Table of Contents
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, 2020
Table of Contents
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. |
Table of Contents
Guardian Variable
Products Trust
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Large Cap Fundamental Growth VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
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 | ||||
Shareholder Meeting Results | 16 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 24 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $329,320,114
Sector Allocation1 As of June 30, 2020 |
![]() |
Top Ten Holdings2 As of June 30, 2020 | ||||
Holding | % of Total Net Assets | |||
Amazon.com, Inc. | 9.26% | |||
Microsoft Corp. | 5.73% | |||
Facebook, Inc., Class A | 5.57% | |||
Apple, Inc. | 4.77% | |||
Visa, Inc., Class A | 4.28% | |||
Adobe, Inc. | 3.52% | |||
UnitedHealth Group, Inc. | 3.49% | |||
Alphabet, Inc., Class C | 3.05% | |||
Thermo Fisher Scientific, Inc. | 2.74% | |||
Zoetis, Inc. | 2.58% | |||
Total | 44.99% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $ 1,000.00 | $1,067.30 | $5.14 | 1.00% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ 1,000.00 | $1,019.89 | $5.02 | 1.00% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.0% |
| |||||||
Aerospace & Defense – 1.5% |
| |||||||
Raytheon Technologies Corp. | 80,480 | $ | 4,959,178 | |||||
|
| |||||||
4,959,178 | ||||||||
Air Freight & Logistics – 3.1% |
| |||||||
CH Robinson Worldwide, Inc. | 40,384 | 3,192,759 | ||||||
United Parcel Service, Inc., Class B | 63,256 | 7,032,802 | ||||||
|
| |||||||
10,225,561 | ||||||||
Auto Components – 1.1% |
| |||||||
Aptiv PLC | 45,304 | 3,530,088 | ||||||
|
| |||||||
3,530,088 | ||||||||
Beverages – 2.2% |
| |||||||
Anheuser-Busch InBev S.A., ADR | 57,188 | 2,819,368 | ||||||
Monster Beverage Corp.(1) | 65,280 | 4,525,210 | ||||||
|
| |||||||
7,344,578 | ||||||||
Biotechnology – 5.2% |
| |||||||
Alexion Pharmaceuticals, Inc.(1) | 42,708 | 4,793,546 | ||||||
Amgen, Inc. | 32,060 | 7,561,672 | ||||||
BioMarin Pharmaceutical, Inc.(1) | 37,921 | 4,677,176 | ||||||
|
| |||||||
17,032,394 | ||||||||
Chemicals – 1.6% |
| |||||||
Ecolab, Inc. | 26,291 | 5,230,594 | ||||||
|
| |||||||
5,230,594 | ||||||||
Consumer Finance – 1.4% |
| |||||||
American Express Co. | �� | 48,823 | 4,647,950 | |||||
|
| |||||||
4,647,950 | ||||||||
Entertainment – 1.6% |
| |||||||
The Walt Disney Co. | 48,039 | 5,356,829 | ||||||
|
| |||||||
5,356,829 | ||||||||
Equity Real Estate Investment – 2.0% |
| |||||||
Equinix, Inc. REIT | 9,247 | 6,494,168 | ||||||
|
| |||||||
6,494,168 | ||||||||
Food & Staples Retailing – 1.6% |
| |||||||
Costco Wholesale Corp. | 17,649 | 5,351,353 | ||||||
|
| |||||||
5,351,353 | ||||||||
Health Care Equipment & Supplies – 0.8% |
| |||||||
Alcon, Inc.(1) | 46,220 | 2,649,330 | ||||||
|
| |||||||
2,649,330 | ||||||||
Health Care Providers & Services – 3.5% |
| |||||||
UnitedHealth Group, Inc. | 38,987 | 11,499,216 | ||||||
|
| |||||||
11,499,216 | ||||||||
Interactive Media & Services – 8.6% |
| |||||||
Alphabet, Inc., Class C(1) | 7,112 | 10,053,595 | ||||||
Facebook, Inc., Class A(1) | 80,833 | 18,354,749 | ||||||
|
| |||||||
28,408,344 | ||||||||
Internet & Direct Marketing Retail – 12.3% |
| |||||||
Alibaba Group Holding Ltd., ADR(1) | 28,056 | 6,051,679 | ||||||
Amazon.com, Inc.(1) | 11,055 | 30,498,755 | ||||||
June 30, 2020 (unaudited) | Shares | Value | ||||||
Internet & Direct Marketing Retail (continued) |
| |||||||
Booking Holdings, Inc.(1) | 2,505 | $ | 3,988,812 | |||||
|
| |||||||
40,539,246 | ||||||||
IT Services – 8.2% |
| |||||||
Akamai Technologies, Inc.(1) | 66,169 | 7,086,038 | ||||||
Fidelity National Information Services, Inc. | 41,907 | 5,619,310 | ||||||
Visa, Inc., Class A | 72,987 | 14,098,899 | ||||||
|
| |||||||
26,804,247 | ||||||||
Life Sciences Tools & Services – 2.8% |
| |||||||
Thermo Fisher Scientific, Inc. | 24,942 | 9,037,484 | ||||||
|
| |||||||
9,037,484 | ||||||||
Media – 1.8% |
| |||||||
Comcast Corp., Class A | 152,532 | 5,945,697 | ||||||
|
| |||||||
5,945,697 | ||||||||
Pharmaceuticals – 2.6% |
| |||||||
Zoetis, Inc. | 61,901 | 8,482,913 | ||||||
|
| |||||||
8,482,913 | ||||||||
Professional Services – 1.7% |
| |||||||
IHS Markit Ltd. | 75,417 | 5,693,984 | ||||||
|
| |||||||
5,693,984 | ||||||||
Road & Rail – 1.3% |
| |||||||
Uber Technologies, Inc.(1) | 139,852 | 4,346,600 | ||||||
|
| |||||||
4,346,600 | ||||||||
Semiconductors & Semiconductor Equipment – 5.7% |
| |||||||
NVIDIA Corp. | 20,163 | 7,660,125 | ||||||
QUALCOMM, Inc. | 75,451 | 6,881,886 | ||||||
Texas Instruments, Inc. | 32,922 | 4,180,106 | ||||||
|
| |||||||
18,722,117 | ||||||||
Software – 17.4% |
| |||||||
Adobe, Inc.(1) | 26,590 | 11,574,893 | ||||||
Microsoft Corp. | 92,704 | 18,866,191 | ||||||
Nutanix, Inc., Class A(1) | 92,622 | 2,195,605 | ||||||
Palo Alto Networks, Inc.(1) | 21,444 | 4,925,043 | ||||||
salesforce.com, Inc.(1) | 39,350 | 7,371,435 | ||||||
Splunk, Inc.(1) | 35,771 | 7,107,698 | ||||||
VMware, Inc., Class A(1) | 34,320 | 5,314,795 | ||||||
|
| |||||||
57,355,660 | ||||||||
Specialty Retail – 4.6% |
| |||||||
Advance Auto Parts, Inc. | 34,140 | 4,863,243 | ||||||
The Home Depot, Inc. | 24,673 | 6,180,833 | ||||||
Ulta Beauty, Inc.(1) | 20,153 | 4,099,523 | ||||||
|
| |||||||
15,143,599 | ||||||||
Technology Hardware, Storage & Peripherals – 4.8% |
| |||||||
Apple, Inc. | 43,056 | 15,706,829 | ||||||
|
| |||||||
15,706,829 |
The accompanying notes are an integral part of these financial statements. | 3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Trading Companies & Distributors – 1.6% |
| |||||||
WW Grainger, Inc. | 16,989 | $ | 5,337,264 | |||||
|
| |||||||
5,337,264 | ||||||||
Total Common Stocks (Cost $254,961,887) |
| 325,845,223 | ||||||
Principal Amount | Value | |||||||
Short–Term Investment – 1.1% |
| |||||||
Repurchase Agreements – 1.1% |
| |||||||
Fixed Income Clearing Corp., | $ | 3,735,000 | 3,735,000 | |||||
Total Repurchase Agreements (Cost $3,735,000) |
| 3,735,000 | ||||||
Total Investments – 100.1% (Cost $258,696,887) |
| 329,580,223 | ||||||
Liabilities in excess of other assets – (0.1)% |
| (260,109 | ) | |||||
Total Net Assets – 100.0% |
| $ | 329,320,114 |
(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 | 0.125% | 7/15/2024 | $ | 3,374,500 | $ | 3,809,796 |
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, 2020 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 | $ | 325,845,223 | $ | — | $ | — | $ | 325,845,223 | ||||||||
Repurchase Agreements | — | 3,735,000 | — | 3,735,000 | ||||||||||||
Total | $ | 325,845,223 | $ | 3,735,000 | $ | — | $ | 329,580,223 |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
For the Six Months Ended June 30, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,438,895 | ||
Interest | 1,181 | |||
Withholding taxes on foreign dividends | (4,863 | ) | ||
|
| |||
Total Investment Income | 1,435,213 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 920,175 | |||
Distribution fees | 395,260 | |||
Trustees’ and officers’ fees | 54,083 | |||
Professional fees | 40,034 | |||
Administrative fees | 23,799 | |||
Custodian and accounting fees | 21,290 | |||
Shareholder reports | 18,433 | |||
Transfer agent fees | 10,222 | |||
Other expenses | 13,384 | |||
|
| |||
Total Expenses | 1,496,680 | |||
Expenses recouped by Adviser | 84,362 | |||
|
| |||
Total Expenses | 1,581,042 | |||
|
| |||
Net Investment Income/(Loss) | (145,829 | ) | ||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | 7,472,644 | |||
Net change in unrealized appreciation/(depreciation) on investments | 13,230,764 | |||
|
| |||
Net Gain on Investments | 20,703,408 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 20,557,579 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
1 | Includes in-kind subscriptions of $90,000,216. The cost basis of the contributed securities is equal to the market value of the securities on the date of the subscription. |
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
This Page Intentionally Left Blank
7 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past 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/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/20 | $ | 16.50 | $ | (0.01 | ) | $ | 1.12 | $ | 1.11 | $ | 17.61 | 6.73% | (4) | |||||||||||
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. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Income/ (Loss) to Average Net Assets(3) | Gross Ratio of Net Investment Income/ (Loss) to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 329,320 | 1.00% | (4) | 1.00% | (4) | (0.09)% | (4) | (0.09)% | (4) | 14% | (4) | |||||||||||
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. |
(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 FUNDAMENTAL GROWTH VIP FUND
June 30, 2020 (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 21 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 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
Various inputs are used in determining the valuation of the Fund’s investments. These inputs are summarized in three broad levels listed below.
• | Level 1 — unadjusted inputs using quoted prices in active markets for identical investments. |
• | Level 2 — other significant observable inputs, including, but not limited to, quoted prices for similar investments, inputs other than quoted prices that are observable for investments (such as interest rates, prepayment speeds, credit risks, etc.) or other market corroborated inputs. |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input; both individually and in aggregate, that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Trust. The Trust considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, and provided by independent sources that are actively involved in the relevant market. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of a financial instrument’s assigned level within the hierarchy.
The FASB requires reporting entities to make disclosures about purchases, sales, issuances and settlements of Level 3 securities on a gross basis. For the six months ended June 30, 2020, 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, 2020 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, 2020, 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, 2020, 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 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, 2021 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.
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, 2020, Park Avenue recouped previously waived or reimbursed expenses in the amount of $84,362. The amount available for potential future recoupment by Park Avenue from the Fund under the
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
Expense Limitation Agreement and the expiration schedule at June 30, 2020 are as follows:
Potential Recoupment Amounts Expiring | ||||||||||
Total Potential Recoupment Amounts | 2021 | 2020 | ||||||||
$100,551 | $ | 47,223 | $ | 53,328 |
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, 2020, the Fund paid distribution fees in the amount of $395,260 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 $42,895,220 and $84,021,137, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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
13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
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.
9. 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.
15 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
At a meeting held on May 14, 2020, the Board of Trustees of Guardian Variable Products Trust approved submitting the following proposals (“Proposals”) to shareholders of the Fund at a special meeting to be held on July 31, 2020 (with any postponements or adjournments, “Special Meeting”):
1. To permit Park Avenue Institutional Advisers LLC, under certain circumstances, to enter into and/or materially amend investment sub-advisory agreements with affiliated and unaffiliated sub-advisers on behalf of the Fund without obtaining shareholder approval; and
2. To approve a new investment sub-advisory agreement between PAIA and ClearBridge Investments, LLC (“ClearBridge”) with respect to the Fund prompted by the Transaction (defined in the Proxy Statement).
On or about June 26, 2020, shareholders of record of the Fund as of the close of business on May 22, 2020 were sent a proxy statement containing information regarding the Proposals. The proxy statement also included information about the Special Meeting, at which shareholders of the Fund were asked to consider and approve the Proposals. In addition, the proxy statement included information about voting (or providing voting instructions) on the Proposals and options shareholders had to do so.
The Special Meeting was held on July 31, 2020, and each Proposal passed.
The results of the Special Meeting were as follows:
Proposal 1. To permit Park Avenue Institutional Advisers LLC, under certain circumstances, to enter into and/or materially amend investment sub-advisory agreements with affiliated and unaffiliated sub-advisers on behalf of the Fund without obtaining shareholder approval:
Votes For | Votes Against | Abstentions | ||||||
16,578,518.182 | 1,058,741.378 | 1,265,095.832 |
Proposal 2. To approve a new investment sub-advisory agreement between PAIA and ClearBridge Investments, LLC (“ClearBridge”) with respect to the Fund prompted by the Transaction (defined in the Proxy Statement):
Votes For | Votes Against | Abstentions | ||||||
16,722,678.803 | 853,811.743 | 1,325,864.846 |
16 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund,
(iv) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials
17 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer
group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds.
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
The Board concluded that the investment performance generated by 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.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative
information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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
20 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered the benefits to the Manager from increased assets under management. 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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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.
Approval of New Sub-advisory Agreement with ClearBridge Investments, LLC
At a meeting of the Board held on May 14, 2020 (the “May 2020 Meeting”), the Board, including a majority of the Independent Trustees, considered and approved the proposed sub-advisory agreement between Park Avenue Institutional Advisers LLC (“PAIA” or the “Manager”) and ClearBridge Investments, LLC (“ClearBridge”) with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund (the “Proposed Sub-Advisory Agreement”) for an initial two-year term. In connection with its approval, the Board considered materials provided in advance of the May 2020 Meeting that detailed, among other things, the terms of an investment sub-advisory agreement between PAIA and ClearBridge (the “Current Sub-Advisory Agreement”), to Franklin Resources, Inc. (the “Transaction”), the post-Transaction ownership structure of ClearBridge, and the continuity of services expected to be provided by ClearBridge after the Transaction. The Board also considered the terms of the Proposed Sub-Advisory Agreement and noted that the material terms of the
Proposed Sub-Advisory Agreement were the same as those of the Current Sub-Advisory Agreement. The Board further noted that the Proposed Sub-Advisory Agreement would go into effect upon the closing of the Transaction. The Board also determined that it was reasonable to take into account the conclusions the Board made when considering and evaluating the most recent renewal of the Current Sub-Advisory Agreement for ClearBridge, which occurred at a telephonic Board meeting held on March 24-25, 2020 (the “March 2020 Meeting”), as part of its considerations to approve the Proposed Sub-Advisory Agreement. The Current Sub-Advisory Agreement and the Proposed 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 2020 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 2020 Meeting, the Manager and ClearBridge 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 Current Sub-Advisory Agreement, and the Board 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, among other factors: (i) the nature, extent and quality of the services to be provided to the Funds by ClearBridge; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability of ClearBridge in connection with its relationship with the Funds; (iv) the extent to which economies of scale exist for a Fund, and the extent to which the Funds’ shareholders benefit from economies of scale; and (v) any other benefits derived by ClearBridge from its relationship with the Funds. At March 2020 Meeting, representatives of the Manager made presentations and responded to questions regarding services, fees, and other aspects of the Funds’ advisory relationships with the Manager and ClearBridge.
21 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
In addition to the March 2020 Meeting, the Board met periodically over the course of the year since the prior annual renewal of the Current Sub-Advisory Agreement in 2019. At these meetings, representatives of the Manager furnished reports and other information to the Board regarding the performance of the Funds, the services provided to the Funds by the Manager and ClearBridge, and compliance and operations matters related to the Trust, the Funds, the Manager, and ClearBridge.
At the March 2020 and May 2020 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 ClearBridge, to discuss the Agreements and the services provided by ClearBridge.
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 information regarding the nature, extent and quality of the services to be provided to the Funds by ClearBridge, including its responsibilities for management of the Funds. In this regard, the Board considered ClearBridge’s role in the day-to-day management of each Fund’s portfolio. The Trustees also considered, among other things, the terms of the Proposed Sub-Advisory Agreement and the range of investment advisory services provided by ClearBridge under the oversight of the Manager. The Board also considered the Manager’s oversight of ClearBridge, which includes continuous analysis of, and regular discussions with ClearBridge about, the investment strategies and performance of the Funds, and periodic meetings with ClearBridge.
The Board also noted ClearBridge’s operations, including resources devoted to support such operations. The Board considered ClearBridge’s ability to attract and retain qualified investment professionals and the experience and skills of management and investment personnel of ClearBridge. The Board also noted the compliance program and compliance record of ClearBridge.
The Board considered that the Transaction is not expected to result in any material changes in the services that ClearBridge provides to the Funds or any changes in the personnel providing portfolio management services to the Funds. The Board noted that ClearBridge anticipates being able to draw upon the combined resources of Legg Mason, Inc. and Franklin Resources.
Based upon these considerations, as well as those discussed below, the Board concluded, within the context of its full deliberations, that ClearBridge 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 each Fund, including net performance, relative performance rankings within each 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 reviewed with the Board the economic and market environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge.
The Board noted that, with respect to the Guardian Large Cap Fundamental Growth VIP Fund, the Fund’s performance was approximately equal to its peer group median for the one-year period, but lower than its peer group median for the three-year and since inception periods. The Fund’s performance was lower than its benchmark index for all the periods under review. With respect to the Guardian Small Cap Core VIP Fund, the Board noted that the Fund commenced operations on October 21, 2019 and had a short operational history. The Board considered the Fund’s performance reported in the March 2020 Meeting materials and noted that the Fund’s performance since inception was higher than its peer group median and benchmark index.
22 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
The Manager discussed with the Board factors contributing to the Funds’ performance results. The Board concluded that any steps being taken by the Manager and ClearBridge to address any performance issues were satisfactory.
Costs and Profitability
The Board considered the management fees paid by the Funds 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were lower than its peer group medians.
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 ClearBridge would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with ClearBridge at arm’s-length. The Board also received and considered estimated profitability information from ClearBridge. The Board noted that the sub-advisory fees to be paid under the Proposed Sub-Advisory Agreement
would remain that same as the fees payable under the Current Sub-Advisory Agreement.
The Board received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was lower than the operating expense ratio of its respective peer group median. The Board considered the Manager’s commitment to limit each 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board 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 Funds by ClearBridge.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. In this regard, the Board noted that the management fee and sub-advisory fee for Guardian Large Cap Fundamental Growth VIP Fund included breakpoints that are tiered based on growth in asset levels of the Fund. The Board noted that the management fee and sub-advisory fee for Guardian Small Cap Core VIP Fund did not offer breakpoints. The Board also noted that the Funds’ 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 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 ClearBridge and/or its affiliates may receive because of ClearBridge’s relationship with the Funds, including the potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Board concluded that benefits that may accrue to ClearBridge and its affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the Funds.
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.
23 |
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.
24 |
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
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Small Cap Core VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
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 | ||||
Shareholder Meeting Results | 16 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 24 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $271,547,479 |
Sector Allocation1 As of June 30, 2020 |
![]() |
Top Ten Holdings2 As of June 30, 2020 | ||||
Holding | % of Total Net Assets | |||
Gray Television, Inc. | 2.43% | |||
K12, Inc. | 2.07% | |||
Murphy USA, Inc. | 1.86% | |||
Sprouts Farmers Market, Inc. | 1.73% | |||
R1 RCM, Inc. | 1.72% | |||
HealthEquity, Inc. | 1.71% | |||
Itron, Inc. | 1.69% | |||
Quotient Ltd. | 1.67% | |||
Acadia Healthcare Co., Inc. | 1.64% | |||
NextEra Energy Partners LP | 1.63% | |||
Total | 18.15% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $1,000.00 | $ | 750.20 | $ | 4.57 | 1.05% | ||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $ | 1,019.64 | $ | 5.27 | 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 182/366 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN SMALL CAP CORE VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 98.8% |
| |||||||
Aerospace & Defense – 1.0% |
| |||||||
Cubic Corp. | 54,140 | $ | 2,600,344 | |||||
|
| |||||||
2,600,344 | ||||||||
Airlines – 1.0% |
| |||||||
SkyWest, Inc. | 83,003 | 2,707,558 | ||||||
|
| |||||||
2,707,558 | ||||||||
Auto Components – 0.9% |
| |||||||
Visteon Corp.(1) | 36,150 | 2,476,275 | ||||||
|
| |||||||
2,476,275 | ||||||||
Banks – 6.7% |
| |||||||
Bank OZK | 175,065 | 4,108,775 | ||||||
CVB Financial Corp. | 118,560 | 2,221,814 | ||||||
First Interstate BancSystem, Inc., Class A | 97,785 | 3,027,424 | ||||||
TriState Capital Holdings, Inc.(1) | 176,960 | 2,780,042 | ||||||
WesBanco, Inc. | 105,921 | 2,151,255 | ||||||
Wintrust Financial Corp. | 88,459 | 3,858,582 | ||||||
|
| |||||||
18,147,892 | ||||||||
Beverages – 0.6% |
| |||||||
MGP Ingredients, Inc. | 48,040 | 1,763,308 | ||||||
|
| |||||||
1,763,308 | ||||||||
Biotechnology – 3.5% |
| |||||||
Akebia Therapeutics, Inc.(1) | 297,995 | 4,046,772 | ||||||
Amarin Corp. PLC, ADR(1) | 470,476 | 3,255,694 | ||||||
Amicus Therapeutics, Inc.(1) | 153,610 | 2,316,439 | ||||||
|
| |||||||
9,618,905 | ||||||||
Capital Markets – 1.3% |
| |||||||
Blucora, Inc.(1) | 195,197 | 2,229,150 | ||||||
PennantPark Investment Corp. | 373,181 | 1,309,865 | ||||||
|
| |||||||
3,539,015 | ||||||||
Consumer Finance – 2.9% |
| |||||||
Encore Capital Group, Inc.(1) | 111,065 | 3,796,201 | ||||||
OneMain Holdings, Inc. | 80,405 | 1,973,139 | ||||||
Oportun Financial Corp.(1) | 153,434 | 2,062,153 | ||||||
|
| |||||||
7,831,493 | ||||||||
Containers & Packaging – 1.2% |
| |||||||
Silgan Holdings, Inc. | 98,852 | 3,201,816 | ||||||
|
| |||||||
3,201,816 | ||||||||
Diversified Consumer Services – 2.1% |
| |||||||
K12, Inc.(1) | 206,774 | 5,632,524 | ||||||
|
| |||||||
5,632,524 | ||||||||
Diversified Financial Services – 1.5% |
| |||||||
Collier Creek Holdings, Class A(1) | 290,000 | 3,973,000 | ||||||
|
| |||||||
3,973,000 | ||||||||
Electric Utilities – 1.0% |
| |||||||
PNM Resources, Inc. | 71,838 | 2,761,453 | ||||||
|
| |||||||
2,761,453 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Electronic Equipment, Instruments & Components – 3.2% |
| |||||||
Itron, Inc.(1) | 69,451 | $ | 4,601,129 | |||||
Littelfuse, Inc. | 12,080 | 2,061,211 | ||||||
nLight, Inc.(1) | 91,536 | 2,037,591 | ||||||
|
| |||||||
8,699,931 | ||||||||
Energy Equipment & Services – 0.4% |
| |||||||
Helmerich & Payne, Inc. | 54,140 | 1,056,271 | ||||||
|
| |||||||
1,056,271 | ||||||||
Equity Real Estate Investment – 6.1% |
| |||||||
Brandywine Realty Trust REIT | 186,038 | 2,025,954 | ||||||
Kite Realty Group Trust REIT | 206,672 | 2,384,995 | ||||||
Lexington Realty Trust REIT | 413,724 | 4,364,788 | ||||||
Outfront Media, Inc. REIT | 137,157 | 1,943,515 | ||||||
Physicians Realty Trust REIT | 235,220 | 4,121,054 | ||||||
RLJ Lodging Trust REIT | 185,200 | 1,748,288 | ||||||
|
| |||||||
16,588,594 | ||||||||
Food & Staples Retailing – 1.7% |
| |||||||
Sprouts Farmers Market, Inc.(1) | 183,253 | 4,689,444 | ||||||
|
| |||||||
4,689,444 | ||||||||
Food Products – 1.1% |
| |||||||
Sanderson Farms, Inc. | 26,930 | 3,120,918 | ||||||
|
| |||||||
3,120,918 | ||||||||
Health Care Equipment & Supplies – 1.7% |
| |||||||
Quotient Ltd.(1) | 611,625 | 4,526,025 | ||||||
|
| |||||||
4,526,025 | ||||||||
Health Care Providers & Services – 7.3% |
| |||||||
Acadia Healthcare Co., Inc.(1) | 177,711 | 4,464,100 | ||||||
Covetrus, Inc.(1) | 192,500 | 3,443,825 | ||||||
Encompass Health Corp. | 43,313 | 2,682,374 | ||||||
HealthEquity, Inc.(1) | 79,139 | 4,643,085 | ||||||
R1 RCM, Inc.(1) | 418,266 | 4,663,666 | ||||||
|
| |||||||
19,897,050 | ||||||||
Health Care Technology – 1.1% |
| |||||||
Health Catalyst, Inc.(1) | 98,580 | 2,875,579 | ||||||
|
| |||||||
2,875,579 | ||||||||
Hotels, Restaurants & Leisure – 1.6% |
| |||||||
Everi Holdings, Inc.(1) | 289,810 | 1,495,419 | ||||||
Texas Roadhouse, Inc. | 53,510 | 2,813,021 | ||||||
|
| |||||||
4,308,440 | ||||||||
Household Durables – 0.9% |
| |||||||
Helen of Troy Ltd.(1) | 13,190 | 2,487,106 | ||||||
|
| |||||||
2,487,106 | ||||||||
Independent Power and Renewable Electricity Producers – 1.6% |
| |||||||
NextEra Energy Partners LP | 86,239 | 4,422,336 | ||||||
|
| |||||||
4,422,336 | ||||||||
Insurance – 1.8% |
| |||||||
Assured Guaranty Ltd. | 94,409 | 2,304,524 | ||||||
BRP Group, Inc., Class A(1) | 151,950 | 2,624,176 | ||||||
|
| |||||||
4,928,700 |
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, 2020 (unaudited) | Shares | Value | ||||||
Interactive Media & Services – 1.3% |
| |||||||
QuinStreet, Inc.(1) | 329,039 | $ | 3,441,748 | |||||
|
| |||||||
3,441,748 | ||||||||
IT Services – 7.0% |
| |||||||
CSG Systems International, Inc. | 61,920 | 2,562,869 | ||||||
EVERTEC, Inc. | 142,843 | 4,013,888 | ||||||
NIC, Inc. | 118,590 | 2,722,826 | ||||||
Switch, Inc., Class A | 146,330 | 2,607,601 | ||||||
TTEC Holdings, Inc. | 64,140 | 2,986,359 | ||||||
WNS Holdings Ltd., ADR (1) | 72,695 | 3,996,771 | ||||||
|
| |||||||
18,890,314 | ||||||||
Life Sciences Tools & Services – 1.2% |
| |||||||
Syneos Health, Inc.(1) | 58,106 | 3,384,675 | ||||||
|
| |||||||
3,384,675 | ||||||||
Machinery – 2.3% |
| |||||||
EnPro Industries, Inc. | 64,125 | 3,160,721 | ||||||
Evoqua Water Technologies Corp.(1) | 159,660 | 2,969,676 | ||||||
|
| |||||||
6,130,397 | ||||||||
Media – 2.4% |
| |||||||
Gray Television, Inc.(1) | 472,036 | 6,584,902 | ||||||
|
| |||||||
6,584,902 | ||||||||
Metals & Mining – 1.4% |
| |||||||
Commercial Metals Co. | 183,264 | 3,738,586 | ||||||
|
| |||||||
3,738,586 | ||||||||
Multi-Utilities – 1.5% |
| |||||||
Black Hills Corp. | 70,303 | 3,983,368 | ||||||
|
| |||||||
3,983,368 | ||||||||
Oil, Gas & Consumable Fuels – 2.2% |
| |||||||
Brigham Minerals, Inc., Class A | 156,360 | 1,931,046 | ||||||
International Seaways, Inc. | 245,000 | 4,003,300 | ||||||
|
| |||||||
5,934,346 | ||||||||
Personal Products – 0.6% |
| |||||||
Inter Parfums, Inc. | 34,959 | 1,683,276 | ||||||
|
| |||||||
1,683,276 | ||||||||
Pharmaceuticals – 1.8% |
| |||||||
Aerie Pharmaceuticals, Inc.(1) | 130,944 | 1,932,734 | ||||||
Intra-Cellular Therapies, Inc.(1) | 120,784 | 3,100,525 | ||||||
|
| |||||||
5,033,259 | ||||||||
Professional Services – 1.1% |
| |||||||
ICF International, Inc. | 45,256 | 2,933,946 | ||||||
|
| |||||||
2,933,946 | ||||||||
Road & Rail – 2.3% |
| |||||||
Landstar System, Inc. | 26,185 | 2,940,838 | ||||||
Marten Transport Ltd. | 129,620 | 3,261,239 | ||||||
|
| |||||||
6,202,077 | ||||||||
Semiconductors & Semiconductor Equipment – 3.8% |
| |||||||
Advanced Energy Industries, Inc.(1) | 58,790 | 3,985,374 | ||||||
Semtech Corp.(1) | 66,172 | 3,455,502 | ||||||
June 30, 2020 (unaudited) | Shares | Value | ||||||
Semiconductors & Semiconductor Equipment (continued) |
| |||||||
Tower Semiconductor Ltd.(1) | 154,788 | $ | 2,954,903 | |||||
|
| |||||||
10,395,779 | ||||||||
Software – 5.0% |
| |||||||
2U, Inc.(1) | 103,194 | 3,917,244 | ||||||
CommVault Systems, Inc.(1) | 107,739 | 4,169,499 | ||||||
Pluralsight, Inc., Class A(1) | 130,500 | 2,355,525 | ||||||
Rapid7, Inc.(1) | 59,774 | 3,049,670 | ||||||
|
| |||||||
13,491,938 | ||||||||
Specialty Retail – 4.6% |
| |||||||
Aaron’s, Inc. | 90,496 | 4,108,518 | ||||||
Lithia Motors, Inc., Class A | 21,151 | 3,200,781 | ||||||
Murphy USA, Inc.(1) | 44,932 | 5,058,894 | ||||||
|
| |||||||
12,368,193 | ||||||||
Textiles, Apparel & Luxury Goods – 0.6% |
| |||||||
Oxford Industries, Inc. | 38,430 | 1,691,304 | ||||||
|
| |||||||
1,691,304 | ||||||||
Thrifts & Mortgage Finance – 2.5% |
| |||||||
Essent Group Ltd. | 76,002 | 2,756,592 | ||||||
Washington Federal, Inc. | 155,490 | 4,173,352 | ||||||
|
| |||||||
6,929,944 | ||||||||
Trading Companies & Distributors – 5.0% |
| |||||||
Foundation Building Materials, Inc.(1) | 147,003 | 2,294,717 | ||||||
GATX Corp. | 38,570 | 2,351,998 | ||||||
MRC Global, Inc.(1) | 258,832 | 1,529,697 | ||||||
Rush Enterprises, Inc., Class A | 64,145 | 2,659,452 | ||||||
Textainer Group Holdings Ltd.(1) | 248,270 | 2,030,849 | ||||||
Triton International Ltd. | 92,321 | 2,791,787 | ||||||
|
| |||||||
13,658,500 | ||||||||
Total Common Stocks (Cost $286,559,645) |
| 268,330,529 | ||||||
Principal Amount | Value | |||||||
Short–Term Investment – 1.1% |
| |||||||
Repurchase Agreements – 1.1% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $2,963,000, due 7/1/2020(2) | $ | 2,963,000 | 2,963,000 | |||||
Total Repurchase Agreements (Cost $2,963,000) |
| 2,963,000 | ||||||
Total Investments – 99.9% (Cost $289,522,645) |
| 271,293,529 | ||||||
Assets in excess of other liabilities – 0.1% |
| 253,950 | ||||||
Total Net Assets – 100.0% |
| $ | 271,547,479 |
(1) | Non–income–producing security. |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN SMALL CAP CORE VIP FUND
(2) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.125% | 7/15/2024 | $ | 2,677,000 | $ | 3,022,322 |
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, 2020 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 | $ | 268,330,529 | $ | — | $ | — | $ | 268,330,529 | ||||||||
Repurchase Agreements | — | 2,963,000 | — | 2,963,000 | ||||||||||||
Total | $ | 268,330,529 | $ | 2,963,000 | $ | — | $ | 271,293,529 |
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, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 2,181,182 | ||
Interest | 1,309 | |||
|
| |||
Total Investment Income | 2,182,491 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 872,305 | |||
Distribution fees | 316,052 | |||
Trustees’ and officers’ fees | 68,825 | |||
Custodian and accounting fees | 46,846 | |||
Professional fees | 36,218 | |||
Administrative fees | 23,640 | |||
Shareholder reports | 16,588 | |||
Transfer agent fees | 9,892 | |||
Other expenses | 11,461 | |||
|
| |||
Total Expenses | 1,401,827 | |||
Less: Fees waived | (74,406 | ) | ||
|
| |||
Total Expenses, Net | 1,327,421 | |||
|
| |||
Net Investment Income/(Loss) | 855,070 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | (32,041,466 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (42,266,012 | ) | ||
|
| |||
Net Loss on Investments | (74,307,478 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (73,452,408 | ) | |
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN SMALL CAP CORE VIP FUND
1 | Commenced operations on October 21, 2019. |
2 | Includes in-kind subscriptions of $279,131,185. The cost basis of the contributed securities is equal to the market value of the securities on the date of the subscription. |
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.
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),(3) | |||||||||||||||||||
Six Months Ended 6/30/20 | $ | 11.13 | $ | 0.03 | $ | (2.81 | ) | $ | (2.78 | ) | $ | 8.35 | (24.98)% | |||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.01 | 1.12 | 1.13 | 11.13 | 11.30% |
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),(4) | Gross Ratio of Expenses to Average Net Assets(3) | Net Ratio of Net Investment Income to Average Net Assets(3),(4) | Gross Ratio of Net Investment Income to Average Net Assets(3) | Portfolio Turnover Rate(3) | |||||||||||||||||
$ | 271,547 | 1.05% | 1.11% | 0.68% | 0.62% | 27% | ||||||||||||||||
310,451 | 1.01% | 1.09% | 0.57% | 0.49% | 98% |
(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) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. Certain non-recurring fees (i.e., audit fees) are not annualized. |
(4) | 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. |
(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 SMALL CAP CORE VIP FUND
June 30, 2020 (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 21 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.
10 |
Table of Contents
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, 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, 2020, 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, 2020 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, 2020, 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, 2020, 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 SMALL CAP CORE 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 0.69% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.
Park Avenue has contractually agreed through April 30, 2021 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $74,406.
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
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
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, 2020, the Fund paid distribution fees in the amount of $316,052 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 $105,857,729 and $68,713,870, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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 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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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
13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
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. 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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
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.
9. 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
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
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.
15 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
At a meeting held on May 14, 2020, the Board of Trustees of Guardian Variable Products Trust approved submitting the following proposals (“Proposals”) to shareholders of the Fund at a special meeting to be held on July 31, 2020 (with any postponements or adjournments, “Special Meeting”):
1. To permit Park Avenue Institutional Advisers LLC, under certain circumstances, to enter into and/or materially amend investment sub-advisory agreements with affiliated and unaffiliated sub-advisers on behalf of the Fund without obtaining shareholder approval; and
2. To approve a new investment sub-advisory agreement between PAIA and ClearBridge Investments, LLC (“ClearBridge”) with respect to the Fund prompted by the Transaction (defined in the Proxy Statement).
On or about June 26, 2020, shareholders of record of the Fund as of the close of business on May 22, 2020 were sent a proxy statement containing information regarding the Proposals. The proxy statement also included information about the Special Meeting, at which shareholders of the Fund were asked to consider and approve the Proposals. In addition, the proxy statement included information about voting (or providing voting instructions) on the Proposals and options shareholders had to do so.
The Special Meeting was held on July 31, 2020, and each Proposal passed.
The results of the Special Meeting were as follows:
Proposal 1. To permit Park Avenue Institutional Advisers LLC, under certain circumstances, to enter into and/or materially amend investment sub-advisory agreements with affiliated and unaffiliated sub-advisers on behalf of the Fund without obtaining shareholder approval:
Votes For | Votes Against | Abstentions | ||||||
28,920,895.790 | 1,916,091.810 | 1,982,503.731 |
Proposal 2. To approve a new investment sub-advisory agreement between PAIA and ClearBridge Investments, LLC (“ClearBridge”) with respect to the Fund prompted by the Transaction (defined in the Proxy Statement):
Votes For | Votes Against | Abstentions | ||||||
29,234,787.188 | 1,487,979.794 | 2,096,724.349 |
16 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (iv) Lazard Asset Management LLC with respect to
Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or 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
17 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
team review with the Board the economic and market environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with 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 each Sub-adviser was generally satisfactory, or, that any steps being taken by the
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Manager and Sub-advisers to address any performance issues were satisfactory.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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 the benefits to the Manager from increased assets under management. The Trustees
20 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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.
Approval of New Sub-advisory Agreement with ClearBridge Investments, LLC
At a meeting of the Board held on May 14, 2020 (the “May 2020 Meeting”), the Board, including a majority of the Independent Trustees, considered and approved the proposed sub-advisory agreement between Park Avenue Institutional Advisers LLC (“PAIA” or the “Manager”) and ClearBridge Investments, LLC (“ClearBridge”) with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund (the “Proposed Sub-Advisory Agreement”) for an initial two-year term. In connection with its approval, the Board considered materials provided in advance of the May 2020 Meeting that detailed, among other things, the terms of an investment sub-advisory agreement between PAIA and ClearBridge (the “Current Sub-Advisory Agreement”), to Franklin Resources, Inc. (the “Transaction”), the post-Transaction ownership structure of ClearBridge, and the continuity of services expected to be provided by ClearBridge after the Transaction. The Board also considered the terms of the Proposed Sub-Advisory Agreement and noted that the material terms of the Proposed Sub-Advisory Agreement were the same as those of the Current Sub-Advisory Agreement. The Board further noted that the Proposed Sub-Advisory Agreement would go into effect upon the closing of the
Transaction. The Board also determined that it was reasonable to take into account the conclusions the Board made when considering and evaluating the most recent renewal of the Current Sub-Advisory Agreement for ClearBridge, which occurred at a telephonic Board meeting held on March 24-25, 2020 (the “March 2020 Meeting”), as part of its considerations to approve the Proposed Sub-Advisory Agreement. The Current Sub-Advisory Agreement and the Proposed 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 2020 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 2020 Meeting, the Manager and ClearBridge 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 Current Sub-Advisory Agreement, and the Board 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, among other factors: (i) the nature, extent and quality of the services to be provided to the Funds by ClearBridge; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability of ClearBridge in connection with its relationship with the Funds; (iv) the extent to which economies of scale exist for a Fund, and the extent to which the Funds’ shareholders benefit from economies of scale; and (v) any other benefits derived by ClearBridge from its relationship with the Funds. At March 2020 Meeting, representatives of the Manager made presentations and responded to questions regarding services, fees, and other aspects of the Funds’ advisory relationships with the Manager and ClearBridge.
In addition to the March 2020 Meeting, the Board met periodically over the course of the year since the prior annual renewal of the Current Sub-Advisory Agreement
21 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
in 2019. At these meetings, representatives of the Manager furnished reports and other information to the Board regarding the performance of the Funds, the services provided to the Funds by the Manager and ClearBridge, and compliance and operations matters related to the Trust, the Funds, the Manager, and ClearBridge.
At the March 2020 and May 2020 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 ClearBridge, to discuss the Agreements and the services provided by ClearBridge.
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 information regarding the nature, extent and quality of the services to be provided to the Funds by ClearBridge, including its responsibilities for management of the Funds. In this regard, the Board considered ClearBridge’s role in the day-to-day management of each Fund’s portfolio. The Trustees also considered, among other things, the terms of the Proposed Sub-Advisory Agreement and the range of investment advisory services provided by ClearBridge under the oversight of the Manager. The Board also considered the Manager’s oversight of ClearBridge, which includes continuous analysis of, and regular discussions with ClearBridge about, the investment strategies and performance of the Funds, and periodic meetings with ClearBridge.
The Board also noted ClearBridge’s operations, including resources devoted to support such operations. The Board considered ClearBridge’s ability to attract and retain qualified investment professionals and the experience and skills of management and investment personnel of ClearBridge. The Board also noted the compliance program and compliance record of ClearBridge.
The Board considered that the Transaction is not expected to result in any material changes in the services that ClearBridge provides to the Funds or any changes in the personnel providing portfolio
management services to the Funds. The Board noted that ClearBridge anticipates being able to draw upon the combined resources of Legg Mason, Inc. and Franklin Resources.
Based upon these considerations, as well as those discussed below, the Board concluded, within the context of its full deliberations, that ClearBridge 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 each Fund, including net performance, relative performance rankings within each 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 reviewed with the Board the economic and market environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge.
The Board noted that, with respect to the Guardian Large Cap Fundamental Growth VIP Fund, the Fund’s performance was approximately equal to its peer group median for the one-year period, but lower than its peer group median for the three-year and since inception periods. The Fund’s performance was lower than its benchmark index for all the periods under review. With respect to the Guardian Small Cap Core VIP Fund, the Board noted that the Fund commenced operations on October 21, 2019 and had a short operational history. The Board considered the Fund’s performance reported in the March 2020 Meeting materials and noted that the Fund’s performance since inception was higher than its peer group median and benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. The
22 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Board concluded that any steps being taken by the Manager and ClearBridge to address any performance issues were satisfactory.
Costs and Profitability
The Board considered the management fees paid by the Funds 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were lower than its peer group medians.
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 ClearBridge would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with ClearBridge at arm’s-length. The Board also received and considered estimated profitability information from ClearBridge. The Board noted that the sub-advisory fees to be paid under the Proposed Sub-Advisory Agreement would remain that same as the fees payable under the Current Sub-Advisory Agreement.
The Board received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was lower than the operating expense ratio of its respective peer group median. The Board considered the Manager’s commitment to limit each 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Board 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 Funds by ClearBridge.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. In this regard, the Board noted that the management fee and sub-advisory fee for Guardian Large Cap Fundamental Growth VIP Fund included breakpoints that are tiered based on growth in asset levels of the Fund. The Board noted that the management fee and sub-advisory fee for Guardian Small Cap Core VIP Fund did not offer breakpoints. The Board also noted that the Funds’ 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 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 ClearBridge and/or its affiliates may receive because of ClearBridge’s relationship with the Funds, including the potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Board concluded that benefits that may accrue to ClearBridge and its affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the Funds.
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.
23 |
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.
24 |
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
PUB10526
Table of Contents
Guardian Variable
Products Trust
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Global Utilities VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
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 | ||||
Shareholder Meeting Results | 16 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 22 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
GUARDIAN GLOBAL UTILITIES VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $76,171,446 |
Geographic Region Allocation1 As of June 30, 2020 |
![]() |
Top Ten Holdings1 As of June 30, 2020 | ||||||
Holding | Country | % of Total Net Assets | ||||
Exelon Corp. | United States | 8.47% | ||||
Iberdrola S.A. | Spain | 7.82% | ||||
Engie S.A. | France | 5.29% | ||||
Enel S.p.A. | Italy | 4.76% | ||||
China Longyuan Power Group Corp. Ltd., Class H | China | 4.57% | ||||
NextEra Energy, Inc. | United States | 4.56% | ||||
Edison International | United States | 4.47% | ||||
Pinnacle West Capital Corp. | United States | 4.46% | ||||
CenterPoint Energy, Inc. | United States | 4.34% | ||||
Duke Energy Corp. | United States | 4.32% | ||||
Total | 53.06% |
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 |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $1,000.00 | $ 883.20 | $4.82 | 1.03% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.74 | $5.17 | 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 182/366 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 98.1% |
| |||||||
Bermuda – 3.7% |
| |||||||
CK Infrastructure Holdings Ltd. | 548,500 | $ | 2,826,015 | |||||
|
| |||||||
2,826,015 | ||||||||
Brazil – 1.9% |
| |||||||
Cia de Saneamento do Parana | 256,600 | 1,486,818 | ||||||
|
| |||||||
1,486,818 | ||||||||
Cayman Islands – 3.4% |
| |||||||
ENN Energy Holdings Ltd. | 227,500 | 2,555,090 | ||||||
|
| |||||||
2,555,090 | ||||||||
China – 4.6% |
| |||||||
China Longyuan Power Group Corp. Ltd., Class H | 6,207,000 | 3,477,378 | ||||||
|
| |||||||
3,477,378 | ||||||||
France – 5.3% |
| |||||||
Engie S.A.(1) | 326,102 | 4,025,181 | ||||||
|
| |||||||
4,025,181 | ||||||||
Germany – 3.3% |
| |||||||
E.ON SE | 224,348 | 2,522,290 | ||||||
|
| |||||||
2,522,290 | ||||||||
Italy – 5.9% |
| |||||||
Enel S.p.A. | 421,133 | 3,628,132 | ||||||
Italgas S.p.A. | 150,362 | 872,486 | ||||||
|
| |||||||
4,500,618 | ||||||||
Japan – 3.3% |
| |||||||
The Kansai Electric Power Co., Inc. | 149,700 | 1,450,522 | ||||||
Tokyo Gas Co. Ltd. | 45,300 | 1,083,432 | ||||||
|
| |||||||
2,533,954 | ||||||||
Spain – 7.8% |
| |||||||
Iberdrola S.A. | 514,447 | 5,958,506 | ||||||
|
| |||||||
5,958,506 | ||||||||
United Kingdom – 4.3% |
| |||||||
National Grid PLC | 267,193 | 3,271,837 | ||||||
|
| |||||||
3,271,837 | ||||||||
United States – 54.6% |
| |||||||
Avangrid, Inc. | 27,607 | 1,158,942 | ||||||
CenterPoint Energy, Inc. | 177,170 | 3,307,764 | ||||||
Duke Energy Corp. | 41,161 | 3,288,352 | ||||||
Edison International | 62,643 | 3,402,141 | ||||||
Eversource Energy | 37,671 | 3,136,864 | ||||||
Exelon Corp. | 177,848 | 6,454,104 | ||||||
FirstEnergy Corp. | 54,576 | 2,116,457 | ||||||
NextEra Energy, Inc. | 14,455 | 3,471,657 | ||||||
NRG Energy, Inc. | 91,961 | 2,994,250 | ||||||
Pinnacle West Capital Corp. | 46,388 | 3,399,777 | ||||||
Sempra Energy | 26,672 | 3,126,759 | ||||||
The AES Corp. | 176,144 | 2,552,327 | ||||||
Xcel Energy, Inc. | 50,613 | 3,163,312 | ||||||
|
| |||||||
41,572,706 | ||||||||
Total Common Stocks (Cost $80,335,830) |
| 74,730,393 |
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investment – 1.2% |
| |||||||
Repurchase Agreements – 1.2% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $876,000, due 7/1/2020(2) | $ | 876,000 | $ | 876,000 | ||||
Total Repurchase Agreements (Cost $876,000) |
| 876,000 | ||||||
Total Investments – 99.3% (Cost $81,211,830) |
| 75,606,393 | ||||||
Assets in excess of other liabilities – 0.7% |
| 565,053 | ||||||
Total Net Assets – 100.0% |
| $ | 76,171,446 |
(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 | 0.125% | 7/15/2024 | $ | 791,500 | $ | 893,600 |
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, 2020 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 | $ | — | $ | 2,826,015 | * | $ | — | $ | 2,826,015 | |||||||
Brazil | 1,486,818 | — | — | 1,486,818 | ||||||||||||
Cayman Islands | — | 2,555,090 | * | — | 2,555,090 | |||||||||||
China | — | 3,477,378 | * | — | 3,477,378 | |||||||||||
France | — | 4,025,181 | * | — | 4,025,181 | |||||||||||
Germany | — | 2,522,290 | * | — | 2,522,290 | |||||||||||
Italy | — | 4,500,618 | * | — | 4,500,618 | |||||||||||
Japan | — | 2,533,954 | * | — | 2,533,954 | |||||||||||
Spain | — | 5,958,506 | * | — | 5,958,506 | |||||||||||
United Kingdom | — | 3,271,837 | * | — | 3,271,837 | |||||||||||
United States | 41,572,706 | — | — | 41,572,706 | ||||||||||||
Repurchase Agreements | — | 876,000 | — | 876,000 | ||||||||||||
Total | $ | 43,059,524 | $ | 32,546,869 | $ | — | $ | 75,606,393 |
* | 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, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,406,562 | ||
Interest | 340 | |||
Withholding taxes on foreign dividends | (58,544 | ) | ||
|
| |||
Total Investment Income | 1,348,358 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 279,233 | |||
Distribution fees | 95,628 | |||
Trustees’ and officers’ fees | 59,924 | |||
Custodian and accounting fees | 46,888 | |||
Administrative fees | 23,622 | |||
Professional fees | 21,111 | |||
Transfer agent fees | 9,872 | |||
Shareholder reports | 8,697 | |||
Other expenses | 3,275 | |||
|
| |||
Total Expenses | 548,250 | |||
Less: Fees waived | (154,263 | ) | ||
|
| |||
Total Expenses, Net | 393,987 | |||
|
| |||
Net Investment Income/(Loss) | 954,371 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | (2,591,863 | ) | ||
Net realized gain/(loss) from foreign currency transactions | (7,022 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (7,547,867 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | 217 | |||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (10,146,535 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (9,192,164 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN GLOBAL UTILITIES VIP FUND
1 | Commenced operations on October 21, 2019. |
2 | Includes in-kind subscriptions of $52,388,634. The cost basis of the contributed securities is equal to the market value of the securities on the date of the subscription. |
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
This Page Intentionally Left Blank
7 |
Table of Contents
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.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Income(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2),(3) | |||||||||||||||||||
Six Months Ended 6/30/20 | $ | 10.27 | $ | 0.12 | $ | (1.32 | ) | $ | (1.20 | ) | $ | 9.07 | (11.68)% | |||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.03 | 0.24 | 0.27 | 10.27 | 2.70% |
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),(4) | Gross Ratio of Expenses to Average Net Assets(3) | Net Ratio of Net Investment Income to Average Net Assets(3),(4) | Gross Ratio of Net Investment Income to Average Net Assets(3) | Portfolio Turnover Rate(3) | |||||||||||||||||
$ | 76,171 | 1.03% | 1.43% | 2.50% | 2.10% | 24% | ||||||||||||||||
85,307 | 0.89% | 1.37% | 1.56% | 1.08% | 50% |
(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) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. Certain non-recurring fees (i.e., audit fees) are not annualized. |
(4) | 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. |
(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, 2020 (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 21 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, 2020, 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, 2020 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, 2020, 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, 2020, 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, 2021 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 ended June 30, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $154,263.
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
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, 2020, the Fund paid distribution fees in the amount of $95,628 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 $19,293,416 and $18,508,521, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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
13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
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.
9. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
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.
15 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
At a meeting held on May 14, 2020, the Board of Trustees of Guardian Variable Products Trust approved submitting the following proposal (“Proposal”) to shareholders of the Fund at a special meeting to be held on July 31, 2020 (with any postponements or adjournments, “Special Meeting”):
1. To permit Park Avenue Institutional Advisers LLC (“PAIA” or the “Manager”), under certain circumstances, to enter into and/or materially amend investment sub-advisory agreements with affiliated and unaffiliated sub-advisers without obtaining shareholder approval.
On or about June 26, 2020, shareholders of record of the Fund as of the close of business on May 22, 2020 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 31, 2020, and the Proposal passed.
The results of the Special Meeting were as follows:
Proposal 1. To permit Park Avenue Institutional Advisers LLC, under certain circumstances, to enter into and/or materially amend investment sub-advisory agreements with affiliated and unaffiliated sub-advisers on behalf of the Fund without obtaining shareholder approval:
Votes For | Votes Against | Abstentions | ||||||
7,471,583.711 | 471,712.275 | 528,906.148 |
16 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (iv) Lazard Asset Management LLC with respect to
Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or 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
17 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
team review with the Board the economic and market environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with 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 each Sub-adviser was generally
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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 the benefits to the Manager from increased assets under management. The Trustees
20 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from
increases in assets under management. The Trustees concluded that benefits that 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.
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
PUB10537
Table of Contents
Guardian Variable
Products Trust
2020
Semiannual Report
All Data as of June 30, 2020
Guardian U.S. Government Securities VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
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 | ||||
Approval of Investment Advisory and Sub-advisory Agreements | 20 | |||
Portfolio Holdings and Proxy Voting Procedures | 25 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $239,563,563 |
Bond Sector Allocation1 As of June 30, 2020 |
![]() |
Bond Quality Allocation2 As of June 30, 2020 |
![]() |
1 |
Table of Contents
GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
Top Ten Holdings1 As of June 30, 2020 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Note | 1.500% | 9/30/2024 | 21.02% | |||||||||
Federal Home Loan Banks | 2.375% | 9/10/2021 | 6.63% | |||||||||
U.S. Treasury Note | 1.750% | 7/15/2022 | 6.07% | |||||||||
CGRBS Commercial Mortgage Trust | 3.703% | 3/13/2035 | 2.88% | |||||||||
Federal Farm Credit Banks Funding Corp. | 1.600% | 1/21/2022 | 2.88% | |||||||||
Federal Farm Credit Banks Funding Corp. | 1.625% | 12/27/2021 | 2.88% | |||||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 3.117% | 6/25/2027 | 2.84% | |||||||||
Federal National Mortgage Association | 3.500% | 3/1/2034 | 2.63% | |||||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 3.224% | 3/25/2027 | 2.61% | |||||||||
Federal National Mortgage Association | 3.500% | 10/1/2049 | 2.43% | |||||||||
Total |
| 52.87% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $1,000.00 | $1,051.00 | $3.82 | 0.75% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,021.13 | $3.77 | 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 182/366 (to reflect the one-half year period). |
3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 35.0% |
| |||||||
Fannie Mae ACES | $ | 3,208,594 | $ | 3,507,375 | ||||
Federal Home Loan Mortgage Corp. | 4,845,829 | 5,107,132 | ||||||
3.00% due 5/1/2050 | 4,954,827 | 5,222,007 | ||||||
Federal National Mortgage Association | 6,002,776 | 6,304,046 | ||||||
3.50% due 8/1/2049 | 4,194,618 | 4,409,141 | ||||||
3.50% due 10/1/2049 | 5,543,840 | 5,827,950 | ||||||
4.00% due 12/1/2048 | 3,493,736 | 3,698,270 | ||||||
4.00% due 5/1/2049 | 4,424,609 | 4,686,769 | ||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | ||||||||
K026 A2 | 2,865,000 | 2,979,643 | ||||||
K030 A2 | 5,000,000 | 5,321,623 | ||||||
K032 A2 | 2,490,000 | 2,670,505 | ||||||
K035 A2 | 4,000,000 | 4,322,673 | ||||||
K058 A2 | 1,500,000 | 1,642,565 | ||||||
K063 A2 | 946,945 | 1,087,288 | ||||||
K064 A2 | 5,500,000 | 6,254,447 | ||||||
K066 A2 | 6,000,000 | 6,811,071 | ||||||
K073 A2 | 4,277,000 | 4,950,884 | ||||||
K075 A2 | 4,000,000 | 4,706,839 | ||||||
K730 A2 | 3,878,310 | 4,306,144 | ||||||
Total Agency Mortgage–Backed Securities (Cost $81,213,936) |
| 83,816,372 | ||||||
Asset–Backed Securities – 9.7% |
| |||||||
American Express Credit Account Master Trust | 2,600,000 | 2,708,800 | ||||||
AmeriCredit Automobile Receivables Trust | 1,250,000 | 1,263,613 | ||||||
BA Credit Card Trust | 2,500,000 | 2,538,159 | ||||||
BlueMountain CLO Ltd. | 600,000 | 583,210 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
BMW Vehicle Lease Trust | $ | 1,625,000 | $ | 1,651,416 | ||||
Capital One Prime Auto Receivables Trust | 2,000,000 | 2,017,434 | ||||||
CNH Equipment Trust | 1,000,000 | 1,012,850 | ||||||
Discover Card Execution Note Trust | 1,000,000 | 1,005,279 | ||||||
Enterprise Fleet Financing LLC | 2,000,000 | 2,022,647 | ||||||
Ford Credit Auto Owner Trust | 700,000 | 708,112 | ||||||
GM Financial Automobile Leasing Trust | 621,000 | 627,585 | ||||||
GM Financial Consumer Automobile | 2,100,000 | 2,114,882 | ||||||
Hyundai Auto Receivables Trust | 1,152,000 | 1,181,085 | ||||||
Toyota Auto Receivables Owner Trust | 788,926 | 795,625 | ||||||
Verizon Owner Trust | 1,345,000 | 1,384,407 | ||||||
Volkswagen Auto Loan Enhanced Trust | 700,000 | 721,608 | ||||||
Voya CLO Ltd. | 925,000 | 897,775 | ||||||
Total Asset–Backed Securities (Cost $23,000,292) |
| 23,234,487 | ||||||
Corporate Bonds & Notes – 1.5% |
| |||||||
Commercial Banks – 1.0% |
| |||||||
Bank of America Corp. | 650,000 | 673,779 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Corporate Bonds & Notes (continued) |
| |||||||
JPMorgan Chase & Co. | $ | 1,500,000 | $ | 1,663,078 | ||||
|
| |||||||
2,336,857 | ||||||||
Retail – 0.5% |
| |||||||
Walmart, Inc. | 1,250,000 | 1,373,771 | ||||||
|
| |||||||
1,373,771 | ||||||||
Total Corporate Bonds & Notes (Cost $3,590,911) |
| 3,710,628 | ||||||
Non–Agency Mortgage–Backed Securities – 9.2% |
| |||||||
BAMLL Commercial Mortgage Securities Trust | 450,000 | 480,078 | ||||||
CGRBS Commercial Mortgage Trust | 2,000,000 | 2,111,020 | ||||||
2013-VN05 B | 6,500,000 | 6,898,555 | ||||||
Commercial Mortgage Trust 2013-WWP B | 3,075,000 | 3,289,259 | ||||||
2013-WWP C | 1,500,000 | 1,598,005 | ||||||
2013-WWP D | 1,397,000 | 1,500,107 | ||||||
Four Times Square Trust Commercial Mortgage Pass-Through Certificates | 2,500,000 | 2,522,595 | ||||||
GS Mortgage Securities Trust | 1,410,000 | 1,534,081 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 998,705 | 1,030,443 | ||||||
WFRBS Commercial Mortgage Trust | 1,000,000 | 1,061,193 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $21,714,647) |
| 22,025,336 | ||||||
U.S. Government Agencies – 14.5% |
| |||||||
Federal Farm Credit Banks Funding Corp. | ||||||||
1.625% due 12/27/2021 | 6,750,000 | 6,892,237 | ||||||
1.60% due 1/21/2022 | 6,750,000 | 6,895,475 | ||||||
1.21% due 3/3/2025 | 5,000,000 | 5,173,888 | ||||||
Federal Home Loan Banks | 15,500,000 | 15,884,389 | ||||||
Total U.S. Government Agencies (Cost $34,317,252) |
| 34,845,989 |
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
U.S. Government Securities – 28.2% |
| |||||||
U.S. Treasury Note | ||||||||
1.375% due 10/15/2022 | $ | 2,500,000 | $ | 2,568,554 | ||||
1.50% due 9/30/2024 | 47,800,000 | 50,346,844 | ||||||
1.75% due 7/15/2022 | 14,100,000 | 14,553,293 | ||||||
Total U.S. Government Securities (Cost $64,520,928) |
| 67,468,691 | ||||||
Short–Term Investment – 1.3% |
| |||||||
Repurchase Agreements – 1.3% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $3,005,000, due 7/1/2020(4) | 3,005,000 | 3,005,000 | ||||||
Total Repurchase Agreements (Cost $3,005,000) |
| 3,005,000 | ||||||
Total Investments(5) – 99.4% (Cost $231,362,966) |
| 238,106,503 | ||||||
Assets in excess of other liabilities(6) – 0.6% |
| 1,457,060 | ||||||
Total Net Assets – 100.0% |
| $ | 239,563,563 |
(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, 2020. |
(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, 2020, the aggregate market value of these securities amounted to $24,726,245, representing 10.3% 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. |
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.125% | 7/15/2024 | $ | 2,714,900 | $ | 3,065,111 |
(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. | 5 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
(6) | Assets in excess of other liabilities include net unrealized appreciation on futures contracts as follows: |
Open futures contracts at June 30, 2020:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | ||||||||||||||||||
U.S. 5-Year Treasury Note | September 2020 | 590 | Long | $ | 74,067,815 | $ | 74,187,891 | $ | 120,076 | |||||||||||||||
U.S. Long Bond | September 2020 | 1 | Long | 177,402 | 178,562 | 1,160 | ||||||||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2020 | 183 | Long | 28,688,490 | 28,819,641 | 131,151 | ||||||||||||||||||
U.S. Ultra Long Bond | September 2020 | 1 | Long | 217,183 | 218,156 | 973 | ||||||||||||||||||
Total |
| $ | 103,150,890 | $ | 103,404,250 | $ | 253,360 | |||||||||||||||||
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||
U.S. 2-Year Treasury Note | September 2020 | 125 | Short | $ | (27,600,809 | ) | $ | (27,603,516 | ) | $ | (2,707 | ) | ||||||||||||
U.S. 10-Year Treasury Note | September 2020 | 322 | Short | (44,740,374 | ) | (44,813,344 | ) | (72,970 | ) | |||||||||||||||
Total |
| $ | (72,341,183 | ) | $ | (72,416,860 | ) | $ | (75,677 | ) |
Legend:
CLO — Collateralized Loan Obligation
LIBOR — London Interbank Offered Rate
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2020 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 | $ | — | $ | 83,816,372 | $ | — | $ | 83,816,372 | ||||||||
Asset–Backed Securities | — | 23,234,487 | — | 23,234,487 | ||||||||||||
Corporate Bonds & Notes | — | 3,710,628 | — | 3,710,628 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 22,025,336 | — | 22,025,336 | ||||||||||||
U.S. Government Agencies | — | 34,845,989 | — | 34,845,989 | ||||||||||||
U.S. Government Securities | — | 67,468,691 | — | 67,468,691 | ||||||||||||
Repurchase Agreements | — | 3,005,000 | — | 3,005,000 | ||||||||||||
Total | $ | — | $ | 238,106,503 | $ | — | $ | 238,106,503 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts | ||||||||||||||||
Assets | $ | 253,360 | $ | — | $ | — | $ | 253,360 | ||||||||
Liabilities | (75,677 | ) | — | — | (75,677 | ) | ||||||||||
Total | $ | 177,683 | $ | — | $ | — | $ | 177,683 |
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
For the Six Months Ended June 30, 2020 (unaudited) | ||||
Investment Income | ||||
Interest | $ | 2,318,584 | ||
|
| |||
Total Investment Income | 2,318,584 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 620,057 | |||
Distribution fees | 329,818 | |||
Trustees’ and officers’ fees | 68,180 | |||
Custodian and accounting fees | 46,605 | |||
Professional fees | 36,910 | |||
Administrative fees | 23,638 | |||
Shareholder reports | 15,779 | |||
Transfer agent fees | 10,129 | |||
Other expenses | 10,663 | |||
|
| |||
Total Expenses | 1,161,779 | |||
Less: Fees waived | (172,326 | ) | ||
|
| |||
Total Expenses, Net | 989,453 | |||
|
| |||
Net Investment Income/(Loss) | 1,329,131 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | 2,090,374 | |||
Net realized gain/(loss) from futures contracts | 1,973,265 | |||
Net realized gain/(loss) from swap contracts | 509,795 | |||
Net change in unrealized appreciation/(depreciation) on investments | 7,202,606 | |||
Net change in unrealized appreciation/(depreciation) on futures contracts | 485,405 | |||
|
| |||
Net Gain on Investments and Derivative Contracts | 12,261,445 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 13,590,576 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
1 | Commenced operations on October 21, 2019. |
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
This Page Intentionally Left Blank
9 |
Table of Contents
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.
Financial Highlights Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Income(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/20 | $ | 10.00 | $ | 0.05 | $ | 0.46 | $ | 0.51 | $ | 10.51 | 5.10% | |||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.02 | (0.02 | ) | 0.00 | 10.00 | 0.00% |
10 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
| ||||||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3),(4) | Gross Ratio of Expenses to Average Net Assets(3) | Net Ratio of Net Investment Income to Average Net Assets(3),(4) | Gross Ratio of Net Investment Income to Average Net Assets(3) | Portfolio Turnover Rate(3) | |||||||||||||||||
$ | 239,564 | 0.75% | 0.88% | 1.01% | 0.88% | 33% | ||||||||||||||||
270,003 | 0.70% | 0.89% | 1.29% | 1.10% | 31% |
(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) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. Certain non-recurring fees (i.e., audit fees) are not annualized. |
(4) | 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. |
(5) | Commenced operations on October 21, 2019. |
The accompanying notes are an integral part of these financial statements. | 11 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
June 30, 2020 (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 21 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.
12 |
Table of Contents
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, 2020, 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, 2020 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, 2020, 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.
13 |
Table of Contents
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.
During the six months ended June 30, 2020, 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, 2020.
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, 2020.
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
14 |
Table of Contents
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, 2021 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $172,326.
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, 2020, the Fund paid distribution fees in the amount of $329,818 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, 2020, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 10,901,126 | $ | 74,612,681 | ||||
Sales | 18,842,094 | 95,185,984 |
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
15 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP 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. 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, 2020, 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
16 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
major international banks. The head of the UK Financial Conduct Authority has announced that after 2021 it will cease its active encouragement of banks to provide the quotations needed to sustain LIBOR due to the absence of an active market for interbank unsecured lending and other reasons. As a result, it is anticipated that the use of LIBOR will be phased out by the end of 2021. Regulators and industry working groups have suggested alternative reference rates, but global consensus is lacking and the process for amending existing contracts or instruments to transition away from LIBOR remains unclear. There also remains uncertainty and risk regarding the willingness and ability of issuers to include enhanced provisions in new and existing contracts or instruments. As such, the transition away from LIBOR may lead to increased volatility and illiquidity in markets that are 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, 2020 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, 2020, 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 | $ | 253,360 | ||
Liability Derivatives | ||||
Futures Contracts1 | $ | (75,677 | ) |
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 Statements of Assets and Liabilities. |
17 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
Transactions in derivative investments for the six months ended June 30, 2020 were as follows:
Interest Rate Contracts | ||||
Net Realized Gain (Loss) | ||||
Futures Contracts1 | $ | 1,973,265 | ||
Swap Contracts2 | 509,795 | |||
Net Change in Unrealized Appreciation/(Depreciation) |
| |||
Futures Contracts3 | $ | 485,405 | ||
Average Number of Notional Amounts | ||||
Futures Contracts4 | 635 | |||
Swap Contracts – Sell Protection | $ | 7,714,286 |
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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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
18 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 24—25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
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.
9. 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.
19 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (iv) Lazard Asset Management LLC with respect to
Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or 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
20 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s 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
21 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus
Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with 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 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.
22 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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 the benefits to the Manager from increased assets under management. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost
23 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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.
24 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-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.
25 |
Table of Contents
This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB10527
Table of Contents
Guardian Variable
Products Trust
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Core Plus Fixed Income VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
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 | 17 | |||
Statement of Operations | 17 | |||
Statements of Changes in Net Assets | 18 | |||
Financial Highlights | 20 | |||
Notes to Financial Statements | 22 | |||
Supplemental Information | ||||
Approval of Investment Advisory and Sub-advisory Agreements | 30 | |||
Portfolio Holdings and Proxy Voting Procedures | 35 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $314,676,355 |
Bond Sector Allocation1 As of June 30, 2020 |
![]() |
Bond Quality Allocation2 As of June 30, 2020 |
![]() |
1 |
Table of Contents
GUARDIAN CORE PLUS FIXED INCOME VIP FUND
Top Ten Holdings1 As of June 30, 2020 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
Uniform Mortgage-Backed Security | 4.000% | 7/1/2050 | 11.90% | |||||||||
U.S. Treasury Note | 2.500% | 1/31/2021 | 5.40% | |||||||||
Uniform Mortgage-Backed Security | 3.500% | 7/1/2050 | 4.55% | |||||||||
Uniform Mortgage-Backed Security | 3.000% | 7/1/2050 | 3.65% | |||||||||
U.S. Treasury Bond | 2.750% | 11/15/2047 | 3.21% | |||||||||
U.S. Treasury Bond | 3.625% | 8/15/2043 | 2.33% | |||||||||
U.S. Treasury Note | 0.250% | 4/15/2023 | 1.77% | |||||||||
Uniform Mortgage-Backed Security | 2.500% | 7/1/2050 | 1.62% | |||||||||
U.S. Treasury Bond | 1.250% | 5/15/2050 | 1.58% | |||||||||
Federal National Mortgage Association | 3.500% | 9/1/2047 | 1.54% | |||||||||
Total |
| 37.55% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||||
Based on Actual Return | $ | 1,000.00 | $ | 1,035.30 | $ | 4.05 | 0.80% | |||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,020.89 | $ | 4.02 | 0.80% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 24.7% |
| |||||||
Federal Home Loan Mortgage Corp. | $ | 811,598 | $ | 916,935 | ||||
Federal National Mortgage Association | 4,073,203 | 4,376,485 | ||||||
3.50% due 9/1/2047 | 432,871 | 465,223 | ||||||
3.50% due 3/1/2050 | 2,248,213 | 2,417,787 | ||||||
4.00% due 1/1/2048 | 992,786 | 1,121,615 | ||||||
Uniform Mortgage-Backed Security | 4,892,000 | 5,099,910 | ||||||
3.00% due 7/1/2050(1) | 10,900,000 | 11,479,914 | ||||||
3.50% due 7/1/2050(1) | 13,607,000 | 14,311,269 | ||||||
4.00% due 7/1/2050(1) | 35,333,000 | 37,442,628 | ||||||
Total Agency Mortgage–Backed Securities (Cost $77,291,816) |
| 77,631,766 | ||||||
Asset–Backed Securities – 18.2% |
| |||||||
ACC Trust | 67,253 | 67,352 | ||||||
2019-1 B | 294,000 | 297,085 | ||||||
Ally Master Owner Trust 0.505% (LIBOR 1 Month + 0.32%) due 7/15/2022(3) | 226,000 | 225,970 | ||||||
ALM VII Ltd. 3.069% (LIBOR 3 Month + 1.85%) due 7/15/2029(2)(3) | 908,000 | 889,104 | ||||||
American Credit Acceptance Receivables Trust | 674,000 | 681,208 | ||||||
AmeriCredit Automobile Receivables Trust | 1,323,910 | 1,329,144 | ||||||
2018-3 A2A | 3,277 | 3,281 | ||||||
2018-3 A2B 0.444% (LIBOR 1 Month + 0.25%) due 1/18/2022(3) | 3,277 | 3,276 | ||||||
2019-1 A2A | 156,708 | 157,293 | ||||||
2019-1 A2B 0.26%) due 6/20/2022(3) | 173,362 | 173,371 | ||||||
Ares XLI CLO Ltd. 1.20%) due 1/15/2029(2)(3) | 1,450,000 | 1,425,879 | ||||||
2016-41A B 3.019% (LIBOR 3 Month + 1.80%) due 1/15/2029(2)(3) | 500,000 | 491,351 | ||||||
Ascentium Equipment Receivables Trust | 2,701 | 2,710 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Avery Point VII CLO Ltd. 1.75%) due 1/15/2028(2)(3) | $ | 400,000 | $ | 387,724 | ||||
2015-7A CR 2.45%) due 1/15/2028(2)(3) | 250,000 | 243,444 | ||||||
Avid Automobile Receivables Trust 2019-1 A | 343,827 | 348,078 | ||||||
2019-1 B | 500,000 | 508,965 | ||||||
Avis Budget Rental Car Funding AESOP LLC | 826,000 | 825,901 | ||||||
Benefit Street Partners CLO IV Ltd. 2.385% (LIBOR 3 Month + 1.25%) due 1/20/2029(2)(3) | 1,000,000 | 983,802 | ||||||
BlueMountain CLO Ltd. 2.485% (LIBOR 3 Month + 1.35%) due 4/20/2027(2)(3) | 822,000 | 793,217 | ||||||
BMW Vehicle Lease Trust | 169,390 | 169,815 | ||||||
BMW Vehicle Owner Trust | 783,398 | 788,591 | ||||||
BSPRT Issuer Ltd. 1.235% (LIBOR 1 Month + 1.05%) due 9/15/2035(2)(3) | 522,000 | 511,560 | ||||||
Capital Auto Receivables Asset Trust | 304,334 | 305,531 | ||||||
Capital One Multi-Asset Execution Trust | 595,000 | 634,494 | ||||||
CarMax Auto Owner Trust | 239,600 | 241,526 | ||||||
2019-4 A2A | 830,811 | 838,197 | ||||||
Cedar Funding VI CLO Ltd. 2.735% (LIBOR 3 Month + 1.60%) due 10/20/2028(2)(3) | 400,000 | 387,423 | ||||||
Chesapeake Funding II LLC 2017-2A A1 | 94,209 | 94,623 | ||||||
2017-3A A1 | 497,748 | 499,463 | ||||||
Citibank Credit Card Issuance Trust | 517,000 | 523,174 | ||||||
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
CPS Auto Receivables Trust 2018-B B | $ | 536,224 | $ | 537,357 | ||||
2018-B D | 750,000 | 762,508 | ||||||
CPS Auto Trust | 106,191 | 106,564 | ||||||
Discover Card Execution Note Trust 2017-A2 A2 | 1,277,000 | 1,315,283 | ||||||
DLL Securitization Trust | 235,098 | 235,525 | ||||||
DRB Prime Student Loan Trust | 119,401 | 121,206 | ||||||
Drive Auto Receivables Trust 2016-BA D | 181,194 | 182,472 | ||||||
2016-CA D | 9,457 | 9,589 | ||||||
2017-1 D | 2,058,371 | 2,089,444 | ||||||
2017-AA D | 19,843 | 20,108 | ||||||
2017-BA D | 428,503 | 431,571 | ||||||
2017-BA E | 2,100,000 | 2,153,537 | ||||||
2018-2 C | 62,424 | 62,765 | ||||||
Enterprise Fleet Financing LLC | 99,928 | 100,594 | ||||||
Exeter Automobile Receivables Trust | 410,000 | 410,237 | ||||||
First Investors Auto Owner Trust | 6,147 | 6,157 | ||||||
Flagship Credit Auto Trust | 11,029 | 11,070 | ||||||
2017-4 A | 159 | 159 | ||||||
2018-1 A | 2,843 | 2,848 | ||||||
2018-3 A | 425,351 | 428,321 | ||||||
2018-3 B | 479,000 | 490,897 | ||||||
2020-2 A | 217,882 | 219,518 | ||||||
Ford Credit Auto Owner Trust 2016-2 A | 2,000,000 | 2,023,176 | ||||||
2017-B A3 | 253,915 | 254,599 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
2019-C A2A | $ | 1,356,690 | $ | 1,365,617 | ||||
2020-A A2 | 157,000 | 157,705 | ||||||
2020-B A2 | 1,381,000 | 1,381,414 | ||||||
Ford Credit Floorplan Master Owner Trust | 697,000 | 698,280 | ||||||
Foursight Capital Automobile Receivables Trust | 100,000 | 101,766 | ||||||
Golden Credit Card Trust | 2,015,000 | 2,038,585 | ||||||
Halcyon Loan Advisors Funding Ltd. 3.141% (LIBOR 3 Month + 2.15%) due 7/25/2027(2)(3) | 250,000 | 239,238 | ||||||
Hardee’s Funding LLC | 478,981 | 479,570 | ||||||
2018-1A A2II | 754,560 | 755,333 | ||||||
Honda Auto Receivables Owner Trust | 548,284 | 551,260 | ||||||
2020-2 A2 | 473,000 | 474,528 | ||||||
Hyundai Auto Receivables Trust | 263,207 | 265,071 | ||||||
Hyundai Floorplan Master Owner Trust | 222,000 | 224,672 | ||||||
Jamestown CLO IX Ltd. 3.785% (LIBOR 3 Month + 2.65%) due 10/20/2028(2)(3) | 500,000 | 494,197 | ||||||
KKR CLO 18 Ltd. 2.835% (LIBOR 3 Month + 1.70%) due 7/18/2030(2)(3) | 526,000 | 507,272 | ||||||
KVK CLO Ltd. 4.369% (LIBOR 3 Month + 3.15%) due 1/15/2029(2)(3) | 483,000 | 477,329 | ||||||
LCM XXIV Ltd. 2.445% (LIBOR 3 Month + 1.31%) due 3/20/2030(2)(3) | 439,000 | 432,726 | ||||||
Longtrain Leasing III LLC | 454,808 | 459,957 | ||||||
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Marble Point CLO XVII Ltd. 2.196% (LIBOR 3 Month + 1.30%) due 4/20/2033(2)(3) | $ | 613,030 | $ | 585,508 | ||||
Master Credit Card Trust II 0.68% (LIBOR 1 Month + 0.49%) due 7/21/2024(2)(3) | 100,000 | 99,287 | ||||||
ME Funding LLC | 1,116,390 | 925,903 | ||||||
Mercedes-Benz Auto Lease Trust 2018-B A3 | 93,567 | 94,306 | ||||||
2019-A A3 | 249,000 | 251,413 | ||||||
MMAF Equipment Finance LLC | 365,107 | 366,032 | ||||||
Mountain View CLO LLC 2.266% (LIBOR 3 Month + 1.09%) due 10/16/2029(2)(3) | 561,712 | 545,417 | ||||||
Navient Private Education Refi Loan Trust | 368,000 | 403,150 | ||||||
Nissan Auto Lease Trust | 697,900 | 702,240 | ||||||
Nissan Auto Receivables Owner Trust | 157,249 | 157,323 | ||||||
Northwoods Capital Ltd. 2019-20A C 4.701% (LIBOR 3 Month + 2.80%) due 1/25/2030(2)(3) | 334,659 | 319,259 | ||||||
2019-20A D 6.151% (LIBOR 3 Month + 4.25%) due 1/25/2030(2)(3) | 387,446 | 353,834 | ||||||
Octagon Investment Partners 29 Ltd. 2.20% (LIBOR 3 Month + 1.18%) due 1/24/2033(2)(3) | 555,371 | 544,095 | ||||||
Orec Ltd. 1.365% (LIBOR 1 Month + 1.18%) due 6/15/2036(2)(3) | 645,000 | 615,392 | ||||||
Palmer Square Loan Funding Ltd. 2.535% (LIBOR 3 Month + 1.40%) due 1/20/2027(2)(3) | 250,000 | 242,003 | ||||||
Pennsylvania Higher Education Assistance Agency 1.261% (LIBOR 3 Month + 0.27%) due 4/25/2038(3) | 34,803 | 32,260 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Planet Fitness Master Issuer LLC | $ | 340,290 | $ | 298,059 | ||||
Salem Fields CLO Ltd. 2.141% (LIBOR 3 Month + 1.15%) due 10/25/2028(2)(3) | 641,067 | 626,274 | ||||||
Santander Drive Auto Receivables Trust | 6,223 | 6,249 | ||||||
2018-1 D | 35,000 | 35,860 | ||||||
Santander Retail Auto Lease Trust | 140,502 | 141,913 | ||||||
SCF Equipment Leasing LLC 2018-1A A2 | 326,669 | 329,037 | ||||||
2019-1A A2 | 284,000 | 282,194 | ||||||
2019-1A C | 1,298,000 | 1,231,256 | ||||||
2019-2A B | 797,000 | 722,085 | ||||||
2019-2A C | 579,000 | 509,564 | ||||||
Shackleton CLO Ltd. 3.035% (LIBOR 3 Month + 1.90%) due 7/20/2030(2)(3) | 1,042,000 | 1,017,733 | ||||||
SLC Student Loan Trust 1.913% (LIBOR 3 Month + 1.60%) due 12/15/2032(3) | 146,406 | 144,647 | ||||||
SoFi Professional Loan Program Trust | 76,160 | 76,326 | ||||||
2018-B A1FX | 75,235 | 75,422 | ||||||
Sound Point CLO XI Ltd. 2.235% (LIBOR 3 Month + 1.10%) due 7/20/2028(2)(3) | 370,000 | 363,446 | ||||||
Sound Point CLO XII Ltd. 3.735% (LIBOR 3 Month + 2.60%) due 10/20/2028(2)(3) | 504,000 | 493,479 | ||||||
Sound Point CLO XV Ltd. 3.543% (LIBOR 3 Month + 2.50%) due 1/23/2029(2)(3) | 343,000 | 333,738 | ||||||
TCF Auto Receivables Owner Trust 2015-2A C | 381,253 | 381,705 | ||||||
2016-1A B | 69,000 | 69,200 | ||||||
2016-PT1A B | 30,000 | 30,273 | ||||||
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Towd Point Asset Trust 0.768% (LIBOR 1 Month + 0.60%) due 1/25/2046(2)(3) | $ | 424,586 | $ | 418,170 | ||||
Toyota Auto Receivables Owner Trust | 486,716 | 489,557 | ||||||
TPG Real Estate Finance Issuer Ltd. 2018-FL2 A 1.324% (LIBOR 1 Month + 1.13%) due 11/15/2037(2)(3) | 658,000 | 648,130 | ||||||
Trillium Credit Card Trust II 0.53% (LIBOR 1 Month + 0.35%) due 9/26/2023(2)(3) | 319,000 | 318,960 | ||||||
Westgate Resorts LLC | 171,056 | 172,117 | ||||||
Westlake Automobile Receivables Trust | 748,000 | 758,164 | ||||||
2020-2A A2A | 1,848,000 | 1,848,811 | ||||||
Wheels SPV 2 LLC | 109,522 | 110,252 | ||||||
Wingstop Funding LLC | 526,680 | 548,599 | ||||||
World Financial Network Credit Card Master Trust | 40,000 | 40,141 | ||||||
2019-C A | 551,000 | 561,994 | ||||||
World Omni Auto Receivables Trust | 171,743 | 172,327 | ||||||
Total Asset–Backed Securities (Cost $57,822,434) |
| 57,405,681 | ||||||
Corporate Bonds & Notes – 44.3% |
| |||||||
Aerospace & Defense – 1.2% |
| |||||||
BAE Systems PLC | 705,000 | 767,863 | ||||||
Raytheon Technologies Corp. | 855,000 | 890,483 | ||||||
The Boeing Co. | 810,000 | 882,741 | ||||||
5.04% due 5/1/2027 | 779,000 | 859,088 | ||||||
TransDigm, Inc. | 390,000 | 355,282 | ||||||
|
| |||||||
3,755,457 |
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Agriculture – 1.1% |
| |||||||
BAT Capital Corp. 1.272% (LIBOR 3 Month + 0.88%) due 8/15/2022(3) | $ | 879,000 | $ | 874,879 | ||||
4.39% due 8/15/2037 | 949,000 | 1,035,461 | ||||||
4.70% due 4/2/2027 | 265,000 | 302,879 | ||||||
Cargill, Inc. | 645,000 | 676,134 | ||||||
MHP Lux S.A. | 475,000 | 451,250 | ||||||
6.95% due 4/3/2026(2) | 230,000 | 233,685 | ||||||
|
| |||||||
3,574,288 | ||||||||
Airlines – 0.2% |
| |||||||
Delta Air Lines, Inc. | 717,000 | 740,136 | ||||||
|
| |||||||
740,136 | ||||||||
Apparel – 0.1% |
| |||||||
The William Carter Co. | 303,000 | 312,469 | ||||||
|
| |||||||
312,469 | ||||||||
Auto Manufacturers – 0.9% |
| |||||||
Ford Motor Co. | 594,000 | 625,185 | ||||||
General Motors Co. | 700,000 | 762,478 | ||||||
General Motors Financial Co., Inc. | 68,000 | 66,182 | ||||||
Navistar International Corp. | 285,000 | 305,392 | ||||||
Tesla, Inc. | 351,000 | 351,000 | ||||||
Volkswagen Group of America Finance LLC | 248,000 | 260,831 | ||||||
3.35% due 5/13/2025(2) | 340,000 | 362,860 | ||||||
|
| |||||||
2,733,928 | ||||||||
Auto Parts & Equipment – 0.3% |
| |||||||
American Axle & Manufacturing, Inc. | 349,000 | 338,746 | ||||||
BorgWarner, Inc. | 218,000 | 223,667 | ||||||
Clarios Global LP / Clarios U.S. Finance Co. | 192,000 | 192,950 | ||||||
ZF North America Capital, Inc. | 319,000 | 318,962 | ||||||
|
| |||||||
1,074,325 | ||||||||
Beverages – 0.3% |
| |||||||
Anheuser-Busch InBev Worldwide, Inc. | 549,000 | 617,313 | ||||||
Becle S.A.B. de C.V. | 150,000 | 157,786 | ||||||
Constellation Brands, Inc. | 240,000 | 254,289 | ||||||
|
| |||||||
1,029,388 |
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Biotechnology – 0.5% |
| |||||||
Biogen, Inc. | $ | 1,504,000 | $ | 1,516,275 | ||||
|
| |||||||
1,516,275 | ||||||||
Building Materials – 0.3% |
| |||||||
Carrier Global Corp. | 390,000 | 397,291 | ||||||
Cemex S.A.B. de C.V. | 330,000 | 304,821 | ||||||
Griffon Corp. | 309,000 | 305,137 | ||||||
|
| |||||||
1,007,249 | ||||||||
Chemicals – 0.7% |
| |||||||
CF Industries, Inc. | 351,000 | 378,308 | ||||||
CNAC HK Finbridge Co. Ltd. 3.50% due 7/19/2022 | 380,000 | 389,781 | ||||||
4.125% due 7/19/2027 | 590,000 | 640,403 | ||||||
Orbia Advance Corp. S.A.B. de C.V. | 250,000 | 261,250 | ||||||
Phosagro OAO Via Phosagro Bond Funding DAC | 300,000 | 311,181 | ||||||
Tronox, Inc. | 330,000 | 308,550 | ||||||
|
| |||||||
2,289,473 | ||||||||
Coal – 0.1% |
| |||||||
Warrior Met Coal, Inc. | 336,000 | 327,600 | ||||||
|
| |||||||
327,600 | ||||||||
Commercial Banks – 4.8% |
| |||||||
Akbank T.A.S. | 215,000 | 212,904 | ||||||
Banco de Credito e Inversiones S.A. 3.50% due 10/12/2027(2) | 420,000 | 441,587 | ||||||
Banco do Brasil S.A. | 330,000 | 341,550 | ||||||
Bank of America Corp. 3.593% (3.593% fixed rate until 7/21/2027; LIBOR 3 Month + 1.37% thereafter) due 7/21/2028(3) | 885,000 | 991,935 | ||||||
3.95% due 4/21/2025 | 25,000 | 27,683 | ||||||
3.97% (3.97% fixed rate until 3/5/2028; LIBOR 3 Month + 1.07% thereafter) due 3/5/2029(3) | 454,000 | 520,136 | ||||||
4.00% due 1/22/2025 | 277,000 | 305,906 | ||||||
4.45% due 3/3/2026 | 250,000 | 287,811 | ||||||
Citigroup, Inc. 2.666% (2.666% fixed rate until 1/29/2030; SOFR + 1.146% thereafter) due 1/29/2031(3) | 355,000 | 368,579 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Commercial Banks (continued) |
| |||||||
3.98% (3.98% fixed rate until 3/20/2029; LIBOR 3 Month + 1.338% thereafter) due 3/20/2030(3) | $ | 503,000 | $ | 578,033 | ||||
4.45% due 9/29/2027 | 361,000 | 412,142 | ||||||
JPMorgan Chase & Co. 3.782% (3.782% fixed rate until 2/1/2027; LIBOR 3 Month + 1.337% thereafter) due 2/1/2028(3) | 1,344,000 | 1,519,973 | ||||||
Kookmin Bank | 425,000 | 434,267 | ||||||
Macquarie Group Ltd. 4.654% (4.654% fixed rate until 3/27/2028; LIBOR 3 Month + 1.727% thereafter) due 3/27/2029(2)(3) | 963,000 | 1,087,960 | ||||||
Morgan Stanley | 795,000 | 897,588 | ||||||
3.875% due 1/27/2026 | 203,000 | 229,635 | ||||||
National Securities Clearing Corp. | 514,000 | 525,701 | ||||||
Popular, Inc. | 361,000 | 364,610 | ||||||
Santander U.K. PLC | 87,000 | 115,603 | ||||||
The Goldman Sachs Group, Inc. 1.11% (LIBOR 3 Month + 0.75%) due 2/23/2023(3) | 422,000 | 419,975 | ||||||
1.54% (LIBOR 3 Month + 0.78%) due 10/31/2022(3) | 590,000 | 589,811 | ||||||
The Toronto-Dominion Bank 3.625% (3.625% fixed rate until 9/15/2026; 5 Year USD Swap + 2.205% thereafter) due 9/15/2031(3) | 683,000 | 768,396 | ||||||
Truist Bank | 342,000 | 345,201 | ||||||
Turkiye Garanti Bankasi A.S. | 200,000 | 199,900 | ||||||
UBS AG | 872,000 | 944,397 | ||||||
Wachovia Corp. | 151,000 | 192,882 | ||||||
Wells Fargo Bank N.A. | 1,250,000 | 1,840,713 | ||||||
|
| |||||||
14,964,878 | ||||||||
Commercial Services – 1.2% |
| |||||||
Adani Ports & Special Economic Zone Ltd. | 200,000 | 192,222 | ||||||
Ahern Rentals, Inc. | 362,000 | 173,760 | ||||||
CoStar Group, Inc. | 194,000 | 198,533 | ||||||
Garda World Security Corp. | 304,000 | 321,480 | ||||||
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Commercial Services (continued) |
| |||||||
Global Payments, Inc. | $ | 248,000 | $ | 265,667 | ||||
MPH Acquisition Holdings LLC | 362,000 | 336,660 | ||||||
PayPal Holdings, Inc. | 984,000 | 1,070,360 | ||||||
3.25% due 6/1/2050 | 192,000 | 207,915 | ||||||
Pepperdine University | 156,000 | 160,211 | ||||||
United Rentals North America, Inc. | 716,000 | 733,900 | ||||||
|
| |||||||
3,660,708 | ||||||||
Computers – 0.5% |
| |||||||
Dell International LLC / EMC Corp. | 141,000 | 154,227 | ||||||
8.35% due 7/15/2046(2) | 623,000 | 830,950 | ||||||
Hewlett Packard Enterprise Co. 0.998% (LIBOR 3 Month + 0.68%) due 3/12/2021(3) | 294,000 | 293,834 | ||||||
Western Digital Corp. | 297,000 | 306,935 | ||||||
|
| |||||||
1,585,946 | ||||||||
Diversified Financial Services – 1.9% |
| |||||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 872,000 | 819,033 | ||||||
3.875% due 1/23/2028 | 567,000 | 512,129 | ||||||
Ally Financial, Inc. | 323,000 | 416,775 | ||||||
Ameriprise Financial, Inc. | 546,000 | 592,630 | ||||||
Brightsphere Investment Group, Inc. | 315,000 | 310,148 | ||||||
Global Aircraft Leasing Co. Ltd. | 530,000 | 355,100 | ||||||
International Lease Finance Corp. | 112,000 | 117,840 | ||||||
Navient Corp. | 856,000 | 719,040 | ||||||
6.75% due 6/25/2025 | 334,000 | 318,552 | ||||||
Neuberger Berman Group LLC / Neuberger Berman Finance Corp. | 380,000 | 411,274 | ||||||
4.875% due 4/15/2045(2) | 198,000 | 208,902 | ||||||
Quicken Loans LLC | 189,000 | 193,213 | ||||||
Springleaf Finance Corp. | 360,000 | 336,600 | ||||||
SURA Asset Management S.A. | 400,000 | 416,504 | ||||||
Vertical U.S. Newco, Inc. | 356,000 | 356,000 | ||||||
|
| |||||||
6,083,740 |
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Electric – 3.6% |
| |||||||
Ameren Corp. | $ | 912,000 | $ | 1,023,829 | ||||
Ausgrid Finance Pty. Ltd. | 580,000 | 644,989 | ||||||
Calpine Corp. | 305,000 | 297,375 | ||||||
5.125% due 3/15/2028(2) | 302,000 | 295,960 | ||||||
Clearway Energy Operating LLC | 146,000 | 150,745 | ||||||
Cleco Corporate Holdings LLC | 273,000 | 284,165 | ||||||
Dominion Energy South Carolina, Inc. | 15,000 | 21,574 | ||||||
Dominion Energy, Inc. | 711,000 | 784,823 | ||||||
DTE Electric Co. | 1,014,000 | 1,097,936 | ||||||
Emera U.S. Finance LP | 1,792,000 | 2,013,724 | ||||||
Empresas Publicas de Medellin ESP | 200,000 | 200,500 | ||||||
Exelon Corp. | 302,000 | 348,720 | ||||||
Exelon Generation Co. LLC | 713,000 | 769,828 | ||||||
5.60% due 6/15/2042 | 49,000 | 55,772 | ||||||
5.75% due 10/1/2041 | 324,000 | 361,434 | ||||||
FirstEnergy Corp. | 482,000 | 503,099 | ||||||
ITC Holdings Corp. | 293,000 | 324,169 | ||||||
Listrindo Capital B.V. | 525,000 | 527,625 | ||||||
Minejesa Capital B.V. | 200,000 | 203,000 | ||||||
NRG Energy, Inc. | 336,000 | 354,480 | ||||||
Oglethorpe Power Corp. | 223,000 | 294,428 | ||||||
Pennsylvania Electric Co. | 370,000 | 415,501 | ||||||
PSEG Power LLC | 228,000 | 319,932 | ||||||
|
| |||||||
11,293,608 | ||||||||
Electronics – 0.1% |
| |||||||
Roper Technologies, Inc. | 325,000 | 353,387 | ||||||
Trimble, Inc. | 18,000 | 20,662 | ||||||
|
| |||||||
374,049 | ||||||||
Energy-Alternate Sources – 0.2% |
| |||||||
Enviva Partners LP / Enviva Partners Finance Corp. | 324,000 | 336,960 | ||||||
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Energy-Alternate Sources (continued) |
| |||||||
Greenko Solar Mauritius Ltd. | $ | 330,000 | $ | 324,974 | ||||
|
| |||||||
661,934 | ||||||||
Engineering & Construction – 0.1% |
| |||||||
China Railway Resources Huitung Ltd. | 200,000 | 210,579 | ||||||
|
| |||||||
210,579 | ||||||||
Entertainment – 0.4% |
| |||||||
Live Nation Entertainment, Inc. | 324,000 | 291,600 | ||||||
Penn National Gaming, Inc. | 337,000 | 314,381 | ||||||
Scientific Games International, Inc. | 326,000 | 260,800 | ||||||
Stars Group Holdings B.V. / Stars Group U.S. Co-Borrower LLC | 159,000 | 167,605 | ||||||
Vail Resorts, Inc. | 246,000 | 257,377 | ||||||
|
| |||||||
1,291,763 | ||||||||
Food – 0.9% |
| |||||||
Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons LP / Albertsons LLC | 519,000 | 531,005 | ||||||
Arcor SAIC | 13,000 | 11,692 | ||||||
JBS USA LUX S.A. / JBS USA Food Co. / JBS USA Finance, Inc. | 620,000 | 657,975 | ||||||
Kraft Heinz Foods Co. | 898,000 | 882,817 | ||||||
Minerva Luxembourg S.A. | 288,000 | 281,434 | ||||||
Sysco Corp. | 328,000 | 324,229 | ||||||
|
| |||||||
2,689,152 | ||||||||
Forest Products & Paper – 0.1% |
| |||||||
Fibria Overseas Finance Ltd. | 312,000 | 321,051 | ||||||
|
| |||||||
321,051 | ||||||||
Gas – 0.9% |
| |||||||
Dominion Energy Gas Holdings LLC | 708,000 | 799,913 | ||||||
National Fuel Gas Co. | 621,000 | 659,953 | ||||||
NiSource, Inc. | 1,284,000 | 1,452,041 | ||||||
|
| |||||||
2,911,907 | ||||||||
Hand & Machine Tools – 0.1% |
| |||||||
Kennametal, Inc. | 360,000 | 385,789 | ||||||
|
| |||||||
385,789 |
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Healthcare-Products – 1.1% |
| |||||||
Alcon Finance Corp. | $ | 1,086,000 | $ | 1,113,241 | ||||
Baxter International, Inc. | 334,000 | 380,537 | ||||||
Boston Scientific Corp. | 845,000 | 880,558 | ||||||
Stryker Corp. | 583,000 | 586,889 | ||||||
Zimmer Biomet Holdings, Inc. | 398,000 | 511,209 | ||||||
|
| |||||||
3,472,434 | ||||||||
Healthcare-Services – 2.4% |
| |||||||
Adventist Health System | 197,000 | 203,470 | ||||||
Advocate Health & Hospitals Corp. | 346,000 | 380,920 | ||||||
Anthem, Inc. | 653,000 | 669,905 | ||||||
Centene Corp. | 452,000 | 456,389 | ||||||
CommonSpirit Health | 964,000 | 991,567 | ||||||
Encompass Health Corp. | 54,000 | 51,792 | ||||||
HCA, Inc. | 988,000 | 1,089,851 | ||||||
5.25% due 6/15/2026 | 473,000 | 546,468 | ||||||
5.50% due 6/15/2047 | 386,000 | 470,068 | ||||||
LifePoint Health, Inc. | 583,000 | 601,947 | ||||||
MEDNAX, Inc. | 647,000 | 647,000 | ||||||
Quest Diagnostics, Inc. | 396,000 | 415,441 | ||||||
Select Medical Corp. | 297,000 | 300,252 | ||||||
Tenet Healthcare Corp. | 470,000 | 466,475 | ||||||
The New York and Presbyterian Hospital | 103,000 | 110,706 | ||||||
|
| |||||||
7,402,251 | ||||||||
Home Builders – 0.7% |
| |||||||
Century Communities, Inc. | 319,000 | 320,595 | ||||||
NVR, Inc. | 655,000 | 684,606 | ||||||
PulteGroup, Inc. | 285,000 | 310,821 | ||||||
Toll Brothers Finance Corp. | 363,000 | 376,613 | ||||||
TRI Pointe Group, Inc. | 377,000 | 375,115 | ||||||
|
| |||||||
2,067,750 |
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Household Products & Wares – 0.0% |
| |||||||
Kimberly-Clark de Mexico S.A.B. de C.V. | $ | 100,000 | $ | 103,000 | ||||
|
| |||||||
103,000 | ||||||||
Housewares – 0.2% |
| |||||||
Newell Brands, Inc. | 677,000 | 721,851 | ||||||
|
| |||||||
721,851 | ||||||||
Insurance – 0.3% |
| |||||||
Teachers Insurance & Annuity Association of America | 697,000 | 895,529 | ||||||
|
| |||||||
895,529 | ||||||||
Internet – 1.6% |
| |||||||
Alibaba Group Holding Ltd. | 425,000 | 472,157 | ||||||
JD.com, Inc. | 860,000 | 917,840 | ||||||
Match Group, Inc. | 336,000 | 349,625 | ||||||
5.625% due 2/15/2029(2) | 160,000 | 168,661 | ||||||
Netflix, Inc. | 149,000 | 150,117 | ||||||
6.375% due 5/15/2029 | 912,000 | 1,057,920 | ||||||
Prosus N.V. | 200,000 | 209,420 | ||||||
5.50% due 7/21/2025(2) | 278,000 | 313,973 | ||||||
Tencent Holdings Ltd. | 1,275,000 | 1,389,706 | ||||||
|
| |||||||
5,029,419 | ||||||||
Iron & Steel – 0.1% |
| |||||||
GUSAP III LP | 340,000 | 333,628 | ||||||
|
| |||||||
333,628 | ||||||||
Leisure Time – 0.3% |
| |||||||
Carnival Corp. | 603,000 | 654,255 | ||||||
Royal Caribbean Cruises Ltd. | 180,000 | 187,821 | ||||||
|
| |||||||
842,076 | ||||||||
Lodging – 0.1% |
| |||||||
Boyd Gaming Corp. | 350,000 | 327,145 | ||||||
|
| |||||||
327,145 | ||||||||
Machinery-Diversified – 0.7% |
| |||||||
IDEX Corp. | 215,000 | 224,354 | ||||||
nVent Finance Sarl | 1,237,000 | 1,323,265 | ||||||
Xylem, Inc. | 571,000 | 575,897 | ||||||
|
| |||||||
2,123,516 |
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Media – 2.0% |
| |||||||
AMC Networks, Inc. | $ | 701,000 | $ | 690,625 | ||||
CCO Holdings LLC / CCO Holdings Capital Corp. | 295,000 | 301,841 | ||||||
5.00% due 2/1/2028(2) | 338,000 | 348,985 | ||||||
Cox Communications, Inc. | 713,000 | 1,164,774 | ||||||
CSC Holdings LLC | 293,000 | 304,866 | ||||||
DISH DBS Corp. | 659,000 | 698,540 | ||||||
Globo Comunicacao e Participacoes S.A. | 520,000 | 469,300 | ||||||
Gray Television, Inc. | 646,000 | 662,150 | ||||||
Nexstar Broadcasting, Inc. | 305,000 | 302,731 | ||||||
Scripps Escrow, Inc. | 527,000 | 499,332 | ||||||
Time Warner Cable LLC | 274,000 | 377,146 | ||||||
Time Warner Entertainment Co. LP | 282,000 | 424,684 | ||||||
|
| |||||||
6,244,974 | ||||||||
Mining – 1.3% |
| |||||||
Anglo American Capital PLC | 800,000 | 855,298 | ||||||
4.75% due 4/10/2027(2) | 978,000 | 1,088,528 | ||||||
Freeport-McMoRan, Inc. | 683,000 | 662,510 | ||||||
Glencore Finance Canada Ltd. | 705,000 | 759,235 | ||||||
Hecla Mining Co. | 562,000 | 570,430 | ||||||
|
| |||||||
3,936,001 | ||||||||
Miscellaneous Manufacturing – 0.4% |
| |||||||
Carlisle Cos., Inc. | 474,000 | 487,874 | ||||||
General Electric Co. 0.921% (LIBOR 3 Month + 0.38%) due 5/5/2026(3) | 179,000 | 155,236 | ||||||
1.313% (LIBOR 3 Month + 1.00%) due 3/15/2023(3) | 549,000 | 536,043 | ||||||
|
| |||||||
1,179,153 | ||||||||
Oil & Gas – 3.0% |
| |||||||
Apache Corp. | 378,000 | 333,797 | ||||||
Citgo Holding, Inc. | 314,000 | 312,430 | ||||||
Continental Resources, Inc. | 678,000 | 633,944 | ||||||
Diamondback Energy, Inc. | 410,000 | 397,114 | ||||||
4.75% due 5/31/2025 | 148,000 | 158,364 | ||||||
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Oil & Gas (continued) |
| |||||||
Empresa Nacional del Petroleo | $ | 400,000 | $ | 412,858 | ||||
Equinor ASA | 178,000 | 182,324 | ||||||
7.15% due 11/15/2025 | 700,000 | 892,036 | ||||||
Gazprom PJSC Via Gaz Capital S.A. | 200,000 | 224,562 | ||||||
Laredo Petroleum, Inc. | 616,000 | 425,810 | ||||||
MEG Energy Corp. | 329,000 | 282,117 | ||||||
7.125% due 2/1/2027(2) | 295,000 | 245,219 | ||||||
Occidental Petroleum Corp. | 383,000 | 362,655 | ||||||
Parsley Energy LLC / Parsley Finance Corp. | 442,000 | 435,370 | ||||||
PDC Energy, Inc. | 428,000 | 389,480 | ||||||
Pertamina Persero PT | 200,000 | 197,968 | ||||||
Petroleos Mexicanos | 490,000 | 427,525 | ||||||
5.35% due 2/12/2028 | 683,000 | 573,720 | ||||||
Saudi Arabian Oil Co. | 570,000 | 592,424 | ||||||
Sinopec Group Overseas Development Ltd. | 200,000 | 218,751 | ||||||
SM Energy Co. | 201,000 | 101,079 | ||||||
Valero Energy Corp. | 486,000 | 798,079 | ||||||
WPX Energy, Inc. | 513,000 | 505,305 | ||||||
8.25% due 8/1/2023 | 61,000 | 67,710 | ||||||
YPF S.A. | 263,000 | 195,277 | ||||||
|
| |||||||
9,365,918 | ||||||||
Oil & Gas Services – 0.8% |
| |||||||
Baker Hughes a GE Co. LLC / Baker Hughes Co-Obligor, Inc. | 543,000 | 578,550 | ||||||
4.08% due 12/15/2047 | 462,000 | 479,781 | ||||||
National Oilwell Varco, Inc. | 1,287,000 | 1,259,367 | ||||||
Transocean Phoenix 2 Ltd. | 318,500 | 298,594 | ||||||
|
| |||||||
2,616,292 | ||||||||
Pharmaceuticals – 2.2% |
| |||||||
AbbVie, Inc. | 535,000 | 588,709 | ||||||
Bausch Health Americas, Inc. | 279,000 | 296,089 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Pharmaceuticals (continued) |
| |||||||
Bausch Health Cos., Inc. | $ | 177,000 | $ | 166,644 | ||||
Bayer Corp. | 135,000 | 175,805 | ||||||
Bayer U.S. Finance II LLC | 478,000 | 524,140 | ||||||
Cigna Corp. 0.949% (LIBOR 3 Month + 0.65%) due 9/17/2021(3) | 1,796,000 | 1,796,081 | ||||||
CVS Health Corp. | 301,000 | 338,019 | ||||||
4.30% due 3/25/2028 | 1,324,000 | 1,548,509 | ||||||
Eli Lilly and Co. | 397,000 | 380,708 | ||||||
Upjohn, Inc. | 1,190,000 | 1,227,523 | ||||||
|
| |||||||
7,042,227 | ||||||||
Pipelines – 0.6% |
| |||||||
Abu Dhabi Crude Oil Pipeline LLC | 200,000 | 236,290 | ||||||
Buckeye Partners LP 6.375% (6.375% fixed rate until 1/22/2023; LIBOR 3 Month + | 472,000 | 344,560 | ||||||
Cheniere Corpus Christi Holdings LLC | 215,000 | 219,358 | ||||||
Northern Natural Gas Co. | 238,000 | 284,269 | ||||||
Sabine Pass Liquefaction LLC | 415,000 | 487,625 | ||||||
Western Midstream Operating LP | 347,000 | 334,019 | ||||||
|
| |||||||
1,906,121 | ||||||||
Real Estate – 0.9% |
| |||||||
Country Garden Holdings Co. Ltd. 4.75% due 1/17/2023 | 200,000 | 203,000 | ||||||
4.75% due 9/28/2023 | 560,000 | 566,275 | ||||||
Kaisa Group Holdings Ltd. | 200,000 | 182,978 | ||||||
11.95% due 10/22/2022(2) | 210,000 | 218,138 | ||||||
Longfor Group Holdings Ltd. | 585,000 | 628,284 | ||||||
Sunac China Holdings Ltd. | 530,000 | 543,902 | ||||||
Yuzhou Properties Co. Ltd. | 200,000 | 192,733 | ||||||
Zhenro Properties Group Ltd. | 320,000 | 321,183 | ||||||
|
| |||||||
2,856,493 | ||||||||
Real Estate Investment Trusts – 1.7% |
| |||||||
EPR Properties | 445,000 | 424,909 | ||||||
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Real Estate Investment Trusts (continued) |
| |||||||
Equinix, Inc. | $ | 511,000 | $ | 544,021 | ||||
ESH Hospitality, Inc. | 660,000 | 617,925 | ||||||
HAT Holdings I LLC / HAT Holdings II LLC | 608,000 | 620,160 | ||||||
Healthcare Realty Trust, Inc. | 241,000 | 229,292 | ||||||
Healthcare Trust of America Holdings LP | 510,000 | 514,554 | ||||||
MPT Operating Partnership LP / MPT Finance Corp. | 337,000 | 346,268 | ||||||
VEREIT Operating Partnership LP | 1,300,000 | 1,441,313 | ||||||
WEA Finance LLC | 688,000 | 671,293 | ||||||
|
| |||||||
5,409,735 | ||||||||
Retail – 0.9% |
| |||||||
AutoNation, Inc. | 57,000 | 61,763 | ||||||
IRB Holding Corp. | 300,000 | 309,210 | ||||||
Lithia Motors, Inc. | 158,000 | 156,420 | ||||||
Murphy Oil USA, Inc. | 191,000 | 195,298 | ||||||
PetSmart, Inc. | 505,000 | 505,947 | ||||||
Rite Aid Corp. | 497,000 | 483,332 | ||||||
Sally Holdings LLC / Sally Capital, Inc. 5.625% due 12/1/2025 | 318,000 | 308,982 | ||||||
The Gap, Inc. | 296,000 | 313,390 | ||||||
Walgreens Boots Alliance, Inc. | 277,000 | 286,170 | ||||||
Yum! Brands, Inc. | 124,000 | 133,765 | ||||||
|
| |||||||
2,754,277 | ||||||||
Semiconductors – 0.6% |
| |||||||
Broadcom Corp. / Broadcom Cayman Finance Ltd. | 900,000 | 972,555 | ||||||
Micron Technology, Inc. | 201,000 | 208,892 | ||||||
NXP BV / NXP Funding LLC / NXP USA, Inc. | 631,000 | 668,911 | ||||||
|
| |||||||
1,850,358 |
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Shipbuilding – 0.1% |
| |||||||
Huntington Ingalls Industries, Inc. | $ | 248,000 | $ | 269,285 | ||||
|
| |||||||
269,285 | ||||||||
Software – 0.5% |
| |||||||
Intuit, Inc. | 417,000 | 418,920 | ||||||
Oracle Corp. | 746,000 | 830,773 | ||||||
PTC, Inc. | 304,000 | 300,996 | ||||||
|
| |||||||
1,550,689 | ||||||||
Telecommunications – 0.8% |
| |||||||
AT&T, Inc. | 274,000 | 321,114 | ||||||
6.25% due 3/29/2041 | 554,000 | 759,625 | ||||||
Ooredoo International Finance Ltd. | 200,000 | 217,250 | ||||||
Sprint Capital Corp. | 606,000 | 737,805 | ||||||
ViaSat, Inc. | 332,000 | 339,885 | ||||||
Zayo Group Holdings, Inc. | 314,000 | 298,790 | ||||||
|
| |||||||
2,674,469 | ||||||||
Toys, Games & Hobbies – 0.2% |
| |||||||
Mattel, Inc. | 522,000 | 541,575 | ||||||
|
| |||||||
541,575 | ||||||||
Transportation – 0.2% |
| |||||||
XPO Logistics, Inc. | 497,000 | 520,608 | ||||||
|
| |||||||
520,608 | ||||||||
Water – 0.1% |
| |||||||
Essential Utilities, Inc. | 400,000 | 444,101 | ||||||
|
| |||||||
444,101 | ||||||||
Total Corporate Bonds & Notes (Cost $134,613,198) |
| 139,276,567 | ||||||
Municipals – 0.9% |
| |||||||
California Health Facilities Financing Authority | 195,000 | 201,720 | ||||||
Foothill-Eastern Transportation Corridor Agency | 354,000 | 363,487 | ||||||
Massachusetts School Building Authority | 490,000 | 499,775 | ||||||
Michigan Finance Authority | 515,000 | 555,052 | ||||||
Permanent University Fund – Texas A&M University System | 375,000 | 406,676 | ||||||
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Municipals (continued) |
| |||||||
Regents of the University of California Medical Center Pooled Revenue | $ | 205,000 | $ | 207,573 | ||||
State of California | 130,000 | 217,339 | ||||||
7.625% due 3/1/2040 | 190,000 | 335,386 | ||||||
Total Municipals (Cost $2,659,891) |
| 2,787,008 | ||||||
Non–Agency Mortgage–Backed Securities – 7.2% |
| |||||||
Angel Oak Mortgage Trust | 186,625 | 187,979 | ||||||
Angel Oak Mortgage Trust I LLC | 537,206 | 541,618 | ||||||
Atrium Hotel Portfolio Trust | 349,000 | 325,447 | ||||||
BAMLL Commercial Mortgage Securities Trust | 3,900,000 | 3,844,688 | ||||||
BBCMS Mortgage Trust | 365,000 | 346,754 | ||||||
2019-BWAY B | 160,000 | 149,180 | ||||||
BX Trust | 987,000 | 935,224 | ||||||
Citigroup Commercial Mortgage Trust | 1,685,000 | 1,040,519 | ||||||
Commercial Mortgage Trust 2015-PC1 AM | 310,000 | 334,591 | ||||||
2015-PC1 B | 100,000 | 102,975 | ||||||
2015-PC1 D | 33,000 | 22,613 | ||||||
2016-COR1 AM | 167,000 | 174,933 | ||||||
Credit Suisse Mortgage Trust 2019-UVIL A | 337,000 | 322,736 | ||||||
2020-AFC1 A1 | 426,847 | 433,395 | ||||||
CSAIL Commercial Mortgage Trust | 394,045 | 410,765 | ||||||
DBWF Mortgage Trust | 630,000 | 595,350 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
Deephaven Residential Mortgage Trust | $ | 571,989 | $ | 580,647 | ||||
2019-4A A1 | 371,174 | 375,057 | ||||||
2020-1 A1 | 265,149 | 267,986 | ||||||
GCAT Trust | 205,130 | 206,909 | ||||||
Great Wolf Trust | 1,028,000 | 987,214 | ||||||
GS Mortgage Securities Corp. Trust 2012-BWTR A | 1,273,000 | 1,265,329 | ||||||
2018-RIVR A | 437,247 | 415,479 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust | ||||||||
2018-LAQ A | 857,293 | 805,893 | ||||||
2018-LAQ B | 574,013 | 528,032 | ||||||
2018-MINN A | 339,000 | 324,720 | ||||||
2018-WPT AFL | 242,000 | 234,616 | ||||||
2018-WPT BFL | 724,000 | 673,951 | ||||||
2018-WPT BFX | 218,000 | 221,013 | ||||||
2018-WPT CFX | 290,000 | 282,713 | ||||||
JPMBB Commercial Mortgage Securities Trust | 13,000 | 12,476 | ||||||
Morgan Stanley Capital Barclays Bank Trust | 100,000 | 97,541 | ||||||
New Residential Mortgage Loan Trust | ||||||||
2019-NQM3 A1 | 471,790 | 478,684 | ||||||
2020-NQM1 A1 | 170,494 | 173,380 | ||||||
PFP Ltd. | 416,000 | 402,220 | ||||||
ReadyCap Commercial Mortgage Trust | 318,313 | 287,054 | ||||||
Residential Mortgage Loan Trust | 118,574 | 120,056 | ||||||
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
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
Starwood Mortgage Residential Trust 2.275% due 2/25/2050(2)(3)(5) | $ | 269,673 | $ | 271,918 | ||||
The Bancorp Commercial Mortgage Trust | 1,768 | 1,719 | ||||||
Verus Securitization Trust 2.417% due 1/25/2060(2)(3)(5) | 626,407 | 635,014 | ||||||
Wells Fargo Commercial Mortgage Trust | ||||||||
2015-C28 D | 1,500,000 | 985,432 | ||||||
2016-C35 C | 131,000 | 115,270 | ||||||
2017-C41 AS | 279,000 | 298,220 | ||||||
WFLD Mortgage Trust | 2,000,000 | 2,003,154 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $23,900,246) |
| 22,820,464 | ||||||
Foreign Government – 2.6% |
| |||||||
Abu Dhabi Government International Bond | USD | 700,000 | 733,250 | |||||
Colombia Government International Bond | USD | 515,000 | 510,113 | |||||
Egypt Government International Bond | ||||||||
4.55% due 11/20/2023(2) | USD | 200,000 | 197,684 | |||||
6.588% due 2/21/2028(2) | USD | 350,000 | 344,912 | |||||
Indonesia Government International Bond | ||||||||
3.40% due 9/18/2029 | USD | 725,000 | 771,178 | |||||
4.75% due 1/8/2026 | USD | 860,000 | 968,460 | |||||
Nigeria Government International Bond | ||||||||
6.375% due 7/12/2023(2) | USD | 315,000 | 319,851 | |||||
7.143% due 2/23/2030(2) | USD | 200,000 | 186,250 | |||||
Peruvian Government International Bond | USD | 726,000 | 755,040 | |||||
Qatar Government International Bond | ||||||||
3.25% due 6/2/2026(2) | USD | 1,290,000 | 1,398,948 | |||||
5.103% due 4/23/2048(2) | USD | 210,000 | 285,407 | |||||
Romanian Government International Bond | USD | 8,000 | 10,480 | |||||
Saudi Government International Bond | USD | 720,000 | 771,854 | |||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Foreign Government (continued) |
| |||||||
Turkey Government |
| |||||||
4.25% due 4/14/2026 | USD | 435,000 | $ | 395,866 | ||||
5.25% due 3/13/2030 | USD | 230,000 | 205,850 | |||||
Turkiye Ihracat Kredi Bankasi A.S. | USD | 250,000 | 260,387 | |||||
Total Foreign Government (Cost $8,037,723) |
| 8,115,530 | ||||||
U.S. Government Securities – 17.2% |
| |||||||
U.S. Treasury Bill | $ | 3,165,000 | 3,163,144 | |||||
U.S. Treasury Bond | ||||||||
1.25% due 5/15/2050 | 5,168,000 | 4,965,519 | ||||||
2.75% due 11/15/2047 | 7,729,000 | 10,112,310 | ||||||
3.625% due 8/15/2043 | 5,029,000 | 7,345,483 | ||||||
U.S. Treasury Note | ||||||||
0.125% due 6/30/2022 | 2,196,000 | 2,194,627 | ||||||
0.125% due 4/15/2025 | 3,600,958 | 3,772,396 | ||||||
0.25% due 4/15/2023 | 5,556,000 | 5,567,720 | ||||||
2.50% due 1/31/2021 | 16,775,000 | 16,999,104 | ||||||
Total U.S. Government Securities (Cost $50,176,226) |
| 54,120,303 | ||||||
Short–Term Investment – 6.3% |
| |||||||
Repurchase Agreements – 6.3% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $19,834,000, due 7/1/2020(8) | 19,834,000 | 19,834,000 | ||||||
Total Repurchase Agreements (Cost $19,834,000) |
| 19,834,000 | ||||||
Total Investments(9) – 121.4% (Cost $374,335,534) |
| 381,991,319 | ||||||
Liabilities in excess of other assets(10) – (21.4)% |
| (67,314,964 | ) | |||||
Total Net Assets – 100.0% |
| $ | 314,676,355 |
(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, 2020, the aggregate market value of these securities amounted to $115,968,605, representing 36.9% 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, 2020. |
(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, 2020, interest payments had been made in cash. |
(5) | Variable coupon rate based on weighted average interest rate of underlying mortgages. |
The accompanying notes are an integral part of these financial statements. | 15 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
(6) | The table below presents securities deemed illiquid by the investment adviser. |
Security | Principal Amount | Cost | Value | Acquisition Date | % of Fund’s Net Assets | |||||||||||||||
Commercial Mortgage Trust 2015-PC1 D | $ | 33,000 | $ | 27,725 | $ | 22,613 | 1/25/2017 | 0.01% |
(7) | Interest rate shown reflects the discount rate at time of purchase. |
(8) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||||||||
U.S. Treasury Note | 1.75% | 5/31/2022 | $ | 19,609,000 | $20,230,751 |
(9) | Securities are segregated to cover anticipated or existing derivative positions or to be announced securities (TBA). |
(10) | Liabilities in excess of other assets include net unrealized appreciation on futures contracts as follows: |
Open futures contracts at June 30, 2020:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
U.S. 2-Year Treasury Note | September 2020 | 6 | Long | $ | 1,324,479 | $ | 1,324,968 | $ | 489 | |||||||||||||||||||
U.S. Long Bond | September 2020 | 76 | Long | 13,488,067 | 13,570,750 | 82,683 | ||||||||||||||||||||||
U.S. Ultra Long Bond | September 2020 | 11 | Long | 2,345,769 | 2,399,718 | 53,949 | ||||||||||||||||||||||
Total |
| $ | 17,158,315 | $ | 17,295,436 | $ | 137,121 | |||||||||||||||||||||
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2020 | 82 | Short | $ | (12,808,052 | ) | $ | (12,944,858 | ) | $ | (136,806 | ) |
Legend:
CLO — Collateralized Loan Obligation
LIBOR — London Interbank Offered Rate
PIK — Payment–In–Kind
SOFR — Secured Overnight Financing Rate
USD — United States Dollar
The following is a summary of the inputs used as of June 30, 2020 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 | $ | — | $ | 77,631,766 | $ | — | $ | 77,631,766 | ||||||||
Asset–Backed Securities | — | 57,405,681 | — | 57,405,681 | ||||||||||||
Corporate Bonds & Notes | — | 139,276,567 | — | 139,276,567 | ||||||||||||
Municipals | — | 2,787,008 | — | 2,787,008 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 22,820,464 | — | 22,820,464 | ||||||||||||
Foreign Government | — | 8,115,530 | — | 8,115,530 | ||||||||||||
U.S. Government Securities | — | 54,120,303 | — | 54,120,303 | ||||||||||||
Repurchase Agreements | — | 19,834,000 | — | 19,834,000 | ||||||||||||
Total | $ | — | $ | 381,991,319 | $ | — | $ | 381,991,319 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts |
| |||||||||||||||
Assets | $ | 137,121 | $ | — | $ | — | $ | 137,121 | ||||||||
Liabilities | (136,806 | ) | — | — | (136,806 | ) | ||||||||||
Total | $ | 315 | $ | — | $ | — | $ | 315 |
16 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
For the Six Months Ended June 30, 2020 (unaudited) | ||||
Investment Income | ||||
Interest | $ | 5,279,949 | ||
|
| |||
Total Investment Income | 5,279,949 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 748,731 | |||
Distribution fees | 421,338 | |||
Trustees’ and officers’ fees | 71,611 | |||
Custodian and accounting fees | 49,946 | |||
Professional fees | 43,975 | |||
Administrative fees | 23,799 | |||
Shareholder reports | 18,999 | |||
Transfer agent fees | 10,093 | |||
Other expenses | 13,973 | |||
|
| |||
Total Expenses | 1,402,465 | |||
Less: Fees waived | (60,549 | ) | ||
|
| |||
Total Expenses, Net | 1,341,916 | |||
|
| |||
Net Investment Income/(Loss) | 3,938,033 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | 6,118,891 | |||
Net realized gain/(loss) from futures contracts | 1,061,104 | |||
Net change in unrealized appreciation/(depreciation) on investments | (309,139 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | 350,941 | |||
|
| |||
Net Gain on Investments and Derivative Contracts | 7,221,797 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 11,159,830 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 17 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
18 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
This Page Intentionally Left Blank
19 |
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 6/30/20 | $ | 10.78 | $ | 0.13 | $ | 0.25 | $ | 0.38 | $ | 11.16 | 3.53 | %(4) | ||||||||||||
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) |
20 | 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 | |||||||||||||||||
$ | 314,676 | 0.80% | (4) | 0.83% | (4) | 2.33% | (4) | 2.30% | (4) | 114% | (4) | |||||||||||
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. | 21 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2020 (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 21 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.
22 |
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, 2020, 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, 2020 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, 2020, 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.
23 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME 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, 2020.
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, 2020.
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
24 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
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, 2021 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). Prior to May 1, 2020, the expense limitation was 0.79%. 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $60,549.
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 amount available for potential future recoupment by Park Avenue from the Fund under the Expense Limitation Agreement and the expiration schedule at June 30, 2020 are as follows:
Potential Recoupment Amounts Expiring | ||||||||
Total Potential | 2021 | 2020 | ||||||
$370,663 | $86,166 | $ | 284,497 |
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, 2020, the Fund paid distribution fees in the amount of $421,338 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
25 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
agency obligations and other investments sold (excluding short-term investments and to be announced (TBA) securities) for the six months ended June 30, 2020, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 139,046,428 | $ | 248,809,862 | ||||
Sales | 94,676,715 | 256,150,335 |
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, 2020, Guardian Core Plus Fixed Income VIP Fund held one illiquid security.
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.
26 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
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 Conduct Authority has announced that after 2021 it will cease its active encouragement of banks to provide the quotations needed to sustain LIBOR due to the absence of an active market for interbank unsecured lending and other reasons. As a result, it is anticipated that the use of LIBOR will be phased out by the end of 2021. Regulators and industry working groups have suggested alternative reference rates, but global consensus is lacking and the process for amending existing contracts or instruments to transition away from LIBOR remains unclear. There also remains uncertainty and risk regarding the willingness and ability of issuers to include enhanced provisions in new and existing contracts or instruments. As such, the transition away from LIBOR may lead to increased volatility and illiquidity in markets that are 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, 2020 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.
27 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
As of June 30, 2020, 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 | $ | 137,121 | ||
Liability Derivatives | ||||
Futures Contracts1 | $ | (136,806 | ) |
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 Statements of Assets and Liabilities. |
Transactions in derivative investments for the six months ended June 30, 2020 were as follows:
Interest Rate Contracts | ||||
Net Realized Gain (Loss) | ||||
Futures Contracts1 | $ | 1,061,104 | ||
Net Change in Unrealized Appreciation/(Depreciation) |
| |||
Futures Contracts2 | $ | 350,941 | ||
Average Number of Notional Amounts | ||||
Futures Contracts3 | 604 |
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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Recent Accounting Pronouncement
In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): “Premium Amortization on Purchased Callable Debt Securities” (“ASU 2017-18”). ASU 2017-08 provides guidance related to the amortization period for certain purchased callable debt securities held at a premium. ASU 2017-08 is effective for annual periods, and interim periods within those annual periods, that begin after December 15, 2018. As such, the Schedule of Investments and financial statements herein have been updated to conform with ASU 2017-08. The amortized cost was reduced and unrealized appreciation of investments was increased by immaterial amounts, and had no impact on net assets or overall results of operations.
9. 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.
28 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage
each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
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.
10. 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.
29 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (iv) Lazard Asset Management LLC with respect to
Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or 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 and
30 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management
31 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
team review with the Board the economic and market environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with 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 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.
32 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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 the benefits to the Manager from increased assets under management. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity
33 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees
concluded that benefits that 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.
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.
34 |
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.
35 |
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
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Large Cap Disciplined Growth VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
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 | ||||
Shareholder Meeting Results | 16 | |||
Approval of Investment Advisory and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 22 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $582,945,953 |
Sector Allocation1 As of June 30, 2020 |
![]() |
Top Ten Holdings2 As of June 30, 2020 | ||||
Holding | % of Total Net Assets | |||
Apple, Inc. | 8.56% | |||
Amazon.com, Inc. | 7.97% | |||
Microsoft Corp. | 7.93% | |||
Facebook, Inc., Class A | 4.32% | |||
Alphabet, Inc., Class A | 4.27% | |||
MasterCard, Inc., Class A | 2.63% | |||
Adobe, Inc. | 2.56% | |||
UnitedHealth Group, Inc. | 2.47% | |||
salesforce.com, Inc. | 2.32% | |||
PayPal Holdings, Inc. | 2.06% | |||
Total | 45.09% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $ 1,000.00 | $1,082.40 | $4.50 | 0.87% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ 1,000.00 | $1,020.54 | $4.37 | 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 182/366 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.9% |
| |||||||
Aerospace & Defense – 0.8% |
| |||||||
Raytheon Technologies Corp. | 80,347 | $ | 4,950,982 | |||||
|
| |||||||
4,950,982 | ||||||||
Beverages – 2.5% |
| |||||||
Constellation Brands, Inc., Class A | 42,406 | 7,418,930 | ||||||
Monster Beverage Corp.(1) | 103,291 | 7,160,132 | ||||||
|
| |||||||
14,579,062 | ||||||||
Biotechnology – 3.6% |
| |||||||
Biogen, Inc.(1) | 10,628 | 2,843,521 | ||||||
Sarepta Therapeutics, Inc.(1) | 21,684 | 3,476,813 | ||||||
Seattle Genetics, Inc.(1) | 37,593 | 6,387,803 | ||||||
Vertex Pharmaceuticals, Inc.(1) | 29,191 | 8,474,439 | ||||||
|
| |||||||
21,182,576 | ||||||||
Building Products – 1.0% |
| |||||||
Fortune Brands Home & Security, Inc. | 87,967 | 5,623,730 | ||||||
|
| |||||||
5,623,730 | ||||||||
Capital Markets – 1.3% |
| |||||||
BlackRock, Inc. | 6,800 | 3,699,812 | ||||||
S&P Global, Inc. | 11,452 | 3,773,205 | ||||||
|
| |||||||
7,473,017 | ||||||||
Chemicals – 1.4% |
| |||||||
PPG Industries, Inc. | 44,813 | 4,752,867 | ||||||
The Sherwin-Williams Co. | 6,225 | 3,597,116 | ||||||
|
| |||||||
8,349,983 | ||||||||
Commercial Services & Supplies – 0.7% |
| |||||||
Copart, Inc.(1) | 50,605 | 4,213,878 | ||||||
|
| |||||||
4,213,878 | ||||||||
Consumer Finance – 1.1% |
| |||||||
American Express Co. | 65,496 | 6,235,219 | ||||||
|
| |||||||
6,235,219 | ||||||||
Diversified Telecommunication Services – 0.6% |
| |||||||
Verizon Communications, Inc. | 63,106 | 3,479,034 | ||||||
|
| |||||||
3,479,034 | ||||||||
Electrical Equipment – 0.8% |
| |||||||
AMETEK, Inc. | 53,878 | 4,815,077 | ||||||
|
| |||||||
4,815,077 | ||||||||
Electronic Equipment, Instruments & Components – 1.5% |
| |||||||
CDW Corp. | 34,320 | 3,987,297 | ||||||
Zebra Technologies Corp., Class A(1) | 17,465 | 4,470,167 | ||||||
|
| |||||||
8,457,464 | ||||||||
Entertainment – 1.9% |
| |||||||
Activision Blizzard, Inc. | 86,524 | 6,567,172 | ||||||
The Walt Disney Co. | 42,271 | 4,713,639 | ||||||
|
| |||||||
11,280,811 | ||||||||
Equity Real Estate Investment – 1.3% |
| |||||||
American Tower Corp. REIT | 28,646 | 7,406,137 | ||||||
|
| |||||||
7,406,137 | ||||||||
Food & Staples Retailing – 1.2% |
| |||||||
Costco Wholesale Corp. | 23,705 | 7,187,593 | ||||||
|
| |||||||
7,187,593 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Health Care Equipment & Supplies – 3.8% |
| |||||||
Baxter International, Inc. | 83,412 | $ | 7,181,773 | |||||
Becton Dickinson and Co. | 20,930 | 5,007,921 | ||||||
Edwards Lifesciences Corp.(1) | 65,395 | 4,519,449 | ||||||
Teleflex, Inc. | 14,851 | 5,405,467 | ||||||
|
| |||||||
22,114,610 | ||||||||
Health Care Providers & Services – 2.5% |
| |||||||
UnitedHealth Group, Inc. | 48,895 | 14,421,580 | ||||||
|
| |||||||
14,421,580 | ||||||||
Hotels, Restaurants & Leisure – 1.0% |
| |||||||
McDonald’s Corp. | 31,445 | 5,800,659 | ||||||
|
| |||||||
5,800,659 | ||||||||
Household Products – 2.2% |
| |||||||
Colgate-Palmolive Co. | 59,999 | 4,395,527 | ||||||
The Procter & Gamble Co. | 71,695 | 8,572,571 | ||||||
|
| |||||||
12,968,098 | ||||||||
Insurance – 0.6% |
| |||||||
The Allstate Corp. | 35,334 | 3,427,045 | ||||||
|
| |||||||
3,427,045 | ||||||||
Interactive Media & Services – 8.6% |
| |||||||
Alphabet, Inc., Class A(1) | 17,534 | 24,864,089 | ||||||
Facebook, Inc., Class A(1) | 110,990 | 25,202,499 | ||||||
|
| |||||||
50,066,588 | ||||||||
Internet & Direct Marketing Retail – 8.0% |
| |||||||
Amazon.com, Inc.(1) | 16,848 | 46,480,599 | ||||||
|
| |||||||
46,480,599 | ||||||||
IT Services – 10.0% |
| |||||||
EPAM Systems, Inc.(1) | 19,229 | 4,845,900 | ||||||
FleetCor Technologies, Inc.(1) | 25,236 | 6,347,611 | ||||||
Global Payments, Inc. | 42,373 | 7,187,308 | ||||||
GoDaddy, Inc., Class A(1) | 74,060 | 5,430,820 | ||||||
Leidos Holdings, Inc. | 36,074 | 3,379,052 | ||||||
MasterCard, Inc., Class A | 51,859 | 15,334,706 | ||||||
PayPal Holdings, Inc.(1) | 68,943 | 12,011,939 | ||||||
Square, Inc., Class A(1) | 33,484 | 3,513,811 | ||||||
|
| |||||||
58,051,147 | ||||||||
Life Sciences Tools & Services – 1.6% |
| |||||||
Thermo Fisher Scientific, Inc. | 25,671 | 9,301,630 | ||||||
|
| |||||||
9,301,630 | ||||||||
Machinery – 1.7% |
| |||||||
Illinois Tool Works, Inc. | 27,174 | 4,751,374 | ||||||
Nordson Corp. | 28,443 | 5,395,921 | ||||||
|
| |||||||
10,147,295 | ||||||||
Pharmaceuticals – 1.6% |
| |||||||
Eli Lilly & Co. | 56,898 | 9,341,514 | ||||||
|
| |||||||
9,341,514 | ||||||||
Professional Services – 0.8% |
| |||||||
Equifax, Inc. | 26,543 | 4,562,211 | ||||||
|
| |||||||
4,562,211 |
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, 2020 (unaudited) | Shares | Value | ||||||
Road & Rail – 1.1% |
| |||||||
Norfolk Southern Corp. | 21,971 | $ | 3,857,449 | |||||
Uber Technologies, Inc.(1) | 90,515 | 2,813,206 | ||||||
|
| |||||||
6,670,655 | ||||||||
Semiconductors & Semiconductor Equipment – 5.5% |
| |||||||
Advanced Micro Devices, Inc.(1) | 116,270 | 6,116,965 | ||||||
Entegris, Inc. | 84,155 | 4,969,353 | ||||||
KLA Corp. | 29,692 | 5,774,500 | ||||||
Marvell Technology Group Ltd. | 181,800 | 6,373,908 | ||||||
Micron Technology, Inc.(1) | 81,602 | 4,204,135 | ||||||
Teradyne, Inc. | 55,554 | 4,694,868 | ||||||
|
| |||||||
32,133,729 | ||||||||
Software – 17.6% |
| |||||||
Adobe, Inc.(1) | 34,286 | 14,925,039 | ||||||
DocuSign, Inc.(1) | 25,472 | 4,386,533 | ||||||
Guidewire Software, Inc.(1) | 40,114 | 4,446,637 | ||||||
Microsoft Corp. | 227,102 | 46,217,528 | ||||||
salesforce.com, Inc.(1) | 72,115 | 13,509,303 | ||||||
ServiceNow, Inc.(1) | 19,067 | 7,723,279 | ||||||
SS&C Technologies Holdings, Inc. | 70,686 | 3,992,345 | ||||||
Workday, Inc., Class A(1) | 38,608 | 7,233,595 | ||||||
|
| |||||||
102,434,259 | ||||||||
Specialty Retail – 1.5% |
| |||||||
The TJX Cos., Inc. | 177,176 | 8,958,019 | ||||||
|
| |||||||
8,958,019 | ||||||||
Technology Hardware, Storage & Peripherals – 8.6% |
| |||||||
Apple, Inc. | 136,773 | 49,894,790 | ||||||
|
| |||||||
49,894,790 | ||||||||
Textiles, Apparel & Luxury Goods – 3.5% |
| |||||||
NIKE, Inc., Class B | 84,936 | 8,327,975 | ||||||
PVH Corp. | 55,340 | 2,659,087 | ||||||
Under Armour, Inc., Class C(1) | 353,691 | 3,126,629 | ||||||
VF Corp. | 101,194 | 6,166,762 | ||||||
|
| |||||||
20,280,453 | ||||||||
Total Common Stocks (Cost $476,339,991) |
| 582,289,444 |
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investment – 0.2% |
| |||||||
Repurchase Agreements – 0.2% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $1,472,000, due 7/1/2020(2) | $ | 1,472,000 | $ | 1,472,000 | ||||
Total Repurchase Agreements (Cost $1,472,000) |
| 1,472,000 | ||||||
Total Investments – 100.1% (Cost $477,811,991) |
| 583,761,444 | ||||||
Liabilities in excess of other assets – (0.1)% |
| (815,491 | ) | |||||
Total Net Assets – 100.0% |
| $ | 582,945,953 |
(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 | 0.125% | 7/15/2024 | $ | 1,329,900 | $ | 1,501,452 |
Legend:
REIT — Real Estate Investment Trust
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2020 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 | $ | 582,289,444 | $ | — | $ | — | $ | 582,289,444 | ||||||||
Repurchase Agreements | — | 1,472,000 | — | 1,472,000 | ||||||||||||
Total | $ | 582,289,444 | $ | 1,472,000 | $ | — | $ | 583,761,444 |
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, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 2,281,640 | ||
Interest | 1,379 | |||
|
| |||
Total Investment Income | 2,283,019 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 1,559,247 | |||
Distribution fees | 705,267 | |||
Professional fees | 60,372 | |||
Trustees’ and officers’ fees | 59,240 | |||
Shareholder reports | 28,680 | |||
Administrative fees | 23,799 | |||
Custodian and accounting fees | 22,925 | |||
Transfer agent fees | 9,216 | |||
Other expenses | 23,825 | |||
|
| |||
Total Expenses | 2,492,571 | |||
Less: Fees waived | (39,936 | ) | ||
|
| |||
Net expenses before Adviser recoupment | 2,452,635 | |||
Expenses recouped by Adviser | 1,695 | |||
|
| |||
Total Expenses | 2,454,330 | |||
|
| |||
Net Investment Income/(Loss) | (171,311 | ) | ||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | 22,273,720 | |||
Net change in unrealized appreciation/(depreciation) on investments | 23,672,748 | |||
|
| |||
Net Gain on Investments | 45,946,468 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 45,775,157 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
1 | Includes in-kind subscriptions of $352,026,598. The cost basis of the contributed securities is equal to the market value of the securities on the date of the subscription. |
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
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.
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 6/30/20 | $ | 17.47 | $ | (0.01 | ) | $ | 1.45 | $ | 1.44 | $ | 18.91 | 8.24% | (4) | |||||||||||
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 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 Net Assets(3) | Gross Ratio of Net Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 582,946 | 0.87% | (4) | 0.88% | (4) | (0.06)% | (4) | (0.07)% | (4) | 11% | (4) | |||||||||||
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 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) | 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, 2020 (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 21 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, 2020, 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, 2020 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, 2020, 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, 2020, 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 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, 2021 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $39,936.
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, 2020, Park Avenue recouped previously waived or reimbursed expenses in the amount of $1,695. The amount available for potential future recoupment
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
by Park Avenue from the Fund under the Expense Limitation Agreement and the expiration schedule at June 30, 2020 are as follows:
Potential Recoupment Amounts Expiring | ||||||||
Total Potential Recoupment Amounts | 2021 | 2020 | ||||||
$171,470 | $ | 38,387 | $ | 133,083 |
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, 2020, the Fund paid distribution fees in the amount of $705,267 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 $62,129,626 and $148,197,812, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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
13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH 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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
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.
9. 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.
15 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
At a meeting held on May 14, 2020, the Board of Trustees of Guardian Variable Products Trust approved submitting the following proposal (“Proposal”) to shareholders of the Fund at a special meeting to be held on July 31, 2020 (with any postponements or adjournments, “Special Meeting”):
1. To permit Park Avenue Institutional Advisers LLC (“PAIA” or the “Manager”), under certain circumstances, to enter into and/or materially amend investment sub-advisory agreements with affiliated and unaffiliated sub-advisers without obtaining shareholder approval.
On or about June 26, 2020, shareholders of record of the Fund as of the close of business on May 22, 2020 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 31, 2020, and the Proposal passed.
The results of the Special Meeting were as follows:
Proposal 1. To permit Park Avenue Institutional Advisers LLC, under certain circumstances, to enter into and/or materially amend investment sub-advisory agreements with affiliated and unaffiliated sub-advisers on behalf of the Fund without obtaining shareholder approval:
Votes For | Votes Against | Abstentions | ||||||
27,766,206.516 | 1,741,424.527 | 2,101,586.633 |
16 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (iv) Lazard Asset Management LLC with respect to
Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or 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
17 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared to benchmark index returns. At each quarterly Board
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
meeting, members of the Manager’s funds management team review with the Board the economic and market environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with 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 each Sub-adviser was generally
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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 the benefits to the Manager from increased assets under management. The Trustees
20 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 potential increased ability to use soft dollars
consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Integrated Research VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
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 | ||||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 21 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $10,935,086 |
Sector Allocation1 As of June 30, 2020 |
![]() |
Top Ten Holdings2 As of June 30, 2020 | ||||
Holding | % of Total Net Assets | |||
Microsoft Corp. | 7.24% | |||
Amazon.com, Inc. | 5.65% | |||
Apple, Inc. | 4.99% | |||
Alphabet, Inc., Class C | 4.92% | |||
Johnson & Johnson | 2.67% | |||
MasterCard, Inc., Class A | 2.30% | |||
Adobe, Inc. | 2.25% | |||
JPMorgan Chase & Co. | 2.20% | |||
The Home Depot, Inc. | 2.10% | |||
Bank of America Corp. | 1.86% | |||
Total | 36.18% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $1,000.00 | $ | 993.00 | $ | 4.76 | 0.96% | ||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $ | 1,020.09 | $ | 4.82 | 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 182/366 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.1% |
| |||||||
Aerospace & Defense – 1.1% |
| |||||||
Northrop Grumman Corp. | 394 | $ | 121,131 | |||||
|
| |||||||
121,131 | ||||||||
Banks – 4.6% |
| |||||||
Bank of America Corp. | 8,561 | 203,324 | ||||||
JPMorgan Chase & Co. | 2,558 | 240,605 | ||||||
Popular, Inc. | 1,660 | 61,702 | ||||||
�� |
|
| ||||||
505,631 | ||||||||
Biotechnology – 3.5% |
| |||||||
AbbVie, Inc. | 1,706 | 167,495 | ||||||
Alexion Pharmaceuticals, Inc.(1) | 648 | 72,732 | ||||||
BioMarin Pharmaceutical, Inc.(1) | 709 | 87,448 | ||||||
Exact Sciences Corp.(1) | 675 | 58,684 | ||||||
|
| |||||||
386,359 | ||||||||
Building Products – 2.5% |
| |||||||
Masco Corp. | 2,866 | 143,902 | ||||||
Trane Technologies PLC | 1,407 | 125,195 | ||||||
|
| |||||||
269,097 | ||||||||
Capital Markets – 1.6% |
| |||||||
BlackRock, Inc. | 318 | 173,021 | ||||||
|
| |||||||
173,021 | ||||||||
Communications Equipment – 1.8% |
| |||||||
Cisco Systems, Inc. | 4,201 | 195,935 | ||||||
|
| |||||||
195,935 | ||||||||
Electric Utilities – 2.3% |
| |||||||
American Electric Power Co., Inc. | 1,540 | 122,646 | ||||||
FirstEnergy Corp. | 3,314 | 128,517 | ||||||
|
| |||||||
251,163 | ||||||||
Electronic Equipment, Instruments & Components – 1.1% |
| |||||||
TE Connectivity Ltd. | 1,436 | 117,106 | ||||||
|
| |||||||
117,106 | ||||||||
Entertainment – 3.0% |
| |||||||
Electronic Arts, Inc.(1) | 1,060 | 139,973 | ||||||
The Walt Disney Co. | 1,689 | 188,340 | ||||||
|
| |||||||
328,313 | ||||||||
Equity Real Estate Investment – 3.0% |
| |||||||
American Homes 4 Rent REIT, Class A | 3,035 | 81,641 | ||||||
Medical Properties Trust, Inc. REIT | 5,981 | 112,443 | ||||||
Prologis, Inc. REIT | 1,448 | 135,142 | ||||||
|
| |||||||
329,226 | ||||||||
Food & Staples Retailing – 1.5% |
| |||||||
Costco Wholesale Corp. | 544 | 164,946 | ||||||
|
| |||||||
164,946 | ||||||||
Food Products – 1.3% |
| |||||||
Mondelez International, Inc., Class A | 2,838 | 145,107 | ||||||
|
| |||||||
145,107 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Health Care Equipment & Supplies – 2.9% |
| |||||||
Abbott Laboratories | 2,055 | $ | 187,889 | |||||
Baxter International, Inc. | 1,534 | 132,077 | ||||||
|
| |||||||
319,966 | ||||||||
Health Care Providers & Services – 1.4% |
| |||||||
Cigna Corp. | 838 | 157,251 | ||||||
|
| |||||||
157,251 | ||||||||
Hotels, Restaurants & Leisure – 1.2% |
| |||||||
Darden Restaurants, Inc. | 754 | 57,130 | ||||||
Las Vegas Sands Corp. | 1,707 | 77,737 | ||||||
|
| |||||||
134,867 | ||||||||
Household Products – 1.3% |
| |||||||
Kimberly–Clark Corp. | 973 | 137,534 | ||||||
|
| |||||||
137,534 | ||||||||
Insurance – 1.3% |
| |||||||
The Allstate Corp. | 1,515 | 146,940 | ||||||
|
| |||||||
146,940 | ||||||||
Interactive Media & Services – 4.9% |
| |||||||
Alphabet, Inc., Class C(1) | 381 | 538,585 | ||||||
|
| |||||||
538,585 | ||||||||
Internet & Direct Marketing Retail – 5.6% |
| |||||||
Amazon.com, Inc.(1) | 224 | 617,976 | ||||||
|
| |||||||
617,976 | ||||||||
IT Services – 5.5% |
| |||||||
Fidelity National Information Services, Inc. | 1,361 | 182,496 | ||||||
International Business Machines Corp. | 1,413 | 170,648 | ||||||
MasterCard, Inc., Class A | 850 | 251,345 | ||||||
|
| |||||||
604,489 | ||||||||
Machinery – 2.5% |
| |||||||
Cummins, Inc. | 767 | 132,891 | ||||||
Stanley Black & Decker, Inc. | 1,001 | 139,519 | ||||||
|
| |||||||
272,410 | ||||||||
Media – 2.8% |
| |||||||
Comcast Corp., Class A | 5,206 | 202,930 | ||||||
Discovery, Inc., Class A(1) | 5,056 | 106,681 | ||||||
|
| |||||||
309,611 | ||||||||
Metals & Mining – 1.1% |
| |||||||
Barrick Gold Corp. | 4,420 | 119,075 | ||||||
|
| |||||||
119,075 | ||||||||
Multi–Utilities – 1.1% |
| |||||||
DTE Energy Co. | 1,108 | 119,110 | ||||||
|
| |||||||
119,110 | ||||||||
Multiline Retail – 1.4% |
| |||||||
Target Corp. | 1,281 | 153,630 | ||||||
|
| |||||||
153,630 | ||||||||
Oil, Gas & Consumable Fuels – 2.2% |
| |||||||
Chevron Corp. | 2,013 | 179,620 | ||||||
EOG Resources, Inc. | 1,173 | 59,424 | ||||||
|
| |||||||
239,044 |
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, 2020 (unaudited) | Shares | Value | ||||||
Pharmaceuticals – 5.4% |
| |||||||
Bristol-Myers Squibb Co. | 1,888 | $ | 111,014 | |||||
Eli Lilly and Co. | 1,136 | 186,509 | ||||||
Johnson & Johnson | 2,076 | 291,948 | ||||||
|
| |||||||
589,471 | ||||||||
Road & Rail – 2.7% | ||||||||
Norfolk Southern Corp. | 734 | 128,869 | ||||||
Union Pacific Corp. | 961 | 162,476 | ||||||
|
| |||||||
291,345 | ||||||||
Semiconductors & Semiconductor Equipment – 5.0% |
| |||||||
Broadcom, Inc. | 605 | 190,944 | ||||||
NVIDIA Corp. | 445 | 169,060 | ||||||
NXP Semiconductors N.V. | 1,018 | 116,093 | ||||||
Qorvo, Inc.(1) | 636 | 70,297 | ||||||
|
| |||||||
546,394 | ||||||||
Software – 10.8% |
| |||||||
Adobe, Inc.(1) | 565 | 245,950 | ||||||
Microsoft Corp. | 3,888 | 791,247 | ||||||
NortonLifeLock, Inc. | 7,131 | 141,408 | ||||||
|
| |||||||
1,178,605 | ||||||||
Specialty Retail – 2.1% |
| |||||||
The Home Depot, Inc. | 916 | 229,467 | ||||||
|
| |||||||
229,467 | ||||||||
Technology Hardware, Storage & Peripherals – 6.2% |
| |||||||
Apple, Inc. | 1,496 | 545,741 | ||||||
HP, Inc. | 7,293 | 127,117 | ||||||
|
| |||||||
672,858 | ||||||||
Textiles, Apparel & Luxury Goods – 1.6% |
| |||||||
NIKE, Inc., Class B | 1,733 | 169,921 | ||||||
|
| |||||||
�� | 169,921 | |||||||
Tobacco – 1.4% |
| |||||||
Philip Morris International, Inc. | 2,174 | 152,310 | ||||||
|
| |||||||
152,310 | ||||||||
Wireless Telecommunication Services – 1.4% |
| |||||||
T-Mobile U.S., Inc.(1) | 1,439 | 149,872 | ||||||
|
| |||||||
149,872 | ||||||||
Total Common Stocks (Cost $9,318,329) |
| 10,837,766 |
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investment – 1.2% |
| |||||||
Repurchase Agreements – 1.2% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $131,000, due 7/1/2020(2) | $ | 131,000 | $ | 131,000 | ||||
Total Repurchase Agreements (Cost $131,000) |
| 131,000 | ||||||
Total Investments – 100.3% (Cost $9,449,329) |
| 10,968,766 | ||||||
Liabilities in excess of other assets – (0.3)% |
| (33,680 | ) | |||||
Total Net Assets – 100.0% |
| $ | 10,935,086 |
(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 | 0.125% | 7/15/2024 | $ | 118,400 | $ | 133,673 |
Legend:
REIT — Real Estate Investment Trust
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2020 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 | $ | 10,837,766 | $ | — | $ | — | $ | 10,837,766 | ||||||||
Repurchase Agreements | — | 131,000 | — | 131,000 | ||||||||||||
Total | $ | 10,837,766 | $ | 131,000 | $ | — | $ | 10,968,766 |
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, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 164,670 | ||
Interest | 135 | |||
Withholding taxes on foreign dividends | (360 | ) | ||
|
| |||
Total Investment Income | 164,445 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 29,284 | |||
Custodian and accounting fees | 24,245 | |||
Administrative fees | 23,799 | |||
Professional fees | 14,804 | |||
Distribution fees | 13,311 | |||
Shareholder reports | 6,172 | |||
Transfer agent fees | 6,156 | |||
Trustees’ and officers’ fees | 3,159 | |||
Other expenses | 601 | |||
|
| |||
Total Expenses | 121,531 | |||
Less: Fees waived | (70,417 | ) | ||
|
| |||
Total Expenses, Net | 51,114 | |||
|
| |||
Net Investment Income/(Loss) | 113,331 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | (59,111 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (111,345 | ) | ||
|
| |||
Net Loss on Investments | (170,456 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (57,125 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN INTEGRATED RESEARCH VIP FUND
Statements of Changes in Net Assets Six Months Ended Numbers are unaudited | ||||||||
For the Six Months Ended 6/30/20 | For the Year Ended 12/31/19 | |||||||
|
| |||||||
Operations |
| |||||||
Net investment income/(loss) | $ | 113,331 | $ | 120,059 | ||||
Net realized gain/(loss) from investments | (59,111 | ) | 932,990 | |||||
Net change in unrealized appreciation/(depreciation) on investments | (111,345 | ) | 1,577,603 | |||||
|
|
|
| |||||
Net Increase/(Decrease) in Net Assets Resulting from Operations | (57,125 | ) | 2,630,652 | |||||
|
|
|
| |||||
Capital Share Transactions |
| |||||||
Proceeds from sales of shares | 42,962 | 403,248 | ||||||
Cost of shares redeemed | (903,133 | ) | (995,721 | ) | ||||
|
|
|
| |||||
Net Decrease in Net Assets Resulting from Capital Share Transactions | (860,171 | ) | (592,473 | ) | ||||
|
|
|
| |||||
Net Increase/(Decrease) in Net Assets | (917,296 | ) | 2,038,179 | |||||
|
|
|
| |||||
Net Assets |
| |||||||
Beginning of period | 11,852,382 | 9,814,203 | ||||||
|
|
|
| |||||
End of period | $ | 10,935,086 | $ | 11,852,382 | ||||
|
|
|
| |||||
Other Information: |
| |||||||
Shares | ||||||||
Sold | 3,186 | 32,023 | ||||||
Redeemed | (62,180 | ) | (75,608 | ) | ||||
|
|
|
| |||||
Net Decrease | (58,994 | ) | (43,585 | ) | ||||
|
|
|
| |||||
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
This Page Intentionally Left Blank
7 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN INTEGRATED RESEARCH VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past 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 6/30/20 | $ | 14.31 | $ | 0.14 | $ | (0.24 | ) | $ | (0.10 | ) | $ | 14.21 | (0.70)% | (4) | ||||||||||
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(5) | 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 Investment Income/(Loss) to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 10,935 | 0.96% | (4) | 2.28% | (4) | 2.13% | (4) | 0.81% | (4) | 30% | (4) | |||||||||||
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) | 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, 2020 (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 21 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.
Various inputs are used in determining the valuation of the Fund’s investments. These inputs are summarized in three broad levels listed below.
10 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
• | 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, 2020, 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, 2020 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, 2020, 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, 2020, 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.
c. Foreign Currency Translation The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities
11 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
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, 2021 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $70,417.
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 the Fund under the Expense Limitation Agreement and the expiration schedule at June 30, 2020 are as follows:
Potential Recoupment Amounts Expiring | ||||||||||||||||
Total Potential Recoupment Amounts | 2023 | 2022 | 2021 | 2020 | ||||||||||||
$577,431 | $ | 70,417 | $ | 149,391 | $ | 162,831 | $ | 194,792 |
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
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 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, 2020, the Fund paid distribution fees in the amount of $13,311 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 $3,133,015 and $3,802,551, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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
13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
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.
9. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
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.
15 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund,
(iv) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or 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
16 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared to benchmark index returns. At each quarterly Board
17 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
meeting, members of the Manager’s funds management team review with the Board the economic and market environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with 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 each Sub-adviser was generally satisfactory, or, that any steps being taken by the
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Manager and Sub-advisers to address any performance issues were satisfactory.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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 the benefits to the Manager from increased assets under management. The Trustees
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 potential increased ability to use soft dollars
consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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.
20 |
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.
21 |
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
PUB8170
Table of Contents
Guardian Variable
Products Trust
2020
Semiannual Report
All Data as of June 30, 2020
Guardian International Value VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
TABLE OF CONTENTS
Guardian International Value 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 | ||||
Approval of Investment Advisory and Sub-advisory Agreements | 18 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $202,911,094 |
Geographic Region Allocation1 As of June 30, 2020 |
![]() |
Sector Allocation2 As of June 30, 2020 |
![]() |
1 |
Table of Contents
GUARDIAN INTERNATIONAL VALUE VIP FUND
Top Ten Holdings1 As of June 30, 2020 | ||||||
Holding | Country | % of Total Net Assets | ||||
Novartis AG (Reg S) | Switzerland | 3.93% | ||||
SAP SE | Germany | 3.75% | ||||
Sanofi | France | 3.22% | ||||
Medtronic PLC | Ireland | 2.86% | ||||
RELX PLC | United Kingdom | 2.77% | ||||
Vivendi S.A. | France | 2.74% | ||||
Engie S.A. | France | 2.67% | ||||
Nexon Co. Ltd. | Japan | 2.37% | ||||
Enel S.p.A. | Italy | 2.36% | ||||
Nintendo Co. Ltd. | Japan | 2.35% | ||||
Total | 29.02% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $ 1,000.00 | $ 875.70 | $4.52 | 0.97% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ 1,000.00 | $1,020.04 | $4.87 | 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 182/366 (to reflect the one-half year period). |
3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 95.7% |
| |||||||
Canada – 3.7% |
| |||||||
Canadian National Railway Co. | 27,790 | $ | 2,458,645 | |||||
Suncor Energy, Inc. | 159,931 | 2,696,539 | ||||||
TMX Group Ltd. | 24,428 | 2,415,270 | ||||||
|
| |||||||
7,570,454 | ||||||||
Cayman Islands – 1.6% |
| |||||||
ENN Energy Holdings Ltd. | 152,700 | 1,714,999 | ||||||
ESR Cayman Ltd.(1)(2) | 663,600 | 1,574,271 | ||||||
|
| |||||||
3,289,270 | ||||||||
China – 1.6% |
| |||||||
Ping An Insurance Group Co. of China Ltd., Class H | 317,000 | 3,165,897 | ||||||
|
| |||||||
3,165,897 | ||||||||
Denmark – 2.4% |
| |||||||
Carlsberg A/S, Class B | 23,932 | 3,161,416 | ||||||
Vestas Wind Systems A/S | 16,306 | 1,659,219 | ||||||
|
| |||||||
4,820,635 | ||||||||
Finland – 2.3% |
| |||||||
Nordea Bank Abp(2) | 336,014 | 2,315,775 | ||||||
Sampo OYJ, Class A | 67,808 | 2,329,621 | ||||||
|
| |||||||
4,645,396 | ||||||||
France – 15.2% |
| |||||||
Air Liquide S.A. | 27,695 | 3,990,541 | ||||||
Alstom S.A. | 42,443 | 1,971,393 | ||||||
BNP Paribas S.A.(2) | 40,196 | 1,593,493 | ||||||
Engie S.A.(2) | 438,206 | 5,408,916 | ||||||
Safran S.A.(2) | 35,977 | 3,598,860 | ||||||
Sanofi | 64,318 | 6,543,650 | ||||||
Vinci S.A. | 24,525 | 2,255,288 | ||||||
Vivendi S.A. | 217,133 | 5,565,372 | ||||||
|
| |||||||
30,927,513 | ||||||||
Germany – 7.8% |
| |||||||
Fresenius Medical Care AG & Co. KGaA(2) | 30,524 | 2,602,404 | ||||||
Infineon Technologies AG | 76,694 | 1,792,591 | ||||||
Merck KGaA | 12,837 | 1,488,187 | ||||||
SAP SE | 54,678 | 7,610,932 | ||||||
Vonovia SE | 39,577 | 2,424,361 | ||||||
|
| |||||||
15,918,475 | ||||||||
Indonesia – 0.3% |
| |||||||
Bank Mandiri Persero Tbk PT | 2,011,800 | 697,701 | ||||||
|
| |||||||
697,701 | ||||||||
Ireland – 5.7% |
| |||||||
Aon PLC, Class A | 21,079 | 4,059,816 | ||||||
Medtronic PLC | 63,194 | 5,794,890 | ||||||
Ryanair Holdings PLC, ADR(2) | 25,054 | 1,662,082 | ||||||
|
| |||||||
11,516,788 | ||||||||
Israel – 1.1% |
| |||||||
Bank Leumi Le-Israel BM | 429,907 | 2,166,205 | ||||||
|
| |||||||
2,166,205 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Italy – 2.4% |
| |||||||
Enel S.p.A. | 555,388 | $ | 4,784,762 | |||||
|
| |||||||
4,784,762 | ||||||||
Japan – 13.9% |
| |||||||
Daiwa House Industry Co. Ltd. | 128,412 | 3,028,679 | ||||||
Hitachi Ltd. | 113,500 | 3,583,131 | ||||||
Kao Corp. | 36,030 | 2,852,397 | ||||||
Makita Corp. | 76,800 | 2,789,145 | ||||||
Nexon Co. Ltd. | 213,400 | 4,819,794 | ||||||
Nintendo Co. Ltd. | 10,700 | 4,761,125 | ||||||
Sumitomo Mitsui Financial Group, Inc. | 98,100 | 2,758,881 | ||||||
Suzuki Motor Corp. | 48,800 | 1,655,790 | ||||||
Yamaha Corp. | 43,000 | 2,023,040 | ||||||
|
| |||||||
28,271,982 | ||||||||
Luxembourg – 0.7% |
| |||||||
ArcelorMittal S.A.(2) | 125,353 | 1,316,226 | ||||||
|
| |||||||
1,316,226 | ||||||||
Mexico – 0.6% |
| |||||||
Arca Continental S.A.B. de C.V. | 275,400 | 1,208,983 | ||||||
|
| |||||||
1,208,983 | ||||||||
Netherlands – 4.1% |
| |||||||
JDE Peet’s B.V.(2) | 41,093 | 1,665,740 | ||||||
Koninklijke DSM N.V. | 29,390 | 4,062,371 | ||||||
Wolters Kluwer N.V. | 34,288 | 2,674,818 | ||||||
|
| |||||||
8,402,929 | ||||||||
Norway – 2.4% |
| |||||||
Equinor ASA | 145,214 | 2,065,126 | ||||||
Telenor ASA | 186,739 | 2,720,506 | ||||||
|
| |||||||
4,785,632 | ||||||||
Portugal – 1.4% |
| |||||||
EDP–Energias de Portugal S.A. | 428,223 | 2,042,242 | ||||||
Galp Energia SGPS S.A. | 68,701 | 793,601 | ||||||
|
| |||||||
2,835,843 | ||||||||
Republic of Korea – 1.4% |
| |||||||
Samsung Electronics Co. Ltd. | 66,109 | 2,930,554 | ||||||
|
| |||||||
2,930,554 | ||||||||
Singapore – 1.7% |
| |||||||
DBS Group Holdings Ltd. | 138,880 | 2,077,440 | ||||||
NetLink NBN Trust | 1,912,200 | 1,338,824 | ||||||
|
| |||||||
3,416,264 | ||||||||
Spain – 1.2% |
| |||||||
Banco Santander S.A.(2) | 981,770 | 2,394,054 | ||||||
|
| |||||||
2,394,054 | ||||||||
Sweden – 2.6% |
| |||||||
Assa Abloy AB, Class B | 133,000 | 2,700,459 | ||||||
Epiroc AB, Class A | 208,290 | 2,591,636 | ||||||
|
| |||||||
5,292,095 | ||||||||
Switzerland – 7.2% |
| |||||||
ABB Ltd. (Reg S) | 201,491 | 4,529,026 | ||||||
Novartis AG (Reg S) | 91,802 | 7,976,736 |
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, 2020 (unaudited) | Shares | Value | ||||||
Switzerland (continued) |
| |||||||
Roche Holding AG | 5,895 | $ | 2,041,035 | |||||
|
| |||||||
14,546,797 | ||||||||
United Kingdom – 14.4% |
| |||||||
BHP Group PLC | 130,091 | 2,670,725 | ||||||
Compass Group PLC | 144,969 | 1,994,356 | ||||||
Ferguson PLC | 31,712 | 2,594,199 | ||||||
Howden Joinery Group PLC | 162,718 | 1,113,214 | ||||||
Informa PLC | 386,879 | 2,250,990 | ||||||
Network International Holdings PLC(1)(2) | 154,322 | 842,095 | ||||||
Prudential PLC | 198,399 | 2,987,823 | ||||||
RELX PLC | 242,542 | 5,613,701 | ||||||
RSA Insurance Group PLC | 305,230 | 1,547,289 | ||||||
Tesco PLC | 1,321,484 | 3,731,276 | ||||||
Unilever PLC | 73,441 | 3,959,759 | ||||||
|
| |||||||
29,305,427 | ||||||||
Total Common Stocks (Cost $198,335,657) |
| 194,209,882 | ||||||
| Shares | Value | ||||||
Preferred Stocks – 2.3% |
| |||||||
Germany – 2.3% |
| |||||||
Volkswagen AG, 3.00% | 30,134 | 4,557,109 | ||||||
|
| |||||||
4,557,109 | ||||||||
Total Preferred Stocks (Cost $5,429,139) |
| 4,557,109 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investment – 1.9% |
| |||||||
Repurchase Agreements – 1.9% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $3,876,000, due 7/1/2020(3) | $ | 3,876,000 | $ | 3,876,000 | ||||
Total Repurchase Agreements (Cost $3,876,000) |
| 3,876,000 | ||||||
Total Investments – 99.9% (Cost $207,640,796) |
| 202,642,991 | ||||||
Assets in excess of other liabilities – 0.1% |
| 268,103 | ||||||
Total Net Assets – 100.0% |
| $ | 202,911,094 |
(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, 2020, the aggregate market value of these securities amounted to $2,416,366, 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. |
(2) | Non–income–producing security. |
(3) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.125% | 7/15/2024 | $ | 3,501,900 | $ | 3,953,630 |
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, 2020 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 | $ | 7,570,454 | $ | — | $ | — | $ | 7,570,454 | ||||||||
Cayman Islands | — | 3,289,270 | * | — | 3,289,270 | |||||||||||
China | — | 3,165,897 | * | — | 3,165,897 | |||||||||||
Denmark | — | 4,820,635 | * | — | 4,820,635 | |||||||||||
Finland | — | 4,645,396 | * | — | 4,645,396 | |||||||||||
France | — | 30,927,513 | * | — | 30,927,513 | |||||||||||
Germany | — | 15,918,475 | * | — | 15,918,475 | |||||||||||
Indonesia | — | 697,701 | * | — | 697,701 | |||||||||||
Ireland | 11,516,788 | — | — | 11,516,788 | ||||||||||||
Israel | — | 2,166,205 | * | — | 2,166,205 | |||||||||||
Italy | — | 4,784,762 | * | — | 4,784,762 | |||||||||||
Japan | — | 28,271,982 | * | — | 28,271,982 | |||||||||||
Luxembourg | — | 1,316,226 | * | — | 1,316,226 | |||||||||||
Mexico | 1,208,983 | — | — | 1,208,983 | ||||||||||||
Netherlands | 1,665,740 | 6,737,189 | * | — | 8,402,929 | |||||||||||
Norway | — | 4,785,632 | * | — | 4,785,632 | |||||||||||
Portugal | — | 2,835,843 | * | — | 2,835,843 | |||||||||||
Republic of Korea | — | 2,930,554 | * | — | 2,930,554 | |||||||||||
Singapore | — | 3,416,264 | * | — | 3,416,264 | |||||||||||
Spain | — | 2,394,054 | * | — | 2,394,054 | |||||||||||
Sweden | — | 5,292,095 | * | — | 5,292,095 | |||||||||||
Switzerland | — | 14,546,797 | * | — | 14,546,797 | |||||||||||
United Kingdom | — | 29,305,427 | * | — | 29,305,427 | |||||||||||
Preferred Stocks |
| |||||||||||||||
Germany | — | 4,557,109 | * | — | 4,557,109 | |||||||||||
Repurchase Agreements | — | 3,876,000 | — | 3,876,000 | ||||||||||||
Total | $ | 21,961,965 | $ | 180,681,026 | $ | — | $ | 202,642,991 |
* | 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. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL VALUE VIP FUND
For the Six Months Ended June 30, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 3,127,423 | ||
Interest | 713 | |||
Withholding taxes on foreign dividends | (370,583 | ) | ||
|
| |||
Total Investment Income | 2,757,553 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 751,843 | |||
Distribution fees | 242,327 | |||
Trustees’ and officers’ fees | 44,422 | |||
Custodian and accounting fees | 42,870 | |||
Professional fees | 31,910 | |||
Administrative fees | 23,799 | |||
Shareholder reports | 13,695 | |||
Transfer agent fees | 8,958 | |||
Other expenses | 8,793 | |||
|
| |||
Total Expenses | 1,168,617 | |||
Less: Fees waived | (231,215 | ) | ||
|
| |||
Total Expenses, Net | 937,402 | |||
|
| |||
Net Investment Income/(Loss) | 1,820,151 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | (7,765,502 | ) | ||
Net realized gain/(loss) from foreign currency transactions | (13,256 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (19,990,583 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | 7,441 | |||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (27,761,900 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (25,941,749) | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL VALUE VIP FUND
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
This Page Intentionally Left Blank
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, | Net Investment Income(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/20 | $ | 12.15 | $ | 0.10 | $ | (1.61 | ) | $ | (1.51 | ) | $ | 10.64 | (12.43)% | (4) | ||||||||||
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. |
Table of Contents
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 | |||||||||||||||||
$ | 202,911 | 0.97% | (4) | 1.21% | (4) | 1.87% | (4) | 1.63% | (4) | 18% | (4) | |||||||||||
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 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
June 30, 2020 (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 21 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.
12 |
Table of Contents
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, 2020, 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, 2020 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, 2020, 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, 2020, 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.
13 |
Table of Contents
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, 2021 to waive certain fees and/or reimburse certain expenses incurred by the Fund to the extent necessary to limit the Fund’s total annual operating expenses after fee waiver and/or expense reimbursement to 1.02% of the Fund’s average daily net assets (excluding, if applicable, any acquired fund fees and expenses, taxes, interest, transaction costs and brokerage commissions, litigation and extraordinary expenses). Prior to May 1, 2020, the expense limitation was 0.94%. 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
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
the six months ended June 30, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $231,215.
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 amount available for potential future recoupment by Park Avenue from the Fund under the Expense Limitation Agreement and the expiration schedule at June 30, 2020 are as follows:
Potential Recoupment Amounts Expiring | ||||||||
Total Potential Recoupment Amounts | 2021 | 2020 | ||||||
$298,992 | $ | 58,226 | $ | 240,766 |
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, 2020, the Fund paid distribution fees in the amount of $242,327 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 $45,050,793 and $35,468,442, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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
15 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
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 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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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 24-25, 2020, the Board received a report (the “Report”) prepared by
16 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL VALUE VIP FUND
the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
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.
9. 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.
17 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund,
(iv) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer
group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds.
20 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
The Board concluded that the investment performance generated by 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.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative
information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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
21 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered the benefits to the Manager from increased assets under management. 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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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.
22 |
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.
23 |
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
PUB8172
Table of Contents
Guardian Variable
Products Trust
2020
Semiannual Report
All Data as of June 30, 2020
Guardian International Growth VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
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 | ||||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 21 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
Table of Contents
Table of Contents
GUARDIAN INTERNATIONAL GROWTH VIP FUND
Top Ten Holdings1 As of June 30, 2020 | ||||||
Holding | Country | % of Total Net Assets | ||||
Nestle S.A. (Reg S) | Switzerland | 6.02% | ||||
Roche Holding AG | Switzerland | 4.49% | ||||
ASML Holding N.V. | Netherlands | 3.88% | ||||
LVMH Moet Hennessy Louis Vuitton SE | France | 3.04% | ||||
SAP SE | Germany | 3.02% | ||||
Novo Nordisk A/S, Class B | Denmark | 2.91% | ||||
AIA Group Ltd. | Hong Kong | 2.74% | ||||
Keyence Corp. | Japan | 2.54% | ||||
L’Oreal S.A. | France | 2.50% | ||||
Diageo PLC | United Kingdom | 2.38% | ||||
Total | 33.52% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20 - 6/30/20 | Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||
Based on Actual Return | $1,000.00 | $1,031.00 | $5.96 | 1.18% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.00 | $5.92 | 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 182/366 (to reflect the one-half year period). |
3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.1% |
| |||||||
Australia – 3.2% |
| |||||||
CSL Ltd. | 14,554 | $ | 2,885,375 | |||||
IDP Education Ltd. | 148,436 | 1,594,190 | ||||||
|
| |||||||
4,479,565 | ||||||||
Cayman Islands – 4.7% |
| |||||||
Alibaba Group Holding Ltd., ADR(1) | 8,493 | 1,831,940 | ||||||
Sea Ltd., ADR(1) | 20,574 | 2,206,356 | ||||||
Tencent Holdings Ltd. | 39,500 | 2,537,235 | ||||||
|
| |||||||
6,575,531 | ||||||||
China – 1.1% |
| |||||||
Ping An Insurance Group Co. of China Ltd., Class H | 146,000 | 1,458,110 | ||||||
|
| |||||||
1,458,110 | ||||||||
Denmark – 5.9% |
| |||||||
Genmab A/S(1) | 6,028 | 2,016,494 | ||||||
Novo Nordisk A/S, Class B | 62,786 | 4,062,956 | ||||||
Orsted A/S(2) | 19,195 | 2,213,755 | ||||||
|
| |||||||
8,293,205 | ||||||||
Finland – 1.5% |
| |||||||
Kone OYJ, Class B | 30,851 | 2,119,980 | ||||||
|
| |||||||
2,119,980 | ||||||||
France – 7.4% |
| |||||||
L’Oreal S.A.(1) | 10,877 | 3,487,057 | ||||||
LVMH Moet Hennessy Louis Vuitton SE | 9,692 | 4,245,084 | ||||||
Safran S.A.(1) | 26,448 | 2,645,653 | ||||||
|
| |||||||
10,377,794 | ||||||||
Germany – 16.1% |
| |||||||
adidas AG(1) | 9,787 | 2,560,471 | ||||||
Beiersdorf AG | 18,648 | 2,115,706 | ||||||
Delivery Hero SE(1)(2) | 26,293 | 2,678,919 | ||||||
Deutsche Boerse AG | 13,115 | 2,370,522 | ||||||
Muenchener Rueckversicherungs-Gesellschaft AG in Muenchen (Reg S) | 7,457 | 1,935,279 | ||||||
SAP SE | 30,283 | 4,215,257 | ||||||
Sartorius AG | 2,865 | 941,228 | ||||||
Symrise AG | 16,616 | 1,927,782 | ||||||
Vonovia SE | 29,964 | 1,835,500 | ||||||
Zalando SE(1)(2) | 27,897 | 1,961,963 | ||||||
|
| |||||||
22,542,627 | ||||||||
Hong Kong – 5.0% |
| |||||||
AIA Group Ltd. | 411,000 | 3,825,205 | ||||||
Hong Kong Exchanges & Clearing Ltd. | 74,100 | 3,158,045 | ||||||
|
| |||||||
6,983,250 | ||||||||
India – 1.0% |
| |||||||
HDFC Bank Ltd., ADR | 30,080 | 1,367,437 | ||||||
|
| |||||||
1,367,437 | ||||||||
Ireland – 1.5% |
| |||||||
Linde PLC | 9,572 | 2,014,787 | ||||||
|
| |||||||
2,014,787 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Japan – 13.5% |
| |||||||
Daikin Industries Ltd. | 17,200 | $ | 2,765,866 | |||||
Hoya Corp. | 26,600 | 2,547,348 | ||||||
Kao Corp. | 31,000 | 2,454,186 | ||||||
Keyence Corp. | 8,500 | 3,548,939 | ||||||
Shimano, Inc. | 10,000 | 1,923,311 | ||||||
SMC Corp. | 5,000 | 2,552,002 | ||||||
Sony Corp. | 44,400 | 3,040,571 | ||||||
|
| |||||||
18,832,223 | ||||||||
Luxembourg — 1.7% | ||||||||
Spotify Technology S.A.(1) | 9,285 | 2,397,294 | ||||||
|
| |||||||
2,397,294 | ||||||||
Netherlands — 6.5% | ||||||||
Adyen N.V.(1)(2) | 1,600 | 2,331,023 | ||||||
Argenx SE(1) | 6,183 | 1,378,085 | ||||||
ASML Holding N.V. | 14,766 | 5,412,894 | ||||||
|
| |||||||
9,122,002 | ||||||||
Spain — 0.7% | ||||||||
Cellnex Telecom S.A.(2) | 16,519 | 1,005,396 | ||||||
|
| |||||||
1,005,396 | ||||||||
Sweden — 3.2% | ||||||||
Assa Abloy AB, Class B | 94,021 | 1,909,021 | ||||||
Atlas Copco AB, Class A | 59,983 | 2,536,446 | ||||||
|
| |||||||
4,445,467 | ||||||||
Switzerland — 14.0% | ||||||||
Lonza Group AG (Reg S) | 5,895 | 3,108,398 | ||||||
Nestle S.A. (Reg S) | 76,157 | 8,413,459 | ||||||
Partners Group Holding AG | 1,912 | 1,731,413 | ||||||
Roche Holding AG | 18,120 | 6,273,716 | ||||||
|
| |||||||
19,526,986 | ||||||||
Taiwan — 1.3% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 31,199 | 1,771,167 | ||||||
|
| |||||||
1,771,167 | ||||||||
United Kingdom — 10.8% | ||||||||
Burberry Group PLC | 59,470 | 1,176,831 | ||||||
Diageo PLC | 100,331 | 3,330,383 | ||||||
InterContinental Hotels Group PLC | 37,086 | 1,643,779 | ||||||
Intertek Group PLC | 30,964 | 2,084,410 | ||||||
London Stock Exchange Group PLC | 26,499 | 2,741,160 | ||||||
RELX PLC | 99,064 | 2,289,679 | ||||||
Smith & Nephew PLC | 99,418 | 1,852,131 | ||||||
|
| |||||||
15,118,373 | ||||||||
Total Common Stocks (Cost $108,689,714) | 138,431,194 |
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investment – 1.5% |
| |||||||
Repurchase Agreements – 1.5% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $ 2,080,000 , due 7/1/2020(3) | $ | 2,080,000 | $ | 2,080,000 | ||||
Total Repurchase Agreements (Cost $2,080,000) |
| 2,080,000 | ||||||
Total Investments – 100.6% (Cost $110,769,714) | 140,511,194 | |||||||
Liabilities in excess of other assets – (0.6)% |
| (856,454 | ) | |||||
Total Net Assets – 100.0% |
| $ | 139,654,740 |
(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, 2020, the aggregate market value of these securities amounted to $10,191,056, representing 7.3% 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) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.125% | 7/15/2024 | $ | 1,879,200 | $ | 2,121,609 |
Legend:
ADR — American Depositary Receipt
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2020 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 | $ | — | $ | 4,479,565 | * | $ | — | $ | 4,479,565 | |||||||
Cayman Islands | 4,038,296 | 2,537,235 | * | — | 6,575,531 | |||||||||||
China | — | 1,458,110 | * | — | 1,458,110 | |||||||||||
Denmark | — | 8,293,205 | * | — | 8,293,205 | |||||||||||
Finland | — | 2,119,980 | * | — | 2,119,980 | |||||||||||
France | — | 10,377,794 | * | — | 10,377,794 | |||||||||||
Germany | — | 22,542,627 | * | — | 22,542,627 | |||||||||||
Hong Kong | — | 6,983,250 | * | — | 6,983,250 | |||||||||||
India | 1,367,437 | — | — | 1,367,437 | ||||||||||||
Ireland | — | 2,014,787 | * | — | 2,014,787 | |||||||||||
Japan | — | 18,832,223 | * | — | 18,832,223 | |||||||||||
Luxembourg | 2,397,294 | — | — | 2,397,294 | ||||||||||||
Netherlands | — | 9,122,002 | * | — | 9,122,002 | |||||||||||
Spain | — | 1,005,396 | * | — | 1,005,396 | |||||||||||
Sweden | — | 4,445,467 | * | — | 4,445,467 | |||||||||||
Switzerland | — | 19,526,986 | * | — | 19,526,986 | |||||||||||
Taiwan | 1,771,167 | — | — | 1,771,167 | ||||||||||||
United Kingdom | — | 15,118,373 | * | — | 15,118,373 | |||||||||||
Repurchase Agreements | — | 2,080,000 | — | 2,080,000 | ||||||||||||
Total | $ | 9,574,194 | $ | 130,937,000 | $ | — | $ | 140,511,194 |
* | 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, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,264,353 | ||
Interest | 218 | |||
Withholding taxes on foreign dividends | (147,611 | ) | ||
|
| |||
Total Investment Income | 1,116,960 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 520,739 | |||
Distribution fees | 165,292 | |||
Custodian and accounting fees | 49,263 | |||
Trustees’ and officers’ fees | 28,139 | |||
Professional fees | 25,705 | |||
Administrative fees | 23,799 | |||
Shareholder reports | 11,023 | |||
Transfer agent fees | 7,749 | |||
Other expenses | 5,721 | |||
|
| |||
Total Expenses | 837,430 | |||
|
| |||
Less: Fees waived | (57,252 | ) | ||
|
| |||
Total Expenses, Net | 780,178 | |||
|
| |||
Net Investment Income/(Loss) | 336,782 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | (1,452,574 | ) | ||
Net realized gain/(loss) from foreign currency transactions | 7,145 | |||
Net change in unrealized appreciation/(depreciation) on investments | 4,751,889 | |||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | 6,711 | |||
|
| |||
Net Gain on Investments and Foreign Currency Transactions | 3,313,171 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 3,649,953 | ||
|
| |||
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.
Financial Highlights Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Income/(Loss)(1) | Net Realized | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/20 | $ | 13.53 | $ | 0.03 | $ | 0.39 | $ | 0.42 | $ | 13.95 | 3.10% | (4) | ||||||||||||
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(5) | 10.00 | (0.00 | )(6) | (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 Average Net Assets(3) | Gross Ratio of Average Net Assets | Net Ratio of Net (Loss) to Average | Gross Ratio of Net (Loss) to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 139,655 | 1.18% | (4) | 1.27% | (4) | 0.51% | (4) | 0.42% | (4) | 17% | (4) | |||||||||||
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) | 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 INTERNATIONAL GROWTH VIP FUND
June 30, 2020 (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 21 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, 2020, 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, 2020 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, 2020, 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, 2020, 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, 2021 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $57,252.
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL GROWTH 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 amount available for potential future recoupment by Park Avenue from the Fund under the Expense Limitation Agreement and the expiration schedule at June 30, 2020 are as follows:
Potential Recoupment Amounts Expiring | ||||||||
Total Potential Recoupment Amounts | 2021 | 2020 | ||||||
$223,235 | $ | 48,645 | $ | 174,590 |
Park Avenue has entered into a Sub-Advisory Agreement with J.P. Morgan Investment Management Inc. (“JPMIM”). JPMIM 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, 2020, the Fund paid distribution fees in the amount of $165,292 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 $22,706,009 and $32,468,006, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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
13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral (although it may be prevented or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.
6. Temporary Borrowings
The Fund, with other funds managed by Park Avenue, is party to a $10 million committed revolving credit facility from State Street Bank and Trust Company for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the higher of the 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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
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.
9. 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.
15 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund,
(iv) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or 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
16 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared to benchmark index returns. At each quarterly Board
17 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
meeting, members of the Manager’s funds management team review with the Board the economic and market environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with 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 each Sub-adviser was generally satisfactory, or, that any steps being taken by the
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Manager and Sub-advisers to address any performance issues were satisfactory.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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 the benefits to the Manager from
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
increased assets under management. 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 potential increased ability to use soft dollars
consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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.
20 |
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.
21 |
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
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Mid Cap Traditional Growth VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
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 | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 21 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $114,913,225
Sector Allocation1 As of June 30, 2020 |
![]() |
Top Ten Holdings2 As of June 30, 2020 | ||||
Holding | % of Total Net Assets | |||
Constellation Software, Inc. | 3.23% | |||
Microchip Technology, Inc. | 2.74% | |||
Nice Ltd., ADR | 2.51% | |||
SS&C Technologies Holdings, Inc. | 2.40% | |||
PerkinElmer, Inc. | 2.36% | |||
Aon PLC, Class A | 2.33% | |||
WEX, Inc. | 2.27% | |||
Broadridge Financial Solutions, Inc. | 2.26% | |||
LPL Financial Holdings, Inc. | 2.24% | |||
Global Payments, Inc. | 2.11% | |||
Total | 24.45% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $1,000.00 | $ 918.00 | $5.25 | 1.10% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.39 | $5.52 | 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 182/366 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 96.6% |
| |||||||
Aerospace & Defense – 2.5% |
| |||||||
L3Harris Technologies, Inc. | 8,688 | $ | 1,474,093 | |||||
Teledyne Technologies, Inc.(1) | 4,618 | 1,435,967 | ||||||
|
| |||||||
2,910,060 | ||||||||
Airlines – 0.7% |
| |||||||
Ryanair Holdings PLC, ADR(1) | 12,866 | 853,530 | ||||||
|
| |||||||
853,530 | ||||||||
Auto Components – 0.4% |
| |||||||
Visteon Corp.(1) | 7,294 | 499,639 | ||||||
|
| |||||||
499,639 | ||||||||
Banks – 0.6% |
| |||||||
SVB Financial Group(1) | 3,300 | 711,249 | ||||||
|
| |||||||
711,249 | ||||||||
Biotechnology – 1.4% |
| |||||||
Ascendis Pharma A/S, ADR(1) | 1,978 | 292,546 | ||||||
Neurocrine Biosciences, Inc.(1) | 4,795 | 584,990 | ||||||
Sarepta Therapeutics, Inc.(1) | 4,635 | 743,176 | ||||||
|
| |||||||
1,620,712 | ||||||||
Capital Markets – 4.1% |
| |||||||
Cboe Global Markets, Inc. | 8,561 | 798,570 | ||||||
LPL Financial Holdings, Inc. | 32,897 | 2,579,125 | ||||||
MSCI, Inc. | 2,254 | 752,430 | ||||||
TD Ameritrade Holding Corp. | 17,297 | 629,265 | ||||||
|
| |||||||
4,759,390 | ||||||||
Commercial Services & Supplies – 2.2% |
| |||||||
Cimpress PLC(1) | 12,548 | 957,914 | ||||||
Ritchie Bros Auctioneers, Inc. | 36,848 | 1,505,241 | ||||||
|
| |||||||
2,463,155 | ||||||||
Containers & Packaging – 1.3% |
| |||||||
Sealed Air Corp. | 43,831 | 1,439,848 | ||||||
|
| |||||||
1,439,848 | ||||||||
Diversified Consumer Services – 1.5% |
| |||||||
frontdoor, Inc.(1) | 14,481 | 641,943 | ||||||
ServiceMaster Global Holdings, Inc.(1) | 28,971 | 1,033,975 | ||||||
|
| |||||||
1,675,918 | ||||||||
Electric Utilities – 0.6% |
| |||||||
Alliant Energy Corp. | 15,427 | 738,028 | ||||||
|
| |||||||
738,028 | ||||||||
Electrical Equipment – 2.0% |
| |||||||
Sensata Technologies Holding PLC(1) | 62,622 | 2,331,417 | ||||||
|
| |||||||
2,331,417 | ||||||||
Electronic Equipment, Instruments & Components – 5.5% |
| |||||||
Dolby Laboratories, Inc., Class A | 19,854 | 1,307,783 | ||||||
Flex Ltd.(1) | 116,094 | 1,189,963 | ||||||
National Instruments Corp. | 36,378 | 1,408,192 | ||||||
TE Connectivity Ltd. | 29,621 | 2,415,593 | ||||||
|
| |||||||
6,321,531 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Entertainment – 0.5% |
| |||||||
Liberty Media Corp-Liberty Formula One, Class C(1) | 16,811 | $ | 533,077 | |||||
|
| |||||||
533,077 | ||||||||
Equity Real Estate Investment – 3.8% |
| |||||||
Crown Castle International Corp. REIT | 13,181 | 2,205,840 | ||||||
Lamar Advertising Co., Class A REIT | 32,642 | 2,179,180 | ||||||
|
| |||||||
4,385,020 | ||||||||
Health Care Equipment & Supplies – 6.9% |
| |||||||
Boston Scientific Corp.(1) | 60,750 | 2,132,932 | ||||||
Dentsply Sirona, Inc. | 18,542 | 816,960 | ||||||
ICU Medical, Inc.(1) | 4,151 | 765,071 | ||||||
STERIS PLC | 1,890 | 290,002 | ||||||
Teleflex, Inc. | 3,166 | 1,152,361 | ||||||
The Cooper Cos., Inc. | 7,166 | 2,032,564 | ||||||
Varian Medical Systems, Inc.(1) | 6,086 | 745,657 | ||||||
|
| |||||||
7,935,547 | ||||||||
Hotels, Restaurants & Leisure – 1.9% |
| |||||||
Aramark | 28,737 | 648,594 | ||||||
Dunkin’ Brands Group, Inc. | 23,824 | 1,554,040 | ||||||
|
| |||||||
2,202,634 | ||||||||
Industrial Conglomerates – 0.5% |
| |||||||
Carlisle Cos., Inc. | 5,029 | 601,820 | ||||||
|
| |||||||
601,820 | ||||||||
Insurance – 6.8% |
| |||||||
Aon PLC, Class A | 13,889 | 2,675,022 | ||||||
Intact Financial Corp. (Canada) | 19,697 | 1,874,668 | ||||||
Willis Towers Watson PLC | 6,963 | 1,371,363 | ||||||
WR Berkley Corp. | 32,373 | 1,854,649 | ||||||
|
| |||||||
7,775,702 | ||||||||
Internet & Direct Marketing Retail – 1.5% |
| |||||||
Wayfair, Inc., Class A(1) | 8,404 | 1,660,714 | ||||||
|
| |||||||
1,660,714 | ||||||||
IT Services – 13.1% |
| |||||||
Amdocs Ltd. | 29,075 | 1,770,086 | ||||||
Broadridge Financial Solutions, Inc. | 20,598 | 2,599,262 | ||||||
Edenred (France) | 19,507 | 852,199 | ||||||
Euronet Worldwide, Inc.(1) | 5,271 | 505,067 | ||||||
Fidelity National Information Services, Inc. | 14,898 | 1,997,673 | ||||||
Global Payments, Inc. | 14,305 | 2,426,414 | ||||||
GoDaddy, Inc., Class A(1) | 31,304 | 2,295,522 | ||||||
WEX, Inc.(1) | 15,834 | 2,612,769 | ||||||
|
| |||||||
15,058,992 | ||||||||
Life Sciences Tools & Services – 5.5% |
| |||||||
IQVIA Holdings, Inc.(1) | 11,712 | 1,661,698 | ||||||
PerkinElmer, Inc. | 27,665 | 2,713,660 | ||||||
PRA Health Sciences, Inc.(1) | 8,733 | 849,634 | ||||||
Waters Corp.(1) | 6,295 | 1,135,618 | ||||||
|
| |||||||
6,360,610 |
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, 2020 (unaudited) | Shares | Value | ||||||
Machinery – 3.1% |
| |||||||
Ingersoll Rand, Inc.(1) | 28,724 | $ | 807,719 | |||||
Rexnord Corp. | 36,480 | 1,063,392 | ||||||
The Middleby Corp.(1) | 7,004 | 552,896 | ||||||
Westinghouse Air Brake Technologies Corp. | 19,373 | 1,115,303 | ||||||
|
| |||||||
3,539,310 | ||||||||
Pharmaceuticals – 3.5% |
| |||||||
Bristol-Myers Squibb Co. | 10,589 | 622,633 | ||||||
Catalent, Inc.(1) | 26,210 | 1,921,193 | ||||||
Elanco Animal Health, Inc.(1) | 33,994 | 729,172 | ||||||
Royalty Pharma PLC, Class A(1) | 16,422 | 797,288 | ||||||
|
| |||||||
4,070,286 | ||||||||
Professional Services – 4.0% |
| |||||||
CoStar Group, Inc.(1) | 2,190 | 1,556,367 | ||||||
IHS Markit Ltd. | 12,552 | 947,676 | ||||||
Verisk Analytics, Inc. | 12,447 | 2,118,480 | ||||||
|
| |||||||
4,622,523 | ||||||||
Semiconductors & Semiconductor Equipment – 8.8% |
| |||||||
KLA Corp. | 12,222 | 2,376,935 | ||||||
Lam Research Corp. | 5,565 | 1,800,055 | ||||||
Microchip Technology, Inc. | 29,882 | 3,146,873 | ||||||
ON Semiconductor Corp.(1) | 77,852 | 1,543,027 | ||||||
Xilinx, Inc. | 12,147 | 1,195,143 | ||||||
|
| |||||||
10,062,033 | ||||||||
Software – 10.9% |
| |||||||
Atlassian Corp. PLC, Class A(1) | 9,901 | 1,784,853 | ||||||
Ceridian HCM Holding, Inc.(1) | 11,158 | 884,495 | ||||||
Constellation Software, Inc. (Canada) | 3,285 | 3,709,151 | ||||||
Dynatrace, Inc.(1) | 11,871 | 481,963 | ||||||
Nice Ltd., ADR(1) | 15,255 | 2,886,856 | ||||||
SS&C Technologies Holdings, Inc. | 48,740 | 2,752,835 | ||||||
|
| |||||||
12,500,153 | ||||||||
Specialty Retail – 1.5% |
| |||||||
CarMax, Inc.(1) | 18,759 | 1,679,868 | ||||||
|
| |||||||
1,679,868 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Textiles, Apparel & Luxury Goods – 0.8% |
| |||||||
Gildan Activewear, Inc. | 58,032 | $ | 898,916 | |||||
|
| |||||||
898,916 | ||||||||
Trading Companies & Distributors – 0.7% |
| |||||||
Ferguson PLC (United Kingdom) | 10,018 | 819,522 | ||||||
|
| |||||||
819,522 | ||||||||
Total Common Stocks (Cost $98,149,184) |
| 111,031,204 | ||||||
Principal Amount | Value | |||||||
Short–Term Investment – 3.3% |
| |||||||
Repurchase Agreements – 3.3% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $3,773,000, due 7/1/2020(2) | $ | 3,773,000 | 3,773,000 | |||||
Total Repurchase Agreements (Cost $3,773,000) |
| 3,773,000 | ||||||
Total Investments – 99.9% (Cost $101,922,184) |
| 114,804,204 | ||||||
Assets in excess of other liabilities – 0.1% |
| 109,021 | ||||||
Total Net Assets – 100.0% |
| $ | 114,913,225 |
(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 | 0.125% | 7/15/2024 | $ | 3,408,800 | $ | 3,848,521 |
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, 2020 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 | $ | 109,359,483 | $ | 1,671,721 | * | $ | — | $ | 111,031,204 | |||||||
Repurchase Agreements | — | 3,773,000 | — | 3,773,000 | ||||||||||||
Total | $ | 109,359,483 | $ | 5,444,721 | $ | — | $ | 114,804,204 |
* | 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 MID CAP TRADITIONAL GROWTH VIP FUND
For the Six Months Ended June 30, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 529,624 | ||
Interest | 764 | |||
Withholding taxes on foreign dividends | (9,995 | ) | ||
|
| |||
Total Investment Income | 520,393 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 437,419 | |||
Distribution fees | 137,728 | |||
Custodian and accounting fees | 25,726 | |||
Trustees’ and officers’ fees | 25,179 | |||
Administrative fees | 23,799 | |||
Professional fees | 23,292 | |||
Shareholder reports | 10,174 | |||
Transfer agent fees | 6,905 | |||
Other expenses | 4,898 | |||
|
| |||
Total Expenses | 695,120 | |||
Less: Fees waived | (89,118 | ) | ||
|
| |||
Total Expenses, Net | 606,002 | |||
|
| |||
Net Investment Income/(Loss) | (85,609 | ) | ||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 75,124 | |||
Net realized gain/(loss) from foreign currency transactions | 449 | |||
Net change in unrealized appreciation/(depreciation) on investments | (9,335,894 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | 20 | |||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (9,260,301 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (9,345,910) | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
This Page Intentionally Left Blank
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 6/30/20 | $ | 16.71 | $ | (0.01 | ) | $ | (1.36 | ) | $ | (1.37 | ) | $ | 15.34 | (8.20)% | (4) | |||||||||
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 (Loss) to Average | Gross Ratio of Net Investment Loss to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 114,913 | 1.10% | (4) | 1.26% | (4) | (0.16)% | (4) | (0.32)% | (4) | 12% | (4) | |||||||||||
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, 2020 (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 21 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, 2020, 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, 2020 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, 2020, 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, 2020, 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, 2021 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $89,118.
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 amount available for potential future recoupment by Park Avenue from the
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
Fund under the Expense Limitation Agreement and the expiration schedule at June 30, 2020 are as follows:
Potential Recoupment Amounts Expiring | ||||||||
Total Potential Recoupment Amounts | 2021 | 2020 | ||||||
$247,059 | $ | 54,113 | $ | 192,946 |
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, 2020, the Fund paid distribution fees in the amount of $137,728 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 $13,208,467 and $15,311,312, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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
13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
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.
9. 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.
15 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund,
(iv) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials
16 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared
17 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer
group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds.
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
The Board concluded that the investment performance generated by 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.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative
information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered the benefits to the Manager from increased assets under management. 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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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.
20 |
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.
21 |
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
PUB8177
Table of Contents
Guardian Variable
Products Trust
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Mid Cap Relative Value VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
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 | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 21 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $211,958,552
Sector Allocation1 As of June 30, 2020 |
![]() |
Top Ten Holdings2 As of June 30, 2020 | ||||
Holding | % of Total Net Assets | |||
Alcon, Inc. | 3.10% | |||
Reynolds Consumer Products, Inc. | 3.03% | |||
Amdocs Ltd. | 2.87% | |||
Brown & Brown, Inc. | 2.80% | |||
Varian Medical Systems, Inc. | 2.69% | |||
CBRE Group, Inc., Class A | 2.69% | |||
Stanley Black & Decker, Inc. | 2.53% | |||
Kansas City Southern | 2.51% | |||
Arch Capital Group Ltd. | 2.44% | |||
Republic Services, Inc. | 2.37% | |||
Total | 27.03% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $1,000.00 | $ 813.40 | $4.64 | 1.03% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.74 | $5.17 | 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 182/366 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 97.9% | ||||||||
Auto Components – 3.1% | ||||||||
Aptiv PLC | 51,889 | $ | 4,043,191 | |||||
Lear Corp. | 23,527 | 2,564,913 | ||||||
|
| |||||||
6,608,104 | ||||||||
Banks – 5.1% | ||||||||
Fifth Third Bancorp | 174,326 | 3,361,005 | ||||||
PacWest Bancorp | 77,418 | 1,525,909 | ||||||
Regions Financial Corp. | 331,196 | 3,682,900 | ||||||
Zions Bancorporation N.A. | 63,885 | 2,172,090 | ||||||
|
| |||||||
10,741,904 | ||||||||
Beverages – 1.0% | ||||||||
Keurig Dr Pepper, Inc. | 76,980 | 2,186,232 | ||||||
|
| |||||||
2,186,232 | ||||||||
Building Products – 1.9% | ||||||||
Masco Corp. | 79,524 | 3,992,900 | ||||||
|
| |||||||
3,992,900 | ||||||||
Capital Markets – 0.2% | ||||||||
Cboe Global Markets, Inc. | 4,253 | 396,720 | ||||||
|
| |||||||
396,720 | ||||||||
Chemicals – 3.0% | ||||||||
Celanese Corp. | 25,480 | 2,199,943 | ||||||
PPG Industries, Inc. | 39,214 | 4,159,037 | ||||||
|
| |||||||
6,358,980 | ||||||||
Commercial Services & Supplies – 2.4% |
| |||||||
Republic Services, Inc. | 61,165 | 5,018,588 | ||||||
|
| |||||||
5,018,588 | ||||||||
Communications Equipment – 1.3% | ||||||||
Juniper Networks, Inc. | 120,681 | 2,758,768 | ||||||
|
| |||||||
2,758,768 | ||||||||
Construction & Engineering – 2.0% | ||||||||
Jacobs Engineering Group, Inc. | 51,186 | 4,340,573 | ||||||
|
| |||||||
4,340,573 | ||||||||
Construction Materials – 0.9% | ||||||||
Vulcan Materials Co. | 16,812 | 1,947,670 | ||||||
|
| |||||||
1,947,670 | ||||||||
Containers & Packaging – 2.0% | ||||||||
AptarGroup, Inc. | 16,199 | 1,813,964 | ||||||
Packaging Corp. of America | 24,887 | 2,483,723 | ||||||
|
| |||||||
4,297,687 | ||||||||
Electric Utilities – 3.9% | ||||||||
American Electric Power Co., Inc. | 49,400 | 3,934,216 | ||||||
FirstEnergy Corp. | 111,844 | 4,337,310 | ||||||
|
| |||||||
8,271,526 | ||||||||
Electronic Equipment, Instruments & Components – 1.6% |
| |||||||
CDW Corp. | 10,009 | 1,162,846 | ||||||
FLIR Systems, Inc. | 57,814 | 2,345,514 | ||||||
|
| |||||||
3,508,360 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Energy Equipment & Services – 1.2% |
| |||||||
Baker Hughes Co. | 84,504 | $ | 1,300,517 | |||||
National Oilwell Varco, Inc. | 103,682 | 1,270,104 | ||||||
|
| |||||||
2,570,621 | ||||||||
Equity Real Estate Investment – 5.8% |
| |||||||
American Campus Communities, Inc. REIT | 88,471 | 3,092,946 | ||||||
Invitation Homes, Inc. REIT | 175,986 | 4,844,895 | ||||||
Mid-America Apartment Communities, Inc. REIT | 25,063 | 2,873,974 | ||||||
Park Hotels & Resorts, Inc. REIT | 49,300 | 487,577 | ||||||
VEREIT, Inc. REIT | 162,225 | 1,043,107 | ||||||
|
| |||||||
12,342,499 | ||||||||
Food & Staples Retailing – 1.3% | ||||||||
BJ’s Wholesale Club Holdings, Inc.(1) | 74,129 | 2,762,788 | ||||||
|
| |||||||
2,762,788 | ||||||||
Health Care Equipment & Supplies – 7.6% |
| |||||||
Alcon, Inc.(1) | 114,633 | 6,570,763 | ||||||
Varian Medical Systems, Inc.(1) | 46,608 | 5,710,412 | ||||||
Zimmer Biomet Holdings, Inc. | 31,396 | 3,747,427 | ||||||
|
| |||||||
16,028,602 | ||||||||
Health Care Providers & Services – 3.3% |
| |||||||
Humana, Inc. | 9,910 | 3,842,603 | ||||||
Universal Health Services, Inc., Class B | 33,335 | 3,096,488 | ||||||
|
| |||||||
6,939,091 | ||||||||
Hotels, Restaurants & Leisure – 2.6% | ||||||||
Vail Resorts, Inc. | 10,943 | 1,993,267 | ||||||
Yum China Holdings, Inc. | 71,939 | 3,458,108 | ||||||
|
| |||||||
5,451,375 | ||||||||
Household Durables – 2.5% | ||||||||
D.R. Horton, Inc. | 45,996 | 2,550,478 | ||||||
Mohawk Industries, Inc.(1) | 27,963 | 2,845,515 | ||||||
|
| |||||||
5,395,993 | ||||||||
Household Products – 3.0% | ||||||||
Reynolds Consumer Products, Inc. | 184,575 | 6,412,135 | ||||||
|
| |||||||
6,412,135 | ||||||||
Industrial Conglomerates – 1.9% | ||||||||
Carlisle Cos., Inc. | 33,757 | 4,039,700 | ||||||
|
| |||||||
4,039,700 | ||||||||
Insurance – 9.4% | ||||||||
Arch Capital Group Ltd.(1) | 180,213 | 5,163,102 | ||||||
Brown & Brown, Inc. | 145,819 | 5,943,582 | ||||||
Fidelity National Financial, Inc. | 54,333 | 1,665,850 | ||||||
Loews Corp. | 80,674 | 2,766,311 | ||||||
RenaissanceRe Holdings Ltd. | 2,154 | 368,399 | ||||||
The Allstate Corp. | 40,733 | 3,950,694 | ||||||
|
| |||||||
19,857,938 |
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, 2020 (unaudited) | Shares | Value | ||||||
IT Services – 4.1% | ||||||||
Amdocs Ltd. | 99,953 | $ | 6,085,139 | |||||
Euronet Worldwide, Inc.(1) | 26,444 | 2,533,864 | ||||||
|
| |||||||
8,619,003 | ||||||||
Life Sciences Tools & Services – 1.4% |
| |||||||
Charles River Laboratories International, Inc.(1) | 17,213 | 3,001,087 | ||||||
|
| |||||||
3,001,087 | ||||||||
Machinery – 4.0% | ||||||||
Cummins, Inc. | 12,449 | 2,156,914 | ||||||
Pentair PLC | 26,736 | 1,015,701 | ||||||
Stanley Black & Decker, Inc. | 38,543 | 5,372,123 | ||||||
|
| |||||||
8,544,738 | ||||||||
Media – 1.9% | ||||||||
Discovery, Inc., Class C(1) | 204,993 | 3,948,165 | ||||||
|
| |||||||
3,948,165 | ||||||||
Metals & Mining – 0.6% | ||||||||
Barrick Gold Corp. | 48,722 | 1,312,571 | ||||||
|
| |||||||
1,312,571 | ||||||||
Mortgage Real Estate Investment – 1.4% |
| |||||||
Annaly Capital Management, Inc. REIT | 458,490 | 3,007,694 | ||||||
|
| |||||||
3,007,694 | ||||||||
Oil, Gas & Consumable Fuels – 2.5% |
| |||||||
Cimarex Energy Co. | 31,421 | 863,763 | ||||||
Devon Energy Corp. | 56,881 | 645,031 | ||||||
Hess Corp. | 26,482 | 1,372,033 | ||||||
Valero Energy Corp. | 27,226 | 1,601,433 | ||||||
WPX Energy, Inc.(1) | 116,742 | 744,814 | ||||||
|
| |||||||
5,227,074 | ||||||||
Real Estate Management & Development – 2.7% |
| |||||||
CBRE Group, Inc., Class A(1) | 125,828 | 5,689,942 | ||||||
|
| |||||||
5,689,942 | ||||||||
Road & Rail – 2.5% | ||||||||
Kansas City Southern | 35,622 | 5,318,008 | ||||||
|
| |||||||
5,318,008 | ||||||||
Semiconductors & Semiconductor Equipment – 1.8% |
| |||||||
Analog Devices, Inc. | 30,653 | 3,759,284 | ||||||
|
| |||||||
3,759,284 | ||||||||
Software – 0.5% | ||||||||
Synopsys, Inc.(1) | 5,236 | 1,021,020 | ||||||
|
| |||||||
1,021,020 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Technology Hardware, Storage & Peripherals – 1.2% |
| |||||||
NCR Corp.(1) | 143,866 | $ | 2,491,759 | |||||
|
| |||||||
2,491,759 | ||||||||
Textiles, Apparel & Luxury Goods – 0.6% |
| |||||||
PVH Corp. | 24,554 | 1,179,820 | ||||||
|
| |||||||
1,179,820 | ||||||||
Trading Companies & Distributors – 3.4% |
| |||||||
AerCap Holdings N.V.(1) | 121,220 | 3,733,576 | ||||||
United Rentals, Inc.(1) | 23,737 | 3,537,762 | ||||||
|
| |||||||
7,271,338 | ||||||||
Water Utilities – 2.3% | ||||||||
American Water Works Co., Inc. | 37,867 | 4,871,968 | ||||||
|
| |||||||
4,871,968 | ||||||||
Total Common Stocks (Cost $210,028,520) | 207,492,225 | |||||||
Principal Amount | Value | |||||||
Short-Term Investment – 2.1% |
| |||||||
Repurchase Agreements – 2.1% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $4,486,000, due 7/1/2020(2) | $ | 4,486,000 | 4,486,000 | |||||
Total Repurchase Agreements (Cost $4,486,000) | 4,486,000 | |||||||
Total Investments – 100.0% (Cost $214,514,520) | 211,978,225 | |||||||
Liabilities in excess of other assets – (0.0)% |
| (19,673 | ) | |||||
Total Net Assets – 100.0% | $ | 211,958,552 |
(1) | Non–income–producing security. |
(2) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 1.75% | 5/31/2022 | $ | 4,435,100 | $ | 4,575,726 |
Legend:
REIT — Real Estate Investment Trust
The following is a summary of the inputs used as of June 30, 2020 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 | $ | 207,492,225 | $ | — | $ | — | $ | 207,492,225 | ||||||||
Repurchase Agreements | — | 4,486,000 | — | 4,486,000 | ||||||||||||
Total | $ | 207,492,225 | $ | 4,486,000 | $ | — | $ | 211,978,225 |
4 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
For the Six Months Ended June 30, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,914,343 | ||
Interest | 1,479 | |||
Withholding taxes on foreign dividends | (2,050 | ) | ||
|
| |||
Total Investment Income | 1,913,772 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 699,988 | |||
Distribution fees | 251,912 | |||
Trustees’ and officers’ fees | 45,497 | |||
Professional fees | 31,342 | |||
Custodian and accounting fees | 25,693 | |||
Administrative fees | 23,799 | |||
Shareholder reports | 14,124 | |||
Transfer agent fees | 9,657 | |||
Other expenses | 9,121 | |||
|
| |||
Total Expenses | 1,111,133 | |||
Less: Fees waived | (76,254 | ) | ||
|
| |||
Net expenses before Adviser recoupment | 1,034,879 | |||
Expenses recouped by Adviser | 448 | |||
|
| |||
Total Expenses | 1,035,327 | |||
|
| |||
Net Investment Income/(Loss) | 878,445 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | (8,920,046 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (32,808,724 | ) | ||
|
| |||
Net Loss on Investments | (41,728,770 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (40,850,325 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
This Page Intentionally Left Blank
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, | Net Investment Income(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/20 | $ | 13.93 | $ | 0.05 | $ | (2.65 | ) | $ | (2.60 | ) | $ | 11.33 | (18.66)% | (4) | ||||||||||
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. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MID CAP RELATIVE 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 Investment Income/ (Loss) to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 211,959 | 1.03% | (4) | 1.10% | (4) | 0.87% | (4) | 0.80% | (4) | 26% | (4) | |||||||||||
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 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 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
June 30, 2020 (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 21 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.
10 |
Table of Contents
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, 2020, 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, 2020 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, 2020, 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, 2020, 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 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, 2021 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, 2020, 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $76,254.
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, 2020, Park Avenue recouped previously waived or reimbursed expenses in the amount of $448.
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
The amount available for potential future recoupment by Park Avenue from the Fund under the Expense Limitation Agreement and the expiration schedule at June 30, 2020 are as follows:
Potential Recoupment Amounts Expiring | ||||||||
Total Potential Recoupment Amounts | 2021 | 2020 | ||||||
$243,628 | $ | 52,843 | $ | 190,785 |
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, 2020, the Fund paid distribution fees in the amount of $251,912 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 $73,754,309 and $50,734,231, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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
13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.
6. Temporary Borrowings
The Fund, with other funds managed by Park Avenue, is party to a $10 million committed revolving credit facility from State Street Bank and Trust Company for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the higher of the 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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
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.
9. 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.
15 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (iv) Lazard Asset Management LLC with respect to
Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or 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 and
16 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s 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, and any relevant information about risk
17 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus
Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with 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 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.
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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 the benefits to the Manager from increased assets under management. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees
concluded that benefits that 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.
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.
20 |
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.
21 |
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
PUB8176
Table of Contents
Guardian Variable
Products Trust
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Large Cap Disciplined Value VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
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 | ||||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 21 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $190,567,261
Sector Allocation1 As of June 30, 2020 |
![]() |
Top Ten Holdings2 As of June 30, 2020 | ||||
Holding | % of Total Net Assets | |||
Berkshire Hathaway, Inc., Class B | 3.46% | |||
JPMorgan Chase & Co. | 3.25% | |||
Cisco Systems, Inc. | 2.99% | |||
Johnson & Johnson | 2.91% | |||
Cigna Corp. | 2.67% | |||
Bank of America Corp. | 2.57% | |||
Alphabet, Inc., Class A | 2.43% | |||
Pfizer, Inc. | 2.24% | |||
AutoZone, Inc. | 2.10% | |||
Chubb Ltd. | 2.07% | |||
Total | 26.69% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $1,000.00 | $ | 822.40 | $ | 4.40 | 0.97% | ||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $ | 1,020.04 | $ | 4.87 | 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 182/366 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 98.3% |
| |||||||
Aerospace & Defense – 1.5% |
| |||||||
Howmet Aerospace, Inc. | 24,740 | $ | 392,129 | |||||
Huntington Ingalls Industries, Inc. | 7,689 | 1,341,654 | ||||||
Northrop Grumman Corp. | 3,503 | 1,076,962 | ||||||
|
| |||||||
2,810,745 | ||||||||
Auto Components – 0.3% |
| |||||||
Lear Corp. | 5,763 | 628,282 | ||||||
|
| |||||||
628,282 | ||||||||
Automobiles – 0.2% |
| |||||||
Harley-Davidson, Inc. | 19,587 | 465,583 | ||||||
|
| |||||||
465,583 | ||||||||
Banks – 9.7% |
| |||||||
Bank of America Corp. | 206,435 | 4,902,831 | ||||||
Citigroup, Inc. | 42,578 | 2,175,736 | ||||||
Fifth Third Bancorp | 29,679 | 572,211 | ||||||
Huntington Bancshares, Inc. | 131,933 | 1,192,015 | ||||||
JPMorgan Chase & Co. | 65,791 | 6,188,301 | ||||||
KeyCorp | 91,234 | 1,111,230 | ||||||
Truist Financial Corp. | 64,769 | 2,432,076 | ||||||
|
| |||||||
18,574,400 | ||||||||
Beverages – 0.4% |
| |||||||
Coca-Cola European Partners PLC | 21,087 | 796,245 | ||||||
|
| |||||||
796,245 | ||||||||
Building Products – 1.4% |
| |||||||
Carrier Global Corp. | 34,024 | 756,013 | ||||||
Owens Corning | 35,647 | 1,987,677 | ||||||
|
| |||||||
2,743,690 | ||||||||
Capital Markets – 0.6% |
| |||||||
The Charles Schwab Corp. | 31,898 | 1,076,238 | ||||||
|
| |||||||
1,076,238 | ||||||||
Chemicals – 3.1% |
| |||||||
Corteva, Inc. | 58,182 | 1,558,696 | ||||||
DuPont de Nemours, Inc. | 49,120 | 2,609,746 | ||||||
FMC Corp. | 8,890 | 885,622 | ||||||
PPG Industries, Inc. | 7,725 | 819,313 | ||||||
|
| |||||||
5,873,377 | ||||||||
Communications Equipment – 3.0% |
| |||||||
Cisco Systems, Inc. | 122,344 | 5,706,124 | ||||||
|
| |||||||
5,706,124 | ||||||||
Construction Materials – 0.4% |
| |||||||
CRH PLC, ADR | 21,510 | 738,008 | ||||||
|
| |||||||
738,008 | ||||||||
Diversified Financial Services – 3.5% |
| |||||||
Berkshire Hathaway, Inc., Class B(1) | 36,905 | 6,587,911 | ||||||
|
| |||||||
6,587,911 | ||||||||
Electric Utilities – 1.2% |
| |||||||
Edison International | 40,884 | 2,220,410 | ||||||
|
| |||||||
2,220,410 | ||||||||
Electrical Equipment – 2.1% |
| |||||||
AMETEK, Inc. | 8,569 | 765,811 | ||||||
June 30, 2020 (unaudited) | Shares | Value | ||||||
Electrical Equipment (continued) |
| |||||||
Eaton Corp. PLC | 37,856 | $ | 3,311,643 | |||||
|
| |||||||
4,077,454 | ||||||||
Food & Staples Retailing – 1.1% |
| |||||||
The Kroger Co. | 64,616 | 2,187,252 | ||||||
|
| |||||||
2,187,252 | ||||||||
Health Care Equipment & Supplies – 2.0% |
| |||||||
Medtronic PLC | 30,059 | 2,756,410 | ||||||
Zimmer Biomet Holdings, Inc. | 8,462 | 1,010,025 | ||||||
|
| |||||||
3,766,435 | ||||||||
Health Care Providers & Services – 8.7% |
| |||||||
AmerisourceBergen Corp. | 24,406 | 2,459,393 | ||||||
Anthem, Inc. | 14,283 | 3,756,143 | ||||||
Cigna Corp. | 27,170 | 5,098,451 | ||||||
McKesson Corp. | 16,134 | 2,475,278 | ||||||
UnitedHealth Group, Inc. | 9,403 | 2,773,415 | ||||||
|
| |||||||
16,562,680 | ||||||||
Hotels, Restaurants & Leisure – 0.3% |
| |||||||
Wyndham Hotels & Resorts, Inc. | 12,147 | 517,705 | ||||||
|
| |||||||
517,705 | ||||||||
Household Durables – 1.6% |
| |||||||
Lennar Corp., Class A | 24,146 | 1,487,877 | ||||||
Mohawk Industries, Inc.(1) | 15,769 | 1,604,653 | ||||||
|
| |||||||
3,092,530 | ||||||||
Household Products – 1.0% |
| |||||||
Kimberly-Clark Corp. | 13,319 | 1,882,641 | ||||||
|
| |||||||
1,882,641 | ||||||||
Independent Power and Renewable Electricity Producers – 0.5% |
| |||||||
Vistra Energy Corp. | 56,179 | 1,046,053 | ||||||
|
| |||||||
1,046,053 | ||||||||
Insurance – 8.7% |
| |||||||
Aflac, Inc. | 37,737 | 1,359,664 | ||||||
American International Group, Inc. | 96,442 | 3,007,061 | ||||||
Chubb Ltd. | 31,101 | 3,938,009 | ||||||
Everest Re Group Ltd. | 8,459 | 1,744,246 | ||||||
Marsh & McLennan Cos., Inc. | 14,946 | 1,604,752 | ||||||
Reinsurance Group of America, Inc. | 5,765 | 452,207 | ||||||
RenaissanceRe Holdings Ltd. | 2,190 | 374,556 | ||||||
The Progressive Corp. | 40,321 | 3,230,115 | ||||||
The Travelers Cos., Inc. | 8,127 | 926,884 | ||||||
|
| |||||||
16,637,494 | ||||||||
Interactive Media & Services – 3.4% |
| |||||||
Alphabet, Inc., Class A(1) | 3,266 | 4,631,352 | ||||||
Facebook, Inc., Class A(1) | 8,018 | 1,820,647 | ||||||
|
| |||||||
6,451,999 | ||||||||
Life Sciences Tools & Services – 0.5% |
| |||||||
Avantor, Inc.(1) | 51,081 | 868,377 | ||||||
|
| |||||||
868,377 | ||||||||
Machinery – 3.9% |
| |||||||
Caterpillar, Inc. | 11,358 | 1,436,787 | ||||||
Cummins, Inc. | 8,528 | 1,477,561 | ||||||
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, 2020 (unaudited) | Shares | Value | ||||||
Machinery (continued) |
| |||||||
Deere & Co. | 11,567 | $ | 1,817,754 | |||||
Dover Corp. | 17,585 | 1,698,008 | ||||||
Otis Worldwide Corp. | 17,012 | 967,302 | ||||||
|
| |||||||
7,397,412 | ||||||||
Metals & Mining – 3.3% |
| |||||||
Barrick Gold Corp. | 111,951 | 3,015,960 | ||||||
Kinross Gold Corp.(1) | 79,629 | 574,921 | ||||||
Newmont Corp. | 21,406 | 1,321,607 | ||||||
Yamana Gold, Inc. | 253,754 | 1,385,497 | ||||||
|
| |||||||
6,297,985 | ||||||||
Multi-Utilities – 0.5% |
| |||||||
CenterPoint Energy, Inc. | 52,338 | 977,150 | ||||||
|
| |||||||
977,150 | ||||||||
Oil, Gas & Consumable Fuels – 4.6% |
| |||||||
ConocoPhillips | 55,302 | 2,323,790 | ||||||
Marathon Petroleum Corp. | 72,042 | 2,692,930 | ||||||
Royal Dutch Shell PLC, Class A, ADR | 24,906 | 814,177 | ||||||
TOTAL S.A., ADR | 24,130 | 928,040 | ||||||
Valero Energy Corp. | 33,429 | 1,966,294 | ||||||
|
| |||||||
8,725,231 | ||||||||
Pharmaceuticals – 9.1% |
| |||||||
GlaxoSmithKline PLC, ADR | 43,460 | 1,772,733 | ||||||
Johnson & Johnson | 39,404 | 5,541,385 | ||||||
Merck & Co., Inc. | 27,580 | 2,132,761 | ||||||
Novartis AG, ADR | 40,571 | 3,543,471 | ||||||
Pfizer, Inc. | 130,425 | 4,264,898 | ||||||
|
| |||||||
17,255,248 | ||||||||
Professional Services – 0.2% |
| |||||||
Robert Half International, Inc. | 8,466 | 447,259 | ||||||
|
| |||||||
447,259 | ||||||||
Road & Rail – 1.7% |
| |||||||
Kansas City Southern | 11,221 | 1,675,183 | ||||||
Union Pacific Corp. | 8,843 | 1,495,086 | ||||||
|
| |||||||
3,170,269 | ||||||||
Semiconductors & Semiconductor Equipment – 7.7% |
| |||||||
Applied Materials, Inc. | 40,236 | 2,432,266 | ||||||
KLA Corp. | 11,905 | 2,315,284 | ||||||
Lam Research Corp. | 9,484 | 3,067,695 | ||||||
Micron Technology, Inc.(1) | 57,141 | 2,943,904 | ||||||
NXP Semiconductors N.V. | 18,641 | 2,125,820 | ||||||
ON Semiconductor Corp.(1) | 13,926 | 276,013 | ||||||
Qorvo, Inc.(1) | 14,169 | 1,566,100 | ||||||
|
| |||||||
14,727,082 | ||||||||
Software – 3.1% |
| |||||||
Microsoft Corp. | 11,319 | 2,303,530 | ||||||
Oracle Corp. | 42,151 | 2,329,686 | ||||||
SS&C Technologies Holdings, Inc. | 21,009 | 1,186,588 | ||||||
|
| |||||||
5,819,804 | ||||||||
Specialty Retail – 5.9% |
| |||||||
AutoZone, Inc.(1) | 3,547 | 4,001,442 | ||||||
June 30, 2020 (unaudited) | Shares | Value | ||||||
Specialty Retail (continued) |
| |||||||
Best Buy Co., Inc. | 32,368 | $ | 2,824,755 | |||||
Foot Locker, Inc. | 21,112 | 615,626 | ||||||
Lowe’s Cos., Inc. | 11,857 | 1,602,118 | ||||||
The TJX Cos., Inc. | 29,034 | 1,467,959 | ||||||
Williams-Sonoma, Inc. | 9,220 | 756,132 | ||||||
|
| |||||||
11,268,032 | ||||||||
Technology Hardware, Storage & Peripherals – 0.7% |
| |||||||
Western Digital Corp. | 30,685 | 1,354,743 | ||||||
�� |
|
| ||||||
1,354,743 | ||||||||
Textiles, Apparel & Luxury Goods – 0.8% |
| |||||||
Ralph Lauren Corp. | 10,055 | 729,189 | ||||||
Tapestry, Inc. | 54,647 | 725,712 | ||||||
|
| |||||||
1,454,901 | ||||||||
Trading Companies & Distributors – 0.6% |
| |||||||
United Rentals, Inc.(1) | 7,807 | 1,163,555 | ||||||
|
| |||||||
1,163,555 | ||||||||
Wireless Telecommunication Services – 1.0% |
| |||||||
T-Mobile U.S., Inc.(1) | 19,236 | 2,003,429 | ||||||
|
| |||||||
2,003,429 | ||||||||
Total Common Stocks (Cost $186,351,429) |
| 187,373,733 | ||||||
Shares | Value | |||||||
Rights – 0.0% |
| |||||||
Wireless Telecommunication Services – 0.0% |
| |||||||
T-Mobile U.S., Inc, | 13,481 | 2,265 | ||||||
|
| |||||||
2,265 | ||||||||
Total Rights (Cost $4,988) | 2,265 | |||||||
Principal Amount | Value | |||||||
Short–Term Investment – 1.5% |
| |||||||
Repurchase Agreements – 1.5% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $2,883,000, due 7/1/2020(2) | $ | 2,883,000 | 2,883,000 | |||||
Total Repurchase Agreements (Cost $2,883,000) |
| 2,883,000 | ||||||
Total Investments – 99.8% (Cost $189,239,417) |
| 190,258,998 | ||||||
Assets in excess of other liabilities – 0.2% |
| 308,263 | ||||||
Total Net Assets – 100.0% |
| $ | 190,567,261 |
(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 | 0.125% | 7/15/2024 | $ | 2,604,700 | $ | 2,940,695 |
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
Legend:
ADR — American Depositary Receipt
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2020 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 | $ | 187,373,733 | $ | — | $ | — | $ | 187,373,733 | ||||||||
Rights | — | 2,265 | — | 2,265 | ||||||||||||
Repurchase Agreements | — | 2,883,000 | — | 2,883,000 | ||||||||||||
Total | �� | $ | 187,373,733 | $ | 2,885,265 | $ | — | $ | 190,258,998 |
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, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 2,913,729 | ||
Interest | 624 | |||
Withholding taxes on foreign dividends | (20,963 | ) | ||
|
| |||
Total Investment Income | 2,893,390 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 576,308 | |||
Distribution fees | 229,769 | |||
Trustees’ and officers’ fees | 42,213 | |||
Professional fees | 29,734 | |||
Custodian and accounting fees | 24,632 | |||
Administrative fees | 23,799 | |||
Shareholder reports | 13,305 | |||
Transfer agent fees | 7,402 | |||
Other expenses | 8,293 | |||
|
| |||
Total Expenses | 955,455 | |||
Less: Fees waived | (63,953 | ) | ||
|
| |||
Total Expenses, Net | 891,502 | |||
|
| |||
Net Investment Income/(Loss) | 2,001,888 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | (15,703,895 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (23,067,763 | ) | ||
|
| |||
Net Loss on Investments | (38,771,658 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (36,769,770 | ) | |
|
| |||
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 6/30/20 | $ | 14.13 | $ | 0.13 | $ | (2.64 | ) | $ | (2.51 | ) | $ | 11.62 | (17.76)% | (4) | ||||||||||
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(5) | 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 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 | |||||||||||||||||
$ | 190,567 | 0.97% | (4) | 1.04% | (4) | 2.18% | (4) | 2.11% | (4) | 48% | (4) | |||||||||||
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) | 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, 2020 (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 21 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, 2020, 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, 2020 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, 2020, 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, 2020, 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, 2021 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $63,953.
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 amount available for potential future recoupment by Park Avenue from the
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
Fund under the Expense Limitation Agreement and the expiration schedule at June 30, 2020 are as follows:
Potential Recoupment Amounts Expiring | ||||||||
Total Potential | 2021 | 2020 | ||||||
$284,909 | $ | 62,448 | $ | 222,461 |
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, 2020, the Fund paid distribution fees in the amount of $229,769 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 $104,733,224 and $87,598,056, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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
13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
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.
9. 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.
15 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund,
(iv) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials
16 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared
17 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period
was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with the Board longer term performance records of the
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Sub-advisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by 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.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund
strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 the benefits to the Manager from increased assets under management. 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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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.
20 |
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.
21 |
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
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Diversified Research VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
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 | ||||
Approval of Investment Advisory and Sub-advisory Agreements | 16 | |||
Portfolio Holdings and Proxy Voting Procedures | 21 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $178,868,081 |
Sector Allocation1 As of June 30, 2020 |
![]() |
Top Ten Holdings2 As of June 30, 2020 | ||||
Holding | % of Total Net Assets | |||
Microsoft Corp. | 6.04% | |||
Amazon.com, Inc. | 4.73% | |||
Apple, Inc. | 3.65% | |||
Alphabet, Inc., Class A | 3.45% | |||
Activision Blizzard, Inc. | 2.58% | |||
Facebook, Inc., Class A | 2.39% | |||
The Procter & Gamble Co. | 2.07% | |||
The Home Depot, Inc. | 1.95% | |||
Adobe, Inc. | 1.71% | |||
Fidelity National Information Services, Inc. | 1.70% | |||
Total | 30.27% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $ 1,000.00 | $ 979.80 | $4.97 | 1.01% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ 1,000.00 | $1,019.84 | $5.07 | 1.01% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 96.8% |
| |||||||
Aerospace & Defense – 1.7% |
| |||||||
General Dynamics Corp. | 3,578 | $ | 534,768 | |||||
Lockheed Martin Corp. | 569 | 207,640 | ||||||
Northrop Grumman Corp. | 2,776 | 853,453 | ||||||
Raytheon Technologies Corp. | 19,713 | 1,214,715 | ||||||
The Boeing Co. | 1,168 | 214,094 | ||||||
|
| |||||||
3,024,670 | ||||||||
Air Freight & Logistics – 0.3% |
| |||||||
FedEx Corp. | 4,057 | 568,873 | ||||||
|
| |||||||
568,873 | ||||||||
Airlines – 0.2% |
| |||||||
Southwest Airlines Co. | 12,402 | 423,900 | ||||||
|
| |||||||
423,900 | ||||||||
Banks – 1.5% |
| |||||||
Citigroup, Inc. | 52,900 | 2,703,190 | ||||||
|
| |||||||
2,703,190 | ||||||||
Beverages – 2.1% |
| |||||||
PepsiCo, Inc. | 20,460 | 2,706,040 | ||||||
The Coca-Cola Co. | 21,787 | 973,443 | ||||||
|
| |||||||
3,679,483 | ||||||||
Biotechnology – 3.3% |
| |||||||
AbbVie, Inc. | 28,018 | 2,750,807 | ||||||
Amgen, Inc. | 4,937 | 1,164,441 | ||||||
Biogen, Inc.(1) | 2,932 | 784,457 | ||||||
Gilead Sciences, Inc. | 5,271 | 405,551 | ||||||
Regeneron Pharmaceuticals, Inc.(1) | 1,319 | 822,594 | ||||||
|
| |||||||
5,927,850 | ||||||||
Building Products – 1.3% |
| |||||||
Carrier Global Corp. | 28,204 | 626,693 | ||||||
Fortune Brands Home & Security, Inc. | 14,278 | 912,792 | ||||||
Johnson Controls International PLC | 20,836 | 711,341 | ||||||
|
| |||||||
2,250,826 | ||||||||
Capital Markets – 4.1% |
| |||||||
Apollo Global Management, Inc. | 14,021 | 699,928 | ||||||
E*TRADE Financial Corp. | 19,680 | 978,687 | ||||||
Intercontinental Exchange, Inc. | 9,280 | 850,048 | ||||||
KKR & Co., Inc. | 34,641 | 1,069,714 | ||||||
Quilter PLC (United Kingdom)(2) | 275,496 | 474,576 | ||||||
The Charles Schwab Corp. | 31,131 | 1,050,360 | ||||||
The Goldman Sachs Group, Inc. | 10,758 | 2,125,996 | ||||||
|
| |||||||
7,249,309 | ||||||||
Chemicals – 1.3% |
| |||||||
Albemarle Corp. | 2,030 | 156,736 | ||||||
Dow, Inc. | 10,268 | 418,524 | ||||||
DuPont de Nemours, Inc. | 4,571 | 242,857 | ||||||
Eastman Chemical Co. | 2,857 | 198,962 | ||||||
Ecolab, Inc. | 1,198 | 238,342 | ||||||
Linde PLC | 616 | 130,660 | ||||||
The Sherwin-Williams Co. | 1,558 | 900,290 | ||||||
|
| |||||||
2,286,371 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Construction Materials – 0.0% |
| |||||||
Summit Materials, Inc., Class A(1) | 5,151 | $ | 82,828 | |||||
|
| |||||||
82,828 | ||||||||
Containers & Packaging – 0.5% |
| |||||||
Avery Dennison Corp. | 2,200 | 250,998 | ||||||
Ball Corp. | 4,771 | 331,537 | ||||||
Packaging Corp. of America | 2,351 | 234,630 | ||||||
|
| |||||||
817,165 | ||||||||
Diversified Financial Services – 0.7% |
| |||||||
Berkshire Hathaway, Inc., Class B(1) | 6,768 | 1,208,156 | ||||||
|
| |||||||
1,208,156 | ||||||||
Electric Utilities – 2.7% |
| |||||||
Exelon Corp. | 37,527 | 1,361,855 | ||||||
NextEra Energy, Inc. | 6,707 | 1,610,820 | ||||||
NRG Energy, Inc. | 55,906 | 1,820,299 | ||||||
|
| |||||||
4,792,974 | ||||||||
Electrical Equipment – 0.8% |
| |||||||
Eaton Corp. PLC | 16,575 | 1,449,981 | ||||||
|
| |||||||
1,449,981 | ||||||||
Entertainment – 3.3% |
| |||||||
Activision Blizzard, Inc. | 60,838 | 4,617,604 | ||||||
Live Nation Entertainment, Inc.(1) | 17,554 | 778,169 | ||||||
Netflix, Inc.(1) | 1,203 | 547,413 | ||||||
|
| |||||||
5,943,186 | ||||||||
Equity Real Estate Investment – 1.4% |
| |||||||
Boston Properties, Inc. REIT | 3,429 | 309,913 | ||||||
Gaming and Leisure Properties, Inc. REIT | 51,462 | 1,780,585 | ||||||
Outfront Media Inc. REIT | 24,315 | 344,544 | ||||||
|
| |||||||
2,435,042 | ||||||||
Food & Staples Retailing – 1.8% |
| |||||||
Costco Wholesale Corp. | 3,230 | 979,369 | ||||||
Walmart, Inc. | 18,317 | 2,194,010 | ||||||
|
| |||||||
3,173,379 | ||||||||
Food Products – 0.8% |
| |||||||
Conagra Brands, Inc. | 19,065 | 670,516 | ||||||
McCormick & Co., Inc. | 4,516 | 810,216 | ||||||
|
| |||||||
1,480,732 | ||||||||
Health Care Equipment & Supplies – 3.4% |
| |||||||
Abbott Laboratories | 10,597 | 968,884 | ||||||
Baxter International, Inc. | 15,075 | 1,297,958 | ||||||
Boston Scientific Corp.(1) | 36,721 | 1,289,274 | ||||||
Danaher Corp. | 6,804 | 1,203,151 | ||||||
Medtronic PLC | 4,467 | 409,624 | ||||||
Stryker Corp. | 2,876 | 518,226 | ||||||
The Cooper Cos., Inc. | 1,287 | 365,045 | ||||||
|
| |||||||
6,052,162 | ||||||||
Health Care Providers & Services – 2.5% |
| |||||||
Cigna Corp. | 8,801 | 1,651,508 | ||||||
Humana, Inc. | 1,172 | 454,443 | ||||||
Laboratory Corp. of America Holdings(1) | 2,480 | 411,953 | ||||||
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, 2020 (unaudited) | Shares | Value | ||||||
Health Care Providers & Services (continued) |
| |||||||
UnitedHealth Group, Inc. | 6,927 | $ | 2,043,118 | |||||
|
| |||||||
4,561,022 | ||||||||
Hotels, Restaurants & Leisure – 1.2% |
| |||||||
Aramark | 10,707 | 241,657 | ||||||
Chipotle Mexican Grill, Inc.(1) | 785 | 826,103 | ||||||
Hilton Worldwide Holdings, Inc. | 8,082 | 593,623 | ||||||
Penn National Gaming, Inc.(1) | 4,451 | 135,933 | ||||||
Wynn Resorts Ltd. | 5,101 | 379,973 | ||||||
|
| |||||||
2,177,289 | ||||||||
Household Products – 2.1% |
| |||||||
The Procter & Gamble Co. | 30,953 | 3,701,050 | ||||||
|
| |||||||
3,701,050 | ||||||||
Industrial Conglomerates – 1.3% |
| |||||||
3M Co. | 3,555 | 554,545 | ||||||
General Electric Co. | 52,676 | 359,777 | ||||||
Honeywell International, Inc. | 5,385 | 778,617 | ||||||
Roper Technologies, Inc. | 1,840 | 714,398 | ||||||
|
| |||||||
2,407,337 | ||||||||
Insurance – 3.0% |
| |||||||
AIA Group Ltd. (Hong Kong) | 48,000 | 446,739 | ||||||
American International Group, Inc. | 42,913 | 1,338,028 | ||||||
Assured Guaranty Ltd. | 47,817 | 1,167,213 | ||||||
AXA S.A. (France)(1) | 50,187 | 1,047,358 | ||||||
Prudential PLC (United Kingdom) | 87,860 | 1,323,142 | ||||||
|
| |||||||
5,322,480 | ||||||||
Interactive Media & Services – 5.8% |
| |||||||
Alphabet, Inc., Class A(1) | 4,348 | 6,165,681 | ||||||
Facebook, Inc., Class A(1) | 18,821 | 4,273,685 | ||||||
|
| |||||||
10,439,366 | ||||||||
Internet & Direct Marketing Retail – 5.3% |
| |||||||
Amazon.com, Inc.(1) | 3,067 | 8,461,301 | ||||||
Booking Holdings, Inc.(1) | 674 | 1,073,237 | ||||||
|
| |||||||
9,534,538 | ||||||||
IT Services – 7.4% |
| |||||||
Fidelity National Information Services, Inc. | 22,689 | 3,042,368 | ||||||
Fiserv, Inc.(1) | 13,640 | 1,331,537 | ||||||
MasterCard, Inc., Class A | 8,187 | 2,420,896 | ||||||
PayPal Holdings, Inc.(1) | 16,544 | 2,882,461 | ||||||
Visa, Inc., Class A | 13,529 | 2,613,397 | ||||||
WEX, Inc.(1) | 5,940 | 980,159 | ||||||
|
| |||||||
13,270,818 | ||||||||
Leisure Products – 0.3% |
| |||||||
Hasbro, Inc. | 6,058 | 454,047 | ||||||
|
| |||||||
454,047 | ||||||||
Life Sciences Tools & Services – 1.4% |
| |||||||
Avantor, Inc.(1) | 28,449 | 483,633 | ||||||
Bio-Rad Laboratories, Inc., Class A(1) | 1,268 | 572,489 | ||||||
Thermo Fisher Scientific, Inc. | 3,926 | 1,422,547 | ||||||
|
| |||||||
2,478,669 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Machinery – 0.9% |
| |||||||
Deere & Co. | 2,856 | $ | 448,820 | |||||
Otis Worldwide Corp. | 13,118 | 745,889 | ||||||
Parker-Hannifin Corp. | 1,806 | 330,986 | ||||||
|
| |||||||
1,525,695 | ||||||||
Media – 1.1% |
| |||||||
Charter Communications, Inc., Class A(1) | 3,809 | 1,942,742 | ||||||
|
| |||||||
1,942,742 | ||||||||
Metals & Mining – 1.2% |
| |||||||
Anglo American PLC (United Kingdom) | 24,356 | 562,989 | ||||||
Freeport-McMoRan, Inc. | 86,149 | 996,744 | ||||||
Newmont Corp. | 9,784 | 604,064 | ||||||
|
| |||||||
2,163,797 | ||||||||
Multi-Utilities – 0.8% |
| |||||||
Ameren Corp. | 12,445 | 875,630 | ||||||
DTE Energy Co. | 4,653 | 500,198 | ||||||
|
| |||||||
1,375,828 | ||||||||
Multiline Retail – 1.0% |
| |||||||
Dollar General Corp. | 2,618 | 498,755 | ||||||
Target Corp. | 11,351 | 1,361,326 | ||||||
|
| |||||||
1,860,081 | ||||||||
Oil, Gas & Consumable Fuels – 2.1% |
| |||||||
BP PLC (United Kingdom) | 236,982 | 900,631 | ||||||
Cairn Energy PLC (United Kingdom)(1) | 173,722 | 253,251 | ||||||
Cenovus Energy, Inc. (Canada) | 244,353 | 1,142,930 | ||||||
Phillips 66 | 7,091 | 509,843 | ||||||
The Williams Cos., Inc. | 17,638 | 335,475 | ||||||
TOTAL S.A. (France) | 13,997 | 533,140 | ||||||
|
| |||||||
3,675,270 | ||||||||
Pharmaceuticals – 3.3% |
| |||||||
Bristol-Myers Squibb Co. | 9,710 | 570,948 | ||||||
Eli Lilly and Co. | 8,555 | 1,404,560 | ||||||
Johnson & Johnson | 13,738 | 1,931,975 | ||||||
Merck & Co., Inc. | 18,493 | 1,430,064 | ||||||
Pfizer, Inc. | 19,232 | 628,886 | ||||||
|
| |||||||
5,966,433 | ||||||||
Professional Services – 0.4% |
| |||||||
CoStar Group, Inc.(1) | 1,021 | 725,594 | ||||||
|
| |||||||
725,594 | ||||||||
Road & Rail – 1.7% |
| |||||||
Old Dominion Freight Line, Inc. | 2,990 | 507,074 | ||||||
Union Pacific Corp. | 14,832 | 2,507,646 | ||||||
|
| |||||||
3,014,720 | ||||||||
Semiconductors & Semiconductor Equipment – 4.6% |
| |||||||
Cree, Inc.(1) | 24,166 | 1,430,386 | ||||||
NVIDIA Corp. | 6,415 | 2,437,123 | ||||||
NXP Semiconductors N.V. | 26,099 | 2,976,330 | ||||||
Texas Instruments, Inc. | 11,054 | 1,403,526 | ||||||
|
| |||||||
8,247,365 |
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, 2020 (unaudited) | Shares | Value | ||||||
Software – 8.8% |
| |||||||
Adobe, Inc.(1) | 7,012 | $ | 3,052,394 | |||||
Dassault Systemes SE (France) | 1,718 | 296,086 | ||||||
Microsoft Corp. | 53,072 | 10,800,683 | ||||||
salesforce.com, Inc.(1) | 8,488 | 1,590,057 | ||||||
|
| |||||||
15,739,220 | ||||||||
Specialty Retail – 2.7% |
| |||||||
Advance Auto Parts, Inc. | 1,643 | 234,045 | ||||||
Burlington Stores, Inc.(1) | 758 | 149,273 | ||||||
CarMax, Inc.(1) | 8,198 | 734,131 | ||||||
The Home Depot, Inc. | 13,969 | 3,499,374 | ||||||
The TJX Cos., Inc. | 5,294 | 267,665 | ||||||
|
| |||||||
4,884,488 | ||||||||
Technology Hardware, Storage & Peripherals – 4.3% |
| |||||||
Apple, Inc. | 17,916 | 6,535,757 | ||||||
HP, Inc. | 70,002 | 1,220,135 | ||||||
|
| |||||||
7,755,892 | ||||||||
Textiles, Apparel & Luxury Goods – 0.6% |
| |||||||
Levi Strauss & Co., Class A | 13,361 | 179,037 | ||||||
NIKE, Inc., Class B | 9,350 | 916,768 | ||||||
|
| |||||||
1,095,805 | ||||||||
Tobacco – 0.5% |
| |||||||
Altria Group, Inc. | 24,258 | 952,126 | ||||||
|
| |||||||
952,126 | ||||||||
Trading Companies & Distributors – 0.7% |
| |||||||
United Rentals, Inc.(1) | 5,005 | 745,945 | ||||||
Yellow Cake PLC (United Kingdom)(1)(2) | 186,372 | 488,242 | ||||||
|
| |||||||
1,234,187 | ||||||||
Wireless Telecommunication Services – 0.6% |
| |||||||
T-Mobile U.S., Inc.(1) | 10,370 | 1,080,035 | ||||||
|
| |||||||
1,080,035 | ||||||||
Total Common Stocks (Cost $149,573,876) |
| 173,135,971 | ||||||
Exchange–Traded Funds – 1.2% |
| |||||||
SPDR S&P 500 ETF Trust | 7,289 | 2,247,636 | ||||||
Total Exchange–Traded Funds (Cost $2,216,621) |
| 2,247,636 |
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investment – 2.0% |
| |||||||
Repurchase Agreements – 2.0% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $3,534,000, due 7/1/2020(3) | $ | 3,534,000 | $ | 3,534,000 | ||||
Total Repurchase Agreements (Cost $3,534,000) |
| 3,534,000 | ||||||
Total Investments – 100.0% (Cost $155,324,497) |
| 178,917,607 | ||||||
Liabilities in excess of other assets – (0.0)% |
| (49,526 | ) | |||||
Total Net Assets – 100.0% |
| $ | 178,868,081 |
(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, 2020, the aggregate market value of these securities amounted to $962,818, representing 0.5% 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 | 0.125% | 7/15/2024 | $ | 3,192,900 | $ | 3,604,771 |
Legend:
REIT — Real Estate Investment Trust
TIPS — Treasury Inflation–Protected Securities
The following is a summary of the inputs used as of June 30, 2020 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 | $ | 166,809,817 | $ | 6,326,154 | * | $ | — | $ | 173,135,971 | |||||||
Exchange–Traded Funds | 2,247,636 | — | — | 2,247,636 | ||||||||||||
Repurchase Agreements | — | 3,534,000 | — | 3,534,000 | ||||||||||||
Total | $ | 169,057,453 | $ | 9,860,154 | $ | — | $ | 178,917,607 |
* | 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, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,497,260 | ||
Interest | 742 | |||
Withholding taxes on foreign dividends | (7,554 | ) | ||
|
| |||
Total Investment Income | 1,490,448 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 521,382 | |||
Distribution fees | 217,243 | |||
Trustees’ and officers’ fees | 34,388 | |||
Custodian and accounting fees | 28,840 | |||
Professional fees | 28,421 | |||
Administrative fees | 23,799 | |||
Shareholder reports | 12,701 | |||
Transfer agent fees | 9,529 | |||
Other expenses | 7,573 | |||
|
| |||
Total Expenses | 883,876 | |||
Less: Fees waived | (5,452 | ) | ||
|
| |||
Total Expenses, Net | 878,424 | |||
|
| |||
Net Investment Income/(Loss) | 612,024 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 1,210,655 | |||
Net realized gain/(loss) from foreign currency transactions | (9,227 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (5,480,576 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | 183 | |||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (4,278,965 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (3,666,941 | ) | |
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
1 | Includes in-kind subscriptions of $22,345,743. The cost basis of the contributed securities is equal to the market value of the securities on the date of the subscription. |
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.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Income(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/20 | $ | 15.85 | $ | 0.05 | $ | (0.37 | ) | $ | (0.32 | ) | $ | 15.53 | (2.02)% | (4) | ||||||||||
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. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
| ||||||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Income to Average Net Assets(3) | Gross Ratio of Net (Loss) to Average | Portfolio Turnover Rate | |||||||||||||||||
$ | 178,868 | 1.01% | (4) | 1.02% | (4) | 0.71% | (4) | 0.70% | (4) | 50% | (4) | |||||||||||
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 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
June 30, 2020 (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 21 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.
10 |
Table of Contents
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, 2020, 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, 2020 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, 2020, 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, 2020, 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 DIVERSIFIED 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 0.60% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.
Park Avenue has contractually agreed through April 30, 2021 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). Prior to May 1, 2020, 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $5,452.
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 amount available for potential future recoupment by Park Avenue from the
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
Fund under the Expense Limitation Agreement and the expiration schedule at June 30, 2020 are as follows:
Potential Recoupment Amounts Expiring | ||||||||
Total Potential Recoupment Amounts | 2021 | 2020 | ||||||
$293,198 | $ | 60,975 | $ | 232,223 |
Park Avenue has entered into a Sub-Advisory Agreement with Putnam Investment Management LLC (“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, 2020, the Fund paid distribution fees in the amount of $217,243 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 $86,135,948 and $98,540,520, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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
13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
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.
9. 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.
15 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (iv) Lazard Asset Management LLC with respect to
Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or 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
16 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management
17 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
team review with the Board the economic and market environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with 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 each Sub-adviser was generally
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
satisfactory, or, that any steps being taken by the Manager and Sub-advisers to address any performance issues were satisfactory.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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 the benefits to the Manager from increased assets under management. The Trustees
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from
increases in assets under management. The Trustees concluded that benefits that 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.
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.
20 |
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.
21 |
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
PUB8168
Table of Contents
Guardian Variable
Products Trust
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Growth & Income VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
TABLE OF CONTENTS
Guardian Growth & Income VIP Fund
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $164,509,174
Sector Allocation1 As of June 30, 2020 |
|
Top Ten Holdings2 As of June 30, 2020 | ||||
Holding | % of Total Net Assets | |||
Roche Holding AG, ADR | 3.79% | |||
Verizon Communications, Inc. | 3.74% | |||
Comcast Corp., Class A | 3.62% | |||
Pfizer, Inc. | 3.43% | |||
Berkshire Hathaway, Inc., Class B | 3.40% | |||
Walmart, Inc. | 2.97% | |||
Philip Morris International, Inc. | 2.72% | |||
JPMorgan Chase & Co. | 2.69% | |||
The Allstate Corp. | 2.68% | |||
Raytheon Technologies Corp. | 2.67% | |||
Total | 31.71% |
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 |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $ 1,000.00 | $ | 835.40 | $ | 4.61 | 1.01% | ||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ 1,000.00 | $ | 1,019.84 | $ | 5.07 | 1.01% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
2 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN GROWTH & INCOME VIP FUND
June 30, 2020 (unaudited) | Shares | Value | ||||||
Common Stocks – 95.4% |
| |||||||
Aerospace & Defense – 4.3% |
| |||||||
Curtiss-Wright Corp. | 9,333 | $ | 833,250 | |||||
Hexcel Corp. | 39,032 | 1,765,027 | ||||||
Raytheon Technologies Corp. | 71,406 | 4,400,038 | ||||||
|
| |||||||
6,998,315 | ||||||||
Airlines – 0.6% |
| |||||||
Southwest Airlines Co. | 27,606 | 943,573 | ||||||
|
| |||||||
943,573 | ||||||||
Auto Components – 2.4% |
| |||||||
BorgWarner, Inc. | 50,588 | 1,785,756 | ||||||
Gentex Corp. | 85,770 | 2,210,293 | ||||||
|
| |||||||
3,996,049 | ||||||||
Banks – 6.9% |
| |||||||
Citigroup, Inc. | 63,471 | 3,243,368 | ||||||
JPMorgan Chase & Co. | 47,127 | 4,432,765 | ||||||
Wells Fargo & Co. | 140,908 | 3,607,245 | ||||||
|
| |||||||
11,283,378 | ||||||||
Biotechnology – 4.4% |
| |||||||
Alexion Pharmaceuticals, Inc.(1) | 26,551 | 2,980,084 | ||||||
Amgen, Inc. | 14,949 | 3,525,871 | ||||||
Gilead Sciences, Inc. | 9,295 | 715,158 | ||||||
|
| |||||||
7,221,113 | ||||||||
Capital Markets – 3.1% |
| |||||||
LPL Financial Holdings, Inc. | 15,829 | 1,240,994 | ||||||
Northern Trust Corp. | 22,299 | 1,769,203 | ||||||
The Goldman Sachs Group, Inc. | 10,633 | 2,101,293 | ||||||
|
| |||||||
5,111,490 | ||||||||
Chemicals – 0.4% |
| |||||||
LyondellBasell Industries N.V., Class A | 10,336 | 679,282 | ||||||
|
| |||||||
679,282 | ||||||||
Communications Equipment – 3.9% |
| |||||||
Cisco Systems, Inc. | 65,388 | 3,049,696 | ||||||
F5 Networks, Inc.(1) | 23,548 | 3,284,475 | ||||||
|
| |||||||
6,334,171 | ||||||||
Construction & Engineering – 1.6% |
| |||||||
EMCOR Group, Inc. | 23,934 | 1,582,995 | ||||||
Valmont Industries, Inc. | 8,923 | 1,013,831 | ||||||
|
| |||||||
2,596,826 | ||||||||
Consumer Finance – 0.9% |
| |||||||
Capital One Financial Corp. | 23,309 | 1,458,910 | ||||||
|
| |||||||
1,458,910 | ||||||||
Distributors – 1.1% |
| |||||||
LKQ Corp.(1) | 71,721 | 1,879,090 | ||||||
|
| |||||||
1,879,090 | ||||||||
Diversified Financial Services – 3.4% |
| |||||||
Berkshire Hathaway, Inc., Class B(1) | 31,323 | 5,591,469 | ||||||
|
| |||||||
5,591,469 | ||||||||
Diversified Telecommunication Services – 3.7% |
| |||||||
Verizon Communications, Inc. | 111,474 | 6,145,562 | ||||||
|
| |||||||
6,145,562 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Electrical Equipment – 1.3% |
| |||||||
Emerson Electric Co. | 21,193 | $ | 1,314,602 | |||||
Hubbell, Inc. | 6,992 | 876,517 | ||||||
|
| |||||||
2,191,119 | ||||||||
Electronic Equipment, Instruments & Components – 2.9% |
| |||||||
Dolby Laboratories, Inc., Class A | 31,014 | 2,042,892 | ||||||
Keysight Technologies, Inc.(1) | 17,579 | 1,771,612 | ||||||
Littelfuse, Inc. | 6,000 | 1,023,780 | ||||||
|
| |||||||
4,838,284 | ||||||||
Equity Real Estate Investment – 0.9% |
| |||||||
Mid-America Apartment Communities, Inc. REIT | 13,270 | 1,521,671 | ||||||
|
| |||||||
1,521,671 | ||||||||
Food & Staples Retailing – 3.0% |
| |||||||
Walmart, Inc. | 40,795 | 4,886,425 | ||||||
|
| |||||||
4,886,425 | ||||||||
Health Care Providers & Services – 5.3% |
| |||||||
Anthem, Inc. | 9,415 | 2,475,957 | ||||||
Cigna Corp. | 16,878 | 3,167,157 | ||||||
Quest Diagnostics, Inc. | 27,443 | 3,127,404 | ||||||
|
| |||||||
8,770,518 | ||||||||
Household Durables – 3.6% |
| |||||||
D.R. Horton, Inc. | 69,056 | 3,829,155 | ||||||
Garmin Ltd. | 21,734 | 2,119,065 | ||||||
|
| |||||||
5,948,220 | ||||||||
Insurance – 5.3% |
| |||||||
Aflac, Inc. | 37,739 | 1,359,736 | ||||||
Fidelity National Financial, Inc. | 61,870 | 1,896,934 | ||||||
Reinsurance Group of America, Inc. | 14,368 | 1,127,026 | ||||||
The Allstate Corp. | 45,482 | 4,411,299 | ||||||
|
| |||||||
8,794,995 | ||||||||
IT Services – 5.0% |
| |||||||
Akamai Technologies, Inc.(1) | 17,367 | 1,859,832 | ||||||
Cognizant Technology Solutions Corp., Class A | 49,515 | 2,813,443 | ||||||
Leidos Holdings, Inc. | 12,812 | 1,200,100 | ||||||
MAXIMUS, Inc. | 32,947 | 2,321,116 | ||||||
|
| |||||||
8,194,491 | ||||||||
Machinery – 1.7% |
| |||||||
Altra Industrial Motion Corp. | 14,812 | 471,910 | ||||||
Crane Co. | 24,170 | 1,437,148 | ||||||
The Middleby Corp.(1) | 12,206 | 963,542 | ||||||
|
| |||||||
2,872,600 | ||||||||
Media – 4.6% |
| |||||||
Comcast Corp., Class A | 152,551 | 5,946,438 | ||||||
Discovery, Inc., Class A(1) | 76,058 | 1,604,824 | ||||||
|
| |||||||
7,551,262 | ||||||||
Metals & Mining – 0.5% |
| |||||||
BHP Group Ltd., ADR | 17,000 | 845,410 | ||||||
|
| |||||||
845,410 |
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, 2020 (unaudited) | Shares | Value | ||||||
Multiline Retail – 1.9% |
| |||||||
Target Corp. | 25,349 | $ | 3,040,106 | |||||
|
| |||||||
3,040,106 | ||||||||
Oil, Gas & Consumable Fuels – 5.2% |
| |||||||
Chevron Corp. | 14,192 | 1,266,352 | ||||||
ConocoPhillips | 42,195 | 1,773,034 | ||||||
EOG Resources, Inc. | 19,302 | 977,839 | ||||||
Exxon Mobil Corp. | 28,800 | 1,287,936 | ||||||
Phillips 66 | 44,673 | 3,211,989 | ||||||
|
| |||||||
8,517,150 | ||||||||
Pharmaceuticals – 7.2% |
| |||||||
Pfizer, Inc. | 172,396 | 5,637,349 | ||||||
Roche Holding AG, ADR | 143,720 | 6,234,574 | ||||||
|
| |||||||
11,871,923 | ||||||||
Professional Services – 1.0% |
| |||||||
Robert Half International, Inc. | 30,616 | 1,617,443 | ||||||
|
| |||||||
1,617,443 | ||||||||
Real Estate Management & Development – 2.1% |
| |||||||
CBRE Group, Inc., Class A(1) | 74,836 | 3,384,084 | ||||||
|
| |||||||
3,384,084 | ||||||||
Road & Rail – 0.7% |
| |||||||
Kansas City Southern | 7,512 | 1,121,466 | ||||||
|
| |||||||
1,121,466 | ||||||||
Semiconductors & Semiconductor Equipment – 0.5% |
| |||||||
Lam Research Corp. | 2,630 | 850,700 | ||||||
|
| |||||||
850,700 | ||||||||
Software – 0.5% |
| |||||||
VMware, Inc., Class A(1) | 5,588 | 865,358 | ||||||
|
| |||||||
865,358 | ||||||||
Specialty Retail – 1.9% |
| |||||||
Murphy USA, Inc.(1) | 27,759 | 3,125,386 | ||||||
|
| |||||||
3,125,386 |
June 30, 2020 (unaudited) | Shares | Value | ||||||
Technology Hardware, Storage & Peripherals – 0.9% |
| |||||||
Apple, Inc. | 4,061 | $ | 1,481,453 | |||||
|
| |||||||
1,481,453 | ||||||||
Tobacco – 2.7% |
| |||||||
Philip Morris International, Inc. | 63,925 | 4,478,585 | ||||||
|
| |||||||
4,478,585 | ||||||||
Total Common Stocks (Cost $161,101,332) |
| 157,007,877 | ||||||
Principal Amount | Value | |||||||
Short–Term Investment – 4.7% |
| |||||||
Repurchase Agreements – 4.7% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, proceeds at maturity value of $7,671,000, due 7/1/2020(2) | $ | 7,671,000 | 7,671,000 | |||||
Total Repurchase Agreements (Cost $7,671,000) |
| 7,671,000 | ||||||
Total Investments – 100.1% (Cost $168,772,332) |
| 164,678,877 | ||||||
Liabilities in excess of other assets – (0.1)% |
| (169,703 | ) | |||||
Total Net Assets – 100.0% |
| $ | 164,509,174 |
(1) | Non–income–producing security. |
(2) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 1.75% | 5/31/2022 | $ | 7,584,000 | $ | 7,824,469 |
Legend:
ADR — American Depositary Receipt
REIT — Real Estate Investment Trust
The following is a summary of the inputs used as of June 30, 2020 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 | $ | 157,007,877 | $ | — | $ | — | $ | 157,007,877 | ||||||||
Repurchase Agreements | — | 7,671,000 | — | 7,671,000 | ||||||||||||
Total | $ | 157,007,877 | $ | 7,671,000 | $ | — | $ | 164,678,877 |
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, 2020 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 2,025,502 | ||
Interest | 1,894 | |||
Withholding taxes on foreign dividends | (24,278 | ) | ||
|
| |||
Total Investment Income | 2,003,118 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 514,790 | |||
Distribution fees | 204,136 | |||
Trustees’ and officers’ fees | 37,242 | |||
Professional fees | 28,027 | |||
Administrative fees | 23,799 | |||
Custodian and accounting fees | 21,140 | |||
Shareholder reports | 12,457 | |||
Transfer agent fees | 9,896 | |||
Other expenses | 7,427 | |||
|
| |||
Total Expenses | 858,914 | |||
Less: Fees waived | (34,205 | ) | ||
|
| |||
Total Expenses, Net | 824,709 | |||
|
| |||
Net Investment Income/(Loss) | 1,178,409 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | (5,192,899 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (26,534,834 | ) | ||
|
| |||
Net Loss on Investments | (31,727,733 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (30,549,324) | ||
|
| |||
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. |
Table of Contents
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, | Net Investment Income(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/20 | $ | 14.64 | $ | 0.09 | $ | (2.50 | ) | $ | (2.41 | ) | $ | 12.23 | (16.46)% | (4) | ||||||||||
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 | |||||||||||||||||
$ | 164,509 | 1.01% | (4) | 1.05% | (4) | 1.44% | (4) | 1.40% | (4) | 23% | (4) | |||||||||||
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 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 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GROWTH & INCOME VIP FUND
June 30, 2020 (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 21 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.
10 |
Table of Contents
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, 2020, 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, 2020 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, 2020, 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, 2020, 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 GROWTH & INCOME 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, 2021 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $34,205.
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 amount available for potential future recoupment by Park Avenue from the
12 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GROWTH & INCOME VIP FUND
Fund under the Expense Limitation Agreement and the expiration schedule at June 30, 2020 are as follows:
Potential Recoupment Amounts Expiring | ||||||||
Total Potential Recoupment Amounts | 2021 | 2020 | ||||||
$ 192,471 | $ | 45,009 | $ | 147,462 |
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, 2020, the Fund paid distribution fees in the amount of $204,136 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 $44,910,565 and $35,669,329, respectively, for the six months ended June 30, 2020. During the six months ended June 30, 2020, 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
13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GROWTH & INCOME VIP FUND
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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
14 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GROWTH & INCOME VIP FUND
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.
9. 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.
15 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund,
(iv) Lazard Asset Management LLC with respect to Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Sub-adviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials
16 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared
17 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer
group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with the Board longer term performance records of the Sub-advisers for strategies used in managing the Funds.
18 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
The Board concluded that the investment performance generated by 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.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative
information supported their consideration and approval
of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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
19 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered the benefits to the Manager from increased assets under management. 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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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.
20 |
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.
21 |
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
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Multi-Sector Bond VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Table of Contents
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 | ||||
Approval of Investment Advisory and Sub-advisory Agreements | 22 | |||
Portfolio Holdings and Proxy Voting Procedures | 27 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $278,277,965 |
Bond Sector Allocation1 As of June 30, 2020 |
![]() |
Bond Quality Allocation2 As of June 30, 2020 |
![]() |
1 |
Table of Contents
GUARDIAN MULTI-SECTOR BOND VIP FUND
Top Ten Holdings1 As of June 30, 2020 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Note | 1.500% | 9/30/2024 | 15.25% | |||||||||
U.S. Treasury Note | 1.500% | 1/15/2023 | 4.27% | |||||||||
Federal Farm Credit Banks Funding Corp. | 1.600% | 1/21/2022 | 4.22% | |||||||||
Federal Farm Credit Banks Funding Corp. | 1.625% | 12/27/2021 | 4.22% | |||||||||
U.S. Treasury Bond | 2.250% | 8/15/2049 | 3.03% | |||||||||
Anheuser-Busch InBev Worldwide, Inc. | 4.750% | 1/23/2029 | 2.52% | |||||||||
Mid-America Apartments LP | 3.950% | 3/15/2029 | 2.49% | |||||||||
Ross Stores, Inc. | 4.800% | 4/15/2030 | 2.29% | |||||||||
Credit Suisse Group AG | 3.869% | 1/12/2029 | 1.98% | |||||||||
Benchmark Mortgage Trust | 3.419% | 8/15/2052 | 1.97% | |||||||||
Total | 42.24% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $1,000.00 | $1,026.90 | $4.64 | 0.92% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.29 | $4.62 | 0.92% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 0.5% |
| |||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | $ | 1,230,000 | $ | 1,473,002 | ||||
Total Agency Mortgage–Backed Securities (Cost $1,412,076) |
| 1,473,002 | ||||||
Asset–Backed Securities – 8.6% |
| |||||||
American Express Credit | 3,000,000 | 3,125,538 | ||||||
AmeriCredit Automobile Receivables Trust | 1,500,000 | 1,516,336 | ||||||
Avis Budget Rental Car Funding AESOP LLC | 1,500,000 | 1,499,820 | ||||||
BlueMountain CLO Ltd. | ||||||||
2.885% (LIBOR 3 Month + 1.75%) due 10/20/2030(1)(2) | 600,000 | 583,209 | ||||||
Citibank Credit Card Issuance Trust | 2,300,000 | 2,333,124 | ||||||
CNH Equipment Trust | 1,500,000 | 1,519,275 | ||||||
Discover Card Execution Note Trust | 1,000,000 | 1,005,279 | ||||||
Enterprise Fleet Financing LLC | 1,151,971 | 1,172,956 | ||||||
Ford Credit Auto Owner Trust | 1,000,000 | 1,011,588 | ||||||
GM Financial Automobile Leasing Trust | 1,000,000 | 1,010,604 | ||||||
GM Financial Consumer Automobile Receivables Trust 2018-2 B | 1,500,000 | 1,553,638 | ||||||
Hyundai Auto Receivables Trust | 1,275,000 | 1,307,190 | ||||||
ICG U.S. CLO Ltd. | ||||||||
2.848% (LIBOR 3 Month + 1.75%) due 7/22/2031(1)(2) | 1,500,000 | 1,448,070 | ||||||
John Deere Owner Trust | 445,750 | 448,767 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Santander Drive Auto Receivables Trust | $ | 1,500,000 | $ | 1,511,519 | ||||
Verizon Owner Trust | 1,000,000 | 1,029,299 | ||||||
Volkswagen Auto Loan | 1,000,000 | 1,030,868 | ||||||
Voya CLO Ltd. | ||||||||
2.885% (LIBOR 3 Month + 1.75%) due 10/18/2031(1)(2) | 835,000 | 810,424 | ||||||
Total Asset–Backed Securities (Cost $23,737,178) |
| 23,917,504 | ||||||
Corporate Bonds & Notes – 52.5% |
| |||||||
Aerospace & Defense – 1.0% |
| |||||||
The Boeing Co. | 2,000,000 | 1,953,536 | ||||||
5.15% due 5/1/2030 | 700,000 | 780,521 | ||||||
|
| |||||||
2,734,057 | ||||||||
Agriculture – 1.7% |
| |||||||
BAT Capital Corp. | 3,500,000 | 3,723,785 | ||||||
Philip Morris International, Inc. | 950,000 | 1,148,942 | ||||||
|
| |||||||
4,872,727 | ||||||||
Auto Manufacturers – 0.6% |
| |||||||
General Motors Co. | 1,350,000 | 1,573,101 | ||||||
|
| |||||||
1,573,101 | ||||||||
Beverages – 3.8% |
| |||||||
Anheuser-Busch InBev Worldwide, Inc. | 5,800,000 | 7,008,105 | ||||||
Constellation Brands, Inc. | 3,000,000 | 3,178,610 | ||||||
5.25% due 11/15/2048 | 300,000 | 393,536 | ||||||
|
| |||||||
10,580,251 | ||||||||
Building Materials – 0.1% |
| |||||||
Carrier Global Corp. | 200,000 | 199,414 | ||||||
|
| |||||||
199,414 | ||||||||
Commercial Banks – 8.9% |
| |||||||
Citigroup, Inc. | ||||||||
2.666% (2.666% fixed rate until 1/29/2030; SOFR + 1.146% thereafter) due 1/29/2031(2) | 4,250,000 | 4,412,564 | ||||||
Credit Suisse Group AG | ||||||||
3.869% (3.869% fixed rate | 5,000,000 | 5,520,379 | ||||||
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Commercial Banks (continued) |
| |||||||
Huntington Bancshares, Inc. | $ | 2,400,000 | $ | 2,480,957 | ||||
JPMorgan Chase & Co. | ||||||||
2.956% (2.956% fixed rate | 3,500,000 | 3,712,042 | ||||||
Sumitomo Mitsui Financial Group, Inc. | 2,000,000 | 2,167,004 | ||||||
The Goldman Sachs Group, Inc. | 3,500,000 | 3,973,028 | ||||||
Wells Fargo & Co. | ||||||||
3.068% (3.068% fixed rate | 770,000 | 803,176 | ||||||
3.90% due 5/1/2045 | 1,400,000 | 1,640,987 | ||||||
|
| |||||||
24,710,137 | ||||||||
Commercial Services – 0.4% |
| |||||||
United Rentals North America, Inc. | 1,000,000 | 1,050,000 | ||||||
|
| |||||||
1,050,000 | ||||||||
Diversified Financial Services – 2.0% |
| |||||||
Apollo Management Holdings LP | 3,000,000 | 3,521,102 | ||||||
Jefferies Group LLC / Jefferies Group Capital Finance, Inc. | 1,780,000 | 1,918,332 | ||||||
|
| |||||||
5,439,434 | ||||||||
Electric – 3.2% |
| |||||||
CenterPoint Energy, Inc. | 4,200,000 | 4,461,528 | ||||||
FirstEnergy Corp. | 4,300,000 | 4,488,226 | ||||||
|
| |||||||
8,949,754 | ||||||||
Food – 2.3% |
| |||||||
Conagra Brands, Inc. | 2,200,000 | 2,641,339 | ||||||
Post Holdings, Inc. | 1,000,000 | 1,003,750 | ||||||
The Kroger Co. | 2,750,000 | 2,860,208 | ||||||
|
| |||||||
6,505,297 | ||||||||
Food Service – 0.4% |
| |||||||
Aramark Services, Inc. | 1,000,000 | 1,032,630 | ||||||
|
| |||||||
1,032,630 | ||||||||
Healthcare-Services – 0.4% |
| |||||||
Tenet Healthcare Corp. | 1,000,000 | 992,500 | ||||||
|
| |||||||
992,500 | ||||||||
Insurance – 0.3% |
| |||||||
Arch Capital Group Ltd. | 900,000 | 943,409 | ||||||
|
| |||||||
943,409 |
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Iron & Steel – 1.2% |
| |||||||
Steel Dynamics, Inc. | $ | 3,180,000 | $ | 3,324,281 | ||||
|
| |||||||
3,324,281 | ||||||||
Lodging – 0.3% |
| |||||||
MGM Resorts International | 1,000,000 | 962,500 | ||||||
|
| |||||||
962,500 | ||||||||
Media – 5.1% |
| |||||||
Altice Financing S.A. | 1,000,000 | 1,047,500 | ||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | 1,000,000 | 1,032,500 | ||||||
Charter Communications Operating LLC / Charter Communications Operating Capital | 3,500,000 | 4,131,426 | ||||||
Comcast Corp. | 500,000 | 592,837 | ||||||
4.25% due 10/15/2030 | 4,300,000 | 5,269,232 | ||||||
ViacomCBS, Inc. | 2,000,000 | 2,248,785 | ||||||
|
| |||||||
14,322,280 | ||||||||
Oil & Gas – 2.1% |
| |||||||
Hess Corp. | 4,000,000 | 4,142,270 | ||||||
Marathon Petroleum Corp. | 500,000 | 510,554 | ||||||
Valero Energy Corp. | 1,000,000 | 1,112,371 | ||||||
|
| |||||||
5,765,195 | ||||||||
Packaging & Containers – 0.9% |
| |||||||
WRKCo, Inc. | 2,500,000 | 2,603,951 | ||||||
|
| |||||||
2,603,951 | ||||||||
Pharmaceuticals – 2.2% |
| |||||||
Bausch Health Cos., Inc. | 1,000,000 | 1,014,270 | ||||||
Becton Dickinson and Co. | 2,000,000 | 2,116,219 | ||||||
CVS Health Corp. | 2,650,000 | 2,927,928 | ||||||
|
| |||||||
6,058,417 | ||||||||
Pipelines – 3.2% |
| |||||||
MPLX LP | 4,200,000 | 4,425,914 | ||||||
4.70% due 4/15/2048 | 400,000 | 403,159 | ||||||
ONEOK, Inc. | 800,000 | 778,155 | ||||||
4.00% due 7/13/2027 | 1,600,000 | 1,622,036 | ||||||
4.45% due 9/1/2049 | 500,000 | 463,925 | ||||||
Sabine Pass Liquefaction LLC | 1,000,000 | 1,110,205 | ||||||
|
| |||||||
8,803,394 |
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Real Estate Investment Trusts – 4.3% |
| |||||||
American Tower Corp. | $ | 5,000,000 | $ | 5,012,298 | ||||
Mid-America Apartments LP | 6,000,000 | 6,919,568 | ||||||
|
| |||||||
11,931,866 | ||||||||
Retail – 2.3% |
| |||||||
Ross Stores, Inc. | 5,300,000 | 6,381,889 | ||||||
|
| |||||||
6,381,889 | ||||||||
Semiconductors – 1.6% |
| |||||||
Broadcom, Inc. | 3,100,000 | 3,518,918 | ||||||
KLA Corp. | 1,000,000 | 1,032,884 | ||||||
|
| |||||||
4,551,802 | ||||||||
Software – 0.0% |
| |||||||
VMware, Inc. | 100,000 | 111,122 | ||||||
|
| |||||||
111,122 | ||||||||
Telecommunications – 3.1% |
| |||||||
T-Mobile USA, Inc. | 2,000,000 | 2,225,920 | ||||||
4.75% due 2/1/2028 | 1,000,000 | 1,056,400 | ||||||
Verizon Communications, Inc. | 1,500,000 | 1,984,216 | ||||||
Vodafone Group PLC | 2,500,000 | 2,973,263 | ||||||
5.25% due 5/30/2048 | 300,000 | 391,782 | ||||||
|
| |||||||
8,631,581 | ||||||||
Toys, Games & Hobbies – 1.1% |
| |||||||
Hasbro, Inc. | 3,000,000 | 3,124,048 | ||||||
|
| |||||||
3,124,048 | ||||||||
Total Corporate Bonds & Notes (Cost $143,216,883) |
| 146,155,037 | ||||||
Non–Agency Mortgage–Backed Securities – 4.7% |
| |||||||
BANK | 1,250,000 | 1,369,696 | ||||||
Benchmark Mortgage Trust | 5,000,000 | 5,472,540 | ||||||
Citigroup Commercial Mortgage Trust | 1,000,000 | 1,040,241 | ||||||
GS Mortgage Securities Trust | 1,300,000 | 1,405,165 | ||||||
Jackson Park Trust | 640,000 | 654,023 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
UBS Commercial Mortgage Trust | $ | 1,500,000 | $ | 1,649,255 | ||||
WFRBS Commercial Mortgage Trust | 1,500,000 | 1,591,790 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $12,891,695) |
| 13,182,710 | ||||||
U.S. Government Agencies – 8.5% |
| |||||||
Federal Farm Credit Banks Funding Corp. | 11,500,000 | 11,742,330 | ||||||
1.60% due 1/21/2022 | 11,500,000 | 11,747,846 | ||||||
Total U.S. Government Agencies (Cost $23,044,506) |
| 23,490,176 | ||||||
U.S. Government Securities – 23.3% |
| |||||||
U.S. Treasury Bond | 7,000,000 | 8,418,320 | ||||||
U.S. Treasury Note | 2,000,000 | 2,032,969 | ||||||
1.50% due 1/15/2023 | 11,500,000 | 11,885,430 | ||||||
1.50% due 9/30/2024 | 40,300,000 | 42,447,234 | ||||||
1.625% due 8/15/2029 | 100,000 | 109,113 | ||||||
Total U.S. Government Securities (Cost $60,849,319) |
| 64,893,066 | ||||||
Short-Term Investment – 0.3% |
| |||||||
Repurchase Agreements – 0.3% |
| |||||||
Fixed Income Clearing Corp., | 707,000 | 707,000 | ||||||
Total Repurchase Agreements (Cost $707,000) |
| 707,000 | ||||||
Total Investments(5) – 98.4% (Cost $265,858,657) |
| 273,818,495 | ||||||
Assets in excess of other liabilities(6) – 1.6% |
| 4,459,470 | ||||||
Total Net Assets – 100.0% | $ | 278,277,965 |
(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, 2020, the aggregate market value of these securities amounted to $29,811,843, representing 10.7% 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, 2020. |
(3) | Variable coupon rate based on weighted average interest rate of underlying mortgages. |
6 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
10-Year U.S. TIPS | 0.125% | 7/15/2024 | $ | 638,800 | $ | 721,203 |
(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 appreciation on futures contracts and centrally cleared swap contracts as follows: |
Open futures contracts at June 30, 2020:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
U.S. 2-Year Treasury Note | September 2020 | 130 | Long | $ | 28,706,432 | $ | 28,707,656 | $ | 1,224 | |||||||||||||||||||
U.S. Long Bond | September 2020 | 140 | Long | 24,862,754 | 24,998,750 | 135,996 | ||||||||||||||||||||||
U.S. Ultra Long Bond | September 2020 | 63 | Long | 13,571,804 | 13,743,844 | 172,040 | ||||||||||||||||||||||
Total |
| $ | 67,140,990 | $ | 67,450,250 | $ | 309,260 |
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||||||
U.S. 5-Year Treasury Note | September 2020 | 35 | Short | $ | (4,395,120 | ) | $ | (4,400,976 | ) | $ | (5,856 | ) | ||||||||||||||||
U.S. 10-Year Treasury Note | September 2020 | 18 | Short | (2,495,754 | ) | (2,505,094 | ) | (9,340 | ) | |||||||||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2020 | 487 | Short | (76,227,128 | ) | (76,694,891 | ) | (467,763 | ) | |||||||||||||||||||
Total |
| $ | (83,118,002 | ) | $ | (83,600,961 | ) | $ | (482,959 | ) |
Centrally cleared credit default swap agreements — sell protection(7):
Reference Entity | Implied Credit Spread at 6/30/20(8) | Notional Amount(9) | Maturity | (Pay)/Receive Fixed Rate | Periodic Payment Frequency | Upfront Payments Made | Value | Unrealized Appreciation | ||||||||||||||||||||||||
CDX.NA.HY.34 | 5.16% | USD 14,250,000 | 6/20/2025 | 5.00% | Quarterly | $ | (514,125 | ) | $ | (103,807 | ) | $ | 410,318 |
(7) | When a credit event occurs as defined under the terms of the swap agreement, the Fund as a seller of credit protection will either (i) pay to the buyer of protection an amount equal to the par value of the defaulted reference entity and take delivery of the reference entity or (ii) pay a net amount equal to the par value of the defaulted reference entity less its recovery value. |
(8) | Implied credit spread, represented in absolute terms, utilized in determining the value of the credit default swap agreements as of period end will serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a referenced entity reflects the cost of buying/selling protection and may include payments required to be made to enter into the agreement. Generally, wider credit spreads represent a perceived deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the swap agreement. |
(9) | The notional amount represents the maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs, as defined under the terms of the swap agreement, for each security included in the CDX North America High Yield Index. |
Legend:
CLO — Collateralized Loan Obligation
LIBOR — London Interbank Offered Rate
SOFR — Secured Overnight Financing Rate
USD — United States Dollar
TIPS — Treasury Inflation–Protected Securities
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
The following is a summary of the inputs used as of June 30, 2020 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 | $ | — | $ | 1,473,002 | $ | — | $ | 1,473,002 | ||||||||
Asset–Backed Securities | — | 23,917,504 | — | 23,917,504 | ||||||||||||
Corporate Bonds & Notes | — | 146,155,037 | — | 146,155,037 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 13,182,710 | — | 13,182,710 | ||||||||||||
U.S. Government Agencies | — | 23,490,176 | — | 23,490,176 | ||||||||||||
U.S. Government Securities | — | 64,893,066 | — | 64,893,066 | ||||||||||||
Repurchase Agreements | — | 707,000 | — | 707,000 | ||||||||||||
Total | $ | — | $ | 273,818,495 | $ | — | $ | 273,818,495 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts |
| |||||||||||||||
Assets | $ | 309,260 | $ | — | $ | — | $ | 309,260 | ||||||||
Liabilities | (482,959 | ) | — | — | (482,959 | ) | ||||||||||
Swap Contracts | ||||||||||||||||
Assets | — | 410,318 | — | 410,318 | ||||||||||||
Total | $ | (173,699 | ) | $ | 410,318 | $ | — | $ | 236,619 |
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, 2020 (unaudited) | ||||
Investment Income | ||||
Interest | $ | 3,378,856 | ||
|
| |||
Total Investment Income | 3,378,856 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 775,012 | |||
Distribution fees | 372,602 | |||
Trustees’ and officers’ fees | 69,841 | |||
Custodian and accounting fees | 47,071 | |||
Professional fees | 39,905 | |||
Administrative fees | 23,642 | |||
Shareholder reports | 17,310 | |||
Transfer agent fees | 9,903 | |||
Other expenses | 12,176 | |||
|
| |||
Total Expenses | 1,367,462 | |||
|
| |||
Net Investment Income/(Loss) | 2,011,394 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | (1,121,449 | ) | ||
Net realized gain/(loss) from futures contracts | (1,097,094 | ) | ||
Net realized gain/(loss) from swap contracts | (775,183 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | 7,677,355 | |||
Net change in unrealized appreciation/(depreciation) on futures contracts | 245,907 | |||
Net change in unrealized appreciation/(depreciation) on swap contracts | 410,318 | |||
|
| |||
Net Gain on Investments and Derivative Contracts | 5,339,854 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 7,351,248 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN MULTI-SECTOR BOND VIP FUND
1 | Commenced operations on October 21, 2019. |
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 | Total Operations | Net Asset Value, End of Period | Total Return(2),(3) | |||||||||||||||||||
Six Months Ended 6/30/20 | $ | 10.03 | $ | 0.07 | $ | 0.20 | $ | 0.27 | $ | 10.30 | 2.69% | |||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.03 | 0.00 | (6) | 0.03 | 10.03 | 0.30% |
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),(4) | Gross Ratio of Expenses to Average Net Assets(3) | Net Ratio of Net Investment Income to Average Net Assets(3),(4) | Gross Ratio of Net Investment Income to Average Net Assets(3) | Portfolio Turnover Rate(3) | |||||||||||||||||
$ | 278,278 | 0.92% | 0.92% | 1.35% | 1.35% | 101% | ||||||||||||||||
309,877 | 0.93% | 0.93% | 1.33% | 1.33% | 27% |
(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) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. Certain non-recurring fees (i.e., audit fees) are not annualized. |
(4) | 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. |
(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
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 21 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, 2020, 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, 2020 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, 2020, 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 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR 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, 2020, the Fund entered into credit default swaps for risk exposure management and to enhance potential return.
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, 2020.
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
16 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
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, 2021 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, 2020, 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, 2020, the Fund paid distribution fees in the amount of $372,602 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, 2020, were as follows:
Other Investments | U.S. Government Agency | |||||||
Purchases | $ | 226,544,184 | $ | 68,405,799 | ||||
Sales | 227,214,528 | 104,137,379 |
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
17 |
Table of Contents
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, 2020, 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.
18 |
Table of Contents
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 cease its active encouragement of banks to provide the quotations needed to sustain LIBOR due to the absence of an active market for interbank unsecured lending and other reasons. As a result, it is anticipated that the use of LIBOR will be phased out by the end of 2021. Regulators and industry working groups have suggested alternative reference rates, but global consensus is lacking and the process for amending existing contracts or instruments to transition away from LIBOR remains unclear. There also remains uncertainty and risk regarding the willingness and ability of issuers to include enhanced provisions in new and existing contracts or instruments. As such, the transition away from LIBOR may lead to increased volatility and illiquidity in markets that are 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, 2020 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, 2020, the Fund had the following derivatives at fair value, grouped into appropriate risk categories that illustrate the Fund’s use of derivative instruments:
Interest Contracts | Credit Contracts | |||||||
Asset Derivatives | ||||||||
Futures Contracts1 | $ | 309,260 | $ | — | ||||
Swap Contracts2 | — | 410,318 | ||||||
Liability Derivatives | ||||||||
Futures Contracts1 | $ | (482,959 | ) | $ | — |
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 Statements of Assets and Liabilities. |
2 | Statement of Assets and Liabilities location: Includes the fair value of centrally cleared swap contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities. |
19 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
Transactions in derivative investments for the six months ended June 30, 2020 were as follows:
Interest Contracts | Credit Contracts | |||||||
Net Realized Gain (Loss) | ||||||||
Futures Contracts1 | $ | (1,097,094 | ) | $ | — | |||
Swap Contracts2 | 187,611 | (962,794 | ) | |||||
Net Change in Unrealized Appreciation/(Depreciation) | ||||||||
Futures Contracts3 | $ | 245,907 | $ | — | ||||
Swap Contracts4 | — | 410,318 | ||||||
Average Number of Notional Amounts | ||||||||
Futures Contracts5 | 1,309 | — | ||||||
Swap Contracts — Sell Protection | $ | 31,971,429 | $ | 6,278,571 |
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 | Statement of Operations location: Net change in unrealized appreciation/(depreciation) on swap contracts. |
5 | 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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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
20 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
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 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
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.
9. 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.
21 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (iv) Lazard Asset Management LLC with respect to
Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or 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
22 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared to benchmark index returns. At each quarterly Board
23 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
meeting, members of the Manager’s funds management team review with the Board the economic and market environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with 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 each Sub-adviser was generally satisfactory, or, that any steps being taken by the
24 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Manager and Sub-advisers to address any performance issues were satisfactory.
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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 the benefits to the Manager from
25 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
increased assets under management. 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 potential increased ability to use soft dollars
consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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.
26 |
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/Guardian
VPT/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.
27 |
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
PUB10525
Table of Contents
Guardian Variable
Products Trust
2020
Semiannual Report
All Data as of June 30, 2020
Guardian Total Return Bond VIP Fund
Important Notice
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail from The Guardian Insurance & Annuity Company, Inc. (“GIAC”). Instead, GIAC will mail you a notice when copies of the shareholder reports are made available on a website. You will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not yet elected electronic delivery, at any time, you may elect to receive the Fund’s shareholder reports and certain other communications from GIAC electronically, by going to www.guardianlife.com and registering for e-delivery.
You may instead elect to receive all future shareholder reports in paper free of charge. If you wish to receive paper copies of your shareholder reports, please call GIAC’s Customer Service Office Contact Center at 1-888-GUARDIAN (1-888-482-7342). Your election to receive reports in paper will apply to all the underlying funds available.
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 | 9 | |||
Statement of Operations | 9 | |||
Statements of Changes in Net Assets | 10 | |||
Financial Highlights | 12 | |||
Notes to Financial Statements | 14 | |||
22 | ||||
Portfolio Holdings and Proxy Voting Procedures | 27 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2020. 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: $300,195,915
Bond Sector Allocation1 As of June 30, 2020 | ||
Bond Quality Allocation2 As of June 30, 2020 | ||
1 |
Table of Contents
GUARDIAN TOTAL RETURN BOND VIP FUND
Top Ten Holdings1 As of June 30, 2020 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Note | 1.500% | 9/30/2024 | 17.56% | |||||||||
U.S. Treasury Bond | 2.250% | 8/15/2049 | 5.85% | |||||||||
Federal Home Loan Mortgage Corp. | 3.500% | 2/1/2050 | 4.90% | |||||||||
U.S. Treasury Note | 1.500% | 9/30/2021 | 2.47% | |||||||||
Federal Farm Credit Banks Funding Corp. | 1.600% | 1/21/2022 | 2.30% | |||||||||
Federal Farm Credit Banks Funding Corp. | 1.625% | 12/27/2021 | 2.30% | |||||||||
Federal National Mortgage Association | 3.500% | 3/1/2034 | 2.04% | |||||||||
Anheuser-Busch InBev Worldwide, Inc. | 4.750% | 1/23/2029 | 1.81% | |||||||||
Federal Home Loan Mortgage Corp. | 3.000% | 12/1/2049 | 1.79% | |||||||||
Ross Stores, Inc. | 4.800% | 4/15/2030 | 1.66% | |||||||||
Total |
| 42.68% |
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, 2020 to June 30, 2020. 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 1/1/20 | Ending Account Value | Expenses Paid During Period* 1/1/20-6/30/20 | Expense Ratio During Period 1/1/20-6/30/20 | |||||||||||
Based on Actual Return | $ 1,000.00 | $1,035.90 | $4.00 | 0.79% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $ 1,000.00 | $1,020.94 | $3.97 | 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 182/366 (to reflect the one-half year period). |
3 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 15.1% |
| |||||||
Federal Home Loan Mortgage Corp. | $ | 5,096,300 | $ | 5,371,110 | ||||
3.50% due 2/1/2050 | 13,990,345 | 14,705,923 | ||||||
Federal National Mortgage Association | 722,365 | 761,340 | ||||||
3.00% due 9/1/2049 | 1,612,961 | 1,699,937 | ||||||
3.00% due 11/1/2049 | 2,115,358 | 2,229,426 | ||||||
3.50% due 3/1/2034 | 5,843,410 | 6,136,682 | ||||||
3.50% due 7/1/2049 | 2,105,806 | 2,213,652 | ||||||
4.00% due 12/1/2048 | 3,493,736 | 3,698,270 | ||||||
4.00% due 5/1/2049 | 4,424,609 | 4,686,769 | ||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 762,259 | 834,573 | ||||||
K064 A2 | 1,000,000 | 1,137,172 | ||||||
K076 A2 | 1,620,000 | 1,940,051 | ||||||
Total Agency Mortgage–Backed Securities (Cost $44,289,398) |
| 45,414,905 | ||||||
Asset–Backed Securities – 4.9% |
| |||||||
American Express Credit Account Master Trust | 1,000,000 | 1,041,846 | ||||||
Avis Budget Rental Car Funding AESOP LLC | 1,500,000 | 1,499,820 | ||||||
BlueMountain CLO Ltd. | 800,000 | 777,613 | ||||||
Citibank Credit Card Issuance Trust | 1,550,000 | 1,572,323 | ||||||
Discover Card Execution Note Trust | 1,000,000 | 1,005,279 | ||||||
Ford Credit Auto Owner Trust | 1,000,000 | 1,011,588 | ||||||
GM Financial Automobile Leasing Trust | 1,000,000 | 1,010,604 | ||||||
ICG U.S. CLO Ltd. | 2,500,000 | 2,413,450 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Santander Drive Auto Receivables Trust | $ | 1,500,000 | $ | 1,511,519 | ||||
Verizon Owner Trust | 1,000,000 | 1,029,299 | ||||||
Volkswagen Auto Loan Enhanced Trust | 1,000,000 | 1,030,868 | ||||||
Voya CLO Ltd. | 955,000 | 926,892 | ||||||
Total Asset–Backed Securities |
| 14,831,101 | ||||||
Corporate Bonds & Notes – 44.6% |
| |||||||
Aerospace & Defense – 0.6% |
| |||||||
The Boeing Co. | 1,750,000 | 1,709,344 | ||||||
|
| |||||||
1,709,344 | ||||||||
Agriculture – 1.4% |
| |||||||
BAT Capital Corp. | 3,000,000 | 3,191,816 | ||||||
Philip Morris International, Inc. | 880,000 | 1,064,283 | ||||||
|
| |||||||
4,256,099 | ||||||||
Auto Manufacturers – 0.2% |
| |||||||
General Motors Co. | 500,000 | 582,630 | ||||||
|
| |||||||
582,630 | ||||||||
Beverages – 2.6% |
| |||||||
Anheuser-Busch InBev Worldwide, Inc. | 4,500,000 | 5,437,323 | ||||||
Constellation Brands, Inc. | 800,000 | 857,822 | ||||||
4.10% due 2/15/2048 | 700,000 | 793,201 | ||||||
5.25% due 11/15/2048 | 600,000 | 787,071 | ||||||
|
| |||||||
7,875,417 | ||||||||
Commercial Banks – 6.9% |
| |||||||
Bank of America Corp. | 1,000,000 | 1,058,146 | ||||||
Citigroup, Inc. | 3,200,000 | 3,322,401 | ||||||
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Commercial Banks (continued) |
| |||||||
Credit Suisse Group AG | $ | 3,500,000 | $ | 3,864,265 | ||||
Huntington Bancshares, Inc. | 3,000,000 | 3,101,196 | ||||||
JPMorgan Chase & Co. | 3,000,000 | 3,181,751 | ||||||
Sumitomo Mitsui Financial Group, Inc. | 1,500,000 | 1,625,253 | ||||||
The Goldman Sachs Group, Inc. | 3,000,000 | 3,405,452 | ||||||
Wells Fargo & Co. | 310,000 | 323,357 | ||||||
3.90% due 5/1/2045 | 700,000 | 820,493 | ||||||
|
| |||||||
20,702,314 | ||||||||
Commercial Services – 0.6% |
| |||||||
United Rentals North America, Inc. | 1,650,000 | 1,732,500 | ||||||
|
| |||||||
1,732,500 | ||||||||
Construction Materials – 0.1% |
| |||||||
Carrier Global Corp. | 200,000 | 199,414 | ||||||
|
| |||||||
199,414 | ||||||||
Diversified Financial Services – 1.5% |
| |||||||
Apollo Management Holdings LP | 2,000,000 | 2,347,401 | ||||||
Jefferies Group LLC / Jefferies Group Capital Finance, Inc. | 2,000,000 | 2,155,429 | ||||||
|
| |||||||
4,502,830 | ||||||||
Electric – 1.9% |
| |||||||
CenterPoint Energy, Inc. | 3,000,000 | 3,186,806 | ||||||
FirstEnergy Corp. | 1,800,000 | 1,878,792 | ||||||
3.40% due 3/1/2050 | 700,000 | 739,142 | ||||||
|
| |||||||
5,804,740 | ||||||||
Food – 2.0% |
| |||||||
Conagra Brands, Inc. | 2,000,000 | 2,401,218 | ||||||
Post Holdings, Inc. | 1,650,000 | 1,656,188 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Food (continued) |
| |||||||
The Kroger Co. | $ | 2,000,000 | $ | 2,080,151 | ||||
|
| |||||||
6,137,557 | ||||||||
Food Service – 0.6% |
| |||||||
Aramark Services, Inc. | 1,650,000 | 1,703,840 | ||||||
|
| |||||||
1,703,840 | ||||||||
Healthcare-Services – 0.5% |
| |||||||
Tenet Healthcare Corp. | 1,650,000 | 1,637,625 | ||||||
|
| |||||||
1,637,625 | ||||||||
Insurance – 0.3% |
| |||||||
Arch Capital Group Ltd. | 800,000 | 838,586 | ||||||
|
| |||||||
838,586 | ||||||||
Iron & Steel – 0.7% |
| |||||||
Steel Dynamics, Inc. | 2,010,000 | 2,101,196 | ||||||
|
| |||||||
2,101,196 | ||||||||
Lodging – 0.5% |
| |||||||
MGM Resorts International | 1,650,000 | 1,588,125 | ||||||
|
| |||||||
1,588,125 | ||||||||
Media – 4.2% |
| |||||||
Altice Financing S.A. | 1,650,000 | 1,728,375 | ||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | 1,400,000 | 1,445,500 | ||||||
Charter Communications Operating LLC / Charter Communications Operating Capital | 2,500,000 | 2,532,554 | ||||||
5.05% due 3/30/2029 | 1,000,000 | 1,180,407 | ||||||
Comcast Corp. | 1,000,000 | 1,185,674 | ||||||
4.25% due 10/15/2030 | 2,250,000 | 2,757,156 | ||||||
ViacomCBS, Inc. | 1,600,000 | 1,799,028 | ||||||
|
| |||||||
12,628,694 | ||||||||
Oil & Gas – 1.6% |
| |||||||
Chevron Corp. | 1,500,000 | 1,570,887 | ||||||
Hess Corp. | 3,000,000 | 3,106,703 | ||||||
|
| |||||||
4,677,590 | ||||||||
Packaging & Containers – 1.2% |
| |||||||
WRKCo, Inc. | 2,900,000 | 3,470,779 | ||||||
|
| |||||||
3,470,779 |
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, 2020 (unaudited) | Principal Amount | Value | ||||||
Pharmaceuticals – 1.3% |
| |||||||
Bausch Health Cos., Inc. | $ | 1,650,000 | $ | 1,673,545 | ||||
Becton Dickinson and Co. | 800,000 | 846,488 | ||||||
4.669% due 6/6/2047 | 700,000 | 858,329 | ||||||
CVS Health Corp. | 450,000 | 497,195 | ||||||
|
| |||||||
3,875,557 | ||||||||
Pipelines – 3.4% |
| |||||||
Energy Transfer Operating LP | 2,000,000 | 2,147,789 | ||||||
MPLX LP | 2,300,000 | 2,423,715 | ||||||
ONEOK, Inc. | 300,000 | 291,808 | ||||||
4.00% due 7/13/2027 | 2,100,000 | 2,128,922 | ||||||
Sabine Pass Liquefaction LLC | 1,000,000 | 1,110,204 | ||||||
Transcontinental Gas Pipe Line Co. LLC | 2,000,000 | 2,135,854 | ||||||
|
| |||||||
10,238,292 | ||||||||
Real Estate Investment Trusts – 3.6% |
| |||||||
American Tower Corp. | 4,000,000 | 4,527,100 | ||||||
ERP Operating LP | 2,000,000 | 2,135,760 | ||||||
Mid-America Apartments LP | 3,500,000 | 4,036,415 | ||||||
|
| |||||||
10,699,275 | ||||||||
Retail – 2.2% |
| |||||||
Ross Stores, Inc. | 4,150,000 | 4,997,140 | ||||||
Target Corp. | 600,000 | 659,309 | ||||||
4.00% due 7/1/2042 | 800,000 | 995,919 | ||||||
|
| |||||||
6,652,368 | ||||||||
Semiconductors – 1.8% |
| |||||||
Broadcom, Inc. | 2,300,000 | 2,610,810 | ||||||
KLA Corp. | 700,000 | 723,019 | ||||||
4.10% due 3/15/2029 | 1,700,000 | 2,006,234 | ||||||
|
| |||||||
5,340,063 | ||||||||
Software – 0.0% |
| |||||||
VMware, Inc. | 100,000 | 111,122 | ||||||
|
| |||||||
111,122 | ||||||||
Telecommunications – 3.5% |
| |||||||
Rogers Communications, Inc. | 850,000 | 935,804 | ||||||
June 30, 2020 (unaudited) | Principal Amount | Value | ||||||
Telecommunications (continued) |
| |||||||
T-Mobile USA, Inc. | $ | 2,000,000 | $ | 2,225,920 | ||||
4.75% due 2/1/2028 | 1,650,000 | 1,743,060 | ||||||
Verizon Communications, Inc. | 3,700,000 | 4,453,033 | ||||||
4.522% due 9/15/2048 | 850,000 | 1,124,389 | ||||||
|
| |||||||
10,482,206 | ||||||||
Toys, Games & Hobbies – 0.7% |
| |||||||
Hasbro, Inc. | 2,000,000 | 2,082,698 | ||||||
|
| |||||||
2,082,698 | ||||||||
Transportation – 0.7% |
| |||||||
Union Pacific Corp. | 1,850,000 | 2,154,054 | ||||||
|
| |||||||
2,154,054 | ||||||||
Total Corporate Bonds & Notes (Cost $130,665,196) |
| 133,784,915 | ||||||
Non–Agency Mortgage–Backed Securities – 2.9% |
| |||||||
BANK | 1,250,000 | 1,369,696 | ||||||
Citigroup Commercial Mortgage Trust | 1,125,000 | 1,170,272 | ||||||
GS Mortgage Securities Trust 2013-GC16 A4 | 750,000 | 816,001 | ||||||
2017-FARM A | 1,200,000 | 1,297,075 | ||||||
Jackson Park Trust | 680,000 | 694,899 | ||||||
UBS Commercial Mortgage Trust | 1,500,000 | 1,649,255 | ||||||
WFRBS Commercial Mortgage Trust | 1,500,000 | 1,591,790 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $8,383,348) |
| 8,588,988 | ||||||
U.S. Government Agencies – 4.6% |
| |||||||
Federal Farm Credit Banks Funding Corp. | 6,750,000 | 6,892,237 | ||||||
1.60% due 1/21/2022 | 6,750,000 | 6,895,475 | ||||||
Total U.S. Government Agencies (Cost $13,526,123) |
| 13,787,712 | ||||||
U.S. Government Securities – 25.9% |
| |||||||
U.S. Treasury Bond | 14,600,000 | 17,558,211 | ||||||
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, 2020 (unaudited) | Principal Amount | Value | ||||||
U.S. Government Securities (continued) |
| |||||||
U.S. Treasury Note | $ | 7,300,000 | $ | 7,420,336 | ||||
1.50% due 9/30/2024 | 50,050,000 | 52,716,726 | ||||||
1.625% due 8/15/2029 | 80,000 | 87,291 | ||||||
Total U.S. Government Securities (Cost $71,777,014) |
| 77,782,564 | ||||||
Short–Term Investment – 0.7% |
| |||||||
Repurchase Agreements – 0.7% |
| |||||||
Fixed Income Clearing Corp., 0.00%, dated 6/30/2020, | 2,122,000 | 2,122,000 | ||||||
Total Repurchase Agreements (Cost $2,122,000) |
| 2,122,000 | ||||||
Total Investments(5) – 98.7% (Cost $285,566,947) |
| 296,312,185 | ||||||
Assets in excess of other liabilities(6) – 1.3% |
| 3,883,730 | ||||||
Total Net Assets – 100.0% |
| $ | 300,195,915 |
(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, 2020, the aggregate market value of these securities amounted to $31,322,653, representing 10.4% 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. |
(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, 2020. |
(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 | ||||||||||||
10-Year U.S. TIPS | 0.125% | 7/15/2024 | $ | 1,917,200 | $ | 2,164,511 |
(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 appreciation on futures and centrally cleared swap contracts as follows: |
Open futures contracts at June 30, 2020:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | ||||||||||||||||||
U.S. 2-Year Treasury Note | September 2020 | 155 | Long | $ | 34,222,012 | $ | 34,228,360 | $ | 6,348 | |||||||||||||||
U.S. Long Bond | September 2020 | 277 | Long | 49,145,107 | 49,461,812 | 316,705 | ||||||||||||||||||
Total |
| $ | 83,367,119 | $ | 83,690,172 | $ | 323,053 |
The accompanying notes are an integral part of these financial statements. | 7 |
Table of Contents
SCHEDULE OF INVESTMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||
U.S. 5-Year Treasury Note | September 2020 | 59 | Short | $ | (7,408,711) | $ | (7,418,789) | $ | (10,078) | |||||||||||||||
U.S. 10-Year Treasury Note | September 2020 | 17 | Short | (2,356,835) | (2,365,922) | (9,087) | ||||||||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2020 | 460 | Short | (71,970,426) | (72,442,812) | (472,386) | ||||||||||||||||||
U.S. Ultra Long Bond | September 2020 | 13 | Short | (2,805,676) | (2,836,031) | (30,355) | ||||||||||||||||||
Total |
| $ | (84,541,648) | $ | (85,063,554) | $ | (521,906) |
Centrally cleared credit default swap agreements — sell protection(7):
Reference Entity | Implied Credit Spread at 6/30/20(8) | Notional Amount(9) | Maturity | (Pay)/Receive Fixed Rate | Periodic Payment Frequency | Upfront Payments Made | Value | Unrealized Appreciation | ||||||||||||||||||||||||
CDX.NA.HY.34 | 5.16% | USD 9,500,000 | 6/20/2025 | 5.00% | Quarterly | $ | (342,750) | $ | (69,205) | $ | 273,545 |
(7) | When a credit event occurs as defined under the terms of the swap agreement, the Fund as a seller of credit protection will either (i) pay to the buyer of protection an amount equal to the par value of the defaulted reference entity and take delivery of the reference entity or (ii) pay a net amount equal to the par value of the defaulted reference entity less its recovery value. |
(8) | Implied credit spread, represented in absolute terms, utilized in determining the value of the credit default swap agreements as of period end will serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a referenced entity reflects the cost of buying/selling protection and may include payments required to be made to enter into the agreement. Generally, wider credit spreads represent a perceived deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the swap agreement. |
(9) | The notional amount represents the maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs, as defined under the terms of the swap agreement, for each security included in the CDX North America High Yield Index. |
Legend:
CLO — Collateralized Loan Obligation
LIBOR — London Interbank Offered Rate
SOFR — Secured Overnight Financing Rate
TIPS — Treasury Inflation–Protected Securities
USD — United States Dollar
The following is a summary of the inputs used as of June 30, 2020 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 | $ | — | $ | 45,414,905 | $ | — | $ | 45,414,905 | ||||||||
Asset–Backed Securities | — | 14,831,101 | — | 14,831,101 | ||||||||||||
Corporate Bonds & Notes | — | 133,784,915 | — | 133,784,915 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 8,588,988 | — | 8,588,988 | ||||||||||||
U.S. Government Agencies | — | 13,787,712 | — | 13,787,712 | ||||||||||||
U.S. Government Securities | — | 77,782,564 | — | 77,782,564 | ||||||||||||
Repurchase Agreements | — | 2,122,000 | — | 2,122,000 | ||||||||||||
Total | $ | — | $ | 296,312,185 | $ | — | $ | 296,312,185 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts |
| |||||||||||||||
Assets | $ | 323,053 | $ | — | $ | — | $ | 323,053 | ||||||||
Liabilities | (521,906) | — | — | (521,906 | ) | |||||||||||
Swap Contracts | ||||||||||||||||
Assets | — | 273,545 | — | 273,545 | ||||||||||||
Total | $ | (198,853 | ) | $ | 273,545 | $ | — | $ | 74,692 |
8 | The accompanying notes are an integral part of these financial statements. |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN TOTAL RETURN BOND VIP FUND
Statement of Assets and Liabilities As of June 30, 2020 (unaudited) | ||||
Assets | ||||
Investments, at value | $ | 296,312,185 | ||
Cash | 74,251 | |||
Receivable for investments sold | 4,924,992 | |||
Receivable for variation margin on swap contracts | 2,453,885 | |||
Interest receivable | 1,951,076 | |||
Cash deposits with brokers for futures contracts | 672,458 | |||
Receivable for variation margin on futures contracts | 500,892 | |||
Reimbursement receivable from adviser | 11,395 | |||
Prepaid expenses | 5,228 | |||
|
| |||
Total Assets | 306,906,362 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 5,156,958 | |||
Cash due to broker for swap contracts | 1,182,705 | |||
Investment advisory fees payable | 110,942 | |||
Payable for fund shares redeemed | 66,618 | |||
Distribution fees payable | 61,654 | |||
Accrued custodian and accounting fees | 39,930 | |||
Accrued trustees’ and officers’ fees | 18,127 | |||
Accrued audit fees | 14,941 | |||
Accrued expenses and other liabilities | 58,572 | |||
|
| |||
Total Liabilities | 6,710,447 | |||
|
| |||
Total Net Assets | $ | 300,195,915 | ||
|
| |||
Net Assets Consist of: | ||||
Paid-in capital | $ | 288,071,261 | ||
Distributable earnings | 12,124,654 | |||
|
| |||
Total Net Assets | $ | 300,195,915 | ||
|
| |||
Investments, at Cost | $ | 285,566,947 | ||
|
| |||
Pricing of Shares | ||||
Shares of Beneficial Interest Outstanding with No Par Value | 28,902,501 | |||
Net Asset Value Per Share | $10.39 | |||
Statement of Operations For the Six Months Ended June 30, 2020 (unaudited) | ||||
Investment Income | ||||
Interest | $ | 3,718,660 | ||
|
| |||
Total Investment Income | 3,718,660 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 725,902 | |||
Distribution fees | 407,093 | |||
Trustees’ and officers’ fees | 71,015 | |||
Custodian and accounting fees | 47,240 | |||
Professional fees | 42,114 | |||
Administrative fees | 23,644 | |||
Shareholder reports | 18,324 | |||
Transfer agent fees | 9,891 | |||
Other expenses | 13,277 | |||
|
| |||
Total Expenses | 1,358,500 | |||
Less: Fees waived | (72,086 | ) | ||
|
| |||
Total Expenses, Net | 1,286,414 | |||
|
| |||
Net Investment Income/(Loss) | 2,432,246 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | (631,907 | ) | ||
Net realized gain/(loss) from futures contracts | (690,585 | ) | ||
Net realized gain/(loss) from swap contracts | (936,065 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | 10,547,427 | |||
Net change in unrealized appreciation/(depreciation) on futures contracts | 99,458 | |||
Net change in unrealized appreciation/(depreciation) on swap contracts | 274,513 | |||
|
| |||
Net Gain on Investments and Derivative Contracts | 8,662,841 | |||
|
| |||
Net Increase in Net Assets Resulting From Operations | $ | 11,095,087 | ||
|
| |||
The accompanying notes are an integral part of these financial statements. | 9 |
Table of Contents
FINANCIAL INFORMATION — GUARDIAN TOTAL RETURN BOND VIP FUND
Statements of Changes in Net Assets Six Months Ended Numbers are unaudited | ||||||||
For the Six Months Ended | For the Period Ended 12/31/191 | |||||||
|
| |||||||
Operations |
| |||||||
Net investment income/(loss) | $ 2,432,246 | $ | 1,023,984 | |||||
Net realized gain/(loss) from investments and derivative contracts | (2,258,557 | ) | 107,051 | |||||
Net change in unrealized appreciation/(depreciation) on investments and derivative contracts | 10,921,398 | (101,468 | ) | |||||
|
|
|
| |||||
Net Increase in Net Assets Resulting from Operations | 11,095,087 | 1,029,567 | ||||||
|
|
|
| |||||
Capital Share Transactions |
| |||||||
Proceeds from sales of shares | 8,391,234 | 345,857,787 | ||||||
Cost of shares redeemed | (56,602,500 | ) | (9,575,260 | ) | ||||
|
|
|
| |||||
Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions | (48,211,266 | ) | 336,282,527 | |||||
|
|
|
| |||||
Net Increase/(Decrease) in Net Assets | (37,116,179 | ) | 337,312,094 | |||||
|
|
|
| |||||
Net Assets |
| |||||||
Beginning of period | 337,312,094 | — | ||||||
|
|
|
| |||||
End of period | $ | 300,195,915 | $ | 337,312,094 | ||||
|
|
|
| |||||
Other Information: |
| |||||||
Shares | ||||||||
Sold | 821,363 | 34,584,186 | ||||||
Redeemed | (5,546,490 | ) | (956,558 | ) | ||||
|
|
|
| |||||
Net Increase/(Decrease) | (4,725,127 | ) | 33,627,628 | |||||
|
|
|
| |||||
1 | Commenced operations on October 21, 2019. |
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 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 | Total Operations | Net Asset Value, End of Period | Total Return(2),(3) | |||||||||||||||||||
Six Months Ended 6/30/20 | $ | 10.03 | $ | 0.08 | $ | 0.28 | $ | 0.36 | $ | 10.39 | 3.59% | |||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.03 | 0.00 | (6) | 0.03 | 10.03 | 0.30% |
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(2),(4) | Gross Ratio of Expenses to Average Net Assets(2) | Net Ratio of Net Investment Income to Average Net Assets(2),(4) | Gross Ratio of Net Investment Income to Average Net Assets(2) | Portfolio Turnover Rate(2) | |||||||||||||||||
$ | 300,196 | 0.79% | 0.83% | 1.49% | 1.45% | 63% | ||||||||||||||||
337,312 | 0.75% | 0.85% | 1.56% | 1.46% | 18% |
(1) | Calculated based on the average shares outstanding during the period. |
(2) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. Certain non-recurring fees (i.e., audit fees) are not annualized. |
(3) | 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. |
(4) | 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. |
(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, 2020 (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 21 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, 2020, 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, 2020 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, 2020, 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 |
Table of Contents
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, 2020, the Fund entered into credit default swaps for risk exposure management and to enhance potential return.
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, 2020.
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
16 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
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, 2021 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, 2020, Park Avenue waived fees and/or paid Fund expenses in the amount of $72,086.
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, 2020, the Fund paid distribution fees in the amount of $407,093 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, 2020, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 141,575,385 | $ | 57,922,443 | ||||
Sales | 149,751,301 | 84,482,698 |
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
17 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
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, 2020, 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.
18 |
Table of Contents
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 cease its active encouragement of banks to provide the quotations needed to sustain LIBOR due to the absence of an active market for interbank unsecured lending and other reasons. As a result, it is anticipated that the use of LIBOR will be phased out by the end of 2021. Regulators and industry working groups have suggested alternative reference rates, but global consensus is lacking and the process for amending existing contracts or instruments to transition away from LIBOR remains
unclear. There also remains uncertainty and risk regarding the willingness and ability of issuers to include enhanced provisions in new and existing contracts or instruments. As such, the transition away from LIBOR may lead to increased volatility and illiquidity in markets that are 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, 2020 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, 2020, 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 | Credit Default Contracts | |||||||
Asset Derivatives | ||||||||
Futures Contracts1 | $ | 323,053 | $ | — | ||||
Swap Contracts2 | — | 273,545 | ||||||
Liability Derivatives | ||||||||
Futures Contracts1 | $ | (521,906 | ) | $ | — |
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 Statements of Assets and Liabilities. |
2 | Statement of Assets and Liabilities location: Includes the fair value of centrally cleared swap contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities. |
19 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
Transactions in derivative investments for the six months ended June 30, 2020 were as follows:
Interest Rate Contracts | Credit Default Contracts | |||||||
Net Realized Gain (Loss) | ||||||||
Futures Contracts1 | $ | (690,585 | ) | $ | — | |||
Swap Contracts2 | 116,888 | (1,052,953 | ) | |||||
Net Change in Unrealized Appreciation/(Depreciation) | ||||||||
Futures Contracts3 | $ | 99,458 | $ | — | ||||
Swap Contracts4 | — | 274,513 | ||||||
Average Number of Notional Amounts | ||||||||
Futures Contracts5 | 1,141 | — | ||||||
Swap Contracts — Sell Protection | $ | 34,171,429 | $ | 5,628,286 |
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 | Statement of Operations location: Net change in unrealized appreciation/(depreciation) on swap contracts. |
5 | 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 December 9, 2020. The Fund did not utilize the credit facility during the six months ended June 30, 2020.
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. 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
20 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 24-25, 2020, 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 the Program’s implementation date through December 31, 2019. The Report noted that the Administrator believes the Program operated effectively and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk and that the Program has been adequately and effectively implemented since its inception. The Report also noted that there were no material changes to the Program during reporting period and that there were no recommended changes as a result of the annual assessment.
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.
9. 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.
21 |
Table of Contents
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 24-25, 2020 (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 Diversified Research VIP Fund, Guardian Global Utilities VIP Fund, Guardian Growth & Income VIP Fund, Guardian Integrated Research VIP Fund, Guardian International Growth VIP Fund, Guardian International Value VIP Fund, Guardian Large Cap Disciplined Growth VIP Fund, Guardian Large Cap Disciplined Value VIP Fund, Guardian Large Cap Fundamental Growth VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund, Guardian Mid Cap Relative Value VIP Fund, Guardian Small Cap Core VIP Fund, Guardian Core Plus Fixed Income 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 together, 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, namely (i) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund, (ii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund, (iii) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund, (iv) Lazard Asset Management LLC with respect to
Guardian International Value VIP Fund, (v) Wellington Management Company LLP with respect to Guardian Large Cap Disciplined Growth VIP Fund and Guardian Global Utilities VIP Fund, (vi) Boston Partners Global Investors, Inc. with respect to Guardian Large Cap Disciplined Value VIP Fund, (vii) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund, (viii) Janus Capital Management LLC with respect to Guardian Mid Cap Traditional Growth VIP Fund, (ix) Wells Capital Management Incorporated with respect to Guardian Mid Cap Relative 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.
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 discussed the Funds with independent counsel during a telephonic meeting and executive session in advance of the Meeting. The Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Sub-advisers.
During the course of their deliberations, the Independent Trustees met to discuss and evaluate the Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or 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
22 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
materials and information provided to the Board and discussed with and among the Trustees. 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 approve 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 the Sub-advisers; (ii) the investment performance of each Fund; (iii) the fees charged and estimated profitability; (iv) the extent to which economies of scale exist for a Fund, and the extent to which a Fund benefits from economies of scale; and (v) 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 the Sub-advisers’ business continuity plans and of their approaches to data privacy and cybersecurity, and related testing. The Board also received and reviewed 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 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 meeting and, as necessary, then report the results of the meeting 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 similar resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by 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 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 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 each 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 each Fund’s Morningstar peer group and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management
23 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
team review with the Board the economic and market environment, 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 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 each Fund on an absolute basis and in comparison to an appropriate benchmark index and each Fund’s respective peer group as independently selected by Broadridge. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index or peer group median if it is within 0.20%.
The Board noted that the performance of Guardian Diversified Research VIP Fund, Guardian Mid Cap Traditional Growth VIP Fund and Guardian Mid Cap Relative Value VIP Fund for the one-year, three-year and since inception periods was in line with or higher than the performance of its respective peer group median and benchmark index.
The Board noted that the performance of Guardian International Growth VIP Fund and Guardian Large Cap Disciplined Growth VIP Fund for the one-year period was higher than the performance of its respective peer group median and benchmark index. The Board noted that the performance of Guardian International Growth VIP Fund for the three-year and since inception periods was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the performance of Guardian Large Cap Disciplined Growth VIP Fund for the three-year period was period was higher than the performance of its peer group median and its benchmark index, and the Fund’s performance since inception was higher than the performance of its peer group median and lower than the performance of its benchmark index.
The Board noted that the performance of Guardian Large Cap Fundamental Growth VIP Fund and Guardian International Value VIP Fund for the three-year and since inception periods was lower than the performance of its respective peer group median and benchmark index. Each Fund’s performance for the one-year period was in line with the performance of its respective peer group median and lower than the performance of its respective benchmark index.
The Board noted that the performance of Guardian Integrated Research VIP Fund and Guardian Core Plus Fixed Income VIP Fund for the one-year, three-year and since inception periods was lower than the median of its respective peer group median and benchmark index.
With respect to Guardian Large Cap Disciplined Value VIP Fund, the Board noted that the Fund’s performance for the one-year period was lower than the performance of the peer group median and benchmark index. The Board also noted that the Fund’s performance for the three-year period was in line with the performance of its peer group median and lower than the performance of its benchmark index. The Board noted that the Fund’s performance since inception was higher than the performance the peer group median and benchmark index. With respect to Guardian Growth & Income VIP Fund, the Board noted that the performance for both the three-year and since inception periods was higher than the performance of the Fund’s peer group median and benchmark index. The Board noted that the Fund’s performance for the one-year period was lower than the performance of its peer group median and benchmark index.
With respect to each of Guardian Small Cap Core 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, the Board noted that each Fund had a short operational history of less than one year. The Board considered each Fund’s performance reported in the Meeting materials and noted that the since inception performance of each of Guardian Small Cap Core VIP Fund and Guardian Global Utilities VIP Fund was higher than its respective peer group median and benchmark index. With respect to Guardian U.S. Government Securities VIP Fund and Guardian Total Return Bond VIP Fund, the Board noted that the since inception performance for each Fund was in line with or higher than its respective peer group median and benchmark index. With respect to Guardian Multi-Sector Bond VIP Fund, the Board noted that the Fund’s since inception performance was lower than its peer group median and in line with its benchmark index.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager discussed with 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 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.
24 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
Costs and Profitability
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed 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 noted that the contractual and actual (effective) management fees reported for each of the Funds were in the top three quintiles of its peer group (with the first quintile representing the lowest fees and the fifth quintile representing the highest fees), except for Guardian Mid Cap Traditional Growth VIP Fund. The Board noted that the contractual and actual (effective) management fees the for Guardian Mid Cap Traditional Growth VIP Fund were in the third and fourth quintiles of its peer group, respectively.
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.
The Trustees received comparative information relating to each Fund’s operating expense ratios and the operating expense ratios of a peer group of funds. In this regard, the Board noted that each Fund’s operating expense ratio was in the top three quintiles of its peer group (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios), except for Guardian Growth & Income VIP Fund. The Board noted that the operating expense ratio for Guardian Growth & Income VIP Fund was in the fourth quintile of its peer group. The Trustees considered the Manager’s commitment to limit certain Funds’ 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 Funds and those of identified peer funds are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the operating expenses.
The Board considered the Manager’s estimates 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 would be responsible for payment of the sub-advisory fees and 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. The Board also concluded that the profitability of the Funds to the Manager was acceptable and the Board determined it was appropriate to revisit estimated Manager profitability in connection with future reviews of the Agreements.
Economies of Scale
The Board considered whether the Funds’ fee structure is designed to share economies of scale with shareholders as the Funds’ assets grow. 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. The Board also noted that the Funds’ 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.
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 acknowledged 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 the benefits to the Manager from increased assets under management. 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,
25 |
Table of Contents
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 potential increased ability to use soft dollars consistent with Trust policies and other benefits from increases in assets under management. The Trustees concluded that benefits that 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.
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.
26 |
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.
27 |
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
PUB10524
Table of Contents
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.
Table of Contents
Item 13. | Exhibits. |
(a)(1) | Code of ethics – not applicable to this semi-annual report. | |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. | |
(a)(3) | Not applicable. | |
(a)(4) | There was no change in the registrant’s independent public accountant during the reporting period. | |
(b) | Certification pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto. |
Table of Contents
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 4, 2020
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 4, 2020 | ||||||
By (Signature and Title) | /s/ John H Walter | |||||
John H Walter, Treasurer | ||||||
(Principal Financial and Accounting Officer) | ||||||
Date: September 4, 2020 |