgage Trust | 1,330,000 | 1,434,917 | ||||||
2016-C3 AS | 1,125,000 | 1,211,272 | ||||||
Grace Trust | 1,100,000 | 1,121,287 | ||||||
GS Mortgage Securities Corp. II | 1,800,000 | 2,052,680 | ||||||
GS Mortgage Securities Trust | ||||||||
2013-GC16 A4 | 750,000 | 805,500 | ||||||
2017-FARM A | 1,200,000 | 1,318,813 | ||||||
June 30, 2021 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
Jackson Park Trust | $ | 680,000 | $ | 700,747 | ||||
JPMCC Commercial Mortgage Securities Trust | 675,000 | 744,213 | ||||||
Life Mortgage Trust | 1,500,000 | 1,503,201 | ||||||
Morgan Stanley Capital I Trust | 750,000 | 795,480 | ||||||
ONE Park Mortgage Trust | 1,500,000 | 1,498,093 | ||||||
SLG Office Trust | 1,800,000 | 1,873,170 | ||||||
Stack Infrastructure Issuer LLC | 1,250,000 | 1,266,120 | ||||||
Wells Fargo Commercial Mortgage Trust | 500,000 | 551,626 | ||||||
2021-SAVE A | 1,181,728 | 1,186,860 | ||||||
WFRBS Commercial Mortgage Trust | 1,500,000 | 1,617,141 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $23,566,364) |
| 23,857,812 | ||||||
U.S. Government Agencies – 1.8% |
| |||||||
Federal Farm Credit Banks Funding Corp. | 6,750,000 | 6,807,105 | ||||||
Total U.S. Government Agencies (Cost $6,754,163) |
| 6,807,105 | ||||||
U.S. Government Securities – 11.7% |
| |||||||
U.S. Treasury Bond | 5,900,000 | 6,110,187 | ||||||
U.S. Treasury Note | ||||||||
0.125% due 5/31/2023 | 500,000 | 498,945 | ||||||
0.25% due 10/31/2025 | 4,500,000 | 4,399,805 | ||||||
0.375% due 1/31/2026 | 2,000,000 | 1,960,156 | ||||||
0.625% due 5/15/2030 | 700,000 | 654,391 | ||||||
0.875% due 11/15/2030 | 2,200,000 | 2,092,406 | ||||||
1.25% due 5/31/2028 | 1,600,000 | 1,604,250 | ||||||
1.50% due 9/30/2024 | 23,850,000 | 24,610,219 | ||||||
1.625% due 5/15/2031 | 1,060,000 | 1,076,563 | ||||||
Total U.S. Government Securities (Cost $42,119,685) |
| 43,006,922 |
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2021 (unaudited) | Shares | Value | ||||||
Exchange–Traded Funds – 5.1% |
| |||||||
Invesco Senior Loan ETF | 423,000 | $ | 9,369,450 | |||||
SPDR Blackstone Senior Loan ETF | 206,000 | 9,535,740 | ||||||
Total Exchange–Traded Funds (Cost $18,893,679) |
| 18,905,190 | ||||||
Principal Amount | Value | |||||||
Short–Term Investment – 2.0% |
| |||||||
Repurchase Agreements – 2.0% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2021, proceeds at maturity value of $7,366,265, due 7/1/2021(4) | $ | 7,366,265 | 7,366,265 | |||||
Total Repurchase Agreements (Cost $7,366,265) |
| 7,366,265 | ||||||
Total Investments(5) – 100.6% (Cost $365,992,222) |
| $ | 371,346,037 | |||||
Liabilities in excess of other assets(6) – (0.6)% |
| (2,221,060 | ) | |||||
Total Net Assets – 100.0% | $ | 369,124,977 |
(1) | 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 June 30, 2021, the aggregate market value of these securities amounted to $94,681,520, representing 25.7% 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. |
(2) | Variable rate securities, which may include step-up bonds or adjustable rate mortgages. The rate shown is the rate in effect at June 30, 2021. |
(3) | Variable coupon rate based on weighted average interest rate of underlying mortgages. |
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 2.50% | 1/31/2025 | $ | 6,968,400 | $ | 7,513,678 |
(5) | Securities are segregated to cover anticipated or existing derivative positions or to be announced securities (TBA). |
(6) | Liabilities in excess of other assets include net unrealized depreciation on futures contracts as follows: |
Open futures contracts at June 30, 2021:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||
U.S. 2-Year Treasury Note | September 2021 | 193 | Long | $ | 42,597,079 | $ | 42,521,820 | $ | (75,259 | ) | ||||||||||||||
U.S. 10-Year Treasury Note | September 2021 | 34 | Long | 4,491,377 | 4,505,000 | 13,623 | ||||||||||||||||||
U.S. Long Bond | September 2021 | 335 | Long | 52,606,371 | 53,851,250 | 1,244,879 | ||||||||||||||||||
U.S. Ultra Bond | September 2021 | 81 | Long | 15,288,410 | 15,607,688 | 319,278 | ||||||||||||||||||
Total |
| $ | 114,983,237 | $ | 116,485,758 | $ | 1,502,521 |
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2021 | 957 | Short | $ | (138,908,176 | ) | $ | (140,873,391 | ) | $ | (1,965,215 | ) |
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
Legend:
CLO — Collateralized Loan Obligation
LIBOR — London Interbank Offered Rate
SOFR — Secured Overnight Financing Rate
The following is a summary of the inputs used as of June 30, 2021 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 (unaudited) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Asset–Backed Securities | $ | — | $ | 36,587,173 | $ | — | $ | 36,587,173 | ||||||||
Corporate Bonds & Notes | — | 234,815,570 | — | 234,815,570 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 23,857,812 | — | 23,857,812 | ||||||||||||
U.S. Government Agencies | — | 6,807,105 | — | 6,807,105 | ||||||||||||
U.S. Government Securities | — | 43,006,922 | — | 43,006,922 | ||||||||||||
Exchange–Traded Funds | 18,905,190 | — | — | 18,905,190 | ||||||||||||
Repurchase Agreements | — | 7,366,265 | — | 7,366,265 | ||||||||||||
Total | $ | 18,905,190 | $ | 352,440,847 | $ | — | $ | 371,346,037 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts |
| |||||||||||||||
Assets | $ | 1,577,780 | $ | — | $ | — | $ | 1,577,780 | ||||||||
Liabilities | (2,040,474 | ) | — | — | (2,040,474 | ) | ||||||||||
Total | $ | (462,694 | ) | $ | — | $ | — | $ | (462,694 | ) |
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN TOTAL RETURN BOND VIP FUND
For the Six Months Ended June 30, 2021 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 151,437 | ||
Interest | 3,938,272 | |||
|
| |||
Total Investment Income | 4,089,709 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 769,169 | |||
Distribution fees | 434,241 | |||
Trustees’ and officers’ fees | 48,648 | |||
Professional fees | 44,450 | |||
Administrative fees | 25,942 | |||
Custodian and accounting fees | 25,033 | |||
Shareholder reports | 20,430 | |||
Transfer agent fees | 6,418 | |||
Other expenses | 13,128 | |||
|
| |||
Total Expenses | 1,387,459 | |||
Less: Fees waived | (15,257 | ) | ||
|
| |||
Total Expenses, Net | 1,372,202 | |||
|
| |||
Net Investment Income/(Loss) | 2,717,507 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | 1,214,054 | |||
Net realized gain/(loss) from futures contracts | 949,588 | |||
Net realized gain/(loss) from swap contracts | 840,777 | |||
Net change in unrealized appreciation/(depreciation) on investments | (7,250,320 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | (139,081 | ) | ||
|
| |||
Net Loss on Investments and Derivative Contracts | (4,384,982 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (1,667,475 | ) | |
|
| |||
10 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN TOTAL RETURN BOND VIP FUND
The accompanying notes are an integral part of these financial statements. | 11 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN TOTAL RETURN BOND VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (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 Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
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) | |||||||||||||||||||
Six Months Ended 6/30/21 | $ | 10.70 | $ | 0.08 | $ | (0.15 | ) | $ | (0.07 | ) | $ | 10.63 | (0.65)% | (4) | ||||||||||
Year Ended 12/31/20 | 10.03 | 0.14 | 0.53 | 0.67 | 10.70 | 6.68% | ||||||||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.03 | 0.00 | (6) | 0.03 | 10.03 | 0.30% | (4) |
12 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN TOTAL RETURN BOND 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 to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 369,125 | 0.79% | (4) | 0.80% | (4) | 1.56% | (4) | 1.55% | (4) | 118% | (4) | |||||||||||
333,391 | 0.79% | 0.81% | 1.40% | 1.38% | 112% | |||||||||||||||||
337,312 | 0.75% | (4) | 0.85% | (4) | 1.56% | (4) | 1.46% | (4) | 18% | (4) |
(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) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2019, certain non-recurring fees (i.e., audit fees) are not annualized. |
(5) | Commenced operations on October 21, 2019. |
(6) | Rounds to $0.00 per share. |
The accompanying notes are an integral part of these financial statements. | 13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2021 (unaudited)
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 an open-end management investment company. The Trust currently has twenty-four series. Guardian Total Return Bond VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 21, 2019. 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 total return with an emphasis on current income as well as 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 The valuations of debt securities for which quoted bid prices are readily available are valued at the bid price by independent pricing services (each, a “Service”). Debt securities for which quoted bid prices are not readily available are valued by a Service at the evaluated bid price provided by the Service or the bid price provided by an independent broker-dealer or at a calculated price based on the spread to an appropriate benchmark
provided by such broker-dealer. Securities for which market quotations are not readily available or for which market quotations may be considered unreliable or for which a Service or independent broker-dealer does not provide a valuation 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.
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 5c). 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”).
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. 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 TOTAL RETURN BOND 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. For the six months ended June 30, 2021, there were no transfers into or out of Level 3 of the fair value hierarchy.
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 June 30, 2021 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/or non-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 June 30, 2021, 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. Certain non-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.
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.
15 |
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
c. Futures Contracts The Fund may enter into financial futures contracts. In entering into such contracts, the Fund is required to deposit with the counterparty, either in cash or securities, an amount equal to a certain percentage of the face value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
d. Credit Derivatives The Fund may enter into credit derivatives, including credit default swaps on individual obligations or credit indices. The Fund may use these investments (i) as alternatives to direct long or short investment in a particular security or securities, (ii) to adjust the Fund’s asset allocation or risk exposure, (iii) to enhance potential return, or (iv) for hedging purposes. The use by the Fund of credit default swaps may have the effect of creating a short position in a security. Credit derivatives can create investment leverage and may create additional investment risks that may subject the Fund to greater volatility than investments in more traditional securities, as described in the Statement of Additional Information.
The Fund may enter into credit default swap agreements either as a buyer or seller. The Fund may buy protection under a credit default swap to attempt to mitigate the risk of default or credit quality deterioration in one or more individual holdings or in a segment of the fixed income securities market. The Fund may sell protection under a credit default swap in an attempt to gain exposure to an underlying issuer’s credit quality characteristics without investing directly in that issuer.
For swaps entered with an individual counterparty, the Fund bears the risk of loss of the uncollateralized amount expected to be received under a credit default swap agreement in the event of the default or bankruptcy of the counterparty. Credit default swap agreements are generally valued at a price at which the counterparty to such agreement would terminate the agreement. The Fund may also enter into cleared swaps.
In entering into swap contracts, the Fund is required to deposit with the broker (or for the benefit of the broker), either in cash or securities, an amount equal to a percentage of the notional value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the
values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the swap contracts and may realize a loss.
During the six months ended June 30, 2021, the Fund entered into credit default swaps for risk exposure management and to enhance potential return. There were no credit default swaps held as of June 30, 2021.
e. Options Transactions The Fund can write (sell) put and call options on securities and indexes to earn premiums, for hedging purposes, for risk management purposes or otherwise as part of its investment strategies. In writing options, the Fund is required to deposit with the broker or counterparty, either in cash or securities, an amount equal to a percentage of the face value of the options. When an option is written, the premium received is recorded as an asset with an equal liability that is subsequently marked to market to reflect the market value of the written option. These liabilities, if any, are reflected as written options, at value, in the Fund’s Statement of Assets and Liabilities. Premiums received from writing options which expire unexercised are recorded on the expiration date as a realized gain. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchased transactions, as a realized loss. If a written call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether there has been a realized gain or loss. If a written put option is exercised, the premium reduces the cost basis of the security. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security underlying the written option. Exercise of a written option could result in the Fund purchasing or selling a security at a price different from its current market value. There were no options transactions as of June 30, 2021.
f. 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.
g. Allocation of Income and Expenses Many of the expenses of the Trust can be directly attributed to a
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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 0.45% of the first $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, 2022 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 0.79% 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). 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. Amounts waived or reimbursed by Park Avenue pursuant to any expense limitation will not be subject to Park Avenue’s recoupment rights. For the six months ended June 30, 2021, Park Avenue waived fees and/or paid Fund expenses in the amount of $15,257.
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 six months ended June 30, 2021, the Fund paid distribution fees in the amount of $434,241 to PAS.
PAS has directed that certain payments under the 12b-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 and U.S. government agency obligations purchased and the proceeds from U.S. government agency obligations and other investments sold (excluding short-term investments and to be announced (TBA) securities) for the six months ended June 30, 2021, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 398,864,572 | $ | 50,707,763 | ||||
Sales | 272,798,825 | 129,255,017 |
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. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
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 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.
d. Securities Purchased on a When-Issued or Delayed-Delivery Basis The Fund may purchase securities on a when-issued or delayed-delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than at the trade date purchase price. Although the Fund will generally enter into these transactions with the intention of taking delivery of the securities, it may sell the securities before the settlement date. Assets will be segregated when a fund agrees to purchase on a when-issued or delayed-delivery basis. These transactions may create investment leverage.
e. Restricted and Illiquid Securities A restricted security cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended (except pursuant to an applicable exemption). The values of these securities may be highly volatile. If the security is subsequently registered and resold, the issuer would typically bear the expense of all registrations at no cost to the Fund. Restricted and illiquid securities are valued according to the policies and procedures adopted by the Trust’s Board of Trustees and are noted, if any, in the Fund’s Schedule of Investments. As of June 30, 2021, the Fund did not hold any restricted, other than 144A restricted securities, or illiquid securities.
f. Below Investment Grade Securities The Fund may invest in below investment grade securities (i.e. lower-quality, “junk” debt), which are subject to various risks. Lower-quality debt is considered to be speculative because it is less certain that the issuer will be able to pay interest or repay the principal than in the case of
investment grade debt. These securities can involve a substantially greater risk of default than higher-rated securities, and their values can decline significantly over short periods of time. Lower-quality debt securities tend to be more sensitive to adverse news about their issuers, the market and the economy in general, than higher-quality debt securities. The market for these securities can be less liquid, especially during periods of recession or general market decline.
g. Mortgage- and Asset-Backed Securities The values of some mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose the Fund to a lower rate of return upon reinvestment of principal. The values of mortgage- and asset-backed securities depend in part on the credit quality and adequacy of the underlying assets or collateral and may fluctuate in response to the market’s perception of these factors as well as current and future repayment rates. Some mortgage-backed securities are backed by the full faith and credit of the U.S. government (e.g., mortgage-backed securities issued by the Government National Mortgage Association, commonly known as “Ginnie Mae”), while other mortgage-backed securities (e.g., mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, commonly known as “Fannie Mae” and “Freddie Mac”), are backed only by the credit of the government entity issuing them. In addition, some mortgage-backed securities are issued by private entities and, as such, are not guaranteed by the U.S. government or any agency or instrumentality of the U.S. government.
h. Treasury Inflation Protected Securities Treasury inflation protected securities (“TIPS”) are debt securities issued by the U.S. Treasury whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. The interest rate paid by the TIPS is fixed, while the principal value rises or falls based on changes in a published Consumer Price Index (“CPI”). Thus, if inflation occurs, the principal and interest payments on TIPS are adjusted accordingly to protect investors from inflationary loss. During a deflationary period, the principal and interest payments decrease, although the TIPS principal amounts will not drop below their face amounts at maturity. In exchange for the inflation protection, the TIPS generally pay lower interest rates than typical U.S. Treasury securities. Only if inflation occurs will TIPS offer a higher real yield than a conventional Treasury bond of the same maturity.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
i. LIBOR Risk Many financial instruments may be tied to the London Interbank Offered Rate, or “LIBOR,” to determine payment obligations, financing terms, hedging strategies, or investment value. LIBOR is the offered rate for short-term Eurodollar deposits between major international banks. The head of the UK Financial Conduct Authority has announced that after 2021 it will no longer persuade nor compel banks to submit rates for the calculation of LIBOR. As a result, it is possible that commencing in 2022, LIBOR may no longer be available or no longer deemed an appropriate reference rate upon which to determine the interest rate on or impacting certain loans, notes and other instruments or investments comprising some or all of a fund’s portfolio. A fund may continue to invest in instruments that reference LIBOR or otherwise use reference rates due to favorable liquidity or pricing. Regulators and market participants have been working together to identify or develop successor reference rates and how the calculation of associated spreads (i.e., the amounts above the relevant reference rates paid by borrowers in the market) (if any) should be adjusted. At this time, it is not possible to predict the effect of the establishment of any replacement rate or any other reforms to LIBOR. There is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades. In addition, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known. The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR, reduced values of LIBOR related investments, and reduced effectiveness of hedging strategies, adversely affecting the Fund’s performance or NAV. In addition, the alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for the Fund.
j. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into U.S. Treasury futures contracts for the six months ended June 30, 2021 to manage portfolio duration. The Fund bears the risk of interest rates moving unexpectedly, in which case the Fund may not achieve the anticipated benefits of the futures contracts and realize a loss. There is minimal counterparty credit risk to the Funds since futures are
exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees futures against default.
Under certain market conditions, the Fund may use credit default swaps to seek to (i) hedge various investments, (ii) manage or adjust duration and yield curve exposure, (iii) manage risk, (iv) enhance returns, or (v) as substitutes for permitted Fund investments. Credit default swaps involve the exchange of a floating or fixed rate payment in return for assuming potential credit losses of an underlying security or pool of securities.
The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency or security, or in a “basket” of securities representing a particular index. Cleared swaps are transacted through futures commission merchants (“FCM”s) that are members of central clearinghouses with the clearinghouse serving as a central counterparty similar to transactions in futures contracts. Funds post initial and variation margin by making payments to their clearing member FCMs.
Generally, the Fund will enter into credit default swaps on a net basis, which means that the two payment streams are netted out, with a Fund receiving or paying, as the case may be, only the net amount of the two payments. Credit default swaps do not normally involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to credit default swaps is normally limited to the net amount of payments that a Fund is contractually obligated to make. If the other party to a credit default swap defaults, a Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any.
In addition to the risks generally applicable to derivatives, risks associated with credit default swap agreements include adverse changes in the returns of the underlying instruments, failure of the counterparties to perform under the agreement’s terms and the possible lack of liquidity with respect to the agreements.
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As of June 30, 2021, the Fund had the following derivatives at fair value, grouped into appropriate risk categories that illustrate the Fund’s use of derivative instruments:
Interest Rate Contracts | ||||
Asset Derivatives | ||||
Futures Contracts1 | $ | 1,577,780 | ||
Liability Derivatives | ||||
Futures Contracts1 | $ | (2,040,474 | ) |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Transactions in derivative investments for the six months ended June 30, 2021 were as follows:
Interest Rate Contracts | Credit Contracts | |||||||
Net Realized Gain (Loss) | ||||||||
Futures Contracts1 | $ | 949,588 | $ | — | ||||
Swap Contracts2 | — | 840,777 | ||||||
Net Change in Unrealized Appreciation/(Depreciation) | ||||||||
Futures Contracts3 | $ | (139,081 | ) | $ | — | |||
Average Number of Notional Amounts | ||||||||
Futures Contracts4 | 1,311 | — | ||||||
Swap Contracts —Sell Protection | $ | — | $ | 5,000,000 |
1 | Statement of Operations location: Net realized gain/(loss) from futures contracts. |
2 | Statement of Operations location: Net realized gain/(loss) from swap contracts. |
3 | Statement of Operations location: Net change in unrealized appreciation/(depreciation) on futures contracts. |
4 | Amount represents number of contracts. |
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 daily one-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 January 7, 2022. The Fund did not utilize the credit facility during the six months ended June 30, 2021.
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. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than monthly taking into consideration a variety of factors, including, as applicable, the Fund’s investment strategy and liquidity of portfolio investments, cash flow projections, and holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources. Certain factors are considered under both normal and reasonably foreseeable stressed conditions.
Each Fund portfolio investment is classified into one of four liquidity categories (including “highly liquid investments” and “illiquid investments,” discussed below) based on a determination of the number of days it is reasonably expected to take to convert the investment to cash, or sell or dispose of the investment, in current market conditions without significantly
changing the investment’s market value. The Liquidity Rule limits the Fund’s investments in illiquid investments by prohibiting the Fund from acquiring any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with this investment limitation. In addition, the Program includes provisions reasonably designed to comply with the Liquidity Rule’s requirements relating to highly liquid investment minimums, which is a minimum amount of Fund net assets to be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2021, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2020 through December 31, 2020 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception. During the Reporting Period, the Administrator presented to the Board regarding the impact of the COVID-19 pandemic on the Fund’s liquidity and management of liquidity risk during the Reporting Period, including during stressed market conditions caused by the COVID-19 pandemic.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Advisory and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and Sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. 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 a 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 March 23-24, 2021 (the “Meeting”), the Board, including the trustees who are not parties to the agreement or “interested persons” as defined in the 1940 Act (the “Independent Trustees”), considered and voted unanimously to renew the existing investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Large Cap Fundamental Growth VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Integrated Research VIP Fund, Guardian Diversified Research VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Growth & Income VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Core Plus Fixed Income VIP Fund, Guardian Global Utilities VIP Fund, Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund, and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and collectively, the “Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”) for a one-year term.
The Board, including the Independent Trustees, also considered and voted unanimously to renew the existing Sub-advisory agreements (the “Sub-advisory Agreements,” collectively with the Management Agreement, the “Agreements”) between the Manager and investment advisory firms engaged to serve as sub-advisers to certain of the Funds (the “Sub-advised Funds”), namely (i) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (ii) Columbia Management Investment Advisers, LLC with respect to Guardian Integrated Research VIP Fund,
(iii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (iv) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (v) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (vi) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (vii) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative Value VIP Fund (viii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (ix) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, and (x) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund (each, a “Sub-adviser” and collectively, the “Sub-advisers”) for a one-year term. A new Sub-advisory agreement with ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund was previously approved in 2020 for a two-year initial term and will be subject to renewal in 2022. There is no sub-adviser for Guardian Multi-Sector Bond VIP Fund, Guardian Total Return Bond VIP Fund or Guardian U.S. Government Securities VIP Fund.
The Board is responsible for overseeing the management of each Fund. In determining whether to renew its approval 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, the Trustees received materials and information designed to assist their consideration of the Agreements. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent 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 identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not
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Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval 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 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 Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Sub-advisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with 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, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, 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 Board also received a description of the Manager’s and each Sub-adviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Sub-advisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Sub-advisers, monitoring the Sub-advisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Sub-advisers with respect to the services that the Sub-advisers would provide under the Sub-advisory Agreements. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend sub-advisers, and the Manager’s ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Board noted that investment management staff of the Manager and the Trust’s Chief Compliance Officer conduct oversight meetings with the Sub-advisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. 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 may benefit from the Manager’s ability to use 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 Sub-advised Funds by the Sub-advisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Sub-advisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Sub-adviser were appropriate.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Sub-adviser was generally satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Sub-advisers, but noted that the Manager had negotiated the fees with the Sub-advisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Sub-advisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
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 comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group 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 the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the Sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Sub-advisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and Sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to which the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and Sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the
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expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-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 than Sub-advisory fees, that the Sub-advisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Sub-advisers and their affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year period and below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 4th quintile. The |
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Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period, in the 5th quintile for the 3-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 2nd quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1- and 3-year periods and above the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile based on data as of the reporting period in the Broadridge report. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group, that the actual management fee was in the 4th quintile and that actual total expenses were in the 3rd quintile. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 2nd quintile for the 3-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and above the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year and since-inception periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year, 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Value VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 3rd quintile of the expense group, that the actual management fee was in the 4th quintile and |
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that actual total expenses were in the 2nd quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would move actual total expenses to the 3rd quintile of the expense group based on data as of the reporting period in the Broadridge report. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year and 3-year periods and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was in-line with the benchmark index for the 1-year period and below the benchmark index for the 3-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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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-free 1-888-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-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
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 recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-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.
The Guardian Life Insurance Company of America New York, NY 10001-2159
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Item 2. | Code of Ethics. |
Not applicable to this semi-annual report.
Item 3. | Audit Committee Financial Expert. |
Not applicable to this semi-annual report.
Item 4. | Principal Accountant Fees and Services. |
Not applicable to this semi-annual report.
Item 5. | Audit Committee of Listed Registrants. |
Not applicable to the registrant.
Item 6. | Investments. |
(a) | The Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this Form. |
(b) | None. |
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable to the registrant.
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable to the registrant.
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable to the registrant.
Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (as required by Item 22(b)(15) of Schedule 14A) or this Item.
Item 11. | Controls and Procedures. |
(a) | The registrant’s principal executive and principal financial officers have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c)) are effective, as of a date within 90 days of the filing date of this Form N-CSR, to provide reasonable assurance that the information required to be disclosed by the registrant on Form N-CSR is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, based on their evaluation of these disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rule 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. |
Not applicable to the registrant.
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Item 13. | Exhibits. |
(a)(1) | Code of ethics – not applicable to this semi-annual report. | |||
(a)(2) | ||||
(a)(3) | Not applicable to the registrant. | |||
(a)(4) | There was no change in the registrant’s independent public accountant during the reporting period. | |||
(b) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) | Guardian Variable Products Trust | |||
By (Signature and Title) | /s/ Dominique Baede | |||
Dominique Baede, President (Principal Executive Officer) |
Date: September 3, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title) | /s/ Dominique Baede | |||
Dominique Baede, President (Principal Executive Officer) |
Date: September 3, 2021
By (Signature and Title) | /s/ John H Walter | |||||
John H Walter, Treasurer (Principal Financial and Accounting Officer) |
Date: September 3, 2021